OPERATING AGREEMENT
OF
NORDIC ASI, L.C.
a Utah limited liability company
February 1, 2001
OPERATING AGREEMENT
OF
NORDIC ASI, L.C.
This OPERATING AGREEMENT (the "Agreement") is made and entered into
this 1st day of February 2001, by and between NORDIC TECHNOLOGIES, INC., a Utah
corporation ("Nordic"), and SARKAT INTERNATIONAL, L.L.C., a Utah limited
liability company ("Sarkat"), collectively, the "Members," each party sometimes
hereinafter referred to individually as a "Party" and both parties sometimes
hereinafter referred to collectively as the "Parties" when the context so
requires.
Recitals
A. The Parties to this Agreement desire to form a limited liability
company (the "Company") pursuant to the provisions of the Utah Limited Liability
Company Act (the "Act"). The Parties hereby constitute themselves a limited
liability company for the purposes and on the terms and conditions set forth in
this Agreement.
NOW, THEREFORE, in consideration of the mutual promises of the Parties,
and for good and valuable consideration, the receipt and sufficiency of which
hereby is acknowledged, the Parties agree hereto as follows:
Article I.
DEFINITIONS
Section 1.01 Defined Terms. The following terms used in this Agreement
shall have the following meanings (unless otherwise provided herein):
(a) "Ad Specialty Market" means the market for sales of merchandise
to any Person that purchases any merchandise for premium, promotional,
advertising or marketing use, including, but not limited to, (i) end user
companies that purchase merchandise for premium and promotional distribution to
employees, customers, vendors or the general public, (ii) colleges,
universities, and professional sports franchises and other sports related events
that purchase custom marked merchandise for promotional distribution or retail
sales, (iii) all advertising specialty distributors, sales promotion agencies,
and incentive houses, (iv) entities performing substantially similar functions
to the Persons listed in clauses (i) through (iii) above; and (v) all of
Nordic's rights under that certain Licensed Merchandise Agreement between the
Salt Lake Organizing Committee for the Olympic Winter Games of 2002, dated as of
October 17, 2000, subject to any contingencies on Nordic's contribution of such
rights as set forth in Section 3.01(v) below.
(b) "Ad Specialty Identification Number" means the number, owned by
the Nordic, obtained from ___________________, that is required for admission to
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certain events and tradeshows sponsored by _________________________ or access
to which is controlled by ----------------------------.
(c) "Additional Member" means any person or entity who or which is
admitted to the Company as an Additional Member pursuant to Section 2.04 of this
Agreement and Section 48-2b-122 of the Act.
(d) "Affiliate" means a company controlled by, under common control
with, or controlling a Person, where "control" means either (i) the ownership,
either directly or indirectly, of more than 50% of the voting shares or (ii) the
right to elect the majority of the directors of a company, and in either case,
where such control may be exercised without the consent of a third person.
(e) "Articles" means the Articles of Organization of the Company,
which shall be filed with the Division. The Articles shall be in the form
attached as Exhibit A to this Agreement.
(f) "Available Cash" means for any applicable accounting period (i)
the net income of the Company from any source less (ii) the amount of
expenditures for payment of principal on any debt of the Company during the
period in question and less (iii) the amount of expenditures for the payment of
capital items not normally considered to be expenses in determining net income
for the period in question and plus (iv) the amount of noncash expenses, such as
depreciation and amortization, accrued during the period in question, used to
determine net income for that period and not offset by a corresponding capital
or other expenditure that cannot be expended during that period. Available Cash
shall be determined on the basis of cash basis accounting principles
consistently applied notwithstanding any use by the Company or any Member of
accrual accounting methods.
(g) "Book Value" means, with respect to any assets to be
contributed to the Company, the value on the books of the owner of the assets
prior to contribution to the Company and, with respect to any Company assets,
the Company's adjusted basis for federal income tax purposes adjusted from time
to time to reflect the adjustments required or permitted by Treasury Regulation
ss.1.704-1(b)(2)(iv)(d)-(g).
(h) "Capital Account" means the Capital Contribution made to the
Company by a Member, as adjusted pursuant to Article III hereof.
(i) "Capital Contribution" means any contribution to the capital of
the Company in cash or property or other form of consideration made by a Member.
(j) "Cash Deficit" means, with respect to the Company, the
inability of the Company to pay its financial obligations as they come due.
(k) "Closing" means the consummation of all agreements and other
transactions contemplated under this Agreement and the execution of all
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documents necessary or appropriate in connection herewith. The Closing shall
occur at the offices of Nordic, at ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇ ▇▇▇▇,
▇▇ ▇▇▇▇▇, or at such other place as may be mutually agreed upon by the Parties.
(l) "Closing Date" means February 1, 2001 or such other date as may
be mutually agreed upon between the Parties.
(m) "Code" means the Internal Revenue Code of 1986, as amended,
including any applicable Treasury Regulations promulgated thereunder.
(n) "Division" means the Division of Corporations and Commercial
Code of the Utah Department of Commerce or any other department of division of
the State of Utah that hereafter may be given responsibility for administering
the Act or accepting filings on behalf of the Company.
(o) "Effective Date" means February 1, 2001 or such other date as
may be mutually agreed upon by the Parties or the date of filing of the Articles
with the Division.
(p) "Initial Member" means each of Nordic and Sarkat.
(q) "Interest" means a Member's share of the profits and losses of
the Company and the right to receive distributions from the Company.
(r) "Loan" means the revolving credit facility to be made by Sarkat
to the Company at the Closing in the aggregate amount of Two Hundred Thousand
Dollars ($200,000.00).
(s) "Member" means each of the Initial Members, Additional Members,
and Substitute Members.
(t) "Organizational Documents" means the Articles of Organization
and this Operating Agreement of the Company.
(u) "Profit and Loss Allocations" shall mean a Member's share of
the profits and losses of the Company and the right to receive distributions
from the Company as follows (i) seventy percent (70%) to Nordic, and (ii) thirty
percent (30%) to Sarkat.
(v) "Products" means each of the flashlight products described in
Exhibit B hereto, as it may be amended from time to time by the Company.
(w) "Promissory Note" means the promissory note issued by the
Company to Sarkat at the Closing in exchange for the Loan and attached hereto as
Exhibit C.
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(x) "Proportionate Share" shall refer to the percentage interest of
each Member in capital, income, gain, loss, deductions, or credit and voting
power of the Company, as provided in Article III of this Agreement.
(y) "Scope" means the agreed-upon scope of the activities of the
Company as set forth in Article II and as modified from time to time in
accordance with the terms of this Agreement.
(z) "Share" means a share of the membership interest of the
Company, whether represented by a certificate duly issued by the Company in
accordance with the Organizational Documents or otherwise.
(aa) "Special Capital Call" means a call by the Managers to the
Members to contribute as follows (i) seventy percent (70%) by Nordic, and (ii)
thirty percent (30%) by Sarkat, to the capital of the Company for the purpose of
remedying a Cash Deficit.
(bb) "Territory" means the North American continent, including the
United States of America and its territories, Mexico and Canada, provided, that
to the extent Nordic has, under any contract or arrangement with any third
party, including without limitation ▇▇▇▇ ▇▇▇▇▇▇▇▇, Ltd., on or after the
effective date of this Agreement, any lesser or greater territorial or
geographic rights of distribution for any product that the Company desires to
sell in the Ad Specialty Market, the Territory shall be deemed to be such lesser
or greater geographic area solely as to the products covered by such contract or
arrangement with such third party.
(cc) "Treasury Regulations or Regulations" means the income tax
regulations promulgated under the Code and effective as of the date hereof, as
modified and supplemented or superseded after the date hereof. Where a specific
Treasury Regulation is referenced, the reference shall be deemed to extend to
any successor regulation of similar scope, whether or not denominated by the
same section number or heading.
Section 1.02 Incorporating Amendments. Any agreement referred to herein
shall mean such agreement as amended, supplemented, waived, or modified from
time to time in accordance with the applicable provisions hereof and of such
agreements.
Section 1.03 Terms Defined in the Ancillary Agreement. Capitalized
terms used but not defined in this Agreement are used as defined in the
Ancillary Agreements.
Section 1.04 Certain Terms. The words "herein," "hereof," and
"hereunder" and other words of similar import shall refer to this Agreement as a
whole, including the exhibits hereto, as the same may from time to time be
amended, modified, or supplemented and to any particular Article, Section,
paragraph, or clause in this Agreement. The words "includes" or "including" when
used herein are not intended to be exclusive and shall mean "includes, without
limitation" or "including, without limitation."
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Article II.
GENERAL TERMS
Section 2.01 Formation and Name. The Parties to this Agreement agree to
and do hereby form a limited liability company under the name Nordic ASI, L.C.
(the "Company"), pursuant to the provisions of the Act and this Agreement. Upon
the execution hereof, the parties shall execute and file the Articles with the
Division.
Section 2.02 Principal Office and Resident Agent. The location of the
principal office of the Company and the name and address of the resident agent
for the Company are as set forth in the Articles.
Section 2.03 Initial Members. The full names and addresses of the
Initial Members are as follows:
Nordic Technologies, Inc., a Utah corporation
▇▇▇▇ ▇. ▇▇▇▇▇ ▇▇▇▇▇ ▇▇.
▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Sarkat International, L.L.C., a Utah limited liability company
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Section 2.04 Admission of Additional Members. Additional Members may be
admitted to the Company only with (i) the prior written consent of Members
owning all of the Shares, and (ii) any other terms and conditions imposed on the
admittance of the Additional Member by written consent of Members owning all of
the Shares. If an Additional Member makes a Capital Contribution to the Company
in exchange for admission as a Member of the Company, the Managers shall
determine the consideration to be paid for any Shares that the Additional Member
will receive.
Section 2.05 General Purpose and Scope. The purposes for which the
Company is formed are (i) to market, distribute, and sell the Products in the Ad
Specialty Market within the Territory by representatives of the Company and (ii)
to do any and all lawful things necessary, convenient, or incidental to the
achievement of the foregoing.
Section 2.06 Geographical Scope. The geographical Scope of this
Agreement shall not exceed the Territory.
Section 2.07 Term. The Company shall have a term beginning on the date
the Articles are accepted for filing by the Division and shall continue in full
force and effect until terminated according to the provisions of Article XII, at
which time the Company shall be dissolved and liquidated in accordance with this
Agreement, the Act, and applicable law.
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Article III.
CAPITAL CONTRIBUTIONS
Section 3.01 Initial Capital Contributions.
------------------------------
(a) Generally. Upon execution of this Agreement, the Initial
Members shall make their respective Capital Contributions to the Company.
(b) Sarkat Contribution. As consideration for the Shares to be
issued to Sarkat, at the Closing, Sarkat shall lend the Company in the form of a
revolving line of credit Two Hundred Thousand Dollars ($200,000.00) on the terms
set forth in Article XIII of this Agreement.
(c) Nordic Contributions. Nordic has developed certain expertise
and experience in manufacturing and marketing flashlight products for the Ad
Specialty Market, as well as the general wholesale and retail markets. As
consideration for the Shares to be issued to Nordic at the Closing:
(i) Nordic agrees to and hereby does assign to the Company the
exclusive right to market, sell and distribute the Products in the Ad
Specialty Market in the Territory, which assignment shall have a term
equal to the term of this Agreement;
(ii) Nordic agrees to provide all related services in connection
with the Company's sale of all Products under this Agreement, including
marketing, manufacturing, procurement from other suppliers, order
processing, specialized processing of any kind required to accomplish
sales in the Ad Specialty Market; invoicing, accounting and collection
of all accounts receivable; provided that a record shall be kept of the
cash value of all such services, and that such services shall be
performed for no cash payment from the Company to Nordic for a period
of two (2) years from the date of this Agreement, after which period
the cash value of such services as mutually determined by the parties,
if any, shall be invoiced to the Company by Nordic, and further
provided that, notwithstanding anything to the contrary in this
Agreement, Nordic shall invoice the Company and received payment in
respect thereof for any inventory of Nordic's products provided to the
Company, which inventory shall be sold to the Company at Nordic's
prevailing prices for its best customers;
(iii) Nordic agrees to and hereby does assign to the Company
Nordic's rights under that certain Sole Distribution Agreement by and
between Nordic and ▇▇▇▇ ▇▇▇▇▇▇▇▇ Ltd., and dated as of January 18, 2001
(the "▇▇▇▇▇▇▇▇ Agreement"), and attached hereto as Exhibit D, under
which agreement Nordic has exclusive distribution rights in the
territory defined therein to the compact, LED, credit card shaped
lights described therein, provided, that Nordic does not hereby grant
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to the Company any rights to sell the products identified in the
▇▇▇▇▇▇▇▇ Agreement in any market other than the Ad Specialty Market,
and further provided, that the Company and Sarkat each specifically
acknowledge and agree that Nordic shall continue to have the right to
distribute the products identified in the ▇▇▇▇▇▇▇▇ Agreement in the
territory defined therein in the general retail and wholesale markets;
(iv) Nordic agrees to and hereby does grant the Company a first
right of refusal (i) to exclusively sell and distribute, in the Ad
Specialty Market, and in the Territory, any new products distribution
rights to which are granted to Nordic by ▇▇▇▇ ▇▇▇▇▇▇▇▇ Ltd, prior to or
after the date of this Agreement, and (ii) to any additional
territories that may be granted to Nordic by ▇▇▇▇ ▇▇▇▇▇▇▇▇ Ltd after
the date of this Agreement to sell such products; and
(v) Nordic agrees to and hereby does assign to the Company any
and all of Nordic's rights under that certain Licensed Merchandise
Agreement between Salt Lake Organizing Committee for the Olympic Winter
Games of 2002 ("SLOC"), dated October 17, 2000 (the "SLOC Agreement"),
and attached hereto as Exhibit E, under which agreement Nordic has
obtained certain non-exclusive licensing and distribution rights with
respect to the logos and marks of the 2002 Olympic Winter Games, to be
held in Salt Lake City, Utah, provided, that Nordic's contribution of
its rights under the SLOC Agreement are expressly conditioned upon the
receipt by Nordic or the Company of SLOC's written consent to such
contribution prior to the effectiveness of any such contribution; and
further provided, that the Company hereby acknowledges and agrees that
it will assume and be responsible for the full execution of and
performance under all of Nordic's obligations and liabilities under the
SLOC Agreement.
Section 3.02 Share Ownership. The Company shall issue to Nordic at the
Closing Shares equal to fifty percent (50%) of the voting power and equity and
shall issue to Sarkat Shares equal to fifty percent (50%) of the voting power
and equity. The Company's Shares shall be alike in all respects, and the holders
thereof shall be entitled, proportionately to their holdings, to identical
ownership rights and privileges, except as otherwise provided herein.
Section 3.03 Limitations on Transferability of Shares.
-----------------------------------------
(a) Except as provided in Section 3.03(e) below, no Member shall
transfer, sell, assign, pledge, hypothecate, give, or otherwise dispose of all
or any portion of its Shares in the Company to any other person or entity
without the prior written approval of all of the Members owning all the Shares.
(b) As a condition to any transfer of Shares permitted hereunder to
any person or entity who is not a Party to this Agreement, such person or entity
shall first sign this Agreement, or an amendment hereof, agreeing to be bound by
and subject to all of the terms and conditions of this Agreement and the
Ancillary Agreements.
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(c) If a Member that is a natural person dies, becomes
incapacitated or shall by adjudicated insane or incompetent, the Company and the
other Members shall have the right to purchase such Member's Shares from such
Member, such Member's guardian, personal representative, conservator or other
person or entity who succeeds to such Member's interest in the Company. If a
Member has a receiver appointed for its business or its property, makes an
assignment for the benefit of its creditors, any proceedings are commenced by,
for or against it under any bankruptcy, insolvency or debtor's relief law, or it
states in writing that it is unable to pay its debts as they become due, the
Company and the other Members shall have the right to purchase such Member's
Shares from such Member at a price and on terms to be agreed upon by the
parties.
(d) Each Party acknowledges and agrees that the restrictions on
transfer of Shares of the Company are reasonable in view of the purpose and
intent of the Parties.
(e) A Member that is a natural person shall have the right to
transfer all or any part of the a Member's Shares in the Company to such
Member's spouse, parents, children, or to a trust of which the Member is a
trustee or trust for the benefit of any of the foregoing or to an entity which
is directly or indirectly controlled by the Member and/or any of the foregoing
persons without being subject to the restrictions on the transfer in this
Section 3.03.
Section 3.04 Borrowing. The Company may borrow, at the discretion of
the Managers or Members, as appropriate, from banks, lending institutions, or
other unrelated third parties, or from Affiliates of the Company or the Members
or their Affiliates, and may pledge Company properties or any income therefrom
to secure or provide for the repayment of any such loans, provided however, an
affirmative vote or written consent of all the Shares shall be required to
borrow more than $10,000 and or to hypothecate, encumber and/or grant a security
interest in any real property owned by the Company.
Section 3.05 Additional Capital Contributions. Although, in principle,
it shall be the policy of the Company to finance its requirements as fully as
possible out of its assets without necessitating additional Capital
Contributions, contributions of capital to the Company that have not been
anticipated as of the date of this Agreement shall be made by the Members as
follows:
(a) If the Company, for any period of time greater than sixty (60)
consecutive days, shall experience a Cash Deficit, then the Managers shall
immediately notify the Company's Members thereof and immediately take any and
all reasonable steps necessary to cure such Cash Deficit. The Managers, at their
sole discretion, may attempt to arrange for a loan to be made to the Company,
such loan to be made by any lender acceptable to the Managers (including either
or both Members) upon such terms as the Managers at their sole discretion may
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approve. If the Managers for any reason shall not arrange a loan within ten (10)
days of the Members' receipt of the notice of a Cash Deficit, the Managers shall
immediately make a Special Capital Call upon the Members, requiring additional
cash contributions, such that the total of the Special Capital Call is
sufficient to cure the Cash Deficit. Upon receipt by a Member of a notice from
the Managers with respect to a Special Capital Call, the Member shall pay to the
Company the amount of such Special Capital Call within fifteen (15) days.
Failure to pay the Company the amount of a Special Capital Call within such time
shall give rise to the rights provided under Subsection 3.05(c) below.
(b) If, in the opinion of the Managers, the Company at any time
needs additional contributions of capital for any purpose other than to cure a
Cash Deficit, the Managers shall recommend that Nordic contribute seventy
percent (70%), and Sarkat shall contribute thirty percent (30%) of such capital
as may be required to satisfy the Company's need for additional capital. Subject
to Subsection 3.05(c) below, failure to make any such additional voluntary
capital contribution shall not give rise to any additional rights or remedies
hereunder.
(c) If either Member shall pay to the Company the amount of any
Capital Contribution under this Section 3.05 and the other Member shall fail to
pay its corresponding Capital Contribution to the Company within ten (10) days
after it is due, then the Company shall return to the paying Member the funds it
paid to the Company, unless, in the sole discretion of the paying Member, the
paying Member shall elect to allow the Company to retain the capital
contribution in exchange for the issuance of additional Shares of the Company in
an amount mutually acceptable to the paying Member and the Managers.
Section 3.06 Capital Accounts. An individual Capital Account shall be
maintained for each Member. Each Member's Capital Account shall be maintained as
provided in Article IV. No Member shall be paid interest on any Capital
Contribution, and, except as otherwise provided in this Agreement, no Member
shall have the right to withdraw or receive any return of any Capital
Contribution. Under circumstances requiring a return of any Capital
Contribution, no Member shall have the right to receive property other than
cash. In the event of a permitted sale or transfer of Shares, the Capital
Account of the transferor shall become the Capital Account of the transferee.
Article IV.
PROFITS, LOSSES AND DISTRIBUTIONS
Section 4.01 Defined Terms. For purposes of this Article IV, the
following terms shall have the meaning specified unless the context otherwise
requires:
(a) "Adjusted Capital Contributions" means, for each Member, such
Member's Capital Contributions to the Company, reduced (but not below zero) by
the amount of cash and the net fair market value of any other asset distributed
to such Member pursuant to Section 4.03(c) and Section 4.04 hereof.
(b) "Available Cash" means, with respect to any taxable year of the
Company, at the time of determination, the Company's cash reduced by such
amounts as the Managers shall deem reasonably necessary to meet reasonably
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anticipated expenditures or liabilities of the Company, including, but not
limited to, debts to Members who are creditors of the Company and reserves for
replacements and capital improvements for which adequate provision has not
otherwise been made in the reasonable judgment of the Managers. Available Cash
shall not include proceeds from Capital Transactions.
(c) "Capital Account" means, as to any Member, the Capital
Contribution actually made by that Member, plus all Profit allocated to that
Member, and minus the sum of (i) all Loss allocated to that Member, (ii) the
amount of cash and the fair market value of any other asset distributed to that
Member (net of liabilities, assumed or taken subject to by such Member), and
(iii) such Member's distributive share of all other expenditures of the Company
not deductible in computing its taxable income and not properly chargeable as
additions to the basis of Company property. Each Member's Capital Account shall
be determined and maintained in accordance with the Regulations adopted under
Section 704(b) of the Code. Any questions concerning a Member's Capital Account
shall be resolved by applying principles consistent with this Agreement and the
Regulations adopted under Section 704 of the Code in order to ensure that all
allocations to the Members will have substantial economic effect or will
otherwise be respected for federal income tax purposes.
(d) "Capital Contribution" means the total amount of cash and the
fair market value (net of liabilities assumed or taken subject to by the
Company) of any other assets contributed (or deemed contributed under Section
1.704-1(b)(2)(iv)(d) of the Regulations) to the Company by a Member.
(e) "Capital Proceeds" means the gross receipts received by the
Company from a Capital Transaction.
(f) "Capital Transaction" means the sale, exchange, financing,
refinancing, condemnation, casualty or other disposition of all, or
substantially all, of the assets of the Company.
(g) "Minimum Gain" has the meaning set forth in Section 1.704- 2(d)
of the Regulations. Minimum Gain shall be computed separately for each Member,
applying principles consistent with both the foregoing definition and the
promulgations under Section 704 of the Code.
(h) "Negative Capital Account" means a Capital Account with a
balance less than zero.
(i) "Positive Capital Account" means a Capital Account with a
balance greater than zero.
(j) "Profit and Loss" means, for each fiscal year or other period,
an amount equal to the Company's taxable income or loss for such year or period,
determined in accordance with Section 703(a) of the Code (for this purpose, all
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items of income, gain, loss, or deduction required to be stated separately
pursuant to Section 703(a)(1) of the Code shall be included in taxable income or
loss); provided, however, that in the event the Regulations promulgated under
Section 704 of the Code require Book Value of assets to be used in determining
profit or loss, then, for purposes of maintaining Capital Accounts in accordance
with such Regulations, the taxable income or loss shall be computed using the
Book Value of the assets.
(k) "Restoration Amount" means, with respect to each Member: (a)
the Member's share of Minimum Gain and (b) the amount, if any, which the Member
is unconditionally required under this Agreement or by law to contribute to the
Company (including the Member's share of debts of the Company that the Member
has guaranteed and loans made by a Member to the Company).
Section 4.02 Allocation of Profit or Loss from Operations and
Distributions of Available Cash.
--------------------------------
(a) Available Cash.
---------------
(i) For the first year of operation of the Company, the Members
agree that the Company shall make quarterly distributions of
Available Cash, if any.
(ii) After the first year of operation of the Company, it shall
be the policy of the Company to return to its Members as
distributions that amount of Available Cash as is consistent with
sound management and the Company's current and anticipated future
capital requirements.
(iii) For any fiscal year of the Company in which a distribution
is made, Available Cash shall be distributed to the Members in
proportion to their respective share of the Profits for such
taxable year as determined under Section 4.02(b).
(b) Taxable Income or Taxable Loss. For any fiscal year of the
Company, Profit or Loss (other than Profit or Loss resulting from a Capital
Transaction, which Profit or Loss shall be allocated in accordance with the
provisions of Sections 4.03(a) and 4.03(b)) shall be allocated to the Members in
accordance with their respective Profit and Loss Allocations.
(c) Special Allocations. Notwithstanding any other provision to the
contrary in this Agreement, the following provisions shall apply:
(i) Qualified Income Offset. No member shall be allocated Losses
or deductions if such allocation causes a Member's Negative Capital
Account to increase in excess of the Member's Restoration Amount.
If a Member receives (1) an allocation of Loss or deduction (or
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item thereof) or (2) any Company distribution, which causes such
Member to have a Negative Capital Account in excess of its
Restoration Amount or increases a Member's Negative Capital Account
at the end of any Company taxable year in excess of its Restoration
Amount, then all items of income and gain of the Company
(consisting of a pro rata portion of each item of Company income,
including gross income and gain) for such taxable year shall be
allocated to such Member, before any other allocation is made of
Company items for such taxable year, in the amount and in
proportions required to eliminate such excess as quickly as
possible. This Section 4.02(c)(i) is intended to comply with, and
shall be interpreted consistently with, the "qualified income
offset" provisions of the Regulations promulgated under Section
704(b) of the Code.
(ii) Minimum Gain Chargeback. If there is a net decrease in the
Minimum Gain during any taxable year, then each Member shall first
be allocated all items of gross income and gain of the Company for
such taxable year (and, if necessary, for subsequent taxable years)
in an amount equal to the total net decrease in the Company's
Minimum Gain multiplied by that Member's percentage of the
Company's Minimum Gain (as determined pursuant to Regulations
Section 1.704-2(g)) at the end of the immediately preceding taxable
year. This Section 4.2(c)(ii) is intended to comply with, and shall
be interpreted consistently with, the "minimum gain chargeback"
provisions of the Regulations promulgated under Section 704(b) of
the Code.
Section 4.03 Allocation of Profit or Loss from a Capital Transaction
and Distribution of Capital Proceeds.
-------------------------------------
(a) Taxable Income. Profit from a Capital Transaction shall be
allocated as follows:
(i) If one or more Members has a Negative Capital Account,
Profit from a Capital Transaction shall be allocated first to those
Members, in proportion to their Negative Capital Accounts, until
all Negative Capital Accounts have been increased to zero; then
(ii) Any remaining Profit not allocated pursuant to Section
4.03(a)(i) shall be allocated to the extent necessary so that the
Capital Account balances of the Members are equal to the amounts
distributable to them pursuant to Section 4.03(c) (assuming that
all of the Capital Proceeds after the payment of liabilities are to
be distributed to the Members).
(b) Taxable Loss. Loss from a Capital Transaction shall be
allocated as follows:
(i) If one or more Members has a Positive Capital Account, Loss
from a Capital Transaction shall be allocated first to those
Members, in proportion to their Positive Capital Accounts until all
Positive Capital Accounts have been reduced to zero; then, (ii) Any
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remaining Loss not allocated to reduce Positive Capital Accounts to
zero pursuant to Section 4.03(b)(i) shall be allocated to the
Members in proportion to their respective Profit and Loss
Allocations.
(c) Capital Proceeds. Distributions of net Capital Proceeds (after
repayment of all debts and liabilities of the Company, including loans from
Members, and the establishment of any reserves that the Managers deem necessary)
shall be made in the following order of priorities:
(i) First, to each member, in proportion to each Member's
Adjusted Capital Contributions, an amount of cash equal to the
amount of that Member's respective Adjusted Capital Contributions.
(ii) If one or more Members has a Positive Capital Account
before any further allocation of Profit pursuant to Section
4.03(a)(ii), to those Members, in proportion to and to the extent
of their respective Positive Capital Account balances; and, then,
(iii) The balance to the Members in proportion to their
respective Profit and Loss Allocations.
Section 4.04 Liquidation or Dissolution. If the Company is liquidated
or dissolved, the assets of the Company shall be distributed, after taking into
account the allocations of Profit or Loss pursuant to Sections 4.02 or 4.03, if
any, and distributions of cash or property pursuant to Sections 4.02 or 4.03, if
any, to the Members to the extent of and in proportion to the balances in their
respective Positive Capital Accounts.
Section 4.05 General.
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(a) The timing and amount of all distributions shall be as
determined by the Managers.
(b) If any assets of the Company are distributed to the Members in
kind, those assets shall be valued on the basis of their fair market value, and
any Member entitled to any interest in those assets shall receive that interest
as a tenant-in-common with all other Members so entitled. The fair market value
of the assets distributed in kind shall be determined by an independent
appraiser selected by the affirmative vote of the Members. Based upon the fair
market value, the Profit or Loss for each unsold asset shall be determined as if
that asset had been sold at its fair market value, and the Profit or Loss shall
be allocated as provided in Section 4.03, and it shall be properly credited or
charged to the Capital Accounts of the Members prior to the dissolution of the
assets in liquidation pursuant to Section 4.04.
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(c) For each fiscal year, all Profit and Loss of the Company shall
be allocated at and as of the end of that taxable year. The allocations of
Profit and Loss shall be made within seventy-five (75) days after the end of
such taxable year, or on such other schedule and with such other frequency as
the Members owning three fourths (3/4) of the Shares of the Company shall
approve in a resolution duly presented and voted upon by all of the Members.
(d) Except as otherwise provided in this Section 4.05(d), all
Profit and Loss shall be allocated, and all distributions of cash shall be
distributed, as the case may be, to the persons or entities shown on the records
of the Company to have been Members as of the last day of the fiscal year for
which that allocation or distribution is to be made. Unless the Managers agree
to separate the Company's fiscal year into segments, if the Company admits a new
Member or if a Member sells, exchanges, or otherwise disposes of all or any
portion of his Shares to any person who, during that fiscal year, is admitted as
an Additional or Substitute Member, the Profit and Loss shall, except as
otherwise provided in the Code, be allocated between the transferor and the
transferee on the basis of the number of days of the fiscal year in which each
was a Member; provided, however, that in the event of a Capital Transaction or
any other extraordinary nonrecurring items of the Company, Profit, Loss, and
distributions from such events shall be allocated to the persons shown on the
records of the Company as of the date of such event.
(e) The methods set forth above by which Profit, Loss, and
distributions are allocated, apportioned, and paid are hereby expressly
consented to by each Member as an express condition to becoming a Member. Upon
the advice of the outside accountants or of legal counsel to the Company, this
Article IV may be amended to comply with the Code and the regulations
promulgated under Section 704 of the Code; provided, however, that no such
amendment shall become effective without the consent of those Members who would
be materially or adversely affected thereby.
Article V.
MEETINGS OF MEMBERS
Section 5.01 Annual and Special Meetings of Members. Meetings of
the Members shall be conducted annually at such time and place as the Managers
shall determine by resolution at the first meeting of the Managers after the
Effective Date.
Section 5.02 Place. Meetings of Members may be held at any place
within or without the state of organization as may be designated by the Managers
or agreed to by all the Members.
Section 5.03 Calling of Special Meetings. A special meeting of the
Members may be called by the Managers, or by Members owning at least fifty
percent (50%) of the Shares of the Company, for any matters on which the Members
may vote.
Section 5.04 Notice.
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(a) Whenever Members are required or permitted to take any action
at a meeting, a written notice of the meeting shall be given not less than five
(5), nor more than thirty (30) days before the date of the meeting to each
Member entitled to vote at the meeting. The notice shall state the place, date,
and hour of the meeting, and the specific nature of the business to be
transacted, and no other business may be transacted. Such notice may be given by
Members who are then current in the payment of their Capital Contributions and
when given by the Members is deemed effective upon receipt by the Members.
Notice of such meetings may be given by the noticing party by confirmed
facsimile transmission, first class mail (in which case the minimum notice
period must be increased by three (3) additional days), overnight courier,
personal delivery, or e-mail transmission that is confirmed to have been
received by the recipient thereof.
(b) Any Member approval at a meeting, other than where unanimous
approval is required, shall be valid only if the specific nature of the proposal
so approved was stated in the notice of meeting or in any written waiver of
notice.
Section 5.05 Manner of Acting. Unless otherwise provided in this
Agreement, the affirmative vote of Members owning a majority of the Shares
represented in person or by written proxy shall be the act of the Members.
Section 5.06 Written Consent in Lieu of Meeting. Any action that may be
taken at any meeting of the Members may be taken without a meeting if a consent
in writing, setting forth the action so taken, shall be signed by Members having
not less than the minimum number of votes that would be necessary to authorize
or take that action at a meeting at which all Members entitled to vote thereon
were present and voted. In the event the Members are requested to consent on a
matter without a meeting, each Member shall be given notice of the matter to be
voted upon in the same manner as described above. In the event any Member(s)
owning more than ten percent (10%) of the Shares request a meeting for the
purpose of discussing or voting on the matter, the notice of a meeting shall be
given in accordance with Section 5.04 and no action shall be taken until the
meeting is held.
Section 5.07 Proxies. The use of written proxies shall be permitted.
Such proxy shall be executed in writing by the Member or his duly authorized
attorney-in-fact. Such proxy shall be filed with the Company before or at the
time of the meeting. Unless otherwise provided herein, a proxy shall not be
valid more than ninety (90) days after the date of its execution.
Article VI.
MANAGEMENT OF THE COMPANY
Section 6.01 Managers. Management of the Company shall be vested in the
Company's Managers. Initially the following individuals shall act as the
Managers of the Company in the offices of President, Executive Vice President,
Vice President and Secretary:
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President ▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, ▇▇.
▇▇▇▇ ▇. ▇▇▇▇▇ ▇▇▇▇▇ ▇▇.
▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Executive ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Vice-President ▇▇▇▇ ▇. ▇▇▇▇▇ ▇▇▇▇▇ ▇▇.
▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Vice-President ▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Secretary ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Section 6.02 Management by Members. If all the Managers have been
removed from office as provided in this Article VI, the business of the Company
shall be under the exclusive management of the Members, and, in such case, the
agreement of Members owning a majority of the Shares shall be necessary for all
decisions affecting the Company, and individual Members shall have no power as
such.
Section 6.03 Number, Term and Qualifications. The Company may have one
or more Managers. Appointment of Manager(s) or increases or decreases in the
number of Managers may be made as the Members shall from time to time determine,
by unanimous agreement, or by amendment to this Agreement. Each Manager shall
hold office until his successor shall have been appointed. Managers need not be
Members of the Company.
Section 6.04 Authority of Managers. The Managers may exercise all the
powers of the Company, whether derived from law, the Articles of Organization or
this Agreement, except such powers as are by statute, by the Articles of
Organization, or by this Agreement vested solely in the Members.
Section 6.05 Restrictions on Managers. No Manager or Managers shall,
without the written consent or written ratification of the specific act by all
the Members:
(a) Do any act in contravention of law, the Articles of
Organization or this Agreement;
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(b) Do any act to make it impossible to carry on the ordinary
business of the Company;
(c) Confess a judgment against the Company;
(d) Possess Company property in their own name or assign their
rights in specific Company property for other than a Company purpose;
(e) Admit a person as a Member except as otherwise provided in this
Agreement;
(f) Continue the business with Company property after its
bankruptcy, dissolution, cancellation or other cessation to exist;
(g) Any merger, consolidation, or combination with or into another
company or corporation; or
(h) To sell or otherwise dispose off all or substantially all the
assets of the Company.
Section 6.06 Manner of Acting. Except as provided otherwise herein, the
act of a majority of the total number of the Managers at the time the act is
taken shall be the act of the Managers as to any act the Managers are authorized
or required under applicable law or this Agreement to take, and individual
Managers shall have no power as such.
Section 6.07 Actions Requiring Unanimous Consent. Notwithstanding any
other requirement set forth herein or in any of the other Ancillary Agreements,
the Parties expressly agree that a unanimous vote of all of the Managers of the
Company shall be obtained before any of the following actions shall be taken by
the Company:
(a) The formation of any subsidiary;
(b) The issuance of any Shares or of any interest in any
corporation or other legal entity, or the creation of any partnership or other
legal entity of which it will be a partner, member, or similar participant;
(c) The issuance of any Shares, or of any warrants or debentures,
options or rights in or to Shares of the common or other capital stock of the
Company, other than the Shares issued to the Parties at the Closing;
(d) The acquisition or disposition, other than in the ordinary
course of business, of assets having a value in excess of five percent (5%) of
the Company's assets;
(e) The making of any unbudgeted capital expenditure in excess of
Ten Thousand Dollars ($10,000) or its equivalent in another currency;
17
(f) Any pledge, mortgage, sale, lease or other transfer, except in
normal course of business or as part of a complete dissolution or winding up, of
any material portion of its assets or business;
(g) The execution of any contract, the performance of which would
(i) entail expenditures in excess of Twenty Thousand Dollars ($20,000) or its
equivalent in another currency or (ii) require a period of more than six months
(6) months;
(h) The extension of credit to any one debtor in an amount
exceeding Five Thousand Dollars ($5,000) or its equivalent in another currency;
(i) Any change in the accounting methods or procedures applicable
to the Company;
(j) Set an employee's salary, bonus other compensation collectively
exceeding Twenty-Five Thousand Dollars ($25,000);
(k) Payment of compensation to non-employees, including, but not
limited to, consultants, independent contractors, finder, and brokers in excess
of $1,000 per month;
(l) Engage in major public relations activities, such as press
releases, announcements to associations, and to other companies, other than in
the normal course of sales promotions;
(m) Appoint or discharge the Company's auditing firm;
(n) Make loans to employees;
(o) Approve annual and long term budgeting, including capital
expenditures, financing, and cash flow;
(p) Posses Company property, or assign Company rights in specific
property, for other than a Company purpose;
(q) Add or remove key products from the Company's product
offerings; or
(r) Launch or terminate research and development projects.
Section 6.08 Appointment and Removal. Hereafter, new or successor
Managers may be appointed only by the approval of Members owning at least a
majority of the Shares of the Company. A Manager or Managers may be removed only
upon the vote of Members owning a majority of the Shares of the Company.
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Section 6.09 Resignations. A Manager may resign as a Manager at any
time by delivering a written resignation to the remaining Managers. The
resignation shall become effective on the date of delivery thereof.
Section 6.10 Meetings of Managers. Meetings of the Managers shall be
held at the time and place that the Managers shall determine from time to time.
No notice shall be required for regular meetings for which the time and place
shall have been determined by the Managers. Special meetings may be called at
the direction of any Manager, and notice thereof shall be provided to all
Managers at least twenty-four (24) hours before such meeting. Notice may be
given by mail, facsimile, or hand delivery addressed to each manager. Meetings
may be conducted by means of conference telephone or similar electronic
equipment.
Section 6.11 Authority, Quorum, and Action. No meeting of Managers may
take place without the presence of a quorum of the Managers. A majority of the
total number of Managers at the time the action is to be taken shall constitute
a quorum.
Section 6.12 Unanimous Written Consent to Action by Managers. Any
action required to be taken at a meeting of the Managers of the Company, or any
other action which may be taken at a meeting of the Managers, may be taken
without a meeting, if a consent in writing, setting forth the action so taken,
shall be signed by all of the Managers. A copy of a Manager's written consent
sent by telecopy or telefax shall be sufficient evidence of consent.
Section 6.13 Authority to Appoint Officers. The Managers may appoint,
for their convenience and as they see fit, any other person or persons, whether
or not a Member, to be various officers of this Company as they deem necessary,
for the purpose of acting as agent of the Managers in the day-to-day affairs of
the Company business that the Managers may delegate to such officer or officers
in carrying out such decisions of the Managers as the Managers may direct. Such
other officers shall act in such capacity until their agency is revoked by the
Managers.
Section 6.14 Fiduciary Responsibilities. Each Member and Manager shall,
in all events, account to the Company and to the Members for any benefit, and
hold, as trustee for the Company and the Members, any profits derived by a
Member or Manager from any transaction connected with the formation, conduct, or
liquidation and winding up of the Company or from any use by a Member or Manager
of Company property, and such duty extends to the personal representatives of
any deceased Member or Manager involved in the liquidation and winding up of the
Company. All management, investments, accountings, and distributions shall be
conducted by the Members or Managers, as the case may be, subject to good faith
and fiduciary responsibility. However, no Member or Manager shall be liable for
any loss or depreciation in the value of the Company or any of its assets or
business occurring by reason of error of judgment in making any sale, any
investment or reinvestment, or any management, investment or business decision
whatsoever, provided such loss or depreciation in value has not occurred through
19
the actual fraud, gross negligence, or willful default of such Member or
Manager. Good faith and fiduciary responsibility shall be required of all
Members and Managers.
Section 6.15 Bank Accounts. The Company shall maintain checking or
other accounts in such bank or banks as the Managers shall determine and all
funds received by the Company shall be deposited therein. Withdrawals shall be
made on such funds only under general or specific authority granted by the
Managers.
Section 6.16 Other Private Business of Managers. The Managers shall at
all times be free to engage in all aspects of any other business for their own
accounts or for the account of any other party, including Nordic and its parent
corporation, Dynatec International, Inc., and the other subsidiaries of Dynatec.
Section 6.17 Managers' or Members' Liability to the Company;
Indemnification.
----------------
(a) Except as provided in Article XI, the Managers and Members
shall have no liability to the Company or to any Member for any loss suffered by
the Company that arises out of any action or inaction of the Managers or
Members, if the Managers or Members, as the case may be, in good faith
determined that such course of conduct was in the best interest of the Company
and such course of conduct did not constitute actual fraud, gross negligence, or
willful misconduct of such Managers or Members. The Managers and Members will be
indemnified by the Company against any losses, judgments, liabilities, expenses,
and amounts incurred by them in the defense and/or settlement of any claims
sustained by them in connection with the Company, provided that the same were
not the result of actual fraud, gross negligence, or willful misconduct on the
part of such Managers or Members or their Affiliates.
(b) Notwithstanding the above clause (a), the Managers or Members
shall not be indemnified for liabilities arising under federal and state
securities laws unless: (i) there has been a successful adjudication on the
merits of each count involving securities law violations; or (ii) such claims
have been dismissed with prejudice on the merits by a court of competent
jurisdiction.
(c) The Company shall not incur the cost of the portion of any
insurance that insures any party against any liability as to which such party is
prohibited from being indemnified.
Article VII.
OPERATIONS OF THE COMPANY
Section 7.01 Fiscal Year. The fiscal year of the Company shall begin on
January 1 and end on December 31 of each year.
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Section 7.02 Books and Records. The Company shall maintain and make
available to the Members at all reasonable times accurate books, records, and
accounts relating to the business of the Company with respect to the Products.
Section 7.03 Accounting and Financial Statements. The Company shall
cause unaudited financial statements of the Company to be prepared not less than
quarterly and annually. The Company shall cause such financial statements to be
delivered to the Managers and Members of the Company immediately upon receipt.
The costs of preparation of all of the financial statements required hereunder
shall be borne by the Company.
Article VIII.
REPRESENTATIONS OF THE PARTIES
Section 8.01 Representations and Warranties of the Parties. Each of
Nordic and Sarkat hereby makes, as to itself, the following representations and
warranties to the other Party:
(a) Organization and Standing. It is a corporation duly
incorporated and validly existing in good standing under the law of its state of
incorporation (and in the case of Sarkat, it is a limited liability company duly
organized and in good standing under the law of its state of formation) and has
the corporate power to enter into and perform this Agreement and the related
documents specified herein and to consummate the transactions contemplated
hereby.
(b) No Violation. The execution, delivery, and performance by it of
this Agreement have been duly authorized by all necessary corporate action and
do not and will not violate (after notice or lapse of time, or both) any law or
any regulation, order, writ, injunction, or decree of any court or any competent
governmental or regulatory body, agency or other entity having jurisdiction over
it, or result in a breach of any of the terms, conditions or provisions of, or
constitute a default under, or result in the creation or imposition of any lien
upon any of its assets pursuant to the terms of, its charter or bylaws as now in
effect, or any mortgage, indenture, lien, license, approval, agreement,
instrument or document to which it is a party or by which its property is bound,
provided, that Nordic has disclosed to Sarkat, and Sarkat acknowledges that
Nordic and its parent, Dynatec International, Inc., and other subsidiaries of
Dynatec are parties to a loan agreement with ▇▇▇▇▇ Fargo Business Credit, Inc.,
Denver, Colorado ("▇▇▇▇▇ Fargo"), and that this Agreement is contingent on such
approval as ▇▇▇▇▇ Fargo may require.
(c) Consents. All authorizations, consents and approvals of,
notices to, registrations or filings with, or other actions in respect of or by,
any court or any competent governmental or regulatory body, agency or other
entity required in connection with the execution, delivery and performance by it
of this Agreement, or otherwise required to effect the purposes of this
Agreement, have been duly obtained, given or taken and are in full force and
effect.
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(d) Enforceability. Each of this Agreement and the Exhibits hereto,
and each document related hereto or thereto, to which it is a Party is the
legal, valid and binding obligation of it, enforceable against it in accordance
with its terms.
(e) Legal Matters. Except as otherwise disclosed by the Parties
hereto, it knows of no claim, action, suit, litigation, arbitration or
proceeding pending (or, to the best of its knowledge, threatened) by or against
it, which, if adversely determined, would individually or in the aggregate have
a material adverse effect on its obligations under this Agreement.
(f) Authorization of Agreement. It has taken all corporate action
required, necessary, or advisable for the authorization, execution, and delivery
of this Agreement.
(g) Survival of Representations and Warranties. The representations
and warranties set forth in this Article VIII shall be deemed made again at the
Closing and shall survive the Closing and the termination or expiration of this
Agreement.
Article IX.
CONDITIONS PRECEDENT
Section 9.01 Conditions Precedent. This Agreement shall not be
effective until the date on which the latest of the following events shall have
occurred, it being expressly understood that each of the Parties' respective
obligations hereunder are expressly subject to and conditional on the
satisfaction or written waiver of each of the following conditions on or before
the Closing Date, which satisfaction or waiver shall be in the waiving Party's
sole and absolute discretion:
(a) The Company shall adopt the Organizational Documents;
(b) The Managers of the Company shall adopt in writing such
resolutions as may be necessary or advisable to organize the Company in
accordance herewith and to implement the provisions hereof;
(c) Each of the Members shall execute and deliver such other
agreements, documents, exhibits or instruments as may be required to give effect
to the intent and purposes of this Agreement;
(d) The representations and warranties of the Members contained in
Article VIII hereof shall be true and correct in all material respects;
(e) The Company shall have obtained any and all necessary
approvals, permits, certificates and licenses required to be obtained from any
and all agencies, instrumentalities, departments, regulatory authorities, or
political subdivisions of any government with authority to regulate any part or
aspect of the business of the Company or the transactions contemplated by this
22
Agreement, such that by obtaining said approvals, permits, and licenses the
Company shall be able to legally operate and conduct the business contemplated
hereunder;
(f) The Board of Directors of Dynatec International, Inc., the
parent of Nordic shall have taken action at a meeting thereof or pursuant to
unanimous consent resolutions specifically authorizing the consummation by
Nordic of the transactions contemplated by this Agreement, after full disclosure
of all related parties involved in either Nordic or Sarkat; and
(g) The Members shall have subscribed for the Shares and delivered
to the Company consideration therefor in accordance with Section 3.02 hereof.
Article X.
COVENANTS AND FURTHER ASSURANCES
Section 10.01 Mutual Covenants. Nordic and Sarkat hereby covenant with
each other as follows:
(a) Each Member shall cooperate with the other in preparing,
filing, and taking any and all other actions necessary or advisable with respect
to any application, request, or action which is or may be necessary to obtain
the consent of any government or third party, to effect the transactions
contemplated herein, or which are or may be necessary or helpful in order to
consummate such transactions.
(b) Each Member shall advise the other if any event should occur
that may prevent the fulfillment of any conditions to the obligation of either
Member to consummate the transactions contemplated in this Agreement or if any
event should occur or has occurred that would or did constitute a breach of any
representation, warranty, or covenant of any Member in this Agreement. The
Members agree to use commercially reasonable efforts to cure any such event as
expeditiously as possible.
Article XI.
INDEMNIFICATION BETWEEN MEMBERS
Section 11.01 Nordic. Nordic agrees to hold Sarkat harmless from any
and all Losses (as defined below) incurred by Sarkat and indemnify and defend
Sarkat against any and all Losses (as defined below) incurred by Sarkat arising
out of or in connection with (i) the failure by Nordic to perform any of the
material agreements, covenants, or obligations required to be performed by
Nordic hereunder or pursuant hereto or (ii) any material misstatement made by
Nordic hereunder or pursuant hereto, including without limitation any material
misrepresentation contained in the representations and warranties of Nordic set
forth in Article VIII hereof.
Section 11.02 Sarkat. Sarkat agrees to hold Nordic harmless from any
and all Losses (as described below) incurred by Nordic and indemnify and defend
against any and all Losses (as defined below) incurred by Nordic arising out of
or in connection with (i) the failure by Sarkat to perform any of the material
23
agreements, covenants, or obligations required to be performed by Sarkat
hereunder or pursuant hereto or (ii) any material misstatement made by Sarkat
hereunder or pursuant hereto, including without limitation any material
misrepresentation contained in the representations and warranties of Sarkat set
forth in Article VIII hereof.
Section 11.03 Limitation of Liability. For purposes of this Agreement,
"Losses" shall mean direct, out-of-pocket losses, damages, claims, actions,
liabilities, and expenses (including, without limitation, reasonable attorneys'
fees and allocated costs of in-house counsel). In no event shall either Party be
liable to the other Party for any special, indirect, consequential, or exemplary
damages (including, without limitation, lost profits).
Section 11.04 Notice of Claim. If either Party (the "Indemnified
Party") shall receive knowledge of a state of facts or the occurrence of an
event that, if not corrected, would give rise to a right of indemnification for
the Indemnified Party from the other Party (the "Indemnifying Party"), the
Indemnified Party shall give notice to the Indemnifying Party as promptly as
practicable after receipt of such knowledge. The Indemnifying Party may, at its
option, elect to undertake the defense of any such claim. The Indemnified Party
shall make available to the Indemnifying Party and its counsel and accountants
all books and records of the Indemnified Party relating to any such event or
state of facts and the related possible claim for indemnification, and each
Party hereunder shall render to the other such assistance as it may reasonably
require in order to provide prompt and adequate prosecution of the defense of
any suit, claim, or proceeding arising from such event or state of facts. The
Indemnifying Party may settle or compromise any such suit, claim, or proceeding
with the written consent of the other Party, which consent shall not be
unreasonably withheld.
Article XII.
TERMINATION, DISSOLUTION AND WINDING UP
Section 12.01 Termination. This Agreement may be terminated and the
Company thereby dissolved upon the occurrence of any of the following events:
(a) By unilateral decision of either Member, if the other Member
defaults in the performance of any of its material obligations under this
Agreement and fails to cure such default within forty-five (45) days after
receiving written notice specifying the default; or
(b) By unilateral decision of either Member, if the other Member or
any Affiliate of that other Member (i) ceases to carry on its business; or (ii)
becomes or is declared insolvent or bankrupt; or (iii) becomes the subject of
any proceedings relating to its liquidation, insolvency, or for the appointment
of a receiver, custodian, or similar officer for it, which proceedings, if
involuntary, are not dismissed within thirty (30) days; or (iv) makes an
assignment for the benefit of all or substantially all of its creditors; or (v)
enters into an agreement for the composition, extension or readjustment of
substantially all of its obligations; or
24
(c) By unilateral decision of either Member, if the other Member or
any Affiliate of that other Member (i) if an individual, shall die or have a
court of competent jurisdiction enter an order or decree adjudicating him
incompetent to manage his estate or person; (ii) if a partnership, shall
dissolve and commence winding up; and (iii) if a corporation or other legal
entity, shall terminate its existence; or
(d) By unilateral decision of either Member, if any of the
Ancillary Agreements are terminated or any of the terms of this Agreement or any
of the Ancillary Agreements prove, for any reason, to be invalid or
unenforceable; or
(e) By unanimous written consent of all of the Members.
Section 12.02 Effect of Termination--Right of Purchase. Upon the
occurrence of an event specified in Section 12.01, the Member whose actions or
whose Affiliate's actions did not give rise to a right of termination of this
Agreement (the "Non-breaching Party"), either directly or indirectly through a
qualified nominee, shall have the right by written notice (the "Exercise
Notice") to the Member whose actions or whose Affiliate's actions gave rise to
such termination (the "Breaching Party"), and without prejudice to any other
remedy referred to herein or available under applicable law, to elect to
purchase all, but not less than all, of the Shares of the Company held by the
Breaching Party at a purchase price equal to the Book Value thereof. The
Exercise Notice must be given within thirty (30) days after the Non-breaching
Party receives actual notice of the facts and circumstances giving rise to
termination under Section 12.02. If the Non-breaching Party elects to purchase
the Breaching Party's Shares under this Section 12.02, the Non-breaching Party
shall complete such purchase by delivery of cash to the Breaching Party or its
representative in the amount of the purchase price established under this
Section 12.02 within ninety (90) days after delivery of the Exercise Notice. In
the alternative, the Non-breaching Party, or both Members if the Members
unanimously consent to terminate the Agreement, may call for immediate
liquidation of the Company as provided under Section 12.02.
Section 12.03 Articles of Dissolution. As soon as possible following an
election by either or both Members, as the case may be, to terminate this
Agreement pursuant to Section 12.01, and if counsel to the Company so advises,
the appropriate representative of the Company shall execute Articles of
Dissolution in such form as shall be prescribed by the Division and shall file
those Articles of Dissolution with the Division. If the Members elect to pursue
an immediate liquidation of the Company, the Members shall cooperate to dissolve
and liquidate the Company as expeditiously as possible.
Section 12.04 Winding Up. Except as provided by law, upon dissolution,
each Member shall look solely to the assets of the Company for the return of its
Capital Contribution. If the Company property remaining after the payment of
discharge of the debts and liabilities of the Company is insufficient to return
the Capital Contribution of each Member, such Member shall have no recourse
against any other Member. The winding up of the affairs of the Company and the
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distribution of its assets shall be conducted exclusively by the Managers, which
are hereby authorized to take all actions necessary to accomplish such
distribution, including without limitation, selling any Company assets the
Managers deem necessary or appropriate. All distributions in liquidation shall
be made to the Members in accordance with their respective Capital Account
balances.
Article XIII.
LOAN AGREEMENT
Section 13.01 Line of Credit. Subject to the terms, conditions, and
covenants of this Agreement, Sarkat agrees to extend credit to the Company in
the form of a revolving line of credit (the "Line of Credit") in an aggregate
principal amount up to, but not exceeding at any one time outstanding, TWO
HUNDRED THOUSAND AND NO/100 DOLLARS ($200,000.00) (the "Credit Limit").
Section 13.02 Promissory Note. The Line of Credit shall be evidenced by
a Revolving Promissory Note (the "Note") made by the Company in the form
attached hereto as Exhibit C, against which advances (individually an "Advance"
and collectively "Advances") may be obtained by the Company. The Note shall bear
interest (the "Note Rate") at the same rate which is being paid by Sarkat on the
lines of credit and other instruments which Sarket secured to provide the
Company with the Line of Credit. The Note Rate shall be adjusted quarterly on
the same basis. The Company may obtain Advances from time to time from the Line
of Credit during the period commencing on the Effective Date of this Agreement
and ending on the Maturity Date, as hereinafter defined (said period being the
"Commitment Period"); provided, however, that Sarkat may extend the Maturity
Date in the manner provided herein, in which case the Commitment Period shall
automatically be extended accordingly, and Sarkat shall not unreasonably refuse
to extend the Commitment Period. Sarkat may make Advances after the Commitment
Period has expired, in which case such Advances shall be treated in the same
manner as other Advances hereunder. Sarkat's obligation to grant, extend, or
continue any Advance to the Company is conditioned on and subject to the
following terms and conditions:
(a) The purpose of the Advance is, and the proceeds of each Advance
shall solely be used to purchase inventory for the Company, and will not be used
for any other purpose unless Company has obtained prior written approval from
Sarkat;
(b) The aggregate outstanding principal amount of all Advances
outstanding at any time does not exceed, and after giving effect to any request
for an Advance will not exceed, the Credit Limit;
(c) The Company is not in default hereunder, and no event has
occurred or condition exists which, with the giving of notice or the passage of
time or both, would constitute a default hereunder;
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(d) The Company is in compliance and has been in compliance with
all other conditions and requisites as provided for herein for obtaining each
Advance; and
(e) Each Advance under the Note shall bear interest at the Rate,
and shall be repaid (principal and interest) at the times and in the manner,
described in the Note.
Section 13.03 Maturity Date. The "Maturity Date" means January 31,
2005. Sarkat may extend the Maturity Date by written agreement, in which case
the Maturity Date shall mean the date so extended.
(a) Security. The Note shall be secured by and the Company hereby
grants a security interest in all types and items or property whether now owned
or existing or hereafter acquired or arising of the Company, including, but not
limited to, all the inventory, accounts receivable, plant and equipment, real
property, goods, materials, and other tangible personal property, all deposits
and securities of the Company. Sarkat shall be entitled to file a UCC-1
financing statement to perfect a security interest in the collateral described
above.
Section 13.04 Procedure to Obtain Loan Advances. Unless otherwise
specifically agreed to in writing by Sarkat, all Advances pursuant to the Line
of Credit shall be made for the purchase of inventory by the Company. To assure
compliance with this provision, all requests to Sarkat from the Company for
Advances must be accompanied by a written request from the Managers of the
Company stating the purposes for which the Managers seek the Advance. Sarkat
shall not unreasonably refuse to make any Advance.
Section 13.05 Issuance of Loan Advances. Upon Sarkat's receipt of the
Company's request for an Advance and the Managers' written statement regarding
the purposes for which the Advance is sought, Sarkat shall issue its check for
the amount of such Advance payable to the Company or deposit the amount of such
Advance into any deposit account which may be, from time to time, designated by
the Company.
Section 13.06 Conditions Precedent. Sarkat shall not be required to
made any Advance requested by the Company on the Line of Credit unless and until
all Conditions Precedent, as set forth in Article IX of this Agreement, have
been satisfied.
Section 13.07 Events of Default Defined. The Company shall be in
default for purposes of this Article XIII if any of the following events
("Events of Default") shall occur and shall not have been remedied within any
applicable period of time:
(a) Within fifteen (15) days after the same shall be due, failure
to pay any principal or interest on the Note or any Advance thereunder;
(b) The Company defaults in the performance of or breaches or
disputes the applicability to it or the validity as against it of any of the
provisions of this Agreement, the Note, or any other agreement with Sarkat;
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(c) Any representation or warranty made by the Company in this
Agreement or in connection with any borrowing hereunder, or in any certificate,
financial statement or other statement furnished by the Company pursuant hereto,
is untrue in any material respect at the time when made;
(d) Default by the Company in the observance or performance of any
covenant, condition, or term contained in this Agreement or any instrument
delivered herewith, or default by the Company of any other obligation in favor
of or with Sarkat;
(e) Filing by the Company or any Affiliate of the Company of a
voluntary petition in bankruptcy or a voluntary petition or any answer seeking
reorganization, arrangements, readjustment of its debts or for any other relief
under the Bankruptcy Code, as amended, or under any other insolvency act or law,
state or federal, now or hereafter existing, or any action by the Company
indicating its consent to, approval of or acquiescence in any such petition or
proceedings; the application of the Company for, or the appointment by consent
or acquiescence of, a receiver or trustee of the Company or for all or a
substantial part of its properties; the making by the Company of an assignment
for the benefit of creditors; the admission of the Company in writing of its
inability to pay its debts as they may mature;
(f) Filing an involuntary petition against the Company in
bankruptcy seeking reorganization, arrangements, readjustment of its debts or
for any other relief under the Bankruptcy Code, as amended, or under any other
insolvency act or law, state or federal, now or hereafter existing, if such
petition or proceeding remains undismissed for a period of thirty (30) days
after the same shall be filed; or the involuntary appointment of a receiver or
trustee of the Company for all or a substantial part of its property; or the
issuance of a warrant of attachment, execution or similar process against any
substantial part of the properties of the Company; or
(g) Any money judgment, writ, warrant of attachment, or similar
process is entered or filed against the Company or any of the Company's property
or other assets and is not vacated within the earlier of (i) a period of fifteen
(15) days or (ii) before five (5) days prior to the date of any proposed sale
thereunder.
Section 13.08 Remedies. In any such Event of Default, Sarkat may, upon
notice to the Company, reasonably under the circumstances: (a) terminate
forthwith the Line of Credit and cease funding any Advance; (b) declare the Note
to be forthwith due and payable, whereupon the unpaid principal amount of the
Note and any Advances thereon, together with accrued interest thereon, shall
become immediately due and payable without presentment, demand or protest, or
other notice of any kind, all of which are hereby expressly waived, anything
contained herein or in the Note to the contrary notwithstanding; (c) give notice
to the Company required by law by mailing such notice, postage prepaid, at least
five days before the event to any address of the Company set forth in this
Agreement; (d) immediately and without prior notice or demand set-off against
28
the amount owed Sarkat from the Company, whether or not due, all money and other
amounts owed to the Company in any capacity by Sarkat and the Company shall be
deemed to have exercised such right of set-off and to have made a charge against
any such money or amounts immediately upon occurrence of such default, even
though such charge is entered on the books of Sarkat subsequent thereto; or (e)
proceed to enforce any of its remedies under this Agreement, the Note, or
pursuant to applicable law.
Article XIV.
MISCELLANEOUS PROVISIONS
(a) Confidentiality. Each Member acknowledges that by reason of its
relationship to the other Member hereunder it will have access to certain
information and materials concerning the Company's or the other Member's
business, plans, methods, customers, and products that are confidential and of
substantial value to the Member or the Company, which value would be impaired if
such information were disclosed to third parties ("Confidential Information").
Each Member agrees that it shall not use in any way for its own account, or the
account of any third party, any Confidential Information revealed to it by the
other Member. The Company shall take every reasonable precaution to protect the
confidentiality of such Confidential Information. Each Member hereby agrees that
it will not disclose any Confidential Information to any other person, firm, or
entity; provided, however, that the foregoing restriction shall not be deemed to
prohibit (i) any disclosure by either Member of information that shall have
become public knowledge other than by means of a disclosure by such Member, (ii)
any disclosure required by court order or regulatory request or otherwise
required by applicable law, or (iii) any disclosure to an officer, director,
auditor, or advisor of such Member who shall be informed by such Member of the
confidentiality requirements of this Section 14.1 and to whom such information
shall be disclosed on the express condition that the recipient of such
information agree to be bound by the provisions of this Section 14.1 as if it
were a Member.
Section 14.02 Publicity. The Members agree that the content and timing
of all publicity and announcements concerning this Agreement and all
negotiations thereof and all transactions contemplated hereby shall be subject
to their prior mutual approval.
Section 14.03 Expenses. Whether or not any or all of the transactions
contemplated hereby shall be consummated, and except as otherwise expressly
provided herein, all expenses incurred in connection with the negotiation,
preparation, execution, consummation, or enforcement of this Agreement and the
transactions contemplated hereby, including without limitation the fees of
independent counsel, accountants and advisors, shall be borne by the Member
incurring such expenses.
Section 14.04 Amendments and Waivers. This Agreement shall constitute
the entire contract between the Parties, and there are no other or further
agreements between the Parties except as specifically set referenced herein;
provided, however, that this Agreement may be modified, supplemented, altered,
or amended by written agreement of all the Members of the Company. No failure or
delay on the part of either Member hereto in exercising any right, power or
29
privilege hereunder and no course of dealing between the Members shall operate
as a waiver thereof, nor shall nay single or partial exercise of any right,
power or privilege hereunder preclude any other or further exercise thereof or
the exercise of any other right, power or privilege.
Section 14.05 Notices. All notices, requests, demands, consents, and
other communications required or permitted hereunder shall be in writing and
shall be delivered by hand, transmitted by facsimile, or sent by certified and
registered airmail, postage prepaid, return receipt requested, or by confirmed
telegram:
If to Nordic:
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
Attn. ▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, ▇▇.
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
or to such other person or at such other place as Nordic shall designate to
Sarkat in writing; and
If to Sarkat:
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
or to such other person or at such other place as Sarkat shall designate to
Nordic in writing. Any such notice or other communication so addressed shall be
deemed to have been received by the addressee as of the date of such receipt or
confirmation.
Section 14.06 Successors and Assigns. The rights and obligations of the
Members shall inure to the benefit of and shall be binding upon the successors
and assigns of each of them; provided, that neither this Agreement nor any of
the rights, interests, or obligations hereunder shall be assigned by either of
the Members without the prior written consent of the other Member.
Section 14.07 Governing Law. This Agreement shall be governed by and
construed and interpreted in accordance with the laws of the State of Utah as in
effect on the date hereof and as may be hereafter amended.
Section 14.08 Counterparts. This Agreement may be executed in several
identical counterparts, each of which when executed by the Members and delivered
shall be an original, but all of which together shall constitute a single
instrument.
Section 14.09 Headings. The headings of the Articles, Sections, and
Subsections of this Agreement have been inserted for convenience of reference
only.
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Section 14.10 No Third Party Beneficiaries. Nothing in this Agreement
is intended or will be construed to give any legal or equitable right, remedy,
or claim under or in respect of this Agreement, or any provision contained
herein, to any person other than the Parties hereto, it being the intention of
the Parties that this Agreement and the provisions hereof are for the sole and
exclusive benefit of such Parties or their permitted successors or assigns and
for the benefit of no other person.
Section 14.11 Severability. If any provision of this Agreement, in
whole or in part, proves to be invalid for any reason, such invalidity shall
affect only the portion of such provision which shall be invalid. In all other
respects this Agreement shall stand as if such invalid provision had not been
made, and no other portion or provision of this Agreement shall be invalidated,
impaired, or affected thereby.
Section 14.12 Non-Merger. The representations, warranties,
undertakings, agreements, covenants, and indemnities of the parties contained
herein or granted or undertaken pursuant hereto shall not merge or expire on the
Closing of transactions contemplated herein, but shall remain enforceable to the
fullest extent notwithstanding any rule of law to the contrary.
Section 14.13 Liability of Members. The Members of the Company shall
not be personally obligated for any liability or claim arising out of this
Agreement or any other matter in connection herewith. Any such liability or
claim shall be satisfied only out of the assets of the Company and not out of
the separate assets of any of its Members.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
[SIGNATURE PAGE FOLLOWS IMMEDIATELY]
BY THEIR SIGNATURES BELOW, the undersigned Members of the Company
agree, acknowledge and certify that the foregoing Operating Agreement
constitutes the Operating Agreement of Nordic ASI, LLC, adopted by the Members
of the Company as of the date first written above.
NORDIC TECHNOLOGIES, INC., a
Utah corporation
By:/s/
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▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, ▇▇.
SARKAT INTERNATIONAL, L.L.C., a
Utah limited liability company
By its Members:
/s/
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▇▇▇▇ ▇▇▇▇▇▇▇
/s/
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