EXHIBIT 99.1
Portions of this Exhibit have been
omitted pursuant to a request for
confidential treatment. The omitted
portions are marked ***** and have been
filed separately with the Commission.
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LIMITED LIABILITY COMPANY AGREEMENT
OF
CELL CITY, LLC
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(The information below marked ***** has been omitted by a request for
confidential treatment. The omitted portion has been separately filed with the
Commission.)
LIMITED LIABILITY COMPANY AGREEMENT
OF
CELL CITY, LLC
This Limited Liability Company Agreement (the "Operating Agreement") of
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Cell City, LLC, a limited liability company organized pursuant to the Delaware
Limited Liability Company Act, is entered into this 5th day of January, 1998 by
and among Cell Therapeutics, Inc., a Washington corporation ("CTI") and City of
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Hope National Medical Center, a California nonprofit corporation ("COH")
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(referred to collectively herein as "Members").
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W I T N E S S E T H:
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WHEREAS, CTI and COH desire to create a limited liability company pursuant
to the Delaware Limited Liability Company Act, for the purpose of employing
pharmacologic targets such as leukocyte 12 lipoxygenase, in order to identify
compounds which regulate the activities of those targets as drug candidates, and
all other activities permitted by law;
NOW THEREFORE, in consideration of the mutual agreements hereinafter set
forth, the Members agree as follows:
ARTICLE I
DEFINITIONS
The following terms, as used herein, shall have the following meanings:
"Act" means the Delaware Limited Liability Company Act, 6 Del. C. Sections
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18-101, et seq., and all amendments to the Act, as in effect from time to time.
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"Additional Capital Contributions" shall have the meaning set forth in
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Section 9.2(a).
"Additional Member" means a Person who has acquired a Company Interest from
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the Company or from another Member in accordance with Section XII of this
Operating Agreement pursuant to an Admission Agreement.
"Admission Agreement" means the agreement between an Additional Member and
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the Company described in Section 9.1(b), in the form approved by the Executive
Committee from time to time.
"Affiliate" means, with respect to any Person, another Person that directly
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or indirectly through one or more intermediaries controls or is controlled by or
is under common control
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with such Person. For purposes of this Operating Agreement "control" means an
interest in excess of fifty percent (50%).
"Allocable Share" means, as to any Member, that percentage initially set
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forth opposite each Member's respective name on Exhibit B hereto, as it may be
modified from time to time.
"Ancillary Agreements" means the License Agreement, the CTI Services
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Agreement and the COH Services Agreement.
"Arbitrators" shall have the meaning specified in Section 15.3(b)(i).
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"Bankruptcy" means, with respect to a Person: (i) the commencement against
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such Person of proceedings for any relief under any bankruptcy or insolvency
law, or any law relating to the relief of debtors, readjustment of indebtedness,
reorganization, arrangement, composition, or extension of debts, provided such
proceeding shall not have been dismissed, nullified, stayed, or otherwise
rendered ineffective (but only so long as such ineffectiveness shall continue in
force) within ninety (90) days after the commencement of such proceedings; (ii)
the commencement by such Person of proceedings for any relief under any
bankruptcy or insolvency law, or any law relating to the relief of debtors,
readjustment of indebtedness, reorganization, arrangement, composition, or
extension of debts; (iii) a decree or order of a court having jurisdiction in
the premises for the appointment of a receiver, liquidator, or trustee or
assignee in bankruptcy or insolvency of such Person or of a substantial part of
such Person's property, or for the winding up or liquidation of its affairs,
which decree or order remains in force undischarged and unstayed for a period of
ninety (90) days; or (iv) a general assignment by such Person for the benefit of
creditors or the admission by such Person in writing of its inability to pay its
debts generally as they become due.
"Capital Account" means the account maintained for a Member determined in
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accordance with Section 9.3.
"Capital Contribution" means with respect to a Member, the value of
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Property contributed, from time to time, to the Company by such Member pursuant
to Sections 9.1 or 9.2; provided that such value, in the case of Property other
than cash, shall be the fair market value of such Property as reasonably
determined by the Member contributing such Property and the Executive Committee
(excluding Representatives of the contributing Member).
"Certificate of Formation" shall have the meaning set forth in Section 2.2
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hereof.
"Code" means the Internal Revenue Code of 1986, as from time to time
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amended, or any successor thereto, and all regulations adopted thereunder; any
reference to a section of the Code shall mean such section or any successor
thereto as in effect at the time or times in question.
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"COH" shall have the meaning set forth in the preamble hereof.
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"COH Put Notice" shall have the meaning set forth in Section 12.8(c)
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hereof.
"COH Put Right" shall have the meaning set forth in Section 12.8(c) hereof.
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"COH Services Agreement" means the research and services agreement, dated
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as of January 5, 1998, between the Company and COH whereby COH agrees to conduct
the activities specified therein, as such agreement may be amended from time to
time.
"COH Unreturned Capital Contributions" shall mean the excess, if any, of
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COH's aggregate Capital Contributions over all distributions to COH from the
Company under this Agreement.
"Company" means Cell City, LLC, a limited liability company formed under
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the laws of Delaware.
"Company Intellectual Property" shall have the meaning set forth in Section
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6.9 hereof.
"Company Interest" means a "Limited Liability Company Interest," as defined
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in the Act.
"Company Property" means all Property owned of record or beneficially by
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the Company.
"Compound" means a pharmaceutical product which directly increases or
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decreases the activity of the 12-lipoxygenase target enzyme.
"Confidential Information" shall have the meaning specified in Section 15.8
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hereof.
"Conversion Event" shall have the meaning set forth in Section 12.8(a)
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hereof.
"Corporate Partnering Arrangement" means a legally binding arrangement
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between the Company and a third party, regardless of how structured, whereby
such third party (exclusive of Affiliates of COH and CTI) agrees to provide to
the Company (x) during the first two years following the Effective Date,
$15,000,000 and (y) at any time thereafter $10,000,000, or more in equity,
milestone payments, license fees, research or development reimbursement or
sharing, or any combination thereof, but excluding from such $10,000,000 future
contingent royalty payments.
"CTI" shall have the meaning set forth in the preamble hereof.
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"CTI Administrative Contributions" shall have the meaning set forth in
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Section 9.1(c) hereof.
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"CTI Buy-Out Notice" shall have the meaning set forth in Section 12.8(b)
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hereof.
"CTI Buy-Out Option Period" shall have the meaning set forth in Section
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12.8(b) hereof.
"CTI Buy-Out Right" shall have the meaning set forth in Section 12.8(b)
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hereof.
"CTI Common Stock" means the shares of common stock of CTI any stock into
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which such common stock may hereafter be changed.
"CTI Deferred Capital Contributions" means the deferred capital
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contributions to be made by CTI as described in Section 9.1(a) and Exhibit C-2
attached hereto.
"CTI Ordinary Capital Contributions" shall mean the excess of CTI's
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aggregate Capital Contributions over the CTI Preferred Capital Contributions.
"CTI Preferred Capital Contributions" shall have the meaning set forth in
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Section 9.2(b)(i).
"CTI Services Agreement" means the research and services agreement, dated
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as of January 5, 1998, between the Company and CTI whereby CTI agrees to conduct
the activities specified therein, as such agreement may be amended from time to
time.
"CTI Unmatched Additional Capital Contributions" shall have the meaning set
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forth in Section 9.2(b) hereof, provided, however, that CTI Administrative
Contributions shall in no way be included in the meaning thereof.
"CTI Unpaid Preferred Return" shall mean, as of any date, the excess, if
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any, of the Preferred Return accrued through such date over all distributions
from the Company to CTI of such Preferred Return under this Operating Agreement.
"CTI Unreturned Ordinary Capital Contributions" shall mean the excess, if
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any, of CTI's aggregate CTI Ordinary Capital Contributions over all
distributions from the Company to CTI in return of the CTI Ordinary Capital
Contributions under this Operating Agreement.
"CTI Unreturned Preferred Capital Contributions" shall mean the excess, if
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any, of CTI's aggregate CTI Preferred Capital Contributions over all
distributions from the Company to CTI in return of the CTI Preferred Capital
Contributions under this Operating Agreement.
"Deadlock" means a situation in which the Executive Committee fails to
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obtain the requisite vote for or against a matter as required by Section 8.1(b)
and (c).
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"Development Plan and Budget" shall have the meaning set forth in Section
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5.1 hereto. Schedule I hereto sets forth the initial development plan and
budget.
"Disposition (Dispose)" means any sale, assignment, transfer, exchange,
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mortgage, pledge, grant, hypothecation, or other transfer, absolute or as
security or encumbrance (including dispositions by operation of law).
"Dissolution Event" shall have the meaning set forth in Section 13.1
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hereof.
"Effective Date" shall have the meaning set forth in Section 2.5 hereof.
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"Executive Committee" shall have the meaning set forth in Section 8.2(a)
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hereof.
"Fair Market Value" shall have the meaning set forth in Section 12.8(d)
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hereof.
"Field" means the use of Compounds to block, inhibit, enhance or otherwise
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affect the 12-lipoxygenase enzyme for the prevention and treatment of diseases
or ailments in humans or animals for which the regulation of 12-lipoxygenase may
provide therapeutic benefit, including the use of ribozymes (including chimeric
ribozymes) for any therapeutic or diagnostic purpose.
"First Commercial Sale" means the date the Company or a sublicensee of the
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Company first sells commercially a product based on Company Intellectual
Property to a third party (excluding Affiliates of Members) in an arms-length
transaction pursuant to a regulatory approval granted by the United States Food
and Drug Administration or any successor thereto.
"Fiscal Year" means the fiscal period of twelve months ending on each
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December 31.
"Force Majeure" shall have the meaning specified in Section 12.3(b) hereof.
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"GAAP" means U.S. generally accepted accounting principles consistently
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applied.
"Initial Capital Contribution" means the initial capital contribution made
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by the Members and any Additional Members, as described in Section 9.1 and
Exhibit C-1 attached hereto.
"JAMS" shall have the meaning specified in Section 15.3(b)(i) hereof.
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"License Agreement" means the license agreement, dated the date hereof,
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between COH and the Company, attached hereto as Exhibit D.
"Liquidating Trustee" means the Member or such other Person as to whom all
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Members agree (or, in the absence of such agreement, the Executive Committee),
charged with carrying out the winding up of the Company.
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"Majority Vote" means approval by more than fifty percent (50%) of the
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votes of all Representatives comprising the Executive Committee.
"Market Price" per share of CTI Common Stock at any date herein specified
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shall mean the average of the daily market prices for the twenty (20)
consecutive trading days ending ten (10) trading days after the date of
determination. The market price for each such trading day shall be the last
reported sales price on the principal exchange on which the Common Stock is then
listed, or, if it is not so listed, the Nasdaq National Market or, if it is not
so listed, on the over-the-counter market.
"Member" means CTI, COH and any Additional Members.
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"Member Veto Right" shall mean the right of a Member to veto, in its sole
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discretion but subject to the remainder of this definition, a Corporate
Partnering Arrangement or the admission of an Additional Member based on its
determination that the third party has a negative reputation or standing in the
pharmaceutical industry.
"Net Profits" or "Net Losses" means, for each period taken into account
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under Article IV, an amount equal to the Company's taxable income or taxable
loss for such period, determined in accordance with federal income tax
principles, with the following adjustments:
(i) There shall be added to such taxable income or taxable loss an
amount equal to any income received by the Company during such period which is
wholly exempt from federal income tax (e.g., interest income which is exempt
from federal income tax under Section 103 of the Code);
(ii) Any expenditures of the Company described in Section 705(a)(2)(B)
of the Code or treated as Section 705(a)(2)(B) expenditures pursuant to Treas.
Reg. Section 1.704-1(b)(2)(iv)(i), and not otherwise taken into account in
computing Net Profits or Net Losses, shall be subtracted from such taxable
income or loss;
(iii) In the event the book value of any Company asset is adjusted
pursuant to this Operating Agreement, the amount of such adjustment shall be
taken into account as gain or loss from the disposition of such asset for
purposes of computing Net Profits or Net Losses, and shall be allocated in
accordance with the provisions of Article X;
(iv) The gain or loss on disposition of Company assets and the
depreciation, amortization or other cost recovery deductions, if any, with
respect to Company assets shall be calculated by reference to their book value
rather than their adjusted tax basis; and
(v) To the extent an adjustment to the adjusted tax basis of any
Company asset pursuant to Section 734(b) or Section 743(b) of the Code is
required pursuant to Treas. Reg. Section 1.704-1(b)(2)(iv)(m)(4) to be taken
into account in determining Capital Accounts as a result of a distribution other
than in liquidation of a Member's Interest in the Company,
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the amount of such adjustment shall be treated as an item of gain (if the
adjustment increases the basis of the asset) or loss (if the adjustment
decreases the basis of the asset) from the disposition of the asset and shall be
taken into account for purposes of computing Net Profits or Net Losses.
"Officer" shall have the meaning set forth in Section 8.8(a) hereof.
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"Operating Agreement" means this Limited Liability Company Agreement,
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including all amendments adopted in accordance with this Operating Agreement and
the Act.
"Operating Policy" shall have the meaning set forth in Section 5.1 hereof.
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"Person" means an individual, trust, governmental authority, estate, or any
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incorporated or unincorporated company, corporation, limited liability company,
partnership or other organization.
(The information below marked ***** has been omitted by a request for
confidential treatment. The omitted portion has been separately filed with the
Commission.)
"Preferred Return" shall mean an amount equal to the lower of (i) *****%
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per annum, or (ii) *****% in excess of the rate of interest in effect under
CTI's then existing primary line of credit (if any), compounded semi-annually,
on CTI Unreturned Preferred Capital Contributions.
"Principal Office" shall have the meaning set forth in Section 2.8 hereof.
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"Proceeding" means any administrative or judicial adversary proceeding or
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hearing, civil, criminal or investigative, the result of which may be that a
court, arbitrator, mediator or governmental agency may enter a judgment, order,
decree, or other determination which, if not appealed and reversed, would be
binding.
"Property" means any property, real or personal, tangible or intangible,
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including cash and any legal or equitable interest in such property, but
excluding services and promises to perform services in the future.
"Representative" shall have the meaning set forth in Section 8.2(a) hereof.
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"Selling Member" shall have the meaning set forth in Section 12.4(a)
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hereof.
"Services Agreements" means the CTI Services Agreement and the COH Services
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Agreement.
"Tax Matters Member" shall have the meaning set forth in Section 11.2
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hereof.
"Taxable Year" shall mean the Fiscal Year.
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"Unanimous Vote" means the approval by one hundred percent (100%) of the
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votes of all Representatives comprising the Executive Committee.
"Withdrawing Member" has the meaning set forth in Section 12.5 hereof.
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ARTICLE II
FORMATION
2.1 ORGANIZATION. The Members hereby form, and agree to jointly operate, a
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Delaware limited liability company pursuant to the provisions of the Act. The
Members hereby agree that, except where otherwise required by applicable law,
the Company shall be treated as a partnership for purposes of U.S. federal,
state and local income taxes or other taxes and the Members shall not take any
position or make any election inconsistent therewith.
2.2 CERTIFICATE OF FORMATION. Concurrently with or as soon as possible
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after the execution of this Operating Agreement, the Members shall cause the
Certificate of Formation, in the form attached hereto as Exhibit E (the
"Certificate of Formation"), to be filed in the office of the Secretary of the
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State of Delaware in accordance with the requirements of the Act. From time to
time, the Members shall cause to be filed, and the Members agree to execute,
such further certificates of formation, qualification to do business, or like
filings in such jurisdictions as may be necessary or appropriate in connection
with the conduct of the Company's business or to provide notification of the
limitation of liability of Members.
2.3 AGREEMENT. For and in consideration of the mutual covenants herein
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contained and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Members hereby agree to the
terms and conditions of this Operating Agreement, as it may from time to time be
amended according to its terms. It is the express intention of the Members that
as of the date hereof, this Operating Agreement, any Ancillary Agreements, the
Development Plan and Budget and the Operating Policy, as each agreement may be
amended from time to time in accordance with their terms, shall be the sole
sources of agreement of the parties with respect to the subject matter hereof,
and, except (i) to the extent a provision of this Operating Agreement expressly
incorporates federal income tax rules by reference to sections of the Code is
expressly prohibited or ineffective under the Act, this Operating Agreement
shall govern, even when inconsistent with, or different than, the provisions of
the Act or any other law or rule and (ii) to the extent the Members enter into
agreements subsequent to the date hereof. To the extent any provision of this
Operating Agreement is prohibited or ineffective under the Act, this Operating
Agreement shall be considered amended to the smallest degree possible in order
to make this Operating Agreement effective under the Act. In the event the Act
is subsequently amended or interpreted in such a way to make any provision of
this Operating Agreement that was formerly invalid valid, such provision shall
be considered to be valid from the effective date of such interpretation or
amendment.
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2.4 NAME. The name of the Company is Cell City, LLC.
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2.5 EFFECTIVE DATE. This Operating Agreement shall become effective on the
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date (the "Effective Date") the Certificate of Formation is accepted and the
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Company is duly formed as certified by the Secretary of State of the State of
Delaware.
2.6 TERM. The Company shall dissolve fifteen (15) years after the
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Effective Date unless (i) sooner dissolved as hereinafter provided; or (ii)
extended for an additional term on one or more occasions as hereinafter
provided. Not later than one hundred and twenty (120) days prior to the
expiration of the then effective term, or such other date selected by the
Executive Committee by Majority Vote, the Executive Committee shall meet for the
purpose of determining whether or not the term will be extended and the duration
of such term. Extension of the term shall require a Unanimous Vote.
2.7 REGISTERED AGENT AND OFFICE. The registered agent for the service of
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process and the registered office shall be that Person and location reflected in
the Certificate of Formation as filed in the office of the Secretary of State of
the State of Delaware. The Executive Committee, may, from time to time, change
the registered agent or office through appropriate filings with the Secretary of
State. In the event the registered agent ceases to act as such for any reason or
the registered office shall change, the Executive Committee shall promptly
designate a replacement registered agent or file a notice of change of address
as the case may be. If the Executive Committee shall fail within thirty (30)
days to designate a replacement registered agent or change of address of the
registered office, any Member may designate a replacement registered agent or
file a notice of change of address.
2.8 PRINCIPAL OFFICE. The principal office of the Company (the "Principal
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Office") shall be at such place as the Executive Committee may decide from time
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to time.
2.9 GOVERNMENTAL APPLICATIONS. The Members agree to cooperate and exercise
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due diligence in securing any necessary regulatory approvals and such other
matters as may be necessary or appropriate for purposes of effectuating the
business of the Company.
ARTICLE III
NATURE OF BUSINESS
3.1 PURPOSE. The Company is empowered to (a) exploit Compounds in the
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Field; (b) conduct the activities specified in the Services Agreements; and (c)
engage in any and all activities incidental to the foregoing. The Company is
empowered to engage in all other activities permitted by law to the extent
approved by a Unanimous Vote of the Executive Committee. The Company is also
empowered to take any and all action necessary, appropriate, or convenient for
the accomplishment of its purposes, and for the benefit of the Company and its
Property.
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ARTICLE IV
ACCOUNTING, RECORDS AND REPORTS
4.1 RECORDS TO BE MAINTAINED. The Company shall maintain the following
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accurate and complete records at the Principal Office:
(a) a current list of the full name and last known business address of
each Member;
(b) a copy of the Certificate of Formation and all amendments thereto;
(c) copies of each of the Company's federal, state and local tax
returns and reports, as filed, for the last three taxable periods;
(d) copies of this Operating Agreement and the Ancillary Agreements,
including all amendments thereto; and
(e) books and records of the Company, including the Development Plan
and Budget.
4.2 ACCOUNTING. Books and records of the Company shall be maintained in
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accordance with GAAP, and the Company's Net Profits or Net Losses shall be
determined on the basis of each Fiscal Year.
4.3 FINANCIAL REPORTS. The Executive Committee shall cause the following
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financial statements to be prepared, in each case in accordance with GAAP on a
consolidated basis, and shall cause to be delivered to each Person who was a
Member during the applicable period described below:
(a) (i) a balance sheet as of the end of each calendar quarter; (ii) a
statement of income and cash flows for such quarter and year-to-date; and (iii)
a statement of each Member's Capital Account as of the end of such applicable
period (including sufficient information to permit the Members to calculate
their tax accruals), each within sixty (60) days after the end of such
applicable period (or more frequently if agreed by the Executive Committee);
(b) (i) a balance sheet as of the end of each Fiscal Year; (ii) a
statement of income and cash flows for such Fiscal Year; (iii) a statement of
each Member's Capital Account as of the end of such Fiscal Year; and (iv) such
federal, state and local income tax returns and such other accounting tax
information and schedules as shall be necessary for the preparation by each
Member of its income tax return for such Fiscal Year; and
(c) financial statements prepared by a nationally recognized firm of
certified public accountants selected by the Executive Committee by Majority
Vote within the ten (10)
10
days after such statements are furnished by such certified public accountants to
the Company but in no event later than ninety (90) days after the end of each
Fiscal Year.
4.4 ACCOUNTS. The Company shall maintain a record of each Member's Capital
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Account in accordance with Section 9.3.
4.5 ACCESS TO RECORDS. Subject to Section 15.8, each Member or its
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authorized representative shall have unrestricted access at the Company's
Principal Office and other appropriate locations, during ordinary business
hours, to all properties, books, records, accounts and information regarding the
Company.
ARTICLE V
CONDUCT OF BUSINESS BY THE COMPANY
5.1 OPERATING POLICY. The Executive Committee, by Majority Vote, shall
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approve and adopt written Company operating procedures (the "Operating Policy")
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and a development plan and budget (the "Development Plan and Budget"), which
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Operating Policy and Development Plan and Budget shall be approved and adopted
within sixty (60) days of the execution of this Operating Agreement (the
Executive Committee may, by Majority Vote, approve and adopt interim operating
procedures and an interim development plan and budget to be effective until the
approval and adoption of the Operating Policy and the Development Plan and
Budget), addressing, among other areas, procedures for the execution and
approval of agreements binding the Company (including specific authority levels
of Members, Officers, and Company employees), procedures for the execution and
approval of agreements between the Company and Members, Affiliates, Officers,
and/or Company employees, and tax recording and accounting procedures (including
procedures for calculating Net Profits and Net Losses). The Members have
approved the initial development plan and budget attached hereto as Schedule I,
with the understanding that it will be further refined by the Executive
Committee within such sixty day period.
5.2 ANCILLARY AGREEMENTS.
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(a) CTI Services Agreement. CTI agrees to perform each of its
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obligations under the CTI Services Agreement.
(b) COH Services Agreement and License Agreement. COH agrees to
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perform each of its obligations under the COH Services Agreement and the License
Agreement.
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ARTICLE VI
GENERAL RIGHTS AND DUTIES OF MEMBERS
6.1 MEMBER REQUIREMENTS. A Member may not Dispose of all or any portion of
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its Company Interest except in strict accordance with the terms and conditions
of this Operating Agreement (including, without limitation, Article XII). Any
attempted Disposition of all or any portion of its Company Interest, other than
in strict accordance with this Operating Agreement, shall be, and is hereby
declared, null and void ab initio. The Members agree that breach of the
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provisions of this Section 6.1 may cause irreparable injury to the Company for
which monetary damages (or other remedy at law) are inadequate in view of (i)
the complexities and uncertainties in measuring the actual damages that would be
sustained by reason of the failure of a Member to comply with such provisions,
and (ii) the uniqueness of the Company business and the relationship among the
Members. Accordingly, the Members agree that the provisions of this Section 6.1
may be enforced by specific performance.
6.2 UNAUTHORIZED EXPENSES OR CONTRACTS.
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(a) Subject to Section 8.1(c), a Member may not, unless approved by
Majority Vote of the Executive Committee, cause the Company to enter into or
make any contract, security agreement, financing statement, note or similar
instrument, mortgage or guaranty, incur any obligation, or expend any money,
except and unless an expenditure is required by the terms of a contract or
instrument theretofore duly entered into by the Company and authorized in
accordance with this Operating Agreement.
(b) If a Member breaches this Section 6.2, such Member shall
indemnify, defend and hold the other Members harmless from all liabilities,
losses, damages, claims and expenses (including (i) reasonable attorneys' fees,
judgments, and fines in all cases and (ii) amounts paid in settlement) actually
and reasonably incurred in connection with such breach. The right to
indemnification conferred in this Section 6.2 shall not be exclusive of any
other right which a Member indemnified pursuant to this Section 6.2 may have or
hereafter acquire under any law, any provision of the Certificate of Formation,
this Operating Agreement, any Ancillary Agreement, any vote of Members or
otherwise.
6.3 AUTHORITY OF MEMBERS TO BIND THE COMPANY. The Members hereby agree
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that no individual Member or Members can bind the Company unless such Member or
Members are acting with the express written authority of the Executive
Committee, approved by the required vote of the Executive Committee as set forth
in this Operating Agreement.
6.4 LIMITATION OF LIABILITY OF MEMBERS. Except as provided for in Section
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6.2 hereof, no Member shall be liable for the debts, obligations or liabilities
of the Company, including under a judgment, decree or order of court, except as
may be otherwise expressly agreed to in writing by such Member directly to the
applicable third Person.
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6.5 CONTRACT TO LIMIT MEMBERS' LIABILITIES. Unless approved by Unanimous
--------------------------------------
Vote of the Executive Committee, no contract, lease, sublease, note, deed or
other agreement or instrument shall be executed and delivered by or on behalf of
the Company if there is contained therein any provision whatsoever that states
or suggests that the claims of all parties thereto and other beneficiaries
thereunder are not limited solely to the assets of the Company, and any
contract, lease, sublease, note, deed or other agreement or instrument
containing any such provision shall be null and void and shall not constitute a
valid obligation of the Company.
6.6 LIABILITY OF MEMBERS FOR CERTAIN ACTS OR OMISSIONS. Any act or
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omission by a Member, the effect of which may cause or result in loss or damage
to the Company, shall not subject the Member to any liability to the Company or
any other Member so long as such act or omission was not done fraudulently or in
bad faith or as a result of willful misconduct or gross negligence.
6.7 FIDUCIARY DUTIES. Any fiduciary duties that the Members may owe each
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other under Delaware Law shall be limited to those that the Members would owe
each other under the General Corporation Law of the State of Delaware if the
Company were a Delaware corporation. To the extent reasonably required by
federal tax law in order to preserve the tax-exempt status of COH under Section
501(c)(3) of the Code, COH shall be relieved of any and all fiduciary duties or
similar obligations to act for the benefit of the Company or any of its Members
imposed by applicable law or this Agreement. During any period or with respect
to any action where COH is so relieved, all other Members shall be similarly
relieved of any and all such fiduciary duties or obligations.
6.8 INDEMNIFICATION.
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(a) The Company shall defend, indemnify and hold harmless any Member,
Representative (or alternate), or Company Officer, employee or agent, who was or
is a party to, or is threatened to be made a party to, or is involved in, any
threatened, pending or completed Proceeding, by a third party (including any
action by or in the right of the Company) by reason of any acts, omissions or
alleged acts or omissions by such Member, Representative (or alternate), or
Company Officer, employee or agent undertaken on behalf of the Company, against
and from losses, damages, claims and expenses for which such Member,
Representative (or alternate), or Company Officer, employee or agent has not
otherwise been reimbursed (including (i) reasonable attorneys' fees, judgments,
and fines in all cases and (ii) amounts paid in settlement if agreed to by
Majority Vote of the Executive Committee) actually and reasonably incurred in
connection with such Proceeding, so long as such act or omission was not done
fraudulently or in bad faith or as a result of willful misconduct or gross
negligence or, with respect to any criminal Proceeding, such Person had no
reasonable cause to believe his/her conduct was unlawful.
(b) Subject to limitations and conditions as provided in this Article
VI, each Person who was or is a party to, or is threatened to be made a party
to, or is involved in, any
13
threatened, pending or completed Proceeding, by reason of the fact that such
Person is or was serving at the request of the Company as a member, officer,
employee, or agent of another foreign or domestic limited liability company,
corporation, partnership, joint venture, sole proprietorship, or other
enterprise, shall be defended, indemnified and held harmless by the Company to
the fullest extent permitted by the Act, against and from losses, damages,
claims and expenses for which such Person has not otherwise been reimbursed
(including (i) reasonable attorneys' fees, judgments, and fines in all cases and
(ii) amounts paid in settlement if agreed to by Majority Vote of the Executive
Committee) actually and reasonably incurred in connection with such Proceeding,
so long as the acts or omissions or alleged acts or omissions forming the basis
for such Proceeding were not done fraudulently or in bad faith or as a result of
willful misconduct or gross negligence or, with respect to any criminal
Proceeding, such Person had no reasonable cause to believe his/her conduct was
unlawful.
(c) Indemnification under this Article VI shall continue as to a
Person who has ceased to serve in the capacity which initially entitled such
Person to indemnity hereunder. The rights granted pursuant to this Article VI
shall be deemed contract rights, and no amendment, modification or repeal of
this Article VI shall have the effect of limiting or denying any such rights
with respect to actions taken or Proceedings arising prior to any such
amendment, modification or repeal. It is expressly acknowledged that the
indemnification provided in this Article VI could involve indemnification for
negligence but cannot involve indemnification for any act or omission done
fraudulently or in bad faith or as a result of willful and wanton misconduct or
gross negligence or, with respect to any criminal Proceeding, if such Person had
reasonable cause to believe his/her conduct was unlawful.
(d) The right to indemnification conferred in this Article VI shall
not be exclusive of any other right which a Member or other Person indemnified
pursuant to this Section 6.8 may have or hereafter acquire under any law, any
provision of the Certificate of Formation, this Operating Agreement, any
Ancillary Agreement, any vote of Members or otherwise.
(e) Expenses (including, without limitation, attorneys' fees and
expenses) incurred by a Member, Representative or Officer of the Company in
defending a Proceeding shall be paid by the Company in advance of the final
disposition of such action, suit or Proceeding upon receipt of an undertaking by
or on behalf of the Member, Representative or Officer to repay such amount if it
shall ultimately be determined that such Member, Representative or Officer is
not entitled to be indemnified by the Company under this Section 6.8 or under
any other contract or agreement between such Member, Representative or Officer
and the Company. Such expenses (including attorneys' fees) incurred by
employees or agents of the Company or persons serving other entities at the
request of the Company may be so paid upon the receipt of the aforesaid
undertaking and such terms and conditions, if any, as the Executive Committee,
by a Majority Vote, deems appropriate.
14
6.9 COMPANY INTELLECTUAL PROPERTY.
-----------------------------
(a) "Company Intellectual Property" includes trademarks, service
-----------------------------
marks, trade names, domain names, copyrights, patents, trade secrets, know-how,
and other information having value and providing a competitive advantage created
by the Company within the Field. Except as is otherwise provided in the
Ancillary Agreements, all Company Intellectual Property created by the Company
will be owned by the Company. Any goodwill associated with such Company
Intellectual Property will inure to the benefit of the Company. Except as is
otherwise provided in the Ancillary Agreements, the Company is responsible for
obtaining all federal and state registrations in the United States and all
comparable protections in those countries where the Company does business in
order to protect the Company Intellectual Property. Further, the Company is
responsible for the payment of all associated renewal fees maintenance fees and
the like.
(b) Confidential Information. Except as is otherwise provided in the
------------------------
Ancillary Agreements, Confidential Information of a Member provided by the
Member for the benefit of the Company shall remain the property of the Member,
and the Company shall keep confidential such Confidential Information and use
the same solely for the purposes of the business of the Company solely during
the period during which such Member remains a Member. If a Member sells its
Company Interest or the Company is sold to a third party, all Confidential
Information belonging to such Member, and not to the Company, will be returned
to such Member. All Confidential Information created by the Company will remain
property of the Company. The Company will take reasonable security measures to
protect the secrecy of and prevent disclosure of Confidential Information
belonging to both the Members and the Company itself. The Members agree not to
file suit against, or otherwise hold liable, the Company for the use of the
Members' Confidential Information during the time period that such Members that
contribute Confidential Information are Members.
6.10 REPRESENTATIONS AND WARRANTIES. Each Member hereby represents and
------------------------------
warrants to the Company and each other Member that: (a) if such Member is an
organization, it is duly organized, validly existing, and in good standing under
the law of its state or other jurisdiction of incorporation or organization and
that it has full organizational power to execute and agree to this Operating
Agreement and to perform its obligations hereunder; (b) such Member is acquiring
its Company Interest for such Member's own account as an investment and without
an intent to distribute the interest; (c) such Member acknowledges that such
interests have not been registered under the Securities Act of 1933, as amended,
or any state securities laws, and may not be resold or transferred by the Member
without appropriate registration or the availability of an exemption from such
requirements; (d) such Member, by itself or together with its advisors, is
experienced in making investments comparable to its investment in the Company
and is capable of judging for itself the risks inherent in such investment; (e)
such Member has the financial capacity to hold its investment in the Company for
an indefinite period of time and to meet its obligations to make Capital
Contributions hereunder, and acknowledges that the disposition of such
investment is restricted both pursuant to federal and state securities laws and
pursuant to the terms of this Operating
15
Agreement; (f) such Member acknowledges that it has received access to all
information that it deems necessary in order to make its decision to invest in
the Company; (g) this Operating Agreement has been duly executed and delivered
by it and constitutes its valid and binding obligation, enforceable in
accordance with its terms; (h) neither the execution and delivery of this
Operating Agreement nor the consummation of the transactions contemplated hereby
nor compliance by it with any provisions hereof (1) conflicts with, or results
in a breach or contravention of, or in a default or the creation of any lien
under, any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, license, agreement, or other instrument or obligation to which it is
a party or by which it or its properties are bound, or (2) violates any law,
order, writ, injunction or decree applicable to it or any of its properties; and
(i) no consent, approval or other action by any court, governmental authority or
third party is required in connection with its execution, delivery and
performance of this Operating Agreement.
ARTICLE VII
COMPETITION AND CONFLICTS OF INTEREST
7.1 COMPANY OPPORTUNITY.
-------------------
(a) The assets of the Company shall at all times be dedicated
exclusively to the benefit of the Company. Subject to the foregoing and except
as otherwise set forth below, any Member or Affiliate of any Member may
participate in other business activities, whether or not any such activities are
competitive with the business of the Company. Neither the Company nor any
Member shall have any right by virtue of this Operating Agreement in or to any
other interests or activities of any Member or to the income or proceeds derived
therefrom.
(b) No transaction with the Company shall be voidable solely because a
Member has a direct or indirect interest in the transaction if either (i) the
transaction is arm's-length and fair to the Company or (ii) the disinterested
Members (knowing the material facts of the transaction and the Member's
interest) or their Representatives on the Executive Committee authorize,
approve, or ratify the transaction.
(c) With respect to any clinical trials that the Company may conduct,
or have conducted on its behalf, the Company will give COH due consideration
(taking into account the scope and purpose of such trial) as a clinical trial
site; provided, however, that if COH possesses the requisite material
capabilities of other potential trial sites, the Company will utilize COH as a
clinical trial site.
7.2 COMPETITION BETWEEN MEMBERS. Except as specifically provided in this
---------------------------
Article VII, nothing shall limit or restrict the Members' ability to compete
with each other.
16
ARTICLE VIII
MANAGEMENT
8.1 EXECUTIVE COMMITTEE.
-------------------
(a) Except as otherwise provided in this Operating Agreement, the
property, business and affairs of the Company shall be under the direction of
the Executive Committee. Except for matters requiring the action of the Members
under the terms of this Operating Agreement, the Executive Committee shall have
the power to take any action that the Members may take under law, subject to any
restrictions set forth in this Operating Agreement.
(b) Subject in all cases to subsections (c) and (d) hereof, the
approval by a Majority Vote shall be required before any of the following acts
involving the Company may be taken:
(i) entering into, amending, modifying, or terminating an
agreement with a term in excess of one year or involving aggregate consideration
(including assumed actual and contingent liabilities) or receipts, the
acquisition or disposition of Property or delivery or receipt of goods or
services having a fair market value, in excess of $50,000;
(ii) (A) filing any claim or lawsuit against any Person, or (B)
settling any claim or lawsuit;
(iii) except as provided in Section 8.1(c)(ii), making any
amendment or modification of any provision of the Operating Policy or
Development Plan and Budget or the taking of any actions in contravention of the
restrictions or limitations in the Operating Policy or the Development Plan and
Budget;
(iv) approving a capital budget and an operating budget for each
Fiscal Year, which shall not be exceeded without the express consent of a
Majority Vote of the Executive Committee;
(v) the indemnification of any Officer, employee, agent or any
other Person except as specifically provided herein;
(vi) executing or otherwise entering into, or amending, modifying,
or terminating, any employment agreement, the election or removal of any Officer
or the hiring or firing of other similarly compensated person with or without
cause;
(vii) setting or amending the compensation level of any Officer
or other similarly compensated person;
(viii) revaluing any property or asset;
17
(ix) taking any action pertaining to the Company in its capacity
as a shareholder, partner or member of any Person;
(x) taking action that will result in any Company Property being
burdened by a lien or other encumbrance;
(xi) approving the distribution of Company Property to Members in
accordance with Section 10.4 below;
(xii) formulating the proposed development plan referred to in
Section 2.4 of the License; or
(xiii) merging or consolidating the Company with or into any other
Person or converting the Company to another Delaware entity, subject to Section
12.8 hereof.
(c) The approval by a Unanimous Vote shall be required before any of
the following acts involving the Company may be taken:
(i) the admission of an Additional Member other than in connection
with a Corporate Partnering Arrangement pursuant to Article XII hereof;
(ii) amending or modifying in any material respect the Operating
Policies, or the Development Plan or the taking of any actions in contravention
of the restrictions or limitations in the Development Plan such that the overall
scientific program agreed to in the Development Plan is materially altered;
(iii) borrowing any principal amount in excess of $100,000,
incurring any contingent liability whatsoever in excess of $100,000 (borrowings
or contingent liabilities equal to or less than $100,000 may be made or incurred
by joint decision of the Chairperson and the President), lending or guaranteeing
any third party indebtedness (including, without limitation, under any contract
or arrangement referred to in this Section 8.1), it being understood that such
limitation shall not be a limitation on the amount or type of trade payables
that may be incurred in the ordinary course of business consistent in all
respects with past practices by the Company;
(iv) transferring all or substantially all of the assets of the
Company;
(v) dissolving the Company;
(vi) the filing of a petition as debtor in a United States
Bankruptcy Court or taking any material affirmative act that would result in the
Company's Bankruptcy;
(vii) a change in the name of the Company;
18
(viii) entering into any modification or amendment of this
Operating Agreement; or
(ix) extension of the term of the Company in accordance with
Section 2.6.
(d) Any other action required or permitted by the Executive Committee
under this Operating Agreement and not specifically addressed in this Section
8.1 may be taken only with the approval in advance by a Majority Vote of the
Executive Committee.
(e) The Executive Committee by a Majority Vote may from time to time
adopt such rules, not inconsistent with the provisions hereof, as it may deem
useful and appropriate to implement this Operating Agreement and to manage the
Company's business and affairs. The Executive Committee by a Majority Vote may
adopt accounting and financial control procedures and policies, not inconsistent
with this Operating Agreement, that are appropriate for the Company with respect
to such matters.
(f) Subject to the COH's Member Veto Right, CTI shall have the right
to approve a Corporate Partnering Arrangement. No later than thirty (30) days
prior to the approval of a Corporate Partnering Arrangement, the Company shall
give notice (containing a summary of the substantive terms and provisions)
thereof to all Members. COH shall have thirty (30) days following the delivery
of such notice to exercise its Member Veto Right.
(g) In the event of a Deadlock, the Company shall continue to pursue
the activities set forth in the Development Plan and Budget (or any interim
development plan and budget which may be in effect at such time pursuant to
Section 5.1 hereof). If the Executive Committee is unable to resolve such
Deadlock within thirty (30) days, any Member may, by written notice to the
other, have such Deadlock referred to their chief executive officers of the
Members for attempted resolution by good faith negotiations within fourteen (14)
days after such notice is received. In the event the chief executive officers
are not able to resolve such Deadlock, the Company shall continue to pursue the
activities set forth in the Development Plan and Budget (or any interim
development plan and budget which may be in effect at such time pursuant to
Section 5.1 hereof), without implementation of any items that lead to the
Deadlock.
8.2 COMPOSITION AND TERM.
--------------------
(a) The executive committee (the "Executive Committee") shall be the
-------------------
Members' management committee of the Company and shall initially be comprised of
three (3) individual representatives from each of CTI and COH (such Member's
"Representatives"). Upon admission of an Additional Member, the Executive
----------------
Committee shall thereafter be comprised of Representatives of each Member
determined on the basis of each such Member's Allocable Share (e.g., if there
----
were three Members with 33-1/3% Allocable Shares, each Member would be entitled
to one Representative, or two, if the Executive Committee were
19
constituted of six members, etc.) provided, however, that each of CTI and COH
shall have no less than one (1) Representative at all times. All Representatives
shall be entitled to receive notices and agendas of upcoming Executive Committee
meetings, attend all Executive Committee meetings and participate in all
discussions, and receive minutes from previous Executive Committee meetings. A
Member may bring support staff to Executive Committee meetings. Such staff shall
be subject to confidentiality requirements deemed appropriate by the Executive
Committee. Each Representative shall be entitled to cast one (1) vote on matters
requiring the approval of the Executive Committee.
(b) Until replaced pursuant to the terms of this Operating Agreement,
CTI's Representatives shall be ▇▇▇▇▇ ▇. ▇▇▇▇▇▇, M.D., ▇▇▇▇▇▇ ▇. ▇▇▇▇▇, M.D. and
▇▇▇▇ ▇. ▇▇▇▇▇▇▇. COH's Representatives shall be ▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇,
M.D. and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇. Each Representative shall be entitled to hold
office until death, resignation or removal. A Member may replace any
Representative appointed by such Member in the event of a vacancy. Any
Representative may be removed at any time, with or without cause, by the Member
entitled to appoint such Representative, but not otherwise. Any Representative
on the Executive Committee or any Member in the event of the absence of its
Representatives may appoint a proxy (including another Representative) to attend
meetings and vote (including, without limitation, voting on any matter before
the Executive Committee). Without limiting the generality of the foregoing, in
determining if a quorum is present, all Representatives in attendance by means
of a proxy shall be included in the count of a quorum.
8.3 ANNUAL AND REGULAR MEETINGS. The Executive Committee shall hold an
---------------------------
annual meeting, and may hold regular meetings, at such time and place as the
Executive Committee determines by resolution but in any event the Executive
Committee shall, unless the Executive Committee otherwise agrees, hold regular
meetings by conference call or at the offices of the Company each calendar
quarter; provided, however, that each quarter the Representatives of the
Executive Committee shall meet at a location to be determined by a Majority Vote
of the Executive Committee.
8.4 SPECIAL MEETINGS. Special meetings of the Executive Committee may be
----------------
called by the Chairperson, Vice Chairperson, the Executive Committee or any
Member upon notice to all Representatives on the Executive Committee.
8.5 NOTICE OF MEETINGS. Notice of a special meeting shall state the
------------------
purpose of the meeting and notice of special, annual and regular meetings must
be given in writing at least ten (10) days in advance of such meeting. Notice of
such meeting may be waived in writing by Unanimous Vote.
8.6 QUORUM AND MANNER OF ACTING. The presence of a majority of the
---------------------------
Representatives shall constitute a quorum. If a quorum is present, the action of
those present, in accordance with Section 8.1 above, shall constitute the action
of the Executive Committee. No action may be taken at a meeting of the Executive
Committee in the absence of a quorum.
20
Any action the Executive Committee may take may be taken without a meeting by
unanimous written consent of all Representatives. Meetings of the Executive
Committee may take place by telephone or any means where any persons attending
can hear and speak to each other.
8.7 NO COMPENSATION. No Representative on the Executive Committee shall be
---------------
entitled to compensation for his/her services, or any reimbursement of expenses
incurred, as a Representative on the Executive Committee.
8.8 OFFICERS
--------
(a) Generally. The Company shall have agents, referred to as
---------
"Officers" of the Company. These agents (whose authority is limited pursuant to
---------
the following sentence) shall be appointed in the manner specified below, shall
have the titles and authority specified in this Section 8.8 and shall not be
considered "managers" for purposes of the Act or the Code. Each Officer shall
have only the authority specified below, and shall not be a general agent of the
Company.
(b) Titles and Number. The Officers shall be the Chairperson,
-----------------
President, Secretary and Treasurer. There shall be appointed from time to time,
in accordance with subsection (c) below, such Vice Presidents, Assistant
Secretaries, and Assistant Treasurers as the Executive Committee may desire.
Any person may hold two or more offices, except that the offices of President
and Secretary may not be held by the same person.
(c) Election and Term of Office. The Officers shall be elected by the
---------------------------
Executive Committee at the annual meeting by Majority Vote in accordance with
Section 8.1(b)(vi) above. Each Officer shall hold office until the annual
meeting following the date of election of such Officer. Any Officer may be
removed by the Executive Committee by Majority Vote with or without cause.
Vacancies in any office shall be filled by the Executive Committee by Majority
Vote.
(d) Chairperson of the Executive Committee. The Chairperson, or if
--------------------------------------
the Chairperson is unable to perform his/her duties hereunder, or in the absence
of the Chairperson, the President, if the President is a Representative, or
otherwise a Representative selected by the Chairperson shall preside at meetings
of the Executive Committee, and shall exercise such powers and perform such
duties as may be assigned to him/her by this Operating Agreement or the
Executive Committee.
(e) President. The President, subject to the general control of the
---------
Executive Committee, shall be responsible for the day-to-day operation and
direction of the affairs of the Company, employees and agents, shall supervise
generally the affairs of the Company, and, subject to the limitations imposed by
this Operating Agreement, the Operating Policy, any employment agreement, any
employee plan, or any resolution of the Executive Committee, shall have full
authority to execute all documents and to take all actions that the Company may
legally take.
21
(f) Vice Presidents. In the absence of the President or in the event
---------------
that the President is unable to perform its duties hereunder, the Vice
Presidents designated by the Executive Committee shall, except as hereinafter
provided, have all of the powers and duties conferred upon the President. Each
of the Vice Presidents shall, subject to the limitations imposed by this
Operating Agreement, any employment agreement, any employee plan, or any
resolution of the Executive Committee, have the same power as the President to
sign certificates, contracts and other instruments of the Company. Any Vice
President shall perform such other duties and may exercise such other powers as
may from time to time be assigned to him by this Operating Agreement, the
Operating Policy, the Executive Committee, the Chairperson or the President.
(g) Secretary and Assistant Secretaries. The Secretary shall attend
-----------------------------------
and record or cause to be recorded in books provided for that purpose the
minutes of the meetings or actions of the Members and the meetings or actions of
the Executive Committee or any subcommittees thereof, shall see that all notices
are duly given in accordance with the provisions of this Operating Agreement and
as required by law, shall be custodian of all records (other than financial
records), shall see that the books, reports, statements, certificates and all
other documents and records required by law are properly kept and filed, and, in
general, shall perform all duties incident to the office of Secretary and such
other duties as may, from time to time, be assigned to him/her by the Executive
Committee or the Chairperson. The Assistant Secretaries shall exercise the
powers of the Secretary during that Officer's absence or inability or refusal to
act.
(h) Treasurer and Assistant Treasurers. The Treasurer shall keep or
----------------------------------
cause to be kept the books of account of the Company and shall render statements
of the financial affairs of the Company in such form and as often as required by
this Operating Agreement, the Executive Committee or the Chairperson. The
Treasurer, subject to the order of the Executive Committee, shall have the
custody of all funds and securities of the Company. The Treasurer shall perform
all other duties commonly incident to his/her office and shall perform such
other duties and have such other powers as the Executive Committee or the
Chairperson shall designate from time to time. The Assistant Treasurers shall
exercise the power of the Treasurer during that Officer's absence or inability
or refusal to act.
(i) Powers of Attorney. The Executive Committee may ▇▇▇▇▇ ▇▇▇▇▇▇ of
------------------
attorney or other authority as appropriate to establish and evidence the
authority of the Officers.
(j) Borrowed Employees. The Company may borrow a Member's employees,
------------------
or a Member's Affiliate's employees, with that Member's or Affiliate's consent,
from time to time on a temporary basis for purposes associated with the
Company's business at the hourly rates agreed to by Majority Vote of the
Executive Committee, excluding the Representatives of the lending Member, which
may be modified or supplemented by a Member with respect to its employees or a
Member's Affiliate's employees from time to time upon 30 days' prior written
notice to the other Members and if agreed to by Majority Vote of
22
the Executive Committee, excluding the Representatives of the lending Member.
Such hourly rates shall be based on the cost to such Member or Member's
Affiliate of such employee's salary, benefits and other related expenses. The
lending Member shall furnish all Representatives on the Executive Committee with
a monthly statement of the salary, benefits and other related expenses
associated with any such employee, supported by invoices and other supporting
documents, and shall maintain adequate records supporting the setting of such
hourly rates.
(k) Deferral. The Executive Committee may, by Majority Vote, elect to
--------
defer the appointment and election of Officers until such time as the magnitude
of the Company's operations warrant the appointment thereof. If so deferred,
all references herein to Officers shall be deemed references to the Executive
Committee acting by Majority Vote or the Executive Committee's designee.
8.9 EXPENSES. The Company shall pay only those expenses incurred by the
--------
Officers and employees that are directly attributable to the Company's business.
ARTICLE IX
CONTRIBUTIONS AND CAPITAL ACCOUNTS
9.1 INITIAL CAPITAL CONTRIBUTIONS.
-----------------------------
(a) In consideration for its respective Company Interest, each Member
has made, or immediately shall make, an Initial Capital Contribution to the
Company. The Initial Capital Contributions of the Members shall consist of the
property listed on Exhibit C-1. Each Member shall receive the Allocable Shares
listed on Exhibit B in exchange for these Initial Capital Contributions. In
addition, CTI shall make the additional Capital Contributions ("CTI Deferred
------------
Capital Contributions") set forth on Exhibit C-2 at the times indicated therein.
---------------------
(b) Each Additional Member that has acquired a Company Interest from
the Company shall make the capital contributions described in such Additional
Members' Admission Agreement ("Admission Agreement"). Such Additional Member's
-------------------
Capital Contributions shall reduce the Members' Allocable Shares pro rata in
accordance with their respective Allocable Shares. The amount of such
Additional Members' Capital Contributions, the time for making such
contributions, and any changes in the other Members' Capital Accounts and
Allocable Shares that result, shall be set forth in such Additional Members'
Admission Agreement.
(c) CTI shall also make loans or capital contributions ("CTI
---
Administrative Contributions") during the term of the Company to cover the
----------------------------
administrative and other operating expenses of the Company. The CTI
Administrative Contributions shall be made in such amounts and at such times as
determined by the Executive Committee. Such CTI Administrative Contributions
shall (x) be repaid in full on the earlier of: (i) the First
23
Commercial Sale; and (ii) the execution of a Corporate Partnering Arrangement;
and (y) converted into CTI Capital Contributions on the effective date of a
Dissolution Event.
9.2 ADDITIONAL CAPITAL CONTRIBUTIONS.
--------------------------------
(a) As and when the Executive Committee determines by Majority Vote or
Unanimous Vote, as may be required by Section 8.1, that the Company requires
additional resources from time to time, each Member, other than COH (who shall
have the option, but not the obligation to make Additional Capital
Contributions), agrees that it shall make additional Capital Contributions (the
"Additional Capital Contributions") to the Company in an amount in accordance
--------------------------------
with its respective Allocable Share for the purposes determined by the vote of
the Executive Committee authorizing such Capital Contributions in accordance
with Section 8.1.
(The information below marked ***** has been omitted by a request for
confidential treatment. The omitted portion has been separately filed with the
Commission.)
(b) Notwithstanding Section 9.1, this Section 9.2 or any other
provision of this Operating Agreement, CTI may make Additional Capital
Contributions ("CTI Unmatched Additional Contributions") to the Company, subject
--------------------------------------
to COH's right to contribute up to its pro rata share of such Additional Capital
Contributions. The first $***** of CTI Unmatched Additional Contributions in
excess of those specified in Section 9.1(a) will not affect COH's Allocable
Share. CTI Unmatched Additional Capital Contributions in excess thereof shall
affect COH's Allocable Share as follows:
(The information below marked ***** has been omitted by a request for
confidential treatment. The omitted portion has been separately filed with the
Commission.)
(i) the first $***** of such CTI Unmatched Additional Capital
Contributions in excess of such $***** (the "CTI Preferred Capital
---------------------
Contributions") shall not affect COH's Allocable Share, but instead shall have a
-------------
Preferred Return; and
(The information below marked ***** has been omitted by a request for
confidential treatment. The omitted portion has been separately filed with the
Commission.)
(ii) any CTI Unmatched Additional Capital Contributions in excess
of $***** (e.g., total CTI Capital Contributions, exclusive of CTI
Administrative Contributions, in excess of $***** million), shall decrease COH's
Allocable Share, but not below *****%, by the percentage amount which is the
product of multiplying (x) a fraction, the numerator of which is the amount of
CTI Unmatched Additional Capital Contributions in excess of $***** and the
denominator of which is the aggregate Capital Contributions made by the Members
to the Company after giving effect to all CTI Unmatched Additional Capital
Contributions, by (y) one-half.
(c) Additional Members' Initial Capital Contributions will reduce the
Members' Allocable Shares pro rata in accordance with their Allocable Shares.
9.3 MAINTENANCE OF CAPITAL ACCOUNTS. The Company, acting through the
-------------------------------
Treasurer or Assistant Treasurer, shall establish and maintain an Account (the
"Capital Account") for each Member. The Capital Account of each Member shall
------- -------
equal: (i) the Initial Capital Contributions of each Member, as set forth on
Exhibit C-1 (ii) increased by any Additional Capital Contributions of such
Member, including, in the case of CTI, the CTI Deferred Capital Contributions;
(iii) increased by the Net Profits of the Company previously
24
allocated to such Member under Section 10.1(a); (iv) decreased by the Net
Losses, if any, of the Company previously allocated to such Member under Section
10.1(b); and (v) decreased by the amount of any cash and the value of any
property distributed to such Member on or before such time (net of any
liabilities assumed by the Member in conjunction with such distribution or to
which the distributed property is subject). Upon a distribution of property
other than cash to any Member, the value of such property shall be restated on
the books of the Company at its fair market value immediately prior to such
distribution and the Capital Account of each Member shall be restated to reflect
such adjustment, determined as if the Company had sold such asset for its fair
market value and the resulting gain or loss had been charged or credited to the
Members' Capital Accounts as provided in this Operating Agreement. Following
such adjustment to the Members' books, the Capital Accounts of the Members
receiving the distributions shall be adjusted to reflect the amount of the
distribution.
9.4 WITHDRAWAL OF CAPITAL. Except as otherwise provided herein, no Member
---------------------
shall be entitled to withdraw all or any portion of its Capital Contribution or
receive interest on its contributed capital or Capital Account.
9.5 CAPITAL ACCOUNT, ALLOCATIONS, AND DISTRIBUTIONS ATTRIBUTABLE TO
---------------------------------------------------------------
TRANSFERRED INTEREST. At the close of business on any day that any interest in
--------------------
the Company has been transferred or purchased, the transferee Member shall
succeed to the Capital Account of the transferor Member, and the Company's books
shall be closed so that Net Profits, Net Losses, credits and distributions can
be attributed to the Members based on their interests in the Company when items
were actually received, paid or incurred.
9.6 COMPLIANCE WITH SECTION 704(B) OF THE CODE. The provisions of this
------------------------------------------
Article as they relate to the maintenance of Capital Accounts are intended, and
shall be construed, and, if necessary, modified, to cause the allocations of
profits, losses, income, gain and credit pursuant to Article X to have
substantial economic effect under the Regulations promulgated under Section
704(b) of the Code, in light of the distributions made pursuant to this
Operating Agreement. Notwithstanding anything herein to the contrary, this
Operating Agreement shall not be construed as creating a deficit restoration
obligation or, except as otherwise specifically agreed herein, otherwise
personally obligating any Member to make a Capital Contribution in excess of the
Initial Capital Contribution.
ARTICLE X
ALLOCATIONS AND DISTRIBUTIONS
10.1 ALLOCATIONS OF NET PROFITS AND NET LOSSES. As of the end of each
-----------------------------------------
Fiscal Year (or any other, shorter period selected by the Executive Committee),
the Net Profits or Net Losses of the Company shall be determined by the
Treasurer as provided in the definitions of "Net Profits and Net Losses" in
Article I. The Net Profits or Net Losses of the Company for any period shall be
allocated to the Members' Capital Accounts in the following priority:
25
(a) Net Profits shall be allocated:
(i) First, as necessary to offset in reverse order any previously
unoffset items of Net Losses allocated pursuant to Section 10(b);
(ii) Next, 100% to CTI to the extent necessary for CTI to have
received allocations of Net Profits equal to the CTI Unpaid Preferred Return;
and
(iii) Finally, to the Members in proportion to their respective
Allocable Shares.
(b) Net Losses shall be allocated:
(i) First, 100% to CTI to the extent of the CTI Ordinary Capital
Contributions, if any;
(ii) Next, 100% to CTI to the extent of the CTI Preferred Capital
Contributions, if any;
(iii) Next, 100% to CTI to the extent of the CTI Unpaid Preferred
Return, if any;
(iv) Next, 100% to COH to the extent of the COH Capital Contributions,
if any;
(v) Next, to the Members to the extent paid in proportion to
allocations of Net Profits to such Members pursuant to Section 10.1(a)(i) and
(iii); and
(vi) Next, to the Members in proportion to their respective Allocable
Shares.
10.2 ALLOCATIONS OF TAXABLE INCOME OR TAXABLE LOSS. Except as otherwise
---------------------------------------------
provided herein, for federal, state, and local income tax purposes, the taxable
income or taxable loss (and each item of income, gain, loss, deduction, or
credit) of the Company for any period shall be allocated among the Members in
the same manner as allocated pursuant to Section 10.1 and shall otherwise be
kept in accordance with applicable United States treasury regulations
promulgated under Section 704(b) of the Code.
10.3 TAX ALLOCATIONS: SECTION 704(C). If any Company asset has a book value
-------------------------------
different than its adjusted tax basis to the Company for federal income tax
purposes (whether by reason of the contribution of such property to the Company,
the revaluation of such property hereunder or otherwise), allocations of income,
gain, loss, deduction, credit and tax preference under this Article X with
respect to such asset shall take account of any variation between the adjusted
tax basis of such asset for federal income tax purposes and its book value in
the manner prescribed by Section 704(c) of the Code or the principles set forth
in
26
Section 1.704-1(b)(2)(iv)(g) of the treasury regulations, as the case may be,
using the remedial allocation method.
10.4 DISTRIBUTIONS.
-------------
(a) Notwithstanding the provisions of clause (a), the Executive
Committee, upon the reasonable request of a Member, shall make an annual
distribution of cash to such Member pursuant to this clause (b) in an amount not
greater than the amount, if any, by which (A) the maximum combined United States
federal and state income tax payable by such Member (or by such Member's
ultimate limited and general partners if such Member is taxed as a partnership)
on account of the amount of all income Net Profits that have been allocated to
such Member for United States federal income tax purposes since the formation of
the Company, taking into consideration all losses Net Losses allocated to such
partner since the formation of the Company, exceeds (B) any amounts distributed
to such Member pursuant to this Section 10.4. To the extent any distribution is
made to CTI upon its request pursuant to the first sentence of this Section
10.4, a corresponding proportionate (based upon the amount of Net Profits and
Net Losses allocated to COH as compared to those allocated to CTI) distribution
shall be made to COH (utilizing the same tax assumptions utilized in arriving at
the sum to be distributed to CTI, regardless of COH's actual tax status).
Subject to the provisions of Article XIII, the Company will make distributions
of cash or cash equivalents or property to the Members in such aggregate amounts
and at such time or times as the Executive Committee may determine by Majority
Vote. Except as otherwise provided in Section 13.3, all distributions shall be
made to the Members in proportion to their respective Allocable Shares.
(b) For purposes of computing the CTI Unreturned Preferred Capital
Contributions, the CTI Unreturned Ordinary Capital Contributions and CTI Unpaid
Preferred Return, all distributions to CTI pursuant to this Operating Agreement
shall be deemed first, payment of any CTI Unpaid Preferred Return, then, a
return of CTI Preferred Capital Contributions, and next a return of the CTI
Ordinary Capital Contribution.
10.5 WITHHOLDING. The Company is authorized to withhold from distributions
-----------
to be made to a Member, or with respect to allocations to a Member, and to pay
over to a federal, state or local government, any amounts required to be
withheld pursuant to the Code or any provisions of any other federal, state or
local law. Any amounts so withheld shall be treated as distributed to such
Member pursuant to this Section 10.5 for all purposes of this Operating
Agreement and shall be offset against the net amounts otherwise distributable to
such Member. The Company may also withhold from distributions that would
otherwise be made to a Member, and apply to the obligations of such Member, any
amounts that such Member owes to the Company. In addition, any tax imposed upon
the Company resulting from the Company Interest of any Member shall be treated
as a distribution to such Member and shall reduce future distributions to such
Member.
27
ARTICLE XI
TAXES
11.1 TAX RETURNS. For each Fiscal Year, the Executive Committee shall cause
-----------
federal, state and local tax returns for the Company to be prepared and filed
with the appropriate authorities in a timely manner. Within 90 days of the close
of the Fiscal Year, the Company shall cause to be delivered to each Person who
was a Member at any time during such Fiscal Year all information concerning the
Company necessary for the preparation of such Person's tax returns, including a
statement showing such Person's share of taxable gain or taxable loss (or items
thereof) for such year for federal, state and local tax purposes.
11.2 TAX MATTERS MEMBER. CTI is hereby appointed the "Tax Matters Member"
------------------ ------------------
of the Company for all purposes pursuant to Sections 6221 and 6231 of the Code.
The Tax Matters Member shall (i) furnish to each Member a copy of each notice or
other communication received from the Internal Revenue Service or applicable
state authority (except such notices or communications as are sent directly to
each such Member), (ii) keep each Member informed of any administrative or
judicial Proceeding, as required by Section 6223 of the Code, (iii) allow each
Member an opportunity to participate in all administrative and judicial
Proceedings involving the tax makers of the Company, and (iv) advise and consult
with each Member as to proposed adjustments to the federal or state income tax
returns of the Company. The Tax Matters Member shall not take any action that
will cause the Company to be taxed as a corporation under Regulation 301.7701
3(a) of the Code. The Company shall pay fees or other compensation to the Tax
Matters Member in its capacity as such, as set forth in such Member's Services
Agreement and the Company shall reimburse the Tax Matters Member for any and all
reasonable out-of-pocket costs and expenses (including reasonable attorney's and
other professional fees) incurred by it in its capacity as Tax Matters Member.
The Company shall indemnify, defend and hold the Tax Matters Member harmless
from and against any loss, liability, damage, cost or expense (including
reasonable attorneys' fees) sustained or incurred as a result of any act or
decision concerning Company tax matters and within the scope of such Member's
responsibility as Tax Matters Member, so long as such act or decision was not
done fraudulently or in bad faith or as a result of willful misconduct or gross
negligence or, with respect to any criminal Proceeding against the Tax Matters
Member, such Member had no reasonable cause to believe its conduct was unlawful.
The Tax Matters Member may resign upon thirty (30) days written notice to the
Company.
ARTICLE XII
DISPOSITION OF COMPANY INTERESTS; EXIT RIGHTS
12.1 RIGHT OF DISPOSITION. Each Member agrees not to Dispose of its Company
--------------------
Interest, in whole or in part, or to withdraw from the Company, except as
provided in this Article XII. In connection with any Disposition, each Member
party to such Disposition (including any Additional Member admitted as a Member
as a result of such Disposition)
28
shall provide to the Company the information required to amend Exhibits B and C
only as to such Members.
12.2 DISPOSITIONS NOT IN COMPLIANCE WITH THIS ARTICLE VOID. Any attempted
-----------------------------------------------------
Disposition of a Company Interest, or any part thereof, not in compliance with
this Article XII is null and void ab initio.
-- ------
12.3 DISSOLUTION UPON BREACH.
-----------------------
(a) In the event that any Member shall be in material breach of this
Operating Agreement and shall fail to cure such material breach within a term of
sixty (60) calendar days from the date of notice to that effect given by another
Member, then the Member giving notice may elect to dissolve the Company in
accordance with Article XIII.
(b) It is expressly acknowledged by the Members that in the event that
any act of government, war conditions (declared or undeclared), fire,
explosions, flood, strikes, labor troubles or other industrial disturbances,
inevitable accidents, embargoes, blockades, legal restrictions, riots or
insurrections, or any other act or occurrence of whatever nature beyond the
reasonable control of any Member ("Force Majeure"), shall prevent or delay
-------------
compliance by such Member with the terms and conditions of this Operating
Agreement, then such failure or delay in compliance by such Member shall be
excused while, but not longer than, the Force Majeure conditions described
herein prevail.
12.4 THIRD PARTY DISPOSITION PROCEDURES.
----------------------------------
(a) After the fifth anniversary of the Effective Date, a Member (the
"Selling Member") may sell all or any part of its Company Interest to any third
---------------
party purchaser permitted to be a member of a limited liability company under
the Act for cash or other consideration, provided that (x) the Selling Member
allows the remaining Members to match the offer; and (y) such disposition is
subject to the Member Veto Right. No such third party purchaser may become an
Additional Member without execution of an Admission Agreement. To satisfy
clause (x) above, the Selling Member shall present a written offer to the
remaining Members, through the Executive Committee, stating the name of the
proposed purchaser, the proposed price and all other basic purchase terms. Each
of the remaining Members shall have the right for a period of sixty (60) days
from receipt of such written offer to elect to accept such written offer on the
same terms and conditions applicable to such proposed purchaser or to exercise
their Member Veto Right.
(b) In the event that more than one of the remaining Members accepts
such offer to purchase such Company Interest from the Selling Member, the
remaining Members who wish to purchase such Company Interest may do so at the
proposed price on a pro rata basis in accordance with their Allocable Shares and
the Members' Capital Accounts (and Allocable Shares) will be ratably adjusted.
The Member Veto Right and right of first refusal contained in this Section 12.4
shall expire upon (i) the closing of an initial public offering of
29
securities of the Company, and (ii) upon the merger or consolidation of the
Company with or into any other Person other than a transaction in which the
Company Interests are not affected or the Members, as a result of the conversion
of their Company Interests in such transaction, own 100% of the equity interests
of the surviving or resulting entity.
12.5 WITHDRAWAL FROM COMPANY. Upon a transfer of a Member's entire Company
-----------------------
Interest and admission of a transferee as a new Member pursuant to an Admission
Agreement, such Member (the "Withdrawing Member") shall be deemed to have
------------------
withdrawn as a Member and shall have no further rights or obligations as a
Member hereunder (including, without limitation, obligations under Section 9.1),
except those obligations set forth under Section 15.8. Nothing in this Section
12.5 shall alter a Member's obligations set forth in Section 6.1 or shall affect
a Member's rights under Section 12.6.
12.6 INVOLUNTARY REGULATORY WITHDRAWAL. A Member may withdraw from the
---------------------------------
Company in the event a federal, state or foreign governmental body, including,
without limitation, a legislative, regulatory or judicial body, by order,
decree, statute, or judgment (i) determines that such Member's continued
ownership of its Company Interest is contrary to statute, regulation or other
law; or (ii) imposes any condition on such Member or an Affiliate of such Member
that has a material adverse impact on the Member or its Affiliate which arises
from such Member's continued participation in the Company as a Member, such
Member's or Affiliate's participation as a party to an agreement with the
Company, or otherwise in connection with the Company. The Withdrawing Member may
sell its Company Interest to a third party during the time period permitted by
the relevant regulatory authority subject to (x) the right of the remaining
members to match the offer pursuant to Section 12.4 hereof, and (y) the Member
Veto Right.
12.7 DISPOSITION RESTRICTIONS. No admission (or purported admission) of a
------------------------
Member, and no transfer (or purported transfer) of all or any part of a Member's
Company Interest (or any economic interest therein), whether to another Member
or to a person who is not a Member, shall be effective, and any such admission
or transfer (or purported admission or transfer) shall be void ab initio, and no
-- ------
Person shall otherwise become a Member if after such admission or transfer (or
purported admission or transfer) the Company would have more than one hundred
(100) Members. For purposes of determining whether the Company will have more
than 100 Members, each Person indirectly owning a Company Interest through a
partnership (including any entity treated as a partnership for federal income
tax purposes), a grantor trust or an S corporation (each such entity a "flow-
through entity") shall be treated as a Member unless the Executive Committee
unanimously determines, after consulting with qualified tax counsel, that less
than substantially all of the value of the beneficial owner's interest in the
follow-through entity is attributable to the flow-through entity's interest
(direct or indirect) in the Company.
30
12.8 CONVERSION EVENTS
-----------------
(a) Conversion Event. A "Conversion Event" means and shall be deemed
---------------- ----------------
to occur when: (i) the Company realizes the First Commercial Sale, (ii) upon the
consummation of a Corporate Partnering Arrangement; or (iii) the Company merges
or consolidates with or into any other Person other than a transaction in which
the Company Interests are not affected or the Members, as a result of the
conversion of their Company Interests in such transaction, own 100% of the
equity interests of a surviving or resulting entity.
(b) CTI Buy-Out Right. During the sixty (60) day period immediately
-----------------
following a Conversion Event occurring after January 5, 2000 and during the
sixty (60) day period following January 5, 2000 if a Conversion Event shall have
occurred prior to such date (the "CTI Buy-Out Option Period"), CTI may or may
-------------------------
cause one of its Affiliates, by written notice (the "CTI Buy-Out Notice") to the
------------------
other Members, to purchase all, but not less than all, of such Members' Company
Interests at the Fair Market Value of such Company Interests pursuant to the
terms and provisions set forth in Section 12.8(e) (the "CTI Buy-Out Right").
-----------------
(c) COH Put Option. In the event that CTI does not exercise the CTI
--------------
Buy-Out Right during the CTI Buy-Out Option Period or a Conversion Event occurs
prior to January 5, 2000, COH shall have the right (the "COH Put Right"),
-------------
exercisable upon written notice (the "COH Put Notice") delivered to CTI within
--------------
thirty (30) days of the expiration of the CTI Buy-Out Period or at COH's option
within thirty days after the occurrence of such Conversion Event occurring prior
to January 5, 2000, to require CTI to purchase its Company Interest at the Fair
Market Value of such Company Interest pursuant to the terms and provisions set
forth in Section 12.8(e).
(d) Fair Market Value. For purposes of this Section 12.8, Fair Market
-----------------
Value shall be determined as at the date of the Conversion Event, or in the case
of a Conversion Event occurring prior to January 5, 2000 as to which COH did not
exercise its COH Put Right, as at January 5, 2000 (the "Determination Date") and
------------------
in accordance with the following:
(i) by CTI and COH through good faith negotiations; and
(ii) if, within the thirty (30) day period following the
Determination Date, CTI and COH have not reached agreement under subclause (i),
each of CTI and COH shall select an internationally-recognized investment
banking firm to determine Fair Market Value, and such firms shall jointly select
a third internationally-recognized investment banking firm without any
significant relation to any of the parties. CTI and COH shall bear 100% of the
fees and expenses of their chosen investment banking firm and 50% of the fees
and expenses of the third investment banking firm. Within forty-five (45) days
of the date of selection of the third investment bank, each investment banking
firm shall submit to each of COH and CTI its determination of the Fair Market
Value setting forth in reasonable detail the
31
basis for such determination. The Fair Market Value shall be the average of the
three amounts so submitted.
(e) Payment. At the closing of the exercise of the CTI Buy-Out Right
-------
or COH Put Right specified in this Section 12.8, CTI shall pay an amount equal
to the Fair Market Value in shares of CTI Common Stock, whose value shall be the
Market Price on the tenth business day after receipt by COH of the CTI Buy-Out
Notice, or CTI of the COH Put Notice, respectively. In the event that the
Members receive CTI Common Stock pursuant to this Section 12.8(e), the Members
and CTI shall have the rights and obligations set forth in Schedule II. If
payment of Fair Market Value in CTI Common Stock would require CTI to obtain
shareholder approval under Delaware Law (without regard to CTI's Charter or by-
law provisions) or pursuant to the rules and regulations of any self-regulatory
organization or securities exchange, then CTI shall pay in shares of CTI Common
Stock that portion of Fair Market Value which would not require shareholder
approval and the remainder in cash.
(f) Expiration. The CTI Buy-Out Right and COH Put Right shall expire
----------
at the earlier of (i) the closing of an initial public offering of securities by
the Company, or (ii) at such time as CTI's Allocable Share becomes less than 33-
1/3%.
ARTICLE XIII
DISSOLUTION AND WINDING UP
13.1 DISSOLUTION. The Company shall be dissolved and its affairs wound up
-----------
upon the first to occur of the following events ("Dissolution Event"):
-----------------
(a) the expiration of the term described in Section 2.6 hereof;
(b) the unanimous written consent of all of the Members;
(c) an event which makes it unlawful for the Company business to be
continued;
(d) the sale or disposition of all or substantially all of the
Company's assets and properties;
(e) a material breach of this Operating Agreement in accordance with
Section 13.3;
(f) non-renewal of the License Agreement under Section 4.2(e) thereof;
(g) the entry of a decree of judicial dissolution under Section 18-802
of the Act; and
32
(h) the withdrawal, Bankruptcy or dissolution of CTI or COH, including
the occurrence of any event that terminates the continued membership of CTI or
COH in the Company under the Act, unless the business of the Company is
continued by the unanimous vote of the remaining Members (calculated without
regard to any Member that has withdrawn, entered Bankruptcy or been dissolved)
within ninety (90) days following the occurrence of any such event.
13.2 EFFECT OF DISSOLUTION. Upon dissolution, the Company shall cease
---------------------
carrying on as distinguished from winding up the Company business; however, the
Company is not terminated, but continues until the winding up of the affairs of
the Company is completed and the certificate of cancellation has been issued by
the Secretary of the State of Delaware. The Liquidating Trustee shall in an
orderly manner wind up the affairs of the Company and make an accounting of the
Capital Account of each Member and of the Company assets, liabilities and
operations from the date of the last previous accounting to the date of such
dissolution.
13.3 DISTRIBUTION OF ASSETS ON DISSOLUTION. Upon the winding up of the
-------------------------------------
Company, the Company Property shall be distributed:
(a) to creditors, including Members who are creditors (other than by
reason of the operation and effect of Sections 18-601 or 18-604 of the Act) to
the extent otherwise permitted by law in satisfaction of the Company's
liabilities; and then
(b) to the establishment of any reserves which the Liquidating Trustee
may deem reasonably necessary for any contingent or unforeseen liabilities or
obligations of the Company arising out of or in connection with the Company,
which reserves may be paid over by the Liquidating Trustee to an agent, as
escrowee, to be held by him for the purpose of disbursing such reserves in
payment of any of the aforementioned contingencies, and, at the expiration of
such period as the Liquidating Trustee shall deem advisable, for distributing
the balance thereafter remaining in the manner hereinafter provided; and then
(c) to Members in satisfaction of liabilities for distributions under
Section 18-601 or Section 18-604 of the Act; and then
(d) thereafter, to Members to the extent of and in proportion with
their respective positive Capital Accounts; and then
(e) the remainder, if any, to the Members in proportion to their
respective Allocable Shares as in effect at the moment of the event giving rise
to such dissolution.
13.4 WINDING UP AND CERTIFICATE OF CANCELLATION. The winding up of the
------------------------------------------
Company shall be completed when all debts, liabilities, and obligations of the
Company have been paid and discharged or reasonably adequate provision therefor
has been made, and all of the remaining property and assets of the Company have
been distributed to the Members. Upon the completion of winding up of the
Company, a certificate of cancellation shall be
33
delivered to the Secretary of the State of Delaware for filing. The certificate
of cancellation shall set forth the information required by the Act.
13.5 TERMINATION. A reasonable time shall be allowed for the orderly
-----------
liquidation of the assets of the Company and the discharge of liabilities to
creditors so as to enable the Executive Committee (or other Person winding up
the Company's affairs) to minimize the normal losses attendant upon a
liquidation. Each of the Members shall be furnished, by the Executive Committee,
with a statement setting forth the assets and liabilities of the Company as of
the date of complete liquidation. Upon compliance with the distribution plan set
forth in Section 13.3 hereof (including payment over to the agent-escrowee if
there are sufficient funds therefor), the Company terminates.
13.6 USE OF COMPANY IDENTITY. Unless the Members agree otherwise in a
-----------------------
signed written agreement approved by Unanimous Vote of the Executive Committee,
no Member or Affiliate shall use the Company's telephone number, name (or any
deceptively similar name), trademarks, service marks, trade names or logo.
ARTICLE XIV
AMENDMENT
This Operating Agreement may be amended or modified from time to time only
by a written instrument adopted by the Unanimous Vote of the Executive Committee
and by its execution of this Operating Agreement each Member agrees to be bound
by the terms of any amendment or modification determined by Unanimous Vote of
the Executive Committee. No Member shall have any vested rights in this
Operating Agreement which may not be modified through an amendment to this
Operating Agreement.
ARTICLE XV
MISCELLANEOUS PROVISIONS
15.1 ENTIRE AGREEMENT. This Operating Agreement represents the entire
----------------
agreement with respect to the subject matter hereof among all the Members and
between the Members and the Company.
15.2 SUCCESSORS AND ASSIGNS. Subject to the provisions on Disposition set
----------------------
forth herein, this Operating Agreement shall bind and inure to the benefit of
the parties hereto and their respective successors and permitted assigns.
34
15.3 GOVERNING LAW; CONSENT TO ARBITRATION.
-------------------------------------
(a) Governing Law. THIS Operating Agreement SHALL BE GOVERNED BY AND
-------------
INTERPRETED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF DELAWARE.
(b) Dispute Resolution.
------------------
(i) Arbitration. Any controversy, claim or dispute among the
-----------
Members, directly or indirectly, concerning this Agreement or the breach hereof
or the subject matter hereof, but not including (i) questions concerning the
scope and applicability of this dispute resolution clause and (ii)
controversies, claims or disputes regarding Company Intellectual Property, shall
be submitted by the Members to arbitration by JAMS/Endispute, Inc. or its
successor ("JAMS") in San Francisco, California. Such arbitration shall be
----
undertaken by three neutral arbitrators (the "Arbitrators") one of whom shall be
-----------
selected by CTI, one by COH, and one of whom shall be chairperson of the
arbitral tribunal and shall be chosen by agreement between the first and second
Arbitrators. COH and CTI shall select such Arbitrators within fifteen (15) days
after the Member desiring arbitration notifies the other Members in writing.
Such notice demanding arbitration shall state specifically the question or
questions to be submitted for decision or the point or point in controversy and
shall include such Member's selection of an Arbitrator. If, at the expiration of
fifteen (15) days from receipt of such notice, the Members of COH or CTI, after
receiving such notice have not informed the Member demanding the arbitration of
its selection of a second arbitrator, the Member making the demand may make such
selection. The first and second Arbitrators shall select a third Arbitrator
within fifteen (15) days from the date of the appointment of the second
Arbitrator. If the first and second Arbitrators cannot agree as to a third
Arbitrator, such third Arbitrator may be appointed upon ten (10) days' notice
upon application of either COH or CTI to the chief or presiding judge, or judge
acting as chief of or presiding judge, of the Superior Court of California in
and for the county of San Francisco. The arbitral tribunal shall set the dates,
time and place for each hearing shall give to each of the Members at least
thirty (30) days' advance written notice of the date, time and place of the
initial hearing and shall proceed without delay to hear and determine the
matters in dispute. Such arbitration shall be conducted in such manner as the
Arbitrators shall determine, consistent with the JAMS Rules of Practice and
Procedure for Arbitration. To the extent herewith, the arbitration shall be
governed by the laws of the State of California. Each Member shall bear any
expenses incurred by it prior to arbitration, including legal and accounting
fees, if any, with respect to any disagreement hereunder. If the matter is
submitted to arbitration, the Arbitrators shall designate the Member or Members
to bear the expenses of such arbitration and/or the respective amounts to be
borne by each Member. In making such an allocation of costs, the Arbitrators
shall be expressly instructed by the Members that, absent extraordinary
circumstances, the prevailing Member or Members in such a proceeding, shall be
entitled to reimbursement for its or their reasonable attorneys' fees and other
reasonable expenses incurred in connection therewith by the nonprevailing
Members. The Arbitrators shall render their written decision in respect of the
controversy at issue within
35
ninety (90) days after the date on which a notice demanding arbitration is first
given. The determination of the Arbitrators as to any matter submitted to
arbitration shall be conclusive and binding upon the Members hereto; provided,
however, that in no event shall the Arbitrators award indirect, consequential,
special or punitive damages or loss of profits. A written transcript of the
proceedings shall be prepared at the expense of the Member requesting such
transcript, if any, or, if all Members hereto shall so request, they shall share
the cost equally. The Arbitrators shall have the power to enforce the discovery
rights and obligations set forth in clause (3) below. The Members hereto agree
that they will cooperate in good faith in such proceedings in order to work
toward the prompt resolution of the subject conflict.
(ii) Consent to Jurisdiction. The Members agree that any action
-----------------------
arising out of enforcement of any arbitration decision shall be brought in the
San Francisco division of the United States District Court for the Northern
District of California. The Members consent to the venue and personal
jurisdiction of those courts in any action brought pursuant to the provisions
hereof. Each Member hereby waives any right it may have to transfer or change
the venue of any enforcement of any arbitration decision brought against it by
another Member in connection with this Agreement in accordance with this clause
(2) and each Member hereby waives any claim of forum non conveniens. In the
event that any Member hereto shall be required to take any action to enforce any
such judgment, such Member shall be entitled to reimbursement for its reasonable
attorneys' fees and other reasonable expenses in connection therewith by the
nonprevailing Member or Members.
(iii) Discovery. In connection with any arbitration proceeding
---------
under clause (i) above, each Member shall have full access to the relevant books
and records of the other employee, agent or officer of any other Member for
testimony and all other rights to discovery afforded under the Code of Civil
Procedure of the State of California (as well as the rules or laws applicable to
a court proceeding in the Superior Court of California in and for the county in
which such proceedings take place) all of which shall be fully enforceable by
the Arbitrators or, if they fail to effect such enforcement, by the California
Superior Court having jurisdiction over such matters; provided, however, that
any discovery by the Members to the arbitration shall be performed within a
discovery period to be defined and limited by the Arbitrators (which period
shall not exceed sixty (60) days).
15.4 NOTICES. All notices required or permitted to be given or made under
-------
this Operating Agreement shall be given or made in writing. Such notices shall
be delivered by hand delivery, by facsimile or similar electronic means, by
nationally recognized overnight courier, or by certified or registered mail,
return receipt requested, addressed as set forth in Exhibit F hereof or any
amendment thereto. Any party may change its address for the purpose of this
Section 15.4 by notice to the other(s) given in the manner set forth above.
15.5 RIGHTS OF CREDITORS AND THIRD PARTIES UNDER OPERATING AGREEMENT.
---------------------------------------------------------------
This Operating Agreement is entered into among the Company and the Members for
the exclusive benefit of the Company, its Members, and their successors and
permitted assignees. This
36
Operating Agreement is expressly not intended for the benefit of any creditor of
the Company or any other Person (other than any Person with a right to
indemnification under Section 6.8 hereof). Except and only to the extent
provided by applicable statute, no such creditor or third party shall have any
rights under this Operating Agreement or any agreement between the Company and
any Member with respect to any Capital Contribution or otherwise.
15.6 NO ACTION FOR PARTITION. No Member shall have any right to maintain
-----------------------
any action for partition with respect to the property of the Company.
15.7 TITLE TO COMPANY PROPERTY. Title to Company Property shall be held in
-------------------------
the name of the Company or its nominee.
15.8 CONFIDENTIALITY. Except as otherwise provided in the Ancillary
---------------
Agreements, or hereinafter provided, the Company and each Member (a) shall treat
as confidential and not disclose to any unauthorized third party (including a
Member's employees or Affiliates have no need to know) any confidential
information, technical data, or know-how, including, but not limited to, that
which relates to research, product plans, products, services, customers,
markets, software, developments, inventions, processes, designs, drawings,
engineering, hardware configuration information, marketing or finances, or other
business or technical information obtained either directly or indirectly from
any other Member pursuant to this Operating Agreement and designated by such
Member as confidential in writing prior to or at the time of delivery pursuant
to this Agreement, or confidential information developed or acquired on behalf
of the Company by the Executive Committee or the Company's Officers or employees
(collectively "Confidential Information"), and (b) shall not use any such
------------------------
Confidential Information for any purpose other than in connection with the
activities of the Company pursuant to this Operating Agreement. The limitations
in this Section 15.8 shall not apply to the extent Confidential Information: (i)
was already in the possession of the receiving Member, or its Affiliate, at the
time it obtained such Confidential Information; (ii) was or is published or
otherwise is or becomes generally available to the public through no fault of
such receiving Member, or its Affiliate, (iii) was or is lawfully made available
to such Member or its Affiliate without restriction by any Person which is not
bound by an obligation of confidentiality or use with respect to the
information; (iv) was or is independently developed by such Member or its
Affiliate; or (v) is required to be disclosed by operation of law or regulation,
required in any Proceeding, requested by a regulatory body and the disclosing
Member deems it advisable, in its discretion, to comply with the request, or
deemed advisable to be disclosed in the good faith judgment of the disclosing
Member in any Proceeding. In the event disclosure is required or requested, the
disclosing Member shall exercise all reasonable efforts to disclose such
Confidential Information pursuant to a confidentiality agreement or protective
order. Nothing in this Section 15.8 shall be construed to prohibit a Member's
disclosure of Confidential Information to its attorneys, auditors, or other
consultants. The obligations set forth in this Section 15.8 shall survive the
termination of this Operating Agreement.
37
IN WITNESS WHEREOF, the parties hereto have caused this Operating Agreement
to be executed and delivered as of the date first above written.
CELL THERAPEUTICS, INC.
By: ________________________
Title: _____________________
CITY OF HOPE NATIONAL MEDICAL CENTER
By: ________________________
Title: _____________________
38
EXHIBIT A
CELL CITY, LLC
ADMISSION AGREEMENT
[RESERVED]
A-1
EXHIBIT B
ALLOCABLE SHARES
NAME: Share (%)
---- ---------
CTI 70
COH 30
B-1
EXHIBIT C-1
CAPITAL CONTRIBUTIONS - INITIAL CAPITAL CONTRIBUTIONS
(The information below marked ***** has been omitted by a request for
confidential treatment. The omitted portion has been separately filed with the
Commission.)
NAME: Amount ($)
---- ----------
CTI $*****
COH $***** (License)
C-1
EXHIBIT C-2
CAPITAL CONTRIBUTIONS - CTI DEFERRED CAPITAL CONTRIBUTIONS
(The information below marked ***** has been omitted by a request for
confidential treatment. The omitted portion has been separately filed with the
Commission.)
CTI Deferred Capital Contributions shall consist of $****** to be used for
research activities to be conducted pursuant to the initial development plan and
budget attached hereto as Schedule I and the Services Agreements. Unless
otherwise determined by a Majority Vote of the Executive Committee, the Initial
Capital Contributions made by CTI with respect to the activities set forth in
this Initial Development Plan and Budget shall be payable as follows: $***** at
Effective Date and $***** at the end of each full calendar quarter after the
Effective Date until the aggregate of such payments equals $*****.
C-2
EXHIBIT D
LICENSE AGREEMENT
See Attached License Agreement
D-1
EXHIBIT E
CERTIFICATE OF FORMATION
CERTIFICATE OF FORMATION
OF
CELL CITY, LLC
This Certificate of Formation is being executed as of December 17,
1997, for the purpose of forming a limited liability company pursuant to the
Delaware Limited Liability Act, 6 Del. C. Sections 18-101, et seq. (the "Act").
--- - -- --- ---
The undersigned, being duly authorized to execute and file this
Certificate, do hereby certify as follows:
1. Name. The name of the limited liability company is Cell City,
----
LLC (the "Company").
-------
2. Registered Office and Registered Agent. The Company's registered
--------------------------------------
office in the State of Delaware is located at Corporation Trust Center, ▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇. The
registered agent of the Company for service of process at such address is The
Corporation Trust Company, Inc.
3. Dissolution. The Company does not have a specific date of
-----------
dissolution.
4. Management. The business and affairs of the Company shall be
----------
managed by or under the direction of the Members.
IN WITNESS WHEREOF, the undersigned, being all the Members of the
Company, have duly executed the Certificate of Formation as of the day and year
first above written.
CELL THERAPEUTICS, INC.
By: __________________
Title: _______________
CITY OF HOPE NATIONAL MEDICAL CENTER
By: __________________
Title: _______________
E-1
EXHIBIT F
ADDRESS FOR NOTICES
City of Hope National Medical Center
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇▇▇▇▇, Chief Executive Officer
▇▇▇▇▇ ▇▇▇▇▇▇▇, General Counsel
Cell Therapeutics, Inc.
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇, M.D.
President and Chief Executive Officer
F-1