EXHIBIT 10.69
CMG @ VENTURES II LLC
OPERATING AGREEMENT
(A DELAWARE LIMITED LIABILITY COMPANY)
CMG @ VENTURES II LLC
OPERATING AGREEMENT
TABLE OF CONTENTS
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Page No.
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ARTICLE ONE THE COMPANY........................................................................ - 1 -
Section 1.1 Organization; Name................................................................. - 1 -
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Section 1.2 Purpose and Character of Business.................................................. - 1 -
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Section 1.3 Place of Business; Registered Agent................................................ - 2 -
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Section 1.4 Term............................................................................... - 2 -
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Section 1.5 Statutory Compliance; Qualification In Other Jurisdictions......................... - 2 -
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ARTICLE TWO MEMBERS AND CAPITAL CONTRIBUTIONS.................................................. - 3 -
Section 2.1 Capital Commitments and Contributions.............................................. - 3 -
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Section 2.2 Admission of Additional Members.................................................... - 3 -
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Section 2.3 Capital Accounts and Revaluations.................................................. - 3 -
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Section 2.4 No Rights to Demand Return of Capital Contributions................................ - 4 -
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Section 2.5 Liabilities of Members............................................................. - 4 -
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ARTICLE THREE ALLOCATIONS; DISTRIBUTIONS......................................................... - 5 -
Section 3.1 Net Operating Profits and New Operating Losses-Allocation.......................... - 5 -
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Section 3.2 Capital Gains and Capital Losses with Respect to
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Portfolio Securities-Allocation............................................... - 6 -
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Section 3.3 Special Allocation Rules........................................................... - 8 -
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Section 3.4 Corrective Allocations............................................................. - 9 -
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Section 3.5 Tax Allocations.................................................................... - 9 -
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Section 3.6 Distributions Prior to Liquidation................................................. - 10 -
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Section 3.7 Distributions Upon Liquidation..................................................... - 10 -
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Section 3.8 Distributions of Securities in Kind................................................ - 11 -
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Section 3.9 Valuation.......................................................................... - 12 -
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ARTICLE FOUR MANAGEMENT; PAYMENT OF EXPENSES.................................................... - 13 -
Section 4.1 Description of Managing Members.................................................... - 13 -
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Section 4.2 Management by the Managing Members................................................. - 13 -
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Section 4.3 Actions Requiring Member Consent................................................... - 14 -
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Section 4.4 Indemnification.................................................................... - 15 -
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Section 4.5 Payment of Fees and Expenses....................................................... - 15 -
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ARTICLE FIVE MANAGING MEMBERS................................................................... - 15 -
Section 5.1 Managing Members; Rights Thereof................................................... - 15 -
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Section 5.2 Award and Vesting of Carried Interest Percentages.................................. - 16 -
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Section 5.3 Termination of Employment and Partnership Status................................... - 18 -
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Section 5.4 Change of Control.................................................................. - 20 -
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Section 5.5 No Recruitment or Solicitation..................................................... - 24 -
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Section 5.6 Non-Disclosure and Invention Assignment Agreement.................................. - 24 -
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Section 5.7 Admission of Additional Managing Members........................................... - 24 -
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ARTICLE SIX OTHER ACTIVITIES OF MEMBERS; CONFLICTS OF INTEREST................................. - 25 -
Section 6.1 Commitment of Members.............................................................. - 25 -
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Section 6.2 Agreements with Portfolio Companies................................................ - 25 -
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Section 6.3 Obligations and Opportunities for Members.......................................... - 25 -
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Section 6.4 Conflicts of Interest.............................................................. - 26 -
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ARTICLE SEVEN TRANSFERABILITY.................................................................... - 26 -
Section 7.1 Assignment of Member Interest...................................................... - 26 -
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Section 7.2 Restrictions on Transfer........................................................... - 27 -
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ARTICLE EIGHT LIABILITY OF MEMBERS; INDEMNIFICATION.............................................. - 28 -
Section 8.1 Liability of Managing Members...................................................... - 28 -
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Section 8.2 Liability of Capital Members....................................................... - 29 -
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Section 8.3 Indemnification of the Managing Members and the Capital Member..................... - 29 -
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Section 8.4 Payment of Expenses................................................................ - 30 -
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ARTICLE NINE DISSOLUTION, LIQUIDATION AND
TERMINATION OF THE COMPANY.................................................... - 30 -
Section 9.1 Events Causing Dissolution......................................................... - 30 -
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Section 9.2 Wind Up and Liquidation............................................................ - 31 -
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ARTICLE TEN CONSENTS, VOTING AND MEETINGS...................................................... - 31 -
Section 10.1 Method of Giving Consent........................................................... - 31 -
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Section 10.2 Meetings........................................................................... - 31 -
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Section 10.3 Submissions to Members............................................................. - 32 -
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ARTICLE ELEVEN BOOKS AND RECORDS; ACCOUNTING; TAX ELECTIONS....................................... - 32 -
Section 11.1 Accounting for the Company......................................................... - 32 -
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Section 11.2 Books and Records.................................................................. - 32 -
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Section 11.3 Reports to Members................................................................. - 32 -
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Section 11.4 Elections.......................................................................... - 33 -
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ARTICLE TWELVE DEFINITIONS........................................................................ - 33 -
ARTICLE THIRTEEN MISCELLANEOUS PROVISIONS........................................................... - 38 -
Section 13.1 Appointment of Tax Matters Partner................................................. - 38 -
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Section 13.2 Notification....................................................................... - 38 -
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Section 13.3 Amendments......................................................................... - 38 -
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Section 13.4 Binding Provisions................................................................. - 39 -
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Section 13.5 No Waiver.......................................................................... - 39 -
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Section 13.6 Certification of Interests......................................................... - 39 -
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Section 13.7 Legends............................................................................ - 39 -
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Section 13.8 Applicable Law..................................................................... - 39 -
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Section 13.9 Separability of Provisions......................................................... - 39 -
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Section 13.10 Entire Agreement................................................................... - 40 -
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Section 13.11 Section Titles..................................................................... - 40 -
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Section 13.12 Counterparts....................................................................... - 40 -
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Section 13.13 Variation of Pronouns.............................................................. - 40 -
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CMG @ VENTURES II LLC
OPERATING AGREEMENT
THIS OPERATING AGREEMENT OF CMG @ VENTURES II LLC (the "Company"), dated as
of February 26, 1998 is among CMG@ Ventures Capital Corp., a Delaware
corporation ("@Ventures Capital"), CMG@Ventures, Inc., a Delaware corporation
("@Ventures, Inc." and together with @Ventures Capital Corp., the "Capital
Members") and ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ and ▇▇▇▇▇ ▇. ▇▇▇▇▇ (collectively, the "Managing Members" and together
with the Capital Members, the "Members" and each individually a "Member").
Definitions of certain terms used in this Agreement are contained in Article
Twelve.
RECITALS
WHEREAS, the Company has been formed as a limited liability company pursuant
to the Limited Liability Company Act of the State of Delaware, 6 Del. C. ch. 18
et. seq., by the filing on October 9, 1996 of a Certificate of Formation in the
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Office of the Secretary of State of the State of Delaware; and
WHEREAS, the Members wish to set out fully their respective rights,
obligations and duties with respect to the Company.
NOW THEREFORE, in consideration of the mutual covenants expressed herein,
the parties hereto hereby agree as follows:
ARTICLE ONE
THE COMPANY
Section 1.1 Organization; Name.
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The Company has been organized as a limited liability company pursuant to
the provisions of the Act. The name of the Company is CMG @ VENTURES II LLC.
The business of the Company may be conducted under any other name designated in
writing by the Managing Member upon compliance with applicable law.
Section 1.2 Purpose and Character of Business.
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The Company's purpose and character of business shall be to (a) make
investments directly or through holding companies in equity and equity-related
securities, notes, debentures, limited partnership interests, limited liability
company interests, or other equity or debt instruments or other interests or
investments of any nature whatsoever, including, without limitation, notes,
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debentures and common or preferred stock (whether or not convertible or
exchangeable), and rights, options and warrants to purchase notes, debentures
and common or preferred stock or other securities or debt instruments, or direct
or indirect interests in tangible or intangible assets of any kind whatsoever
(all of the foregoing being hereafter referred to as "Investments" or as
"Portfolio Securities"), in privately or publicly held or solely owned operating
or investment businesses or other entities or parts thereof or assets, (b)
manage, supervise and dispose of such investments, receiving the profits, losses
and income from such activities and engaging in all other activities that are
necessary, incidental and ancillary thereto, and (c) pending utilization or
disbursement of funds, to invest such funds in Temporary Investments.
Notwithstanding anything to the contrary contained herein, the Members
acknowledge and agree that the Company shall not make any Investments after the
date on which @Ventures III, L.P. completes the initial closing of the sale of
limited partnership interests, except that this limitation shall not restrict
the Company's right to make Follow-on Investments after such date.
Section 1.3 Place of Business; Registered Agent.
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The principal place of business of the Company shall be maintained at ▇▇▇
▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇. The Company shall maintain a
registered agent in the State of Delaware. The name and address of the resident
agent of the Company in the State of Delaware and the address of the registered
office of the Company in the State of Delaware is The Corporation Trust Company,
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇. The Managing Members may at any
time change the location of the Company's principal place of business, establish
additional offices and places of business and change the registered agent and
registered office of the Company and upon any such change shall give prompt
notice to each Member of any such change.
Section 1.4 Term.
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The Company shall continue in full force and effect until December 31,
2007, unless extended or earlier terminated pursuant to Section 8.1.
Section 1.5 Statutory Compliance; Qualification In Other Jurisdictions.
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The Company shall exist under and be governed by, and this Agreement shall
be construed in accordance with, the applicable laws of the State of Delaware
including the Act. The Managing Members promptly shall make such filings as
they believe necessary or as are required by applicable law to give effect to
the provisions of this Agreement and to cause the Company to be treated as a
limited liability company under the laws of the State of Delaware. The Managing
Members shall cause the Company to be registered or qualified under its own name
or under an assumed or fictitious name pursuant to a foreign limited liability
company statute or similar laws in any jurisdictions in which the Company owns
property or transacts business if such registration or qualification is
necessary to protect the limited liability of the
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Members or to permit the Company lawfully to own property or transact business
in such jurisdiction.
ARTICLE TWO
MEMBERS AND CAPITAL CONTRIBUTIONS
Section 2.1 Capital Commitments and Contributions.
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(a) The Capital Members hereby commit and agree to make cash
contributions to the capital of the Company in such amounts as may be determined
from time to time by the Capital Members in consultation with the Managing
Members, which cash contributions shall be allocated between the Capital Members
in proportion to their respective Percentages in Interest as set forth on
Schedule I attached hereto. The amount of such commitment is referred to herein
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as a "Capital Commitment." The amount of capital contributed pursuant to such
Capital Commitment is referred to as "Capital Contributions." The Managing
Members shall call for payment of the Capital Members' Capital Commitment as
needed to fund the Company's investments in Portfolio Companies and other
permitted uses under this Agreement. All such calls shall be made in writing
and shall specify the intended use of such called capital. Such call shall be
made at least ten (10) Business Days before the date on which the installment
payable in response to that call is due. With respect to the funding of the
initial Capital Commitment of the Capital Members hereunder, the Capital Members
shall fund such Capital Commitment by contributing to the Company the equity
securities of the companies listed on Schedule 2 attached hereto with a cost
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basis set forth on such Schedule. No Capital Contribution returned to the
Capital Members shall be callable by the Managing Members pursuant to this
Section 2.1 thereafter.
(b) From time to time, the Members, acting unanimously, may
determine that capital in excess of the aggregate Capital Commitment of the
Capital Members is required in order for the Company to meet its obligations and
to pursue its business activities. The Members shall agree on the amount of any
additional capital required to be contributed and the timing of the funding of
such capital by the Members.
Section 2.2 Admission of Additional Members.
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Additional Members may be admitted to the Company at such times and on such
terms as shall be determined by a Majority of the Managing Members.
Section 2.3 Capital Accounts and Revaluations.
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The Company shall establish and maintain a capital account (a "Capital
Account") for each Member. A Member's Capital Account shall be (i) increased by
(a) the amount of such Member's Capital Contribution, (b) such Member's
allocations of Profit pursuant to Section 3.1
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and (c) items of income or gain specially allocated to such Member pursuant to
Sections 3.2 or 3.3, (ii) decreased by (x) the amount of money and the fair
market value of any property distributed to such Member by the Company, (y) such
Member's allocations of Loss pursuant to Section 3.1 and (z) items of loss,
deduction or expenditure specially allocated to such Member pursuant to Sections
3.2 or 3.3, and (iii) adjusted to reflect any liabilities that are assumed by
such Member or the Company (within the meaning of Section 1.704-1(b)(2)(iv)(c)
of the Regulations), all in accordance with Sections 1.704-1(b)(2)(iv) and
1.704-2 of the Regulations. Except as otherwise provided in the Regulations, a
transferee of all or a portion of a Member's Interest shall succeed to the
Capital Account of his transferor to the extent allocable to the transferred
Interest.
Notwithstanding any provision of this Agreement other than Section 3.6, the
Managing Members may revalue Company properties, and make corresponding
adjustments to the Members' Capital Accounts, as prescribed by the Regulations
in connection with any contribution to or distribution by the Company of more
than a de minimis amount of money or other property in exchange for an interest
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in the Company unless the Managing Members reasonably determine that such
revaluations and adjustments are not necessary to reflect the economic interests
of the Members in the Company. In addition, the book values of Company
properties shall be increased or decreased, as the case may be, to reflect any
adjustments to the adjusted tax bases of such properties pursuant to Section
734(b) or Section 743(b) of the Code to the extent that such basis adjustments
(i) are taken into account in determining Capital Account balances pursuant to
Section 3.2.3 and (ii) have not been reflected in adjustments to the book values
of such properties pursuant to the preceding sentence of this Section 2.3.
Section 2.4 No Rights to Demand Return of Capital Contributions.
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No Member shall be entitled to withdraw any part of its or his Capital
Account or Capital Contribution, to receive any distribution from the Company or
to cause a partition of the assets of the Company except as expressly provided
in this Agreement. No Member shall be paid interest on any Capital Contribution
or receive any salary or drawing with respect to its Capital Contribution or
Capital Account or for services rendered on behalf of the Company or otherwise
in its capacity as a Member, except as otherwise provided in this Agreement.
Section 2.5 Liabilities of Members.
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Except as otherwise expressly set forth herein or in the Act, the Members
shall not have, and the Managing Members shall at all times conduct their
affairs and the affairs of the Company so that no Member shall have, any
personal liability whatsoever in his capacity as a Member, whether to the
Company, to any Member or to the creditors of the Company, for the debts,
liabilities, contracts or other obligations of the Company or for any losses of
the Company.
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ARTICLE THREE
ALLOCATIONS; DISTRIBUTIONS
Section 3.1 Net Operating Profits and Net Operating Losses-Allocation.
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(a) Prior to the allocation of any Net Realized Capital Gains or
Net Realized Capital Losses for each Fiscal Year as provided in Section 3.2
below, Net Operating Profits, if any, of the Company for each Fiscal Year shall
be allocated to the Members as follows and in the following order of priority as
of the end of such Fiscal Year:
(i) First, so much of such Net Operating Profits for such
Fiscal Year as shall not exceed the @Ventures, Inc. Loss, if any,
as of the end of the preceding Fiscal Year shall be allocated to
@Ventures, Inc. to cover part or all of such @Ventures, Inc. Loss.
(ii) Second, so much of any remaining Net Operating Profits
for such Fiscal Year as shall not exceed the Capital Members Loss,
if any, as of the end of the preceding Fiscal Year shall be
allocated to all of the Capital Members in proportion to their
Percentages in Interests as set forth in Schedule I.
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(iii) Third, so much of any remaining Net Operating Profits
for such Fiscal Year as shall not exceed the Managing Member Loss,
if any, as of the end of the preceding Fiscal Year shall be
allocated to the Managing Members as a group to be further
allocated among the Managing Members pro rata according to each
Managing Member's Carried Interest Percentage and added to their
respective Capital Accounts to cover part or all of such Managing
Member Loss.
(iv) Fourth, the balance of any remaining Net Operating
Profits, if any, for such Fiscal Year shall be allocated as
follows: (A) twenty percent (20%) shall be allocated to the
Managing Members as a group to be further allocated among the
Managing Members pro rata according to each Managing Member's
Carried Interest Percentage and added to their respective Capital
Accounts, and (B) eighty percent (80%) shall be allocated to
@Ventures, Inc. and added to its Capital Account
(b) Prior to the allocation of any Net Realized Capital Gains or
Net Realized Capital Losses for each Fiscal Year as provided in Section 3.2
below, Net Operating Losses, if any, of the Company for each Fiscal Year shall
be allocated to the Members as follows and in the following order of priority as
of the end of such Fiscal Year:
(i) First, such Net Operating Losses for such Fiscal Year
shall be allocated as follows: (A) twenty percent (20%) of such Net
Operating Losses (but
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not to exceed the Managing Members' positive account balances, if
any, existing in their Capital Accounts as of the end of the
preceding Fiscal Year) shall be allocated to the Managing Members
as a group as a Managing Member Loss to be further allocated
among such Managing Members in proportion to each Managing
Member's Carried Interest Percentage and debited pro rata to
their respective Capital Accounts, and (B) eighty percent (80%)
of such Net Operating Losses shall be allocated to @Ventures,
Inc. and added to its Capital Account.
(ii) Second, the balance of such Net Operating Losses as
shall exceed (A) the positive account balances, if any, existing
in the Managing Members' Capital Accounts as of the end of the
preceding Fiscal Year and (B) the excess of the Unrecovered
Capital of the Capital Members of the Capital Members Loss, if
any, as of the end of the preceding Fiscal Year, shall be
allocated to @Ventures, Inc. as an @Ventures, Inc. Loss.
Section 3.2 Capital Gains and Capital Losses with Respect to Portfolio
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Securities-Allocation.
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(a) Following the allocation of any Net Operating Profits or Net
Operating Losses for each Fiscal Year as provided in Section 3.1 above, Net
Realized Capital Gains, if any, of the Company for each Fiscal Year shall be
allocated to the Members as follows and in the following order of priority as of
the end of such Fiscal Year.
(i) First, so much of such Net Realized Capital Gains
for such Fiscal Year as shall not exceed the @Ventures, Inc.
Loss, if any, as of the end of the preceding Fiscal Year (as
increased or decreased by the allocation of any Net Operating
Losses or Net Operating Profits for the current Fiscal Year)
shall be allocated to @Ventures, Inc. to cover part or all of
such @Ventures, Inc. Loss.
(ii) Second, so much of any remaining Net Realized
Capital Gains for such Fiscal Year as shall not exceed the
Capital Member Loss, if any, as of the end of the preceding
Fiscal Year (as increased or decreased by the allocation of any
Net Operating Losses or Net Operating Profits for the current
Fiscal Year) shall be allocated to the Capital Members in
proportion to their Percentages in Interest to cover part or all
of such Capital Member Loss.
(iii) Third, so much of any remaining Net Realized Capital
Gains for such Fiscal Year as shall not exceed the Managing
Member Loss, if any, as of the end of the preceding Fiscal Year
(as increased or decreased by the allocation of any Net Operating
Losses or Net Operating Profits for the current Fiscal Year)
shall be allocated to the Managing Members as a group to be
further allocated among the Managing Members pro rata according
to each Managing Member's Carried
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Interest Percentage and added to their respective Capital
Accounts to cover part or all of such Managing Member Loss.
(iv) Fourth, the balance of such Net Realized Capital Gains,
if any, for such Fiscal Year shall be allocated as follows: (A)
twenty percent (20%) shall be allocated to the Managing Members
as a group to be further allocated among the Managing Members pro
rata according to each Managing Member's Carried Interest
Percentage and added to their respective Capital Accounts, and
(B) eighty percent (80%) shall be allocated pro rata to the
Capital Members as a group to be further allocated between the
Capital Members according to each Capital Member Percentage in
Interest as set forth in Schedule 1, and added to its Capital
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Account.
(b) Following the allocation of any Net Operating Profits or Net
Operating Losses for each Fiscal Year as provided in Section 3.1 above, Net
Realized Capital Losses, if any, of the Company for each Fiscal Year shall be
allocated to the Members as follows and in the following order of priority as of
the end of such Fiscal Year:
(i) First, such Net Realized Capital Losses for such Fiscal
Year shall be allocated as follows: (A) twenty percent (20%) of
such Net Realized Capital Losses (but not to exceed the Managing
Members' positive account balances, if any, existing in their
Capital Accounts as of the end of the preceding Fiscal Year as
increased or decreased by the allocation of any Net Operating
Losses or Net Operating Profits for the current Fiscal Year)
shall be allocated to the Managing Members as a group as a
Managing Member Loss to be further allocated among the Managing
Members according to each Managing Member's Carried Interest
Percentage and debited pro rata to their respective Capital
Accounts, and (B) eighty percent (80%) of such Net Realized
Capital Losses (but not to exceed the excess of the Unrecovered
Capital of the Capital Members over the Capital Member Loss, if
any, as of the end of the preceding Fiscal Year as increased or
decreased by the allocation of any Net Operation Losses or Net
Operating Profits for the current Fiscal Year) shall be allocated
to the Capital Members as a Capital Member Loss in proportion to
their respective Percentages in Interest as set forth in Schedule
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I and debited to their respective Capital Accounts.
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(ii) Second, the balance of such Net Realized Capital Losses
as shall exceed (A) the positive account balances, if any,
existing in the Managing Members' Capital Accounts as of the end
of the preceding Fiscal Year and (B) the excess of the
Unrecovered Capital of the Capital Members over the Capital
Member Loss, if any, as of the end of the preceding Fiscal Year,
shall be allocated to @Ventures, Inc. as an @Ventures, Inc. Loss.
Section 3.3 Special Allocation Rules.
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Before any allocations are made pursuant to Section 3.1 or 3.2, the
following special allocations shall be made in the following order
3.3.1 If any Member unexpectedly receives any adjustment, allocation or
distribution 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 which causes it
to have an, or increases the amount of its, Adjusted Capital Account Deficit,
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, such Member's Adjusted Capital Account Deficit as quickly as
possible, provided that an allocation pursuant to this Section 3.3.1 shall be
made to a Member only if and to the extent that such Member would have an
Adjusted Capital Account Deficit after all other allocations provided for in
this Article Three have been tentatively made as if this Section 3.3.1 were not
in this Agreement. This Section 3.2.1 is intended to constitute a "qualified
income offset" as defined in Section 1.704-1(b)(2)(ii)(d) of the Regulations.
3.3.2 If any Member has an Adjusted Capital Account Deficit as of the
end of any Fiscal Year or other accounting period of the Company that is in
excess of the amount such Member is deemed to be obligated to restore to his
Capital Account pursuant to the penultimate sentences of Sections 1.704-2(g)(1)
and 1.704-2(h)(5) of the Regulations (the so-called deficit restoration rule),
items of Company income and gain in the amount of such excess shall be specially
allocated to such Member as quickly as possible, provided that an allocation
pursuant to this Section 3.3.2 shall be made to a Member only if and to the
extent that such Member would have an Adjusted Capital Account Deficit that is
in excess of the amount such Member is deemed to be obligated to restore to his
Capital Account pursuant to the penultimate sentences of Sections 1.704-2(g)(1)
and 1.704-2(h)(5) of the Regulations after all other allocations provided for in
this Article Three have been tentatively made as if this Section 3.3.2 were not
in this Agreement.
3.3.3 To the extent an adjustment to the adjusted tax basis of any asset
of the Company pursuant to Section 734(b) or Section 743(b) of the Code is
required, pursuant to Section 1.704-1(b)(2)(iv)(m) of the Regulations, to be
taken into account in determining Capital Accounts, the amount of such
adjustment to the 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 the basis of the asset), and such gain or loss shall be specially
allocated to the Members in a manner that is consistent with the manner in which
their Capital Accounts are required to be adjusted pursuant to Section 1.704-
1(b)(2)(iv)(m) of the Regulations.
3.3.4 Notwithstanding Section 3.1 or 3.2, an allocation of Loss shall
not be made to a Member to the extent that such allocation would cause such
Member to have an Adjusted Capital Account Deficit. An allocation of Loss that
would be made to a Member but for this Section 3.3.4 shall instead be made to
the other Members to the extent of and in proportion to the amounts of such loss
that they could then be allocated without themselves having Adjusted Capital
Account Deficits (or, if such other Members would not have Adjusted Capital
Account
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Deficits, in proportion to their respective Percentages of Contribution Capital)
and thereafter to the Capital Members.
Section 3.4 Corrective Allocations.
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The allocations set forth in Section 3.3 (the "Regulatory Allocations") are
intended to comply with certain requirements of Sections 1.704-1(b) and 1.704-2
of the Regulations. Notwithstanding any other provision of this Article Three,
the Regulatory Allocations shall be taken into account in making allocations of
items of income, gain, loss, deduction and expenditure among the Members so
that, to the extent possible consistent with the Code and the Regulations and on
a cumulative basis, the respective net amounts of such allocations of other
items and the Regulatory Allocations to the Members are equal to the respective
net amounts that would have been allocated to the Members had no Regulatory
Allocations been made. The Managing Member shall apply this Section 3.4 at such
times and in whatever order, and shall divide allocations made pursuant to this
Section 3.4 among the Members in such manner, as it determines is likely to
minimize any economic distortions that might otherwise be caused by the
Regulatory Allocations.
Section 3.5 Tax Allocations.
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3.5.1 Tax allocations for each fiscal year or other accounting period of
the Company shall be made consistent with the allocations of Profit and Loss and
items specially allocated pursuant to Sections 3.3 and 3.4 for such year or
period, except that, solely for tax purposes, (i) items of income, gain, loss
and deduction with respect to Company assets reflected hereunder in the Members'
Capital Accounts and on the books of the Company at values that differ from the
Company's adjusted tax bases in such assets shall be allocated among the Members
so as to take account of those differences pursuant to the "traditional method
with curative allocations" set forth in Section 1.704-3(c) of the Regulations
and in such manner as the Managing Members reasonably determine is in accordance
with the principles of Section 704(c) of the Code and with Sections 1.704-
1(b)(2)(iv)(f), 1.704-1(b)(2)(iv)(g), 1.704-1(b)(4)(i) and 1.704-3 of the
Regulations, and (ii) adjustments made pursuant to Section 734(b) or Section
743(b) of the Code shall be taken into account.
3.5.2 The Members are aware of the federal income tax consequences of
the allocations made by this Article Three and agree to report their shares of
Company income and loss for income tax purposes in accordance with this Article
Three.
Section 3.6 Distributions Prior to Liquidation.
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3.6.1 Subject to Sections 3.7, 3.8 and Article Five, Available Cash for
each fiscal year (or fractional portion thereof) shall be distributed to the
Members at such time or times determined by the Managing Members (but not less
often than annually) in proportion to their respective allocations of Net
Operating Profits and Net Realized Capital Gains as determined
-9-
pursuant to ARTICLE III; provided, however, that Available Cash may first be
applied to the payment of expenses incurred by the Company in the sale or other
disposition of Portfolio Securities or any other expenses with respect to which
the Company does not receive sufficient cash to pay such expenses. In the event
the Company is unable, for any reason, to pay any portion of such expenses, the
amount not paid shall be carried forward, as a priority item, without interest,
to be paid out of Available Cash or on liquidation. Final distributions of
Available Cash for each Fiscal Year, determined in accordance with the
provisions of this Section 3.6, shall be made as soon as practicable following
such Fiscal Year.
3.6.2 In addition to any other obligations hereunder including that set
forth in Schedule 5.2(h), the Managing Members shall endeavor (if practical and
reasonable to do so in light of the circumstances of the Company) to distribute,
if available, sufficient amounts of Available Cash to the Members in accordance
with this Section 3.6 to enable such Members to make timely payment of any
Federal, state, local and foreign income tax liabilities incurred by them as a
result of their participation in the Company.
Section 3.7 Distributions Upon Liquidation.
------------------------------
3.7.1 Upon the liquidation of the Company, the assets of the Company
shall first be applied to the payment of, or the establishment of adequate
reserves or other provision for the payment of, the debts and obligations of the
Company. Thereafter, there shall be made a final allocation of Profit or Loss,
as the case may be, and other items to the Members' Capital Accounts in
accordance with Sections 3.1 through 3.4. The assets of the Company (or the
proceeds of sales or other dispositions in liquidation of assets of the Company)
remaining after the payment or other provision for the Company's debts and
obligations shall then be distributed to the Members in proportion to the
positive balances in their Capital Accounts determined after the final
allocation of Profit or Loss and other items to Capital Accounts has been made.
Amounts reserved or otherwise set aside in connection with the Company's
liquidation for the payment of Company debts and obligations shall be
distributed to the Members, in the same proportions that such amounts would have
been distributed hereunder if distributed upon the Company's liquidation, as
soon as practicable. No Member shall be required or otherwise obligated to
restore or contribute any deficit balance in such Member's Capital Account upon
the liquidation of the Company.
3.7.2 The Managing Members, or an authorized liquidating trustee if one
is appointed, may distribute assets of the Company in kind upon the liquidation
of the Company. Any asset to be distributed in kind shall be distributed on the
basis of its Fair Market Value as determined in accordance with the provisions
of Section 3.9. For purposes of making the final allocation of Profit or Loss,
and other items required by Section 3.7.1, any asset other than cash that is to
be distributed to one or more Members in kind shall be treated as having then
been sold by the Company for its Fair Market Value as determined in accordance
with the provisions of Section 3.9. Each Member who receives an interest in any
Company asset distributed hereunder
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shall hold his interest in such asset as a tenant-in-common with all other
Members who receive an interest in such asset.
Section 3.8 Distributions of Securities in Kind.
-----------------------------------
3.8.1 The Managing Members, upon the affirmative vote of a Majority of
the Managing Members, shall distribute to the Members Portfolio Securities which
are Marketable Securities, unless the Capital Member determines that a
distribution of such securities would not serve the best interests of the
Company. The Managing Members shall notify the Members each time a Portfolio
Security becomes a Marketable Security. The Managing Members shall not
distribute Portfolio Securities that are not Marketable Securities at any time
other than upon the liquidation of the Company.
3.8.2 With respect to securities distributed in kind to the Members in
liquidation or otherwise, (i) any unrealized appreciation or unrealized
depreciation in the values of such securities shall be deemed to be realized by
the Company immediately prior to the liquidation or other distribution event;
and (ii) such appreciation or depreciation shall be allocated to the Members as
part of the allocation of Profit or Loss, as the case may be, for the year of
the distribution in accordance with Sections 3.1 through 3.4 hereof, and
treating any property so distributed as a distribution of an amount in cash
equal to the Fair Market Value of the property determined pursuant to Section
3.9. For the purposes of this Section 3.8.2, "unrealized appreciation" or
"unrealized depreciation" shall mean the difference between the fair market
value of such assets and the adjusted basis of such assets for Federal income
tax purposes (or, in the case of any asset that is reflected on the books of the
Company at a value that is different from the Company's Federal tax basis in
such asset in compliance with the Regulations, the value of such asset as shown
on the Company's books). This Section 3.8.2 is merely intended to provide a
rule for allocating unrealized gains and losses upon a liquidation or other
distribution event, and nothing contained in this Section 3.8.2 or elsewhere in
this Agreement is intended to treat or cause such distributions to be treated as
sales for value.
3.8.3 The Managing Members may cause certificates evidencing any
securities to be distributed to be imprinted with legends as to such
restrictions on transfers that it may deem necessary, including legends as to
applicable Federal or state securities laws or other legal or contractual
restrictions, and may require any Member to which securities are to be
distributed to agree in writing that such securities will not be transferred
except in compliance with such restrictions and applicable law.
Section 3.9 Valuation.
---------
For all purposes of this Agreement, the Fair Market Value of securities and
other property of the Company shall be determined as follows:
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3.9.1 Marketable Securities shall (i) if traded on a national securities
exchange, be valued at their last sales price on such exchange on which such
Marketable Securities shall have traded on the last trading day on which such
Marketable Securities were traded immediately preceding the date of
determination, or (ii) if the trading of such Marketable Securities is reported
through the National Association of Securities Dealers Automated Quotation
System, such Marketable Securities shall be valued at the last sale price as
shown by the National Association of Securities Dealers Automated Quotation
System on the last trading day on which such Marketable Securities were traded
immediately preceding the date of determination.
3.9.2 All property other than Marketable Securities shall be valued by
the Managing Members in good faith. Factors considered in valuing individual
securities shall include, but need not be limited to, purchase price, estimates
of liquidation value, the price at which Members receiving a distribution of
securities will be able to sell them and the time at which such securities may
be sold, the existence of restrictions on transferability, prices received in
recent significant private placements of securities of the same issuer, prices
of securities of comparable public companies engaged in similar businesses and
changes in the financial condition and prospects of the issuer.
3.9.3 Upon any valuation of securities or other property of the Company
pursuant to Section 3.8, the Managing Members shall notify the Capital Member in
writing of the Fair Market Value of such securities or other property as
determined by the Managing Members in accordance with the provisions of Section
3.9. The Capital Members shall, not more than ten Business Days after the
receipt of such notice from the Managing Members, furnish notice in writing to
the Managing Members stating whether or not it has approved or has not approved
the Managing Members' valuation. If the Capital Members approve such valuation
(or shall have failed to provide the Managing Members with the aforementioned
notice within such ten Business Days), such valuation shall constitute the Fair
Market Value of such property for all purposes hereof. If the Capital Members
does not approve such valuation, and if the Managing Members and the Capital
Members cannot agree on a valuation within five Business Days (or such other
period of time as the Managing Members and the Capital Members may determine) of
the date on which the Capital Members advise the Managing Members that they have
not approved such valuation, the Managing Members and the Capital Members shall
jointly select an independent appraiser who shall be retained to determine, as
promptly as practicable, the Fair Market Value of the property to be
distributed. The Company shall pay the expenses of such appraiser.
-12-
ARTICLE FOUR
MANAGEMENT; PAYMENT OF EXPENSES
Section 4.1 Description of Managing Members.
-------------------------------
The Managing Members of the Company shall initially be ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇,
▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, and ▇▇▇▇▇ ▇. ▇▇▇▇▇.
Section 4.2 Management by the Managing Members.
----------------------------------
The management, policy and operation of the Company shall be vested
exclusively in the Managing Members who shall perform all acts and enter into
and perform all contracts and other undertakings which they deem necessary or
advisable to carry out any and all of the purposes of the Company. Except as
may otherwise be required by law, all actions which Managing Members are
permitted or required to take hereunder shall require the approval of a Majority
of the Managing Members. Without limiting the foregoing general powers and
duties, and except as is otherwise expressly set forth herein, the Managing
Members are hereby authorized and empowered on behalf of the Company and, as
relevant herein, is required:
(1) To identify investment opportunities for the Company, negotiate and
structure the terms of such investments, arrange additional financing needed to
consummate such investments and monitor such investments.
(2) To invest the assets of the Company in accordance with the purposes set
forth herein in the securities of any organization, domestic or foreign, without
other limitation as to kind and without other limitation as to marketability of
the securities, and pending such investment, to invest the assets of the Company
in Temporary Investments.
(3) To exercise all rights, powers, privileges and other incidents of
ownership with respect to the Portfolio Securities, including, without
limitation the voting of such Portfolio Securities, the approval of a
restructuring of an investment, participation in arrangements with creditors,
the institution and settlement or compromise of suits and administrative
proceedings, and other similar matters.
(4) To sell, transfer, liquidate or otherwise terminate investments made by
the Company.
(5) To employ or consult brokers, accountants, attorneys, or specialists in
any field of endeavor whatsoever, including, subject to the provisions of
Article Six, such persons or firms who may be Members.
-13-
(6) To deposit any funds of the Company in any bank or trust company or
money market fund provided that, in the case of any bank or trust company such
bank or trust company qualifies as a Financial Institution and in the case of
any money market fund such fund would qualify as a money market fund in which
the Company may make a Temporary Investment, and to entrust to such bank or
trust company any of the securities, monies, documents and papers belonging to
or relating to the Company; provided, however, that from time to time, in order
to facilitate any transaction, any of the said securities, monies, documents and
papers belonging to or relating to the Company may be deposited in and entrusted
to any brokerage firm that is a member of the New York Stock Exchange and which
has minimum net capital of $10 million as calculated in accordance with the
Securities Exchange Act of 1934.
(7) To determine, settle and pay all expenses, debts and obligations of and
claims against the Company and, in general, to make all accounting and financial
determinations and decisions.
(8) To provide bridge financing to Portfolio Companies.
(9) To enter into, make and perform all contracts, agreements and other
undertakings as may be determined to be necessary or advisable or incident to
the carrying out of the foregoing objectives and purposes, the execution thereof
by the Managing Member to be conclusive evidence of such determination.
(10) To execute all other instruments of any kind or character which the
Managing Member determines to be necessary or appropriate in connection with the
business of the Company, the execution thereof by the Managing Member to be
conclusive evidence of such determination.
(11) To make Follow-on Investments in Portfolio Companies from either
Capital Contributions called from the Members pursuant to Section 2.1 or
Available Cash.
(12) To guarantee obligations of Portfolio Companies.
(13) To interpret and construe the terms, conditions and other provisions of
this Agreement or any agreement entered into in connection herewith such
construction or interpretation to be binding on the Members.
Section 4.3 Actions Requiring Member Consent.
--------------------------------
Notwithstanding any other provision of this Agreement, the Managing Members
shall have no authority without the Consent of the Capital Members to (i) do
any act that is in contravention of this Agreement or that is not consistent
with the purposes of the Company, (ii) do any act that would make it impossible
to carry on the ordinary business of the Company, (iii)
-14-
guarantee obligations of Portfolio Companies, (iv) to provide bridge financing
to any Portfolio Company, or (v) invest more than 25% of the aggregate Capital
Commitments in the securities of any one issuer. Other than as set forth in this
Section 4.3 or elsewhere in the Agreement, the Capital Members shall not
participate in the management, operation or control of the Company.
Section 4.4 Indemnification.
----------------
The Managing Members and the Capital Members shall be entitled to indemnity
from the Company for any liability incurred and/or for any act performed by any
of them within the scope of the authority conferred on them, by this Agreement,
and/or for any act omitted to be performed, provided, however, that no
indemnification shall be available in the event that any such Managing Member or
Capital Member shall have been adjudicated in any proceeding not to have acted
in good faith in the reasonable belief that his or her action was in the best
interest of the Company. Indemnification hereunder shall include all reasonable
expenses incurred, including reasonable legal and other professional fees and
expenses.
Section 4.5 Payment of Fees and Expenses.
----------------------------
The Company shall be responsible for and shall pay all fees and reasonable
expenses of the Company, including without limitation: (i) out-of-pocket
expenses incurred and fees paid by the Company or the Managing Members in
connection with the formation of the Company and the offering and distribution
of interests therein; and (ii) expenses which relate to office space, supplies
and other facilities of its business and salary, fees and expenses of officers,
employees, consultants, outside counsel and accountants and similar outside
advisors; provided that, with respect to consummated investments, it is
expected, and the Managing Members will use their reasonable best efforts to
ensure that such fees and expenses are paid by the Portfolio Company in which
the investment is made.
ARTICLE FIVE
MANAGING MEMBERS
Section 5.1 Managing Members; Rights Thereof.
--------------------------------
Set forth on the signature pages hereto are the names of the Managing
Members. Each Managing Member shall possess a Carried Interest Percentage
determined pursuant to this Article Five with respect to such Managing Member's
Vested Units. A Managing Member's Carried Interest Percentage shall, subject to
the provisions of this Article Five, entitle such Managing Member to allocations
of Profits and distributions of Available Cash, Marketable Securities and other
assets of the Company pursuant to Article Three.
-15-
Section 5.2 Award and Vesting of Carried Interest Percentages.
-------------------------------------------------
(a) Each Managing Member shall be awarded units ("Units") by the
Capital Members to participate in the 20% allocation and distribution set forth
in Sections 3.1, 3.2 and 3.6 (the "Carried Interest") in such amounts as the
Capital Members may determine in their sole discretion (except as provided
herein) and set forth in Schedule 3 hereto. Units awarded to each Managing
----------
Member shall entitle such Managing Member to a percentage (the "Carried Interest
Percentage") of the Profit and Loss and the Available Cash, Marketable
Securities and other assets of the Company allocated and distributed to the
Managing Member as determined pursuant to the provisions of this Agreement.
Units awarded to each Managing Member hereunder shall vest with respect to that
particular Managing Member (the "Vested Units") in twenty (20) equal quarterly
cumulative consecutive installments of five percent (5%) for each calendar
quarter with each installment vesting in arrears at the end of each consecutive
quarterly period following the Managing Member's date of hire set forth in
Schedule 3 and with all such Units to have vested by the fifth anniversary of
----------
such date of hire provided that on each such vesting date each such Managing
Member must then be a full-time employee of the Company and must be in
compliance with, and not in default of, all of his or her obligations hereunder
in order for such vesting to occur. Units awarded to each Managing Member
hereunder which have not yet vested shall be referred to herein as Unvested
Units (the "Unvested Units") with respect to that particular Managing Member.
(b) The Carried Interest Percentage of each Managing Member
(including Former Managing Members to the extent that they have not forfeited
their Vested Units as hereinafter provided) with respect to the allocation of
Profits and Losses of the Company as determined pursuant to the provisions of
this Agreement shall be determined at any time or from time to time by dividing
the number of Units (including Unvested Units) owned by that particular Managing
Member by the total number of Units (including Unvested Units) owned by all
Managing Members (including Former Managing Members to the extent they have not
forfeited their Units as hereinafter provided).
(c) That portion of any allocation of Profits and Losses of the
Company which is attributable to Unvested Units which have not been forfeited
shall be added to the Capital Account maintained by the Company for each
respective Managing Member and shall be accompanied by a corresponding
allocation of all tax items but shall not be distributed to such Managing Member
except to the extent that such Units have vested. As of any distribution date,
each Managing Member shall therefore be entitled to receive (subject to the
terms and conditions of this Agreement) distributions of Available Cash pursuant
to Section 3.6 only to the extent of (i) his or her vested percentage
(determined by dividing his or her Vested Units as of the distribution date by
the total of his or her Vested and Unvested Units as of such date) of all
amounts allocated to such Capital Account up to the distribution date less (ii)
any prior distributions. Any Managing Member whose relationship with the Company
is terminated as provided in Section 5.3 below (a "Former Managing Member"),
shall forfeit all of his or her Units to the extent that such Units are unvested
at the time of
-16-
termination but shall retain that portion of his or her Capital Account, if any,
which is at that time held with respect to Vested Units. Such Managing Member
shall become a Former Managing Member and shall retain his or her Vested Units
subject to the terms and conditions of this Agreement. A Managing Member whose
relationship with the Company is terminated for Cause as hereinafter defined,
shall immediately forfeit all of his or her Vested and Unvested Units and shall
forfeit that portion of his or her Capital Account, if any, which is at that
time held in suspense pending vesting of such Unvested Units, but shall retain
that portion of his or her Capital Account, if any, which is at that time held
with respect to Vested Units. The Managing Members shall invest Available Cash
that would otherwise be distributable to the Managing Members pursuant to
Section 3.6 but which arises with respect to Unvested Units of the Managing
Members and is retained by the Partnership in Temporary Investments pending the
vesting of Unvested Units or other distribution events pursuant to this Section
5.2.
(d) No portion of any Carried Interest Percentage allocation shall be
made with respect to Vested or Unvested Units which have been forfeited as
hereinafter provided, but any such previously allocated portion (to the extent
not previously distributed) shall be reallocated to the Capital Members in
proportion to their respective Percentage in Interest as set forth on Schedule I
for subsequent allocation to existing or additional Managing Members as may be
determined by the Capital Members in their sole discretion.
(e) Any Units belonging to any Former Managing Members must only be
Units which were Vested Units belonging to such Former Managing Members at the
time of his or her termination. No Units shall vest whatsoever in a Managing
Member after his or her partnership relationship with the Company has terminated
for any reason whatsoever.
(f) Additional Units may be awarded from time to time by the Managing
Members or by the Capital Members to one or more Managing Members and to one or
more additional Managing Members but only with the approval of a Majority of the
Managing Members. Furthermore, the Managing Members may reallocate Units (both
vested and unvested) among the Managing Members but only with the approval of a
Majority of the Managing Members provided that no Managing Member shall give up
any Units (either vested or unvested) without his or her consent, except as
herein provided with respect to termination). The Managing Members may
accelerate the vesting of any Units for any one or more of the Managing Members
or by fulfillment of such conditions as the Managing Members shall approve or
otherwise, but only with the approval of a Majority of the Managing Members.
The Managing Members may also attach conditions or restrictions to the award or
vesting of Units with respect to any Managing Members but only with the approval
of a Majority of the Managing Members.
(g) Upon the discontinuance of the activities of the Company, or the
discontinuance by the Parent or any of its Affiliates, of activities related to
the funding of additional investment funds after the Company has been fully
invested, and with the approval of a Majority of the Managing Members, the
Unvested Units belonging to the Managing
-17-
Members shall all become Vested Units, provided, however, that the provisions of
Sections 5.2(e) and 5.3 shall nonetheless control in the case of Former Managing
Members.
(h) The Members acknowledge that as a result of the vesting provisions
of this Section 5.2, the Managing Members shall be allocated Profit with respect
to Unvested Units in a year in which there is no distribution of Available Cash
with respect to such Unvested Units. The Managing Members shall, accordingly,
use their best efforts to distribute Available Cash to the Managing Members each
year in an amount equal to the product of each Managing Member's allocation of
Profit with respect to his or her Unvested Units and the highest marginal
federal and state income tax rates applicable to a resident of Massachusetts.
This provision shall be in addition and in priority to the tax distribution
provision set forth in Section 3.6.2.
Section 5.3 Termination of Employment and Partnership Status.
------------------------------------------------
(a) In the event of termination of a Managing Member's employment
relationship with the Company (i) by a Managing Member voluntarily, or (ii) by
the Capital Members with the concurrence of a Majority of the Members but
otherwise in their sole discretion for any reason or for no reason except for
Cause as hereinafter defined, or (iii) by the death of a Managing Member, or
(iv) by the Capital Members on account of the continuous disability of a
Managing Member for a period of more than three (3) months (provided that the
Capital Members determine in their sole discretion that such Managing Member
cannot continue to fulfill his or her executive responsibilities to the Company
on account of such disability and gives such Managing Member at least thirty
(30) days notice of such determination), then in each such case such Managing
Member's employment relationship with the Company and status as a Managing
Member shall terminate forthwith and said Managing Member shall become a Former
Managing Member and shall retain his or her Vested Units for purposes of
determining his or her Vested Carried Interest Percentage at any time and from
time to time, but said Former Managing Member shall forfeit all of his or her
Units to the extent not vested at the time of termination. In the event of
termination of a Managing Member's employment relationship with the Company by
the Capital Members in their sole discretion for Cause as hereinafter defined,
then such Managing Member's employment relationship with the Company and status
as a Managing Member shall terminate forthwith and said Managing Member shall
not become a Former Managing Member but rather shall forfeit all of his or her
Units both vested and unvested and shall forfeit in its entirety such Managing
Member's Vested Carried Interest Percentage and any and all other interests he
or she may have in the Company or in any Capital Account held for the benefit of
such Managing Member pursuant hereto except that said Managing Member shall
retain that portion of his or her Capital Account, if any, which is at that time
held with respect to Vested Units and shall also retain the right to participate
to the extent of his or her Vested Units at the time of his or her termination
in the Carried Interest Percentage but only to the extent of any Profit or Loss
with respect to Portfolio Company Securities owned by the Company at the time of
his or her termination for Cause. The status of a Former Managing Member and
his or her
-18-
relationship as such with the Company may also be terminated by the Capital
Members in their sole discretion at any time for Cause as hereinafter defined,
in which event the Former Managing Member shall immediately forfeit all of his
or her Vested Units and shall forfeit in its entirety such Former Managing
Member's Vested Carried Interest Percentage and any and all other interests he
or she may have in the Company or in any Capital Account held for the benefit of
such Former Managing Member pursuant hereto except that said Managing Member
shall retain that portion of his or her Capital Account, if any, which is at
that time held with respect to Vested Units.
(b) Cause. For purposes of this Agreement, termination of a
Managing Member's employment relationship with the Company and status as a
Managing Member or status as a Former Managing Member for Cause shall be
determined in each instance in the sole discretion of the Boards of Directors of
the Capital Members and shall mean:
(i) conviction for, or plea of nolo contenders to, (A) a
felony, whether or not business related, which may injure the business
or reputation of the Company, the Capital Member or an Affiliate of
either of them, or (B) a crime of moral turpitude;
(ii) theft or embezzlement of assets of the Company, the Capital
Member or an Affiliate of either of them;
(iii) a material breach of any agreement between the Managing
Member and the Company, the Capital Member or an Affiliate of either of
them including, without limitation, any violation of the non-competition
covenant hereinafter set forth in Section 5.5 (the "Non-Competition
Covenant");
(iv) the willful and continued failure by the Managing Member to
substantially perform his or her duties (other than as a result of
incapacity due to physical or mental illness);
(v) gross neglect of duties or responsibilities as an employee
of the Company or as a Managing Member, or dishonesty or incompetence,
or willful misconduct, which in any case seriously and adversely affects
the business of the Company or of the Capital Members or of an Affiliate
of either of them but only if there has been a good faith determination
by the Boards of Directors of the Capital Members that such neglect or
misconduct or dishonesty or incompetence has occurred.
Termination for Cause can only be effected by the Boards of Directors of
the Capital Members by notice to the Managing Member, which notice must be given
within five (5) days following a hearing before the Board at which the Managing
Member will have an opportunity to answer the charges constituting Cause. The
hearing before the Board can be held only after
-19-
at least twenty (20) days' written notice to the Managing Member (unless the
Managing Member agrees to a shorter period) of the date and time of the hearing
and the nature of the charges constituting Cause. At the time of a notice of the
hearing or any time thereafter but prior to the Board's decision following the
hearing, the Board may immediately relieve the Managing Member of his or her
duties and responsibilities hereunder pending its decision.
Section 5.4 Change of Control.
-----------------
(a) Upon a Change of Control, as hereinafter defined, the Company
shall repurchase all, and not less than all, of the Units of each of the
Managing Members and each of the Former Managing Members, at the individual
election (an "Initial Election") of each Managing Member and each Former
Managing Member (such election to be exercised within two (2) months of the date
of the Change of Control) for an aggregate purchase price per Unit (the "Change
of Control Repurchase Price per Unit") equal to twenty percent (20%) of the fair
market value of the Company (determined as if the Company were a publicly traded
entity) in excess of the Capital Member's Unrecovered Capital (as calculated in
accordance with Section 5.4(b), the "Fair Market Value of the Capital"), divided
by the total number of Units (both vested and unvested) owned by the Managing
Members and Former Managing Members at the time of the Change of Control.
(b) For purposes of determining the Change of Control Repurchase Price
per Unit, the Fair Market Value of the Company (determined as if the Company
were a publicly traded entity) shall be determined by an independent firm of
investment bankers of national reputation (the "Appraiser"), the selection of
which by either the Managing Members or the Capital Member is acceptable to both
(i) a majority of all the members of the Board of Directors of the Capital
Member and (ii) a Majority of the Managing Members. The Appraiser must be
selected within one (1) month of the date of the Change of Control. If a
majority of all the members of the Board of Directors of the Capital Member and
a Majority of the Managing Members fail to select an Appraiser, then each shall
select an independent firm of investment bankers of national reputation and
those two firms shall select an Appraiser in no case more than two (2) months
following the date of the Change of Control. The Fair Market Value of the
Company shall be (i) the fair market value of the Company determined by the
Appraiser as if the Company were a publicly traded entity at the time of the
Change of Control (ii) less the Capital Member's Unrecovered Capital. In
determining the Fair Market Value of the Company as if it were a publicly traded
entity, the Appraiser shall give primary and substantial weight as a relevant
frame of reference to the fair market value of the Company determined in
accordance with the following methodology:
(i) The Appraiser shall first determine the consideration or value
belonging or accruing to all the stockholders of the Parent as the ultimate
owners of both (A) 100% of the Unrecovered Capital and 20% of the profits of
the Company and (B) all the other assets of the Parent, at the time of the
Change of Control, which consideration or value shall be deemed to be equal
to the Common Stock Price, as hereinafter defined,
-20-
multiplied by the number of shares of Common Stock of the Parent outstanding
at the time of the Change of Control determined after giving effect to (X)
the conversion of all convertible securities of the Parent and (Y) the
exercise of all options, whether or not exercisable, outstanding at such
time.
(ii) The Appraiser shall then deduct from that consideration or value
(A) all cash, cash equivalents and the amount of any invested cash held
directly or indirectly by the Parent (including, without limitation, all
Unrecovered Capital of the Company as appearing on the books of the Company)
and (B) the fair market value of the Parent's other core businesses
(excluding the Company and its Investments, Portfolio Companies and other
activities) comprised of companies, tangible assets and operating divisions
to the extent owned by the Parent (determined as if these other core
businesses were, in the aggregate, a separate publicly traded entity), the
fair market value of which shall also be determined by the Appraiser as of
the time of the Change of Control. The purpose of this calculation is to
determine the value of the Company considered as if it were a publicly
traded entity at the time of the Change of Control by determining that
portion of the value of the Parent as measured by the Common Stock Price
(less cash, cash equivalents and the amount of any invested cash including
the Unrecovered Capital of the Company and the appraised value of the
Parent's interest in other core businesses) which reflects the value of all
the Company's Internet-related Investments, Portfolio Companies and
activities which have been invested in by the Company determined as if the
Company were a publicly traded entity owned by the stockholders of the
Parent immediately prior to the time of the Change of Control with the
remainder of the value of the Parent as measured by the Common Stock Price
reflecting the value of the Parent's other core businesses (excluding the
Company and its investments, Portfolio Companies and other activities)
determined as if those other core businesses were a separate publicly traded
entity also owned by the stockholders of the Parent immediately prior to the
time of the Change of Control.
The Appraiser must first determine the Fair Market Value of the Company
determined as if it were a publicly traded entity by applying the methodology
set forth above, since this is the best available evidence of the actual value
of the Company as if it were a publicly traded entity at the time of the Change
of Control to the extent that the Common Stock Price reflects the Fair Market
Value of the Company. Thereafter, the Appraiser, in its discretion, may also
(but need not) consider and take into account the following criteria in
descending order of importance:
(x) The fair market value of other publicly traded entities dealing
primarily in Internet-related investments and activities of a kind similar
to those of the Company; and
(y) The Fair Market Value of the Company (determined as if the
Company were a publicly traded entity) taken as a whole after taking into
account the future earnings potential business prospects of all its various
Internet-related investments and
-21-
activities taken as a whole, with particular emphasis on the Company's
business plan and strategy for implementing that plan, taken as a whole, and
the general market conditions in the venture capital industry for Internet-
related investments and activities of the kind owned by the Company.
In determining the Fair Market Value of the Company, the Appraiser in no
event shall determine the individual value of each of the Portfolio Company
Securities or Investments of the Company and then add these values together
because such a methodology would fail to take into account the overall business
plan and strategy of the Company to build a business comprised of Intemet-
related investments and activities which complement and support each other as
parts of an overall strategy for the development of an Internet business), but
must in all events consider the Fair Market Value of the Company taken as a
whole.
(c) Upon a Change of Control, as hereinafter defined, the Unvested
Units belonging to the Managing Members shall all become Vested Units, provided,
however, that the provisions of Sections 5.2(e) and 5.3 shall nonetheless
control in the case of Former Managing Members.
(d) The Company, the Capital Members, and the Parent shall be jointly
and severally liable to the Managing Members for the payment of the Change of
Control Repurchase Price per Unit with respect to the Company's repurchase of
the Vested Units pursuant to this Section 5.4.
(e) Upon the consummation of the repurchase by the Company of any of
the Units of the Managing Members upon a Change of Control pursuant to the terms
of this Section 5.4, the Managing Member may, in its sole discretion, and
without the approval of the Managing Members (i) retire the repurchased Units or
(ii) admit additional Managing Members in accordance with Section 5.7 hereof and
award to the additional Profit General Partners any or all of the repurchased
Units.
(f) For purposes of this Agreement, a "Change of Control" shall be
deemed to have occurred when there has occurred a change of control of the
Parent (i) which has not been approved by a majority of all the members of the
Board of Directors of the Parent, or (ii) which has been approved by a majority
of all the members of the Board of Directors of the Parent but which has not
been approved by a Majority of the Members and which is likely by its terms to
have a material adverse effect upon the business and prospects of the Company as
currently, or planned to be, conducted, and which change of control in either
event is of a nature that would be required to be reported in response to Items
6(e) or 14(i), (iv), or (v) of Schedule 14A of Regulation 14A promulgated under
the Securities Exchange Act of 1934, as amended (the "Exchange Act") provided
that, in the case of a Change of Control reportable under Item 6(e), such Change
of Control involves the acquisition by any "person" (as such term is used in
Sections 13(d)(3) and 14(d)(2) of the Exchange Act, but expressly excluding
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇) of beneficial ownership, directly or indirectly, of
securities or
-22-
interests in the Parent which represent more than thirty percent (30%) of the
combined voting power of the Parent's outstanding securities. For purposes of
this Agreement, a "Change of Control" shall also be deemed to have occurred
when there has occurred a change of control of the Capital Member (i) which has
not been approved by a majority of all the members of the Board of Directors of
the Parent, or (ii) which has been approved by a majority of all the members of
the Board of Directors of the Parent but which has not been approved by a
Majority of the Managing Members and which is likely by its terms to have a
material adverse effect upon the business and prospects of the Company as
currently, or planned to be, conducted, and which change of control in either
event involves (i) the acquisition by any "person" (as such term is used in
Sections 13(d)(3) and 14(d)(2) of the Exchange Act) of beneficial ownership,
directly or indirectly, of securities or interests in the Capital Member which
represents more than fifty percent (50%) of the combined voting power of the
Capital Member's outstanding securities, or (ii) a sale of all or substantially
all of the assets of the Company or of the Capital Members, or (iii) either the
merger or consolidation of the Company or the Capital Members with another
entity which is the surviving entity of such merger or consolidation provided
that such other entity, prior to such merger or consolidation, was not
controlled directly or indirectly by the Parent.
(g) All fees and expenses associated with the appraisal process set
forth above shall be paid by the Parent.
(h) Each Managing Member or Former Managing Member making an Initial
Election to have his or her Units repurchased by the Company as provided in
Section 5.4(a) above following a Change of Control shall have one (1) month
following the determination of the Change of Control Repurchase Price per Unit
as provided above to reconsider and withdraw such Initial Election. Any
withdrawal of an Initial Election must be made by the Managing Member or Former
Managing Member by written notice to the Company within said one (1) month
period. In the event any such Initial Election is not withdrawn in a timely
manner, then it shall become final and binding on the parties and the Company
shall proceed to repurchase the Units owned by such Managing Member or Former
Managing Member within two (2) months following the date of the determination of
the Change of Control Repurchase Price per Unit as provided above. In the event
that any Managing Member or Former Managing Member fails to make a timely
Initial Election (except for reasons beyond his or her control) to have his or
her Units repurchased by the Company as provided in Section 5.4(a) above
following a Change of Control, such right shall immediately become null and void
and shall be of no further force or effect with respect to that Change of
Control, but said Managing Member or Former Managing Member shall retain his or
her rights hereunder with respect to any other or future Change of Control.
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Section 5.5 No Recruitment or Solicitation.
------------------------------
Each Managing Member agrees that during his or her employment by the
Company and while, he or she is a Managing Member and for a period of three (3)
years following termination of his or her employment relationship with the
Company (i) by the Managing Member voluntarily, or (ii) by the Capital Member
for Cause, such Managing Member will not, directly or indirectly: (A) recruit,
solicit or induce, or attempt to induce, any employee or consultant of the
Parent or of the Capital Member or of the Company or of any Portfolio Company or
of any Affiliate of any of them to terminate his or her employment with, or
otherwise cease any relationship with, the Parent or the Capital Member or the
Company or any Portfolio Company or any Affiliate of any of them; or (B)
solicit, divert, take away, or attempt to divert or take away, any investment
opportunity with respect to any Portfolio Company or any investment opportunity
with respect to any prospective investment or prospective portfolio company
which the Capital Member or the Company contacted or solicited during such
Managing Member's employment relationship with the Company. If any restriction
set forth herein is found by any court to be unenforceable because it extends
for too long a period of time, or over too great a range of activities, or over
too broad a geographic area, the restriction shall be interpreted to extend only
over the maximum period of time, range of activities, or geographic area which
the court finds to be enforceable. Each Managing Member acknowledges and agrees
that the restrictions contained in this Section 5.5 are necessary for the
protection of the business and goodwill of the Parent and of the Capital Member
and of the Company and of the Portfolio Companies and of the Affiliates of any
of them and are considered by such Managing Member to be reasonable for such
purpose and that his or her interest in the Company is being received partly in
consideration for the foregoing non-competition covenant.
Section 5.6 Non-Disclosure and Invention Assignment Agreement.
-------------------------------------------------
Each Managing Member shall enter into a Non-Disclosure and Invention
Assignment Agreement with the Partnership in the form of Exhibit A attached
hereto.
Section 5.7 Admission of Additional Managing Members.
----------------------------------------
The Capital Member may admit one or more additional Managing Members
subject only to satisfaction of the following conditions: (i) each such
additional Managing Member shall execute and deliver a counterpart signature
page to this Agreement pursuant to which such additional Managing Member agrees
to be bound by the terms and provisions hereof, and (ii) such admission would
not result in a violation of any applicable law, including the federal or state
securities laws, or any term or condition of this Agreement and, as a result of
such admission, the Company would not be required to register as an investment
company under the Investment Company Act. The name and business address of each
Managing Member admitted to the Company under this Section 5.7 and the number of
his or her Units awarded to such additional Managing Member and his or her date
of hire shall be added to Schedule 2,
----------
-24-
and each such Managing Member shall be bound by all the provisions hereof. Each
additional Managing Member admitted pursuant to this Section 5.7 shall be deemed
for purposes of all allocations pursuant to Article Three to have been admitted
on the date of hire. Admission of an additional Managing Member in accordance
with the terms hereof shall not be a cause of dissolution of the Company.
Additional Managing Members shall be admitted to the Company only with the
written consent of, and on the terms approved by, the Capital Member and a
Majority of the Managing Members.
ARTICLE SIX
OTHER ACTIVITIES OF MEMBERS; CONFLICTS OF INTEREST
Section 6.1 Commitment of Members.
---------------------
Each of the Managing Members hereby agrees to use its best efforts in
connection with the purposes and objectives of the Company and to devote to such
purposes and objectives such of their time and resources as shall be necessary
for the management of the affairs of the Company. Subject to the other
provisions of this Agreement, the Members and any of their respective Affiliates
may act as a director, officer, employee or advisor of any corporation, a
trustee of any trust, or a partner of any partnership; may receive compensation
for its services as an advisor with respect to, or participation in profits
derived from, the investments of any such corporation, trust or partnership; and
may acquire, invest in, hold and sell securities of any entity. Neither the
Company nor the Capital Member or any Managing Member shall have by virtue of
this Agreement, any right, title or interest in or to such other corporation,
trust, partnership, investment or security.
Section 6.2 Agreements with Portfolio Companies.
-----------------------------------
The Managing Members, the Parent of the Capital Member and its or their
Affiliates may enter into contracts, commitments and agreements with Portfolio
Companies consistent with Section 6.4 for the benefit of said Managing Member,
the Parent of the Capital Member and/or its or their Affiliates.
Section 6.3 Obligations and Opportunities for Members.
-----------------------------------------
The Managing Members shall be obligated to refer investment opportunities,
consistent with the purposes and objectives of the Company, to the Company. Any
determination as to the appropriateness of an investment opportunity for the
Company or for an Affiliate of the Company or for the Parent of the Capital
Member shall be made by the Capital Member.
-25-
Section 6.4 Conflicts of Interest.
---------------------
No contract or transaction between any Capital Member or the Company and
one or more of its Members or Affiliates, or between any Capital Member or the
Company and any other corporation, partnership association or other organization
in which one or more of its Members or affiliates are directors, officers or
partners or have a financial interest, shall be void or voidable solely for this
reason, or solely because the Members or affiliate is present at or participates
in any meeting of directors or partners which authorizes the contract or
transaction, or solely because his, her or their votes are counted for such
purpose, if:
(a) the material facts as to his, her or their interest as to the
contract or transaction are disclosed or are known to the directors or the
partners and the directors or the partners authorize in good faith the contract
or transaction by a vote sufficient for such purpose without counting the vote
of the interested director or partner even though the disinterested directors or
the disinterested partners be less than a quorum; or
(b) the material facts as to his, her or their interest and as to the
contract or transaction are disclosed or are known to the partners or directors
entitled to vote thereon, and the contract or transaction is specifically
approved in good faith by a vote of the partners or directors; or
(c) the contract or transaction is fair to the Capital Member or the
Company or its or their Affiliates as of the time it is authorized, approved or
ratified by the directors or the partners.
ARTICLE SEVEN
TRANSFERABILITY
Section 7.1 Assignment of Member Interest.
-----------------------------
(a) Either Capital Member may transfer or assign all or any part of
its interest in the Company as set forth in this Section, and provided that the
restrictions set forth in Section 7.2 do not apply, to a substitute Member
("Substitute Member"). A transferee or assignee of the Capital Member's interest
in the Company that does not comply with the provisions of this Section 7.1 or
is subject to the restrictions set forth in Section 7.2 shall not be admitted to
the Company as a Substitute Member and shall have none of the rights of the
Capital Member and the assigning or transferring Capital Member in such case
shall remain fully liable for all obligations hereunder as if such assignment or
transfer had not occurred. The assignee or transferee of the Capital Member's
Interest in the Company (an "Assignee") shall have the right to become a
Substitute Member only if the following conditions are satisfied:
-26-
(1) A duly executed and acknowledged written instrument of assignment
shall have been delivered to the Company.
(2) The Capital Member and the Assignee shall have executed and
acknowledged such other instruments and taken such other action as the Managing
Members shall reasonably deem necessary or desirable to effect such
substitution, including, without limitation, the execution by the Assignee of a
transfer document and an appropriate amendment to this Agreement.
(3) The restrictions on transfer contained in Section 7.2 shall be
inapplicable, and, if requested by the Managing Members, the Capital Member or
the Assignee shall have obtained an opinion of counsel reasonably satisfactory
to the Managing Members as to the legal matters set forth in that Section.
(4) The Capital Member or the Assignee shall have paid to the Company
such amount of money as is sufficient to cover all expenses incurred by or on
behalf of the Company in connection with such substitution.
(5) A Majority of the Managing Members shall have Consented, in their
sole and absolute discretion, to such substitution.
Any assignment or transfer not in compliance with this Article Seven shall
have no force or effect, and the assigning or transferring Member shall continue
for all purposes under the Act and this Agreement to be a Member of the Company.
(b) No Managing Member may sell, assign or otherwise transfer all or
any part of his or her interest as a Managing Member of the Company in any
respect whatsoever except that (i) the interest of a Managing Member may be
transferred to such Managing Member's spouse, children, grandchildren, parents
or siblings or a trust or any other entity for the benefit of any of such
persons or the Managing Member, and (ii) the interest of a Managing Member may
be transferred by will or by the laws of descent and distribution to such
Managing Member's estate or to his or her beneficiaries or heirs following the
death of such Managing Member, provided that each and every such transferee
agrees to be bound by all the terms and conditions of this Agreement applicable
to Managing Members and Former Managing Members including, without limitation,
those set forth in Article Three and Article Five.
Section 7.2 Restrictions on Transfer.
------------------------
Notwithstanding any other provision of this Agreement, except as otherwise
provided in Section 7.1(b), no Member may assign or otherwise transfer all or
any part of its interest in the Company, and no attempted or purported
assignment or transfer of such interest shall be effective, unless (i) after
giving effect thereto, the aggregate of all the assignments or transfers by the
Members of Interests in the Company within the 12 month period ending on the
proposed
-27-
date of such assignment or transfer would not equal or exceed 50% of the total
Interests of the Member in the capital or profits of the Company, and such
assignment or transfer would not otherwise terminate the Partnership for the
purposes of section 708 of the Code, (ii) such assignment or transfer would not
result in a violation of applicable law, including the federal and state
securities laws, or any term or condition of this Agreement and, as a result of
such assignment or transfer, the Company would not be required to register as an
investment company under the Investment Company Act and (iii) if requested by
the Managing Member, such Member shall deliver a favorable opinion of counsel
satisfactory to the Managing Member that such transfer would not result in (x) a
violation of the Securities Act of 1933 or any blue sky laws or other securities
laws of any state of the United States applicable to the Company or the Interest
to be transferred, (y) the Company being required to register, or seek an
exemption from registration, under the Investment Company Act of 1940, and (z)
the Company being deemed to be a "publicly traded partnership" within the
meaning of Section 7704 of the Code.
ARTICLE EIGHT
LIABILITY OF MEMBERS; INDEMNIFICATION
Section 8.1 Liability of Managing Members.
-----------------------------
8.1.1. The Managing Members shall not be liable to the Company or any
Member for any act or omission taken by any Managing Member in good faith and in
the belief that such act or omission is in the best interests of the Company;
provided that such act or omission is not in violation of this Agreement and
does not constitute negligence, misconduct, fraud or a willful violation of law
by such Managing Member. The Managing Members shall not be liable to the
Company or any other Member for any action taken by any other Member, nor shall
any Managing Member (in the absence of negligence, misconduct, fraud or a
willful violation of law by such Managing Member) be liable to the Company or
any other Member for any action of any employee or agent of the Company provided
that such Managing Member shall have exercised appropriate care in the selection
and supervision of such employee or agent.
8.1.2 Whenever in this Agreement the Managing Members are permitted or
required to make a decision (i) in their "discretion" or "sole discretion" or
under a grant of similar authority or latitude, the Managing Members shall be
entitled to consider only such interests and factors as they desire, including
their own interests, and shall have no duty or obligation to give any
consideration to any interests of or factors affecting the Company or any other
Person, or (ii) in their "good faith" or under another express standard, the
Managing Members shall act under such express standard and shall not be subject
to any other or different standard imposed by this Agreement or other applicable
law.
8.1.3 Notwithstanding Section 8.3 below, the Managing Members shall not
be indemnified for any losses, liabilities or expenses arising from or out of an
alleged violation of federal or state securities laws unless (i) there has been
a successful adjudication on the merits of
-28-
each count involving alleged securities law violations as to the particular
indemnitee, or (ii) such claims have been dismissed with prejudice on the merits
by a court of competent jurisdiction as to the particular indemnitee or (iii) a
court of competent jurisdiction approves a settlement of the claims against a
particular indemnitee. In any claim for indemnification for federal or state
securities law violations, the party seeking indemnification shall place before
the court the position of the Securities and Exchange Commission and the
Massachusetts Securities Division with respect to the issue of indemnification
for securities law violations. The Company shall not incur the cost of that
portion of any insurance, other than public liability insurance, which insures
any party against any liability the indemnification of which is herein
prohibited.
Section 8.2 Liability of Capital Members.
----------------------------
The liability of the Capital Members shall be limited to its uncalled
Capital Commitment of such Capital Member, provided, that the Capital Members
shall be liable for the return of any part of a distribution in respect of its
Capital Contribution to the extent required by law.
Section 8.3 Indemnification of the Managing Members and the Capital
-------------------------------------------------------
Member.
------
The Managing Members and their respective partners, agents, employees and
Affiliates and the Capital Members (the "Indemnitees") shall be and hereby are
(i) indemnified and held harmless by the Company and (ii) released by the other
Members from and against any and all claims, demands, liabilities, costs,
expenses, damages, losses, suits, proceedings and actions for which such
Indemnitee has not otherwise been reimbursed (collectively, "Liabilities"),
whether judicial, administrative, investigative or otherwise, of any nature
whatsoever, known or unknown, liquidated or unliquidated, that may accrue to the
Company or any other Member or in which any of the Indemnitees may become
involved, as a party or otherwise, arising out of the conduct of the business or
affairs of the Company by the respective Indemnitee or otherwise relating to
this Agreement, provided that an Indemnitee shall not be entitled to
indemnification or release hereunder if it shall have been determined by a court
of competent jurisdiction, or in the case of an Indemnitee that is a Managing
Member, its partners, agents, employees and Affiliates, it has been determined
by the Capital Member, that (x) such person did not act in good faith and in a
manner such person reasonably believed to be in the best interests of the
Company and, in the case of a criminal proceeding, did not have reasonable cause
to believe that his conduct was lawful, or (y) such Liabilities shall have
arisen from a violation of this Agreement or the negligence, misconduct, fraud
or willful violation of law by such Indemnitee, or actions of such Indemnitee
outside the scope of and unauthorized by this Agreement, and provided further
that an Indemnitee shall not be entitled to indemnification or release hereunder
with respect to any liability arising in connection with its activities
performed for or on behalf of any Portfolio Company, the securities of which
have been sold or have been distributed to the Members pursuant to Section 3.9,
if such activities were performed after the date on which such securities were
sold or distributed. The termination of any proceeding by settlement shall not,
of itself, create a presumption that the Indemnitee did not act in good faith
and in a manner that such person reasonably believed to be in the best interests
of the Company or that the Indemnitee did
-29-
not have reasonable cause to believe that its conduct was lawful. Any
indemnification right provided for in this Section 8.3 shall be retained by any
removed Managing Member and its partners, agents, employees and Affiliates. The
indemnification rights provided for in this Section shall survive the
termination of the Company or this Agreement.
Section 8.4 Payment of Expenses.
-------------------
Expenses incurred by an Indemnitee in defense or settlement of any claim
that may be subject to a right of indemnification hereunder may be advanced by
the Company prior to the final disposition thereof provided that the following
conditions are satisfied: (i) the claim relates to the performance of duties or
services by the Indemnitee on behalf of the Company and (ii) the Indemnitee
undertakes to repay the advanced funds to the Company if it is ultimately
determined that the Indemnitee is not entitled to be indemnified hereunder or
under applicable law. The right of any Indemnitee to the indemnification
provided herein shall be cumulative of, and in addition to, any and all rights
to which such Indemnitee may otherwise be entitled by contract or as a matter of
law or equity and shall extend to such Indemnitee's successors, assigns and
legal representatives. All judgments against the Company and any Managing
Member, in respect of which such Managing Member is entitled to indemnification,
must first be satisfied from Company assets before the Managing Member is
responsible therefor. The obligations of the Members under this Article VIII
shall be satisfied only after any applicable insurance proceeds have been
exhausted and then only out of Company assets and, to the extent required by
law, distributions made by the Company to the Members, and the Members shall
have no liability to fund indemnification payment hereunder.
ARTICLE NINE
DISSOLUTION, LIQUIDATION AND TERMINATION OF THE COMPANY
Section 9.1 Events Causing Dissolution.
--------------------------
The Company shall dissolve upon and its affairs shall be wound up after the
happening of any of the following events:
9.1.1 December 31, 2007; provided that the duration of the Company may
be extended by the Managing Members for not more than three additional one year
periods;
9.1.2 the Consent of the Capital Members and a Majority of the Managing
Members;
9.1.3 the sale or other disposition by the Company of all or substantially
all of its assets; or
9.1.3 the entry of a decree of judicial dissolution under Section 44 of
the Act.
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Section 9.2 Wind Up and Liquidation.
-----------------------
9.2.1 The Managing Members, or an authorized liquidating trustee for the
Company if one is appointed, shall be responsible for the winding up and
liquidation of the Company. Subject to Section 3.8, the Managing Members or such
liquidating trustee shall have full right and unlimited discretion to determine
the time, manner and terms of any sale or sales of Company assets pursuant to
such liquidation for the purpose of obtaining fair value for such assets, having
due regard to the activity and condition of the relevant markets and general
financial and economic conditions. Prior to the distribution of all of the
assets of the Company, the business of the Company and the affairs of the
Members, as such, shall continue to be governed by this Agreement.
9.2.2 Profit or Loss and other items arising from sales upon liquidation
shall be allocated, and the proceeds of such liquidation shall be applied, as
provided in Article Three.
9.2.3 In connection with the dissolution and liquidation of the Company,
the Managing Members or authorized liquidating trustee shall file an instrument
evidencing the cancellation of the Certificate in accordance with the Act.
ARTICLE TEN
CONSENTS, VOTING AND MEETINGS
Section 10.1 Method of Giving Consent.
------------------------
Any Consent required by this Agreement may be given by:
10.1.1 a written consent given by the consenting Member and received by
the Managing Members at or prior to the doing of the act or thing for which the
Consent is solicited; or
10.1.2 the affirmative vote by the consenting Member to the doing of the
act or thing for which the Consent is solicited at any meeting called and held
pursuant to Section 10.2 to consider the doing of such act or thing.
Section 10.2 Meetings.
--------
Any matter requiring the Consent of the Members pursuant to this Agreement
may be considered at a meeting held not less than 2 nor more than 10 days after
Notification thereof shall have been given by the Managing Members to such
Members or appointees, as the case may be. Any such Notification shall state
briefly the purpose, time and place of the meeting. All such meetings shall be
held at such reasonable times and places as the Managing Member shall designate.
-31-
Section 10.3 Submissions to Members.
----------------------
The Managing Members shall give the Members Notification of any proposal or
other matter required by any provision of this Agreement or by law to be
submitted for the consideration and approval of the Members. Such Notification
shall include any information required by the relevant provision of this
Agreement or by law.
ARTICLE ELEVEN
BOOKS AND RECORDS; ACCOUNTING; TAX ELECTIONS
Section 11.1 Accounting for the Company.
--------------------------
The Company shall use the accrual method of accounting and its financial
statements shall be prepared in accordance with generally accepted accounting
principles. The Company's tax return shall be prepared on an accrual basis.
The fiscal year of the Company shall end on July 31.
Section 11.2 Books and Records.
-----------------
The Managing Members shall keep or cause to be kept complete and
appropriate records and books of account. Except as otherwise expressly provided
herein, such books and records shall be maintained on the basis used in
preparing the Company's Federal income tax returns. Such information as is
necessary to reconcile such books and records with generally accepted accounting
principles shall also be maintained. The books and records shall be maintained
at the principal office of the Company and shall be available for inspection and
copying by any Member at its expense during ordinary business hours following
reasonable notice.
Section 11.3 Reports to Members.
------------------
Promptly after consummation of each investment in a Portfolio Company, the
Managing Members shall prepare and deliver to each Member a description of such
investment and the Portfolio Company in which it was made. Within forty-five
(45) days after the end of each calendar quarter, the Managing Members will
prepare and deliver to each Member (i) an unaudited balance sheet and income
statement of the Company for such quarter, accompanied by a report on any
material developments in existing investments which occurred during such quarter
and (ii) a statement showing the balance in such Member's Capital Account and a
reconciliation of such balance. After the end of each fiscal year, the Managing
Members shall cause an audit of the Company to be made by an independent public
accountant of nationally recognized status of the financial statements of the
Company for that year. Such audit shall be certified and a copy thereof shall
be delivered to each Member within ninety (90) days after the end of each of the
Company's fiscal years. Such certified financial statements shall also be
accompanied by a report on the Company's activities during the year prepared by
the
-32-
Managing Members. Within ninety (90) days after the end of each fiscal year, the
Company will deliver to each Member the Managing Members' good faith estimate of
the fair value of the Company's investments as of the end of such year, a
statement showing the balances in each Member's Capital Account as of the end of
such year, and such other information, reports and forms as are necessary to
assist each Member in the preparation of his federal, state and local tax
returns. The Managing Members shall give prompt notice to the Members if at any
time the Company's general counsel or accountants withdraw or are replaced.
Section 11.4 Elections.
---------
The Managing Members shall cause the Company to make such elections under
the Code and the Regulations, including those permitted by Sections 709(b) and
754 of the Code, and state tax or similar laws as it shall determine to be in
the Members' best interests.
ARTICLE TWELVE
DEFINITIONS
The defined terms used in this Agreement shall, unless the context
otherwise requires, have the meanings specified in this Article Twelve. The
singular shall include the plural and the masculine gender shall include the
feminine, the neuter and vice versa, as the context requires:
"@Ventures, Inc." means CMG@Ventures, Inc., a Delaware corporation.
"@Ventures, Inc. Loss" means, as of the end of any Fiscal Year, the excess
of any Net Realized Capital Losses and/or Net Operating Losses allocated to
@Ventures, Inc. pursuant to Section 3.1(b)(ii) and Section 3.2(b)(ii).
"Act" means the Delaware Limited Liability Company Act as amended from time
to time, and any successor to such Act.
"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 Fiscal Year or other accounting period determined after (i) crediting
to such Capital Account any amounts which such Member is obligated to restore
thereto hereunder or is deemed to be obligated to restore thereto pursuant to
the penultimate sentences of Sections 1.704-2(g)(1) and 1.704-2(h)(5) of the
Regulations and (ii) debiting 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.
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"Affiliate" means with respect to any Person, any officer, director,
member, employee or partner of, or any Person that directly or indirectly
through one or more intermediaries, controls, is controlled by or is under
common control with such Person.
"Agreement" means this Operating Agreement, as originally executed and as
amended, modified, supplemented or restated from time to time, as the context
requires.
"Assignee" is as defined in Section 7.1.
"Available Cash" means amounts received by the Company from all sources
including with respect to (including payments and distributions on and proceeds
of dispositions of) interests in and assets of Portfolio Companies, net of (i)
amounts necessary to pay all expenses, debts and obligations of the Company or
to establish reserves therefor, and (ii) amounts deemed necessary by the
Managing Members, in their sole discretion, to make Follow-on Investments
pursuant to Section 4.2(11). Available Cash shall include the amount of any
fees paid to the Company.
"Business Day" means any day, including Saturday, Sunday and any other day
on which commercial banks in Boston, Massachusetts are required by law not to be
open for business.
"Capital Account" means, with respect to any Member, the capital account
established and maintained for such Member pursuant to Section 2.3.
"Capital Commitment" is as defined in Section 2.1.
"Capital Contribution" is as defined in Section 2.1.
"Capital Member Loss" means Net Operating Losses and Net Realized Capital
Losses allocated to the Capital Members' Capital Accounts as provided in
Sections 3.1 and 3.2.
"Carried Interest Percentage" is as defined in Section 5.2(a).
"Certificate" means the Certificate of Formation filed on behalf of the
Company with the Secretary of State of the State of Delaware, as such
certificate may be amended from time to time.
"Code" means the Internal Revenue Code of 1986, as amended, and, where
applicable, any predecessor or successor thereto.
"Company" means CMG @ VENTURES II LLC.
"Consent" is as defined in Section 10.1.
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"Financial Institution" means a bank, savings institutions, trust company,
insurance company, pension or profit sharing trust, or similar entity which is a
member of any group of such persons, having assets of at least $100 million, or
other entity (other than an individual) a substantial part of whose business
consists of investing in, purchasing or selling the securities of others.
"Fiscal Year" means the fiscal year ending on the last day of July in any
year. In the case of the first and last fiscal years, the fraction thereof
commencing on the date on which the Company is formed or ending on the date on
which the winding up of the Company is completed, as the case may be.
"Follow-on Investment" means any investment, other than a Committed
Investment, in Portfolio Securities of a Portfolio Company in which the Company
holds, immediately prior thereto, Portfolio Securities.
"Investments" is as defined in Section 1.2.
"Loss" means for any fiscal year or other accounting period of the
Company, the amount, if any, by which the Company's gross taxable deductions and
losses exceed the Company's gross taxable income and gains. Calculations of
Loss shall be consistent with calculations made for Federal income tax purposes
and with the calculation of Profit.
"Managing Member Loss" means Net Operating Losses and Net Realized Capital
Losses allocated to the Managing Members' Capital Accounts as provided in
Sections 3.1 and 3.2.
"Majority of the Managing Members" means those Managing Members who then
constitute in excess of 50% by number of all Managing Members.
"Marketable Securities" Securities (i) that are freely tradeable pursuant
to a registration under the Securities Act of 1933, as amended, or an exemption
therefrom, (ii) that immediately after giving effect to their distribution will
not be subject to any contractual restriction on transfer, (iii) that will be
traded on a national securities exchange or reported through the National
Association of Securities Dealers Automated Quotation System, and (iv) that may
be sold without regard to volume limitations.
"Net Operating Losses", with respect to any period, shall mean the excess
of aggregate expenses incurred during (or attributable to) such period by the
Company (other than expenses directly relating or attributable to the sale,
purchase, exchange or distribution of Portfolio Securities) over the aggregate
income earned during such period by the Company from all sources whatsoever
(other than net gain from the sale, purchase, exchange or distribution of
Portfolio Securities), such Net Operating Losses to be computed in accordance
with applicable U.S. federal income tax accounting principles and (to the extent
possible) with generally accepted accounting principles.
-35-
"Net Operating Profits", with respect to any period, shall mean the excess
of aggregate income earned during such period by the Company from all sources
whatsoever (other than net gain from the sale, purchase, exchange or
distribution of Portfolio Securities) over all expenses incurred during (or
attributable to) such period by the Company (other than expenses directly
relating or attributable to the sale, purchase, exchange or distribution of
Portfolio Securities), such Net Operating Profits to be computed in accordance
with applicable U.S. federal income tax accounting principles and (to the extent
possible) with generally accepted accounting principles.
"Net Realized Capital Gains", with respect to any period, shall mean the
excess of gains, determined in accordance with U.S. federal income tax
principles, on any sales or other dispositions of Portfolio Securities for such
Fiscal Year over the losses, determined in accordance with federal income tax
principles, on any sales or other dispositions of Portfolio Securities for such
Fiscal Year.
"Net Realized Capital Losses", with respect to any period, shall mean the
excess of losses, determined in accordance with U.S. federal income tax
principles, on any sales or other dispositions of Portfolio Securities for such
Fiscal Year over the gains, determined in accordance with federal income tax
principles, on any sales or other dispositions of Portfolio Securities for such
Fiscal Year.
"Notification" means a writing, containing the information required by this
Agreement to be communicated to any Person, sent as provided in Section 13.2.
"Parent" means CMG Information Services, Inc., a Delaware corporation.
"Person" means any individual, corporation, Company, trust, unincorporated
organization or association, or other entity.
"Portfolio Companies" means companies in which the Company makes
investments in accordance with the provisions of this Agreement.
"Portfolio Securities" is as defined in Section 1.2.
"Profit" means for any period, the amount, if any, by which the Company's
gross taxable income and gains and the amount of any fees earned by the Company,
exceed the Company's gross taxable deductions and losses. The following amounts
shall be included in determining Profit: any interest, dividend or similar
distribution with respect to Portfolio Securities, and any and all payments
arising out of the disposition of Portfolio Securities, including without
limitation any option payment, lump sum payment, principal or interest paid or
imputed under any promissory note, and any payment made pursuant to a royalty or
earn-out arrangement or similar form of contingent payment. Calculations of
Profit shall be consistent with calculations made for Federal income tax
purposes, except that Profit shall be determined (i) by taking into account
unrealized gains and losses with respect to Portfolio Securities that are
revalued pursuant
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to the penultimate sentence of Section 3.3 or distributed in kind hereunder,
(ii) with reference to the book value rather than the adjusted tax basis of any
Portfolio Security that has been revalued pursuant to the penultimate sentence
of Section 3.3, (iii) without regard to any amounts that are specially allocated
pursuant to Article Three, (iv) without giving effect to any adjustments made
pursuant to Sections 743 or 734 of the Code, (v) income of the Company that is
exempt from Federal income tax and that is not otherwise taken into account in
computing income or loss shall be added to Operating Income (Loss) and (vi)
expenditures of the Company that are neither deductible for Federal income tax
purposes nor allowable as additions to the basis of Company property (or that
are so treated pursuant to Section 1.704-1(b)(2)(iv)(i) of the Regulations)
shall be subtracted from such taxable income or loss.
"Regulations" means the Income Tax Regulations promulgated from time to
time under the Code. References to specific sections of the Regulations shall be
to such sections as amended, supplemented or superseded by Regulations currently
in effect.
"Substitute Member" is as defined in Section 6.1.
"Temporary Investments" means
(i) Investments in direct obligations of the United States of
America, or obligations of any instrumentality or agency thereof, payment
of principal and interest of which is unconditionally guaranteed by the
United States of America, having a final maturity or not more than 180 days
from the date of issue thereof.
(ii) Investments in certificates of deposit or repurchase agreements
having a final maturity not more than 180 days from the date of acquisition
thereof issued by any bank or trust company organized under the laws of the
United States of America or any state thereof having capital and surplus of
at least $100,000,000;
(iii) Investments in money market funds; and
(iv) Commercial paper payable on demand or having a final maturity not
more than 180 days from the date of acquisition thereof which has the
highest credit rating of either Standard & Poor's Corporation or ▇▇▇▇▇'▇
Investors Service, Inc.
"Unrecovered Capital" means amounts in the capital account of the Capital
Account of the Capital Members up to the amount of its Capital Contribution,
less any distributions of any amounts in the Capital Account of the Capital
Members attributable to the Capital Contribution of the Capital Members
previously made to the Capital Members pursuant to Article Three.
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ARTICLE THIRTEEN
MISCELLANEOUS PROVISIONS
Section 13.1 Appointment of Tax Matters Partner.
----------------------------------
If the Company is subject to the rules set forth in Sections 6221 through
6233 of the Code, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ shall be the "Tax Matters Partner" for the
Company as defined in Section 6231(a)(7) of the Code. As Tax Matters Partner,
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ shall have all of the rights, duties, obligations and powers of
a Tax Matters Partner, as so defined, set forth in Sections 6221 through 6233 of
the Code.
Section 13.2 Notification.
------------
13.2.1 Any Notification to a Member shall be at the address of such
Member or appointee set forth in the books and records of the Company or such
other mailing address of which such Member shall advise the Managing Member in
writing. Any Notification to the Company or the Managing Member shall be at the
principal office of the Company or the address of the Managing Member, as the
case may be, as set forth in the books and records of the Company. The Managing
Member may at any time change the location of its principal office.
Notification of any such change shall be given to the Members on or before the
date of any such change.
13.2.2 Any Notification shall be deemed to have been duly given if
personally delivered or sent by United States mail or express mail service or by
telegram confirmed by letter and will be deemed given, unless earlier received,
(1) if sent by certified or registered mail, return receipt requested, or by
first-class mail, five calendar days after being deposited in the United States
mails, postage prepaid, (2) if sent by United States Express Mail or other
express mail service, two calendar days (other than Sundays and Federal
holidays) after being deposited therein, (3) if sent by telegram or telecopy, on
the date sent provided confirmatory notice is sent by first-class mail, postage
prepaid, and (4) if delivered by hand, on the date of receipt.
Section 13.3 Amendments.
----------
This Agreement may be amended from time to time with the consent of a
Majority of the Managing Members and the Capital Member. The Managing Member
shall, within a reasonable time after the adoption of any amendment to this
Agreement (but not longer than the period required by the Act), make any filings
or publications if required by the Act or desirable to make such amendments.
-38-
Section 13.4 Binding Provisions.
------------------
The covenants and agreements contained herein shall be binding upon and
inure to the benefit of the heirs, executors, administrators, successors and
assigns of the respective parties hereto.
Section 13.5 No Waiver.
---------
The failure of any Member to seek redress for violation, or to insist
on strict performance, of any covenant or condition of this Agreement shall not
prevent a subsequent act which would have constituted a violation from having
the effect of an original violation.
Section 13.6 Certification of Interests.
--------------------------
In the sole discretion of the Managing Member, the Members' Interests may
be evidenced by certificates. In such case, the sale, assignment on other
transfer of any Interest hereunder shall be accompanied by the surrender for
cancellation and re-issuance of the certificate evidencing such Interest.
Section 13.7 Legends.
-------
If certificates are issued evidencing the Members' Interests, each such
certificate shall bear such legends as may be required by applicable federal and
state laws, or as may be deemed necessary or appropriate by the Managing Member,
to reflect restrictions upon transfer contemplated herein.
Section 13.8 Applicable Law.
--------------
This Agreement shall be governed by, and construed and enforced in
accordance with, the laws of the State of Delaware.
Section 13.9 Separability of Provisions.
--------------------------
Each provision of this Agreement shall be considered separable, and if for
any reason any provision or provisions of this Agreement, or the application of
such provision to any Person or circumstance, shall be held invalid or
unenforceable in any jurisdiction, such provision or provisions shall, as to
such jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without invalidating the remaining provisions hereof, or the
application of the affected provision to Persons or circumstances other than
those to which it was held invalid or unenforceable, and any such invalidity or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
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Section 13.10 Entire Agreement.
----------------
This Agreement constitutes the entire agreement among the parties governing
the relationship established hereby. This Agreement supersedes any prior
agreement or understanding among the parties and may not be modified or amended
in any manner other than as set forth herein or therein.
Section 13.11 Section Titles.
--------------
Section titles are for descriptive purposes only and shall not control or
alter the meaning of this Agreement as set forth in the text.
Section 13.12 Counterparts.
------------
This Agreement may be executed in several counterparts, all of which
together shall constitute one agreement binding on all parties hereto
notwithstanding that all the parties have not signed the same counterpart.
Section 13.13 Variation of Pronouns.
---------------------
When used herein, pronouns and variations thereof shall be deemed to refer
to the masculine, feminine or neuter or to the singular or plural as the
identity of the Person or Persons referenced or the context may require.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-40-
EXECUTION PAGE
--------------
This Agreement is executed as of the date first above written by the
Managing Members and by the Capital Members.
MANAGING MEMBERS: CAPITAL MEMBERS:
CMG@VENTURES CAPITAL CORP.
__________________________________ By:________________________________
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ Name:
Title:
__________________________________ CMG@VENTURES, INC.
▇▇▇ ▇. ▇▇▇▇▇▇▇
By:________________________________
__________________________________ Name:
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ Title:
__________________________________
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
__________________________________
▇▇▇▇▇ ▇. ▇▇▇▇▇
-41-
SCHEDULE 1
----------
Percentages in Interest
-----------------------
--------------------------------------------------
Name Percentage
---- ----------
--------------------------------------------------
CMG@Ventures Capital Corp. 99%
-------------------------------------------------
CMG@Ventures, Inc. 1%
-------------------------------------------------
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