CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE
CONFIDENTIAL PORTIONS HAVE BEEN REDACTED AND ARE DENOTED BY [*]. THE
CONFIDENTIAL PORTIONS HAVE BEEN FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION.
Exhibit 10.1
LIMITED LIABILITY COMPANY OPERATING AGREEMENT
OF
ARMUS, LLC,
A DELAWARE LIMITED LIABILITY COMPANY
THIS OPERATING AGREEMENT (this "AGREEMENT") has been entered into as of
June 14, 2000, to be effective as of the Effective Date (as defined in Section
1.4 hereof), by and between Church & ▇▇▇▇▇▇ Co., Inc., a Delaware corporation
("CHD"), and USA Detergents, Inc., a Delaware corporation ("USAD"), (together,
the "INITIAL MEMBERS," and together with any persons who may hereafter be
admitted as such in accordance with the terms of this Agreement, the "MEMBERS")
for the purpose of providing for the organization and operation of Armus, LLC
(the "COMPANY"), a limited liability company formed pursuant to the Delaware
Limited Liability Company Act, Title 6, Sections 18-101 et seq of the Delaware
Code (the "ACT").
WHEREAS, the Initial Members desire to organize the Company for the purpose
of establishing a joint venture to combine the laundry detergent businesses of
CHD and USAD;
WHEREAS, for tax purposes it is intended that the Company shall be
classified as a "partnership," and not an "association" taxable as a
"corporation," as those terms are defined in Section 7701 of the Internal
Revenue Code of 1986, as amended (the "CODE"), and the applicable Treasury
regulations promulgated thereunder (the "REGULATIONS"); and
WHEREAS, the Initial Members desire, by entering into this Agreement, to
provide for the structure and operation of the Company.
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
covenants and obligations set forth herein, the Initial Members hereby agree
that the Company shall be structured and operated as follows:
ARTICLE I.
FORMATION
---------
1.1. NAME. The name of the Company is "Armus, LLC," and all business of the
Company shall be conducted under that name or any fictitious name or names
selected by the Board (as defined in Section 5.1 hereof) from time to time,
provided that any such name reflects the Company's status as a limited liability
company and is otherwise permitted by applicable law.
1.2. PLACE OF BUSINESS. The Company's initial principal place of business
shall be ▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ or such other place or
places as the Board may from time to time determine. The registered agent for
the service of process and the registered office shall be that person and
location reflected in the Company's Certificate of Formation as filed in the
office of the Delaware Secretary of State on or as soon as practicable after the
date hereof.
1.3. BUSINESS AND AUTHORITY. The Company is formed for the specific and
limited purpose of operating the laundry detergent joint venture between CHD and
USAD, which includes, among other matters, the manufacture, distribution and
sale of liquid and powder laundry detergent and liquid fabric softener products
(the "BUSINESS"). The Company shall have the authority to do all things
necessary or convenient to accomplish its purpose and operate the Business as
described in this Section 1.3. The Company exists only for the purpose specified
in this Section 1.3, and may not conduct any other business without the Consent
(as defined in Section 2.4 hereof) of the Members. In particular, except as
specifically contemplated by this Agreement, the Business shall not extend to
any activity that will compete with any of the Other CHD Products or any of the
Other USAD Products (each as defined in Section 6.2 below). The authority
granted to the Board hereunder to bind the Company shall be limited to actions
necessary or convenient to the Business.
1.4 EFFECTIVE DATE AND TERM. The "EFFECTIVE DATE" shall be the date, not
later than January 1, 2001, specified by CHD in a notice delivered to USAD at
any time after the date hereof (the date of such notice is referred to herein as
the "TRIGGER DATE"); provided, however, that the Effective Date shall not occur
prior to, and shall be contingent upon, the expiration of the waiting period, if
any, required under the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act (the "HSR
ACT"); provided further, that USAD's obligations hereunder, including without
limitation the payment of any Capital Contributions (as hereinafter defined) and
Change of Control (as hereinafter defined) fees, shall be subject to the prior
written consent of FINOVA Capital Corporation, as agent and lender (the
"Agent"), and the other lenders (each a "Lender" and, collectively, the
"Lenders") parties to that certain Amended and Restated Loan and Security
Agreement, dated February 25, 1999, between such Lenders and USAD and its
subsidiaries (the "USAD Loan Agreement"), under the USAD Loan Agreement. If
within forty five (45) days after the date hereof (the "FINOVA CONSENT PERIOD")
USAD has not obtained the consent of the Agent and the Lenders to the
transactions contemplated hereby (including without limitation Section 9.4(e)
hereof) or replaced the loan facilities contemplated by the USAD Loan Agreement
(including the revolving credit facility, all term notes and loans and all other
credit facilities thereunder) with facilities reasonably acceptable to CHD,
then, notwithstanding the fact that CHD has given notice of the Effective Date
as contemplated by this Section 1.4, CHD shall have the right, exercisable by
written notice to USAD no later than forty five (45) days after the expiration
of the Finova Consent Period, to either (i) provide replacement loan facilities
reasonably acceptable to USAD or (ii) terminate this Agreement effective upon
delivery by CHD of such written notice to USAD. The term of the Company shall
then continue until the Company's dissolution in accordance with the provisions
of Article X of this Agreement. If the Effective Date has not occurred by
January 1, 2001, this Agreement shall be null and void.
1.5 AGREEMENT; EFFECT OF INCONSISTENCIES WITH THE ACT. It is the express
intention of the Members that this Agreement and the contracts and documents
referred to herein shall be the sole source of agreement of the parties with
respect to the matters dealt with herein and, except to the extent a provision
of this Agreement expressly incorporates federal income tax rules by reference
to sections of the Code or Regulations or is expressly prohibited or ineffective
under the Act, this Agreement shall govern, even when inconsistent with, or
different than, the provisions of the Act or any other law or rule. To the
extent that any provision of this Agreement is prohibited or ineffective under
the Act, this Agreement shall be deemed to be amended to the smallest degree
possible in order to make this Agreement effective under the Act
2
in accordance with the intent of the parties. In the event the Act is
subsequently amended or interpreted in such a way to make any provision of this
Agreement that was formerly invalid valid, such provision shall be considered to
be valid from the effective date of such interpretation or amendment. The
Members hereby agree that each Member shall be entitled to rely on the
provisions of this Agreement, and no Member shall be liable to the Company or to
any Member for any action or refusal to act taken in good faith reliance on the
terms of this Agreement and which is in substantial compliance with the terms
hereof. The Members hereby agree that the duties and obligations imposed on the
Members as such shall be those set forth in this Agreement, which is intended to
govern the relationship among and between the Company and the Members,
notwithstanding any provision of the Act or common law to the contrary.
1.6 CONDITIONS/HSR FILING.
(a) USAD's obligation to enter into this Agreement is expressly conditioned
on CHD, concurrently with the execution of this Agreement, entering into (i)
that certain Stock Purchase Agreement (the "STOCK PURCHASE AGREEMENT"), dated as
of the date hereof, by and among CHD, USAD and ▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ ("▇▇▇▇▇"),
providing for the purchase by CHD of shares of USAD common stock from USAD and
▇▇▇▇▇ and (ii) that certain Put & Call Agreement (the "PUT & CALL AGREEMENT"),
dated as of the date hereof, by and among CHD, USAD and ▇▇▇▇▇, providing for the
right of CHD to call from ▇▇▇▇▇, and the right of ▇▇▇▇▇ to put to CHD, certain
shares of USAD common stock.
(b) CHD's obligation to enter into this Agreement is expressly conditioned
on USAD, concurrently with the execution of this Agreement, entering into (i)
the Stock Purchase Agreement, (ii) the Put & Call Agreement, (iii) that certain
Registration Rights Agreement, dated as of the date hereof, between USAD and
CHD, providing for the registration of shares of USAD common stock held by CHD
and (iv) that certain Voting Agreement, dated as of the date hereof, by and
among CHD, USAD and the USAD stockholders party thereto.
(c) Each party shall use its best efforts to determine as soon as
practicable after the date hereof whether a filing is necessary pursuant to the
HSR Act in connection with the formation and capitalization of the Company and
the acquisition by CHD of USAD common stock. In the event the parties determine
that a filing or filings are necessary, each party shall use its best efforts to
complete the requisite filings as soon as practicable. In the event that each
party is required to file as an "acquiring person," each party shall bear its
own filing fees. In the event only one party is required to file as an
"acquiring person," the parties shall split the filing fee.
ARTICLE II.
MEMBERS AND OWNERSHIP INTERESTS
-------------------------------
2.1 MEMBERS. There shall be one class of Members of the Company, and all
Members shall have the same relative rights, powers, and duties except as
otherwise provided herein.
2.2 NAMES AND ADDRESSES AND OWNERSHIP INTERESTS OF THE INITIAL MEMBERS. The
respective names, addresses and required initial capital contributions ("CAPITAL
CONTRIBUTIONS")
3
of the Initial Members of the Company are set forth beside each such Member's
name on Schedule 2.2 hereto.
2.3 REPRESENTATIONS AND WARRANTIES. Each Member hereby represents and
warrants to the Company and to the other Members that, except as set forth on
Schedule 2.3(a) hereto (as to USAD) or Schedule 2.3(b) hereto (as to CHD):
(a) Such Member understands and acknowledges that such Member's
interest in the Company ("OWNERSHIP INTEREST") has not been registered under the
Securities Act of 1933 or any state securities laws;
(b) Such Member understands and acknowledges that Ownership Interests
may not be sold unless they are registered under the Securities Act of 1933 and
applicable state securities laws, or pursuant to an exemption from such
registration requirements;
(c) The limitations on transfer contained in this Section 2.3 and in
Article IX of this Agreement create an economic risk that such Member is capable
of bearing;
(d) Such Member is acquiring its Ownership Interest for investment and
not with a view to the resale or distribution thereof;
(e) All property contributed to the Company as part of such Member's
Capital Contribution has been or will be contributed free and clear of all
liens, pledges, claims, security interests, encumbrances and similar interests
of any kind whatsoever;
(f) Such Member has the authority to enter into and consummate this
Agreement and the transactions contemplated hereby, subject to Section 1.6(c)
all required third party consents and approvals have been obtained, and this
Agreement and all related transactions will not violate or cause a breach or
default under the terms of any instrument, agreement, law, rule or regulation to
which such Member is subject or by which it is bound. Such Member shall not be
deemed to have made any representation or warranty as to any stockholder
approvals that may be necessary at the date of exercise of the purchase and sale
options set forth in Section 9.4 hereof; and
(g) Such Member has had the opportunity to have its own legal counsel
review (i) this Agreement and (ii) all other agreements contemplated hereby, and
based upon any such review, has independently made the decision to invest in the
Company and accept the economic risks associated with such investment.
2.4 CONSENT OF MEMBERS. The term "CONSENT" of the Members, as used in this
Agreement, shall mean the unanimous approval, authorization or ratification of
all of the outstanding Ownership Interests of all Members duly given pursuant to
the provisions of Sections 7.5 through 7.15, inclusive, which approval may be
withheld for any reason in the sole and absolute discretion of any Member, with
or without cause.
4
ARTICLE III.
CAPITAL CONTRIBUTIONS AND LOANS
-------------------------------
3.1 INITIAL CAPITAL CONTRIBUTIONS. Promptly upon the Effective Date,
each Member shall deliver to the Company payment of such Member's initial
Capital Contribution, which contributions shall include:
(a) An exclusive license, in form and substance to be negotiated in
good faith between the parties (the "CHD LICENSE"), of CHD's technology and
intellectual property with respect to liquid and powder laundry detergent
products, including without limitation liquid fabric softeners, manufactured and
sold by CHD as listed on Schedule 3.1(a) hereto, but excluding CHD's "Delicare"
line of products, Arm & Hammer washing soda and fabric softener sheets (the "CHD
DETERGENT PRODUCTS");
(b) An exclusive license, in form and substance to be negotiated in
good faith between the parties (the "USAD LICENSE"), of USAD's technology and
intellectual property with respect to liquid and powder laundry detergent
products, including without limitation liquid fabric softeners, manufactured and
sold by USAD as listed on Schedule 3.1(b) hereto (the "USAD DETERGENT
PRODUCTS");
(c) All finished goods inventories of CHD Detergent Products and USAD
Detergent Products which are reasonably saleable within the next sixty (60)
days; and
(d) Cash in amounts determined unanimously by the Board thirty (30)
days before the Effective Date as necessary to fund working capital needs of the
Company during the ninety (90) days following the Effective Date. Each Member's
initial cash Capital Contribution shall be determined so as to ensure that the
total aggregate amount of the Members' initial Capital Contributions be split
60% CHD and 40% USAD. If, due to an imbalance in finished goods inventories
contributed to the Company, USAD is unable to make its full initial cash Capital
Contribution required by this Section 3.1(d), then the shortfall shall be
provided by CHD and such shortfall shall be treated as a loan by CHD to the
Company (bearing interest at a market rate) which shall be repaid to CHD as soon
as the Company has sufficient cash flow to do so.
The contributions made pursuant to paragraphs (a) and (b), above, will be
assigned a value of zero for the purpose of each Member's Capital Contribution
and Capital Account (as defined in Section 4.1).
3.2 INTEREST ON CAPITAL CONTRIBUTIONS. No Member shall be entitled to
receive any interest on such Member's Capital Contribution.
3.3 ADDITIONAL CAPITAL CONTRIBUTIONS. No Member shall be required or
obligated to restore a deficit Capital Account balance upon the liquidation of
the Company or such Member's Ownership Interest in the Company. No Member shall
be allowed or required to make any additional contribution to the capital of the
Company in excess of $3,000,000 in the aggregate during any six month period,
without the unanimous authorization of the Board. Additional capital
contributions from each Member of $3,000,000 or less in the aggregate during any
six month period may be required by a majority of the Board. All additional
capital contributions
5
shall be made by the Members in the same proportion as their average percentage
allocations of Net Profit and Net Loss pursuant to Section 4.4 hereof for the
immediately preceding fiscal year of the Company.
3.4 WITHDRAWAL OF CAPITAL. Except in connection with proceedings to
dissolve the Company in accordance with the procedures set forth in Article X of
this Agreement, no Member may withdraw any portion of such Member's Capital
Contribution, or any portion of such Member's Capital Account, from the Company
without the prior unanimous authorization of the Board.
3.5 LOANS BY MEMBERS. Other than as provided in Section 3.1(d) hereof, a
Member may make a loan or advance money or property to or on behalf of the
Company, only upon such terms as the Board has unanimously authorized. Any
permitted loan or advance shall not increase the lending Member's Capital
Account, entitle the lending Member to any greater share of Company
distributions made in respect of a Member's Capital Account or subject such
lending Member to any greater proportion of Company losses. The amount of such
loans or advances shall be a debt owed by the Company to the lending Member, and
any interest paid to the lending Member shall be charged as any other expense
against income of the Company.
ARTICLE IV.
CAPITAL ACCOUNTS, DISTRIBUTIONS, AND TAX MATTERS
------------------------------------------------
4.1 ESTABLISHMENT OF CAPITAL ACCOUNTS. A separate capital account ("CAPITAL
ACCOUNT") shall be established and maintained for each Member in accordance with
the principles set forth in Sections 704(b) and 704(c) of the Code and the
Regulations. The Capital Account of each Member shall initially be equal to the
sum of: (i) the full amount of cash contributed by such Member to the Company
and (ii) except as specifically provided by Section 3.1, the fair market value,
as determined by the Board in good faith, of other property contributed by such
Member to the Company (net of liabilities secured by such property that the
Company is considered to assume or take subject to under Section 752 of the
Code). The provisions of this Agreement relating to the maintenance of Capital
Accounts are intended to comply with Regulation Section 1.704-1(b) relating to
the maintenance of capital accounts, and shall be interpreted and applied in a
manner consistent with such Regulation. In the event the Board deems it
advisable to modify the manner in which the Capital Accounts, or any debits or
credits thereto, are computed in order to comply with such Regulation, the Board
may make such modification, provided that it is not likely to have a material
effect on the amounts which would otherwise be distributable to any Member upon
the dissolution of the Company.
4.2 INCREASES AND DECREASES IN CAPITAL ACCOUNTS. Each Member's Capital
Account shall be increased by any additional Capital Contributions made by such
Member to the Company (in the case of contributed property, such increase shall
equal the fair market value, as determined by the Board in good faith, of such
property net of liabilities secured by such property that the Company is
considered to assume or take subject to under Section 752 of the Code) and a
Member's allocated share of Net Profit (as defined in Section 4.3 hereof), and
decreased by any money and the fair market value, as determined by the Board in
good faith, of any property distributed to such Member by the Company (net of
liabilities secured by the
6
distributed property that the Member is considered to assume or take subject to
under Section 752 of the Code) and such Member's allocated share of Net Loss (as
defined in Section 4.3 hereof).
4.3 NET PROFIT AND NET LOSS. For the purposes of this Agreement, the term
"NET PROFIT" or "NET LOSS" shall mean an amount equal to the Company's net
income or loss for the relevant fiscal year or shorter period, determined in
accordance with generally accepted accounting principles and procedures
consistently applied.
4.4 ALLOCATIONS OF NET PROFIT AND NET LOSS. The Net Profit or Net Loss of
the Company for each fiscal year or shorter period following the Effective Date
shall be allocated as follows:
(a) Except as otherwise expressly provided in this Section 4.4, Net
Profit up to $30,000,000 (or a proportionately reduced amount of Net Profit for
a period shorter than a full fiscal year) shall be allocated 65% to CHD and 35%
to USAD and any Net Profit in excess of $30,000,000 (or a proportionately
reduced amount of Net Profit for a period shorter than a full fiscal year) shall
be allocated 55% to CHD and 45% to USAD;
(b) Notwithstanding Section 4.4(a) hereof, in the event CHD's operating
profit for its 2000 fiscal year from the sale of CHD Detergent Products (as
computed in accordance with Exhibit A hereto) is less than [*] (the amount of
such deficiency being hereinafter referred to as the "CHD Deficiency"), then
CHD's allocable share of Net Profit up to $30,000,000 (or a proportionately
reduced amount of Net Profit for a period shorter than a full fiscal year,
taking into account spending patterns and other appropriate adjustments as
determined in good faith by the unanimous approval of the Board) shall be
reduced, but not below 60%, in the same ratio as the CHD Deficiency bears to
[*], and USAD's allocable share of such Net Profit shall be correspondingly
increased. For example, if the CHD Deficiency is $[*], the adjustment would
be [*] x [*]% = [*]%. CHD's allocable share would be reduced by [*]% to [*]% and
USAD's allocable share would be increased by [*]% to [*]%. In no event would
CHD's allocable share be reduced below 60%;
(c) Notwithstanding Section 4.4(a) hereof, in the event USAD's
operating profit for its 2000 fiscal year from the sale of USAD Detergent
Products (as computed in accordance with Exhibit B hereto) is less than [*] (the
amount of such deficiency being hereinafter referred to as the "USAD
Deficiency"), then USAD's allocable share of Net Profit up to $30,000,000 (or a
proportionately reduced amount of Net Profit for a period shorter than a full
fiscal year, taking into account spending patterns and other appropriate
adjustments as determined in good faith by the unanimous approval of the Board)
shall be reduced, but not below 30%, in the same ratio as the USAD Deficiency
bears to [*], and CHD's allocable share of such Net Profit shall be
correspondingly increased. For example, if the USAD Deficiency is $[*], the
adjustment would be $[*] x [*]% = [*]%. USAD's allocable share would be reduced
by [*]% to [*]% and CHD's allocable share would be increased by [*]% to [*]%.
In no event would USAD's allocable share be reduced below 30%;
7
(d) Net Loss shall be allocated first to each Member based on, and to
the extent of, previous allocations of Net Profit to such Member and then based
on the then current percentages of Net Profit to be allocated to such Member
pursuant to this Section 4.4. Notwithstanding the foregoing, except as otherwise
provided in this Section 4.4(d), no Member shall be allocated Net Loss in any
fiscal year or shorter period to the extent such allocation would create or
increase a deficit in the Capital Account of such Member (the "Loss
Limitation"). Any Net Loss otherwise allocable to a Member but for the Loss
Limitation ("Contingent Loss") shall be allocated among the other Members, pro
rata based on their respective positive Capital Account balances, subject to the
Loss Limitation. Remaining Net Loss, if any, in excess of the Net Loss allocated
under the immediately preceding sentence shall be allocated among the Members
pro rata based on their respective Capital Account balances. To the extent that
Members are allocated Contingent Loss, subsequent Net Profit first shall be
allocated to the Members in reverse order of, and in an amount equal to, the
Contingent Loss previously allocated to them pursuant to this Section 4.4(d)
prior to any allocation of Net Profit in accordance with this Section 4.4; and
(e) In the event of a Transfer (as defined in Section 9.1 hereof) of
all or any portion of an Ownership Interest in accordance with the provisions of
this Agreement at any time other than the end of a fiscal year, the shares of
items of Net Profit or Net Loss and special allocations of items of income or
loss allocable to such Ownership Interest (or the Transferred portion thereof)
shall be allocated between the transferor and the transferee in a manner that is
consistent with the applicable provisions of the Code.
4.5 TAX ALLOCATIONS.
(a) Each item of income, gain, loss, deduction or credit for federal,
state and local income tax purposes shall be allocated among the Members in the
same proportion as the allocation of Net Profit, Net Loss and other items to the
Members pursuant to Section 4.4 hereof, except as otherwise provided herein. The
allocations made pursuant to this Section 4.5 shall be solely for tax purposes
and shall not affect any Member's Capital Account or share of non-tax
allocations or distributions under this Agreement.
(b) In the event the book value of any property contributed to the
Company by a Member differs from its tax basis, allocations of taxable income,
gain, loss and deduction with respect to such property shall be made in a manner
which complies with Section 704(c) of the Code and the Regulations. The Company
may, in the sole discretion of the Board, make, or not make, "curative" or
"remedial" allocations (within the meaning of the Regulations under Section
704(c) of the Code) of Net Profit or Net Loss with respect to such property.
4.6 SPECIAL ALLOCATIONS. The following special allocations shall be made in
the following order:
(a) Minimum Gain Chargeback. In the event that there is a net decrease
during a fiscal year or shorter period in either Company Minimum Gain (within
the meaning of the definition of partner minimum gain in Regulation Section
1.704-2(b)(2)) or Member Nonrecourse Debt Minimum Gain (within the meaning of
the definition of partner nonrecourse debt minimum gain in Regulation Section
1.704-2(i)(3)), then, notwithstanding any other
8
provision of this Article IV, each Member shall receive such special allocation
of items of Company income and gain as are required in order to conform to
Regulation Section 1.704-2.
(b) Qualified Income Offset. Subject to Section 4.6(a), but
notwithstanding any other provision of this Article IV, items of income and gain
shall be specially allocated to the Members and in a manner that complies with
the "qualified income offset" requirement of Regulation Section
1.704-1(b)(2)(ii)(d)(3).
(c) Gross Income Allocation. In the event that a Member has a deficit
Capital Account at the end of any fiscal year or shorter period which is in
excess of the amount such Member is deemed to be obligated to restore pursuant
to the penultimate sentences of Regulation Sections 1.704-2(g)(1) and
1.704-2(i)(5), respectively, such Member shall be specially allocated items of
Company income and gain in the amount of such excess as quickly as possible,
provided that any allocation under this Section 4.6(c) shall be made only if and
to the extent that a Member would have a deficit Capital Account in excess of
such sum after all allocations provided for in this Article IV have been
tentatively made as if this Section 4.6(c) were not in this Agreement.
(d) Nonrecourse Deductions. Any item of Company loss or deduction (or
expenditure subject to Section 705(a)(2)(B) of the Code) that is attributable to
Member Nonrecourse Debt (within the meaning of the definition of partner
nonrecourse debt in Regulation Section 1.704-2(b)(4)) shall be specially
allocated to the Members in the manner in which they share the "economic risk of
loss" (as defined in Regulation Section 1.752-2) for such Member Nonrecourse
Debt. Any nonrecourse deductions, within the meaning of Regulation Section
1.704-2(b)(1), shall be specially allocated among the Members in proportion to
their respective Capital Accounts.
(e) Regulatory Allocations. In the event an allocation is or has been
prevented or required pursuant to Sections 4.6(a)-(d), above, the Board
subsequently may make special allocations of Net Profit or Net Loss (or
individual items thereof) to the extent that, in its judgment, such allocations
would (i) be respected under applicable federal income tax law and (ii)
eliminate as quickly as possible the difference between the actual Capital
Account of each Member and the Capital Account such Member would have had in the
absence of such Sections 4.6(a)-(d).
4.7 CONFORMANCE WITH THE CODE AND APPLICABLE REGULATIONS. It is intended
that Sections 4.1, 4.2, 4.3, 4.4, 4.5 and 4.6 of this Agreement be construed and
applied in a manner consistent with the requirements of Code Sections 704(b) and
704(c) and the Regulations. If, in the opinion of the Company's accountant, the
manner in which Sections 4.1, 4.2, 4.3, 4.4, 4.5 and 4.6 of this Agreement apply
should be modified in order to comply with Code Sections 704(b) and 704(c) and
the Regulations, then, notwithstanding anything to the contrary contained in
Sections 4.1, 4.2, 4.3, 4.4, 4.5 and 4.6, the method by which Capital Accounts
are maintained shall be so modified; provided, however, that any change in the
manner of maintaining Capital Accounts shall not materially alter the economic
agreement between and among the Members.
4.8 DISTRIBUTIONS.
9
(a) Net cash flow, if any, shall be distributed to the Members
following receipt by the Company of such cash. For this purpose, the term "NET
CASH FLOW" means the gross cash proceeds of the Company less the portion thereof
used to pay or establish reserves for all Company expenses, debt payments, and
contingencies as determined by the Board; provided that any reserves aggregating
an amount in excess of $3,000,000 at any time shall require unanimous Board
approval. All distributions of cash or other assets available for distribution,
from whatever source derived, shall be paid or distributed to the Members in
proportion to their respective positive Capital Account balances. Any
distributions of property other than cash shall be made at such times and in
such amounts as determined by the Board. Immediately prior to any distribution
under this Section 4.8, the Capital Accounts of the Members shall be adjusted as
provided in Regulation Section 1.704-1(b)(2)(iv)(f). Except as otherwise
provided under the Act or in this Agreement, no Member shall be required to
restore to the Company any amounts properly distributed to it pursuant to this
Section 4.8(a).
(b) The Company shall withhold taxes from distributions to the Members
to the extent required by the Code or any other applicable law. For purposes of
this Agreement, any taxes withheld by the Company from a distribution to any
Member shall be deemed to be a cash distribution or payment to such Member, and
the amount otherwise distributable to such Member pursuant to this Agreement
shall be reduced by the taxes so withheld. The withholdings referred to in this
Section 4.8(b) shall be made at the maximum applicable statutory rate under the
applicable tax law unless the Company shall have received an opinion of counsel
or other evidence satisfactory to the Board that a lower rate is applicable or
that no withholding is applicable.
4.9 FISCAL YEAR; TAX DECISIONS. The tax and fiscal accounting year of the
Company shall end on the 31st day of December each year. The Board shall appoint
a "tax matters partner" who shall keep the Members fully informed of all
communications received from any taxing authority.
ARTICLE V.
MANAGEMENT
----------
5.1 THE BOARD OF DIRECTORS. Except for situations in which the approval of
the Members is required by the Act or this Agreement, the Company shall be
managed and controlled by a board of directors (the "BOARD") consisting of five
(5) directors. Three (3) directors will be appointed by CHD and two (2)
directors will be appointed by USAD. Each director shall hold office until his
or her successor is appointed and qualified. The initial directors appointed by
CHD shall be ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, III, ▇▇▇ ▇▇▇▇▇ and ▇▇▇▇ ▇. ▇▇▇▇▇▇ and the initial
directors appointed by USAD shall be Uri Evan and a person to be designated by
USAD on or prior to the Effective Date. Either Member may replace its appointed
directors by sending written notice to the Company and the other Members
specifying the change.
5.2. POWERS OF THE BOARD. Subject to the limitations imposed pursuant to
the terms of this Agreement or by operation of law, the Board, by majority vote,
is authorized and empowered to carry out the purposes of the Company in taking
any of the actions described in this Section 5.2 or otherwise contemplated by
the Act or this Agreement. In that connection,
10
subject to the limitations of this Agreement, the powers of the Board shall
include, but not be limited to, the following:
(a) To engage independent attorneys, accountants or such other persons
as may be deemed necessary or advisable;
(b) To implement all actions with respect to distributions by the
Company, dispositions of the assets of the Company, borrowing of funds,
execution of leases, contracts, bonds, guarantees, notes, mortgages and other
instruments on behalf of the Company;
(c) To open, maintain and close bank accounts and to draw checks and
other orders for the payment of money;
(d) To make, on behalf of the Company, all filings with the Delaware
Secretary of State as may be required or deemed desirable by the Board,
including without limitation, filings to change the registered agent and/or
registered office of the Company;
(e) To take such other actions and to incur such expenses on behalf of
the Company as may be necessary or advisable in connection with the conduct of
the affairs of the Company, including, without limitation, taking any and all
actions with respect to the operation of the Business; and
(f) To appoint such officers (including a general manager), managers
and agents to operate and oversee the day-to-day business affairs of the Company
or to implement any of the foregoing powers as may be necessary or advisable;
provided that all such officers, managers and agents shall be directly employed
by a Member or a subsidiary of a Member.
5.3 DUTIES OF BOARD. The Board shall manage, or cause to be managed, the
affairs of the Company in a prudent and businesslike manner and shall devote
such time to the Company affairs as the Board determines to be reasonably
necessary for the conduct of such affairs. Without limiting the generality of
the foregoing, the Board's duties shall include the following:
(a) To render periodic progress reports to the Members with respect to
the operations of the Company;
(b) To deposit all funds of the Company in one or more separate bank
accounts with such banks or trust companies as the Board may designate;
(c) To maintain complete and accurate records of all operations of the
Company and to maintain accurate books of account (containing such information
as shall be necessary to record allocations and distributions of Company items)
and to make such records and books of account available for inspection and audit
by any Member or its duly authorized representative (at the expense of such
Member) during regular business hours at the principal office of the Company;
(d) To prepare and distribute to all Members, all reasonable tax
reporting information;
11
(e) To prepare and distribute to each Member, all financial and other
information necessary for such Member to file all of its required public reports
in a timely manner;
(f) To cause to be filed such certificates and to do such other acts as
may be required by law to qualify and maintain the Company as a limited
liability company under the Act; and
(g) To make distributions of net cash flow pursuant to Section 4.8.
5.4 BOARD MEETINGS. Any director may call a meeting of the Board upon
written notice at least five (5) business days in advance of the meeting. The
notice shall state the date, time, purpose(s) and place (which shall be in New
Jersey or New York City) of the meeting. Any director may waive notice of a
meeting, either before or after the meeting takes place. The Board may also act
by the unanimous written consent of all directors without a meeting.
5.5 ACTIONS REQUIRING UNANIMOUS BOARD CONSENT. Notwithstanding any other
provision of this Agreement to the contrary, except with the unanimous consent
of the Board, the Board shall not:
(a) increase advertising and slotting expense to a level which would
reasonably be expected to reduce the Company's operating profit below what it
was for the immediately preceding fiscal year;
(b) accept from a Member allocated costs greater than fifty percent
(50%) of the rate of sales growth; or
(c) make any material amendment to the USAD License or the CHD License.
5.6 LIABILITY AND INDEMNIFICATION OF BOARD.
(a) In carrying out their duties, no director shall be liable to the
Company or to any of the Members for any actions taken in good faith and
reasonably believed to be in the best interests of the Company, or for errors of
judgment, except as otherwise required by applicable law.
(b) The Company shall indemnify and hold harmless each director against
any loss, claim, damage, or expense, including reasonable attorneys' fees and
costs arising out of any claim, demand, suit, or action related to the
performance or non-performance of any act concerning the business or the
activities of the Company, unless such director is guilty of gross negligence,
gross misconduct, or willful malfeasance in connection therewith.
5.7 APPARENT AUTHORITY. All third parties dealing with the Board or any
officer duly appointed by the Board may rely conclusively upon any action taken
by the Board or such officer as having been taken on behalf of the Company.
12
5.8 REIMBURSEMENT FOR EXPENSES. Each director shall be entitled to
reimbursement from the Company for (or to cause the Company to pay directly) all
expenses, costs and fees incurred in connection with the performance of his or
her duties hereunder.
ARTICLE VI.
OPERATION OF THE BUSINESS
-------------------------
6.1 MANUFACTURING. Promptly upon the Effective Date, each Member shall
provide the Company with all necessary arrangements as determined and required
by the Board to ensure the manufacture and production of the CHD Detergent
Products and the USAD Detergent Products as specified below, which arrangements
shall include, among other matters:
(a) CHD will manufacture heavy powder laundry detergent products;
(b) USAD will manufacture liquid and light powder laundry detergent and
liquid fabric softener products;
(c) Each of CHD and USAD will manufacture, package and label products
to specifications established by the Board;
(d) Each of CHD and USAD will at all times have and maintain in full
force and effect all permits required in connection with its manufacturing
obligations hereunder;
(e) Each of CHD and USAD will, at its own expense, make any and all
capital improvements to its facilities necessary to perform its manufacturing
obligations as reasonably required by the Board, including without limitation
those improvements needed to increase capacity or enhance efficiency; provided,
however, that any such improvements that require the expenditure by either CHD
or USAD of more than $5 million, in the aggregate, in a calendar year shall
require the unanimous approval of the Board; and
(f) The Company will be charged for such services by CHD and USAD on
the following basis:
(i) all direct costs at the cost thereof, with any dispute to be
resolved by the Company's auditors;
(ii) all fully dedicated costs at the cost thereof, with any
dispute to be resolved by the Board;
(iii) all shared costs by appropriate allocation of such costs
based on activity-based costing or another mutually agreed upon basis, with any
dispute to be mutually agreed between CHD and USAD;
(iv) depreciation of capital improvements made pursuant to Section
6.1(e), above, as mutually agreed between the Company and CHD or USAD, as the
case may be, with any dispute to be resolved by the Company's auditors; and
13
(v) the Company shall not be charged for any environmental matters
(including, without limitation, costs of remediation and fines) associated with
the manufacture and production of the CHD Detergent Products and the USAD
Detergent Products.
6.2 DISTRIBUTION.
(a) Each of CHD and USAD will distribute the CHD Detergent Products and
the USAD Detergent Products through their respective warehouses. The Company
shall reimburse each of CHD and USAD for the actual full cost of storage,
handling and freight (including appropriate warehousing overhead) with respect
to the CHD Detergent Products and the USAD Detergent Products; provided,
however, that the Company shall not be liable for any profit margin or other
overhead allocation.
(b) The Company shall, upon the written request of CHD, designate a
Member to operate full service warehouses at any location which CHD deems
necessary in order to optimize distribution of all CHD products other than the
CHD Detergent Products (the "OTHER CHD PRODUCTS") or for customer service
purposes.
(c) Each of CHD and USAD will, at its own expense, install warehouse
and other management systems as required by the Board in order to improve
warehouse efficiency; provided, however, that any such installation or system
that requires the expenditure by either CHD or USAD of more than $1 million in a
calendar year shall require the unanimous approval of the Board. Amortization of
expenditures for new warehouse systems required by the Board will be as agreed
between the Company and CHD or USAD, as the case may be, with any dispute to be
resolved by the Company's auditors. The Company shall also, upon the written
request of CHD, designate a Member to operate VMI or other similar customer
service programs and install warehouse and other management systems which CHD
believes necessary for efficient warehouse operation.
(d) In addition to the CHD Detergent Products and the USAD Detergent
Products, the Company shall, upon the written request of either CHD or USAD,
designate a Member to distribute all USAD products other than the USAD Detergent
Products (the "OTHER USAD PRODUCTS") and Other CHD Products. In any such case,
the Company or designated Member shall provide CHD or USAD, as the case may be,
[*] and the requesting Member shall reimburse the Company or designated Member
for the actual full cost for storage, handling and freight (including
appropriate warehousing overhead), [*] provided that the total amount shall not
exceed [*].
(e) CHD and USAD shall, to the extent reasonably necessary, integrate
their MIS logistics functions as optimally as possible for the Company's
operations, recognizing that each of CHD and USAD desires to retain separate
logistical capabilities.
(f) USAD will be the distributor for USAD laundry detergent products in
USAD's Metro business as in existence from time to time and internationally.
USAD and CHD
14
will agree on transfer pricing with respect to such USAD Detergent
Products in order to achieve a fair division of profits.
6.3 SELLING, GENERAL & ADMINISTRATIVE FUNCTIONS.
(a) Except by Consent, the selling, general and administrative ("SG&A")
functions of the Company shall be allocated between the Members as follows:
(i) order processing, billing and collection, logistics at its
plants and warehouses, heavy powder manufacturing management, general accounting
and cash management, marketing and research and development shall be the
responsibility of CHD;
(ii) logistics at its plants and warehouses and liquid and light
powder manufacturing management shall be the responsibility of USAD; and
(iii) quality assurance and development support shall be the joint
responsibility of CHD and USAD.
(b) The Company shall reimburse each of CHD and USAD for their
respective direct costs associated with providing the SG&A functions set forth
herein. In the event that the SG&A services are dedicated solely to the
Business, the Company shall reimburse the Member for the full cost of these
services. In the event that the SG&A services are shared between the Business
and either Other CHD Products or Other USAD Products, the Company shall
reimburse the Member for the fair allocation based on activity-based costing or
another mutually agreed upon basis. The Company shall in no event be liable for
indirect costs, such as general management, corporate accounting, human
resources and legal services, unless otherwise agreed to by the Company through
a unanimous Board action.
(c) Each of CHD and USAD will cause certain members of its sales force
to be dedicated to the sale of the Company's products and to be compensated, at
least in part, based on the success of those efforts. Subject to the reasonable
approval of USAD, the Company shall, upon the written request of CHD, require
its dedicated sales organization to coordinate its activities with CHD's
personal care sales force and, in particular, to use the same broker
organizations that CHD uses for the Other CHD Products.
(d) The Company shall, upon the written request of CHD, sell all the
Other CHD Products and shall, upon the written request of USAD, sell its candle
line to all customers and its cleaners line to all non-food customers (i.e.,
drug and mass merchandising outlets); provided that in all cases such products
meet the specified minimum volume levels established by unanimous vote of the
Board. CHD and USAD shall reimburse the Company for these services at the fully
allocated cost, which may be a percentage of sales or another mutually agreed
upon basis.
6.4 REVIEW RIGHT. Each Member shall have the right, on not less than ten
(10) business days notice, to review the books and records of the Company and
the other Member relating to product sales and all expenses for which the
non-auditing Member is entitled to reimbursement and for other financial matters
relating to the business of the Company. Any dispute relating to the results of
such review shall be resolved by the Company's auditors.
15
ARTICLE VII.
MEMBERS
-------
7.1 NO PARTICIPATION BY MEMBERS. Except as expressly set forth in this
Agreement, the Members shall not have any vote or take any part in the control
or management of the day-to-day business affairs of the Company, nor have any
authority or power to act for or on behalf of the Company in any manner
whatsoever, other than as specifically required by the Act. No Member who is not
authorized by the Board as an agent shall take any action to bind the Company,
and each Member shall indemnify the Company for any costs or damages incurred by
the Company as a result of the unauthorized action of such Member.
7.2 REQUIRED MEMBER CONSENTS. Notwithstanding any other provision of this
Agreement, no action may be taken by the Company (whether by the Board or
otherwise) in connection with any of the following matters without the Consent
of the Members:
(a) Any activity that is not consistent with the purpose of the Company
as set forth in Section 1.3 hereof;
(b) A material change in the nature of the Business; and
(c) Any transaction by the Company to merge or consolidate with another
entity or to sell all or substantially all of its assets.
7.3 LIMITED LIABILITY. No Member or director shall be obligated or liable
to the Company, any creditor of the Company or any other person, for any losses,
debts, obligations or liabilities of the Company, except as otherwise agreed in
writing by such Member or director. Except as required by law, no Member or
director shall be liable to the Company, the other Members, creditors of the
Company or any other person for the repayment of amounts received from the
Company consistent with the provisions hereof. The failure of the Company to
observe any formalities or requirements relating to the exercise of its powers
or management of its business or affairs under this Agreement or the Act shall
not be grounds for imposing personal liability on the Members or any director
for liabilities of the Company.
7.4 WITHDRAWAL. No Member shall have the right to withdraw as a Member or
take any voluntary unilateral action that would result in a dissolution of the
Company except as expressly permitted by Section 10.1 hereof.
7.5 REGULAR MEETINGS. Regular meetings of the Members may be held upon two
weeks notice by the Board or without notice at such time and at such place as
shall from time to time be Consented to by the Members. The Company may, but
shall not be required to, hold an annual meeting of the Members.
7.6 SPECIAL MEETINGS. Special meetings of the Members, for any purpose or
purposes, unless otherwise prescribed by statute, may be called by the Board or
any Member.
7.7 PLACE OF MEETINGS. The Board or Members may designate any place, either
within or outside the State of Delaware, as the place of meeting for any meeting
of the Members.
16
7.8 NOTICE OF MEETINGS. Except as provided in Section 7.9, written notice
stating the place, day and hour of a special meeting and the purpose or purposes
for which the meeting is called shall be delivered not less than ten (10) nor
more than fifty (50) days before the date of a special meeting, either
personally or by mail, by or at the direction of the Board or the Member calling
the meeting, to each Member entitled to vote at such meeting.
7.9 MEETING OF ALL MEMBERS. If all of the Members shall meet at any time
and place, either within or outside of the State of Delaware, and unanimously
agree to the holding of a meeting at such time and place, such meeting shall be
valid without call or notice, and at such meeting lawful action may be taken.
7.10 RECORD DATE. For the purpose of determining Members entitled to notice
of or to vote at any meeting of Members or any adjournment thereof, or Members
entitled to receive payment of any distribution, or in order to make a
determination of Members for any other purpose, the date on which notice of the
meeting is mailed or the date on which the resolution declaring such
distribution is adopted, as the case may be, shall be the record date for such
determination of Members. When a determination of Members entitled to vote at
any meeting of Members has been made as provided in this Section 7.10, such
determination shall apply to any adjournment thereof.
7.11 QUORUM. Members holding all of the outstanding Ownership Interests,
represented in person or by proxy, shall constitute a quorum at any meeting of
Members (a "QUORUM"). In the absence of a Quorum at any such meeting, any Member
may adjourn the meeting from time to time for a period not to exceed sixty (60)
days without further notice. However, if the adjournment is for more than sixty
(60) days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
Member of record entitled to vote at the meeting. At such adjourned meeting at
which a Quorum shall be present or represented, any business may be transacted
which might have been transacted at the meeting as originally noticed.
7.12 MANNER OF ACTING. With respect to any matter to be acted upon by the
Members, the Members must act by Consent.
7.13 PROXIES. At all meetings of Members, a Member may vote in person or by
proxy executed in writing by the Member or by a duly authorized
attorney-in-fact. Such proxy shall be filed with the Board before or at the time
of the meeting. No proxy shall be valid after eleven (11) months from the date
of its execution, unless otherwise expressly provided in the proxy.
7.14 ACTION BY MEMBERS WITHOUT A MEETING. Action required or permitted to
be taken at a meeting of Members may be taken without a meeting if the action is
evidenced by one or more written consents describing the action taken, signed by
all of the Members entitled to vote and delivered to the Company for inclusion
in the minutes or for filing with the Company records. Action taken under this
Section 7.14 is effective when all of the Members entitled to vote have signed
the consent, unless the consent specifies a different effective date. The record
date for determining Members entitled to take action without a meeting shall be
the date the first Member signs a written consent.
17
7.15 WAIVER OF NOTICE. When any notice is required to be given to any
Member, a waiver thereof in writing signed by or on behalf of the Member
entitled to such notice, whether before, at, or after the time stated therein,
shall be equivalent to the giving of such notice.
ARTICLE VIII.
OTHER BUSINESS ACTIVITIES OF THE MEMBERS
----------------------------------------
8.1 COMPETITIVE ACTIVITIES. Neither this Agreement, nor the existence of
the Company, nor any activity undertaken pursuant hereto and in compliance
herewith shall prevent or restrict the investment or other business activities
of any Member apart from the Company, nor shall the Company or any other Member
or director have any right, by virtue of this Agreement or the existence or
operation of the Company, to participate in, or to receive the benefits of any
such activities. Notwithstanding the foregoing, however, a Member shall neither
directly nor indirectly compete, or invest in an entity or activity that is
competitive, with the Company and the Business.
8.2 INTERESTED PARTY TRANSACTIONS. No future transaction between a Member
or director and the Company shall be voidable solely because such Member or
director has a direct or indirect interest in the transaction if either: (a) the
transaction is fair to the Company as determined by unanimous action of the
Board; or (b) the Members knowing the material facts of the transaction and such
Member's or director's interest, Consent to the transaction.
ARTICLE IX.
ASSIGNMENT OF INTERESTS, ADMISSION OF NEW MEMBERS,
--------------------------------------------------
PURCHASE OPTIONS AND CHANGE OF CONTROL
--------------------------------------
9.1 TRANSFER OF A MEMBER'S INTEREST. The Ownership Interest of any Member
cannot be Transferred unless the Members Consent to such Transfer. Any attempted
Transfer of any such Ownership Interest without compliance with this Section 9.1
shall be void and of no effect, and the Company shall not recognize any such
attempted Transfer for any purpose. "TRANSFER" as used herein shall include any
sale, assignment, mortgage, hypothecation, gift, grant or transfer of any kind,
whether voluntary or involuntary, by bankruptcy or operation of law or
otherwise, or the creation of any agreement pursuant to which any person shall
have any interest in the Company or in the distributions with respect to such
interest. Notwithstanding the foregoing, (a) CHD shall be permitted to transfer
its Ownership Interest in connection with a sale of all or substantially all of
its consumer products business, and (b) USAD shall be permitted to (i) pledge
its Ownership Interest to its principal commercial lender, and (ii) transfer its
Ownership Interest in connection with a sale of all or substantially all of its
assets.
9.2 ADMISSION OF ADDITIONAL MEMBERS. No person shall have any right as a
Member of the Company unless and until such person is admitted as a Member after
such approval as is required by, and in compliance with the other conditions set
forth in, this Section 9.2. A new Member may be admitted to the Company only
with the Consent of the Members and only if such person shall have executed a
counterpart of this Agreement or an appropriate supplement to it, in which such
person agrees to be bound by the terms and provisions of this Agreement as they
may be modified by that supplement. Any person so
18
admitted shall have all the rights and obligations of a Member hereunder
effective on and after the date of admission as a Member of the Company.
9.3 INTEREST OF A NEW MEMBER. Upon receipt of any required Capital
Contribution from any newly admitted Member, such Member's Capital Contribution
and Ownership Interest in the Company shall be set forth on an amended schedule
maintained by the Board.
9.4 OPTIONS TO PURCHASE.
(a) CHD is hereby granted the option to purchase all of USAD's
Ownership Interests and any or all of USAD's assets and properties used in the
Business (including, without limitation, all plant, equipment and warehouses
(whether leased or owned) and all intellectual property covered by the USAD
License) (collectively, the "USAD ASSETS") for an aggregate purchase price
determined in accordance with the USAD Appraisal Procedure (as defined below).
In the event that any USAD Assets are joint use assets used for USAD businesses
other than the Business, the parties shall negotiate in good faith to enter into
such agreements as may be reasonably necessary to ensure an appropriate
transition period. For the purposes of this Agreement the term "USAD APPRAISAL
PROCEDURE" shall mean 6.5 times the sum of (i) USAD's average annual Net Profit
from the Company for the eight most recent fiscal quarters plus (ii) USAD's
average annual depreciation and amortization charged to the Company for such
eight quarters as part of manufacturing and distribution costs. An example of
the operation of the USAD Appraisal Procedure is set forth on Exhibit C hereto.
This option is exercisable by CHD at any time after the earliest to occur of the
following:
(x) The fifth (5th) anniversary of the Effective Date;
(y) Delivery to the Company of a Termination Notice (as defined in
Section 10.1 below) by USAD; provided that this option to purchase is exercised
within one hundred eighty (180) days thereafter; and
(z) The bankruptcy or insolvency of USAD; provided that this option
to purchase is exercised within one hundred eighty (180) days thereafter.
(b) USAD will not take any actions inconsistent with, or otherwise
impair or impede in any way, CHD's option to purchase as set forth in Section
9.4(a); it being understood that the submission or recommendation to USAD's
stockholders of a tender offer or other similar proposal to acquire USAD stock,
at any time prior to the exercise by CHD of such option to purchase, in all
instances consistent with the exercise by the directors of USAD of their
fiduciary duties and responsibilities, shall not be construed to be in violation
of this Section 9.4(b); it being further understood and agreed that the
foregoing shall not be construed to enable the directors of USAD to modify or
otherwise recommend against the USAD Appraisal Procedure, as a business deal, to
the extent the option to purchase is exercised by CHD. Subject to the foregoing,
. USAD will take all actions that may be necessary on its part to ensure the
right of CHD to exercise the option to purchase, including recommending to
USAD's stockholders, if stockholder approval is necessary, that they approve the
consummation of the purchase transaction resulting from the exercise of the
option to purchase. CHD will be entitled to the remedy of specific performance
with respect to its rights contained in Section 9.4 (b).
19
(c) USAD is hereby granted the option to require CHD to purchase all of
USAD's Ownership Interests and all of USAD's assets and properties used in the
Business (including, without limitation, all intellectual property covered by
the USAD License) for an aggregate purchase price determined in accordance with
the USAD Appraisal Procedure at any time after the tenth (10th) anniversary of
the Effective Date.
(d) USAD is hereby granted the option to purchase all of CHD's
Ownership Interests and all of CHD's assets and properties used in the Business
(including, without limitation, all plant, equipment and warehouses (whether
leased or owned) and all intellectual property covered by the CHD License, but
excluding CHD's mining operation located in Green River, Wyoming and excluding
the Arm & Hammer name, brand and trademark) (collectively, the "CHD Assets") for
an aggregate purchase price determined in accordance with the CHD Appraisal
Procedure. In the event that any CHD Assets are joint use assets used for CHD
businesses other than the Business, the parties shall negotiate in good faith to
enter into such agreements as may be reasonably necessary to ensure an
appropriate transition period. For the purposes of this Agreement, the term "CHD
APPRAISAL PROCEDURE") shall mean 6.5 times the sum of (i) CHD's average annual
Net Profit from the Company for the eight most recent fiscal quarters, less the
Net Profit contribution attributed to the excluded assets referred to in the
foregoing parenthetical of this Section 9.4(d), plus (ii) CHD's average annual
depreciation and amortization charged to the Company for such eight quarters as
part of manufacturing and distribution costs. This option is exercisable by USAD
at any time after the earlier to occur of the following:
(i) Delivery to the Company of a Termination Notice (as defined in
Section 10.1 below) by CHD; provided that this option to purchase is exercised
within one hundred eighty (180) days thereafter; and
(ii) The bankruptcy or insolvency of CHD; provided that this option
to purchase is exercised within one hundred eighty (180) days thereafter.
(e) If, following the exercise of CHD's option contained in Section
9.4(a), it is determined that the approval of USAD's stockholders is required in
order to complete the transaction and if such approval is not obtained, then the
following shall apply:
(i) Section 9.4(c) shall cease to have any effect and will be
deemed to be deleted from this Agreement; and
(ii) CHD will have the right, on six (6) months' prior notice to
the Company and USAD, to cancel the CHD License with respect to the Arm & Hammer
name, brand and trademark.
(e) USAD hereby grants to CHD a security interest in all the assets and
properties covered by the option contained in Section 9.4(a) as security for
USAD's obligations thereunder, and USAD agrees to cooperate with CHD such that
all documentation needed to perfect such security interest will be in place
within ninety (90) days after the date hereof. The foregoing security interest
shall be expressly subject and subordinate to all security interests held by
Finova Capital Corporation, as agent (the "Agent"), for itself and for the other
lenders under
20
USAD's existing credit facility. USAD may grant to the Agent a security interest
in USAD's interest in the receivables and inventory of the Company.
9.5 CHANGE OF CONTROL.
(a) As used herein "Change of Control" shall mean the occurrence of any
of the following events:
(i) any "person" (as such term is used in Sections 13(d) and 14(d)
of the Securities Exchange Act of 1934, as amended) other than a Member or any
affiliate of a Member being the "beneficial owner" (as defined in Rule 13d-3
under said Act), directly or indirectly, of securities of CHD or USAD
constituting fifty percent (50%) or more of the total voting power represented
by CHD's or USAD's then outstanding voting securities; or
(ii) a merger or consolidation of USAD or CHD with any other
corporation, other than a merger or consolidation which would result in the
voting securities of such party outstanding immediately prior thereto continuing
to represent (either by remaining outstanding or by being converted into voting
securities of the surviving entity) at least fifty percent (50%) of the total
voting power represented by the voting securities of such party or such
surviving entity outstanding immediately after such merger or consolidation; or
the adoption of a plan of complete liquidation or the sale or disposition by
USAD or CHD of at least fifty percent (50%) or more of such party's assets.
(b) If, between the date hereof and the Trigger Date, USAD becomes
subject to a Change of Control, then this Agreement will terminate and USAD will
forthwith pay to CHD a fee of Ten Million Dollars ($10,000,000).
(c) If, between the date hereof and the Trigger Date, CHD becomes
subject to a Change of Control, then this Agreement will terminate and CHD will
forthwith pay to USAD a fee of Three Million Dollars ($3,000,000).
(d) If, between the Trigger Date and July 1, 2001, USAD becomes subject
to a Change of Control, then CHD will have the option, exercisable at any time
within thirty (30) days after the Change of Control occurs, to terminate this
Agreement and all of the transactions contemplated hereby and receive from USAD
a fee of Ten Million Dollars ($10,000,000).
(e) If, between the Trigger Date and July 1, 2001, CHD becomes subject
to a Change of Control, then USAD will have the option, exercisable at any time
within thirty (30) days after the Change of Control occurs, to terminate this
Agreement and all of the transactions contemplated hereby and receive from CHD a
fee of Three Million Dollars ($3,000,000).
(f) If either CHD or USAD becomes subject to a Change of Control
(either before or after July 1, 2001) and this Agreement is not terminated
pursuant to paragraphs (d) or (e), above, the following shall apply:
(i) This Agreement and the other agreements referred to herein
shall not terminate but shall continue in full force and effect and be binding
upon any successor to the party subject to such Change of Control (the "COC
PARTY"); and
21
(ii) Neither the COC Party nor any such successor shall be entitled
to deliver a Termination Notice.
ARTICLE X.
DISSOLUTION AND TERMINATION OF THE COMPANY
------------------------------------------
10.1 EVENTS CAUSING DISSOLUTION. Notwithstanding any other provision of
this Agreement, the Company shall be dissolved and its properties and other
assets liquidated and the proceeds therefrom distributed in the manner and order
provided for in Section 10.2 upon the first to occur of any one of the
following:
(a) each anniversary of the Effective Date commencing with the sixth
(6th) anniversary; provided that (i) a Member has delivered to the Company a
written notice of termination (a "TERMINATION NOTICE") at least nine (9) months
prior to such anniversary and (ii) the option to purchase, under Section 9.4
hereof, has not been exercised within one hundred eighty (180) days of the
delivery of the Termination Notice;
(b) the Consent of the Members; or
(c) the bankruptcy or dissolution of any Member; provided, however,
that neither of such events shall cause dissolution of the Company unless within
ninety (90) days after such event the Members Consent to treat such event as a
dissociation and dissolve the Company.
10.2 DISTRIBUTION ON TERMINATION. Upon a dissolution and termination of the
Company, the person appointed for such purpose by the Board (the "LIQUIDATOR")
shall collect and marshal the Company's assets; sell such assets as such
Liquidator shall deem appropriate; provide for the payment of all of the legally
enforceable obligations of the Company that are not then due; provide the
Members adequate time to arrange for alternative production facilities (but in
no event longer than six (6) months); and distribute the proceeds and all other
assets of the Company in the following order:
(a) First, in payment of debts, obligations and liabilities of the
Company which are then outstanding;
(b) Second, at the discretion of the Liquidator, to the setting up of
any reserves which the Liquidator may deem necessary, appropriate or desirable
for any contingent or unforeseen liabilities or obligations or for debts or
liabilities of the Company (and, at the expiration of such period as the
Liquidator shall deem necessary, advisable or desirable to accomplish payment of
any such obligations, the Liquidator shall distribute the remaining reserves in
the manner hereinafter provided); and
(c) Third, to the Members in an amount equal to the positive balances
in their respective Capital Accounts, after adjusting such Accounts to reflect
the allocations of items of profit and loss under Article IV of this Agreement
and any gain or loss which would be recognized if the Company sold its remaining
assets at their fair market value on the date of
22
dissolution of the Company and allocated each item of gain or loss in the manner
set forth in Article IV.
10.3 AUTHORITY OF THE LIQUIDATOR. In carrying out the liquidation
proceedings, the Liquidator shall have all of the powers and authority provided
to the Board or the Members acting by Consent, and shall be entitled to the
benefits of limitation of liability and indemnification provided to the Board
and Members in this Agreement.
10.4 LIQUIDATION STATEMENT. Each of the Board and Members shall be
furnished with a statement prepared by the Liquidator, which shall set forth the
assets and liabilities of the Company as of the date of complete liquidation.
Upon the Company complying with the foregoing distribution plan, the Members, if
any, shall cease to be such, and the Liquidator shall execute, acknowledge and
cause to be filed such appropriate documents evidencing the dissolution and
winding up of the Company within ninety (90) days following the completion of
the distribution of the Company's property as provided in Section 10.2 hereof.
ARTICLE XI.
GENERAL PROVISIONS
------------------
11.1 DISPUTE RESOLUTION.
(a) With the exception of accounting disputes, which shall be resolved
by the Company's auditors, any and all disputes between or among the Board and
the Members or between the Members arising out of or relating in any way to this
Agreement (other than claims for equitable relief, including, without
limitation, specific performance and injunctive remedies, which may be pursued
in any court having jurisdiction) shall be finally settled by binding
arbitration conducted in accordance with the commercial arbitration rules of the
American Arbitration Association, or any similar successor body. Each party
shall appoint one arbitrator, and the two arbitrators so appointed shall attempt
to agree upon a third arbitrator to act as chairman. If a party fails to appoint
an arbitrator within thirty (30) days from the date on which the claimant's
request for arbitration has been communicated to the other party or, if the two
arbitrators fail to nominate the chairman within thirty (30) days from the date
of appointment of the later appointed arbitrator, such arbitrator shall be
selected by the American Arbitration Association or successor body.
(b) The award of the arbitrators shall include an award of attorney's
fees and costs to the prevailing party (i.e., the party most closely achieving
its desired result), and shall be final. The parties agree to waive their right
to any form of appeal, to the greatest extent allowed by law, and to share
equally the fees and expenses of the arbitrators. Judgment upon any award of the
arbitrators may be entered in any court having jurisdiction or application may
be made to such court for the judicial acceptance of the award and for order of
enforcement. Such arbitration shall be held in New Jersey or such other place as
the parties to such arbitration may agree.
11.2 FURTHER ASSURANCES. The Members agree to execute and deliver to the
Company upon request, any and all additional certificates, instruments and
advice necessary to be filed, recorded or delivered in order to perfect the
formation, operation, termination and dissolution of
23
the Company in accordance with this Agreement, and to amend, supplement and
cancel the Company's Certificate of Formation as required to carry out any of
the foregoing.
11.3 AMENDMENTS. This Agreement may be amended at any time by a written
amendment signed by all of the Members.
11.4 NOTICES. Any written notice to any of the Members required or
permitted under this Agreement shall be deemed to have been duly given for all
purposes (a) on the date of delivery, if delivered personally on the party or by
confirmed facsimile transmission, or (b) on the third business day after
mailing, whether or not the same is actually received, if sent by United States
registered mail, return receipt requested, postage prepaid, and addressed to the
addressee at the address stated below such addressee's name on the signature
pages hereto, or at the most recent address, specified by written notice, given
to the sender by any addressee under this provision. Notices to the Company
shall be given in the same manner and shall be addressed to it at its principal
place of business with a copy to each Member.
11.5 INCORPORATION BY REFERENCE. The recitals and schedules to this
Agreement are hereby incorporated herein by this reference as if set forth here
in full.
11.6 SEVERABILITY. If any term, provision, agreement or condition of this
Agreement is held by a court of competent jurisdiction to be invalid, void, or
unenforceable, then such provision, agreement or condition shall be enforced to
the maximum extent legally permissible, and the rest of this Agreement shall
remain in full force and effect and shall in no way be affected, impaired or
invalidated.
11.7 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of New York, without reference to
any conflicts of laws principles.
11.8 SUCCESSORS. This Agreement shall be binding on and inure to the
benefit of the respective successors, permitted assigns, and personal
representatives of the Members and parties hereto.
11.9 THIRD PARTY BENEFICIARIES. This Agreement is not intended to create
any rights or remedies in favor of any person who is not a signatory to this
Agreement or in any way create any third party beneficiary rights or remedies,
including (except as specifically provided to the contrary herein) on behalf of
any transferee.
11.10 COMPANY ACCOUNTANT. If the Company's independent accounting firm is
the same as the firm utilized by any Member, the partner in charge of the
Company's account shall not provide services to any Member.
11.11 MEMBER'S BOOKS AND RECORDS. Each Member agrees to maintain complete
and accurate records of all operations pertaining to its obligations under this
Agreement and to maintain accurate books of account with respect thereto. Each
Member agrees to make such records and books of account available for inspection
and audit by the Company or any other Member or its duly authorized
representative (at the expense of the Company or such Member).
24
11.12 COUNTERPARTS. The Members may execute this Agreement in one or more
counterparts, which shall, in the aggregate, constitute one instrument.
[The remainder of this page has been intentionally left blank; signature
page follows.]
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IN WITNESS WHEREOF, this Agreement has been executed by each
of the parties as of the date first set forth above.
ARMUS, LLC,
A DELAWARE LIMITED LIABILITY COMPANY
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, III
----------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, III, Director
/s/ ▇▇▇ ▇▇▇▇▇
----------------------------------------
▇▇▇ ▇▇▇▇▇, Director
/s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇
----------------------------------------
▇▇▇▇ ▇. ▇▇▇▇▇▇, Director
/s/ Uri Evan
----------------------------------------
Uri Evan, Director
26
MEMBERS:
CHURCH & ▇▇▇▇▇▇ CO., INC.,
A DELAWARE CORPORATION
TIN#: ▇▇-▇▇▇▇▇▇▇
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, III
---------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, III
---------------------------
Title: Chief Executive Officer
---------------------------
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
with copies to: ▇▇▇▇▇▇, ▇▇▇▇ & ▇▇▇▇▇▇▇▇
▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
USA DETERGENTS, INC.,
A DELAWARE CORPORATION
TIN#: ▇▇-▇▇▇▇▇▇▇
By: /s/ Uri M. Evan
---------------------------
Name: Uri M. Evan
Title: Chief Executive Officer
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: Chief Executive Officer
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
with copies to: Fulbright & ▇▇▇▇▇▇▇▇ L.L.P.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
27
