Exhibit 10.2
OPERATING AGREEMENT
OF
HEALING ARTS PUBLISHING, LLC
THIS OPERATING AGREEMENT (this "Agreement") is made and entered into
as of September 14, 1998 by and between GAIAM HOLDINGS, INC., a Colorado
corporation ("Holdings") and HEALING ARTS PUBLISHING, INC., a California
corporation ("HAP" and, with Holdings, each a "Member" and collectively the
"Members"), with reference to the following facts:
A. ▇▇▇▇▇▇ ▇. ▇▇▇▇▇ ("▇▇▇▇▇") owns all of the issued and outstanding
shares of capital stock of HAP.
B. Gaiam, Inc. ("Gaiam") owns all of the issued and outstanding shares of
capital stock of Holdings.
C. The parties have caused articles of organization (as amended from time
to time, the "Articles") for a limited liability company named Healing Arts
Publishing, LLC (the "Company") to be filed with the California Secretary of
State on September 4, 1998, and has caused to be assigned and transferred to the
Company certain assets (the "HAP Assets") as more particularly described in that
certain Purchase Agreement of even date herewith by and among HAP, the Company,
▇▇▇▇▇, Holdings, and certain other parties (the "Purchase Agreement").
D. Pursuant to the Purchase Agreement, Holdings as the "Purchaser"
thereunder purchased and acquired a Membership Interest in the Company
representing a fifty and 37/100 percent (50.37%) interest in the capital and
profits of the Company (the "Holdings Percentage"), and HAP has a forty-nine and
63/100 percent (49.63%) interest.
E. HAP and Holdings wish to enter into this Agreement in order to provide
for the purposes for which the Company is formed, the division of profits and
losses from the operations thereof, restrictions on dispositions of interests
therein, the management thereof, and other matters related thereto.
ACCORDINGLY, the parties hereto agree as follows:
1. FORMATION AND PURPOSE; GENERAL DEFINITIONS
1.1 Organization; Governance. The business and affairs of the Company
shall be governed by the Articles and, where not inconsistent with the Articles,
this Agreement and, where not inconsistent with the Articles or this Agreement,
sections 17000 through 17705, inclusive, of the California Corporations Code,
commonly known as the ▇▇▇▇▇▇▇-▇▇▇▇▇▇ Limited Liability Company Act, as amended
(the "Act").
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1.2 Principal Office; Agent. The Company shall continuously maintain a
registered agent and principal office in the State of California as required by
the Act. The principal office of the Company and the registered agent for
service of process shall be as set forth in the Articles and shall be designated
by the Board (defined in Section 4.1 hereof) from time to time.
1.3 Purpose. The Company is formed and shall be conducted
1.3.1 to acquire, develop, own, operate, and deal with the
existing business of HAP;
1.3.2 to acquire, develop, own, operate, and deal with such other
businesses as the Board may determine from time to time; and
1.3.3 to conduct such other activities related to or incidental to
the acquisition, development, ownership, operation, management, sale, financing,
refinancing or disposition of all or any portion of the businesses described in
Section 1.3.1 or 1.3.2 hereof; to exercise all other power necessary to or
reasonably connected with such businesses as may be legally exercised by limited
liability companies in California and in such other states in which the Company
shall qualify to do business or own assets; and to engage in all activities
necessary, customary, convenient, or incident to any of the foregoing.
1.4 Independent Activities. Subject to the Non-Compete Agreement, (a) any
Member or its Affiliate (defined in Sections 1.6.1 hereof) may engage in or
possess an interest in any other business venture of any nature and description
on its own behalf without participation by the other Members and without
liability on the part of such Member or Affiliate to the other Members; (b)
neither the Company nor any Member not included in such venture shall have any
right by virtue of this Agreement in and to such independent ventures or to the
income or profits derived therefrom; and (C) each Member hereby waives any
rights which may otherwise be implied to the contrary.
1.5 Term. The Company shall continue in existence until the latest date on
which the Company is to dissolve as set forth in the Articles, unless sooner
dissolved pursuant to this Agreement or under the Act.
1.6 Definitions. In addition to such terms as are defined elsewhere in
this Agreement, the following terms shall have the following meanings:
1.6.1 "Affiliate" means, with respect to any person (the "first
person"), (a) any second person directly or indirectly controlling, controlled
by or under common control with the first person or owning or controlling ten
percent (10%) or more of the outstanding securities of or in the first person;
(b) any officer, director, manager, trustee, or general partner or Family member
of or in the first person; or (C) if the first person is an officer, director,
manager, trustee or general partner, any corporation, partnership, trust, or
limited liability company for which such first person acts in that capacity. For
purposes of this Section 1.6.1, (I) the term "control" (including the terms
"controlled by" and "under common control with") means the possession, direct or
indirect, of the
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power to direct or cause the direction of the management and policies of a
person, whether through the ownership of voting securities, by contract or
otherwise, and (II) a manager of a limited liability company includes a member
of a limited liability company that is managed by its members rather than by
managers. Corporate Express, Inc, is not an "affiliate" within the meaning of
this Section 1.6.1.
1.6.2 "Assignee" is as defined in Section 5.4.2 hereof.
1.6.3 "Available Cash" means, with respect to any fiscal period,
total gross revenues generated by the Company's business and any other revenues
of the Company from other sources and from the elimination or reduction of
reserves previously established, less cash expenditures (including, but not
limited to, compensation and reimbursements to a Manager or any Affiliate
thereof), current debt service (including, but not limited to, payments on debts
to a Member), operating expenses, and the establishment or increase of reserves
as determined by the Board.
1.6.4 "Bankruptcy" or "Bankrupt" means, with respect to a person,
(a) the making by such person of an assignment for the benefit of creditors; (b)
the filing by such person of a voluntary petition in bankruptcy; (C) the
adjudication of such person as being bankrupt or insolvent; (d) the filing by
such person of a petition or answer seeking for such person any reorganization,
arrangement, composition, readjustment, liquidation, dissolution or similar
relief under any statute, law or regulation; (e) the filing by such person of an
answer or other pleading admitting or failing to contest the material
allegations of a petition filed against such person in any proceeding of a
nature described in clauses (a) through (d) hereof; (f) the seeking, consenting
to, or acquiescing in, the appointment of a trustee, receiver or liquidator for
such person or of all or any substantial part of such person's property; or (g)
the continuation of any proceedings against such person seeking reorganization,
arrangement, composition, readjustment, liquidation, dissolution or similar
relief under any statute, law or regulation, one hundred and twenty (120) days
after the commencement thereof, or the appointment of a trustee, receiver or
liquidator of such person or all or any substantial part of such person's
property without such member's consent or acquiescence, which appointment is not
vacated or stayed within ninety (90) days or, if the appointment is stayed,
ninety (90) days after the expiration of the stay during which the appointment
is not vacated.
1.6.5 "Capital Contribution" of a Member means any and all
contributions to the capital of the Company by such Member pursuant to Section
2.1 hereof.
1.6.6 "Cause" means, with respect to a Manager,
1.6.6.1 in the case of an individual, either (a) the
Incompetence of such person or (b) a disability or other incapacity that renders
such person unable to discharge such person's duties as a Manager for a
continuous period of sixty (60) days, or for ninety (90) days during any period
of twelve (12) months;
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1.6.6.2 gross negligence, misconduct or fraud by such
person in the management of the Company or its business;
1.6.6.3 a material breach by such person of any provision
of this Agreement, together with failure to correct such breach within thirty
(30) days after notice of such breach is given by a Member; or
1.6.6.4 the conviction of or plea of guilty or nolo
contendere by such person with respect to any felony arising from or related to
the conduct of the Company's affairs.
1.6.7 "Code" means the Internal Revenue Code of 1986, as amended.
1.6.8 The "Family" of an individual includes such individual's
current spouse; lineal ancestors (including those by adoption); sibling(s)
(including those by adoption) and spouses of the foregoing; and lineal
descendants (including those by adoption) and spouses of the foregoing.
1.6.9 "Fiscal Year" is as defined in Section 7.4.4 hereof.
1.6.10 "Incompetence" or "Incompetent" means, with respect to an
individual, the adjudication of such individual by a court of competent
jurisdiction as insane or incompetent to manage such individual's person or
property.
1.6.11 "Majority in Interest" or "Majority" at any time means those
Members owning Membership Interests representing more than fifty percent (50%)
of the Percentage Interests represented by all Membership Interests, except
that, where this Agreement expressly refers to a Majority in Interest of fewer
than all of the Members, then Majority in Interest means those Members in such
sub-group owning Membership Interests representing more than fifty percent (50%)
of the Percentage Interests encompassed in that sub-group.
1.6.12 "Member" (collectively, "Members") means any of the persons
described in the first paragraph of this Agreement or a permitted transferee of
such person who has been duly admitted as a Member under Section 5 hereof. A
"Member" shall also be deemed to include an Assignee for purposes of Section 3
only.
1.6.13 "Membership Interest" means a Member's rights in the
Company, collectively, including the Member's right to share in the income,
gains, losses, deductions, credit, or similar items of, and to receive
distributions from, the Company; any right to vote or participate in management;
and any right to information concerning the business and affairs of the Company.
Notwithstanding any provision of the Act to the contrary, a Member's right to
share in the income, gains, losses, deductions, credit, or similar items of, and
to receive distributions from, the Company (an "Economic Interest") may not be
transferred apart from the full Membership Interest except as expressly provided
to the contrary in this Agreement, and references herein to a "portion" of a
Membership Interest refer to an undivided portion of a Membership Interest.
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1.6.14 "Non-Compete Agreement" means that certain Non-Compete and
Confidentiality Agreement of even date herewith by and between Holdings, HAP,
▇▇▇▇▇▇ ▇. ▇▇▇▇▇, and the Company.
1.6.15 "Percentage Interest" of a Member at any time means such
Member's percentage interest in the capital, profits and losses of the Company.
As of the date hereof, (a) the Percentage Interest represented by Holdings'
Membership Interest equals the Holdings Percentage (as defined in paragraph D
above) and (b) the Percentage Interest represented by HAP's Membership Interest
equals one hundred and 00/100 percent (100.00%) minus the Holdings Percentage.
1.6.16 A "person" means an individual or a corporation,
partnership, limited liability company, trust or other legal entity.
1.6.17 "Regulations" mean the Treasury regulations promulgated
under the Code.
1.6.18 "Termination Event" with respect to a Member means (a) the
Bankruptcy of such Member; (b) a withdrawal by such Member of its entire Capital
Account; (C) in the case of a Member who is an individual, the death or
Incompetence of such Member; or (d) in the case of a Member that is not an
individual, the dissolution, revocation, merger or other termination of such
Member unless the resulting transfer of the Membership Interest of such Member
is described in Sections 5.3.1.3, 5.3.1.4 or 5.3.1.5 or hereof.
1.6.19 A "transfer" of a Membership Interest means a sale,
assignment, conveyance, exchange, gift, encumbrance, pledge, hypothecation, use
as collateral, or other disposition or transfer of legal or beneficial ownership
of such Membership Interest, whether voluntary or involuntary.
2. CAPITALIZATION
2.1 Capital Contributions. Effective as of the date of this Agreement, (a)
HAP shall be deemed to have contributed the HAP Assets to the Company in
exchange for a Membership Interest representing the Percentage Interest
reflected in Section 1.6.15 hereof, and (b) Holdings shall be deemed to have
contributed the cash consideration described in the Purchase Agreement to the
Company in exchange for a Membership Interest representing the Percentage
Interest reflected in Section 1.6.15 hereof. A Member may not, and shall not be
required to, contribute additional amounts to the capital of the Company except
with the approval of all the Members, and a person may become a Member by making
a contribution to the capital of the Company with the consent of all the
Members.
2.2 Capital Accounts. For financial accounting purposes, a "Capital
Account" shall be established and maintained for each Member in accordance with
the following provisions:
2.2.1 Each Member's Capital Account shall be credited with such
Member's Capital Contributions, any income or gain allocated to such Member
pursuant to Section 3 hereof, and the
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amount of any Company liabilities assumed by such Member or which are secured by
any property distributed to such Member.
2.2.2 Each Member's Capital Account shall be reduced by the amount
of cash distributed to such Member, any losses or deductions allocated to such
Member pursuant to Section 3 hereof, and the amount of any liabilities of such
Member assumed by the Company or which are secured by any property contributed
by such Member to the Company.
2.2.3 For federal income tax purposes, such Capital Accounts shall
be maintained for each Member in accordance with section 1.704-1(b)(2)(iv) of
the Regulations.
2.3 Advances and Loans. Any Member (directly or through an Affiliate) may,
but shall not be obligated to, advance funds to or on behalf of the Company upon
such terms as the lending Member and the other Member may agree, subject to the
following:
2.3.1 such advance shall be a debt owed by the Company to such
person in such person's capacity as a creditor and not in such person's capacity
as a Member, shall not increase such Member's Capital Account, and shall not
entitle such Member to a greater share of distributions or allocations pursuant
to Section 3 hereof;
2.3.2 such advance shall be segregated in a loan payable account;
and
2.3.3 principal and interest on such advance shall be paid from
the gross receipts of the Company, net of all other expenses of the Company,
before any distributions are made under Section 3 hereof.
2.4 Withdrawal. Notwithstanding any provision of the Act to the contrary,
a Member shall not have the right to have its Membership Interest redeemed or to
withdraw all or any portion of such Member's Capital Account or Capital
Contributions until the full and complete winding up and liquidation of the
business and affairs of the Company except with the consent of the other Member,
which consent may be withheld in the other Member's sole and absolute
discretion.
2.5 Adjustment. The Percentage Interests of the Members shall be adjusted
at the time and in the manner described under the "Valuation" provisions of the
Purchase Agreement without any amendment to this Agreement.
3. ALLOCATIONS AND DISTRIBUTIONS
3.1 Distributions. Except upon the liquidation of the Company, in which
event distributions shall be made according to Section 6.2.4 hereof, Available
Cash shall be distributed to the Members in such aggregate amounts and at such
times as the Board shall determine as follows:
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3.1.1 first, to Holdings, until Holdings shall have received an
aggregate amount of Available Cash during the current Fiscal Year and prior
Fiscal Years equal to its Capital Contribution;
3.1.2 second, to HAP, until HAP shall have received an aggregate
amount of Available Cash during the current Fiscal Year and prior Fiscal Years
equal to its Capital Contribution; and
3.1.3 third, to the Members according to their Percentage
Interests.
Distributions shall be deemed made to a Member notwithstanding that all or a
portion of such amounts are withheld by the Company pursuant to any requirement
of the Code or of state or local tax law, provided that such amounts are duly
remitted to the appropriate taxing authority. Notwithstanding the foregoing, the
Company shall distribute to each Member for each Fiscal Year of the Company, not
later than April 15 of the succeeding Fiscal Year, an amount equal to forty-six
percent (46%) of the taxable income of the Company allocated to such Member and,
for the Fiscal Year ended December 31, 1998, only, shall distribute to HAP an
amount equal to forty-six percent (46%) of the taxable income of HAP for the
period from January 1, 1998, through September 8, 1998.
3.2 Allocations. Subject to Section 3.3 hereof, items of income, gain,
loss, deduction and credit with respect to each Fiscal Year shall be allocated
to the Members according to their Percentage Interests, subject to the following
provisions:
3.2.1 With respect to each Fiscal Year, net income for tax
purposes shall be first allocated to each Member in the amount and in proportion
to the prior distributions to such Member for the current Fiscal Year and prior
Fiscal Years under Section 3.1 hereof until the amount of net income allocated
to each Member pursuant to this Section 3.2.1 for the current Fiscal Year and
prior Fiscal Years shall equal such aggregate distributions.
3.2.2 Upon a liquidation of the Company, items of income, gain,
loss, and deduction shall be allocated with respect to the Fiscal Year in which
such liquidation takes place so that, when distributions shall be made according
to Section 6.2.4 hereof, such distributions shall conform as closely as possible
with Section 3.1 hereof.
3.3 Special Allocation Provisions. Sections 1.704-1(b)(2)(ii)(d) and
1.704-2 of the Regulations are incorporated by reference and shall apply
notwithstanding any provision of this Section 3 to the contrary. In addition,
the requirements of the Code and Regulations (including, but not limited to,
sections 704(c), 706(d) and 752 and the Regulations promulgated thereunder)
shall be applied in any reasonable method selected by the Board.
3.4 Covenant of Members. Each Member agrees to file federal, state, and
local income tax returns on a basis consistent with the terms and provisions of
this Agreement, and each Member
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agrees not to take a position inconsistent therewith before any federal, state
or local taxing authority without first obtaining the prior consent of all the
other Members.
4. GOVERNANCE
4.1 Powers of Members. The business and affairs of the Company shall be
managed by managers (each a "Manager" and collectively the "Managers" or the
"Board") who shall be designated by the Members as set forth in Section 4.2.1
hereof. No Member solely by virtue of being a Member is an agent of the Company
or has the authority to make any contracts, enter into any transactions, or make
any commitments on behalf of the Company, except as expressly provided in this
Section 4.1.
4.1.1 Voting Rights. In addition to such voting and approval
rights as are expressly set forth elsewhere in this Agreement, the Members shall
have the following powers:
4.1.1.1 to approve the sale or other disposition of all or
substantially all of the assets of the Company; the contribution of all or
substantially all of the assets of the Company to a corporation, partnership or
limited liability company; the merger of the Company; or the conversion of the
Company to a corporation or partnership; or
4.1.1.2 to approve any act by the Board that would make it
impossible to carry on the ordinary business of the Company; confess a judgment
against the Company; or allow any Member to possess Company property, or assign
the Company's right in such property, for other than a Company purpose.
4.1.2 Voting Procedures. The Members shall confer and vote
according to such procedures as they determine among themselves from time to
time or, in the absence of such procedures, as provided by the Act. Wherever
this Agreement requires a vote, approval or consent by the Members, and except
as expressly provided otherwise in this Agreement, such vote, approval or
consent shall be by a Majority.
4.2 Managers
4.2.1 Designation of Managers. The Company shall at all times have
three (3) Managers, with one (1) Manager appointed by HAP and two (2) Managers
appointed by Holdings. The Members hereby appoint the Managers set forth in
Schedule 4.2.1 hereto, which the parties acknowledge includes only one (1)
Manager appointed by Holdings. Holdings may appoint an additional Manager at any
time.
4.2.2 Manager Also Member. A Manager may, but need not, be a
Member. If a Manager is also a Member, such Manager shall have all the rights
and obligations of a Member; the removal or resignation of such Manager under
Section 4.2.8 hereof shall not by itself affect such Manager's rights and
obligations as a Member; and a Termination Event with respect to such
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Member shall not by itself constitute a resignation or removal of such Manager.
If a Manager is not a Member, such Manager shall in writing acknowledge the
terms of this Operating Agreement and agree to be bound by such of its
provisions as apply to a Manager.
4.2.3 Authority. Subject to Section 4.1 hereof, the Board (and no
one else) shall have full, exclusive and complete authority and discretion in
the management, direction and control of the Company and its business and
affairs, and shall have all such rights, power and authority generally conferred
by law or as necessary to, advisable for or consistent with accomplishing the
purposes of the Company. Without limiting the generality of the foregoing, and
in addition to such other powers and responsibilities as are conferred elsewhere
in this Agreement or the Act, the Board shall have the right
4.2.3.1 to make all decisions concerning the development
and operation of the Company's business;
4.2.3.2 to spend the capital and income of the Company in
the exercise of any rights or powers possessed by the Board hereunder;
4.2.3.3 to sell, exchange, purchase, hold, operate, and
manage any Company property;
4.2.3.4 to designate one or more officers of the Company
with appropriate titles (which may specifically include a President) and to
assign duties and delegate responsibilities to one or more officers or employees
of the Company;
4.2.3.5 to purchase, at the expense of the Company,
contracts of liability and other insurance that the Board deems advisable,
appropriate or convenient for the protection of the properties or affairs of the
Company; for the protection of the Managers or any officer, employee, agent or
contractor of the Company; or for any other purpose convenient or beneficial to
the Company;
4.2.3.6 to invest Company funds in commercial paper,
government securities, certificates of deposit, money market accounts, and
similar investments;
4.2.3.7 to borrow money on behalf of the Company and to
encumber the Company assets or place title to such assets in the name of a
nominee for the purpose of obtaining financing;
4.2.3.8 to prepay in whole or in part, to refinance,
increase, modify or extend any obligation;
4.2.3.9 to pay all organization expenses incurred in the
creation of the Company, and all operating expenses incurred in the operation of
the Company and its business;
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4.2.3.10 to employ, engage, retain or deal with such
persons as accountants, attorneys and such other persons as the Board deems
advisable for the proper operation of the Company; and
4.2.3.11 to enter into and perform any other agreements,
contracts, documents and instruments with such parties and to give such
receipts, releases and discharges with respect to all of the foregoing and any
matters incident thereto as the Board may deem advisable, appropriate or
convenient.
4.2.4 Voting by Board. Notwithstanding any provision of this
Agreement or the Act to the contrary, no Manager shall take any action or omit
to take any action on behalf of the Company (including, without limitation, the
execution of any contract, agreement, promissory note or other instrument or
document for or on behalf of the Company or the representation to any party that
such Manager is authorized to act for or on behalf of or to bind the Company in
any manner whatsoever) unless such Manager has been authorized to do so by the
Board in the manner described in this Section 4.2.4.
4.2.4.1 Vote Required. Wherever this Agreement requires a
vote, approval or consent by the Board and unless expressly provided otherwise
in this Agreement, such vote, approval or consent shall be by a majority in
number of the Managers.
4.2.4.2 Procedure. The Managers shall confer and vote
according to such procedures as they determine among themselves from time to
time or, in the absence of such procedures, according to the Act.
4.2.5 Duties. Each Manager shall at all times be under a duty to
(a) discharge such Manager's duties in good faith, with the care an ordinarily
prudent person in a like position would exercise under similar circumstances,
and in a manner the Manager reasonably believes to be in the best interests of
the Company, (b) take all actions that may be necessary or appropriate for the
continuation of the Company as a limited liability company under California law,
the protection of the Members from personal liability for the debts and
liabilities of the Company, and the accomplishment of the Company's purposes,
and (C) devote such time to the Company as shall be necessary to manage the
Company's business; and each Manager further shall at all times be under a
fiduciary duty to conduct the affairs of the Company in the best interests of
the Company, including the safekeeping and use of all of the Company property
for the exclusive benefit of the Company. In discharging the duties hereunder, a
Manager may rely on information received from other persons if such reliance is
consistent with the Manager's duties under this Section 4.2.5.
4.2.6 Compensation. The Managers shall receive compensation from
the Company for their services in such amounts and in such manner as the
Managers and the Members may unanimously agree from time to time.
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4.2.7 Reimbursement. A Manager or such Manager's Affiliates,
agents, employees and consultants, and such Manager's counsel and accountants,
shall be entitled to reimbursement for all reasonable out-of-pocket expenses
incurred by them for the benefit of the Company as determined by the Board and
upon presentation of satisfactory evidence thereof. In no event may a Manager or
Affiliate thereof be reimbursed for compensation to officers and directors of
such Manager or Affiliate, or overhead expenses of such Manager or Affiliate
(including, without limitation, rents, salaries and general office expenses).
4.2.8 Resignation and Removal of Manager
4.2.8.1 Resignation. A Manager may resign upon ninety (90)
days' written notice to the Board.
4.2.8.2 Removal. A Manager shall serve at the pleasure of,
and may be removed for any reason by, the Member who appointed such Manager
under Section 4.2.1 hereof (provided, that notice of such removal shall be given
to the Board). In addition, a Manager may be removed for Cause by the Member
other than the Member who designated such Manager under Section 4.2.1 hereof.
4.3 Liability and Indemnity
4.3.1 Release. No Member, Manager or Affiliate thereof shall be
liable, responsible or accountable in damages or otherwise to the Company or any
Member or any of their successors or assigns for any act or omission by such
Member, Manager or Affiliate performed or omitted in good faith pursuant to the
authority granted by this Agreement; provided, that such Member, Manager or
Affiliate is not guilty of fraud, bad faith, or gross negligence. No amendment
or repeal of this Section 4.3.1 affects any liability or alleged liability of
any Member, Manager or Affiliate thereof for any acts, omissions, or conduct
that occurred prior to the amendment or repeal.
4.3.2 Indemnification. To the maximum extent permitted by section
317 of the California General Corporation Law (which section shall apply as if
the Company were a corporation and a Member or Manager an "agent" as defined in
that section), but subject to section 17155(a) of the Act, the Company shall
indemnify, defend, and hold harmless a Member or Manager (and any Affiliate,
officer, director, shareholder, employee, agent, attorney, subsidiary and assign
thereof) from any liability, loss, claim, expense or damage incurred by them by
reason of any act performed or omitted to be performed by them in connection
with the Company, including costs and attorney's fees and any amounts expended
in the settlement of any claims of liability, loss or damage; provided, that
nothing in this Section 4.3.2 shall entitle a person to be indemnified in the
case of fraud, bad faith, or gross negligence. No amendment or repeal of this
Section 4.3.2 affects the liability of any person or obligations of the Company
with respect to any acts, omissions, or conduct that occurred prior to the
amendment or repeal.
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5. TRANSFER OF INTERESTS
5.1 In General. Notwithstanding any provision of the Act to the contrary,
a Member may not transfer all or any portion of such Member's Membership
Interest except in compliance with this Section 5. In addition to such other
restrictions as are set forth in this Section 5, the following provisions shall
govern any transfer of a Membership Interest:
5.1.1 Applicability of Agreement. Upon the consummation of any
transfer of a Membership Interest, the Membership Interest so transferred shall
continue to be subject to this Agreement and any further transfers of such
Membership Interest must comply with this Agreement.
5.1.2 Effect of Violation. Any transfer in violation of this
Section 5 shall be null and void ab initio and of no effect whatsoever.
5.1.2.1 Recognition of Non-Permitted Transfers. If the
Company is required to recognize a transfer of a Membership Interest that is not
permitted by or does not comply with this Section 5 (an "attempted transfer"),
the Membership Interest subject to such attempted transfer shall be strictly
limited to an Economic Interest and any distributions with respect to such
Economic Interest may be applied (without limiting any other legal or equitable
rights of the Company) to satisfy any debts, obligations, or liabilities for
damages that the attempted transferor or transferee may have to the Company, and
such attempted transferee shall have no other rights under this Agreement or the
Act.
5.1.2.2 Indemnity. In the case of an attempted transfer of
a Membership Interest that does not comply with this Section 5, the parties
engaging in such attempted transfer shall be liable to indemnify and hold
harmless the Company and the other Members and their successors and assigns from
all cost, liability, and damage that any of such indemnified parties may incur
(including, without limitation, incremental tax liability and attorneys' fees
and expenses) as a result of such attempted transfer and efforts to enforce the
indemnity in this Section 5.1.2.2.
5.2 Right of First Refusal. If a Member receives a bona fide offer to
purchase, exchange, or otherwise transfer all or any part of its Membership
Interest to any person other than a Member (other than a permitted transfer, as
defined in Section 5.3.1 hereof) (the "offered interest") (such offer is
referred to hereinafter as the "offer"), the Member receiving the offer (the
"offeree") shall immediately submit a complete copy of the offer to the other
Member. The other Member shall then have fourteen (14) days in which to notify
the offeree, if at all, of its intent to purchase the offered interest for the
price and on the terms set forth in the offer and, if such Member so elects,
shall purchase the offered interest for such price and on such terms. Such
purchase shall close within one hundred twenty (120) days of such notice,
regardless of any other terms of the offer. If the non- offering Member does not
so notify the offeree, the offeree shall be free to sell the offered interest at
the price and on the terms set forth in the offer, subject to the remaining
provisions of this Section 5.
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5.3 Consent of Members. A Member may transfer all or a portion of a
Membership Interest with the consent of a Majority in Interest of the other
Member, which consent may be withheld in its sole and absolute discretion, and
provided that the conditions of Section 5.3.2 hereof are met.
5.3.1 Pre-Approval. The Members hereby covenant that they will
approve the transfer of all or a portion of a Membership Interest by a Member to
the following ("permitted transfers"):
5.3.1.1 the Company;
5.3.1.2 in the case of an individual Member, after all
amounts due from the Company to Holdings under the Note (as defined in the
Purchase Agreement) have been repaid in full, to (a) a trust all of the
beneficial interests in which are owned by such Member and/or members of such
Member's family and of which such Member and/or such Member's spouse is or are
the sole trustee(s), or (b) a limited partnership or limited liability company
with managers all of the capital and profits interests in which are owned by
such Member, members of such Member's Family, and/or a trust described in the
foregoing clause (a) and of which such Member and/or such Member's spouse is or
are the sole general partner(s) or manager(s);
5.3.1.3 to the grantor of a trust pursuant to a power of
revocation by such grantor contained in the trust instrument with respect to the
Membership Interest;
5.3.1.4 in the case of HAP, after all amounts due from the
Company to Holdings under the Note (as defined in the Purchase Agreement) have
been repaid in full, (a) to ▇▇▇▇▇ or (b) to a corporation of which ▇▇▇▇▇ owns
one hundred percent (100%) of the voting stock and is a director as well as the
chief executive officer or president;
5.3.1.5 in the case of Holdings, (a) to Gaiam; (b) to
another corporation that, at the time of such transfer, is a member of an
"affiliated group" together with Gaiam within the meaning of section 1504 of the
Code (not taking into account section 1504(b) of the Code); or (C) to an
unincorporated entity one hundred percent (100%) of the capital and profits
interests or beneficial interests in or of which are owned by Gaiam and/or a
corporation described in the foregoing clause (b).
5.3.2 Conditions. No transfer of a Membership Interest under this
Section 5.3 shall be permitted unless each of the following conditions has been
satisfied; provided, that the Board may waive such condition in the Board's sole
and absolute discretion:
5.3.2.1 the transferor or transferee shall give written
notice of such transfer to the Company and provide the Company with the name,
address, and taxpayer identification number of the transferee and such other
information as the Board shall request to prepare tax returns and other filings
reflecting such transfer as are required by the Act or otherwise;
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5.3.2.2 the transferor or transferee shall furnish the
Company with an opinion of counsel in form and substance satisfactory to the
Board and counsel for the Company to the effect that such transfer will not
result in a termination of the Company under section 708(b)(1)(B) of the Code;
5.3.2.3 if the Company owns real estate in California, the
transferor or transferee shall furnish the Company with an opinion of counsel in
form and substance satisfactory to the Board and counsel for the Company to the
effect that such transfer will not result in a reassessment of such real estate
for property tax purposes;
5.3.2.4 the transferor or transferee shall deliver to the
Company an opinion of counsel in form and substance satisfactory to the Board
and counsel for the Company to the effect that the transfer of such Membership
Interest may be made without violating federal or state securities laws;
5.3.2.5 the transferor and/or transferee shall be jointly
and severally responsible for, and shall reimburse the Company for, all costs
and expenses related to such transfer; and
5.3.2.6 the transferee shall execute a copy of this
Agreement along with an express statement that it agrees to be bound by the
terms and conditions of this Agreement, and executes any other documents as the
Board may request to prepare tax returns and other filings reflecting such
transfer as are required by the Act or otherwise.
A permitted transferee shall become a Member upon compliance with all of the
conditions of this Section 5.3.2 without further action by the Members.
5.4 Involuntary Transfers
5.4.1 In General. This Section 5.4 shall apply to the following
transfers of a Membership Interest:
5.4.1.1 Actual Transfers. A transfer of a Membership
Interest (other than a transfer described in Section 5.3.1 hereof) is subject to
this Section 5.4 if it results from (a) a Termination Event with respect to a
Member or (b) any other involuntary means (including, without limitation,
attachment, garnishment, execution, levy or seizure.
5.4.1.2 Deemed Transfers. A transfer of a Membership
Interest shall also be deemed to occur for purposes of and shall be subject to
this Section 5.4 if a permitted transferee of a Membership Interest described in
Sections 5.3.1.4 or 5.3.1.5 hereof shall cease to be so described.
5.4.2 Rights of Assignee. In the case of a transfer described in
Section 5.4.1 hereof, the transferring Member's executor, administrator,
guardian, conservator, successor, assign, trustee
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or other legal representative (such Member's "Successor in Interest," which term
shall also include the Member in the case of a deemed transfer under Section
5.4.1.2 hereof) shall be a mere assignee of the Economic Interest transferred
and shall have only such rights of an assignee of such Economic Interest (an
"Assignee").
5.4.3 Option to Purchase. Within sixty (60) days after a transfer
described in Section 5.4.1 hereof (or, if later, after the date that the non-
transferring Member first becomes aware of such transfer pursuant to a notice
given by the Successor in Interest), the non-transferring Member may, by notice
to the Successor in Interest, elect to purchase or cause the Company to purchase
the transferred Membership Interest upon the following terms and conditions:
5.4.3.1 Purchase Price. In order to determine the purchase
price, the Successor in Interest on the one hand and the person electing to
purchase the transferred Membership Interest on the other hand shall designate
one (1) independent appraiser, and the appraisers thereby designated shall
select a third independent appraiser. Each of the three (3) appraisers thereby
selected shall determine, within sixty (60) days after notice is given pursuant
to this Section 5.4.3, the fair market value of such Membership Interest based
on the value of the Company as a going concern and the price at which such
Membership Interest would change hands between a willing buyer and a willing
seller, neither being under any compulsion to buy or sell and both having
reasonable knowledge of the relevant facts and circumstances. The final purchase
price of such Membership Interest shall equal the average of the values
determined by the appraisers; shall be final and binding; and shall be
communicated as soon as is practical by the appraisers to the Successor in
Interest and to the person electing to purchase such Membership Interest. If the
non- transferring Member is not satisfied with such purchase price, the non-
transferring Member may arrange to cause such Membership Interest to be sold at
public auction (at which such non- transferring Member is free to purchase such
Membership Interest).
5.4.3.2 Revocation of Election. The person electing to
purchase the transferred Membership Interest may revoke such election within ten
(10) days after notice of the purchase price of such Membership Interest has
been given pursuant to Section 5.4.3.1 hereof.
5.4.3.3 Closing Date. The closing date of such purchase
shall be no later than thirty (30) days after notice of the purchase price of
such Membership Interest has been given pursuant to Section 5.4.3.1 hereof.
5.4.3.4 Manner of Payment. The purchase price shall be paid
in cash on the closing date.
5.4.4 Admission as Member. A Successor in Interest may be admitted
to the Company as a Member with the consent of the non-transferring Member,
which consent may be withheld in its sole and absolute discretion, and provided
that the conditions of Section 5.3.2 are met.
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5.5 Transfer to Spouse. If a Member transfers all or any part of such
Member's Membership Interest to such Member's spouse or former spouse (whether
pursuant to a marital settlement or separation agreement, order of court, or
otherwise) the transferring Member shall have the right to notify such spouse or
former spouse, within fourteen (14) days of such transfer, that such Member
elects to purchase the interest of such spouse or former spouse in such
Membership Interest for a proportionate amount of the purchase price of the
entire such Membership Interest, determined pursuant to Section 5.4.3.1 hereof,
and to effect such purchase within thirty (30) days of such election. If such
Member does not give such notice within such fourteen (14) days, the non-
transferring Member shall have the right to notify such spouse or former spouse,
within thirty (30) days of such transfer, that such Member elects to purchase
such interest on the terms set forth above.
6. DISSOLUTION
6.1 Events of Dissolution. The Company shall be dissolved upon the
occurrence of any of the following events:
6.1.1 the vote by a Majority of the Members to dissolve the Company;
6.1.2 a sale or other disposition of all or substantially all of the
Company's assets, or any other event that causes the Company to be unable to
continue its business as a practical matter; or
6.1.3 the end of the term of the Company as set forth in Section 1.5
hereof.
6.2 Liquidation. Upon the occurrence of an event of dissolution as
described in Section 6.1 hereof, the Board (or, if there is no Manager, such
other person as shall be designated by a Majority in Interest of the Members)
shall take full account of the Company's assets and liabilities; collect the
receivables of the Company; and liquidate the Company's assets as promptly as is
consistent with obtaining the fair market value thereof. Upon dissolution, the
Company shall engage in no further business other than that necessary to collect
its receivables and to liquidate its assets. The proceeds from the liquidation
of Company assets and collection of Company receivables, together with assets
distributed in kind, shall, to the extent sufficient therefore, be applied and
distributed in the following order:
6.2.1 first, to the expenses of liquidation, including brokerage
commissions from the sale of Company assets, escrow costs, accounting and legal
fees, and other expenses;
6.2.2 second, to the liabilities and obligations of the Company to
its creditors (including any Member that may have made a loan or advance to the
Company);
6.2.3 third, to the creation or increase of any reserves; and
16
6.2.4 fourth, to the Members in proportion to the positive balances
of their Capital Accounts after taking into effect all allocations under Section
3 hereof ( with distributions under this Section 6.2.4 to be made within the
Fiscal Year of the Company in which the liquidation of the Company (within the
meaning of section 1.704-1(b)(2)(ii)(g) of the Regulations) is deemed to occur
or, if later, ninety (90) days after such date of liquidation).
6.3 Termination Upon Liquidation. Upon completion of the dissolution,
winding up, liquidation and distribution of the Company assets and liquidation
proceeds, the Company shall terminate and the Board (or, if there is no Manager,
such person as is designated by the Members under Section 6.2 hereof) shall file
or cause to be filed with all appropriate governmental authorities a Certificate
of Cancellation as required by the Act.
7. FINANCIAL MATTERS
7.1 Books and Records. The books and records of, and other information
pertaining to, the Company shall be available for inspection, audit, and copying
by any Member or such Member's representative during normal business hours at
the principal office of the Company set forth in Section 1.2 hereof.
7.2 Minimum Books and Records Required. The books, records and other
information described in this Section 7.1 shall include at least the following:
(a) a current list of the full name and last known business or residence address
of each Member, together with the contribution and share in profits and losses
of each Member; (b) a copy of the Articles and all amendments thereto, and
executed copies of any powers of attorney pursuant to which any such instrument
has been executed; (C) copies of this Agreement and all amendments thereto; (d)
copies of the Company's federal, state and local income tax or information
returns and reports, if any, for the six (6) most recent Fiscal Years; (e)
financial statements of the Company for the six (6) most recent Fiscal Years;
and (f) the Company's books and records for the current and past three (3)
Fiscal Years.
7.3 Delivery to Members and Inspection
7.3.1 Delivery Upon Request. Upon the request of a Member or an
Assignee, the Company shall promptly deliver to the requesting person, at the
expense of the Company, a copy of the information required to be maintained by
clauses (a) through (c), inclusive, of Section 7.2 hereof.
7.3.2 Inspection. Each Member or such Member's representative has
the right, upon reasonable request, to inspect and copy at such Member's expense
during normal business hours any of the Partnership records required to be
maintained under Section 7.2 hereof.
17
7.4 Tax Information and Elections
7.4.1 Returns and Information Statements. The Board shall cause
income tax returns for the Company to be prepared and filed with all appropriate
governmental authorities, and corresponding schedules to be distributed to the
Members and Assignees, no later than seventy-five (75) days after the end of
each Fiscal Year.
7.4.2 Elections. The Board shall from time to time make such tax
elections under the Code with respect to the Company as the Board deems
necessary or desirable (including, without limitation, an election pursuant to
section 754 of the Code to adjust the basis of the Company's assets pursuant to
sections 734(b) and 743(b) of the Code to reflect the Capital Contribution of
any Member that may be admitted to the Company or distributions to any
withdrawing Members); provided, that the Board may not elect to cause the
Company to be treated as an association taxable as a corporation under the
Regulations except with the unanimous approval of the Members.
7.4.3 Tax Matters Partner. Such member as is designated by the Board
from time to time shall serve as the tax matters partner of the Company within
the meaning of section 6321(a)(7) of the Code. The Board hereby designates the
Member set forth on Schedule 7.4.3 hereto as the initial tax matters partner.
7.4.4 Fiscal Year. The fiscal year of the Company shall be the
calendar year (the "Fiscal Year").
8. GENERAL PROVISIONS
8.1 Complete Agreement. This Agreement, and any schedules, exhibits or
documents referred to herein or executed contemporaneously herewith (including,
without limitation, the Purchase Agreement and the Non-Compete Agreement),
constitute the entire agreement among the parties hereto with respect to the
subject matter hereof, and supersede all prior written, and all prior and
contemporaneous oral, agreements, representations, warranties, statements,
promises and understandings with respect to the subject matter hereof, whether
express or implied.
8.2 Amendments. Except as expressly provided otherwise in this Section
8.2, this Agreement may be amended only with the written consent of a Majority
in Interest of the Members. Amendments of this Agreement may be proposed by the
Board or by any Member.
8.2.1 Super-Majority Provisions. Any provision of this Agreement
that requires the consent of more Members than a Majority in Interest of the
Members may be amended only by whatever vote of the Members is necessary under
the provision proposed to be amended.
8.2.2 Amendments Affecting Certain Members. Any amendment affecting
a Member's voting rights under this Agreement, transfer rights under Section 5
hereof, or allocations and distributions under Section 3 hereof is ineffective
unless signed by the Member so affected.
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8.2.3 Managers. Any provision of this Agreement that would expand
the duties, responsibilities or liabilities of the Managers, or reduce the
indemnification rights of a Manager, shall require the signature of each
Manager.
8.3 Notice. Whenever this Agreement requires that notice be given to the
Company, a Manager or a Member, such notice shall be given to the Company at the
address set forth in Section 1.2 hereof, to such Member at the address set forth
in Schedule 8.3 hereto, or to a Manager c/o the address of the Member appointing
such Manager as set forth in Schedule 8.3 hereto (together with a courtesy copy
of such notice to such person designated by a Member in Schedule 8.3 hereto) as
follows: by personal delivery, in which case notice shall be deemed given on the
date of delivery; by certified mail, return receipt requested, in which case
notice shall be deemed given three (3) days after deposit of such notice in the
mail; by overnight delivery service, in which case notice shall be deemed given
the day after deposit of such notice with such service; or by facsimile with a
copy of such notice sent by mail, in which case notice shall be deemed given on
the day of the facsimile transmission as set forth in a facsimile log. A person
may change such person's address for notice purposes, or the designation of a
person to receive a courtesy copy of such notices, pursuant to a notice
complying with this Section 8.3.
8.4 Arbitration. Subject to Section 8.13 hereof, any and all
controversies, claims or disputes in any way concerning the negotiation for,
execution, interpretation, performance or breach of this Agreement shall be
determined, at the request of any party to this Agreement, by final and binding
arbitration conducted in Los Angeles, California under and in accordance with
the Commercial Arbitration Rules of the American Arbitration Association
("AAA"), and a final judgment embodying any award rendered by the arbitrators
may be entered by any state or federal court having jurisdiction thereof.
8.4.1 Selection of Arbitrators. The parties shall select three (3)
arbitrators pursuant to the above-referenced AAA rules to hear and decide the
dispute, unless the dispute involves less than One Hundred Thousand and 00/100
Dollars ($100,000), in which case the parties shall select one (1) arbitrator.
At least one of the arbitrators selected for a three-person panel and any single
arbitrator must be an attorney with at least five (5) years of experience in
general business law.
8.4.2 Discovery. The provisions of section 1283.05 of the California
Code of Civil Procedure or its successor section(s) are expressly incorporated
in and made a part of this Agreement. However, the limitation on depositions set
forth in section 1283.05(e) of the California Code of Civil Procedure is not.
8.4.3 Powers of Arbitrators. In addition to all powers given to
arbitrators under the above-referenced AAA rules and/or statutes and case law,
the arbitrators selected hereunder shall have the power to give such directions
and to make such orders in the matters so referred to them as they deem just and
reasonable and shall specifically have the power, notwithstanding any judicial
opinions to the contrary, to award any remedy or relief which they deem just,
equitable and within
19
the scope, meaning and intent of this Agreement. The arbitrators shall not,
however, have the power to negate, add to or modify the terms of this Agreement.
8.4.4 Time Limits; Reasoned Opinion. Unless the time is extended by
stipulation of the parties or by order of the arbitrators made for good cause
shown, the arbitrators shall render their award not later than one hundred and
eighty (180) days from the date of their appointment. The award shall be in
writing and shall set forth the reason for the arbitrators' decision on each
issue in sufficient detail so as to enable the parties to understand the factual
and legal base for the decision.
8.5 Waivers. The failure of any party hereto at any time to require
performance by another party hereto of any provision hereof shall in no way
affect the full right to require such performance at any time thereafter, nor
shall the waiver by any party of a breach of any provision hereof be taken or
held to be a waiver of any succeeding breach of such provision or as a waiver of
the provision itself.
8.6 Additional Documents. Each party hereto agrees to execute any and all
further documents and writings and to perform such other actions which may be or
become necessary or expedient to effectuate and carry out this Agreement.
8.7 Good Faith. Every obligation or duty of a party in this Agreement
imposes an obligation of good faith in its performance and reasonableness in its
enforcement.
8.8 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties hereto, their respective successors and
permitted assigns. Nothing in this Section 8.8 shall be deemed to modify in any
way the prohibition on transfer contained in Section 5 hereof.
8.9 Exhibits. All schedules and exhibits attached hereto are hereby
incorporated in and made a part of this Agreement as if fully set forth herein.
8.10 Governing Law. This Agreement shall be governed by the laws of the
State of California, regardless of the choice of law provisions of California or
any other jurisdiction and regardless of where the parties hereto may now or
hereafter reside, be organized or do business.
8.11 Headings; Gender; Interpretation. The headings in this Agreement are
inserted only as a matter of convenience, and in no way define, limit, or
interpret the scope of this Agreement or of any particular section hereof. As
used in this Agreement, the masculine, feminine or neuter gender, and the
singular or plural number, shall each include the others whenever the context so
indicates. This Agreement shall be deemed to have been drafted by all the
parties hereto, since all parties were assisted by their counsel in reviewing,
drafting and agreeing to this Agreement, and no ambiguity shall be resolved
against any party by virtue of its participation in the drafting of this
Agreement.
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8.12 Severability. The validity, legality or enforceability of the
remainder of this Agreement shall not be affected even if one or more of the
provisions of this Agreement shall be held to be invalid, illegal or
unenforceable in any respect.
8.13 Injunctive Relief. Each of the parties acknowledges that the
covenants and the restrictions contained herein are necessary and required for
the adequate protection of their Membership Interests; such covenants relate to
matters which are of a special, unique and extraordinary character that give
each of such covenants or restrictions a special, unique and extraordinary
value; and a breach of any such covenant or restriction will result in loss of
goodwill and other irreparable harm and damages to the Company which cannot be
adequately compensated by a monetary award. It is accordingly agreed that the
parties shall be entitled to an injunction or injunctions to prevent breaches of
this Agreement and to enforce specifically its terms and provisions, this being
in addition to any other remedy to which they are entitled at law or in equity.
8.14 Attorneys' Fees and Other Costs. Should any arbitration or litigation
be commenced (including any proceedings in a Bankruptcy court) between the
parties hereto or their representatives concerning any provision of this
Agreement or the rights and duties of any person or entity hereunder, the party
or parties prevailing in such proceeding shall be entitled, in addition to such
other relief as may be granted, to the reasonable attorneys' fees and court
costs incurred by reason of such litigation (including, without limitation, such
party's share of the arbitrators' fees and AAA charges and its reasonable expert
witness fees).
8.15 Facsimile Signatures. Any signed copy of this Agreement or of any
other document or agreement referred to herein, or copy or counterpart thereof,
delivered by facsimile transmission, shall for all purposes be treated as if it
were delivered containing an original manual signature of the whose signature
appears in the facsimile, and shall be binding upon such party in the same
manner as though an originally signed copy had been delivered.
8.16 Counterparts. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first set forth above.
"Members"
GAIAM HOLDINGS, INC. HEALING ARTS PUBLISHING, INC.
By /s/ ▇▇▇▇ ▇▇▇▇▇▇ By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
---------------------- -------------------------------------
▇▇▇▇ ▇▇▇▇▇▇, President ▇▇▇▇▇▇ ▇. ▇▇▇▇▇, President
By: /s/ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
-------------------------------------
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, Assistant Secretary
"Managers"
/s/ ▇▇▇▇ ▇▇▇▇▇▇ /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
-------------------------- ------------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
__________________________
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