OPERATING AGREEMENT
OF
CKRUSH DISTRIBUTION, LLC
A DELAWARE LIMITED LIABILITY COMPANY
THIS OPERATING AGREEMENT (this "Agreement") is made effective as of January
1, 2006 by and between English Distribution, LLC, a Florida limited liability
company ("English Distribution"), as Manager and as Member (as those terms are
defined below) and Ckrush Entertainment, Inc., a Delaware corporation
("Ckrush"), as a Member (each of English Distribution and Ckrush is referred to
individually as a "Member" and collectively as the "Members").
Background
A. Ckrush Distribution, LLC (the "Company") was organized as a Delaware
limited liability company by the filing of its Certificate of Formation on
September 21, 2005 with the Secretary of State of the State of Delaware.
B. The parties have agreed to organize and operate the Company as a limited
liability company in accordance with the terms and subject to the conditions set
forth in this Agreement.
NOW, THEREFORE, the parties agree as follows:
Article I
Defined Terms
The following capitalized terms shall have the respective meanings
specified in this Article. Other terms not defined in this Agreement shall have
the meaning specified in the Act.
"Act" means the Delaware Limited Liability Company Act, as amended from
time to time.
"Affiliate" means (a) a Person directly or indirectly controlling,
controlled by or under common control with another Person; (b) a Person owning
or controlling ten percent (10%) or more of the outstanding voting securities or
beneficial interests of another Person; (c) an officer, director, partner or
member of the immediate family of an officer, director or partner of another
Person; and/or (d) any affiliate of any such Person.
"Agreement" means this Operating Agreement, as amended from time to time,
including each exhibit hereto.
"Assignee" means a Person who has acquired an Economic Interest in the
Company but is not a Member.
"Capital Account" means the account to be maintained by the Company for
each Interest Holder in accordance with the following provisions:
(a) An Interest Holder's Capital Account shall be credited with the amount
of money and fair market value of any property contributed to the Company (net
of liabilities secured by such property that the Company either assumes or to
which such property is subject), the amount of any Company unsecured liabilities
assumed by the Interest Holder and the Interest Holder's allocable share of
Profit; and
(b) An Interest Holder's Capital Account shall be debited with the amount
of money and the fair market value of any Company property distributed to the
Interest Holder (net of liabilities secured by such distributed property that
the Interest Holder either assumes or to which such property is subject), the
amount of any unsecured liabilities of the Interest Holder assumed by the
Company and the Interest Holder's allocable share of Loss.
If any Interest is transferred pursuant to the terms of this Agreement, the
Transferee shall succeed to the Capital Account of the transferor to the extent
the Capital Account is attributable to the transferred Interest.
"Cash Flow" means all cash derived from the operations of the Company
(including interest received on reserves and cash withdrawn from reserves)
without reduction for any non-cash charges, but less cash used to pay current
operating expenses and to pay or establish reasonable reserves for future
expenses, debt payments, capital improvements, and replacements as determined by
the Majority Vote.
"Code" shall have the meaning set forth in Section 4.1.
"Common Member" means a Member holding Common Membership Units.
"Common Membership Units" means a membership interest with voting rights.
"Company" means the limited liability company formed in accordance with
this Agreement.
"Contribution" means any money, property or services rendered, or a
promissory note or other binding obligation to contribute money or property, or
to render services as permitted in this Agreement or by law, which a Member
contributes to the Company as capital in that Member's capacity as a Member
pursuant to this Agreement or any other agreement between the Members, including
an agreement as to value.
"Economic Interest" means a Person's right to share in the income, gains,
losses, deductions, credit or similar items of, and to receive distributions
from, the Company, but does not include any other rights of a Member including,
without limitation, the right to vote or to participate in management, or any
right to information concerning the business and affairs of the Company. In the
event that a Person who is not a Member holds an Economic Interest, the
provisions of this Agreement that give economic rights to Members shall also be
construed to give the same rights to such Persons holding Economic Interests,
based on the determination of such Person's Percentage (as defined below in this
Section).
2
"Interest" means either an Economic Interest or a Membership Interest.
"Interest Holder" means any Person who holds an Interest, whether as a
Member or as an Assignee of a Member.
"Involuntary Withdrawal" has the meaning set forth in Section 6.3.
"Majority Vote" means the vote of greater than fifty percent (50%) of the
Common Membership Units entitled to vote. In the event of a deadlock, the
Members shall agree on a third party to resolve the deadlock. In the event that
the Members are unable to agree on a third party to resolve the deadlock within
five (5) days of the deadlock, then each group of Members shall appoint a third
party of its choice, and such appointed third parties shall appoint an
independent third party to resolve the deadlock.
"Manager" shall mean English Distribution, or any other person or entity
that is appointed as a Manager by a Majority Vote.
"Member" means any person who executes a counterpart of this Agreement as a
Member and any Person who subsequently is admitted as a Member of the Company,
but only for the period of time that such Person is an Interest Holder of a
Membership Interest.
"Membership Interest" means a Member's rights in the Company, collectively,
including the Member's Economic Interest, any right to vote or participate in
management and any right to information concerning the business and affairs of
the Company.
"Negative Capital Account" means a Capital Account with a balance of less
than zero.
"Notice" shall have the meaning set forth in Paragraph 9.2.
"Percentage" means the economic percentage of equity ownership in the
Company that is owned by an Interest Holder, which is determined by a quotient,
the numerator of which is either (a) in the case of a Member, the number of
Units held by such Member, or (b) in the case of an Economic Interest held by a
person that is not a Member, the total number of Units that such Person would
have if the Person holding the Economic Interest were a Member, and the
denominator of which is equal to the sum of (x) total number of Units held by
all Members, plus (y) in the event that there are any Economic Interests held by
Persons that are not Members, the total number of Units that would be
outstanding if the Person(s) holding the Economic Interest(s) were Members. The
initial Percentage of each Member is set forth on Exhibit A hereto.
3
"Person" means and includes an individual, corporation, partnership,
association, limited liability company, trust, estate or other entity.
"Pool" has the meaning set forth in Section 5.3.
"Positive Capital Account" means a Capital Account with a balance greater
than zero.
"Profit" and "Loss" shall have the definitions set forth in Section 4.1
below.
"Regulation" means the income tax regulations, including any temporary
regulations, from time to time promulgated under the Code.
"Transfer" means, when used as a noun, any sale, hypothecation, pledge,
assignment, disposal, loan, gift, levy or other transfer, and, when used as a
verb, to sell, hypothecate, pledge, assign, dispose, loan, gift, levy or
otherwise transfer. "Transferee" means the Person receiving the Transfer.
"Units" means the Common Membership Units and any other units of Membership
Interests approved by the unanimous vote of the Members and issued by the
Company.
Article II
Formation and Name; Office; Purpose; Term
2.1. Organization. The parties hereby organize a limited liability company
pursuant to the Act and the provisions of this Agreement. The Company has caused
the Certificate of Formation to be prepared, executed and filed with the
Secretary of State of the State of Delaware.
2.2. Name of the Company. The name of the Company is Ckrush Distribution,
LLC.
2.3. Purpose. The Company is organized to engage in any lawful act or
activity for which a limited liability company may be organized under the Act,
in particular the international distribution of feature length motion pictures.
In furtherance of the foregoing, each of English Distribution (including its
Affiliates) and Ckrush (including its Affiliates) agrees that to the extent any
such party acquires the right to international distribution of feature length
motion pictures (each, a "Distribution Right"), English Distribution (and/or its
Affiliates) and Ckrush (and/or its Affiliates), as the case may be, will, to the
extent not prohibited, contribute or assign the Distribution Right to the
Company such that the Company will have the exclusive right to exploit the
Distribution Right. Notwithstanding anything to the contrary contained in the
foregoing, neither party will be required to so contribute or assign the
Distribution Right if such Distribution Right is required to be retained or
otherwise dealt with to obtain financing for a feature length motion picture.
4
2.4. Term. The Company's existence began upon filing of the Certificate of
Formation with the Secretary of State of the State of Delaware on September 21,
2005, and shall continue in existence until dissolved as provided by this
Agreement or the Act. This Agreement is effective as of January 1, 2006.
Notwithstanding anything to the contrary contained herein, English Distribution
and Ckrush agree that on or before February 15, 2009, unless otherwise agreed in
writing by English Distribution and Ckrush, the Company shall not enter into any
additional agreements to distribute new films. If English Distribution and
Ckrush fail to agree upon the entering into of additional agreements to
distribute new films, the Company shall engage solely in completing the
distribution agreements it is then a party to and all activities related
thereto.
2.5. Principal Place of Business. The Company's principal place of business
shall be located at ▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇,
or at any other place that the Majority Vote shall designate.
2.6. Members. The name, present mailing address, taxpayer identification
number and number of Units of each Member are set forth on Exhibit A hereto, as
amended from time to time.
Article lII
Members; Capital; Capital Accounts
3.1. Initial Contributions. Upon the execution of this Agreement, the
Members shall contribute to the Company the respective amounts set forth on
Exhibit A hereto.
3.2. No Additional Contributions. No Member shall be required to contribute
any additional capital to the Company and no Member shall have personal
liability for any obligation of the Company except as expressly provided by law.
In the event that the Company requires additional capital, each member shall
have the right to contribute, pro-rata, such amount in order to maintain its
Percentage in the Company.
3.3. No Interest on Contributions. Interest Holders shall not be paid
interest with respect to Contributions.
3.4. Return of Contributions. Except as otherwise provided in this
Agreement, no Interest Holder shall have the right to receive the return of any
Contribution or withdraw from the Company, except upon dissolution of the
Company.
5
3.5. Form of Return of Capital. If an Interest Holder is entitled to
receive the return of a Contribution, the Company may distribute in lieu of
money, notes or other property having a value equal to the amount of money
distributable to such Person.
3.6. Capital Accounts. A separate Capital Account shall be maintained for
each Interest Holder.
3.7. Loans and Other Business Transactions. A Member may, if approved by a
Majority Vote (excluding such Member), at any time make or cause a loan to be
made to the Company in any amount and on those terms upon which the Company and
the Member agree. Members may also transact other business with the Company and,
in doing so, they shall have the same rights and be subject to the same
obligations arising out of any such business transactions as would be enjoyed by
and imposed upon any Person, not a Member, engaged in a similar business
transaction with the Company.
Article IV
Profit, Loss, Distributions and Expense Reimbursement
4.1. Definitions. When used in this Agreement, the following terms shall
have the meanings set forth below:
"Code" shall mean the Internal Revenue Code of 1986, as amended from time
to time, the provisions of succeeding law, and to the extent applicable, the
Treasury Regulations.
"Company Minimum Gain" shall have the meaning ascribed to the term
"Partnership Minimum Gain" in the Treasury Regulations Section 1.704-2(d).
"Member Nonrecourse Debt" shall have the meaning ascribed to the term
"Partner Nonrecourse Debt" in Treasury Regulations Section 1.704-2(b)(4).
"Member Nonrecourse Deductions" shall mean items of Company Loss,
deduction, or Code Section 705(a)(2)(B) expenditures which are attributable to
Member Nonrecourse Debt.
"Profits" and "Losses" mean the income, gain, loss, deductions, and credits
of the Company in the aggregate or separately stated, as appropriate, determined
in accordance with the method of accounting at the close of each fiscal year
employed on the Company's information tax return filed for federal income tax
purposes.
"Nonrecourse Liability" shall have the meaning set forth in Treasury
Regulations Section 1.752-1(a)(2).
"Treasury Regulations" shall mean the final or temporary regulations that
have been issued by the U.S. Department of Treasury pursuant to its authority
under the Code, and any successor regulations.
6
4.2. Allocation of Profit or Loss.
4.2.1. Allocation of Profits. The Profits of the Company shall be allocated
to the Interest Holders in proportion to each Interest Holder's Units as set
forth on Exhibit A hereto.
4.2.2. Allocation of Losses. The Losses of the Company shall be allocated
to the Interest Holders in proportion to their positive Capital Account
balances. Notwithstanding the previous sentence, Loss allocations to a Member
shall be made only to the extent that such Loss allocations will not create a
Negative Capital Account balance for that Member in excess of an amount, if any,
equal to such Member's share of Company Minimum Gain that would be realized on a
foreclosure of the Company's property. Any Loss not allocated to a Member
because of the foregoing provision shall be allocated to the other Members (to
the extent the other Members are not limited in respect of the allocation of
Losses under this Section 4.2.2). Any Loss reallocated under this Section 4.2.2
shall be taken into account in computing subsequent allocations of income and
Losses pursuant to this Article IV, so that the net amount of any item so
allocated and the income and Losses allocated to each Member pursuant to this
Article IV, to the extent possible, shall be equal to the net amount that would
have been allocated to each such Member pursuant to this Article IV if no
reallocation of Losses had occurred under this Section 4.2.2.
4.3. Special Allocations. Notwithstanding Section 4.2:
4.3.1. Minimum Gain Chargeback. If there is a net decrease in Company
Minimum Gain during any fiscal year, each Member shall be specially allocated
items of Company income and gain for such fiscal year (and, if necessary, in
subsequent fiscal years) in an amount equal to the portion of such Member's
share of the net decrease in Company Minimum Gain that is allocable to the
disposition of Company property subject to a Nonrecourse Liability, which share
of such net decrease shall be determined in accordance with Treasury Regulations
Section 1.704-2(g)(2). Allocations pursuant to this Section 4.3.1 shall be made
in proportion to the amounts required to be allocated to each Member under this
Section 4.3.1. The items to be so allocated shall be determined in accordance
with Treasury Regulations Section 1.704-2(t). This Section 4.3.1 is intended to
comply with the minimum gain chargeback requirement contained in Treasury
Regulations Section 1.704-2(f) and shall be interpreted consistently therewith.
4.3.2. Chargeback of Minimum Gain Attributable to Member Nonrecourse Debt.
If there is a net decrease in Company Minimum Gain attributable to a Member
Nonrecourse Debt, during any fiscal year, each Member who has a share of the
Company Minimum Gain attributable to such Member Nonrecourse Debt (which share
shall be determined in accordance with Treasury Regulations Section
1.704-2(1)-(5)) shall be specially allocated items of Company income and gain
for such fiscal year (and, if necessary, in subsequent fiscal years) in an
amount equal to that portion of such Member's share of the net decrease in
Company Minimum Gain attributable to such Member Nonrecourse Debt that is
allocable to the disposition of Company property subject to such Member
Nonrecourse Debt (which share of such net decrease shall be determined in
accordance with Treasury Regulations Section 1.704-2(1)-(5)). Allocations
pursuant to this Section 4.3.2 shall be made in proportion to the amounts
required to be allocated to each Member under this Section 4.3.2. The items to
be so allocated shall be determined in accordance with Treasury Regulations
Section 1.704-2(1)(4). This Section 4.3.2 is intended to comply with the minimum
gain chargeback requirement contained in Treasury Regulations Section
1.704-2(1)-(4) and shall be interpreted consistently therewith.
7
4.3.3. Nonrecourse Deductions. Any nonrecourse deductions (as defined in
Treasury Regulations Section 1.704-2(b)(1)) for any fiscal year or other period
shall be specially allocated first to the extent of Profit allocations and
subsequently to the Interest Holders in proportion to their positive Capital
Account balances.
4.3.4. Member Nonrecourse Deductions. Those items of Company Loss,
deduction, or Code Section 705(a)(2)(B) expenditures which are attributable to
Member Nonrecourse Debt for any fiscal year or other period shall be specially
allocated to the Member who bears the economic risk of loss with respect to the
Member Nonrecourse Debt to which such items are attributable in accordance with
Treasury Regulations Section 1.704-2(i).
4.3.5. Qualified Income Offset. If a Member unexpectedly receives any
adjustments, allocations, or distributions described in Treasury Regulations
Section 1.704-1(b)(2)(ii)(d)(4), (5) or (6), or any other event creates a
Negative Capital Account in excess of such Member's share of Company Minimum
Gain, items of Company income and gain shall be specially allocated to such
Member in an amount and manner sufficient to eliminate such Negative Capital
Account as quickly as possible. Any special allocations of items of income and
gain pursuant to this Section 4.3.5 shall be taken into account in computing
subsequent allocations of income and gain pursuant to this Article IV so that
the net amount of any item so allocated and the income, gain, and Losses
allocated to each Member pursuant to this Section 4.3.5 to the extent possible,
shall be equal to the net amount that would have been allocated to each such
Member pursuant to the provisions of this Article IV if such unexpected
adjustments, allocations, or distributions had not occurred.
4.4. Code Section 704 (c) Allocations. Notwithstanding any other provision
in this Article IV, in accordance with Code Section 704(c) and the Treasury
Regulations promulgated thereunder, income, gain, Loss, and deduction with
respect to any property contributed to the capital of the Company shall, solely
for tax purposes, be allocated among the Members so as to take account of any
variation between the adjusted basis of such property to the Company for federal
income tax purposes and its fair market value on the date of contribution.
Allocations pursuant to this Section 4.4 are solely for purposes of federal,
state and local taxes. As such, they shall not affect or in any way be taken
into account in computing a Member's Capital Account or share of Profits,
Losses, or other items of distributions pursuant to any provision of this
Agreement.
8
4.5. Distribution of Assets and Cash Flow by the Company. Distributions to
Interest Holders shall be made to Interest Holders in proportion to their
respective number of Units.
4.6. Liquidation and Dissolution. Upon liquidation of the Company, the
assets of the Company shall be distributed to the Interest Holders in accordance
with Section 4.5 hereto. No Interest Holder shall be obligated to restore a
Negative Capital Account.
4.7. General.
4.7.1. Timing and Amount of Distributions. Except as otherwise provided in
this Agreement, distributions shall be made on a monthly basis. Except as
otherwise provided in this Agreement, the amount of all distributions shall be
determined by the Majority Vote. The Members shall use good faith commercially
reasonable efforts to meet monthly to discuss and determine the amount of
distributions. Notwithstanding the foregoing, or anything else in this Article
4, in the event that the Company has a positive taxable income for federal
income tax purposes, the Company shall distribute to its Interest Holders, on a
pro-rata basis, based on their respective Percentages, within ninety (90) days
of the end of the taxable year, an amount equal to the product of (a) the
aggregate amount of Company's taxable income for the year and (b) the highest
individual federal and New York State tax rate (including any surtax on high
income taxpayers) for such year.
4.7.2. Distributions in Kind. If any assets of the Company are distributed
in kind to the Interest Holders, those assets shall be valued on the basis of
their fair market value, and any Interest Holder entitled to any interest in
those assets shall receive that interest as a tenant-in common with all other
Interest Holders so entitled. Unless the Members otherwise agree, the fair
market value of the assets shall be determined by an independent appraiser who
shall be selected by the Majority Vote. The Profit or Loss for each unsold asset
shall be determined as if the asset had been sold at its fair market value, and
the Profit or Loss shall be allocated as provided in Section 4.2 and shall be
properly credited or charged to the Capital Accounts of the Interest Holders
prior to the distribution of the assets in liquidation pursuant to Section 4.6.
4.7.3. Persons of Record. All Profit and Loss shall be allocated and all
distributions shall be made, to the Persons shown on the records of the Company
to have been Interest Holders as of the last day of the taxable year for which
the allocation or distributions are to be made. Notwithstanding the foregoing,
unless the Company's taxable year is separated into segments, if there is a
Transfer or an Involuntary Withdrawal during the taxable year, the Profit and
Loss shall be allocated between the original Interest Holder and the successor
on the basis of the number of days each was an Interest Holder during the
taxable year; provided, however, the Company's taxable year shall be segregated
into two or more segments in order to account for Profit, Loss or proceeds
attributable to any extraordinary non-recurring items of the Company.
9
4.8. Expense Reimbursement. (a) English Distribution shall be reimbursed by
the Company for fifty percent (50%) of the expenses incurred by English
Distribution on behalf of the Company which expenses are set forth in Exhibit B
hereto. The foregoing reimbursement shall be made out of (i) proceeds,
commissions and broker fees received by the Company from sales and licensing of
films and/or (ii) capital contributions to the Company.
(b) English Distribution and Ckrush have each incurred expenses in
anticipation of the formation of the Company at AFM during the period November
2nd through November 9th 2005 and which expenses are set forth in Exhibit C
hereto (collectively, the "AFM Expenses"). English Distribution and Ckrush agree
that the AFM Expenses shall be repaid from the expense allocation of the films
(i) "Beer League", (ii) "TV The Movie", (iii) "National Lampoon's Pledge This"
and (iv) other National Lampoon titles which the Company is distributing as
follows:
Film Percentage of AFM Expenses to be Recouped
---- -----------------------------------------
"Beer League" 23.33%
"TV The Movie" 23.33%
"National Lampoon's Pledge This" 23.33%
Other "National Lampoon" titles 30.00%
Each of English Distribution and Ckrush will be paid pro rata to the amounts due
them, respectively, from such expense allocations. By way of example, if English
Distribution has advanced $80 of the AFM Expenses and Ckrush has advanced $20 of
the AFM Expenses, the first $100 available for distribution from such expense
allocations shall be paid as follows: $80 to English Distribution and $20 to
Ckrush. Notwithstanding the foregoing, English Distribution and Ckrush may agree
in writing upon different percentage allocations to apply to the aforementioned
films.
Article V
Management: Rights, Powers and Duties
5.1. Management and Powers. In entering this Agreement it is the intent of
each Member that the Manager shall manage the Company. Accordingly, unless
otherwise limited by the Certificate of Formation or this Agreement, the Manager
shall have full, complete and exclusive authority, power and discretion to
manage and control the affairs of the Company and to perform any and all acts or
activities customary or incident to the management of the Company's business. A
Manager may be removed or replaced only by the Majority Vote. Notwithstanding
any other provision of this Agreement, the Manager may not, without the approval
and consent of the Majority Vote, take any of the following actions:
5.1.1 decide to continue the business of the Company after dissolution of
the Company;
10
5.1.2 approve the issuance of additional Membership Interests or Transfer
of a Membership Interest;
5.1.3 amend the Certificate of Formation or this Agreement;
5.1.4 merge the Company, or sell all or substantially all of the assets of
the Company;
5.1.5 enter into any agreement or other transaction with an Affiliate of a
Member;
5.1.6 become liable for or guaranty any indebtedness;
5.1.7 enter into an agreement for the disposition of rights for any motion
picture distributed by the Company;
5.1.8 adopt or approve the Company's annual or individual project budget;
or
5.1.9 incur expenses in excess of $70,000 in the aggregate (which amount
includes the pro-rated monthly amount of the Company's budget but does not
include the budgeted amounts for film festivals or film marketing materials,
which amounts are to be reimbursable from such films) per quarter on behalf of
the Company in connection with the Company's business.
Each convention budget must be mutually agreed upon in advance by English
Distribution and Ckrush.
5.2. Meeting of and Voting by Members.
5.2.1. Calling of Meetings. A meeting of the Members may be called at any
time by any Member. Meetings of Members shall be held at the Company's principal
place of business, or at any other place mutually agreed by the Majority Vote,
designated by the Member or Members calling the meeting. Not less than ten (10)
nor more than sixty (60) days before each meeting, the Member or Members calling
the meeting shall give Notice of the meeting to each Member entitled to vote at
the meeting. The Notice shall state the time, place, and purpose of the meeting.
Notwithstanding the foregoing provisions, each Member who is entitled to Notice
may waive Notice, either before or after the meeting, by executing a waiver of
such Notice or by appearing at and participating, in person or by proxy, in
their meeting. Unless this Agreement provides otherwise, at a meeting of
Members, the presence in person or by proxy of a Majority Vote constitutes a
quorum. A Member may vote either in person or by written proxy signed by the
Member or by the Member's duly authorized attorney-in-fact.
5.2.2. Telephonic Meetings. The meeting of the Members may be held through
the use of conference telephone or similar communications equipment provided
that all Members participating in such a meeting can hear and be heard by all
other participants. Participation in such a meeting constitutes presence in
person at such meeting.
11
5.2.3. Approval by Members. Except as otherwise provided in this Agreement,
the Majority Vote of all Members present at the meeting in person and by proxy
shall be required to approve any matter coming before the Members.
5.2.4. Action by Written Consent. In lieu of holding a meeting, the Members
may take action by written consent specifying the action to be taken, which
consent must be executed and delivered to the Company by the Majority Vote. Any
such approved action shall be effective immediately. The Company shall give
prompt Notice to all Members of any action approved by Members by less than
unanimous consent.
5.3. Personal Service. No Member shall be required to perform services for
the Company, solely by virtue of being a Member, unless otherwise provided for
in an employment agreement, or other agreement, between such Member and the
Company, or an Affiliate of the Company.
5.4. Ckrush Representative. The individual entitled to act on behalf of
Ckrush with respect to Ckrush's Membership Interest shall be determined, from
time to time, by Ckrush and notified to English Distribution in writing by the
President of Ckrush.
5.5. Duties Of Parties.
5.5.1. Time. The Members shall devote such time to the business and affairs
of the Company as such Member deems appropriate for the furtherance of the
Company's business, or as set forth in any other agreement signed by such Member
and the Company.
5.5.2. No Restriction on Other Activities. Except as otherwise expressly
provided for herein or in any employment agreement or other agreement between
the Company (or any Affiliate) and any Member, nothing in this Agreement shall
be deemed to restrict in any way the rights of any Member, or of any Affiliate
of any Member, to conduct any other business or activity whatsoever, and no
Member shall be accountable to the Company or to any other Member with respect
to that business or activity even if the business or activity competes with the
Company's business. The organization of the Company shall be without prejudice
to the Members' respective rights (or the rights of the respective Affiliates)
to maintain, expand or diversify such other interests and activities and to
receive and enjoy profits or compensation therefrom. Each Member waives any
rights the Member might otherwise have to share or participate in such other
interests or activities of any other Member or the Member's Affiliates.
5.6. Indemnification of Members. The Company shall indemnify a Member to
the fullest extent allowed by law for any act performed by the Member with
respect to Company matters, unless such act constitutes grossly negligent or
reckless conduct, intentional misconduct or a knowing violation of law.
12
Article VI
Transfer of Interests and Withdrawals of Members
6.1. Prohibition on Transfers. Except as set forth below in Section 6.2, no
Member may Transfer all, or any portion of, or any interest or right in, the
Membership Interest or Economic Interest owned by the Member, and the Company
may not issue any additional Membership Interests or Economic Interests, unless
approved in writing by the Majority Vote. Each Member hereby acknowledges the
reasonableness of this prohibition in view of the purposes of the Company and
the relationship of the Members. The attempted Transfer of any portion or all of
a Membership Interest in violation of the prohibition contained in this Section
6.1 shall be deemed invalid, null and void, and of no force or effect, except
any Transfer mandated by operation of law and then only to the extent necessary
to give effect to such Transfer by operation of law.
6.2. Permitted Transfers. In the event that a Member wishes to Transfer any
or all of its Units, such Member must comply with the provisions of this Section
6.2. Any attempted Transfer in contravention of this Section 6.2 shall be null
and void and of no effect, shall not bind or be recognized by the Company, and
the Company shall not treat any alleged Transferee who receives Units pursuant
to such a prohibited Transfer as the holder of such Units.
6.2.1. Right of First and Last Refusal. If a Member (a "Selling Member")
has received and wishes to accept a bona fide offer (the "Offer") for cash from
a third party (the "Offeror") for all or part of such Selling Member's Units,
the Selling Member shall give Notice thereof (the "Offer Notice") to each of the
other Members and the Company. The Offer Notice shall state the portion of the
Selling Member's Units that the Selling Member wishes to sell (the "Optioned
Interest"), the price and all other material terms of the Offer, the name of the
Offeror, and certification from the Selling Member affirming that the Offer is
bona fide and that the description thereof is true and correct, and that the
Offeror has stated that it will purchase the Optioned Interest if the rights of
first refusal herein described are not exercised. Each of the Members other than
the Selling Member (the "Non-Selling Members") shall have the right exercisable
by Notice (an "Acceptance Notice") given to the Selling Member and the Company
within twenty (20) days after receipt of the Offer Notice (the "Member First
Refusal Period"), to agree that it will purchase up to 100% of its pro-rata
portion of the Optioned Interest (as between the Non-Selling Members) on the
terms set forth in the Offer Notice. If a Non-Selling Member does not submit an
Acceptance Notice within the Member First Refusal Period, such Non-Selling
Member shall be deemed to have rejected the offer to purchase any portion of the
Optioned Interest, and the Non-Selling Members shall have the right to purchase
their newly calculated pro rata share of the remaining Optioned Interest for an
additional twenty (20) day Member First Refusal Period (this process shall
automatically repeat itself, as applicable). If the Non-Selling Members do not
in the aggregate exercise the right to purchase any or all of the Optioned
Interest by the expiration of the Member First Refusal Period(s), then the
Selling Member shall provide an Offer Notice to the Company. The Company shall
thereafter have the right, exercisable by Acceptance Notice given to the Selling
Member within twenty (20) days following the Company's receipt of the Offer
Notice (the "Company First Refusal Period"), to accept the offer to purchase the
remaining Optioned Interest. Payment for the Optioned Interest shall be made in
cash and the closing of the purchase of such Optioned Interest shall take place
as promptly as practicable. If the Non-Selling Members and the Company do not in
the aggregate exercise the right to purchase all of the Optioned Interest before
the expiration of the Company First Refusal Period, then the portion of the
Optioned Interest for which no Acceptance Notice was given may be sold to the
Offeror (subject to the drag along rights and tag along rights set forth in this
Section 6.2), at any time in the sixty (60) day period commencing on the date of
the expiration of the Company First Refusal Period, but only upon the material
terms set forth in the Offer Notice. If no such sale is completed in-such sixty
(60) day period, or any term of the Offer Notice is materially modified, then
the provisions hereof shall apply again to any proposed sale of the Optioned
Interest.
13
6.2.2. Drag Along Rights. In the event that a Selling Member wishes to
Transfer any or all of its Units, and the Non-Selling Members and the Company
have not exercised their first refusal rights to purchase such Units as set
forth above, then the Selling Member shall have the right (but not the
obligation) to seek the Majority Vote to compel all Non-Selling Members to sell
to the Offeror (a "Drag Along Sale") all of the outstanding Units held by the
Non-Selling Members; provided that such Drag Along Sale is approved by the
Majority Vote. In the event that the Selling Member and the Majority Vote elect
to exercise the right to cause a Drag Along Sale, such Selling Member shall
deliver Notice (a "Drag Along Sale Notice") to the Company, setting forth the
consideration to be received in the Drag Along Sale and describing the other
material terms and conditions of the Drag Along Sale, including the proposed
closing date. Such Notice shall be delivered at least fifteen (15) days prior to
the proposed closing date.
6.2.3. Tag Along (Co-Sale) Rights. In the event that a Selling Member
wishes to Transfer any or all of its Units, and the Non-Selling Members and the
Company have not exercised their first refusal rights as set forth above, and
the Drag Along rights have not been exercised, then the Non-Selling Members
shall have the option of participating in the sale. The Non-Selling Members
shall have the right, exercisable upon Notice to the Selling Member within
twenty (20) days after the date of receiving the Offer Notice, to participate in
the Selling Member's Transfer of the Optioned Interest in accordance with the
terms and conditions set forth in the Offer Notice. If the Non-Selling Member(s)
elects) to participate, then the number of Units which the Selling Member may
sell pursuant to the transaction described in the Offer Notice shall be
correspondingly reduced. The right of participation of each of the Non-Selling
Members shall be subject to the following terms and conditions:
(a) Each Non-Selling Member may sell all or any part of that number of
Units equal to the product obtained by multiplying (i) the aggregate number of
Units set forth in the Offer Notice by (ii) a fraction, the numerator of which
is the number of Units at the time owned by such Non-Selling Member, and the
denominator of which is the outstanding number of Units.
14
(b) In the event a Selling Member should sell any Units in contravention of
the co-sale rights of the Non-Selling Members under this Agreement, each
Non-Selling Member, in addition to such other remedies as may be available at
law, in equity or hereunder, shall have the put option to put the applicable
number of Units to the Selling Member on the same terms as provided in the Offer
Notice. The Selling Member shall also reimburse each Non-Selling Member
exercising the put option for any and all fees and expenses, including legal
fees and costs, incurred pursuant to the exercise or the attempted exercise of
the Non-Selling Member's rights under this Section 6.2.3.
6.2.4. Securities Compliance. Any Transfer of any Units in the Company must
be in compliance with any requirements imposed by any federal and state
securities laws and regulations, and any attempted Transfer in contravention of
any such state or federal securities laws or regulations shall be void and of no
effect.
6.2.5. Death of a Member. Notwithstanding anything to the contrary in this
Section 6.2, for the avoidance of doubt, in the event of the death of a married
Member, as a result of which the assets of such Member are to be inherited by or
transferred to such Member's spouse, such Member's spouse shall immediately
inherit the Membership Interest of the deceased Member as an Assignee.
6.2.6. Requirements for Assignee to Become a Member. Provided the
provisions of this Section 6.2 have been complied with, an Assignee shall be
entitled to an Economic Interest, but shall have no other rights of a Member
herein, unless and until all of the following conditions are first satisfied:
(a) A duly executed and acknowledged written instrument of assignment is
filed with the Company, specifying the Units being assigned and setting forth
the intention of the Member and Assignee that the Assignee succeed to the
Member's interest as a substitute Member;
(b) The Assignee qualifies as an "Accredited Investor", as such term is
defined under Regulation D promulgated pursuant to Section 4(2) of the
Securities Act of 1933, as amended;
(c) The Member and Assignee shall execute and acknowledge any other
instruments that any other Member deems necessary or desirable for substitution,
including the written acceptance and adoption by the Assignee of the provisions
of this Agreement;
(d) Payment of a transfer fee to the Company, sufficient to cover all
reasonable expenses connected with the substitution; and
15
(e) Such Assignee is approved as a substitute Member by the unanimous vote
of the Members, which election shall be in each Member's sole and absolute
discretion.
The Company shall be entitled to treat the assignor as the absolute owner of the
Units in all respects, and shall incur no liability for distributions,
allocations of Profits or Losses, or transmittal of reports and Notices required
to be given to Members which are made in good faith to the assignor, until
Notice of the assignment has been given to the Company.
6.3. Involuntary Withdrawal.
6.3.1. "Involuntary Withdrawal" means, with respect to any Member, the
occurrence of any of the following events:
(a) the Member makes an assignment for the benefit of creditors;
(b) the Member is bankrupt;
(c) the Member files a petition seeking for the Member any reorganization,
arrangement, composition, readjustment, liquidation, dissolution or similar
relief under any state law;
(d) the Member seeks, consents to, or acquiesces in the appointment of a
trustee for, receiver for, or liquidation of the Member or of all or any
substantial part of the Member's properties;
(e) if the Member is an individual, the Member's death or adjudication by a
court of competent jurisdiction as incompetent to manage the Member's person or
property;
(f) the retirement, resignation or expulsion of a Member in accordance with
the terms of this Agreement;
(g) if the Member is acting as a Member by virtue of being a trustee of a
trust, the termination of the trust;
(h) if the Member is a partnership or limited liability company, the
dissolution and commencement of winding up of the partnership or limited
liability company;
(i) if the Member is a corporation, the dissolution of the corporation or
the revocation of its charter;
(j) if the Member is a partnership, limited liability company or
corporation, a change in control of such entity, as reasonably determined by the
Majority Vote;
16
(k) if the Member is an estate, the distribution by the fiduciary of the
estate's entire interest in the Company; or
(1) if the Member files an action seeking a decree of judicial dissolution.
6.3.2. Assignee After Involuntary Withdrawal. Immediately upon the
occurrence of an Involuntary Withdrawal, the successor of the withdrawn Member
shall thereupon become an Assignee Interest Holder of an Economic Interest but
shall not become a Member. If the Company is continued as provided in Section
7.1.2, the Assignee Interest Holder shall have all the rights of an Economic
Interest Holder but shall not have the right to vote or exercise any other
rights of a Member unless and until the Assignee has satisfied the requirements
set forth in Section 6.2.6.
Article VII
Dissolution, Liquidation and Termination of the Company
7.1. Events of Dissolution. The Company shall be dissolved upon the
happening of the first to occur of an event specified in the Act or any of the
following events:
7.1.1 upon the Majority Vote, as evidenced by a written agreement among the
Members and the Company; or
7.1.2 upon the occurrence of an event of Involuntary Withdrawal under
Section 6.3.1, unless all of the remaining Members within ninety (90) days after
the event unanimously elect to continue the business of the Company pursuant to
the terms of this Agreement.
7.2. Procedure for Winding, Up and Dissolution. If the Company is
dissolved, the remaining Members shall wind up its affairs. On winding up of the
Company, the assets of the Company shall be distributed, first to creditors of
the Company, including Interest Holders who are creditors, in satisfaction of
the liabilities of the Company, and then to the Interest Holders in accordance
with Section 4.6 of this Agreement.
7.3. Filing of Certificate of Cancellation. Upon completion of winding up
of the affairs of the Company, the Members shall promptly file a Certificate of
Cancellation of the Certificate of Incorporation with the Secretary of State of
the State of Delaware. If there are remaining Members, such Certificate shall be
filed by the last Person to be a Member. If there are no remaining Members, the
Certificate shall be filed by the legal or personal representatives of the last
Person to be a Member.
Article VIII
Books, Records, Accounting and Tax Elections
8.1. Bank Accounts. All funds of the Company shall be deposited in a bank
account or accounts opened in the Company's name. Ckrush shall designate the
financial institution at which each Company account will be opened and
maintained. Ckrush shall be the Member having authority with respect to such
accounts and the funds therein. No funds with respect to any business other than
that operated by the Company shall be deposited in such accounts.
Notwithstanding the foregoing, any check in excess of $500 requires the
signature of an authorized representative of each of English Distribution and
Ckrush.
17
8.2. Maintenance of Books and Records.
8.2.1. Books and Records. The Manager shall keep or cause to be kept
complete and accurate books and records of the Company and supporting
documentation of transactions with respect to the conduct of the Company's
business at the Company's principal place of business, with the bookkeeping
function performed, and the financial statements of the Company prepared, by
representatives of Ckrush. The books, records and financial statements of the
Company shall include the following:
(a) A current list of the full names and last known business, residence, or
mailing addresses of all Members and Managers;
(b) A copy of the Certificate of Formation, all certificates of conversion,
and any other documents filed with the Department of State concerning the
Company, together with executed copies of any powers of attorney pursuant to
which any Certificate of Formation or certificates were executed;
(c) Copies of the Company's federal, state, and local income tax returns
and reports, if any, for the three (3) most recent years;
(d) Copies of this Agreement and any financial statements of the Company
for the three (3) most recent years;
(e) Unless contained in the Certificate of Formation or this Agreement, a
writing setting out:
(i) The amount of cash and a description and statement of the agreed value
of any other property or services contributed by each Member and which each
Member has agreed to contribute;
(ii) The times at which or events on the happening of which any additional
Contributions agreed to be made by each Member are to be made; and
(iii) Any events upon the happening of which the Company is to be dissolved
and its affairs wound up.
18
8.3. Right to Inspect Books and Records; Receive Information.
8.3.1. Rights of Inspection. Each Member has the right upon reasonable
request and for purposes reasonably related to the Interest of the Member of the
Company, to do the following:
(a) to inspect and copy during normal business hours any of the records
required to be maintained by the Company under Section 8.2.1 of this Agreement;
and
(b) to obtain from the Company promptly after becoming available, a copy of
the Company's federal, state and local income tax or information returns for
each year.
The Company acknowledges that Ckrush, as a subsidiary of a public company,
requires timely access to the books and records of the Company to allow Ckrush's
ultimate parent company to fulfill its reporting requirements under the rules
and regulations of the Securities and Exchange Commission. Accordingly, the
Company agrees to make such books and records available to Ckrush on a timely
basis.
8.3.2. Other Information. The Company shall furnish to a Member, and to the
legal representative of a deceased Member or Member under legal disability:
(a) Without demand, information concerning the Company's business or
affairs reasonably required for the proper exercise of the Member's rights and
performance of the Member's duties under this Agreement; and
(b) On demand, other information concerning the Company's business or
affairs, except to the extent the demand or the information demanded is
unreasonable or otherwise improper under the circumstances.
8.3.3. Costs and Expenses. Unless otherwise expressly provided in this
Agreement, the inspecting or requesting Member shall reimburse the Company for
all reasonable costs and expenses incurred by the Company in connection with the
inspection and copying of the Company's books and records and the production and
delivery of any other books or records.
8.4. Annual Accounting Period. The annual accounting period of the Company
shall be its taxable year. The Company's taxable year shall be selected by the
Majority Vote subject to the requirements and limitations of the Code.
8.5. Title to Company Property. All real and personal property acquired by
the Company shall be acquired and held by the Company in the Company's name.
Article IX
General Provisions
9.1. Assurances. Each Member shall execute all certificates and other
documents and shall do all such filing, recording, publishing and other acts to
comply with the requirements of law for the formation and operation of the
Company and to comply with any laws, rules and regulations relating to the
acquisition, operation or holding of the property of the Company.
19
9.2. Notifications. Any notice, demand, consent, election, offer, approval,
request or other communication (collectively a "Notice'") required or permitted
under this Agreement must be in writing and either delivered personally, sent by
certified or registered mail, postage prepaid, return receipt requested or by
reputable overnight courier. A Notice must be addressed to an Interest Holder at
the Interest Holder's last known address on the records of the Company. A Notice
to the Company must be addressed to the Company's principal office. A Notice
delivered personally will be deemed given only when acknowledged in writing by
the Person to whom it is delivered. A Notice that is sent by mail will be deemed
given three (3) business days after it is mailed. A Notice that is sent by
overnight courier will be deemed given one (1) business day after it is
delivered to the overnight courier. Any party may designate, by Notice to all of
the others, substitute addresses or addressees for Notices; and, thereafter,
Notices are to be directed to those substitute addresses or addressees. Copies
of notices to (i) English Distribution shall be sent to ▇▇▇▇ ▇. ▇▇▇▇▇, Esq.,
▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ LLP, ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ and (ii)
Ckrush shall be sent to ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq., Greenbaum, Rowe, ▇▇▇▇▇ & ▇▇▇▇▇
LLP, ▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇.▇. ▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
9.3. Specific Performance. The Members recognize that irreparable injury
will result from a breach of any provision of this Agreement and that money
damages will be inadequate to fully remedy the injury. Accordingly, in the event
of a breach or threatened breach of one or more of the provisions of this
Agreement, any Member who may be injured shall be entitled to one or more
preliminary or permanent orders (i) restraining and enjoining any act which
would constitute a breach or (ii) compelling the performance of any obligation
which, if not performed, would constitute a breach.
9.4. Complete Agreement; Amendment. This Agreement constitutes the complete
and exclusive statement of the agreement among the Members. It supersedes all
prior written and oral statements, including any prior representation,
statement, condition or warranty. Except as expressly provided otherwise herein,
this Agreement may not be amended without the written consent of all of the
Members.
9.5. Applicable Law. All questions concerning the construction, validity
and interpretation of this Agreement and the performance of the obligations
imposed by this Agreement shall be governed by the internal law, not the law of
conflicts, of the State of Delaware.
9.6. Jurisdiction and Venue. Any suit involving any dispute or matter
arising under this Agreement may only be brought solely and exclusively in the
appropriate United States District Court in the Southern District of New York.
All Members hereby consent to the exercise of personal jurisdiction by any such
court with respect to any such proceeding. In the event of a dispute arising
over this Agreement, the prevailing party in said dispute shall be entitled to
payment of their reasonable attorney fees by the non-prevailing party.
20
9.7. Section Titles. The headings herein are inserted as a matter of
convenience only and do not define, limit, or describe the scope of this
Agreement or the intent of the provisions hereof.
9.8. Binding Provisions. This Agreement is binding upon, and to the limited
extent specifically provided herein inures to the benefit of, the parties hereto
and their respective heirs, executors, administrators, personal and legal
representatives, successors and permitted assigns.
9.9. Separability of Provisions. Each provision of this Agreement shall be
considered separable and if, for any reason, any provision or provisions herein
are determined to be invalid and contrary to any existing or future law, such
invalidity shall not impair the operation of or affect those portions of this
Agreement which are valid.
9.10. Counterparts; Facsimile. This Agreement may be executed
simultaneously in two or more counterparts, by facsimile, each of which shall be
deemed an original and all of which, when taken together, shall constitute one
and the same document. The signature of any party to any counterpart shall be
deemed a signature to, and may be appended to, any other counterpart.
9.11. Joinder of Additional Parties. When, and if, additional Members are
admitted as Members of the Company, whether through the issuance of additional
Interests or the Transfer of Interests, and the requisite number of Members
consent to admit such Transferee as a Member, as a condition precedent to such
issuance or Transfer, the recipient of each such issue or each Transferee to be
a Member shall sign a counterpart signature page to this Agreement in the form
attached as Exhibit D hereto and become a party to and be bound by this
Agreement as if such Person or entity were an original party to this Agreement.
Thereafter, this Agreement shall inure to the benefit of and be binding upon
such Person, his or her spouse and their respective successors, heirs and
permitted assigns.
IN WITNESS WHEREOF, the parties have executed, or caused this Agreement to
be executed on May 25, 2006 to be effective as of the date first set forth
hereinabove.
MANAGER AND MEMBER:
ENGLISH DISTRIBUTION, LLC
By: /s/ ▇▇▇▇▇▇▇ English
--------------------
▇▇▇▇▇▇▇ English
Its: Manager
MEMBER:
CKRUSH ENTERTAINMENT, INC.
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇
------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇
Its: President
21
EXHIBIT A
CKRUSH DISTRIBUTION, LLC
LIMITED LIABILITY COMPANY OPERATING AGREEMENT
COMMON MEMBER LIST
NAMES AND ADDRESSES OF MEMBERS HAVING COMMON MEMBERSHIP UNITS
NAME TAXPAYER ID ADDRESS
English Distribution, LLC ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Ckrush Entertainment, Inc. ▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇▇▇▇▇▇
Name, Contribution, Number of Units, Percentage and Date Admitted
NAME CONTRIBUTION NUMBER OF PERCENTAGE DATE
COMMON ADMITTED
UNITS
English $240,000.00 50 50% As of 1/1/06
Distribution,
LLC
Ckrush
Entertainment, $120,000.00 50 50% As of 1/1/06
Inc.