<PAGE> 1
Exhibit 10.18
SLEEPMASTER HOLDINGS L.L.C.
THIRD AMENDED AND RESTATED LIMITED
LIABILITY COMPANY OPERATING AGREEMENT
THE MEMBERSHIP INTERESTS REPRESENTED BY THIS INSTRUMENT ARE ELIGIBLE
FOR INVESTMENT ONLY BY "ACCREDITED INVESTORS" AS THAT TERM IS DEFINED IN RULE
501 OF REGULATION D UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OR
UNDER STATE SECURITIES LAWS. WITHOUT SUCH REGISTRATION, SUCH INTERESTS MAY NOT
BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF, EXCEPT UPON DELIVERY TO THE
COMPANY OF AN OPINION OF COUNSEL THAT (AMONG OTHER MATTERS) SUCH SALE, TRANSFER
OR OTHER DISPOSITION IS EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT.
THE MEMBERSHIP INTERESTS REPRESENTED BY THIS INSTRUMENT ARE ALSO
SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFERABILITY AS SET FORTH IN THE
FOLLOWING AGREEMENT.
<PAGE> 2
<TABLE>
<CAPTION>
Table of Contents
Page
<S> <C>
ARTICLE 1
GENERAL................................................................................................. 1
1.1 Definitions.................................................................................... 1
1.2 Construction................................................................................... 7
ARTICLE 2
ORGANIZATION............................................................................................ 7
2.1 Formation; Firm Name; Continuation............................................................. 7
2.2 Name........................................................................................... 8
2.3 Offices; Agent................................................................................. 8
2.4 Existence...................................................................................... 8
2.5 Purposes....................................................................................... 8
2.6 Powers of the Company.......................................................................... 8
2.7 Foreign Qualification.......................................................................... 10
2.8 No State-Law Partnership....................................................................... 10
ARTICLE 3
MEMBERSHIP; CAPITAL CONTRIBUTIONS; ADDITIONAL INTERESTS................................................. 10
3.1 Members........................................................................................ 10
3.2 No Liability of Members........................................................................ 11
3.3 Capital Contributions.......................................................................... 12
3.4 Issuance of Additional Interests; Additional Members........................................... 12
ARTICLE 4
INTENTIONALLY OMITTED................................................................................... 13
ARTICLE 5
DISTRIBUTIONS........................................................................................... 13
5.1 Generally...................................................................................... 13
5.2 Distributions.................................................................................. 13
ARTICLE 6
MANAGEMENT OF THE COMPANY............................................................................... 14
6.1 Managing Member; Delegation of Authority and Duties............................................ 14
6.2 Status of Managing Member; Eligibility to Serve................................................ 15
6.3 Resignation or Removal of Managing Member...................................................... 15
6.4 Board of Advisors.............................................................................. 15
6.5 Officers....................................................................................... 16
ARTICLE 7
MEMBERS; VOTING RIGHTS.................................................................................. 17
</TABLE>
(i)
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C>
7.1 Meetings....................................................................................... 17
7.2 Voting Matters................................................................................. 18
7.3 Conversion of Class B Common Units............................................................. 18
7.4 Withdrawal; Resignation........................................................................ 19
ARTICLE 8
EXCULPATION AND INDEMNIFICATION......................................................................... 20
8.1 Performance of Duties; No Liability of Member and Officers..................................... 20
8.2 Competing Activities........................................................................... 20
8.3 Right to Indemnification....................................................................... 21
8.4 Advance Payment................................................................................ 21
8.5 Indemnification of Employees and Agents........................................................ 22
8.6 Reimbursement of Fees and Expenses............................................................. 22
8.7 Nonexclusivity of Rights....................................................................... 22
8.8 Insurance...................................................................................... 22
8.9 Savings Clause................................................................................. 22
ARTICLE 9
TAX RETURNS............................................................................................. 22
ARTICLE 10
BOOKS, REPORTS AND COMPANY COVENANTS................................................................... 23
10.1 Maintenance of Books........................................................................... 23
10.2 Financial Statements and Other Information..................................................... 23
10.3 Inspection of Property......................................................................... 24
10.4 Regulatory Compliance Cooperation.............................................................. 24
10.5 Notice of Developments......................................................................... 26
10.6 SBA Matters.................................................................................... 26
10.7 Company Funds.................................................................................. 26
ARTICLE 11
TRANSFER OF INTERESTS.................................................................................. 27
11.1 Restrictions................................................................................... 27
11.2 General Restrictions on Transfer............................................................... 27
11.3 Procedure for Transfers........................................................................ 27
11.4 Prospective Transferees........................................................................ 28
11.5 Legend......................................................................................... 28
11.6 Transfer Fees and Expenses..................................................................... 29
11.7 Limitations.................................................................................... 29
ARTICLE 12
DISSOLUTION AND LIQUIDATION............................................................................ 29
12.1 Events Causing Dissolution..................................................................... 29
12.2 Liquidation and Termination.................................................................... 30
12.3 Cancellation of Certificate.................................................................... 30
</TABLE>
(ii)
<PAGE> 4
<TABLE>
<CAPTION>
ARTICLE 13
<S> <C>
GENERAL/MISCELLANEOUS PROVISIONS....................................................................... 31
13.1 Notices........................................................................................ 31
13.2 Governing Law.................................................................................. 31
13.3 Certificates of Units.......................................................................... 31
13.4 Entire Agreement............................................................................... 32
13.5 Effect of Waiver or Consent.................................................................... 32
13.6 Amendment or Modification...................................................................... 32
13.7 Binding Effect................................................................................. 33
13.8 Power of Attorney.............................................................................. 33
13.9 Indemnification and Reimbursement for Payments on Behalf of a Member........................... 33
13.10 Consent to Jurisdiction........................................................................ 34
13.11 WAIVER OF JURY TRIAL........................................................................... 34
13.12 Counterparts................................................................................... 34
13.13 Severability................................................................................... 34
13.14 Headings....................................................................................... 34
13.15 Parties in Interest............................................................................ 34
13.16 Further Assurances............................................................................. 34
13.17 Specific Performance; Remedies................................................................. 35
</TABLE>
(iii)
<PAGE> 5
SLEEPMASTER HOLDINGS L.L.C.
THIRD AMENDED AND RESTATED LIMITED
LIABILITY COMPANY OPERATING AGREEMENT
This THIRD AMENDED AND RESTATED LIMITED LIABILITY COMPANY OPERATING
AGREEMENT of Sleepmaster Holdings L.L.C. is made as of June 30, 2000, by and
among the Company and each of the persons designated as a Member on Schedule A
attached hereto, as such may be amended from time to time in accordance with the
terms hereof.
WHEREAS, each of the parties hereto desires to amend and restate the
Second Amended and Restated Limited Liability Company Operating Agreement (the
"Second LLC Agreement") in its entirety as provided in this Agreement to (i)
maintain the existence of the Company as an association taxable as a corporation
for federal and state income tax purposes, (ii) account for a new investment in
the Company by certain investors and (iii) provide for the continuation of the
Company upon the terms set forth in this Agreement; and
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein made and other good and valuable consideration, the Members hereby amend
and restate the Second LLC Agreement in its entirety and agree as follows:
ARTICLE 1
GENERAL
1.1 Definitions. For purposes of this Agreement, the following terms
shall have the following meanings:
"Act" means the New Jersey Limited Liability Company Act, New
Jersey Revised Statutes, Chapter 2B of Title 42.
"Additional Interests" has the meaning set forth in Section 3.4(a).
"Advisors" has the meaning set forth in Section 6.4.
"Affiliate" means, when used with reference to a specified Person,
any Person that directly or indirectly controls or is controlled by or is under
common control with the specified Person, and with respect to any individual,
such individual's spouse or any person within the first degree of kinship of
such individual.
"Agreement" means this Third Amended and Restated Limited Liability
Company Operating Agreement, as it may be further amended from time to time.
<PAGE> 6
"Bankruptcy" or "Bankrupt" means, with respect to any Member,
such Member's making an assignment for the benefit of creditors, becoming a
party to any liquidation or dissolution action or proceeding with respect to
such Member or any bankruptcy, reorganization, insolvency or other proceeding
for the relief of financially distressed debtors with respect to such Member, or
a receiver, liquidator, custodian or trustee being appointed for such Member or
a substantial part of such Member's assets and, if any of the same occur
involuntarily, the same not being dismissed, stayed or discharged within 90
days; or the entry of an order for relief against such Member under Title 11 of
the United States Code. A Member shall be deemed Bankrupt if the Bankruptcy of
such Member shall have occurred.
"Board" has the meaning set forth in Section 6.4.
"Capital Contribution" means the aggregate contributions made
(or deemed made) by a Member to the Company pursuant to Article 3 (including
both Common Capital and Preferred Capital) as of the date in question, as shown
opposite such Member's name on Schedule A, as the same may be amended from time
to time.
"Cause" means (i) a breach of the Managing Member's covenants
under this Agreement or any other agreements with the Company or its
Subsidiaries and such breach shall not have been cured within 30 days after
written notice to the Managing Member, (ii) the commission by the Managing
Member of a felony, a crime involving moral turpitude or other act causing
material harm to the standing and reputation of the Company or any of its
Subsidiaries, or (iii) the Managing Member's repeated wilful failure to comply
with the reasonable and lawful written directives of the Board.
"Certificate" means the Certificate of Formation of the
Company, filed in accordance with the Act.
"Class A Common Holder" means each record holder of any
portion of a Class A Common Unit.
"Class A Common Member" means each Class A Common Holder which
is a Member.
"Class A Common Unit" means a Common Unit having the rights
and obligations specified with respect to Class A Common Units in this
Agreement.
"Class B Common Holder" means each record holder of any
portion of a Class B Common Unit.
"Class B Common Member" means each Class B Common Holder which
is a Member.
"Class B Common Unit" means a Common Unit having the rights
and obligations specified with respect to Class B Common Units in this
Agreement.
-2-
<PAGE> 7
"Class C Common Holder" means each record holder of any
portion of a Class C Common Unit.
"Class C Common Member" means each Class C Common Holder which
is a Member.
"Class C Common Unit" means a Common Unit having the rights
and obligations specified with respect to Class C Common Units in this
Agreement.
"Code" means the Internal Revenue Code of 1986, as amended
from time to time.
"Common Capital" means, as of any date with respect to a
Member, the portion of such Member's Capital Contribution designated as Common
Capital opposite such Member's name on Schedule A.
"Common Units" means the Units representing a fractional part
of the Membership Interests of the Members and having the rights and obligations
specified with respect to Common Units in this Agreement.
"Company" means Sleepmaster Holdings L.L.C.
"Consent" means the consent, approval, ratification or
affirmative vote of the Members holding more than 50% in aggregate of the Common
Units.
"Economic Interest" means a Member's or Economic Owner's share
of the Company's net profits, net losses and distributions pursuant to this
Agreement and the Act, but shall not include any right to participate in the
management or affairs of the Company, including the right to vote on, consent to
or otherwise participate in any decision of the Members, or any right to receive
information concerning the business and affairs of the Company, in each case to
the extent provided for herein or otherwise required by the Act.
"Economic Owner" means any owner of an Economic Interest who
is not a Member. No owner of an Economic Interest which is not a Member shall be
deemed a "member" (as that term is used in the Act) of the Company.
"Employment Agreements" means those certain Employment
Agreements among Sleepmaster, the Company and each of the Executives, dated as
of November 14, 1996.
"Entity" means a Person other than a natural person and
includes, without limitation, corporations (both non-profit and other
corporations), partnerships (both limited and general), trusts, joint ventures,
limited liability companies, and unincorporated associations.
"Executives" means Charles Schweitzer, James Koscica and
Michael Reilly, and each shall be referred to individually as an "Executive."
-3-
<PAGE> 8
"Family Group" means, with respect to a natural person, such
individual's spouse and descendants (whether natural or adopted) and any trust
solely for the benefit of such individual and/or such individual's spouse, their
respective ancestors and/or descendants (whether natural or adopted).
"Fiscal Year" means the twelve month accounting period ending
on the last day of December in each year.
"GAAP" means United States generally accepted accounting
principles as in effect from time to time.
"Incapacity" means (a) with respect to a natural person, the
Bankruptcy, death, incompetency or insanity of such individual and (b) with
respect to any other Person, the Bankruptcy, liquidation, dissolution or
termination of such Person.
"Investor" means Sleep Investor L.L.C., a Delaware limited
liability company.
"Managing Member" has the meaning set forth in Section 6.1.
"Members" means each Person identified on Schedule A hereto as
of the date hereof who has executed this Agreement or a counterpart hereof and
each Person who is hereafter admitted as a Member in accordance with the terms
of this Agreement and the Act. The Members shall constitute the "members" (as
that term is defined in the Act) of the Company. Notwithstanding any provision
of this Agreement to the contrary, the Members shall constitute a single class
or group of members of the Company for all purposes of the Act and this
Agreement.
"Membership Interest" means the limited liability company
interest of a Member in the Company at any particular time, including such
Member's Economic Interest and the right to any and all benefits to which a
Member may be entitled as provided in this Agreement, together with the
obligations of such Member to comply with all terms and provisions of this
Agreement.
"Person" means any individual or Entity, and the heirs,
executors, administrators, legal representatives, successors and assigns of such
Person as the context may require.
"Preferred Capital" means, as of any date with respect to a
Member, the portion of such Member's Capital Contribution designated as
Preferred Capital opposite such Member's name on Schedule A.
"Preferred Holder" means each record holder of a Preferred
Unit.
"Preferred Member" means each Preferred Holder which is a
Member.
"Preferred Unit" means a Unit representing a fractional part
of the Membership Interests of all Members and having the preference rights and
other rights and obligations specified with respect to Preferred Units in this
Agreement.
-4-
<PAGE> 9
"Public Sale" means any sale of equity securities to the
public pursuant to an effective registration statement under the Securities Act
or to the public through a broker, dealer or market maker pursuant to the
provisions of Rule 144 adopted under the Securities Act (or any similar rule
then in force).
"Recapitalization Agreement" means that certain
Recapitalization, Redemption and Purchase Agreement dated as of October 31, 1996
by and among the Company, the Investor and certain other parties thereto.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of November 14, 1996, by and among the Company, the Investor
and certain other parties thereto, as such agreement is amended, modified,
supplemented or restated from time to time.
"Restricted Securities" means (a) the Membership Interest or
any other interest in the Company held by a Member or any of its Affiliates and
(b) any securities issued with respect to, or in exchange for, the securities
referred to in clause (a) above in connection with a conversion, combination of
shares, recapitalization, merger, consolidation or other reorganization,
including in connection with the consummation of any reorganization plan. As to
any particular Restricted Securities, such securities shall cease to be
Restricted Securities when they have (x) been distributed to the public pursuant
to an offering registered under the Securities Act or (y) sold to the public
through a broker, dealer or market maker in compliance with Rule 144 (or any
similar provision then in force) promulgated by the Securities and Exchange
Commission under the Securities Act.
"SBA" means the United States Small Business Administration,
and any successor agency performing the functions --- thereof.
"SBIC" means a Small Business Investment Company licensed by
an SBA under the SBIC Act.
"SBIC Act" means the Small Business Investment Act of 1958, as
amended.
"SBIC Regulations" means the SBIC Act and the regulations
issued by the SBA thereunder, codified as Title 13 of the Code of Federal
Regulations ("13 CFR"), parts 107 and 121.
"Securities Act" means the Securities Act of 1933, as amended.
"Securityholders Agreement" means the Securityholders
Agreement, dated as of November 14, 1996, by and among the Company, the Investor
and certain other parties thereto, as such agreement is amended, modified,
supplemented or restated from time to time.
"Sleepmaster" means Sleepmaster L.L.C., a New Jersey limited
liability company and a Subsidiary of the Company.
"Subordinated Notes" means the 12% Senior Subordinated Notes
due 2006 issued by Sleepmaster to PMI Mezzanine Fund, L.P.
-5-
<PAGE> 10
"Subsidiary" means, with respect to any Person, any
corporation, partnership, association or other business entity of which (i) if a
corporation, a majority of the total voting power of units of stock entitled
(without regard to the occurrence of any contingency) to vote in the election of
directors, managers or trustees thereof is at the time owned or controlled,
directly or indirectly, by that Person or one or more of the other Subsidiaries
of that Person or a combination thereof, or (ii) if a partnership, limited
liability company, association or other business entity, a majority of the
partnership or other similar ownership interest thereof is at the time owned or
controlled, directly or indirectly, by any Person or one or more Subsidiaries of
that Person or a combination thereof. For purposes hereof, a Person or Persons
shall be deemed to have a majority ownership interest in a partnership, limited
liability company, association or other business entity if such Person or
Persons shall be allocated a majority of partnership, limited liability company,
association or other business entity gains or losses or shall be or control the
managing director, manager or a general partner of such partnership, limited
liability company, association or other business entity.
"Terminated Member" has the meaning set forth in Section 7.4.
"Transfer" means any direct or indirect sale, transfer,
conveyance, assignment, pledge, hypothecation, gift, delivery or other
disposition.
"Treasury Regulations" shall mean that except where the
context indicates otherwise, the permanent, temporary, proposed, or proposed and
temporary regulations of Department of the Treasury under the Code as such
regulations may be lawfully changed from time to time.
"Unit" means a Membership Interest of a Member in the Company
representing a fractional part of the Membership Interests of all Members and
shall include Common Units and Preferred Units; provided, that any class of
Units issued shall have designations, preferences or special rights set forth in
this Agreement and the Membership Interest represented by such class of Units
shall be determined in accordance with such designations, preferences or special
rights.
"Unit Equivalents" means (without duplication with any Units
or other Unit Equivalents) rights, warrants, options, convertible securities,
exchangeable securities, indebtedness or other rights, in each case exercisable
for or convertible or exchangeable into, directly or indirectly, Units or
securities exercisable for or convertible or exchangeable into Units, whether at
the time of issuance or upon the passage of time or the occurrence of some
future event.
"Unpaid Preferred Return" means, with respect to a Member, an
amount, determined as of the date of any distribution pursuant to Section 5.2,
equal to the excess of (i) the amount necessary to give the Member a 12%
compounded annual return with respect to his or its Unreturned Preferred Capital
taking into account the date on which each portion of the Preferred Capital was
invested over (ii), with respect to such Unreturned Preferred Capital, amounts
previously distributed to such Member pursuant to Section 5.2(a)(i).
"Unreturned Preferred Capital" means, with respect to each
Member, such Member's Preferred Capital reduced by all prior distributions made
to such Member by the Company pursuant to Section 5.2(a)(ii).
-6-
<PAGE> 11
"Warrant" means (i) the warrant issued by the Company on or
about November 14, 1996 to the Warrantholder entitling the Warrantholder to
purchase certain Common Units for the price and on the other terms and
conditions set forth therein, (ii) the warrant issued by the Company on or about
March 3, 1998 entitling the Warrantholder to purchase certain Common Units for
the price and on the other terms and conditions set forth therein, and (iii) any
Warrant issued in full or partial substitution therefor in accordance with the
terms thereof.
"Warrantholder" means PMI Mezzanine Fund, L.P. or its
designee, and any other Person who subsequently acquires a Warrant pursuant to
the terms of the Warrant and the applicable terms of this Agreement.
1.2 Construction. Whenever the context requires, the gender of all
words used in this Agreement includes the masculine, feminine and neuter and the
singular number includes the plural number and vice versa. All references to
Articles and Sections refer to articles and sections of this Agreement, and all
references to Schedules are to Schedules attached hereto, each of which is made
a part hereof for all purposes.
ARTICLE 2
ORGANIZATION
2.1 Formation; Firm Name; Continuation.
(a) The Certificate was prepared, executed and filed in
accordance with the Act on December 19, 1994. The Members hereby continue the
existence of the Company under this Agreement and the Act. The rights, powers,
duties, obligations and liabilities of the Members shall be determined pursuant
to the Act and this Agreement. To the extent that the rights, powers, duties,
obligations and liabilities of any Member are different by reason of any
provision of this Agreement than they would be in the absence of such provision,
this Agreement shall, to the extent permitted by the Act, control.
(b) The name and mailing address of each Member of the Company
shall be listed on Schedule A attached hereto. The Managing Member shall be
required to update Schedule A from time to time as necessary to accurately
reflect the information therein. Any reference in this Agreement to Schedule A
shall be deemed to be a reference to Schedule A as amended and in effect from
time to time.
(c) The Managing Member, as an authorized Person within the
meaning of the Act, shall, at any time the Managing Member becomes aware that
any statement in the Certificate was false when made, or that any matter
described has changed making the Certificate false in any material respect,
promptly execute, deliver and file any and all amendments thereto and
restatements thereof in accordance with the Act.
(d) Under the direction of the Board, the Managing Member
shall from time to time take all such actions as may be deemed by him or it to
be necessary or appropriate to effectuate
-7-
<PAGE> 12
and permit the continuation of the Company as a limited liability company under
the Act and qualify the Company to act in any other state where the Managing
Member deems qualification necessary or desirable; provided, that the Managing
Member will cause the Company not to conduct business or engage in any action in
any jurisdiction where the liability of the Members is not limited to the same
extent as under the Act. The Members shall execute such certificates, documents
and instruments and take such other action as may be necessary to enable the
Managing Member to fulfill his or its responsibility under this Section 2.1(d).
2.2 Name. The name of the limited liability company continued by this
Agreement is Sleepmaster Holdings L.L.C. The business of the Company may be
conducted upon compliance with all applicable laws under any other name
designated by the Managing Member.
2.3 Offices; Agent. The registered office and the mailing address of
the Company in New Jersey shall be located at 2001 Lower Road, Linden, New
Jersey, 07036. Upon giving notice to all Members, the registered office and the
mailing address of the Company may each be changed by the Managing Member, in
which event the Managing Member shall further comply with Section 42:2B-6b of
the Act.
2.4 Existence. The Company shall continue in perpetuity unless
terminated in accordance with the provisions of this Agreement or otherwise
dissolved pursuant to the laws of the State of New Jersey.
2.5 Purposes. The nature of the business or purposes to be conducted or
promoted by the Company is to engage in any lawful act or activity for which
limited liability companies may be organized under the Act. The Company may
engage in any and all activities necessary, desirable or incidental to the
accomplishment of the foregoing. Notwithstanding anything herein to the
contrary, nothing set forth herein shall be construed as authorizing the Company
to possess any purpose or power, or to do any act or thing, forbidden by law to
a limited liability company organized under the laws of the State of New Jersey.
2.6 Powers of the Company.
(a) Power and Authority. Subject to the provisions of
this Agreement, the Company shall have the power and authority to take any and
all actions necessary, appropriate, proper, advisable, convenient or incidental
to or for the furtherance of the purposes set forth in Section 2.5, including
the power:
(i) to conduct its business, carry on its
operations and have and exercise the powers granted to a
limited liability company by the Act in any state, territory,
district or possession of the United States, or in any foreign
country that may be necessary, convenient or incidental to the
accomplishment of the purpose of the Company;
(ii) to acquire by purchase, lease, contribution of
property or otherwise, own, hold, operate, maintain, finance,
refinance, improve, lease, sell, convey,
-8-
<PAGE> 13
mortgage, transfer, demolish or dispose of any real or
personal property that may be necessary, convenient or
incidental to the accomplishment of the purpose of the
Company;
(iii) to enter into, perform and carry out contracts
of any kind, including contracts with any Member or any
Affiliate thereof, or any agent of the Company necessary to,
in connection with, convenient to or incidental to the
accomplishment of the purpose of the Company;
(iv) to purchase, take, receive, subscribe for or
otherwise acquire, own, hold, vote, use, employ, sell,
mortgage, lend, pledge, or otherwise dispose of, and otherwise
use and deal in and with, shares or other interests in or
obligations of domestic or foreign corporations, associations,
general or limited partnerships (including the power to be
admitted as a partner thereof and to exercise the rights and
perform the duties created thereby), trusts, limited liability
companies (including the power to be admitted as a member or
appointed as a manager thereof and to exercise the rights and
perform the duties created thereby) or individuals or direct
or indirect obligations of the United States or of any
government, state, territory, governmental district or
municipality or of any instrumentality of any of them;
(v) to lend money for any proper purpose, to invest
and reinvest its funds and to take and hold real and personal
property for the payment of funds so loaned or invested;
(vi) to sue and be sued, complain and defend, and
participate in administrative or other proceedings, in its
name;
(vii) to appoint employees and agents of the Company
and define their duties and fix their compensation;
(viii) to indemnify any Person in accordance with the
Act and to obtain any and all types of insurance;
(ix) to cease its activities and cancel its
Certificate;
(x) to negotiate, enter into, renegotiate, extend,
renew, terminate, modify, amend, waive, execute, acknowledge
or take any other action with respect to any lease, contract
or security agreement in respect of any assets of the Company;
(xi) to borrow money and issue evidences of
indebtedness and guaranty indebtedness (whether of the Company
or any of its Subsidiaries), and to secure the same by a
mortgage, pledge or other lien on the assets of the Company;
-9-
<PAGE> 14
(xii) to pay, collect, compromise, litigate,
arbitrate or otherwise adjust or settle any and all other
claims or demands of or against the Company or to hold such
proceeds against the payment of contingent liabilities; and
(xiii) to make, execute, acknowledge and file any and
all documents or instruments necessary, convenient or
incidental to the accomplishment of the purpose of the
Company.
(b) Managing Member. Subject to the provisions of this
Agreement and the direction of the Board, (i) the Company, and the Managing
Member on behalf of the Company, may enter into and perform any and all
documents, agreements and instruments contemplated hereby, all without any
further act, vote or approval of any Member and (ii) the Managing Member may
authorize any Person (including any Member or officer) to enter into and perform
any document on behalf of the Company.
2.7 Foreign Qualification. The Managing Member shall cause the Company
to comply with all requirements necessary to qualify the Company as a foreign
limited liability company in any jurisdiction in which the Company owns property
or transacts business to the extent, in the reasonable judgment of the Managing
Member, such qualification or registration is necessary or advisable for the
protection of the limited liability of the Members or to permit the Company
lawfully to own property or transact business. The Managing Member may and, at
the request of the Managing Member or any officer, each Member shall, execute,
acknowledge, swear to and deliver any or all certificates and other instruments
conforming with this Agreement that are necessary or appropriate to qualify,
continue or terminate the Company as a foreign limited liability company in all
such jurisdictions in which the Company may conduct business.
2.8 No State-Law Partnership. The Members intend that the Company shall
not be a partnership (including, without limitation, a limited partnership) or
joint venture, and that no Member, Economic Owner, representative or officer
shall be a partner or joint venturer of any other Member, Economic Owner,
representative or officer, for any purposes.
ARTICLE 3
MEMBERSHIP; CAPITAL CONTRIBUTIONS; ADDITIONAL INTERESTS
3.1 Members.
(a) List of Members; Admission. Subject to the following
sentence, the names, residence, business or mailing addresses, Capital
Contributions and the Units (both Preferred and Common) of the Members are set
forth on Schedule A, as such Schedule shall be amended from time to time in
accordance with the terms of this Agreement. Any reference in this Agreement to
Schedule A shall be deemed to be a reference to Schedule A as amended and in
effect from time to time. Upon (i) his or its execution of this Agreement or
counterpart thereof and (ii) receipt (or
-10-
<PAGE> 15
deemed receipt) of such Person's Capital Contribution as set forth on Schedule
A, each Person listed on Schedule A is hereby admitted to the Company as a
Member of the Company, with the Membership Interests set forth on Schedule A, as
of the date hereof.
(b) Loans by Members. No Member, as such, shall be required to
lend any funds to the Company or to make any additional contribution of capital
to the Company, except as otherwise required by applicable law or by this
Agreement. Any Member may, with the approval of the Board, make loans to the
Company, and any loan by a Member to the Company shall not be considered to be a
Capital Contribution.
(c) Representations and Warranties of Members. Each Member
hereby represents and warrants to and acknowledges with the Company that: (i)
such Member has such knowledge and experience in financial and business matters
and is capable of evaluating the merits and risks of an investment in the
Company and making an informed investment decision with respect thereto; (ii)
such Member is able to bear the economic and financial risk of an investment in
the Company for an indefinite period of time; (iii) such Member is acquiring or
has acquired interests in the Company for investment only and not with a view
to, or for resale in connection with, any distribution to the public or public
offering thereof; (iv) the interests in the Company have not been registered
under the securities laws of any jurisdiction and cannot be disposed of unless
they are subsequently registered and/or qualified under applicable securities
laws and the provisions of this Agreement have been complied with; (v) the
execution, delivery and performance of this Agreement have been duly authorized
by such Member and do not require such Member to obtain any consent or approval
that has not been obtained and do not contravene or result in a default under
any provision of any law or regulation applicable to such Member or other
governing documents or any agreement or instrument to which such Member is a
party or by which such Member is bound and (vi) this Agreement is valid, binding
and enforceable against such Member in accordance with its terms.
3.2 No Liability of Members.
(a) No Liability. Except as otherwise required by applicable
law and as expressly set forth in this Agreement, no Member shall have any
personal liability whatever in such Member's capacity as a Member, whether to
the Company, to any of the other Members, to the creditors of the Company or to
any other third party, for the debts, liabilities, commitments or any other
obligations of the Company or for any losses of the Company. Each Member shall
be liable only to make such Member's Capital Contribution to the Company and the
other payments provided expressly herein.
(b) Distribution. In accordance with the Act a member of a
limited liability company may, under certain circumstances, be required to
return amounts previously distributed to such member. It is the intent of the
Members that no distribution to any Member pursuant to Article 5 hereof shall be
deemed a return of money or other property paid or distributed in violation of
the Act. The payment of any such money or distribution of any such property to a
Member shall be deemed to be a compromise within the meaning of the Act, and the
Member receiving any such money or property shall not be required to return to
any Person any such money or property. However, if any court of competent
jurisdiction holds that, notwithstanding the provisions of this
-11-
<PAGE> 16
Agreement, any Member is obligated to make any such payment, such obligation
shall be the obligation of such Member and not of any other Member.
3.3 Capital Contributions. Each Member shall be deemed to have made a
Capital Contribution to the Company in the amounts, and on the date, shown
opposite such Member's name on Schedule A hereto. Upon execution of this
Agreement each Member shall have the Preferred Capital and the Common Capital
and shall be deemed to own the number of Preferred Units and Common Units set
forth opposite such Member's name on Schedule A. The Company shall issue
certificates to the Members representing the Common Units and the Preferred
Units held by each Member.
3.4 Issuance of Additional Interests; Additional Members.
(a) Additional Interests. Subject to Section 11.7 and the
Securityholders Agreement, the Board shall have the right to cause the Company
to issue or sell to any Person (including Members and Affiliates of Members) any
of the following (which for purposes of this Agreement shall be "Additional
Interests"): (i) additional Membership Interests or other interests in the
Company (including new classes or series thereof having different rights); (ii)
obligations, evidences of indebtedness or other securities or interests
convertible into or exchangeable for Membership Interests or other interests in
the Company; and (iii) warrants, options or other rights to purchase or
otherwise acquire Membership Interests or other interests in the Company.
Subject to Section 3.4(b) below, the Board shall determine the terms and
conditions governing the issuance of such Additional Interests, including the
number and designation of such Additional Interests, the preference (with
respect to distributions, in liquidation or otherwise) over any other Membership
Interests and any required contributions in connection therewith.
(b) Admission as a Member. Notwithstanding Section 3.4(a), in
order for a Person to be admitted as a Member of the Company, either with
respect to an Additional Interest or as a transferee of a Membership Interest
(subject in any event to the Securityholders Agreement): (i) such Person shall
have delivered to the Company a written undertaking to be bound by the terms and
conditions of this Agreement and shall have delivered such documents and
instruments as the Board determines to be necessary or appropriate in connection
with the issuance of such Additional Interest to such Person or to effect such
Person's admission as a Member (including, without limitation, any documents
required by Article 11) and (ii) the Managing Member or the Secretary of the
Company shall amend Schedule A without the further vote, act or consent of any
other Person to reflect such new Person as a Member; provided, that unless and
until each of the conditions (i) and (ii) above are met, any transferee of any
Membership and any Person who received any Additional Interest shall be an
Economic Owner with respect to such Membership Interest and such Membership
Interest shall constitute an Economic Interest. Upon satisfaction of clauses (i)
and (ii) above such Person shall be deemed to have been admitted as a Member and
shall be listed as such on the books and records of the Company and thereupon
shall be issued his or its Membership Interest, including any Economic Interest
that corresponds to and is part of such Membership Interest. If an Additional
Interest is issued to an existing Member, the Managing Member or the Secretary
of the Company shall amend Schedule A without the further vote, act or consent
or any other Person to reflect the issuance of such Additional Interest and,
upon the amendment of such
-12-
<PAGE> 17
Schedule A, such Member shall be issued his or its Additional Interest,
including any Economic Interest that corresponds to and is part of such
Additional Interest.
(c) Rights of a Member. Any substitute Member admitted to the
Company pursuant to the requirements of this Section 3.4 shall succeed to all
rights and be subject to all the obligations of the transferring or assigning
Member with respect to the Membership Interest to which such Member was
substituted.
ARTICLE 4
INTENTIONALLY OMITTED
ARTICLE 5
DISTRIBUTIONS
5.1 Generally. Subject to the provisions of Section 42:2B-42 of the
Act, the Board shall have sole discretion regarding the amounts and timing of
distributions to Members, in each case subject to the retention and
establishment of reserves of, or payment to third parties of, such funds as it
deems necessary with respect to the reasonable business needs of the Company
which shall include the payment or the making of provision for the payment when
due of the Company's obligations, including the payment of any management or
administrative fees and expenses or any other obligations.
5.2 Distributions. (a) Distributions to be made on any date shall be
made in the following order and priority:
(i) First, to the Members in proportion to and to the
extent of their Unpaid Preferred Return;
(ii) Second, to the Members in proportion to and to
the extent of their Unreturned Preferred Capital;
(iii) Third, to the Members in proportion to their
respective number of Class A Common Units and Class B Common
Units until (A) thirty-nine million US dollars ($39,000,000)
and (B) an additional amount, calculated at a 12% compounded
annual rate from the date hereof on any portion of (A) above
not previously distributed under this Section 5.2(a)(iii),
have been distributed to the Members under this Section
5.2(a)(iii), provided that any distribution under this Section
5.2(a)(iii) shall be treated first as a distribution of all
amounts due under (B) hereof, and then as a distribution of a
portion of any amount due under (A) hereof; and
-13-
<PAGE> 18
(iv) Fourth, to the Members in proportion to their
respective number of Common Units held.
(b) Notwithstanding Section 5.1 (but subject to the Act) or
5.2(a), the Company shall make a distribution to each Preferred Member on
November 14, 2009 (the "Scheduled Redemption Date") in an amount equal to the
full amount of such Preferred Member's Unpaid Preferred Return and Unreturned
Preferred Capital as of the Scheduled Redemption Date.
ARTICLE 6
MANAGEMENT OF THE COMPANY
6.1 Managing Member; Delegation of Authority and Duties.
(a) Except as otherwise required by the Act, the business and
affairs of the Company shall be managed by a Member (the "Managing Member") who
shall at all times be subject to the direction of the Board. Charles Schweitzer
is hereby appointed as the initial Managing Member of the Company and, in such
capacity, shall manage the Company in accordance with this Agreement. The
actions of the Managing Member taken in such capacity and in accordance with
this Agreement shall bind the Company.
(b) Under the direction of the Board the Managing Member shall
have full, exclusive and complete discretion to manage and control the business
and affairs of the Company, to make all decisions affecting the business,
operations and affairs of the Company and to take all such actions as he or it
deems necessary or appropriate to accomplish the purpose of the Company as set
forth herein. Subject to the provisions of this Agreement, the Managing Member
shall have general and active management of the business and operations of the
Company. In addition, the Managing Member shall have such other powers and
duties as may be prescribed by the Board or this Agreement. The Managing Member
shall have the power and authority to delegate to the Executives or other
officers, agents or employees of the Company the Managing Member's rights and
powers to manage and control the business and affairs of the Company, as the
Managing Member may deem appropriate from time to time. Subject to the
limitations set forth herein, the Managing Member or the Board may authorize any
Person to enter into and perform under any document on behalf of the Company.
(c) The Board shall have the sole authority to remove the
Managing Member with or without Cause and to replace the removed Managing
Member, and any such removal shall be effective upon the Board's action. If such
Managing Member resigns and the business of the Company is continued as provided
in Section 12.1(c) hereof, the Board shall have the sole authority to replace
the Managing Member. The Board shall have the sole authority to terminate the
employment of the Executives in accordance with the terms and conditions of the
Employment Agreements, and any such termination shall be effective upon the
Board's action.
-14-
<PAGE> 19
(d) The Managing Member may resign at any time by giving
written notice to that effect to the Board. Unless otherwise directed by the
Board, any such resignation shall take effect at the time of the receipt of that
notice or any later effective time specified in that notice; and, unless
otherwise specified in that notice, the acceptance of the resignation shall not
be necessary to make it effective. The effect of such resignation shall be as
set forth in Sections 6.3 and 7.4 below.
6.2 Status of Managing Member; Eligibility to Serve.
(a) Generally. The Managing Member shall be the sole "manager"
(as that term is used in the Act) of the Company, and neither the Advisors nor
the officers of the Company, in such capacity, shall be such "managers." No
Person who is not also a Member may be appointed or serve as the Managing
Member. The Managing Member may be an officer of the Company.
(b) Remuneration. The Managing Member, in his, her or its
capacity as such, shall not be entitled to remuneration for acting in the
Company business. This Section 6.2 shall in no way limit the employment of the
Executives contemplated by the Employment Agreements or the ownership of
Membership Interests by the Executives or any other Managing Member.
6.3 Resignation or Removal of Managing Member. In the event that the
Managing Member resigns or is removed by the Board, upon the resignation or
removal becoming effective, the Membership Interest owned by such Managing
Member shall be terminated except for the portion thereof that constitutes an
Economic Interest (which such Person shall continue to hold), and the former
Managing Member shall cease to be a Member and shall instead be an Economic
Owner with respect to such Economic Interest and thereafter the former Managing
Member shall be deemed a Terminated Member.
6.4 Board of Advisors.
(a) Establishment. There is hereby established a committee
(the "Board") comprised of natural persons (the "Advisors") having the authority
and duties set forth in this Agreement. Any decision to be made by the Board
shall require the approval of a majority of the Advisors.
(b) Number of Advisors; Term of Office. The business and
affairs of the Company shall be managed by or under the direction of the Board.
The authorized number of Advisors shall initially be five (5); provided, that
the number of Advisors can be increased by a vote of 80% of the Advisors. The
Advisors shall, except as hereinafter otherwise provided for filling vacancies,
be elected at the annual meeting of Members and shall hold office until their
respective successors are elected and qualified or until their earlier
resignation or removal.
(i) The Members may, at any special meeting the notice of
which shall state that it is called for that purpose, remove, with or
without cause, any Advisor and fill the vacancy; provided that whenever
any Advisor shall have been elected by a particular Member or Members
pursuant to the Securityholders Agreement, such Advisor may be removed
and the vacancy filled only by the Members entitled to designate such
Advisor as set forth in the
-15-
<PAGE> 20
Securityholders Agreement. Vacancies caused by any such removal and not
filled by the Members at the meeting at which such removal shall have
been made, or any vacancy caused by the death or resignation of any
Advisor or for any other reason, and any newly created advisorship
resulting from any increase in the authorized number of Advisors (and
not filled by the Members entitled to designate such Advisor as set
forth in the Securityholders Agreement), may be filled by the
affirmative vote of a majority of the Advisors then in office, although
less than a quorum, and any Advisor so elected to fill any such vacancy
or newly created advisorship shall hold office until his successor is
elected and qualified or until his earlier resignation or removal;
provided, that such Advisor can be removed and replaced by the Members
which have the right to designate such Advisor pursuant to the
Securityholders Agreement.
(ii) When one or more Advisors shall resign effective at a
future date, such vacancy may be filled only by the Members entitled to
designate such Advisor as set forth in the Securityholders Agreement.
Vacancies caused by any such resignation and not filled by the Members
entitled to designate such Advisor, may be filled by the affirmative
vote of a majority of the Advisors then in office, including those who
are so resigning, shall have power to fill such vacancy or vacancies,
the vote thereon to take effect when such resignation or resignations
shall become effective, and each Advisor so chosen shall hold office as
herein provided in connection with the filling of other vacancies;
provided, that such Advisor can be removed and replaced by the Members
which have the right to designate such Advisor pursuant to the
Securityholders Agreement.
(c) Meetings of the Board. The Board shall meet at such time
and at such place as the Board may designate; provided, that the Board shall
meet not less than four (4) times in any twelve (12) month period. Special
meetings of the Board shall be held on the call of any Advisor or the Managing
Member upon at least four (4) days' (if the meeting is to be held in person) or
two (2) days' (if the meeting is to be held by telephone communications) oral or
written notice to the Advisors, or upon such shorter notice as may be approved
by the Advisors. Any Advisor may waive such notice as to himself or herself. A
record shall be maintained of meetings of the Board.
(i) Conduct of Meetings. Any meeting of the Advisors
may be held in person or telephonically.
(ii) Quorum. A majority of the Advisors who are then
in office shall constitute a quorum of the Board for purposes of
conducting business.
(iii) Unanimous Written Consent. Unless otherwise
prohibited by law, any action to be taken at any meeting of the Board,
or by any committee thereof, may be taken without a meeting if all the
members of the Board or committee, as the case may be, consent thereto
in writing and the writing(s) are filed with the minutes of the
proceedings of the board or committee.
6.5 Officers.
-16-
<PAGE> 21
(a) Appointment of Officers. There shall be four senior
officers of the Company as follows (i) Chief Executive Officer and President,
(ii) Executive Vice President and Chief Financial Officer, (iii) Vice President
of Sales and (iv) Vice President of Production. Except as otherwise provided in
this Agreement, the Managing Member may appoint other officers at any time.
(b) Removal, Resignation and Filling of Vacancy of Officers.
The Board may remove any officer of the Company with or without cause at any
time. Any officer may resign at any time by giving written notice to the
Managing Member and the Board. Unless otherwise directed by the Board, any such
resignation shall take effect at the date of the receipt of that notice or any
later time specified in that notice; and, unless otherwise specified in that
notice, the acceptance of the resignation shall not be necessary to make it
effective. In the event that an officer resigns or is removed by the Board, upon
the resignation or removal becoming effective, the Membership Interest owned by
such officer shall be terminated except for the portion thereof that constitutes
an Economic Interest (which such Person shall continue to hold subject to the
provisions of the Employment Agreement), and the former officer shall cease to
be a Member and shall instead be an Economic Owner with respect to such Economic
Interest and thereafter the former officer shall be deemed a Terminated Member.
(c) Salaries of Officers. Subject to the provisions of any
Employment Agreements and any other contract to which any officer and the
Company are party, the salaries of all officers of the Company shall be fixed by
a resolution of the Board.
(d) Duties of Officers Generally. The officers, in the
performance of their duties as such, shall owe to the Members duties of loyalty
and due care of the type owed by the officers of a corporation to the
stockholders of such corporation under the laws of the State of New Jersey.
(e) Chief Financial Officer. The Chief Financial Officer shall
keep and maintain, or cause to be kept and maintained, adequate and correct
books and records of accounts of the properties and business transactions of the
Company, including accounts of its assets, liabilities, receipts, disbursements,
gains, losses, capital and Units. The Chief Financial Officer shall have the
custody of the funds and securities of the Company, and shall keep full and
accurate accounts of receipts and disbursements in books belonging to the
Company, and shall deposit all moneys and other valuable effects in the name and
to the credit of the Company in such depositories as may be designated by the
Managing Member. The Chief Financial Officer shall have such other powers and
perform such other duties as may from time to time be prescribed by the chief
executive officer or the Managing Member.
ARTICLE 7
MEMBERS; VOTING RIGHTS
7.1 Meetings. Meetings of Members may be held from time to
time as called by the Managing Member or by a Member holding not less than 20%
of the outstanding Units of any class or series of Units, upon (10) ten days'
written notice (such notice may be waived by a Member
-17-
<PAGE> 22
in writing or by so indicating at such meeting) if action of the Members is
required to be taken pursuant to the terms of this Agreement. The Managing
Member may, or may appoint another Member to, (and at least one Member shall),
preside at meetings of Members. A record shall be maintained of meetings of the
Members.
(a) Any meeting of the Members may be held in person or
telephonically. Except as otherwise provided herein or by applicable law, a
majority of the Class A Common Units and Class C Common Units in the aggregate,
represented in person or by proxy, shall constitute a quorum of Members for
purposes of conducting business.
(b) Unless otherwise prohibited by law, any action to be taken
at a meeting of the Members may be taken without a meeting if a consent of the
Members in writing, setting forth the action so taken, shall be signed by such
of the Members as shall be required to authorize, approve, ratify or otherwise
consent to such action under the Act and this Agreement; provided, however that
any such action approved by less than unanimous written consent of the Members
shall not be effective until ten (10) days after notice of such action shall
have been provided to Members entitled to vote who have not consented in
writing.
7.2 Voting Matters. Except as specifically provided herein or
otherwise required by applicable law, each Class A Common Member shall be
entitled to one vote per Class A Common Unit held by such Class A Common Member.
Except as specifically provided herein or otherwise required by applicable law,
each Class C Common Member shall be entitled to one vote per Class C Common Unit
held by such Class C Common Member. Except as specifically provided herein or
otherwise required by applicable law, the Class B Common Members and the
Preferred Members shall have no right to vote on any matters to be voted on by
the Members of the Company; provided, that the Class B Common Members shall have
the right to vote each as a separate class on any merger or consolidation of the
Company with or into another entity or entities, or any recapitalization or
reorganization, in which the Class B Common Units (x) would receive or be
exchanged for consideration different on a per Common Unit basis from
consideration received with respect to or in exchange for the Class A Common or
(y) would otherwise be treated differently from the Class A Common Units in
connection with such transaction, except that the Class B Common Units without
such a separate class vote, may receive or be exchanged for nonvoting securities
(except as otherwise required by law) which are otherwise identical on a per
unit basis in amount and form to the voting securities received with respect to
or exchanged for the Class A Common Units so long as (A) such nonvoting
securities are convertible into such voting securities on the same terms as the
Class B Common Units are convertible into Class A Common Units, and (B) all
other consideration is equal on a per Common Unit basis..
7.3 Conversion of Class B Common Units.
(a) Each Class B Member shall be entitled at any time to
convert any or all of the outstanding Class B Common Units held by such Class B
Member into the same number of Class A Common Units. A Class B Common Holder or
Class B Common Holders holding a majority of the Class B Common Units can cause
a conversion of 100% of the Class B Common Units into the same number of Class A
Common Units.
-18-
<PAGE> 23
(b) Each conversion of Class B Common Units into Class A
Common Units shall be effected by written notice by such Class B Member to the
Company at its principal office stating that such Class B Member desires to
convert its Class B Common Units into Class A Common Units. Each conversion of
Class B Common Units shall be deemed to have been effected as of the close of
business on the date on which such notice has been received, and at such time
such Class B Common Units shall be deemed to have been cancelled and converted
into Class A Common Units, and at such time the Class A Common Units issuable
upon such conversion shall be deemed to be issued. At such time, the Company
shall promptly provide written notice to all Members of such conversion.
(c) The conversion of Class B Common Units into Class A Common
Units will be made without charge to the Class B Common Members electing
conversion of any issuance tax in respect thereof or other cost incurred by the
Company in connection with such conversion and the related issuance of Class A
Common Units.
(d) All Class A Common Units issuable upon any conversion of
Class B Common Units shall, when issued, be duly and validly issued, and free
from all taxes, liens and charges. The Company shall take all such actions as
may be necessary to assure that all such Class A Common Units may be so issued
without violation of any applicable law or governmental regulation or any
requirements of any domestic securities exchange upon which Class A Common Units
may be listed (except for official notice of issuance which shall be immediately
transmitted by the Company upon issuance).
(e) The Company shall not close its books against the transfer
of Class B Common Units or Class A Common Units in any manner which would
interfere with the timely conversion of Class B Common Units. The Company shall
assist and cooperate with any Class B Common Holders required to make any
governmental filings or obtain any governmental approval prior to or in
connection with any conversion of Class B Common Units hereunder (including,
without limitation, making any filings required to be made by the Company).
7.4 Withdrawal; Resignation.
(a) Generally. Any Member may resign as a "member" (as that
term is used in the Act) of the Company by written notice to that effect to the
Company, and any such resignation shall be effective at the time such notice is
given or at such later effective time as may be specified in such notice. Unless
otherwise specified in such notice, the acceptance of the resignation shall not
be necessary to make it effective. A Member shall automatically cease to be a
Member as a result of his or its Incapacity. Upon any such resignation or
Incapacity of a Member, such Member becomes a "Terminated Member." Any Member
who is an employee or an officer of the Company or any of its Subsidiaries
(including any Executive) and whose employment with the Company or any of its
Subsidiaries is terminated for any reason shall be deemed a Terminated Member.
(b) Share of a Terminated Member. In the event that a Member
becomes a Terminated Member, the Membership Interest owned by the Terminated
Member shall be terminated except for the portion thereof which constitutes an
Economic Interest (which such Person shall
-19-
<PAGE> 24
continue to hold), and such Terminated Member (or his estate) shall retain such
Terminated Member's Units, shall be deemed an Economic Owner only with respect
to such Units and shall receive Distributions pursuant to Articles 5 and 12 as
if still a Member.
(c) Effect of Termination. Except as provided in Section
12.1(a), the withdrawal or Incapacity or other termination of a Member shall not
affect the existence of the Company, and the remaining Members shall continue
the business of the Company under the terms of this Agreement. Thereafter, the
Terminated Member shall no longer be a Member for purposes of this Agreement and
shall have no rights, except as otherwise provided herein and shall not be
entitled to participate in any Company decision or determination (including,
without limitation, voting or consent rights with respect to amendments to this
Agreement or otherwise, except as provided herein), and the successors and
assigns of a Terminated Member will acquire only such Terminated Member's
Economic Interest as an Economic Owner.
ARTICLE 8
EXCULPATION AND INDEMNIFICATION
8.1 Performance of Duties; No Liability of Member and
Officers. No Member (including the Managing Member) shall have any duty to the
Company or any Member of the Company except as expressly set forth herein or in
other written agreements. No Member (including the Managing Member), Advisor or
officer of the Company shall be liable to the Company or to any Member for any
loss or damage sustained by the Company or to any Member, unless the loss or
damage shall have been the result of gross negligence, fraud or intentional
misconduct by the Member (including the Managing Member), Advisor or officer in
question. In performing such Person's duties, each such Person shall be entitled
to rely in good faith on the provisions of this Agreement and on information,
opinions, reports or statements (including financial statements and information,
opinions, reports or statements as to the value or amount of the assets,
liabilities, profits or losses of the Company or any facts pertinent to the
existence and amount of assets from which distributions to Members might
properly be paid) of the following other Persons or groups: one or more officers
or employees of the Company; any attorney, independent accountant, appraiser or
other expert or professional employed or engaged by or on behalf of the Company,
the Managing Member, the Board or any committee of the Board; or any other
Person who has been selected with reasonable care by or on behalf of the
Company, the Managing Member, the Board or any committee of the Board in each
case as to matters which such relying Person reasonably believes to be within
such other Person's competence. The preceding sentence shall in no way limit any
Person's right to rely on information to the extent provided in Section 42:2B-31
of the Act. No Member (including the Managing Member), Advisor or officer of the
Company shall be personally liable under any judgment of a court, or in any
other manner, for any debt, obligation or liability of the Company, whether that
liability or obligation arises in contract, tort or otherwise, solely by reason
of being a Member, Advisor or officer of the Company or any combination of the
foregoing.
8.2 Competing Activities. Except as set forth herein and in
the Employment Agreements or as may otherwise be agreed in writing and subject
to the By-Laws of Serta, Inc.:
-20-
<PAGE> 25
(a) the Members, Advisors and the officers, directors, security holders,
partners, members, managers, agents, employees and Affiliates of each of them,
may engage or invest in, own and/or manage, independently or with others, any
business activity of any type or description, including without limitation those
that might be in direct or indirect competition with the Company; (b) neither
the Company nor any Member shall have any right in or to any of such other
ventures or activities or to the income or proceeds derived therefrom; (c)
neither the Members nor the Advisors, officers, directors, securityholders,
partners, members, managers, agents, employees or Affiliates of any of them
shall be obligated to present any investment opportunity or prospective economic
advantage to the Company, even if the opportunity is of the character that, if
presented to the Company, could be taken advantage of by the Company; and (d)
the Members, Advisors and the officers, directors, securityholders, partners,
members, managers, agents, employees and Affiliates of each of them shall have
the right to hold any investment opportunity or prospective economic advantage
for their own account or to recommend such opportunity to Persons other than the
Company.
8.3 Right to Indemnification. Subject to the limitations and
conditions as provided in this Article 8, each Person who was or is made a party
or is threatened to be made a party to or is involved in any threatened, pending
or completed action, suit or proceeding, whether civil, criminal, administrative
or arbitrative (hereinafter a "Proceeding"), or any appeal in such a Proceeding
or any inquiry or investigation that could lead to such a Proceeding, by reason
of the fact that such Person, or a Person of which such Person is the legal
representative, is or was a Member, Advisor or officer shall be indemnified by
the Company to the fullest extent permitted by applicable law, as the same
exists or may hereafter be amended (but, in the case of any such amendment, only
to the extent that such amendment permits the Company to provide broader
indemnification rights than said law permitted the Company to provide prior to
such amendment) against judgments, penalties (including excise and similar taxes
and punitive damages), fines, settlements and reasonable expenses (including,
without limitation, reasonable attorneys' fees and expenses) actually incurred
by such Person in connection with such Proceeding, appeal, inquiry or
investigation, and indemnification under this Article 8 shall continue as to a
Person who has ceased to serve in the capacity which initially entitled such
Person to indemnity hereunder; provided, that such Person shall be entitled to
indemnification hereunder only if such Person acted in good faith and in a
manner such Person reasonably believed to be in or not opposed to the best
interest of the Company. The rights granted pursuant to this Article 8 shall be
deemed contract rights, and no amendment, modification or repeal of this Article
8 shall have the effect of limiting or denying any such rights with respect to
actions taken or Proceedings, appeals, inquiries or investigations arising prior
to any amendment, modification or repeal.
8.4 Advance Payment. The right to indemnification conferred in
this Article 8 shall include the right to be paid or reimbursed by the Company
the reasonable expenses incurred by a Person of the type entitled to be
indemnified under Section 8.3 who was, is or is threatened to be, made a named
defendant or respondent in a Proceeding in advance of the final disposition of
the Proceeding and without any determination as to the Person's ultimate
entitlement to indemnification; provided, however, that the payment of such
expenses incurred by any such Person in advance of the final disposition of a
Proceeding shall be made only upon delivery to the Company of a written
affirmation by such Person of his or her good faith belief that he has met the
standard of conduct necessary for indemnification under Article 8 and a written
undertaking (acceptable to the Board),
-21-
<PAGE> 26
by or on behalf of such Person, to repay all amounts so advanced if it shall
ultimately be determined that such indemnified Person is not entitled to be
indemnified under this Article 8 or otherwise.
8.5 Indemnification of Employees and Agents. The Company, at
the direction of the Board, may indemnify and advance expenses to an employee or
agent of the Company to the same extent and subject to the same conditions under
which it may indemnify and advance expenses under Sections 8.3 and 8.4.
8.6 Reimbursement of Fees and Expenses. The Company shall bear
all of the out-of-pocket expenses, including attorneys' and accountants' fees
and expenses, incurred in connection with the organization of the Company and
the operation and maintenance of the Company and its assets and business. The
Company shall reimburse the Members for all fees and expenses borne by them on
behalf of the Company in connection with the Company and its business
8.7 Nonexclusivity of Rights. The right to indemnification and
the advancement and payment of expenses conferred in this Article 8 shall not be
exclusive of any other right that a Member, Advisor, officer or other Person
indemnified pursuant to this Article 8 may have or hereafter acquire under any
law (common or statutory) or provision of this Agreement.
8.8 Insurance. The Company may, but is not obligated to,
purchase and maintain insurance, at its expense, to protect itself and any
Member, Advisor, officer, employee or agent of the Company who is or was serving
at the request of the Company as a manager, director, officer, partner,
venturer, proprietor, trustee, employee, agent, Advisor, or similar functionary
of a foreign or domestic limited liability company, corporation, partnership,
joint venture, sole proprietorship, trust, employee benefit plan or other
enterprise against any expense, liability or loss, whether or not the Company
would have the power to indemnify such Person against such expense, liability or
loss under this Article 8.
8.9 Savings Clause. If this Article 8 or any portion hereof
shall be invalidated on any ground by any court of competent jurisdiction, then
the Company shall nevertheless indemnify and hold harmless each Person
indemnified pursuant to this Article 8 as to costs, charges and expenses
(including reasonable attorneys' fees and expenses), judgments, fines and
amounts paid in settlement with respect to any such Proceeding, appeal, inquiry
or investigation to the full extent permitted by any applicable portion of this
Article 8 that shall not have been invalidated and to the fullest extent
permitted by applicable law.
ARTICLE 9
TAX RETURNS
The Company shall cause to be prepared and filed all necessary
federal and state income tax returns for the Company, consistent with the
treatment of the Company as a corporation for tax purposes, and shall make any
elections the Managing Member may deem appropriate and in the best interests of
the Members. Each Member shall furnish to the Company all pertinent
-22-
<PAGE> 27
information in its possession relating to Company operations that is necessary
to enable the Company's income tax returns to be prepared and filed.
ARTICLE 10
BOOKS, REPORTS AND COMPANY COVENANTS
10.1 Maintenance of Books. The Company shall keep books and
records of accounts in accordance with GAAP and shall keep minutes of the
proceedings of its Members and each committee. The Fiscal Year shall be the
accounting year of the Company for financial reporting purposes.
10.2 Financial Statements and Other Information. The Company
shall, upon the request of any Member who holds more than 5% of the outstanding
Common Units, deliver to such Member:
(a) as soon as available but in any event within 30 days after
the end of each monthly accounting period in each Fiscal Year, unaudited
consolidating and consolidated statements of income and cash flows of the
Company and its Subsidiaries for such monthly period and for the period from the
beginning of the Fiscal Year to the end of such month, and unaudited
consolidating and consolidated balance sheets of the Company and its
Subsidiaries as of the end of such monthly period, setting forth in each case
comparisons to the annual budget and to the corresponding period in the
preceding Fiscal Year, and all such statements shall be prepared in accordance
with GAAP, consistently applied, subject to the absence of footnote disclosures
and to normal year-end adjustments, and shall be accompanied by an officer's
certificate;
(b) within 45 days after the end of each quarterly accounting
period in each Fiscal Year, unaudited consolidating and consolidated statements
of income and cash flows of the Company and its Subsidiaries for such quarterly
period, and unaudited consolidating and consolidated balance sheets of the
Company and its Subsidiaries as of the end of such quarterly period, setting
forth in each case comparisons to the annual budget and to the corresponding
period in the preceding Fiscal Year, and all such statements shall be prepared
in accordance with GAAP, consistently applied, subject to the absence of
footnote disclosures and to normal year-end adjustments, and shall be
accompanied by an officer's certificate;
(c) within 90 days after the end of each Fiscal Year, audited
consolidating and consolidated statements of income and cash flows of the
Company and its Subsidiaries for such Fiscal Year, and audited consolidating and
consolidated balance sheets of the Company and its Subsidiaries as of the end of
such Fiscal Year, setting forth in each case comparisons to the annual budget
and to the preceding Fiscal Year, all prepared in accordance with GAAP,
consistently applied, and accompanied by (i) with respect to the consolidated
portions of such statements, an opinion of an independent accounting firm of
recognized national standing, (ii) a certificate from such accounting firm,
addressed to the Board, stating that in the course of its examination nothing
came to its attention that caused it to believe that there was any default by
the Company or any
-23-
<PAGE> 28
Subsidiary in the fulfillment of or compliance with any of the terms, covenants,
provisions or conditions of any material agreement to which the Company or any
Subsidiary is a party or, if such accountants have reason to believe any default
by the Company or any Subsidiary exists, a certificate specifying the nature and
period of existence thereof, and (iii) a copy of such firm's annual management
letter to the Board;
(d) promptly upon receipt thereof, any additional reports,
management letters or other detailed information concerning significant aspects
of the Company's operations or financial affairs given to the Company by its
independent accountants (and not otherwise contained in other materials provided
hereunder);
(e) at least 30 days prior to the end of each Fiscal Year, an
annual budget prepared on a monthly basis for the Company and its Subsidiaries
for the following Fiscal Year (displaying anticipated statements of income and
cash flows and balance sheets), and following preparation thereof quarterly
revisions of such budget and any other significant budgets prepared by the
Company or its Subsidiaries, and within 30 days after any monthly period in
which there is a material adverse deviation from the annual budget, an officer's
certificate explaining the deviation and what actions the Company has taken and
proposes to take with respect thereto; and
(f) with reasonable promptness, such other information and
financial data concerning the Company and its Subsidiaries as any Person
entitled to receive information under this Article 10 may reasonably request.
10.3 Inspection of Property. The Company shall permit any
Member, upon written demand under oath stating the purpose therefor, during
normal business hours and such other times as any such holder may reasonably
request, to (i) visit and inspect any of the properties of the Company and its
Subsidiaries, (ii) examine the corporate and financial records of the Company
and its Subsidiaries and make copies thereof or extracts therefrom and (iii)
discuss the affairs, finances and accounts of any such corporations with the
directors, officers, key employees and independent accountants of the Company
and its Subsidiaries.
10.4 Regulatory Compliance Cooperation.
(a) Regulatory Problem. In the event that CVC or any of its
Affiliates determines that it has a Regulatory Problem (as defined below), the
Company agrees to take all such actions as are reasonably requested by CVC in
order (i) to effectuate and facilitate any Transfer by CVC of any securities of
the Company then held by CVC to any Person designated by CVC, (ii) to permit CVC
(or any of its Affiliates) to exchange all or a portion of any voting security
then held by it on a unit- for-unit basis for units of a nonvoting security of
the Company, which nonvoting security shall be identical in all respects to the
voting security exchanged for it, except that it shall be nonvoting and shall be
convertible into a voting security on such terms as are requested by CVC in
light of regulatory considerations then prevailing, and (iii) to continue and
preserve the respective allocation of the voting interests with respect to the
Company provided for in the Securityholders Agreement and with respect to CVC's
ownership of the Units. Such actions may include, but shall not necessarily be
limited to entering into such additional agreements, adopting such amendments to
this
-24-
<PAGE> 29
Agreement and taking such additional actions as are reasonably requested by CVC
in order to effectuate the intent of the foregoing. Each of the parties to this
Agreement agrees to vote his or its securities in favor of such amendments and
actions so long as such amendments and actions do not diminish such party's
economic or voting rights hereunder. For purposes of this Agreement, a
"Regulatory Problem" means any set of facts or circumstances wherein it has been
asserted by any governmental regulatory agency (or CVC reasonably believes that
there is a substantial risk of such assertion) that CVC is not entitled to hold,
or exercise any significant right with respect to, the Units.
(b) Use of Proceeds. The Company hereby agrees that: the
Company will provide CVC with a written summary accompanied by an Officer's
Certificate describing in reasonable detail the Company's use of the proceeds
received hereunder (including the intended use of any such unused proceeds as of
the date of such summary) (A) within 75 days of the date hereof, (B) at the end
of each month thereafter until all of the proceeds received hereunder have been
used by the Company and its Subsidiaries.
(c) Regulatory Violation. The Company will repurchase at the
request of CVC the Units for an amount equal to the purchase price thereof (plus
any accrued but unpaid interest or dividends thereon), payable in immediately
available funds, in the event that CVC determines in its reasonable good faith
judgment that a Regulatory Violation (as defined below) occurred. In the event
of such repurchase, the Company shall pay for such Units by a cashier's check,
certified check or wire transfer within 30 days after the Company's receipt of
the repurchase request, and upon such payment, CVC shall deliver the
certificates evidencing the securities being repurchased. For purposes of this
Agreement, "Regulatory Violation" means (x) a diversion of the proceeds of the
sale of Units hereunder described on the use of proceeds statement delivered by
the Company on the date hereof, if such diversion was effected without obtaining
the prior written consent of CVC (which consent may be withheld in CVC's sole
discretion) or (y) a change in the principal business activity of the Company
and its Subsidiaries to an ineligible business activity (within the meaning of
the SBIC Regulations), if such change occurs within one year after the date
hereof.
(d) Number of Class A Common Members and Class C Common
Members. As long as the Investor holds any Membership Interest, the Company
shall notify the Investor (a) at least 15 days prior to taking any action after
which the aggregate number of Class A Common Members and Class C Common Members
would be increased from fewer than 50 to 50 or more, and (b) of any other action
or occurrence after which the aggregate number of Class A Common Members and
Class C Common Members was increased (or would increase) from fewer than 50 to
50 or more, as soon as practicable after the Company becomes aware that such
other action or occurrence has occurred or is proposed to occur.
(e) Economic Impact Information. Promptly after the end of
each Fiscal Year (but in any event prior to February 28 of each year) the
Company shall deliver to the Investor a written assessment of the economic
impact of the Investor's investment in the Company, specifying the full-time
equivalent jobs created or retained in connection with the investment, the
impact of the investment on the businesses of the Company in terms of expanded
revenue and taxes, and other economic benefits resulting from the investment,
including but not limited to, technology
-25-
<PAGE> 30
development or commercialization, minority business development, urban or rural
business development, expansion of exports.
10.5 Notice of Developments. The Company will give prompt
written notice to the Investor of any material adverse development causing a
breach of any of the above representations and warranties. No disclosure by the
Company pursuant to this Section 10.5, however, shall prevent or cure any
misrepresentation, breach of warranty, or breach of contract.
10.6 SBA Matters.
(a) The Company acknowledges that CVC is a federally licensed
SBIC under the SBIC Act. The information regarding the Company and its
affiliates set forth in SBA Form 480, Form 652 and Parts A and B of Form 1031
delivered at the Closing is accurate and complete in all material respects.
Copies of such forms shall have been completed by the Company and delivered to
CVC at the closing. Neither the Company nor any Subsidiary presently engages in,
or shall hereafter engage in, any activities, nor shall the Company or any
Subsidiary use the proceeds of the Financing directly or indirectly for any
purpose, for which an SBIC is prohibited from providing funds by SBIC
Regulations (including 13 CFR Section 107.720).
(b) SBA Forms. The Company shall deliver to CVC prior to the
date hereof:
(i) duly completed and executed SBA Forms 480, 652
and Parts A and B of 1031;
(ii) a business plan showing the Company's financial
projections (including balance sheets and income and cash flow statements) for
the period ending December 31, 2010;
(iii) a written statement from the Company regarding
its intended use of the proceeds of the transactions contemplated hereby; and
(iv) a list, after giving effect to the transactions
contemplated by this Agreement, of (a) the name of each of the Company's
Advisors, (b) the name and title of each of the Company's officers, and (c) the
name of each of the Company's Members setting forth the number and class of
Membership Interests held.
10.7 Company Funds. The Company may not commingle the
Company's funds with the funds of any Member or the funds of any Affiliate of
any Member.
-26-
<PAGE> 31
ARTICLE 11
TRANSFER OF INTERESTS
11.1 Restrictions. Each Member acknowledges that he shall not Transfer
any interest in the Company except in accordance with the provisions of this
Article 11, the Securityholders Agreement and the Employment Agreements. Any
attempted Transfer in violation of the preceding sentence shall be deemed null
and void for all purposes, and the Company will not record any such transfer on
its books or treat any purported transferee as the owner of such interests for
any purpose. As used in this Article 11, references to a Transfer of an
"interest" shall mean any Transfer of any Membership Interest or other Economic
Interest or any interest in any portion of a Membership Interest or Economic
Interest.
11.2 General Restrictions on Transfer.
(a) Notwithstanding anything to the contrary in this
Agreement, no transferee of any interest received pursuant to a Transfer (but
excluding transferees that were Members immediately prior to such a Transfer,
who shall automatically become Members with respect to any additional interests
they so acquire) shall become a Member in respect of the interest so transferred
unless a Person is admitted as a Member as set forth in Section 3.4(b).
(b) No Transfer of a Membership Interest in the Company shall
be effective unless and until (i) written notice (including the name and address
of the purchaser or donee and the date of such Transfer) has been provided to
the Company and the non-transferring Member(s) and (ii) the transferee executes
a form of this Agreement or an amendment hereto in form and substance reasonably
satisfactory to the Board. No transferee of a Member's Membership Interest (or
any interest therein) may further Transfer such interest without complying with
the provisions of this Article 11.
(c) Following a Transfer of an interest that is permitted
under this Article 11, the transferee of such interest shall be treated as
having made all of the Capital Contributions in respect of, and received all of
the distributions received in respect of, such interest, shall receive
distributions under Articles 5 and 12 in respect of such interest as if such
transferee were a Member.
(d) Any Member who Transfers all of his interest in the
Company shall (i) cease to be a Member upon such Transfer, (ii) shall no longer
possess or have the power to exercise any rights or powers of a Member of the
Company and (iii) shall be deemed a Terminated Member.
11.3 Procedure for Transfers. Subject in all events to the general
restrictions on transfers contained in Sections 11.1 and 11.2 and in the
Securityholders Agreement, a Person may Transfer all or any part of its Economic
Interest in the Company in accordance with this Section 11.3.
(a) No Transfer may be completed until the prospective
transferee executes and delivers to the Company and the other Members an
agreement to be bound by this Agreement in form and substance reasonably
acceptable to the Board. In addition, the Board may require the
-27-
<PAGE> 32
transferor and the transferee to execute, acknowledge and deliver to the
Company, for the benefit of the remaining Members, such instruments of transfer,
assignment and assumption and such other certificates, representations and
documents, and to perform all such other acts which the Board may deem necessary
or desirable to:
(i) ensure that such transferee will become an
Economic Owner;
(ii) preserve the Company after the completion of
such sale, transfer, assignment, or substitution under the laws of each
jurisdiction in which the Company is qualified, organized or does business;
(iii) maintain the status of the Company as a
corporation for federal income tax purposes; and
(iv) assure compliance with any applicable state and
federal laws including securities laws and regulations.
Each Member agrees that, if it is a transferor, upon request of the Board it
shall indemnify the Company and the remaining Members against any and all loss,
damage, or expense (including, without limitation, tax liabilities or loss of
tax benefits) arising directly or indirectly as a result of any Transfer or
purported Transfer in violation of this Section 11.
(b) In connection with the Transfer of any Restricted
Securities, the holder thereof will deliver written notice to the Company
describing in reasonable detail the Transfer or proposed Transfer. In addition,
if the holder of such Restricted Securities delivers to the Company an opinion
of such counsel that no subsequent Transfer of such Restricted Securities will
require registration under the Securities Act, the Company will promptly upon
such contemplated Transfer deliver new certificates or instruments, as the case
may be, for such Restricted Securities which do not bear the restrictive legend
relating to the Securities Act as set forth below. If the Company is not
required to deliver new certificates or instruments, as the case may be, for
such Restricted Securities not bearing such legend, the holder thereof will not
Transfer the same until the prospective transferee has confirmed to the Company
in writing its agreement to be bound by the conditions contained in this Section
11.3.
11.4 Prospective Transferees. Subject to the terms of this Agreement
and the Securityholders Agreement, the Company, the Managing Member and each
Executive agree to cooperate, as may reasonably be requested, in order to
provide any information and access to any information to any prospective
transferee in connection with a proposed Transfer.
11.5 Legend. The certificates representing the Units will bear the
following legend:
"THE UNITS REPRESENTED BY THIS CERTIFICATE, HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), AND MAY NOT BE SOLD
OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE
-28-
<PAGE> 33
REGISTRATION STATEMENT UNDER THE ACT OR AN EXEMPTION FROM
REGISTRATION THEREUNDER. THE TRANSFER OF THE UNITS REPRESENTED
BY THIS CERTIFICATE IS SUBJECT TO THE CONDITIONS SPECIFIED IN
A LIMITED LIABILITY COMPANY OPERATING AGREEMENT, GOVERNING THE
ISSUER (THE "COMPANY") AND BY AND AMONG CERTAIN INVESTORS. A
COPY OF SUCH CONDITIONS SHALL BE FURNISHED BY THE COMPANY TO
THE HOLDER HEREOF UPON WRITTEN REQUEST AND WITHOUT CHARGE."
11.6 Transfer Fees and Expenses. The transferor and transferee of any
Membership Interest or Economic Interest shall be jointly and severally
obligated to reimburse the Company for all reasonable expenses (including
attorneys' fees and expenses) of any Transfer or proposed Transfer, whether or
not consummated.
11.7 Limitations. Notwithstanding anything to the contrary in this
Agreement, no Unit or Economic Interest may be transferred if such transfer
would result in the Company having more than 100 "beneficial owners" as defined
and determined by the Investment Company Act of 1940, as amended from time to
time.
ARTICLE 12
DISSOLUTION AND LIQUIDATION
12.1 Events Causing Dissolution.
(a) The Company shall continue in full force and effect,
except that the Company shall be dissolved prior thereto upon the happening of
any of the following events or by operation of law:
(i) the Company shall be dissolved upon the written
consent of all Members or the entry of a decree of judicial dissolution under
Section 42:2B-49 of the Act; and
(ii) any event which shall make it unlawful for the
existence of the Company to be continued.
(b) In the event of a Bankruptcy of a Member that does not
cause the Company to dissolve as provided in subsection (a), such Member shall
cease to be a Member for all purposes hereunder unless upon the Consent of the
Members, such Bankrupt Member is permitted to remain a Member hereunder.
(c) The death, retirement, resignation, expulsion, incapacity,
Bankruptcy or dissolution of a Member, or the occurrence of any other event that
terminates the continued
-29-
<PAGE> 34
membership of a Member in the Company, shall not cause a dissolution of the
Company, and the Company shall continue in existence subject to the terms and
conditions of this Agreement.
12.2 Liquidation and Termination. On dissolution of the Company, the
Managing Member or such other or additional Member or Members as designated by
the Board shall act as liquidator(s). The liquidator(s) shall proceed diligently
to wind up the affairs of the Company and make final distributions as provided
herein and in the Act. The costs of liquidation shall be borne as a Company
expense. Until final distribution, the liquidator(s) shall continue to operate
the Company properties with all of the power and authority of Managing Member
and Members, subject to the power of the Board to remove and replace such
liquidator(s). The steps to be accomplished by the liquidator(s) are as follows:
(a) As promptly as possible after dissolution and again after
final liquidation, the liquidator(s) shall cause a proper accounting to be made
by a recognized firm of certified public accountants of the Company's assets,
liabilities and operations through the last day of the calendar month in which
the dissolution occurs or the final liquidation is completed, as applicable.
(b) The liquidator(s) shall pay, satisfy or discharge from
Company funds all of the debts, liabilities and obligations of the Company
(including, without limitation, all expenses incurred in liquidation) or
otherwise make adequate provision for payment and discharge thereof (including,
without limitation, the establishment of a cash fund for contingent liabilities
in such amount and for such term as the liquidator may reasonably determine).
(c) All remaining assets of the Company shall be distributed
to the Members in accordance with Section 5.2(a) hereof by the end of the
taxable year of the Company during which the liquidation of the Company occurs
(or, if later, 90 days after the date of the liquidation).
The liquidator(s) shall cause only cash and securities to be distributed in any
liquidation. The distribution of cash and/or property to a Member in accordance
with the provisions of this Section 12.2 constitutes a complete return to the
Member of its Capital Contributions and a complete distribution to the Member of
its interest in the Company and all the Company's property and constitutes a
compromise to which all Members have consented within the meaning of the Act. To
the extent that a Member returns funds to the Company, it has no claim against
any other Member for those funds.
12.3 Cancellation of Certificate. On completion of the
distribution of Company assets as provided herein, the Company is terminated,
and shall file a certificate of cancellation of the Company pursuant to Section
42:2B-14(b) of the Act and take such other actions as may be necessary to
terminate the Company.
-30-
<PAGE> 35
ARTICLE 13
GENERAL/MISCELLANEOUS PROVISIONS
13.1 Notices. Except as expressly set forth to the contrary in this
Agreement, all notices, requests or consents provided for or permitted to be
given under this Agreement must be in writing and must be given either by
depositing that writing in the United States mail, addressed to the recipient,
postage paid, and registered or certified with return receipt requested or by
delivering that writing to the recipient in person, by courier, or by facsimile
transmission; and a notice, request, or consent given under this Agreement is
effective on receipt by the Person who receives it. All notices, requests and
consents to be sent to a Member must be sent to or made at the address (or
facsimile number) given for that Member on Schedule A, or such other address (or
facsimile number) as that Member may specify by notice to the other Members. Any
notice, request or consent to the Company or the Managing Member must be given
to the Managing Member or, if appointed, the Secretary of the Company at the
Company's chief executive offices. Whenever any notice is required to be given
by law or this Agreement, a written waiver thereof, signed by the Person
entitled to notice, whether before or after the time stated therein, shall be
deemed equivalent to the giving of such notice.
13.2 GOVERNING LAW. ALL QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY
AND INTERPRETATION OF THIS AGREEMENT AND THE EXHIBITS HERETO WILL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE DOMESTIC LAWS OF THE STATE OF NEW YORK,
WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR CONFLICT OF LAW PROVISION OR RULE
(WHETHER OF THE STATE OF NEW YORK OR ANY OTHER JURISDICTION) THAT WOULD CAUSE
THE APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF NEW
YORK; PROVIDED, THAT ANY QUESTIONS REQUIRING INTERPRETATION OF THE LAWS
GOVERNING LIMITED LIABILITY COMPANIES SHALL BE GOVERNED BY THE ACT.
13.3 Certificates of Units.
(a) Every holder of Units in the Company shall be entitled to
have a certificate, signed by, or in the name of the Company, by the president
and a vice-president of the Company, certifying the number of Units owned by
such holder in the Company. In case any officer(s) who have signed any such
certificate(s) shall cease to be such officer(s) of the Company whether because
of death, resignation or otherwise before such certificate(s) have been
delivered by the Company, such certificate(s) may nevertheless be issued and
delivered as though the Person or Persons who signed such certificate(s) had not
ceased to be such officer(s) of the Company. All certificates for Units shall be
consecutively numbered or otherwise identified. The name of the Person to whom
the Units represented thereby are issued, with the number of Units and date of
issue, shall be entered on the books of the Company. Units of the Company shall
only be transferred on the books of the Company by the holder of record thereof
or by such holder's attorney duly authorized in writing, upon surrender to the
Company of the certificate(s) for such Units endorsed by the appropriate
Person(s), with such evidence of the authenticity of such endorsement, transfer,
authorization, and other matters as the Company may reasonably require, and
accompanied by all necessary transfer stamps. In that event, it shall be the
duty of the Company to issue a new certificate to the Person entitled thereto,
cancel the old certificate(s), and record the transaction on its books. The
Board may
-31-
<PAGE> 36
appoint a bank or trust company organized under the laws of the United States or
any state thereof to act as its transfer agent or registrar, or both in
connection with the transfer of any class or series of securities of the
Company.
(b) The Board may direct a new certificate(s) to be issued in
place of any certificate(s) previously issued by the Company alleged to have
been lost, stolen, or destroyed, upon the making of an affidavit of that fact by
the Person claiming the certificate to be lost, stolen, or destroyed. When
authorizing such issue of a new certificate(s), the Board may, in its discretion
and as a condition precedent to the issuance thereof, require the owner of such
lost, stolen, or destroyed certificate(s), or his or her legal representative,
to give the Company a bond sufficient to indemnify the Company against any claim
that may be made against the Company on account of the loss, theft or
destruction of any such certificate or the issuance of such new certificate.
13.4 Entire Agreement. This Agreement, together with the
Securityholders Agreement, the Registration Rights Agreement, the Employment
Agreements and the Warrant, constitutes the entire agreement of the Members and
their Affiliates relating to the Company and supersedes all prior contracts or
agreements with respect to the Company, whether oral or written.
13.5 Effect of Waiver or Consent. A waiver or consent, express or
implied, to or of any breach or default by any Person in the performance by that
Person of its obligations hereunder or with respect to the Company is not a
consent or waiver to or of any other breach or default in the performance by
that Person of the same or any other obligations of that Person hereunder or
with respect to the Company. Failure on the part of a Person to complain of any
act of any Person or to declare any Person in default hereunder or with respect
to the Company, irrespective of how long that failure continues, does not
constitute a waiver by that Person of its rights with respect to that default
until the applicable statute-of-limitations period has run.
13.6 Amendment or Modification. This Agreement and any provision hereof
may be amended or modified from time to time only by a written instrument
adopted by the Board; provided, however, that: (a) except as otherwise expressly
provided herein, an amendment or modification (other than amendments or
modifications adding new classes of interests or issuing Additional Interests)
reducing disproportionately a Member's Units or other interest in profits or
losses or in distributions or increasing a Member's Capital Contribution, or
otherwise disproportionately affecting the rights of such Member, shall be
effective only with that Member's consent, (b) an amendment or modification
reducing the required interest for any consent or vote in this Agreement shall
be effective only with the consent or vote of Members or the Board having the
interest theretofore required, and (c) no subdivision, reclassification or
amendment of any class or series of Units, including, without limitation, the
definitions thereof, shall be effective without the prior approval of a majority
of the Class A Common Members, the Class B Common Members, Class C Common
Members and the Preferred Members, in each case voting as a separate class. For
purposes of this Section 13.6 only, holders of options to purchase Class C
Common Units will be deemed to be Class C Common Members.
-32-
<PAGE> 37
13.7 Binding Effect. Subject to the restrictions on Transfers set forth
in this Agreement, this Agreement is binding on and shall inure to the benefit
of the Members and their respective heirs, legal representatives, successors and
permitted assigns.
13.8 Power of Attorney. Each Member hereby irrevocably constitutes and
appoints the Managing Member his or its true and lawful attorney-in-fact and
agent with full power and authority to act in his name, place and stead to
execute, acknowledge, swear to, deliver, file, record and publish any document
required to be filed on behalf of the Company:
(a) to qualify or continue the Company as a limited liability
company;
(b) to accomplish the purposes and carry out the powers of the
Company as set forth in this Agreement;
(c) to effect the dissolution and termination of the Company;
or
(d) to effect transfers, admissions, withdrawals and
substitution of Members as specifically provided under the terms of this
Agreement, including any amendment to Schedule A necessary to reflect the same.
No person shall take any action as an attorney-in-fact of any Member which would
in any way increase the liability of such Member beyond the liability expressly
set forth in this Agreement. This power of attorney is coupled with an interest
and shall be irrevocable.
13.9 Indemnification and Reimbursement for Payments on Behalf of a
Member. If the Company is obligated to pay any amount to a governmental agency
(or otherwise makes a payment) because of a Member's status or otherwise
specifically attributable to a Member (including, without limitation, federal,
state or local withholding taxes imposed with respect to any issuance of Units
or other interests to a Member or any payments to a Member, federal withholding
taxes with respect to foreign Persons, state personal property taxes, state
unincorporated business taxes, etc.), then such Member (the "Indemnifying
Member") shall indemnify the Company in full for the entire amount paid
(including, without limitation, any interest, penalties and expenses associated
with such payments). At the option of the Board, either:
(i) promptly upon notification of an obligation to indemnify
the Company, the Indemnifying Member shall make a cash payment to the
Company equal to the full amount to be indemnified (and the amount paid
shall not be treated as a Capital Contribution), or
(ii) the Company shall reduce distributions that would
otherwise be made to the Indemnifying Member, until the Company has
recovered the amount to be indemnified (provided that the amount of
such reduction shall be deemed to have been distributed for all
purposes of this Agreement).
An Indemnifying Member's obligation to make contributions to the Company under
this Section 13.9 shall survive the termination, dissolution, liquidation and
winding up of the Company and, for
-33-
<PAGE> 38
purposes of this Section 13.9, the Company shall be treated as continuing in
existence. The Company may pursue and enforce all rights and remedies it may
have against each Indemnifying Member under this Section 13.9, including
instituting a lawsuit to collect such contribution with interest calculated at
prime rate plus five percentage points per annum (but not in excess of the
highest rate per annum permitted by law).
13.10 Consent to Jurisdiction. Each Member irrevocably submits to the
jurisdiction of any state or federal court sitting in New York, New York for the
purposes of any suit, action or other proceeding arising out of this Agreement
or any transaction contemplated hereby. Each Member further agrees that service
of any process, summons, notice or document by U.S. certified or registered mail
to such Member's respective address set forth on Schedule A shall be effective
service of process in any action, suit or proceeding in New York with respect to
any matters to which it has submitted to jurisdiction as set forth above in the
immediately preceding sentence. Each Member irrevocably and unconditionally
waives any objection to the laying of venue of any action, suit or proceeding
arising out of this Agreement or the transactions contemplated hereby in any
state or federal court sitting in New York, New York, and hereby irrevocably and
unconditionally waives and agrees not to plead or claim in any such court that
any such action, suit or proceeding brought in such court has been brought in an
inconvenient forum.
13.11 WAIVER OF JURY TRIAL. EACH MEMBER HEREBY WAIVES ANY RIGHT TO A
TRIAL BY JURY WITH RESPECT TO ANY LITIGATION WHICH ARISES OUT OF, OR WHICH IS
RELATED TO, THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT.
13.12 Counterparts. This Agreement may be signed in any number of
counterparts, each of which shall be an original for all purposes, but all of
which taken together shall constitute only one agreement. The production of any
executed counterpart of this Agreement shall be sufficient for all purposes
without producing or accounting for any other counterpart thereof.
13.13 Severability. Each provision of this Agreement shall be
considered severable and if for any reason any provision or provisions herein
(a) are determined to be invalid or contrary to any existing or future law, such
invalidity shall not impair the operation of or affect those portions of this
Agreement which are valid or (b) would cause any Member to be bound by the
obligations of the Company under the laws of any state or locale as the same may
now or hereafter exist, such provision or provisions shall be deemed void and of
no effect.
13.14 Headings. All section headings or captions contained in this
Agreement are for convenience only and shall not be deemed part of the text of
this Agreement.
13.15 Parties in Interest. Nothing herein shall be construed to be to
the benefit of or enforceable by any third party including, but not limited to,
any creditor of the Company.
13.16 Further Assurances. The Members will execute and deliver such
further instruments and do such further acts and things as may be required to
carry out the intent and purposes of this Agreement.
-34-
<PAGE> 39
13.17 Specific Performance; Remedies. The Company and the Members shall
be entitled to enforce their rights under this Agreement specifically, to
recover damages by reason of any breach of any provision of this Agreement
(including costs of enforcement) and to exercise any and all other rights
existing in their favor. The parties hereto agree and acknowledge that money
damages may not be an adequate remedy for any breach of the provisions of this
Agreement and that the Company or any Member may in its or his sole discretion
apply to any court of law or equity of competent jurisdiction for specific
performance or injunctive relief (without posting a bond or other security) in
order to enforce or prevent any violation or threatened violation of the
provisions of this Agreement. No remedy conferred upon or reserved to the
Company or any Member by this Agreement is intended to be exclusive of any other
remedy. Each and every such remedy shall be cumulative and shall be in addition
to any other remedy given to the Company or any Member hereunder or now or
hereafter existing at law or in equity or by statute.
* * * * *
-35-
<PAGE> 40
IN WITNESS WHEREOF, this Agreement has been duly executed on the day
and year first above written.
SLEEPMASTER HOLDINGS L.L.C.
By: /S/ Charles Schweitzer
Name: Charles Schweitzer
Managing Member
SLEEP INVESTOR L.L.C.
By: /S/ Charles Schweitzer
Name: Charles Schweitzer
Title: President
/S/ Charles Schweitzer
CHARLES SCHWEITZER
/S/ James Koscica
JAMES KOSCICA
/S/ R. Guy Boyle
R. GUY BOYLE
/S/ Stuart Herr
STUART HERR
/S/ Michael Reilly
MICHAEL REILLY
/S/ Richard Tauber
RICHARD TAUBER
/S/ Douglas Phillips
DOUGLAS PHILLIPS
<PAGE> 41
/S/ Michael Bubis
MICHAEL BUBIS
/S/ John K. Herr, III
JOHN K. HERR, III
/S/ Stuart Herr
STUART HERR
/S/ David W. Deye
DAVID W. DEYE
/S/ Stephen D. Lund
STEPHEN D. LUND
/S/ Donald S. Simon, Jr.
DONALD S. SIMON, JR.
<PAGE> 42
SLEEPMASTER HOLDINGS L.L.C. SCHEDULE A
<TABLE>
<CAPTION>
TOTAL NO. OF CLASS A
TOTAL PREFERRED CAPITAL TOTAL COMMON CAPITAL PREFERRED UNITS
TOTAL CAPITAL (AMOUNT & DATE OF EACH (AMOUNT & DATE (AMOUNT & DATE OF
MEMBER AND ADDRESS CONTRIBUTION INVESTMENT) OF EACH INVESTMENT) EACH INVESTMENT)
------------------ --------------- ----------------------- ---------------------- ---------------------
<S> <C> <C> <C> <C>
Charles Schweitzer $ 796,939.50 $720,000.00 (11/14/96) $86,285.60 (11/14/96) 514.28 (11/14/96)
32 Amagansett Drive -$4,541.35 (11/14/96)
Morganville, NJ 07751 -$4,804.75 (2/26/99)
Total: $720,000.00 Total: $76,939.50 Total: 514.28
James Koscica $ 400,872.13 $360,000.00 (11/14/96) $43,142.80 (11/14/96) 257.14 (11/14/96)
14 Allaire Avenue -$2,270.67 (11/14/96)
Middletown, NJ 07748
Total: $360,000.00 Total: $40,872.13 Total: 257.14
Timothy DuPont $ 380,436.06 $360,000.00 (11/14/96) $43,142.80 (11/14/96) 257.14 (11/14/96)
589 Seminary Way -$2,270.67 (11/14/96)
Rahway, NJ 07065 -$20,436.07 (4/13/00)
Total: $360,000.00 Total: $20,436.06 Total: 257.14
Michael Reilly $ 400,872.13 $360,000.00 (11/14/96) $43,142.80 (11/14/96) 257.14 (11/14/96)
2 Arlington Place -$2,270.67 (11/14/96)
Fair Lawn, NJ 07410
Total: $360,000.00 Total: $40,872.13 Total: 257.14
Sleep Investor L.L.C. $51,807,457.24 $12,200,000.00 (11/14/96) $784,154.53 (11/14/96) 8,714.26 (11/14/96)
c/o Citicorp Venture $37,162,674.76 $1,660,627.95 (6/30/00) 26,544.46 (6/30/00)
Capital, Ltd.
14th Floor
399 Park Avenue
New York, NY 10043 Total: $49,362,674.76 Total: $2,444,782.48 Total: 35,258.72
Richard Tauber $ 5,676.68 $5,676.68
c/o Sleepmaster LLC
2001 Lower Road
Linden, NJ 07036-6520 Total: $5,676.68
Douglas Phillips $ 5,676.68 $5,676.68
c/o Sleepmaster LLC
2001 Lower Road
Linden, NJ 07036-6520 Total: $5,676.68
</TABLE>
<TABLE>
<CAPTION>
TOTAL NO. OF TOTAL NO. OF TOTAL NO. OF
CLASS A COMMON CLASS B COMMON CLASS C COMMON
UNITS (AMOUNT & UNITS (AMOUNT & UNITS (AMOUNT &
DATE OF EACH DATE OF EACH DATE OF EACH
MEMBER AND ADDRESS INVESTMENT) INVESTMENT) INVESTMENT)
------------------ ---------------- ---------------- ----------------
<S> <C> <C> <C>
Charles Schweitzer 760 (11/14/96)
32 Amagansett Drive -40 (11/14/96)
Morganville, NJ 07751 -42.32 (2/26/99)
Total: 677.68
James Koscica 380 (11/14/96)
14 Allaire Avenue -20 (11/14/96)
Middletown, NJ 07748
Total: 360
Timothy DuPont 380 (11/14/96)
589 Seminary Way -20 (11/14/96)
Rahway, NJ 07065 -180 (4/13/00)
Total: 180
Michael Reilly 380 (11/14/96)
2 Arlington Place -20 (11/14/96)
Fair Lawn, NJ 07410
Total: 360
Sleep Investor L.L.C. 6,099.96 (11/14/96) 7,441.69 (6/30/00)
c/o Citicorp Venture
Capital, Ltd.
14th Floor
399 Park Avenue
New York, NY 10043 Total: 6,099.96 Total: 7,441.69
Richard Tauber 50 (11/14/96)
c/o Sleepmaster LLC
2001 Lower Road
Linden, NJ 07036-6520 Total: 50
Douglas Phillips 50 (11/14/96)
c/o Sleepmaster LLC
2001 Lower Road
Linden, NJ 07036-6520 Total: 50
</TABLE>
<PAGE> 43
<TABLE>
<CAPTION>
TOTAL NO. OF CLASS A
TOTAL PREFERRED CAPITAL TOTAL COMMON CAPITAL PREFERRED UNITS
TOTAL CAPITAL (AMOUNT & DATE OF EACH (AMOUNT & DATE AMOUNT & DATE OF
MEMBER AND ADDRESS CONTRIBUTION INVESTMENT) OF EACH INVESTMENT) EACH INVESTMENT)
------------------ ----------------- ----------------------- ---------------------- ---------------------
<S> <C> <C> <C> <C>
Michael Bubis $ 999,999.00 $ 360,000.00 (3/16/98) $639,999.00 (3/16/98) 257.14 (3/16/98)
c/o Palm Beach Bedding
Co.
3774 Interstate Park Road
North
Riviera Beach, FL 33404
Total: $360,000.00 Total: $639,999.00 Total: 257.14
John K. Herr III $ 182,765.00 $182,765.00 (2/26/99)
1102 Oakmont Drive
Lancaster, PA 17601 Total: $182,765.00
Stuart W. Herr $ 682,765.00 $478,613.00 (6/30/00) $182,765.00 (2/26/99) 341.86 (6/30/00)
South Bend Farm $21,387.00 (6/30/00)
2300 Rice Road
Lancaster, PA 17603 Total: $478,613.00 Total: $204,152.00 Total: 341.86
David W. Deye $ 526,300.00 $526,300.00 (11/5/99)
c/o Adam Wuest Corp.
645 Linn Street
Cincinnati, OH 4503 Total: $526,300.00
Stephen D. Lund $ 263,150.00 $263,150.00
c/o Adam Wuest Corp.
645 Linn Street Total: $263,150.00
Cincinnati, OH 4503
Donald S. Simon, Jr. $ 125,000.00 $125,000.00
4438 Green Valley Rd.
Suisan, CA 94585 Total: $125,000.00
R. Guy Boyle $ 676,697.29 $647,752.24 (6/30/00) $28,945.05 462.67(6/30/00)
283 Ocean Avenue
Kennebunkport, ME
04046 Total: $647,752.24 Total: $28,945.00 Total:462.67
TOTAL $57,254,606.71 $52,649,040.00 $4,605,566.66 37,606.09
</TABLE>
<TABLE>
<CAPTION>
TOTAL NO. OF TOTAL NO. OF TOTAL NO. OF
CLASS A COMMON CLASS B COMMON CLASS C COMMON
UNITS (AMOUNT & UNITS (AMOUNT & UNITS (AMOUNT &
DATE OF EACH DATE OF EACH DATE OF EACH
MEMBER AND ADDRESS INVESTMENT) INVESTMENT) INVESTMENT)
------------------ -- ---------------- ---------------- ----------------
<S> <C> <C> <C>
Michael Bubis 466 (3/16/98)
c/o Palm Beach Bedding
Co.
3774 Interstate Park Road
North
Riviera Beach, FL 33404
Total: 466
John K. Herr III 21.16 (2/26/99)
1102 Oakmont Drive
Lancaster, PA 17601 Total: 21.16
Stuart W. Herr 21.16 (2/26/99) 95.84 (6/30/00)
South Bend Farm
2300 Rice Road
Lancaster, PA 17603 Total: 21.16 Total: 95.84
David W. Deye 116.84 (11/5/99)
c/o Adam Wuest Corp.
645 Linn Street
Cincinnati, OH 4503 Total 116.84
Stephen D. Lund 58.42 (11/5/99)
c/o Adam Wuest Corp.
645 Linn Street Total: 58.42
Cincinnati, OH 4503
Donald S. Simon, Jr. 50 (4/28/00)
4438 Green Valley Rd.
Suisan, CA 94585 Total: 50
R. Guy Boyle 129.71 (6/30/00)
283 Ocean Avenue
Kennebunkport, ME
04046 Total: 129.71
TOTAL 8,511.22 0.00 7,667.24
</TABLE>
