EXHIBIT 10.1
CMG@VENTURES I, LLC
LIMITED LIABILITY COMPANY AGREEMENT
CMG@VENTURES I, LLC
LIMITED LIABILITY COMPANY AGREEMENT
TABLE OF CONTENTS
ARTICLE 1. FORMATION, ETC............................................................................ 2
---------------
Section 1.1 Formation................................................................... 2
---------
Section 1.2 Filings..................................................................... 2
-------
Section 1.3 Name; Ownership of Property................................................. 2
---------------------------
Section 1.4 Offices..................................................................... 2
-------
Section 1.5 Duration.................................................................... 3
--------
Section 1.6 Registered Agent............................................................ 3
----------------
Section 1.7 Purposes; Restructuring of Investments...................................... 3
--------------------------------------
Section 1.8 Qualification in Other Jurisdictions........................................ 4
------------------------------------
Section 1.9 Fiscal Year................................................................. 5
-----------
Section 1.10 Reliance by Third Parties................................................... 5
-------------------------
ARTICLE 2. CAPITAL CONTRIBUTIONS; MEMBERS' ACCOUNTS;
ALLOCATIONS............................................................................... 5
-----------
Section 2.1 Capital Commitments......................................................... 5
-------------------
Section 2.2 Capital Contributions....................................................... 6
---------------------
Section 2.3 Capital Accounts............................................................ 7
----------------
Section 2.4 Capital Commitments Not Company Assets...................................... 8
--------------------------------------
Section 2.5 Net Operating Profits and Net Operating Losses-Allocation................... 8
---------------------------------------------------------
Section 2.6 Capital Gains and Capital Losses with Respect to Portfolio
----------------------------------------------------------
Securities-Allocation....................................................... 10
---------------------
Section 2.7 Special Allocation Rules.................................................... 12
------------------------
Section 2.8 Tax Allocations; Income Tax Elections....................................... 14
-------------------------------------
Section 2.9 Modification of Capital Commitments......................................... 14
-----------------------------------
Section 2.10 Default in Capital Commitment............................................... 15
-----------------------------
Section 2.11 Continuing Participation.................................................... 17
------------------------
Section 2.12 Consent to Remedies......................................................... 19
-------------------
Section 2.13 In Kind Distributions....................................................... 20
---------------------
Section 2.14 In Kind Contributions; Managing Member Investments.......................... 20
---------------------------------------------------
ARTICLE 3. PROFIT MEMBERS............................................................................ 20
--------------
Section 3.1 Profit Members; Rights Thereof.............................................. 20
------------------------------
Section 3.2 Award and Vesting of Carried Interests...................................... 21
--------------------------------------
Section 3.3 Termination of Employment and Membership Status............................. 23
-----------------------------------------------
Section 3.4 Change of Control........................................................... 25
-----------------
Section 3.5 No Recruitment or Solicitation.............................................. 29
------------------------------
Section 3.6 Non-Disclosure and Invention Assignment Agreement........................... 29
-------------------------------------------------
Section 3.7 Capital Accounts............................................................ 29
----------------
i
ARTICLE 4. DISTRIBUTIONS; WITHHOLDING; VALUATION..................................................... 30
-------------------------------------
Section 4.1 Withdrawal of Capital....................................................... 30
---------------------
Section 4.2 Distributions of Cash Flow.................................................. 30
--------------------------
Section 4.3 Distributions of Capital Proceeds........................................... 30
---------------------------------
Section 4.4 Additional Distribution Provisions.......................................... 31
----------------------------------
Section 4.5 Other Distributions......................................................... 34
-------------------
Section 4.6 Withholding................................................................. 34
-----------
Section 4.7 No Restoration by the Managing Member....................................... 35
-------------------------------------
Section 4.8 Valuation................................................................... 35
---------
ARTICLE 5. MANAGEMENT; PAYMENT OF EXPENSES........................................................... 36
-------------------------------
Section 5.1 Description of Managing Member.............................................. 36
------------------------------
Section 5.2 Management by the Managing Member........................................... 36
---------------------------------
Section 5.3 Powers of Capital Investment Members........................................ 38
------------------------------------
Section 5.4 Fees and Expenses........................................................... 39
-----------------
Section 5.5 The Advisory Committee...................................................... 40
----------------------
Section 5.6 Conflicts of Interest....................................................... 41
---------------------
ARTICLE 6. OTHER ACTIVITIES OF MEMBERS............................................................... 42
---------------------------
Section 6.1 Commitment of Managing Member............................................... 42
-----------------------------
Section 6.2 Agreements with Portfolio Companies......................................... 42
-----------------------------------
Section 6.3 Obligations and Opportunities for Members................................... 43
-----------------------------------------
ARTICLE 7. ADMISSIONS; ASSIGNMENTS; REMOVAL AND WITHDRAWALS.......................................... 43
------------------------------------------------
Section 7.1 Admission of Additional Managing Member..................................... 43
---------------------------------------
Section 7.2 Admission of Additional Capital Investment Members; Increase
------------------------------------------------------------
in Capital Commitments...................................................... 43
----------------------
Section 7.3 Admission of Additional Profit Members...................................... 44
--------------------------------------
Section 7.4 Assignment of a Membership Interest......................................... 45
-----------------------------------
Section 7.5 Restrictions on Transfer.................................................... 46
------------------------
Section 7.6 Removal or Withdrawal of Managing Member.................................... 47
----------------------------------------
Section 7.7 Withdrawals of Capital Investment Members................................... 48
-----------------------------------------
ARTICLE 8. LIABILITY OF MEMBERS; INDEMNIFICATION..................................................... 49
-------------------------------------
Section 8.1 Liability of Members........................................................ 49
--------------------
Section 8.2 Indemnification............................................................. 49
---------------
Section 8.3 Payment of Expenses......................................................... 50
-------------------
ARTICLE 9. ACCOUNTING FOR THE COMPANY; REPORTS....................................................... 51
-----------------------------------
Section 9.1 Accounting for the Company.................................................. 51
--------------------------
Section 9.2 Books and Records........................................................... 51
-----------------
Section 9.3 Reports to Members.......................................................... 51
------------------
ARTICLE 10. DISSOLUTION AND WINDING UP................................................................ 52
--------------------------
ii
Section 10.1 Dissolution................................................................. 52
-----------
Section 10.2 Winding Up.................................................................. 53
----------
Section 10.3 Final Distribution and Allocation........................................... 54
---------------------------------
Section 10.4 Merger of Company into Another Entity....................................... 55
-------------------------------------
ARTICLE 11. DEFINITIONS............................................................................... 55
-----------
ARTICLE 12. MISCELLANEOUS............................................................................. 62
-------------
Section 12.1 Registration of Securities.................................................. 62
--------------------------
Section 12.2 Entire Agreement............................................................ 63
----------------
Section 12.3 Amendments.................................................................. 63
----------
Section 12.4 Severability................................................................ 63
------------
Section 12.5 Notices..................................................................... 64
-------
Section 12.6 Heirs and Assigns; Execution................................................ 64
----------------------------
Section 12.7 Waiver of Partition......................................................... 64
-------------------
Section 12.8 Power of Attorney........................................................... 64
-----------------
Section 12.9 Headings.................................................................... 65
--------
Section 12.10 Further Actions............................................................. 65
---------------
Section 12.11 Gender, Etc................................................................. 65
------------
Section 12.12 Tax Matters Partner......................................................... 65
-------------------
Section 12.13 Certain ERISA Matters....................................................... 65
---------------------
Section 12.14 Applicable Law.............................................................. 66
--------------
Section 12.15 Counterparts................................................................ 66
------------
iii
CMG@VENTURES I, LLC
LIMITED LIABILITY COMPANY AGREEMENT
THIS LIMITED LIABILITY COMPANY AGREEMENT is dated and is effective as of
the 18th day of December, 1997 (the "Agreement"), by and among (i) the
undersigned Managing Member, CMG@VENTURES, INC., a Delaware corporation whose
address is set forth on Exhibit A attached hereto (together with any successor
or additional Managing Member who may hereafter be admitted to the Company as a
Managing Member and whose name, address, and signature, upon admittance, shall
be set forth on Exhibit A, hereinafter referred to as the "Managing Member" and
sometimes as a "Capital Member"), and (ii) the undersigned Capital Investment
Member, CMG@VENTURES CAPITAL CORP., a Delaware corporation whose address is set
forth on Exhibit A attached hereto (together with any successor or additional
Capital Investment Member who may hereafter be admitted to the Company as a
Capital Investment Member and whose name, address and signature, upon
admittance, shall be set forth on Exhibit A, hereinafter referred to as the
"Capital Investment Member" and sometimes as a "Capital Member"), and (iii) such
individuals as may now or hereafter be admitted to the Company as Profit Members
and whose names, addresses, and signatures are set forth on Exhibit A attached
hereto (together with any successor or additional Profit Member who may
hereafter be admitted to the Company (and whose name, address, and signature,
upon admittance, shall be set forth on Exhibit A), hereinafter referred to as
the "Profit Members"). The Managing Member and the Capital Investment Member are
also sometimes collectively referred to herein as the "Capital Members" and
individually as a "Capital Member." The Managing Member and the Capital
Investment Member and the Profit Members are sometimes collectively referred to
herein as the "Members" and individually as a "Member."
W I T N E S S E T H :
WHEREAS, the parties hereto desire to join together to form a limited
liability company known as "CMG@Ventures I, LLC" (the "Company") under and
pursuant to the Delaware Limited Liability Company Act, 6 Del C. Section 18.101
et seq., (as amended from time to time, the "Delaware Act");
NOW, THEREFORE, in consideration of the foregoing, of the mutual promises
of the parties hereto, and of other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereto, intending
to be legally bound, hereby agree as follows:
ARTICLE 1.
FORMATION, ETC.
---------------
Section 1.1 Formation.
---------
The undersigned parties hereby acknowledge that the term of the Company
shall commence on the date on which a Certificate of Formation is duly filed
pursuant to the Delaware Act which date is acknowledged to be October 23, 1997,
and shall continue until terminated in accordance with ARTICLE X.
Section 1.2 Filings.
-------
The Managing Member shall file the Certificate of Formation and shall file
all amendments thereto in the office of the Secretary of State of the State of
Delaware and, so long as the Company shall exist as a Delaware limited liability
company, shall do all other acts and things requisite for the continuation of
the Company as a limited liability company pursuant to the Delaware Act.
Section 1.3 Name; Ownership of Property.
---------------------------
The name of the Company is "CMG@Ventures I, LLC" All business of the
Company shall be conducted under such name, and title to all property, real,
personal, or mixed, owned by or leased to the Company, shall be held in such
name; except that certain Portfolio Securities may be owned by the Managing
Member in accordance with the terms and conditions of one or more agreements
between the Managing Member and the Company with respect to those Portfolio
Securities. The Company's business may also be conducted under any other name or
names deemed advisable by the Managing Member including, without limitation, the
name "@Ventures." The words "LLC" or "Limited Liability Company" or such other
designation as the Managing Member shall deem appropriate shall be included in
the name where necessary to comply with the applicable laws of any jurisdiction.
The Managing Member shall give prompt notice of any name change to each Member.
Section 1.4 Offices.
-------
The principal office of the Managing Member shall be maintained at ▇▇▇
▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, or at such other
location or locations as may from time to time be designated by the Managing
Member with prompt notice to each Member.
2
Section 1.5 Duration.
--------
The term of the Company's existence shall continue through and terminate on
April 13, 2010, subject to earlier or later termination pursuant to the
provisions of ARTICLE X hereof. The term of the Company's existence may be
extended at the sole discretion of the Managing Member for one or more periods
of not less than three nor more than ten years each, depending on the maturity
of the Company's Investments and the amount of capital or capital calls
remaining to be invested or reinvested and the opportunities for investing or
reinvesting such capital or capital calls.
Section 1.6 Registered Agent.
----------------
The Company shall maintain a registered agent and registered office in the
State of Delaware. The name and address of the registered agent of the Company
in the State of Delaware upon whom process may be served, and the address of the
registered office of the Company in the State of Delaware is The Corporation
Trust Company, ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇. The Managing
Member may change the designated registered office or registered agent and upon
any such change shall give prompt notice to each Member of any change in the
registered office or agent of the Company.
Section 1.7 Purposes; Restructuring of Investments.
--------------------------------------
(a) The Company is formed for the following purposes:
(i) to afford the Members the possibility of realizing income and
gains (A) from equity appreciation and other income, principally by means
of the Company's purchase, directly or through holding companies ("Holding
Companies"), of equity and equity-related securities, notes, debentures,
limited partnership interests, limited liability company interests, or
other equity or debt instruments or other interests or investments of any
nature whatsoever, including, without limitation, notes, debentures, and
common or preferred stock, (whether or not convertible or exchangeable),
and rights, options and warrants to purchase notes, debentures, and common
or preferred stock or other securities or debt instruments, or direct or
indirect interests in tangible or intangible assets of any kind whatsoever
(all of the foregoing being hereinafter referred to as "Investments" or as
"Securities"), in privately or publicly held or solely owned operating or
investment businesses or other entities or parts thereof or assets
(together with Holding Companies, the "Portfolio Companies") and (B) from
the management, ownership, supervision and disposition of such Portfolio
Companies;
(ii) pending utilization or disbursement of funds to purchase
securities of Portfolio Companies, to invest such funds in Temporary
Investments; and
3
(iii) to engage in any activities or transactions necessary or
desirable to accomplish the foregoing purposes and to do any other act or
thing, in the sole discretion of the Managing Member, incidental or
ancillary thereto.
(b) Except with the approval of seventy-five percent (75%) in interest
of the Capital Investment Members and seventy-five percent (75%) in interest of
the Profit Members:
(i) Unless the Managing Member determines it would otherwise be
in the best interests of the Company, the Company shall not alter or
restructure the Company's Investment in a Portfolio Company during the term
of the Company in a manner that the Managing Member determines may (or may
not) result in a distribution of cash to the Capital Investment Members or
to the Profit Members insufficient to pay any tax which those Capital
Investment Members or Profit Members would reasonably be expected to be
required to pay as a result of that alteration or restructuring;
(ii) The Company shall make no Investment in a Portfolio Company
unless (A) the assets of the Company (excluding payment for such
investment) are sufficient to pay or provide for all debts and liabilities
of the Company (including all contingent liabilities but excluding debts
and liabilities to which such payment is to be applied as specified in the
applicable Call Notice) and (B) to the best of the Managing Member's
knowledge, there are no other obligations against or liabilities of the
Company which would divert any amount paid by a Capital Investment Member
pursuant to the applicable Call Notice with respect to such Investment
other than the making of the applicable proposed Investment in the
Portfolio Company; and
(iii) The Company shall not acquire any shares of stock, stock
purchase warrants, stock options, limited partnership interests, and/or
other Securities if the acquisition and/or holding thereof would require
registration of the Company under the Investment Company Act, unless a
registration statement relating to the Company (or an exemption from such
registration) shall have become effective under the Investment Company Act.
Section 1.8 Qualification in Other Jurisdictions.
------------------------------------
The Managing Member shall cause the Company and/or the Managing Member to
be qualified or registered under its own name or the Managing Member's name or
under an assumed or fictitious name pursuant to foreign limited company statutes
or similar laws in any jurisdiction in which the Company owns property or
transacts business if such qualification or registration is necessary in order
to protect the limited liability of the Members or to permit the Company
lawfully to own property or transact business and shall cause the Company not to
transact business in any such jurisdiction until it is so qualified or
registered. The Managing Member shall execute, file and publish all such
certificates, notices, statements or other
4
instruments necessary or desirable to permit the Company and the Managing Member
to conduct business as and through a limited liability company in all
jurisdictions where the Company elects to do business and to maintain the
limited liability of the Members.
Section 1.9 Fiscal Year.
-----------
The fiscal year of the Company (the "Fiscal Year") for financial accounting
and for Federal income tax purposes shall end on July 31 of each year.
Section 1.10 Reliance by Third Parties.
-------------------------
Persons and entities dealing with the Company are entitled to rely
conclusively upon the power and authority of the Managing Member as herein set
forth.
ARTICLE 2.
CAPITAL CONTRIBUTIONS; MEMBERS' ACCOUNTS; ALLOCATIONS
-----------------------------------------------------
Section 2.1 Capital Commitments.
-------------------
Subject to the provisions of Sections 2.9, 2.10 and 2.11, the Capital
Members hereby agree to make cash contributions to the capital of the Company up
to the total amount of twenty-two million dollars ($22,000,000) and in the
proportionate amounts set forth opposite the names of each of the Capital
Members on Exhibit A attached hereto for the purpose (and only for the purpose)
of funding the Company's Investments in Portfolio Companies. The amount of each
such commitment, less any portion of the commitment which is released or reduced
pursuant to Sections 2.9, 2.10 or 2.11 and plus any portion assumed pursuant to
Section 2.10, is referred to herein as a "Capital Commitment." Capital
Commitments shall not be assets of the Company until capital is contributed, and
then only to the extent of the aggregate capital so contributed. On any date
when a Capital Investment Member makes a contribution to the capital of the
Company, the Managing Member (or Managing Members if there be more than one)
shall contribute to the capital of the Company cash in such amount as is
sufficient to cause the Managing Member's Capital Contributions to equal 1% of
the sum of the Capital Contributions of all of the Capital Members. Except as
otherwise required by law or Section 10.3, the Managing Member shall not be
obligated to restore or contribute to the capital of the Company, all or any
portion of a negative balance in its Capital Account.
Each Capital Member shall have the option, but not the obligation, to
reinvest any Recovered Capital and any Net Realized Capital Gains or other
property distributed to such Capital Member, net of any taxes payable with
respect thereto, in the Company or in another
5
limited liability company or partnership managed by the Managing Member by
notifying the Managing Member in writing of the amount of such additional
capital commitment whereupon such capital commitment shall be added to the
existing capital commitment (if any) of such Capital Member in the Company or in
the other company or partnership.
Section 2.2 Capital Contributions.
---------------------
(a) The aggregate amount of capital contributed by a Capital Investment
Member pursuant to its Capital Commitment, less Returns of Capital as defined
below, is referred to herein as a "Capital Contribution." The Managing Member
shall call for payment of each Capital Investment Member's Capital Commitment
only as needed to fund the Company's prospective Investments in Portfolio
Companies and for no other purpose. All such calls shall be made in writing to
all Capital Investment Members pro rata in proportion to their respective
Capital Commitments and shall be made by separate notices (unless waived) ("Call
Notices") containing the information set forth in Section 2.2(b). The Managing
Member shall use its best efforts to deliver Call Notices (unless waived) to the
Capital Investment Members by telex, telecopier, cable or overnight courier not
less than thirty (30) days in advance of the date on which the installment
payable in response to such notice is due (the "Due Date"), and shall deliver
such notice (unless waived) in no event less than ten (10) Business Days before
the Due Date. All Capital Contributions shall be paid on or before their Due
Date. No Capital Commitment may be called after expiration of the Commitment
Period. Any Due Date in respect of which a Call Notice has been delivered may
be postponed by the Managing Member one or more times for an aggregate of up to
sixty (60) calendar days following the originally scheduled Due Date; provided
that if the sixtieth day after such originally scheduled Due Date shall not be a
Business Day, then such Due Date may be postponed until the next succeeding
Business Day. The Managing Member shall give prompt notice (unless waived) to
each Capital Investment Member, by telex, facsimile, telecopier, cable or
overnight courier, of any such postponement, whereupon such rescheduled Due Date
shall be the Due Date for purposes hereof. To the extent that the information
contained in the original Call Notice has materially changed, such notice of
postponement shall set forth such changes. All payments of the Capital
Investment Members hereunder shall be made to the Company by transfer by wire or
otherwise of federal funds or other immediately available funds (or by such
other means as the Managing Member may designate or approve) by 11:00 a.m.
Eastern time on the relevant Due Date to an account of the Company designated by
the Managing Member for such purpose. So far as practicable, Capital
Contributions shall be invested by the Managing Member in Temporary Investments
pending the purchase of Portfolio Securities. Any amounts paid by a Capital
Investment Member pursuant to a Call Notice for an Investment in Portfolio
Securities that does not take place within sixty (60) days of the originally
scheduled Due Date (or, if the sixtieth day after such Due Date is not a
Business Day, the next succeeding Business Day), shall, together with any
interest earned thereon, be refunded to such Capital Investment Member (a
"Return of Capital") at its request and such Capital Investment Member's Capital
Commitment remaining to be called shall be increased by the amount so refunded,
excluding such interest.
6
(b) Each Call Notice shall state the scheduled Due Date and specify:
(i) The aggregate amount of payments to be made on the Due Date;
(ii) The required payment to be made by the Capital Investment
Member to which the Call Notice is delivered;
(iii) The account to which such payment shall be paid; and
(iv) The anticipated nature and approximate timing of the Investment
in the Portfolio Company and the type and approximate amount of Portfolio
Securities to be acquired with such payment.
Within two Business Days after receiving any Call Notice, any Capital
Investment Member may request such additional information from the Managing
Member as is reasonably necessary to enable it (with the advice of its counsel)
to determine whether the particular investment by the Capital Investment Member
is prohibited as described in Section 2.11. Within two (2) Business Days
following its receipt of such request, the Managing Member shall make available
to such Capital Investment Member any such requested information that is in the
possession of, or may be acquired without undue hardship by, the Managing
Member.
(c) With respect to the Company's first acquisition of Portfolio
Securities, the Due Date for Capital Contributions shall be the closing date of
such acquisition.
(d) If a Capital Investment Member is excused from making a Capital
Contribution pursuant to Section 2.11 or defaults in the payment of a Capital
Contribution as contemplated in Section 2.10, the Managing Member shall
forthwith deliver a new Call Notice to the remaining Capital Investment Members
assessing them their pro rata portion of the amount of such Capital Contribution
remaining unpaid, payable on the Due Date of such Capital Contribution,
provided, however, that the Managing Member may in its discretion increase its
own Capital Contribution to furnish the additional funds to purchase such
Portfolio Securities that would have been purchased with such unpaid Capital
Contribution, which funds shall be returned to the Managing Member upon payment
of the Capital Contributions of the remaining Capital Investment Members to the
Company as provided above.
Section 2.3 Capital Accounts.
----------------
(a) A capital account ("Capital Account") shall be established on the
books of the Company for each Capital Member in which there shall be recorded
each contribution of capital made by or for the account of such Capital Member
as of the date such contribution is made. Each Capital Member's Capital Account
shall be increased or decreased to reflect Capital Contributions, contributions
of Investments in Portfolio Securities held by the Managing Member, Returns of
Capital, allocations of Net Operating Profits, Net Operating Losses, Net
7
Realized Capital Gains and Net Realized Capital Losses and distributions of Cash
Flow and Capital Proceeds and Capital, and shall be otherwise adjusted in
accordance with Section 1.704-1(b)(2)(iv) of the Treasury Regulations provided
that such adjustment does not materially decrease the amount or defer the timing
of any distributions, including distributions upon liquidation, that the Capital
Members would otherwise be entitled to receive pursuant to this Agreement. No
Capital Member shall be required to reimburse the Company for any negative
balance in such Capital Member's Capital Account; provided, that each Capital
Member shall remain fully liable to make Capital Contributions to the extent of
such Capital Member's Capital Commitment, except as such Capital Commitment may
be reduced as provided herein.
(b) In the sole discretion of the Managing Member, the Company may
revalue its Investments and other assets and adjust the Members' Capital
Accounts in accordance with Section 4.8 and applicable generally accepted
accounting principles in connection with (i) a write-off of any Investment, (ii)
any acquisition of an interest or increase or decrease in an existing interest
or interests in the Company with respect to any new or existing Member, (iii)
any distribution by the Company to a Member of more than a de minimis amount of
property as consideration for the redemption of an interest in the Company, (iv)
the liquidation of the Company, (v) any contribution to the Company of an
Investment in a Portfolio Company held by the Managing Member, and (vi) such
other circumstances as are approved by the Managing Member and permitted by the
Treasury Regulations. All Capital Account adjustments made to reflect
revaluations of Investments pursuant to this Section 2.3(b), and all Capital
Account adjustments made subsequent thereto, shall comply with Treasury
Regulations Sections 1.704-1(b)(2)(iv)(f), 1.704-1(b)(2)(iv)(g) and 1.704-
1(b)(4)(i), provided that such compliance shall not materially decrease the
amount or defer the timing of any distributions, including distributions payable
upon liquidation, that the Members would otherwise be entitled to pursuant to
this Agreement. Such adjustments shall simulate the manner in which Net Realized
Capital Gains or Net Realized Capital Losses, and Net Operating Profits or Net
Operating Losses, as the case may be, would be allocated among the Members if
the Company's Investments and other assets were then sold for their fair market
values and the proceeds of such sales were distributed to the Members pursuant
to ARTICLE IV.
Section 2.4 Capital Commitments Not Company Assets.
--------------------------------------
At no time shall any portion of a Member's Capital Commitment be held out
by the Managing Member to any creditor of the Company or be reflected on any
balance sheet as an asset of the Company.
Section 2.5 Net Operating Profits and Net Operating Losses-Allocation.
---------------------------------------------------------
(a) Prior to the allocation of any Net Realized Capital Gains or Net
Realized Capital Losses for each Fiscal Year as provided in Section 2.6 below,
Net Operating Profits, if any, of the Company for each Fiscal Year shall be
allocated to the Members as follows and in the
8
following order of priority as of the end of such Fiscal Year:
(i) First, so much of such Net Operating Profits for such Fiscal
Year as shall not exceed the Managing Member Loss, if any, as of the end of
the preceding Fiscal Year shall be allocated to the Managing Member to
cover part or all of such Managing Member Loss.
(ii) Second, so much of any remaining Net Operating Profits for such
Fiscal Year as shall not exceed the Capital Member Loss, if any, as of the
end of the preceding Fiscal Year shall be allocated to all of the Capital
Members in proportion to their Percentages in Interest as set forth in
Exhibit A.
(iii) Third, so much of any remaining Net Operating Profits for
such Fiscal Year as shall not exceed the Profit Member Loss, if any, as of
the end of the preceding Fiscal Year shall be allocated to the Profit
Members as a group to be further allocated pro rata according to such
Profit Members' Carried Interests as defined in Section 3.2 hereof and
added to their respective Capital Accounts to cover part or all of such
Profit Member Loss.
(iv) Fourth, the balance of any remaining Net Operating Profits, if
any, for such Fiscal Year shall be allocated as follows: (A) for Net
Operating Profits relating to Investments made on or prior to July 31, 1996
(including Follow-On Investments made after July 31, 1996), twenty-two and
one-half percent (22.5%) and for Net Operating Profits relating to
Investments made after July 31, 1996, twenty percent (20%) (the "Profit
Members Carried Interest Allocation") shall be allocated to the Profit
Members as a group to be further allocated pro rata according to such
Profit Members' Carried Interests as defined in Section 3.2 hereof and
added to their respective Capital Accounts, and (B) a percentage equal to
one hundred percent (100%) less the Profit Members Carried Interest
Allocation (the "Capital Members' Allocation") shall be allocated to the
Capital Members as a group to be further allocated pro rata according to
such Capital Members' Percentages in Interest as set forth in Exhibit A,
and added to their respective Capital Accounts.
(b) Prior to the allocation of any Net Realized Capital Gains or Net
Realized Capital Losses for each Fiscal Year as provided in Section 2.6 below,
Net Operating Losses, if any, of the Company for each Fiscal Year shall be
allocated to the Members as follows and in the following order of priority as of
the end of such Fiscal Year:
(i) First, such Net Operating Losses for such Fiscal Year shall be
allocated as follows: (A) for Net Operating Losses relating to Investments
made on or prior to July 31, 1996 (including Follow-On Investments made
after July 31, 1996), twenty-two and one-half percent (22.5%) and for Net
Operating Losses relating to Investments made after July 31, 1996, twenty
percent (20%) (the "Profit Members' Carried Interest Allocation") of such
Net Operating Losses (but not to exceed the Profit Members'
9
positive account balances, if any, existing in their Capital Accounts as of
the end of the preceding Fiscal Year) shall be allocated to the Profit
Members as a group as a Profit Member Loss to be further allocated
according to such Profit Members' respective Carried Interests as defined
in Section 3.2 hereof and debited pro rata to their respective Capital
Accounts, and (B) a percentage equal to one hundred percent (100.0%) less
the Profit Members Carried Interest Allocation (the "Capital Members'
Allocation") of such Net Operating Losses (but not to exceed the excess of
the Unrecovered Capital of the Capital Members over the Capital Member
Loss, if any, as of the end of the preceding Fiscal Year) shall be
allocated to all of the Capital Members as a Capital Member Loss in
proportion to their respective Percentages in Interest as set forth in
Exhibit A and debited to their respective Capital Accounts.
(ii) Second, the balance of such Net Operating Losses as shall exceed
(A) the positive account balances, if any, existing in the Profit Members'
Capital Accounts as of the end of the preceding Fiscal Year and (B) the
excess of the Unrecovered Capital of the Capital Members over the Capital
Member Loss, if any, as of the end of the preceding Fiscal Year, shall be
allocated to the Managing Member as a Managing Member Loss.
Section 2.6 Capital Gains and Capital Losses with Respect to Portfolio
-----------------------------------------------------------
Securities-Allocation.
---------------------
(a) Following the allocation of any Net Operating Profits or Net Operating
Losses for each Fiscal Year as provided in Section 2.5 above, Net Realized
Capital Gains, if any, of the Company for each Fiscal Year shall be allocated to
the Members as follows and in the following order of priority as of the end of
such Fiscal Year:
(i) First, so much of such Net Realized Capital Gains for such
Fiscal Year as shall not exceed the Managing Member Loss, if any, as of the
end of the preceding Fiscal Year (as increased or decreased by the
allocation of any Net Operating Losses or Net Operating Profits for the
current Fiscal Year) shall be allocated to the Managing Member to cover
part or all of such Managing Member Loss.
(ii) Second, so much of any remaining Net Realized Capital Gains for
such Fiscal Year as shall not exceed the Capital Member Loss, if any, as of
the end of the preceding Fiscal Year (as increased or decreased by the
allocation of any Net Operating Losses or Net Operating Profits for the
current Fiscal Year) shall be allocated to all of the Capital Members in
proportion to their Percentages in Interest to cover part or all of such
Capital Member Loss.
(iii) Third, so much of any remaining Net Realized Capital Gains
for such Fiscal Year as shall not exceed the Profit Member Loss, if any, as
of the end of the preceding Fiscal Year (as increased or decreased by the
allocation of any Net Operating
10
Losses or Net Operating Profits for the current Fiscal Year) shall be
allocated to the Profit Members as a group to be further allocated pro rata
according to such Profit Members' Carried Interests as defined in Section
3.2 hereof and added to their respective Capital Accounts to cover part or
all of such Profit Member Loss.
(iv) Fourth, the balance of such Net Realized Capital Gains, if any,
for such Fiscal Year shall be allocated as follows: (A) for Net Realized
Capital Gains relating to Investments made on or prior to July 31, 1996
(including Follow-On Investments made after July 31, 1996), twenty-two and
one-half percent (22.5%) and for Net Realized Capital Gains relating to
Investments made after July 31, 1996, twenty percent (20%) (the "Profit
Members Carried Interest Allocation") shall be allocated to the Profit
Members as a group to be further allocated pro rata according to such
Profit Members' Carried Interests as defined in Section 3.2 hereof and
added to their respective Capital Accounts, and (B) a percentage equal to
one hundred percent (100.0%) less the Profit Members Carried Interest
Allocation (the "Capital Members' Allocation") shall be allocated pro rata
to the Capital Members as a group to be further allocated according to such
Capital Members' Percentages in Interest as set forth in Exhibit A, and
added to their respective Capital Accounts.
(b) Following the allocation of any Net Operating Profits or Net Operating
Losses for each Fiscal Year as provided in Section 2.5 above, Net Realized
Capital Losses, if any, of the Company for each Fiscal Year shall be allocated
to the Members as follows and in the following order of priority as of the end
of such Fiscal Year:
(i) First, such Net Realized Capital Losses for such Fiscal Year
shall be allocated as follows: (A) for Net Realized Capital Losses
relating to investments made on or prior to July 31, 1996 (including
Follow-On Investments made after July 31, 1996), twenty-two and one-half
percent (22.5%) and for Net Realized Capital Losses relating to Investments
made after July 31, 1996, twenty percent (20%) (the "Profit Members Carried
Interest Allocation") of such Net Realized Capital Losses (but not to
exceed the Profit Members' positive account balances, if any, existing in
their Capital Accounts as of the end of the preceding Fiscal Year as
increased or decreased by the allocation of any Net Operating Losses or Net
Operating Profits for the current Fiscal Year) shall be allocated to the
Profit Members as a group as a Profit Member Loss to be further allocated
according to such Profit Members' respective Carried Interests as defined
in Section 3.2 hereof and debited pro rata to their respective Capital
Accounts, and (B) a percentage equal to one hundred percent (100.0%) less
the Profit Members Carried Interest Allocation (the "Capital Members'
Allocation") of such Net Realized Capital Losses (but not to exceed the
excess of the Unrecovered Capital of the Capital Members over the Capital
Member Loss, if any, as of the end of the preceding Fiscal Year as
increased or decreased by the allocation of any Net Operating Losses or Net
Operating Profits for the current Fiscal Year) shall be allocated to all of
the Capital Members as a Capital Member Loss in proportion to their
respective Percentages in Interest as set forth in Exhibit A and debited to
their respective Capital Accounts.
11
(ii) Second, the balance of such Net Realized Capital Losses as shall
exceed (A) the positive account balances, if any, existing in the Profit
Members' Capital Accounts as of the end of the preceding Fiscal Year and
(B) the excess of the Unrecovered Capital of the Capital Members over the
Capital Member Loss, if any, as of the end of the preceding Fiscal Year,
shall be allocated to the Managing Member as a Managing Member Loss.
Section 2.7 Special Allocation Rules.
------------------------
(a) Qualified Income Offset. In the event that any Member unexpectedly
-----------------------
receives any adjustment, allocation, or distribution described in Treasury
Regulations Section 1.704-1(b)(2)(ii)(d)(4),(5) or (6) which causes it to have
an Adjusted Capital Account Deficit, items of Company income and gain (including
gross income) shall, before any other allocations are made pursuant to this
ARTICLE II, be specially allocated to such Member in an amount and manner
sufficient to eliminate, to the extent required by the Treasury Regulations,
such Member's Adjusted Capital Account Deficit as quickly as possible, provided
that an allocation pursuant to this Section 2.7 shall be made to a Member only
if and to the extent that such Member would have an Adjusted Capital Account
Deficit after all other allocations provided for in this ARTICLE II have been
tentatively made as if this Section 2.7 were not in this Agreement. This
Section 2.7 is intended to be a "qualified income offset" as defined in Treasury
Regulations Section 1.704-1(b)(2)(ii)(d) and shall be interpreted and applied
consistently therewith.
(b) Minimum Gain Chargebacks. The Managing Member shall make such
------------------------
allocations of items of income and gain as are necessary to comply with the
"minimum gain chargeback" provisions of Section 1.704-2(f) of the Treasury
Regulations or any successor provisions thereto.
(c) Member Non-Recourse Deductions. The Managing Member shall make such
------------------------------
allocations of "partner non-recourse deductions" of the Company, as defined in
Section 1.704-2(b)(4) of the Treasury Regulations or any successor provisions
thereto, as are necessary to comply with Section 1.704-2(i) of the Treasury
Regulations or any successor provisions thereto.
(d) Curative Allocations. The allocations set forth in Sections 2.7(a),
--------------------
2.7(b) and 2.7(c) hereof (the "Regulatory Allocations") are intended to comply
with certain requirements of Section 1.704-1(b) of the Treasury Regulations (and
any successor provisions thereto). Notwithstanding any other provision of this
ARTICLE II, the Regulatory Allocations shall be taken into account in allocating
other profits, losses and items of income, gain, loss and deduction among the
Members so that, to the extent possible, the net amount of such allocations of
other profits, losses and other items and the Regulatory Allocations to each
Member shall be equal to the net amount that would have been allocated to each
such Member if the Regulatory Allocations had not been made.
12
(e) Special Fees. Special Fees shall constitute items of Company
------------
operating income.
(f) Maintenance Expenses; Organizational and Syndication Expenses. For
-------------------------------------------------------------
purposes of this ARTICLE II and the provisions of ARTICLE X dealing with final
allocations, all fees and expenses that the Managing Member must pay pursuant to
Section 5.4(a) that are Maintenance Expenses or expenses of organizing and
syndicating the Company under Section 709 of the Code and the Treasury
Regulations thereunder shall be treated as expenses of the Managing Member and
deducted from its Capital Account. For purposes of this ARTICLE II and the
provisions of ARTICLE X dealing with final allocations, all allocations with
respect to Maintenance Expenses and the expenses of organizing and syndicating
the Company shall be made to the Capital Account of the Managing Member. All
the forgoing amounts shall be treated as contributions by the Managing Member to
the Company for its own Capital Account.
(g) Special Allocations. Notwithstanding the allocation provisions set
-------------------
forth in Section 2.5 and in Section 2.6, the Company may, with the approval of
the Managing Member and with the approval of a Majority in Interest of the
Profit Members, make a special allocation of any part or all of any Net Realized
Capital Gains to one or more of the Members provided that (i) any special
distribution with respect to such special allocation of Net Realized Capital
Gains to a Profit Member shall not exceed the amount of such Profit Member's
Vested Carried Interest at the time of such special allocation determined for
purposes only of this special allocation pursuant to this Section 2.7(g) as if
all the Portfolio Company Securities then held by the Company of the kind being
sold to produce the Net Realized Capital Gains were valued at Fair Market Value
determined as provided in Section 4.8 on the date of such special allocation and
further provided that (ii) such special allocation (and any related special
distribution) shall be carried on the books of the Company as a special
allocation (and as a related special distribution) with respect to the Capital
Account of each Member receiving such special allocation which shall (except for
the calculation of the special allocation (and any related special distribution)
set forth herein) eventually comply with and be in accordance with (A) the
formula for allocating Net Realized Capital Gains as set forth in Sections 2.5
and 2.6 above, and (B) the terms and conditions with respect to the allocation,
vesting and distribution of Net Realized Capital Gains in excess of Unrecovered
Capital as set forth in Section 2.5 and Section 2.6 above and in ARTICLE III and
in ARTICLE IV hereof. Likewise, upon the approval and at the direction of a
Majority in Interest of the Profit Members, the Company shall sell Marketable
Securities held by the Company to the extent of the Profit Members' Vested and
Unvested Carried Interests therein, determined for purposes only of this special
allocation pursuant to this Section 2.7(g) as if all the Portfolio Company
Securities then held by the Company of the kind being sold to produce the Net
Realized Capital Gains were valued at Fair Market Value determined as provided
in Section 4.8 on the date of such special allocation, and with the Net Realized
Capital Gains resulting from any such sale to be specially allocated to the
accounts of certain Profit Members (and invested as determined by a Majority in
Interest of the Profit Members) pending distribution upon vesting as provided
herein, provided that any such special allocation shall be carried on the books
of the Company as a special allocation with respect to the Capital Account of
each Member receiving such special allocation which shall (except for the
calculation of the special allocation set forth herein) eventually comply with
and be in
13
accordance with (A) the formula for allocating Net Realized Capital Gains as set
forth in Sections 2.5 and 2.6 above, and (B) the terms and conditions with
respect to the allocation, vesting and distribution of Net Realized Capital
Gains in excess of Unrecovered Capital as set forth in Section 2.5 and Section
2.6 above and in ARTICLE III and in ARTICLE IV hereof. Notwithstanding the
forgoing, at the time of termination and liquidation of the Company as provided
herein all allocations of Net Realized Capital Gains during the entire term of
the Company must comply with the formula set forth in Section 2.5 and in Section
2.6 above.
Section 2.8 Tax Allocations; Income Tax Elections.
-------------------------------------
(a) For federal, state and local income tax purposes, the income, gains,
losses and deductions of the Company shall, for each taxable period, be
allocated among the Members in the same manner and in the same proportion that
such items have been allocated to the Members as provided in this ARTICLE II;
provided, that (i) any adjustments made pursuant to Section 743 or 734 of the
Code shall be taken into account and (ii) items of income, gain, loss and
deduction with respect to Company property reflected in the Capital Members'
Capital Accounts and on the books of the Company at a value that differs from
the Company's adjusted tax basis in such property shall be allocated, solely for
tax purposes, among the Capital Members so as to take account of that difference
in value in accordance with Code Section 704(c) and Treasury Regulations
Sections 1.704-1(b)(2)(iv)(f) and 1.704-1(b)(4)(i).
(b) Upon the written request of any Capital Investment Member that an
election provided for in Section 754 of the Code be made, the Managing Member
shall promptly give notice to all the other Capital Investment Members of such
request. Unless the Managing Member has received written objections to the
making of such election from a Majority in Interest of the Capital Investment
Members within thirty (30) days of such notice, it shall, if then permitted by
applicable law, make such election. All costs and expenses incurred by the
Company in connection with the making of such an election shall be borne by the
Capital Investment Member requesting the same or, if more than one Capital
Investment Member shall have made such request, by each requesting Capital
Investment Member in the proportion which its Capital Commitment bears to the
Capital Commitments of all Capital Investment Members making such request.
Section 2.9 Modification of Capital Commitments.
-----------------------------------
Capital Commitments shall be subject to modification only as follows:
(a) If, in the opinion of counsel reasonably satisfactory to the Managing
Member, there have occurred changes in laws or regulations after the date hereof
that are likely materially and adversely to affect the Company's ability to
achieve its investment objectives as set forth in Section 1.7 or otherwise to
operate in substantially the manner as contemplated herein, the Managing Member
(with the approval of the Advisory Committee) or two-thirds in interest of
14
the Capital Investment Members may shorten or cause an early termination of the
Commitment Period.
(b) Capital Commitments may be increased in accordance with Sections 7.2
and 2.10(c) and decreased in accordance with Sections 2.11(b) and 2.11(c)
without penalty pursuant to this Section 2.9 or any other provision of this
Agreement.
Section 2.10 Default in Capital Commitment.
-----------------------------
Except as provided in Section 2.9, if a Capital Investment Member fails to
fund its Capital Commitment as required under Section 2.1 on the Due Date and
such failure continues for seven (7) Business Days after receipt of written
notice of such failure from the Managing Member (or for such longer period (not
to exceed twenty (20) Business Days) as the Managing Member may in its sole
discretion permit under extraordinary circumstances), then such Capital
Investment Member which failed to make payment within such seven (7) Business
Days, as the case may be, after receipt of such notice or assessment (in each
case, the "Date of Default") shall be a "Defaulting Capital Investment Member,"
and the following provisions of this Section 2.10 shall apply:
(a) 25% Forfeiture. As of the Date of Default, the Defaulting Capital
--------------
Investment Member shall forfeit 25% of such Member's Capital Account balance, if
positive (the "Forfeiture Amount"). The Forfeiture Amount shall be reallocated
among all Non-Defaulting Capital Investment Members as follows: any Non-
Defaulting Capital Investment Member who purchases a portion of the Defaulting
Capital Investment Member's remaining interest in accordance with Section
2.10(b) shall be allocated that percentage of the Forfeiture Amount equal to the
percentage of the Defaulting Capital Investment Member's interest so purchased.
The balance of the Forfeiture Amount, if any, shall be allocated among all Non-
Defaulting Capital Investment Members in proportion to their respective
Percentages in Interest as set forth in Exhibit A, determined without inclusion
of any Defaulting Capital Investment Member's Capital Contribution and without
giving effect to any purchase under Section 2.10(b). Any such adjustments shall
not affect tax allocations that had previously been made in accordance with
Section 2.8.
(b) 75% Sale. The Managing Member will give prompt written notice of such
--------
default to all Non-Defaulting Capital Investment Members, each of whom will then
have thirty (30) days after receipt of such notice (which notice shall specify
the purchase price of the Defaulting Capital Investment Member's remaining
interest in the Company, as reduced in accordance with Section 2.10(a) above),
within which to elect to purchase that percentage of such reduced interest equal
to the purchasing Capital Investment Member's Percentage in Interest (determined
without inclusion of any Defaulting Capital Investment Member's Capital
Contribution). The aggregate purchase price of the Defaulting Capital
Investment Member's interest in the Company shall be equal to the Defaulting
Capital Investment Member's Capital Account (after forfeiture in accordance with
Section 2.10(a)) plus (minus) the net unrealized capital gains (losses)
15
allocable to the Defaulting Capital Investment Member's Capital Account (as so
reduced) on the last day of the quarter of the Fiscal Year in which the default
occurs. For purposes of this Section 2.10(b) only, net unrealized capital gains
shall be equal to eighty percent (80%) of the excess of the Fair Market Value of
Portfolio Securities over the book value of such securities, and net unrealized
capital losses shall be equal to the excess of the book value of Portfolio
Securities over the Fair Market Value thereof, in each case disregarding any
adjustment under Section 734 or 743 of the Code. All purchases pursuant to this
Section 2.10(b) shall be made within thirty (30) days after notice from the Non-
Defaulting Capital Investment Members of their election to purchase and shall be
made in cash paid to the Defaulting Capital Investment Member. If fewer than
all Non-Defaulting Capital Investment Members so elect, the Managing Member
shall reoffer to each Non-Defaulting Capital Investment Member that did so elect
the option of electing further to increase the portion of the interest of the
Defaulting Capital Investment Member purchased by it in an amount equal to the
total of the Defaulting Capital Investment Member's interest not so purchased
multiplied by a fraction, the numerator of which is the amount which such Non-
Defaulting Capital Investment Member elected to purchase and the denominator of
which is equal to the aggregate amount which all Non-Defaulting Capital
Investment Members elected to purchase. If after applying the foregoing
procedure any portion of the Defaulting Capital Investment Member's interest
remains unsold, the Managing Member shall reoffer each electing Non-Defaulting
Capital Investment Member the option of electing further to increase the portion
of the interest of the Defaulting Capital Investment Member which it purchases
in an amount determined equitably by the Managing Member.
(c) Adjustment of Capital Accounts and Commitments. The Defaulting
----------------------------------------------
Capital Investment Member's Capital Account shall be decreased by 25% to reflect
the forfeiture pursuant to Section 2.10(a). In addition, to reflect purchases of
a Defaulting Capital Investment Member's interest pursuant to Section 2.10(b),
the Capital Account of the Defaulting Capital Investment Member shall be
decreased by the percentage of the Defaulting Capital Investment Member's
interest being purchased (calculated after the forfeiture pursuant to Section
2.10(a)), and the Capital Account and Percentage of Contributed Capital of each
purchasing Capital Investment Member shall correspondingly be increased. Each
Member who purchases a portion of a Defaulting Capital Investment Member's
interest under Section 2.10(b) shall by virtue of such action assume liability
for that percentage of the Defaulting Capital Investment Member's unpaid Capital
Commitment equal to the percentage of the interest so purchased, and shall have
its Percentage in Interest as set forth in Exhibit A correspondingly increased.
(d) Loss of Voting Rights, Etc. To the extent that the Non-Defaulting
---------------------------
Capital Investment Members do not purchase the entire interest of the Defaulting
Capital Investment Member, the Defaulting Capital Investment Member shall remain
a Capital Investment Member and shall not be released from that portion of such
Capital Investment Member's unfunded Capital Commitment which is not assumed by
Non-Defaulting Capital Investment Members upon purchase of the Defaulting
Capital Investment Member's interest as provided in this Section 2.10; such
Defaulting Capital Investment Member shall not be entitled to make further
Capital Contributions to the Company except as requested and called in the
discretion of the Managing Member. All subsequent allocations to such
Defaulting Capital Investment Member
16
in accordance with ARTICLE IV shall be made on the basis of the Defaulting
Capital Investment Member's Percentage of Contributed Capital following the
reduction thereof in accordance with Sections 2.10(a) and (b). Whenever the
vote, consent or decision of the Members is required or permitted pursuant to
this Agreement, no Defaulting Capital Investment Member shall be entitled to
participate in such vote (except for a vote pursuant to Section 17-801(3) of the
Delaware Act), to offer or withhold its consent or to make such decision, and
such vote, consent or decision shall be made as if such Defaulting Capital
Investment Member were not a Member. Any such vote, consent or decision shall
be binding upon such Defaulting Capital Investment Member.
(e) Applications of Reductions. All reductions in the Capital Account of
--------------------------
a Defaulting Capital Investment Member pursuant to this Section 2.10 shall be
applied equally to Capital Contributions and amounts allocated to such Capital
Account but not yet distributed.
Section 2.11 Continuing Participation.
------------------------
(a) The Managing Member may excuse any Capital Investment Member from
continuing participation in an Investment in a Portfolio Company (such Capital
Investment Member shall be an "Excused Member" with respect thereto and such
Investment shall be an "Excused Investment") if the Managing Member determines
that there is a substantial likelihood that such Capital Investment Member's
continuing indirect Investment in such Portfolio Company might have a Material
Adverse Effect (as defined in Section 2.11(d) below) on the Company or the
Portfolio Company and the Managing Member shall have given 10 days' advance
written notice to any such Capital Member specifying its reason for availing
itself of the provisions of this Section 2.11(a) and shall have delivered to
such Capital Investment Member an opinion of counsel to such effect. Such
Capital Investment Member shall become an Excused Member with respect to such
Excused Investment as soon as practicable. The Managing Member shall take
commercially reasonable steps to cause the portion of the Excused Investment
that would have been allocated to the Excused Member promptly to be sold by the
Company for a cash price equivalent to the Fair Market Value of such portion of
the Excused Investment, taking into account the factors set forth in Section
4.8(c). The proceeds of such sale shall be paid over to such Excused Member.
All costs and expenses of the Company in respect of the determinations and other
matters referred to in this Section 2.11 shall be allocated to the Capital
Account of the Excused Member.
(b) If at any time the Managing Member determines in good faith that there
is a substantial likelihood that the continuing participation in the Company by
any Capital Investment Member might have a Material Adverse Effect on the
Company, such Capital Investment Member will, at the request of the Managing
Member, use its best efforts to dispose of its entire interest in the Company
(or such portion of its interest in the Company that is sufficient to prevent or
remedy such Material Adverse Effect) to any person at a price acceptable to such
Capital Investment Member, in a transaction which complies with Section 7.3. If
such Capital Investment Member has not disposed of such of its interest as is
sufficient to prevent or remedy
17
such Material Adverse Effect within ninety (90) days of the Managing Member
having notified such Capital Investment Member of the determination set forth in
the preceding sentence (or within such fewer number of days as the Managing
Member may determine, as supported by an opinion of counsel, is necessary to
avoid a Material Adverse Effect), then the Managing Member shall have the right,
upon at least 15 days' prior written notice to such Capital Investment Member,
to take, in its sole discretion any or all of the following actions to prevent
or remedy such Material Adverse Effect:
(i) prohibit such Capital Investment Member from making a Capital
Contribution with respect to any and all future investments in Portfolio
Companies and reduce its unused Capital Commitment to any amount (greater
than or equal to zero);
(ii) offer to any person, including each other Member, the
opportunity to purchase all or a portion of such Capital Investment
Member's interest in the Company at its Fair Market Value (provided that if
the Managing Member itself purchases such interest, the purchase price
shall be determined by an appraiser mutually acceptable to such Capital
Investment Member and the Managing Member, the cost of such appraiser to be
divided equally between the Managing Member and such Capital Investment
Member); or
(iii) liquidate all or any portion of such Capital Investment
Member's interest, taking into account the factors set forth in Section 4.8
and making adjustments to the Capital Investment Members' Capital Account
balances in accordance with Section 2.3(b), in the Company or make, subject
to Section 4.4(b)(iii), a special distribution in respect of such interest
to such Capital Investment Member where, with respect to such distribution,
the Managing Member (x) shall reduce the Capital Account of such Capital
Investment Member by the amount of the distribution, provided that in no
event shall such Capital Investment Member's Capital Account (as it would
exist upon the deemed sale of all Company assets) be reduced to an amount
which is less than zero and (y) may choose to distribute cash, cash
equivalents and securities or any combination of the foregoing, in an
amount (or having a value) equal to the Fair Market Value of such interest.
(c) Any Capital Investment Member shall be excused from continuing
participation in the Company or participation in future investments of the
Company if the following conditions are met:
(i) such Capital Investment Member reasonably determines in good
faith that its continuing investment in the Company or participation in
future investments of the Company would have a Material Adverse Effect on
such Capital Investment Member;
(ii) such Capital Investment Member shall have given the Managing
Member twenty (20) days' advance written notice of its intention to avail
itself of the provisions of this Section 2.11(c); and
18
(iii) within ten (10) days of the giving of notice pursuant to
subparagraph (ii) above, such Capital Investment Member shall have
delivered to the Managing Member an opinion of counsel reasonably
satisfactory to the Managing Member to the effect that its continuing
participation in the Company or participation in future investments of the
Company would result in a Material Adverse Effect on such Capital
Investment Member.
If the foregoing conditions are met, the Managing Member shall cause the
Capital Investment Member's interest in the Company to be sold by the Company in
accordance with Section 2.11(b)(ii) and to dispose of any portion thereof
remaining unsold in accordance with Section 2.11(b)(iii), or, at the option of
such Capital Investment Member, excuse such Capital Investment Member from
participation in any future investments of the Company. All costs and expenses
of the Company in respect of the determinations and other matters referred to in
this Section 2.11(c) shall be allocated to the Capital Account of the Capital
Investment Member excused from the Company.
(d) A contribution or investment or a purchase of all or any portion of an
interest in the Company by any Capital Investment Member shall have a "Material
Adverse Effect" if such contribution, investment or purchase is substantially
likely, when taken by itself or together with the contributions, investments or
purchases by any other Capital Investment Members, (i) to result in a violation
of a statute, rule or regulation of a federal, state or foreign governmental
authority which might have a material adverse effect on a Portfolio Company, the
Company or any Member, as the case may be (including that a Capital Member
classified as a tax-exempt organization pursuant to Section 501(c)(3) of the
Code will lose its status as such), (ii) to subject a Portfolio Company, the
Company or any Member, as the case may be, to any material tax or governmental
charge (not including any loss or deferral of an interest deduction pursuant to
Section 163(j) of the Code, as enacted by the Omnibus Budget Reconciliation Act
of 1989, or any successor provisions thereto), or to any material filing or
regulatory requirement (including the Investment Company Act) to which it would
not otherwise be subject or materially increase such filing or requirement
beyond what it would otherwise have been, or (iii) to result in any securities
or other assets owned by the Company being deemed to be "plan assets" under
ERISA. In addition, a Material Adverse Effect on such Capital Investment Member
shall exist if any governmental authority or official having jurisdiction over
the subject matter with respect to such Capital Investment Member has taken the
position that contributions, investments, or participation in partnerships or
limited liability companies similar to the Company would cause such Capital
Investment Member to violate laws, regulations or judicial interpretations of
the same to which it is subject.
Section 2.12 Consent to Remedies.
-------------------
Each of the Members hereby consents to the application to it of the
remedies provided in Sections 2.9, 2.10 and 2.11 in recognition of the risk and
speculative damages its default or
19
failure to pay its capital commitment would cause the other Members and further
agrees that no right, power or remedy available to the Managing Member in
Section 2.9, 2.10 or 2.11 shall be exclusive and that each such right, power or
remedy shall be cumulative and in addition to any other right, power or remedy
available at law or in equity. No course of dealing between the Managing Member
and any Defaulting Capital Investment Member, and no delay in exercising any
right, power or remedy shall operate as a waiver or otherwise prejudice the
exercise of such right, power or remedy.
Section 2.13 In Kind Distributions.
---------------------
For purposes of allocating Net Realized Capital Gains and Net Realized
Capital Losses and in maintaining Capital Accounts hereunder, all unrealized
gain or loss on any property distributed in kind shall be deemed realized as
gain or loss from the sale or exchange of such property and allocated as
provided in this ARTICLE II as of the date of distribution.
Section 2.14 In Kind Contributions; Managing Member Investments.
--------------------------------------------------
For purposes of allocating invested capital and maintaining Capital
Accounts hereunder, in the event that the Managing Member holds an Investment in
Portfolio Securities after such Investment is made and then transfers such
Investment in whole or in part to the Company, the total amount of such
Investment shall be recorded on the books of the Company as a Capital
Contribution for the respective accounts of the Capital Members which made such
original Investment as if such Investment had been originally held by the
Company. Any gain with respect to such Investment between the time of the
Investment and the time of the transfer shall be treated as a realized gain or a
realized loss from the sale or exchange of such property and allocated to the
Capital Accounts of the Capital Members and to the Capital Accounts of the
Profit Members (to the extent that such gain exceeds the total amount of the
Investment) as of the date of transfer in accordance with this ARTICLE II, as if
the Investment had been originally held by the Company. Any loss with respect
to such Investment between the time of the Investment and the time of the
transfer shall belong entirely to the Capital Members. Any loss with respect to
such Investment which is not transferred to the Company shall belong entirely to
the Capital Members; provided, however, that any Net Realized Capital Loss with
respect to any such Investment shall be taken into account for all purposes of
this Agreement as if the Investment had been made by the Company and not by the
Managing Member.
ARTICLE 3.
PROFIT MEMBERS
--------------
Section 3.1 Profit Members; Rights Thereof.
------------------------------
20
Listed on Exhibit A hereto are the names and addresses of those persons
(the "Profit Members") who have been admitted to the Company in the sole
discretion of the Managing Member as Profit Members and not as Capital Members
and who shall have a right (i) to participate in the Profit Members Carried
Interest Allocation in accordance with the terms and conditions of this Limited
Liability Company Agreement to the extent of their respective Carried Interests
as hereinafter defined, and (ii) to participate in distributions with respect to
the Profit Members Carried Interest Allocation to the extent of their respective
Vested Units as hereinafter defined.
Section 3.2 Award and Vesting of Carried Interests.
--------------------------------------
(a) Each Profit Member shall be awarded participation units ("Units")
by the Managing Member in the Profit Members Carried Interest Allocation in such
amounts as the Managing Member may determine in its sole discretion (except as
provided herein) and set forth in the appropriate table in Exhibit A with
respect to each Investment made by the Company as described in Exhibit A. Units
awarded to each Profit Member shall entitle such Member to a percentage (the
"Carried Interest") of the Net Operating Profits and Net Operating Losses and
Net Realized Capital Gains and Net Realized Capital Losses of the Company
allocated to the Profit Members as determined pursuant to the provisions of this
Agreement. Units awarded to each Profit Member hereunder shall vest with respect
to that particular Profit Member (the "Vested Units") in forty (40) quarter-
annual cumulative consecutive installments of three and three quarters percent
(3.75%) each for the first five (5) years (the first twenty (20) installments)
and one and one quarter percent (1.25%) each for the second five years (the next
twenty (20) additional installments) with the first four installments vesting on
the first anniversary of the date of hire of each respective Profit Member
(which date of hire shall be set forth with respect to each respective Profit
Member in Exhibit A) and with each subsequent installment vesting in arrears at
the end of each consecutive quarter-annual period following the first
anniversary of each respective Profit Member's date of hire and with all such
Units to have vested by the tenth anniversary of such date of hire provided that
on each such vesting date each such Profit Member must then be a full-time
employee of the Company and must be in compliance with, and not in default of,
all of his or her obligations hereunder in order for such vesting to occur.
Units awarded to each Profit Member hereunder which have not yet vested shall be
referred to herein as Unvested Units (the "Unvested Units") with respect to that
particular Profit Member.
(b) The Carried Interest of each Profit Member (including Former
Profit Members to the extent that they have not forfeited their Vested Units as
hereinafter provided) with respect to the allocation of Net Operating Profits
and Net Operating Losses or Net Realized Capital Gains and Net Realized Capital
Losses of the Company as determined pursuant to the provisions of this Agreement
shall be determined at any time or from time to time for each Investment by
dividing the number of Units owned by that particular Profit Member by the total
number of Units owned by all Profit Members (including Former Profit Members to
the extent that they have not forfeited their Units as hereinafter provided) and
then multiplying the result by the
21
Profit Members' Carried Interest Allocation for that particular Investment
expressed as a decimal.
(c) That portion of the Profit Members Carried Interest Allocation
with respect to Net Operating Profits and Net Operating Losses and Net Realized
Capital Gains and Net Realized Capital Losses of the Company which is allocable
to Unvested Units which have not been forfeited shall be added to the Capital
Account maintained by the Company for each respective Profit Member but shall be
held in suspense pending vesting of the Unvested Units for each respective
Profit Member and shall not be distributed to such Profit Member except to the
extent that such Unvested Units, with respect to which such portion of the Net
Operating Profits and Net Operating Losses and Net Realized Capital Gains and
Net Realized Capital Losses of the Company are being held in suspense, have
vested. As of any distribution date, each Profit Member shall therefore be
entitled to receive (subject to the terms and conditions of this Agreement)
distributions from his or her Capital Account only to the extent of (i) his or
her vested percentage (determined by dividing his or her Vested Units as of the
distribution date by the total of his or her Vested and Unvested Units as of
such date) of all amounts allocated to such Capital Account up to the
distribution date less (ii) any prior distributions. Any Profit Member whose
membership relationship with the Company is terminated as provided in Section
3.3 below (a "Former Profit Member"), shall forfeit all of his or her Units to
the extent that such Units are unvested at the time of termination and shall
forfeit that portion of his or her Capital Account, if any, which is at that
time held in suspense pending vesting of such Unvested Units but shall retain
that portion of his or her Capital Account, if any, which is at that time held
with respect to Vested Units. Such Profit Member shall become a Former Profit
Member and shall retain his or her Vested Units for the purpose of continuing to
participate in the Profit Members Carried Interest Allocation subject to the
terms and conditions of this Limited Liability Company Agreement. A Profit
Member whose membership relationship with the Company is terminated for Cause as
hereinafter defined, shall immediately forfeit all of his or her Vested and
Unvested Units and shall forfeit that portion of his or her Capital Account, if
any, which is at that time held in suspense pending vesting of such Unvested
Units, but shall retain that portion of his or her Capital Account, if any,
which is at that time held with respect to Vested Units.
(d) No portion of the Profit Members Carried Interest Allocation with
respect to Net Operating Profits and Net Operating Losses and Net Realized
Capital Gains and Net Realized Capital Losses of the Company shall be allocated
to Vested or Unvested Units which have been forfeited as hereinafter provided,
but any such previously allocated portion (to the extent not previously
distributed) shall be reallocated pro rata among the Vested and Unvested Units
then belonging to the Profit Members and among the Vested Units then belonging
to the Former Profit Members.
(e) Any Units belonging to any Former Profit Member must only be Units
which were Vested Units belonging to such Former Profit Member at the time of
his or her termination. No Units shall vest whatsoever in a Profit Member after
his or her membership relationship with the Company has terminated for any
reason whatsoever.
22
(f) Additional Units may be awarded from time to time by the Managing
Member to one or more Profit Members and to one or more additional Profit
Members but only with the approval of a Majority in Interest of the Profit
Members. Furthermore, the Managing Member may reallocate Units (both vested and
unvested) among the Profit Members but only with the approval of a Majority in
Interest of the Profit Members provided that no Profit Member shall give up any
Units (either vested or unvested) without his or her consent, except as herein
provided with respect to termination). The Managing Member may accelerate the
vesting of any Units for any one or more of the Profit Members or by fulfillment
of such conditions as the Managing Member shall approve or otherwise, but only
with the approval of a Majority in Interest of the Profit Members. The Managing
Member may also attach conditions or restrictions to the award or vesting of
Units with respect to any Profit Member but only with the approval of a Majority
in Interest of the Profit Members.
(g) Special Allocations. Notwithstanding the foregoing, the Company
-------------------
may make a special allocation of any part or all of any Net Realized Capital
Gains to one or more of the Members as provided in Section 2.7(g) above.
(h) Discontinuance of Fund Activities; Vesting. Upon the
------------------------------------------
discontinuance of the activities of the Company, or the discontinuance by the
Parent or any of its affiliates, of activities related to the funding of
additional companies after the Company has been fully invested, and with the
approval of a majority of all the Directors of the Managing Member and the
approval of a Majority in Interest of the Profit Members, the Unvested Units
belonging to the Profit Members shall all become Vested Units, provided,
however, that the provisions of Sections 3.2(e) and 3.3 shall nonetheless
control in the case of Former Profit Members.
Section 3.3 Termination of Employment and Membership Status.
-----------------------------------------------
(a) In the event of termination of a Profit Member's employment and
membership relationship with the Company (i) by the Profit Member voluntarily,
or (ii) by the Managing Member with the concurrence of a Majority in Interest of
the Profit Members but otherwise in its sole discretion for any reason or for no
reason except for Cause as hereinafter defined, or (iii) by the death of the
Profit Member, or (iv) by the Managing Member on account of the continuous
disability of the Profit Member for a period of more than three (3) months
(provided that the Managing Member determines in its sole discretion that such
Profit Member cannot continue to fulfill his or her executive responsibilities
to the Company on account of such disability and gives such Profit Member at
least thirty (30) days notice of such determination), then in each such case
such Profit Member's employment relationship with the Company and status as a
Profit Member shall terminate forthwith and said Profit Member shall become a
Former Profit Member and shall retain his or her Vested Units for purposes of
determining his or her Vested Carried Interest at any time and from time to time
with respect to the Profit Members Carried Interest Allocation, but said Former
Profit Member shall forfeit all of his or her Units to the extent not vested at
the time of termination. In the event of termination of the Profit Member's
employment relationship and membership relationship with the Company by
23
the Managing Member in its sole discretion for Cause as hereinafter defined,
then such Profit Member's employment relationship with the Company and status as
a Profit Member shall terminate forthwith and said Profit Member shall not
become a Former Profit Member but rather shall forfeit all of his or her Units
both vested and unvested and shall forfeit in its entirety such Profit Member's
Vested Carried Interest and any and all other interests he or she may have in
the Company or in any Capital Account held for the benefit of such Profit Member
pursuant hereto except that said Profit Member shall retain that portion of his
or her Capital Account, if any, which is at that time held with respect to
Vested Units and shall also retain the right to participate to the extent of his
or her Vested Units at the time of his or her termination in the Profit Members
Carried Interest Allocation but only to the extent of any Net Realized Capital
Gains with respect to Portfolio Company Securities owned by the Company at the
time of his or her Termination for Cause. The status of a Former Profit Member
and his or her relationship as such with the Company may also be terminated by
the Managing Member in its sole discretion at any time for Cause as hereinafter
defined, in which event the Former Profit Member shall immediately forfeit all
of his or her Vested Units and shall forfeit in its entirety such Former Profit
Member's Vested Carried Interest and any and all other interests he or she may
have in the Company or in any Capital Account held for the benefit of such
Former Profit Member pursuant hereto except that said Profit Member shall retain
that portion of his or her Capital Account, if any, which is at that time held
with respect to Vested Units. The names and addresses of all Former Profit
Members shall be listed on Exhibit A, together with their respective Vested
Units. Said Former Profit Members shall be considered to be Profit Members for
purposes of determining the allocation of net operating profits, net operating
losses, capital gains and capital losses pursuant to Sections 2.5 and 2.6 and
for no other purposes.
(b) Cause.
-----
For purposes of this Agreement, termination of a Profit Member's employment
relationship with the Company and status as a Profit Member or status as a
Former Profit Member for Cause shall be determined in each instance in the sole
discretion of the Board of Directors of the Managing Member and shall mean:
(i) conviction for, or plea of nolo contendere to, (A) a felony,
whether or not business related, which may injure the business or
reputation of the Company, the Managing Member or an Affiliate of either of
them, or (B) a crime of moral turpitude;
(ii) theft or embezzlement of assets of the Company, the Managing
Member or an Affiliate of either of them;
(iii) a material breach of any agreement between the Profit Member
and the Company, the Managing Member or an Affiliate of either of them
including, without limitation, any violation of the non-competition
covenant hereinafter set forth in Section 3.5 (the "Non-Competition
Covenant");
(iv) the willful and continued failure by the Profit Member to
substantially
24
perform his or her duties (other than as a result of incapacity due to
physical or mental illness);
(v) gross neglect of duties or responsibilities as an employee
of the Company or as a Member, or dishonesty or incompetence, or willful
misconduct, which in any case seriously and adversely affects the business
of the Company or of the Managing Member or of an Affiliate of either of
them but only if there has been a good faith determination by the Board of
Directors of the Managing Member that such neglect or misconduct or
dishonesty or incompetence has occurred.
Termination for Cause can only be effected by the Board of Directors of the
Managing Member by notice to the Member being terminated, which notice must be
given within five (5) days following a hearing before the Board at which such
Member will have an opportunity to answer the charges constituting Cause. The
hearing before the Board can be held only after at least twenty (20) days'
written notice to such Member (unless such Member agrees to a shorter period) of
the date and time of the hearing and the nature of the charges constituting
Cause. At the time of a notice of the hearing or any time thereafter but prior
to the Board's decision following the hearing, the Board may immediately relieve
such Member of his or her duties and responsibilities hereunder pending its
decision.
Section 3.4 Change of Control.
-----------------
(a) Upon a Change of Control, as hereinafter defined, the Company
shall repurchase all, and not less than all, of the Units of each of the Profit
Members and each of the Former Profit Members, at the individual election (an
"Initial Election") of each Profit Member and each Former Profit Member (such
election to be exercised within two (2) months of the date of the Change of
Control) for an aggregate purchase price per Unit (the "Change of Control
Repurchase Price per Unit") equal to twenty-two and one-half percent (22.5%) of
the fair market value of the assets of the Company (determined as if the Company
were a publicly traded entity) in excess of the Capital Members' Unrecovered
Capital (as calculated in accordance with Section 3.4(b), the "Fair Market Value
of the Company"), divided by the total number of Units (both vested and
unvested) owned by the Profit Members and Former Profit Members at the time of
the Change of Control.
(b) For purposes of determining the Change of Control Repurchase Price
per Unit, the Fair Market Value of the Company (determined as if the Company
were a publicly traded entity) shall be determined by an independent firm of
investment bankers of national reputation (the "Appraiser"), the selection of
which by either the Profit Members or the Managing Member is acceptable to both
(i) a majority of all the members of the Board of Directors of the Managing
Member and (ii) a Majority in Interest of the Profit Members. The Appraiser must
be selected within one (1) month of the date of the Change of Control. If a
majority of all the members of the Board of Directors of the Managing Member and
a Majority in Interest of the Profit
25
Members fail to select an Appraiser, then each shall select an independent firm
of investment bankers of national reputation and those two firms shall select an
Appraiser in no case more than two (2) months following the date of the Change
of Control. The Fair Market Value of the Company shall be (i) the fair market
value of the Company determined by the Appraiser as if the Company were a
publicly traded entity at the time of the Change of Control (ii) less the
Capital Members' Unrecovered Capital. In determining the Fair Market Value of
the Company as if it were a publicly traded entity, the Appraiser shall give
primary and substantial weight as a relevant frame of reference to the fair
market value of the Company determined in accordance with the following
methodology:
(i) The Appraiser shall first determine the consideration or value
belonging or accruing to all the stockholders of the Parent as the ultimate
owners of both (A) 100% of the Unrecovered Capital and the appropriate
Capital Members' Allocation of the profits of the Company and (B) all the
other assets of the Parent, at the time of the Change of Control, which
consideration or value shall be deemed to be equal to the Common Stock
Price, as hereinafter defined, multiplied by the number of shares of Common
Stock of the Parent outstanding at the time of the Change of Control
determined after giving effect to (X) the conversion of all convertible
securities of the Parent and (Y) the exercise of all options, whether or
not exercisable, outstanding at such time.
(ii) The Appraiser shall then deduct from that consideration or value
(A) all cash, cash equivalents and the amount of any invested cash held
directly or indirectly by the Parent (including, without limitation, all
Unrecovered Capital of the Company as appearing on the books of the
Company) and (B) the fair market value of the Parent's other core
businesses (excluding the Company and its Investments, Portfolio Companies
and other activities) comprised of companies, tangible assets and operating
divisions to the extent owned by the Parent (determined as if these other
core businesses were, in the aggregate, a separate publicly traded entity),
the fair market value of which shall also be determined by the Appraiser as
of the time of the Change of Control. The purpose of this calculation is
to determine the value of the Company considered as if it were a publicly
traded entity at the time of the Change of Control by determining that
portion of the value of the Parent as measured by the Common Stock Price
(less cash, cash equivalents and the amount of any invested cash including
the Unrecovered Capital of the Company and the appraised value of the
Parent's interest in other core businesses) which reflects the value of all
the Company's Internet-related Investments, Portfolio Companies and
activities which have been invested in by the Company determined as if the
Company were a publicly traded entity owned by the stockholders of the
Parent immediately prior to the time of the Change of Control with the
remainder of the value of the Parent as measured by the Common Stock Price
reflecting the value of the Parent's other core businesses (excluding the
Company and its Investments, Portfolio Companies and other activities)
determined as if those other core businesses were a separate publicly
traded entity also owned by the stockholders of the Parent immediately
prior to the time of the Change of Control.
26
The Appraiser must first determine the Fair Market Value of the Company
determined as if it were a publicly traded entity by applying the methodology
set forth above, since this is the best available evidence of the actual value
of the Company as if it were a publicly traded entity at the time of the Change
of Control to the extent that the Common Stock Price reflects the Fair Market
Value of the Company. Thereafter, the Appraiser, in its discretion, may also
(but need not) consider and take into account the following criteria in
descending order of importance:
(x) The fair market value of other publicly traded entities dealing
primarily in Internet-related investments and activities of a kind similar
to those of the Company; and
(y) The Fair Market Value of the Company (determined as if the
Company were a publicly traded entity) taken as a whole after taking into
account the future earnings potential, business prospects of all its
various Internet-related investments and activities taken as a whole, with
particular emphasis on the Company's business plan and strategy for
implementing that plan, taken as a whole, and the general market conditions
in the venture capital industry for Internet-related investments and
activities of the kind owned by the Company.
In determining the Fair Market Value of the Company, the Appraiser in no
event shall determine the individual value of each of the Portfolio Company
Securities or Investments of the Company and then add these values together
because such a methodology would fail to take into account the overall business
plan and strategy of the Company to build a business comprised of Internet-
related investments and activities which complement and support each other as
parts of an overall strategy for the development of an Internet business, but
must in all events consider the Fair Market Value of the Company taken as a
whole.
(c) Upon a Change of Control, as hereinafter defined, the Unvested Units
belonging to the Profit Members shall all become Vested Units, provided,
however, that the provisions of Sections 3.2(e) and 3.3 shall nonetheless
control in the case of Former Profit Members.
(d) The Company, the Managing Member, and the Parent shall be jointly and
severally liable to the Profit Members for the payment of the Change of Control
Repurchase Price per Unit with respect to the Company's repurchase of the Vested
Units pursuant to this Section 3.4.
(e) Upon the consummation of the repurchase by the Company of any of the
Units of the Profit Members upon a Change of Control pursuant to the terms of
this Section 3.4, the Managing Member may, in its sole discretion, and without
the approval of the Profit Members (i) retire the repurchased Units or (ii)
admit additional Profit Members in accordance with Section 7.3 hereof and award
to the additional Profit Members any or all of the repurchased Units.
27
(f) For purposes of this Agreement, a "Change of Control" shall be deemed
to have occurred when there has occurred a change of control of the Parent (i)
which has not been approved by a majority of all the members of the Board of
Directors of the Parent, or (ii) which has been approved by a majority of all
the members of the Board of Directors of the Parent but which has not been
approved by a Majority in Interest of the Profit Members and which is likely by
its terms to have a material adverse effect upon the business and prospects of
the Company as currently, or planned to be, conducted, and which change of
control in either event is of a nature that would be required to be reported in
response to Items 6(e) or 14(i), (iv), or (v) of Schedule 14A of Regulation 14A
promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange
Act") provided that, in the case of a Change of Control reportable under Item
6(e), such Change of Control involves the acquisition by any "person" (as such
term is used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act, but
expressly excluding ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ of beneficial ownership, directly or
indirectly, of securities or interests in the Parent which represent more than
thirty percent (30%) of the combined voting power of the Parent's outstanding
securities. For purposes of this Agreement, a "Change of Control" shall also be
deemed to have occurred when there has occurred a change of control of the
Managing Member (i) which has not been approved by a majority of all the members
of the Board of Directors of the Parent, or (ii) which has been approved by a
majority of all the members of the Board of Directors of the Parent but which
has not been approved by a Majority in Interest of the Profit Members and which
is likely by its terms to have a material adverse effect upon the business and
prospects of the Company as currently, or planned to be, conducted, and which
change of control in either event involves (i) the acquisition by any "person"
(as such term is used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act) of
beneficial ownership, directly or indirectly, of securities or interests in the
Managing Member which represents more than fifty percent (50%) of the combined
voting power of the Managing Member's outstanding securities, or (ii) a sale of
all or substantially all of the assets of the Company or of the Managing Member,
or (iii) either the merger or consolidation of the Company or the Managing
Member with another entity which is the surviving entity of such merger or
consolidation provided that such other entity, prior to such merger or
consolidation, was not controlled directly or indirectly by the Parent.
(g) All fees and expenses associated with the appraisal process set forth
above shall be paid by the Parent.
(h) Each Profit Member or Former Profit Member making an Initial Election
to have his or her Units repurchased by the Company as provided in Section
3.4(a) above following a Change of Control shall have one (1) month following
the determination of the Change of Control Repurchase Price per Unit as provided
above to reconsider and withdraw such Initial Election. Any withdrawal of an
Initial Election must be made by the Profit Member or Former Profit Member by
written notice to the Company within said one (1) month period. In the event
any such Initial Election is not withdrawn in a timely manner, then it shall
become final and binding on the parties and the Company shall proceed to
repurchase the Units owned by such Profit Member or Former Profit Member within
two (2) months following the date of the determination of the Change of Control
Repurchase Price per Unit as provided above. In the
28
event that any Profit Member or Former Profit Member fails to make a timely
Initial Election (except for reasons beyond his or her control) to have his or
her Units repurchased by the Company as provided in Section 3.4(a) above
following a Change of Control, such right shall immediately become null and void
and shall be of no further force or effect with respect to that Change of
Control, but said Profit Member or Former Profit Member shall retain his or her
rights hereunder with respect to any other or future Change of Control.
Section 3.5 No Recruitment or Solicitation.
------------------------------
Each Profit Member agrees that during his or her employment by the Company
and while he or she is a Profit Member and for a period of three (3) years
following termination of his or her employment and membership relationship with
the Company (i) by the Profit Member voluntarily, or (ii) by the Managing Member
for Cause, such Profit Member will not, directly or indirectly: (A) recruit,
solicit or induce, or attempt to induce, any employee or consultant of the
Parent or of the Managing Member or of the Company or of any Portfolio Company
or of any Affiliate of any of them to terminate his or her employment with, or
otherwise cease any relationship with, the Parent or the Managing Member or the
Company or any Portfolio Company or any Affiliate of any of them; or (B)
solicit, divert, take away, or attempt to divert or take away, any investment
opportunity with respect to any Portfolio Company or any investment opportunity
with respect to any prospective investment or prospective portfolio company
which the Managing Member or the Company contacted or solicited during such
Profit Member's employment relationship and status as a Profit Member with the
Company. If any restriction set forth herein is found by any court to be
unenforceable because it extends for too long a period of time, or over too
great a range of activities, or over too broad a geographic area, the
restriction shall be interpreted to extend only over the maximum period of time,
range of activities, or geographic area which the court finds to be enforceable.
Each Profit Member acknowledges and agrees that the restrictions contained in
this Section 3.5 are necessary for the protection of the business and goodwill
of the Parent and of the Managing Member and of the Company and of the Portfolio
Companies and of the Affiliates of any of them and are considered by such Profit
Member to be reasonable for such purpose and that his or her interest in the
Company is being received partly in consideration for the foregoing non-
competition covenant.
Section 3.6 Non-Disclosure and Invention Assignment Agreement.
-------------------------------------------------
Each Profit Member shall enter into a Non-Disclosure and Invention
Assignment Agreement with the Company in the form of Exhibit B attached hereto.
Section 3.7 Capital Accounts.
----------------
A Capital Account shall be established on the books of the Company for each
Profit Member. Each Profit Member's Capital Account shall be increased or
decreased to reflect
29
allocations of Net Operating Profits, Net Operating Losses, Net Realized Capital
Gains and Net Realized Capital Losses and distributions of Cash Flow and Capital
Proceeds, as provided in ARTICLE II and ARTICLE IV hereof.
ARTICLE 4.
DISTRIBUTIONS; WITHHOLDING; VALUATION
-------------------------------------
Section 4.1 Withdrawal of Capital.
---------------------
Except as otherwise set forth in this Agreement, no Capital Member shall
have the right to withdraw capital from the Company or to receive any
distribution or return of its Capital Contribution.
Section 4.2 Distributions of Cash Flow.
--------------------------
Subject to the terms and conditions of ARTICLE III and ARTICLE IV, Cash
Flow for each Fiscal Year (excluding Cash Flow attributed to Unvested Carried
Interests but including Cash Flow for prior Fiscal Years attributable to Carried
Interests that have vested during the current Fiscal Year) shall be distributed
to all of the Members in proportion to their respective allocations of Net
Operating Profits and Net Realized Capital Gains as determined pursuant to
ARTICLE II and ARTICLE III; provided, however, that Cash Flow may first be
applied to the payment of expenses incurred by the Company in the sale or other
disposition of Portfolio Securities or any other Maintenance Expenses with
respect to which the Company does not receive sufficient cash to pay such
expenses. In the event the Company is unable, for any reason, to pay any
portion of such expenses, the amount not paid shall be carried forward, as a
priority item, without interest, to be paid out of Cash Flow or on liquidation.
Final distributions of Cash Flow for each Fiscal Year, determined in accordance
with the provisions of this Section 4.2, shall be made as soon as practicable
following such Fiscal Year. In the discretion of the Managing Member, interim
distributions of Cash Flow for a Fiscal Year may also be made at any time during
such Fiscal Year. The Managing Member shall in all events make available to the
Profit Members by distribution or loan (with appropriate security) or otherwise
sufficient cash to pay all taxes due and payable by the Profit Members with
respect to the activities of the Company.
Section 4.3 Distributions of Capital Proceeds.
---------------------------------
Subject to the terms and conditions of ARTICLE III and ARTICLE IV, Capital
Proceeds arising during a Fiscal Year shall be distributed in the same manner
and subject to the same terms and conditions as provided in Section 4.2 above as
soon as practicable and in no
30
event later than three (3) months after the close of such Fiscal Year, to all of
the Members as determined pursuant to ARTICLE II and ARTICLE III.
Section 4.4 Additional Distribution Provisions.
----------------------------------
(a) Distributions of Property. Except as provided in subparagraph (b)
-------------------------
below, any property other than cash received with respect to any Portfolio
Security shall be distributed to the Members as provided in Sections 4.2 and
4.3. Upon a distribution of such property, the property shall be valued in
accordance with Section 4.8 and such property shall be deemed to have been sold
at such value and the proceeds of such sale shall be deemed to have been
distributed to the Members receiving such property for all purposes of this
Agreement. The Managing Member shall provide ten (10) days' prior notice in
writing to the Members of any distribution of property other than cash.
(b) Distribution of Securities and other Property in Kind.
-----------------------------------------------------
(i) The Managing Member may in its discretion, and shall upon the
affirmative vote of a Majority in Interest of the Profit Members,
distribute to the Members (but only to the extent vested and only in
accordance with Sections 2.5, 2.6, 2.7, 3.1, 3.2, 3.3, 4.2, 4.3 and 4.4),
Portfolio Securities which are Marketable Securities and which are not
subject to any restrictions on transferability (except as provided in
Section 4.4(c) below), including restrictions pursuant to Rule 144 (except
Rule 144(k)) under the Securities Act (with the exception of Portfolio
Securities distributed in connection with a Final Distribution). Upon any
distribution of securities, the securities distributed shall be valued in
accordance with Section 4.8 and such securities shall be deemed to have
been sold at such value and the proceeds of such sale shall be deemed to
have been distributed to the Members receiving them for all purposes of
this Agreement. An amount of the securities distributed no greater in
value than the federal income tax basis of all securities included in the
distribution (disregarding any adjustment under Section 734 or 743 of the
Code) shall be distributed first to each Member as determined pursuant to
Sections 2.5, 2.6, 2.7, 3.1, 3.2, 3.3, 4.2, 4.3 and 4.4 as of the date
of distribution. The balance, if any, of the securities included in the
distribution shall then be distributed to the Members also in accordance
with Sections 2.5, 2.6, 2.7, 3.1, 3.2, 3.3, 4.2, 4.3 and 4.4.
(ii) In connection with any distribution of Portfolio Securities which
are Marketable Securities and which are not subject to any restrictions on
transferability (except as provided in Section 4.4(c) below) including
restrictions pursuant to Rule 144 (except Rule 144(k)) under the Securities
Act, the Managing Member shall offer to all Members the right to receive at
their election all or any portion of such distribution in the form of the
proceeds of the disposition of the securities that otherwise would have
been distributed to such Members, and will use its best efforts so to
dispose of such securities for the benefit of any electing Member. In such
event, (a) such electing
31
Members shall be deemed to receive cash equal to the Fair Market Value of
the Marketable Securities they otherwise would have received and (b) such
electing Members will bear pro rata all the expenses (including, without
limitation, underwriting costs) of such disposition.
(iii) If any Member would otherwise receive a distribution of an
amount of any securities that is substantially likely to cause such Member
to own or control in excess of the amount of such securities that it may
lawfully own or control or which, by reason of any legal or contractual
restriction, the Managing Member may not distribute to such Member, the
Managing Member shall, at the written request of such Member and to the
extent it is practicable to do so, dispose of all or any portion of such
securities and distribute the proceeds of such disposition to such Member;
provided that such Member (a) shall be deemed to receive cash equal to the
Fair Market Value of the securities they otherwise would have received and
(b) shall bear pro rata all of the expenses (including, without limitation,
underwriting costs) of such disposition.
(c) Voting Agreement; Right of First Refusal. In connection with any
----------------------------------------
distribution of Portfolio Securities by the Company or by the Managing Member,
each Member receiving any such securities shall, prior to and as a condition to
receiving any such distribution, enter into a Voting Agreement and Right of
First Refusal Agreement with the Managing Member in form satisfactory to the
Managing Member in all respects to the effect that each such Member shall
receive title to any such distributed Portfolio Securities but that the Managing
Member shall retain the right to vote such Portfolio Securities in its sole
discretion in all instances and shall also retain a right of first refusal with
respect to the disposition of such securities. If such Member shall thereafter
die or seek to dispose of any part or all of such distributed Portfolio
Securities for any reason whatsoever and whether by operation of law or
otherwise the Managing Member shall have the right to exercise its right of
first refusal as set forth in said Agreement with respect to the disposition of
such distributed Portfolio Securities substantially exercisable as follows.
(i) If at any time such Member or transferee wishes to transfer (as
hereinafter defined) any of such distributed shares of Portfolio
Securities, other than as provided for in Section 4.5(c) of this Agreement,
the Member or transferee shall first give written notice to the Managing
Member, stating the nature of the proposed transfer, the name and address
of the proposed transferee or transferees, the number of shares to be
transferred (the "Offered Shares"), the price to be paid therefor and all
the terms and conditions of the proposed transfer, and shall forthwith
offer in writing to transfer such shares to the Managing Member for the
same consideration and on the same terms and conditions and the Company
shall have the irrevocable and exclusive first option ("Right of First
Refusal"), but not the obligation, to acquire from the Member or transferee
all or any portion of the Offered Shares on the same terms and conditions.
(ii) Within thirty (30) days following delivery of the Member's or
transferee's notice, as specified above, the Managing Member shall give
written notice to the Purchaser,
32
stating whether or not the Managing Member elects to exercise its Right of
First Refusal as to all or any part of the Offered Shares. Failure by the
Managing Member to give this notice within the 30 day period shall be
deemed to be an election by it not to exercise its Right of First Refusal
for the Offered Shares.
(iii) Within ten (10) days after the date of the Managing Member's notice
of exercise of its Right of First Refusal as specified above, the Member or
transferee, or his or her estate, shall tender to the Managing Member at
its principal office the certificate or certificates representing that
portion of the Offered Shares which the Managing Member has elected to
acquire, duly endorsed in blank by the Member or transferee or with duly
endorsed stock powers attached thereto, all in form suitable for the
transfer of such Offered Shares to the Managing Member and the Managing
Member shall pay to the Member or transferee the purchase price at the
times and upon the terms and conditions proposed to be paid by the proposed
third-party transferee, as set forth in the Member's or transferee's
notice.
(iv) If the Member's or transferee's notice shall be duly given, and the
Managing Member shall fail to purchase all of the Offered Shares by the
exercise of its Right of First Refusal, then, but only then, the Member or
transferee shall be free to transfer the Offered Shares, but only for the
price and upon the terms and conditions set forth in the Member's or
transferee's notice, and only to the transferee or transferees named
therein, and only if said transfer is consummated within sixty (60) days
after the date of the Member's or transferee's notice to the Managing
Member. If the Offered Shares shall not be so transferred by the Member or
transferee within the period specified above, then the transfer may not be
made and the Offered Shares shall remain subject to the terms of the Voting
Agreement and the Right of First Refusal Agreement in the same manner as if
the Purchaser's or transferee's notice had not been given.
(v) If the proposed disposition is for no consideration or for a nominal
consideration, then the Right of First Refusal shall be exercisable by the
Managing Member as aforesaid except that the purchase price shall be Fair
Market Value as determined pursuant to Section 4.8. If the proposed
disposition is in a public market, then the Member's or transferee's notice
may state that the proposed disposition will be made at prevailing market
prices and may omit the name or names of the proposed transferee or
transferees, and if the Managing Member elects to exercise its Right of
First Refusal as to all or any part of the offered shares, then the
purchase price shall be Fair Market Value as determined pursuant to Section
4.8 on the date the Managing Member shall give written notice to the
Purchaser electing to exercise its Right of First Refusal as to all or any
part of the offered shares. The rights of the Managing Member with respect
to the Voting Agreement or the Right of First Refusal Agreement shall be
assignable by the Managing Member in its sole discretion. Any certificate
representing shares of Portfolio Securities subject to the Voting Agreement
and/or the Right of First Refusal Agreement shall contain a legend
satisfactory to the Managing Member in all respects.
33
(d) Compliance with Securities Laws. The Managing Member may cause
-------------------------------
certificates evidencing any securities to be distributed to be imprinted with
legends as to such restrictions on transfers that it may deem necessary or
appropriate, including legends as to applicable federal or state securities laws
or other legal or contractual restrictions, and may require any Member to which
securities are to be distributed to agree in writing that such securities will
not be transferred except in compliance with (i) such restrictions and (ii)
applicable law.
(e) Reserves; 125% of Contributed Capital Retained. The Managing Member
----------------------------------------------
shall have the right, in its sole discretion to establish reserves at any time
or from time to time with respect to any anticipated losses with respect to any
Investment in any Portfolio Company. Furthermore, no distributions shall be
made hereunder (except for distributions to the Members for the sole purpose of
enabling such Members to pay taxes) until the Managing Member has determined
with respect to each distribution (other than the Final Distribution) that the
Company shall retain, after any such proposed distribution, Investments and
other assets valued on its books in excess of 125% of the Unrecovered Capital of
its Capital Members.
(f) Borrowings. The Company shall not borrow to make distributions to the
----------
Members or for any other purpose.
(g) Maintenance Expenses. All Maintenance Expenses shall be paid by and
--------------------
shall be the responsibility of the Company which shall be reimbursed therefore
by contributions for this purpose made by the Managing Member who shall receive
a special allocation with respect to such contributions and with respect to the
payment of such Maintenance Expenses. Maintenance Expenses shall not be paid
out of the Net Operating Profits or Net Realized Capital Gains or Cash Flow or
Capital Proceeds or Capital Contributions of the Company except as aforesaid.
(h) Distribution of Unrecovered Capital. The Managing Member shall have
-----------------------------------
the right, in its sole discretion, and prior to a Final Distribution, to
distribute all or any part of amounts in the Capital Accounts of Capital Members
up to the amount of Capital Contributions less any Returns of Capital and less
any distributions of Unrecovered Capital previously made to the Capital Members
pursuant to this Section 4.4(h).
Section 4.5 Other Distributions.
-------------------
Any distributions not included in Sections 4.2, 4.3, 4.4 or 10.3 shall be
made in cash to the Members in accordance with Sections 2.5, 2.6, ARTICLE III
and ARTICLE IV hereof.
Section 4.6 Withholding.
-----------
Each Member hereby authorizes the Company to withhold and to pay over, or
otherwise
34
pay, any withholding or other taxes payable by the Company as a result of such
Member's status as a Member hereunder. If and to the extent that the Company
shall be required under applicable law to withhold or pay any such taxes with
respect to any Member or as a result of any Member's participation in the
Company, such Member shall be deemed for all purposes of this Agreement to have
received a distribution from the Company in the amount of such tax on the last
day of the taxable year for which the tax is withheld or paid or, if earlier, on
the last day on which such Member owned its interest in the Company. The amount
of any distribution to which such Member would otherwise be entitled shall be
reduced by the amount of such deemed distribution. To the extent that the
aggregate of such distributions to a Member for any month exceeds the
distributions to which such Member is entitled for such period, the amount of
such excess shall be repaid by such Member to the Company within 30 days of the
end of such month. The withholdings referred to in this Section 4.6 shall be
made at the maximum applicable statutory rate under the applicable tax law
unless the Managing Member otherwise decides or unless the Managing Member shall
have received an opinion of counsel, satisfactory to the Managing Member, to the
effect that a lower rate is applicable, or that no withholding is applicable.
Section 4.7 No Restoration by the Managing Member.
-------------------------------------
Except as provided by law or Sections 8.3 or 10.3, the Managing Member
shall not be obliged at any time to repay or restore to the Company or any
Member all or any part of any distributions made to the Managing Member by the
Company.
Section 4.8 Valuation.
---------
For all purposes of this Agreement, the Fair Market Value of securities and
other property of the Company shall be determined as follows:
(a) Marketable Securities shall (i) if traded on a national securities
exchange, be valued at their last sales price on such exchange on which such
Marketable Securities shall have traded on the last trading day on which such
Marketable Securities were traded immediately preceding the date of
determination, or (ii) if the trading of such Marketable Securities is reported
through the National Association of Securities Dealers Automated Quotation
System, such Marketable Securities shall be valued at the last sale price as
shown by the National Association of Securities Dealers Automated Quotation
System on the last trading day on which such Marketable Securities were traded
immediately preceding the date of determination.
(b) All property other than Marketable Securities shall be valued by the
Managing Member in good faith. Factors considered in valuing individual
securities shall include, but need not be limited to, purchase price, estimates
of liquidation value, the price at which Members receiving a distribution of
securities will be able to sell them and the time at which such securities may
be sold, the existence of restrictions on transferability, prices received in
recent
35
significant private placements of securities of the same issuer, prices of
securities of comparable public companies engaged in similar businesses and
changes in the financial condition and prospects of the issuer.
(c) All Portfolio Securities shall be valued by the Managing Member at the
time of any distribution pursuant to ARTICLE IV in order to determine whether
the Fair Market Value of any Portfolio Security is less than 100% of the Capital
Contributions allocable thereto for purposes of Section 4.4.
(d) Upon any valuation of securities or other property of the Company
pursuant to Section 4.8, the Managing Member shall notify each member of the
Advisory Committee in writing of the Fair Market Value of such securities or
other property as determined by the Managing Member in accordance with the
provisions of Section 4.8. The Advisory Committee shall, not more than ten
Business Days after the receipt of such notice from the Managing Member, furnish
notice in writing to the Managing Member stating whether or not the Advisory
Committee has approved or has not approved the Managing Member's valuation. If
the Advisory Committee approves such valuation (or shall have failed to provide
the Managing Member with the aforementioned notice within such ten Business
Days), such valuation shall constitute the Fair Market Value of such property
for all purposes hereof. If the Advisory Committee does not approve such
valuation, and if the Managing Member and the Advisory Committee cannot agree on
a valuation within five Business Days (or such other period of time as the
Managing Member and the Advisory Committee may determine) of the date on which
the Committee advises the Managing Member that it has not approved such
valuation, the Managing Member and the Advisory Committee shall jointly select
an independent appraiser who shall be retained to determine, as promptly as
practicable, the Fair Market Value of the property to be distributed. The
Company shall pay the expenses of such appraiser.
(e) The Managing Member shall make no distribution to the Members pursuant
to ARTICLE IV until the Fair Market Value of all property valued in connection
with such distribution has been determined in accordance with this Section 4.8.
ARTICLE 5.
MANAGEMENT; PAYMENT OF EXPENSES
-------------------------------
Section 5.1 Description of Managing Member.
------------------------------
CMG@Ventures, Inc., a Delaware corporation, is the Managing Member of the
Company.
Section 5.2 Management by the Managing Member.
---------------------------------
36
Subject in all instances to approval, disapproval, change, amendment or
modification by the Board of Directors of the Managing Member, the management,
policy and operation of the Company shall be vested in a Majority in Interest of
the Profit Members, who shall perform all acts and enter into and perform all
contracts and other undertakings which they deem necessary or advisable in their
sole discretion to carry out any and all of the powers and purposes of the
Company. Without limiting the foregoing general powers and duties, and except
as is otherwise expressly set forth herein, a Majority in Interest of the Profit
Members (subject to the power and authority of the Board of Directors of the
Managing Member as aforesaid) is hereby authorized and empowered on behalf of
the Company:
(a) to perform, or arrange for the performance of all management and
administrative services necessary for the operations of the Company;
(b) to identify investment opportunities for the Company, negotiate and
structure the terms of such Investments, and arrange additional financing needed
to consummate such Investments and thereafter to deal with such Investments, and
to restructure, amend, terminate, vote, or dispose of such Investments in all
respect;
(c) except as otherwise provided in this Agreement, to invest the assets of
the Company in the securities of any organization, domestic or foreign, without
limitation as to kind and without limitation as to marketability of the
securities, and pending such Investment and the disposition of the proceeds
thereof, to invest the assets of the Company in Temporary Investments;
(d) to exercise all rights, powers, privileges and other incidents of
ownership with respect to the Portfolio Securities, including, without
limitation the voting of such Securities, the approval of a restructuring of an
Investment, participation in arrangements with creditors, the institution and
settlement or compromise of suits and administrative proceedings, and other
similar matters;
(e) to sell, transfer, liquidate or otherwise terminate Investments made by
the Company or by the Managing Member;
(f) to employ or consult brokers, accountants, attorneys, or specialists in
any field of endeavor whatsoever ("Consultants"), including Consultants who may
be Members;
(g) to deposit any funds of the Company in any money market fund or in any
bank or trust company having capital in excess of $100,000,000 and to entrust to
such bank or trust company any of the securities, monies, documents and papers
belonging to or relating to the Company; provided, however, that from time to
time, in order to facilitate any transaction, any of the said securities,
monies, documents and papers belonging to or relating to the Company may be
deposited in and entrusted to any brokerage firm that is a member of the New
York Stock Exchange and has capital in excess of $100,000,000;
37
(h) to determine, settle and pay all expenses of and claims against the
Company and make Capital Calls for the Company, and sell and liquidate
Investments or make withdrawals from reserves or take any other actions
consistent with Section 5.4 for the payment of Maintenance Expenses as needed to
do so with the understanding that all Maintenance Expenses are to be paid by the
Company and reimbursed to the Company by the Managing Member and are not to be
paid out of the Net Operating Profits or Net Realized Capital Gains or Cash Flow
or Capital Proceeds or Capital Contributions of the Company, and, in general, to
make all accounting, tax and financial determinations and decisions, including
any election under federal and state tax laws and to act as the "tax matters
partner" of the Company, as such term is defined in Section 6231(a)(7) of the
Code, and to exercise any authority permitted the tax matters partner under the
Code in accordance with Section 12.12;
(i) to provide bridge financing to Portfolio Companies;
(j) to admit an assignee of all or any portion of a Capital Investment
Member's interest in the Company to be a Substitute Capital Investment Member in
the Company pursuant to and subject to the terms of Section 7.4;
(k) to enter into, make and perform all contracts, agreements and other
undertakings as may be determined by the Managing Member in its sole discretion
to be necessary or advisable or incident to the carrying out of the foregoing
objectives and purposes, the execution thereof by the Managing Member to be
conclusive evidence of such determination;
(l) to execute all other instruments of any kind or character which the
Managing Member, in its sole discretion determines to be necessary or
appropriate in connection with the business of the Company and which are not
inconsistent with any other provisions of this Agreement, the execution thereof
by the Managing Member to be conclusive evidence of such determination; and
(m) to interpret and construe the terms, conditions and other provisions of
this Limited Liability Company Agreement or any agreement entered into pursuant
hereto, such construction or interpretation to be binding on all parties.
Section 5.3 Powers of Capital Investment Members.
------------------------------------
(a) The Capital Investment Members shall not participate in the control of
the Company and shall have no authority whatsoever with respect to the
management of the Company and shall not act for or bind the Company in any
respect.
(b) In addition to any other restrictions applicable to Capital Investment
Members set forth in this Agreement and notwithstanding any other provisions
thereof, no Capital Investment Member (and no officer, director or equivalent
non-corporate official of a Capital Investment Member that is not an individual)
shall vote on the removal of the Managing Member, except
38
to the extent permitted by Section 7.6, or vote on the admission of additional
Managing Members, except to the extent permitted by Section 7.1.
Section 5.4 Fees and Expenses.
-----------------
(a) The Managing Member shall pay all fees and expenses incurred with
respect to the business of the Company ("Maintenance Expenses") (which payments
shall all be specially allocated to the Capital Account of the Managing Member),
including, without limitation:
(i) out-of-pocket expenses incurred and fees paid by the Company or
the Managing Member in connection with the formation of the Company and the
offering and distribution of interests therein to the Capital Investment
Members and the Profit Members;
(ii) expenses which relate to office space, supplies and other
facilities of its business, and salaries, fees and expenses of officers,
employees, consultants, attorneys and accountants, investment bankers, and
similar outside advisors of the Company or the Managing Member;
(iii) expenses of the Company associated with the acquisition
(whether or not consummated) of Portfolio Securities, where such expenses
are not paid by the applicable Portfolio Company;
(iv) out-of-pocket expenses incurred in connection with maintaining
(a) qualification to do business of the Company or of the Managing Member
in the Commonwealth of Massachusetts and elsewhere, (b) the specified
office at which records which are required to be maintained under the
Delaware Act are kept and (c) the registered agent in the State of
Delaware;
(v) out-of-pocket costs of holding or selling Portfolio Securities
or of acquiring or holding Temporary Investments (including all day-to-day
operating expenses and overhead expenses of the Managing Member), including
recordkeeping expenses and, with respect to Temporary Investments only,
finders', placement, brokerage and other similar fees;
(vi) out-of-pocket costs of reporting obligations of the Members;
(vii) any taxes, fees or other governmental charges levied against
the Company or on its income or assets or in connection with its business
or operations;
(viii) all costs of litigation and the amount of any judgments or
settlements paid in connection therewith (including damages or equitable
remedies of Members with respect to remedies exercised by the Managing
Member in good faith pursuant to
39
Sections 2.10 or 2.11) and matters that are the subject of indemnification
pursuant to Section 8.2 and costs of winding-up and liquidating the
Company;
(ix) the reasonable expenses of the Advisory Committee; and
(x) the expenses of any appraiser payable by the Company pursuant to
Section 4.8(e).
(xi) all other expenses of the Company reasonably determined by the
Managing Member to be reasonably related to the business and operation of
the Company as set forth herein.
Maintenance Expenses shall be paid by the Company and such payments shall
be reimbursed to the Company by the Managing Member. Contributions by the
Managing Member to the Company for the purpose of paying Maintenance Expenses
shall be specially allocated to the Capital Account of the Managing Member and
all payments of Maintenance Expenses shall also be specially allocated to the
Capital Account of the Managing Member. Under no circumstances shall
Maintenance Expenses be paid out of the Net Operating Profits or Net Realized
Capital Gains or Cash Flow or Capital Proceeds or Capital Contributions of the
Company except as provided in the preceding two sentences.
(b) Break-Up Fees. Any Break-Up Fee shall be added to the income of the
-------------
Company.
(c) Transaction Fees; Special Fees. Any transaction fee or Special Fee of
------------------------------
any kind shall also be added to the income of the Company.
(d) Consulting Fees. Management or consulting fees or director fees
---------------
received from Portfolio Companies shall also be added to the income of the
Company.
Section 5.5 The Advisory Committee.
----------------------
(a) Each year a Majority in Interest of the Profit Members shall select an
Advisory Committee, which shall consist of not more than six (6) persons.
(b) The functions of the Advisory Committee will be (i) to advise the
Managing Member on such matters, including investment advice, about which the
Managing Member may from time to time, in its sole discretion, determine to
consult the Advisory Committee, (ii) to review, in its discretion, valuations of
Company assets in accordance with Section 4.8 or otherwise, (iii) to make
recommendations on compensation issues, (iv) to advise the Managing Member
concerning the creation of any reserves with respect to Investments in Portfolio
Companies pursuant to Section 4.4(d), and (v) to review and consult with the
Board of Directors of the Managing Member concerning any potential conflicts of
interest of the Managing
40
Member, including: (A) any Portfolio Company in which the Company has an
interest affecting a material financial transaction (other than pursuant to
Section 6.2) with the Managing Member or any Affiliate thereof; (B) the Company
investing in a Portfolio Company which is an Affiliate of the Managing Member;
(C) the Managing Member or an Affiliate thereof directly purchasing any
securities of any Portfolio Company in which the Company has invested, other
than purchases pursuant to Section 6.2; (D) any other action which would give
rise to a potential conflict of interest between the Company and the Managing
Member or any Affiliate thereof. Neither the Advisory Committee nor any member
thereof shall have the power to bind or act for or on behalf of the Company in
any manner and in no event shall a member of the Advisory Committee be
considered a Managing Member of the Company by agreement, estoppel or otherwise
as a result of the performance of his or her duties hereunder or otherwise. The
reasonable expenses of the Advisory Committee shall be paid by the Company as
Maintenance Expenses. In addition, the Company shall indemnify the members of
the Advisory Committee to the extent provided in Section 8.2 hereof. No member
of the Advisory Committee shall be entitled to any fee or honorarium in
connection with his or her service thereon.
(c) The Advisory Committee shall act by the vote of a Majority in Interest
of the Profit Members who are members of the Committee. Except as expressly
provided herein, the recommendations of the Advisory Committee shall be advisory
only and shall not obligate the Managing Member to act in accordance therewith.
Any member of the Advisory Committee may resign by giving to the Managing Member
and the other members of the Advisory Committee thirty (30) days' prior written
notice. Any vacancy in the Advisory Committee, whether created by such a
resignation or by the death of any member, shall promptly be filled as provided
in Section 5.5(a).
(d) The Managing Member shall supply the Advisory Committee with all such
information and data as it shall request to enable the Advisory Committee to
reach an informed judgment.
Section 5.6 Conflicts of Interest.
---------------------
No contract or transaction between the Managing Member or the Company and
one or more of its Members or Affiliates, or between the Managing Member or the
Company and any other limited liability company, corporation, partnership,
association or other organization in which one or more of its Members or
affiliates are directors, officers, members or partners or have a financial
interest, shall be void or voidable solely for this reason, or solely because
the Member or affiliate is present at or participates in any meeting of
directors, members, managers or partners which authorizes the contract or
transaction, or solely because his, her or their votes are counted for such
purpose, if:
(a) the material facts as to his, her or their interest and as to the
contract or transaction are disclosed or are known to the directors, the
managers, the members or the partners and the directors, the managers, the
members or the partners authorize in good faith
41
the contract or transaction by a vote sufficient for such purpose without
counting the vote of the interested director, managers, members or partner even
though the disinterested directors, managers, members or partners be less than a
quorum; or
(b) the material facts as to his, her or their interest and as to the
contract or transaction are disclosed or are known to the partners, the
managers, the members or directors entitled to vote thereon, and the contract or
transaction is specifically approved in good faith by a vote of the partners,
the managers, the members or the directors; or
(c) the contract or transaction is fair to the Managing Member or the
Company or its or their Affiliates as of the time it is authorized, approved or
ratified by the directors, the managers, the members or the partners.
Interested directors, managers, members or partners shall be counted in
determining the presence of a quorum at a meeting of the partners, managers,
members or directors which authorizes such contract or transaction. No
director, member, manager, partner or officer shall be liable to account to the
Managing Member or the Company for any profit realized by him or her from or
through such contract or transaction solely by reason of the fact that he or she
or any other limited liability company, corporation, partnership, association or
other organization which he or she is a director, member, manager, partner or
officer, or has a financial interest, was interested in such contract or
transaction.
ARTICLE 6.
OTHER ACTIVITIES OF MEMBERS
---------------------------
Section 6.1 Commitment of Managing Member.
-----------------------------
The Managing Member hereby agrees to use its best efforts in connection
with the purposes and objectives of the Company and to devote to such purposes
and objectives such of its time and resources as shall be necessary for the
management of the affairs of the Company. Subject to the other provisions of
this Agreement, the Managing Member and any of its Affiliates may act as a
director, officer, employee or advisor of any corporation, a trustee of any
trust, a member or manager of a limited liability company or a partner of any
partnership; may receive compensation for its services as an advisor with
respect to, or participation in profits derived from, the investments of any
such corporation, trust, limited liability company or partnership; and may
acquire, invest in, hold and sell securities of any entity. Neither the Company
nor any Member shall have by virtue of this Agreement, any right, title or
interest in or to such other corporation, trust, partnership, limited liability
company investment or security.
Section 6.2 Agreements with Portfolio Companies.
-----------------------------------
42
The Managing Member, the Parent of the Managing Member and its or their
Affiliates may enter into contracts, commitments and agreements with Portfolio
Companies consistent with ARTICLE V for the benefit of said Managing Member, the
Parent of the Managing Member and/or its or their Affiliates.
Section 6.3 Obligations and Opportunities for Members.
-----------------------------------------
The Members shall be obligated to refer investment opportunities,
consistent with the purposes and objectives of the Company, to the Company. Any
determination as to the appropriateness of an investment opportunity for the
Company or for an Affiliate of the Company or for the Parent of the Managing
Member shall be made by the disinterested directors of the Managing Member.
ARTICLE 7.
ADMISSIONS; ASSIGNMENTS; REMOVAL AND WITHDRAWALS
------------------------------------------------
Section 7.1 Admission of Additional Managing Member.
---------------------------------------
It is not contemplated that any additional Managing Members will be
admitted to the Company. A person may be admitted to the Company as a Managing
Member only with the written consent of each Member including the Managing
Member. In the event of the addition of a Managing Member, the participation of
such person in the management of the Company and the interest of such person in
the Company's profits and losses must be approved by all the Members at the time
of such person's or entity's admission.
Section 7.2 Admission of Additional Capital Investment Members; Increase in
---------------------------------------------------------------
Capital Commitments.
-------------------
(a) The Managing Member may admit one or more additional Capital Investment
Members, subject only to satisfaction of the following conditions: (i) each such
additional Capital Investment Member shall execute and deliver a Power of
Attorney pursuant to which such additional Capital Investment Member agrees to
be bound by the terms and provisions hereof, (ii) such admission would not
result in a violation of any applicable law, including the federal or state
securities laws, or any term or condition of this Agreement and, as a result of
such admission, the Company would not be required to register as an investment
company under the Investment Company Act, and (iii) each such additional Capital
Investment Member shall pay to the Company on the date of its admission to the
Company (or on such other date as may be determined by the Managing Member in
its sole discretion) an amount equal to the percentage of its Capital Commitment
which is equal to the percentage of the other Capital Investment
43
Members' Capital Commitments that shall have been payable at or prior to the
admission of the additional Capital Investment Member. The name and business
address of each Capital Investment Member admitted to the Company under this
Section 7.2 and the amount of its Capital Commitment shall be added to Exhibit
A, and each such Capital Investment Member shall be bound by all the provisions
hereof. Each additional Capital Investment Member admitted pursuant to this
Section 7.2 shall be deemed for purposes of all allocations pursuant to ARTICLE
II to have been admitted on the date of admission. Admission of an additional
Capital Investment Member in accordance with the terms hereof shall not be a
cause of dissolution of the Company. Additional Capital Investment Members
(other than Substitute Capital Investment Members admitted pursuant to Section
7.4) shall be admitted to the Company only with the written consent of, and on
the terms approved by, the Managing Member and a Majority in Interest of the
Capital Investment Members. Notwithstanding Section 12.3, the terms referred to
in the preceding sentence may require the amendment of this Agreement in a
manner that will treat adjustments to Members' Capital Account balances pursuant
to Section 2.3(b) upon or as a result of admissions of additional Capital
Investment Members as adjustments to their Capital Contributions for purposes of
calculating their Percentages in Interest with respect to Capital from the times
of such admissions.
(b) The Managing Member may permit any Capital Investment Member to
increase its Capital Commitment within a reasonable time of its notification to
the Managing Member of its desire to do so, provided that the conditions of
Section 7.2(a) and all other provisions of Section 7.2(a) have been satisfied as
though such Capital Investment Member were an additional Capital Investment
Member with respect to such increase, except that Exhibit A shall be amended
only to reflect such increase, and provided further that such increase would not
cause the Company to violate any statute or regulation applicable to it or any
covenant herein. The Managing Member shall notify the Members in a timely
fashion of each additional Capital Investment Member admitted pursuant to
Section 7.2(a) and of each Capital Investment Member that increases its
percentage of the total Capital Commitments of the Company pursuant to this
Section 7.2(b) beyond its percentage thereof upon its admission to the Company.
Except in the case of an assignment or transfer of Capital Membership interests
to Capital Investment Members in accordance with Section 7.4, a Capital
Investment Member may increase its Capital Commitment only with the written
consent of, and on the terms approved by, the Managing Member and a Majority in
Interest of the Capital Investment Members. The terms referred to in the
preceding sentence may require the amendment of this Agreement in a manner that
will treat adjustments to Members' Capital Account balances pursuant to Section
2.3(b) upon or as a result of increases in Capital Members' Capital Commitments
pursuant to this Section 7.2(b) as adjustments to Capital Contributions for
purposes of calculating Percentages of Contributed Capital. Notwithstanding
Section 12.3, any amendment referred to in the preceding sentence shall require
the approval of a Majority in Interest of the Capital Investment Members.
Section 7.3 Admission of Additional Profit Members.
--------------------------------------
The Managing Member may admit one or more additional Profit Members,
subject only
44
to satisfaction of the following conditions: (i) each such additional Profit
Member shall execute and deliver a Power of Attorney pursuant to which such
additional Profit Member agrees to be bound by the terms and provisions hereof,
and (ii) such admission would not result in a violation of any applicable law,
including the federal or state securities laws, or any term or condition of this
Agreement and, as a result of such admission, the Company would not be required
to register as an investment company under the Investment Company Act. The name
and business address of each Profit Member admitted to the Company under this
Section 7.3 and the number of his or her Units awarded to such additional Profit
Member and his or her date of hire shall be added to Exhibit A, and each such
Profit Member shall be bound by all the provisions hereof. Each additional
Profit Member admitted pursuant to this Section 7.3 shall be deemed for purposes
of all allocations pursuant to ARTICLE II to have been admitted on the date of
hire. Admission of an additional Profit Member in accordance with the terms
hereof shall not be a cause of dissolution of the Company. Additional Profit
Members shall be admitted to the Company only with the written consent of, and
on the terms approved by, the Managing Member and a Majority in Interest of the
Profit Members.
Section 7.4 Assignment of a Membership Interest.
-----------------------------------
(a) The Managing Member shall not assign or otherwise transfer its interest
as the Managing Member of the Company. A Capital Investment Member may sell,
assign or otherwise transfer all or any part of its interest in the Company only
with the consent in writing of the Managing Member, which consent shall be given
if the Managing Member is satisfied that the transaction (i) complies with and
does not violate any federal or state securities law, (ii) will not cause the
termination or dissolution of the Company, (iii) will not create a substantial
risk that the Company would be classified other than as a partnership for
federal income tax purposes, (iv) will not cause the Company to be required to
register as an investment company under the Investment Company Act and (v) will
not create a substantial risk that the Capital Investment Members and Profit
Members would lose their limited liability as members under the Delaware Act.
(b) A purchaser, assignee or transferee of a Capital Investment Member's
interest in the Company (an "Assignee") shall have the right to become a
Substitute Capital Investment Member only if the following additional conditions
are satisfied:
(i) a duly executed and acknowledged written instrument of
assignment satisfactory to the Managing Member shall have been filed with
the Company;
(ii) the Capital Investment Member and the Assignee shall have
executed and acknowledged such other instruments and taken such other
action as the Managing Member shall reasonably deem necessary or desirable
to effect such substitution, including, without limitation, the execution
by the Assignee of a Power of Attorney substantially similar to that
referred to in Section 12.8 hereof;
45
(iii) the restrictions on transfer contained in Section 7.5 are
inapplicable, and, if requested by the Managing Member, the Capital
Investment Member or the Assignee shall have obtained an opinion of counsel
reasonably satisfactory to the Managing Member as to the legal matters set
forth in that Section;
(iv) the Capital Investment Member or the Assignee shall have paid
to the Company such amount of money as is sufficient to cover all expenses
incurred by or on behalf of the Company in connection with such
substitution;
(v) the Managing Member shall have consented to such substitution,
which consent shall not be unreasonably withheld.
The pledge or hypothecation to a bank or financial institution of the right to
receive distributions with respect to a Capital Investment Member's interest in
the Company shall not be deemed an assignment or transfer of a Capital
Investment Member's interest in the Company, provided that such pledge or
hypothecation shall nonetheless be subject to the restrictions set forth in
Section 7.5. An Assignee who is not admitted to the Company as a Substitute
Capital Investment Member shall have none of the rights of and no liability as a
Capital Investment Member and the assignor in such case shall remain fully
liable for the unpaid portion of its Capital Commitment.
(c) No Profit Member may sell, assign or otherwise transfer all or any part
of its interest as a Profit Member of the Company in any respect whatsoever
except that the interest of a Profit Member may be transferred by will or by the
laws of descent and distribution to such Profit Member's estate or to his or her
beneficiaries or heirs following the death of such Profit Member, provided that
each and every such transferee agrees to be bound by all the terms and
conditions of this Limited Liability Company Agreement applicable to Former
Profit Members including, without limitation, those set forth in ARTICLE III and
ARTICLE IV.
Section 7.5 Restrictions on Transfer.
------------------------
Notwithstanding any other provision of this Agreement, no Capital
Investment Member may sell, assign or otherwise transfer all or any part of its
interest in the Company, and no attempted or purported assignment or transfer of
such interest shall be effective, unless (a) after giving effect thereto, the
aggregate of all the assignments or transfers by the Members of interests in the
Company within the 12 month period ending on the proposed date of such
assignment or transfer would not equal or exceed 50% of the total interests of
the Members in the capital or profits of the Company, and such assignment or
transfer would not otherwise terminate the Company for the purposes of Section
708 of the Code, (b) such assignment or transfer would not result in a violation
of applicable law, including the federal and state securities laws and provided
that, if such assignment or transfer would cause the Managing Member to violate
any covenant of this Agreement and the Managing Member has taken all reasonable
steps to prevent such violation, the Managing Member shall not be liable to the
46
Company as a result thereof and the Managing Member shall be indemnified by such
Capital Investment Member for any losses, damages or expenses incurred as a
result of such violation, (c) such assignment or transfer would not cause the
Company to lose its status as a partnership for federal income tax purposes or
cause the Company to become subject to the Investment Company Act, (d) if
requested by the Managing Member, such Capital Investment Member shall deliver a
favorable opinion of counsel satisfactory to the Managing Member as to the
matters referred to in the foregoing clauses (b) and (c), (e) if such assignment
or transfer is to an employee benefit plan within the meaning of ERISA (a
"Benefit Plan Investor"), the Managing Member shall have consented thereto,
which consent may be granted or withheld at its sole discretion, and (f) such
assignment or transfer is to an entity which is an Accredited Investor.
Notwithstanding the foregoing, a Capital Investment Member which is a Benefit
Plan Investor may sell, assign or transfer all or part of its interest to a
successor fiduciary or trustee of the same plan or trust without the consent of
the Managing Member, and in such case the successor fiduciary or trustee shall
be substituted as a Capital Investment Member.
Section 7.6 Removal or Withdrawal of Managing Member.
----------------------------------------
(a) Except as otherwise provided in this Agreement, without the prior
written approval of at least Eighty Percent in Interest of both the Capital
Investment Members and the Profit Members, the Managing Member may not resign or
withdraw as Managing Member of the Company or voluntarily terminate its
existence as Managing Member of the Company. If the Managing Member resigns,
withdraws or terminates its existence in violation of this Section 7.6, then the
interest of the Managing Member shall be divided into two components: (i) 25%
thereof shall be allocated proportionately to the Capital Investment Members,
thereby increasing their respective Capital Accounts (and the Capital
Contributions deemed to have been made by the Capital Investment Members shall
be automatically adjusted to reflect such increase) and (ii) 75% thereof shall
be distributed to the Managing Member as provided in paragraph (d) below.
(b) Upon the approval of at least a eighty percent in interest of the
Capital Investment Members, the Capital Investment Members may remove the
Managing Member without cause.
(c) Upon the approval of at least two-thirds in interest of the Capital
Investment Members, the Capital Investment Members may remove the Managing
Member if any act or omission of the Managing Member in connection with the
Company constitutes willful misconduct or fraud or if the Managing Member is in
material violation of its obligations hereunder. If the Managing Member is so
removed, then the interest of the Managing Member shall be divided into two
components: (i) 35% thereof shall be allocated proportionately to the Capital
Investment Members, thereby increasing their respective Capital Accounts (and
the Capital Contributions deemed to have been made by the Capital Investment
Members shall be automatically adjusted to reflect such increase), and (ii) 65%
thereof shall be distributed to the Managing Member as provided in paragraph (d)
below.
(d) Upon the resignation, removal, withdrawal or voluntary termination of
existence
47
of the original or any successor Managing Member, the Company shall not be
dissolved if, within ninety (90) calendar days after such resignation, removal,
withdrawal or voluntary termination of existence, a Majority in Interest of the
remaining Capital Investment Members and a Majority in Interest of the remaining
Profit Members shall have agreed in writing to continue the business of the
Company and shall have selected, effective as of the date of such event, a
successor Managing Member. In such event, except as provided in Sections 7.6(a)
and 7.6(c), the former Managing Member shall be entitled to receive a
distribution equal to any amounts it would have been entitled to receive had the
Company dissolved in accordance with Section 10.3 hereof and distributed in kind
all Company assets as of the date of the resignation, removal, withdrawal or
voluntary termination of existence of the Managing Member. For purposes of
determining allocations and distributions pursuant to the preceding sentence,
securities and other property held by the Company shall be valued pursuant to
the procedures set forth in Section 4.8. If the Managing Member shall have
resigned, withdrawn or voluntarily terminated its existence or been removed
pursuant to this Section 7.6, such distribution shall be made in kind, or with
the approval of at least a Majority in Interest of the Capital Investment
Members and a Majority in Interest of the Profit Members, in cash, within thirty
(30) calendar days (or as soon thereafter as is practicable but no later than
thirty calendar days) after such removal, resignation, withdrawal or voluntary
termination of existence.
(e) Upon and as of the date of the resignation, removal, withdrawal or
voluntary termination of existence of the original or any successor Managing
Member (the "Permitted Managing Member"), such Permitted Managing Member will
cause, to the extent it is legally possible, all its rights, obligations and
interest as such Managing Member arising under this Agreement or any other
contracts, agreements or documents entered into by it on behalf of the Company
to be assigned to the successor Managing Member or to the Managing Member of the
new limited liability company or partnership; such successor or new Managing
Member will assume and agree to perform all of such Permitted Managing Member's
duties and obligations arising under this Agreement and such other instruments
and such Permitted Managing Member will, upon making a proper accounting to the
successor or new Managing Member, be relieved of any further duties or
obligations arising under this Agreement and such other instruments from and
after the time such resignation, removal, withdrawal or voluntary termination of
existence shall have become effective.
Section 7.7 Withdrawals of Capital Investment Members.
-----------------------------------------
No Capital Investment Member shall have the right to withdraw from the
Company except in connection with an assignment under Section 7.4.
48
ARTICLE 8.
LIABILITY OF MEMBERS; INDEMNIFICATION
-------------------------------------
Section 8.1 Liability of Members.
--------------------
(a) No Member shall have any personal liability for any obligation of the
Company in excess of his, her or its respective Capital Contribution; provided,
however, that a Capital Member shall be liable to the Company to the extent of
previous distributions only to the extent required by law and only to the extent
provided in Section 18-607 of the Delaware Act.
(b) Subject to Section 8.2, and unless otherwise required by applicable
law, the Managing Member and any Profit Member shall not be liable to the
Company or any other Member for any action taken by any other Member, nor shall
the Managing Member or any Profit Member (in the absence of negligence,
misconduct, fraud or a willful violation of law by the Managing Member or any
Profit Member) be liable to the Company or any other Member for any action of
any employee, broker or agent of the Company provided that the Managing Member
or any Profit Member shall have exercised appropriate care in the selection and
supervision of such employee, broker or agent or unless the Managing Member or
any Profit Member would otherwise be responsible under applicable law for the
actions of such employee, broker or agent.
Section 8.2 Indemnification.
---------------
(a) The Managing Member, each of the Profit Members, each of the members of
the Advisory Committee, and the Affiliates of any of them (the "Indemnitees")
shall not have any liability to the Company or to any Member for any loss
suffered by the Company which arises out of any action or inaction of such
Indemnitee if such Indemnitee in good faith determined that such course of
conduct was in the best interests of the Company and such course of conduct did
not constitute negligence or misconduct (including violations of law, breach of
fiduciary duty and breach of this Agreement) of such Indemnitee. An Indemnitee
shall be indemnified and held harmless by the Company against any losses,
judgments, liabilities, expenses and amounts paid in settlement of any claims
sustained by it in connection with the Company provided that the same were not
the result of negligence or misconduct (including violations of law, breach of
fiduciary duty and breach of this Agreement) on the part of such Indemnitee.
(b) Notwithstanding the above, such Indemnitee shall not be indemnified for
losses, liabilities or expenses arising from or out of an alleged violation of
federal or state securities laws unless (1) there has been a successful
adjudication on the merits of each count involving alleged securities law
violations as to the particular Indemnitee; (2) such claims have been dismissed
with prejudice on the merits by a court of competent jurisdiction as to the
particular Indemnitee; or (3) a court of competent jurisdiction approves a
settlement of the claims against
49
a particular Indemnitee.
(c) In any claim for indemnification for federal or state securities law
violations, the party seeking indemnification shall place before the court the
position of the Securities and Exchange Commission and the Massachusetts
Securities Division with respect to the issue of indemnification for securities
law violations.
(d) The Company shall not incur the cost of the portion of any insurance,
other than public liability insurance, which insures any party against any
liability the indemnification of which is herein prohibited.
(e) Prior to entering into any compromise or settlement which would
result in an obligation of the Company to indemnify such person, the Indemnitee
shall obtain the written consent of the Managing Member (if such person is other
than the Managing Member) or (if such person is the Managing Member) either (i)
an opinion of counsel, such counsel to be chosen by a Majority in Interest of
the Profit Members, to the effect that such compromise or settlement is not
unreasonable, which opinion shall be furnished to all Members or (ii) the
consent of a Majority in Interest of the Profit Members.
Section 8.3 Payment of Expenses.
-------------------
Expenses incurred by an Indemnitee in defense or settlement of any claim
that may be subject to a right of indemnification hereunder may be advanced by
the Company prior to the final disposition thereof provided that the following
conditions are satisfied: (1) the claim relates to the performance of duties or
services by the Indemnitee on behalf of the Company or the Advisory Committee,
as the case may be, (2) the claim is initiated by a third party who is not a
Capital Investment Member and (3) the Indemnitee undertakes to repay the
advanced funds to the Company if it is ultimately determined that the Indemnitee
is not entitled to be indemnified hereunder or under applicable law. The right
of any Indemnitee to the indemnification provided herein shall be cumulative of,
and in addition to, any and all rights to which such Indemnitee may otherwise be
entitled by contract or as a matter of law or equity and shall extend to such
Indemnitee's successors, assigns and legal representatives. All judgments
against the Company and the Managing Member, in respect of which such Managing
Member is entitled to indemnification, must first be satisfied from Company
assets before the Managing Member is responsible therefor. The obligations of
Capital Investment Members under this ARTICLE VIII shall be satisfied only after
any applicable insurance proceeds have been exhausted and then only out of
Company assets and, only to the extent required by law, and only to the extent
provided in Section 18-607 of the Delaware Act, out of distributions made by the
Company to its Members, and Capital Investment Members shall have no personal
liability to fund indemnification payments hereunder.
50
ARTICLE 9.
ACCOUNTING FOR THE COMPANY; REPORTS
-----------------------------------
Section 9.1 Accounting for the Company.
--------------------------
The Company shall use such methods of accounting as the Managing Member
determines to be consistent with federal income tax requirements and (to the
extent possible) with generally accepted accounting principles.
Section 9.2 Books and Records.
-----------------
The Managing Member shall keep or cause to be kept complete and appropriate
records and books of account. Except as otherwise expressly provided herein,
such books and records shall be maintained on the basis used in preparing the
Company's federal income tax returns. Such information as is necessary to
reconcile such books and records with generally accepted accounting principles
shall also be maintained. The books and records shall be maintained at the
principal office of the Company, and shall be available for inspection and
copying by any Member at its expense during ordinary business hours following
reasonable notice for any purpose reasonably related to its interest as a Member
of the Company. In addition, the Managing Member shall provide any Capital
Investment Member or Profit Member with a list of all Capital Members and their
respective Percentages of Interest or with a list of all Profit Members and
Former Profit Members and their Vested and Unvested Carried Interests within 30
days of receipt by the Managing Member of a written request for the same.
Section 9.3 Reports to Members.
------------------
Promptly after consummation of each Investment in a Portfolio Company, the
Managing Member shall prepare and deliver to each Member a description of such
Investment and the Portfolio Company in which it was made. The Managing Member
will deliver to each Member the audited or unaudited balance sheet and income
statement and/or other annual and quarterly financial statements of each
Portfolio Company within a reasonable time of the receipt thereof by the
Managing Member. After the end of each Fiscal Year, the Managing Member shall
cause an audit of the Company to be made by an independent public accountant of
nationally recognized status of the financial statements of the Company for that
year. Such audit shall be certified and a copy thereof shall be delivered to
each Member within 90 days after the end of each of the Company's Fiscal Years.
Such certified financial statements shall also be accompanied by a report on the
Company's activities during the year prepared by the Managing Member and (a) a
list of all Capital Members and their respective percentages of contributed
capital and a list of all Profit Members and Former Profit Members and their
respective Vested and Unvested Carried Interests and Capital Accounts and (b) if
the Capital Commitments of
51
Benefit Plan Investors exceeds 25% of total Capital Commitments, a certification
to each Benefit Plan Investor that the Company is a Venture Capital Operating
Company as defined in 39 C.F.R. (S)2510. Within 90 days after the end of each
Fiscal Year, the Company will deliver to each Member the Managing Member's good
faith estimate of the fair value of the Company's Investments as of the end of
such year and a statement showing the balances in such Member's Capital Account
(both vested and unvested) as of the end of such year. Within 60 days after the
end of each Fiscal Year, the Managing Member will cause to be delivered to each
Member a Form K-1 and such other information, if any, with respect to the
Company as may be necessary for the preparation of such Member's federal income
tax returns, including a statement showing each Member's share of income, gain
or loss and credits for such Fiscal Year for federal income tax purposes.
ARTICLE 10.
DISSOLUTION AND WINDING UP
--------------------------
Section 10.1 Dissolution.
-----------
The existence of the Company shall dissolve upon the first to occur of the
following events:
(a) April 13, 2010; provided that the duration of the Company may be
extended by the Managing Member in its sole discretion by notice in writing to
each Member not later than thirty (30) days prior to any such extension for one
or more additional periods from such date of not less than three years or more
than ten years each, if the Managing Member determines, in each instance, taking
into account the Company's Investments and the amount of capital calls remaining
to be invested, that such extension is in the best interests of the Company;
(b) if (A) the Managing Member commences any case, proceeding or other
action (y) under any law relating to bankruptcy, insolvency, reorganization or
relief of debtors, seeking to have an order for relief entered with respect to
the Company or the Managing Member, or seeking to adjudicate the Company or the
Managing Member a bankrupt or insolvent, or seeking reorganization, winding-up,
liquidation, dissolution, composition or other relief with respect to the
Company or the Managing Member or the debts of either of them, or (z) seeking
appointment of a receiver, trustee, custodian or other similar official for it
or for all or any substantial part of its assets, or if the Managing Member or
the Company shall make a general assignment for the benefit of its creditors; or
if (B) there shall be commenced against the Company or against the Managing
Member any case, proceeding or other action of a nature referred to in clause
(A) above which (y) results in the entry of an order for relief or any such
adjudication or appointment or (z) remains undismissed, undischarged or unbonded
for a period of ninety calendar days; or if (C) there shall be commenced against
the Company or against the Managing Member any case, proceeding or other action
seeking issuance of a warrant of
52
attachment, execution, distraint or similar process against all or any
substantial part of its assets, which results in the entry of an order for any
such relief which shall not have been vacated, discharged, or stayed or bonded
pending appeal within ninety calendar days from the entry thereof; of if (D) any
other event not expressly provided for in this Agreement occurs which under the
Delaware Act causes the Managing Member to cease to be a Managing Member of the
Company; unless (i) at the time of such event there is at least one other
Managing Member of the Company who is hereby authorized to, and does continue,
the business of the Company; provided that a Majority in Interest of the Capital
Investment Members and a Majority in Interest of the Profit Members agree to
continue the business of the Company or (ii) if within 90 days of such removal,
bankruptcy, dissolution or withdrawal, a Majority in Interest of the Capital
Investment Members and a Majority in Interest of the Profit Members agree in
writing to continue the business of the Company and to the appointment,
effective upon the date of such event, of one or more additional Managing
Members;
(c) the sale or other disposition of all or substantially all of the
assets of the Company;
(d) the entry of a decree of judicial dissolution under the Delaware
Act;
(e) the written consent of the Managing Member and a Majority in
Interest of the Profit Members to terminate the Company;
(f) upon the determination of a Majority in Interest of the Capital
Investment Members and a Majority in Interest of the Profit Members that there
is a substantial risk that the Company would be taxed as a corporation under the
Code and that, as a result, the objectives of the Company would be substantially
impaired, provided that such Members furnish an opinion to such effect in form
and substance reasonably satisfactory to the Managing Member and from counsel
reasonably satisfactory to the Managing Member.
Section 10.2 Winding Up.
----------
Upon the occurrence of an event specified in Section 10.1, the affairs of
the Company shall be wound up and its assets liquidated and distributed in
accordance with this Agreement. The Managing Member or, if there is no Managing
Member, a liquidator appointed by a Majority in Interest of the Capital
Investment Members and a Majority in Interest of the Profit Members, shall
proceed with the Dissolution Sale as promptly as practicable; provided that the
Managing Member or such liquidator can continue such Dissolution Sale as long as
it feels is reasonably necessary to obtain fair value for the Investments in
Portfolio Companies and other assets of the Company. Assets that the Managing
Member or the liquidator believes could be sold in the Dissolution Sale only at
an undue loss to the Members or with great impracticality may be distributed to
the Members in kind pro rata in accordance with Sections 2.5, 2.6, 2.7 3.1,
3.2, 3.3 and ARTICLE IV.
53
Section 10.3 Final Distribution and Allocation.
---------------------------------
(a) In the final Fiscal Year of the Company, each item of Net
Operating Profits and Net Operating Losses and Net Realized Capital Gains and
Net Realized Capital Losses shall be allocated to the Members in such manner as
would, to the extent possible, result in the Members' having zero balances in
their respective Capital Accounts if all distributions by the Company for such
Fiscal Year, including liquidating distributions, were made in accordance with
ARTICLE IV. If the Fair Market Value of Company assets to be distributed in kind
exceeds ("book gain") or is less than ("book loss") the book value of such
assets, to the extent not otherwise recognized to the Company, such book gain or
book loss shall be taken into account in computing Net Operating Profits or Net
Operating Losses, Net Realized Capital Gains and Net Realized Capital Losses for
such Fiscal Year for all purposes of crediting or charging the Capital Accounts
of the Members pursuant to ARTICLE II and ARTICLE III as if such assets had been
sold and the proceeds distributed pursuant to ARTICLE IV. Thereupon, all of the
assets of the Company, or the proceeds therefrom, shall be distributed or used
as follows and in the following order of priority:
(i) for the payment, or the reasonable provision for the
payment, of the debts and liabilities of the Company, including amounts
owed to any Members in their capacities as creditors of the Company, and
the expenses of liquidation; to the setting up of any reserves which the
Managing Member or the liquidator may deem reasonably necessary for any
contingent liabilities or obligations of the Company; and
(ii) to the Members, in accordance with the positive balances in
their Capital Accounts and Profit Accounts in compliance with Section
1.704-1(b)(2)(ii)(b)(2) of the Treasury Regulations and the balance pro
rata in accordance with Sections 2.5, 2.6, 2.7, 3.1, 3.2, 3.3 and ARTICLE
IV.
(b) Upon the dissolution and liquidation of the Company, after all
allocations of Net Operating Profits, Net Operating Losses, Net Realized Capital
Gains and Net Realized Capital Losses have been made but before any Final
Distribution has been made to the Members, and in any event before the later of
the end of the Company's taxable year of liquidation or 90 days after the
Company's liquidation, the Managing Member shall contribute to the capital of
the Company an amount equal to the negative balance, if any, in its Capital
Account.
Notwithstanding the foregoing, the Managing Member's obligation pursuant to
this Section 10.3(b) shall not inure to the benefit of, or be invoked or
enforced by or for the benefit of, any creditor who has otherwise contractually
obligated itself to look solely to all or a part of the assets of the Company
and not to the assets of any Member for satisfaction of any debt owed or owing
to that creditor by the Company.
(c) When the Managing Member or the liquidator has complied with the
foregoing liquidation plan, the Members shall execute, acknowledge and cause to
be filed an instrument evidencing the cancellation of the Certificate of
Formation of the Company pursuant to (S)18-203
54
of the Delaware Act.
Section 10.4 Merger of Company into Another Entity.
-------------------------------------
The merger of the Company into another entity, which may or may not be
another limited liability company, shall occur upon the affirmative vote of the
Managing Member and of a Majority in Interest of the Capital Investment Members
and a Majority in Interest of the Profit Members, and in any case shall not be
deemed a dissolution under this ARTICLE X.
ARTICLE 11.
DEFINITIONS
-----------
As used herein, the following terms have the following meanings:
Accredited Investor: An investor which qualifies as an "accredited
-------------------
investor" as defined in Regulation (S)230.501 of Regulation D promulgated under
the Securities Act.
Adjusted Capital Account Deficit: A Capital Member's deficit Capital
--------------------------------
Account balance as determined by (i) crediting to such Member's Capital Account
all amounts which such Member is obligated to restore to his Capital Account or
is deemed to be obligated to restore to his Capital Account pursuant to either
or both of the penultimate sentences of Sections 1.704-lT(b)(4)(iv)(f) and
1.704-lT(b)(4)(iv)(h)(5) of the Treasury Regulations and (ii) debiting to such
Member's Capital Account the items described in Sections 1.704-
1(b)(2)(ii)(d)(4), (5) and (6) of the Treasury Regulations.
Advisory Committee: As defined in Section 5.5.
------------------
Affiliate: Any person or entity that directly or indirectly controls, is
---------
controlled by, or is under common control with, the person or entity in
question, provided however, that "Affiliate" for the purposes of ARTICLE VIII
shall mean any person performing services on behalf of the Company who:
(1) directly or indirectly controls, is controlled by, or is under common
control with the Managing Member; or
(2) who owns or controls 10% or more of the outstanding voting securities
of the Managing Member; or
(3) is an officer, director, partner, member, manager or trustee of the
Managing Member or of the Parent or of an Affiliate of the member, manager,
or
55
(4) if the Managing Member is an officer, director, partner, member,
manager or trustee, is any company for which the Managing Member acts in
any such capacity.
Agreement: This Limited Liability Company Agreement.
---------
Announcement Date: The date on which the Change of Control is publicly
-----------------
announced or the date on which information regarding the same is disseminated to
the public generally, whichever occurs first.
Appraiser: As defined in Section 3.4(b).
---------
Assignee: As defined in Section 7.4.
--------
Benefit Plan Investor: As defined in Section 7.5.
---------------------
Break-up Fee: Any fee, reimbursement or other form of compensation in the
------------
nature of a topping, no-go, commitment or break-up or other arrangement payable
by a third party as a result of the failure to consummate a proposed investment
in a Portfolio Security.
Business Day: Each Monday, Tuesday, Wednesday, Thursday and Friday which
------------
is not a day on which banking institutions in Boston, Massachusetts, are
authorized or obligated by law to close.
Call Notices: As defined in Section 2.2.
------------
Capital Account: As defined in Section 2.3.
---------------
Capital Commitment: As defined in Section 2.1.
------------------
Capital Contribution: As defined in Section 2.2.
--------------------
Capital Investment Members: As defined in the recitals and in Exhibit A.
--------------------------
Capital Member Loss: The amount of $4,000,000 plus Net Operating Losses
-------------------
and Net Realized Capital Losses allocated to the Capital Members' Capital
Accounts as provided in Sections 2.5 and 2.6.
Capital Members: As defined in the recitals and in Exhibit A.
---------------
Capital Members' Allocation: That portion of the Net Operating Profits,
---------------------------
Net Operating Losses, Net Realized Capital Gains and Net Realized Capital Losses
allocated to the Capital Investment Members as provided in Sections 2.5 and 2.6.
Capital Proceeds: The net proceeds from sales or other dispositions of
----------------
Portfolio
56
Securities, including liquidating and other like distributions on Portfolio
Securities.
Carried Interest: As defined in Section 3.2.
----------------
Cash Flow: For any Fiscal Year, the aggregate cash receipts of the Company
---------
for such Fiscal Year (including receipts by, on behalf of or for the benefit
of the Company or the Members) other than receipts of Capital Contributions from
the Members, receipts arising from sales or other dispositions of Portfolio
Securities and liquidating and other like distributions on Portfolio Securities.
Cause: As defined in Section 3.3(b).
-----
Change of Control: As defined in Section 3.4(f).
-----------------
Change of Control Repurchase Price Per Unit. As defined in Section 3.4(a).
-------------------------------------------
Code: The Internal Revenue Code of 1986, as amended.
----
Commitment Period: The period from the date hereof up to and including
-----------------
April 13, 2010, unless extended by the Managing Member as provided in Section
1.5 and ARTICLE X or unless terminated earlier as provided therein and in
Section 2.9.
Common Stock: The common stock, par value $.01, of the Parent.
------------
Common Stock Price: The average of the twenty (20) highest last sale prices
------------------
with respect to the Common Stock during the three-month period preceding the
Announcement Date on the National Association of Securities Dealers, Inc.
Automated Quotations (NASDAQ) System, or, if the Common Stock is not listed on
NASDAQ, then the average of the twenty (20) highest last sale prices with
respect to the Common Stock during the three-month period preceding the
Announcement Date on the principal United States securities exchange registered
under the Exchange Act on which the Common Stock is listed.
Company: As defined in the recitals.
-------
Consultants: As defined in Section 5.2(f).
-----------
Date of Default: As defined in Section 2.10.
---------------
Defaulting Capital Investment Member: As defined in Section 2.10.
------------------------------------
Delaware Act: The Delaware Limited Liability Company Act, as amended, 6
------------
Del. C. (S)18-101, et seq. or any successor to such act.
------
Dissolution Sale: Sales and liquidations by or on behalf of the Company of
----------------
all or
57
substantially all of its assets in connection with or in contemplation of the
winding up of the Company.
Due Date: As defined in Section 2.2.
--------
ERISA: The Employee Retirement Income Security Act of 1974, as amended.
-----
Exchange Act: As defined in Section 3.4.
------------
Excused Investment: As defined in Section 2.11.
------------------
Excused Member: As defined in Section 2.11.
--------------
Fair Market Value: The value of Company assets and, when the reference so
-----------------
requires, of Portfolio Securities, determined as provided in Section 4.8.
Fair Market Value of the Company. As defined in Section 3.4.
--------------------------------
Final Distribution: The distribution described in Section 10.3(a).
------------------
Financial Institution: A bank, savings institution, trust company,
---------------------
insurance company, pension or profit sharing trust, or similar entity which is a
member of any group of such persons, having assets of at least $100,000,000, or
other entity (other than an individual) a substantial part of whose business
consists of investing in, purchasing or selling the securities of others.
Fiscal Year: The fiscal year ending on the last day of July in any year.
-----------
In the case of the first and last fiscal years, the fraction thereof commencing
on the date on which the Company is formed or ending on the date on which the
winding up of the Company is completed, as the case may be.
Follow-On Investments: An Investment in a Portfolio Company following a
---------------------
prior Investment in that company.
Former Profit Member: As defined in Section 3.2 and in Exhibit A.
--------------------
Holding Companies: As defined in Section 1.7(a).
-----------------
Indemnitees: As defined in Section 8.3.
-----------
Initial Election: As defined in Section 3.4(a).
----------------
Investments: As defined in Section 1.7.
-----------
58
Investment Company Act: The Investment Company Act of 1940, as amended.
----------------------
Liabilities: As defined in Section 8.3.
-----------
Maintenance Expenses: As defined in Section 5.4(a).
--------------------
Majority in Interest of the Capital Investment Members: At any time, those
------------------------------------------------------
Capital Investment Members whose aggregate Percentages in Interest exceed 50%.
Majority in Interest of the Profit Members: At any time, those Profit
------------------------------------------
Members whose aggregate Carried Interests exceed 50%.
Managing Member: As defined in the recitals and in Exhibit A.
---------------
Managing Member Loss: As of the end of any Fiscal Year, the excess of any
--------------------
Net Realized Capital Losses and/or Net Operating Losses allocated to the
Managing Member pursuant to Section 2.5(b)(ii) and Section 2.6(b)(ii).
Marketable Securities: Securities that are traded on a national securities
---------------------
exchange, reported through the National Association of Securities Dealers
Automated Quotation System or traded over-the-counter.
Material Adverse Effect: As defined in Section 2.11(d).
-----------------------
Members: As defined in the recitals.
-------
Net Operating Losses: With respect to any period, shall mean the excess of
--------------------
aggregate expenses incurred during (or attributable to) such period by the
Company and not by any Portfolio Company or Investment (other than expenses
directly relating or attributable to the sale, purchase, exchange or
distribution of Portfolio Securities) over the aggregate income earned during
such period by the Company from all sources whatsoever (other than net gain from
the sale, purchase, exchange or distribution of Portfolio Securities), such Net
Operating Losses to be computed in accordance with applicable U.S. federal
income tax accounting principles and (to the extent possible) with generally
accepted accounting principles.
Net Operating Profits: With respect to any period, shall mean the excess
---------------------
of aggregate income earned during (or attributable to) such period by the
Company (and not by any Portfolio Company or Investment) from all sources
whatsoever (other than net gain from the sale, purchase, exchange or
distribution of Portfolio Securities) over all expenses incurred during (or
attributable to) such period by the Company (other than expenses directly
relating or attributable to the sale, purchase, exchange or distribution of
Portfolio Securities), such Net Operating Profits to be computed in accordance
with applicable U.S. federal income tax accounting principles and (to the extent
possible) with generally accepted accounting principles.
59
Net Realized Capital Gains: For any period shall mean the excess of gains,
--------------------------
determined in accordance with U.S. federal income tax principles, on any sales
or other dispositions of Portfolio Securities for such Fiscal Year over the
losses, determined in accordance with federal income tax principles, on any
sales or other dispositions of Portfolio Securities for such Fiscal Year.
Notwithstanding the foregoing, for purposes of this definition, gains and losses
with respect to Portfolio Securities reflected on the Company's books at values
that differ from their adjusted tax bases as a result of the application of
Section 2.3(b) shall be measured by the differences between the amounts realized
upon sales or other dispositions of such Portfolio Securities and the book
values of such Portfolio Securities.
Net Realized Capital Losses: For any period shall mean the excess of
---------------------------
losses, determined in accordance with U.S. federal income tax principles, on any
sales or other dispositions of Portfolio Securities for such Fiscal Year over
the gains, determined in accordance with federal income tax principles, on any
sales or other dispositions of Portfolio Securities for such Fiscal Year.
Notwithstanding the foregoing, for purposes of this definition, gains and losses
with respect to Portfolio Securities reflected on the Company's books at values
that differ from their adjusted tax bases as a result of the application of
Section 2.3(b) shall be measured by the differences between the amounts realized
upon sales or other dispositions of such Portfolio Securities and the book
values of such Portfolio Securities.
Non-Competition Covenant: As defined in Section 3.3(b)(iii) and as set
------------------------
forth in Section 3.5.
Non-Defaulting Capital Investment Members: As defined in Section 2.10.
-----------------------------------------
Notice Members: As defined in Section 12.12.
--------------
Offered Shares: As defined in Section 4.5(c).
--------------
Parent: CMG Information Services, Inc., a Delaware corporation.
------
Percentage in Interest: In the case of each Capital Member, the Capital
----------------------
Contribution of such Member divided by the sum of the Capital Contributions of
all Capital Members.
Plan Participant: As defined in Section 12.13.
----------------
Portfolio Companies: As defined in Section 1.7.
-------------------
Prime Rate: The rate of interest announced by The First National Bank of
----------
Boston from time to time as its Prime Rate.
Profit Account: As defined in Section 3.7.
--------------
Profit Members: As defined in the recitals and in Section 3.1 and Exhibit
--------------
A.
60
Profit Members Carried Interest Allocation: That portion of the Net
------------------------------------------
Operating Profits, Net Operating Losses, Net Realized Capital Gains and Net
Realized Capital Losses allocated to the Profit Members as provided in Sections
2.5 and 2.6.
Profit Member Loss: Net Operating Losses and Net Realized Capital Losses
------------------
allocated to the Profit Members' Capital Accounts as provided in Sections 2.5
and 2.6.
Portfolio Securities: Securities of Portfolio Companies described in
--------------------
Section 1.7 owned by the Company or by the Managing Member.
Recovered Capital: Any distribution of capital to the Capital Members
-----------------
pursuant to Section 4.4(h).
Regulatory Allocations: As defined in Section 2.7(d).
----------------------
Return of Capital: Any return of capital pursuant to Section 2.2.
-----------------
Right of First Refusal: As defined in Section 4.5(c).
----------------------
Securities: As defined in Section 1.7(a).
----------
Securities Act: The Securities Act of 1933, as amended from time to time.
--------------
Special Fees: Transaction fees payable to the Company pursuant to Section
------------
5.4(c) and any other fee or reimbursement payable to the Company as income for
services or otherwise (including the fees referred to in Section 5.4).
Substitute Capital Investment Member: A purchaser, assignee or transferee
------------------------------------
of a Capital Member's interest in the Company that is admitted to the Company as
a Capital Member pursuant to Section 7.4 and shown as a Capital Member on the
books and records of the Company.
Tax Matters Partner: As defined in Section 12.12.
-------------------
Temporary Investments:
---------------------
(i) Investments in direct obligations of the United States of
America, or obligations of any instrumentality or agency thereof, payment
of principal and interest of which is unconditionally guaranteed by the
United States of America, having a final maturity of not more than 180 days
from the date of issue thereof;
(ii) Investments in certificates of deposit or repurchase agreements
having a final maturity not more than 180 days from the date of acquisition
thereof issued by any bank or trust company organized under the laws of the
United States of America or any
61
state thereof having capital and surplus of at least $100,000,000;
(iii) investments in money market funds; and
(iv) commercial paper payable on demand or having a final maturity
not more than 180 days from the date of acquisition thereof which has the
highest credit rating of either Standard & Poor's Corporation or ▇▇▇▇▇'▇
Investors Service, Inc.
Treasury Regulations: The Income Tax Regulations (final or temporary)
--------------------
promulgated under the Code. References to specific sections of the Treasury
Regulations shall be to such sections as amended, supplemented or superseded by
Treasury Regulations currently in effect.
Units: As defined in Section 3.2.
-----
Unrecovered Capital: All amounts in the Capital Accounts of the Capital
-------------------
Members up to the amount of their Capital Contributions, less any Returns of
Capital and less any distributions of Unrecovered Capital previously made to the
Capital Members pursuant to Section 4.4(h).
Unvested Units: As defined in Section 3.2.
--------------
Vested Units: As defined in Section 3.2.
------------
ARTICLE 12.
MISCELLANEOUS
-------------
Section 12.1 Registration of Securities.
--------------------------
Stocks, bonds, securities and other property owned by the Company shall be
registered in the Company name or a "street name." Any corporation or transfer
agent called upon to transfer any stocks, bonds and securities to or from the
name of the Company shall be entitled to rely on instructions or assignments
signed or purporting to be signed by the Managing Member without inquiry as to
the authority of the person signing or purporting to sign such instructions or
assignments or as to the validity of any transfer to or from the name of the
Company. At the time of transfer, the corporation or transfer agent is entitled
to assume (i) that the Company is still in existence and (ii) that this
Agreement is in full force and effect and has not been amended unless the
corporation or transfer agent has received written notice to the contrary.
62
Section 12.2 Entire Agreement.
----------------
This Agreement and Exhibit A attached hereto set forth the full and
complete agreement of the Members with respect to the subject matter hereof and
supersede any prior agreement or undertaking among the parties.
Section 12.3 Amendments.
----------
This Agreement may be modified from time to time by the Managing Member and
a Majority in Interest of the Capital Investment Members and a Majority in
Interest of the Profit Members; provided, however, that amendments which do not
adversely affect the Capital Investment Members or the Profit Members or the
Company may be made to this Agreement and the certificate of limited company for
the Company, from time to time, by the Managing Member, without the approval of
any of the Capital Investment Members or any of the Profit Members, (i) to add
to the representations, duties or obligations of the Managing Member, or to
surrender any right granted to the Managing Member herein, (ii) to cure any
ambiguity, or to correct or supplement any immaterial provision herein or in the
certificate of limited company for the Company which may be inconsistent with
any other provision herein or therein, or correct any printing, stenographic or
clerical errors or omissions which will not be inconsistent with the provisions
of this Agreement or the status of the Company as a partnership for federal
income tax purposes, or to clarify any tax or accounting treatment, and (iii) to
make any amendment or change which is for the benefit of, or not adverse to the
interests of, the Capital Investment Members or of the Profit Members. No
amendment may be made to any provision of this Agreement which contemplates
action by a vote or consent of greater than a Majority in Interest of the
Capital Investment Members or of the Profit Members without a vote or consent of
such greater majority as therein specified in each case. In addition, this
Agreement may be amended by the Managing Member without the consent of any other
Member in order to conform to any safe harbor provisions of the Code and
Treasury Regulations which would preserve the substantial economic effect of the
allocation of profits and losses set forth in ARTICLE II and ARTICLE III,
provided that no such amendment shall materially decrease the amount or defer
the timing of any distribution, including distributions payable upon
liquidation, that the Capital Investment Members or Profit Members would
otherwise be entitled to pursuant to this Agreement. Changes to Exhibit A to
reflect the addition and deletion of Capital Investment Members or Profit
Members and changes in the addresses of Capital Investment Members or Profit
Members shall not be deemed amendments to this Agreement. The Managing Member
shall promptly furnish the Capital Investment Members and the Profit Members
with copies of each amendment to this Agreement.
Section 12.4 Severability.
------------
If any provision of this Agreement, or the application of such provision to
any person or circumstance, shall be held invalid, the remainder of this
Agreement or the application of
63
such provision to other persons or circumstances shall not be affected thereby.
Any default hereunder by a Capital Investment Member shall not excuse a default
by any other Capital Investment Member.
Section 12.5 Notices.
-------
All notices, requests, demands and other communications shall be in writing
and shall be deemed to have been duly given if personally delivered or sent by
United States mail, by facsimile if transmission is mechanically confirmed, or
by telegram or telex confirmed by letter, if to the Members, at the addresses
set forth on Exhibit A attached hereto, and if to the Company, to the Managing
Member at its address set forth in Exhibit A, or to such other address as any
Member shall have last designated by notice to the Company and the other
Members, or as the Managing Member shall have last designated by notice to the
Capital Investment Members and Profit Members, as the case may be. Any notice
shall be deemed received, unless earlier received, (i) if sent by certified or
registered mail, return receipt requested, when actually received, (ii) if sent
by overnight mail, when actually received, (iii) if sent by telegram or telex or
facsimile transmission, on the date sent provided confirmatory notice is sent by
first-class mail, postage prepaid, and (iv) if delivered by hand, on the date of
receipt.
Section 12.6 Heirs and Assigns; Execution.
----------------------------
This Agreement (a) shall be binding on the executors, administrators,
estates, heirs, legal representatives, successors, and assigns of the Members
and (b) may be executed in more than one counterpart with the same effect as if
the parties executing the several counterparts had all executed one counterpart;
provided, however, that each separate counterpart shall have been executed by
the Managing Member and that the several counterparts, in the aggregate, shall
have been signed by all of the Members.
Section 12.7 Waiver of Partition.
-------------------
Except as may be otherwise provided by law in connection with the
dissolution, winding-up, and liquidation of the Company, each Member hereby
irrevocably waives any and all rights that it may have to maintain an action for
partition of any of the Company's property.
Section 12.8 Power of Attorney.
-----------------
Upon the request to the Managing Member, each Capital Investment Member
shall execute a Power of Attorney in form satisfactory to the Managing Member
granting the Managing Member authority to act on its behalf hereunder.
64
Section 12.9 Headings.
--------
The Section headings in this Agreement are for convenience of reference
only, and shall not be deemed to alter or affect the meaning or interpretation
of any provisions hereof.
Section 12.10 Further Actions.
---------------
Each Member shall execute and deliver such other certificates, agreements
and documents, and take such other actions, as may reasonably be requested by
the Managing Member in connection with the formation of the Company and the
achievement of its purposes, including, without limitation, (a) any documents
that the Managing Member deems necessary or appropriate to form, qualify, or
continue the Company as a limited company in all jurisdictions in which the
Company conducts or plans to conduct business and (b) all such agreements,
certificates, tax statements and other documents as may be required to be filed
in respect of the Company.
Section 12.11 Gender, Etc.
------------
Whenever the context permits, the use of a particular gender shall include
the masculine, feminine and neuter genders, and any reference to the singular or
the plural shall be interchangeable with the other.
Section 12.12 Tax Matters Partner.
-------------------
The Managing Member shall be designated as the "Tax Matters Partner" in
accordance with Section 6231 of the Code and shall promptly notify the other
Members if any tax return or report of the Company is audited or if any
adjustments are proposed. In addition, the Managing Member shall promptly
furnish to the Members all notices concerning administrative or judicial
proceedings relating to federal income tax matters as required under the Code
and shall supply such information to the Internal Revenue Service as may be
necessary to identify the Members as "Notice Members" under Section 6231 of the
Code. During the pendency of any administrative or judicial proceeding, the
Managing Member shall furnish to the Members periodic reports concerning the
status of any such proceeding. Without the consent of a Majority in Interest of
the Members, the Managing Member shall not extend the statute of limitations,
file a request for administrative adjustment or enter into any settlement
agreement relating to any Company item of income, gain, loss, deduction or
credit for any fiscal year of the Company.
Section 12.13 Certain ERISA Matters.
---------------------
65
If this Agreement is executed and delivered on behalf of a Benefit Plan
Investor, or on behalf of an entity whose assets include the assets of an
employee benefit plan (such plan or entity to be referred to hereinafter as a
"Plan Participant"), the Plan Participant shall be identified as such on Exhibit
A hereto and shall represent and warrant, based upon the accuracy of the list of
Capital Members to be provided by the Managing Member, that the acquisition of a
Membership interest by such Plan Participant does not constitute a prohibited
transaction within the meaning of Section 4975 of the Code. The Managing Member
represents that: either (a), to the best knowledge of the Managing Member, after
due inquiry, less than 25% of the value of any class of the equity interests in
the Company is held by Benefit Plan Investors or (b) the Managing Member shall
obtain an opinion of counsel reasonably satisfactory to such Plan Participant to
the effect that the underlying assets of the Company are not "plan assets" (as
that term is defined in 29 C.F.R. (S)510.3-101). Each Capital Member may rely
upon said representation until the earliest to occur of: (i) its withdrawal from
the Company, (ii) the dissolution of Company, (iii) the Managing Member's
notifying the undersigned that such representation may no longer be relied upon
or (iv) the Capital Member's obtaining actual knowledge that such representation
is no longer accurate. The inaccuracy of such representation shall (without
precluding the exercise of any other remedies available to such Capital Member)
constitute a Material Adverse Effect for purposes of Section 2.11. The Managing
Member will use its best efforts to discharge its responsibilities and to
exercise its authority under the Limited Liability Company Agreement in such a
manner that the assets of the Company will not be characterized as "plan
assets." The Managing Member will notify the Capital Members as soon as
practicable if 20% or more of the value of the equity interests in the Company
is held by Benefit Plan Investors.
Section 12.14 Applicable Law.
--------------
This Agreement shall be construed and enforced in accordance with and
governed by the laws of the State of Delaware as applied between residents of
that state entering into contracts wholly to be performed in that state.
Section 12.15 Counterparts.
------------
This Agreement may be executed in several counterparts, each of which shall
be deemed an original, but all of which together shall constitute one and the
same instrument.
66
IN WITNESS WHEREOF, the parties to this Agreement have executed the same as
of the date first above set forth.
MANAGING MEMBER:
CMG@VENTURES, INC.
By:
----------------------------------
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Director
CAPITAL INVESTMENT MEMBER:
CMG@VENTURES CAPITAL CORP.
By:
----------------------------------
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Director
67
PROFIT MEMBERS:
-------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
-------------------------------------
▇▇▇ ▇. ▇▇▇▇▇▇▇
-------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇
-------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ III
-------------------------------------
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Acknowledged and agreed to
with respect to Section 3.4:
CMG INFORMATION SERVICES, INC.
By:
-------------------------------
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Director
68
EXHIBIT A
---------
PERCENTAGE CAPITAL
---------- -------
MANAGING MEMBER: IN INTEREST: COMMITMENT:
--------------- ----------- ----------
CMG@Ventures, Inc. 1% $220,000
▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
CAPITAL INVESTMENT MEMBER:
-------------------------
CMG@Ventures Capital Corp. 99% $21,780,000
▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
PROFIT MEMBERS: DATE OF HIRE: NO. OF UNITS(1): NO. OF UNITS(2):
--------------------------- ------------- ---------------- ----------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ 01/30/95 8,581 8,581
▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
▇▇▇ ▇. ▇▇▇▇▇▇▇ 01/30/95 3,000 3,000
▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇. ▇▇▇▇▇ 03/31/95 8,581 8,581
▇ ▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ III 10/01/95 500 500
▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ 05/02/97 -- 500
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
▇▇▇. ▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
69
FORMER PROFIT MEMBERS: DATE OF HIRE: NO. OF UNITS(1): NO. OF UNITS(2):
-------------------------- -------------- ---------------- ----------------
▇▇▇▇▇▇ ▇. Nova (3) 900 900
▇▇▇ ▇▇▇▇▇▇▇▇'▇ ▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ (3) 938 ▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
(1) Relates to all investments.
(2) Relates only to investments in Blaxxun Interactive, Ikonic Interactive,
GeoCities, Vicinity and Parable.
(3) The number of units shown are fully vested without regard to date of hire.
70