Exhibit 99.1
OPERATING AGREEMENT
OF
JAF-HLR, LLC
Dated as of June 25, 2002
TABLE OF CONTENTS
Page
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I. DEFINITIONS.....................................................................1
1.1 Definitions............................................................1
II. FORMATION; PURPOSES; TERM.......................................................3
2.1 Formation; Name; Office................................................3
2.2 Purposes...............................................................3
2.3 Duration...............................................................3
2.4 Designated Agent.......................................................3
2.5 Partnership Status.....................................................4
III. CAPITAL CONTRIBUTIONS...........................................................4
3.1 Initial Capital Contribution...........................................4
3.2 Additional Capital Contributions.......................................4
3.3 Capital Contributions as Consideration for Membership Interests........5
3.4 Uses of Capital Contributions..........................................5
3.5 Members' Liability.....................................................6
3.6 Withdrawal of Capital..................................................6
3.7 Source of Distributions................................................6
IV. TITLE TO THE PROPERTY OF THE COMPANY; DIRECTORS OF NCI;
VOTING OF NCI CAPITAL STOCK.....................................................6
4.1 Title to the Property of the Company...................................6
4.2 Directors of NCI.......................................................6
4.3 Voting of NCI Capital Stock............................................7
V. MANAGEMENT OF THE COMPANY; DEADLOCK RESOLUTION; MEETINGS OF MEMBERS.............7
5.1 Management of the Company..............................................7
5.2 Deadlock Resolution....................................................7
5.3 Meetings of Members....................................................9
5.4 Action by Written Consent Without a Meeting............................9
5.5 Conflicts of Interest..................................................9
5.6 Outside Interests.....................................................10
5.7 Bankruptcy, Disability or Death of JAF................................10
VI. NO COMPENSATION; EXPENSES; CONFIDENTIALITY; RESTRICTIVE COVENANTS
AND REPRESENTATIONS AND WARRANTIES.............................................10
6.1 No Compensation.......................................................10
6.2 Reimbursement of Expenses.............................................10
6.3 Confidentiality.......................................................10
6.4 Rights and Remedies Upon Breach of Restrictive Covenant...............11
6.5 Advance Notice of Termination of Employment...........................11
6.6 Representations and Warranties of the Members.........................12
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VII. ACCOUNTING PROVISIONS..........................................................13
7.1 Fiscal Year...........................................................13
7.2 Books and Accounts....................................................13
7.3 Financial Reports.....................................................14
7.4 Tax Elections.........................................................14
7.5 Tax Audits............................................................14
7.6 Expenses..............................................................15
VIII. RESTRICTIONS ON TRANSFERS OF MEMBERSHIP INTERESTS..............................16
8.1 General Restriction...................................................16
8.2 Call Right............................................................16
8.3 Right of First Refusal................................................17
8.4 Right to Compel Sale (Drag Along).....................................19
8.5 Further Limitations on Transfers of Membership Interests..............20
8.6 Effect of Transfer....................................................21
IX. DISTRIBUTIONS AND ALLOCATIONS..................................................21
9.1 Definitions...........................................................21
9.2 Distributions of Net Cash Flow........................................25
9.3 Allocation of Net Profits.............................................25
9.4 Allocation of Net Losses..............................................26
9.5 No Return of Distributions............................................26
9.6 Allocations between Assignor and Assignee Members.....................26
9.7 Tax Credits...........................................................26
9.8 Deficit Capital Accounts..............................................26
9.9 Further Allocation Rules..............................................26
9.10 Curative Allocations..................................................28
9.11 Loss Limitation.......................................................28
9.12 Other Allocation Rules................................................28
9.13 Code Section 704(c) Tax Allocations...................................29
9.14 Amounts Withheld......................................................29
X. LIQUIDATION AND TERMINATION OF THE COMPANY.....................................30
10.1 Termination of the Company............................................30
10.2 Liquidation and Winding-Up............................................31
10.3 Statements on Termination.............................................31
10.4 Priority on Liquidation...............................................31
10.5 Distribution of Non-Liquid Assets.....................................31
10.6 Orderly Liquidation...................................................32
10.7 Purchase of Assets by Member..........................................32
10.8 Articles of Dissolution...............................................32
XI. INDEMNIFICATION................................................................32
11.1 Exculpation...........................................................32
11.2 Claims................................................................32
11.3 Procedure.............................................................33
11.4 Members' Claims.......................................................33
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11.5 Expenses..............................................................34
11.6 Limitations on Indemnification........................................34
11.7 Member's Liability....................................................34
11.8 Non-Exclusive Provision...............................................34
11.9 Future Laws...........................................................34
XII. SPECIFIC PERFORMANCE...........................................................34
12.1 Specific Performance..................................................34
XIII. MISCELLANEOUS PROVISIONS.......................................................35
13.1 Governing Law.........................................................35
13.2 Consent To Jurisdiction...............................................35
13.3 Entire Agreement......................................................35
13.4 Notices...............................................................35
13.5 Captions..............................................................36
13.6 Pronouns..............................................................37
13.7 Execution.............................................................37
13.8 Amendments............................................................37
13.9 Binding Effect........................................................37
13.10 Waiver................................................................37
13.11 No Partition..........................................................37
13.12 Counterparts..........................................................37
13.13 Remedies..............................................................37
13.14 Severability..........................................................37
13.15 Further Assurances....................................................37
13.16 No Third Party Beneficiaries..........................................38
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OPERATING AGREEMENT
OF
JAF-HLR, LLC
A Delaware Limited Liability Company
OPERATING AGREEMENT of JAF-HLR, LLC dated as of June 25, 2002 ("Agreement")
among JAF-HLR, LLC, a Delaware limited liability company (the "Company"), ▇▇▇▇▇
▇. ▇▇▇▇▇▇▇▇▇▇▇, an individual with an address at c/o News Communications, Inc.,
14th Floor, ▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ("JAF"), and ▇▇▇▇▇▇▇▇▇ NCI
Holdings, LLC, a Delaware limited liability company with an address at ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ("▇▇▇▇▇▇▇▇▇" and together with JAF collectively
referred to as the "Members" and each individually as a "Member").
W I T N E S S E T H:
WHEREAS, on June 24, 2002 the Members caused the Company to be formed as a
Delaware limited liability company pursuant to the Limited Liability Company Act
of the State of Delaware, as amended (the "Act") and
WHEREAS, the Members and the Company desire to enter into this Agreement in
order to state the terms and conditions of the ongoing operation and management
of the Company;
NOW, THEREFORE, in consideration of the foregoing premises, the agreements
hereinafter contained and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto intending to be
legally bound, hereby agree as follows:
I. DEFINITIONS
1.1 Definitions. Unless the context otherwise requires, the terms
defined in this Article I shall, for the purposes of this Agreement, have the
meanings specified below.
"Affiliate" means, with respect to any specified Person, any other
Person that, directly or indirectly, controls, is controlled by, or is
under common control with, the specified Person. For purposes of this
definition, the term "control" as applied to any Person, means the
possession, directly or indirectly, of the power to direct or cause
the direction of the management of that Person, whether through
ownership of voting securities or otherwise.
"Business Day" means any day other than a Saturday, Sunday or a day
when banks in New York City are authorized or required by law to be
closed.
"Cause" means the removal of a NCI director because of such director's
(i) willful and continued failure substantially to perform his duties
with NCI in his established position; (ii) willful conduct which is
injurious to NCI or any of its subsidiaries, monetarily or otherwise;
(iii) conviction for, or guilty plea to, a felony or a crime involving
moral turpitude; (iv) abuse of illegal drugs or other
controlled substances or habitual intoxication or (v) willful breach
of the NCI Stockholders' Agreement.
"Direct Lineal Descendant" means the descendants of JAF.
"Disability" means, and JAF shall be deemed "Disabled" if, (i) the
medical doctor attending JAF shall state in a writing signed by him
(the "Initial Certification") addressed to ▇▇▇▇▇▇▇▇▇, NCI and the
Company that the mental condition (the "Mental Condition") of JAF is
that he does not possess the mental faculties necessary for him to
participate in the management of NCI and that the Mental Condition, to
the best of such medical doctor's knowledge, is expected to continue
for an indefinite, long-term period of time or until the death of JAF
and (ii) such medical doctor shall within thirty (30) days after the
ninetieth (90th) day following the date of the Initial Certification
state in a writing signed by him addressed to ▇▇▇▇▇▇▇▇▇, NCI and the
Company (the date of such certification being deemed to be the date on
which the Disability occurred) that, to the best of his knowledge, the
Mental Condition (A) has persisted on a continuous basis since the
date of the Initial Certification and (B) is expected to continue for
an indefinite, long-term period of time or until the death of JAF. The
fact that JAF may be physically disabled, in whole or in part, shall
be of no consequence in determining the Disability of JAF unless such
physical disability by its nature (e.g., coma) also impairs the Mental
Condition of JAF to the extent contemplated by clause (i) above.
"Encumbrance" means, with respect to the Membership Interest of either
Member, any security interest, pledge, mortgage, lien (including,
without limitation, environmental and tax liens), charge, encumbrance,
adverse claim, preferential arrangement or restriction of any kind,
including, without limitation, any restriction on the use, voting,
transfer, receipt of income or other exercise of any attributes of
ownership.
"NCI" means News Communications, Inc., a Nevada corporation, and its
successors.
"NCI Stockholders' Agreement" means that certain Stockholders'
Agreement dated May 8, 2001 by and among ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇, The
▇▇▇▇▇▇▇▇▇▇▇ Foundation, Inc., ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇. ▇▇▇▇,
▇▇., ▇▇▇▇▇▇ ▇. ▇▇▇▇▇, M&B ▇▇▇▇▇ Family Partnership, J. ▇▇▇▇▇▇ ▇▇▇▇▇,
▇.▇. ▇▇▇▇▇ Investment Banking Corp., Rivkalex Corporation, ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇ and JAF.
"Permitted Transferee" means (i) in the case of ▇▇▇▇▇▇▇▇▇, any
Affiliate of ▇▇▇▇▇▇▇▇▇ and (ii) in the case of JAF, either of the
following Persons to whom JAF makes a Transfer of all or any portion
of his Membership Interest: (A) a trust for the benefit of JAF's
spouse and/or one or more Direct Lineal Descendants; provided, that
JAF (1) is the sole trustee of such trust and (2) has the sole voting,
investment and management powers with respect to the Membership
Interest (or
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portion thereof) that makes up all or any part of the corpus of such
trust or (B) a Person in which JAF (1) is a principal or director and
(2) has an equity interest.
"Person" means any individual, partnership, firm, corporation, limited
liability company, association, trust, unincorporated organization or
other entity, as well as any syndicate or group that would be deemed
to be a person under Section 13(d)(3) of the Securities Exchange Act
of 1934, as amended.
"Related Party" has the meaning ascribed to such term in Section 11.1.
"Third Party" means any Person other than any Affiliate of either
Member.
"Transfer" means any sale, assignment, transfer, distribution or other
disposition of all or any portion of a Membership Interest, whether
voluntary or by operation of law.
II. FORMATION; PURPOSES; TERM
2.1 Formation; Name; Office. The Company has been organized and formed
under and pursuant to the Act, to be conducted under the name JAF-HLR, LLC or
such other name as the Members shall determine. The primary business office of
the Company shall be located at such place as the Members may from time to time
designate.
2.2 Purposes. The purposes for which the Company has been formed are:
(a) To acquire, hold and vote equity securities issued by NCI;
(b) To negotiate, execute and enter into and perform any and all
contracts and agreements necessary for, or otherwise related to, the Company's
business;
(c) To accomplish any lawful business whatsoever or which shall
at any time appear conducive to, or expedient for, the protection or benefit of
the Company or its assets and
(d) To engage in any and all lawful acts or activities for which
limited liability companies may be formed under the Act and which are necessary,
customary, convenient or incident to any of the foregoing.
2.3 Duration. The term of existence of the Company commenced on the
date of the filing of its Articles of Organization (the "Articles") with the
Secretary of State of New York and shall be perpetual, unless the Company is
earlier dissolved in accordance with either the terms and conditions of this
Agreement or the Act (the "Term").
2.4 Designated Agent. The designated agent of the Company upon whom
process against the Company may be served shall be set forth in the Articles or
in any amendment thereto. The designated agent may be changed from time to time
by the Members in accordance with the Act. If the Company's designated agent
shall ever resign, then the Members shall promptly appoint a successor in
accordance with the Act.
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2.5 Partnership Status. The Members intend that the Company shall be
treated as a partnership for United States federal, state and local tax purposes
to the extent such treatment is available, and shall take (or refrain from
taking) such actions as may be necessary to receive and maintain such treatment
and refrain from taking any actions inconsistent therewith.
III. CAPITAL CONTRIBUTIONS
3.1 Initial Capital Contribution. Within seven (7) Business Days
following the date of this Agreement, (i) JAF shall transfer to the Company as a
capital contribution all of his right, title and interest in and to the equity
securities of NCI listed on Schedule A annexed hereto pursuant to an Assignment
Agreement dated as of the date hereof by and between JAF and the Company and
such other documents and instruments as may be required to effect such transfer
and (ii) ▇▇▇▇▇▇▇▇▇ shall make a cash contribution to the capital of the Company
in the amount of One Million Two Hundred Fifty Thousand Dollars ($1,250,000)
(collectively, the "Initial Capital Contributions").
3.2 Additional Capital Contributions.
(a) Commencing with the calendar year 2003 and continuing with
respect to each subsequent calendar year included within the Term, each Member
shall have the right (the "Contribution Right") to require that concurrent cash
contributions (the "Additional Cash Capital Contributions") of up to Five
Thousand Dollars ($5,000) each be made by the Members to the capital of the
Company. With respect to each such calendar year, (i) if the first Member to
exercise the Contribution Right exercises such right in the amount of Five
Thousand Dollars ($5,000), then the Contribution Right of the other Member (but
not his or its contribution obligation hereunder) shall automatically terminate
and (ii) if the first Member to exercise the Contribution Right exercises such
right in an amount less than Five Thousand Dollars ($5,000), then the amount
subject to the Contribution Right of the other Member (but not his or its
contribution obligation hereunder) shall automatically be reduced by the amount
covered by the Contribution Right so exercised. Under no circumstances shall
either Member be required to contribute more than Five Thousand Dollars ($5,000)
in the aggregate to the capital of the Company in any calendar year whether by
reason of Contribution Right exercises or otherwise. In connection with each
permitted Contribution Right exercise, the Member exercising such right shall
send written notice ("Contribution Notice") of such exercise and the dollar
amount required to be contributed to the other Member. Each Member shall make
the cash contribution set forth in each Contribution Notice within three (3)
Business Days following the date of delivery of such notice. Time shall be of
the essence for purposes of this Section 3.2(a).
(b) If either Member (a "Non-Contributing Member") fails to
timely make a required Additional Cash Capital Contribution and the other Member
(the "Contributing Member") has timely made his or its corresponding Additional
Cash Capital Contribution, the Contributing Member shall have the right, but not
the obligation, to advance directly to the Company as a loan (a "Contribution
Loan") the amount of the Additional Cash Capital Contribution not made by the
Non-Contributing Member. Each Contribution Loan shall bear interest at a rate
per annum equal to the lesser of (i) fifteen percent (15%) or (ii) the maximum
rate permitted by applicable law. Each Contribution Loan shall be repaid (first
as to interest and
4
then as to principal, until fully repaid) to the Contributing Member in
accordance with Section 9.2.
(c) JAF shall also contribute to the capital of the Company all
additional shares of NCI capital stock and other equity securities of NCI issued
to JAF from time to time after the date of this Agreement in the form of
compensation, which when aggregated with all other prior issuances of additional
shares of NCI capital stock and other equity securities of NCI after the date of
this Agreement, exceeds five percent (5%) of NCI's then issued and outstanding
equity securities on a fully diluted basis, unless ▇▇▇▇▇▇▇▇▇ shall have waived
JAF's obligation to make such contribution in writing. Such shares and other
equity securities shall be contributed by JAF promptly following the issuance
thereof (but in any event no later than two (2) Business Days after such
issuance). In connection with each contribution of shares of NCI capital stock
or other equity securities of NCI pursuant to this Section 2.2(c), JAF shall
execute, endorse and deliver all documents and instruments (including, without
limitation, stock powers) as shall be necessary to transfer all of JAF's right,
title and interest in and to such NCI securities to the Company. ▇▇▇▇▇▇▇▇▇
hereby acknowledges and confirms that JAF shall have no obligation to contribute
any option granted to JAF (or the securities received upon exercise thereof) by
NCI in the ordinary course as part of a customary compensation package. The
capital contribution covered by this Section 2.2(c) together with the Initial
Capital Contributions and the Additional Cash Capital Contributions are
hereinafter collectively referred to as the "Capital Contributions."
3.3 Capital Contributions as Consideration for Membership Interests.
(a) In consideration for the Capital Contributions made, and to be
made, by the Members to Company, the Company hereby issues as of the date of
this Agreement a membership interest ("Membership Interest") in the Company to
each Member. Subject to the satisfaction of the ▇▇▇▇▇▇▇▇▇ Priority Return Amount
(as such term is defined in Section 9.1(g)), the percentage interest
("Percentage of Membership Interest") of each Member in the total capital of the
Company shall initially be fifty percent (50%), as the same may be adjusted from
time to time in accordance with this Agreement. No Member shall receive any
interest on his or its Capital Contributions to the Company.
(b) If the Membership Interest and Percentage of Membership
Interest of either Member is changed in accordance with the terms and conditions
of this Agreement during any calendar year included within the Term, then the
amounts of all items to be credited, charged or distributed to the Members for
the entire calendar year in accordance with their respective Membership
Interests and Percentages of Membership Interests shall be allocated to the
portion of such calendar year which precedes the date of such change (and if
there shall have been a prior change in such calendar year, which commences on
the date of such prior change) and to the portion of such calendar year which
occurs on and after the date of such change (and if there shall be a subsequent
change in such calendar year, which precedes the date of such subsequent
change), in proportion to the number of days in such portion of said calendar
year, and the amounts of the items so allocated to each such portion shall be
credited, charged or distributed to the Members in proportion to their
respective Membership Interests and Percentages of Membership Interests during
each such portion of the calendar year in question.
3.4 Uses of Capital Contributions.
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(a) The Initial Capital Contribution made by ▇▇▇▇▇▇▇▇▇ shall be
used to fund the distribution to JAF required to be made by the Company pursuant
to Section 9.2(a).
(b) The Additional Cash Capital Contributions shall be used for
ongoing operational and other business-related expenses of the Company.
3.5 Members' Liability.
(a) All debts, obligations and liabilities of the Company, whether
arising in contract, tort or otherwise, shall be solely the debts, obligations
and liabilities of the Company, and no Member shall be obligated personally for
any such debt, obligation or liability of the Company solely by reason of being
a Member.
(b) Except as otherwise expressly required by the Act or other
applicable law, a Member shall not have any liability in excess of the amount of
such Member's Capital Contributions to the Company.
3.6 Withdrawal of Capital. Except as otherwise provided for in Section
9.2, no Member shall have the right to withdraw any part of such Member's
capital contributions prior to the liquidation and termination of the Company
pursuant to Article X, unless such withdrawal has been agreed to by the other
Member.
3.7 Source of Distributions. No Member or other Related Party shall be
personally liable for the return of the Capital Contributions of the other
Member, or any portion thereof; it being hereby expressly acknowledged and
confirmed by the Members that any such return shall be made solely from the
Company's assets.
IV. TITLE TO THE PROPERTY OF THE COMPANY; DIRECTORS OF NCI; VOTING OF NCI
CAPITAL STOCK
4.1 Title to the Property of the Company. Title to any and all
property, real, personal or mixed, owned by, or leased to, the Company shall be
held in the name of the Company, or in the name of any nominee which the Members
may designate.
4.2 Directors of NCI. Notwithstanding the terms and conditions of
Section 5.1, during the Term, for so long as JAF has the right under the NCI
Stockholders' Agreement to designate four (4) nominees to NCI's board of
directors, JAF hereby irrevocably agrees to exercise his rights under such
agreement to designate as two (2) of such four (4) nominees, two (2) nominees
designated by ▇▇▇▇▇▇▇▇▇; provided, however, that if JAF shall cease to serve as
the President of NCI for any reason, then JAF hereby irrevocably agrees to
exercise his rights under the NCI Stockholders' Agreement to designate as three
(3) of such four (4) nominees, three (3) nominees designated by ▇▇▇▇▇▇▇▇▇. JAF
shall not consent or agree to any amendment, modification, supplement or
restatement (in whole or in part) of the NCI Stockholders' Agreement without the
prior written consent of ▇▇▇▇▇▇▇▇▇ (which consent may be withheld or granted by
▇▇▇▇▇▇▇▇▇ in its sole and absolute discretion). JAF hereby acknowledges and
confirms that the rights of ▇▇▇▇▇▇▇▇▇ under this Section 4.2 constitute a
material inducement for ▇▇▇▇▇▇▇▇▇ having entered into the Agreement and that
such rights therefore are coupled with an interest.
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4.3 Voting of NCI Capital Stock.
(a) Notwithstanding the terms and conditions of Section 5.1, each
Member shall have the right to direct the Company's vote or consent with respect
to fifty percent (50%) of the voting capital stock of NCI held from time to time
by the Company. Except as otherwise provided in Sections 4.3(b), 4.3(c) and
4.3(d), such right shall be exercisable by each Member in his or its sole and
absolute discretion.
(b) With respect to the shares ("Voting Shares") of voting NCI
capital stock as to which he or it has the right to direct the Company's vote or
consent, each Member shall direct the Company to vote, or execute consents with
respect to, such Voting Shares so as to elect, as directors of NCI, the nominees
that the other Member has the right to designate under Section 4.2.
(c) If at any time a vote is taken, or a consent is sought, for
the removal of one or more directors of NCI, each Member shall not direct the
Company to vote, or execute a consent with respect to, his or its Voting Shares
in favor of the removal of any director who shall have been designated pursuant
to Section 4.2 unless such removal shall be for Cause or the Member entitled to
designate such director shall have consented to such removal in writing,
provided that if the Member entitled to designate such director shall request
the removal, with or without Cause, of such director in writing, then the other
Member shall direct the Company to vote, or execute a consent with respect to,
his or its Voting Shares in favor of such removal.
(d) If a vacancy shall exist on the NCI board of directors as a
result of death, disability, retirement, resignation, removal (with or without
Cause) or otherwise of a director designated pursuant to Section 4.2, then:
(i) the Member entitled to designate such director whose
death, disability, retirement, resignation or removal resulted in such vacancy,
may designate another individual (the "Nominee") to fill such vacancy and serve
as a director of NCI and
(ii) the provisions of Section 4.3(b) shall be applicable with
respect to the election of the Nominee to the NCI board of directors.
V. MANAGEMENT OF THE COMPANY; DEADLOCK RESOLUTION; MEETINGS OF MEMBERS
5.1 Management of the Company. Except as otherwise provided in
Sections 4.2 and 4.3, any and all decisions concerning the business and affairs
of the Company shall be made on a joint basis by the Members. The Members shall
have full power and authority to manage, direct, conduct, operate and otherwise
do any and all things necessary or convenient to carry out the business and
affairs of the Company.
5.2 Deadlock Resolution.
(a) In the event the Members are unable to unanimously agree as
required by Section 5.1 to take or not take a certain action concerning the
business and affairs of
7
the Company (a "Deadlock"), either Member shall have the right to provide to the
other Member a written notice describing in reasonable detail the nature of the
Deadlock and the outcome such Member desires. Following the delivery of the
notice provided for in the immediately preceding sentence, the Members shall
negotiate in good faith to resolve the Deadlock. If the Members are unable to
resolve the Deadlock within fifteen (15) days or a mutually-agreed upon longer
or shorter period of time (the "Negotiation Period"), then the Members shall
follow the procedures set forth in Section 5.2(b) through 5.2(e) to resolve the
Deadlock.
(b) In the event that the Members are unable to timely resolve the
Deadlock pursuant to Section 5.2(a), the Members shall, within three (3)
Business Days following the expiration of the Negotiation Period, attempt to
resolve the Deadlock by submitting to non-binding mediation in accordance with
the Model Procedures for the Mediation of Business Disputes promulgated by the
Center for Public Resources ("CPR") then in effect, except where those
procedures conflict with the terms and conditions of this Section 5.2(b), in
which case the latter shall control. The mediation shall be conducted in the
Borough of Manhattan in New York, New York and shall be attended by JAF and a
senior executive of ▇▇▇▇▇▇▇▇▇. The mediator shall be a Federal or New York
Supreme Court or Appellate Division judge, former Federal or New York Supreme
Court or Appellate Division judge or an individual experienced, to the extent
possible, in mediating news reporting business or political trade publishing
disputes and appointed from the list of neutrals maintained by CPR. Following
their submission to non-binding mediation, the Members shall promptly confer in
an effort to select a mediator by mutual agreement. In the absence of such an
agreement, the mediator shall be selected from a list generated by CPR with each
of the Members having the right to exercise challenges for cause and two (2)
peremptory challenges within three (3) Business Days after receiving the CPR
list. The mediator shall confer with the Members to design procedures to
conclude the mediation within no more than ten (10) days after initiation. In
the event that an arbitration hearing is commenced pursuant to Section 5.3(c),
no statements or offers (written, electronic, verbal or otherwise) made by
either Member during the mediation may be used by the other in such arbitration
hearing or in any litigation.
(c) In the event that the Members are unable to timely resolve the
Deadlock pursuant to Section 5.3(b), the Members shall, within five (5) Business
Days following the expiration of the mediation period set forth in Section
5.3(b), resolve the Deadlock by submitting to binding arbitration pursuant to
the Rules of the American Arbitration Association for Commercial Arbitration
then in effect, except where those rules conflict with the terms and conditions
of this Section 5.3(c), Section 5.3(d) or Section 5.3(e), in which case such
Sections shall control. Concurrently with its submission to arbitration, each of
the Members shall (i) select an arbitrator (each a "Designated Arbitrator") who
is unaffiliated with such party and, to the extent possible, experienced in
arbitrating news reporting business or political trade publishing disputes and
(ii) notify the other in writing of the identity of the arbitrator so selected.
In the event that either Member shall fail to timely select its Designated
Arbitrator, such Designated Arbitrator shall be selected by the office of the
American Arbitration Association (or any successor thereto) located in the
Borough of Manhattan in New York, New York. The Designated Arbitrators shall,
within five (5) Business Days following their selection, select a third
arbitrator (the "Third Arbitrator" and collectively with the Designated
Arbitrators, the "Arbitrators"). If the Designated Arbitrators are unable to
agree on the Third Arbitrator within such five (5)-Business Day-period, then the
Third Arbitrator shall be selected by the office of the
8
American Arbitration Association (or any successor thereto) located in the
Borough of Manhattan in New York, New York. Each of the Members shall pay the
fees and expenses of the Designated Arbitrator selected by it. The fees and
expenses of the Third Arbitrator shall be borne equally by the Members.
(d) The arbitration hearing shall be conducted in the Borough of
Manhattan in New York, New York and conclude no later than thirty (30) days
after the date on which the Third Arbitrator is selected pursuant to Section
5.3(c). The Arbitrators shall set a date for the arbitration hearing; make
determinations based solely on the documents and other evidence presented at the
arbitration hearing; commit to the rendering of a decision regarding the
Deadlock within ten (10) Business Days after the conclusion of the arbitration
hearing (the date on which such arbitration hearing concludes being hereinafter
referred to as the "Conclusion Date") and provide discovery according to the
time limits specified herein, giving recognition to the understanding of the
Members that they contemplate reasonable discovery, including document demands
and depositions, but that such discovery be limited so that the time limits
specified herein may be met without undue difficulty. In no event shall the
Arbitrators allow either Member to obtain more than a total of fifteen (15)
hours of deposition testimony from all witnesses, including both fact and expert
witnesses. In the event multiple hearing days are required, they shall be
scheduled consecutively to the greatest extent possible.
(e) The Arbitrators shall, within ten (10) Business Days after the
Conclusion Date, render a written opinion (the "Opinion") of their decision
regarding the Deadlock to each of the Members which shall set forth in
reasonable detail the grounds upon which such decision is based. The decision
contained in the Opinion shall be final and binding on the Members. Neither
Member may apply to any court to vacate, modify or appeal the Opinion, but may
apply to an appropriate court solely for the purpose, if necessary, of enforcing
the Opinion. Notwithstanding the foregoing, either Member may seek to vacate or
modify the Opinion solely on the grounds of corruption, fraud or miscalculation
of figures.
5.3 Meetings of Members. The Members shall hold regular meetings at
least once each calendar quarter at such time and place as they shall determine.
Special meetings of the Members may be called at any time by either Member. The
Member calling a special meeting shall provide the other Member with written
notice of the time, place and purpose(s) of such meeting. No special meeting of
Members shall be held less than three (3) Business Days nor more than fifteen
(15) Business Days after notice thereof; provided, however, that each Member
may, with respect to himself or itself, waive the notice requirements set forth
herein. The Members may participate in regular and special meetings of the
Members either in person or by means of telephone, video conference or such
other communication device that permits all persons participating in such
meeting to hear each other.
5.4 Action by Written Consent Without a Meeting. Any action required
or permitted to be taken at any meeting of the Members (whether regular or
special) may be taken without a meeting, without prior notice and without a
vote, if a written consent setting forth the action so taken is signed and dated
by each Member.
5.5 Conflicts of Interest. The fact that a Member or any Related Party
of such Member is directly or indirectly interested in, or connected with, any
Person employed by the
9
Company or from whom the Company may buy property or contract services, shall
not prohibit the Company from employing, purchasing from, selling to or
otherwise dealing with, such Person provided that the (i) compensation, price or
fee charged to or received by the Company therefor is comparable and competitive
with the compensation, price or fee that would be paid to or paid by an
unaffiliated Person and (ii) existence of such relationship is disclosed to the
other Member.
5.6 Outside Interests. Each Member may engage in, invest in,
participate in or otherwise enter into other business ventures of any kind,
nature and description, alone or with others, and neither the Company nor the
other Member shall have any right in or to any such activities or the income or
profits derived therefrom or the rights, properties or assets thereof.
5.7 Bankruptcy, Disability or Death of JAF. Subject to Section
10.1(a)(iii), the bankruptcy, Disability or death of JAF shall not cause a
dissolution of the Company, but the rights of JAF to share in the profits and
losses of the Company and to receive distributions of Company funds shall, on
the happening of such an event, devolve upon his trustee, guardian, or legal
representative or executor, as the case may be, subject to the terms and
conditions of this Agreement.
VI. NO COMPENSATION; EXPENSES; CONFIDENTIALITY; RESTRICTIVE COVENANTS AND
REPRESENTATIONS AND WARRANTIES
6.1 No Compensation. Each Member hereby acknowledges and confirms that
such Member shall not be entitled to any fee, salary, bonus or other
compensation payments in respect of any services performed by such Member on
behalf of the Company; it being hereby acknowledged and confirmed by the Members
that they intend that the distributions provided for in Section 9.2 to be in
full and complete satisfaction of any services performed by either Member on
behalf of the Company.
6.2 Reimbursement of Expenses. The Company shall reimburse each Member
for reasonable business expenses incurred in connection with such Member's
activities conducted on behalf of the Company; provided, however, that prior to
reimbursing either Member for such reasonable business expenses, such Member
shall submit to the Company and the other Member receipts and any other
reasonably requested documentation to verify such expenses and provided,
further, however, that before any Member shall incur any expense on behalf of
the Company in excess of Five Hundred Dollars ($500), such Member shall obtain
the prior approval of the other Member before incurring such expense.
6.3 Confidentiality.
(a) Each Member, on behalf of himself or itself and his or its
Affiliates, hereby covenants to the Company, NCI and the other Member that such
Member and such Member's Affiliates shall retain in strict confidence, and shall
not use for any purpose whatsoever, or divulge, disseminate or disclose to any
third party (other than in furtherance of the business purposes of the Company
or NCI as may be required by law) all proprietary or confidential information
relating to the Company's or NCI's business, including, without limitation,
technical information, financial information, development plans, pricing
information, business methods, management information systems and software,
customer lists, supplier lists,
10
leads, solicitations and contacts, know-how, show-how, ideas, concepts, designs,
methods, projects, strategies, inventions, techniques, improvements,
specifications, trade secrets, agreements, research and development, business
plans, and marketing plans of the Company or NCI (all of such information being
hereinafter referred to as "Confidential Information"), whether or not any of
the foregoing are copyrightable or patentable.
(b) If at any time either Member or any of his or its Affiliates
is requested or required (by oral questions, interrogatories, requests for
information or documents, subpoenas or similar legal process) to disclose any
Confidential Information, such Member shall notify the Company, NCI and the
other Member immediately and shall refrain, or cause such Affiliate to refrain,
from making such disclosure so that the Company, NCI or the other Member may, at
his or its own expense, seek an appropriate protective order and/or waive
compliance with the provisions hereof. If, in the absence of a protective order
or the receipt of a waiver hereunder, in the opinion of such Member's counsel,
such Member or his or its Affiliate is compelled to disclose such information to
any tribunal or any governmental agency to avoid being liable for contempt or
suffering any other penalty, sanction or expense, such Member or his or its
Affiliate may disclose such information to such tribunal or agency without
liability hereunder.
(c) Except as provide below, no disclosure of the existence of
this Agreement, this Agreement, the transactions contemplated hereunder or any
of the terms and conditions hereof shall be made by either Member without the
prior written consent of the other Member. Notwithstanding the foregoing, each
Member may make such disclosure to (i) the extent required by any court order,
law, or rule or regulation of any agency or self-regulatory entity having or
asserting jurisdiction including, without limitation, the Commission; (ii) the
extent necessary in order to protect his or its rights in the event of a default
under, or breach of, this Agreement by the other Member and (iii) his or its
professional advisors, attorneys and auditors.
(d) The provisions of this Section 6.3 shall survive and continue
to bind each Member notwithstanding such Member ceasing to be a Member of the
Company.
6.4 Rights and Remedies Upon Breach of Restrictive Covenant. If either
Member or any of his or its Affiliates breaches, or threatens to commit a breach
of, Section 6.3 (the "Restrictive Covenant"), then each of the non-breaching
Member, the Company and NCI shall have the right and remedy to have the
Restrictive Covenant specifically enforced, without the necessity of posting a
bond or proving special damages, by any court having equity jurisdiction; it
being hereby acknowledged and confirmed by the Members that any such breach or
threatened breach will cause irreparable injury to the non-breaching Member, the
Company and NCI and that money damages will not provide an adequate remedy. The
foregoing right and remedy shall be in addition to, and not in lieu or
limitation of, any other rights and remedies that are available to the
non-breaching Member and NCI at law or in equity.
6.5 Advance Notice of Termination of Employment. In the event that JAF
shall elect to voluntarily terminate his employment with NCI, JAF hereby
covenants that he will provide ▇▇▇▇▇▇▇▇▇ with at least sixty (60)-days' advance
written notice of the effective date of such termination.
11
6.6 Representations and Warranties of the Members.
(a) JAF represents and warrants to each of ▇▇▇▇▇▇▇▇▇ and the
Company as of the date of this Agreement that (i) he has all necessary power and
authority to enter into this Agreement, to carry out his obligations hereunder
and to consummate the transactions contemplated hereby; (ii) the execution and
delivery of this Agreement by him, the performance by him of his obligations
hereunder and the consummation by him of the transactions contemplated hereby do
not contravene or otherwise conflict with any agreement (except, if applicable,
for (A) the NCI Stockholders' Agreement and (B) that certain letter agreement
dated May 8, 2001 among NCI, the signatories to the NCI Stockholders' Agreement
and the holders of NCI's $10 Convertible Preferred Stock), document, instrument,
permit, license, order, writ, injunction or decree, to which JAF is a party or
pursuant to which his assets are subject; (iii) there is no consent or approval
of, or filing or notification to, any governmental authority or any other Person
which is required to be made or obtained by JAF to consummate the transactions
contemplated hereby; (iv) this Agreement has been duly executed and delivered by
JAF and, assuming due authorization, execution and delivery by ▇▇▇▇▇▇▇▇▇, this
Agreement constitutes a legal, valid and binding obligation of JAF enforceable
against JAF in accordance with its terms; (v) the NCI equity securities listed
on Schedule A annexed hereto are owned beneficially (as such term is defined in
Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as amended)
and of record solely by JAF free and clear of all Encumbrances; (vi) the NCI
equity securities listed on Schedule A annexed hereto constitute all of the
equity securities of NCI beneficially owned or of record by JAF; (vii) NCI has
properly and timely filed with the Securities and Exchange Commission (the
"Commission") all reports, proxy statements, forms and other documents required
to be filed with the Commission under the Securities Act of 1933, as amended,
and the Securities Exchange Act of 1934, as amended, since July 1, 2001 and
(viii) as of the time of its filing with the Commission, each of the NCI's
annual report on Form 10-KSB for the year ended December 31, 2001 and quarterly
report for the quarter ended March 31, 2002 (A) complied in all material
respects with the requirements of the Securities Act of 1933, as amended, and
the Securities Exchange Act of 1934, as amended, as the case may be, and the
rules and regulations of the Commission promulgated thereunder applicable to
such reports; (B) did not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading; (C) contained financial statements of NCI which
were (1) true and complete in all material respects and complied with applicable
accounting requirements and the published rules and regulations of the
Commission with respect thereto and (2) prepared in accordance with generally
accepted accounting principles in the United States ("GAAP") (except in the case
of unaudited statements) applied on a consistent basis during the periods
involved (except as may be indicated in the notes thereto) and fairly presented
the consolidated financial position of NCI and its subsidiaries as of the dates
thereof and the consolidated results of their operations and cash flows for the
periods then ended (subject, in the case of unaudited statements, to normal
year-end audit adjustments that in the aggregate are not material and to any
other adjustment described therein).
(b) ▇▇▇▇▇▇▇▇▇ represents and warrants to each of JAF and the Company
as of the date of this Agreement that (i) ▇▇▇▇▇▇▇▇▇ is a limited liability
company duly organized, validly existing and in good standing under the laws of
the State of Delaware; (ii) ▇▇▇▇▇▇▇▇▇ has all necessary power and authority to
enter into this Agreement, to carry out its obligations
12
hereunder and to consummate the transactions contemplated hereby; (iii) the
execution and delivery of this Agreement by ▇▇▇▇▇▇▇▇▇, the performance by
▇▇▇▇▇▇▇▇▇ of its obligations hereunder and the consummation by ▇▇▇▇▇▇▇▇▇ of the
transactions contemplated hereby: (A) have been duly authorized by all necessary
action on the part of ▇▇▇▇▇▇▇▇▇, and no other proceedings on the part of
▇▇▇▇▇▇▇▇▇ are necessary to authorize this Agreement or to consummate the
transactions contemplated hereby and (B) do not contravene or otherwise conflict
with any agreement, document, instrument, permit, license, order, writ,
injunction or decree, to which ▇▇▇▇▇▇▇▇▇ is a party or by which ▇▇▇▇▇▇▇▇▇'▇
assets are subject; (iv) there is no consent or approval of, or filing or
notification to, any governmental authority or any other Person which is
required to be made or obtained by ▇▇▇▇▇▇▇▇▇ to consummate the transactions
contemplated hereby and (v) this Agreement has been duly executed and delivered
by ▇▇▇▇▇▇▇▇▇ and, assuming due authorization, execution and delivery by JAF,
this Agreement constitutes a legal, valid and binding obligation of ▇▇▇▇▇▇▇▇▇
enforceable against ▇▇▇▇▇▇▇▇▇ in accordance with its terms.
(c) Each Member represents and warrants to the other that he or it
(i) understands that the Membership Interests, as an investment, involve a high
degree of risk; (ii) understands that there is no market for the Membership
Interests and that it may not be possible to readily liquidate the Membership
Interests at any time; (iii) has acquired his or its Membership Interest for his
or its own account; for investment and not with a view to the distribution or
resale thereof; (iv) understands that the Membership Interests have not been
registered under the Securities Act of 1933, as amended, or any applicable
securities or "Blue Sky" law of any state or other jurisdiction and may not be
sold without (A) registration under such laws or an exemption therefrom and (B)
compliance with the terms and conditions of this Agreement; (v) is able to bear
the economic risk of his or its investment in the Company and is able to hold
his or its Membership Interest for an indefinite period of time and (vi) has
such knowledge and experience in financial or business matters that he or it is
capable of evaluating the merits and risks of his or its investment in the
Company.
VII. ACCOUNTING PROVISIONS
7.1 Fiscal Year. The fiscal and taxable year of the Company shall be
the calendar year, unless the Members designate a different year.
7.2 Books and Accounts.
(a) Complete and accurate books and accounts shall be kept and
maintained for the Company at the principal place of business of the Company or
at such other place as designated by the Members. Such books and accounts shall
be kept on the cash or accrual basis, as the Members may select (which, once
selected, shall be used for all succeeding years) in accordance with generally
accepted accounting principles and practices and shall include separate accounts
for each Member. A list of the names and addresses of the Members shall be
maintained as part of the books and records of the Company. Each Member or his
duly authorized representative, at his or its own expense, shall at all
reasonable times have access to, and may inspect and make copies of, such books
and accounts and any other records of the Company.
13
(b) All funds received by the Company shall be deposited in the
name of the Company in such bank account or accounts as the Members may
designate from time to time, and withdrawals therefrom shall be made upon the
signature of the Members or such other authorized signatory on behalf of the
Company as the Members may designate from time to time. All deposits and other
funds not needed in the operation of the Company's business may, in the
discretion of the Members, be deposited in interest-bearing bank accounts or in
a money market fund, or invested in treasury bills, certificates of deposit,
and/or U.S. government security-backed repurchase agreements or similar
short-term money market instruments, or funds investing in any of the foregoing.
7.3 Financial Reports.
(a) The Company will report its operations for fiscal and tax
purposes on the cash or accrual basis as the Members shall select (which, once
selected, shall be used for all succeeding years). The Members shall use their
respective best efforts to cause the Company to provide each Member on or about
March 1st of each year, with financial statements including a balance sheet and
the related statements of income and changes in Company capital and changes in
financial position for the prior year.
(b) The Members shall cause to be prepared after the end of each
taxable year of the Company and filed, on or before their respective due dates
(as the same may be extended), all federal and state income tax returns of the
Company for such taxable year and shall take all commercially reasonable action
as may be necessary to permit the Company's independent public accountant to
prepare and timely file such returns. Form 1065 (Schedule K-1) shall be sent to
each Member after the end of each taxable year reflecting the Member's pro rata
share of income, loss, credit and deductions for such taxable year.
7.4 Tax Elections. Unless the Members determine otherwise, the
Company, at the request of either Member, will make an election pursuant to the
provisions of Section 754 of the Internal Revenue Code of 1986, as amended (the
"Code"). Any other elections required or permitted to be made by the Company
under the Code shall be made by the Members.
7.5 Tax Audits.
(a) ▇▇▇▇▇▇▇▇▇ shall serve as the tax matters partner for the
Company (the "Tax Matters Partner"). Each Member by the execution hereof
consents to ▇▇▇▇▇▇▇▇▇ serving as the Tax Matters Partner and agrees to execute,
certify, acknowledge, deliver, swear to, file and record at the appropriate
public offices such documents as may be necessary or appropriate to evidence
such consent. To the extent and in the manner provided by applicable law and
regulations, the Tax Matters Partner shall furnish the name, address, profits
interest, and taxpayer identification number of each Member to the Secretary of
the Treasury or his delegate (the "Secretary"). The Tax Matters Partner shall
keep the Members informed of the administrative and judicial proceedings for the
adjustment at the Company level of any item required to be taken into account by
a Member for income tax purposes (such administrative proceedings referred to
hereinafter as a "tax audit") and such judicial proceeding referred to
hereinafter as "judicial review").
(b) The Tax Matters Partner is hereby authorized, but not
required:
14
(i) to enter into any settlement with the Internal Revenue
Service or the Secretary with respect to any tax audit or judicial review, in
which agreement the Tax Matters Partner may expressly state that such agreement
shall bind the Members, except that such settlement agreement shall not bind any
Member who (within the time prescribed pursuant to the Code and regulations
thereunder) files a statement with the Secretary providing that the Tax Matters
Partner shall not have the authority to enter into a settlement agreement on the
behalf of such Member;
(ii) in the event that a notice of a final partnership
administrative adjustment at the Company level of any item required to be taken
into account by a Member for tax purposes (a "final adjustment") is mailed to
the Tax Matters Partner, to seek judicial review of such final adjustment,
including the filing of a petition for readjustment with the Tax Court, the
District Court of the United States for the district in which the Company's
principal place of business is located, or the United States Court of Federal
Claims;
(iii) to intervene in any action brought by either Member for
judicial review of a final adjustment;
(iv) to file a request for an administrative adjustment with
the Secretary at any time and, if any part of such request is not allowed by the
Secretary, to file a petition for judicial review with respect to such request;
(v) to enter into an agreement with the Internal Revenue
Service to extend the period for assessing any tax which is attributable to any
item required to be taken into account by a Member for tax purposes, or an item
affected by such item and
(vi) to take any other action on behalf of the Members of the
Company in connection with any administrative or judicial tax proceeding to the
extent permitted by applicable law or regulations.
(c) The Company shall indemnify and reimburse the Tax Matters
Partner for all expenses, including legal and accounting fees, claims,
liabilities, losses, and damages incurred in connection with any administrative
or judicial proceeding with respect to the tax liability of the Members. The
payment of all such expenses shall be made before any distributions are made to
Members or any discretionary reserves are set aside by the Members. The taking
of any action and the incurring of any expense by the Tax Matters Partner in
connection with any such proceeding, except to the extent required by law, is a
matter in the sole discretion of the Tax Matters Partner and the provisions on
limitations of liability and indemnification set forth herein shall be fully
applicable to the Tax Matters Partner in its capacity as such.
(d) Anything herein to the contrary notwithstanding, the Tax
Matters Partner shall not make any decision binding on the Company in any
proceedings or negotiations with any taxing authority without the prior written
consent of the Members.
7.6 Expenses. To the extent practicable, all expenses of the Company
shall be billed directly to and be paid by the Company.
15
VIII. RESTRICTIONS ON TRANSFERS OF MEMBERSHIP INTERESTS
8.1 General Restriction.
(a) Neither Member shall, directly or indirectly, make or solicit
any Transfer of, or create, incur, suffer or assume any Encumbrance (unless such
Encumbrance has been approved in writing by the other Member (such approval not
to be unreasonably withheld, delayed or conditioned)) with respect to all or any
portion of his or its Membership Interest, except in compliance with the
Securities Act of 1933, as amended, and this Agreement.
(b) Each Member agrees that he or it will not, directly or
indirectly, make or solicit any Transfer of, or create, incur, solicit or assume
any Encumbrance (unless such Encumbrance has been approved in writing by the
other Member (such approval not to be unreasonably withheld, delayed or
conditioned)) with respect to, all or any portion of his or its Membership
Interest other than pursuant to a Transfer that is made in compliance with the
procedures, and subject to the limitations, set forth in this Article VIII.
Notwithstanding the foregoing, the restrictions set forth in this Article VIII
(other than as set forth in Section 8.5) shall not apply to any Transfer to a
Permitted Transferee, except that in all cases, no Transfer shall be made unless
such transferee agrees in a written instrument to be bound by the terms of this
Agreement as if such transferee were a signatory hereto.
(c) Any attempt to make a Transfer of a Membership Interest in
violation of Article VIII shall be null and void ab initio.
8.2 Call Right.
(a) At any time from and after the earliest to occur of
(i) eighteen (18) months after the date of this Agreement; (ii) the death or
Disability of JAF or (iii) JAF's voluntary termination of employment with NCI,
▇▇▇▇▇▇▇▇▇ shall have the right (the "Call Right") to cause JAF to sell to
▇▇▇▇▇▇▇▇▇ in accordance with Sections 8.2(b) and 8.2(c), all, but not less than
all, of JAF's Membership Interest (the "Purchased Interest") for a purchase
price (the "Call Price") equal to the greater of (y) One Million Eight Hundred
Thousand Dollars ($1,800,000) or (z) the "fair market value" of the Purchased
Interest, as such fair market value is determined in accordance with Section
8.2(c). In order for the Call Right to be exercised, ▇▇▇▇▇▇▇▇▇ must deliver a
written notice of exercise to JAF (or his legal representative) and the Company
within ninety (90) days following the occurrence of the event specified above
triggering such right. Upon the Company's receipt of such notice, it shall
initiate the procedures set forth in Section 8.2(c) to determine the fair market
value of the Purchased Interest.
(b) The closing (the "Call Closing") for the purchase and sale of
the Purchased Interest shall occur at the office of the Company at a time
(during its ordinary business hours) and date fixed by ▇▇▇▇▇▇▇▇▇ in writing to
JAF (or his legal representative) not more than thirty (30) days after the date
on which the fair market value of the Purchased Interest is determined. At the
Call Closing, ▇▇▇▇▇▇▇▇▇ shall pay to JAF (or his legal representative) the Call
Price (in cash or certified check drawn on a United States bank) and JAF (or his
legal representative) shall deliver an assignment agreement, in form and
substance acceptable to ▇▇▇▇▇▇▇▇▇, whereby JAF irrevocably Transfers the
Purchased Interest free and clear of all
16
Encumbrances and such other documents and instruments as may be required by
counsel for ▇▇▇▇▇▇▇▇▇.
(c) The fair market value of the Purchased Interest shall be
determined as follows:
(i) For a period of ten (10) Business Days following the
delivery of the exercise notice required under Section 8.2(b), ▇▇▇▇▇▇▇▇▇ and JAF
(or his legal representative) shall enter into good faith negotiations to
determine the fair market value of the Purchased Interest.
(ii) If, upon the expiration of such ten (10)-Business Day
period, ▇▇▇▇▇▇▇▇▇ and JAF (or his legal representative) have not agreed upon the
fair market value of the Purchased Interest, then ▇▇▇▇▇▇▇▇▇ shall be entitled to
select an unaffiliated, impartial and disinterested appraiser to determine the
fair market value of the Purchased Interest, provided that such appraiser so
selected by ▇▇▇▇▇▇▇▇▇ is a nationally recognized investment banking firm (such
Person so selected to determine the fair market value of the Purchased Interest
is hereinafter referred to as the "Appraiser"). The Appraiser shall be
instructed to make its determination of the fair market value of the Purchased
Interest within thirty (30) days. In making its determination of the fair market
value of the Purchased Interest, the Appraiser shall be required to take into
consideration, at a minimum, the specific attributes of the Purchased Interest
set forth in the terms and conditions of this Agreement. After reaching a
decision, the Appraiser shall give written notice to each of ▇▇▇▇▇▇▇▇▇ and JAF
(or his legal representative) of the fair market value of the Purchased
Interest. Such valuation and the determination of such value in accordance with
the terms and conditions hereof shall be final, binding and conclusive on JAF
(or his estate) and ▇▇▇▇▇▇▇▇▇.
(iii) Notwithstanding anything contained herein to the
contrary, ▇▇▇▇▇▇▇▇▇ and JAF (or his legal representative) may submit, and the
Appraiser shall consider, any information, data or documents related to the
operations or financial results of the Company or NCI to the Appraiser prior to
the Appraiser's final determination of the fair market value of the Purchased
Interest.
(iv) The fees and expenses of the Appraiser shall be paid
one-half by ▇▇▇▇▇▇▇▇▇ and one-half by JAF (or his estate).
(d) If the Call Right becomes exercisable by reason of JAF's death
or Disability and ▇▇▇▇▇▇▇▇▇ shall fail to timely deliver the exercise notice
required under Section 8.2(b), then JAF (or his legal representative), subject
to the terms and conditions of Section 8.3, shall have the right to Transfer his
Membership Interest.
8.3 Right of First Refusal.
(a) In the event that either Member (the "Offeror") receives a
bona fide written offer (the "Purchase Offer") to purchase for cash all or a
portion of the Offeror's Membership Interest (the "Subject Interest") from an
independent Third Party dealing at arm's length with the Offeror which the
Offeror desires to accept, the Offeror shall notify the Company and the other
Member in writing (the "Offer Notice") of the proposed Transfer, setting forth
the
17
Subject Interest, the price offered for the Subject Interest, the terms and
conditions of the Purchase Offer, the name and address of the proposed
transferee (the "Proposed Transferee") and stating that the Purchase Offer has
been made by the Proposed Transferee in good faith, in an arm's length
transaction, and that the Offeror intends to accept the Purchase Offer.
(b) The other Member shall have twenty (20) days from the receipt
of the Offer Notice to advise the Offeror and the Company in writing whether he
or it desires to purchase the Subject Interest. If the other Member shall timely
signify a desire to purchase the Subject Interest, the other Member shall have
the right and obligation to purchase all (but not less than all) of the Subject
Interest. The purchase price for the Subject Interest shall be the purchase
price contained in Purchase Offer.
(c) If the other Member does not timely signify a desire to
purchase the Subject Interest, the Subject Interest may be Transferred by the
Offeror to the Proposed Transferee within ninety (90) days after the other
Member's receipt of the Offer Notice; provided that the Subject Interest is only
Transferred upon the terms set forth in the Purchase Offer and in the Offer
Notice to the Company and the other Member and provided, further, that the
Proposed Transferee shall agree in writing to be bound by the terms of, and
become a party to, this Agreement. After the expiration of such ninety (90)-day
period, the right of the Offeror to Transfer the Subject Interest shall
terminate and the above procedures relative to offering the Subject Interest to
the other Member must be repeated before a Transfer can be made.
(d) If the other Member has elected to purchase the Subject
Interest pursuant to Section 8.3(b), the Transfer of the Subject Interest shall
be closed at the office of the Company at a time (during its ordinary business
hours) and date fixed by the other Member in writing to the Offeror not more
than thirty (30) days after the date on which the other Member's notice of
election to purchase the Subject Interest is delivered to the Offeror. At the
closing, the Offeror shall deliver to the other Member in exchange for payment
pursuant to the terms of the Purchase Offer by the Other member (in cash or
certified check drawn on a United States bank) an assignment agreement, in form
and substance satisfactory to ▇▇▇▇▇▇▇▇▇, whereby the Offeror irrevocably
Transfers the Subject Interest free and clear of all Encumbrances and such other
documents and instruments as may be required by counsel for the other Member.
(e) Anything in this Section 8.3 to the contrary notwithstanding,
the provisions of this Section 8.3 shall not be applicable to any Transfer by
the Offeror of all or any portion of his or its Membership Interest to a
Permitted Transferee; provided, however, if subsequent to the Offeror's Transfer
of all or a portion of his or its Membership Interest to a Permitted Transferee,
such Permitted Transferee ceases to be such (the "Disqualified Transferee") by
no longer satisfying the qualifications set forth in the definition of the term
"Permitted Transferee," then the Offeror and the Disqualified Transferee shall
advise the Company and the other Member in writing of such occurrence. The other
Member shall have twenty (20) days from the receipt of such notice to advise the
Company and the Disqualified Transferee in writing whether he or it desires to
purchase the Membership Interest (the "Disqualified Interest") of the
Disqualified Transferee. If the other Member shall timely signify a desire to
purchase the Disqualified Interest, the other Member shall have the right and
obligation to purchase all (but not less than all) of the Disqualified Interest.
The purchase price for the Disqualified Interest shall be equal to the "fair
market value" of the Disqualified Interest
18
which shall be determined by following the appraisal procedures set forth in
Sections 8.2(c)(i) and 8.2(c)(ii).
(f) Notwithstanding anything contained herein to the contrary, the
other Member and the Disqualified Transferee may submit, and the Appraiser shall
consider, any information, data or documents related to the operations or
financial results of the Company or NCI to the Appraiser prior to the
Appraiser's final determination of the fair market value of the Disqualified
Interest.
(g) The fees and expenses of the Appraiser shall be paid one-half
by the other Member and one-half by the Disqualified Transferee.
8.4 Right to Compel Sale (Drag Along).
(a) If either Member proposes to sell all of his or its Membership
Interest (the "Drag Along Offeror") for cash pursuant to a bona fide written
offer (the "Drag Along Offer") to an independent Third Party in an arms-length
transaction, then the Drag Along Offeror shall notify the Company and the other
Member in writing (the "Drag Along Notice") of the proposed Transfer, setting
forth the price offered for the Drag Along Offeror's Membership Interest, the
terms and conditions of the Drag Along Offer, the name and address of the
proposed transferee (the "Proposed Drag Along Transferee") and stating that the
Drag Along Offer has been made by the Proposed Drag Along Transferee in good
faith, in an arm's length transaction, and that the Drag Along Offeror intends
to accept the Drag Along Offer.
(b) The other Member shall have twenty (20) days from the receipt
of the Drag Along Offer Notice to advise the Drag Along Offeror and the Company
in writing whether he or it desires to purchase the Drag Along Offeror's
Membership Interest. If the other Member shall timely signify a desire to
purchase the Drag Along Offeror's Membership Interest, the other Member shall
have the right and obligation to purchase all (but not less than all) of the
Drag Along Offeror's Membership Interest. The purchase price for the Drag Along
Offeror's Membership Interest shall be the purchase price contained in Drag
Along Offer.
(c) If the other Member does not timely signify a desire to
purchase the Drag Along Offeror's Membership Interest, then the Drag Along
Offeror may require the other Member to sell all of his or its Membership
Interest (the "Other Membership Interest") to the Proposed Drag Along Transferee
for the same consideration (calculated on a Percentage Interest basis) and
otherwise on the same terms and conditions upon which the Drag Along Offeror's
Membership Interest is being Transferred pursuant to the terms and conditions of
Section 8.4 (d); provided, however, that under no circumstances shall the amount
received on account of the Other Membership Interest be less than (i) Three
Million Fifty Thousand Dollars ($3,050,000), if the Other Membership Interest is
to be sold by ▇▇▇▇▇▇▇▇▇ and (ii) One Million Eight Hundred Thousand Dollars
($1,800,000), if the Other Membership Interest is to be sold by JAF, in either
case, after the proceeds from the transaction covered by the Drag Along Offer
are distributed in accordance with Section 9.2 and provided, further, however,
that following the third (3rd) anniversary of the date of this Agreement, the
amounts set forth in clauses (i) and (ii) of the immediately preceding proviso
shall increase at the annual rate of ten percent (10%) on a compounded basis.
19
(d) The Drag Along Offeror shall send written notice of the
exercise of his or its rights under Section 8.4(c) to the other Member and the
Company. Within twenty (20) days following the date of such notice, the other
Member shall deliver to the Drag Along Offeror an assignment agreement, in form
and substance reasonably acceptable to the Proposed Drag Along Transferee
whereby the other Member irrevocably Transfers the Other Membership Interest
free and clear of all Encumbrances and such other documents and instruments as
may reasonably be required by counsel for the Proposed Drag Along Transferee;
provided, however, that the other Member shall be under no obligation to make
any representation or warranty or agree to any covenants or indemnification
provisions in connection with such Transfer, except for such representations,
warranties and covenants (and related indemnification) as shall specifically
relate to the other Member individually and the Other Membership Interest.
(e) If, within ninety (90) days after the Drag Along Offeror has
given written notice pursuant to Section 8.4(d), the Transfer of all of the
Other Membership Interest in accordance with this Section 8.4 has not been
completed, the Drag Along Offeror shall return to the other Member all documents
and instruments delivered by the other Member pursuant to Section 8.4(d) and all
of the applicable restrictions on Transfer contained in this Agreement with
respect to the Membership Interest owned by the Drag Along Offeror shall again
be in effect.
(f) Simultaneously with the consummation of the Transfer of the
Drag Along Offeror's Membership Interest and the Other Membership Interest
pursuant to this Section 8.4, the Drag Along Offeror shall notify the other
Member of the consummation of such Transfer, shall cause the Proposed Drag Along
Transferee to remit directly to the other Member, in cash or certified check
drawn on a United States bank, the consideration due for the Other Membership
Interest and shall furnish such other evidence of the completion and time of
completion of such Transfer and the terms thereof as may be reasonably requested
by the other Member.
(g) Anything in this Section 8.4 to the contrary notwithstanding,
the provisions of this Section 8.4 shall not be applicable to any Transfer of a
Membership Interest to a Permitted Transferee.
8.5 Further Limitations on Transfers of Membership Interests. In no
event may a Transfer of a Membership Interest be made if such Transfer would
result in (i) the termination of the Company as a limited liability company for
federal income tax purposes pursuant to Section 708(b)(1)(B) of the Code; (ii)
the Company becoming an "investment company" under the Investment Company Act of
1940, as amended; (iii) a violation of the Securities Act of 1933, as amended,
or any applicable securities or "Blue Sky" law of any state or other
jurisdiction or (iv) the dissolution of the Company pursuant to the Act, and, if
so attempted, such Transfer shall be null and void ab initio and shall not bind
the Company. In making the determination whether a Transfer will result in such
a termination, the non-Transferring Member, in its discretion, may require the
transferee to furnish, at such transferee's expense, an opinion of counsel
passing on this issue, with such counsel to be reasonably acceptable to the
non-Transferring Member. In no event may a Transfer be made to (and no
substitute Member shall be admitted to the Company who is) an individual below
the age of twenty-one (21) years (or the local age of majority, if higher) or an
individual who has been
20
adjudged to be insane or incompetent, and any purported Transfer to any such
individual shall be void ab initio and shall not bind the Company.
8.6 Effect of Transfer. No Transfer of a Membership Interest
hereunder shall relieve the assignee from any of his or its obligations under
this Agreement which accrued prior to such Transfer.
IX. DISTRIBUTIONS AND ALLOCATIONS
9.1 Definitions. As used in this Agreement, the following terms
shall have the following meanings:
(a) "Adjusted Capital Account Deficit" means, with respect to any
Member, the deficit balance, if any, in such Member's Capital Account as of the
end of the relevant taxable year, after giving effect to the following
adjustments:
(i) Credit to such Capital Account any amounts which such
Member is deemed to be obligated to restore pursuant to the penultimate
sentences in Sections 1.704-2(g)(1) and 1.704-2(i)(5) of the Regulations; and
(ii) Debit to such Capital Account the items described
in Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5) and
1.704-1(b)(2)(ii)(d)(6) of the Regulations.
The foregoing definition of Adjusted Capital Account Deficit is intended to
comply with the provisions of Section 1.704-1(b)(2)(ii)(d) of the Regulations
and shall be interpreted consistently therewith.
(b) "Capital Account" means, with respect to any Member, the
Capital Account maintained for such Member in accordance with the following
provisions:
(i) To each Member's Capital Account there shall be credited
(A) such Member's capital contributions, (B) such Member's distributive share of
Net Profits and any items in the nature of income or gain which are specially
allocated pursuant to Section 9.9 or Section 9.10 hereof, and (C) the amount of
any Company liabilities assumed by such Member or which are secured by any
property distributed to such Member. The principal amount of a promissory
note which is not readily traded on an established securities market and
which is contributed to the Company by the maker of the note (or a Member
related to the maker of the note within the meaning of Regulations Section
1.704-1(b)(2)(ii)(c)) shall not be included in the Capital Account of any Member
until the Company makes a taxable disposition of the note or until (and to the
extent) principal payments are made on the note, all in accordance with
Regulations Section 1.704-1(b)(2)(iv)(d)(2);
(ii) To each Member's Capital Account there shall be debited
(A) the amount of money and the Gross Asset Value of any property distributed to
such Member pursuant to any provision of this Agreement, (B) such Member's
distributive share of Net Losses and any items in the nature of expenses or
losses which are specially allocated pursuant to Section 9.9 or Section 9.10
hereof, and (C) the amount of any liabilities of such Member
21
assumed by the Company or which are secured by any property contributed by such
Member to the Company;
(iii) In the event of a transfer of Membership Interests in
accordance with the terms of this Agreement, the transferee shall succeed to the
Capital Account of the transferor to the extent it relates to the transfer of
Membership Interests; and
(iv) In determining the amount of any liability for purposes
of subparagraphs (i) and (ii) above there shall be taken into account Code
Section 752(c) and any other applicable provisions of the Code and Regulations.
The foregoing provisions and the other provisions of this Agreement
relating to the maintenance of Capital Accounts are intended to comply with
Regulations Section 1.704-1(b), and shall be interpreted and applied in a manner
consistent with such Regulations. In the event the Members shall determine that
it is prudent to modify the manner in which the Capital Accounts, or any debits
or credits thereto (including, without limitation, debits or credits relating to
liabilities which are secured by contributed or distributed property or which
are assumed by the Company or any Members, are computed in order to comply with
such Regulations), the Members may make such modification, provided that it is
not likely to have a material effect on the amounts distributed to any Person
pursuant to Article X hereof upon the dissolution of the Company. The Members
also shall (i) make any adjustments that are necessary or appropriate to
maintain equality between the Capital Accounts of the Members and the amount of
capital reflected on the Company's balance sheet, as computed for book purposes,
in accordance with Regulations Section 1.704-1(b)(2)(iv)(g), and (ii) make any
appropriate modifications in the event unanticipated events might otherwise
cause this Agreement not to comply with Regulations Section 1.704-1(b).
(c) "Company Minimum Gain" means the amount determined pursuant to
the definition of "partnership minimum gain" set forth in Regulation Sections
1.704-2(b)(2) and 1.704-2(d).
(d) "Depreciation" means, for each taxable year, an amount equal
to the depreciation, amortization, or other cost recovery deduction allowable
with respect to an asset for such taxable year, except that if the Gross Asset
Value of an asset differs from its adjusted basis for federal income tax
purposes at the beginning of such taxable year, Depreciation shall be an amount
which bears the same ratio to such beginning Gross Asset Value as the federal
income tax depreciation, amortization, or other cost recovery deduction for such
taxable year bears to such beginning adjusted tax basis; provided, however, that
if the adjusted basis for federal income tax purposes of an asset at the
beginning of such taxable year is zero, Depreciation shall be determined with
reference to such beginning Gross Asset value using any reasonable method
selected by the Members.
(e) "Distributions" mean any and all amounts of the Company's Net
Cash Flow that have been properly distributed to the Company's Members pursuant
to Section 9.2.
(f) "Gross Asset Value" means, with respect to any asset, the
asset's adjusted basis for federal income tax purposes, except as follows:
22
(i) The initial Gross Asset Value of any asset contributed by
a Member to the Company shall be the gross fair market value of such asset, as
determined by the Members;
(ii) The Gross Asset Values of all Company assets shall be
adjusted to equal their respective gross fair market values (taking Code Section
7701(g) into account), as determined by the Members as of the following times:
(A) the acquisition of an additional interest in the Company by any new or
existing Member in exchange for more than a de minimis Capital Contribution; (B)
the distribution by the Company to a Member of more than a de minimis amount of
Company property as consideration for an interest in the Company; and (C) the
liquidation of the Company within the meaning of Regulations Section
1.704-1(b)(2)(ii)(g), provided that an adjustment described in clauses (A) and
(B) of this paragraph shall be made only if the Members reasonably determine
that such adjustment is necessary to reflect the relative economic interests of
the Members in the Company;
(iii) The Gross Asset Value of any item of Company assets
distributed to a Member shall be adjusted to equal the gross fair market value
(taking Code Section 7701(g) into account) of such asset on the date of
distribution as determined by the Members; and
(iv) The Gross Asset Values of Company assets shall be
increased (or decreased) to reflect any adjustments to the adjusted basis of
such assets pursuant to Code Section 734(b) or Code Section 743(b), but only to
the extent that such adjustments are taken into account in determining Capital
Accounts pursuant to Regulations Section 1.704-1(b)(2)(iv)(m) and subparagraph
(vi) of the definition of "Net Profits" and "Net Losses" or Section 9.9(g)
hereof; provided, however, that Gross Asset Values shall not be adjusted
pursuant to this subparagraph (iv) to the extent that an adjustment pursuant to
subparagraph (ii) is required in connection with a transaction that would
otherwise result in an adjustment pursuant to this subparagraph (iv).
If the Gross Asset Value of an asset has been determined or adjusted pursuant to
subparagraph (ii) or (iv), such Gross Asset Value shall thereafter be adjusted
by the Depreciation taken into account with respect to such asset, for purposes
of computing Net Profits and Net Losses.
(g) "▇▇▇▇▇▇▇▇▇ Priority Return Amount" means the amount of
▇▇▇▇▇▇▇▇▇'▇ Initial Capital Contribution minus any amount(s) distributed
pursuant to Section 9.2(c).
(h) "Member Nonrecourse Debt" shall have the meaning ascribed to
"partner nonrecourse debt" in Regulation Section 1.704-2(b)(4).
(i) "Member Nonrecourse Debt Minimum Gain" means an amount, with
respect to each Member Nonrecourse Debt, equal to the Company Minimum Gain that
would result if such Member Nonrecourse Debt were treated as a Nonrecourse
Liability, determined in accordance with Section 1.704-2(i)(3) of the
Regulations.
23
(j) "Member Nonrecourse Deductions" has the same meaning as the
term "partner nonrecourse deductions" in Sections 1.704-2(i)(1) and
1.704-2(i)(2) of the Regulations.
(k) "Net Cash Flow" means all cash receipts of the Company, and
the fair market value of any property received in connection therewith, in any
fiscal year from whatever source derived, less (i) payment of all of the
Company's expenses and (ii) such reserves as Members shall decide to establish
for future expenses of operating the Company or liabilities in connection
therewith ("Reserves").
(l) "Net Profits" or "Net Losses" shall mean an amount equal to
the Company's taxable income or loss for any taxable year, determined in
accordance with Code Section 703(a) (for this purpose, all items of income,
gain, loss or deduction required to be stated separately pursuant to Code
Section 703(a)(1) shall be included in taxable income or loss) with the
following adjustments:
(i) Any income of the Company that is exempt from federal
income tax and not otherwise taken into account in computing Net Profits or Net
Losses pursuant to this definition of "Net Profits" and "Net Losses" shall be
added to such taxable income or loss;
(ii) Any expenditures of the Company described in Code Section
705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures pursuant to
Regulations Section 1.704-1(b)(2)(iv)(i) and not computing Net Profits or Net
Losses pursuant to this definition of "Net Profits" or "Net Losses" shall be
subtracted from such taxable income or loss;
(iii) In the event the Gross Asset Value of any Company asset
is adjusted pursuant to subparagraphs (ii) or (iii) of the definition of Gross
Asset Value, the amount of such adjustment shall be treated as an item of gain
(if the adjustment increases the Gross Asset Value of the asset) or an item of
loss (if the adjustment decreases the Gross Asset Value of the asset) from the
disposition of such asset and shall be taken into account for purposes of
computing Net Profits or Net Losses;
(iv) Gain or loss resulting from any disposition of property
with respect to which gain or loss is recognized for federal income tax purposes
shall be computed by reference to the Gross Asset Value of the property disposed
of, notwithstanding that the adjusted tax basis of such property differs from
its Gross Asset Value;
(v) In lieu of the depreciation, amortization, and other cost
recovery deductions taken into account in computing such taxable income or loss,
there shall be taken into account Depreciation of such taxable year, computed in
accordance with the definition of "Depreciation;"
(vi) To the extent an adjustment to the adjusted tax basis of
any Company asset pursuant to Code Section 734(b) or Code Section 743(b) is
required pursuant to Regulations Section 1.704-1(b)(2)(iv)(m)(4) to be taken
into account in determining Capital Accounts as a result of a distribution other
than a complete liquidation of a Member's interest in
24
the Company, the amount of such adjustment shall be treated as an item of gain
(if the adjustment increases the basis of the asset) or loss (if the adjustment
decreases the basis of the asset) from the disposition of the asset and shall be
taken into account for purposes of computing Net Profits or Net Losses; and
(vii) Notwithstanding any other provision of this definition,
any items which are specially allocated pursuant to Sections 9.9, 9.10 or 9.13
hereof shall not be taken into account in computing Net Profits or Net Losses.
The amounts of the items of Company income, gain, loss or deduction
available to be specially allocated pursuant to Sections 9.9 and 9.10 hereof
shall be determined by applying rules analogous to those set forth in clauses
(i) through (vi) above.
(m) "Nonrecourse Deductions" shall have the meaning set forth in
Regulation 'SS' 1.704-2(b)(1).
(n) "Nonrecourse Liability" has the meaning set forth in Section
1.704-2(b)(3) of the Regulations.
(o) "Regulation" means the income tax regulations promulgated from
time to time by the U.S. Department of the Treasury.
9.2 Distributions of Net Cash Flow. Net Cash Flow shall be
distributed as follows:
(a) First, No later than seven (7) Business Days following the
date of this Agreement, the Company shall make a one-time distribution of One
Million Two Hundred Fifty Thousand Dollars ($1,250,000) to JAF;
Thereafter, Net Cash Flow shall be distributed at such times (but
in no event less than annually) as the Members shall determine as follows:
(b) Next, in amount to repay any outstanding Contribution Loans;
(c) Next, to ▇▇▇▇▇▇▇▇▇, in an amount equal to the ▇▇▇▇▇▇▇▇▇
Priority Return Amount;
(d) Next, to the Members, in an amount equal to their respective
Additional Cash Capital Contributions; and
(e) Last, to the Members, in equal amounts.
9.3 Allocation of Net Profits. Net Profits shall be allocated as
follows:
(a) First, to the Members to the extent of and in proportion to
the excess of (1) the aggregate amount of Net Losses allocated to the Members
over (2) the aggregate amount of Net Profits previously allocated pursuant to
this Section 9.3(a); and
25
(b) Thereafter, fifty percent (50%) to JAF and fifty percent (50%)
to ▇▇▇▇▇▇▇▇▇.
9.4 Allocation of Net Losses. Subject to the provisions of Section
9.11, Net Losses shall be allocated as follows:
(a) First, to ▇▇▇▇▇▇▇▇▇, to the extent of One Million Two Hundred
Fifty Thousand Dollars ($1,250,000) in the aggregate; and
(b) Thereafter, fifty percent (50%) to JAF and fifty percent (50%)
to ▇▇▇▇▇▇▇▇▇.
9.5 No Return of Distributions. No Member shall have any obligation
to refund to the Company any amount that shall have been distributed to such
Member pursuant to this Agreement, subject, however, to the rights of any third
party creditor under law.
9.6 Allocations between Assignor and Assignee Members. In the case
of a Transfer, the assignor and assignee shall each be entitled to receive
distributions of Net Cash Flow and allocations of Net Profits or Net Losses and
Nonrecourse Deductions as follows:
(a) Unless the assignor and assignee agree to the contrary and
shall so provide in the instrument effecting the Transfer, distributions shall
be made to the person owning the Member's Membership Interest on the date of the
distribution; and
(b) Net Profits or Net Losses and Nonrecourse Deductions shall be
allocated by the number of days of the fiscal year each person held the Member's
Membership Interest.
9.7 Tax Credits. Any Company tax credits shall be allocated to the
Members in proportion to their respective Percentages of Membership Interests.
9.8 Deficit Capital Accounts. Except as otherwise provided herein
or under the Act, no Member shall be required at any time to make up any deficit
in such Member's Capital Account.
9.9 Further Allocation Rules. Anything herein to the contrary
notwithstanding:
(a) Minimum Gain Chargeback. Except as otherwise provided in
Section 1.704-2(f) of the Regulations, notwithstanding any other provision of
this Article IX, if there is a net decrease in Company Minimum Gain during any
taxable year, each Member shall be specially allocated items of Company income
and gain for such taxable year (and, if necessary, subsequent taxable years) in
an amount equal to such Member's share of the net decrease in Company Minimum
Gain, determined in accordance with Regulations Section 1.704-2(g). Allocations
pursuant to the previous sentence shall be made in proportion to the respective
amounts required to be allocated to each Member pursuant thereto. The items to
be so allocated shall be determined in accordance with sections 1.704-2(f) (6)
and 1.704-2(j) (2) of the Regulations. This Section 9.9(a) is intended to comply
with the minimum gain chargeback
26
requirement in Section 1.704-2(f) of the Regulations and shall be interpreted
consistently therewith.
(b) Member Minimum Gain Chargeback. Except as otherwise provided
in Section 1.704-2(i) (4) of the Regulations, notwithstanding any other
provision of this Article IX, if there is a net decrease in Member Nonrecourse
Debt Minimum Gain attributable to Member Nonrecourse Debt during any taxable
year, each Member who has a share of the Member Nonrecourse Debt Minimum Gain
attributable to such Member Nonrecourse Debt, determined in accordance with
Section 1.704-2(i) (5) of the Regulations, shall be specially allocated items of
Company income and gain for such taxable year (and, if necessary, subsequent
taxable years) in an amount equal to such Member's share of the net decrease in
Member Nonrecourse Debt, determined in accordance with Regulations Section
1.704-2(i) (4). Allocations pursuant to the previous sentence shall be made in
proportion to the respective amounts required to be allocated to each Member
pursuant thereto. The items to be so allocated shall be determined in accordance
with Sections 1.704-2(i) (4) and 1.704-2(j) (2) of the Regulations. This Section
9.9(b) is intended to comply with the minimum gain chargeback requirement in
Section 1.704-2(i) (4) of the Regulations and shall be interpreted consistently
therewith.
(c) Qualified Income Offset. In the event any Member unexpectedly
receives any adjustments, allocations, or distributions described in Sections
1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), or 1.704-1(b)(2)(ii)(d)(6) of
the Regulations, items of Company income and gain shall be specially allocated
to such Member in an amount and manner sufficient to eliminate, to the extent
required by the Regulations, the Adjusted Capital Account Deficit of the Member
as quickly as possible, provided that an allocation pursuant to this Section
9.9(c) shall be made only if and to the extent that the Member would have an
Adjusted Capital Account Deficit after all other allocations provided for in
this Article IX have been tentatively made as if this Section 9.9(c) were not in
the Agreement.
(d) Gross Income Allocation. In the event any Member has a deficit
Capital Account at the end of any taxable year which is in excess of the sum of
(i) the amount such Member is obligated to restore pursuant to any provision of
this Agreement, and (ii) the amount such Member is deemed obligated to restore
pursuant to the penultimate sentences of Regulations Sections 1.704-2(g)(1) and
1.704-2(i)(5), each such Member shall be specially allocated items of Company
income and gain in the amount of such excess as quickly as possible, provided
that an allocation pursuant to this Section 9.9(d) shall be made only if and to
the extent that such Member would have a deficit Capital Account in excess of
such sum after all other allocations provided for in this Article IX have been
made as if Section 9.9(c) and this Section 9.9(d) were not in the Agreement.
(e) Nonrecourse Deductions. Nonrecourse Deductions for any taxable
year shall be specially allocated to the Members in proportion to their
respective Percentages of Membership Interests.
(f) Member Nonrecourse Deductions. Any Member Nonrecourse
Deductions for any taxable year shall be specially allocated to the Member who
bears the
27
economic risk of loss with respect to the Member Nonrecourse Debt to which such
Member Nonrecourse Deductions are attributable in accordance with Regulations
Section 1.704-2(i) (1).
(g) Section 754 Adjustments. To the extent an adjustment to the
adjusted tax basis of any Company asset, pursuant to Code Section 734(b) or Code
Section 743(b) is required, pursuant to Regulations Section
1.704-1(b)(2)(iv)(m)(2) or 1.704-1(b)(2)(iv)(m)(4), to be taken into account in
determining Capital Accounts as the result of a distribution to a Member in
complete liquidation of such Member's interest in the Company, the amount of
such adjustment to Capital Accounts shall be treated as an item of gain (if the
adjustment increases the basis of the asset) or loss (if the adjustment
decreases such basis) and such gain or loss shall be specially allocated to the
Members in accordance with their interests in the Company in the event
Regulations Section 1.704-1(b)(2)(iv)(m)(2) applies, or to the Member to whom
such distribution was made in the event Regulations Section
1.704-1(b)(2)(iv)(m)(4) applies.
9.10 Curative Allocations. The allocations set forth in Sections
9.9(a), 9.9(b), 9.9(c), 9.9(d), 9.9(e), 9.9(f), 9.9(g) and 9.11 (the "Regulatory
Allocations") are intended to comply with certain requirements of the
Regulations. It is the intent of the Members that, to the extent possible, all
Regulatory Allocations shall be offset either with other Regulatory Allocations
or with special allocations of other items of Company income, gain, loss or
deduction pursuant to this Section 9.10. Therefore, notwithstanding any other
provision of this Article IX (other than the Regulatory Allocations), the
Members shall make such offsetting special allocations of Company income, gain,
loss or deduction in whatever manner it determines appropriate so that, after
such offsetting allocations are made, each Member's Capital Account balance is,
to the extent possible, equal to the Capital Account balance such Member would
have had if the Regulatory Allocations were not part of the Agreement and all
Company items were allocated pursuant to Sections 9.3 and 9.4.
9.11 Loss Limitation. Net Losses allocated pursuant to Section 9.4
hereof shall not exceed the maximum amount of Net Losses that can be allocated
without causing any Member to have an Adjusted Capital Account Deficit at the
end of any taxable year. In the event some but not all of the Members would have
Adjusted Capital Account Deficits as a consequence of an allocation of Net
Losses pursuant to Section 9.4 hereof, the limitation set forth in this Section
9.11 shall be applied on a Member by Member basis and Net Losses not allocable
to any Member as a result of such limitation shall be allocated to the other
Members in accordance with the positive balances in such Member's Capital
Accounts so as to allocate the maximum permissible Net Losses to each Member
under Section 1.704-1(b)(2)(ii)(d) of the Regulations.
9.12 Other Allocation Rules.
(a) Except as otherwise provided herein, for purposes of
determining the Net Profits, Net Losses, or any other items allocable to any
period, Net Profits, Net Losses, and any such other items shall be determined on
a daily, monthly, or other basis, as determined by the Members using any
permissible method under Code Section 706 and the Regulations thereunder.
28
(b) The Members are aware of the income tax consequences of the
allocations made by this Article IX and hereby agree to be bound by the
provisions of this Article IX in reporting their shares of Company income and
loss for income tax purposes.
(c) Solely for purposes of determining a Member's proportionate
share of the "excess nonrecourse liabilities" of the Company within the meaning
of Regulations Section 1.752-3(a)(3), the Members' interests in Company profits
are in proportion to their Percentages of Membership Interests.
(d) To the extent permitted by Section 1.704-2(h) (3) of the
Regulations, the Members shall endeavor to treat distributions of Net Cash Flow
as having been made from the proceeds of a Nonrecourse Liability or a Member
Nonrecourse Debt only to the extent that such distributions would cause or
increase an Adjusted Capital Account Deficit for any Member.
9.13 Code Section 704(c) Tax Allocations. In accordance with Code
Section 704(c) and the Regulations thereunder, income, gain, loss, and deduction
with respect to any property contributed to the capital of the Company 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 initial Gross Asset Value computed in
accordance with subparagraph (i) of the definition of "Gross Asset Value" using
the traditional method described in Regulation ss. 1.704-3(b), unless the
Members or the IRS shall determine such method to be unreasonable within the
meaning of Example 2 of such Regulation, in which case the traditional method
with curative allocations described in Regulation ss. 1.704-3(c) shall be used;
provided, however, the Members shall determine the appropriate curative
allocations.
In the event the Gross Asset Value of any Company asset is adjusted
pursuant to subparagraph (ii) of the definition of "Gross Asset Value"
subsequent allocations of income, gain, loss and deduction with respect to such
asset shall take account of any variation between the adjusted basis of such
asset for federal income tax purposes and its Gross Asset Value in the same
manner as under Code Section 704(c) and the Regulations thereunder.
Any elections or other decisions relating to such allocations shall be made
by the Members in any manner that reasonably reflects the purpose and intention
of this Agreement. Allocations pursuant to this Section 9.13 are solely for
purposes of federal, state, and local taxes and shall not affect, or in any way
be taken into account in computing, any Member's Capital Account or share of Net
Profits, Net Losses, or other items or distributions pursuant to any provision
of this Agreement.
9.14 Amounts Withheld. All amounts withheld pursuant to the Code
or any provisions of state or local tax law with respect to any payment or
distribution to the Company or to the Members or any allocation of taxable
income to the Company or the Members shall be treated as amounts distributed to
the Members pursuant to this Article IX for all purposes under this Agreement.
The Company is authorized to withhold from distributions, or with respect to
allocations, to the Members and to pay over any federal, state or local
government any amounts required to be withheld pursuant to the Code or any
provisions of any other federal, state or local
29
law and shall allocate such amounts to the Members with respect to whom such
amounts were withheld. If the amount required to be withheld with respect to a
Member exceeds the amount which otherwise would have been distributed to such
Member, such Member shall pay to the Company the amount of such excess within
five (5) days after the giving of written demand therefor by the other Member.
If such Member (herein called a "Delinquent Member") shall fail to pay such
excess within said five-day period, then (i) interest shall accrue thereon at or
equal to the lesser of (A) fifteen percent (15%) per annum or (B) the maximum
rate permitted by applicable law, (ii) such excess amount together with interest
accrued thereon as aforesaid shall be a lien upon the Membership Interest of the
Delinquent Member in favor of the Company and may be recovered from the first
distributions to which the Delinquent Member would otherwise have been entitled
from the Company until such excess amount is fully repaid together with interest
thereon as aforesaid, and (iii) the Company, in addition to and without limiting
any of its other rights and remedies, may institute an action against the
Delinquent Member for collection of such excess amount and interest; in any such
action, the Company shall be entitled to recover, in addition to such excess
amount and interest, all attorneys' fees, disbursements and court costs incurred
by the Company in connection with its efforts to collect the amounts due from
such Delinquent Member. In addition, such Delinquent Member shall indemnify and
hold harmless the Company and each of the other Members and the employees of the
Company from all liabilities, losses, costs and expenses, including, without
limitation, penalties imposed by the Internal Revenue Service or any state or
local taxing authority, for failure to remit the required amount of taxes to the
appropriate governmental authority.
X. LIQUIDATION AND TERMINATION OF THE COMPANY
10.1 Termination of the Company.
(a) The Company shall be dissolved in the event of the occurrence
of any of the following events:
(i) the written consent to a dissolution by each Member;
(ii) the written request of either Member after December 31,
2007;
(iii) the assignment, sale, transfer or other disposition of
all, or substantially all, of the assets, properties and business of the
Company;
(iv) at ▇▇▇▇▇▇▇▇▇'▇ option by delivery of written notice to
JAF (or his legal representative) following the (A) death or Disability of JAF;
(B) termination of JAF's employment with NCI or (C) bankruptcy of JAF or
(v) the occurrence of any event that, under applicable law,
would cause the dissolution of the Company (except as otherwise expressly
provided for in this Agreement) or that would make it unlawful for the business
of the Company to be continued.
(b) Except to the extent provided in Section 10.1(a), each Member
shall not seek a dissolution of the Company (whether under Section 18-802 of the
Act or otherwise).
30
10.2 Liquidation and Winding-Up. If the Company is dissolved pursuant
to Section 10.1(a), the Company shall be liquidated and wound up in accordance
with the Act and this Article X. The liquidation shall be conducted and
supervised by ▇▇▇▇▇▇▇▇▇ or a Person appointed by ▇▇▇▇▇▇▇▇▇ (the "Liquidating
Agent"). The Liquidating Agent shall have all of the rights and powers with
respect to the assets and liabilities of the Company in connection with the
liquidation and termination of the Company that the Members would have under
Section 5.1 with respect to the assets and liabilities of the Company during the
Term. Without limiting the foregoing, the Liquidating Agent is hereby expressly
authorized and empowered to execute and deliver any and all documents which are
necessary or desirable to effectuate the liquidation and termination of the
Company and the transfer of any asset or liability of the Company. The
Liquidating Agent shall have the right from time to time, by revocable powers of
attorney, to delegate to one or more persons any or all of such rights and
powers and such authority and power to execute and deliver documents, and, in
connection therewith, to fix the reasonable compensation of each such person,
which compensation shall be charged as an expense of liquidation. The
Liquidating Agent is also expressly authorized to distribute the Company's
property to the Members subject to liens.
10.3 Statements on Termination. Each Member shall be furnished with a
statement prepared by the Company's regular accountants setting forth the assets
and liabilities of the Company as of the date of complete liquidation, and each
Member's share thereof. Upon compliance with the distribution plan set forth in
Section 10.4, the Members shall cease to be such, and the Liquidating Agent
shall execute, acknowledge and cause to be filed, where appropriate under law,
articles of dissolution of the Company.
10.4 Priority on Liquidation. The Liquidating Agent shall, to the
extent feasible, liquidate the assets of the Company as promptly as shall be
practicable. To the extent that the proceeds are sufficient therefor, as the
Liquidating Agent shall deem appropriate, the proceeds of such liquidation shall
be applied and distributed in the following order of priority:
(i) To pay the costs and expenses of the liquidation and
termination;
(ii) Next, to pay the matured or fixed debts and liabilities
of the Company;
(iii) Next, to establish any reserve that the Liquidating
Agent may deem necessary for any contingent, unmatured or unforseen liability of
the Company and
(iv) Next, to the Members, in accordance with Section 9.2.
10.5 Distribution of Non-Liquid Assets. If the Liquidating Agent shall
determine that it is not practicable to liquidate all of the assets of the
Company, then the Liquidating Agent shall cause the fair market value of the
assets not so liquidated to be determined by appraisal by an independent
appraiser. Such assets, as so appraised, shall be retained or distributed by the
Liquidating Agent as follows:
(a) The Liquidating Agent shall retain assets having a fair market
value equal to the amount, if any, by which the net proceeds of liquidated
assets are insufficient
31
to satisfy the debts and liabilities of the Company (other than any debt or
liability for which neither the Company nor the Members are personally liable),
to pay the costs and expenses of the dissolution and liquidation, and to
establish reserves, all subject to the provisions of Section 10.4. The foregoing
shall not be construed, however, to prohibit the Liquidating Agent from
distributing, pursuant to Section 10.5(b), property subject to liens at the
value of the Company's equity therein.
(b) The remaining assets (including, without limitation,
receivables, if any) shall be distributed to the Members by way of undivided
interests therein in such proportions as shall be equal to the respective
amounts to which each Member is entitled pursuant to Section 10.4. If, in the
judgment of the Liquidating Agent, it shall not be practicable to distribute to
each Member an undivided aliquot share of each asset, the Liquidating Agent may
allocate and distribute specific assets to both Members as tenants-in-common as
the Liquidating Agent shall determine to be fair and equitable, taking into
consideration, inter alia, the basis for tax purposes of each asset distributed.
(c) Nothing contained in this Article X or elsewhere in this
Agreement is intended to cause any in-kind distributions to be treated as sales
for value.
10.6 Orderly Liquidation. A reasonable time shall be allowed for the
orderly liquidation of the assets of the Company and the discharge of
liabilities to creditors, so as to minimize the losses normally attendant upon a
liquidation.
10.7 Purchase of Assets by Member. Each Member shall have the right to
bid for and purchase assets of the Company to be sold by the Liquidating Agent.
10.8 Articles of Dissolution. When all debts, liabilities and
obligations have been paid and discharged or adequate provisions have been made
therefor and all of the remaining assets of the Company has been distributed to
the Members, articles of dissolution shall be executed and filed in accordance
with the Act.
XI. INDEMNIFICATION
11.1 Exculpation. Notwithstanding any other provision of this
Agreement, whether express or implied, or obligation or duty at law or in
equity, no Member nor, to the extent applicable, any of such Member's employees,
shareholders, partners, members, directors, officers, agents, representatives or
Affiliates (such Persons together with the Members and any other retained
Persons of the Company being hereinafter referred to collectively as the
"Related Parties" and individually as a "Related Party") shall be liable to the
Company or any other Person for any act or omission (in relation to the Company,
this Agreement, any related document or any transaction or investment
contemplated hereby or thereby) taken or omitted in good faith by a Related
Party and in the reasonable belief that such act or omission is in or is not
contrary to the best interests of the Company and is within the scope of
authority granted to such Related Party, provided that such act or omission does
not constitute fraud, willful misconduct, bad faith or gross negligence.
11.2 Claims. Except as otherwise provided in this Article XI, the
Company, or its receiver or trustee, shall pay all judgments and claims asserted
by anyone (a "Claimant")
32
against, and shall indemnify and hold harmless, each Related Party from and
against, any liability or damage to a Claimant, incurred by reason of any act
performed or omitted to be performed by any Related Party in connection with the
business of the Company, including, without limitation, reasonable attorneys'
fees and disbursements incurred by any Related Party in connection with the
defense of any action based on any such act or omission. If a claim for
indemnification (other than for expenses incurred in a successful defense) is
asserted against the Company by any Related Party and the Members are uncertain
whether such indemnification is permitted by law, then the Company shall,
unless, in the opinion of its counsel, the matter has been settled by
controlling precedent in favor of such indemnification, submit to a court of
competent jurisdiction the question of whether such indemnification by the
Company is not against public policy, which final adjudication shall be binding
on all parties.
11.3 Procedure. Upon a Related Party's discovery of any claim by a
third party which, if sustained, would be subject to indemnification pursuant to
Section 11.2, the Related Party shall give prompt notice to the Members and the
Company of such claim, provided, however, that the failure of the Related Party
to so promptly notify the Company of such claim shall not relieve the Company of
any indemnification obligation under this Agreement unless the Company shall
have been substantially prejudiced thereby. Unless the Related Party shall, in
its sole discretion, agree in writing to assume and control the defense of any
action for which indemnification may be sought, the Company shall assume and
control such defense, in which event the Related Party shall have the right to
retain its own counsel in each jurisdiction for which the Related Party
determines that counsel is required, at the expense of the Company. If the
Company shall fail or refuse to undertake the defense within fifteen (15) days
after receiving notice that a claim has been made, the Related Party shall have
the right (but not the obligation) to assume the defense of such claim in such
manner as it deems appropriate until the Company shall, with the consent of the
Related Party, assume control of such defense, and the Company shall indemnify
the Related Party pursuant to Section 11.2 from and against the costs and
expenses of such defense. The party hereto handling the defense of an action
shall keep the other party hereto fully informed at all times of the status of
the claim. Neither the Company nor the Related Party, when handling the defense
of a claim for which indemnification may be sought by the Related Party, shall
settle such claim without the consent of the other party (which consent shall
not be unreasonably withheld or delayed) unless such settlement shall: (i)
impose no additional liability or obligation upon such party (or his or its
employees, shareholders, partners, members, directors, officers, agents,
representatives or any Affiliate of any of the foregoing) whose consent would
otherwise be required and (ii) where the Company is handling the defense and
settlement of the claim, provide the Related Party with a general release with
respect to the subject claim.
11.4 Members' Claims. Except as otherwise provided in this Article XI,
in any action by an owner of a Membership Interest against a Related Party,
including a Company derivative suit, the Company shall indemnify and hold
harmless each Related Party from and against any liability or damage incurred by
any of them, including, without limitation, reasonable attorneys' fees and
disbursements incurred in defense of such action, if: (i) the Related Party is
successful in such action or (ii) in the opinion of the Company's counsel, the
matter has been settled by controlling precedent in favor of such
indemnification, and if the matter has not been settled by such controlling
precedent, the Company shall submit to a court of appropriate
33
jurisdiction the question of whether such indemnification by the Company is not
against public policy, which final adjudication shall be binding on all parties.
11.5 Expenses. In any matter with respect to which a Related Party
may be entitled to indemnification from the Company pursuant to this Article XI,
the Company shall, to the extent not prohibited by applicable law, advance to
the Related Party, pending the final disposition of such matter, all costs and
expenses which the Related Party may incur in such matter, including, without
limitation, all attorneys' fees and disbursements, court costs and the fees and
disbursements of accountants, other experts and consultants.
11.6 Limitations on Indemnification. Notwithstanding Sections 11.2,
11.4 or 11.5, no Related Party shall be entitled to indemnification from any
liability imposed by law for fraud, bad faith, willful neglect or gross
negligence. Under no circumstances shall any Related Party be personally liable
in respect of any indemnification obligation set forth in this Article XI.
11.7 Member's Liability. A Member shall be liable to the Company and
the other Member for breach of any representation, warranty or covenant made
pursuant to this Agreement and shall indemnify and hold harmless the Company and
the other Member from and against any liability or damage incurred by either of
them as a result of such breach or misrepresentation, including, without
limitation, reasonable attorneys' fees and disbursements incurred in defense of
such action.
11.8 Non-Exclusive Provision. The indemnification provided by this
Article XI shall not be deemed exclusive of any other rights to indemnification
to which a Person seeking indemnification hereunder may be entitled under any
agreement or otherwise. The rights to indemnification and reimbursement or
advancement of expenses provided by, or granted pursuant to, this Article XI
shall continue as to any Related Party who has ceased to be a Member (or other
person indemnified hereunder) and shall inure to the benefit of the successors
and permitted assigns of such Person.
11.9 Future Laws. The extent future enactments or judicial decisions
permit an expansion of the rights of indemnification afforded to the Related
Parties by the Company, then it is the Members' express intention and agreement
that Article XI immediately and automatically be deemed to be amended so as to
permit and authorize the indemnification of the Related Parties by the Company
to the maximum extent permitted by law.
XII. SPECIFIC PERFORMANCE
12.1 Specific Performance. The Members recognize and acknowledge that
their Membership Interests are closely held and that, accordingly, in the event
of a breach or default by one or more of the parties hereto of the terms and
conditions of this Agreement, the damages to the remaining parties to this
Agreement, or any one or more of them, may be impossible to ascertain and such
parties will not have an adequate remedy at law. In the event of any such breach
or default in the performance of the terms and provisions of this Agreement, any
party or parties thereof aggrieved thereby shall be entitled to institute and
prosecute proceedings in any court of competent jurisdiction, either at law or
in equity, to enforce the specific performance of the terms and provisions of
this Agreement, to enjoin further violations of the terms and provisions of this
Agreement and/or to obtain damages. Such remedies shall,
34
however, be in addition to, and not in lieu or limitation of, any other remedies
that are available to the other parties at law or in equity.
XIII. MISCELLANEOUS PROVISIONS
13.1 Governing Law. This Agreement shall be governed by, and construed
in accordance with, the laws and decisions of the State of Delaware, without
regard to conflict of law rules applied in such State.
13.2 Consent To Jurisdiction. All actions and proceedings arising out
of, or relating to, this Agreement shall be heard and determined in any state or
federal court sitting in New York County, New York. The undersigned, by
execution and delivery of this Agreement, expressly and irrevocably: (i) consent
and submit to the personal jurisdiction of any of such courts in any such action
or proceeding; (ii) consent to the service of any complaint, summons, notice or
other process relating to any such action or proceeding by delivery thereof to
such party by hand or by certified mail, delivered or addressed as set forth in
Section 13.4 of this Agreement; and (iii) waive any claim or defense in any such
action or proceeding based on any alleged lack of personal jurisdiction,
improper venue or forum non conveniens or any similar basis. EACH OF THE PARTIES
HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY ACTION
OR PROCEEDING WITH RESPECT TO THIS AGREEMENT.
13.3 Entire Agreement. This Agreement and the Exhibits annexed hereto
constitute the entire agreement and understanding of the parties hereto with
respect to the subject matter hereof and supersede all prior agreements and
understandings, both written and oral, of the parties hereto regarding the
subject matter of this Agreement. Each of the Exhibits annexed to this Agreement
is hereby incorporated in and made part of this Agreement as if set forth in
full.
13.4 Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given or made by
delivery in person, by overnight courier service, by telecopy, or by registered
or certified mail (postage prepaid, return receipt requested) to the respective
parties at the following addresses (or at such other address for a party as
shall be specified in a notice given in accordance with this Section 13.4):
(a) if to the Company, to:
JAF-HLR, LLC
c/▇ ▇▇▇▇▇▇▇▇▇ International, Inc
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
(b) if to JAF, to
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇
35
c/o News Communications, Inc.
▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
Rice & Ravitch LLP
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
(c) if to ▇▇▇▇▇▇▇▇▇, to:
▇▇▇▇▇▇▇▇▇ NCI Holdings, LLC
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ LLP
▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
All such notices and other communications shall be deemed to be given and
received on the (i) date of personal delivery; (ii) next Business Day if sent by
a reputable overnight courier; (iii) date of actual telecopier transmission or
(iv) three (3) Business Days after mailing (in each case, regardless of whether
such notice or other communication is received by any other person to whom a
copy of such notice, request or other communication is to be delivered pursuant
to this Section 13.4).
13.5 Captions. The captions used in this Agreement are intended for
convenience of reference only, shall not constitute any part of this Agreement
and shall not modify or affect in any manner the meaning or interpretation of
any of the provisions of this Agreement. Unless expressly otherwise provided for
herein, all references to Sections and Articles shall mean the Sections and
Articles of this Agreement.
36
13.6 Pronouns. All pronouns and any variation thereof shall be deemed
to refer to the masculine, feminine or neuter, singular or plural, as the
identity of the person or persons may require.
13.7 Execution. This Agreement may be executed in counterparts and, as
so executed, shall constitute one agreement binding on the Company and the
Members.
13.8 Amendments. This Agreement may be amended only by each of the
Members and the Company.
13.9 Binding Effect. Except as otherwise provided herein, this
Agreement shall be binding upon and shall inure to the benefit of the respective
successors and permitted assigns of the parties hereto.
13.10 Waiver. Any breach of any term or provision of this Agreement
shall be waived only by means of a writing signed by the non-breaching party or
parties which sets forth with particularity the breach being waived and the
scope of the waiver. Any waiver of any term or condition of this Agreement shall
not be construed as a waiver of any subsequent breach or a subsequent waiver of
the same term or condition, or a waiver of any other term or provision of this
Agreement. No waiver shall be implied from any conduct or action of the
non-breaching party or parties. The failure of any party hereto in asserting any
of its rights hereunder shall not operate as a waiver of any such rights.
13.11 No Partition. Each Member hereby irrevocably waives any and all
rights that he or it may have to maintain any action or partition of the
Company's property.
13.12 Counterparts. This Agreement may be executed in counterparts,
each of which shall constitute an original and all of which, when taken
together, shall constitute one and the same agreement. This Agreement may be
executed and delivered via telecopier machine by the parties hereto, which shall
be deemed for all purposes as an original.
13.13 Remedies. Except as otherwise expressly provided herein, no
remedy herein conferred or reserved is intended to be exclusive of any other
available remedy or remedies, and each and every remedy shall be cumulative and
shall be in addition to every remedy under this Agreement now or hereafter
existing at law or in equity.
13.14 Severability. In case any one or more of the provisions contained
in this Agreement or any application thereof shall be deemed invalid, illegal or
unenforceable in any respect, such affected provisions shall be construed and
deemed rewritten so as to be enforceable to the maximum extent permitted by law,
thereby implementing, to the maximum extent possible, the intent of the parties
hereto, and the validity, legality and enforceability of the remaining
provisions contained in this Agreement shall not in any way be affected or
impaired thereby.
13.15 Further Assurances. The Members shall execute and deliver such
further instruments and documents and do such further acts and things as may be
required to carry out the intent and purposes of this Agreement.
37
13.16 No Third Party Beneficiaries. Except as is otherwise specifically
provided for in this Agreement or as may otherwise be specifically agreed in
writing by each of the Members, the provisions of this Agreement are not
intended to be for the benefit of any creditor or other Person (other than a
Related Party) to whom any debts, liabilities or obligations are owed by (or who
otherwise has any claim against) the Company or any of the Members or any
Related Party; and no such creditor or other Person shall obtain any benefit
from such provisions or shall, by reason of any such foregoing provision, make
any claim in respect of any debt, liability, or obligation against the Company,
the Members or any Related Party. Notwithstanding the foregoing, the parties
hereto hereby expressly acknowledge and confirm that NCI is an express third
party beneficiary of Sections 6.3 and 6.4 for all purposes and accordingly NCI
shall have the right to enforce the rights afforded to it under such Sections as
if it were a signatory hereto.
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NEXT PAGE IS THE SIGNATURE PAGE.]
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IN WITNESS WHEREOF, the parties hereto have executed and delivered, or
caused the execution and delivery of, this Agreement as of the date first
written above.
COMPANY:
JAF-HLR, LLC
By: ▇▇▇▇▇▇▇▇▇ NCI Holdings, LLC,
Member
By:________________________
Name: ▇▇▇▇▇▇▇ ▇▇▇▇▇
Title: Authorized Signatory
By:___________________________________,
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇,
Member
MEMBERS:
▇▇▇▇▇▇▇▇▇ NCI Holdings, LLC
By:___________________________________,
Name: ▇▇▇▇▇▇▇ ▇▇▇▇▇
Title: Authorized Signatory
By:___________________________________,
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇, individually
SCHEDULE A
List of NCI Equity Securities Owned Beneficially and/or of Record by JAF
o 1,018,445 shares of NCI common stock, $0.01 par value per share
o Warrants to purchase up to 3,150,000 shares of NCI common stock, $0.01 par
value per share