EXHIBIT 10.1
THIRD AMENDED AND RESTATED
OPERATING AGREEMENT
OF
QWEST DIGITAL MEDIA, LLC
This THIRD AMENDED AND RESTATED OPERATING AGREEMENT (this "Agreement")
is entered into as of January 2, 2001, between Anschutz Digital Media, Inc., a
Colorado corporation ("ADMI"), and U.S. Telesource, Inc., a Delaware corporation
("UST"), both of which are referred to as the "Members" and individually as a
"Member."
A limited liability company was formed in accordance with the
provisions of the Delaware Limited Liability Company Act (the "Act") under the
name of Slingshot Networks, LLC (the "Company") pursuant to a Certificate of
Formation filed July 14, 1999, with the Delaware Secretary of State. An
Operating Agreement of the Company was entered into as of that same date, under
which ADMI was the sole member. Pursuant to a Subscription Agreement by and
between Qwest Communications International Inc., a Delaware corporation
("Qwest"), and the Company dated as of October 22, 1999 (the "Subscription
Agreement"), Qwest agreed to purchase an equity interest in the Company.
Additionally, ADMI agreed under a Contribution Agreement dated as of October 22,
1999 by and among ADMI and the Company (the "Contribution Agreement") to
contribute certain assets (the "ADMI Contributed Assets") to the Company. In
conjunction with the Subscription Agreement and the Contribution Agreement, on
October 22, 1999 ADMI and Qwest entered into an Amended and Restated Operating
Agreement. Subsequently, Qwest transferred its interest in the Company to its
wholly owned subsidiary UST (references to UST herein shall be deemed to include
Qwest as its predecessor in interest). On June 21, 2000 ADMI and UST entered
into a Unit Purchase Agreement (the "Purchase Agreement") pursuant to which UST
purchased a portion of ADMI's equity interest in the Company in exchange for
cash and a promissory note (the "Purchase Note"). On October 17, 2000 the name
of the Company was changed from Slingshot Networks, LLC to Qwest Digital Media,
LLC. On January 2, 2001 UST paid in full the outstanding amount due under the
Purchase Note. In light of the foregoing, the Members now desire to amend and
restate the Second Amended and Restated Operating Agreement of the Company.
Accordingly, from and after the date hereof, the affairs of the Company will be
governed by this Third Amended and Restated Operating Agreement. In
consideration of the foregoing, and of the mutual promises contained herein, the
Members agree as follows:
ARTICLE 1
THE LIMITED LIABILITY COMPANY
1.1 Name. The name of the limited liability company shall be Qwest
Digital Media, LLC.
1.2 Certificate of Formation. A Certificate of Formation that complies
with the requirements of the Act has been properly filed with the Delaware
Secretary of State. In the future, the Managers shall execute such further
documents (including amendments to the Certificate of Formation) and take such
further action as shall be appropriate or necessary to
comply with the requirements of law for the formation and operation of a limited
liability company in all states and counties where the Company elects to carry
on its business.
1.3 Business. The business of the Company shall be (a) to provide
advanced digital production, post-production and transmission facilities,
digital media storage and distribution services, telephony-based data storage
and enhanced services, access and routing services; (b) to do any and all other
things necessary, desirable or incidental to the foregoing purposes; and (c) to
engage in such other legal and lawful business activities as the Management
Committee may deem desirable. The Company may sell or otherwise dispose of all
or substantially all of its assets and any such sale or disposition shall be
considered to be within the scope of the Company's business.
1.4 Registered Office; Agent. The registered office of the Company
shall be at ▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, or such
other place in Colorado as may be selected by the Management Committee. The
Company's registered agent at such address shall be ▇▇▇▇ ▇▇▇▇▇▇▇▇.
ARTICLE 2
DEFINITIONS
2.1 Cash Flow. "Cash Flow" shall mean the excess of all cash receipts
of the Company over all cash disbursements of the Company.
2.2 Code. "Code" shall mean the Internal Revenue Code of 1986, as
amended, or any successor statute.
2.3 Conversion Date. "Conversion Date" shall mean the earliest to occur
of the following dates (a) January 2, 2004, (b) the date of completion by the
Company of an initial public offering of its equity securities in accordance
with the rules and regulations of the Securities Act of 1933, as amended, by
means of an effective registration statement under Form S-1 (or any successor
form thereto), (c) the date of payment in full by UST of the outstanding amount
due under the Capital Note (as defined below), and (d) any date on which UST
will have a Sharing Ratio, after giving effect to a Conversion (as defined
below), that would result in Qwest not having to consolidate the Company for
financial accounting purposes.
2.4 Manager. "Manager" is defined in Section 7.1(a).
2.5 Profit or Loss. "Profit" or "Loss" shall mean the profit or loss of
the Company as determined under the capital accounting rules of Treasury
Regulation Section 1.704-1(b)(2)(iv) for purposes of adjusting the capital
accounts of the Members including, without limitation, the provisions of
paragraphs (b), (f) and (g) of those regulations relating to the computation of
items of income, gain, deduction and loss.
2.6 Sharing Ratio. "Sharing Ratio" shall mean the percentage
representing the ratio that the number of Units owned by a Member bears to the
aggregate number of Units owned by
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all of the Members. Upon the issuance of additional Units or the transfer,
repurchase or cancellation of any outstanding Units, the Sharing Ratios of the
Members shall be recalculated as of the date of such issuance, transfer,
repurchase or cancellation. The recalculated Sharing Ratio of each Member shall
be the percentage representing the ratio that the number of Units owned by the
Member bears to the aggregate number of Units owned by all of the Members after
giving effect to the issuance, transfer, repurchase or cancellation.
2.7 Treasury Regulations. "Treasury Regulations" shall mean regulations
issued by the Department of Treasury under the Code. Any reference to a specific
section or sections of the Treasury Regulations shall be deemed to include a
reference to any corresponding provision of future regulations under the Code.
2.8 Units. "Unit" shall mean an equity interest in the Company. The
Company shall have three classes of Units: Class A, Class B and Class C. The
three classes of Units shall be identical in all respects except for their
respective Voting Interests. The number of Units owned by each Member shall be
determined in connection with the issuance of a membership interest in the
Company in exchange for the capital contribution made by such Member. Initially
the Units shall not be represented by certificates. If the Management Committee
determines that it is in the interest of the Company to issue certificates
representing the Units, certificates shall be issued and the Units shall be
represented by such certificates. The Company is authorized to issue 400,000,000
Class A Units, 200,000,000 Class B Units and 200,000,000 Class C Units.
2.9 Voting Interest. (a) With respect to the Class A Units, "Voting
Interest" shall mean that number of Class A Units held by a Member, and (b) with
respect to the Class B Units, "Voting Interest" shall mean that number of Class
B Units held by a Member divided by 10.
ARTICLE 3
CAPITAL CONTRIBUTIONS
3.1 Initial Capital Contributions.
(a) In accordance with the terms of the Contribution Agreement, ADMI
contributed to the Company all of its right, title and interest in and to the
ADMI Contributed Assets. As a result of such contribution, ADMI was initially
credited with a capital account equal to $84,816,696, and received 84,816,696
Class A Units.
(b) In accordance with the terms of the Subscription Agreement, UST
contributed to the Company, a promissory note (the "Capital Note") in the amount
of $84,816,696, and such amount shall be credited to UST's capital account when
and as the payments of principal are made on the Capital Note. As a result of
UST's agreement to make such contribution and pursuant to the Subscription
Agreement, UST was admitted as a Member of the Company, and received 84,816,696
Class A Units.
(c) From October 22, 1999 through June 21, 2000, each of UST and ADMI
have made contributions of $11,578,518.50 to their respective capital accounts
in exchange for
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11,578,518 Class A Units. In accordance with the terms of the Purchase
Agreement, UST acquired 48,197,607 Class A Units from ADMI in exchange for cash
and the Purchase Note. As a result, 48,197,607 Class A Units were transferred
from ADMI to UST. From June 21, 2000 through January 2, 2001, UST has made
additional contributions to its capital account in exchange for 10,200,000 Class
A Units and ADMI has made additional contributions to its capital account in
exchange for 3,400,000 Class A Units.
(d) On January 2, 2001, the Company authorized the issuance of
200,000,000 Class C Units and UST exchanged 103,195,214 Class A Units for
103,195,214 Class C Units.
(e) As a result of the transactions described above, the Members own
the number and classes of Units set forth below:
Class A Units Class B Units Class C Units
------------- ------------- -------------
ADMI 51,597,607 -0- -0-
UST 51,597,607 -0- 103,195,214
(f) Based on the above (i) the Sharing Ratio of ADMI is 25% and the
Sharing Ratio of UST is 75%, and (ii) the Voting Interest of ADMI is 51,597,607
and the Voting Interest of UST is 51,597,607.
(g) On the Conversion Date, all issued and outstanding Class C Units
will automatically convert into an equal number of Class A Units (the
"Conversion") without any further action on the part of the Company or the
Members, as a result of which the aggregate number of issued and outstanding
Class C Units on such date will be zero. Accordingly, on the Conversion Date the
Voting Interest of each Member will be recalculated to reflect the Conversion.
The Sharing Ratios of the Members will not be affected by the Conversion.
3.2 Additional Capital Contributions.
(a) If, from time to time in the reasonable judgment of the Management
Committee, the Company requires additional capital for any purpose, the
Management Committee is hereby authorized to cause the Company to issue
additional Units, on terms and conditions and with repayment priorities as
approved by the Management Committee. Notwithstanding the foregoing, until a
third party becomes a Member, Units shall not be issued at a price per Unit that
is less than $1.00.
(b) If the Company desires to issue additional Units pursuant to (a)
above, the Company hereby grants to the Members the right of first refusal to
purchase a pro rata share (equaling the Member's respective Sharing Ratio on the
day before such additional Units are to be issued) of the additional Units which
the Company proposes to issue. If the Company proposes to issue such additional
Units, it shall give the Members written notice of its intention, describing the
price and terms upon which the Company proposes to issue the Units. Each Member
shall have 15 days from the date such notice is sent by the Company to agree to
purchase the portion of the additional Units issued which it is entitled to
purchase for the price
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and upon the terms so specified in the notice. Such notice shall be in writing
and shall specify the quantity of additional Units to be purchased. If any
Member fails to exercise the right of first refusal within the 15-day period,
the Company shall have the right thereafter to sell or issue those additional
Units upon terms no more favorable to the purchasers of the additional Units
than specified in the Company's notice to Members.
3.3 Return of Capital Contributions. Capital contributions shall be
expended in furtherance of the business of the Company. All costs and expenses
of the Company shall be paid from its funds. No interest shall be paid on
capital contributions. No Manager shall have any personal liability for the
repayment of any capital contribution to a Member.
3.4 Loans.
(a) The Company may borrow additional capital from any source,
including any Member. No Member shall be obligated to make a loan to the
Company.
(b) If from time to time in the reasonable judgment of the Management
Committee the Company requires additional capital for any purpose related to the
business of the Company, the Management Committee is authorized to cause the
Company to borrow such capital, on terms and conditions as approved by the
Management Committee. If the Management Committee decides to borrow such capital
from a Member (the "Loan Amount), each Member shall be given the opportunity,
but shall not be obligated, to loan its share of the Loan Amount to the Company.
A Member's share of the Loan Amount shall be the Loan Amount multiplied by the
Member's Sharing Ratio. The loans shall be made within 10 days after request by
the Management Committee to the Members. Such request shall be in writing and
shall specify the amount of the Loan Amount. If a Member does not loan its share
of the Loan Amount (the "Shortfall Amount") and the other Member does loan its
share (a "Participating Member"), the Participating Member shall have the right,
exercisable within 10 days after notice, to loan the Company the Shortfall
Amount. The loans to the Company by the Participating Members shall be
unsecured, evidenced by promissory Note of the Company, shall accrue interest at
a rate determined by the Management Committee, shall be payable on a pro rata
basis solely from Cash Flow prior to any distributions to Members, and shall not
contain any default interest or penalty provisions.
ARTICLE 4
DISTRIBUTIONS
4.1 Nonliquidating Distributions. Cash Flow shall be distributed to the
Members in amounts deemed appropriate by the Management Committee after
establishing appropriate reserves. Except as provided in Section 4.2, all
distributions of Cash Flow shall be made among the Members in accordance with
their respective Sharing Ratios.
4.2 Liquidating Distributions. All distributions made in connection
with the sale or exchange of all or substantially all of the Company assets and
all distributions made in
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connection with the liquidation of the Company shall be made to the Members in
accordance with their relative capital account balances at the time of
distribution.
ARTICLE 5
ALLOCATION OF PROFIT AND LOSS
5.1 Determination of Profit and Loss. Profit or Loss shall be
determined on an annual basis and for such other periods as may be required.
5.2 Loss Allocation. Except as provided in Section 5.4, Loss shall be
allocated among the Members in accordance with their relative Sharing Ratios.
5.3 Profit Allocation.
(a) Except as provided in Section 5.3(b) and Section 5.4, Profit shall
be allocated among the Members in accordance with their relative Sharing Ratios.
(b) Any Profit with respect to the sale, exchange or other disposition
of all or substantially all of the Company assets or with respect to the
liquidation of the Company shall be allocated among the Members so that their
capital account balances are proportionate to their Sharing Ratios.
(c) For purposes of Section 5.3(b), the capital accounts of the Members
shall be determined (i) before giving effect to distributions under Section 4.2;
(ii) after allocating all other items of Profit and Loss; and (iii) after making
all distributions under Section 4.1.
5.4 Regulatory Allocations and Curative Provision.
(a) The "qualified income offset" provisions of Treasury Regulation
Section 1.704-1(b)(2)(ii)(d) are incorporated herein by reference and shall
apply to adjust the allocation of Profit and Loss otherwise provided for under
Sections 5.2 and 5.3 to the extent provided in that regulation.
(b) The "minimum gain" provisions of Treasury Regulation Section
1.704-2 are incorporated herein by reference and shall apply to adjust the
allocation of Profit and Loss otherwise provided for under Sections 5.2 and 5.3
to the extent provided in that regulation.
(c) Notwithstanding the provisions of Section 5.2, if during any fiscal
year of the Company the allocation of any loss or deduction, net of any income
or gain, to a Member would cause or increase a negative balance in a Member's
capital account as of the end of that fiscal year, only the amount of such loss
or deduction that reduces the balance to zero shall be allocated to the Member
and the remaining amount shall be allocated to the other Member. For the purpose
of the preceding sentence, a capital account shall be reduced by the
adjustments, allocations and distributions described in Treasury Regulations
Sections 1.704-1(b)(2)(d)(4), (5) and (6), and increased by the amount, if any,
that the Member is obligated to restore to the Member's
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capital account within the meaning of Treasury Regulation Section
1.704-1(b)(2)(ii)(c) as of that time or is deemed obligated to restore under
Treasury Regulation Section 1.704-2(g)(1) or Section 1.704-2(i)(5).
(d) All allocations pursuant to the foregoing provisions of this
Section 5.4 (the "Regulatory Allocations") shall be taken into account in
computing allocations of other items under Sections 5.2 and 5.3, including, if
necessary, allocations in subsequent fiscal years, so that the net amounts
reflected in the Members' capital accounts and the character for income tax
purposes of the taxable income recognized (e.g., as capital or ordinary) will,
to the extent possible, be the same as if no Regulatory Allocations had been
given effect.
ARTICLE 6
ALLOCATION OF TAXABLE INCOME AND LOSS
6.1 In General.
(a) Except as provided in Section 6.2, each item of income, gain, loss
and deduction of the Company for federal income tax purposes shall be allocated
among the Members in the same manner as such item is allocated for capital
account purposes under Article 5.
(b) To the extent of any recapture income (as defined below) resulting
from the sale or other taxable disposition of a Company asset, the amount of any
gain from such disposition allocated to (or recognized by) a Member (or its
successor in interest) for federal income tax purposes shall be deemed to
consist of recapture income to the extent such Member (or such Member's
predecessor in interest) has been allocated or has claimed any deduction
directly or indirectly giving rise to the treatment of such gain as recapture
income. For this purpose "recapture income" shall mean any gain recognized by
the Company (but computed without regard to any adjustment required by sections
734 and 743 of the Code) upon the disposition of any property or asset of the
Company that does not constitute capital gain for federal income tax purposes
because such gain represents the recapture of deductions previously taken with
respect to such property or assets.
6.2 Allocation of Section 704(c) Items. The Members recognize that with
respect to property contributed to the Company by a Member and with respect to
property revalued in accordance with Treasury Regulation Section
1.704-1(b)(2)(iv)(f), there will be a difference between the agreed values or
"carrying values" of such property at the time of contribution or revaluation
and the adjusted tax basis of such property at that time. All items of tax
depreciation, cost recovery, amortization, amount realized and gain or loss with
respect to such assets shall be allocated among the Members to take into account
the book-tax disparities in accordance with the provisions of sections 704(b)
and 704(c) of the Code and the Treasury Regulations under those sections.
6.3 Integration With Section 754 Election. All items of income, gain,
loss, deduction and credit recognized by the Company for federal income tax
purposes and allocated to the Members in accordance with the provisions hereof
and all basis allocations to the Members shall be determined without regard to
any election under section 754 of the Code that may be made by
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the Company; provided, however, such allocations, once made, shall be adjusted
as necessary or appropriate to take into account the adjustments permitted by
sections 734 and 743 of the Code.
ARTICLE 7
MANAGEMENT
7.1 Management Committee.
(a) Management of the Company shall be vested in a management committee
(the "Management Committee"). Until the Conversion Date, the Management
Committee shall consist of ten Managers, four of whom shall be appointed by
ADMI, four of whom shall be appointed by UST, one of whom shall be appointed by
ADMI and UST as mutually agreed upon, and one of whom shall be the Chief
Executive Officer of the Company. Following the Conversion Date, the Management
Committee shall consist of nine Managers, three of whom shall be appointed by
ADMI, four of whom shall be appointed by UST, one of whom shall be appointed by
ADMI and UST as mutually agreed upon, and one of whom shall be the Chief
Executive Officer of the Company. Subject to the limitations of Section 8.9, the
Management Committee shall have the exclusive power and authority to conduct the
business of the Company. In conducting the business of the Company, the
Management Committee shall have all rights, duties and powers conferred by the
Act, except as limited hereby. The Management Committee is hereby expressly
authorized on behalf of the Company to make all decisions with respect to the
Company's business and to take all actions necessary to carry out such
decisions. No actions shall be taken, nor any decisions made, by any Manager or
officer of the Company without the prior approval of, or pursuant to an express
delegation of authority by, the Management Committee. Subject to the limitations
of Section 8.9 and clauses (b) and (c) below, the act of the majority of the
members of the Management Committee shall be the act of the Management
Committee. Notwithstanding the foregoing, all documents executed on behalf of
the Company need only be signed by a Manager or by an officer of the Company who
has been given the power and authority to do so by the Management Committee.
(b) The Management Committee shall have the power to appoint
individuals to serve as the Chief Executive Officer, Chief Financial Officer and
Chief Operating Officer of the Company. In addition, the Management Committee
shall have the right to delegate all or portions of its management authority to
one or more officers of the Company. Any officer may be removed or its authority
withdrawn at any time by the Management Committee. Notwithstanding any other
provision of this Operating Agreement to the contrary, until the Conversion Date
(i) no individual may be appointed or terminated as Chief Executive Officer,
Chief Financial Officer or Chief Operating Officer of the Company without the
prior approval of a majority of the Management Committee, which majority shall
consist of at least one Manager appointed by UST and at least one Manager
appointed by ADMI, and (ii) all determinations as to compensation and benefits
to be paid or granted to the Chief Executive Officer, Chief Financial Officer or
Chief Operating Officer shall require the approval of a majority of the
Management Committee, which majority shall consist of at least one Manager
appointed by UST and at least one Manager appointed by ADMI.
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(c) Until the Conversion Date, without the prior approval of a majority
of the Management Committee, which majority shall consist of at least one
Manager appointed by UST and at least one Manager appointed by ADMI, the Company
may not directly or indirectly through a subsidiary or other controlled entity
(i) incur Indebtedness (as defined below) for an amount individually or in the
aggregate in excess of $10 million, (ii) issue equity interests or securities
for consideration individually or in the aggregate in excess of $10 million,
(iii) make any single capital expenditure in excess of $2 million, (iv) acquire
or dispose of assets with a value in excess of $2 million in any single
transaction, (v) approve or enact any annual budget of the Company or (vi) amend
or repeal any material provision of the Company's Operating Agreement. For
purposes of this Agreement, "Indebtedness" shall mean with respect to any
person, without duplication, all indebtedness in respect of money borrowed,
including without limitation, all obligations under capital leases, all
synthetic lease obligations, the deferred purchase price of any property or
services, the aggregate face amount of all surety bonds, letters of credit, and
bankers' acceptances, and all payment and reimbursement obligations in respect
thereof whether or not matured, evidenced by a promissory note, bond, debenture
or similar written obligation for the payment of money (including reimbursement
agreements and conditional sales or similar title retention agreements),
including all such items incurred by any partnership or joint venture as to
which such person is liable as a general partner or joint venturer, other than
trade payables and accrued expenses incurred in the ordinary course of business.
7.2 Management Committee Meetings.
(a) The Management Committee will hold regular quarterly meetings
without call or notice at such time as will from time to time be fixed by
standing resolution of the Management Committee.
(b) Special meetings of the Management Committee may be called by any
two Managers. All meetings will be held upon 10 days' notice by mail or 72
hours' notice delivered personally or by telephone or facsimile. A notice need
not specify the purpose of any meeting. Notice of a special meeting need not be
given to any Manager who signs a waiver of notice or a consent to holding the
meeting or an approval of the minutes thereof, whether before or after the
meeting, or who attends the meeting without protesting, prior to its
commencement, the lack of notice to such Manager. All such waivers, consents and
approvals will be filed with the Company records or made a part of the minutes
of the meeting.
(c) Meetings of the Management Committee may be held at any place
within or without the State of Delaware that has been designated in the notice
of the meeting or at such place as may be approved by the Management Committee.
Managers may participate in a meeting through use of conference telephone or
similar communications equipment, so long as all Managers participating in such
meeting can hear one another. Participation in a meeting in such manner
constitutes a presence in person at such meeting.
7.3 Duties. The Managers shall carry out their duties in good faith, in
a manner the Managers believe to be in the best interests of the Company, and
with such care as an ordinarily prudent person in a like position would use
under similar circumstances. A Manager who so
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performs its duties shall not have any liability by reason of being or having
been a Manager of the Company.
7.4 Time Devoted to Business. The Members and the Managers shall devote
such time to the business of the Company as they, in their discretion, deem
necessary for the efficient carrying on of the Company's business. The Members
and the Managers shall at all times be free to engage for their own account in
any business that competes with any business of the Company.
7.5 Reliance by Third Parties. No third party dealing with the Company
shall be required to ascertain whether any Manager is acting in accordance with
the provisions of this Agreement. All third parties may rely on a document
executed by a Manager (or an officer duly authorized by the Management Committee
to execute such document) as binding the Company. The foregoing provisions shall
not apply to third parties who are affiliates of a Member, the Managers, or an
officer of the Company. A Manager or officer acting without authority shall be
liable to the Members for any damages arising out of its unauthorized actions.
7.6 Resignation. Any Manager may be removed at any time with or without
cause by the Member who appointed such Manager. Any Manager may resign at any
time by giving written notice to the Members. Unless otherwise specified in the
notice, the resignation shall take effect upon receipt by the Members, and the
acceptance of the resignation shall not be necessary to make it effective. Upon
the resignation, retirement, death or removal of any Manager, the Member who
appointed such Manager will nominate and appoint a replacement Manager.
7.7 Transactions Between Company and Managers. The Members hereby
acknowledge that the Company may be required to borrow funds from any Manager or
such Manager's affiliates, from time to time and at any time, in connection with
the business of the Company. Each Manager is hereby authorized, without further
approval by the Members, to execute all documents and take all action necessary
to consummate any loans, secured and/or unsecured by the assets of the Company,
to the Company by such Manager or an affiliate of such Manager, on terms and
conditions that are acceptable to such Manager and consistent with the
provisions of Section 3.4. In addition, each Manager is hereby authorized to
contract and deal with the Company, or cause any person or entity affiliated
with such Manager to otherwise contract or deal with the Company, provided such
contracts and dealings either are on terms comparable to and competitive with
those available to the Company from others dealing at arm's length or are
approved by disinterested Members having more than 50% of the Voting Interests
of all disinterested Members.
7.8 Reimbursements. Each Manager and each officer shall be reimbursed
by the Company for any reasonable out-of-pocket costs incurred on behalf of the
Company and a reasonable charge for the cost of general office and
administrative overhead attributable to the performance of their duties to the
Company, together with reasonable interest that has accrued on such amounts from
the date incurred until paid.
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7.9 Insurance. The Company shall maintain for the protection of the
Company and all of its Members such insurance as the Management Committee, in
its sole discretion, deems necessary for the operations being conducted.
7.10 Exculpation. The Management Committee and any officer appointed by
the Management Committee shall not be liable to the Company or to any Member for
any act or failure to act, nor for any errors of judgment, but only for willful
misconduct or gross negligence. The Company shall indemnify and hold harmless
each member of the Management Committee, each officer and their agents and
employees against and from any liability other than such person's willful
misconduct or gross negligence. Any such indemnification shall be paid only from
the assets of the Company, and no Member, Manager, officer or third party shall
have recourse against the personal assets of any Member for such
indemnification.
7.11 Informal Action. Any action required or permitted to be taken by
the Management Committee may be taken without a meeting if the action is
evidenced by a written consent describing the action taken, signed by each
member of the Management Committee. Action taken under this section is effective
when all members of the Management Committee have signed the consent, unless the
consent specifies a different effective date.
ARTICLE 8
MEMBERS
8.1 Participation. A Member, in its capacity as a Member, shall take no
part in the control, management, direction or operation of the affairs of the
Company and shall have no power to bind the Company.
8.2 Quorum. A majority of the outstanding Voting Interests, represented
in person or by proxy, shall be necessary to constitute a quorum at meetings of
the Members. Each of the Members hereby consents and agrees that one or more
Members may participate in a meeting of the Members by means of conference
telephone or similar communication equipment by which all persons participating
in the meeting can hear one another at the same time, and such participation
shall constitute presence in person at the meeting. If a quorum is present, the
affirmative vote of the majority of the Voting Interests represented at the
meeting and entitled to vote on the subject matter shall be the act of the
Members, unless a greater number is required by the Act. In the absence of a
quorum, those present may adjourn the meeting for any period, but in no event
shall such period exceed 60 days.
8.3 Informal Action. Any action required or permitted to be taken at a
meeting of the Members may be taken without a meeting if the action is evidenced
by a written consent describing the action taken, signed by each Member entitled
to vote. Action taken under this section is effective when all Members entitled
to vote have signed the consent, unless the consent specifies a different
effective date.
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8.4 Meetings. Meetings of the Members for any purpose or purposes may
be called by the Management Committee or by holders of not less than 10% of all
Voting Interests. The place of meeting shall be the registered office of the
Company.
8.5 Notice of Meeting. Written notice stating the place, day and hour
of the meeting of the Members and the purpose or purposes for which the meeting
is called, shall be delivered either personally or by mail, by or at the
direction of the Management Committee or other person calling the meeting, to
each Member of record entitled to vote at such meeting. If mailed, such notice
shall be deemed delivered as provided in the Act. Waiver of notice and actions
taken at a meeting shall be effective as provided in the Act.
8.6 Proxies. At all meetings of Members, a Member may vote in person or
by proxy executed in writing by the Member or by his duly authorized
attorney-in-fact. Such proxy shall be filed with the Management Committee before
or at the time of the meeting. No proxy shall be valid after eleven months from
the date of its execution, unless otherwise provided in the proxy.
8.7 Conduct of Meeting. At each meeting of the Members, a Chairman for
that particular meeting shall be elected. The Chairman shall be the Member in
attendance who has received the vote of the majority of the Voting Interests
represented at the meeting. The Chairman shall preside over and conduct the
meeting and shall appoint someone in attendance to make accurate minutes of the
meeting. Following each meeting, the minutes of the meeting shall be sent to the
Management Committee and each Member.
8.8 Tax Matters Member. UST is hereby designated as the tax matters
Member for the Company pursuant to section 6231(a) of the Code. UST is
authorized to perform, on behalf of the Company or any Member, any act that may
be necessary to make this designation effective.
8.9 Minority Protections. Notwithstanding any other provision of this
Operating Agreement to the contrary, without the approval of ADMI or its
successor, until such time as ADMI (a) holds less than 10% of the voting equity
of the Company on a fully diluted basis or (b) sells or otherwise transfers to a
non-affiliate more than 50% of its equity holdings in the Company as of June 21,
2000, the Company may not
(i) authorize (w) a liquidation, dissolution winding up of the
affairs of the Company (or any of its subsidiaries), (x) a
recapitalization or reorganization of the Company that would be
reasonably likely to have a material adverse effect on ADMI's (1)
Units, (2) Capital Account, (3) relative rights or obligations under
this Agreement or (4) status as a Member generally, (y) a Change in
Ownership (as defined below), or (z) a Fundamental Change (as defined
below);
(ii) permit any subsidiary to issue or sell, or obligate
itself to issue or sell, except to the Company or any wholly-owned
subsidiary of the Company, any capital stock of such subsidiary in
excess of 20% in the aggregate of the outstanding capital stock of such
subsidiary on a fully diluted basis as of the date hereof (as the same
may be adjusted by any transaction approved by ADMI);
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(iii) permit the Company or any of its subsidiaries to enter
into any agreement for the acquisition of any business through purchase
of assets, purchase of stock, licensing arrangement or otherwise
involving consideration of $100,000,000 or more;
(iv) increase or decrease the outstanding equity ownership
available in the Company, or authorize the same, other than additional
issuances of equity (or a reduction in the amount of outstanding
equity) not to exceed 20% in the aggregate of the outstanding equity of
the Company on a fully diluted basis as of the date hereof (as the same
may be adjusted by any transaction approved by ADMI);
(v) authorize the issuance or restructuring of any debt
securities of the Company or any of its subsidiaries or otherwise incur
Indebtedness directly or through a subsidiary, including increases to
any revolving line of credit maximum limits, other than (1) purchase
money indebtedness, (2) nonrecourse indebtedness on receivables and (3)
unsecured indebtedness in an aggregate amount not to exceed
$75,000,000;
(vi) authorize the payment of any dividends or distributions,
except as may be required to allow for the payment of taxes when due
attributable to a Member as the result of the allocation of income in
accordance with the terms of this Agreement;
(vii) enter into any transaction with an affiliate with an
aggregate transaction value (based on goods or services provided or
received or to be provided or received) in excess of $25,000,000;
(viii) increase or decrease the authorized size of the
Company's Management Committee or alter the representative composition
thereof;
(ix) increase the equity interests available to employees,
advisors, management or consultants in excess of 10% in the aggregate
of the outstanding equity of the Company on a fully diluted basis as of
the date hereof (as the same may be adjusted by any transaction
approved by ADMI); or
(x) amend or repeal any provision of the Company's Operating
Agreement that would be reasonably likely to have a material adverse
effect on ADMI's (w) Units, (x) Capital Account, (y) relative rights or
obligations under this Agreement or (z) status as a Member generally.
For purposes of clauses (i) and (x) of this Section 8.9, any alteration
of the Company's Operating Agreement that would be reasonably likely to have an
adverse financial impact to ADMI shall be deemed material.
For purposes of this Section 8.9: (1) "Change in Ownership" means any
sale, transfer or issuance or series of sales, transfers and/or issuances of
equity interests in the Company by the Company or any holders thereof which
results in any Person or group of Persons (as the term "group" is used under the
Securities Exchange Act of 1934, as amended), other than the holders of
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equity interests as of June 21, 2000, owning equity interests of the Company
possessing the voting power (under ordinary circumstances) to elect at least 50%
of the Company's Management Committee; (2) "Fundamental Change" means (A) any
sale or transfer of more than 50% of the assets of the Company and its
subsidiaries on a consolidated basis (measured either by book value in
accordance with generally accepted accounting principles consistently applied or
by fair market value determined in the reasonable good faith judgment of the
Management Committee) in any transaction or series of transactions (other than
sales in the ordinary course of business), and (B) any merger or consolidation
to which the Company is a party, except for a merger in which the Company is the
surviving entity, the terms of the outstanding equity interests of all holders
thereof are not changed and none of the outstanding equity interests are
exchanged for cash, securities or other property, and after giving effect to
such merger, the holders of the Company's outstanding equity interests
possessing the voting power (under ordinary circumstances) to elect a majority
of the Company's Management Committee immediately prior to the merger shall
continue to own the Company's outstanding equity interests possessing the voting
power (under ordinary circumstances) to elect a majority of the Company's
Management Committee; (3) "Person" means an individual, a partnership, a
corporation, a limited liability company, a limited liability partnership, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization and a governmental entity or any department, agency or political
subdivision thereof; and (4) "subsidiary" means, with respect to any Person, any
other Person of which securities or other ownership interests having ordinary
voting power to elect a majority of the board of directors or other persons
performing similar functions are at the time directly or indirectly owned by the
Person.
Notwithstanding any other provision of this Operating Agreement to the
contrary, all rights of ADMI or its successors under this Section 8.9 shall
lapse upon the completion by the Company of an initial public offering of its
equity securities in accordance with the rules and regulations of the Securities
Act of 1933, as amended, by means of an effective registration statement under
Form S-1 (or any successor form thereto).
ARTICLE 9
ACCOUNTING AND REPORTING
9.1 Books. The Management Committee shall maintain complete and
accurate books of account at the registered office of the Company. The
Management Committee shall provide any Member any information requested relating
to the business of the Company. During ordinary business hours any Member or its
authorized representative shall have access to all books, records and materials
regarding the Company and its activities.
9.2 Capital Accounts. The Management Committee shall maintain a
separate capital account for each Member in accordance with the Treasury
Regulations under section 704(b) of the Code and such other accounts as may be
necessary or desirable to comply with the requirements of applicable laws and
regulations.
9.3 Transfers During Year. In order to avoid an interim closing of the
Company's books, the share of profits and losses under Article 5 of a Member who
transfers part or all of its interest in the Company during the Company's
accounting year may be determined by taking its
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pro rata share of the amount of such profits and losses for the year. The
proration shall be based on the portion of the Company's accounting year that
has elapsed prior to the transfer or may be determined under any other
reasonable method; provided, however, that any gain or loss from the sale of
Company assets shall be allocated to the owner of the Company interest at the
time of such sale. The balance of the profits and losses attributable to the
Company interest transferred shall be allocated to the transferee of such
interest.
9.4 Reports. The books of account shall be closed promptly after the
end of each fiscal year. As soon as practicable thereafter, the Management
Committee shall deliver a written report to each Member, which shall include a
statement of receipts, expenditures, profits and losses for the year, a
statement of each Member's capital account and such additional statements with
respect to the status of the Company's assets and the distribution of Company
funds as are necessary to advise the Members properly about their investment in
the Company. Prior to March 15th of each year, the Members shall also be
provided with a copy of the Company federal income tax return (Form 1065) to be
filed for the preceding year.
9.5 Section 754 Election. If requested by a Member the Company shall
make the election provided for under section 754 of the Code. Any costs
attributable to making such election shall be borne solely by the requesting
Member.
ARTICLE 10
TRANSFERS; RIGHT OF FIRST REFUSAL
10.1 Additional Members. Additional Members shall not be admitted to
the Company without the written consent of Members having a Voting Interest of
more than 50%.
10.2 Offer to Other Members. If at any time any Member proposes to
sell, assign or otherwise transfer all or any part of its interest in the
Company, such Member ("Offeror") shall first make a written offer to sell such
interest in the Company to the other Members on the same terms and subject to
the same conditions as those on which the Offeror proposes to transfer the
interest in the Company. Such offer shall state the name of the proposed
transferee and all the terms and conditions of the proposed transfer, including
the price to the proposed transferee. Notwithstanding anything in this Section
10.2 to the contrary, any Member shall be free to transfer all or any portion of
its interest in the Company free of the right of first refusal provided that
such Member transfers its interest to an entity controlled by the transferor. A
transferee of a Member pursuant to the foregoing sentence shall be subject to
the right of first refusal contained in this Section 10.2.
10.3 Acceptance of Offer. The other Members shall have the right for a
period of 30 days after receipt of the offer from the Offeror, or such longer
period as may be required under Section 10.5, to elect to purchase all of the
interest in the Company offered. In exercising their right to purchase, the
other Members may divide the interest offered in any manner to which they all
agree and in the absence of agreement the offered interest shall be divided
among the Members in proportion to the relative Sharing Ratios of the Members
who choose to participate. To exercise their rights to purchase, the other
Members shall give written notice to
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the Offeror. Upon the exercise of a right to purchase and provided the right is
exercised with respect to all of the interest in the Company offered, the
purchase shall be closed and payment made on the same terms and conditions as
those on which the Offeror proposes to transfer the interest in the Company.
10.4 Failure to Accept Offer. If the other Members do not elect to
purchase all of the interest in the Company offered, the Offeror may transfer
the offered interest to the proposed transferee named in the offer to the
Company. However, if that transfer is not made within 90 days after the end of
the period provided for in Section 10.3, a new offer shall be made to the other
Members and the provisions of Sections 10.1, 10.2 and 10.3 shall again apply.
10.5 Cash Equivalents. If the proposed offer under Section 10.2 is for
consideration other than cash or cash plus deferred payments of cash, the
purchasing Members may pay the present value cash equivalent of such other
consideration or may pay using the same instrument as contemplated by the
proposed offer. The Offeror and the purchasing Members shall attempt to agree
upon a cash equivalent of such other consideration. If they cannot agree within
20 days after the beginning of the 30-day period under Section 10.3, any of such
Members may, by five days' written notice to the others, initiate arbitration
proceedings for determination of the cash equivalent without regard to income
tax consequences to the Offeror as a result of receiving cash rather than the
other consideration. The purchasing Members may elect to purchase the interest
at the determined cash equivalent by notice of such election to the Offeror
within 10 days after the arbitrator's decision.
10.6 Direct and Indirect Transfers. For purposes of this agreement,
restrictions upon the sale, assignment or other transfer of a Member's interest
shall extend to any direct or indirect transfer including, without limitation,
an involuntary transfer such as a transfer pursuant to a foreclosure sale or a
transfer resulting by operation of law.
10.7 Substitution of a Member.
(a) No assignee, legatee, or transferee (by conveyance, operation of
law or otherwise) of the whole or any portion of a Member's interest in the
Company shall have the right to become a substituted Member without the written
consent of Members other than the assignor, legator or transferor, as the case
may be, having a Voting Interest of more than 50%. The granting or denial of a
request for such written consent shall be within the absolute discretion of each
Member. A substituted Member shall succeed to all the rights and interest of its
assignor in the Company. An assignee of a Member that is not admitted as a
Member shall be entitled only to the distributions to which its assignor would
otherwise be entitled.
(b) If a Member shall be dissolved, merged or consolidated, its
successor in interest shall have the same rights and obligations that such
Member would have had if it had not been dissolved, merged or consolidated,
except that the successor shall not become a substituted Member without the
prior written consent of Members other than the predecessor Member having a
Voting Interest of more than 50%.
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(c) As conditions to its substitution as a Member (a) any successor of
a Member shall execute and deliver such instruments, in form and substance
satisfactory to the Management Committee, as the Management Committee shall deem
necessary, and (b) such successor shall pay all reasonable expenses in
connection with its admission as a substituted Member.
10.8 Conditions to Transfer. No transfer of any interest in the Company
otherwise permitted under this agreement shall be effective for any purpose
whatsoever until the transferee shall have assumed the transferor's obligations
to the extent of the interest transferred and shall have agreed to be bound by
all the terms and conditions hereof, by written instrument, duly acknowledged,
in form and substance reasonably satisfactory to the Management Committee.
ARTICLE 11
TAG-ALONG RIGHTS
Subject to the provisions of Section 10, in the event a Member (an
"Offering Member") intends to transfer all or any part of its interest in the
Company (also referred to as "Offered Interests"), such Offering Member shall
notify each other Member who has a Sharing Ratio of more than 10%, in writing,
of such proposed transfer and its terms and conditions, including, without
limitation, (i) its bona fide intention to sell or transfer the Offered
Interests, (ii) the number and class of Units of Offered Interests to be
transferred, (iii) the price and terms, if any, for which it proposes to
transfer the Offered Interests and (iv) the name and address of the proposed
purchaser or transferee and that such purchaser or transferee is committed to
acquire the stated number of Units on the stated price and terms ("Offering
Member Notice"). Within ten days of the date of such notice, each Member (other
than the Offering Member) shall notify the Offering Member in writing (the
"Co-Sale Notice") if it elects to participate in such transfer. Each Member that
so notifies the Offering Member shall have the right to sell, at the same price
and on the same terms as the Offering Member, an amount of Units equal to the
Units the third party proposes to purchase multiplied by a fraction, the
numerator of which shall be the number of Units owned by such Member and the
denominator of which shall be the aggregate number of Units owned by the
Offering Member and each Member exercising its rights under this Section 11.
Nothing contained in this Section 11 shall in any way limit or restrict the
Offering Member's ability to amend, modify or terminate any agreement with a
third party with respect to any transfer of its Units pursuant to this Section
11, and the Offering Member shall have no liability to any Member with respect
to such amendment, modification or termination unless any of the foregoing
breaches this Agreement. If no Co-Sale Notice is received during the ten-day
period referred to above (or if the Co-Sale Notice does not cover all of the
Units proposed to be transferred), the Offering Member shall have the right, for
a sixty-day period after the expiration of the ten-day period referred to above,
to transfer the Units so specified in the Offering Member Notice (or the
remaining Units) at the same or a lower price and on other terms and conditions
no more favorable than those stated in the Offering Member Notice.
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ARTICLE 12
TERM
Subject to Section 8.9, the Company shall continue until dissolved by
the written consent of Members having a Voting Interest of more than 50% or upon
sale of all or substantially all of its assets.
ARTICLE 13
INITIAL PUBLIC OFFERING
13.1 Conversion to Corporation. If the Company decides to initiate an
initial public offering, and if that decision requires that the Company be
restructured into a corporation (the "Resulting Corporation"), then, subject to
the approval of the Management Committee pursuant to Section 7.1:
(a) the Resulting Corporation will be organized and incorporated under
the Laws of the State of Delaware;
(b) the Certificate of Incorporation and Bylaws of the Resulting
Corporation will include standard and customary provisions as will then be
applicable to public corporations incorporated under the Laws of the State of
Delaware, and such other provisions as may be agreed upon by the Management
Committee; and
(c) the Members and the Company will negotiate in good faith with the
intent of entering into a shareholders' agreement that will contain customary
provisions, including "tag along" rights.
ARTICLE 14
DISSOLUTION AND TERMINATION
14.1 Final Accounting. In case of the dissolution of the Company, a
proper accounting shall be made as provided in Section 9.4 from the date of the
last previous accounting to the date of dissolution.
14.2 Liquidation. Upon the dissolution of the Company, the Management
Committee shall select a person to act as liquidator to wind up the Company. The
liquidator shall have full power and authority to sell, assign and encumber any
or all of the Company's assets and to wind up and liquidate the affairs of the
Company in an orderly and businesslike manner. All proceeds from liquidation
shall be distributed in the following order of priority: (i) to the payment of
debts and liabilities of the Company and the expenses of liquidation; (ii) to
the setting up of such reserves as the liquidator may reasonably deem necessary
for any contingent liabilities of the Company; and (iii) to the Members in
accordance with Article 4.
14.3 Distribution in Kind. If the liquidator shall determine that a
Company asset should be distributed in kind, the liquidator shall obtain an
independent appraisal of the fair market value of the asset as of a date
reasonably close to the date of liquidation. Any unrealized appreciation or
depreciation with respect to such asset shall be allocated among the Members (in
18
accordance with the provisions of Article 5 assuming that the asset was sold for
the appraised value) and taken into consideration in determining the balance in
the Members' capital accounts as of the date of liquidation. Distribution of any
such asset in kind to a Member shall be considered a distribution of an amount
equal to the asset's fair market value for purposes of Section 14.2. The
liquidator, in its sole discretion, may distribute any percentage of any asset
in kind to a Member even if such percentage exceeds the percentage in which the
Member shares in distributions as long as the sum of the cash and fair market
value of all the assets distributed to each Member equals the amount of the
distribution to which each Member is entitled.
14.4 Waiver of Right to Court Decree of Dissolution. The Members agree
that irreparable damage would be done to the Company if any Member brought an
action in court to dissolve the Company. Accordingly, each of the Members
accepts the provisions of this Agreement as its sole entitlement on termination
of the Member's membership in the Company. Each Member hereby waives and
renounces all rights to seek a court decree of dissolution or to seek the
appointment by a court of a liquidator for the Company.
14.5 Articles of Dissolution. Upon the completion of the distribution
of Company assets as provided in this Article 14, the Company shall be
terminated and the person acting as liquidator shall file articles of
dissolution and shall take such other actions as may be necessary to terminate
the Company.
ARTICLE 15
NOTICES
15.1 Method of Notices. All notices required or permitted by this
agreement shall be in writing and shall be hand delivered or sent by registered
or certified mail, postage prepaid, and shall be effective when received or, if
mailed, on the date set forth on the receipt of registered or certified mail, or
on the fifth day after mailing, whichever is earlier.
15.2 Computation of Time. In computing any period of time under this
agreement, the day of the act, event or default from which the designated period
of time begins to run shall not be included. The last day of the period so
computed shall be included, unless it is a Saturday, Sunday or legal holiday, in
which event the period shall run until the end of the next day which is not a
Saturday, Sunday or legal holiday.
ARTICLE 16
INVESTMENT REPRESENTATIONS
16.1 Investment Purpose. In acquiring an interest in the Company, each
Member represents and warrants to the Company that it is acquiring such interest
for its own account for investment and not with a view to its sale or
distribution. Each Member recognizes that investments such as those contemplated
by the Company are speculative and involve substantial risk. Each Member further
represents and warrants that it has not received any guaranty or
19
representation upon which it has relied concerning the possibility or
probability of profit or loss as a result of its acquisition of an interest in
the Company.
16.2 Investment Restriction. Each Member recognizes that: (a) its Units
have not been registered under the Securities Act of 1933, as amended, in
reliance upon an exemption from such registration, (b) a Member may not sell,
offer for sale, transfer, pledge or hypothecate all or any part of its interest
in the Company in the absence of an effective registration statement covering
such interest under the Securities Act of 1933, as amended, unless such sale,
offer of sale, transfer, pledge or hypothecation is exempt from registration
under the Securities Act of 1933, as amended, (c) the Company has no obligation
to register any Member's interest for sale, or to assist in establishing an
exemption from registration for any proposed sale, and (d) the restrictions on
transfer may severely affect the liquidity of a Member's investment.
ARTICLE 17
GENERAL PROVISIONS
17.1 Entire Agreement. This Agreement embodies the entire understanding
and agreement among the parties concerning the Company and supersedes any and
all prior negotiations, understandings or agreements in regard thereto.
17.2 Amendment. Except as otherwise specifically provided in this
Agreement, this Agreement may not be amended nor may any rights hereunder be
waived except by an instrument in writing signed by Members having a Voting
Interest of more than 50% in the aggregate.
17.3 Applicable Law. This Agreement shall be construed in accordance
with and governed by the laws of the State of Delaware.
17.4 Pronouns. References to a Member, including by use of a pronoun,
shall be deemed to include masculine, feminine, singular, plural, individuals,
partnerships, corporations or other legal entities where applicable.
17.5 Counterparts. This instrument may be executed in any number of
counterparts each of which shall be considered an original.
* * * * * * *
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF the parties have executed this Agreement effective
as of the date first above written.
ANSCHUTZ DIGITAL MEDIA, INC.
By:
---------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Vice President
U.S. TELESOURCE, INC.
By:
---------------------------------
Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Title: President and Chief Executive Officer
S-1
