EXHIBIT 10.1
LIMITED LIABILITY COMPANY AGREEMENT
OF
J. LINDEBERG USA, LLC
THE MEMBERSHIP UNITS IN J. LINDEBERG USA, LLC (THE "INTERESTS") ARE SUBJECT TO
THE RESTRICTIONS ON TRANSFER AND OTHER TERMS AND CONDITIONS SET FORTH IN THIS
AGREEMENT. THE INTERESTS HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN
REGISTERED UNDER (I) ANY STATE SECURITIES LAWS OR (II) THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE "FEDERAL ACT"). NEITHER THE INTERESTS
NOR ANY PART THEREOF MAY BE OFFERED FOR SALE, PLEDGED, HYPOTHECATED, SOLD,
ASSIGNED OR TRANSFERRED AT ANY TIME EXCEPT IN COMPLIANCE WITH THE TERMS AND
CONDITIONS OF THIS AGREEMENT AND (1) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER ANY APPLICABLE STATE SECURITIES LAWS OR IN A TRANSACTION WHICH
IS EXEMPT FROM REGISTRATION UNDER SUCH SECURITIES LAWS OR WHICH IS OTHERWISE IN
COMPLIANCE WITH SUCH SECURITIES LAWS AND (2) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE FEDERAL ACT OR IN A TRANSACTION WHICH IS EXEMPT
FROM REGISTRATION UNDER THE FEDERAL ACT OR WHICH IS OTHERWISE IN COMPLIANCE WITH
THE FEDERAL ACT.
TABLE OF CONTENTS
PAGE
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ARTICLE 1. DEFINITIONS ........................................................2
ARTICLE 2. FORMATION ..........................................................8
2.1 FORMATION....................................................8
2.2 NAME.........................................................8
2.3 EFFECTIVE DATE...............................................8
2.4 TERM.........................................................8
2.5 REGISTERED OFFICE AND AGENT..................................8
2.6 PRINCIPAL OFFICE.............................................8
ARTICLE 3. BUSINESS OF THE COMPANY; OTHER ACTIVITIES...........................9
3.1 BUSINESS.....................................................9
3.2 SCOPE OF MEMBER AUTHORITY....................................9
3.3 REPRESENTATIONS BY MEMBERS...................................9
3.4 OTHER ACTIVITIES OF THE MEMBERS.............................10
ARTICLE 4. ACCOUNTING AND RECORDS.............................................11
4.1 ACCOUNTING PERIOD...........................................11
4.2 RECORDS TO BE MAINTAINED....................................11
4.3 ACCOUNTS....................................................11
4.4 COMPANY FINANCIAL STATEMENTS................................11
4.5 TAX RETURNS.................................................12
4.6 TAX ELECTIONS...............................................12
4.7 DESIGNATION OF TAX MATTERS PARTNER..........................12
ARTICLE 5. MEMBER NAMES AND ADDRESSES.........................................13
ARTICLE 6. RIGHTS AND DUTIES OF MANAGER.......................................14
6.1 NO MEMBER MANAGEMENT RIGHTS.................................14
6.2 MANAGER.....................................................14
6.3 POWERS REQUIRING APPROVAL OF MEMBERS........................14
6.4 OFFICERS....................................................15
6.5 LIABILITY OF MANAGER........................................15
6.6 INDEMNITY...................................................16
ARTICLE 7. CONTRIBUTIONS AND CAPITAL ACCOUNTS.................................16
7.1 CAPITAL CONTRIBUTIONS.......................................16
7.2 ADDITIONAL CAPITAL NEEDS....................................16
7.3 CAPITAL ACCOUNT.............................................19
ARTICLE 8. ALLOCATIONS........................................................20
8.1 NET PROFIT AND NET LOSS.....................................20
8.2 LIMITATION ON NET LOSS ALLOCATIONS..........................21
8.3 TAX ALLOCATIONS.............................................21
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8.4 SPECIAL ALLOCATIONS.........................................21
8.5 OTHER ALLOCATION RULES......................................23
8.6 SECTION 704(c) ALLOCATION...................................23
8.7 CURATIVE ALLOCATIONS........................................24
ARTICLE 9. DISTRIBUTIONS TO MEMBERS...........................................24
9.1 DISTRIBUTION TO SATISFY STATE AND FEDERAL INCOME
TAX LIABILITY...............................................24
9.2 DISTRIBUTABLE CASH..........................................24
9.3 LIMITATION UPON DISTRIBUTIONS...............................25
9.4 INTEREST ON AND RETURN OF CAPITAL CONTRIBUTIONS.............25
9.5 AMOUNTS WITHHELD............................................25
9.6 CASH DISTRIBUTION PROTECTION RIGHTS.........................26
ARTICLE 10. INTERESTS.........................................................27
ARTICLE 11. ADMISSION OF ADDITIONAL MEMBERS...................................27
ARTICLE 12. CESSATION OF MEMBERSHIP...........................................28
12.1 CESSATION...................................................28
12.2 NO CESSATION................................................28
12.3 WITHDRAWAL..................................................28
12.4 CESSATION WITH RESPECT TO MEMBER............................28
ARTICLE 13. DISPOSITION OF MEMBERSHIP INTERESTS...............................29
13.1 PROHIBITION ON TRANSFER.....................................29
13.2 RIGHT OF FIRST REFUSAL......................................29
13.3 OPTION ARISING UPON DEATH OF MEMBER.........................31
13.4 OPTION ARISING UPON DISABILITY OF MEMBER....................31
13.5 CURRENT VALUE...............................................32
13.6 PAYMENT OF PURCHASE PRICE...................................32
13.7 SUBSTITUTED MEMBERS.........................................32
13.8 CALL OPTIONS................................................33
ARTICLE 14. OTHER MATTERS REGARDING MEMBERS...................................34
14.1 LIABILITY OF MEMBERS........................................34
14.2 INDEMNIFICATION.............................................34
14.3 MEETINGS....................................................34
14.4 INVESTMENT REPRESENTATIONS..................................35
14.5 APPROVAL OF AGREEMENTS......................................36
ARTICLE 15. DISSOLUTION AND WINDING UP........................................36
15.1 DISSOLUTION.................................................36
15.2 EFFECT OF DISSOLUTION.......................................36
15.3 WINDING UP, LIQUIDATION AND DISTRIBUTION OF ASSETS..........36
15.4 CERTIFICATE OF DISSOLUTION..................................37
15.5 DISTRIBUTION OF PROCEEDS FROM MERGER OR SALE................37
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ARTICLE 16. MISCELLANEOUS PROVISIONS..........................................38
16.1 ENTIRE AGREEMENT; AMENDMENT.................................38
16.2 NO PARTNERSHIP INTENDED FOR NONTAX PURPOSES.................38
16.3 APPLICATION OF CALIFORNIA LAW...............................38
16.4 CONSENT TO JURISDICTION AND VENUE...........................38
16.5 EXECUTION OF ADDITIONAL INSTRUMENTS.........................39
16.6 CONSTRUCTION................................................39
16.7 HEADINGS....................................................39
16.8 WAIVERS.....................................................39
16.9 RIGHTS AND REMEDIES CUMULATIVE..............................39
16.10 COUNTERPARTS................................................39
16.11 BANKING.....................................................40
16.12 FURTHER ASSURANCES..........................................40
16.13 NOTICES.....................................................40
16.14 SPECIFIC PERFORMANCE........................................40
16.15 INTERPRETATION..............................................40
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LIMITED LIABILITY COMPANY AGREEMENT
OF
J. LINDEBERG USA, LLC
THIS LIMITED LIABILITY COMPANY AGREEMENT of J. LINDEBERG USA, LLC (the
"COMPANY"), a limited liability company organized pursuant to the ▇▇▇▇▇▇▇-▇▇▇▇▇▇
Limited Liability Act, is entered into effective as of July 1, 2008 (the
"EFFECTIVE DATE"), by and among the Company, the Persons executing this
Agreement as members of the Company, and all those who shall subsequently be
admitted as members of the Company (each, a "MEMBER," and collectively, the
"MEMBERS").
RECITALS
The following is a recital of facts underlying this Agreement:
A. The Company was formed by ▇▇▇▇▇ ▇▇▇▇, LLC, a California limited
liability company ("BR"), and a wholly-owned subsidiary of People's Liberation,
Inc., a Delaware corporation ("PEOPLE'S LIBERATION"), and J. Lindeberg USA
Corp., a New York corporation ("JLUS"), and a wholly-owned subsidiary of J.
Lindeberg AB, a Swedish company ("JL SWEDEN"), on June 27, 2008, by the filing
of the Articles with the Office of the Secretary of State of the State of
California.
B. Concurrently herewith, the Company, BR and JLUS are executing and
entering into that certain Contribution Agreement, by and among the Company, BR
and JLUS (the "CONTRIBUTION AGREEMENT"), pursuant to which, among other
transactions, (i) JLUS will contribute $20,000 in cash and certain assets
relating to the J. Lindeberg branded apparel business operated by JLUS in the
United States to the capital of the Company in exchange for a fifty percent
(50.0%) limited liability company membership interest in the Company, and (ii)
BR will contribute $20,000 in cash to the capital of the Company and commit to
contribute up to an additional $1,500,000 in cash to the Company or guaranty up
to $1,500,000 in Company indebtedness in exchange for a fifty percent (50.0%)
limited liability company membership interest in the Company.
C. Contemporaneously with the closing of the transactions contemplated
by the Contribution Agreement, the Company and JL Sweden will execute and enter
into (i) that certain JL Sweden Services Agreement, pursuant to which JL Sweden
will, among other things, provide for the factory-direct purchase by the Company
of J. Lindeberg(TM) branded apparel on terms no less favorable to the Company
then terms received by JL Sweden or its Affiliates for the same or substantially
the same merchandise (the "JL SERVICES AGREEMENT"), and (ii) that certain
Trademark License Agreement (the "TRADEMARK LICENSE AGREEMENT"), pursuant to
which JL Sweden will license the J. Lindeberg(TM) and certain other related
marks to the Company for use in the United States of America (the "TERRITORY").
D. Contemporaneously with the closing of the transactions contemplated
by the Contribution Agreement, the Company and People's Liberation will execute
and enter into that certain Management Services Agreement, pursuant to which
People's Liberation will provide management services to the Company (the
"MANAGEMENT SERVICES AGREEMENT").
E. The Company, BR and JLUS now desire to enter into this Agreement to
govern the relationship between them and the affairs of the Company and the
conduct of its business, including its management and distribution of profits
and losses.
NOW, THEREFORE, FOR AND IN CONSIDERATION of the premises, the mutual
promises, covenants and agreements contained herein, and 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.
DEFINITIONS
For purposes of this Agreement, the following terms shall have the
following meanings:
ACCOUNTING FIRM. An independent accounting firm as designated from time
to time in the discretion of the Manager.
ACT. The ▇▇▇▇▇▇▇-▇▇▇▇▇▇ Limited Liability Company Act, as it may be
amended from time to time.
ADJUSTED CAPITAL ACCOUNT BALANCE. With respect to any Member, such
Member's Adjusted Capital Account Balance shall be the balance, if any, in such
Member's Capital Account as of the end of the relevant Fiscal Year or at any
time, after giving effect to the following adjustments:
(a) credit to such Capital Account any amount which such
Member is obligated to restore pursuant to any provision of this
Agreement or is deemed obligated to restore pursuant to the penultimate
sentence of Sections 1.704-2(g)(1)(ii) and 1.704-2(i)(5) of the
Regulations; and
(b) debit to such Capital Account the items described in
Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), and
1.704-1(b)(2)(ii)(d)(6) of the Regulations.
The foregoing definition of Adjusted Capital Account Balance is
intended to comply with the provisions of Section 1.704-1(b)(2)(ii)(d) of the
Regulations and shall be interpreted consistently therewith.
AFFECTED INTEREST. Shall have the meaning set forth in SECTION 13.2(a).
AFFILIATE. Shall mean with respect to any Member, any other Person that
directly or indirectly through one or more intermediaries Controls or is
Controlled by or is under common Control with the Member.
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AGREEMENT. Shall mean this Limited Liability Company Agreement, as it
may hereafter be amended or modified from time to time.
ARTICLES. The Articles of Organization of the Company filed with the
Secretary of State of the State of California on June 27, 2008, and as the same
may hereafter be amended or restated from time to time in accordance with the
terms hereof.
BR. Shall have the meaning set forth in the recitals above.
CAPITAL ACCOUNT. Shall have the meaning set forth in SECTION 7.3.
CAPITAL CONTRIBUTION. With respect to each Member, the aggregate amount
of cash and the fair market value (as set forth in the Contribution Agreement or
as otherwise determined by the mutual agreement of BR, JLUS and the Manager) of
any property (net of any liabilities securing the property that the Company is
considered to assume or take subject to under Section 752 of the Code)
contributed by such Member to the Company. No guarantee made by BR or any of its
Affiliate shall be deemed to be a Capital Contribution.
CODE. The Internal Revenue Code of 1986, as amended from time to time,
or any corresponding provisions of succeeding law.
COMPANY. J. Lindeberg USA, LLC, a limited liability company formed
under the laws of the State of California, and any successor limited liability
company.
COMPANY MINIMUM GAIN. Shall mean the amount determined pursuant to the
definition of "partnership minimum gain" set forth in Regulation Sections
1.704-2(b)(2) and 1.704-2(d).
CONTRIBUTION AGREEMENT. Shall have the meaning set forth in the
recitals above.
CONTROL. Shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of the management or policies of a
Person, whether through the ownership of voting securities, contract or
otherwise. "Controlled" shall have correlative meanings. Without limiting the
generality of the foregoing, a Person shall be deemed to Control any other
Person in which it owns, directly or indirectly, a majority of the voting,
ownership or equity interests.
CURRENT VALUE. Shall have the meaning set forth in SECTION 13.5.
DELINQUENT MEMBER. Shall have the meaning set forth in SECTION 9.5.
DEPRECIATION. Shall mean, for each taxable year, an amount equal to the
depreciation, amortization, or other cost recovery deduction allowable with
respect to an asset for such taxable year, except that (i) with respect to any
asset whose Gross Asset Value differs from its adjusted basis for federal income
tax purposes and the difference is being eliminated by use of the "remedial
method" defined by Section 1.704-3(d) of the Regulations, Depreciation for such
year shall be the amount of book basis recovered for such taxable year under the
rule described by Section 1.704-3(d)(2) of the Regulations, and (ii) with
respect to any other asset whose Gross Asset Value differs from its adjusted
basis for federal income tax purposes at the beginning of such taxable year,
Depreciation shall be an amount which bears the same ratio to such beginning
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Gross Asset Value as the federal income tax depreciation, amortization, or other
cost recovery deduction for such taxable year bears to such beginning adjusted
tax basis; provided, however, that if the adjusted basis for federal income tax
purposes of an asset at the beginning of such taxable year is zero, Depreciation
shall be determined with reference to such beginning Gross Asset Value using any
reasonable method selected by the Manager.
DISABLED or DISABILITY. Shall have the meaning set forth in SECTION
13.4(b).
DISTRIBUTABLE CASH. For any period, (i) receipts (other than Capital
Contributions) of the Company for such period, calculated on a cash basis, from
the conduct of the normal business operations of the Company from all sources,
as well as any reserves and receipts by the Company relating to extraordinary
items not needed for the operations of the Company as reasonably determined by
the Manager less (ii) the Operating Expenses for such period.
EFFECTIVE DATE. Shall have the meaning set forth in the preamble above.
FAMILY MEMBER. Any one or more of a Member's spouse, the direct lineal
descendents of such Member with his or her spouse or one or more trusts for the
benefit of such Member, his or her spouse or such direct lineal descendents.
FEDERAL ACT. The United States Securities Act of 1933, as amended.
FISCAL YEAR. The twelve month period ending December 31 of each year;
provided that the first Fiscal Year shall be the period beginning on the date
hereof and ending on December 31, 2008, and the last Fiscal Year shall be the
period beginning on January 1 of the calendar year in which the final
liquidation and termination of the Company is completed and ending on the date
such final liquidation and termination is completed (to the extent any
computation or other provision hereof provides for an action to be taken on a
Fiscal Year basis, an appropriate proration or other adjustment shall be made in
respect of the first or final Fiscal Year to reflect that such period is less
than a full calendar year period).
FISCAL QUARTER. Any three month period ending on March 31, June 30,
September 30 or December 31 in any year.
FUNDING MEMBER. Shall have the meaning set forth in SECTION 7.2(c).
GROSS ASSET VALUE. Shall mean, with respect to any asset, the asset's
adjusted basis for federal income tax purposes, except as follows:
(a) The initial Gross Asset Value of any asset contributed by
a Member to the Company shall be as set forth in the Contribution
Agreement (or if not set forth in the Contribution Agreement as
mutually agreed in good faith by BR, JLUS and the Manager);
(b) The Gross Asset Values of all Company assets shall be
adjusted to equal their respective gross fair market values (taking
Code Section 7701(g) into account), as unanimously agreed by the
Manager, BR and JLUS as of the following times: (i) the acquisition of
any additional Membership Units in the Company by any new or existing
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Member in exchange for more than a de minimis Capital Contribution;
(ii) the distribution by the Company to a Member of more than a de
minimis amount of Company property as consideration for an interest in
the Company; and (iii) the liquidation of the Company within the
meaning of Regulations Section 1.704-1(b)(2)(ii)(g), provided that an
adjustment described in clauses (i) and (ii) of this paragraph shall be
made only if the Manager reasonably determines that such adjustment is
necessary to reflect the relative economic interests of the Members in
the Company;
(c) The Gross Asset Value of any item of Company assets
distributed to a Member shall be adjusted to equal the gross fair
market value (taking Code Section 7701(g) into account) of such asset
on the date of distribution as unanimously agreed by the Manager, BR
and JLUS; and
(d) The Gross Asset Values of Company assets shall be
increased (or decreased) to reflect any adjustments to the adjusted
basis of such assets pursuant to Code Section 734(b) or Code Section
743(b), but only to the extent that such adjustments are taken into
account in determining Capital Accounts pursuant to Regulations Section
1.704-1(b)(2)(iv)(m) and subparagraph (c) of the definition of "Net
Profit" and "Net Loss" or SECTION 8.4(g) hereof; PROVIDED, HOWEVER,
that Gross Asset Values shall not be adjusted pursuant to this
subparagraph (d) to the extent that an adjustment pursuant to
subparagraph (b) is required in connection with a transaction that
would otherwise result in an adjustment pursuant to this subparagraph
(d).
If the Gross Asset Value of an asset has been determined or adjusted
pursuant to subparagraph (b) or (d) of this definition, such Gross Asset Value
shall thereafter be adjusted by the Depreciation taken into account with respect
to such asset, for purposes of computing Net Profit and Net Loss.
JLUS. Shall have the meaning set forth in the recitals above.
JL SERVICES AGREEMENT. Shall have the meaning set forth in the recitals
above.
JL SWEDEN. Shall have the meaning set forth in the recitals above.
LEGAL REPRESENTATIVE. Shall have the meaning set forth in SECTION
13.2(b).
MANAGEMENT SERVICES AGREEMENT. Shall have the meaning set forth in the
recitals above.
MANAGER. Shall have the meaning set forth in SECTION 6.1.
MEMBER. Shall have the meaning set forth in the preamble above.
MEMBER NONRECOURSE DEBT. Shall have the meaning ascribed to "partner
nonrecourse debt" in Regulation Section 1.704-2(b)(4).
MEMBER NONRECOURSE DEBT MINIMUM GAIN. Shall mean an amount, with
respect to each Member Nonrecourse Debt, equal to the Company Minimum Gain that
5
would result if such Member Nonrecourse Debt were treated as a Nonrecourse
Liability, determined in accordance with Section 1.704-2(i)(3) of the
Regulations.
MEMBER NONRECOURSE DEDUCTIONS. Shall have the same meaning as the term
"partner nonrecourse deductions" in Sections 1.704-2(i)(1) and 1.704-2(i)(2) of
the Regulations.
MEMBERSHIP UNITS. The entire limited liability company membership
interest held by a Member in the Company at any particular time as measured in
units of ownership, including the Member's Percentage Interest and the right of
the Member to any and all benefits provided to such Member in this Agreement,
together with the obligations of such Member to comply with all the terms and
provisions of this Agreement.
NET PROFIT AND NET LOSS. For each Fiscal Year or other period, an
amount equal to the Company's taxable income or loss for such Fiscal Year or
period, determined in accordance with Code Section 703(a) and Regulation Section
1.703-1 (for this purpose, all items of income, gain, loss, or deduction
required to be stated separately pursuant to Code Section 703(a)(1) shall be
included in taxable income or loss), with the following adjustments:
(a) Any income of the Company that is exempt from federal
income tax as described in Section 705(a)(1)(B) of the Code and not
otherwise taken into account in computing Net Profit or Net Loss
pursuant to this definition shall be added to such taxable income or
loss;
(b) Any expenditures of the Company described in Code Section
705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures
pursuant to Regulations Section 1.704-1(b)(2)(iv)(i), and not otherwise
taken into account in computing Net Profit or Net Loss pursuant to this
definition shall be subtracted from such taxable income or loss;
(c) To the extent an adjustment to the adjusted tax basis of
any Company asset pursuant to Code Section 734(b) or Code Section
743(b) is required pursuant to Regulations Section
1.704-1(b)(2)(iv)(m)(4) to be taken into account in determining Capital
Accounts as a result of a distribution other than a complete
liquidation of a Member's interest in the Company, the amount of such
adjustment shall be treated as an item of gain (if the adjustment
increases the basis of the asset) or loss (if the adjustment decreases
the basis of the asset) from the disposition of the asset and shall be
taken into account for purposes of computing Net Profit or Net Loss;
(d) Notwithstanding any other provision of this definition,
any items which are specially allocated pursuant to SECTIONS 8.2, 8.4
or 8.7 hereof or otherwise shall not be taken into account in computing
Net Profit and Net Loss; and
(e) The amounts of the items of Company income, gain, loss or
deduction to be specially allocated pursuant to SECTIONS 8.2, 8.4 or
8.7 hereof or otherwise shall be determined by applying rules analogous
to those set forth in paragraphs (a) and (b) of this definition.
NON-FUNDED UNITS. Shall have the meaning set forth in SECTION 7.2(c).
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NON-FUNDING MEMBER. Shall have the meaning set forth in SECTION 7.2(c).
NONRECOURSE DEDUCTIONS. Shall have the meaning set forth in Regulation
Section 1.704-2(b)(1).
NONRECOURSE LIABILITY. Shall have the meaning set forth in Section
1.704-2(b)(3) of the Regulations.
NOTICE. Shall have the meaning set forth in SECTION 7.2(a).
OFFER NOTICE. Shall have the meaning set forth in SECTION 13.2(a).
OFFERING MEMBER. Shall have the meaning set forth in SECTION 13.2(a).
OFFICERS. Shall have the meaning set forth in SECTION 6.4.
OPERATING EXPENSES. All expenditures of any kind made with respect to
the operations of the Company, including, without limitation, debt service
(principal and interest) payable on indebtedness of the Company (whether to a
third party or to a Member), ad valorem taxes, insurance premiums, repair and
maintenance expense, professional fees, wages, and utility costs, plus such sums
as are determined by the Manager to be retained for the conduct of the business
of the Company and plus capital expenditures and investments in other assets,
but excluding without duplication payments with respect to federal, state or
local income, franchise or similar taxes of any Member and all kinds of taxes
payable in lieu thereof.
PEOPLE'S LIBERATION. Shall have the meaning set forth in the recitals
above.
PERCENTAGE INTEREST. Shall have the meaning set forth in ARTICLE 10.
PERSON. An individual, partnership, limited liability company,
association, corporation or any other legal entity.
PREFERRED RETURN. An amount equal to the aggregate amount of Capital
Contributions made by the Member pursuant to this Agreement.
PREFERRED RETURN ACCOUNT. The excess, as of any particular date, of the
Member's Preferred Return over the aggregate amount of distributions made to the
Member since the inception of the Company pursuant to SECTIONS 9.2(a) and
9.2(b). In the event that the Membership Units of a Member are Transferred in
accordance with the terms of this Agreement, the Transferee of such Membership
Units shall succeed to the then current balance of the Member's Preferred Return
Account.
PURCHASE PRICE. Shall have the meaning set forth in SECTION 13.2(a).
REGULATIONS. Regulations of the United States Department of Treasury
promulgated under the Code.
REGULATORY ALLOCATIONS. Shall have the meaning set forth in SECTION
8.7.
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TERRITORY. Shall have the meaning set forth in the recitals above.
TRANSFER. Shall have the meaning set forth in SECTION 13.1.
ARTICLE 2.
FORMATION
2.1 FORMATION.
The Company was formed as a California limited liability company by
execution and delivery of the Articles to the Secretary of State of the State of
California in accordance with the provisions of the Act by ▇▇▇▇▇▇▇▇ ▇▇▇▇ as an
authorized person within the meaning of the Act. On the Effective Date, ▇▇▇▇▇▇▇▇
▇▇▇▇'▇ powers as an authorized person ceased and became vested in the Manager.
The rights and obligations of the Members shall be governed by this Agreement
and the Act. If there is a conflict between the provisions of this Agreement and
the Act, the provisions of the Act shall control (it being understood, however,
that if the Act provides for a particular rule but allows the members of a
limited liability company to provide to the contrary in their operating
agreement, and if the parties hereto have so provided hereunder, then such
provisions shall not be deemed to constitute a conflict for purposes of the
foregoing).
2.2 NAME.
The name of the Company is "J. Lindeberg USA, LLC" and all business of
the Company shall be conducted under such name or under any other name adopted
by the Company (to the extent permitted by law).
2.3 EFFECTIVE DATE.
This Agreement shall become effective as of the Effective Date.
2.4 TERM.
The term of the Company commenced on the date the Articles were filed
with the Secretary of State of the State of California and shall continue until
the Company is dissolved in accordance with the provisions of the Act and this
Agreement.
2.5 REGISTERED OFFICE AND AGENT.
The Company's agent for service of process in California shall be
National Registered Agents, Inc., or such other service firm or person as the
Manager shall from time to time determine.
2.6 PRINCIPAL OFFICE.
The principal office of the Company shall be located at c/o People's
Liberation, Inc., ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇,
or at such other place which the Manager designates from time to time.
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ARTICLE 3.
BUSINESS OF THE COMPANY; OTHER ACTIVITIES
3.1 BUSINESS.
The general nature of the business or businesses to be transacted by
the Company shall be limited to operating the J. Lindeberg(TM) branded wholesale
and retail apparel business in the Territory and conducting any other business
in furtherance of the foregoing. The Company shall have the authority to do all
things necessary or convenient to accomplish its purposes and operate its
business as described in this ARTICLE 3.
3.2 SCOPE OF MEMBER AUTHORITY.
Except as otherwise expressly and specifically provided in this
Agreement, no Member shall have any authority to bind, to act for, to sign for
or to assume any obligation or responsibility on behalf of the Company. Neither
the Company nor any Member shall, by virtue of executing this Agreement, be
responsible or liable for any indebtedness or obligation of any other Member
incurred or arising either before or after the Effective Date of this Agreement,
except as to those responsibilities, liabilities, indebtedness, or obligations
expressly assumed by the Company in writing as of the Effective Date or incurred
by the Company after the Effective Date pursuant to and as limited by the terms
of this Agreement.
3.3 REPRESENTATIONS BY MEMBERS.
Each Member hereby represents, warrants, agrees and acknowledges that:
(a) its execution and delivery of this Agreement and the performance of
its obligations hereunder will not conflict with, result in a breach of or
constitute a default (or any event that, with notice or lapse of time, or both,
would constitute a default) or result in the acceleration of any obligation
under any of the terms, conditions or provisions of any other agreement or
instrument to which it is a party or by which it is bound or to which any of its
property or assets are subject, or violate any statute or any order, rule or
regulation of any court or governmental or regulatory agency, body or official,
that would materially and adversely affect the performance of its duties
hereunder; and such Member has obtained any consent, approval, authorization or
order of any court or governmental agency or body required for the execution,
delivery and performance by such Member of its obligations hereunder;
(b) there is no action, suit or proceeding pending against such Member
or, to its knowledge, threatened in any court or by or before any other
governmental agency or instrumentality that could adversely affect or would
prohibit its entering into or performing its obligations under this Agreement;
(c) this Agreement is a binding agreement on the part of such Member
enforceable in accordance with its terms against such Member; and
(d) it is an "accredited investor" within the meaning of Regulation D
promulgated under the Securities Act of 1933, as amended, has such knowledge and
9
experience in financial or business matters that it is capable of evaluating the
merits and risks of the investment in the Company, is acquiring Membership Units
in the Company solely for its own account for investment and not with a view to
or for sale in connection with any distribution thereof, and acknowledges that
the membership Units have not been registered under the Securities Act of 1933,
as amended, are not freely tradable because they constitute restricted
securities and must continue to be held unless such securities are subsequently
registered under federal and state securities laws or an exemption from such
registration is available; and
(e) it has been provided with, or has had access to, such information
as it deems necessary to or useful in its evaluation of the merits, risks and
tax consequences of an investment in the Company and of making an informed
investment decision.
3.4 OTHER ACTIVITIES OF THE MEMBERS.
Each of the Members understands that the other Members or their
respective Affiliates may be interested, directly or indirectly, in various
other businesses and undertakings not included in the Company. Each of the
Members hereby agrees that: (i) the other Members and their respective
Affiliates shall have the right to have such other interests and activities and
to receive and enjoy profits or compensation therefrom; (ii) the Member waives
any right such Member might otherwise have to share or participate in such other
interests or activities; (iii) some of the other business interests, activities
and investments of the other Members or their respective Affiliates may be in
conflict or in competition with the business of the Company; (iv) each of the
other Members and their respective Affiliates may engage in or possess an
interest in any other business or venture of any kind, independently or with
others, including, without limitation, owning, financing, acquiring, leasing,
promoting, developing, improving, operating and managing any apparel design,
manufacturing, wholesale or retail business; (v) the other Members and their
respective Affiliates may engage in any such activities, whether or not
competitive with the Company, without any obligation to offer any interest in
such activities to the Company or the Member; (vi) the pursuit of such
activities, even if competitive with the business of the Company, shall not be
deemed wrongful or improper; and (vii) none of the other Members, their
respective Affiliates or any other Person employed by, related to or in any way
Affiliated therewith shall have any duty or obligation to disclose or offer to
the Member, or obtain for the benefit of the Member, any other activity or
venture or interest therein. No Member, nor any of its creditors or any other
Person having an interest in such Member, shall have any claim, right or cause
of action against the other Members or any other Person employed by, related to
or in any way Affiliated with the other Members by reason of any direct or
indirect investment or other participation, whether active or passive, in any
such activity or interest therein, or any right to any such activity or interest
therein or the income or profits derived therefrom.
10
ARTICLE 4.
ACCOUNTING AND RECORDS
4.1 ACCOUNTING PERIOD.
The Company's accounting period and tax year shall be the Fiscal Year
or such other accounting period or tax year determined by the Manager from time
to time, unless another period is required by the Code or Regulations.
4.2 RECORDS TO BE MAINTAINED.
(a) At its principal office, the Company shall maintain its records,
including:
(i) A current list of the name and last known address of
each Member and the Manager;
(ii) a copy of the Articles and all amendments thereto;
(iii) copies of the Company's federal, foreign, state and
local income tax returns and reports, if any, for the
five (5) most recent years;
(iv) a copy of this Agreement and all amendments thereto;
and
(v) copies of any financial statements of the Company for
the five (5) most recent years.
(b) Any Member holding a Percentage Interest equal to at least ten
percent (10%) may, at such Member's own expense, inspect and copy (or have a
representative of such Member inspect and copy) any Company record upon
reasonable request during ordinary business hours.
4.3 ACCOUNTS.
The Company shall maintain a record of Capital Accounts for each Member
in accordance with Article 7 hereof.
4.4 COMPANY FINANCIAL STATEMENTS.
The Company shall cause to be prepared and delivered to the Members, at
the sole cost and expense of the Company, within ninety (90) days after the
close of each Fiscal Year, the unaudited financial statements of the Company for
such Fiscal Year. Such financial statements shall include balance sheets of the
Company as of the end of such Fiscal Year and of the preceding Fiscal Year,
statements of income and loss of the Company for such Fiscal Year and the
preceding Fiscal Year, and statements of changes in capital of the Company for
such Fiscal Year and for the preceding Fiscal Year. The Company shall prepare or
cause to be prepared and delivered to the Members, at the sole cost and expense
of the Company, within forty-five (45) days after the close of each Fiscal
Quarter, the unaudited financial statements of the Company for such Fiscal
Quarter. Such financial statements shall include balance sheets of the Company
11
as of the end of such Fiscal Quarter, statements of income and loss of the
Company for such Fiscal Quarter, and statements of changes in capital of the
Company for such Fiscal Quarter. All such financial statements of the Company
shall be prepared in accordance with United States generally accepted accounting
principles consistently applied ("GAAP").
4.5 TAX RETURNS.
The Company shall cause to be prepared after the end of each taxable
year of the Company and filed, on or before their respective due dates (as the
same may be extended), all federal and state income tax returns of the Company
for such taxable year and shall take all action as may be necessary to permit
the Accounting Firm to prepare and timely file such returns. Form 1065 (Schedule
K-1) shall be sent to each Member after the end of each taxable year reflecting
the Member's pro rata share of income, loss, credit and deductions for such
taxable year. The Company shall use commercially reasonable efforts to send the
Form 1065 to the Members prior to March 1 of each Fiscal Year and shall notify
the Members in writing no later than March 5 in any Fiscal Year if the Company
will not be able to deliver the Form 1065 before March 10 of any such Fiscal
Year.
4.6 TAX ELECTIONS.
(a) Except as expressly provided otherwise herein, the Manager shall in
its discretion determine whether to make any and all tax elections under the
Code and Regulations or under any state or local law, rule or regulation,
including without limitation, an election on behalf of the Company under Section
754 of the Code in connection with a sale of a Member's Membership Units or part
thereof.
(b) The Members acknowledge and agree that they intend that the Company
be classified as a "partnership" for income tax purposes and shall do such
reasonable things, including, but not limited to, making any appropriate
filings, as are necessary to secure such classification. No Member shall make
any election or other filing with any taxing or governmental authority
(including but not limited to an election or filing pursuant to Treasury
Regulation ss.301.7701-3) which would cause the Company to be classified as an
association taxable as a corporation for Federal income tax purposes.
4.7 DESIGNATION OF TAX MATTERS PARTNER.
(a) BR shall act as the "tax matters partner" of the Company as
provided in the Regulations pursuant to Section 6231 of the Code. The tax
matters partner shall have all the authority and power granted to the tax
matters partner under the Code and Regulations. Each Member hereby approves of
such designation and agrees to execute, certify, acknowledge, deliver, swear to,
file and record at the appropriate public offices such documents as may be
deemed necessary or appropriate to evidence such approval. The tax matters
partner shall receive no compensation for its services. All reasonable
third-party costs and expenses incurred by the tax matters partner in performing
its duties as such (including reasonable legal and accounting fees) shall be
borne by the Company. Nothing herein shall be construed to restrict the tax
matters partner from engaging an accounting firm and a law firm at the expense
12
of the Company to assist the tax matters partner in discharging his duties
hereunder. The tax matters partner shall keep the Manager and Members informed
by written notification of any tax audit of the Company and of the
administrative and judicial proceedings for the adjustment at the Company level
of any item required to be taken into account by a Member for income tax
purposes.
(b) Only with the consent of the Manager, BR and JLUS may the tax
matters partner:
(i) enter into any settlement with the Internal Revenue
Service or the Secretary with respect to any tax
audit or judicial proceedings;
(ii) in the event that a notice of a final partnership
administrative adjustment at the Company level of any
item required to be taken into account by a Member
for tax purposes is mailed to the tax matters
partner, seek judicial review of such final
adjustment, including the filing of a petition for
readjustment with the Tax Court, the District Court
of the United States for the district in which the
Company's principal place of business is located or
such other district as the Manager, BR and JLUS shall
mutually determine, or the United States Court of
Federal Claims;
(iii) intervene in any action brought by any Member for
judicial review of a final adjustment;
(iv) file a request for an administrative adjustment, and
if any part of such request is not allowed, to file a
petition for judicial review with respect to such
request;
(v) enter into an agreement with the Internal Revenue
Service to extend the period for assessing any tax
which is attributable to any item required to be
taken into account by a Member for tax purposes, or
an item affected by such item; or
(vi) take any other action on behalf of the Members of the
Company in connection with any administrative or
judicial tax proceeding.
ARTICLE 5.
MEMBER NAMES AND ADDRESSES
The names and addresses of the Members are as set forth from time to
time on EXHIBIT A hereto.
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ARTICLE 6.
RIGHTS AND DUTIES OF MANAGER
6.1 NO MEMBER MANAGEMENT RIGHTS.
The business and affairs of the Company shall be managed exclusively by
one Manager, acting in its capacity as the sole manager of the Company (the
"MANAGER"), without the need for any consent or approval of the Members except
as provided in SECTION 6.3 below and as otherwise set forth in this Agreement,
and no Member shall have any right to participate in the day-to-day management
of the Company. Each Member covenants and agrees that it will comply in all
respects with any contract or agreement approved by the Manager as permitted
under this Agreement.
6.2 MANAGER.
The Manager shall at all times be appointed exclusively by BR, and
initially shall be ▇▇▇▇▇ ▇▇▇▇. Except as provided in SECTION 6.3 below and as
otherwise set forth in this Agreement, the Manager, without the consent or
approval of any Member, shall have the exclusive right, authority and power to
control, direct, manage and administer the business, affairs and operations of
the Company and to do all things necessary to carry on the business and purposes
of the Company consistent with applicable law and this Agreement as the Manager
determines in good faith to be appropriate or advisable. Except as contemplated
in Section 6.3, the Manager is hereby authorized by all Members with the
exclusive power to direct the Officers of the Company to execute and deliver in
the name and on behalf of the Company any and all documents, contracts,
certificates, agreements, promissory notes, guarantees, mortgages, deeds, and
instruments, and to take any action of any kind and to do anything and
everything, that the Manager deems necessary or appropriate in order to carry
out the business of the Company in accordance with the provisions of this
Agreement and applicable law. No person, firm, partnership, corporation or other
entity shall be required to inquire into said authority of the Manager regarding
the execution and performance of any document on behalf of the Company.
The Manager shall serve in such capacity at the pleasure of BR, or
until such Manager's death or resignation, and BR shall be entitled to remove
him or her, with or without cause, and any vacancy created by the death,
resignation or removal of the Manager shall be filled only by BR.
6.3 POWERS REQUIRING APPROVAL OF MEMBERS.
Notwithstanding SECTIONS 6.1 and 6.2 to the contrary, and in addition
to any other provisions in the Act, the Articles or this Agreement that require
approval of the Members, the Manager shall not have the authority to, and shall
not, take or fail to take any of the following actions or transactions by or
involving the Company, including entering into of any contract or agreement to
do any of the following actions, or causing any material modification,
amendment, enforcement, waiver, extension or renewal thereof, without first
obtaining the unanimous approval of BR and JLUS, which approval shall not be
unreasonably withheld by either of JLUS or BR:
14
(a) enter into a merger, reorganization, recapitalization or other
combination of the Company with any Affiliate or a third Person; or
(b) sell all or substantially all of the Company's assets;
(c) settle any dispute or controversy in which the amount in dispute,
or the value of the items in dispute, is in excess of $250,000;
(d) obtain any loan or other financing (or series of loans or financing
transactions with the same party) in an aggregate amount in excess of $500,000
or make any loan to any Person; provided, however, that BR and JLUS agree to in
good faith and at deliberate speed attempt to identify and obtain the best
possible financing alternatives available;
(e) approve any action of the Company under Section 13.2, Right of
First Refusal;
(f) change the Company's name or conduct the business of the Company
under a name other than J. Lindeberg;
(g) materially modify the scope of the Company's business activities or
form or dissolve any subsidiary of the Company;
(h) take any action that materially deviates from the JL Sweden's
branding and marketing strategies; or
(i) enter into any renewal or extension of, or modification to, or
consent to any assignment under, the Management Services Agreement or the JL
Services Agreement.
6.4 OFFICERS.
The Company may have such officers (the "OFFICERS") or agents as may be
appointed with the approval of the Manager from time to time, each having such
powers and duties as from time to time may be conferred by the Manager (but
which shall not exceed the powers and duties of the Manager), and each shall be
subject to the authority of the Manager. In addition, the Manager may appoint,
employ or otherwise cause the Company to contract with such other Person for the
transaction of the business of the Company or the performance of services for or
on behalf of the Company as the Manager shall determine in its sole discretion
from time to time. The Manager may delegate to any Officer, agent or to any such
other Person such authority to act on behalf of and to bind the Company.
6.5 LIABILITY OF MANAGER.
So long as the Manager shall act in good faith with respect to the
conduct of the business and affairs of the Company, no Manager shall be liable
or accountable to the Company or to any of the Members, in damages or otherwise,
for any error of judgment, for any mistake of fact or of law, or for any other
15
act or thing which he may do or refrain from doing in connection with the
business and affairs of the Company.
6.6 INDEMNITY.
The Company shall indemnify and make advances for expenses to the
Manager and his agents against judgments, fines, amounts paid in settlement, and
expenses (including reasonable attorney's fees) reasonably incurred by the
Manager or such agents in any civil, criminal, or investigative proceeding in
which they, or any one or more of them, are involved or threatened to be
involved by reason of his status as Manager of the Company or acting on behalf
of the Company, provided that the Manager and such agents, as the case may be,
acted in good faith, within what he or it reasonably believed to be the scope of
his or its authority and for a purpose which he or it reasonably believed to be
in the best interests of the Company or the Members; PROVIDED, HOWEVER, that the
Company shall not be required to indemnify the Manager or such agent for any
loss, expense, or damage which the Manager or such agent may suffer as a result
of his or its willful misconduct, fraud, knowing violations of law, or bad faith
in failing to perform his or its duties hereunder, or for any loss, expense, or
damage arising out of any transaction in which the Manager or such agent
received a benefit in violation or breach of any provision of this Agreement.
ARTICLE 7.
CONTRIBUTIONS AND CAPITAL ACCOUNTS
7.1 CAPITAL CONTRIBUTIONS.
The Manager and each of the Members hereby ratify and adopt all of the
terms and conditions of the Contribution Agreement and authorize and direct the
Manager to prepare, execute and deliver any and all such documents, certificates
and instruments and to take any and all such actions as are necessary, advisable
or appropriate, in the name and on behalf of the Company, to effect all of the
transactions contemplated thereby, in accordance with the terms and conditions
thereof. Each of the Members hereby acknowledges and agrees that the Capital
Contributions of the Members as of the Effective Date are as set forth on
EXHIBIT A hereto.
7.2 ADDITIONAL CAPITAL NEEDS.
(a) Except as set forth in SECTION 7.2(b), no Member shall be required
to make additional contributions to the capital of the Company. If the Company
proposes to issue to any Person (including any Member) any Membership Units, or
securities convertible into or exchangeable for Membership Units, then each
Member shall have the right, but not the obligation, to purchase an amount up to
its pro rata portion of such Membership Units and/or securities, as the case may
be (such pro rata portions to be based upon each Member's Percentage Interest),
on the same terms and conditions to be offered to such Person.
(b) Until December 31, 2010, BR agrees to make up to an aggregate of
$1,500,000 of additional contributions to the capital of the Company if and to
the extent necessary to pay the Company's Operating Expenses, which additional
16
capital shall be contributed prior to the Company receiving any capital
contributions from any other Person. No additional Membership Units shall be
issued, nor shall any change occur in the Members' Percentage Interests, upon
any additional capital contribution made by BR pursuant to this SECTION 7.2(b).
BR's obligation to fund additional capital contributions pursuant to this
SECTION 7.2(b) shall be reduced by the amount of Company indebtedness guaranteed
by BR or any of its Affiliates (other than the Company) and shall otherwise
terminate on December 31, 2010. The Manager shall promptly notify JLUS in
writing of the amount of each capital contribution made by BR under this
section.
(c) If, as determined in good faith by the Manager, the Company's
capital needs are otherwise beyond that required to be contributed under
SECTIONS 7.1 and 7.2(b) above, the Company shall deliver written notice to all
of the Members of the Company's need for additional capital (the "NOTICE"),
which Notice shall specify the amount of additional capital required (the
"REQUIRED FUNDING").
(i) At or about the time when the Notice is transmitted, the
Company shall commence to use commercially reasonable efforts to obtain
financing from a bank or similar financial institution in the amount of
the Required Funding. Within thirty (30) days of the date of the Notice
(or such longer time period that is agreed to by BR and JLUS), the
Company shall notify the Members of the terms of any such financing
alternatives available to the Company. Thereafter, BR and JLUS will
determine the superior financing proposal.
(ii) If no financing is obtained pursuant to subsection (i)
immediately preceding, the Members shall have thirty (30) days to
locate debt financing sources to provide the Required Funding. At the
expiration of the thirty (30) day period, BR and JLUS will determine
the superior financing proposal, and each Member shall then have a
period of ten (10) days to participate in such financing in proportion
to its Percentage Interests. If any Member (a "NON-FUNDING MEMBER")
fails make available its pro rata share of the Required Funding to the
Company within such ten (10) day period (the "SHORTFALL"), then each
Member that has made available its, his or her pro rata share of such
Required Funding (each such Member hereinafter referred to in this
paragraph (c) as a "FUNDING MEMBER") may, in its, his or her sole
discretion, make available all or a portion of the Shortfall within
five (5) days notice from the Company that the Non-Funding Member
failed to fully make available its pro rata share of the Required
Funding. If more than one Funding Member elects to make available a
portion of the Shortfall, then the amounts made available thereby shall
be in accordance with the Percentage Interests of all such Funding
Members relative to one another, unless otherwise agreed by the Funding
Members. Except as otherwise agreed to by BR and JLUS, any financing
made available by the Funding Members shall be on the terms offered by
the Person (if other than a Member) who provided the selected financing
terms (the "LENDER"). If all of the Required Funding is not made
available by the Members within the time period prescribed by this
SECTION 7.2(c)(ii), then the Manager shall be free to accept the
portion of the Required Funding not contributed by the Members from the
Lender; provided, however, that if agreed upon by JLUS and BR, the
Manager shall be free to accept all of the Required Funding from the
17
lender, in which case the Members shall not participate in the
financing. Such financing shall be made by the Lender in strict
accordance with the agreed upon financing terms and the terms of this
Agreement, and shall close within ninety (90) days after the initial
delivery of the Notice to the Members, unless a later closing date is
unanimously agreed upon by JLUS, BR and the Manager. The closing of any
financing provided by the Funding Members shall, unless otherwise
agreed to by BR and JLUS, close no later than the date of the closing
of the Lender's financing.
(iii) If no financing is obtained pursuant to subsection (ii)
immediately preceding, the Members shall have thirty (30) days to
locate equity financing sources to provide the Required Funding. At the
expiration of the thirty (30) day period, BR and JLUS will determine
the superior financing proposal, and each Member shall then have a
period of ten (10) days to participate in such financing in proportion
to its pro rata share. If any Member (an "EQUITY NON-FUNDING MEMBER")
fails contribute its pro rata share of the Required Funding to the
Company within such ten (10) day period (the "EQUITY SHORTFALL"), then
each Member that has contributed its, his or her pro rata share of the
Required Funding (each such Member hereinafter referred to in this
paragraph (iii) as an "EQUITY FUNDING MEMBER") may, in its, his or her
sole discretion, contribute all or a portion of the Equity Shortfall
within five (5) days notice from the Company that the Equity
Non-Funding Member failed to fully contribute its pro rata share of the
additional capital. If more than one Equity Funding Member elects to
contribute a portion of the Equity Shortfall, then the amounts
contributed thereby shall be in accordance with the Percentage
Interests of all such Equity Funding Members relative to one another,
unless otherwise agreed by the Equity Funding Members. The Manager, BR
and JLUS shall determine in good faith the value and number of
Membership Units to be offered for sale, which fair market value
determination shall be final and binding for the purposes of this
SECTION 7.2(c)(iii) and shall be used by the Manager to calculate the
number of Membership Units to be offered at a price per Membership Unit
that takes into account any appreciation or depreciation in the value
of the Company since the last occasion upon which the Company issued
Membership Units. Immediately upon any issuance of additional
Membership Units to the Members in accordance with this SECTION
7.2(c)(iii), the Percentage Interests of each Member shall be adjusted
to reflect such issuance and shall immediately thereafter be equal to a
fraction, expressed as a percentage rounded to the nearest fourth
decimal point, (x) the numerator of which shall equal the sum of such
Member's (or its predecessor in interest's) Membership Units at such
time (including any Membership Units purchased in connection with a
capital raise contemplated by this SECTION 7.2(c)(iii)) and (y) the
denominator of which shall equal the sum of all issued and outstanding
Membership Units at such time (including any Membership Units issued in
connection with a capital raise contemplated by this SECTION
7.2(c)(iii). If all of the Required Funding is not contributed by the
Members within the time period prescribed by this SECTION 7.2(c)(iii),
then the Manager shall be free to accept any such non-contributed
Required Funding from the Person (if other than a Member) who provided
the financing terms. Such capital contribution shall be made by such
18
Person in strict accordance with the agreed upon financing terms and
the terms of this Agreement, and shall close within one-hundred twenty
(120) days after the initial delivery of the Notice to the Members,
unless a later closing date is unanimously agreed upon by JLUS, BR and
the Manager. The closing of any financing provided by the Equity
Funding Members shall, unless otherwise agreed to by BR and JLUS, close
no later than the date of the closing of the third party equity
financing. If no closing has occurred after the expiration of the
applicable period, any additional capital contribution to the Company
shall again be subject to the terms set forth in SECTION 7.2(c).
7.3 CAPITAL ACCOUNT.
(a) Separate "CAPITAL ACCOUNTS" will be maintained for each Member in
the manner required by Section 1.704-1(b)(2)(iv) of the Regulations. To the
extent consistent therewith, each Member's Capital Account shall be equal to the
sum of the following:
(i) the amount of any cash and the fair market value of any
property (as set forth in the Contribution Agreement or as otherwise
determined by the agreement of the contributing Member and the Manager)
that the Member contributes to the Company (net of liabilities securing
the property that the Company is considered to assume or take subject
to under Section 752 of the Code and the Regulations promulgated
thereunder); PLUS
(ii) the aggregate Net Profit and items in the nature of
income or gain allocated to the Member under Article 8 of this
Agreement or other positive adjustment required by the Regulations;
MINUS
(iii) the amount of any cash and the fair market value of any
property (as unanimously determined by the Manager, BR and JLUS)
distributed to the Member (net of liabilities securing the property
that the Member is considered to assume or take subject to under
Section 752 of the Code and the Regulations promulgated thereunder), as
of the date of distribution; and MINUS
(iv) the aggregate Net Loss and items in the nature of
deduction or losses allocated to the Member under Article 8 of this
Agreement or other negative adjustment required by the Regulations.
(b) The Capital Accounts of the Members shall be adjusted to reflect a
revaluation of Company property (as determined by the Manager) in the manner
required by Section 1.704-1(b)(2)(iv)(f) of the Regulations when Membership
Units in the Company are issued by, acquired from or relinquished to the
Company, or when the Company is liquidated within the meaning of Section
1.704-1(b)(2)(ii)(g) of the Regulations.
(c) If, pursuant to Sections 1.704-1(b)(2)(iv)(d) or
1.704-1(b)(2)(iv)(f) of the Regulations, Company property is reflected on the
books of the Company at a book value that differs from the adjusted tax basis of
such property, the Members' Capital Accounts shall be adjusted in accordance
19
with Section 1.704-1(b)(2)(iv)(g) of the Regulations for allocations of
depreciation, and of gain or loss as computed for book purposes, with respect to
such property.
(d) In accordance with Section 1.704-1(b)(2)(iv)(d) of the Regulations,
if the Company distributes property in kind to Members, the Capital Accounts
will be adjusted first to reflect the manner in which any unrealized gain or
loss inherent in the property would have been allocated among the Members as if
the property had been sold instead for fair market value (as unanimously
determined in good faith by the Manager, BR and JLUS) to the extent not already
reflected.
(e) Upon the sale, transfer, assignment or other disposition of an
interest in the Company after the date of this Agreement, the Capital Account of
the transferor Member that is attributable to the transferred Membership Units
will be carried over to the transferee Member.
(f) The Capital Accounts shall be adjusted as required by Section
1.704-1(b)(2)(iv)(m) of the Regulations upon an adjustment to the adjusted tax
basis of any Company asset pursuant to Code Section 734(b) or Code Section
743(b).
(g) The foregoing provisions of this SECTION 7.3 and the other
provisions of this Agreement relating to the maintenance of Capital Accounts are
intended to comply with Section 1.704-1(b) of the Regulations, and shall be
interpreted and applied in a manner consistent with such Regulations.
ARTICLE 8.
ALLOCATIONS
8.1 NET PROFIT AND NET LOSS.
(a) After giving effect to the special allocations provided in SECTIONS
8.2, 8.4 and 8.7, Net Profit of the Company for each Fiscal Year shall be
allocated to each of the Members, up to the amount necessary to increase such
Member's Capital Account balance to the positive amount which will be
distributed to each of the Members if the Company sold all of its assets for
book value (as determined by an independent certified public accounting firm or
as mutually agreed by the Manager, BR and JLUS), paid off all of its
liabilities, and distributed all remaining cash to the Members in accordance
with ARTICLE 9 hereof. Any Net Profit in excess thereof shall be allocated among
the Members in proportion to their then respective Percentage Interests.
(b) After giving effect to the special allocations provided SECTIONS
8.2, 8.4 and 8.7, Net Loss of the Company for each Fiscal Year shall be
allocated to each of the Members up to the amount necessary to decrease each
Member's Capital Account balance to the positive amount which will be
distributed to each of the Members if the Company sold all of its assets for
book value (as determined by an independent certified public accounting firm or
as mutually agreed by the Manager, BR and JLUS), paid off all of its
liabilities, and distributed all remaining cash to the Members in accordance
20
with ARTICLE 9 hereof. Any Net Loss in excess thereof shall be allocated among
the Members in proportion to their then respective Percentage Interests.
8.2 LIMITATION ON NET LOSS ALLOCATIONS.
Notwithstanding any provision of this Agreement to the contrary, except
as otherwise specifically provided in this SECTION 8.2, in no event shall Net
Loss or any item of loss or deduction be allocated to a Member if such
allocation would result in such Member's having or increasing a negative
Adjusted Capital Account Balance at the end of any Fiscal Year. In the event
some but not all of the Members would have a negative Adjusted Capital Account
Balance as a consequence of an allocation of Net Loss pursuant to SECTION 8.1(b)
hereof, the limitation set forth in this SECTION 8.2 shall be applied on a
Member by Member basis and any Net Loss not allocable to any Member as a result
of such limitation shall be allocated to the other Members in accordance with
the positive balances in such Member's Capital Accounts so as to allocate the
maximum permissible Net Loss to each Member under Section 1.704-1(b)(2)(ii)(d)
of the Regulations.
8.3 TAX ALLOCATIONS.
Except as provided in SECTION 8.6 herein, for income tax purposes,
Company income, gain, loss, deduction or credit (or any item thereof) for each
Fiscal Year shall be allocated to and among the Members in order to reflect the
allocations made pursuant to the provisions of this ARTICLE 8 for such Fiscal
Year (other than allocations of items which are not deductible or are excluded
from taxable income).
8.4 SPECIAL ALLOCATIONS.
The following special allocations shall be made in the following order:
(a) MINIMUM GAIN CHARGEBACK. Except as otherwise provided in Section
1.704-2(f) of the Regulations, notwithstanding any other provision of this
ARTICLE 8, if there is a net decrease in Company Minimum Gain during any taxable
year, each Member shall be specially allocated items of Company income and gain
for such taxable year (and, if necessary, subsequent taxable years) in an amount
equal to such Member's share of the net decrease in Company Minimum Gain,
determined in accordance with Regulations Section 1.704-2(g). Allocations
pursuant to the previous sentence shall be made in proportion to the respective
amounts required to be allocated to each Member pursuant thereto. The items to
be so allocated shall be determined in accordance with sections 1.704-2(f)(6)
and 1.704-2(j)(2) of the Regulations. This SECTION 8.4(a) is intended to comply
with the minimum gain chargeback requirement in Section 1.704-2(f) of the
Regulations and shall be interpreted consistently therewith.
(b) MEMBER MINIMUM GAIN CHARGEBACK. Except as otherwise provided in
Section 1.704-2(i) (4) of the Regulations, notwithstanding any other provision
of this ARTICLE 8, if there is a net decrease in Member Nonrecourse Debt Minimum
Gain attributable to Member Nonrecourse Debt during any taxable year, each
Member who has a share of the Member Nonrecourse Debt Minimum Gain attributable
to such Member Nonrecourse Debt, determined in accordance with Section
21
1.704-2(i)(5) of the Regulations, shall be specially allocated items of Company
income and gain for such taxable year (and, if necessary, subsequent taxable
years) in an amount equal to such Member's share of the net decrease in Member
Nonrecourse Debt, determined in accordance with Regulations Section
1.704-2(i)(4). Allocations pursuant to the previous sentence shall be made in
proportion to the respective amounts required to be allocated to each Member
pursuant thereto. The items to be so allocated shall be determined in accordance
with Sections 1.704-2(i)(4) and 1.704-2(j)(2) of the Regulations. This SECTION
8.4(b) is intended to comply with the minimum gain chargeback requirement in
Section 1.704-2(i)(4) of the Regulations and shall be interpreted consistently
therewith.
(c) QUALIFIED INCOME OFFSET. In the event any Member unexpectedly
receives any adjustments, allocations, or distributions described in Sections
1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), or 1.704-1(b)(2)(ii)(d)(6) of
the Regulations, items of Company income and gain shall be specially allocated
to each such Member in an amount and manner sufficient to eliminate, to the
extent required by the Regulations, the deficit Adjusted Capital Account Balance
of the Member as quickly as possible, provided that an allocation pursuant to
this SECTION 8.4(c) shall be made only if and to the extent that the Member
would have a deficit Adjusted Capital Account Balance after all other
allocations provided for in this Article 8 have been tentatively made as if this
SECTION 8.4(c) were not in the Agreement.
(d) GROSS INCOME ALLOCATION. In the event any Member has a deficit
Capital Account at the end of any Fiscal Year which is in excess of the sum of
the amount such Member is obligated to restore pursuant to the penultimate
sentences of Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5), each such
Member shall be specially allocated items of Company income and gain in the
amount of such excess as quickly as possible, provided that an allocation
pursuant to this SECTION 8.4(d) shall be made only if and to the extent that
such Member would have a deficit Capital Account in excess of such sum after all
other allocations provided for in this ARTICLE 8 have been made as if SECTION
8.4(c) and this SECTION 8.4(d) were not in the Agreement.
(e) NONRECOURSE DEDUCTIONS. Nonrecourse Deductions shall be allocated
as part of the Net Profit and Net Loss of the Company.
(f) MEMBER NONRECOURSE DEDUCTIONS. Any Member Nonrecourse Deductions
for any taxable year shall be specially allocated to the Member who bears the
economic risk of loss with respect to the Member Nonrecourse Debt to which such
Member Nonrecourse Deductions are attributable in accordance with Regulations
Section 1.704-2(i) (1).
(g) SECTION 754 ADJUSTMENTS. To the extent an adjustment to the
adjusted tax basis of any Company asset, pursuant to Code Section 734(b) or Code
Section 743(b) is required, pursuant to Regulations Section
1.704-1(b)(2)(iv)(m)(2) or 1.704-1(b)(2)(iv)(m)(4), to be taken into account in
determining Capital Accounts as the result of a distribution to a Member in
complete liquidation of such Member's interest in the Company, the amount of
such adjustment to Capital Accounts shall be treated as an item of gain (if the
adjustment increases the basis of the asset) or loss (if the adjustment
22
decreases such basis) and such gain or loss shall be specially allocated to the
Members in accordance with their interests in the Company in the event
Regulations Section 1.704-1(b)(2)(iv)(m)(2) applies, or to the Member to whom
such distribution was made in the event Regulations Section
1.704-1(b)(2)(iv)(m)(4) applies.
8.5 OTHER ALLOCATION RULES.
The following rules shall apply for purposes of making tax allocations:
(a) Except as otherwise provided herein, for purposes of determining
the Net Profit, Net Loss, or any other items allocable to any period, Net
Profits, Net Losses, and any such other items shall be determined on a daily,
monthly, or other basis, as determined by the Manager using any permissible
method under Code Section 706 and the Regulations thereunder.
(b) The Members are aware of the income tax consequences of the
allocations made by this ARTICLE 8 and hereby agree to be bound by the
provisions of this ARTICLE 8 in reporting their shares of Company income and
loss for income tax purposes.
(c) Solely for purposes of determining a Member's proportionate share
of the "excess nonrecourse liabilities" of the Company within the meaning of
Regulations Section 1.752-3(a)(3), the Members' interests in Company profits are
in proportion to their respective Percentage Interests.
(d) To the extent permitted by Section 1.704-2(h)(3) of the
Regulations, the Manager shall endeavor to treat distributions of Capital
Proceeds as having been made from the proceeds of a Nonrecourse Liability or a
Member Nonrecourse Debt only to the extent that such distributions would cause
or increase a negative Adjusted Capital Account Balance for any Member.
8.6 SECTION 704(c) ALLOCATION.
In accordance with Code Section 704(c) and the Regulations thereunder,
income, gain, loss, and deduction with respect to any property contributed to
the capital of the Company shall, solely for tax purposes, be allocated among
the Members so as to take account of any variation between the adjusted basis of
such property to the Company for federal income tax purposes and its initial
Gross Asset Value computed in accordance with subparagraph (a) of the definition
of "Gross Asset Value" using such method as the Manager shall select.
In the event the Gross Asset Value of any Company asset is adjusted
pursuant to subparagraph (b) of the definition of "Gross Asset Value" subsequent
allocations of income, gain, loss and deduction with respect to such asset shall
take account of any variation between the adjusted basis of such asset for
federal income tax purposes and its Gross Asset Value in the same manner as
under Code Section 704(c) and the Regulations thereunder.
Any elections or other decisions relating to such allocations shall be
made by the Manager in any manner that reasonably reflects the purpose and
23
intention of this Agreement. Allocations pursuant to this SECTION 8.6 are solely
for purposes of federal, state, and local taxes and shall not affect, or in any
way be taken into account in computing, any Member's Capital Account or share of
Net Profit, Net Loss, or other items or distributions pursuant to any provision
of this Agreement.
8.7 CURATIVE ALLOCATIONS.
The allocations set forth in this ARTICLE 8 (the "REGULATORY
ALLOCATIONS") are intended to comply with certain requirements of Regulations
Sections 1.704-1(b) and 1.704-2(b). Notwithstanding any other provisions of this
Agreement, other than the Regulatory Allocations, the Regulatory Allocations
shall be taken into account in allocating other items of income, gain, loss and
deduction among the Members so that, to the extent possible, the net amount of
such allocations of other items and the Regulatory Allocations to each Member
shall be equal to the net amount that would have been allocated to such Member
if the Regulatory Allocations had not occurred. The Manager shall have
reasonable discretion, with respect to each Fiscal Year, to apply the provisions
of this SECTION 8.7 in whatever manner is likely to minimize the economic
distortions that might otherwise result from the Regulatory Allocations.
ARTICLE 9.
DISTRIBUTIONS TO MEMBERS
9.1 DISTRIBUTION TO SATISFY STATE AND FEDERAL INCOME TAX LIABILITY.
The Company shall distribute to each Member, on a quarterly basis,
Distributable Cash in an amount equal to each Member's estimated allocable share
of Net Profit during such quarter (as estimated in good faith by the Manager, BR
and JLUS), multiplied by the maximum combined marginal federal and state income
tax rate that the Manager, BR and JLUS estimate in good faith will apply to the
aggregate estimated taxable income of each Member's estimated allocable share of
such Net Profit. Each such quarterly distribution described in this SECTION 9.1
shall be payable each quarter in a manner to permit the Members to make
quarterly estimated payments to Federal and State taxing authorities. Each such
quarterly distribution made pursuant to this SECTION 9.1 shall be treated as an
advance against amounts of Distributable Cash otherwise distributable to a
Member and shall be recouped from the amounts otherwise distributable to the
Member. For purposes of this SECTION 9.1, a Member's tax liability shall not
include any tax liability attributable to any taxable income or gain allocated
to such Member pursuant to SECTION 8.6 or otherwise pursuant to Code Section
704(c) or the Regulations promulgated thereunder.
9.2 DISTRIBUTABLE CASH.
Subject to the provisions of SECTION 9.1, and except as provided in
SECTION 15.3, the Company shall make distributions of Distributable Cash to the
Members at such times as determined by the Manager, but not less frequently than
quarterly. All distributions of Distributable Cash shall be made to the Members
as follows:
(a) First, to JLUS, until the aggregate amount of Distributable Cash
distributed to JLUS since the inception of this Agreement pursuant to this
SECTION 9.2(a) equals $1,000,000; provided, further that no amount paid or
payable to JLUS under Section 8.3 of the Contribution Agreement shall reduce the
amount to be distributed hereunder this section;
(b) Second, to the Members pro rata (in proportion to the balances in their
respective Preferred Return Accounts) to the extent of their respective
Preferred Return Accounts, until such Preferred Return Accounts are
reduced to zero; provided, further that no amount paid or payable to
24
JLUS under Section 8.3 of the Contribution Agreement shall reduce the
amount to be distributed hereunder this section; and
(c) Thereafter, the remaining Distributable Cash to the Members pro
rata in proportion to their then respective Percentage Interests.
If any amount to be distributed pursuant to this SECTION 9.2 is
insufficient to pay the total amount payable under any priority level, such
amount shall be distributed within such priority level to the Members in
proportion to their claim under such priority level.
The Manager shall endeavor in good faith to distribute the following
amounts of Distributable Cash on the following dates: (i) $1,000,000 on December
31, 2009; and (ii) the remaining amount in the Members' Preferred Return
Accounts on December 31, 2010.
9.3 LIMITATION UPON DISTRIBUTIONS.
No distribution shall be made to Members if prohibited by Section 17254
of the Act.
9.4 INTEREST ON AND RETURN OF CAPITAL CONTRIBUTIONS.
No Member shall be entitled to interest on such Member's Capital
Contributions or to a return of its Capital Contributions, except as otherwise
specifically provided for in this Agreement.
9.5 AMOUNTS WITHHELD.
All amounts withheld pursuant to the Code or any provisions of state or
local tax law with respect to any payment or distribution to the Company or to
the Members or any allocation of taxable income to the Company or the Members
shall be treated as amounts distributed to the Members pursuant to this ARTICLE
9 for all purposes under this Agreement. The Company is authorized to withhold
from distributions, to the Members and to pay over any federal, state or local
government any amounts required to be withheld pursuant to the Code or any
provisions of any other federal, state or local law and shall allocate such
amounts to the Members with respect to whom such amounts were withheld. If the
amount required to be withheld with respect to a Member exceeds the amount which
otherwise would have been distributed to such Member, such Member shall pay to
the Company the amount of such excess within five (5) days after the giving of
written demand therefor by the Company. If such Member (herein called a
"DELINQUENT MEMBER") shall fail to pay such excess within said five-day period,
and such amount is paid by the Company or such amount is advanced to the Company
by another Member, such amount shall be deemed loaned to such Member, repayable
with interest at the rate of twelve percent (12%) per annum, compounded monthly.
The Company, in addition to and without limiting any of its other rights and
remedies, may institute an action against the Delinquent Member for collection
25
of such excess amount and interest; in any such action, the Company shall be
entitled to recover, in addition to such excess amount and interest, all
attorneys' fees, disbursements and court costs incurred by the Company in
connection with its efforts to collect the amounts due from such Delinquent
Member. In addition, such Delinquent Member shall indemnify and hold harmless
the Company and its Affiliates, and their respective managers, the Manager and
officers, and the other Members and the employees of the Company and each of its
subsidiaries from all liabilities, losses, costs and expenses, including,
without limitation, penalties imposed by the Internal Revenue Service or any
state or local taxing authority, for failure to remit the required amount of
taxes to the appropriate governmental authority. Any amount withheld by the
Company pursuant to this SECTION 9.5 shall be deemed distributed to such Member
for purposes of determining the distributions to be made to such Member pursuant
to SECTION 9.1.
9.6 CASH DISTRIBUTION PROTECTION RIGHTS.
In order to protect the cash distribution rights of the Members set
forth in Section 9.2, the Manager agrees that on or before December 1 of each
year, beginning on December 1, 2008, the Manager shall commence the preparation
of an operating budget and business plan for the following Fiscal Year and each
of the four Fiscal Quarters in such Fiscal Year, which operating budget and
business plan shall include such items as determined by the Manager which
reflect the actual and proposed operations of the Company, including with
respect to the Company's organization, marketing and advertising strategies,
distribution strategies, Company goals and targets. Each such operating budget
and business plan shall include a projected income statement, a projected
statement of cash flows and a projected balance sheet for the following Fiscal
Year and for each of the four Fiscal Quarters in such Fiscal Year, and shall
identify costs, if any, allocated to the Company and to be paid to a Member for
overhead, personnel, and other shared resources, which allocation shall be
directly proportional to the portion of such shared resources actually used by
the Company during the applicable period. In addition, the operating budget and
business plan shall specify the amount of cash that is expected to be available
for distribution to the Members during the following Fiscal Year and in each of
the four Fiscal Quarters in such Fiscal Year (the "TARGETED CASH DISTRIBUTION").
Once the Manager has completed its preparation of an operating budget and
business plan, the Manager shall submit such operating budget and business plan
to the Members, so that the Members may evaluate the Targeted Cash Distribution
for the following Fiscal Year and each of the four Fiscal Quarters in such
Fiscal Year. If the Members disagree with the Targeted Cash Distribution set
forth in the proposed operating budget, the Manager, BR and JLUS shall use good
faith efforts to resolve such disagreement prior to the first business day of
the next Fiscal Year; PROVIDED, HOWEVER, that if BR and JLUS cannot reach
unanimity prior to the first day of the applicable Fiscal Year, then the
Targeted Cash Distribution which was last unanimously approved by BR and JLUS in
the prior year's operating budget shall apply to the then-current Fiscal Year
until a new Targeted Cash Distribution is unanimously approved by the Members,
which approval shall not be unreasonably withheld. The Manager shall use good
faith efforts to update the projected quarterly Targeted Cash Distribution on a
quarterly basis at least ten (10) days in advance of the commencement of the
applicable quarter, to the extent necessary based on changes occurring during
the course of the Fiscal Year. Any updates to the Targeted Cash Distribution
submitted to and approved by BR and JLUS during the course of any Fiscal Year
shall be incorporated into and shall constitute the approved Targeted Cash
Distribution for the remainder of the Fiscal Year. In addition to the foregoing,
26
in order to further protect the cash distribution rights of the Members, without
first obtaining the unanimous approval of BR and JLUS, which approval shall not
be unreasonably withheld, the Manager shall not incur expenses which would cause
the Company to reduce the Targeted Cash Distribution, as set forth in the
applicable budget, by more than ten percent (10%) of the total Targeted Cash
Distribution for such Fiscal Year.
ARTICLE 10.
INTERESTS
Each Member's "PERCENTAGE INTEREST" in the Company shall be as set
forth opposite such Member's name on EXHIBIT A attached hereto, subject to any
adjustment made in accordance with this Agreement. The Manager is hereby
authorized on behalf of the Members to amend EXHIBIT A from time to time to
reflect any adjustments to the Percentage Interests made in accordance with this
Agreement.
The Membership Units may be evidenced by certificates ("MEMBER
CERTIFICATES") in the sole discretion of the Manager and, in such event, the
Manager may establish reasonable procedures for the delivery and reissuance of
the Member Certificates in connection with the transfer, loss or destruction of
Member Certificates and other eventualities. Among other matters, such
procedures may set forth required fees, indemnification documentation and
signatures (including guarantees thereof) to be obtained from parties requesting
reissuance of Member Certificates. Such procedures need not be incorporated into
this Agreement, but a copy thereof shall be delivered to all Members. Each
Member Certificate shall be stamped or imprinted with a legend as the Manager
shall deem necessary or appropriate.
ARTICLE 11.
ADMISSION OF ADDITIONAL MEMBERS
Notwithstanding any provision in this Agreement to the contrary,
additional Members that are not Affiliate Transferees of either BR or JLUS may
be admitted to the Company only by the unanimous agreement of BR and JLUS.
Notwithstanding the foregoing, the aforementioned unanimous agreement of BR and
JLUS shall not be required with respect to additional Members that are not
Affiliate Transferees of either BR and JLUS that are admitted to the Company in
accordance with SECTION 7(c) and SECTION 7(d). In order to be admitted as a
Member, the proposed member must agree in writing to be bound by the terms of
this Agreement as if such proposed member were a signatory hereto. BR and JLUS
shall unanimously determine the Capital Contribution, if any, required of such
additional Member, and shall also unanimously determine the fair market value of
the Company as of the date of admission, which fair market value determination
shall be final and binding for the purposes of this ARTICLE 11 and shall be used
by the Manager to calculate the number of Membership Units issued to the
additional Member at a price per Membership Unit that takes into account any
appreciation or depreciation in the value of the Company since the last occasion
upon which the Company issued Membership Units to Members. Any adjustment to the
Percentage Interests of the Members upon the admittance of a new Member shall be
pro rata based on the number of Membership Units issued and outstanding
immediately following such admission.
27
ARTICLE 12.
CESSATION OF MEMBERSHIP
12.1 CESSATION.
Except as set forth in this ARTICLE 12, a Member shall cease to be a
Member as of the date of the occurrence of any of the following events:
(a) All of such Member's Membership Units in the Company are purchased
by the Company or the other Members or otherwise in accordance with ARTICLE 13
below;
(b) Such Member makes an assignment for the benefit of creditors; files
a voluntary petition in bankruptcy; is adjudicated bankrupt or insolvent or has
entered against it an order for relief in any bankruptcy or insolvency
proceeding; files a petition or answer seeking for the Member any
reorganization, arrangement, composition, readjustment, liquidation,
dissolution, or similar relief under any statute, law, or regulation; files an
answer or other pleading admitting or failing to contest the material
allegations of a petition filed against the Member in any proceeding of this
nature; or seeks, consents to, or acquiesces in the appointment of a trustee,
receiver, or liquidator of the Member or of all of any substantial part of the
Member's properties; or
(c) If within one hundred twenty (120) days after the commencement of
any proceeding against such Member seeking reorganization, arrangement,
composition, readjustment, liquidation, dissolution, or similar relief under any
statute, law, or regulation, the proceeding has not been dismissed, or if within
ninety (90) days after the appointment without the Member's consent or
acquiescence of a trustee, receiver, or liquidator of the Member or of all or
any substantial part of the Member's properties, the appointment is not vacated
or stayed, or within ninety (90) days after the expiration of any stay, the
appointment is not vacated.
12.2 NO CESSATION.
Notwithstanding the Act or any other provision of this Agreement, a
Member does NOT cease to be a Member solely upon the occurrence of, in the case
of a Member who is an individual (a) the death of such Member, or (b) such
Member's becoming Disabled.
12.3 WITHDRAWAL.
No Member may withdraw from the Company pursuant to the Act or
otherwise.
12.4 CESSATION WITH RESPECT TO MEMBER.
The Members hereby agree that cessation with respect to any Member
shall not result in the dissolution of the Company.
28
ARTICLE 13.
DISPOSITION OF MEMBERSHIP INTERESTS
13.1 PROHIBITION ON TRANSFER.
Except as permitted under this ARTICLE 13, including any Transfers made
in accordance with SECTION 13.2, or as unanimously approved in advance by BR and
JLUS, no Member may, directly or indirectly, transfer, sell, assign,
hypothecate, pledge or otherwise encumber or dispose of (collectively,
"TRANSFER") all, or any portion of, or any interest or rights in, such Member's
Membership Units, except that: (i) BR shall have the right from time to time and
at any time to Transfer all or any portion of their respective Membership Units
to any Affiliate thereof; and (ii) JLUS shall have the right from time to time
and at any time to Transfer all or any portion of their respective Membership
Units to any Affiliate thereof; provided, however, with respect to subsection
(i) and (ii) that the transferor of such Units shall not be relieved of any of
its obligations of a financial nature hereunder and BR or JLUS, as the case may
be, shall retain the voting power with respect to such Membership Units; and
(iii) subject to the Transfer restrictions set forth in this ARTICLE 13
(including, without limitation, the provisions of SECTION 13.2), any Member that
is a natural Person may provide for the Transfer, whether by will, intestate
succession or trust instrument, of any or all of his or her Membership Units to
(A) a Family Member or to such Member's executor, administrator or other
personal representative pending final distribution to such Family Member; (B)
such Member's executor, administrator or other personal representative in the
event such Member becomes Disabled; or (C) an inter vivos trust primarily for
such Member's benefit or the benefit of a Family Member of such Member so long
as (1) such Member acts as the trustee or co-trustee of such trust, and (2) any
voting rights with respect to such Membership Units are held or exercisable by
such Member. Notwithstanding any provision of this Agreement to the contrary,
each Member hereby acknowledges the reasonableness of the Transfer restrictions
set forth in this ARTICLE 13 in view of the purposes of the Company and the
relationship of the Members. The attempted Transfer of any Membership Units or
any portion of any Membership Units not in accordance with this ARTICLE 13 shall
be invalid, null and void, and of no force or effect. Any Person to whom all or
a portion of any Membership Units are attempted to be Transferred in violation
of this ARTICLE 13 shall not be entitled to receive distributions from the
Company or have any other rights in or with respect to said Membership Units.
Each transferor of Membership Units hereby indemnifies the Company and the
remaining Members from and against any and all losses, liabilities, damages and
expenses arising directly or indirectly out of any disposition or purported
disposition of Membership Units in violation of this Agreement.
13.2 RIGHT OF FIRST REFUSAL.
(a) Except as otherwise specifically set forth in this Agreement, any
Member that desires to Transfer its, his or her Membership Units (an "OFFERING
MEMBER") shall make any such Transfer only after first giving written notice to
the Company, BR and JLUS, as the case may be. Said notice (the "OFFER NOTICE")
shall contain a full description of the proposed Transfer, including information
on the type of Transfer, the Membership Units that the Offering Member proposes
to Transfer (the "AFFECTED INTEREST"), the complete terms and all details of the
proposed Transfer, the terms of payment and purchase price and/or other
consideration of the Membership Units offered in connection with such Transfer
29
(collectively referred to as the "PURCHASE PRICE") and the true identity of the
real parties in interest which are involved, including, without limitation,
their respective names, complete mailing addresses and telephone numbers. The
delivery of the Offer Notice shall constitute an offer by the Offering Member to
sell all or a portion of the Affected Interest to the Company and, if said
option is not fully exercised by the Company, to sell all or a portion of the
remaining Affected Interest to BR and JLUS, as the case may be, in accordance
with the terms hereof, and pursuant to the preemptive and successive options
granted to the Company, BR and JLUS in SECTIONS 13.2(b) and 13.2(c), at a price
equal to the Purchase Price.
(b) If the Company desires to purchase all or a portion of the Affected
Interest, it must give to the Offering Member, or his or her heirs,
beneficiaries, or legal or personal representative (hereinafter referred to as a
"LEGAL REPRESENTATIVE"), if applicable, and all of the other Members, within
twenty-five (25) days following the delivery of the Offer Notice, a binding
written notice of the exercise of its option to purchase from the Offering
Member (or his Legal Representative, if applicable) such Affected Interest and
specifying what portion of such Affected Interest it intends to purchase. The
Company shall thereafter have until the sixtieth (60th) day following the
delivery of the Offer Notice to close the purchase of such Affected Interests,
in accordance with the provisions of SECTION 13.6.
(c) In the event the Company fails to purchase all of the Affected
Interests from the Offering Member (or his Legal Representative, if applicable)
pursuant to the option granted to it in SECTION 13.2(b) above, each of BR and
JLUS, as the case may be, shall have up to a maximum of thirty-five (35) days
following the delivery of the Offer Notice in which to indicate in writing to
the Offering Member (or his Legal Representative, if applicable) its binding
agreement to purchase all or a portion of the remaining Affected Interest and
specifying what portion thereof it intends to purchase. In the event that BR and
JLUS, as the case may be, each deliver such a binding commitment to the Offering
Member, then BR and JLUS, as the case may be, shall agree as to what portion of
the Affected Interest each will purchase, except that if BR and JLUS, as the
case may be, fail to reach such an agreement, then they shall be permitted to
purchase only that portion of the Affected Interest equal to their relative (one
to the other) Percentage Interests. BR and JLUS, as the case may be, shall
thereafter have until the sixtieth (60th) day following the delivery of the
Offer Notice to close the purchase of such Affected Interest, in accordance with
the provisions of SECTION 13.6.
(d) If all of the Affected Interest is not purchased by the Company, BR
or JLUS pursuant to this SECTION 13.2, then the Offering Member shall be free to
make a Transfer of the remaining Affected Interest pursuant to the rights
granted herein; PROVIDED, HOWEVER, that: (i) any such Transfer shall be made in
strict accordance with the terms of the Offer Notice; and (ii) such Transfer
must be consummated and closed within ninety (90) days after the delivery of the
Offer Notice. If no closing has occurred after the expiration of such ninety
(90) day period, the remaining Affected Interest shall again be subject to the
provisions of this Agreement as though the offers in this SECTION 13.2 had not
previously been given. Any Membership Units Transferred pursuant to this SECTION
13.2 shall nevertheless remain subject to the provisions of this Agreement and
30
to further evidence that such Membership Units are subject to this Agreement,
the Transferee thereof shall execute a counterpart signature page to this
Agreement as an additional agreeing Member.
13.3 OPTION ARISING UPON DEATH OF MEMBER.
Upon the final appointment or approval of an appropriately authorized
administrator or executor of a Member's estate following the death of a natural
Member (also referred to as the "OFFERING MEMBER" for the purposes of this
ARTICLE 13), the Company, BR and JLUS shall have the right, but not the
obligation, to purchase all or a portion of the Offering Member's Membership
Units (also referred to as the "AFFECTED INTEREST" for the purposes of this
ARTICLE 13) at a purchase price equal to the Current Value pursuant to the
respective and successive options granted to the Company, BR and JLUS as set
forth in SECTIONS 13.2(b) and 13.2(c) above. Within five (5) days of such final
appointment or approval of the administrator or executor of the Offering
Member's estate, the Legal Representative of the Offering Member shall deliver
written notice (also referred to as the "OFFER NOTICE" for the purposes of this
ARTICLE 13) to the Company, BR and JLUS of such option to purchase the Affected
Interest. If all of the Affected Interest is not purchased by the Company, BR
and JLUS pursuant to this ARTICLE 13, then such remaining portion of the
Affected Interest shall (i) automatically be converted into a non-voting
economic interest that will not entitle the holder thereof to any of the rights,
powers or privileges of an Membership Units or as given to a Member under this
Agreement or the Act except for the right to receive the Offering Member's
distributions from the Company in accordance with ARTICLE 9 of this Agreement
and (ii) pass by will, the laws of descent and distribution or otherwise to a
Family Member of the Offering Member. Notwithstanding the foregoing, all of such
Offering Member's rights and obligations in connection with the Affected
Interest shall remain vested in his or her estate until such time, if any, as
the Affected Interest is purchased by the Company, BR or JLUS in accordance with
this ARTICLE 13 or until the Affected Interest is passed to a Family Member in
accordance with this SECTION 13.3. Any Family Member obtaining Membership Units
pursuant to this SECTION 13.3 shall acknowledge in writing the limited rights in
respect of the Affected Interest granted under this SECTION 13.3 and the
transfer restrictions placed on such Affected Interest by this ARTICLE 13.
13.4 OPTION ARISING UPON DISABILITY OF MEMBER.
(a) PURCHASE OF DISABLED MEMBER'S INTEREST. In the event a natural
Member (also referred to as the "OFFERING MEMBER" for the purposes of this
ARTICLE 13) becomes Disabled (as defined in SECTION 13.4(b) below), the Company,
BR and JLUS shall have the right, but not the obligation, to purchase from such
Offering Member (or his or her Legal Representative, if applicable) such
Offering Member's Membership Units (also referred to as the "AFFECTED INTEREST"
for the purposes of this ARTICLE 13) at a purchase price equal to the Current
Value pursuant to the respective and successive options granted to the Company,
BR and JLUS as set forth in SECTIONS 13.2(b) and 13.2(c). Within five (5) days
of the determination that the Offering Members is Disabled, the Legal
Representative of the Offering Member shall deliver written notice (also
referred to as the "OFFER NOTICE" for the purposes of this ARTICLE 13) to the
Company, BR and JLUS of such option to purchase the Affected Interest. If all of
31
the Affected Interest is not purchased by the Company, BR or JLUS pursuant to
this ARTICLE 13, then such remaining portion of the Affected Interest shall
automatically be converted into a non-voting economic interest that will not
entitle the holder thereof to any of the rights, powers or privileges of
Membership Units or as given to a Member under this Agreement or the Act except
for the right to receive the Offering Member's distributions from the Company in
accordance with ARTICLE 9 of this Agreement. Notwithstanding the foregoing, all
of such Offering Member's rights and obligations in connection with the Affected
Interest shall remain with such Offering Member or his or her Legal
Representative until such time, if any, as the Affected Interest is purchased by
the Company, BR or JLUS in accordance with this ARTICLE 13. Any Legal
Representative obtaining Membership Units pursuant to this SECTION 13.4 shall
acknowledge in writing the limited rights in respect of the Affected Interest
granted under this SECTION 13.3 and the transfer restrictions placed on such
Affected Interest by this ARTICLE 13.
(b) DEFINITION OF DISABLED. For purposes of this Agreement, "DISABLED"
shall be defined as either (i) a determination that the Member is disabled
pursuant to the terms of any long term disability insurance policy which the
Company has purchased and which covers said Member; (ii) the reasonable
determination by a reputable, independent, licensed medical doctor selected by
the Company that, due to a mental or physical impairment or disability, the
Member has been incapable or unable to fully perform the material duties
performed by him for the Company immediately prior to such disability for a
period of at least sixty (60) consecutive days and which is reasonably expected
to last for a continuous period of not less than twelve (12) months from the
date of its onset; or (iii) the entry of an order by a court of competent
jurisdiction adjudicating the Member incompetent to manage his person or
property.
13.5 CURRENT VALUE.
The "CURRENT VALUE" of a Member's Membership Units on any particular
date shall be determined by multiplying such Member's Percentage Interest by the
fair market value of the Company determined by an accounting or valuation firm
as designated in the discretion of the Manager, BR and JLUS as of such date,
which determination shall be final and binding for the purposes of this ARTICLE
13.
13.6 PAYMENT OF PURCHASE PRICE.
At the closing of any purchase and sale of an Affected Interest, the
Company, BR or JLUS, as the case may be, shall pay the Current Value to the
Offering Member (or his or her Legal Representative, as applicable) in cash or
by certified check at the time of closing.
13.7 SUBSTITUTED MEMBERS.
In connection with the Transfer of all or any portion of a Member's
Membership Units as permitted by and in accordance with this ARTICLE 13, the
assignee shall become a substituted Member (to the extent not already a Member)
on the effective time of such Transfer (a "SUBSTITUTED MEMBER"), which effective
time shall not be earlier than the date of compliance with the conditions to
such Transfer, including the conditions that such assignee, unless already a
32
Member or an Affiliate Transferee, shall furnish the Manager: (i) a counterpart
signature page to this Agreement and an agreement to abide by all the terms and
conditions of this Agreement; (ii) such other documents or instruments as may be
necessary or appropriate to effect such Person's admission as a Member or
otherwise requested by the Manager; and (iii) unless waived by the Manager, the
Company must receive a favorable opinion of the Company's legal counsel or of
legal counsel acceptable to the Manager to the effect that the Transfer or
admission, when added to the total of all other sales, assignments, or other
Transfers within the preceding twelve (12) months, would not result in the
Company's being considered to have terminated within the meaning of Code Section
708. Such admission shall become effective on the date on which the Manager
determines in his sole discretion that such conditions have been satisfied, and
when any such admission is shown on the books and records of the Company. The
Member effecting a Transfer and any Person admitted to the Company in connection
therewith shall pay, or reimburse the Company for, all costs incurred by the
Company in connection with the Transfer or admission (including, without
limitation, the legal fees incurred in connection with the legal opinions
referred to above) on or before the tenth (10th) day after the receipt by that
Person of the Company's invoice for the amount due and the Person being admitted
shall not be deemed a Member until such invoice is paid.
13.8 CALL OPTIONS.
(a) FIRST CALL OPTION. At any time during the period commencing on July
1, 2008 and ending on June 30, 2011 (the "FIRST CALL PERIOD"), JLUS shall have
the right and option (the "FIRST CALL OPTION") to purchase from BR (or any
transferee of BR) all, but not less than all, of BR's Membership Units (or the
Membership Units of any transferee of BR) for a purchase price (the "FIRST CALL
PURCHASE PRICE") equal to (i) BR's Percentage Interest (or the Percentage
Interest of any transferee of BR), MULTIPLIED BY (ii) four (4), MULTIPLIED BY
(iii) the Company's twelve (12) months' total revenues or, to the extent such
determination is made prior to July 1, 2009, the Company's and JLUS' combined
twelve (12) months' total revenues, in each case determined in accordance with
GAAP for the period determined as follows: (A) if the closing occurs on or
before the ninetieth (90th) day following the delivery of the Offer Notice (as
defined below), then the trailing (12) month period shall end on the last day of
the month in which the Offer Notice was delivered; and (B) if the closing occurs
after the ninetieth (90th) day following the delivery of the Offer Notice, then
the trailing (12) month period shall end on the last day of the month
immediately preceding the month in which the closing occurs.
(b) SECOND CALL OPTION. At any time after expiration of the First Call
Period and continuing during the term of this Agreement (provided the First Call
Option has not been exercised), JLUS shall have the right and option (the
"SECOND CALL OPTION") to purchase from BR (or any transferee of BR) all, but not
less than all, of BR's Membership Units (or the Membership Units of any
transferee of BR) for a purchase price (the "SECOND CALL PURCHASE PRICE") equal
to (i) BR's Percentage Interest (or the Percentage Interest of any transferee of
BR), MULTIPLIED BY (ii) two (2), MULTIPLIED BY (iii) the amount by which the
Company's trailing twelve (12) months' total revenues determined in accordance
with GAAP for the period determined as follows: (A) if the closing occurs on or
before the ninetieth (90th) day following the delivery of the Offer Notice (as
33
defined below), then the trailing (12) month period shall end on the last day of
the month in which the Offer Notice was delivered; and (B) if the closing occurs
after the ninetieth (90th) day following the delivery of the Offer Notice, then
the trailing (12) month period shall end on the last day of the month
immediately preceding the month in which the closing occurs, exceeds $8,340,044.
(c) PROCEDURES; TERMINATION. JLUS may exercise its Call Option to
purchase BR's Membership Units by delivering written notice (also referred to as
the "OFFER NOTICE" for the purposes of this ARTICLE 13) of such election to BR.
The closing shall occur no sooner than thirty (30) days after delivery of the
Offer Notice and the Parties agree to use good faith efforts to close within
ninety (90) days (and in no event later than one hundred twenty (120) days)
after delivery of the Offer Notice to BR, as specified by JLUS in the Offer
Notice. At the closing of the purchase and sale of BR's Membership Units, JLUS
shall pay the First Call Purchase Price or the Second Call Purchase Price, as
applicable, in cash or by certified check at the time of closing. The purchase
and sale of the Membership Units shall be evidenced by a purchase agreement
containing terms customary to a transaction of this nature. The First Call
Option and Second Call Option are personal to JLUS, may not be assigned by JLUS
(either alone or in connection with any transfer of Membership Units), and shall
terminate upon consummation of the first Transfer by JLUS of all or any portion
of its Membership Units. No other section of this Agreement shall in any way
limit or extinguish JLUS' rights under this Section 13.8.
ARTICLE 14.
OTHER MATTERS REGARDING MEMBERS
14.1 LIABILITY OF MEMBERS.
Each Member's liability shall be limited or eliminated to the extent
permitted by the Act and other applicable law.
14.2 INDEMNIFICATION.
Except with regard to SECTION 14.4 hereof and the immediately following
sentence, the Company shall indemnify the Members and their respective agents
for any and all costs, losses, liabilities, and damages paid or accrued by any
such Members or agent in connection with business of the Company, to the fullest
extent provided by the laws of the State of California.
14.3 MEETINGS.
(a) QUARTERLY MEETINGS. The Manager, BR and JLUS agree to hold one
meeting in the second month of each Fiscal Quarter at a time and place agreeable
to them.
(b) GENERAL. Meetings of the Members, for any purpose or purposes, may
only be called by (i) the Manager, or (ii) one or more Members holding at least
a ten percent (10%) Percentage Interest. The Manager or Member, as the case may
be, may designate any place, either within or outside the State of California,
34
as the place of meeting for any meeting of the Members. Written notice stating
the place, day and hour of the meeting and the purpose or purposes for which the
meeting is called shall be delivered not less ten (10) nor more than sixty (60)
days before the date of the meeting, either personally or by mail, facsimile,
electronic mail or other means permitted by Section 17104 of the Act, to each
Member. As to matters subject to a vote of all Members, each Membership Unit
shall entitle its holder to one (1) vote on such matters and the affirmative
vote of holders of a majority of the Membership Units shall be required for the
approval of any such matter.
(c) ACTIONS WITHOUT MEETING. Any action required or permitted to be
taken at a meeting of Members may be taken without a meeting if a written
consent setting forth the action so taken is signed by the holders of a majority
of the Membership Units (or such other percentage as is expressly required by
this Agreement). Such consent may be in one instrument or in several
instruments, and shall have the same force and effect as a vote of a majority of
the Membership Units (or such other percentage as is expressly required by this
Agreement). Such consent shall be filed with the Manager. An action so taken
shall be deemed to have been taken at a meeting held on the effective date so
certified.
14.4 INVESTMENT REPRESENTATIONS.
(a) INVESTMENT INTENT. Each Member hereby represents and warrants to
each of the other Members and to the Company that such Member has acquired its,
his or her Membership Units in the Company for investment solely for its, his or
her own account with the intention of holding such Membership Units for
investment purposes only. Each Member represents and warrants that it, he or she
is familiar with the business of the Company and has had access to all material
information concerning its, his or her investment in the Company.
(b) UNREGISTERED MEMBERSHIP UNITS. Each Member hereby acknowledges that
such Member is aware that such Member's Membership Units have not been
registered under the Federal Act, the Act or under any other state securities
laws. Each Member further understands and agrees that its, his or her
representations and warranties contained in this SECTION 14.4 are being relied
upon by the Company and by the other Members as the basis for the exemption of
the Members' Membership Units from the registration requirements of the Federal
Act and under all other state securities laws. Each Member further acknowledges
and agrees that the Company will not and has no obligation to recognize any
sale, transfer, or assignment of a Member's Membership Units to any person or
entity unless and until the provisions of ARTICLE 13 hereof have been fully
satisfied.
(c) NATURE OF INVESTMENT. Each Member hereby acknowledges and agrees
that a legend reflecting the restrictions imposed upon the transfer of his or
her Membership Units under this Agreement, under the Federal Act, the Act and
under state securities laws shall be placed on the first page of this Agreement.
(d) INDEMNIFICATION OF THE COMPANY AND OTHER MEMBERS. Each Member shall
indemnify, defend and hold harmless the Company and the other Members from and
35
against any liability, loss, cost, damage and expense (including, without
limitation, the costs of litigation and attorneys' fees) arising out of,
resulting from, or in any way related to the breach of any representation or
warranty of such Member set forth in this SECTION 14.4.
14.5 APPROVAL OF AGREEMENTS.
The Manager and each of the Members hereby ratify and adopt all of the
terms and conditions of the Contribution Agreement, the Management Services
Agreement, the JL Services Agreement, and the Trademark License Agreement and
authorize and direct the Manager to prepare, execute and deliver any and all
such documents, certificates and instruments and to take any and all such
actions as are necessary, advisable or appropriate, in the name and on behalf of
the Company, to effect all of the transactions contemplated thereby in
accordance with the terms and conditions thereof.
ARTICLE 15.
DISSOLUTION AND WINDING UP
15.1 DISSOLUTION.
The Company shall be dissolved upon the occurrence of any of the
following events:
(a) Upon a determination by BR and JLUS that the Company shall be
dissolved and wound up;
(b) Upon a sale of all or substantially all of the assets of the
Company; or
(c) Entry of a decree of judicial dissolution by a court of competent
jurisdiction providing for the dissolution of the Company.
15.2 EFFECT OF DISSOLUTION.
Upon dissolution, the Company shall cease to carry on its business,
except as permitted by Section 17354 of the Act.
15.3 WINDING UP, LIQUIDATION AND DISTRIBUTION OF ASSETS.
(a) Upon dissolution of the Company, the Accounting Firm shall make an
accounting of the Company's assets, liabilities and operations, from the date of
the last previous accounting until the date of dissolution. The Manager shall
immediately proceed to wind up the affairs of the Company.
(b) If the Company is dissolved and its affairs are to be wound up, the
Manager shall:
36
(i) Sell or otherwise liquidate all of the Company's assets as
promptly as practicable (except to the extent the Manager may determine
to distribute any assets to the Members in kind);
(ii) Allocate any profit or loss resulting from such sales to
the Members in accordance with ARTICLE 8 hereof;
(iii) Discharge all liabilities of the Company, other than
liabilities to Members, and establish such reserves as may be
reasonably necessary to provide for contingent liabilities of the
Company;
(iv) Discharge liabilities of the Company to Members; and
(v) Thereafter, to the Members in accordance with SECTION 9.2
hereof.
(c) Notwithstanding anything to the contrary in this Agreement, upon a
liquidation within the meaning of Section 1.704-1(b)(2)(ii)(g) of the
Regulations, if any Member has a negative Adjusted Capital Account Balance
(after giving effect to all contributions, distributions, allocations and other
Capital Account adjustments for all taxable years, including the year during
which such liquidation occurs), such Member shall have no obligation to make any
capital contribution and the negative balance of such Member's Capital Account
shall not be considered a debt owed by such Member to the Company or to any
other Person for any purpose whatsoever.
(d) Upon completion of the winding up, liquidation and distribution of
the assets, the Company shall be deemed terminated.
(e) The Manager shall comply with the requirements of applicable law
pertaining to the winding up of the affairs of the Company and the final
distribution of its assets.
15.4 CERTIFICATE OF DISSOLUTION.
When all debts, liabilities and obligations have been paid and
discharged or adequate provisions have been made therefor and all of the
remaining property and assets have been distributed to the Members, the Manager
may file a certificate of dissolution pursuant to Section 17356 of the Act.
15.5 DISTRIBUTION OF PROCEEDS FROM MERGER OR SALE.
Notwithstanding any provision to the contrary contained in this
Agreement, in any agreement of merger or consolidation of the Company with or
into another entity, or in any agreement for the sale of a majority of the
Membership Units, each Member hereby agrees that any cash and non-cash proceeds
received by it pursuant to such merger or consolidation (other than one in which
one or more Members own a majority by voting power of the outstanding equity
voting securities of the surviving or acquiring company) or sale shall (unless
BR or JLUS otherwise elects) be treated as if contributed to the Company in a
37
taxable transaction, aggregated with such proceeds received by all other
Members, and with the remaining assets of the Company, and distributed in the
order of priority set forth in SECTION 15.3.
ARTICLE 16.
MISCELLANEOUS PROVISIONS
16.1 ENTIRE AGREEMENT; AMENDMENT.
This Agreement, together with the exhibits and schedules attached
hereto, represents the entire agreement among all the parties hereto concerning
the subject matter hereof and supersedes all prior understandings, agreements,
and representations by or among BR and JLUS and their respective Affiliates,
written or oral, to the extent they relate in any way to the subject matter
hereof, including the Term Sheet, dated June 10, 2008, between People's
Liberation and JL Sweden. This Agreement and the Articles may only be amended
with the approval of all of BR and JLUS, except that any amendments to EXHIBIT A
to reflect adjustments made in accordance with this Agreement to the number of
Membership Units or Percentage Interests of the Members may be made by the
Manager without such approval.
16.2 NO PARTNERSHIP INTENDED FOR NONTAX PURPOSES.
The Members have formed the Company under the Act, and expressly do not
intend hereby to form a partnership under either the California Uniform
Partnership Act of 1994 or the California Uniform Limited Partnership Act of
2008. The Members do not intend to be partners one to another or partners as to
any third party in connection with the business of the Company.
16.3 APPLICATION OF CALIFORNIA LAW.
This Agreement, the application and interpretation hereof shall be
governed exclusively by its terms and the laws of the State of California
without regard to its conflict of laws provisions.
16.4 CONSENT TO JURISDICTION AND VENUE.
Any action, suit or proceeding in connection with this Agreement must
be brought against any Member or the Company in a court of record of the State
of California, County of Los Angeles, or of the United States District Court for
the Central District of California or in any state or federal court in the State
of California, County of Los Angeles, each Member and the Company hereby
consenting and submitting to the exclusive jurisdiction thereof; and to the
fullest extent permitted by law, service of process may be made upon any Member
or the Company, by certified or registered mail, at the address to be used for
the giving of notice to such Member under SECTION 16.13. Nothing herein shall
affect the right of any Member to serve process in any manner permitted by
applicable law. In any action, suit or proceeding in connection with this
Agreement, each Member and the Company hereby waives any claim that Los Angeles
County or the Central District of California or the State of California is an
inconvenient forum.
38
16.5 EXECUTION OF ADDITIONAL INSTRUMENTS.
Each Member hereby agrees to execute such other and further statements
of interest and holdings, designations, powers of attorney and other instruments
necessary to comply with any laws, rules or regulations.
16.6 CONSTRUCTION.
This Agreement and any documents or instruments delivered pursuant
hereto shall be construed without regard to the identity of the Person who
drafted the various provisions of the same. Further, each Member has been or has
declined to be represented by legal counsel in connection with the drafting and
negotiation of this Agreement and the other agreements referred to herein.
Consequently, each Member acknowledges and agrees that any rule of construction
that a document is to be construed against the drafting party shall not be
applicable either to this Agreement or such other documents and instruments.
16.7 HEADINGS.
The headings in this Agreement are inserted for convenience only and
are in no way intended to describe, interpret, define, or limit the scope,
extent or intent of the Agreement or any provision hereof.
16.8 WAIVERS.
The failure of any party to seek redress for violation of or to insist
upon the strict performance of any covenant or condition of this Agreement shall
not prevent a subsequent act, which would have originally constituted a
violation, from having the effect of an original violation.
16.9 RIGHTS AND REMEDIES CUMULATIVE.
The rights and remedies provided by this Agreement are cumulative and
the use of any one right or remedy by any party shall not preclude or waive the
right to use any or all other remedies. Such rights and remedies are given in
addition to any other rights the parties may have by law, statute, ordinance or
otherwise.
16.10 COUNTERPARTS.
This Agreement may be executed in counterparts, each of which shall be
deemed an original but all of which shall constitute one and the same
instrument. Any signature page of any such counterpart, or any electronic
facsimile thereof, may be attached or appended to any other counterpart to
complete a fully executed counterpart of this Agreement, and any telecopy or
other facsimile transmission of any signature shall be deemed an original and
shall bind such party.
39
16.11 BANKING.
All funds of the Company shall be deposited in its name in an account
or accounts as shall be designated from time to time by the Manager. All funds
of the Company shall be used solely for the business of the Company. All
withdrawals from the Company bank accounts shall be made only upon a check
signed by the President of the Company or by such other Persons as the Manager
may designate from time to time.
16.12 FURTHER ASSURANCES.
The Members each agree to cooperate, and to execute and deliver in a
timely fashion any and all additional documents necessary to effectuate the
purposes of the Company and this Agreement.
16.13 NOTICES.
Except as provided in SECTION 14.3 above, all notices, consents,
requests and other communications hereunder shall be in writing and shall be
sent by hand delivery, by certified or registered mail (return-receipt
requested) or by a recognized national overnight courier service to the
addresses set forth on EXHIBIT A. Notices delivered pursuant to this Section
shall be deemed given: at the time delivered, if personally delivered; three (3)
business days after being deposited in the mail, if mailed; and one (1) business
day after timely delivery to the courier, if by overnight courier service. Any
party may change the address to which notice is to be sent by written notice to
the Manager in accordance with this SECTION 16.13.
16.14 SPECIFIC PERFORMANCE.
Either the Company or the Members may be irreparably damaged if this
Agreement is not specifically performed. Therefore, if any dispute should arise
concerning the obligations of a party to this Agreement, an injunction may be
issued enforcing this Agreement, and the obligations of any party shall be
enforceable in a court of equity by a decree of specific performance; provided,
however, such remedy shall be cumulative and not exclusive and shall be in
addition to any other remedy which the Members or the Company may have.
16.15 INTERPRETATION.
Whenever the singular form is used in this Agreement, and when required
by the context, the same shall include the plural and vice versa, and the
masculine gender shall include the feminine and neuter genders and vice versa.
The words "herein" "hereof" and "hereunder" and other words of similar import
refer to this Agreement as a whole and not to any particular Article, Section or
other subdivision. The words "including" and "include" and other words of
similar import shall be deemed to be followed by the phrase "without
limitation."
[SIGNATURES ON FOLLOWING PAGE]
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IN WITNESS WHEREOF, each of the parties hereto has executed or has
caused this Agreement to be executed by its duly authorized representative to be
effective as of the Effective Date.
J. LINDEBERG USA, LLC
By: /s/ ▇▇▇▇▇ ▇▇▇▇
---------------------------------------
Name: ▇▇▇▇▇ ▇▇▇▇
Title: Manager
▇▇▇▇▇ ▇▇▇▇, LLC
By: /s/ ▇▇▇▇▇ ▇▇▇▇
---------------------------------------
Name: ▇▇▇▇▇ ▇▇▇▇
Title: President
J. LINDEBERG USA CORP.
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
---------------------------------------
Name: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Title: President
S-1
EXHIBIT A
MEMBERS; CAPITAL CONTRIBUTIONS; MEMBERSHIP UNITS; AND PERCENTAGE INTERESTS
CAPITAL MEMBERSHIP PERCENTAGE
NAME AND ADDRESS CONTRIBUTION UNITS INTEREST
------------------------------ ------------ ---------- ----------
▇▇▇▇▇ ▇▇▇▇, LLC $20,000 50 50%
c/o People's Liberation, Inc.
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
J. Lindeberg USA Corp. (1) 50 50%
c/o J. Lindeberg AB
▇▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇
▇▇- ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇
---------- ----------
Total 100 100%
========== ==========
----------
(1) The amount of JLUS' initial capital contribution will be determined on
or before December 31, 2008 in accordance with the terms of the
Contribution Agreement.
Exhibit A