AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT OF GENIUS PRODUCTS, LLC A DELAWARE LIMITED LIABILITY COMPANY
Exhibit
99.2
AMENDED
AND RESTATED
OF
GENIUS
PRODUCTS, LLC
A
DELAWARE LIMITED LIABILITY COMPANY
Exhibit
99.2
AMENDED
AND RESTATED
OF
GENIUS
PRODUCTS, LLC
A
DELAWARE LIMITED LIABILITY COMPANY
This
AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT of
Genius Products, LLC, is made as of July 21, 2006, by and among The ▇▇▇▇▇▇▇▇▇
Company Holdings LLC, a Delaware limited liability company (“WCO”), W-G Holding
Corp., a Delaware corporation (“W-G Holding”) and Genius Products, Inc., a
Delaware corporation (“Genius”), and each other person who is or becomes a
Member in accordance with the terms of this Agreement. Capitalized
terms used herein without definition shall have the meanings set forth therefor
in Article 1 of this Agreement.
WHEREAS,
the Company was formed as The ▇▇▇▇▇▇▇▇▇ Company Funding LLC pursuant to a
Certificate of Formation filed in the office of the Secretary of State of the
State of Delaware on May 10, 2005, and a Second Amended and Restated Limited
Liability Company Agreement was entered into on July 19, 2006 (the “Original
Agreement”);
WHEREAS,
the Members wish to change the name of the Company to Genius Products, LLC
and
amend and restate the terms and provisions of the Original
Agreement;
NOW,
THEREFORE, in consideration of the mutual covenants and agreements
herein made and intending to be legally bound, the Members hereby agree to
amend
and restate in its entirety the Original Agreement as follows:
ARTICLE
1
DEFINITIONS
When
used
in this Agreement, the following capitalized terms shall have the meanings
set
forth below.
“Act”
means the Delaware Limited Liability Act, Delaware Code Annotated Title 6,
§
18-101 et seq., as the same may be amended from time to time.
“Additional
Capital Contributions” means any capital contributions of the
Members described in Section 4.4.
“Adjustment
Factor” means 1.0; provided,
however, that if:
(i) Genius
(a) declares or pays a dividend on its outstanding Genius Common Stock in Genius
Common Stock or makes a distribution to all holders of its outstanding Genius
Common Stock in shares of Genius Common Stock, (b) splits or subdivides its
outstanding Genius Common Stock, (c) effects a reverse stock split or otherwise
combines its outstanding Genius Common Stock into a smaller number of shares
of
Genius Common Stock, (d) issues
shares
of
Genius Common Stock in connection with the satisfaction of an indemnification
obligation to the Company or any WCO Party pursuant to Section 8.3 of the Master
Contribution Agreement (an “Indemnification Issuance”) or to pay any liability
that would constitute an Excluded Liability (as such term is defined in the
Master Contribution Agreement), (e) issues any Genius Common Stock
pursuant to any Pre-closing Option or Warrant, (f) receives stock held in escrow
pursuant to the Wellspring Agreement (the “Wellspring Shares”) or (g) issues
shares of Genius Common Stock in connection with a Genius Exclusive Capital
Transaction, the Adjustment Factor shall be adjusted by multiplying the
Adjustment Factor in effect immediately prior to such event by a fraction,
(i)
the numerator of which shall be the number of shares of Genius Common Stock
issued and outstanding on the record date for such dividend, distribution,
split, subdivision, reverse split, or combination or the issue date of such
Indemnification Issuance or Genius Exclusive Capital Transaction (assuming
for
such purposes that such dividend, distribution, split, subdivision, reverse
split, combination, Indemnification Issuance or Genius Exclusive Capital
Transaction has occurred as of such time) and (ii) the denominator of which
shall be the actual number of shares of Genius Common Stock (determined without
the above assumption) issued and outstanding on the record date for such
dividend, distribution, split, subdivision, reverse split, combination or the
issue date of such Indemnification Issuance or Genius Exclusive Capital
Transaction;
(ii) Genius
distributes any rights, options or warrants (or other securities or rights
convertible into, exchangeable for or exercisable for Genius Common Stock)
to
holders of its Genius Common Stock to subscribe for or to purchase or to
otherwise acquire Genius Common Stock (or other securities or rights convertible
into, exchangeable for or exercisable for Genius Common Stock) at a price per
share less than the greater of (a) the Value of a share of Genius Common Stock
and (b) the Market Price of a share of Genius Common Stock, on the record date
for such distribution (each a “Distributed Right”), then the Adjustment Factor
shall be adjusted by multiplying the Adjustment Factor in effect immediately
prior to such distribution by a fraction (1) the numerator of which shall be
the
number of shares of Genius Common Stock issued and outstanding on the record
date plus the maximum number of shares of Genius Common Stock purchasable under
such Distributed Rights and (2) the denominator of which shall be the number
of
shares of Genius Common Stock issued and outstanding on the record date plus
a
fraction (x) the numerator of which is the maximum number of shares of Genius
Common Stock purchasable under such Distributed Rights times the minimum
purchase price per share of Genius Common Stock under such Distributed Rights
and (y) the denominator of which is the greater of (a) the Value of a share
of
Genius Common Stock and (b) the Market Price of a share of Genius Common Stock,
as of the record date; provided, however, that, if any such
Distributed Rights expire or become no longer exercisable, then the Adjustment
Factor shall be adjusted, effective retroactive to the date of distribution
of
the Distributed Rights, to reflect a reduced maximum number of shares of Genius
Common Stock or any change in the minimum purchase price for the purposes of
the
above fraction; and
(iii) Genius
shall, (a) by dividend or otherwise, distribute to holders of its Genius Common
Stock evidences of its indebtedness or assets (including securities, but
excluding any dividend or distribution referred to in subsection (i)
above), which evidences of indebtedness or assets relate, in whole or in part,
to assets not received by Genius pursuant to a pro rata Distribution by the
Company to all holders of Units, or (b) pay any indemnification liability to
the
Company or any WCO Party pursuant to Article VIII of the Master Contribution
Agreement,
2
or
pay
any liability that would constitute an Excluded Liability (as such term is
defined in the Master Contribution Agreement), and the funds to pay such
liability were not raised, whether in whole or in part, through an
Indemnification Issuance, then the Adjustment Factor shall be adjusted to equal
the amount determined by multiplying the Adjustment Factor in effect immediately
prior to the close of business on the date fixed for determination of
shareholders entitled to receive such distribution, or the payment date of
any
indemnification liability, as the case may be, by a fraction (1) the numerator
of which shall be the greater of (x) the Value of a share of Genius Common
Stock
and (y) the Market Price of a share of Genius Common Stock, on the date fixed
for such determination or the payment date, as the case may be and (2) the
denominator of which shall be the lower of (xx) the Value of a share of Genius
Common Stock and (yy) the Market Price of a share of Genius Common Stock Value
on the date fixed for such determination or the payment date, as the case may
be, less the then fair market value (as determined by the Managing Member,
subject to the right of WCO to dispute that determination pursuant to Section
11.17 hereof) of the portion of the evidences of indebtedness or assets so
distributed or the amount of liability or obligation so paid or satisfied,
as
the case may be, applicable to one share of Genius Common Stock.
(iv) Shares
of Genius Common Stock to be issued with respect to a Tendered Unit in
connection with a redemption pursuant to Section 4.8 shall have a Value or
Market Price (whichever is less) of less than the Floor Amount, the Adjustment
Factor with respect to the redemption of such Tendered Unit shall be adjusted
by
multiplying the Adjustment Factor previously in effect by a fraction, (i) the
numerator of which shall be the Floor Amount and (ii) the denominator of which
shall lesser of the Value or Market Price of the shares of Genius Common Stock
to be issued with respect to such Tendered Unit (without giving effect to this
adjustment).
(v) W
Units are reallocated pursuant to Section 4.1, the Adjustment Factor shall
be
adjusted by multiplying the Adjustment Factor previously in effect by a
fraction, (i) the numerator of which shall be the number of G Units outstanding
immediately prior to such reallocation and (ii) the denominator of which shall
be the number of G Units outstanding immediately after such
reallocation.
Any
adjustments to the Adjustment Factor shall become effective immediately after
the effective date of such event, retroactive to the record date, if any, for
such event. For illustrative purposes, examples of adjustments to the
Adjustment Factor are set forth on Exhibit C attached hereto.
“Affiliate”
means any individual, partnership, corporation, trust or other entity or
association, directly or indirectly, through one or more intermediaries,
Controlling, Controlled by, or under common Control with a Member.
“Agreement”
means this Amended and Restated Limited Liability Company Agreement, as
originally executed and as the same may be amended from time to
time.
“Assignee”
means a Person to whom one or more Class W Units have been transferred as
permitted under this Agreement, but who has not become a substitute Member,
and
who has the rights set forth in Section 8.2 hereof.
3
“Available Cash”
means the Company’s cash on hand and available undrawn borrowings, less the
amount that, in the Managing Member’s reasonable judgment, the Company should
retain in order to fulfill its business purposes.
“Bankruptcy”
means, with respect to a Person, that such Person (i) is dissolved;
(ii) becomes insolvent or fails or is unable or admits in writing its
inability generally to pay its debts as they become due; (iii) makes a
general assignment or arrangement with or for the benefit of its creditors;
(iv) institutes or has instituted against it a proceeding seeking a
judgment of insolvency or bankruptcy or any other relief under any bankruptcy
or
insolvency law or other similar law affecting creditors’ rights, or a petition
is presented for the winding-up or liquidation of such Person, and, in the
case
of any such proceeding or petition instituted or presented against it, such
proceeding or petition (a) results in a judgment of insolvency or bankruptcy
or
the entry of an order for relief or the making of an order for the winding-up
or
liquidation of such Person or (b) is not dismissed, discharged, stayed or
restrained in each case within sixty (60) days of the institution or
presentation thereof; (v) has a resolution passed for its winding-up or
liquidation; (vi) seeks or becomes subject to the appointment of an
administrator, receiver, trustee, custodian or other similar official for it
or
for all or substantially all its assets (regardless of how brief such
appointment may be, or whether any obligations are promptly assumed by another
entity or whether any other event described in this clause (vi) has
occurred and is continuing); or (vii) is the subject of any event which, under
the applicable laws of any jurisdiction, has an analogous effect to any of
the
events specified in clauses (i) through (vi) (inclusive) of this
definition.
“Business
Day” means any day other than a Saturday, Sunday or legal holiday
under the laws of the State of California or any other day on which banking
institutions located in such state are authorized or required by law or other
governmental action to close.
“Capital
Account” means the account maintained for a Member in accordance
with Section 4.2.
“Capital
Contribution” means, with respect to each Member, the capital
contributions made my such Member from time to time.
“Cash
Amount” means an amount of cash equal to the
product of (a) the greater of the Value or Market Price of a share of Genius
Common Stock and (b) the Genius Common Stock Amount, determined as of the
applicable Valuation Date.
“Certificate
of Formation” means the Certificate of Formation for the Company
originally filed with the Delaware Secretary of State as subsequently amended
from time to time.
“Class
G Units” means (i) that certain class of Units granted to Genius on
the Effective Date and from time to time upon the making of any Additional
Capital Contribution pursuant to Section 4.4.2 of this Agreement
and (ii) any Class W Units that are converted into Class G Units pursuant to
Section 4.8.4(a) of this Agreement.
“Class
W Units” means that certain class of Units owned by WCO and W-G
Holding on and as of the Effective Date, and from time to time, including
pursuant to Sections 4.1.2(d) and (e) of this Agreement upon the Company’s or a
WCO Party’s, respectively, satisfaction of any liability to which they may be
entitled to indemnification from Genius under Section 8.3 of the Master
Contribution Agreement.
4
“Class
W Prior Approval” the written prior approval of
WCO.
“Code”
means the Internal Revenue Code of 1986, as amended from time to time, the
provisions of succeeding law, and to the extent applicable, the Treasury
Regulations.
“Company”
means Genius Products, LLC, a Delaware limited liability company.
“Control”
means, when used with respect to any Person, the power to direct the management
and policies of such Person, directly or indirectly, whether through the
ownership of voting securities, by contract or otherwise.
“Covered
Products” shall have the meaning given to it under
the Distribution Agreement.
“Current
Genius Business” means all of (i) the development, licensing, sale,
distribution and/or other exploitation (collectively, “Exploitation”) of
entertainment-based programs and productions on DVD and other home-video and
personal audiovisual formats, which programs and productions include without
limitation theatrical motion picture productions, television programs and
productions, documentary and other non-fiction programs and productions, health
and wellness-oriented programs and productions, and children's and
family-oriented programs and productions; (ii) Exploitation of music and
other recordings on CD and other audio formats; (iii) Exploitation of
internally-developed and/or licensed intellectual properties (e.g., Baby Genius,
Berliner Film Company, etc.) and products including toys, books, video games,
apparel and the like; and (iv) Exploitation of licensed U.S. and international
consumer brands (e.g., Bazooka, TV Guide, Sundance, etc.) in and in connection
with brand-relevant Genius products and content.
“Cut-Off
Date” means the tenth (10th) Business Day after
the Managing Member’s receipt of a Notice of Redemption.
“Distribution
Agreement” means that certain Distribution
Agreement, entered into between the Company and The ▇▇▇▇▇▇▇▇▇ Company LLC
(“Licensor”) and in effect on the Effective Date.
“Economic
Interest” means a Member’s share of the Company’s net income, net
losses and distributions of the Company’s assets pursuant to this Agreement and
the Act, but shall not include any other rights of a Member, including, but
not
limited to, the right to vote or participate in the management of, or any right
to information concerning, the business and affairs of the Company.
“Effective
Date” means the closing date of the transactions contemplated by
the Master Contribution Agreement.
“Fiscal
Year” means the Company’s fiscal year, which shall correspond to
its taxable year, as determined in accordance with the Code.
5
“Floor
Amount” means an amount per Class W Unit equal to $60,000,000
divided by the number of Class W Units issued as of the Effective
Date.
“Genius”
means Genius Products, Inc., a Delaware corporation.
“Genius
Charter” means the Amended and Restated Certificate of
Incorporation of Genius, and as subsequently amended from time to
time.
“Genius
Bylaws” means the bylaws of Genius, and as subsequently amended
from time to time.
“Genius
Independent Board Members” means the members of the Board of
Directors of Genius who are “independent,” as defined in the applicable listing
standards of the primary stock exchange or trading market on which the Genius’
Common Stock is listed for trading, or if such term is not defined in such
listing standards, then the listing standards of The Nasdaq Stock Market in
effect from time to time.
“Genius
Common Stock” means the common stock of Genius,
par value $0.001 per share.
“Genius
Common Stock Amount” means a number of shares of
Genius Common Stock equal to the product of (i) the number of Tendered Units
and
(ii) the Adjustment Factor; provided, however, that, if Genius
issues to holders of shares of Genius Common Stock as of a certain record date
rights, options, warrants or convertible or exchangeable securities entitling
Genius’ shareholders to subscribe for or purchase Genius Common Stock, or any
other securities or property (collectively, the “Rights”), with the record date
for such Rights issuance falling within the period starting on the date of
the
Notice of Redemption and ending on the day immediately preceding the Specified
Redemption Date, which Rights will not be distributed before the relevant
Specified Redemption Date, then the Genius Common Stock Amount shall also
include such Rights that a holder of that number of shares of Genius Common
Stock would be entitled to receive.
“Holder”
means a Person who is the owner of any Class G Units, Class W Units or any
other
equity interest in the Company approved by the Managing Member (with Class
W
Prior Approval) from time to time in accordance with this Agreement;
provided, however, that any such Holder will not be a Member
unless and until such Holder has been admitted as a Member in accordance with
the terms of this Agreement.
“Initial
Members” means Genius, WCO and W-G
Holding.
“Managing
Member” means Genius, in its capacity as managing member of the
Company, unless otherwise agreed by Genius and WCO (in its sole discretion),
and
as the Managing Member may be changed pursuant to Sections 3.8, 8.1 or 8.6
hereof.
“Market
Price” on any date shall mean, with respect to any class or series
of outstanding Genius Common Stock, the Closing Price for such Genius Common
Stock on such date. The “Closing Price” on any date shall mean the
last quoted or reported sales price, or, if not so quoted or reported, the
average of the high bid and low asked prices in the over-the-counter market,
as
6
reported
by the National Association of Securities Dealers, Inc. Automated Quotation
System or, if such system is no longer in use, the principal other automated
quotation system that may then be in use or, if such Genius Common Stock is
not
quoted by any such organization, the average of the closing bid and asked prices
as furnished by a professional market maker making a market in such Genius
Common Stock selected by the Managing Member, or the last sale price for such
Genius Common Stock, regular way, or, in case no such sale takes place on such
day, the average of the closing bid and asked prices, regular way, for such
Genius Common Stock, in either case as reported in the principal consolidated
transaction reporting system with respect to securities listed or admitted
to
trading on the New York Stock Exchange or, if such Genius Common Stock is not
listed or admitted to trading on the New York Stock Exchange, as reported on
the
principal consolidated transaction reporting system with respect to securities
listed on the principal national securities exchange on which such Genius Common
Stock are listed or admitted to trading or, if no trading price is available
for
such Genius Common Stock, the fair market value of the Genius Common Stock,
as
determined in good faith by the Managing Member.
“Master
Contribution Agreement” means the Master Contribution Agreement by
and among Genius, Licensor and the Company, dated as of December 5, 2005, and
amended as of March 15, 2006, April 24, 2006, May 30, 2006 and June 28,
2006.
“Member”
means each Initial Member, so long as such Initial Member holds a Membership
Interest in the Company, and each Person who is hereafter admitted as a member
in accordance with the terms of this Agreement and the Act, each in its capacity
as a member of the Company.
“Membership
Interest” means a Member’s entire interest in the Company
(including the Member’s Economic Interest, the right to vote on or participate
in the management of the Company as permitted by this Agreement and the right
to
receive information concerning the business and affairs of the
Company).
“Net
Income” and “Net Losses” shall have the
meaning set forth in Exhibit D of this Agreement.
“Notice
of Redemption” means any notice given from time to
time to the Company by WCO that a holder of Class W Units (including WCO) elects
to exercise its right (subject to the terms and conditions set forth herein)
to
require the Company to redeem the number of Class W Units held by such holder
as
specified in such notice; provided that no Notice of Redemption may be given
prior to the one-year anniversary of the Effective Date.
“Percentage
Interest” means: (i) with respect to any Distribution (and as of
the applicable Distribution Date), allocation or calculation, a Member’s or
Holder’s percentage of the total Units in the Company entitled to participate in
such Distribution, allocation or calculation represented by the ratio of (w)
such Member’s or Holder’s Units in the Company entitled to participate in such
Distribution, allocation or calculation to (x) the total outstanding Units
in
the Company of all Members and Holders entitled to participate in such
Distribution, allocation or calculation; and (ii) with respect to any matter
in
which a class or classes of Units are entitled to participate, including rights
under Section 5.2, that percentage of the total Units in the Company so
entitled to participate represented by the ratio of (x) such Member’s Units in
the Company so entitled to participate to (y) the total outstanding Units in
the
Company so entitled to participate, provided, that, in no case shall any
calculation of Percentage Interest exceed 100%.
7
“Permitted
Transferee” means: (i) any corporation more than (20%) of the
outstanding voting stock of which is owned by WCO or any of WCO’s Affiliates or
in which WCO or any of WCO’s Affiliates have the right to appoint a majority of
the board of directors, (ii) any partnership of which WCO or any of WCO’s
Affiliates is the managing partner or in which WCO or any of WCO’s Affiliates
hold partnership interests representing at least (20%) of such partnership’s
capital or profits, (iii) any limited liability company of which WCO or any
of
WCO’s Affiliates is the manager or managing member or in which they hold the
right to appoint a majority of such limited liability company’s board of
managers or similar governing body, or in which WCO or any of WCO’s Affiliates
hold membership or limited liability company interests representing at least
(20%) of such limited liability company’s capital or profits, (iv) an Affiliate
of WCO or (v) another Member.
“Person”
means an individual, general partnership, limited partnership, limited liability
company, corporation, trust, estate, real estate investment trust, association
or any other entity.
“Pre-closing
Options and Warrants” means any options, warrants
or other securities convertible into common stock that are issued and
outstanding as of the Closing Date (including options granted to employees
in
contemplation of the transactions under the Master Contribution Agreement or
warrants issued in connection with the Financing Commitments contemplated by
the
Master Contribution Agreement) that are not considered outstanding in the
calculation of outstanding shares used to determine the number of Class W Units
deemed issued as of the Effective Date.
“Registration
Rights Agreement” means that certain Registration
Rights Agreement, entered into as of the Effective Date between Genius and
WCO
and W-G Holding.
“SEC”
means United States Securities and Exchange Commission.
“Securities
Act” means the Securities Act of 1933, as amended from time to
time.
“Services
Agreement” means that certain Services Agreement,
entered into as of the Effective Date between the Company and
Genius.
“Specified
Redemption Date” means the later of (i) the tenth
(10th) Business Day after the receipt by the Managing Member of a Notice of
Redemption or (ii) in the case the Managing Member elects (with WCO’s consent as
provided in Section 4.8.2) to conduct an Offering Funding, the Business Day
following the date of the closing of the Offering Funding; provided,
however, that the Specified Redemption Date, as well as the closing
of a
Redemption, or an acquisition of Tendered Units by the Company pursuant to
Section 4.8.2 hereof, on any Specified Redemption Date, may be deferred, in
the
Managing Member’s sole and absolute discretion, for such time (but in any event
not more than sixty (60) days in the aggregate) as may reasonably be required
to
effect, as applicable, compliance with the Securities Act or other law
(including, but not limited to, (a) state “blue sky” or other securities laws
and (b) the expiration or termination of the applicable waiting period, if
any,
under the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of 1976, as
amended).
8
“Tax
Matters Partner” means the Managing Member.
“Treasury
Regulations” means the income tax regulations (including temporary)
promulgated under the Code.
“Units”
means the units of all classes of equity issued by the Company and approved
by
the Managing Member subject to Section 5.2.1(xi), each such class of equity
representing the right to receive distributions pursuant to the terms of this
Agreement and granting the Holder such other rights and privileges as set forth
in this Agreement. The Units will initially consist of the Class G
Units and the Class W Units. Initially, none of the classes of Units
will be represented by certificates. If the Managing Member
determines that it is in the interest of the Company to issue certificates
representing the Units, certificates will be issued and the Units will be
represented by such certificates. The number of Units initially
issued to each Member or Holder thereof is set forth opposite such Member’s or
Holder’s name on Exhibit A (as such Exhibit may be amended from time to time by
the Managing Member).
“Valuation
Date” means the date of any determination of Value or Market Price
to be made pursuant to this Agreement, specifically including (i) in connection
with a determination under Section 4.8, the date of receipt by the Managing
Member of a Notice of Redemption or (ii) in connection with a determination
under Section 4.7 the Company Repurchase Trigger Date, as the case may be or,
if
any such date is not a Business Day, the immediately preceding Business
Day.
“Value”
means, on any Valuation Date with respect to a share of Genius Common Stock,
the
volume weighted average of the daily Market Prices (as defined below) for thirty
(30) consecutive trading days immediately preceding and including the Valuation
Date. If the Genius Common Stock Amount includes Rights (as defined
in the definition of “Genius Common Stock Amount”) that a holder of Genius
Common Stock would be entitled to receive, then the Value of such Rights shall
be determined by the Managing Member acting in good faith on the basis of such
quotations and other information as it considers, in its reasonable judgment,
appropriate, subject to WCO’s right to dispute such determination pursuant to
Section 11.17 hereof.
“Video
Ratio” shall have the meaning given to it under
the Distribution Agreement.
ARTICLE
2
ORGANIZATIONAL
MATTERS
2.1 Formation. Pursuant
to the Act, the Company has been formed as a limited liability company under
the
laws of the State of Delaware by the filing of the Certificate of Formation
with
the Delaware Secretary of State by an “authorized person” within the meaning of
the Act (solely for purposes of filing the Certification of Formation), which
the Initial Members hereby adopt and approve. The Managing Member is
hereby appointed an “authorized person” within the meaning of the
Act. The rights and liabilities of the Members shall be determined
pursuant to the Act and this Agreement. To the extent that the rights
or obligations of any Member are different by reason of any provision of this
Agreement than they would be under the Act in the absence of such provision,
this Agreement shall, to the extent permitted by the Act, control.
9
2.2 Name. The
name of the Company shall be Genius Products, LLC. The business of
the Company may be conducted under that name or, upon compliance with applicable
laws, any other name that the Managing Member deems appropriate or
advisable. The Members shall file any fictitious name certificates
and similar filings, and any amendments thereto, that the Managing Member
considers appropriate.
2.3 Office
and Agent. The Company shall continuously maintain a
registered office and registered agent in the State of Delaware as required
by
the Act. The principal office shall be as the Managing Member may
determine (with notice to all Members). The Company also may have
such offices, anywhere within and without the State of Delaware, as the Managing
Member from time to time may determine, or the business of the Company may
require. The registered agent and registered office shall be as
stated in the Certificate of Formation.
2.4 Members. The
respective addresses of the Members are set forth in Exhibit A
hereto. Upon its execution and delivery of this Agreement, without
the need for any consent or action of any Person, each of Genius, WCO and W-G
Holding are hereby admitted to or shall continue to be, as applicable, Members
of the Company.
2.5 Purpose
of the Company. The purpose of the Company is to (i)
distribute certain home video products of Licensor and perform marketing,
promotion and advertising services in connection with that distribution,
pursuant to the terms of the Distribution Agreement, (ii) engage in the Current
Genius Business (subject to the other terms hereof) and (iii) conduct such
other
lawful acts, businesses or activities as the Managing Member and the holders
of
a majority of the outstanding Class W Units may agree in their sole
discretion. The Company shall have the power to do any and all acts
necessary or advisable for the furtherance of its business and
activities.
2.6 Term. The
term of the Company shall be perpetual, unless earlier terminated following
the
occurrence of any event identified in Section 9.1. Upon such event,
the Company shall be dissolved and its affairs wound up in accordance with
Article 9.
2.7 Foreign
Qualification. The Managing Member shall cause the
Company to comply with all requirements necessary to qualify the Company as
a
foreign limited liability company in any jurisdiction in which the Company
owns
property or transacts business to the extent, in the reasonable judgment of
the
Managing Member, such qualification or registration is necessary or advisable
for the protection of the limited liability of the Members or to permit the
Company lawfully to own property or transact business. The Managing
Member may, and, at the request of the Managing Member or any officer, each
Member shall, execute, acknowledge, swear to and deliver any or all certificates
and other instruments conforming with this Agreement that are necessary or
appropriate to qualify, continue or terminate the Company as a foreign limited
liability company in all such jurisdictions in which the Company may conduct
business.
10
2.8 No
Partnership. Except as set forth below, the Members
intend that the Company shall not be a partnership (including, without
limitation, a limited partnership) or joint venture, and that no Member, or
Holder shall be a partner or joint venturer of any other Member, holder of
an
Economic Interest, manager or officer for any purposes, and this Agreement
shall
not be construed to the contrary. The Members intend that the Company
shall be treated as a partnership for federal and, to the extent possible,
applicable state income and franchise tax purposes, and each Member and the
Company shall file all tax returns and shall otherwise take all tax and
financial reporting positions in a manner consistent with such
treatment.
ARTICLE
3
MEMBERS
3.1 Limited
Liability. Except as expressly set forth in this
Agreement or required under the Act, no Member or officer of the Company shall
be personally liable under any judgment of a court, or in any other manner,
for
any debt, obligation or liability of the Company, whether that liability or
obligation arises in contract, tort, or otherwise, solely by reason of being
a
Member or an officer of the Company. Except as expressly set forth in
this Agreement, in no event will any Member (or former Member) be obligated
to
guarantee any indebtedness or other obligations of the Company at any time
outstanding or have any liability for the repayment or discharge of the debts
and obligations of the Company or for the repayment of any Capital Contribution
of any other Member.
3.2 Remuneration
To Members. No Member shall receive any interest,
salary, compensation, draw or reimbursement with respect to its Capital
Contributions or its Capital Account. A Member may receive
compensation or reimbursement for services rendered or expenses incurred on
behalf of the Company or otherwise in its capacity as a Member, as provided
in
or contemplated by this Agreement or as may otherwise be authorized by the
Managing Member, subject to Class W Prior Approval. Genius shall not
be entitled to any compensation for services rendered to the Company solely
in
its capacity as Managing Member, except for reimbursement for reasonable
expenses actually incurred by it on behalf of the Company.
3.3 Voting
Rights. Except as provided in this Agreement or the
Certificate of Formation, Members shall have no voting, approval or consent
rights with respect to any matter, act, decision or document involving the
Company or its business.
3.4 Admission
of Additional Members. No new or substitute Members may
be admitted to the Company, except pursuant to Section 5.2 or Article
8. Unless so admitted to the Company as a Member, no Person will be,
or will be considered, a Member. The Company may elect to deal only
with Persons so admitted as Members (including their duly authorized
representatives). The Company will not be required to deal with any
other Person (other than with respect to distributions to assignees pursuant
to
assignments in compliance with Article 8) merely because of an assignment or
transfer of an Economic Interest to such Person. Any Distribution by the Company
to the Person shown on the Company’s records as a Member or to its legal
representatives, or to the assignee of the right to receive Company
distributions as provided herein, will relieve the Company of all liability
to
any other Person who may be interested in such Distribution by reason of any
other assignment by the Member or for any other reason.
11
3.5 Withdrawals
or Resignations. No Member may withdraw or resign from
the Company except pursuant to Article 8.
3.6 Members’
Meetings; Quorum; Votes. The Managing Member, any Member
holding thirty percent (30%) or more of the Outstanding Units of the Company
or
the holders of a majority of outstanding Class W Units, may call for a meeting
of the Members from time to time by written notice to the other Members;
provided, however, that meetings of the Members shall not
otherwise be required. At any Members’ meeting, the Managing Member shall
appoint a person to preside at the meeting and a person to act as secretary
of
the meeting. The secretary of the meeting shall prepare minutes of
the meeting, which shall be placed in the minute books of the
Company. The Members may make use of telephones and other electronic
devices to hold meetings if each Member may simultaneously participate with
the
other Members with respect to all discussions and votes of the
Members. The Members may act without a meeting if the action to be
taken is reduced to writing and approved and signed in advance by Members
holding Units sufficient under the provisions of this Agreement or the Act
to
authorize or take such action at a meeting of the Members. The
presence in person or by proxy of Members holding a majority of the outstanding
Units, and Members holding a majority of the outstanding Class W Units shall
constitute a quorum for any meeting of Members. Unless otherwise
provided herein or under applicable law, each Member shall be entitled to cast
one vote for each Unit it holds. Except as otherwise provided in this Agreement,
the affirmative vote of a majority of the outstanding Units shall be effective
to take any action by the Members.
3.7 Devotion
of Time; Company Opportunities; Other
Activities. Subject to the consent rights of Genius
stockholders contained in the Genius Charter with respect to particular
activities, the Class W Prior Approval rights pursuant to Section 5.2.1 hereof,
and to the oversight of the Genius board of Directors, Genius shall devote
all
of its time and business efforts to (the “Genius Permitted
Activities”):
(i) Promoting
the business and interests of the Company, including without limitation (A)
serving as the Managing Member hereunder, (B) conducting Genius Capital
Transactions in furtherance of the business of the Company, (C) issuing
securities under equity incentive plans to officers, directors, employees and
consultants of the Company (subject to receipt of property of equal value by
the
Company), and (D) fulfilling Genius’s obligations under this Agreement and
Genius’s other agreements with the Company or Licensor, as the same may be
amended, modified or supplemented;
(ii) Holding
the Class G Units and enforcing, fulfilling and managing Genius’s rights,
duties, liabilities and obligations as a Member holding Class G
Units;
(iii) Maintaining
Genius’s status as a public reporting company with publicly traded securities,
including without limitation (A) preparing public filings and registration
statements, (B) registering securities of Genius for public sale, (C) arranging
for accounting, audit and related services for Genius’s financial statements,
(D) communicating with and providing reports to Genius stockholders and (E)
handling investor and public relations;
(iv) Prosecuting,
enforcing, exploiting, defending, settling, fulfilling and managing Genius’s
rights, duties, liabilities and obligations arising in, under or from any of
(A)
the Excluded Assets, Excluded Liabilities or Contingent Dividend Rights, (B)
such other assets, liabilities and agreements that Genius may acquire or become
subject to, and (C) such securities as Genius may issue;
12
(v) Conducting
Genius Capital Transactions solely to fund activities of Genius that are not
provided for or reimbursed by the Company, provided that such activities
constitute Genius Permitted Activities other than under this paragraph (v)
(collectively, “Genius Exclusive Capital Transactions”);
(vi) Complying
with all Legal Requirements (as such term is defined in the Master Contribution
Agreement) that Genius is or may become subject to; and
(vii) Doing
everything necessary, suitable, convenient or proper for, or in connection
with,
or incident to, the accomplishment of any of the foregoing
activities;
and
shall
engage in no other business or conduct any other activities. WCO, its
Affiliates and their respective officers, directors, members, managers,
employees, partners and agents (the “WCO Parties”), shall devote whatever time,
effort and skill as they deem appropriate for the operation of the Company
and,
notwithstanding any duty (contractual, fiduciary or otherwise) existing at
law
or in equity, are free to own interests in other businesses and undertakings
and
to pursue and engage other businesses, investments, activities and opportunities
(collectively, “Other Interests”). The Company and the Managing
Member are fully aware that the WCO Parties are engaged, and in the future
will
be engaged, in and conduct Other Interests which are, directly or indirectly,
in
competition with the Company or with each other, including as contemplated
by
Section 3.10 of this Agreement. Other than as expressly set forth in
the Distribution Agreement, notwithstanding any duty (contractual, fiduciary
or
otherwise) existing at law or in equity, neither WCO nor any WCO Party will
have
any obligation to offer the Company, the Managing Member or any other Member
or
their respective Affiliates any Other Interests or the right to participate
therein. None of the Company, the Managing Member nor their
respective Affiliates will have any rights in any Other Interests in which
WCO
or any WCO Party engages outside of the Company by virtue of WCO’s or any WCO
Party’s relationship to the Company or otherwise, and notwithstanding any duty
(contractual, fiduciary or otherwise) existing at law or in equity, WCO and
the
WCO Parties shall not be required to disclose to the Company, the Managing
Member or any other Member the existence or nature of any such Other
Interests. The Company, the Managing Member and each Member hereby
waives any conflict of interest related to such Other Interests, and the
Company, the Managing Member and each Member agrees that it shall have no claim
under fiduciary duty or any other principles to such Other
Interests.
3.8 No
Cessation of Membership Upon Bankruptcy. Except as
provided in Section 4.7, a Person will not cease to be a member of the
Company upon the happening, with respect to such Person, of any of the events
specified in §18-304 of the Act, provided, however, WCO or its
designee shall become the Managing Member immediately upon the occurrence of
any
Bankruptcy of Genius and Genius shall cease to be the Managing Member but shall
continue to be a Member. Upon the occurrence of any event specified
in §18-304 of the Act with respect to a Member, the business of the Company will
be continued pursuant to the terms hereof without
dissolution.
13
3.9 Enforcement
of Rights against Member. Regardless of any provision to
the contrary, nothing in this Agreement shall be construed to restrict or limit
the ability of: (a) any Member to enforce any rights, arising from any contract
or agreement, against the Company; or (b) the Company to enforce any rights
arising from any contract or agreement against any Member. At the
Company’s cost and expense, each of WCO and Genius is entitled on behalf of the
Company to enforce against the other any of the terms of this Agreement or
any
other agreement between the Company and Genius or WCO, as applicable.
3.10 Content
Acquisition Opportunities.
(a) The
Company and the Managing Member agree that it is intended that the Company
will
not engage in Content Acquisition Opportunities, other than as provided in
this
Section 3.10. If the Managing Member or the Company is presented with
a Content Acquisition Opportunity, the Company or the Managing Member, as
applicable, shall promptly present such Content Acquisition Opportunity to
WCO
(a “Distributor Notification”) and WCO or any of the WCO Parties designated by
WCO shall have the right to engage in the Content Acquisition Opportunity as
provided herein.
(b) If
WCO or any such WCO Party determines to engage in the Content Acquisition
Opportunity, notwithstanding any duty (contractual, fiduciary or otherwise)
existing at law or in equity, it may do so on whatever terms it deems
appropriate without any further obligation to the Company (other than
under the Distribution Agreement) or the Managing Member, and the
Company and the Managing Member shall be prohibited from engaging in such
Content Acquisition Opportunity. WCO or such WCO Party may notify the
Company in writing (an “Election Notification”) of its determination
to either engage in such Content Acquisition Opportunity or seek additional
information with respect to such Content Acquisition Opportunity within thirty
(30) days (reducible to ten (10) days for so-called “hot properties” or if
exigent circumstances require such shorter period) after receipt of the
applicable Distribution Notification. If WCO notifies the
Company it or the designated WCO Parties do not desire to engage in such Content
Acquisition Opportunity or if WCO or the designated WCO Party does not respond
to the Distributor Notification with an Licensor Notification within the
applicable period set forth above, the Company (but not the Managing Member)
shall be free to engage in such Content Acquisition Opportunity for its own
account without any further obligation to WCO, subject to any applicable
required approvals under Section 5.2 of this Agreement; provided, if the terms
or elements of the Content Acquisition Opportunity are modified so as to differ
from the terms presented to WCO in any material respect that is more favorable
to the Company, the Company and the Managing Member shall be required to again
present the Content Acquisition Opportunity to WCO in accordance with this
Section 3.10.
(c) For
the avoidance of doubt, notwithstanding any duty (contractual, fiduciary or
otherwise) existing at law or in equity, neither WCO nor any WCO Party shall
have any obligation to present any Content Acquisition Opportunity to the
Company or the Managing Member.
14
(d) For
purposes of this Section 3.10, “Content Acquisition Opportunity” means the
acquisition of any distribution or other rights in any audio, visual and/or
audiovisual works of any kind or character, including, without limitation,
“Motion Pictures” as such term is defined in the Distribution
Agreement.
(e) Notwithstanding
the foregoing, the Company and the Managing Member shall not be required to
offer any Content Acquisition Opportunity that both (i) is consistent with
Genius’ Current Business and not competitive with WCO’s business and (ii)
requires aggregate fixed payments (e.g. advances, fixed purchase price, etc.)
of
less than $75,000 for any individual acquisition or series of related
acquisitions; provided, however that in no event shall all fixed payments
related to such qualifying Content Acquisition Opportunities in any year exceed
the lesser of (a) $2,000,000 in the aggregate or (b) the amount budgeted for
acquisitions as set forth in the Company’s annual
budget. Notwithstanding the definition of the Current Genius
Business, the Company shall not enter into any Content Acquisition Opportunity
that is competitive with WCO’s business (e.g., feature films) and shall not
enter into any such Content Acquisition Opportunity without specific prior
written approval from WCO and without first presenting such Content Acquisition
Opportunity to WCO pursuant to Sections 3.10 (a) and (b) above. Any
Content Acquisition Opportunity entered into by the Company shall be on
customary industry terms (e.g. customary royalties or distribution fees) and
the
Company shall not structure any Content Acquisition Opportunity so as to avoid
or circumvent its obligation to offer such Content Acquisition Opportunity
to
WCO or the WCO Parties as required hereunder or otherwise in a manner that
frustrates the intent of this Section 3.10, including but not limited to
offering terms that are not consistent with industry standards. By
way of example, the Company shall not achieve an advance within the $75,000
and
$2 million limits set forth above by offering non-standard terms in other areas,
such as higher than customary royalties or lower than customary distribution
fees.
(f) The
provisions of this Section 3.10 shall terminate upon the termination or
expiration of the Distribution Agreement (or any successor or replacement
agreement with WCO).
ARTICLE
4
CLASSES
OF UNITS INTERESTS AND CAPITAL CONTRIBUTIONS
4.1 Classes
of Units.
4.1.1 Class
G
Units
(a) Grants. As
of the Effective Date, the total number of Class G Units issued to Genius will
represent 30% of the total Units of the Company in an amount determined as
provided in Exhibit A. Additional Class G Units will be granted to
such Persons, at such times and in such amounts, in accordance with Section
4.4.2, Section 4.8.4(a) and as the Managing Member may determine with Class
W
Prior Approval in accordance with Section 5.2. The grant of
Class G Units as of the Effective Date is set forth on Exhibit A.
15
(b) Rights. Holders
of Class G Units are entitled to participate in Distributions as provided in
Section 6.1 and Section 6.2 and to such other voting, distribution and
participation rights as set forth in this Agreement.
4.1.2 Class
W
Units
(a) Grants. As
of the Effective Date, the total number of Class W Units owned by WCO and W-G
Holding will represent 70% of the total Units of the Company in an
amount determined as provided in Exhibit A. Additional Class W Units
will be granted to such Persons, at such times and in such amounts, in
accordance with Section 4.1.2(d) and Section 4.1.2(e) and as the Managing Member
may determine with Class W Prior Approval in accordance with
Section 5.2. The number of Class W Units as of the Effective
Date is set forth on Exhibit A.
(b) Rights. Holders
of Class W Units are entitled to participate in Distributions as provided in
Section 6.1 and Section 6.2 and to such other voting, distribution and
participation rights as set forth in this Agreement.
(c) Repurchase
and Redemption. Class W Units are subject to repurchase or
redemption only in accordance with Sections 4.7 and 4.8 of this
Agreement.
(d) Additional
Class W Units Upon Company Indemnification. If the Company pays,
discharges or otherwise satisfies or assumes any liability or obligation for
which it is entitled to indemnification from Genius pursuant to Section 8.3
of
the Master Contribution Agreement, the Company shall redeem from Genius (without
any further payment to Genius) a number of Class G Units, and issue to the
holders of Class W Units (without any further payment by such holders) a number
of additional Class W Units, in an amount equal to the following
formula:
U
= (L *
P) / V
where:
|
|
U =
|
the
number of Class G Units to be redeemed from Genius and Class W Units
to be
issued to the holders of Class W Units pursuant to this Section
4.1.2(d);
|
|
|
L =
|
the
amount paid, discharged or otherwise satisfied or assumed by the
Company
in satisfaction of such liability or
obligation;
|
|
|
P =
|
the
Percentage Interest of the holders of Class W Units immediately prior
to
the redemption of Genius’ Class G Units and the issuance of additional
Class W Units pursuant to this Section 4.1.2(d);
and
|
|
|
V =
|
the
lesser of the Value or the Market Price of Genius Common Stock as
of the
date of the Company’s satisfaction, payment, discharge or assumption of
such liability or obligation (whichever occurs
first).
|
16
(e) Additional
Class W Units upon WCO Payment of Genius Indemnification. If WCO
or any WCO Party pays, discharges or otherwise satisfies or assumes any
liability or obligation for which it is entitled to indemnification from Genius
pursuant to Section 8.3 of the Master Contribution Agreement, the Company shall
redeem from Genius (without any further payment to Genius) a number of Class
G
Units, and issue to the holders of Class W Units (without any further payment
by
such holders) a number of additional Class W Units, in an amount equal to the
following formula:
U
= L /
V
where:
|
|
U =
|
the
number of Class G Units to be redeemed from Genius and Class W Units
to be
issued to holders of Class W Units pursuant to this Section
4.1.2(e);
|
|
|
L =
|
the
amount paid, discharged or otherwise satisfied or assumed by WCO
or any
WCO Party in satisfaction of such liability or
obligation;
|
|
|
V =
|
the
lesser of the Value or the Market Price of Genius Common Stock as
of the
date of the WCO’s or any WCO Party’s satisfaction, payment, discharge or
assumption of such liability or obligation (whichever occurs
first).
|
Examples
of the operation of this
Section 4.1(d) and (e) are attached hereto as Exhibit 4.1.
4.2 Capital
Accounts. A separate Capital Account shall be maintained
for each Member in accordance with Exhibit D hereto. No Member shall be
personally liable for or be required to restore any deficit Capital Account
balance.
4.3 Initial
Contributions
by Genius. Concurrently
with the execution of this Agreement, Genius shall, pursuant to the
Master Contribution Agreement, contribute to the Company all of the assets,
rights and properties required to be contributed by Genius therein, whether
tangible or intangible, including its right, title and interest in and to any
real property.
4.4 Additional
Capital Contributions.
4.4.1 No
Obligation. Except as set forth in Section 4.3 or this
Section 4.4, no Member or Affiliate of a Member shall be required to make a
Capital Contribution, loan or advance to the Company or guarantee or make any
other financial commitment with respect to any debt or other obligation of
the
Company, including to fund operations of the Company or meet any tax liabilities
of the Members (including tax liabilities arising from phantom
income).
4.4.2 Additional
Capital Contributions.
17
(a) Genius
shall contribute to the Company the net proceeds (including, without limitation,
cash, securities, assets or other property) received from (i) any private
placement, public offering or other sale or disposition after the Effective
Date
of Genius Common Stock, or securities convertible into or exchangeable for
Genius Common Stock (a “Genius Convertible Security”), or upon the exercise,
conversion or exchange of a Genius Convertible Security or (ii) the sale of
Property, incurrence of indebtedness, recapitalization or refinancing, or from
any other capital raising transaction (each transaction described in clause
(i)
or (ii) above, a “Genius Capital Transaction”) as an Additional
Capital Contribution, provided, however, that the consideration
received by Genius upon exercise of Pre-closing Options or Warrants (or any
Property acquired solely with such consideration) shall not be required to
be
contributed to the Company; provided further that if the Genius Capital
Transaction is the issuance of indebtedness, such indebtedness shall not be
contributed as capital but instead shall be loaned to the Company on terms
agreed upon by the Members.
(b) Not
later than three (3) Business Days following the
consummation of any Genius Capital Transaction, Genius shall transfer the net
proceeds therefrom to the Company. Except to the extent that such
Genius Capital Transaction constituted an Indemnification Issuance or a Genius
Exclusive Capital Transaction or the payment of the exercise price from the
exercise, conversion or exchange of a Genius Convertible Security outstanding
on
the Effective Date, following receipt by the Company of the net proceeds or
assets or other value received from a Genius Capital Transaction, the Managing
Member shall promptly cause the Company to issue to Genius a number of
additional Class G Units equal to the number of shares of Genius Common Stock
actually issued in the Genius Capital Transaction covered by clause (i) of
the
definition thereof, provided, that, if Genius has issued a Genius
Convertible Security in the Genius Capital Transaction, the Company shall
instead provide Genius with the contingent right to be issued a number of
additional Class G Units only upon the exercise or conversion of such Genius
Convertible Security and contribute to the Company the net proceeds received
therefrom, the amount of such Class G Units so issuable equal to the number
of
shares of Genius Common Stock actually issued upon such exercise or conversion),
provided, that for purposes of calculating the number of
additional Class G Units issuable to Genius pursuant to this Section 4.4.2(a),
there shall be disregarded any (1) declaration or payment of a dividend on
outstanding Genius Common Stock in Genius Common Stock or distribution to
holders of outstanding Genius Common Stock in shares of Genius Common Stock,
(2)
split or subdivision of outstanding Genius Common Stock or (3) reverse stock
split or other combination of Genius Common Stock into a smaller number of
shares of Genius Common Stock, that may have occurred after the Effective
Date. For example, if there occurs a 2-for-1 stock split of Genius
Common Stock after the Effective Date and Genius thereafter issues 100 new
shares in a Genius Capital Transaction, the Company would only issue 50 Class
G
Units in connection with the contribution of net proceeds from that Genius
Capital Transaction.
(c) For
purposes of clarification, in no event will any Class G Units be issued to
Genius pursuant to this Section 4.4.2 or otherwise in connection with an
Indemnification Issuance or Genius Exclusive Capital Transaction, whether or
not
Genius contributes the proceeds therefrom to the Company.
18
(d) No
Member will be required to lend any funds to the Company or to make any
additional contribution of capital to the Company, except as otherwise required
by applicable law, any binding Agreement entered into after the Effective Date
or by this Section 4.4.2. Any Member or Affiliate of a Member may,
with the consent of the Managing Member and subject to the provisions of this
Section 4.4.2, Section 5.2 and any other senior loan, credit or
financing agreement of the Company, lend or advance money to the Company or
a
subsidiary, make loans to the Company or a subsidiary or guaranty any loans
made
to the Company or a subsidiary by a third party lender or any Affiliate of
any
Member that is a commercial lending institution, and any such loan or guaranty
by a Member or an Affiliate of a Member will not be considered to be a Capital
Contribution unless otherwise provided in the agreement relating to such loan
or
guaranty or as otherwise determined by the Managing Member. It is
contemplated that the Company may engage in borrowing in connection with the
operations of its business, provided, however, that Genius shall
not be entitled to create any pledge, lien, encumbrance or restriction of any
kind upon its rights or interests under the Distribution Agreement without
WCO’s
prior written consent in its sole discretion.
4.5 [Intentionally
left blank]
4.6 Withdrawal
of Capital Contributions. Except as otherwise provided
in or contemplated by this Agreement, no Member shall demand or receive a return
of any Capital Contributions or otherwise withdraw from the Company without
the
consent of all Members. Under circumstances requiring a return of any Capital
Contributions, no Member shall have the right to receive property other than
cash except as may be specifically provided herein.
4.7 Repurchase
of Class W Units.
4.7.1 Company
Repurchase Right. At any time prior to December 31,
2009, if (i) Licensor terminates the Company’s right and obligation to
distribute Covered Products pursuant to Section 19(A)(3) or 19(A)(4) of the
Distribution Agreement and the Annual Video Ratio or Semi-Annual Video Ratio,
as
applicable, giving rise to such termination is more than 50% (as calculated
pursuant to the terms of the Distribution Agreement) or (ii) Licensor enters
Bankruptcy and does not (x) continue to substantially perform its obligations
under the Distribution Agreement, or (y) provide for Licensor’s obligations
being assumed under the Distribution Agreement by or through a successor in
a
manner satisfactory to Licensor, Affiliate or other Person, then the Company
may
repurchase from WCO and W-G Holding (proportionately in a accordance with their
respective Percentage Interests) a portion of the Class W Units owned
by them on the Effective Date as provided below (the “Company
Repurchase Right”). The date of the event giving rise the Company
Repurchase Right is the “Company Repurchase Trigger Date”). The
purchase price to be paid to WCO and W-G Holding for the repurchase of Class
W
Units upon the exercise of the Company Repurchase Right shall be an amount
equal
to 75% of the Cash Amount WCO or W-G Holding would receive under Section 4.8
hereof upon a Redemption of Tendered Units, where the number of Tendered Units
shall be deemed to equal the number of Class W Units to be
repurchased.
19
The
portion of the Class W Units subject to the Company Repurchase Right during
any
calendar year shall be determined as follows:
|
Year
of Term
|
Portion
of Units
Subject
to Repurchase
|
|
1/1/06
– 12/31/06
|
60%
|
|
1/1/07
– 12/31/07
|
30%
|
|
1/1/08
– 12/31/08
|
20%
|
|
1/1/09
– 12/31/09
|
10%
|
4.7.2 No
Company Repurchase Right. For purposes of clarification,
if at any time prior to December 31, 2009, Licensor terminates the Company’s
right and obligation to distribute Covered Products pursuant to Section 19(A)(3)
or 19(A)(4) of the Distribution Agreement and the Annual Video Ratio or
Semi-Annual Video Ratio, as applicable, giving rise to such termination is
less
than 50% (as calculated pursuant to the terms of the Distribution Agreement),
then the Company shall have no Company Repurchase Right to repurchase any
portion of the Class W Units then held by WCO or W-G Holding.
4.7.3 Repurchase
Procedure. The Managing Member shall determine in its
discretion whether the Company shall exercise the Company Repurchase Right
pursuant to Section 4.7.1 by the Majority Vote of the Genius Independent
Board Members (as provided in the Genius Charter). Promptly following
any termination of the Distribution Agreement giving rise to the Company
Repurchase Right, but in any event within fifteen (15) Business Days thereafter
(the “Repurchase Right Expiration Date”), the Company shall send a written
notice (the “Repurchase Notice”) to WCO and W-G Holding setting forth: (i)
whether the Company is exercising its Company Repurchase Right, (ii) the portion
of WCO’s and W-G Holding’s Class W Units then subject to the Company’s
Repurchase Right that the Company wishes to
repurchase and (iii) the Managing Member’s
calculation of the higher of the Value or the Market Price for the Class W
Units
that it is offering to repurchase, and its methodology in arriving at such
calculation. Following receipt of the Repurchase Notice, WCO shall
confirm the Managing Member’s calculation of the higher of the Value or the
Market Price to be paid for the Class W Units then being repurchased, and WCO
and the Managing Member shall in good faith agree upon the date of the closing
for such repurchase, such closing to occur not later than sixty (60) days after
the Repurchase Right Expiration Date. At the closing of the Company’s
repurchase of WCO’s and W-G Holding’s Class W Units, the Company shall deliver
the repurchase price to be paid for the Class W Units being repurchased to
or as
directed by WCO in immediately available funds by wire transfer or certified
check. The Company Repurchase Right shall terminate and be of no
further force or effect if the Company has not exercised that right on or before
the Repurchase Right Expiration Date by delivery of a Repurchase Notice to
WCO,
and any Class W Units for which the Company does not exercise its Company
Repurchase Right as indicated in a Repurchase Notice shall no longer be subject
to a Company Repurchase Right and shall be held by WCO or W-G Holding free
and
clear of any claims or rights in favor of the Company arising under this Section
4.7.
20
4.7.4 Disputes
Regarding Termination. Any disputes regarding a
termination of the Company’s rights to distribute Covered Product under the
Distribution Agreement shall be resolved pursuant to the terms of the
Distribution Agreement and not under this Agreement. Unless grounds
exist to exercise the Company Repurchase Right other than termination of the
Distribution Agreement (i.e., a repurchase triggered by clause (ii) of the
first
sentence of Section 4.7.1), until the final resolution of any such dispute,
the
Company may not exercise its Company Repurchase Right with respect to any
portion of WCO’s or W-G Holding’s Class W Units as otherwise provided in this
Section 4.7, and each of WCO and W-G Holding shall retain full title and
ownership of all Class W Units then held by it, free and clear of any liens,
claims, encumbrances or rights of set off of any kind, and shall be entitled
to
exercise all of its rights and receive all of the benefits as a Holder of all
of
its Class W Units hereunder (including, without limitation, the right to receive
Distributions or to decide upon a Class W Prior Approval). The
repurchase procedures upon exercise of a Company Repurchase Right (other than
the running of the period for the Managing Member’s determination of whether to
exercise the Company Repurchase Right that ends on the Repurchase Right
Expiration Date) shall be stayed until the final resolution of any suit properly
filed by the Company or Licensor in good faith pursuant to the terms of the
Distribution Agreement and thereafter actively prosecuted that disputes or
seeks
declaratory relief regarding Licensor’s right to terminate the Distribution
Agreement. Notwithstanding any dispute regarding a termination of the
Distribution Agreement that may have occurred or be ongoing, the Valuation
Date
for the determination of the Cash Amount payable upon exercise of a Company
Repurchase Right shall be the Company Repurchase Trigger Date.
21
4.8 Redemption
Rights Holder of Class W Units.
4.8.1 WCO
shall have the right (subject to the terms and conditions set forth herein)
to
require the Company to redeem all or a portion of the Class W Units held by
a
Tendering Party (as defined below) and not subject to a Company Repurchase
Right
under Section 4.7 (such Class W Units being hereafter “Tendered Units”) in
exchange (a “Redemption”) for a number of shares of Genius Common Stock
calculated as determined below. Any Redemption shall be exercised
pursuant to a Notice of Redemption delivered to the Company and the Managing
Member by WCO when WCO exercises the Redemption right on behalf of itself,
as a
holder of Class W Units, or on behalf of another holder of Class W Units (such
party, the “Tendering Party”). The Tendering Party shall submit such
information, certification or affidavit as the Managing Member may reasonably
require in connection with the restrictions and limitations of the Genius
Charter to any such acquisition. On the Specified Redemption Date the
Tendering Party shall transfer such number of the Tendered Units to the Company
in exchange for a number of shares of Genius Common Stock (and Rights, if
applicable) equal to the Genius Common Stock Amount as of the Specified
Redemption Date. Genius unconditionally agrees to deliver to the
Company such number of shares of Common Stock of Genius (and Rights, if
applicable) sufficient to enable the Company to meet its obligation under this
Section 4.8.1. The Genius Common Stock Amount shall be delivered to
the Company and issued in the name of the Tendering Party on the Specified
Redemption Date as duly authorized, validly issued, fully paid and
non-assessable Genius Common Stock and, if applicable, Rights, free of any
pledge, lien, encumbrance or restriction, other than restrictions provided
in
the Genius Charter, the Genius Bylaws, the Securities Act and relevant state
securities or “blue sky” laws. The shares of Genius Common Stock
issued pursuant to this Section will be “Registrable Securities” as defined in
the Registration Rights Agreement. Genius will at all times reserve
and keep available, solely for the issuance and delivery upon the redemption
of
Class W Units as provided herein, that number of shares of Genius Common Stock,
and such other stock, securities or property, as from time to time shall be
issuable upon the redemption of all outstanding Class W Units. If any
unreasonable delay arises in such delivery, Genius will use its reasonable
efforts to provide the Tendering Party with all indicia of ownership of such
Genius Common Stock, including, without limitation, rights to vote or consent,
receive dividends, and exercise rights, as of the Specified Redemption Date,
except for dividends declared prior to the Cut-Off Date. Genius
Common Stock issued upon an acquisition of the Tendered Units by the Company
pursuant to this Section 4.8.1 may contain such legends regarding restrictions
under the Securities Act and applicable state securities laws as the Managing
Member in good faith determines to be necessary or advisable in order to ensure
compliance with such laws.
Notwithstanding
anything to the
contrary contained above, if a Tendering Party receives shares of Genius Common
Stock as provided in this Section 4.8.1, and after the receipt of such shares,
Genius (x) makes an Indemnification Issuance or issues securities in an Genius
Exclusive Capital Transaction (“Exclusive Issuance”) that would have resulted in
an adjustment to the Adjustment Factor under clause (i)(d) of the
definition
22
thereof,
(y) makes an indemnification payment that would have resulted in an
adjustment to the Adjustment Factor under clause (iii) of the
definition thereof or (z) issues shares of Common Stock pursuant to Pre-closing
Options or Warrants (“Option Shares”), in each case that would have resulted in
an adjustment to the Adjustment Factor under clause (i)(e) of the definition
thereof had Indemnification Issuance, Exclusive Issuance, indemnification
payment, or the issuance of such Option Shares occurred prior to the issuance
of
shares of Genius Common Stock under this Section and which would have resulted
in additional shares of Genius Common Stock being issued to the Tendering Party
(“Additional Shares”), the Managing Member shall issue such Additional Shares to
the Tendering Party and Genius shall provide such Additional Shares to the
Company to be delivered to the Tendering Party as provided in this Section
4.8.1
as if such Additional Shares had been issued on the Specified Redemption Date
and this Section 4.8.1 shall otherwise apply to such Additional
Shares.
4.8.2 Notwithstanding
the foregoing, at the request of the Company and with the consent of WCO (which
may be withheld in the WCO’s sole discretion):
(a) The
Company may deliver to the Tendering Party an amount equal to the Cash Amount
in
lieu of the Genius Common Stock Amount payable on the Specified Redemption
Date;
or
(b) the
Managing Member on behalf of the Company may elect to raise funds for the
payment of the Cash Amount either (a) by contribution by Genius of funds from
the proceeds of a private placement or registered public offering (each, an
“Offering Funding”) by Genius of a number of Genius Common Stock (“Offering
Funding Shares”) or (b) from any other sources (including, but not
limited to, the sale of any Property and the incurrence of additional Debt)
available to Genius or the Company.
Promptly
upon the Company’s receipt of the Notice of Redemption, the Managing Member
shall give notice (a "Single Funding Notice") to all holders of Class W Units
having Redemption rights pursuant to this Section 4.8 and request that WCO
elect
whether or not to effect a Redemption of any of such holders’ Class W Units to
be funded through an Offering Funding (if an Offering Funding has been requested
by the Company) or otherwise. If WCO elects to effect such a
Redemption on behalf of any such holder of Class W Units (including itself),
it
shall give notice thereof and of the number of Class W Units to be made subject
thereto in writing to the Managing Member within ten (10) Business Days after
receipt of the Single Funding Notice, and such holder of Class W Units shall
be
treated as a Tendering Party for all purposes of this Section 4.8.
4.8.3 A
Tendering
Party shall have no right to receive distributions with respect to any Tendered
Units (other than the Cash Amount) paid after delivery of the Notice of
Redemption, whether or not the Company’s record date for such distribution
precedes or coincides with such delivery of the Notice of Redemption;
provided,however, that if the Company elects to fund the Cash
Amount with the proceeds of an Offering Funding pursuant to Section 4.8.2
hereof, and WCO has consented to an Offering Funding, the Tendering Party's
right to receive distributions shall not be suspended as hereinbefore provided
and such Tendering Party shall have the right to receive distributions actually
made hereunder prior to the date of the closing of the Offering Funding whose
proceeds are used to pay the Cash Amount. In the event of a
Redemption, the Cash Amount shall be delivered by wire transfer, certified
check
or as otherwise instructed by the Tendering Party (with WCO’s
consent).
23
4.8.4 Notwithstanding
anything herein to the contrary, with respect to any Redemption pursuant to
this
Section 4.8:
(a) To
the extent Genius provides shares of Genius Common Stock or funding to pay
the
Cash Amount, each Class W Unit acquired by the Company pursuant to Section
4.8.1
hereof shall be transferred to Genius and be converted into and deemed to be
a
Class G Unit.
(b) No
Tendering Party may effect a Redemption for less than five hundred (500) Class
W
Units or, if such Tendering Party holds (as a Member or, economically, as an
Assignee) less than five hundred (500) Class W Units, all of the Class W Units
held by such Tendering Party.
(c) The
consummation of such Redemption shall be subject to the expiration or
termination of the applicable waiting period, if any, under the
▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of 1976, as amended.
(d) The
Tendering Party shall continue to own (subject, in the case of an Assignee,
to
the provisions of Section 8.2 hereof) all Class W Units subject to any
Redemption, and be treated as a Member or an Assignee, as applicable, with
respect to such Class W Units for all purposes of this Agreement, until such
Class W Units are either paid for by the Company pursuant to Section 4.8.1
hereof or transferred to the Company and paid for by the issuance of the Genius
Common Stock, pursuant to Section 4.8.2 hereof on the Specified Redemption
Date, except to the extent that the Tendering Party obtains indicia of ownership
of Genius Common Stock pursuant to the penultimate sentence of Section
4.8.1.
4.9 Redemptions. Except
with respect to the Class W Units as provided in Section 4.1(d) or (e) or
Section 4.8, without the Class W Prior Approval, the Company will not acquire,
by purchase, redemption or otherwise, any Units of any class or type of any
Member or Holder without offering to purchase, on the same terms and conditions,
a proportionate share of the Units of such class or type of all other applicable
Members or Holders. Except as provided in Section 4.8.4(a), any Units
so acquired by the Company will be deemed canceled.
24
ARTICLE
5
GOVERNANCE
5.1 Management
Through the Managing Member. The management of the
Company is vested in the Managing Member, which shall have the power and
authority to manage and direct the business and affairs of the Company under
the
terms and conditions of this Agreement. Except as otherwise expressly
provided in this Agreement, the Members shall not participate in the control
of
the Company and shall have no right, power or authority to act for or on behalf
of or otherwise bind, the Company. Except as expressly provided in
this Agreement or required by any non-waiveable provisions of applicable law,
Members shall have no right to vote on or consent to any other matter, act,
decision or document involving the Company or its business. The
Managing Member shall be deemed to owe the same fiduciary duties to the Members
that directors of Delaware corporations owe to that corporation’s stockholders
under Delaware law.
5.2 Limitations
on the Authority of the Managing Member. The Managing
Member’s authority to run the business and affairs of the Company is subject
only to the limitations in this Sections 5.2. The
Managing Member shall take no actions on behalf of the Company without a Class
W
Prior Approval with respect to any of the following matters in Section 5.2.1
below:
5.2.1` For
so long as WCO, W-G Holding and their transferees beneficially own Units
comprising at least 20% of the outstanding Units of the Company, the Managing
Member shall take no actions on behalf of the Company (and the Company shall
take no action through any subsidiary) without the Class W Prior Approval with
respect to:
(i) taking
or purporting to take actions in contravention of or engaging in activities
inconsistent with this Agreement or the Distribution Agreement;
(ii) creating
or assuming any indebtedness or liability, or providing any indirect financial
assistance, or assuming any mortgage, charge or other encumbrance on any
property of the Company;
(iii) selling,
leasing, exchanging or disposing of, by any means, any properties or assets
of
the Company having a value in excess of $100,000;
(iv) entering
into or effecting any conversion, consolidation or merger involving the
Company;
(v) to
the fullest extent permitted by law, taking any action to liquidate or dissolve
the Company;
(vi) entering
into, amending or waiving any contract with a Member or with any party that
is
not at arm’s length (including amending any provision of, or making any election
under, the Services Agreement);
(vii) engaging,
removing or replacing the Company’s independent auditors;
(viii) guaranteeing
the liabilities or debts of any Person other than a subsidiary of the
Company;
25
(ix) requiring
any guarantee from any Member;
(x) declaring
or making any Distribution, including any Distribution in-kind of Securities
or
other non-cash assets;
(xi) issuing
or granting any Class G Units, Class W Units or any other
Units, Membership Interests or Economic Interests in the Company
(other than as provided in this Agreement);
(xii) utilizing
subdistributors, or licensees, or outsourcing any functions relating to the
Company’s performance under the Distribution Agreement;
(xiii) appointing
or removing (A) the Company’s Chief Executive Officer, Chief Operating Officer,
Chief Financial Officer, or any other executive level officer or employee and
(B) any other employee whose compensation is in excess of $150,000 per
year;
(xiv) approving
the annual or quarterly budget for the Company, or varying more than 10% from
the amount budgeted for any particular material line item therein;
(xv) engaging
in any debt or equity financing, refinancing, recapitalization or other capital
raising transaction;
(xvi) approving
or entering into any contracts, agreements, understandings or arrangements
outside the ordinary course or providing for payments by or to the Company
or
obligations in excess of $100,000 per year;
(xvii) commencing
or settling any litigation;
(xviii) licensing
any item of product outside the ordinary course or on terms other than fair
market value;
(xix) approving
or adopting any material employee compensation plan or arrangement;
and
(xx) creating
any subsidiary or taking any of the actions described above with respect to
any
subsidiary.
5.3 Officers. The
day-to-day management of the Company shall be vested in the officers of the
Company under the supervision of the Managing Member.
5.3.1 Delegation. The
Managing Member may appoint, employ or otherwise contract with any Persons
for
the transaction of the business of the Company or the performance of services
for or on behalf of the Company, and the Managing Member may delegate to any
such Persons such authority to act on behalf of the Company as the Managing
Member may from time to time deem appropriate.
5.3.2 Appointment
of President and Chief Executive Officer. Subject to the
terms of the CEO employment agreement, the initial president and chief executive
officer of the Company (the “President and Chief Executive Officer”), will be
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, subject to the terms of any employment agreement between
the
Company and ▇▇. ▇▇▇▇▇▇▇▇▇▇ in effect as of the Effective Date (as it may be
amended in accordance with the terms of this Agreement).
26
5.3.3 Duties
and Powers of President and Chief Executive
Officer. Except as otherwise set forth herein, the
President and Chief Executive Officer will be responsible for the general and
active management of the business of the Company and will see that all orders
and resolutions of the Managing Member are carried into effect. The
President and Chief Executive Officer will report to the board of directors
of
the Managing Member and have the general powers and duties of management usually
vested in the office of president and chief executive officer of a corporation
organized under the General Corporation Law of the State of Delaware, and will
have such other powers and duties as may be prescribed by the Managing Member
or
this Agreement. The President or Chief Executive Officer will execute bonds,
mortgages and other contracts requiring a seal, under the seal of the Company,
except where required or permitted by law to be otherwise signed and executed,
and except where the signing and execution thereof will be expressly delegated
by the Managing Member to some other officer or agent of the
Company. The President and Chief Executive Officer will devote
substantially all of his or her business time to the conduct of the business
of
the Company.
5.3.4 Appointment
of Other Officers. Except as set forth herein, the
President and Chief Executive Officer may appoint officers at any time, and
the
officers may include one or more vice presidents, a secretary, one or more
assistant secretaries, a chief financial officer, a treasurer, one or more
assistant treasurers, a chief operating officer, and any other officers that
the
President and Chief Executive Officer deems appropriate. Except as set forth
herein, the officers will serve at the pleasure of the Managing Member and
the
President and Chief Executive Officer, subject to all rights, if any, of such
officer under any contract of employment. Any individual may hold any number
of
offices, and an officer may, but need not, be a Member of the Company. The
officers will exercise such powers and perform such duties as specified in
this
Agreement or as determined from time to time by the Managing Member or by the
President and Chief Executive Officer.
5.3.5 Removal;
Resignation; Vacancy. Subject to this Agreement and to
the rights, if any, of an officer under a contract of employment, any officer
may be removed, either with or without cause, by the Managing Member or the
President and Chief Executive Officer. Any officer may resign at any
time by giving written notice to the Managing Member. Any resignation
will take effect at the date of the receipt of that notice or at any later
time
specified in that notice; and, unless otherwise specified in that notice, the
acceptance of the resignation will not be necessary to make it
effective. Any resignation is without prejudice to the rights, if
any, of the Company under any contract to which the officer is a party. A
vacancy in any office because of death, resignation, removal, disqualification
or any other cause will be filled in the manner prescribed in this Agreement
for
regular appointments to that office.
27
5.3.6 Reliance. In
exercising their authority and performing their duties under this Agreement,
the
officers shall be entitled to rely on information, opinions, reports or
statements of (i) one or more employees or other agents of the Company or in
subordinates whom the officer reasonably believes to be reliable and competent
in the matters presented and (ii) any attorney, public accountant or other
Person as to matters which the officer reasonably believes to be within such
Person’s professional or expert competence, unless they have actual knowledge
concerning the matter in question that would cause such reliance to be
unwarranted.
5.4 Unanimous
Consent of Members. Regardless of anything to the
contrary in this Agreement, the Company may take any action contemplated under
this Agreement if approved by the unanimous written consent of the
Members.
5.5 Right
of First Negotiation for Genius
Financings. Notwithstanding anything to the contrary
herein, if Genius decides to raise additional capital, whether by conducting
a
private placement, public offering or other sale or disposition of equity or
debt securities, from any other incurrence of additional indebtedness or from
the sale of any property, Genius shall first deliver a written notice thereof
to
WCO, which notice will set forth in reasonable detail all material terms and
conditions of the proposed capital raising transaction. WCO will then
have the option of negotiating with Genius to acquire the securities or property
to be issued or sold in such capital raising transaction. If WCO
elects to negotiate with Genius, Genius and WCO will negotiate in good faith
to
reach an agreement for the sale of the proposed properties or securities to
WCO
for a sixty (60) day period following notification. If, by the last
day of said sixty (60) day period, Genius and WCO have not reached an agreement
or a non-binding term sheet or letter of intent for the sale of Genius’
properties or securities to WCO, Genius shall be free to conduct such capital
raising transaction with such other parties as it desires on the same terms
and
conditions in all material respects that were presented to WCO, provided,
that Genius shall re-offer any transaction or financing to WCO
as
provided in this Section 5.5 if the terms at which such financing or transaction
are proposed to be accomplished are materially less favorable to Genius in
any
respect than the terms of the transaction or financing initially presented
to
WCO.
ARTICLE
6
DISTRIBUTIONS,
TAX MATTERS, AND ALLOCATIONS
6.1 Distributions. Subject
to Section 6.2 below, Available Cash will be distributed to the Members and
applicable Holders pro rata to each Holder of Units in accordance with its
respective Percentage Interest, at such times as the Managing Member determines
in its sole discretion, subject to Class W Prior Approval in accordance with
Section 5.2 (each such distribution pursuant to this Section 6.1 being
a “Distribution” and the date of such Distribution a “Distribution
Date”).
6.2 Tax
Distributions. During each Fiscal Year or within
forty-five (45) days after the end thereof, the Company shall make distributions
to each Member from Available Cash pro rata in accordance with their respective
Percentage Interests in an aggregate amount equal to the Annual Target Tax
Distribution. The “Annual Target Tax Distribution” shall mean the
minimum
28
amount
which, if distributed to the Members in accordance with their respective
Percentage Interests, would provide each Member with an amount at least equal
to
the excess of (A) the product of (i) the sum of the amount of net capital gain
and the net amount of all items taxable at ordinary income rates (or deductible
from ordinary income) allocable to such Member on such Member’s Schedule K-1 to
the Company’s Form 1065 for such Fiscal Year, and (ii) the highest combined
effective federal, state and local tax rate applicable to an individual resident
in New York City, over (B) the aggregate amount of distributions received by
such Member pursuant to Section 6.1 during such Fiscal Year. Amounts
distributed pursuant to this Section 6.2 shall be referred to as “Tax
Distributions.” Tax Distributions shall be estimated by the Tax
Matters Partner on a quarterly basis and to the extent feasible shall be
distributed to the Members on a quarterly basis to facilitate the payment of
estimated taxes by the Members or their beneficial owners. Any Member
shall have the option of deferring its right to receive Tax
Distributions with respect to a Fiscal Year in favor of taking such Tax
Distributions at such future time or times as such Member may
elect. In the event that the amount of distributions made to the
Members pursuant to this Section 6.2 with respect to any Fiscal Year are less
than the amount of the Annual Target Tax Distribution calculated for such Fiscal
Year, the shortfall shall carry over and be distributed to the Members in the
next succeeding Fiscal Year (or, if necessary, in other succeeding Fiscal Years)
as a priority distribution before distributions are made to the Members on
account of the Annual Target Tax Distribution amounts calculated for the Fiscal
Year(s) to which such shortfall is carried. If, as a result of an audit
adjustment, amended return, or other cause that affects amount of income. gain,
loss or deduction previously reported or that should have been reported on
a
Member’s or former Member’s Schedule K-1 to the Company’s Form 1065 with respect
to a prior Fiscal Year, additional taxes, interest or penalties (collectively,
“Back Taxes”) are imposed on such Member or former Member with respect to such
prior Fiscal Year , the Annual Target Tax Distributions of each Member for
such
prior Fiscal Year shall be recalculated by including therein such Member’s Back
Taxes and each Member or former Member shall receive a distribution equal to
the
additional Tax Distribution it would have received for such prior Fiscal Year
based on the recalculated Annual Target Distributions. By way of
clarification, no Tax Distribution shall be made in respect of Back Taxes
incurred by any Member in connection with the acquisition by the Company of
the
distribution rights evidenced by the Distribution Agreement or the contributions
by Genius or with respect to transactions undertaken or income allocated to
a
Member prior to the contributions by Genius.
6.3 Allocations
of Net Income and Net Losses. All allocations of Net
Income, Net Losses and any other items of income, gain, loss, deductions and
credit of the Company shall be made in accordance with the provisions of Exhibit
D hereto.
6.4 Tax
Matters for the Company Handled by Tax Matters
Partner. The Tax Matters Partner is authorized and
required to represent the Company (at the Company’s expense) in connection with
all examinations of the Company’s affairs by tax authorities, including
administrative and judicial proceedings, and to expend Company funds for
professional services and costs associated therewith. The Tax Matters
Partner shall have the authority and responsibility to arrange for the
preparation of, and timely file, the Company’s tax returns. Notwithstanding the
foregoing, (1) the Tax Matters Partner will promptly notify WCO of
the commencement of any audit or similar proceedings and will give WCO prior
notice of all scheduled telephonic or other meetings with the Internal Revenue
Service or other taxing authority and copies of all notices or other written
communications received from any taxing
29
authority
related thereto, (2) WCO will have the right to attend such meetings and to
control any audit (with counsel of its own choice) to the extent it relates
to
the tax treatment of the transactions described in the Master Contributions
Agreement, and (3) the Tax Matters Partner will not make any material election
or decision under the Code or in connection with any audit without the approval
of WCO, which shall not be unreasonably withheld. The selection of
the Company’s independent accountants and, except as described in (2) above,
outside legal counsel in connection with any audit or similar proceeding, shall
be subject to the mutual approval of WCO and Genius. The Tax Matters
Partner shall provide a draft copy of the Company’s federal information income
tax return to WCO not less than twenty-one (21) days prior to the due date
(with
extensions) of such return for WCO’s review and approval. In applying
any approval rights pursuant to this Section 6.4, WCO shall not be entitled
to
withhold its approval for any position on such draft return (or otherwise
pursuant to this Section 6.4) for which there is (i) “substantial authority”
within the meaning of Treasury Regulation Section 1.6662-4 (established, if
requested by WCO, by the opinion of tax counsel to the Company); or (ii) if
there is not substantial authority described in clause (i), a “reasonable
basis,” within the meaning of Treasury Regulation Section 1.6662-3(b)(3) (also
established, if requested by WCO, by the opinion of tax counsel to the Company),
provided that WCO in each case shall not be required to approve a position
if
there is “substantial authority” for an alternative treatment advocated by WCO
of the tax item or transaction in question and WCO is able to establish the
existence of such “substantial authority” to the reasonable satisfaction of tax
counsel or the accountants for the Company, in which case the position advocated
by WCO shall be prevail. In exercising its authority under this
Section 6.4 or otherwise under the Agreement, the Tax Matters Partner shall
not
bind any other Member in connection with any audit proceeding without the
consent of such Member. The Members acknowledge and agree that they
have no intent to cause the Company to enter into, and will use commercially
reasonable best efforts to cause the Company not to enter into any transaction
that would be treated as a “listed transaction” as currently or
hereafter defined in Treasury Regulation Section 1.6011-4(b)(2) or by any
pronouncement of the Internal Revenue Service or as a “tax shelter” as defined
in section 6662(d)(2)(C) of the Code.
6.5 Distributions
in Kind. The Company may, in the sole discretion of the
Managing Member and subject to WCO’s rights under Section 5.2 hereof, make
Distributions of securities or other non-cash assets. The Managing
Member will ensure that such securities or other assets are distributed in
such
a manner as to ensure that the fair market value is distributed and allocated
in
accordance with Section 7.1.
6.6 Compliance
With the Act. Notwithstanding anything in this Agreement
to the contrary, no distribution will be made by the Company to a Member on
account of its Interest in the Company pursuant to this Agreement that is
prohibited by the Act or other applicable law.
6.7 Liability
for Amounts Distributed. The Members agree that, except
as otherwise expressly provided herein or required by applicable law, no Member
will have an obligation to return money or other property paid or distributed
to
such Member, whether or not such distribution was in violation of the
Act. The agreement set forth in the immediately preceding sentence
will be deemed to be a compromise for purposes of §18-502(b) of the
Act. However, if any court of competent jurisdiction holds that,
notwithstanding the provisions of this Agreement, any Member is obligated to
make any such return, such obligation will be the obligation of such Member
and
not of any other Person.
30
ARTICLE
7
EXCULPATION
AND INDEMNIFICATION; OTHER MATTERS
7.1 Performance
of Duties; Liability of Members. Except as provided in
this Agreement, the Members shall not be liable to the Company or to any other
Member or any other Person bound by this Agreement for any loss or damage
sustained by the Company or a Member, unless the loss or damage shall have
been
the result of actually proven fraud, deceit, gross negligence, reckless or
intentional misconduct or a knowing violation of law by such
Member. The Managing Member shall perform its managerial duties in
good faith, in a manner that it reasonably believes to be in the best interests
of the Company and its Members, and with such care, including reasonable
inquiry, as an ordinarily prudent person in a like position would use under
similar circumstances.
7.2 Exculpation
and Indemnification. The Company will defend, indemnify,
protect and hold harmless any Person who was or is a party or is threatened
to
be made a party to any threatened, pending or completed action, suit or
proceeding by reason of the fact that such Person (i) is or was a Member,
Managing Member, officer, director, employee, consultant or other agent or
Affiliate of the Company or that, being or having been such a Member, Managing
Member, officer, employee or agent or Affiliate of such parties, such Person
is
or was serving at the request of the Company as a manager, director, officer,
employee, consultant or other agent of another limited liability company,
corporation, partnership, joint venture, trust or other enterprise, or (ii)
is
or was an officer, director, member, employee, consultant or other agent or
Affiliate of a Member, Managing Member or any of their respective Affiliates
(all such Persons being referred to hereinafter as a “Covered Person”), to the
fullest extent permitted by applicable law in effect on the Effective Date
and
to such greater extent as applicable law may hereafter from time to time permit;
provided, however, that any such Covered Person will not be
entitled to indemnification hereunder if the loss or damage was the result
of
fraud, deceit, gross negligence, reckless or intentional misconduct or a knowing
violation of law by such Covered Person. The foregoing defense,
indemnification and hold harmless obligation will extend to (x) any cost,
damage, disbursement, expense, liability, loss, deficiency, diminution in value,
obligation, penalty or settlement of any kind or nature, whether foreseeable
or
unforeseeable, including interest or other carrying costs, penalties, and (y)
legal, accounting and other professional fees and expenses reasonably incurred
in the investigation, collection, prosecution and defense of claims and amounts
paid in settlement, that may be imposed on or otherwise incurred or suffered
by
the specified Person as a result of such threatened, pending or completed
action, suit or proceeding which shall be paid by the Company when due
(“Losses”); provided, however, that such Covered Person may be
required to repay such expenses if it is determined by agreement between such
Covered Person and the Company or, in the absence of such an agreement, by
a
final judgment of a court of competent jurisdiction that such Covered Person
is
not entitled to be indemnified pursuant to this Section 7.2. The
Managing Member will be authorized, on behalf of the Company, to enter into
indemnity agreements from time to time with any Covered Person entitled to
be
indemnified by the Company hereunder, upon such terms and conditions as the
Managing Member deems appropriate in its business judgment. The
indemnification rights set forth herein will be in addition to, and will not
be
exclusive of, any other rights to which such Covered Person may be entitled
by
contract or otherwise under applicable law.
31
7.3 Notice;
Procedures. Promptly after receipt by a Covered Person
of notice of the commencement of any proceeding against such Covered Person,
such Covered Person will, if a claim for indemnification in respect thereof
is
to be made against the Company, give written notice to the Managing Member
of
the commencement of such proceeding, provided, that the failure of
a Covered Person to give notice as provided herein will not relieve the Company
of its obligations under Section 7.2, except to the extent that the Company
is materially prejudiced by such failure to give notice. In case any
such proceeding is brought against a Covered Person (other than a proceeding
by
or in the right of the Company), after the Company has acknowledged in writing
its obligation to indemnify and hold harmless the Covered Person, the Company
will be entitled to assume the defense of such proceeding; provided,
however, that: (i) the Covered Person will be entitled to
participate in such proceeding and to retain its own counsel at its own expense;
and (ii) if the Covered Person will give notice to the Company that in its
good
faith judgment certain claims made against it in such proceeding could have
a
material adverse effect on the Covered Person or its Affiliates other than
as a
result of monetary damages, the Covered Person will have the right to control
(at its own expense and with counsel reasonably satisfactory to the Company)
the
defense of such specific claims with respect to the Covered Person (but not
with
respect to the Company or any other Member); provided, further,
that if a Covered Person elects to control the defense of a specific claim
with
respect to such Covered Person, such Covered Person will not consent to the
entry of a judgment or enter into a settlement that would require the Company
to
pay any amounts under Section 7.2 without the prior written consent of the
Company, such consent not to be unreasonably withheld; and provided,
further, that, notwithstanding the foregoing, WCO or its designated
Affiliates will be entitled to control the defense on behalf of itself or any
Covered Person that is or was an officer, director, member, employee, consultant
or other agent or Affiliate of WCO (a “WCO Indemnified Person”), at the
Company’s expense and with counsel of WCO’s choice reasonably satisfactory to
the Company. After notice from the Company to such Covered Person
acknowledging the Company’s obligation to indemnify and hold harmless the
Covered Person and electing to assume the defense of such proceeding, the
Company will not be liable for expenses subsequently incurred by such Covered
Person in connection with the defense thereof, other than with respect to a
WCO
Indemnified Person. Without the consent of such Covered Person, the
Company will not consent to the entry of any judgment or enter into any
settlement that does not include as an unconditional term thereof the giving
by
the claimant or plaintiff to such Covered Person of a release from all liability
arising out of the proceeding and claims asserted therein.
7.4 Insurance. The
Company will have the power to purchase and maintain insurance on behalf of
any
Person who is or was a Covered Person against any liability asserted against
such Person and incurred by such Person in any such capacity, or arising out
of
such Person’s status as a Covered Person, whether or not the Company would have
the power to indemnify such Person against such liability under the provisions
of Section 7.2 or under applicable law. The Company will obtain
and maintain such insurance policies covering the Members, Managing Member
and
officers of the Company as are, in the good faith determination of the Managing
Member, consistent with its exculpation and indemnification obligations set
forth herein. The coverage amounts and other terms of each of the
insurance policies will be determined and/or changed by the Managing Member
from
time to time, provided, that the Members, Managing Member and
officers of the Company will be listed as named insureds.
32
ARTICLE
8
TRANSFER
OF INTERESTS
8.1 Transfer
of Interests. Subject to Section 8.7, each of WCO
and W-G Holding may sell, encumber, mortgage, hypothecate, assign, pledge,
transfer or otherwise dispose of all or any portion of their respective Units,
Membership Interest or Economic Interest (a “Transfer”) to any other party in
its sole discretion, provided, however, that, from the
Effective Date through December 31, 2009, WCO and W-G Holding shall not
Transfer that portion of their respective Class W Units that remain subject
to
the Company Repurchase Right pursuant to Section 4.2 at the time
of such Transfer, other than to a Permitted Transferee. Except with
the written approval of WCO, which it may withhold in its sole discretion,
to
the fullest extent permitted by law, Genius may not Transfer all or any portion
of its Units to any Person, by operation of law or otherwise. Upon
any transfer by Genius in violation of this Section 8.1, WCO or its designee
shall become the Managing Member.
8.2 Rights
of Assignees. Until such time, if any, as a transferee
of any Transfer under Section 8.1 is admitted to the Company as a
substitute Member pursuant to Section 8.3, such transferee shall be only a
Holder of an Economic Interest; provided,however, that a Permitted
Transferee shall automatically become a substitute Member effective upon such
Transfer.
8.3 Actions
Following Transfers. The Company shall not recognize any
Transfer of an Economic Interest or Membership Interest unless all costs
incurred by the Company to effect such Transfer have been paid by the transferor
and there is filed with the Company a written and dated notification of such
Transfer, in form and substance satisfactory to the Company, executed and
acknowledged by the transferor and the transferee and such notification
(i) contains the agreement by the transferee to be bound by all the terms
and conditions of this Agreement and (ii) represents that such Transfer was
made in accordance with all applicable securities laws and
regulations. The transferee of all (or a part, as the case may be) of
a Membership Interest, Economic Interest or Units who becomes a substitute
Member will succeed to all (or a pro rata portion, as the case may be) of the
Capital Account of the transferor of such Membership Interest, Economic Interest
or Units, including all adjustments made thereto, and will have all the rights
and powers and be subject to all the restrictions and liabilities of a Member
under this Agreement holding the same class of Units. Admission of a
substitute Member will become effective on the date such Person’s name is
recorded on the books and records of the Company. Upon the admission
of a substitute Member: (1) the Managing Member will amend Exhibit A to reflect
the name and address of, and number and class of Units held by, such substitute
Member and to eliminate or adjust, if necessary, the name, address and Units
of
the predecessor of such transferee Member; and (2) to the extent of the Transfer
to such substitute Member, the transferor Member will be relieved of its
obligations under this Agreement.
8.4 Effect
on Distributions. Any Member or Holder who Transfers all
of its Units in a Transfer permitted pursuant to this Article 8 will cease
to be
a member of the Company. All Distributions with respect to which the
Distribution Date is before the date of a Transfer in accordance with this
Article 8 will be made to the transferor Member or Holder, and all Distributions
with respect to which the Distribution Date is after the date of such Transfer
will be made to the substitute Member or Holder.
33
8.5 Unauthorized
Transfers. To the fullest extent permitted by law, any
purported Transfer by a Member or other holder of a Membership Interest,
Economic Interest or Units that does not comply with Section 8.1 or is not
recognized by the Company under Section 8.4 will be null and void ab initio
and shall not be recognized by the Company, and the transferee under such
purported Transfer will acquire no title or ownership thereby but will hold
such
Economic Interest or Units for the benefit of the other Members or holders
of
Economic Interests.
8.6 Pledge
of Interests. Subject to Section 8.1,
notwithstanding anything in this Agreement to the contrary, a Member or Holder
will be entitled to pledge its Membership Interest, Economic Interest or Units
as security for a loan or other financing, provided,
that: (i) the security interest is granted only to a bank or
other financial institution chartered and insured by all applicable state and
federal governmental entities; (ii) any right of foreclosure on such security
interest granted with respect to Class G Units by the bank or other financial
institution will be subject to the other Members’ right to cure any default with
respect to such financing and purchase the Membership Interest with respect
to
such Class G Units; (iii) if the Members elect not to cure any default and
purchase the Membership Interest, Economic Interest or Units following any
default and the bank or financial institution forecloses on the Membership
Interest, Economic Interest or Units, the bank or financial institution or
other
purchaser in such foreclosure proceedings will receive only an Economic Interest
and will not be admitted to the Company as a Member; (iv) the holder of the
pledged Membership Interest will not be entitled to exercise any voting or
other
rights of a Member, other than the right to receive Distributions with respect
to such pledged Membership Interest as set forth herein; and (v) WCO or its
designee shall become the Managing Member immediately upon any foreclosure
of
any security interest granted with respect to Class G Units.
8.7 Restrictions
on Transfer. Notwithstanding any other provision of this
Agreement, (i) no Member shall Transfer any Unit, or any interest therein,
and
(ii) neither the Company nor any Member shall enter into any financial
instrument or contract the value of which is determined in whole or in part
by
reference to the Company and which would be treated as an “interest in a
partnership” for purposes of Treasury Regulation Section 1.7704-1, if the effect
of such Transfer, or of such financial instrument or contract, would be to
cause, or create a material risk of causing, (A) the Company to be classified
as
a publicly traded partnership within the meaning of Section 7704 of the Code,
or
(B) the Company to terminate for federal income tax purposes. In
furtherance of the foregoing, unless otherwise consented to by WCO and the
Managing Member in writing in their sole discretion, any Transfer of a Unit
or
interest therein must satisfy one or more safe harbor provisions of Treasury
Regulations Section 1.7704-1 including Sections 1.7704-1(e), (f), (g), (h)
and
(j), relating to 'publicly traded partnerships. The Managing Member
is authorized to obtain, as a condition to recognizing any Transfer of any
Unit
or any interest therein, an opinion of counsel to the Company to the effect
that
such Transfer meets one or more of such safe harbors or otherwise will not
cause, or create a material risk of causing, the Company to be treated as a
publicly traded partnership for purposes of Section 7704 of the Code or to
terminate for federal income tax purposes. The costs of any such
opinion required by the Managing Member shall be borne solely by the Member
seeking to make a Transfer. To the fullest extent permitted by law, any Transfer
made in violation of this Section 8.7 shall be null and void ab initio and
shall
not be recognized by the Company.
34
ARTICLE
9
DISSOLUTION
AND WINDING UP
9.1 Dissolution. The
Company shall be dissolved, its assets shall be disposed of, and its affairs
wound up upon the first to occur of the following (each a “Dissolution
Event”):
9.1.1 the
entry of a decree of judicial dissolution pursuant to the Act;
9.1.2 the
approval of the Managing Member with Class W Prior Approval;
9.1.3 the
sale of all or substantially all of the assets of the Company or any similar
transaction with similar effect;
9.1.4 the
happening of any other event that makes it unlawful or impossible to carry
on
the business of the Company; or.
9.1.5 at
any time there are no members of the Company, unless the Company is continued
in
accordance with the Act.
9.2 Winding
Up. Upon the occurrence of any event specified in 9.1,
the Company shall continue solely for the purpose of winding up its affairs
in
an orderly manner, liquidating its assets, and satisfying the claims of its
creditors. The Managing Member or a Person designated by the Managing
Member shall be responsible for overseeing the winding up and liquidation of
the
Company, shall take full account of the liabilities of the Company and its
assets, shall either cause its assets to be sold or distributed and if sold
as
promptly as is consistent with obtaining the fair market value thereof, shall
cause the proceeds therefrom, to the extent sufficient therefor, to be applied
and distributed as provided in Section 9.4. The Person(s)
winding up the affairs of the Company shall be entitled to reasonable
compensation for such services.
9.3 Payment
of Liabilities and Liquidating Distributions Upon
Dissolution. After satisfaction of the liabilities of
the Company to creditors (whether by payment or the making of reasonable
provision for payment thereof), including debts and liabilities to Members
who
are creditors of the Company and expenses of liquidation, the remaining assets
will be distributed to the Members as follows:
(i) first,
to the Holders of Class W Units in an aggregate amount equal to the product
of
the Floor Amount per Class W Unit and the number of Class W Units then
outstanding, pro-rata in accordance with their Percentage Interests (the “Class
W Liquidating Distribution Preference”);
(ii) second,
to the Holders of Class G Units pro-rata in accordance with their Percentage
Interests until the Holders of Class G Units have received aggregate
distributions pursuant to this clause (ii) equal to the product of (x) their
aggregate Percentage Interest (based on all outstanding Units of the Company)
and (y) the aggregate amount of the Class W Liquidating Distribution and the
amount distributed to the Holders of Class G Units under this clause (ii);
and
35
(iii) thereafter,
pro-rata to the Holders of all Units in accordance with their respective
Percentage Interests.
9.4 Certificate
of Cancellation. The Managing Member shall cause to be
filed in the office of, and in a form prescribed by, the Delaware Secretary
of
State, a certificate of cancellation of the Certificate of Formation upon the
completion of the winding up of the affairs of the Company.
9.5 Rights
of Members. Except as otherwise provided in this
Agreement, (a) each Member shall look solely to the assets of the Company for
the return of its Capital Contributions, (b) if the Company property
remaining after the payment or discharge of the debts and liabilities of the
Company is insufficient to return the investment of each Member, such Members
will have no recourse against other Members for indemnification, contribution
or
reimbursement; and (c) no Member shall have priority over any other Member
as to
the return of its Capital Contributions, distributions, or allocations; and
no
Member shall be required to restore a deficit balance in its Capital Account
to
the Company at any time.
ARTICLE
10
ACCOUNTING,
RECORDS, REPORTING BY MEMBERS
10.1 Deposits. All
funds of the Company will be deposited from time to time to the credit of the
Company in such banks or other depositories as the Managing Member may
select.
10.2 Checks,
Drafts, etc. All checks, drafts or other orders for the
payment of money, and all notes or other evidences of indebtedness issued in
the
name of the Company will be signed by an officer or officers authorized to
do so
by the Managing Member; provided that checks over $____ shall require two
signatures.
10.3 Accounts. The
Company shall maintain or cause to be maintained books and records of account
relating to the assets and income of the Company and the payment of expenses
of,
and liabilities or claims against or assumed by, the Company in such detail
and
for such period of time as may be necessary to enable it to make full and proper
accounting in respect thereof and to comply with applicable provisions of law
and to permit the Company to provide the reports required by Section 10.8 and
any other information reasonably requested by WCO.
10.4 Accounting. The
Company shall use the accrual method of accounting in preparing its books and
records of account for tax purposes. All books and records of account
of the Company shall be maintained and reported based upon generally accepted
accounting principles, consistently applied, employing standards, procedures
and
forms conforming to established practice in the United States.
10.5 Books
and Records. The books and records of the Company shall
reflect all the Company transactions and shall be appropriate and adequate
for
the Company’s business and to comply with applicable law and listing regulations
and standards, including at it may relate to Genius and WCO. The
Company shall maintain the Company’s books and records at its principal
office.
36
10.6 Right
of Inspection. A Member shall have the right to examine,
at any reasonable time for any purpose, the minutes and records of the Managing
Member and the books and records of account of the Company, and to make copies
thereof. Notwithstanding anything to the contrary set forth in
Section 18-305 of the Act, the Company and the Managing Member shall not have
the right to keep confidential from any Member any information relating to
the
Company or its affairs. Upon the written request of any Member of the
Company (which may be made by e-mail), the Company shall cause to be delivered
to such Member the most recent financial statements of the Company, showing
in
reasonable detail its assets and liabilities and the results of its
operations. Such inspection may be made by any agent or duly
appointed attorney of the Member making such request.
10.7 Audit. The
Company will engage a reputable third party public accounting firm chosen by
the
Managing Member subject to Class W Prior Approval in accordance with
Section 5.2 to conduct an audit of the financial statements of the
Company on an annual basis, unless the Managing Member elects to do so on a
more
frequent basis.
10.8 Reports. The
Managing Member will cause to be delivered to each Member (i) a monthly
financial statement of the Company (within ten (10) days following the end
of
each month); (ii) a quarterly financial statement of the Company (within twenty
(20) days following the end of each quarter); and (iii) annual audited financial
statements of the Company (within seventy-five (75) days following the end
of
each Fiscal Year). Such other reports as determined by the Managing
Member to be necessary will be prepared by the Managing Member or authorized
officers of the Company, and will contain such information and cover such
matters as determined by the Managing Member and will be distributed to the
Members at such times as determined by the Managing Member. The
Managing Member shall from time to time provide WCO with such information as
WCO
shall request regarding the Company’s business and operations.
10.9 Tax
Information. Within ninety (90) days after the end of
each Fiscal Year, or as soon as practicable thereafter, the Company will send
to
each Person who was a Member or Holder at any time during such Fiscal Year
a
Schedule K-1 to IRS Form 1065 and such other information, if any, with respect
to the Company as may be necessary for the preparation of such Member’s or
Holder’s federal income tax returns, including a statement showing such Member’s
or Holder’s share of income, gain, loss, expense and credits for such Fiscal
Year for federal income tax purposes. In addition, at the request of
any Member, the Company will send to such Member, within ninety (90) days after
the end of each Fiscal Year, or as soon as practicable thereafter, the Company’s
Form 1065 and such information regarding the Company’s state tax returns as such
Member may reasonably request.
ARTICLE
11
MISCELLANEOUS
11.1 Complete
Agreement. This Agreement and the Certificate of
Formation constitute the complete and exclusive statement of agreement among
the
Members with respect to the subject matter herein and therein and replace and
supersede all prior written and oral agreements or statements by and among
the
Members or any of them. No representation, statement, condition or
warranty not contained in this Agreement or the Certificate of Formation will
be
binding on the Members or have any force or effect whatsoever. To the
extent that any provision of the Certificate of Formation conflicts with any
provision of this Agreement, this Agreement shall control.
37
11.2 Pronouns;
Statutory References. All pronouns and all variations
thereof shall be deemed to refer to the masculine, feminine, or neuter, singular
or plural, as the context in which they are used may require.
11.3 References
to this Agreement. Numbered articles and sections herein
contained refer to articles and sections of this Agreement unless otherwise
expressly stated.
11.4 Governing
Law; Jurisdiction. This Agreement will be governed by,
construed under and interpreted in accordance with the internal laws of the
State of Delaware without regard to its conflicts of laws
principles. Each Member hereby consents to the non-exclusive
jurisdiction of the state and federal courts sitting in New York in any action
on a claim arising out of, under or in connection with this Agreement or the
transactions contemplated by this Agreement. Each Member further
agrees that, to the fullest extent permitted by law, personal jurisdiction
over
him, her or it may be effected by service of process by registered or certified
mail addressed as provided in Exhibit F of this Agreement, and that when
so made will be as if served upon him, her or it personally. EACH OF
THE MEMBERS HEREBY WAIVES TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING
ANY
DISPUTE, CONTROVERSY OR CLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT
OR
RELATING TO THE COMPANY OR ITS OPERATIONS.
11.5 Successors. This
Agreement will bind and inure to the benefit of the parties hereto and their
respective successors and permitted assigns.
11.6 Amendments. Except
as otherwise provided in this Section 11.6, all amendments to this Agreement
shall be in writing and shall not be effective unless approved by Genius and
WCO; provided, however, that any such amendment which
disproportionately disadvantages one Member relative to another Member shall
not
be effective without the written concurrence of such disadvantaged
Member. Amendments to Exhibit A following any issuance, redemption,
repurchase, reallocation or Transfer of Units in accordance with this Agreement,
and any amendments made pursuant to Section 1.5 of Exhibit D may be made by
the
Managing Member without the consent of or execution by the Members.
11.7 Exhibits,
Schedules and Appendices. All Exhibits, Schedule and
Appendices attached to this Agreement are incorporated and shall be treated
as
if set forth herein.
11.8 Severability. The
provisions of this Agreement are severable. The invalidity, in whole
or in part, of any provision of this Agreement shall not affect the validity
or
enforceability of any other of its provisions. If one or more provisions hereof
shall be declared invalid or unenforceable, the remaining provisions shall
remain in full force and effect and shall be construed in the broadest possible
manner to effectuate the purposes hereof. The parties further agree
to replace such void or unenforceable provisions of this Agreement with valid
and enforceable provisions which will achieve, to the extent possible, the
economic, business and other purposes of the void or unenforceable
provisions.
38
11.9 Additional
Documents and Acts. Each Member agrees to cooperate
fully with the other Members, to execute and deliver such additional documents
and instruments, to give such further written assurances and to perform such
additional acts as may be reasonably necessary or appropriate to effectuate,
carry out and perform all of the terms, provisions, and conditions of this
Agreement and the transactions contemplated hereby.
11.10
Notices. All notices or elections required or
permitted hereunder shall be in writing and shall be delivered in person by
telecopy, facsimile, telex or equivalent form of written telecommunication
(with
confirmation of delivery), or sent by certified or registered mail, return
receipt requested, postage prepaid, to the address set forth by each Member
on
Exhibit A hereto or such other party and/or address as any of such parties
may
designate in a written notice served upon the other parties in the manner
provided for herein. All notices required or permitted hereunder
shall be deemed duly given and received on the date of delivery, if delivered
in
person or by telex, telecopy or other written telecommunications or on the
seventh day next succeeding the date of mailing if sent by certified or
registered mail.
11.11 No
Waiver. Neither the failure nor delay on the part of any
party hereto to exercise any right, remedy, power or privilege under this
Agreement will operate as a waiver thereof, nor will any single or partial
exercise of any right, remedy, power or privilege preclude any other or further
exercise of the same or of any other right, remedy, power or privilege, nor
will
any waiver of any right, remedy, power or privilege with respect to any
occurrence be construed as a waiver of such right, remedy, power or privilege
with respect to any other occurrence. No waiver will be effective
unless it is in writing and is signed by the party asserted to have granted
such
waiver.
11.12 Partition. Each
Member and Holder irrevocably waives any right that it may have to maintain
an
action for partition with respect to the property of the Company.
11.13 Press
Releases. Except only as and to the extent required by
law, neither WCO nor the Managing Member shall (i) make any disclosure with
respect to this Agreement, any transaction contemplated by this Agreement or
with respect to the business of the Company without the prior consent of the
other party or (ii) release information regarding the matters contemplated
herein except that a joint press release in agreed form may be issued by WCO
and
the Managing Member after the execution of this Agreement. With
respect to disclosures by the Managing Member to the SEC or any other regulatory
agency or pursuant to any governmental regulations, the Managing Member will
consult with WCO regarding any and all such disclosures about or relating to
WCO
or its business and WCO will have the right to review and comment on such
disclosures. The Managing Member will use its best efforts to comply
with WCO’s requests and comments, including by limiting such disclosures to the
extent possible and/or by seeking confidential treatment of such disclosures
and
involving WCO in such process (including without limitation allowing WCO to
participate in discussions regarding limited disclosures and confidential
treatment of disclosures, to the extent practicable). With respect to
all other disclosures by the Managing Member, whether such disclosure is to
actual or potential sources of debt, equity or other capital or to any other
third party, WCO will have the right to review and
39
approve
in its sole discretion any and all such disclosures about or relating to WCO
or
its business. Notwithstanding anything to the contrary herein, Genius
acknowledges that WCO shall be entitled to make all filings and disclosures
regarding the Company, Genius, its investment in the Company or Genius, or
with
respect to any other matter, that it deems necessary or advisable in its sole
discretion if WCO at any time becomes a public reporting company under the
Securities Exchange Act of 1934, as amended.
11.14 Multiple
Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
shall constitute one and the same instrument.
11.15 Costs. The
Company shall be responsible for and shall reimburse each of Genius and WCO
for
all of their respective expenses, including, without limitation, expenses of
lenders, legal counsel, investment bankers, consultants, accountants and other
advisors, incurred at any time in connection with pursuing or consummating
the
transactions contemplated by this Agreement, the Distribution Agreement and
the
Master Contribution Agreement.
11.16 Interpretation. If
any claim is made by a party relating to any conflict, omission or ambiguity
in
the provisions of this Agreement, it is the intent of the parties that no
presumption or burden of proof or persuasion be implied because this Agreement
was prepared by or at the request of any party or its counsel.
11.17 Valuation
Disputes. As provided in this Section 11.17, WCO may
dispute any determination by the Managing Member of (i) the fair market value
of
any evidences of indebtedness or assets distributed to holders of Genius Common
Stock or the amount of any indemnification liability or obligation paid or
satisfied by the Company, in connection with a determination of the Adjustment
Factor or (ii) the Value of any Rights (any of the foregoing determinations,
a
“Managing Member Determination”). Promptly following any Managing
Member Determination, the Managing Member shall provide WCO with written notice
of that determination in reasonable detail, including its calculations
thereof. If WCO disputes the Managing Member Determination, WCO shall
notify the Managing Member in writing of that dispute within thirty (30) days
after delivery of the calculation of the Managing Member Determination and
any
reasonably requested supporting information, which notice shall describe the
nature of WCO’s dispute and WCO’s calculation of the relevant fair market value,
indemnification liability or obligation, number of shares of Genius Common
Stock
or Value, as the case may be, applicable to the Managing Member
Determination. During the thirty (30) day period of its review, WCO
will have reasonable access to any documents, schedules or other information
used by the Managing Member in making the Managing Member
Determination.
WCO
and
the Managing Member agree to negotiate in good faith to resolve any dispute
regarding the Managing Member determination. If WCO and the Managing
Member are unable to resolve all disputes within thirty (30) days after WCO’s
delivery to the Managing Member of written notice of that dispute, then the
dispute will be submitted for final and binding resolution to an independent
third party accounting firm or appraiser (the “Arbitrator”) selected by WCO and
the Managing Member in good faith. If the parties cannot agree on an
Arbitrator, the parties shall each choose a proposed Arbitrator an such two
proposed Arbitrators shall choose a third Arbitrator who shall act as sole
Arbitrator. The Arbitrator will resolve the matter in
accordance
40
with
the
terms and provisions of this Agreement. The Arbitrator will deliver
to WCO and the Managing Member as promptly as practicable and in any event
within sixty (60) days after its appointment, a written report setting forth
the
resolution of any such dispute determined in accordance with the terms of this
Agreement. The Arbitrator shall select as a resolution the position
of either WCO or the Managing Member for each issue in dispute and may not
impose an alternative resolution. The Arbitrator shall make its
determination based exclusively on presentations and supporting material
provided by the parties and not pursuant to any independent
review. The determination of the Arbitrator shall be final and
binding on WCO and the Managing Member. The fees, expenses and costs
of the Arbitrator shall be paid by the Company.
|
|
[Remainder
of Page Intentionally Left Blank]
|
41
IN
WITNESS WHEREOF, the Members of Genius Products, LLC, a Delaware
limited liability company, have executed this Agreement, effective as of the
date first written above.
|
THE
▇▇▇▇▇▇▇▇▇ COMPANY HOLDINGS LLC
By:/s/
▇▇▇▇▇
▇▇▇▇▇▇
Name: ▇▇▇▇▇
▇▇▇▇▇▇
Title: Executive
Vice President and CFO
W-G
HOLDING CORP.
By:/s/
▇▇▇▇▇
▇▇▇▇▇▇
Name: ▇▇▇▇▇
▇▇▇▇▇▇
Title: Executive
Vice President and CFO
GENIUS
PRODUCTS, INC.
By:/s/
▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇
Name: ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇
Title: President
and CEO
|
42
EXHIBIT
A
MEMBERS,
ADDRESSES, UNITS AND MEMBERSHIP INTERESTS
As
of July 21, 2006
|
Member
|
Membership
Units
|
Percentage
Interest
|
|
Genius
Products, Inc.
|
61,005,126
Class G
|
30%
|
|
The
▇▇▇▇▇▇▇▇▇ Company Holdings LLC
|
140,311,790
Class W
|
69%
|
|
W-G
Holding Corp.
|
2,033,504
Class W
|
1%
|
|
TOTAL
|
203,350,420
|
100%
|
[Remainder
of Page Intentionally Left Blank]
A-1
|
|
EXHIBIT
C
|
|
|
EXAMPLES
OF ADJUSTMENTS TO THE ADJUSTMENT
FACTOR
|
Assumptions
3,000,000
shares of Genius Common Stock outstanding
3,000,000
initial G Units
7,000,000
initial W Units
Initial
Adjustment Factor = 1
(i)
Application of clause (i) of Adjustment Factor:
1. Genius
does a 2 for 1 split of Genius Common Stock (or a one-for one stock
dividend)
New
Adjustment Factor is 2
1
x 6,000,000
3,000,000
meaning
each W Unit will be exchangeable for 2 shares of Genius Common
Stock.
2. Genius
does a 1 for 2 reverse stock split of Genius Common Stock
New
Adjustment Factor is .5
1
x 1,500,000
3,000,000
meaning
each W Unit will be exchangeable for .5 shares of Genius Common
Stock.
3. Genius
issues 500,000 shares of Common Stock in respect of Pre-existing Options or
Warrants or 500,000 shares of Common Stock to raise funds to satisfy
indemnification
New
Adjustment Factor is 1.166667
1
x 3,500,000
3,000,000
meaning
each W Unit will be exchangeable for 1.166667 shares of Genius Common
Stock.
C-1
4. Genius
receives 500,000 Wellspring Shares back from escrow
New
Adjustment Factor is .8333333
1
x 2,500,000
3,000,000
meaning
each W Unit will be exchangeable for .8333333 shares of Genius Common
Stock.
(ii)
Application of clause (ii) of Adjustment Factor
1. Genius
distributes rights to purchase 500,000 shares at $1.00 where Value is $2.00
and
Market Price is $1.90.
New
Adjustment Factor is 1.076923
1
x 3,000,000 +
500,000
3,000,000
+ 250,000
[500,000/2]
meaning
each W Unit exchangeable for 1.076923 shares of Genius Common
Stock.
(iii)
Application of clause (iii) of Adjustment Factor
1. Genius
distributes $1,000,000 in assets (other than related to a distribution from
the
LLC) or pays an indemnification liability (other than from shares issued which
causes an adjustment under clause (i)) where Value is $2.00 and
Market Price is $1.90 or the Value is $1.90 and the Market Price is
2.00. The per share portion of the distribution is
$.333333
New
Adjustment Factor is 1.276595
1
x 2.00
1.566667
[1.90 -.333333]
meaning
each W Unit will be exchangeable for 1.276595 shares of Genius Common
Stock.
(iv)
Application of clause (iv) of Adjustment Factor:
1. WCO
exchanges Units where Value of a share of Genius Common Stock it is to receive
is $8.00 and Market Price is $8.25 and Floor Amount is $8.57
[$60,000,000/7,000,000]
C-2
New
Adjustment Factor is 1.071250
1
x 8.57
8.00
meaning
each W Unit exchangeable for 1.071250 shares of Genius Common
Stock.
(v)
Application of clause (v) of Adjustment Factor:
1. Units
are reallocated to be 8,000,000 to W and 2,000,000 to G
New
Adjustment Factor is 1.5
1
x 3,000,000
3,000,000-1,000,000
meaning
each W Unit will be exchangeable for 1.5 shares of Genius Common
Stock.
2. Using
example from Exhibit 4.1(d)
Units
are
reallocated to be 7,368,421 to W and 2,631,579 to G
New
Adjustment Factor is 1.14
1
x 3,000,000
3,000,000-368,421
meaning
each W Unit will be exchangeable for 1.14 shares of Genius Common
Stock.
3. Using
example from Exhibit 4.1(e)
Units
are
reallocated to be 7,526,316 to W and 2,473,468 to G
New
Adjustment Factor is 1.212766
1
x 3,000,000
3,000,000-526,316
meaning
each W Unit will be exchangeable for 1.212766 shares of Genius Common
Stock.
C-3
|
|
EXHIBIT
4.1
|
Application
of 4.1(d)
Pre
Indemnification Amount
3,000,000
G Units
7,000,000
W Units
Value
is
$2.00
Market
Price is $1.90
L =
1,000,000
P
=
70%
V
=
$1.90
|
U
= 368,421
|
1,000,000
* 70%
|
|
1.90
|
Post
Indemnification Amount
2,631,579
G Units
7,368,421
W Units
Application
of 4.1(e)
Pre
Indemnification Amount
3,000,000
G Units
7,000,000
W Units
Value
is
$2.00
Market
Price is $1.90.
L =
1,000,000
V
=
$1.90
|
U
= 526,315
|
1,000,000
|
|
1.90
|
Post
Indemnification Amount
2,473,468
G Units
7,526,316
W Units
C-44
EXHIBIT
D
ALLOCATIONS
OF NET INCOME, NET LOSSES AND
OTHER
ITEMS AMONG THE MEMBERS
ARTICLE
1
1.1. Capital
Accounts.
(a) A
separate capital account will be maintained for each Member (a “Capital
Account”). On the Effective Date, (i) the Capital Account of
Genius will be credited with the net fair market value of the contribution
made
by Genius pursuant to Section 4.3 and (ii) the Capital Accounts of WCO and
W-G
Holding will be restated to equal their respective pro rata shares of the value
of the distribution rights evidenced by the Distribution Agreement and owned
by
the Company on the Effective Date. The parties intend and agree that
the aggregate Capital Account balances of WCO and W-G Holding following such
restatement will be equal to 70% of the aggregate Capital Account balances
of
all of the Members as of the Effective Date. Thereafter, each
Member’s Capital Account will from time to time be (i) increased by
(A) the amount of money and the Gross Asset Value of any Property
contributed (or deemed contributed) by the Member to the Company (net of
liabilities secured by the Property or to which the Property is subject), and
(B) the Net Income and any other items of income and gain specially
allocated to the Member under Paragraph 1.4, and (ii) decreased by
(A) the amount of money and the Gross Asset Value of any Property
distributed to the Member by the Company (net of liabilities secured by the
Property or to which the Property is subject), and (B) the Net Losses and
any other items of deduction and loss specially allocated to the Member under
Paragraph 1.4.
(b) If
Company assets other than money are distributed to a Member in liquidation,
or
if such assets are distributed to a Member in kind, in order to reflect
unrealized gain or loss, the Members’ Capital Accounts will be adjusted for the
hypothetical “book” gain or loss that the Company would have realized if the
distributed assets had been sold for their Gross Asset Values in a cash
sale. In the event of the liquidation of a Member’s interest in the
Company, in order to reflect unrealized gain or loss, the Member’ Capital
Accounts will be adjusted for the hypothetical “book” gain or loss that would
have been realized by the Company if all Company assets had been sold for their
Gross Asset Values in a cash sale.
(c) The
Capital Accounts shall be adjusted (i) proportionately to reflect any
Redemption, forfeiture or Transfer of Units and (ii) in accordance with Treasury
Regulations Section 1.704-1(b)(2)(iv)(m). It is the intent of the
Members that the Capital Accounts of all Economic Interest Holders be determined
and maintained in accordance with the principles of Treasury Regulations Section
1.704-1(b)(2)(iv) at all times throughout the full term of the
Company. Accordingly, the Managing Member is authorized to make any
other adjustments to the Capital Accounts so that the Capital Accounts and
allocations thereto comply with said section of the Treasury
Regulations.
D-1
1.2. Allocation
of Net Income and Net Losses. The Company shall allocate
Net Income, Net Loss and other items to the Capital Accounts of the Members
as
of the end of each Fiscal Year and as of any shorter periods for which the
Tax
Matters Partner determines that it is appropriate to make allocations to the
Members’ Capital Accounts (including, without limitation, as of the date of any
acquisition of Units by Genius pursuant to Article 4 hereof). Except
as otherwise provided in this Agreement, the Net Income or Net Losses of the
Company for each Fiscal Year or other period for which allocations are made
hereunder, and, if appropriate, items thereof, will be allocated among the
Members as required so that the closing balance in each Member’s Adjusted
Capital Account as of the end of such Fiscal Year (or shorter period for which
allocations are being made hereunder), is, as nearly as possible, equal to
the
amount that would be distributed to such Member if the Company were dissolved,
its affairs wound up and its assets sold for cash in an amount equal to their
respective Gross Asset Values, all Company liabilities were satisfied (limited
with respect to each nonrecourse liability to the fair market value of the
asset
securing such liability), and the net assets of the Company were distributed
to
the Members in the order of priority set forth in Section 9.4.
1.3 Loss
Limitation. Notwithstanding anything to the contrary in
Section 1.2, Net Losses shall not be allocated (and no items of loss or
deduction shall be allocated) to the Capital Account of a Member to the extent
such allocation would cause such Member to have a deficit in its Adjusted
Capital Account at the end of any Fiscal Year (or portion thereof for which
allocations are made hereunder). In the event some but not all of the
Members would have a deficit Adjusted Capital Account as a consequence of an
allocation of Net Loss (or an item of loss or deduction) pursuant to Section
1.2
hereof, the limitation set forth in this Section 1.3 shall be applied on a
Member-by-Member basis so as to allocate the maximum permissible Losses to
each
Member under Section 1.704-1(b)(2)(ii)(d) of the Treasury
Regulations.
1.4. Special
Allocations. Notwithstanding anything in Section 1.2 to
the contrary, the following special allocations will be made in the following
order:
(a) Regulatory
Allocations. Allocations of Net Income (or, if applicable,
individual items of income and gain will be made in accordance with the “minimum
gain chargeback,” “partner nonrecourse debt minimum gain chargeback” and
“qualified income offset” provisions of the Treasury Regulations promulgated
under Section 704 of the Code.
(b) Nonrecourse
Deductions. Any Nonrecourse Deductions will be allocated to the
Members in accordance with their Percentage Interests.
(c) Member
Nonrecourse Deductions. Any Member Nonrecourse Deductions will be
allocated to the Member that bears the Economic Risk of Loss for the member
nonrecourse debt to which such deductions relate as provided in Treasury
Regulation Section 1.704-2(i)(1).
(d) Gross
Income Allocation. If any Member has a deficit in its Adjusted
Capital Account at the end of any fiscal year, that Member will be specially
allocated items of Company income and gain in the amount of such excess as
quickly as possible, provided, that an allocation
pursuant to this Paragraph 1.4(d) will be made only if and
to the extent that such Member would have a deficit in its Adjusted Capital
Account in excess of such sum after all other allocations provided for in this
Article 1 have been made.
D-2
1.5. Certain Adjustments. The
Members intend that the allocation of Profits, Losses, and other items of
income, gain, loss, deduction and credit required to be allocated to Capital
Accounts pursuant to this Agreement will result in final Capital Account
balances that will permit the amount of the distributions which each Member
is
entitled to receive pursuant to Section 9.4 to equate to the amount of its
final
Capital Account balance (immediately prior to making such
distribution). Accordingly, the Managing Member is authorized and
shall use reasonable efforts, to amend the allocations of Net Income, Net Loss,
items thereof, and other items of income, gain, loss and deduction as necessary
to produce such result; provided, however, that the Regulatory
Allocations shall in all events apply and the Managing Member shall consult
with
the Company’s professional tax advisors to determine that the resulting
allocations will be in accordance with the Members’ economic interests in the
Company for purposes of Section 704(b) of the Code.
1.6. Allocation
of Certain Tax Items.
(a) Except
as otherwise provided in this Paragraph 1.6, all items of income, gain,
loss or deduction for federal, state and local income tax purposes will be
allocated in the same manner as the corresponding “book” items are allocated
under Paragraphs 1.2, or 1.4.
(b) In
accordance with Code Section 704(c) and the Regulations thereunder, income,
gain, loss and deduction with respect to any Property contributed to the capital
of the Company will, solely for tax purposes, be allocated among the Members
so
as to take account of any variation between the adjusted basis of such Property
to the Company for federal income tax purposes and the initial Gross Asset
Value
thereof (computed in accordance with subparagraph (i) of the definition of
the term Gross Asset Value herein). The Company shall apply the
“traditional method” of making allocations under Code Section 704(c) as set
forth in Section 1.704-3(b) of the Regulations.
(c) In
the event the Gross Asset Value of any Company asset is adjusted pursuant to
subparagraph (ii) or (iv) of the definition of the term Gross Asset Value,
subsequent allocations of income, gain, loss and deduction with respect to
such
asset will take account of any variation between the adjusted basis of such
asset for federal income tax purposes and its Gross Asset Value in the same
manner as under Code Section 704(c) and the Regulations thereunder, using
the “traditional method” set forth in Section 1.704-3(b) of the
Regulations.
(d) In
the event the Company has in effect an election under Section 754 of the
Code, allocations of income, gain, loss or deduction to affected Members for
federal, state and local tax purposes will take into account the effect of
such
election pursuant to applicable Code provisions.
(e) Any
elections or other decisions relating to such allocations will be made by the
Tax Matters Member in any manner that reasonably reflects the purpose and
intention of this Agreement. Allocations pursuant to this
Paragraph 1.6 are solely for federal, state and local tax purposes and will
comprise the information furnished to such Members in their Schedule K-1s
each year. Except to the extent allocations under this
Paragraph 1.6 are reflected in the allocations of the corresponding “book”
items pursuant to Paragraphs 1.2, or 1.4, allocations under this
Paragraph 1.5 will not affect, or in any way be taken into account in
computing, any Member’s Capital Account or share of Net Income, Net Losses,
other items or distributions pursuant to any provision of this
Agreement.
D-3
1.7. Allocation
Between Assignor and Assignee. The portion of the
income, gain, losses, credits, and deductions of the Company for any fiscal
year
during which a Membership Interest is assigned by a Member (or by an assignee
or
successor in interest to a Member), that is allocable with respect to such
Membership Interest will be apportioned between the assignor and the assignee
of
the Membership Interest on whatever reasonable, consistently applied basis
is
selected by the Tax Matters Member and permitted by the applicable Treasury
Regulations under Section 706 of the Code.
1.8. Tax
Reporting. The Members are aware of the income tax
consequences of the allocations made by this Article 1 and hereby agree to
be bound by this Article 1 in reporting their shares of Company income and
loss for income tax purposes. Neither Genius nor WCO shall take any
position inconsistent with the position reported to it on its IRS Schedule
K-1
to Form 1065; provided that, except as required by Section 1.3(d) of the Master
Contribution Agreement, Genius can take such an inconsistent position if its
independent public accountants determine that there is a 50% or less chance
that
the position reported in the Schedule K-1 would prevail if challenged
by the Internal Revenue Service, unless Genius is provided an opinion reasonably
acceptable to it from reputable tax counsel that there is a more than 50% chance
that the position reported in the Schedule K-1 would prevail if challenged
by
the Internal Revenue Service.
1.9. Profit
Shares. Solely for purposes of determining a Member’s
proportionate share of the Company’s “excess nonrecourse liabilities,” as
defined in Treasury Regulation Section 1.752-3(a), the Members’ interests
in Company profits will be deemed to be in accordance with their Percentage
Interests.
D-4
ARTICLE
2
DEFINITIONS
As
used
in this Exhibit D, the following terms will have the following
meaning:
“Adjusted
Capital
Account” means, the balance in a Member’s Capital Account after giving
effect to the following adjustments:
(i) debit
or credit to such Capital Account, as applicable, all capital contributions
and
distributions to the Member for the relevant fiscal year;
(ii) credit
to such Capital Account any amount which such Member is deemed obligated to
restore pursuant to the penultimate sentences of Treasury Regulation
Sections 1.704-2(g)(1) and 1.704-2(i)(5); and
(iii) debit
to such Capital Account the items described in
Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), and
1.704-1(b)(2)(ii)(d)(6) of the Treasury Regulations.
“Depreciation”
means, for each fiscal year or other period, an amount equal to the
depreciation, amortization, or other cost recovery deduction allowable for
federal income tax purposes with respect to an asset for such year or other
period, except that if the Gross Asset Value of any asset differs from its
adjusted basis for federal income tax purposes at the beginning of such year
or
other period, Depreciation will be an amount which bears the same ratio to
such
beginning Gross Asset Value as the federal income tax depreciation,
amortization, or other cost recovery deduction for such year or other period
bears to such beginning adjusted tax basis, provided, however,
that if the federal income tax depreciation, amortization, or other cost
recovery deduction for such year is zero, Depreciation will be determined with
reference to such beginning Gross Asset Value using any reasonable method
selected by the Tax Matters Member.
“Economic
Risk of Loss” will have the meaning provided by
Sections 1.704-2(b)(4) and 1.752-2 of the Treasury
Regulations.
“Gross
Asset Value” means, with respect to any asset, the asset’s adjusted
basis for federal income tax purposes, except as follows:
(i) the
initial Gross Asset Value of any asset contributed by a Member to the Company
will be the gross fair market value of such asset, as determined by the
contributing Member and the Company; and
(ii) the
Gross Asset Value of all Company assets will be adjusted to equal their
respective gross fair market values (taking Section 7701(g) of the Code
into account), as of the following times: (a) the acquisition
of an additional interest in the Company by any new or existing Member in
exchange for more than a de minimis capital contribution; (b) the
distribution by the Company to a Member of more than a de minimis
amount of Company Property as consideration for an interest in the Company,
in the case of either (a) or (b), if the Members reasonably determine that
such
adjustment is necessary or appropriate to reflect the relative economic
interests of the Members in the Company within the meaning of
Section 1.704-1(b)(2)(i)(g) of the Regulations; and (c) the
liquidation of a Member’s interest in the Company or the Company within the
meaning of Section 1.704-1(b)(2)(ii)(g) of the Treasury
Regulations;
D-5
(iii) the
Gross Asset Value of any Company asset distributed to any Member will be the
gross fair market value (taking Section 7701(g) of the Code into account)
of such asset on the date of distribution;
(iv) the
Gross Asset Values of Company assets will be increased (or decreased) to
reflect any adjustments to the adjusted basis of such assets pursuant to
Section 732(d), Section 734(b) or Section 743(b) of the Code, but
only to the extent that such adjustments are taken into account in determining
Capital Accounts pursuant to Treasury Regulation
Section 1.704-1(b)(2)(iv)(m) hereof, provided, however, that
Gross Asset Values will not be adjusted pursuant to this
subparagraph (iv) to the extent that the Members determine that an
adjustment pursuant to subparagraph (ii) of this definition is necessary or
appropriate in connection with a transaction that would otherwise result in
an
adjustment pursuant to this subparagraph (iv); and
(v) if
the Gross Asset Value of any asset has been determined or adjusted pursuant
to
subparagraphs (i), (ii) or (iv) hereof, such Gross Asset Value will
thereafter be adjusted by the Depreciation taken into account with respect
to
such asset for purposes of computing gains or losses from the disposition of
such asset.
“Member
Nonrecourse
Deductions” in any year means the Company deductions that are
characterized as “partner nonrecourse deductions” under
Sections 1.704-2(i)(1) and 1.704-2(i)(2) of the Treasury
Regulations.
“Net
Income” and
“Net Losses” mean, for each fiscal year or other period, an
amount equal to the Company’s taxable income or loss, as the case may be for
such year or period, determined in accordance with Section 703(a) of the
Code (for this purpose, all items of income, gain, loss and deduction required
to be stated separately pursuant to Section 703(a)(1) of the Code will be
included in taxable income or loss), with the following
adjustments: (i) any income of the Company that is exempt from
federal income tax and not otherwise taken into account in computing Net Income
or Net Losses pursuant to this paragraph will be added to such taxable income
or
loss; (ii) any expenditures of the Company described in Code
Section 705(a)(2)(B) or treated as Code Section 705(a)(2)(B)
expenditures pursuant to Treasury Regulation Section 1.704-1(b)(2)(iv)(i),
and not otherwise taken into account in computing Net Income or Net Losses
pursuant to this paragraph will be subtracted from such taxable income or
loss; (iii) in the event the Gross Asset Value of any Company asset is
adjusted pursuant to subparagraph (ii) or (iii) of the definition thereof,
the amount of such adjustment will be taken into account as gain or loss from
the disposition of such asset for purposes of computing Net Income or Net
Losses; (iv) gain or loss resulting from the disposition of any Company
asset with respect to which gain or loss is recognized for federal income tax
purposes will be computed by reference to the Gross Asset Value of the asset
disposed of, notwithstanding that the adjusted tax basis of such asset differs
from its Gross Asset Value; (v) in lieu of the depreciation, amortization,
and other cost recovery deductions taken into account in computing such taxable
income or loss, there will be taken into account Depreciation for such fiscal
year or other period, computed in accordance with the definition thereof;
and (vi) notwithstanding any other provision of this paragraph, any items
which are specially allocated pursuant to Paragraph 1.4 hereof will not be
taken into account in computing Net Income and Net Losses.
D-6
“Nonrecourse
Deductions” in any year means the Company deductions that are
characterized as “nonrecourse deductions” under Sections 1.704-2(b)(1) and
1.704-2(c) of the Treasury Regulations.
All
other
capitalized terms used in this Exhibit D will have the same meaning as in the
Agreement.
D-7
TABLE
OF CONTENTS
|
Page
|
||
|
ARTICLE
1
|
DEFINITIONS
|
1
|
|
ARTICLE
2
|
ORGANIZATIONAL
MATTERS
|
9
|
|
2.1
|
Formation
|
9
|
|
2.2
|
Name
|
10
|
|
2.3
|
Office
and Agent
|
10
|
|
2.4
|
Members
|
10
|
|
2.5
|
Purpose
of the Company
|
10
|
|
2.6
|
Term
|
10
|
|
2.7
|
Foreign
Qualification
|
10
|
|
2.8
|
No
Partnership
|
10
|
|
ARTICLE
3
|
MEMBERS
|
11
|
|
3.1
|
Limited
Liability
|
11
|
|
3.2
|
Remuneration
To Members
|
11
|
|
3.3
|
Voting
Rights
|
11
|
|
3.4
|
Admission
of Additional Members
|
11
|
|
3.5
|
Withdrawals
or Resignations
|
11
|
|
3.6
|
Members’
Meetings; Quorum; Votes
|
12
|
|
3.7
|
Devotion
of Time; Company Opportunities; Other Activities
|
12
|
|
3.8
|
No
Cessation of Membership Upon Bankruptcy
|
13
|
|
3.9
|
Enforcement
of Rights against Member
|
13
|
|
3.10
|
Content
Acquisition Opportunities
|
14
|
|
ARTICLE
4
|
CLASSES
OF UNITS INTERESTS AND CAPITAL CONTRIBUTIONS
|
15
|
|
4.1
|
Classes
of Units
|
15
|
|
4.2
|
Capital
Accounts
|
17
|
|
4.3
|
Initial
Contributions
|
17
|
|
4.4
|
Additional
Capital Contributions.
|
17
|
|
4.5
|
[Intentionally
left blank]
|
19
|
|
4.6
|
Withdrawal
of Capital Contributions
|
19
|
|
4.7
|
Repurchase
of Class W Units
|
19
|
-1-
TABLE
OF CONTENTS
(continued)
|
Page
|
||
|
4.8
|
Redemption
Rights Holder of Class W Units
|
22
|
|
4.9
|
Redemptions
|
24
|
|
ARTICLE
5
|
GOVERNANCE
|
25
|
|
5.1
|
Management
Through the Managing Member
|
25
|
|
5.2
|
Limitations
on the Authority of the Managing Member
|
25
|
|
5.3
|
Officers
|
26
|
|
5.4
|
Unanimous
Consent of Members
|
28
|
|
5.5
|
Right
of First Negotiation for Genius Financings
|
28
|
|
ARTICLE
6
|
DISTRIBUTIONS,
TAX MATTERS, AND ALLOCATIONS
|
28
|
|
6.1
|
Distributions
|
28
|
|
6.2
|
Tax
Distributions
|
26
|
|
6.3
|
Allocations
of Net Income and Net Losses
|
29
|
|
6.4
|
Tax
Matters for the Company Handled by Tax Matters Partner
|
29
|
|
6.5
|
Distributions
in Kind
|
30
|
|
6.6
|
Compliance
With the Act
|
30
|
|
6.7
|
Liability
for Amounts Distributed
|
30
|
|
ARTICLE
7
|
EXCULPATION
AND INDEMNIFICATION; OTHER MATTERS
|
31
|
|
7.1
|
Performance
of Duties; Liability of Members
|
31
|
|
7.2
|
Exculpation
and Indemnification
|
31
|
|
7.3
|
Notice;
Procedures
|
32
|
|
7.4
|
Insurance
|
32
|
|
ARTICLE
8
|
TRANSFER
OF INTERESTS
|
33
|
|
8.1
|
Transfer
of Interests
|
33
|
|
8.2
|
Rights
of Assignees
|
33
|
|
8.3
|
Actions
Following Transfers
|
33
|
|
8.4
|
Effect
on Distributions
|
33
|
|
8.5
|
Unauthorized
Transfers
|
34
|
|
8.6
|
Pledge
of Interests
|
34
|
|
8.7
|
Restrictions
on Transfer
|
34
|
|
ARTICLE
9
|
DISSOLUTION
AND WINDING UP
|
35
|
-ii-
TABLE
OF CONTENTS
(continued)
|
Page
|
||
|
9.1
|
Dissolution
|
35
|
|
9.2
|
Winding
Up
|
35
|
|
9.3
|
Payment
of Liabilities and Liquidating Distributions Upon
Dissolution
|
35
|
|
9.4
|
Certificate
of Cancellation
|
36
|
|
9.5
|
Rights
of Members
|
36
|
|
ARTICLE
10
|
ACCOUNTING,
RECORDS, REPORTING BY MEMBERS
|
36
|
|
10.1
|
Deposits
|
36
|
|
10.2
|
Checks,
Drafts, etc
|
36
|
|
10.3
|
Accounts
|
36
|
|
10.4
|
Accounting
|
36
|
|
10.5
|
Books
and Records
|
36
|
|
10.6
|
Right
of Inspection
|
37
|
|
10.7
|
Audit
|
37
|
|
10.8
|
Reports
|
37
|
|
10.9
|
Tax
Information
|
37
|
|
ARTICLE
11
|
MISCELLANEOUS
|
37
|
|
11.1
|
Complete
Agreement
|
37
|
|
11.2
|
Pronouns;
Statutory References
|
38
|
|
11.3
|
References
to this Agreement
|
38
|
|
11.4
|
Governing
Law; Jurisdiction
|
38
|
|
11.5
|
Successors
|
38
|
|
11.6
|
Amendments
|
38
|
|
11.7
|
Exhibits,
Schedules and Appendices
|
38
|
|
11.8
|
Severability
|
38
|
|
11.9
|
Additional
Documents and Acts
|
39
|
|
11.10
|
Notices
|
39
|
|
11.11
|
No
Waiver
|
39
|
|
11.12
|
Partition
|
39
|
|
11.13
|
Press
Releases
|
39
|
|
11.14
|
Multiple
Counterparts
|
40
|
-iii-
TABLE
OF CONTENTS
(continued)
|
Page |
||
|
11.15
|
Costs
|
40
|
|
11.16
|
Interpretation
|
40
|
|
11.17
|
Valuation
Disputes
|
40
|
-iv-