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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission file number ___________
INTERNETSTUDIOS.COM, INC.
(Exact name of registrant as specified in its charter)
NEVADA 134009696
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1351 4TH STREET, SUITE 227
SANTA MONICA, CALIFORNIA 90401
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (310) 394-4025
Securities registered pursuant to
Section 12(b) of the Act: None
Securities registered pursuant to section 12(g) of the Act: Common Stock,
$0.0001 Par Value
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
/X/ Yes / / No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss. 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.[ ]
On March 24, 2000, the aggregate market value of the Common Stock beneficially
held by non-affiliates of the registrant was approximately $209 million. (For
purposes hereof, directors, executive officers and 10% or greater shareholders
have been deemed affiliates). On March 24, 2000, there were 13,750,100 shares of
the registrant's Common Stock outstanding.
Documents Incorporated by Reference: None.
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PART I
ITEM 1. BUSINESS
INTRODUCTION
InternetStudios.com, Inc. ("InternetStudios" or "Company") was
incorporated in the State of Nevada on April 14, 1998 as The Enterprise, Inc.
For a period of time prior to December 14, 1998, the Company was engaged in the
word processing business. On December 14, 1998, InternetStudios withdrew from
the word processing business in anticipation of acquiring a license to software
technology for the health industry and on December 17, 1998, the Company changed
its name to eHealth.com, Inc. This acquisition was not completed. On September
18, 1999, the stockholders of the Company approved a name change to
InternetStudios.com, Inc. in anticipation of acquiring and developing an
Internet business. The name change was effective September 21, 1999. Pursuant to
an acquisition agreement, dated September 17, 1999, among eHealth.com, Inc.,
Mark Rutledge and Robert Maclean (together, the "Principals") and Online Films,
LLC, a Delaware limited liability company ("Online Films"), the Principals
agreed to transfer on their behalves, and on behalf of other beneficial owners,
91.847% of the membership interest in Online Films so that Online Films became a
subsidiary of the Company. In consideration of the transfer of the Principals'
membership interests, the Principals and other beneficial owners of Online Films
received an aggregate of 5,632,800 shares of InternetStudios' Common Stock. As a
result of the acquisition of Online Films, the prior owners of Online Films now
control approximately 41% of the Company, which was renamed to InternetStudios,
effective September 21, 1999. As a result of the acquisition Online Films,
InternetStudios is in the business of compiling an online database of filmed
entertainment and facilitating a digital market targeted at the entertainment
industry.
ONLINEFILMSALES
Effective as of January 18, 2000, the stockholders of InternetStudios
approved by written consent, the contribution of substantially all of
InternetStudios' assets (the "Asset Contribution") to the capital of
OnlineFilmSales.com, LLC, a newly-formed Delaware limited liability company
("OnlineFilmSales"). The Asset Contribution was consummated on March 28, 2000.
Included in the assets contributed to OnlineFilmSales were (i) InternetStudios'
91.847% membership interest in Online Films so that Online Films became a
subsidiary of OnlineFilmSales, and (ii) a Secured Promissory Note, originally
issued on November 12, 1999 (as amended several times and having a final
principal balance of $2,025,000), by MediaChase Ltd., a Delaware corporation
("MediaChase") in favor of InternetStudios (the "MediaChase Note"). Excluded
from the assets contributed to OnlineFilmSales were all trademarks, trade names,
and domain names containing "InternetStudios.com" or "InternetStudios" and all
associated goodwill, all of InternetStudios' Stock Option Plans, all of
InternetStudios' registrations with the Securities and Exchange Commission and
state securities authorities and all registrations and listings with any
securities exchanges, all contracts and agreements entered into by
InternetStudios with respect to any commercial or private financing or the sale
of InternetStudios' capital stock or other securities, InternetStudios' equity
interest in InternetStudios.com UK Limited (as discussed below), and
InternetStudios' rights under a Letter of Intent, dated March 15, 2000 with
TAMNW, Inc. (as discussed below). As a result of the Asset Contribution,
InternetStudios will conduct all operations through operating subsidiaries, of
which there are currently two, OnlineFilmSales and InternetStudios.com UK
Limited.
OnlineFilmSales is a manager-managed limited liability company. Except for
matters as to which the approval of the members is required by Delaware law, the
manager of OnlineFilmSales has full, complete and exclusive authority, power and
discretion to manage and control the business, property and affairs of
OnlineFilmSales. OnlineFilmSales initially has one manager who is
InternetStudios. The manager of OnlineFilmSales is elected by the affirmative
vote or written consent of the holders of a majority of all voting interests of
Class A members of OnlineFilmSales.
In exchange for the assets which OnlineFilmSales received in the Asset
Contribution, OnlineFilmSales issued to InternetStudios a one hundred percent
Class A membership interest, constituting one hundred percent of the voting
power of the Class A members of OnlineFilmSales. InternetStudios is the sole
holder of a Class A membership interest in OnlineFilmSales.
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Concurrently with the Asset Contribution, two members of InternetStudios'
management also made contributions to OnlineFilmSales. Heidi Lester, the Chief
Executive Officer of InternetStudios, contributed to OnlineFilmSales, an 8.153%
interest in Online Films in exchange for Class B Membership Interests in
OnlineFilmSales and Steve Fredericks, the Acting President and Chief Financial
Officer of InternetStudios, contributed to OnlineFilmSales all of his right,
title and interest in and to, certain agreements with the Longevity-Southland
Group with respect to collaboration in future projects relating to the
development of a digital production center and a related digital training
program for artists and producers in the People's Republic of China in exchange
for Class B Membership Interests in OnlineFilmSales. As a result of the
contribution to OnlineFilmSales of Heidi Lester's membership interest in Online
Films, Online Films is now a wholly-owned subsidiary of InternetStudios.
The holders of Class B membership interests in OnlineFilmSales are
entitled to convert their interests into shares of InternetStudios' Common Stock
at any time. The Class B membership interests will automatically be converted
into InternetStudios' Common Stock upon the occurrence of certain transactions
and in any event, on March 28, 2007. Each holder of a Class B membership
interest will receive first priority (ratably) over holders of Class A
membership interests upon distributions of cash by OnlineFilmSales. Such first
priority will be based upon the amount of all cash which each holder of Class B
membership interests would have received in the form of dividends on and
proceeds from redemptions of, that number of shares InternetStudios' Common
Stock into which such holder's Class B Membership Interest is convertible, if
such Class B member had held those shares during the period from such member's
admission as a Class B member of OnlineFilmSales to the date of such
distribution of cash by OnlineFilmSales. Heidi Lester's Class B Membership
Interest is convertible into 600,000 shares of InternetStudios' Common Stock and
Steve Fredericks' Class B Membership Interest is convertible into 400,000 shares
of InternetStudios' Common Stock.
(HEREINAFTER, REFERENCE TO INTERNETSTUDIOS SHALL INCLUDE ITS SUBSIDIARIES,
ONLINE FILMS, ONLINEFILMSALES AND INTERNETSTUDIOS.COM UK LIMITED UNLESS THE
CONTEXT OTHERWISE REQUIRES).
BUSINESS STRATEGY
InternetStudios is a development stage company with no revenues, an
expectation of further significant losses and no commercially acceptable
products and services. InternetStudios' operations are subject to all of the
risks inherent in a growing business enterprise, including the potential of
operating losses. The likelihood of InternetStudios' success must be considered
in light of the expenses, difficulties and delays frequently encountered in
connection with a new business.
InternetStudios' business plan is to compile an online database of filmed
entertainment and facilitate a digital market targeted at the entertainment
industry. InternetStudios envisions that the online filmed entertainment
database will be available 24 hours a day, 7 days a week for the holders of
rights to filmed entertainment and buyers of filmed entertainment productions to
trade such rights in an open and efficient centralized forum. InternetStudios
believes that by creating an online database of filmed entertainment and digital
market, both producers and holders of rights to film entertainment and buyers of
filmed entertainment will benefit. The online database of filmed entertainment
will provide a convenient, centralized venue for producers and rights holders to
market their inventories. The online database will provide access for the buyers
of filmed entertainment to a central forum with information necessary to making
an informed purchasing decision.
InternetStudios is building the website to list filmed entertainment
rights at WWW.ONLINEFILMSALES.COM. Listing capabilities for filmed entertainment
rights on the OnlineFilmSales.com website were launched for beta testing in time
for the American Film Market in February 2000. The OnlineFilmSales.com website
will allow holders of rights to list on the website, filmed entertainment
productions for sale. Buyers will be able to bid on and purchase these rights
and all registered users will be able to browse through the productions from any
place in the world at any time. The OnlineFilmSales.com website will offer
buyers information on a large selection of filmed entertainment productions that
was traditionally time consuming and costly to acquire. The online listing and
sales market will also enable the holders of rights to reach a larger number of
potential buyers and to exploit such productions more effectively than
traditional industry markets.
InternetStudios intends for transactions to take place as follows. Once a
filmed entertainment rights holder pays a listing fee to list their rights on
the OnlineFilmSales.com website, buyers of filed entertainment rights will be
able to
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access information provided by the rights holders on the website, such as
available rights and territories and view trailers of the filmed entertainment
using technology that transmits video over the Internet. Buyers will be able to
target their search for products to particular rights and particular
territories. InternetStudios will facilitate the bidding process by enabling
buyers to e-mail a bid to the rights holder. The rights holder will either
accept the bid via e-mail or reject the bid and e-mail a counteroffer to the
proposed buyer. Once an agreement is reached between the parties,
InternetStudios will charge a transaction fee for matching the buyer and seller.
InternetStudios plans to continually enhance the OnlineFilmSales.com website to
meet the needs of buyers and sellers, and will strive to improve the user
experience by incorporating user feedback and advances in technology.
InternetStudios intends to generate revenues from listing fees,
transaction fees, financing and profit participations, subscription fees and
advertising fees, all as more particularly described below.
A listing fee of between $5,000 and $100,000 per year, depending on the
number of filmed entertainment products and their respective budgets, will be
assessed by InternetStudios on sales companies and larger producers for the
listing of the entertainment product on the OnlineFilmSales.com website.
Initially, independent producers of filmed entertainment product will not be
assessed a listing fee. However, InternetStudios may decide to impose a listing
fee on independent producers as the business develops.
In the event buyer and seller complete a sale through the use of the
OnlineFilmSales.com InternetStudios will receive a fee for enabling the
transaction. The transaction fee will vary between 2% and 15% of the negotiated
sales price depending on the number of filmed entertainment rights listed by the
seller on the OnlineFilmSales.com website or the amount of the negotiated sales
price.
InternetStudios' long term business plan contemplates facilitating the
financing of filmed entertainment via the OnlineFilmSales.com website in 2001.
InternetStudios intends to provide a forum for producers to pre-sell a portion
of filmed entertainment rights and use the proceeds of the sale to cover the
cost of producing and marketing filmed entertainment rights in the development
stage. InternetStudios will earn a financing fee from facilitating the financing
of the filmed entertainment. In addition, InternetStudios may also receive
profit participations upon the release and financial success of such filmed
entertainment. InternetStudios is currently exploring the feasibility of
providing such services.
After an initial introductory period, InternetStudios plans to charge a
subscription fee for reportertv and studiobuzz services (as discussed below).
InternetStudios anticipates that, commencing the second quarter of the year
2000, it will charge a subscription fee of approximately $30 per month for
independent subscribers to access reportertv and will provide discounts for
multiple users in the same organization.
InternetStudios plans to generate advertising revenues from advertisement
on its websites. Currently InternetStudios does not have any advertisers on its
websites but plans to attract advertisers by marketing to potential advertisers.
InternetStudios expects its material operating expenses to be comprised of
two main expenses. The largest percentage of operating expenses is expected to
be from marketing expenses including, salaries for its sales staff, fees to
attend film festivals and entertainment industry forums and expenses incurred
for online and offline advertising. In addition, InternetStudios expects to
incur material expenses in maintaining its online database including, salaries
for data entry and customer service staff, costs for compiling and researching
information to be incorporated onto the onlinfilmsales.com website and costs for
maintaining the hardware to operate the website.
InternetStudios has not performed any market studies or analyses to
determine the demand for or likely market acceptance of its OnlineFilmSales.com
website or any other of its business concepts.
SALES AND MARKETING
Since the acquisition of Online Films, InternetStudios' management team
has focused on marketing and public relations efforts to attract vendors to list
their filmed entertainment rights on the OnlineFilmSales.com web site.
InternetStudios believes that much of the awareness of the OnlineFilmSales.com
website will be generated by attendance
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at film festivals, entertainment industry forums and other events.
InternetStudios has used a combination of online and offline advertising to
generate awareness of InternetStudios and the OnlineFilmSales.com website.
Once the OnlineFilmSales.com website is launched for beta testing,
InternetStudios intends to generate additional brand awareness from specific
promotional activities such as:
- - setting up promotional booths and kiosks at major and minor film
festivals; and
- - enter into relationships with other websites to place links on their sites
to the OnlineFilmSales.com website.
InternetStudios expects to hire sales personnel as demand increases.
RELATIONSHIP WITH MEDIACHASE LTD.
InternetStudios, through OnlineFilmSales, entered into two joint
venture relationships with MediaChase Ltd., a Delaware corporation on March
28, 2000. MediaChase, is a Los Angeles based software company that has
developed e-commerce systems and websites for telecommunications companies
and specializes in database integration and website enablement of corporate
processes. One joint venture, operated through ReporterTV.com, LLC, a
Delaware limited liability company whose sole members are MediaChase and
OnlineFilmSales, will focus on providing five segments of a business
entertainment news magazine updated and broadcasted daily over the Internet
in television broadcast news format, and the other joint venture, operated
through StudioBuzz.com, LLC, a Delaware limited liability company whose sole
members are also MediaChase and OnlineFilmSales, will focus on creating a
comprehensive database of information relating to the entertainment industry.
InternetStudios considered four candidates in its search for a technology
partner including MediaChase, Scent Corporation, Razorfish, Inc. and
Synchronicity Software. Based on discussions with management of MediaChase,
MediaChase was selected because it was the most compatible partner with the
relevant technological expertise and innovative ideas including the concept
for a business entertainment new magazine broadcast over the Internet.
InternetStudios believes that MediaChase shares its vision and is the most
suitable candidate to develop its technological requirements in accordance
with its business plan. Pursuant to a Consulting Agreement entered into
between MediaChase and OnlineFilmSales on March 28, 2000, MediaChase has been
engaged by OnlineFilmSales to provide certain services at cost in connection
with the design and development of the OnlineFilmSales.com website and
InternetStudios' website at WWW.INTERNETSTUDIOS.COM, subject to the future
agreement by the parties to final project descriptions. In order to obtain
the services of one of the principals of MediaChase on a first priority,
non-exclusive basis, OnlineFilmSales has agreed in the Consulting Agreement
to pay MediaChase, in addition to cost, a monthly consulting fee in the
amount of $14,000 per month, plus a bonus of $11,200 per month for the months
of February, March and April of 2000. Additionally, pursuant to a Consulting
Agreement entered into between MediaChase and StudioBuzz, MediaChase has been
engaged by StudioBuzz to provide certain services in connection with the
design and development of a website, subject to the future agreement by the
parties to final project descriptions. There is no affiliation between
InternetStudios and MediaChase or any of MediaChase's principals.
To fund the development of ReporterTV while the parties negotiated
definitive agreements with respect to their two joint ventures,
InternetStudios advanced $2,025,000 in the form of a loan as evidenced by the
MediaChase Note. As a part of the Asset Contribution, InternetStudios
contributed to OnlineFilmSales, all of its rights as payee under the
MediaChase Note. In connection with the consummation of its two joint
ventures with MediaChase, OnlineFilmSales contributed all of its rights as
payee under the MediaChase Note to ReporterTV and MediaChase assigned all of
its obligations as payor under the MediaChase Note to ReporterTV, as a result
of which contribution and assignment, the MediaChase Note has been cancelled.
In consideration of the cancellation of the MediaChase Note and the issuance
by OnlineFilmSales to MediaChase of Class B membership interests convertible
into 250,000 shares of InternetStudios' common stock, MediaChase (i) entered
into the two Consulting Agreements with OnlineFilmSales and StudioBuzz,
respectively, described above, (ii) contributed certain assets to ReporterTV
and StudioBuzz, and (iii) contributed to OnlineFilmSales (A) a 75% membership
interest in ReporterTV and (B) a one hundred percent voting interest and
fifty percent economic interest in StudioBuzz. Pursuant to the terms of the
Limited Liability Agreement to ReporterTV, MediaChase has a one-time right to
repurchase all or any part of a 25% membership interest in ReporterTV, upon
the payment of certain sums to ReportTV on or before January 31, 2001.
MediaChase contributed to ReporterTV, all of MediaChase's right, title
and interest in and to all assets related solely to its business
entertainment news magazine broadcast over the Internet in television
broadcast news format entitled "ReporterTV.com" and ReporterTV assumed
substantially all obligations and liabilities arising under such assets
(including intellectual property claims). MediaChase contributed to
StudioBuzz, all of MediaChase's right, title and interest in and to all
assets related solely to its concept for an online database with the
capability to store and provide access to information relating to
development,
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financing, production, talent, marketing and distribution of filmed
entertainment rights, entitled "StudioBuzz.com" and StudioBuzz assumed
substantially all obligations and liabilities arising under such assets.
REPORTERTV.COM
InternetStudios and MediaChase have agreed to jointly produce the
ReporterTV.com interactive entertainment news magazine in a television format
broadcast via the Internet. The broadcast is dedicated to delivering content and
information similar to entertainment industry trade magazines in five segments
updated daily and is targeted at producers, studio executives and other
entertainment industry related businesses worldwide. The first Internet
broadcast was launched on November 3, 1999. The broadcast is accessible via the
Internet at WWW.REPORTERTV.COM.
STUDIOBUZZ.COM
InternetStudios and MediaChase have agreed to jointly create an online
database with the capability to store and provide access to information relating
to development, financing, production, talent, marketing and distribution of
filmed entertainment rights. The database will be accessible on the web at
WWW.STUDIOBUZZ.COM. As of March 28, 2000, the StudioBuzz concept is still in the
planning stages. The companies anticipate that the StudioBuzz concept will not
be developed until latter half of 2000. There can be no assurances that the
business model for the joint venture will be successful, or that the venture
will generate revenues for InternetStudios.
INTERNETSTUDIOS.COM UK LTD.
On February 21, 2000, InternetStudios formed InternetStudios.com UK
Limited, a private limited company incorporated in England and a wholly-owned
subsidiary of InternetStudios. InternetStudios.com UK Limited currently has four
employees, including Aline Perry, the President of InternetStudios.com UK
Limited. InternetStudios.com UK Limited intends to work closely with buyers and
sellers to service their developing needs online through OnlineFilmSales and to
capitalize on strategic European alliances that will further expand
InternetStudios' information base.
TAMNW, INC. AND ITSTV.COM
As of March 15, 2000, InternetStudios entered into a letter of intent
with TAMNW, Inc. pursuant to which InternetStudios will acquire all of the
capital stock of TAMNW, Inc. in exchange for which InternetStudios will issue
an aggregate of 250,000 shares of its Common Stock and warrants to acquire up
to an aggregate of 200,000 additional shares of its Common Stock (the
"Warrant Shares"). TAMNW, Inc. is the owner of the operations of itstv.com,
an internet marketing and sales company of television programming. Catalogues
from over 50 of the television industry's leading distributors are
represented at the site, including the BBC, Carlton, Chrysalis, E!, American
Public Television, HIT, King World, NBD, Screentime, RDF and TV4 (Sweden).
Itstv.com also represents exclusively the worldwide distribution rights for
"Tracey Takes On." The letter of intent provides that, pursuant to the
definitive contract, TAMNW, Inc. will transfer to InternetStudios the name
"itstv.com" subject to InternetStudios' agreement not to use the name for a
period of 12 months after the effective date of the definitive agreement and
thereafter in a business competitive with that of OnlineFilmSales. There is
no affiliation between InternetStudios and TAMNW, Inc. or any of TAMNW,
Inc.'s principals.
COMPETITION
As adoption of the web as a medium for commerce continues to grow, other
companies may enter the market to provide a forum for auctioning filmed
entertainment rights. InternetStudios has identified FilmAxis.com,
FilmBazaar.com, ShowBizData.com, Reelplay.com and InHollywood.com as its
principal competitors.
InternetStudios' ability to compete successfully in the rapidly evolving
Internet filmed entertainment rights market will depend upon certain factors,
many of which are beyond its control. There can be no assurance that
InternetStudios will be able to compete successfully. However, InternetStudios
believes that it can be differentiated from
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its competitors in several areas, including relationships of its management in
the entertainment industry, the proprietary technology being developed for its
websites and its secured equity funding source.
TECHNOLOGY
The OnlineFilmSales.com website is currently being designed and developed,
on InternetStudios behalf, by MediaChase. InternetStudios' system is being
designed around industry standard architectures. InternetStudios is unable to
predict at this time whether its infrastructure is adequate to accommodate the
volume of traffic and the number of filmed entertainment rights transactions
that will actually be conducted by users on its website. The failure of
InternetStudios' systems to accommodate the volume of traffic or the number of
transactions could cause the website to become unstable and possibly cease to
operate for periods of time. InternetStudios anticipates that it will continue
to devote significant resources to develop its technology infrastructure.
InternetStudios' future success will depend on its ability to adapt to rapidly
changing technologies, to adapt its services to evolving industry standards and
to continually improve the performance, features and reliability of its service
in response to competitive service and product offerings and evolving demands of
the marketplace. The failure of the InternetStudios to adapt to such changes
would harm its business.
OUR INTELLECTUAL PROPERTY
InternetStudios regards the protection of its copyrights, service
marks, trademarks, trade dress and trade secrets as critical to its success.
InternetStudios relies on a combination of patent, copyright, trademark,
service mark and trade secret laws and contractual restrictions to protect
its proprietary rights in products and services. InternetStudios plans to
enter into confidentiality and invention assignment agreements with its
employees and contractors, and nondisclosure agreements with parties with
which it conducts business to limit access to and disclosure of its
proprietary information. Any contractual arrangements and the other steps
taken by InternetStudios to protect its intellectual property may not prevent
misappropriation of its technology or deter independent third-party
development of similar technologies. InternetStudios has current pending
applications for the servicemark of "InternetStudios.com", the trademark of
"ReporterTV" and the trademark of "StudioBuzz" with the United States Patent
and Trademark Office. In addition, InternetStudios owns the following domain
names: manmadefilms.com, manmadepictures.com, onlinefilmmarket.com,
onlinetvsales.com, reportertv.com, studiobuzz.com, OnlineFilmSales.cc,
onlinetvsales.cc, reportertv.cc and studiobuzz.cc.
OUR EMPLOYEES
As of December 31, 1999, InternetStudios had ten full time employees. As
of the date hereof, InternetStudios has approximately twenty full time
employees.
INDUSTRY BACKGROUND
THE FILMED ENTERTAINMENT RIGHTS MARKET
Historically, filmed entertainment rights have been bought and sold
primarily through major and minor film festivals and trade shows. Producers
create over 12,000 films and hundreds of thousand of hours of television
programs each year. Each project requires marketing of the distribution rights
for different media, such as theatrical release, video sales and rental, video
on demand, pay television, free television and the Internet, in every geographic
market. This results in six or more licenses for each production in as many as
200 territories. The rise of independent feature film and television productions
over the last 15 years has created a demand for a more efficient marketplace for
distribution of the rights for these filmed entertainment.
The market for filmed entertainment rights is fragmented. There is no
central service available for entertainment industry executives to access
information with respect to the availability and nature of filmed entertainment
rights. Currently, the entertainment industry utilizes a combination of
subscription database services, trade magazines and relies heavily on the
networking of staff and attendance at the film markets and festivals to locate
and purchase project exploitation and distribution rights or list and license
their available inventories. The market is inefficient, labor intensive and the
cost of concluding a licensing arrangement can be prohibitively high.
InternetStudios believes that there are
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significant market opportunities for an easily accessible, centralized forum
where entertainment industry executives and producers can buy and sell filmed
entertainment rights. An online database and digital market will enable holders
to list and sell any unsold filmed entertainment rights. InternetStudios also
believes that the Internet provides such a forum for the transaction of filmed
entertainment rights.
THE INTERNET
The Internet has emerged as a global platform that allows millions of
people to share information, communicate with each other and conduct business
electronically. International Data Corporation ("IDC") estimates that the number
of web users will grow from approximately 150 million worldwide in 1998 to
approximately 500 million worldwide by the end of 2003. The growing adoption of
the web represents an enormous opportunity for buyers and vendors of filmed
entertainment rights to conduct commerce over the Internet. IDC estimates that
commerce over the Internet will increase from approximately $40 billion
worldwide in 1998 to approximately $900 billion worldwide in 2003.
Filmed entertainment rights have been historically bought and sold
primarily through major and minor film festivals and trade shows. These markets
are highly inefficient for the following reasons:
- - their fragmented, regional nature makes it difficult and expensive for
buyers and vendors to meet, exchange information and complete
transactions;
- - they offer a limited breadth of filmed entertainment rights;
- - they often have high transaction costs from intermediaries; and
- - they are information inefficient, as buyers and vendors lack a reliable
and convenient means of setting prices for sales or purchases.
The Internet offers for the first time the opportunity to create a
compelling global marketplace that overcomes the inefficiencies associated with
traditional trading of filmed entertainment rights by offering the benefits of
Internet-based commerce. An Internet-based centralized trading place offers the
following benefits:
- - facilitates buyers and vendors meeting, listing filmed entertainment
rights for sale, exchanging information, interacting with each other and,
ultimately, consummating transactions;
- - allows buyers and vendors to trade directly, bypassing traditional
intermediaries and lowering costs for both parties;
- - is global in reach, offering buyers a significantly broader selection of
filmed entertainment rights to purchase and providing vendors the
opportunity to sell their filmed entertainment rights efficiently to a
broader base of buyers; and
- - offers significant convenience, allowing trading at all hours and
providing continually updated information.
As a result, there exists a significant market opportunity for an
Internet-based centralized marketplace that applies the unique attributes of the
Internet to facilitate the trading of filmed entertainment rights directly from
vendors to buyers.
ITEM 2. PROPERTIES
InternetStudios maintains its offices in Santa Monica, California,
Vancouver, British Columbia and London, England. Pursuant to a three year lease
commencing on November 1, 1999, InternetStudios leases offices for its corporate
headquarters at 1351 4th Street, Suite 227, Santa Monica, California.
InternetStudios also leases office space at 1205 - 1095 West Pender Street,
Vancouver, British Columbia on a month to month basis and office space at 167
Wardour Street, London, England on a month to month basis. InternetStudios does
not own any real estate. InternetStudios believes that it currently has
sufficient space to carry on its operations for the foreseeable future.
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ITEM 3. LEGAL PROCEEDINGS
InternetStudios is not a party to any pending or threatened legal
proceeding.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the stockholders of InternetStudios
during the fourth quarter of 1999.
As of January 18, 2000, the stockholders of InternetStudios approved the
following matters by written consent of the holders of a majority of the
outstanding shares of capital stock of InternetStudios in lieu of a meeting of
stockholders:
- - the terms of the transaction with MediaChase (as described in Item 1);
- - the 1999 US Stock Incentive Plan and the 1999 Non-US Stock Incentive Plan;
and
- - the terms of the Management Agreements (as described in Item 11).
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Since September 23, 1999, InternetStudios' Common Stock has been quoted on
the NASD OTC Bulletin Board under the symbol "ISTS." Prior to that date,
InternetStudios' Common Stock traded under the symbol "EHLC." The trading market
is limited and sporadic and should not be deemed to constitute an "established
trading market." The following table sets forth the high ask and low bid
information for each fiscal quarter since InternetStudios' Common Stock has been
quoted on the NASD OTC Bulletin Board on September 17, 1998. The bid information
was obtained from Bloomberg and FinancialWeb.com and reflect interdealer prices,
without retail mark-up, mark-down or commission, and may not represent actual
transactions.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31, 1998
- ----------------------------------- HIGH LOW
----- -----
<S> <C> <C>
Quarter Ended September 30, 1998................... $ 0.03 $0.02
Quarter Ended December 31, 1998.................... $ 1.09 $0.03
FISCAL YEAR ENDED DECEMBER 31, 1998
- ----------------------------------- HIGH LOW
----- -----
Quarter Ended March 31, 1999....................... $ 6.00 $1.09
Quarter Ended June 30, 1999........................ $10.13 $1.04
Quarter Ended September 30, 1999................... $ 6.75 $2.00
Quarter Ended December 31, 1999.................... $ 6.50 $4.75
FISCAL YEAR ENDED DECEMBER 31, 1998
- ----------------------------------- HIGH LOW
----- -----
Period from January 1 to March 24, 2000............ $22.50 $5.50
</TABLE>
On March 24, 2000, the closing price for the common stock as reported by
the NASD OTC Electronic Bulletin Board was $19.875.
8
<PAGE>
As of March 24, 2000, there were approximately 42 holders of record of the
Common Stock. As of such date, 13,750,100 shares were outstanding.
InternetStudios currently intends to retain any earnings for use in its
business and does not anticipate paying any cash dividends on its capital stock
in the foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA
This schedule contains summary financial information extracted from the
registrant's report on Form 10-K and is qualified in its entirety to such report
on Form 10.
<TABLE>
<CAPTION>
Twelve months April 14, 1998
ended (inception) to
December 31, 1999 December 31, 1998
-------------------- -------------------
<S> <C> <C>
Operating Revenues...................................................... -- --
General and administrative expenses..................................... 2,730,811 16,137
Loss from continuing operations......................................... (2,730,811) (16,137)
Loss per share.......................................................... (0.32) (0.011)
Total assets............................................................ 14,151,685 31,025
</TABLE>
The consolidated financial statements dated December 31, 1999 include the
acquisition of Online Films, LLC effective on September 30, 1999. Accordingly,
the assets of Online Films, LLC are included in the total assets at December 31,
1999. The loss from continuing operations includes the losses of Online Films,
LLC since October 1, 1999.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
OVERVIEW
The Company was incorporated in the State of Nevada on April 14, 1998 as
The Enterprise, Inc. For a period of time prior to December 14, 1998, the
Company was engaged in the word processing business. On December 14, 1998, the
Company withdrew from the word processing business in anticipation of acquiring
a license to software technology for the health industry and on December 17,
1998, the Company changed its name to eHealth.com, Inc. This acquisition was not
completed. On September 18, 1999, the stockholders of the Company approved a
name change to InternetStudios.com, Inc. in anticipation of acquiring and
developing an Internet business. The name change was effective September 21,
1999. Pursuant to an acquisition agreement, dated September 17, 1999, among the
Company, Mark Rutledge and Robert Maclean (together, the "Principals") and
Online Films, LLC, a Delaware limited liability company, the Principals agreed
to transfer on their behalves and on behalf of other beneficial owners, 91.847%
of the membership interest in Online Films so that Online Films became a
subsidiary of the Company. In consideration of the transfer of the Principals'
membership interests, the Principals and other beneficial owners of Online Films
received an aggregate of 5,632,800 shares of the Company's Common Stock. As a
result of the acquisition the Company acquired a 91.847% ownership interest in
Online Films and the prior owners of Online Films now control 41% of the
Company, which was renamed InternetStudios, effective September 21, 1999. As a
result of the acquisition of Online Films, InternetStudios is in the business of
compiling an online database of filmed entertainment and facilitating a digital
market targeted at the entertainment industry.
9
<PAGE>
In September 1999, InternetStudios entered into an agreement with Pacific
Capital Markets Inc. to raise $8,000,000 to finance the development of a
comprehensive group of services for the filmed entertainment community delivered
via the Internet.
Effective as of January 18, 2000, the stockholders of InternetStudios
approved by written consent, the contribution of substantially all of
InternetStudios' assets (the "Asset Contribution") to the capital of
OnlineFilmSales. The Asset Contribution was consummated on March 28, 2000.
Included in the assets contributed to OnlineFilmSales were (i) InternetStudios'
91.847% membership interest in Online Films so that Online Films became a
subsidiary of OnlineFilmSales, and (ii) a Secured Promissory Note, originally
issued on November 12, 1999 (as amended several times and having a final
principal balance of $2,025,000), by MediaChase in favor of InternetStudios (the
"MediaChase Note"). Excluded from the assets contributed to OnlineFilmSales were
all trademarks, trade names, and domain names containing "InternetStudios.com"
or "InternetStudios" and all associated goodwill, all of InternetStudios' Stock
Option Plans, all of InternetStudios' registrations with the Securities and
Exchange Commission and state securities authorities and all registrations and
listings with any securities exchanges, all contracts and agreements entered
into by InternetStudios with respect to any commercial or private financing or
the sale of InternetStudios' capital stock or other securities, InternetStudios'
equity interest in InternetStudios.com UK Limited, and InternetStudios' rights
under a Letter of Intent, dated March 15, 2000 with TAMNW, Inc. As a result of
the Asset Contribution, InternetStudios will conduct all operations through
operating subsidiaries, of which there are currently two, OnlineFilmSales and
InternetStudios.com UK Limited.
OnlineFilmSales is a manager-managed limited liability company. Except for
matters as to which the approval of the members is required by Delaware law, the
manager of OnlineFilmSales has full, complete and exclusive authority, power and
discretion to manage and control the business, property and affairs of
OnlineFilmSales. OnlineFilmSales initially has one manager who is
InternetStudios. The manager of OnlineFilmSales is elected by the affirmative
vote or written consent of the holders of a majority of all voting interests of
Class A members of OnlineFilmSales.
In exchange for the assets which OnlineFilmSales received in the Asset
Contribution, OnlineFilmSales issued to InternetStudios a one hundred percent
Class A membership interest, constituting one hundred percent of the voting
power of the Class A members of OnlineFilmSales. InternetStudios is the sole
holder of a Class A membership interest in OnlineFilmSales.
Concurrently with the Asset Contribution, two members of InternetStudios'
management also made contributions to OnlineFilmSales. Heidi Lester, the Chief
Executive Officer of InternetStudios, contributed to OnlineFilmSales, an 8.153%
interest in Online Films in exchange for Class B Membership Interests in
OnlineFilmSales and Steve Fredericks, the Acting President and Chief Financial
Officer of InternetStudios, contributed to OnlineFilmSales all of his right,
title and interest in and to, certain agreements with the Longevity-Southland
Group with respect to collaboration in future projects relating to the
development of a digital production center and a related digital training
program for artists and producers in the People's Republic of China in exchange
for Class B Membership Interests in OnlineFilmSales. As a result of the
contribution to OnlineFilmSales of Heidi Lester's membership interest in Online
Films, Online Films is now a wholly-owned subsidiary of InternetStudios.
The holders of Class B membership interests in OnlineFilmSales are
entitled to convert their interests into shares of InternetStudios' Common Stock
at any time. The Class B membership interests will automatically be converted
into InternetStudios' Common Stock upon the occurrence of certain transactions
and in any event, on March 28, 2007. Each holder of a Class B membership
interest will receive first priority (ratably) over holders of Class A
membership interests upon distributions of cash by OnlineFilmSales. Such first
priority will be based upon the amount of all cash which each holder of Class B
membership interests would have received in the form of dividends on and
proceeds from redemptions of, that number of shares InternetStudios' Common
Stock into which such holder's Class B Membership Interest is convertible, if
such Class B member had held those shares during the period from such member's
admission as a Class B member of OnlineFilmSales to the date of such
distribution of cash by OnlineFilmSales. Heidi Lester's Class B Membership
Interest is convertible into 600,000 shares of InternetStudios' Common Stock and
Steve Fredericks' Class B Membership Interest is convertible into 400,000 shares
of InternetStudios' Common Stock.
10
<PAGE>
On February 21, 2000, InternetStudios formed InternetStudios.com UK
Limited, a private limited company incorporated in England and a wholly-owned
subsidiary of InternetStudios. (HEREINAFTER, REFERENCE TO INTERNETSTUDIOS SHALL
INCLUDE ITS SUBSIDIARIES ONLINE FILMS, ONLINEFILMSALES AND INTERNETSTUDIOS.COM
UK LIMITED UNLESS THE CONTEXT OTHERWISE REQUIRES).
InternetStudios, through OnlineFilmSales, entered into two joint venture
relationships with MediaChase on March 28, 2000. One joint venture, operated
through ReporterTV.com, LLC, a Delaware limited liability company whose sole
members are MediaChase and OnlineFilmSales, will focus on providing five
segments of a business entertainment news magazine updated and broadcasted daily
over the Internet in television broadcast news format, and the other joint
venture, operated through StudioBuzz.com, a Delaware limited liability company
whose sole members are also MediaChase and OnlineFilmSales, will focus on
creating a comprehensive database of information relating to the entertainment
industry.
InternetStudios' long term business plan contemplates facilitating the
financing of filmed entertainment via the OnlineFilmSales.com website in 2001.
InternetStudios intends to provide a forum for producers to pre-sell a portion
of filmed entertainment rights and use the proceeds of the sale to cover the
cost of producing and marketing filmed entertainment rights in the development
stage. InternetStudios will earn a financing fee from facilitating the financing
of the filmed entertainment. In addition, InternetStudios may also receive
profit participations upon the release and financial success of such filmed
entertainment. InternetStudios is currently exploring the feasibility of
providing such services.
RESULTS OF OPERATIONS
REVENUES. InternetStudios has not recognized revenues to date and does not
expect to recognize revenues until after the Internet services are fully
launched. Once launched, the three websites will offer various services.
InternetStudios plans to charge a variety of fees, including subscription and
advertising fees, for such services.
COST OF REVENUES. InternetStudios currently has no cost of revenues
because it has not recognized any revenues to date. Once InternetStudios begins
to charge fees and subscriptions, as well as advertising charges, cost of
revenues will primarily consist of costs associated with marketing, customer
service activities, and server and network operations, and to a lesser extent,
bank and escrow processing charges on fees earned on transactions, Internet
connection charges, depreciation of server and network equipment and allocation
of overhead.
ADVERTISING AND MARKETING EXPENSES. Costs related to InternetStudios'
advertising and marketing efforts are currently classified as general and
administrative expenses. InternetStudios' advertising and marketing expenses
will consist mainly of advertising expenses, creative development and
promotional costs and commissions, and compensation for advertising and
marketing personnel. The majority of these costs will be directed to programs
designed to build brand name recognition, attract filmed entertainment companies
and individuals to InternetStudios' websites, and to attract motion pictures and
television programming for listing on the OnlineFilmSales.com web site.
WEBSITE DEVELOPMENT EXPENSES. InternetStudios' website development costs
as of December 31, 1999 were $632,943. However, InternetStudios expects to incur
significant website development expenses in the future. The website development
expenses will consist of compensation for personnel involved in the development
of InternetStudios' websites and systems, and expenditures for consulting
services, third-party software and other costs related to development.
GENERAL AND ADMINISTRATIVE EXPENSES. InternetStudios' general and
administrative expenses consist primarily of salaries and related costs for
general and corporate functions, including finance, accounting, facilities and
fees for legal and other professional services. InternetStudios' general and
administrative expenses, excluding website development costs, for the period
from inception and ended December 31, 1999 were $2,114,005.
LIQUIDITY AND CAPITAL RESOURCES
From inception to September 17, 1999, InternetStudios had financed its
operations entirely from private placements. On September 17, 1999,
InternetStudios acquired 91.847% of the membership interest of Online Films. On
11
<PAGE>
September 30, 1999 InternetStudios had $1,011,659 in cash and cash equivalents.
InternetStudios has had negative cash flows from operating activities in each
fiscal and quarterly period to date.
In October, 1999 InternetStudios entered into a facility lease agreement
for InternetStudios' corporate headquarters with annual lease payments of
$96,000 through November, 2004.
Net cash used in operating activities was $2,750,208 for the period from
inception and ended December 31, 1999.
Pursuant to the Financing Agreement, dated September 17, 1999, among
InternetStudios, Online Films and Pacific Capital Markets, Inc., Pacific Capital
arranged for the sale of 1,000,000 shares of InternetStudios' Common Stock at $8
per share to investors in offshore transactions. As of December 31, 1999, a
total of 562,500 shares of Common Stock were issued to five unrelated third
party, non U.S. investors for a total offering price of $4,500,000. As of March
15, 2000, an additional 437,500 shares of Common Stock were issued to three
additional unrelated third party, non-U.S. investors for a total offering price
of $3,500,000. These offerings were done pursuant to Regulation S.
As of March 28, 2000, an additional 80,000 shares of Common Stock were
subscribed for at $10 per share by three unrelated third party, non U.S.
investors for a total offering price of $800,000. This offering was done
pursuant to Regulation S.
As of March 29, 2000, an additional 950,000 shares of Common Stock were
subscribed for at $10 per share by an unrelated third party, U.S.-based
investor. This offering was done pursuant to Regulation D. A finder's fee of 4%
will be paid pursuant to this offering.
InternetStudios believes that its current cash balances together with the
net proceeds of these financings will allow InternetStudios to fund its
operations for at least the next 18 months.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivatives
and Hedging Activities," which establishes accounting and reporting standards
for derivative instruments, including certain derivative instruments embedded in
other contracts (collectively referred to as derivatives), and for hedging
activities. SFAS No. 133 is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. As InternetStudios does not currently engage in
derivative or hedging activities there will be no impact to InternetStudios'
results of operations, financial position or cash flow upon the adoption of this
standard.
In October 1998, the FASB issued SFAS No. 134, "Accounting for
Mortgage-Backed Securities Retained after the Securitization of Mortgage Loans
Held for Sale by a Mortgage Banking Enterprise," which establishes standards for
certain activities of mortgage banking enterprises. SFAS No. 134 is effective
for fiscal years beginning after December 15, 1998. The adoption of SFAS No. 134
will not have an impact on InternetStudios' results of operations, financial
position or cash flow.
YEAR 2000 ISSUES
The "year 2000 problem" refers to the possible failure of many computer
systems that may arise as a result of existing computer programs using only the
last two digits to refer to a year. In late 1999, we assessed our information
technology hardware and software, including personal computers, application and
network software for year 2000 compliance readiness. As a result of our
assessment, we experienced no significant disruptions in our system. We are not
aware of any material problems resulting from year 2000 issues, either with our
system, or the products and services of third parties. We will continue to
monitor our system and those of our suppliers and vendors throughout the year
2000 to ensure that any latent year 2000 matters that may arise are addressed
quickly.
12
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
InternetStudios' Financial Statements, together with the report of
independent certified public accountants, appear at pages F-1 through F-12 of
this Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Effective in 1999, Jody M. Weber, Certified Public Accountant, resigned as
InternetStudios' independent chartered accountant, and InternetStudios engaged
LaBonte & Co. ("LaBonte") as InternetStudios' new independent chartered
accountant. Ms. Weber retired from her practice in New York and has limited her
practice scope in the field of accounting.
Prior to the engagement of LaBonte, neither InternetStudios nor anyone on
its behalf consulted with such firm regarding the application of accounting
principles to a specified transaction, either completed or uncompleted, or type
of audit opinion that might be rendered on InternetStudios' financial
statements.
Ms. Weber audited InternetStudios' financial statements for the three
month period from InternetStudios' inception, April 14, 1998, to July 13, 1998.
Ms. Weber's report for such period did not contain an adverse opinion or a
disclaimer of opinion, nor was the report qualified or modified as to
uncertainty, audit scope or accounting principles.
During the period from January 1, 1999 to December 31, 1999 and the year
ended December 31, 1998, there were no disagreements with Ms. Weber on any
matter of accounting principles or practices, financial statement disclosure, or
auditing scope procedure, which disagreements, if not resolved to the
satisfaction of Ms. Weber, would have caused her to make reference to the
subject matter of the disagreements in connection with its reports on
InternetStudios' financial statements. In addition, there were no such events as
described under Item 304 of Regulation S-K during the fiscal years ended
December 31, 1998 and 1999.
InternetStudios has provided Ms. Weber with a copy of the disclosures
contained herein, and has requested that she furnish InternetStudios with a
letter addressed to the Securities and Exchange Commission stating whether she
agrees with the statements made by InternetStudios in response to Item 304
regarding her involvement with InternetStudios as independent chartered
accountant and, if not, stating the respects in which she does not agree. A copy
of Ms. Weber's letter is attached as an exhibit to this Form 10-K.
13
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table and text sets forth the names and ages of all of
InternetStudios' directors and executive officers as of March 28, 2000. All of
the directors will serve until the next annual meeting of stockholders and until
their successors are elected and qualified, or until their earlier death,
retirement, resignation or removal. Executive officers serve at the discretion
of the board of directors, and are appointed to serve until the first board of
directors meeting following the annual meeting of stockholders.
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Robert Maclean................................ 44 Chairman of the Board
Secretary, Treasurer, Vice President of Business Affairs
Mark Rutledge................................. 40 and Director
Michael Edwards............................... 31 Chief Operating Officer and Director
Heidi Lester.................................. 38 Chief Executive Officer
Steven Fredericks............................. 53 Acting President and Chief Financial Officer
Aline Perry................................... 46 President of InternetStudios.com UK Limited
</TABLE>
ROBERT MACLEAN has been Chairman of the Board of InternetStudios since
September 1999 and served as President from September, 1999 to December 1999.
Mr. Maclean will continue to act in an executive capacity for InternetStudios,
however, he currently has no title or defined responsibility. For the past five
years, Mr. Maclean has been an independent producer of filmed entertainment
projects. He has produced over a dozen independent motion pictures and
television movies including such films as CRIMINAL LAW, BRIGHT ANGEL and MAN
WITH A GUN. Mr. Maclean also served as head of production at RKO Pictures in Los
Angeles and has developed and produced a number of miniseries and movies of the
week for ABC, CBS, and HBO. Mr. Maclean began his film career as a documentary
filmmaker based in Paris, France where he produced several documentary series
including, THE LAST SAILORS and THE GOLD LUST. Mr. Maclean obtained a Bachelor's
of Art degree from University of Oregon and a Certificate of Advanced Motion
Picture Productions from Banff School of Fine Arts.
MARK RUTLEDGE has been Secretary, Treasurer, Vice President of Business
Affairs and a director of InternetStudios since September 1999. He has a
Bachelor of Arts (Honours) and a Bachelor of Laws from University of British
Columbia. He was the Vice President of Business Affairs for Northwood
Entertainment Corp. from 1997 to August 1999, and was the Vice President of
Business Affairs for Movie Vista Productions from 1994 to 1997. As vice
president of these two companies, Mr. Rutledge was responsible for negotiating
and preparing contracts for film and television distribution and financing of
film and television productions. Prior to these positions, Mr. Rutledge
practiced law for six years, specializing in the areas of corporate finance,
public offerings and entertainment law. In addition, Mr. Rutledge produced a
number of award winning medical documentaries.
MICHAEL EDWARDS has been Chief Operating Officer and a director of
InternetStudios since September 1999. From 1991 to 1997, Mr. Edwards was the
controller of Alik Enterprises Ltd., a small BC, Canada based business. From
1997 to 1999, Mr. Edwards was the president of Soul Rider Sports, Inc., a small
consumer goods manufacturing and distribution company. Mr. Edwards serves on the
board of Fedora Industries Ltd., a web-based retailer of consumer goods. This
company has been at the forefront of developing alternative distribution
networks using the Internet.
HEIDI LESTER has been Chief Executive Officer of InternetStudios since
September 1999. Ms. Lester has over 15 years of experience in the film
acquisition and distribution industry. From 1994 to 1999, she held the position
of Senior Vice President of Acquisition and Production at Summit Entertainment.
In 1994, Ms. Lester was Vice President of Acquisitions at Largo Entertainment.
From 1989 to 1994, Ms. Lester was in charge of the Los Angeles Liason office for
the JVC Visual Software Division. She is currently the Co-Chairman of Industry
Relations Committee for the American
14
<PAGE>
Film Market Association ("AFMA") and is a member of the Internet Committee for
AFMA. Ms. Lester has previously served as a member of the Board of Directors of
AFMA.
DR. STEVEN FREDERICKS has been Acting President and Chief Financial
Officer of InternetStudios since December 1999. Mr. Fredericks will be
officially appointed by the Board of Directors as President in the near future.
Mr. Fredericks has over 20 years of financial and business development
experience with exceptional skills in all aspects of financial management and
operations including mergers, acquisitions and divestitures, financial planning,
and international finance. He joined Digital Domain as the Chief Financial
Officer in April 1995 and was promoted to Chief Operating Officer in January
1996. Digital Domain is the entertainment industry's leading special effects
studio. Under his leadership, the company achieved its greatest growth and won
two Academy Awards (Best Visual Effects) for TITANIC and WHAT DREAMS MAY COME.
The company was also named the Southern California Software Company of the Year
in 1997, and was selected as one of the top 250 companies in the digital
universe by Red Herring magazine. Prior to joining Digital Domain, Dr.
Fredericks spent 15 years at the IBM Corporation from 1979-1995 where he served
in numerous financial management positions including an assignment in Paris,
France as the head of Financial Plans and Controls for Europe, the Middle East
and Africa. Prior to joining Digital Domain, he was responsible for mergers and
acquisitions in entertainment and media for the IBM Corporation. Dr. Fredericks,
who has earned a doctorate in Education from Indiana University and an MA (with
Honors) in Political Science from the Graduate Division of the New School for
Social Research, and an MBA education in the Graduate Division of the New School
for Social Research, and an MBA (with Distinction) in Finance from New York
University, taught philosophy and education in the Graduate Division of Bank
Street College of Education from 1973-1979, and currently serves on the Board of
Directors of the Southern California Institute of Architecture and has recently
been appointed Consultative Professor of Shanghai University in China.
ALINE PERRY has been President of InternetStudios.com UK Limited since its
formation. Ms. Perry was the President of Polygram Film International between
1992 and 1999. During her tenure she oversaw the growth of a small sales
operation into a major international distribution company, handling world-class
pictures such as FOUR WEDDINGS AND A FUNERAL, MISTER BEAN, SLEEPERS, FARGO and
NOTTING HILL. She played a key role in the development and green lighting
process, and held overall responsibility for marketing, publicity, international
distribution and sales.
ITEM 11. EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION SUMMARY
The following table sets forth summary information concerning the compensation
paid or earned for services rendered to InternetStudios in all capacities during
the fiscal year ended December 31, 1999 to (i) the Company's Chief Executive
Officer and (ii) the four other individuals who served as executive officers of
InternetStudios in 1999. The executive officers of InternetStudios did not
receive compensation prior to 1999.
15
<PAGE>
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation
-------------------------------------------------------------------------- Awards
Name and Securities
Principal Other Annual Underlying All Other
Position Year Salary ($) Bonus ($) Compensation Options (1) Compensation ($)
--------- ---- ---------- --------- ------------ ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Heidi Lester,
Chief Executive Officer ............ 1999 __ __ __ 175,000 63,000 (2)
Robert Maclean,
Chairman of the Board .............. 1999 __ __ __ 175,000 43,000 (2)
Mark Rutledge,
Secretary, Treasurer and Vice
President of Business Affairs and
Director............................ 1999 __ __ __ 175,000 43,000 (2)
Michael Edwards,
Chief Operating Officer and Director 1999 __ __ __ 75,000 43,000 (2)
Steven Fredericks,
Acting President and Chief Financial
Officer............................. 1999 __ __ __ __ __
Aline Perry,
President of InternetStudios.com UK
Limited............................. 1999 __ __ __ __ __
</TABLE>
(1) The Company did not grant any restricted stock awards or stock appreciation
rights or make any long term incentive plan payouts during the fiscal years
ended December 31, 1997, December 31, 1998 or December 31, 1999.
(2) The Company paid management fees to each of the executive officers indicated
in the aggregate amount of $192,000 from September through December 1999. See
Item 13.
EMPLOYMENT AGREEMENTS
InternetStudios or one of its subsidiaries intends to enter into a
Management Agreement with Robert Maclean. Under Mr. Maclean's Management
Agreement, Mr. Maclean will serve in an executive capacity for a term of three
years. The term may be renewed upon a written agreement between the parties for
two additional one year periods. The provisions of the Management Agreement will
include:
- - base salary of $192,000 per year, subject to an increase at the end of
each year of the term determined by the Board of Directors in its sole
discretion;
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<PAGE>
- - annual bonus, determined by the Board of Directors in its sole discretion;
- - an option to purchase 175,000 shares of InternetStudios' Common Stock at
an exercise price of $5.00 per share, subject to vesting requirements and
approval of the Board of Directors and stockholders;
- - customary employee benefits and reimbursement of reasonable expenses
incurred in connection with the performance of his duties; and
- - noncompetition, nondisclosure and nonconsolidation covenants.
In the event InternetStudios terminates Mr. Maclean for any reason other
than death, disability, or for cause, or in the event Mr. Maclean terminates his
services for cause, Mr. Maclean will be entitled to the following compensation
on the eighth day after his signing a Confidential Severance Agreement and a
letter confirming that he did not revoke and will take no action to revoke the
Confidential Severance Agreement:
- - a lump sum severance payment equal to one and one-half times his base
salary;
- - any accrued and unpaid vacation or other benefits;
- - any accrued and unpaid bonus; and
- - accelerated vesting of his stock options.
InternetStudios or one of its subsidiaries intends to enter into a
Management Agreement with Mark Rutledge. Under Mr. Rutledge's Management
Agreement, Mr. Rutledge will serve as Secretary, Treasurer and Vice President of
Business Affairs for a term of three years. The term may be renewed upon a
written agreement between the parties for two additional one year periods. The
provisions of the Management Agreement will include:
- - base salary of $192,000 per year, subject to an increase at the end of
each year of the term determined by the Board of Directors in its sole
discretion;
- - annual bonus, determined by the Board of Directors in its sole discretion;
- - an option to purchase 175,000 shares of InternetStudios' Common Stock at
an exercise price of $5.00 per share, subject to vesting requirements and
approval of the Board of Directors and stockholders;
- - customary employee benefits and reimbursement of reasonable expenses
incurred in connection with the performance of his duties; and
- - noncompetition, nondisclosure and nonconsolidation covenants.
In the event InternetStudios or one of its subsidiary, as the case may be,
terminates Mr. Rutledge for any reason other than death, disability, or for
cause, or in the event Mr. Rutledge terminates his services for cause, Mr.
Rutledge will be entitled to the following compensation on the eighth day after
his signing a Confidential Severance Agreement and a letter confirming that he
did not revoke and will take no action to revoke the Confidential Severance
Agreement:
- - a lump sum severance payment equal to one and one-half times his base
salary;
- - any accrued and unpaid vacation or other benefits;
- - any accrued and unpaid bonus; and
- - accelerated vesting of his stock options.
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<PAGE>
InternetStudios or one of its subsidiary intends to enter into a
Management Agreement with Heidi Lester. Under Ms. Lester's Management Agreement,
Ms. Lester will serve as Chief Executive Officer for a term of three years. The
term may be renewed upon a written agreement between the parties for two
additional one year periods. The provisions of the Management Agreement will
include:
- - base salary of $252,000 per year, subject to an increase at the end of
each year of the term determined by the Board of Directors in its sole
discretion;
- - annual bonus, determined by the Board of Directors in its sole discretion;
- - an option to purchase 175,000 shares of InternetStudios' Common Stock at
an exercise price of $5.00 per share, subject to vesting requirements and
approval of the Board of Directors and stockholders;
- - customary employee benefits and reimbursement of reasonable expenses
incurred in connection with the performance of her duties; and
- - noncompetition, nondisclosure and nonconsolidation covenants.
In the event InternetStudios or its subsidiary, as the case may be,
terminates Ms. Lester for any reason other than death, disability, or for cause,
or in the event Ms. Lester terminates her services for cause, Ms. Lester will be
entitled to the following compensation on the eighth day after her signing a
Confidential Severance Agreement and a letter confirming that she did not revoke
and will take no action to revoke the Confidential Severance Agreement:
- - a lump sum severance payment equal to one and one-half times her base
salary;
- - any accrued and unpaid vacation or other benefits;
- - any accrued and unpaid bonus; and
- - accelerated vesting of her stock options.
InternetStudios or one of its subsidiary intends to enter into a
Management Agreement with Steven Fredericks. Under Dr. Frederick's Managament
Agreement, Dr. Fredericks will serve as President and Chief Financial Officer
for a term of two years. The provisions of the Management Agreement will
include:
- - base salary of $250,000 per year, subject to an increase at the end of
each year of the term, determined by the Board of Directors in its sole
discretion;
- - annual bonus, determined by the Board of Directors in its sole discretion;
- - an option to purchase 200,000 shares of InternetStudios' Common Stock at
an exercise price of $5.00 per share, subject to vesting requirements and
approval of the Board of Directors and stockholders;
- - sign-on bonus of $50,000 upon successful closing of a financing from the
sale of equity securities; and
- - customary employee benefits and reimbursement of reasonable expenses
incurred in connection with the performance of his duties.
In the event InternetStudios or its subsidiary, as the case may be,
terminates Dr. Fredericks for any reason other than death, disability, or for
cause, or in the event Dr. Fredericks terminates his services for cause, Dr.
Fredericks will be entitled to the following compensation on the eighth day
after his signing a Confidential Severance Agreement and a letter confirming
that he did not revoke and will take no action to revoke the Confidential
Severance Agreement:
18
<PAGE>
- - a lump sum severance payment equal to one and one-half times his base
salary;
- - any accrued and unpaid vacation or other benefits;
- - any accrued and unpaid bonus; and
- - accelerated vesting of his stock options.
BOARD OF DIRECTORS
During the year ended December 31, 1999, two meetings of the Board of
Directors were held. All other corporate actions were conducted by unanimous
written consent of the Board of Directors. Directors may be paid their expenses
for attending each meeting of the directors and may be paid a fixed sum for
attendance at each meeting of the directors or a stated salary as director. No
payment precludes any director from serving InternetStudios in any other
capacity and being compensated for the service. Members of special or standing
committees may be allowed like reimbursement and compensation for attending
committee meetings.
OPTION GRANTS
The following table sets forth each grant of stock options granted during
the year ended December 31, 1999 pursuant to the Company's 1999 US Stock
Incentive Plan and the 1999 Non-US Stock Incentive Plan to each of the executive
officers named in Item 10.
<TABLE>
<CAPTION>
Individual Grants
- ------------------------------------------------------------------------------------------
Potential Realizable Value At
Number of Percent Total Assumed Annual Rates of Stock
Securities of Options Price Appreciation For Option
Underlying Granted to Exercise of Term (2)
Options Employees in Base Price Expiration -------------------------------
Name Granted (#) Fiscal Year (1) ($/SH) Date 5%($) 10%($)
---- ----------- ---- ------ ---- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Robert Maclean (3)..................175,000 16.55% $5.00 12/01/04 $241,500 $533,750
Mark Rutledge (3)...................175,000 16.55% $5.00 12/01/04 $241,500 $533,750
Michael Edwards (3).................75,000 7.10% $5.00 12/01/04 $103,500 $228,750
Heidi Lester (4)....................175,000 16.55% $5.00 12/01/04 $241,500 $533,750
Steven Fredericks (5)...............200,000 18.91% $5.00 12/28/04 $276,000 $610,000
Aline Perry......................... -- -- -- -- -- --
</TABLE>
(1) The exercise price per share of each option was determined by the Board of
Directors to be equal to the fair market value per share of the Common
Stock on the date of grant.
(2) Amounts reported in these columns represent amounts that may be realized
upon the exercise of the options immediately prior to the expiration of
their term assuming the specified compounded rates of appreciation of the
19
<PAGE>
Company's Common Stock over the term of the options. These numbers are
calculated based on rules promulgated by the Securities and Exchange
Commission and do not reflect the Company's estimate of future stock price
growth. Actual gains, if any, on stock option exercises and Common Stock
holdings are dependent on the timing of such exercises and the future
performance of the Company's Common Stock. There can be no assurance that
the rates of appreciation assumed in this table can be achieved or that
the amounts reflected will be received by the individuals.
(3) The indicated options were granted pursuant to the 1999 Non-US Stock
Incentive Plan on December 1, 1999, subject to the approval of the
stockholders of such Plan. The stockholders approved such Plan on January
18, 2000.
(4) The indicated options were granted pursuant to the 1999 US Stock Incentive
Plan on December 1, 1999, subject to the approval of the stockholders of
such Plan. The stockholders approved such Plan on January 18, 2000.
(5) The indicated options were granted pursuant to the US Stock Incentive Plan
on December 28, 1999, subject to the approval of the stockholders of such
Plan. The stockholders approved such Plan on January 18, 2000.
AGGREGATED OPTION EXERCISES AND YEAR-END VALUES
The following table sets forth information with respect to the executive
officers named in Item 10 concerning the number and value of options outstanding
at the end of the last fiscal year. There were no option exercises during the
last fiscal year.
<TABLE>
<CAPTION>
Value of
Number of Unexercised In-the-
Unexercised Money Options at
Options at December 31, 1999
Name December 31, 1999 Vested/Unvested
Vested/Unvested (1)
- ---- ----------------- -------------------
<S> <C> <C>
Robert Maclean................................................................... 7,292/167,708 10,938/251,562
Mark Rutledge.................................................................... 7,292/167,708 10,938/251,562
Michael Edwards.................................................................. 3,125/71,875 4,688/107,813
Heidi Lester..................................................................... 7,292/167,708 10,938/251,562
Steven Fredericks................................................................ 0/200,000 0/1,800,000
</TABLE>
(1) Value as of December 31, 1999 is the difference between the option exercise
price and the closing price of $6.50 as reported on the NASD OTC Bulletin Board
at December 31, 1999 multiplied by the number of shares underlying the option.
STOCK OPTION PLANS
STOCK INCENTIVE PLAN - NON-UNITED STATES RESIDENTS. The purpose of the
1999 Non-US Stock Incentive Plan is to encourage eligible participants to
purchase shares of InternetStudios' Common Stock, thereby providing eligible
participants with an incentive to remain associated with and promote the
interests of InternetStudios. Eligible participants under the option plan are
employees, directors and consultants of InternetStudios and certain related
entities.
The 1999 Non-US Stock Incentive Plan provides for the granting of awards
according to the discretion of the administrator of the Plan. The highlights of
the Plan are as follows:
20
<PAGE>
(a) the administrator is the Board of Directors of InternetStudios or a
committee of the Board of Directors;
(b) subject to applicable laws, including the rules of any applicable
stock exchange or national market system, the plan administrator is authorized
to grant any type of award to an eligible participant. An award may be:
- shares of Common Stock of InternetStudios (including shares
which may be earned upon the accomplishment of performance
criteria established by the plan administrator);
- a stock option;
- a stock appreciation right entitling the eligible participant
to acquire a certain number of shares of Common Stock of
InternetStudios or receive cash compensation based on any
appreciation in the value of InternetStudios' Common Stock;
- any right similar to a stock appreciation right, with a fixed
or variable price related to the fair market value of
InternetStudios' Common Stock and with an exercise or
conversion privilege related to the passage of time, the
occurrence of one or more events, or the accomplishment of
performance criteria or other conditions;
- restricted stock in exchange for payment (if any) by the
eligible participant and subject to restrictions on transfer,
rights of first refusal, repurchase provisions, forfeiture
provisions, and other terms and conditions as the plan
administrator may establish;
- performance units which may be earned in whole or in part upon
the accomplishment of performance criteria established by the
plan administrator and which may be settled in cash, Common
Stock or other securities of InternetStudios, or a combination
of cash, common stock or other securities, as determined by
the plan administrator;
- any other security with the value derived from the value of
the InternetStudios' Common Stock; or
- any combination of the items listed above;
(c) the maximum number of shares of Common Stock of InternetStudios that
will be issuable under the 1999 Non-US Stock Incentive Plan is 500,000 shares;
(d) there are restrictions on the granting of awards to insiders of
InternetStudios;
(e) the maximum number of shares of Common Stock with respect to which
options and stock appreciation rights may be granted to any participant in any
fiscal year of InternetStudios is 300,000 shares, subject to adjustment in
certain circumstances;
(f) the term of an option will be no more than ten years;
(g) if the exercise price or any tax required to be withheld with
respect to an option is satisfied by InternetStudios or the eligible
participant's employer withholding shares otherwise deliverable to the
participant, the plan administrator may issue the participant an additional
option, subject to terms identical to the Award Agreement under which the option
was exercised, but at an exercise price determined by the plan administrator;
(h) an option may not be sold, pledged, assigned, transferred or
disposed of in any way other than by will or by the laws of descent or
distribution, and may be exercised only by the option holder during his or her
lifetime;
(i) other awards will be transferable to the extent provided in each
applicable Award Agreement;
21
<PAGE>
(j) subject to applicable laws, including the rules of an applicable
stock exchange or national market system, an Award Agreement may permit the
exercise of an incentive award for a specified period following the termination
of the eligible participant's employment, in which event the award will
terminate to the extent it is not exercised on the last day of the specified
period or the last day of the original term of the award, whichever occurs
first;
(k) subject to applicable laws, including the rules of an applicable
stock exchange or national market system, the consideration to be paid for the
shares of Common Stock upon exercise or purchase of an incentive award,
including the method of payment, will be determined at the time of grant);
provided that, in addition to any other types of consideration the plan
administrator may determine, the plan administrator will be authorized to accept
as consideration for the shares of Common Stock of InternetStudios:
- cash;
- check;
- surrender of shares of InternetSutdios for a cashless exercise
or purchase of the award; and
- any combination of the above-listed methods of payment;
(l) the Board of Directors of InternetStudios may at any time, amend,
suspend or terminate the 1999 Non-US stock incentive Plan, subject to such
stockholder approval as may be required by applicable laws, including the rules
of an applicable stock exchange or national market system.
STOCK INCENTIVE PLAN - UNITED STATES RESIDENTS. The purpose of the 1999 US
Stock Incentive Plan is to promote the interests of InternetStudios by
encouraging eligible participants who are U.S. residents or who are subject to
U.S. taxation to purchase shares of InternetStudios Common Stock, thereby
providing participants with an incentive to remain associated with an promote
the interests of InternetStudios in the conduct of their affairs.
The 1999 US Stock Incentive Plan provides for the granting of such awards
as the plan administrator (being the Board of Directors of InternetStudios or a
committee of the Board of Directors) may determine.
The 1999 US Stock Incentive Plan is modeled on the 1999 Non-US Stock
Incentive Plan, and the foregoing discussion of the 1999-Non-US Stock Incentive
Plan generally applies to the 1999 US Stock Incentive Plan, except that:
(a) the maximum number of shares of Common Stock of InternetStudios
issuable under the 1999 US Stock Incentive Plan is 1,000,000 shares;
(b) under the 1999 US Stock Incentive Plan, options may be granted as
either incentive stock options under Section 422 of the Code and the regulations
thereunder (the "Incentive Stock Options") or non-incentive stock options under
Section 18 of the Code (the "Non-Qualified Stock Options");
(c) the specific provisions under the 1999 US Stock Incentive Plan which
apply to Incentive Stock Options include the following:
- if granted to an eligible employee who at the time of the
grant owns stock representing more than 10% of the voting
power of all classes of stock of InternetStudios or any parent
or subsidiary, an Incentive Stock Option will be limited to a
maximum term of five years, and will be subject to an exercise
price per share not less than 110% of the fair market value of
InternetStudios' Common Stock on the date of the grant;
- an Incentive Stock Option granted to any other eligible
employee may be granted for a term not exceeding ten years at
an exercise price per share not less than the fair market
value of InternetStudios' Common Stock on the date of the
grant; and
22
<PAGE>
- if the aggregate fair market value of InternetStudios' Common
Stock subject to Incentive Stock Options which become
exercisable for the first time by an eligible employee (under
all plans of InternetStudios or any parent or subsidiary)
exceeds US$100,000 during any calendar year, the Incentive
Stock Options to which such excess value is attributable will
be treated as Non-Qualified Stock Options;
(d) any Incentive Stock Option which is not exercised following the
eligible employee's termination within the time permitted by law will
automatically convert to a Non-Qualified Stock Option and will thereafter be
exercisable for the period specified under each applicable Award Agreement.
(e) Non-Qualified Stock Options may be granted for a term not exceeding
ten years, and unless otherwise determined by the plan administrator, the
exercise price per share may not be less than the fair market value of
InternetStudios' Common Stock on the date of the grant; and
(f) the 1999 US Stock Incentive Plan has specific provisions which apply
to grants of incentive awards intended to qualify as "Performance-Based
Compensation", as defined under Section 162(m) of the Code, to any employees who
are "covered employees" for the purposes of Section 162(m) of the Code, such as,
the exercise of purchase price per share, if any, of such an award may not be
less than the fair market value of InternetStudios' Common Stock on the date of
the grant.
The following performance graph shall not be deemed incorporated by
reference by any general statement incorporating by reference this Form 10-K
into any filing under the Securities Act of 1933 or under the Securities Act
of 1934, except to the extent that InternetStudios specifically incorporates
this information by reference, and shall not otherwise be deemed filed under
such Acts.
PERFORMANCE GRAPH
The following graph compares the annual percentage change in the
cumulative total return on the Common Stock of InternetStudios with the
cumulative total return of the S & P 500 and the ISDEX Internet Stock Index
for the period commencing September 23, 1999 and ending December 31, 1999.
The stock price performance shown on the graph below assumes: (i) $100
invested on September 23, 1999 in the Common Stock of InternetStudios and in
the stocks of the companies comprising the S & P 500 and the ISDEX Internet
Stock Index; and (ii) immediate reinvestment of all dividends. This stock
price performance is not necessarily indicative of future price performance.
<TABLE>
<CAPTION>
9/23/99 12/31/99
<S> <C> <C>
InternetStudios $100.00 $144.44
ISDEX Internet Stock Index $100.00 $173.08
S & P 500 $100.00 $115.12
</TABLE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of March 24, 2000
with respect to the beneficial ownership of the Common Stock of (1) each of our
directors, each of our executive officers and all of our executive officers and
directors as a group, and (2) each stockholder known by InternetStudios to be
the beneficial owner of 5% or more of the Common Stock, and the percentage of
Common Stock so owned.
As used in this table, the term "beneficial ownership" with respect to a
security is defined by Rule 13d-3 under the Exchange Act of 1934, as amended, as
consisting of sole or shared voting power (including the power to vote or direct
the vote) and/or sole or shared investment power (including the power to dispose
of or direct the disposition of) with respect to the security through any
contract, arrangement, understanding, relationship or otherwise, subject to
community property laws where applicable. Each person has sole voting and
investment power with respect to the shares of common stock, except as otherwise
indicated. Beneficial ownership consists of a direct interest in the shares of
common stock, except as otherwise indicated. The address of those individuals
for which an address is not otherwise indicated is: 1205-1095 West Pender
Street, Vancouver, British Columbia.
Beneficial Ownership of Management
<TABLE>
<CAPTION>
NUMBER OF SHARES OF PERCENTAGE OF OUTSTANDING
NAME AND ADDRESS COMMON STOCK COMMON STOCK
OF BENEFICIAL OWNER BENEFICIALLY OWNED BENEFICIALLY OWNED
<S> <C> <C>
Robert Maclean................................ 1,124,500 8.18%
Mark Rutledge................................. 1,110,000 8.07%
Michael Edwards............................... 100,000 .73%
</TABLE>
23
<PAGE>
Beneficial Ownership of Management
<TABLE>
<CAPTION>
NUMBER OF SHARES OF PERCENTAGE OF OUTSTANDING
NAME AND ADDRESS COMMON STOCK COMMON STOCK
OF BENEFICIAL OWNER BENEFICIALLY OWNED BENEFICIALLY OWNED
<S> <C> <C>
Heidi Lester (1)
1351 4th Street
Suite 227
Santa Monica, California...................... -- --
Steven Fredericks (2)
1351 4th Street
Suite 227
Santa Monica, California...................... -- --
Aline Perry
167 Wardour Street
London, England............................... -- --
Directors and Officers as a Group............. 2,334,500 16.98%
</TABLE>
(1) Does not include the Class B Membership Interest of OnlineFilmSales Ms.
Lester acquired as of March 28, 2000 which is convertible into 600,000
shares of Common Stock.
(2) Does not include the Class B Membership Interest of OnlineFilmSales Mr.
Fredericks acquired as of March 28, 2000 which is convertible into 400,000
shares of Common Stock.
Beneficial Owner of more than 5%
<TABLE>
<CAPTION>
NUMBER OF SHARES OF PERCENTAGE OF OUTSTANDING
NAME AND ADDRESS COMMON STOCK COMMON STOCK
OF BENEFICIAL OWNER BENEFICIALLY OWNED BENEFICIALLY OWNED
<S> <C> <C>
Jayvee & Co................................. 900,000 6.55%
c/o CIBC Mellon Global Services
320 Bay Street, P.O. Box 1
Toronto, ONT, Canada MSH 4A6
</TABLE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
From the date of the acquisition of Online Films through December 1999,
InternetStudios' executive officers have received an aggregate of $192,000 per
month in management fees for their services as executive officers. Since January
2000, InternetStudios' five executive officers have received an aggregate of
$93,000 per month in management fees for their services as executive officers.
Upon the effective date of the Management Agreements, these management fees will
terminate and be superceded by the compensation specified in each such officer's
Management Agreement. See Item 10.
24
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) Financial Statements
(2) Exhibits
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
------- -----------
<S> <C>
2.1 (1) Acquisition Agreement
3.1 (1) Articles of Incorporation
3.2 (1) Certificate of Amendment of Articles of Incorporation
3.3 (1) Certificate of Amendment of Articles of Incorporation
3.4 (1) By-laws
3.5 (1) Amended By-laws
10.1 (1) Financing Agreement
10.2 (1) Consulting Agreement
10.3 (1) Letter Agreement between InternetStudios and MediaChase
10.4 (1) Secured Promissory Note and Allonge to Secured Promissory Note
10.5 (1) Allonge to Secured Promissory Note dated November 21, 1999
10.6 (1) Allonge to Secured Promissory Note dated February 1, 2000
10.7* Allonge to Secured Promissory Note dated March 27, 2000
10.8* Allonges to Secured Promissory Note dated March 28, 2000
10.9* Termination Agreement dated March 28, 2000
10.10* Limited Liability Agreement of OnlineFilmSales.com, LLC
10.11* Contribution, Assignment, and Assumption Agreement by InternetStudios
10.12* Consulting Agreement between OnlineFilmSales.com, LLC and Mediachase Ltd.
to StudioBuzz.com LLC
10.13* Limited Liability Company Agreement of Reportertv.com, LLC
Contribution, Assignment, and Assumption Agreement by Mediachase Ltd. and
10.14* Dot To Watch to Reportertv.com, LLC
10.15* Limited Liability Company Agreement of StudioBuzz.com, LLC
25
<PAGE>
10.16* Contribution, Assignment, and Assumption Agreement by Mediachase Ltd.
10.17* Consulting Agreement between StudioBuzz.com, LLC and Mediachase, Ltd.
10.18* 1999 Non-US Stock Incentive Plan
10.19* 1999 US Stock Incentive Plan
10.20* Loan Agreement between Pacific Capital Markets Inc. and InternetStudios
10.21* Promissory Note from InternetStudios to Pacific Capital Markets
(Included in Exhibit 10.20)
10.22* Memorandum and Articles of Association of InternetStudios.com UK Limited
10.23* Letter Agreement between InternetStudios and MediaChase
16.1(1) Letter of Jody M. Weber, Certified Public Accountant
21.1* List of Subsidiaries
24.1* Power of Attorney (Included in signature page)
27.1* Financial data schedule
</TABLE>
(1) Incorporated herein by reference to the exhibits to InternetStudios'
Registration Statement on Form 10 (File No. 000-27363), as amended.
*Filed herewith.
(b) Reports on Form 8-K.
There were no reports on Form 8-K filed by InternetStudios during the
fourth quarter of 1999.
26
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the registrant has caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
INTERNETSTUDIOS.COM, INC.
a Nevada corporation
By: /S/ HEIDI LESTER
----------------------------------
Heidi Lester
Chief Executive Officer
POWER OF ATTORNEY
We, the undersigned officers and directors of InternetStudios.com, Inc.,
hereby severally constitute and appoint Heidi Lester and Mark Rutledge, and each
of them singly, our true and lawful attorneys, with full power to them and each
of them singly, to sign for us in our names in the capacities indicated below,
all amendments to this report, and generally to do all things in our names and
on our behalf in such capacities to enable InternetStudios.com, Inc. to comply
with the provisions of the Securities Exchange Act of 1934, as amended, and all
requirements of the Securities and Exchange Commission.
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated below on the 28th day of March, 2000.
/S/ HEIDI LESTER
- -------------------------------------
Heidi Lester
Chief Executive Officer
/S/ MARK RUTLEDGE
- -------------------------------------
Mark Rutledge
Secretary, Treasurer, Vice President
Business Affairs and Director
/S/ MICHAEL EDWARDS
- -------------------------------------
Michael Edwards
Chief Operating Officer and Director
/S/ STEVEN FREDERICKS
- -------------------------------------
Steven Fredericks
Acting President and Chief Financial Officer
/S/ ROBERT MACLEAN
- -------------------------------------
Robert Maclean
Director
27
<PAGE>
INTERNETSTUDIOS.COM, INC.
(FORMERLY EHEALTH.COM, INC.)
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND DECEMBER 31, 1998
AUDITORS' REPORT
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED STATEMENTS OF OPERATIONS
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
CONSOLIDATED STATEMENTS OF CASH FLOWS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
[LETTERHEAD]
AUDITORS' REPORT
- --------------------------------------------------------------------------------
To the Board of Directors of InternetStudios.com, Inc.
We have audited the consolidated balance sheets of InternetStudios.com, Inc. (a
development stage company) as at December 31, 1999 and December 31, 1998 and the
consolidated statements of operations, changes in stockholders' equity and cash
flows for the periods then ended. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at December 31, 1999
and December 31, 1998 and the results of its operations and the changes in
stockholders' equity and cash flows for the periods then ended in accordance
with generally accepted accounting principles in the United States.
"LABONTE & CO."
CHARTERED ACCOUNTANTS
Vancouver, B.C.
February 29, 2000 except for Note 9 which is dated March 28, 2000
COMMENTS BY AUDITORS FOR U.S. READERS ON
CANADA-UNITED STATES REPORTING DIFFERENCES
- --------------------------------------------------------------------------------
In the United States, reporting standards for auditors' would require the
addition of an explanatory paragraph following the opinion paragraph when the
financial statements are affected by a significant uncertainty such as referred
to in Note 1 regarding the Company's ability to continue as a going concern. Our
report to the directors dated February 29, 2000 is expressed in accordance with
Canadian reporting standards which do not permit a reference to such
uncertainties in the auditors' report when the uncertainties are adequately
disclosed in the financial statements.
"LABONTE & CO."
CHARTERED ACCOUNTANTS
Vancouver, B.C.
February 29, 2000
F-2
<PAGE>
INTERNETSTUDIOS.COM, INC.
(FORMERLY EHEALTH.COM, INC.)
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
- -----------------------------------------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash and short-term investments $ 661,124 $ 10,025
Taxes recoverable 17,963 -
Due from related party 137,940 -
Prepaids and deposits 506,245 -
- -----------------------------------------------------------------------------------------------------------------------------------
1,323,272 10,025
GOODWILL (Note 3) 11,454,123 -
LOANS RECEIVABLE (Note 4) 1,306,849 20,000
FURNITURE AND EQUIPMENT, net of depreciation 66,441 -
INCORPORATION COSTS 1,000 1,000
- -----------------------------------------------------------------------------------------------------------------------------------
$ 14,151,685 $ 31,025
===================================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 531,453 $ 8,862
- -------------------------------------------------------------------------------------------- ---------------- -----------------
COMMITMENTS AND CONTINGENCIES (Notes 1 and 8)
STOCKHOLDERS' EQUITY
Common stock, $.0001 par value, 100,000,000 shares authorized
1999 - 13,312,500, 1998 - 7,117,200 issued and outstanding 7,736 7,117
Additional paid-in capital 16,359,444 31,183
Deficit accumulated during the development stage (2,746,948) (16,137)
- -----------------------------------------------------------------------------------------------------------------------------------
13,620,232 22,163
- -----------------------------------------------------------------------------------------------------------------------------------
$ 14,151,685 $ 31,025
===================================================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements
F-3
<PAGE>
INTERNETSTUDIOS.COM, INC.
(FORMERLY EHEALTH.COM, INC.)
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
April 14, 1998 April 14, 1998
(inception) to Year ended (inception) to
December 31, December 31, December 31,
1999 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
GENERAL AND ADMINISTRATIVE EXPENSES
Advertising and marketing $ 126,476 $ 126,476 $ -
Amortization and depreciation 612,808 612,808 -
Consulting fees 660,969 660,969 -
Management fees 195,200 192,000 3,200
Office and general 134,241 123,267 10,974
Professional fees 225,282 225,282 -
Travel and accommodation 135,586 133,623 1,963
Wages and benefits 23,443 23,443 -
Website development costs 632,943 632,943 -
- -----------------------------------------------------------------------------------------------------------------------------------
NET LOSS FOR THE PERIOD $ 2,746,948 $2,730,811 $ 16,137
===================================================================================================================================
BASIC NET LOSS PER SHARE $0.48 $ 0.32 $0.01
===================================================================================================================================
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 5,675,950 8,611,289 1,528,145
===================================================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements
F-4
INTERNETSTUDIOS.COM, INC.
<PAGE>
(FORMERLY EHEALTH.COM, INC.)
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM APRIL 14 1998 (INCEPTION) TO DECEMBER 31, 1999
<TABLE>
<CAPTION>
Deficit
accumulated
Additional during the
Number of Paid In development
shares Amount Capital stage Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Common stock issued for cash 7,117,200 $ 7,117 $ 31,183 $ - $ 38,300
Net loss for the period - - - (16,137) (16,137)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 7,117,200 7,117 31,183 (16,137) 22,163
Share split on a 3 for 1 basis 14,234,400 - - - -
Share consolidation on a 3 for 1 basis (14,234,400) - - - -
Common stock issued for acquisition of Online
Films, LLC 5,632,800 563 11,828,317 - 11,828,880
Common stock issued for cash pursuant to
Regulation S offering 562,500 56 4,499,944 - 4,500,000
Net loss for the period - - - (2,730,811) (2,730,811)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 13,312,500 $ 7,736 $ 16,359,444 $ (2,746,948) $ 13,620,232
===================================================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements
F-5
INTERNETSTUDIOS.COM, INC.
<PAGE>
(FORMERLY EHEALTH.COM, INC.)
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
April 14, 1998 April 14, 1998
(inception) to Year ended (inception) to
December 31, December 31, December 31,
1999 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss for the period $ (2,746,948) $ (2,730,811) $ (16,137)
Adjustments to reconcile net loss to net cash from operating activities:
- amortization and depreciation 612,808 612,808 -
- net changes in working capital items (616,068) (624,930) 8,862
- -----------------------------------------------------------------------------------------------------------------------------------
CASH USED IN OPERATING ACTIVITIES (2,750,208) (2,742,933) (7,275)
- -----------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of furniture and equipment (61,401) (61,401) -
Incorporation costs (1,000) - (1,000)
Cash acquired on acquisition of Online Films, LLC 363,759 363,759 -
- -----------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES 301,358 302,358 (1,000)
- -----------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Loans receivable (1,291,635) (1,271,635) (20,000)
Advances to related party (136,691) (136,691) -
Net proceeds on sale of common stock 4,538,300 4,500,000 38,300
- -----------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES 3,109,974 3,091,674 18,300
- -----------------------------------------------------------------------------------------------------------------------------------
INCREASE IN CASH AND CASH EQUIVALENTS 661,124 651,099 10,025
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD - 10,025 -
- -----------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 661,124 $ 661,124 $ 10,025
===================================================================================================================================
CASH AND CASH EQUIVALENTS CONSISTS OF:
Cash $ 413,716 $ 413,716 $ 10,025
Short-term investments 247,408 247,408 -
- -----------------------------------------------------------------------------------------------------------------------------------
$ 661,124 $ 661,124 $ 10,025
===================================================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements
F-6
<PAGE>
INTERNETSTUDIOS.COM, INC.
(FORMERLY EHEALTH.COM, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND DECEMBER 31, 1998
- --------------------------------------------------------------------------------
NOTE 1 - NATURE OF OPERATIONS AND BASIS OF PRESENTATION
- --------------------------------------------------------------------------------
The Company was incorporated on April 14, 1998 in the State of Nevada as The
Enterprise, Inc. Effective December 14, 1998 the Company changed it's name to
eHealth.com, Inc., and on September 20, 1999 changed its name to
InternetStudios.com, Inc. Effective September 30, 1999 the Company acquired a
91.847% interest in Online Films, LLC, a private Delaware company developing a
business of compiling an online database of filmed entertainment and
facilitating a digital marketplace targeted at the entertainment industry.
Concurrently, Online Films, LLC entered into a financing agreement with Pacific
Capital Markets Inc. ("PCMI") to provide start-up capital and to raise
$8,000,000 for the development of the business of which $4,500,000 was raised to
December 31, 1999 and $3,500,000 was raised subsequently.
The consolidated financial statements have been prepared on the basis of a going
concern which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. The Company and its subsidiary are
in the development stage, have not generated any revenues or completed
development of any commercially acceptable products or services to date and
further significant losses are expected to be incurred in developing its
business. The ability of the Company to continue as a going concern is dependent
on raising additional capital and ultimately on generating future profitable
operations. Refer to Note 9 - Subsequent Events.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
PRINCIPLES OF CONSOLIDATION
The financial statements include the accounts of the Company and its subsidiary
Online Films, LLC which was acquired on September 30, 1999.
USE OF ESTIMATES AND ASSUMPTIONS
Preparation of the Company's financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures. Accordingly,
actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers all liquid investments, with an original maturity of three
months or less when purchased, to be cash equivalents.
GOODWILL
Goodwill arising on the acquisition of Online Films, LLC is amortized
straight-line over five years commencing October 1, 1999.
FURNITURE AND EQUIPMENT
Furniture and equipment is carried at acquisition cost less accumulated
depreciation on a 30% declining balance basis.
FOREIGN CURRENCY TRANSLATION
The financial statements are presented in United States dollars. In accordance
with Statement of Financial Accounting Standards No. 52, "Foreign Currency
Translation", foreign denominated monetary assets and liabilities are translated
to their United States dollar equivalents using foreign exchange rates which
prevailed at the balance sheet date. Revenue and expenses are translated at
average rates of exchange during the year. Related translation adjustments are
reported as a separate component of stockholders' equity, whereas gains or
losses resulting from foreign currency transactions are included in results of
operations.
F-7
<PAGE>
INTERNETSTUDIOS.COM, INC.
(FORMERLY EHEALTH.COM, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND DECEMBER 31, 1998
- --------------------------------------------------------------------------------
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CON'T)
- --------------------------------------------------------------------------------
NET LOSS PER COMMON SHARE
Basic earnings per share includes no dilution and is computed by dividing income
available to common stockholders by the weighted average number of common shares
outstanding for the period. Dilutive earnings per share reflects the potential
dilution of securities that could share in the earnings of the Company. Because
the Company does not have any potentially dilutive securities, the accompanying
presentation is only of basic loss per share.
WEBSITE DEVELOPMENT COSTS
Website development costs are expensed as incurred.
NOTE 3 - ACQUISITION OF ONLINE FILMS, LLC
- --------------------------------------------------------------------------------
a) By agreement dated September 17, 1999 and effective September 30, 1999 the
Company acquired a 91.847% interest in Online Films, LLC in consideration
for the issuance of 5,632,800 restricted common shares valued at $2.10 per
share for a total purchase price of $11,828,880. This business combination
has been accounted for using the purchase method of accounting and as the
fair value of liabilities exceeds the fair value of identifiable assets no
minority interest arises on the acquisition. The purchase price has been
allocated as follows:
<TABLE>
<CAPTION>
Assets acquired at fair value:
<S> <C>
Current assets $ 521,562
Capital assets 15,000
Goodwill 12,056,971
---------------
12,593,533
Liabilities assumed at fair value:
Notes payable (756,302)
Accounts payable (8,351)
---------------
Purchase price 5,632,800 shares $ 11,828,880
===============
</TABLE>
Online Films, LLC was formed on July 23, 1999 and commenced operations
August 27, 1999. Online Films, LLC is in the development stage of its
internet based business and has not generated any revenues to date.
b) Concurrent with the acquisition of Online Films, LLC the Company entered
into a financing agreement and a consulting agreement with Pacific Capital
Markets Inc. ("PCMI") whereby PCMI has agreed to raise $8,000,000 of new
financing for the development of the Company's business and to provide
public relations, investor relations and advertising services. The
financing is for the sale of 1,000,000 shares of common stock pursuant to
Regulation S of the United States Securities Act of 1933 at a price of
$8.00 per share for proceeds of $8,000,000 which was completed in March,
2000. The consulting agreement is for the period October 1, 1999 to
September 30, 2000 with a fee totalling $2,000,000 payable as follows:
<TABLE>
<CAPTION>
<S> <C>
October 1, 1999 $ 250,000 (paid)
October 18, 1999 250,000 (paid)
November 15, 1999 500,000 (paid)
January 15, 2000 500,000 (paid subsequently)
March 15, 2000 500,000 (paid subsequently)
--------------
$ 2,000,000
==============
</TABLE>
F-8
<PAGE>
INTERNETSTUDIOS.COM, INC.
(FORMERLY EHEALTH.COM, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND DECEMBER 31, 1998
- --------------------------------------------------------------------------------
NOTE 4 - LOAN RECEIVABLE
- --------------------------------------------------------------------------------
Online Films, LLC entered into an agreement in principle on September 9, 1999,
subject to a definitive contract, to enter into two joint ventures with
MediaChase Ltd., a Los Angeles based software development company. MediaChase
Ltd. has developed e-commerce systems and websites and specializes in database
integration and website enablement of corporate processes. MediaChase Ltd. is
also engaged to design and develop the Company's websites.
At December 31, 1999 the Company had advanced $1,306,849 including accrued
interest by way of demand loan to fund the development of the first joint
venture, ReporterTV.com. This loan bears interest at the rate of 10% per year.
Upon execution of a definitive contract it is the intention of the parties that
these loans will form part of the Company's $1,500,000 contribution of
development funds to the joint ventures. Refer to Note 9 - Subsequent Events.
NOTE 5 - RELATED PARTY TRANSACTIONS
- --------------------------------------------------------------------------------
The Company paid management fees to four senior officers totalling $192,000 for
services provided for the four month period ended December 31, 1999.
The Company has obtained shareholder and board approval to enter into formal
employment contracts with five officers of the Company. The contracts provide
for a combined base salary of $1,112,000 per annum for terms ranging from two to
three years and granting of stock options providing the right to acquire a total
of 850,000 shares of common stock at a price of $5 per share to be vested over
the term of the contracts. In addition the Company has agreed to issue 200,000
shares of common stock to one officer and pay $50,000 as a signing bonus to two
officers subject to completion of raising additional equity capital. The
contracts include a severance provision of 150% of base salary which totals
$1,668,000 for these five officers.
The Company made advances of $136,691 to a private company controlled by a
director. These advances are secured by a secured promissory note, bear interest
at 10% per annum and are due on or before March 31, 2000.
Refer to Note 9.
NOTE 6 - CAPITAL STOCK
- --------------------------------------------------------------------------------
The Company's initial capitalization was 100,000,000 common shares with a par
value of $.001 per share. On December 17, 1998 the par value was decreased to
$.0001 per share. On March 15, 1999 the Company split its outstanding shares on
a three for one basis, resulting in an increase in the number of shares
outstanding from 7,117,200 to 21,351,600 common shares. On September 23, 1999
the Company consolidated its outstanding shares on a three for one basis,
resulting in a decrease in the number of shares outstanding from 21,351,600 to
7,117,200 common shares. Refer to Note 9 - Subsequent Events.
Effective December 1, 1999, the Company adopted a U.S. Stock Incentive Plan for
a maximum of 1,000,000 shares of common stock and a non-U.S. Stock Incentive
Plan for a maximum of 500,000 shares of common stock. At December 31, 1999 the
Company had granted a total of 1,012,500 options to certain officers, employees
and consultants. These options are exercisable at a price of $5.00 per share
which vest on a cumulative pro rate basis over periods of 24 or 36 months. At
year end a total of 25,625 stock options had vested.
The Company has elected under FAS 123 to continue to measure compensation cost
for stock options granted to officers and employees by the intrinsic value
method set out in APB Opinion No. 25. As options have been granted at exercise
prices based on the market price of the Company's shares at the date of grant,
no intrinsic value adjustment has been recorded. However, options granted to
non-employee consultants are measured at their fair market value at the date of
issuance and recognized by a charge against income over their service term.
Application of the fair value of each option grant that was fully vested would
result in an additional stock-based compensation expense of $107,000 for the
year ended December 31, 1999.
F-9
<PAGE>
INTERNETSTUDIOS.COM, INC.
(FORMERLY EHEALTH.COM, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND DECEMBER 31, 1998
- --------------------------------------------------------------------------------
NOTE 7 - INCOME TAXES
- --------------------------------------------------------------------------------
There were no temporary differences between the Company's tax and financial
bases, except for the Company's net operating loss carryforwards amounting to
approximately $2,100,000 at December 31, 1999. These carryforwards will expire,
if not utilized, beginning in 2013.
The Company has deferred tax assets amounting to approximately $714,000 at
December 31, 1999, related to the net operating loss carryovers. The realization
of the benefits from these deferred tax assets appears uncertain due to
recurring net losses. Accordingly, a valuation allowance has been recorded which
offsets the deferred tax assets at the end of each period.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
- --------------------------------------------------------------------------------
LEASE COMMITMENTS
Online Films, LLC leases office space under an operating lease which expires
October 31, 2002. Future minimum rental commitments amount to $96,000 for 2000,
$96,000 for 2001, and $80,000 for 2002.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial instruments is
made in accordance with the requirements of SFAS No. 107. Disclosures about Fair
Value of Financial Instruments. The estimated fair value amounts have been
determined by the Company, using available market information and appropriate
valuation methodologies. The fair value of financial instruments classified as
current assets or liabilities including cash and cash equivalents and notes and
accounts payable approximate carrying value due to the short-term maturity of
the instruments.
CONCENTRATION OF CREDIT RISK
The Company invests its cash and certificates of deposit primarily in deposits
with major banks. Certain deposits, at times, are in excess of federally insured
limits. The Company has not incurred losses related to its cash.
UNCERTAINTY DUE TO THE YEAR 2000 ISSUE
The Year 2000 issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize the
year 2000 as 1900 or some other date, resulting in errors when information using
year 2000 dates is processed. In addition, similar problems may arise in some
systems which use certain dates in 1999 to represent something other than a
date. Although the change in date has occurred, it is not possible to conclude
that all aspects of the Year 2000 issue that may affect the Company have been
fully resolved.
OTHER
Refer to Note 4 .
NOTE 9 - SUBSEQUENT EVENTS
- --------------------------------------------------------------------------------
The Company received subscriptions for 437,500 shares at $8.00 per share for
proceeds of $3,500,000 to complete its Regulation S financing for $8,000,000.
The Company obtained a loan of US$1,000,000 from Pacific Capital Markets, Inc.
on March 13, 2000. This loan is unsecured, bears interest at 12% per annum and
is due on April 12, 2000.
The Company entered into a letter of intent dated March 15, 2000 to acquire a
private California corporation involved in the licensing of television rights in
consideration for the issuance of 250,000 shares of common stock and a two year
warrant to acquire up to 200,000 additional shares at an exercise price of $10
per share. This acquisition is subject to due diligence and execution of a
definitive purchase agreement.
F-10
<PAGE>
INTERNETSTUDIOS.COM, INC.
(FORMERLY EHEALTH.COM, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND DECEMBER 31, 1998
- --------------------------------------------------------------------------------
NOTE 9 - SUBSEQUENT EVENTS (CON'T)
- --------------------------------------------------------------------------------
The Company arranged a private placement offering of 2,000,000 shares of common
stock at a price of $10 per share for gross proceeds of $20,000,000 subject to a
minimum offering of $10,000,000 and a maximum offering of $30,000,000. The
Company has engaged a private company controlled by a relative of an officer and
director to assist in the private placement and has agreed to pay a finder's fee
of 4% of proceeds, payable 50% in cash and 50% in shares of common stock valued
at $10 per share.
On February 21, 2000, the Company formed InternetStudios.com UK Limited, a
private limited company incorporated in England and a wholly-owned subsidiary of
the Company.
ONLINEFILMSALES
Effective as of January 18, 2000, the stockholders of The Company approved by
written consent, the contribution of substantially all of the Company's assets
to the capital of OnlineFilmSales.com, LLC, a newly-formed Delaware limited
liability company ("OnlineFilmSales"). The Asset Contribution was consummated on
March 28, 2000. Included in the assets contributed to OnlineFilmSales were (i)
the Company's 91.847% membership interest in Online Films so that Online Films
became a subsidiary of OnlineFilmSales, and (ii) a Secured Promissory Note,
originally issued on November 12, 1999 (having a final principal balance of
$2,025,000), by MediaChase Ltd. Excluded from the assets contributed to
OnlineFilmSales were all trademarks, trade names, and domain names containing
"InternetStudios.com" or "InternetStudios" and all associated goodwill. As a
result of the Asset Contribution, the Company will conduct all operations
through operating subsidiaries, of which there are currently two,
OnlineFilmSales and InternetStudios.com UK Limited.
In exchange for the assets which OnlineFilmSales received in the Asset
Contribution, OnlineFilmSales issued a one hundred percent Class A membership
interest, constituting one hundred percent of the voting power of the Class A
members of OnlineFilmSales. The Company is the sole holder of a Class A
membership interest in OnlineFilmSales.
Concurrently with the Asset Contribution, two officers of the Company also made
contributions to OnlineFilmSales. Heidi Lester, the Chief Executive Officer,
contributed an 8.153% interest in Online Films in exchange for Class B
Membership Interests in OnlineFilmSales and Steve Fredericks, the Acting
President and Chief Financial Officer contributed to OnlineFilmSales all of his
right, title and interest in and to, certain agreements with the
Longevity-Southland Group for the development of a digital production center and
a related digital training program for artists and producers in the People's
Republic of China in exchange for Class B Membership Interests in
OnlineFilmSales. As a result of the contribution to OnlineFilmSales of Heidi
Lester's membership interest in Online Films, Online Films is now a wholly-owned
subsidiary.
The holders of Class B membership interests in OnlineFilmSales are entitled to
convert their interests into shares of Common Stock at any time. The Class B
membership interests will automatically be converted into the Company's Common
Stock upon the occurrence of certain transactions and in any event, on March 28,
2007. Each holder of a Class B membership interest will receive first priority
over holders of Class A membership interests upon distributions of cash by
OnlineFilmSales. Such first priority will be based upon the amount of all cash
which each holder of Class B membership interests would have received in the
form of dividends on and proceeds from redemptions of, that number of shares of
Common Stock into which such holder's Class B Membership Interest is
convertible, if such Class B member had held those shares during the period from
such member's admission as a Class B member of OnlineFilmSales to the date of
such distribution of cash by OnlineFilmSales. Heidi Lester's Class B Membership
Interest is convertible into 600,000 shares of Common Stock and Steve
Fredericks' Class B Membership Interest is convertible into 400,000 shares of
Common Stock.
MEDIACHASE LTD.
The Company, through OnlineFilmSales, entered into two joint venture
relationships with MediaChase Ltd. on March 28, 2000. One joint venture,
operated through ReporterTV.com, LLC, a Delaware limited liability company whose
sole members are MediaChase and OnlineFilmSales, will focus on providing
five segments of a business entertainment news magazine updated and broadcast
daily
F-11
<PAGE>
INTERNETSTUDIOS.COM, INC.
(FORMERLY EHEALTH.COM, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND DECEMBER 31, 1998
- --------------------------------------------------------------------------------
NOTE 9 - SUBSEQUENT EVENTS (CON'T)
- --------------------------------------------------------------------------------
over the Internet in television broadcast news format, and the other joint
venture, operated through StudioBuzz.com LLC, a Delaware limited liability
company whose sole members are also MediaChase and OnlineFilmSales, will
focus on creating a comprehensive database of information relating to the
entertainment industry. Pursuant to a Consulting Agreement entered into
between MediaChase and OnlineFilmSales on March 28, 2000, MediaChase has also
been engaged by OnlineFilmSales to provide certain services at cost in
connection with the design and development of the OnlineFilmSales.com and
internetstudios.com websites. Additionally, pursuant to a Consulting
Agreement entered into between MediaChase and StudioBuzz, MediaChase has been
engaged by StudioBuzz to provide certain services at cost in connection with
the design and development of a website, subject to the future agreement by
the parties to final project descriptions.
To fund the development of ReporterTV while the parties negotiated definitive
agreements with respect to their two joint ventures, the Company advanced
$2,025,000 in the form of a loan as evidenced by the MediaChase Note. (Refer to
Note 4.) As a part of the Asset Contribution, the Company contributed to
OnlineFilmSales, all of its rights as payee under the MediaChase Note. In
connection with the consummation of its two joint ventures with MediaChase,
OnlineFilmSales contributed all of its rights as payee under the MediaChase Note
to ReporterTV and MediaChase assigned all of its obligations as payor under the
MediaChase Note to ReporterTV and as a result the MediaChase Note has been
cancelled. In consideration of the cancellation of the MediaChase Note and the
issuance by OnlineFilmSales to MediaChase of Class B membership interests
convertible into 250,000 shares of the Company's common stock, MediaChase (i)
entered into the two Consulting Agreements with OnlineFilmSales and StudioBuzz,
(ii) contributed certain assets to ReporterTV and StudioBuzz, and (iii)
contributed to OnlineFilmSales a 75% membership interest in ReporterTV and a
100% voting interest and 50% economic interest in StudioBuzz.
<PAGE>
EXHIBIT 10.7
ALLONGE
TO
SECURED PROMISSORY NOTE
Reference is hereby made to that certain Secured Promissory
Note, dated November 12, 1999, in the original principal amount of Seven
Hundred Thousand Dollars ($700,000), made by the undersigned to the order of
InternetStudios.com, Inc., a Nevada corporation (the "Note"), to which this
Allonge is attached. All capitalized terms used herein but not otherwise
defined herein shall have the meanings ascribed to them in the Note.
The Note is hereby amended by changing the original
principal amount thereof from Seven Hundred Thousand Dollars ($700,000) to
Two Million Twenty Five Thousand Dollars ($2,025,000), and accordingly all
references therein to "Seven Hundred Dollars ($700,000)" are hereby deleted,
and "Two Million Twenty Five Thousand Dollars ($2,025,000)" shall be inserted
in lieu thereof.
The undersigned acknowledges that i) this Allonge
supersedes all prior Allonges to the Note, and ii) all amounts payable by the
undersigned to Lender under the Note, as increased by this Allonge, are
secured by a first priority security interest of Lender in the Collateral.
IN WITNESS WHEREOF, the undersigned has executed this
Allonge, effective as of March 27, 2000.
MEDIACHASE LTD., a Delaware corporation
By:________________________________
Name:___________________________
Title:__________________________
Acknowledged and Agreed to as
of March 27, 2000.
INTERNETSTUDIOS.COM, a
Nevada corporation
By:____________________________
Name:_______________________
Title:______________________
<PAGE>
ALLONGE
TO
SECURED PROMISSORY NOTE
Pay to the order of Onlinefilmsales.com, LLC, a Delaware limited
liability company. This Allonge is part of that certain Secured Promissory
Note, dated November 12, 1999, in the original principal amount of Two
Million Twenty-Five Thousand Dollars ($2,025,000), made by MediaChase Ltd., a
Delaware corporation, to the order of InternetStudios.com, Inc., a Nevada
corporation, to which this Allonge is attached.
Dated: March 28, 2000
INTERNETSTUDIOS.COM, INC., a Nevada corporation
By:____________________________________
Name:
Title:
<PAGE>
ALLONGE
TO
SECURED PROMISSORY NOTE
Pay to the order of ReporterTV.com, LLC, a Delaware limited
liability company. This Allonge is part of that certain Secured Promissory
Note, dated November 12, 1999, in the original principal amount of Two
Million Twenty-Five Thousand Dollars ($2,025,000), made by MediaChase Ltd., a
Delaware corporation, to the order of Onlinefilmsales.com, LLC, a Delaware
limited liability company (as successor-in-interest to InternetStudios.com,
Inc.), to which this Allonge is attached.
Dated: March 28, 2000
Onlinefilmsales.com, Inc., a Delaware
limited liability company
By: InternetStudios.com., Inc., a
Nevada corporation
Its: Manager
By:_______________________________
Name:
Title:
<PAGE>
EXHIBIT 10.9
TERMINATION AGREEMENT
This TERMINATION AGREEMENT (this "Agreement") is entered into on
March 28, 2000 (the "Effective Date"), by Onlinefilmsales.com, LLC, a
Delaware limited liability company ("Onlinefilmsales"), for the benefit of
MediaChase, Ltd., a Delaware corporation ("MediaChase"), with reference to
the following facts:
A. MediaChase has previously executed a Secured Promissory Note,
dated November 12, 1999, by MediaChase, payable to the order of
InternetStudios.com, Inc., a Nevada corporation ("InternetStudios"), in the
original principal amount of $2,025,000, as amended by those certain Allonges
to Secured Promissory Note, each by MediaChase, dated November 18, 1999,
December 16, 1999, February 1, 2000 and March 27, 2000 (the "Note").
B. Following the execution and delivery of the Note, pursuant to
that certain Contribution, Assignment and Assumption Agreement, dated as of
March 28, 2000, by and between InternetStudios and Onlinefilmsales,
InternetStudios contributed substantially all of its assets (including all of
its right, title and interest in and to the Note) to Onlinefilmsales.
C. Concurrently herewith, MediaChase and Onlinefilmsales are
entering into a Contribution, Assignment and Assumption Agreement, of even
date herewith, providing for the contribution and assignment of a portion of
MediaChase's membership interest in ReporterTV.com, LLC, a Delaware limited
liability company ("ReporterTV") to Onlinefilmsales in partial consideration
of its contribution of the Note to ReporterTV pursuant to the terms and
conditions of this Agreement.
NOW, THEREFORE, in consideration of the foregoing, the parties agree
as follows:
1. Effective as of the Effective Date, the Note and related UCC-1
Financing Statement dated November 15, 1999 (file number 9932360354) (the
"UCC-1") shall be terminated and shall be of no further force or effect.
2. Promptly following the termination of the Note, Onlinefilmsales
shall mark such Note "cancelled" and return it to MediaChase, together with a
termination statement with respect to the UCC-1.
3. This Agreement shall be governed by the laws of the State of
California and may be executed in counterparts. Onlinefilmsales agrees to
execute and deliver any documents reasonably requested by MediaChase to
confirm further and assure consummation of the transactions consummated
hereby.
<PAGE>
4. This Agreement shall be binding upon and shall inure to the
benefit of MediaChase and their respective successors and assigns.
IN WITNESS WHEREOF, the undersigned has entered into this Agreement
on the date first written above to be effective on the Effective Date.
ONLINEFILMSALES.COM, LLC, a Delaware limited
liability company
By: InternetStudios.com, Inc., a
Nevada corporation,
its manager
By:
-------------------------------
Name:
Title:
[remainder of page intentionally left blank]
2
<PAGE>
EXHIBIT 10.10
LIMITED LIABILITY COMPANY AGREEMENT
OF
ONLINEFILMSALES.COM, LLC
A DELAWARE LIMITED LIABILITY COMPANY
THE SECURITIES REPRESENTED BY THIS AGREEMENT HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 NOR REGISTERED OR QUALIFIED UNDER ANY
STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE OFFERED FOR SALE,
SOLD, DELIVERED AFTER SALE, TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS
QUALIFIED AND REGISTERED UNDER APPLICABLE STATE AND FEDERAL SECURITIES
LAWS OR UNLESS, IN THE OPINION OF COUNSEL SATISFACTORY TO THE COMPANY,
SUCH QUALIFICATION AND REGISTRATION IS NOT REQUIRED. ANY TRANSFER OF
THE SECURITIES REPRESENTED BY THIS AGREEMENT IS FURTHER SUBJECT TO
OTHER RESTRICTIONS, THE TERMS AND CONDITIONS OF WHICH ARE SET FORTH IN
THIS AGREEMENT.
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ARTICLE I DEFINITIONS..........................................................................2
1.1 "Act".........................................................................................2
1.2 "Adjusted Target Shares.......................................................................2
1.3 "Affected Class B Member".....................................................................2
1.4 "Affiliate"...................................................................................2
1.5 "Agreement"...................................................................................2
1.6 "Bankruptcy"..................................................................................2
1.7 "Capital Account".............................................................................2
1.8 "Capital Contribution"........................................................................3
1.9 "Certificate of Formation"....................................................................3
1.10 "Class A Member"..............................................................................3
1.11 "Class B Members".............................................................................3
1.12 "Closing".....................................................................................3
1.13 "Code"........................................................................................3
1.14 "Commencement Date"...........................................................................3
1.15 "Company".....................................................................................3
1.16 "Company Minimum Gain"........................................................................3
1.17 "Conversion Events"...........................................................................3
1.18 "Conversion Date".............................................................................3
1.19 "Conversion Shares"...........................................................................3
1.20 "Conversion Factor"...........................................................................3
1.21 "Distributable Cash"..........................................................................3
1.22 "Distribution"................................................................................4
1.23 "Dividend Income".............................................................................4
1.24 "Dividend Income Account".....................................................................4
1.25 "Economic Interest"...........................................................................4
1.26 "Economic Interest Holder"....................................................................4
1.27 "Economic Risk of Loss".......................................................................4
1.28 "Fair Market Value"...........................................................................4
1.29 "Fiscal Year".................................................................................4
1.30 "Former Member"...............................................................................4
1.31 "Former Member's Interest"....................................................................4
1.32 "Majority in Interest"........................................................................5
1.33 "Manager".....................................................................................5
1.34 "MediaChase Consulting Agreement".............................................................5
1.35 "Member"......................................................................................5
1.36 "Member Minimum Gain".........................................................................5
1.37 "Member Nonrecourse Debt".....................................................................5
1.38 "Member Nonrecourse Deductions"...............................................................5
1.39 "Membership Interest".........................................................................5
1.40 "Net Profits"and "Net Losses".................................................................5
1.41 "Net Value of the Economic Interest"..........................................................6
1.42 "Nonrecourse Deductions"......................................................................6
1.43 "Nonrecourse Liability".......................................................................6
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1.44 "Notice of Conversion Event"..................................................................6
1.45 "Person"......................................................................................6
1.46 "Purchasing Member"...........................................................................6
1.47 "Representing Party"..........................................................................6
1.48 "Shares"......................................................................................6
1.49 "Securities Act"..............................................................................6
1.50 "Target Shares"...............................................................................6
1.51 "Tax Credits".................................................................................6
1.52 "Tax Matters Partner".........................................................................6
1.53 "Termination Event"...........................................................................7
1.54 "Transfer"....................................................................................7
1.55 "Treasury Regulations"........................................................................7
1.56 "United States Bankruptcy Code"...............................................................7
1.57 "Unpaid Dividend Income"......................................................................7
1.58 "Voting Interest".............................................................................7
ARTICLE II ORGANIZATIONAL MATTERS...............................................................8
2.1 Name..........................................................................................8
2.2 Term..........................................................................................8
2.3 Office and Agent..............................................................................8
2.4 Purpose of Company............................................................................8
2.5 Intent........................................................................................8
2.6 Members.......................................................................................8
2.7 Formation Expenses............................................................................8
ARTICLE III CAPITAL CONTRIBUTIONS................................................................9
3.1 Initial Capital Contributions.................................................................9
3.2 Additional Capital Contributions..............................................................9
3.3 Capital Accounts..............................................................................9
3.4 No Priorities of Members; No Withdrawals of Capital...........................................9
3.5 No Interest...................................................................................9
3.6 Loans; No Compensation........................................................................9
ARTICLE IV MEMBERS..............................................................................9
4.1 Admission of Additional Members...............................................................9
4.2 Withdrawals or Resignations..................................................................10
4.3 No Agency....................................................................................10
4.4 Meetings of Members; Written Consent.........................................................10
ARTICLE V MANAGEMENT AND CONTROL OF THE COMPANY...............................................10
5.1 Management of the Company by the Manager.....................................................10
(a) Exclusive Management by the Manager.................................................10
(b) Powers of the Manager...............................................................11
(c) Agency Authority of the Manager; Delegation by the Manager..........................12
(d) Discretion of the Manager...........................................................12
(e) Performance of Duties; Liability of Manager.........................................12
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(f) Devotion of Time....................................................................13
5.2 Election of Manager..........................................................................13
(a) Number and Term.....................................................................13
(b) No Removal..........................................................................13
(c) Vacancies...........................................................................13
5.3 [intentionally omitted]......................................................................13
5.4 Members Have No Managerial Authority.........................................................13
5.5 Transactions between the Company and the Manager, the Members or their Affiliates............13
(a) Contracts with Affiliates...........................................................13
(b) Contracts with Affiliates of the Managers...........................................13
(c) Treatment of Affiliate Loans and Fees...............................................14
5.6 Officers.....................................................................................14
(a) Appointment of Officers.............................................................14
(b) Signing Authority of Officers.......................................................14
(c) Acts of Officers as Conclusive Evidence of Authority................................14
5.7 Competing Activities.........................................................................14
5.8 Payments to the Manager and Others...........................................................15
(a) No Management Fee...................................................................15
(b) Services Performed by Members, Economic Interest Holders or Affiliates..............15
(c) Expenses............................................................................15
ARTICLE VI ALLOCATIONS OF NET PROFITS, NET LOSSES AND DISTRIBUTIONS............................16
6.1 Minimum Gain Chargeback......................................................................16
6.2 Member Minimum Gain Chargeback...............................................................16
6.3 Qualified Income Offset......................................................................16
6.4 Nonrecourse Deductions.......................................................................16
6.5 Member Nonrecourse Deductions................................................................16
6.6 Allocation of Net Profits....................................................................16
6.7 Allocation of Net Losses.....................................................................16
6.8 Distribution of Assets by the Company........................................................16
6.9 Allocation of Net Profits and Losses and Distributions in Respect of a Transferred
Interest.....................................................................................17
6.10 Tax Allocation Matters.......................................................................17
(a) Contributed or Revalued Property....................................................17
(b) Recapture Items.....................................................................17
6.11 Order of Application.........................................................................17
6.12 Allocation of Liabilities....................................................................18
6.13 Form of Distribution.........................................................................18
6.14 Withholding..................................................................................18
ARTICLE VII TRANSFER OF INTERESTS...............................................................18
7.1 Transfer of Interests........................................................................18
7.2 Permitted Transfers..........................................................................19
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7.3 Liquidation of InternetStudios...............................................................19
7.4 Conversion Events............................................................................19
(a) Termination Event...................................................................19
(b) Merger or Acquisition...............................................................19
(c) Seventh Anniversary.................................................................20
(d) Dissolution.........................................................................20
7.5 Terms of Transfer Pursuant to a Conversion Event.............................................20
(a) Notice of Conversion Event..........................................................20
(b) Conversion Shares...................................................................20
(c) Class B Member Bound................................................................21
7.6 [intentionally omitted]......................................................................21
7.7 [intentionally omitted]......................................................................21
7.8 Further Restrictions on Transfer of Interests................................................21
7.9 Substitution of Members......................................................................21
7.10 Enforcement..................................................................................21
7.11 Effect of Transfers in Violation of Agreement................................................22
ARTICLE VIII CONSEQUENCES OF TERMINATION EVENTS..................................................22
8.1 Dissolution of Company.......................................................................22
8.2 Admission or Conversion......................................................................22
8.3 Purchase Price...............................................................................23
8.4 Notice of Intent to Purchase.................................................................23
8.5 Election to Purchase Less Than All of the Former Member's Interest...........................23
8.6 Closing of Purchase of Former Member's Interest..............................................23
8.7 Payment of Purchase Price....................................................................23
ARTICLE IX ACCOUNTING, RECORDS, REPORTING BY MEMBERS...........................................24
9.1 Books and Records............................................................................24
9.2 Reports; Annual Statements...................................................................24
(a) Governmental Reports................................................................24
(b) Financial Reports...................................................................25
(c) Tax Reports.........................................................................25
9.3 Bank Accounts; Invested Funds................................................................25
9.4 Tax Matters for the Company Handled by Tax Matters Partner...................................25
9.5 Accounting Matters...........................................................................26
9.6 Confidentiality..............................................................................26
ARTICLE X DISSOLUTION AND WINDING UP..........................................................26
10.1 Dissolution..................................................................................26
10.2 Date of Dissolution..........................................................................26
10.3 Winding Up...................................................................................26
10.4 Liquidating Distributions....................................................................27
10.5 [intentionally omitted]......................................................................27
10.6 [intentionally omitted]......................................................................27
10.7 No Liability.................................................................................27
10.8 [intentionally omitted]......................................................................27
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10.9 Certificate of Cancellation..................................................................27
10.10 Compensation for Services....................................................................27
10.11 No Action for Dissolution....................................................................27
ARTICLE XI LIMITATION OF LIABILITY; STANDARD OF CARE; INDEMNIFICATION..........................28
11.1 Limitation of Liability......................................................................28
11.2 Standard of Care.............................................................................28
11.3 Indemnification..............................................................................28
11.4 Contract Right; Expenses.....................................................................28
11.5 Indemnification of Employees and Agents......................................................29
11.6 Nonexclusive Right...........................................................................29
11.7 Severability.................................................................................29
11.8 Insurance....................................................................................29
ARTICLE XII INVESTMENT REPRESENTATIONS..........................................................29
12.1 Preexisting Relationship or Experience.......................................................29
12.2 Access to Information........................................................................29
12.3 Economic Risk................................................................................30
12.4 Investment Intent............................................................................30
12.5 Consultation with Attorney...................................................................30
12.6 Purpose of Entity............................................................................30
12.7 Residency....................................................................................30
12.8 No Advertising...............................................................................30
12.9 Interest is Restricted Security..............................................................30
12.10 No Registration of Interest..................................................................30
12.11 Organization.................................................................................30
12.12 Authority....................................................................................31
12.13 Enforceability...............................................................................31
12.14 No Violation.................................................................................31
ARTICLE XIII MISCELLANEOUS.......................................................................31
13.1 InternetStudios'Counsel......................................................................31
13.2 Amendments...................................................................................31
13.3 Offset Privilege.............................................................................31
13.4 Arbitration..................................................................................31
(a) General.............................................................................31
(b) Governing Law.......................................................................32
(c) Costs of Arbitration................................................................32
13.5 Remedies Cumulative..........................................................................32
13.6 Notices......................................................................................32
13.7 Attorneys'Fees...............................................................................32
13.8 Governing Law; Jurisdiction..................................................................33
13.9 Complete Agreement...........................................................................33
13.10 No Third-Party Rights........................................................................33
13.11 Binding Effect...............................................................................33
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13.12 Section Headings.............................................................................33
13.13 Interpretation...............................................................................33
13.14 Severability.................................................................................33
13.15 Multiple Counterparts........................................................................34
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LIMITED LIABILITY COMPANY AGREEMENT
OF
ONLINEFILMSALES.COM, LLC
A DELAWARE LIMITED LIABILITY COMPANY
This Limited Liability Company Agreement is made as of _________, 2000,
by and among InternetStudios.com, Inc., a Nevada corporation
("InternetStudios"), MediaChase Ltd., a Delaware corporation ("MediaChase"),
Heidi Lester, an individual, and Steve Fredericks, an individual, with reference
to the following facts:
A. InternetStudios has heretofore formed Onlinefilmsales.com, LLC (the
"Company") as a limited liability company under the laws of the State of
Delaware and, to that end, has filed a Certificate of Formation for the Company
with the Delaware Secretary of State.
B. InternetStudios has heretofore contributed substantially all of its
assets and liabilities to the Company in exchange for all of the Class A
Membership Interests in the Company.
C. Heidi Lester has heretofore contributed an 8.153% membership
interest in Onlinefilms, LLC, a Delaware limited liability company, and Steve
Fredericks has heretofore contributed certain intellectual property and rights,
including all of his right, title and interest in and to, and all of his rights
and obligations under, that certain Cooperative Agreement dated July 17, 1999
between Steve Fredericks and Longevity-Southland Group, to the Company in
exchange for Class B Membership Interests herein.
D. Concurrently herewith, MediaChase intends to contribute a fifty
percent (50.0%) voting and economic interest in each of ReporterTV.com, LLC, a
Delaware limited liability company, and a 100% voting and 50% economic interest
in StudioBuzz.com, LLC, a Delaware limited liability company, to the Company in
exchange for Class B Membership Interests herein.
E. The parties hereto (and certain related entities) have been
negotiating since September 1999 with respect to the matters set forth herein,
and have previously reached agreements with respect to some matters, which this
Agreement now supercedes.
F. Accordingly, the parties now desire to adopt a limited liability
company agreement to govern their respective rights and obligations as Members
and Managers of the Company.
NOW THEREFORE, in consideration of the mutual covenants contained
herein and for other good and valuable consideration, the receipt of which
is acknowledged, pursuant to the Act, the following shall constitute
the Limited Liability Company Agreement of the Company:
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ARTICLE I
DEFINITIONS
When used in this Agreement, the following terms have the following
meanings:
1.1 "ACT" means the Limited Liability Company Act of the State of
Delaware.
1.2 "ADJUSTED TARGET SHARES" means as of any given date the number
of Target Shares for each Class B Member as increased or decreased by (as the
case may be) any stock dividend, stock split, reverse stock split, or
redemption applicable pro rata to all issued and outstanding Shares that has
occurred subsequent to the admission of such Class B Member and that would
have affected the number of Target Shares held by such Class B Member if the
Target Shares had been issued to such Class B Member on the date of such
Class B Member's admission.
1.3 "AFFECTED CLASS B MEMBER" has the meaning specified in Section
7.4.
1.4 "AFFILIATE" of a Member or Manager means (a) a Person directly
or indirectly (through one or more intermediaries) controlling, controlled by
or under common control with that Member or Manager, (b) a Person owning or
controlling ten percent (10%) or more of the outstanding voting securities or
beneficial interests of that Member or Manager, or (c) an officer, director,
partner or member, or a member of the immediate family of an officer,
director, partner or member, of that Member or Manager. For these purposes
"control" means the possession, direct or indirect, of the power to direct or
cause the direction of the management and policies of a Person, whether
through the ownership of voting securities, by contract or otherwise.
1.5 "AGREEMENT" means this Limited Liability Company Agreement of
Onlinefilmsales.com, LLC.
1.6 "BANKRUPTCY" of a Member means the institution of any
proceedings under any federal or state law for the relief of debtors,
including the filing by or against that Member of a voluntary or involuntary
case under the United States Bankruptcy Code, which proceedings, if
involuntary, are not dismissed within sixty (60) days after their filing; an
assignment of the property of that Member for the benefit of creditors; the
appointment of a receiver, trustee or conservator of any substantial portion
of the assets of that Member, which appointment, if obtained ex parte, is not
dismissed within sixty (60) days thereafter; the seizure by a sheriff,
receiver, trustee or conservator of any substantial portion of the assets of
that Member; the failure by that Member generally to pay its debts as they
become due within the meaning of Section 303(h)(1) of the United States
Bankruptcy Code, as determined by the Bankruptcy Court; or that Member's
admission in writing of its inability to pay its debts as they become due.
1.7 "CAPITAL ACCOUNT" of an Economic Interest Holder means the
capital account of that Economic Interest Holder determined from the
inception of the Company strictly in accordance with the rules set forth in
Section 1.704-1(b)(2)(iv) of the Treasury Regulations. If any Membership
Interest or Economic Interest is Transferred pursuant to the terms of this
Agreement, the transferee shall succeed to the Capital Account of the
transferor to the extent the Capital Account is attributable to the
Membership Interest or Economic Interest so Transferred. In the event that
assets of the Company other than cash are distributed to an Economic Interest
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Holder in kind, Capital Accounts shall be adjusted for the hypothetical
"book" gain or loss that would have been realized by the Company if the
distributed assets had been sold for their fair market values in a cash sale
(in order to reflect unrealized gain or loss). In the event of the
liquidation of the Company, Capital Accounts shall be adjusted for the
hypothetical "book" gain or loss that would have been realized by the Company
if all Company assets had been sold for their fair market values in a cash
sale (in order to reflect unrealized gain or loss).
1.8 "CAPITAL CONTRIBUTION" of a Member, at any particular time,
means the amount of money or property, or a promissory note or other binding
obligation to contribute money or property, which that Member has theretofore
contributed to the capital of the Company.
1.9 "CERTIFICATE OF FORMATION" means the Certificate of Formation of
the Company as filed under the Act with the Delaware Secretary of State, as
the same may be amended from time to time.
1.10 "CLASS A MEMBER" shall mean that member designated as such on
Exhibit A hereto.
1.11 "CLASS B MEMBERS" means those Members specified as Class B
Members on Exhibit A hereto, who shall constitute a separate class of Members
and who shall have no voting rights in the Company as provided in Section
18-215(d) of the Act.
1.12 "CLOSING" has the meaning specified in Section 8.6.
1.13 "CODE" means the Internal Revenue Code of 1986, as amended.
1.14 "COMMENCEMENT DATE" has the meaning specified in Section
7.5(a).
1.15 "COMPANY" means Onlinefilmsales.com, LLC, a Delaware limited
liability company.
1.16 "COMPANY MINIMUM GAIN" with respect to any taxable year of the
Company means the "partnership minimum gain" of the Company computed strictly
in accordance with the principles of Section 1.704-2(d) of the Treasury
Regulations.
1.17 "CONVERSION EVENTS" has the meaning specified in Section 7.4.
1.18 "CONVERSION DATE" means the date specified in Section
7.5(b)(i).
1.19 "CONVERSION SHARES" has the meaning specified in Section
7.5(b)(i).
1.20 "CONVERSION FACTOR" means 1.0.
1.21 "DISTRIBUTABLE CASH" at any time means that portion of the cash
then on hand or in bank accounts of the Company which the Manager deems
available for Distribution to the Economic Interest Holders, taking into
account (a) the amount of cash required for the payment of all current
expenses, liabilities and obligations of the Company (whether for expense
items, capital expenditures, improvements, retirement of indebtedness or
otherwise), (b) the amount of
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cash required for reimbursement to the Class A Member for any of its
operating expenses, operating overhead, debt service and federal or state
income taxes, property taxes, ad valorem taxes, sales taxes, use taxes,
employment taxes, or other tax assessments, and including all interest,
penalties or additions thereto, and (c) the amount of cash which the Manager
deems necessary to establish reserves for the payment of future capital
expenditures, improvements, retirements of indebtedness, operations and
contingencies, known or unknown, liquidated or unliquidated, including, but
not limited to, liabilities which may be incurred in litigation and
liabilities undertaken pursuant to the indemnification provisions of this
Agreement.
1.22 "DISTRIBUTION" means the transfer of money or property by the
Company to one or more Economic Interest Holders without separate
consideration.
1.23 "DIVIDEND INCOME" means with respect to a Class B Member the
cumulative amount beginning from the date of its admission as a Class B
Member of (i) cash dividends plus (ii) the fair market value of any non-cash
dividends (including property dividends, issuances of stock of a class
different from the Shares, warrants, options or any similar interest
entitling shareholders to acquire additional Shares) declared by
InternetStudios to be payable to its actual shareholders, plus (iii) the
proceeds payable on redemptions applicable pro rata to all issued and
outstanding Shares, all as declared payable to its actual shareholders on the
number of Adjusted Target Shares of such Class B Member existing on any given
date.
1.24 "DIVIDEND INCOME ACCOUNT" means the cumulative
excess of (i) a Class B Member's Dividend Income, over (ii) all allocations to
the Class B Member pursuant to Section 6.6(a).
1.25 "ECONOMIC INTEREST" means a share of one or more of the
Company's Net Profits, Net Losses, Tax Credits, Distributable Cash or other
Distributions, but does not include any other rights of a Member, including,
without limitation, the right to vote or participate in the management of the
Company or the right to information concerning the business and affairs of
the Company.
1.26 "ECONOMIC INTEREST HOLDER" means the holder of an Economic
Interest, including either a Member, to the extent of the Economic Interest
constituting a part of its Membership Interest, or a Person who is not a
Member but holds merely a bare Economic Interest.
1.27 "ECONOMIC RISK OF LOSS" means the economic risk of loss within
the meaning of Section 1.752-2 of the Treasury Regulations.
1.28 "FAIR MARKET VALUE" means, with
respect to an asset, the price at which that asset would be sold for cash
payable at closing between a willing buyer and a willing seller, each having
reasonable knowledge of all relevant facts concerning the asset and neither
acting under any compulsion to buy or sell.
1.29 "FISCAL YEAR" means the Company's fiscal year, which shall be
the calendar year.
1.30 "FORMER MEMBER" has the meaning specified in Section 8.2.
1.31 "FORMER MEMBER'S INTEREST" has the meaning specified in Section
8.2.
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1.32 "MAJORITY IN INTEREST" means Voting Interests which, taken
together, exceed fifty percent (50%) of the aggregate of all Voting Interests
held by all Class A Members entitled to vote or grant consent with respect to
the matter in question.
1.33 "MANAGER" means the one or more managers of the Company
selected by the Members pursuant to Section 5.2(a) and shall be deemed to
refer to the sole Manager at all times when there exists only one Manager.
Initially, "Manager" means InternetStudios.
1.34 "MEDIACHASE CONSULTING AGREEMENT" means that certain Consulting
Agreement of even date herewith between MediaChase and the Company related to
Onlinefilmsales.com, LLC.
1.35 "MEMBER" means each Person who (a) is an initial signatory to
this Agreement, has been admitted to the Company as a Member in accordance
with this Agreement or is a transferee of a Member who has become a Member in
accordance with ARTICLE VII, all within the class as set forth on Exhibit A
hereto, and (b) has not suffered a Termination Event.
1.36 "MEMBER MINIMUM GAIN" has the meaning given to the term
"partner nonrecourse debt minimum gain" in Section 1.704-2(d) of the Treasury
Regulations.
1.37 "MEMBER NONRECOURSE DEBT" means any "partner nonrecourse
liability" or "partner nonrecourse debt" under Section 1.704-2(b)(4) of the
Treasury Regulations. Subject to the foregoing, it means any Company
liability to the extent the liability is nonrecourse for purposes of Section
1.1001-2 of the Treasury Regulations and a Member (or related Person within
the meaning of Section 1.752-4(b) of the Treasury Regulations) bears the
Economic Risk of Loss under Section 1.752-2 of the Treasury Regulations
because, for example, the Member or related Person is the creditor or a
guarantor.
1.38 "MEMBER NONRECOURSE DEDUCTIONS" means the Company deductions,
losses and Code Section 705(a)(2)(B) expenditures, as the case may be (as
computed for "book" purposes), that are treated as deductions, losses and
expenditures attributable to Member Nonrecourse Debt under Section
1.704-2(i)(2) of the Treasury Regulations.
1.39 "MEMBERSHIP INTEREST" means a Member's total interest as a
Member of the Company, including that Member's Economic Interest, its options
or similar rights hereunder to acquire Membership Interests or Economic
Interests, its right to inspect the books and records of the Company and its
right, to the extent specifically provided to the class of Membership as set
forth on Exhibit A in this Agreement, to participate in the business, affairs
and management of the Company and to vote or grant consent with respect to
matters coming before the Company.
1.40 "NET PROFITS" and "NET LOSSES" means, for each fiscal period,
the net income and net loss, respectively, of the Company determined strictly
in accordance with federal income tax principles (including rules governing
depreciation and amortization), except that in computing net income or net
loss, the "book" value of an asset will be substituted for its adjusted tax
basis if the two differ; and the following items shall be excluded from the
computation:
(a) any gain, income, deductions or losses specially allocated
under Sections 6.1, 6.2, or 6.3;
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(b) any Nonrecourse Deductions; and
(c) any Member Nonrecourse Deductions.
1.41 "NET VALUE OF THE ECONOMIC INTEREST" means, with respect to any
Economic Interest, the amount which would be received by the owner of that
Economic Interest if (a) all of the assets of the Company were sold for their
aggregate Fair Market Values, (b) all liabilities and obligations of the
Company were then paid or discharged, including debts of the Company to the
Members and their Affiliates, and (c) any remaining proceeds of the sale and
any cash on hand were distributed among the Economic Interest Holders in
accordance with Section 10.4, after allocating the Net Profits or Net Losses,
as the case may be, that would result from such assumed sale as provided in
ARTICLE VI, all determined as of the date of occurrence of the applicable
Termination Event.
1.42 "NONRECOURSE DEDUCTIONS" in any fiscal period means the amount
of Company deductions that are characterized as "nonrecourse deductions"
under Section 1.704-2(b) of the Treasury Regulations.
1.43 "NONRECOURSE LIABILITY" means a liability treated as a
"nonrecourse liability" under Sections 1.704-2(b)(3) and 1.752-1(a)(2) of the
Treasury Regulations.
1.44 "NOTICE OF CONVERSION EVENT" has the meaning specified in
Section 7.5(a).
1.45 "PERSON" means any entity, corporation, company, association,
joint venture, joint stock company, partnership, trust, limited liability
company, limited liability partnership, real estate investment trust,
organization, individual (including personal representatives, executors and
heirs of a deceased individual), nation, state, government (including
agencies, departments, bureaus, boards, divisions and instrumentalities
thereof), trustee, receiver or liquidator.
1.46 "PURCHASING MEMBER" has the meaning specified in Section 8.4.
1.47 "REPRESENTING PARTY" has the meaning specified in ARTICLE XII.
1.48 "SHARES" means shares of $0.0001 par value common stock in
InternetStudios.
1.49 "SECURITIES ACT" means the Securities Act of 1933.
1.50 "TARGET SHARES" means as to each Class B Member that number of
Shares specified by that Class B Member's name on Exhibit A.
1.51 "TAX CREDITS" means all credits against income or franchise
taxes and credits allowable to Economic Interest Holders under state, federal
or other tax statutes.
1.52 "TAX MATTERS PARTNER" means InternetStudios, or any successor
in interest to InternetStudios' entire Membership Interest, except as
otherwise provided in Section 9.4.
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1.53 "TERMINATION EVENT" with respect to any Member means one or
more of the following: the withdrawal, resignation or expulsion of that
Member from the Company, other than a Transfer which is made in accordance
with the provisions of ARTICLE VII.
1.54 "TRANSFER" means, with respect to a Membership Interest, an
Economic Interest or any interest therein, the sale, assignment, transfer,
disposition, pledge, hypothecation or encumbrance, whether direct or
indirect, voluntary, involuntary or by operation of law, and whether or not
for value, of (a) that Membership Interest, Economic Interest or interest
therein or (b) a controlling interest in any Person which directly or
indirectly through one or more intermediaries holds that Membership Interest,
Economic Interest or interest therein. Transfer includes any transfer as a
result of or in connection with any property settlement or judgment incident
to a divorce, dissolution of marriage or separation, and any transfer by
decree of distribution or other court order in proceedings arising from the
death of the spouse of any Member or Economic Interest Holder.
1.55 "TREASURY REGULATIONS" means the regulations of the United
States Treasury Department pertaining to the income tax.
1.56 "UNITED STATES BANKRUPTCY CODE" means the United States
Bankruptcy Code at Title 11, United States Code.
1.57 "UNPAID DIVIDEND INCOME" means with respect to a Class B Member
the excess of (i) the total cumulative Dividend Income of such Class B Member
as of any given date, over (ii) the sum of all prior distributions in payment
of the Dividend Income to such Class B Member pursuant to Section 6.8(a).
1.58 "VOTING INTEREST" means a Class A Member's percentage right to
vote on matters coming before the Members for action. The Voting Interest of
each Class A Member shall initially be the percentage set forth opposite the
name of that Member in Exhibit A and may be adjusted from time to time
thereafter pursuant to the provisions of this Agreement, including, without
limitation, the provisions of Sections 3.2, 4.1, 4.2 and 8.2. The combined
Voting Interest of all Class A Members shall at all times equal one hundred
percent (100%). The Class B Members shall have no Voting Interests.
References in this Agreement to "Articles," "Sections," "Exhibits"
and "Schedules" shall be to the Articles, Sections, Exhibits and Schedules of
this Agreement, unless otherwise specifically provided; all Exhibits and
Schedules to this Agreement are incorporated herein by reference; any of the
terms defined in this Agreement may, unless the context otherwise requires,
be used in the singular or the plural and in any gender depending on the
reference; the words "herein", "hereof" and "hereunder" and words of similar
import, when used in this Agreement, shall refer to this Agreement as a whole
and not to any particular provision of this Agreement; and except as
otherwise specified in this Agreement, all references in this Agreement (a)
to any Person shall be deemed to include such Person's permitted heirs,
personal representatives, successors and assigns; and (b) to any agreement,
any document or any other written instrument shall be a reference to such
agreement, document or instrument together with all exhibits, schedules,
attachments and appendices thereto, and in each case as amended, restated,
supplemented or otherwise modified from time to time in accordance with the
terms thereof; and
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(c) to any law, statute or regulation shall be deemed references to such
law, statute or regulation as the same may be supplemented, amended,
consolidated, superseded or modified from time to time.
ARTICLE II
ORGANIZATIONAL MATTERS
2.1 NAME. The name of the Company shall be "Onlinefilmsales.com,
LLC". The business of the Company may be conducted under that name or, upon
compliance with applicable law, under any other name that the Manager deems
appropriate or advisable.
2.2 TERM. The term of the Company's existence commenced upon the
filing of its Certificate of Formation with the Delaware Secretary of State
on March 8, 2000 and shall continue until such time as it is terminated
pursuant to ARTICLE X.
2.3 OFFICE AND AGENT. The principal office of the Company shall be
at 1351 4th Street, Suite 227, Santa Monica, CA, or at such other place as
the Manager may determine from time to time. The Company may also have such
other offices within the State of California, or elsewhere, as the Manager
may from time to time determine. The name and business address of the agent
for service of process for the Company in the State of Delaware is
Corporation Service Company, 1013 Centre Road, Wilmington, Delaware 19805, or
such other Person as the Manager may appoint from time to time.
2.4 PURPOSE OF COMPANY. The Company may engage in any lawful
activity for which a limited liability company may be organized under the
Act.
2.5 INTENT. It is the intent of the Members that the Company shall
always be operated in a manner consistent with its treatment as a
"partnership" for Federal and state income tax purposes. It also is the
intent of the Members that the Company not be operated or treated as a
"partnership" for purposes of Section 303 of the United States Bankruptcy
Code. No Member or Manager shall take any action inconsistent with that
express intent.
2.6 MEMBERS. The names, addresses, Capital Contributions, Voting
Interests and Target Shares of the Members as of the date of this Agreement
are set forth in Exhibit A.
2.7 FORMATION EXPENSES. Each Member shall be responsible for and
shall pay all fees and expenses incurred by it in connection with the
formation of the Company, including, without limitation, all legal and
accounting fees and expenses incurred by it in connection with the
negotiation, preparation, execution and delivery of this Agreement and all
related agreements and instruments. The Company shall pay all filing fees,
minimum franchise or other similar taxes and other governmental charges
incident to its formation and qualification to do business.
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ARTICLE III
CAPITAL CONTRIBUTIONS
3.1 INITIAL CAPITAL CONTRIBUTIONS. Upon execution of this Agreement,
each Member has contributed or shall contribute to the Company the monies
and/or properties which are specified in Exhibit A as that Member's initial
Capital Contribution.
3.2 ADDITIONAL CAPITAL CONTRIBUTIONS. No Member or Economic Interest
Holder shall be required to make any additional Capital Contributions not
specifically referred to in Section 3.1. The Class A Member shall have the
right to make additional Capital Contributions in its sole and absolute
discretion at any time. The Class B Members shall have no right to make any
additional Capital Contributions. To the extent approved from time to time by
the Manager, however, new Members may be admitted to the Company and shall
make Capital Contributions in connection with their admission as determined
by the Manager. Each Member shall receive a credit to its Capital Account in
the amount of any capital which it contributes to the Company. Immediately
following any Capital Contribution, the Voting Interests of the Class A
Members (if the Capital Contribution is by a Class A Member) and the Economic
Interests of the Members shall be adjusted to reflect the new relative
proportions thereof.
3.3 CAPITAL ACCOUNTS. The Company shall establish and maintain an
individual Capital Account for each Economic Interest Holder.
3.4 NO PRIORITIES OF MEMBERS; NO WITHDRAWALS OF CAPITAL. Except as
otherwise specified in ARTICLE VI and in the Act, no Economic Interest Holder
shall have a priority over any other Economic Interest Holder as to any
Distribution, whether by way of return of capital or by way of profits, or as
to any allocation of Net Profits or Net Losses. No Economic Interest Holder
shall have the right to withdraw or reduce its Capital Contributions in the
Company except as a result of the dissolution of the Company or as otherwise
provided in Section 4.2 or the Act, and no Economic Interest Holder shall
have the right to demand or receive property other than cash in return for
its Capital Contributions.
3.5 NO INTEREST. No Economic Interest Holder shall be entitled to
receive any interest on its Capital Contributions.
3.6 LOANS; NO COMPENSATION. No Member or Economic Interest Holder
shall be required to lend any funds to the Company, and no Member or Economic
Interest Holder shall have any personal liability for the repayment of any
Capital Contribution of any other Member or Economic Interest Holder. No
Member or Economic Interest Holder shall receive any interest, salary or
drawing with respect to its Capital Contributions or its Capital Account,
except as otherwise specifically provided in this Agreement.
ARTICLE IV
MEMBERS
4.1 ADMISSION OF ADDITIONAL MEMBERS. Subject to compliance with
applicable law, the Manager may admit additional Members to the Company from
time to time upon such terms
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and conditions as it may determine in its sole and absolute discretion, and
any such additional Members shall be granted Membership Interests and Voting
Interests (if Class A Members) and may participate in the management, Net
Profits, Net Losses, Tax Credits, Distributable Cash and other Distributions
of the Company on such terms as the Manager may fix, and the Manager may
amend this Agreement accordingly.
4.2 WITHDRAWALS OR RESIGNATIONS. No Member may withdraw or resign
from the Company except as relates to a Transfer in accordance with the
provisions of ARTICLE VII or in conjunction with a conversion pursuant to
Sections 7.4 and 7.5 or with the prior written consent of the Manager, which
consent may be given or withheld, conditioned or delayed in the Manager's
sole discretion. If such consent is given, and the withdrawing or resigning
Member is the last and only remaining Member, the withdrawal or resignation
shall be effective only after the expiration of the period for Member consent
to continue the business of the Company or dissolve, as provided in Section
8.1.
4.3 NO AGENCY. The management of the Company is vested
exclusively in the Manager. No Member may be an agent of the Company, nor may
any Member bind or execute any agreement, instrument or document on behalf of
the Company.
4.4 MEETINGS OF MEMBERS; WRITTEN CONSENT. The Members do not
contemplate holding meetings; however, meetings of the Members may be held if
called by the Manager in its sole and absolute discretion at such times and
places within or without the State of California as the Manager fixes from
time to time. Voting will be conducted by classes, but only Class A shall
have any voting rights. In addition, meetings of the Class A Members may be
called upon the written demand of any Class A Member for the purpose of
addressing any matters on which the Class A Members may vote. No annual or
regular meetings of Members are required, but if such meetings are held, they
shall be noticed, held and conducted pursuant to the Act. Members may
participate in any meeting through the use of conference telephones or
similar communications equipment as long as all Members participating can
hear one another. A Member so participating is deemed to be present in person
at the meeting. Any action which may be taken by the Members at a meeting may
also be taken without a meeting, if a consent in writing setting forth the
action so taken is signed by Class A Members having not less than the minimum
votes that would be necessary to authorize that action at a meeting of the
Class A Members duly called and noticed.
ARTICLE V
MANAGEMENT AND CONTROL OF THE COMPANY
5.1 MANAGEMENT OF THE COMPANY BY THE MANAGER.
(a) EXCLUSIVE MANAGEMENT BY THE MANAGER. The business, property
and affairs of the Company shall be managed exclusively by the Manager.
Except for matters as to which the approval of the Members is expressly
required by the Act, the Manager shall have full, complete and exclusive
authority, power and discretion to manage and control the business, property
and affairs of the Company, to make all decisions regarding those matters and
to
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perform any and all other actions customary or incident to the management of
the Company's business, property and affairs.
(b) POWERS OF THE MANAGER. Without limiting the generality of
the foregoing, the Manager, acting alone and without obtaining any approval
from the Members except only as required by the Act, shall have the exclusive
power and authority to cause the Company:
(i) to do any act in the conduct of its business
and to exercise all powers granted to a limited liability company under the Act,
whether in the state of California or in any other state, territory, district or
possession of the United States or any foreign country, that may be necessary,
convenient, desirable or incidental to the accomplishment of the business
purposes of the Company;
(ii) to own, hold, operate, maintain, finance,
refinance, improve, lease, sell, convey, mortgage, transfer, demolish or dispose
of any asset as may be necessary, convenient, desirable or incidental to the
accomplishment of the business purposes of the Company;
(iii) to enter into, perform and carry out any contracts,
leases, instruments, commitments, agreements or other documents of any kind,
including, without limitation, contracts with any Member or Manager, any
Affiliate thereof or any agent of the Company, necessary, convenient,
desirable or incidental to the accomplishment of the business purposes of the
Company;
(iv) to sue and be sued, complain and defend and
participate in administrative or other proceedings, in its own name;
(v) to appoint officers, employees and agents of the
Company, define their duties and fix their compensation, if any, and to
select attorneys, accountants, consultants and other advisors of the Company;
(vi) to indemnify any Person in accordance with the Act
and to obtain any and all types of insurance;
(vii) to borrow money from any Person and issue evidences
of indebtedness and to secure the same by mortgages, deeds of trust, security
agreements, pledges, collateral assignments or other liens on the assets of
the Company;
(viii) to negotiate, enter into, renegotiate, extend,
renew, terminate, modify, amend, waive, execute, acknowledge or take any
other action with respect to any loan agreement, commitment, deed of trust,
mortgage, security agreement or other loan document in respect of any assets
of the Company;
(ix) 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;
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(x) to make, execute, acknowledge, endorse and file any
and all agreements, documents, instruments, checks, drafts or other evidences
of indebtedness necessary, convenient, desirable or incidental to the
accomplishment of the business purposes of the Company;
(xi) to cease the Company's activities and dissolve and
wind up its affairs upon its duly authorized dissolution;
(xii) to cause any special purpose subsidiary limited
liability company wholly owned by the Company to do any of the foregoing;
(xiii) to admit a Person as a Member of the Company;
(xiv) to alter the primary purpose of the Company set
forth in Section 2.4;
(xv) to confess a judgment against the Company;
(xvi) to place the Company into Bankruptcy; and
(xvii) to amend the Certificate of Formation or this
Agreement, provided such amendment does not diminish the rights or increase
the obligations of a Member without such Member's consent.
(c) AGENCY AUTHORITY OF THE MANAGER; DELEGATION BY THE
MANAGER. The Manager, acting alone, is authorized to endorse all checks, drafts
and other evidences of indebtedness made payable to the order of the Company and
to execute all agreements, contracts, commitments, checks, instruments and other
documents on behalf of the Company. The Manager may also delegate any or all of
its authority, rights and/or obligations, whether arising hereunder, under the
Act or otherwise, to any one or more officers, agents or other duly authorized
representatives of the Company.
(d) DISCRETION OF THE MANAGER. In making any and all
decisions relating to the conduct of the Company's business or otherwise
delegated to them by any provision of this Agreement, the Manager shall be
free to exercise its sole, absolute and unfettered discretion. The Manager
shall not, in respect of any such decision, be liable to the Company, the
Members or any of their respective Affiliates or constituent owners for any
resulting actual or alleged losses, damages, costs or expenses suffered by
them so long as such decision was made by the Manager in good faith for a
purpose reasonably believed by it to be in, or not opposed to, the best
interests of the Company.
(e) PERFORMANCE OF DUTIES; LIABILITY OF MANAGER. The Manager
shall perform its managerial duties in good faith and in a manner it believes
to be in, or not opposed to, the best interests of the Company. In performing
its duties, the Manager shall be entitled to rely on information, opinions,
reports or statements, including financial statements and other financial
data, of any attorney, independent accountant or other Person as to matters
which the Manager believes to be within such Person's professional or expert
competence, unless the
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Manager has actual knowledge concerning the matter in question that would
cause such reliance to be unwarranted.
(f) DEVOTION OF TIME. The Manager shall not be obligated to
devote all of its time or business efforts to the affairs of the Company;
however, it shall devote such time, effort and skill as it deems appropriate
for the management and operation of the Company's affairs.
5.2 ELECTION OF MANAGER.
(a) NUMBER AND TERM. The Company shall initially have one
Manager, who shall be InternetStudios. The number of Managers of the Company
shall be increased beyond one and thereafter fixed from time to time only by
the affirmative vote or written consent of a Majority in Interest. The
Manager shall be elected by the affirmative vote or written consent of a
Majority in Interest. Unless that Manager resigns, dissolves or dies, each
Manager shall hold office indefinitely until a successor is elected.
(b) NO REMOVAL. The Manager may not be removed from office
except as provided by the Act.
(c) VACANCIES. Any vacancy occurring for any reason in the
number of Managers may be filled by the affirmative vote or written consent
of a Majority in Interest.
5.3 [intentionally omitted]
5.4 MEMBERS HAVE NO MANAGERIAL AUTHORITY. The Members shall have no
power to participate in the management of the Company except as expressly
authorized by this Agreement and except as expressly required by any
non-waivable provision of the Act. No Member shall have any power or
authority to bind or act on behalf of the Company in any way, to pledge its
assets or to render it liable for any purpose.
5.5 TRANSACTIONS BETWEEN THE COMPANY AND THE MANAGER, THE MEMBERS OR
THEIR AFFILIATES.
(a) CONTRACTS WITH AFFILIATES. Notwithstanding that it may
constitute a conflict of interest, the Manager or Members may, and may cause
their Affiliates to, engage in any transaction (including, without
limitation, the purchase, sale, lease or exchange of any property, the
lending of money, the rendering of any service or the establishment of any
salary, other compensation or other terms of employment) with the Company so
long as that transaction is not expressly prohibited by this Agreement and so
long as the transaction is fair to the Company and are on commercially
reasonable terms.
(b) CONTRACTS WITH AFFILIATES OF THE MANAGERS. The Members
acknowledge and intend that the Manager may provide, or may cause the Company
to engage one or more of its Affiliates to provide, any or all goods and/or
services required by the Company in the conduct of its business, and that,
except only as expressly limited below, the terms and conditions of any such
engagement shall be determined exclusively by the Manager in
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its sole and absolute discretion, provided that such engagement is on
commercially reasonable terms.
(c) TREATMENT OF AFFILIATE LOANS AND FEES. To the fullest extent
permitted by law, all principal, interest, costs and expenses owing by the
Company to the Members, the Manager or Affiliates thereof in repayment of loans
and all fees, commissions and/or reimbursable amounts payable by the Company to
the Members, the Manager or Affiliates thereof shall be treated in the same
manner as liabilities payable to unaffiliated creditors of the Company and shall
be paid and taken into account, as such, before any Distributions of
Distributable Cash are made to the Economic Interest Holders.
5.6 OFFICERS.
(a) APPOINTMENT OF OFFICERS. The Manager may, at its
discretion, appoint officers of the Company at any time. The officers of the
Company may include a Chairperson, a President or Chief Executive Officer,
one or more Senior Vice Presidents, one or more Vice Presidents, a Secretary,
Assistant Secretaries, a Chief Financial Officer, a Treasurer and one or more
Assistant Treasurers and a Comptroller. The officers shall serve at the
pleasure of the Manager, subject to all rights, if any, of an officer under
any contract of employment. Any individual may hold any number of offices.
Officers of the Manager may serve as officers of the Company if appointed by
the Manager. The officers shall exercise such powers and perform such duties
as are typically exercised by similarly titled officers in a corporation and
as shall be determined from time to time by the Manager. If any such officer
is entitled to a salary for his or her services, however, all of that salary
shall be paid by the Company.
(b) SIGNING AUTHORITY OF OFFICERS. The officers, if any, shall
have such authority to sign checks, instruments and other documents on behalf
of the Company as may be delegated to them by the Manager.
(c) ACTS OF OFFICERS AS CONCLUSIVE EVIDENCE OF AUTHORITY. Any
note, mortgage, deed of trust, evidence of indebtedness, contract,
certificate, statement, conveyance or other instrument or obligation in
writing, and any assignment or endorsement thereof, executed or entered into
between the Company and any other Person, when signed by the Chairperson, the
President or Chief Executive Officer, any Senior Vice-President and any
Secretary, any Assistant Secretary, any Treasurer, or any Assistant Treasurer
of the Company, is not invalidated as to the Company by any lack of authority
of the signing officers in the absence of actual knowledge on the part of the
other Person that the signing officer(s) had no authority to execute the
same.
5.7 COMPETING ACTIVITIES. The Manager, the Members and the Economic
Interest Holders, and their respective officers, directors, shareholders,
partners, members, managers, agents, employees and Affiliates, may engage or
invest in, independently or with others, any business activity of any type or
description, including without limitation, those that might be the same as or
similar to the Company's business and that might be in direct or indirect
competition with the Company. None of the Company, the Manager, or any other
Member or Economic Interest Holder shall have the right in or to such other
business activities or to the income or proceeds derived therefrom. None of
the Manager or the Members or Economic Interest Holders shall be obligated to
present any investment opportunity or prospective economic advantage to
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the Company or the Manager, other Members or Economic Interest Holders even
if the opportunity is one of the character that, if presented to the Company
or the Manager, other Members or Economic Interest Holders, could be taken by
the Company or any of the Manager, other Members or Economic Interest
Holders. The Manager, the Members and the Economic Interest Holders 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 or the Manager, other Members or Economic Interest
Holders. The Members and Economic Interest Holders acknowledge that the
Manager and the other Members or Economic Interest Holders and their
Affiliates own and/or manage other businesses, including businesses that may
compete with the Company and for the Manager's and Members' time. The Members
and Economic Interest Holders hereby waive any and all rights and claims
which they may otherwise have against the Manager and the other Members and
Economic Interest Holders and their respective officers, directors,
shareholders, partners, members, managers, agents, employees and Affiliates
as a result of any such activities. Notwithstanding the foregoing, the
provisions of this Section 5.7 shall be subject to the terms of the
MediaChase Consulting Agreement (a "Related Party Agreement"), and in the
event of any conflict, the terms and provisions of such separate agreement
shall control.
5.8 PAYMENTS TO THE MANAGER AND OTHERS. The Company is authorized to
pay any Person remuneration or reimbursement for goods and services provided
to the Company; provided, however, that the Manager, the Members and their
respective Affiliates shall be entitled to receive only the following
remuneration or reimbursement:
(a) NO MANAGEMENT FEE. The Manager shall not be entitled to any
management fee or other compensation for its services as Manager.
(b) SERVICES PERFORMED BY MEMBERS, ECONOMIC INTEREST HOLDERS OR
AFFILIATES. The Company shall pay the Members, the Economic Interest Holders
and their Affiliates for services rendered or goods provided by them to the
Company to the extent that those Members, Economic Interest Holders or
Affiliates are not required to render such services or goods themselves
without charge to the Company, and to the extent that the fees paid to those
Members, Economic Interest Holders or Affiliates do not exceed the fees that
would be payable to independent, responsible third parties that are willing
to perform those services or provide those goods.
(c) EXPENSES. The Company shall reimburse InternetStudios in
connection with its expenses (as provided in Section 1.22) and shall
reimburse the Manager for all reasonable out-of-pocket costs and expenses
incurred by it in connection with the business and affairs of the Company, as
well as organizational expenses (including, without limitation, legal and
accounting fees and costs) incurred by them to form the Company and prepare
the Certificate of Formation and this Agreement.
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ARTICLE VI
ALLOCATIONS OF NET PROFITS, NET LOSSES AND DISTRIBUTIONS
6.1 MINIMUM GAIN CHARGEBACK. In the event that there is a net
decrease in the Company Minimum Gain during any taxable year, the minimum
gain chargeback described in Sections 1.704-2(f) and (g) of the Treasury
Regulations shall apply.
6.2 MEMBER MINIMUM GAIN CHARGEBACK. If during any taxable year there
is a net decrease in Member Minimum Gain, the partner minimum gain chargeback
described in Section 1.704-2(i)(5) of the Treasury Regulations shall apply.
6.3 QUALIFIED INCOME OFFSET. Any Economic Interest Holder who
unexpectedly receives an adjustment, allocation or Distribution described in
subparagraphs (4), (5) or (6) of Section 1.704-1(b)(2)(ii)(d) of the Treasury
Regulations, which adjustment, allocation or distribution creates or
increases a deficit balance in that Economic Interest Holder's Capital
Account, shall be allocated items of "book" income and gain in accordance
with the provisions of the "qualified income offset" as described in Section
1.704-1(b)(2)(ii)(d) of the Treasury Regulations.
6.4 NONRECOURSE DEDUCTIONS. Nonrecourse Deductions shall be
allocated one hundred percent (100%) to InternetStudios.
6.5 MEMBER NONRECOURSE DEDUCTIONS. Member Nonrecourse Deductions
shall be allocated to the Economic Interest Holders as required in Section
1.704-2(i)(1) of the Treasury Regulations in accordance with the manner in
which the Economic Interest Holders bear the burden of an Economic Risk of
Loss corresponding to the Member Nonrecourse Deductions.
6.6 ALLOCATION OF NET PROFITS. The Net Profits for each fiscal
period of the Company shall be allocated to the Economic Interest Holders in
accordance with the following order of priority:
(a) first, to the Class B Members if they have a positive
Dividend Income Account, in accordance with the ratio of their positive
Dividend Income Accounts, until their Dividend Income Accounts are reduced to
zero (0); and
(b) finally, one hundred percent (100%) to the Class A Member.
6.7 ALLOCATION OF NET LOSSES. Net Losses for each fiscal period of the
Company shall be allocated one hundred percent (100%) to the Class A Member.
6.8 DISTRIBUTION OF ASSETS BY THE COMPANY. Subject to applicable law
and any limitations contained elsewhere in this Agreement, the Manager may elect
from time to time to cause the Company to distribute Distributable Cash to the
Economic Interest Holders, which Distributions shall be in the following order
of priority:
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(a) first, to the Class B Members if they have positive Unpaid
Dividend Income in accordance with the ratio of Unpaid Dividend Income, until
their Unpaid Dividend Income is reduced to zero (0);
(b) finally, one hundred percent (100%), to the Class A Member.
6.9 ALLOCATION OF NET PROFITS AND LOSSES AND DISTRIBUTIONS IN
RESPECT OF A TRANSFERRED INTEREST. If any Economic Interest is Transferred as
permitted hereunder or is increased or decreased by reason of the admission
of a new Economic Interest Holder or otherwise during any Fiscal Year, each
item of income, gain, loss, deduction or credit of the Company for that
Fiscal Year shall be allocated based on the "interim closing of the books"
method.
6.10 TAX ALLOCATION MATTERS.
(a) CONTRIBUTED OR REVALUED PROPERTY. Each Economic Interest
Holder's allocable share of the taxable income or loss of the Company,
depreciation, depletion, amortization and gain or loss with respect to any
contributed property, or with respect to revalued property where the
Company's property is revalued pursuant to Paragraph (b)(2)(iv)(f) of Section
1.704-1 of the Treasury Regulations, shall be determined in the manner (and
as to revaluations, in the same manner as) provided in Section 704(c) of the
Code. The allocation shall take into account, to the full extent required or
permitted by the Code, the difference between the adjusted basis of the
property to the Economic Interest Holder contributing it and the fair market
value of the property determined by the Manager at the time of its
contribution or revaluation, as the case may be. The Company shall apply
Section 704(c)(1)(A) by using the "traditional method" as set forth in
Section 1.704-3(b) of the Treasury Regulations.
(b) RECAPTURE ITEMS. In the event that the Company has taxable
income that is characterized as ordinary income under the recapture
provisions of the Code, InternetStudios' distributive share of taxable gain
or loss from the sale of Company assets (to the extent possible) shall
include a proportionate share of this recapture income equal to
InternetStudios' share of prior cumulative depreciation deductions with
respect to the assets which gave rise to the recapture income.
6.11 ORDER OF APPLICATION. To the extent that any allocation,
Distribution or adjustment specified in any of the preceding Sections of this
ARTICLE VI affects the results of any other allocation, Distribution or
adjustment required herein, the allocations, Distributions and adjustments
specified in the following Sections shall be made in the priority listed:
(a) Section 6.8.
(b) Section 6.1.
(c) Section 6.2.
(d) Section 6.3.
(e) Section 6.4.
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(f) Section 6.5.
(g) Section 6.7.
(h) Section 6.6.
(i) Section 10.4.
These provisions shall be applied as if all Distributions and
allocations were made at the end of the Company's Fiscal Year. Where any
provision depends on the Capital Account of any Economic Interest Holder, that
Capital Account shall be determined after the operation of all preceding
provisions for the Fiscal Year.
6.12 ALLOCATION OF LIABILITIES. All Nonrecourse Liabilities of the
Company shall be allocated to InternetStudios.
6.13 FORM OF DISTRIBUTION. No Economic Interest Holder, regardless
of the nature of its Capital Contribution, has the right to demand and
receive any Distribution from the Company in any form other than money. No
Economic Interest Holder may be compelled to accept from the Company a
Distribution of any asset in kind in lieu of a proportionate Distribution of
money being made to other Economic Interest Holder(s), no Economic Interest
Holder may be compelled to accept a Distribution of any asset in kind.
6.14 WITHHOLDING. The Company shall be entitled to pay over to the
applicable taxing authorities, and to withhold from Distributions allocable
to any Economic Interest Holder, all sums that are required to be paid over
or withheld under federal, state or local tax laws with respect to any
Economic Interest Holder. Any amounts so withheld and paid over shall be
treated for accounting purposes as a Distribution to such Economic Interest
Holder and a payment of the withheld tax by such Economic Interest Holder to
the appropriate taxing authorities. If the amounts required to be so paid
over exceed the current Distributions made to such Economic Interest Holder,
the amount of the excess shall be treated as a loan by the Company to such
Economic Interest Holder, and that loan shall be repayable in full, with
interest as determined below, within ten (10) days of the remittance of the
taxes to the appropriate taxing authorities. The loan shall bear interest
from the date of the remittance of the tax to the appropriate authorities to
the date of payment in full at a rate of interest equal to the lesser of (a)
ten percent (10%) per annum (compounded annually and computed on the basis of
a 365/366 day year), or (b) the maximum interest rate permitted by law with
respect to the loan.
ARTICLE VII
TRANSFER OF INTERESTS
7.1 TRANSFER OF INTERESTS. The Class A Member shall not be permitted
to Transfer all or any part of its Membership Interest except upon a merger,
reorganization, consolidation or other business combination involving the
Class A Member or acquisition of more than 50% of the assets of the Class A
Member or the issuance, sale, disposition of (including by way of merger,
reorganization, consolidation, share exchange or similar transaction)
securities representing 50% or more voting control of the Class A Member in
which the Class A Member
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is the surviving company. The Class B Members shall not be permitted to
Transfer all or any part of their Membership Interests except as provided in
Section 7.2 and except upon conversion pursuant to Sections 7.4 and 7.5 Any
attempted Transfer in violation of this Agreement shall be null and void ab
initio, and the transferee shall not become either a Member or an Economic
Interest Holder. After the consummation of any permitted Transfer of all or
any part of a Membership Interest, the Membership Interest so Transferred
shall continue to be subject to the terms and provisions of this Agreement,
and any further Transfers shall be required to comply with the terms and
provisions of this Agreement.
7.2 PERMITTED TRANSFERS. Subject to the provisions of Section 7.8,
the restrictions upon Transfer specified in Section 7.1 shall not apply to
any Transfer of all or any part of a Class B Member's Membership Interest (a)
upon death, as provided by will or the laws of intestate succession, (b) upon
marital dissolution, as provided by a property settlement agreement or by
court order, (c) to trusts created for estate planning purposes and by such
trusts according to their respective distribution terms, (d) to parents,
spouses and lineal descendants and (e) to the shareholders of a corporate
Class B Member by distribution, sale, transfer or conveyance. Any such
Transfer may be by gift, sale, operation of law, or by other voluntary or
involuntary conveyance. Any transferee(s) permitted under the preceding
sentence shall hold the Transferred Membership Interest or part thereof
subject to all the provisions of this Agreement. For the purposes of this
ARTICLE VII, "control" of a Person means the ability, by ownership of voting
securities, contract or otherwise, to direct the management and affairs of
that Person.
7.3 LIQUIDATION OF INTERNETSTUDIOS. The Class A Member hereby agrees
to give the Class B Members at least thirty (30) days' prior written notice
before any dissolution of the Class A Member or of the Company.
7.4 CONVERSION EVENTS. The Class B Members shall have the right and
option to convert all or any part of their Membership Interests into the
number of Shares as calculated under the terms of Section 7.5 at any time.
Upon the happening of any of the events specified below in this Section 7.4
with respect to a Class B Member (the "Affected Class B Member"), all of the
Affected Class B Member's Economic Interests automatically shall be converted
into the right to receive the number of Shares as calculated under the terms
of Section 7.5 but without the need for further action on the part of the
Affected Class B Member. Any Shares received by any Class B Member as a
result of any conversion (whether optional or automatic) will be restricted
stock in accordance with all pertinent federal and state securities laws,
rules, regulations or other governmental restrictions as may now or hereafter
be in effect. Collectively, all of the events in this Section 7.4 (whether
optional or automatic) shall be the "Conversion Events."
(a) TERMINATION EVENT. The occurrence of a Termination Event;
(b) MERGER OR ACQUISITION. Immediately prior to any merger,
reorganization, consolidation or other business combination involving the
Class A Member or the Company or acquisition of more than 50% of the assets
of the Class A Member or the Company or the issuance, sale, disposition of
(including by way of merger, reorganization, consolidation, share exchange or
similar transaction) securities representing 50% or more voting control of
the Class A Member or the Company in which the Class A Member or the Company
is not the surviving company (as the case may be);
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(c) SEVENTH ANNIVERSARY. Upon or at any time after the seventh
anniversary of the effective date of this Agreement if the Manager provides
written notice to the Class B Members thirty (30) days prior to that date;
and
(d) DISSOLUTION. Upon the dissolution of the Class A
Member or the Company.
7.5 TERMS OF TRANSFER PURSUANT TO A CONVERSION EVENT.
(a) NOTICE OF CONVERSION EVENT. Upon the occurrence of a
Conversion Event, the Affected Class B Member, or its executor,
administrator, conservator, successor-in-interest or transferee, as the case
may be, shall promptly give notice (the "Notice of Conversion Event") to the
Company stating when the Conversion Event occurred and the reason therefor,
and stating, as a percentage, the proportion of Target Shares the Class B
Member desires to convert (if the conversion is at the option of the Class B
Member and if such Notice of Conversion Event fails to specify a conversion
percentage, the Class B Member shall be deemed to convert one hundred percent
(100.0%) of its Target Shares). If no such Notice of Conversion Event is
given within ten (10) days of the occurrence of one of the automatic
Conversion Events, the Company may commence the conversion on such tenth day
(the earlier of the receipt of the Notice of Conversion Event or such tenth
day, the "Commencement Date").
(b) CONVERSION SHARES.
(i) CALCULATION. On the Commencement Date, the Company
shall promptly calculate the number of Shares to which the Class B Members
shall be entitled ("Conversion Shares") using the following formula: an
integral number of Shares equal to (i) the Adjusted Target Shares on the
Conversion Date, multiplied by (ii) the Conversion Factor, and if (but only
if) the conversion is being made at the option of the Class B Member,
multiplied by (iii) the percentage specified in (or deemed specified in) the
Notice of Conversion Event. For purposes of this calculation, the "Conversion
Date" shall be (A) the date on which the Class B Member sends the Notice of
Conversion Event to the Company if the conversion occurs at the option of the
Class B Member, or (B) the date the Conversion Event occurred, if the
conversion is automatic under the terms of Section 7.4.
(ii) DEDUCTION OF DAMAGES. Notwithstanding anything to the
contrary stated in this Agreement, if the Conversion Event constitutes or
arises from a breach of this Agreement by the Affected Class B Member, the
Conversion Shares specified above shall be reduced by an amount of Shares
whose value (as determined by the closing price of the Shares on the date
that the Conversion Event occurred) equals the damages suffered by the
Company as a result of the breach.
(iii) ISSUANCE OF CONVERSION SHARES. Unless the parties
involved mutually agree otherwise, InternetStudios shall issue the Conversion
Shares to the Affected Class B Member within thirty (30) calendar days
following the Conversion Event. InternetStudios shall deliver stock
certificates to the Affected Class B Member. The Affected Class B Member
shall execute and deliver to InternetStudios an assignment of the Membership
Interest to the extent converted.
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(iv) CONVERSION RESTRICTIONS IMPOSED BY
LAW. Notwithstanding anything to the contrary stated herein, the Affected
Class B Member's right to convert into Conversion Shares as provided in this
ARTICLE VII shall be subject to the restrictions set forth in such pertinent
federal and state securities laws, rules, regulations or other governmental
restrictions as may now or hereafter be in effect.
(c) CLASS B MEMBER BOUND. The Class B Member shall take and
hold the Conversion Shares subject to any shareholder agreement and to all of
the obligations and restrictions therein and shall observe and comply with
any shareholder agreement and with all such obligations and restrictions.
7.6 [intentionally omitted]
7.7 [intentionally omitted]
7.8 FURTHER RESTRICTIONS ON TRANSFER OF INTERESTS. In addition to
any other restrictions found in this Agreement, no Member may Transfer its
Membership Interest, its Economic Interest or any part thereof (a) without
compliance with the Securities Act, the California Corporate Securities Law
of 1968 and any other applicable securities laws (b) if the Transfer could
result in the Company not being classified as a partnership for federal or
state income tax purposes, in each case as determined by the Manager. Any
attempted or purported Transfer in violation of this Section 7.8 shall be
null and void ab initio, and the transferee shall not become either a Member
or Economic Interest Holder. In order that the Company avoid treatment as a
publicly traded partnership pursuant to Section 7704 of the Code, no Transfer
shall be permitted which would cause the Company to be treated as having more
than 100 partners, as determined under Treasury Regulations Section
1.7704-1(h)(1)(ii).
7.9 SUBSTITUTION OF MEMBERS. Notwithstanding anything in this
Agreement to the contrary, no transferee of the whole or any part of a
Membership Interest shall become a substituted Member in the place of its
transferor unless all of the following conditions are satisfied:
(a) the Transferring Member and the transferee execute and
acknowledge such other instrument or instruments as the Manager may deem
necessary or desirable to effectuate the admission, including the written
acceptance and adoption by the transferee of all of the terms and conditions
of this Agreement as the same may have been amended, and the spouse, if any,
of the transferee executes and delivers to the Manager a Spousal Consent
substantially in the form of Exhibit B; and
(b) The transferee pays to the Company a transfer fee which is
sufficient, in the reasonable discretion of the Manager, to cover all
expenses incurred by the Company in connection with the Transfer and
substitution.
7.10 ENFORCEMENT. The Transfer restrictions contained in this
Agreement are of the essence of the ownership of a Membership Interest or an
Economic Interest. Upon application to any court of competent jurisdiction,
the Company shall be entitled to a decree against any Person violating or
about to violate such restrictions, requiring their specific performance,
including those requiring a Member to sell all or part of its Membership
Interest or Economic Interest to
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the Company and/or the other Members, or
prohibiting a Transfer of all or part of a Membership Interest or an Economic
Interest.
7.11 EFFECT OF TRANSFERS IN VIOLATION OF AGREEMENT. If, for any
reason, a court refuses to enforce the provisions of Section 7.1 or Section
7.8 to the effect that a Transfer in violation of this ARTICLE VII is null
and void, then, upon any such Transfer of a Membership Interest or Economic
Interest or part thereof in violation of this ARTICLE VII, the transferee
shall have no right to vote or participate in the management of the business,
property and affairs of the Company or to exercise any rights of a Member.
The transferee shall only be entitled to become an Economic Interest Holder
to the extent of the Membership Interest or Economic Interest attempted or
purported to be Transferred to it in violation of this Agreement and
thereafter shall only receive the share of the Company's Net Profits, Net
Losses, Tax Credits, Distributable Cash, and other Distributions to which the
Transferring Economic Interest Holder would otherwise have been entitled.
ARTICLE VIII
CONSEQUENCES OF TERMINATION EVENTS
8.1 DISSOLUTION OF COMPANY. The occurrence of a Termination Event as
to any Member other than the last and only remaining Member shall not
dissolve the Company. Upon the occurrence of a Termination Event as to the
last and only remaining Member, the Company shall dissolve unless the Manager
and the personal representative or other successor-in-interest of the last
and only remaining Member consent in writing within ninety (90) days of such
Termination Event to the continuation of the Company and to the admission of
such personal representative or other successor-in-interest, or its designee
or nominee, as a Member.
8.2 ADMISSION OR CONVERSION. Upon the occurrence of a Termination
Event with respect to a Class B Member, the provisions of Sections 7.4 and
7.5 shall apply. Upon the occurrence of a Termination Event with respect to a
Class A Member under circumstances where the Company does not dissolve, the
Manager shall determine which one of the following shall occur and give
written notice thereof to the remaining Class A Members and to the Class A
Member who suffered the Termination Event (the "Former Member"):
(a) the Former Member's personal representative or other
successor-in-interest shall be admitted as a Class A Member of the Company in
the place and stead of the Former Member to the extent of the Former Member's
Membership Interest (the "Former Member's Interest");
(b) the Former Member's Interest shall be converted to a bare
Economic Interest, and the Former Member's personal representative or other
successor-in-interest shall become the owner of that Economic Interest as a
Class B Member; or
(c) a Former Member's Interest shall be purchased by the
Company and/or one or more of the remaining Class A Members and/or any other
Person(s) designated by the Manager, and the Former Member or the Former
Member's personal representative or other successor-in-interest shall sell,
the Former Member's Interest for the Net Value of the Economic
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Interest as of the date of the Termination Event on terms and conditions to
be specified by the Manager in its sole and absolute discretion.
8.3 PURCHASE PRICE. If the Manager elects the alternative at Section
8.2(c), the purchase price for the Former Member's Interest shall be the
Capital Account balance of the Former Member as of the date of the
Termination Event, except that if the Termination Event results from a breach
of this Agreement by the Former Member, the purchase price shall be reduced
by an amount equal to the damages suffered by the Company as a result of the
breach.
8.4 NOTICE OF INTENT TO PURCHASE. Within thirty (30) days after the
Manager has notified the remaining Class A Members of the purchase price of
the Former Member's Interest, each remaining Class A Member shall notify the
Manager in writing if that Class A Member desires to purchase a portion of
the Former Member's Interest. The failure of any remaining Class A Member to
submit a notice within the applicable period shall constitute an election on
the part of that Member not to purchase any of the Former Member's Interest.
Each remaining Class A Member so electing to purchase (a "Purchasing Member")
shall be entitled to purchase a portion of the Former Member's Interest in
the same proportion that the Economic Interest of the Purchasing Member bears
to the aggregate of the Economic Interests of all of the Purchasing Members.
8.5 ELECTION TO PURCHASE LESS THAN ALL OF THE FORMER MEMBER'S
INTEREST. If any Purchasing Member elects to purchase less than all of its
pro rata share of the Former Member's Interest, then the other Purchasing
Members may elect to purchase more than their pro rata share. If the
Purchasing Members fail to purchase the entire interest of the Former Member,
the Company and/or any other Person(s) designated by the Manager shall
purchase any remaining share of the Former Member's Interest.
8.6 CLOSING OF PURCHASE OF FORMER MEMBER'S INTEREST. The closing
(the "Closing") of the sale of a Former Member's Interest shall be held no
later than sixty (60) days after the determination of the purchase price. At
the Closing, the Former Member or the Former Member's legal representative
shall deliver to the purchasers an instrument of transfer (containing
warranties as to title and the absence of encumbrances) conveying the Former
Member's Interest. The Former Member or the Former Member's legal
representative and the purchasers shall do all things and execute and deliver
all papers necessary to consummate the transaction in accordance with the
provisions of this Agreement.
8.7 PAYMENT OF PURCHASE PRICE. The purchase price shall be paid as
follows: the purchasers shall pay cash at the Closing equal to one-fifth
(1/5) of the purchase price, with the balance of the purchase price to be
paid in four equal annual principal installments, plus interest, payable each
year on the anniversary date of the Closing. The unpaid principal balance
shall accrue interest at the current applicable federal rate provided in the
Code for the month in which the initial payment is made, but the purchasers
shall have the right to prepay in full or in part at any time without
penalty. The obligation to pay the balance due shall be evidenced by a
promissory note, and if purchased by a Person other than the Company, secured
by a pledge of the Membership Interest being purchased.
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ARTICLE IX
ACCOUNTING, RECORDS, REPORTING BY MEMBERS
9.1 BOOKS AND RECORDS. The books and records of the Company shall be
kept, and the financial position and the results of its operations recorded,
in accordance with the accounting method selected by the Manager. The books
and records of the Company shall reflect all the Company transactions and
shall be appropriate and adequate for the Company's business. The Company
shall maintain all of the following at its principal office with copies
available at all times during normal business hours for inspection upon
reasonable notice by any Member or Economic Interest Holder or its authorized
representatives for any purpose reasonably related to its Membership Interest
or Economic Interest:
(a) a current list of the full name and last known business or
residence address of each Member and Economic Interest Holder set forth in
alphabetical order, together with the Capital Contributions, Capital Account,
Voting Interest and Economic Interest of each Member and Economic Interest
Holder;
(b) a current list of the full name and business or residence
address of each Manager;
(c) copies of the Certificate of Formation and all amendments
thereto, together with executed copies of any powers of attorney pursuant to
which the Certificate of Formation or any amendments thereto have been
executed;
(d) copies of the Company's federal, state and local income tax
or information returns and reports, if any, for the six most recent taxable
years;
(e) copies of this Agreement and any and all amendments
thereto, together with executed copies of any powers of attorney pursuant to
which this Agreement or any amendments thereto have been executed;
(f) copies of the financial statements of the Company, if any,
for the six most recent Fiscal Years;
(g) the Company's books and records pertaining to the internal
affairs of the Company for at least the current and past four Fiscal Years;
and
(h) copies of all written consents approving actions taken by
the Members without a meeting pursuant to Section 4.4.
9.2 REPORTS; ANNUAL STATEMENTS.
(a) GOVERNMENTAL REPORTS. The Manager shall
cause to be filed all documents and reports required to be filed with any
governmental agency in accordance with the Act.
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(b) FINANCIAL REPORTS. The Manager shall cause to be sent to
each Member and Economic Interest Holder of the Company (a) not later than
one hundred twenty (120) days after the close of each Fiscal Year of the
Company, the Company's unaudited financial statements for that Fiscal Year,
including a balance sheet as of the end of that Fiscal Year and an income
statement and statement of changes in financial position for that Fiscal
Year, accompanied by the report thereon of the independent accountants
engaged by the Company, and (b) within thirty (30) days after the end of each
of the first three (3) fiscal quarters of each Fiscal Year of the Company,
the Company's unaudited financial statements for such fiscal quarter,
including a balance sheet as of the end of that fiscal quarter and an income
statement and statement of changes in financial position for such fiscal
quarter.
(c) TAX REPORTS. The Manager shall cause to be prepared at
least annually, at Company expense, information necessary for the preparation
of the Members' and Economic Interest Holders' federal and state income tax
returns. The Manager shall send or cause to be sent to each Member and
Economic Interest Holder within ninety (90) days after the end of each
taxable year such information as is necessary to complete federal and state
income tax or information returns.
9.3 BANK ACCOUNTS; INVESTED FUNDS. All funds of the Company shall be
deposited in such account or accounts of the Company as may be determined by
the Manager and shall not be commingled with the funds of any other Person.
All withdrawals therefrom shall be made upon checks signed by such persons
and in such manner as the Manager may determine. Temporary surplus funds of
the Company may be invested in commercial paper, time deposits, short-term
government obligations or other investments determined by the Manager.
9.4 TAX MATTERS FOR THE COMPANY HANDLED BY TAX MATTERS PARTNER. The
Manager shall from time to time cause the Company to make such tax elections
as it deems to be in the best interests of the Company and the Members. The
Tax Matters Partner shall represent the Company (at the Company's expense) in
connection with all administrative and judicial proceedings by the Internal
Revenue Service or any government authority involving any return of the
Company, and may expend the Company's funds for professional services and
costs associated therewith. Without limiting the powers which the Tax Matters
Partner may exercise, the Tax Matters Partner shall have the authority to do
any of the following: (a) enter into a settlement agreement with the Internal
Revenue Service which binds the Members; (b) file a petition as contemplated
in Section 6226(a) or 6228 of the Code; (c) intervene in any action as
contemplated in Section 6226(b)(5) of the Code; (d) file any request
contemplated in Section 6227(b) of the Code; or (e) enter into an agreement
extending the period of limitations as contemplated in Section 6229(b)(1)(B)
of the Code.
If for any reason the Tax Matters Partner can no longer serve in that
capacity, a Majority in Interest may designate another Member to be Tax Matters
Partner. All determinations and acts made by, and all omissions of, the Tax
Matters Partner shall be final and binding on the Company and the Members in all
respects and for all purposes. The Tax Matters Partner shall have the right to
delegate in writing any or all of its authority, rights and/or obligations,
whether arising hereunder, under the Act, the Code or otherwise, to any one or
more officers, agents or duly authorized representatives of the Company.
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9.5 ACCOUNTING MATTERS. All decisions as to accounting matters shall
be made by the Manager.
9.6 CONFIDENTIALITY. All books, records, financial statements, tax
returns, budgets, business plans and projections of the Company, all other
information concerning the business, affairs and properties of the Company
and all of the terms and provisions of this Agreement shall be held in
confidence by the Manager, the Members and the Economic Interest Holders and
their respective Affiliates, subject to any obligation to comply with (a) any
applicable law, (b) any rule or regulation of any legal authority or
securities exchange or (c) any subpoena or other legal process to make
information available to the Persons entitled thereto. Such confidentiality
shall be maintained to the same degree as the Manager, Member or Economic
Interest Holder maintains its own confidential information and shall be
maintained until such time, if any, as any such confidential information
either is, or becomes, published or a matter of public knowledge.
ARTICLE X
DISSOLUTION AND WINDING UP
10.1 DISSOLUTION. The Company shall be dissolved, its assets
disposed of and its affairs wound up upon the first to occur of the following:
(a) the vote of the Manager; or
(b) the occurrence of a Termination Event as to the last and
only remaining Member, if the Manager and that Member's personal
representative or other successor-in-interest fail to consent to the
continuation of the Company in accordance with Section 8.1 within ninety (90)
days after the occurrence of that event.
10.2 DATE OF DISSOLUTION. Dissolution of the Company shall be
effective on the day on which the event occurs giving rise to the
dissolution, but the Company shall not terminate until the assets of the
Company have been liquidated and distributed as provided herein and no sooner
than the date that is thirty (30) days after the dissolution event. The Class
B Members shall promptly be given written notice of any dissolution event.
Notwithstanding the dissolution of the Company, prior to the termination of
the Company the business of the Company and the rights and obligations of the
Members and Economic Interest Holders, as such, shall continue to be governed
by this Agreement.
10.3 WINDING UP. Upon the occurrence of any event specified in
Section 10.1, the Company shall continue solely for the purpose of winding up
its affairs in an orderly manner, liquidating its assets and satisfying the
claims of its creditors. The Manager shall be responsible for overseeing the
winding up and liquidation of the Company and shall cause the Company to (a)
sell or otherwise liquidate all of the Company's assets as promptly as
practicable, except to the extent the Manager determines to distribute any
assets to the Economic Interest Holders in kind, (b) allocate any Net Profits
or Net Losses resulting from such sales to the Economic Interest Holders'
Capital Accounts in accordance with this Agreement, (c) discharge or make
reasonable provision for all liabilities of the Company, including all
liabilities to the Manager, the Members and the Economic Interest Holders to
the extent permitted by law (other than
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liabilities for unpaid distributions to Economic Interest Holders and former
Economic Interest Holders under the Act), and all costs relating to the
dissolution, winding up, and liquidation and distribution of assets, (d)
establish such reserves as may be reasonably necessary to provide for
contingent liabilities of the Company (for purposes of determining the
Capital Accounts of the Economic Interest Holders, the amounts of such
reserves shall be deemed to be an expense of the Company), (e) discharge or
make reasonable provision for any remaining liabilities of the Company to the
Economic Interest Holders, other than on account of their interests in
Company capital or profits, and to the Manager, and (f) distribute the
remaining assets in the manner specified in Section 10.4.
10.4 LIQUIDATING DISTRIBUTIONS. The remaining assets of the Company
shall promptly be distributed to the Class A Member.
10.5 [intentionally omitted]
10.6 [intentionally omitted]
10.7 NO LIABILITY. Notwithstanding anything to the contrary in this
Agreement, upon a liquidation within the meaning of Section
1.704-1(b)(2)(ii)(g) of the Treasury Regulations, if any Economic Interest
Holder has a negative deficit Capital Account balance (after giving effect to
all contributions, distributions, allocations and other Capital Account
adjustments for all taxable years, including the year during which such
liquidation occurs), neither that Economic Interest Holder nor the Manager
shall have any obligation to make any contribution to the capital of the
Company, and the negative balance of that Economic Interest Holder's Capital
Account shall not be considered a debt owned by that Economic Interest Holder
or the Manager to the Company or to any other person for any purpose
whatsoever.
10.8 [intentionally omitted]
10.9 CERTIFICATE OF CANCELLATION. Upon completion of the winding up
of the Company's affairs, the Manager shall file a Certificate of
Cancellation with the Delaware Secretary of State.
10.10 COMPENSATION FOR SERVICES. The Manager shall be entitled to
reasonable compensation from the Company for its services in winding up the
affairs of the Company.
10.11 NO ACTION FOR DISSOLUTION. The Members acknowledge that
irreparable damage would be done to the goodwill and reputation of the
Company if any Member should voluntarily cause a Termination Event or bring
an action in court to dissolve the Company under circumstances where
dissolution is not required by Section 10.1. The Members further acknowledge
that this Agreement has been drawn carefully to provide fair treatment to all
parties and equitable payment in liquidation of the Membership Interests and
Economic Interests. Accordingly, except as expressly permitted in this
Agreement, no Member may take any voluntary action that directly causes the
Company to dissolve, and unless the Managers fail to liquidate the Company as
required by this ARTICLE X, each Member waives and renounces its right to
initiate legal action to seek the appointment of a receiver or trustee to
liquidate the Company or to seek a decree of judicial dissolution of the
Company on the ground that it is not reasonably practicable to carry on the
business of the Company in conformity with the
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Certificate of Formation or this Agreement or that dissolution is reasonably
necessary for the protection of the rights or interests of the complaining
Member.
ARTICLE XI
LIMITATION OF LIABILITY; STANDARD OF CARE; INDEMNIFICATION
11.1 LIMITATION OF LIABILITY. The debts, obligations and liabilities
of the Company, whether arising in contract, tort or otherwise, shall be
solely the debts, obligations and liabilities of the Company, and no Member,
Economic Interest Holder, Manager or officer of the Company shall be
obligated personally for any such debt, obligation or liability of the
Company solely by reason of being a Member, Economic Interest Holder, Manager
or officer.
11.2 STANDARD OF CARE. Neither the Manager nor any Member or officer
of the Company shall have any personal liability whatsoever to the Company or
to any Member, Economic Interest Holder or Affiliate of the Company or to any
Affiliate or constituent owner of any Member or Economic Interest Holder on
account of such Person's status as the Manager or as a Member or officer of
the Company or by reason of such Person's acts or omissions in connection
with the conduct of the business of the Company so long as such Person acts
in good faith for a purpose which the Person reasonably believes to be in, or
not opposed to, the best interests of the Company.
11.3 INDEMNIFICATION. The Company shall indemnify and hold harmless
any Person made, or threatened to be made, a party to an action or
proceeding, whether civil, criminal or investigative (a "proceeding"),
including an action by or in the right of the Company, by reason of the fact
that such Person was or is a Manager, a Member (including in the capacity of
the Tax Matters Partner) or an officer of the Company, an Affiliate of a
Manager, a Member or an officer of the Company, or an officer, director,
shareholder, partner, member, employee, manager or agent of any of the
foregoing, against all judgments, fines, amounts paid in settlement and
reasonable expenses (including investigation, accounting and attorneys' fees)
incurred as a result of such proceeding, or any appeal therein (and
including, without limitation, indemnification against active or passive
negligence, gross negligence or breach of duty) if such Person acted in good
faith, for a purpose which he reasonably believed to be in, or not opposed
to, the best interests of the Company and in criminal proceedings, in
addition, had no reasonable cause to believe that his conduct was unlawful.
The termination of any such civil or criminal proceeding by judgment,
settlement, conviction or upon a plea of nolo contendere, or its equivalent,
shall not in itself create a presumption that any such Person did not act in
good faith, for a purpose which he reasonably believed to be in, or not
opposed to, the best interests of the Company or that he had reasonable cause
to believe that his conduct was unlawful. The Company's indemnification
obligations hereunder shall survive the termination of the Company. Each
indemnified Person shall have a claim against the property and assets of the
Company for payment of any indemnity amounts from time to time due hereunder,
which amounts shall be paid or properly reserved for prior to the making of
distributions by the Company to the Members.
11.4 CONTRACT RIGHT; EXPENSES. The right to indemnification
conferred in this ARTICLE XI shall be a contract right and shall include the
right to require the Company to advance the expenses incurred by the
indemnified Person in defending any such proceeding in
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advance of its final disposition; provided, however, that, if the Act so
requires, the payment of such expenses in advance of the final disposition of
a proceeding shall be made only upon receipt by the Company of an
undertaking, by or on behalf of the indemnified Person, to repay all amounts
so advanced if it shall ultimately be determined that such Person is not
entitled to be indemnified under this ARTICLE XI or otherwise.
11.5 INDEMNIFICATION OF EMPLOYEES AND AGENTS. The Company may, to
the extent authorized from time to time by the Manager, grant rights to
indemnification and to advancement of expenses to any employee or agent of
the Company to the fullest extent of the provisions of Sections 11.3 and 11.4
with respect to the indemnification and advancement of expenses of the
Managers, the Member and/or the officers of the Company.
11.6 NONEXCLUSIVE RIGHT. The right to indemnification and the
payment of expenses incurred in defending a proceeding in advance of its
final disposition conferred in this ARTICLE XI shall not be exclusive of any
other right which any Person may have or hereafter acquire under any statute
or agreement, or under any insurance policy obtained for the benefit of the
Manager, the Members or the officers of the Company.
11.7 SEVERABILITY. If any provision of this ARTICLE XI is determined
to be unenforceable in whole or in part, such provision shall nonetheless be
enforced to the fullest extent permissible, it being the intent of this
ARTICLE XI to provide indemnification to all Persons eligible hereunder to
the fullest extent permitted under law.
11.8 INSURANCE. The Manager may cause the Company to purchase and
maintain insurance on behalf of any Person (including, without limitation,
the Manager or any Member or officer of the Company) who is or was an agent
of the Company against any liability asserted against that Person and
incurred by that Person in any such capacity or arising out of that Person's
status as an agent, whether or not the Company would have the power to
indemnify that Person against liability under the provisions of Sections 11.3
and 11.4 or under applicable law.
ARTICLE XII
INVESTMENT REPRESENTATIONS
Each Member ("Representing Party") represents and warrants to the other
Members and the Company as follows:
12.1 PREEXISTING RELATIONSHIP OR EXPERIENCE. (a) The Representing
Party has a preexisting personal or business relationship with the Company or
one or more of its Manager, officers or control persons, or (b) by reason of
the Representing Party's business or financial experience, or by reason of
the business or financial experience of the Representing Party's financial
advisor who is unaffiliated with and who is not compensated, directly or
indirectly, by the Company or any Affiliate or selling agent of the Company,
the Representing Party is capable of evaluating the risks and merits of an
investment in its Economic Interest and of protecting the Representing
Party's own interests in connection with the investment.
12.2 ACCESS TO INFORMATION. The Representing Party has had an
opportunity to review all documents, records and books pertaining to this
investment and has been given the
29
<PAGE>
opportunity to consult with counsel of his or her choice with respect to all
aspects of this investment and the Company's proposed business activities.
Such Representing Party has personally met with the Manager and has been
provided with such information as may have been requested and has at all
times been given the opportunity to obtain additional information necessary
to verify the accuracy of the information received and the opportunity to ask
questions of and receive answers from the Manager concerning the terms and
conditions of the investment and the nature and prospects of the Company's
business.
12.3 ECONOMIC RISK. The Representing Party is financially able to
bear the economic risk of an investment in its Economic Interest, including
the total loss thereof.
12.4 INVESTMENT INTENT. The Representing Party is acquiring its
Membership Interest or Economic Interest for investment purposes and for the
Representing Party's own account only and not with a view to, or for sale in
connection with, any distribution of all or any part of its Membership
Interest or Economic Interest. Except for the partners or members of the
Representing Party, no other Person will have any direct or indirect
beneficial interest in, or right to, its Membership Interest or Economic
Interest.
12.5 CONSULTATION WITH ATTORNEY. The Representing Party has been
advised to consult with its own attorney regarding all legal and tax matters
concerning an investment in its Membership Interest or Economic Interest and
has done so to the extent it considers necessary.
12.6 PURPOSE OF ENTITY. If the Representing Party is a corporation,
partnership, limited liability company, trust or other entity, it was not
organized for the specific purpose of acquiring its Membership Interest or
Economic Interest.
12.7 RESIDENCY. The Representing Party is a resident of the state of
California.
12.8 NO ADVERTISING. The Representing Party has not seen, received
or been solicited by any leaflet, public promotional meeting, newspaper or
magazine article or advertisement, radio or television advertisement or any
other form of advertising or general solicitation with respect to the sale of
its Membership Interest or Economic Interest.
12.9 INTEREST IS RESTRICTED SECURITY. The Representing Party
understands that its Economic Interest or Membership Interest is a
"restricted security" under the Securities Act in that the Economic Interest
or Membership Interest will be acquired from the Company in a transaction not
involving a public offering, that its Economic Interest or Membership
Interest may be resold without registration under the Securities Act only in
certain limited circumstances and that otherwise its Economic Interest or
Membership Interest must be held indefinitely.
12.10 NO REGISTRATION OF INTEREST. The Representing Party
acknowledges that its Economic Interest or Membership Interest has not been
registered under the Securities Act or qualified under any state securities
law in reliance, in part, upon its representations, warranties and agreements
herein.
12.11 ORGANIZATION. The Member is duly organized and validly
existing under the laws of its jurisdiction of formation, with full corporate
or limited liability company power to carry on its business as now or
proposed to be conducted.
30
<PAGE>
12.12 AUTHORITY. The Member has full power and authority to enter
into this Agreement and has taken all action required to authorize the
execution, delivery and performance of this Agreement.
12.13 ENFORCEABILITY. This Agreement constitutes the legal, valid
and binding obligation of the Member, enforceable against the Member in
accordance with its terms, except as the enforcement thereof may be limited
by bankruptcy, insolvency, reorganization, moratorium or similar laws
relating to or limiting creditors' rights generally and subject to the
availability of equitable remedies.
12.14 NO VIOLATION. Neither the execution, delivery or performance
by the Member of this Agreement will: (a) violate any provision of the
Certificate of Incorporation, Certificate of Formation, bylaws, operating
agreement or other charter documents of the Member; (b) violate, or
constitute a default under any contract or agreement to which the Member or
any of its properties is subject or bound; or (c) violate any law or order to
which the Member or any of its properties is subject.
ARTICLE XIII
MISCELLANEOUS
13.1 INTERNETSTUDIOS' COUNSEL. The Members acknowledge that Loeb &
Loeb LLP is counsel to InternetStudios with respect to this Agreement and the
transactions contemplated herein and that Loeb & Loeb LLP may in the future
represent the Company in connection with its business and affairs. Each other
party hereto hereby consents to Loeb & Loeb LLP's representation of
InternetStudios with respect to this Agreement and the transactions
contemplated herein and also consents to Loeb & Loeb LLP's representation of
the Company in the future. Without limiting the generality of the foregoing,
each other party hereto agrees that Loeb & Loeb LLP may, notwithstanding any
past existing or future representation of the Company or any information or
experience obtained by Loeb & Loeb LLP in any such representation, represent
InternetStudios and/or its respective Affiliates in connection with any
future litigation, reference or other proceeding or dispute which may arise
from or relate to this Agreement or the transactions contemplated herein,
hereby waiving any rights it may have to object to such representation under
any and all circumstances. Such consent is freely given by each other party
hereto after full consideration of its consequences and after consultation
with independent legal counsel of its choice.
13.2 AMENDMENTS. No amendment to this Agreement may be made without
compliance with Section 5.1(b)(xvii). All amendments to this Agreement must
be in writing.
13.3 OFFSET PRIVILEGE. The Company may offset against any monetary
obligation owing from the Company to any Member, Economic Interest Holder or
Manager any monetary obligation then owing from that Member, Economic
Interest Holder or Manager to the Company.
13.4 ARBITRATION.
(a) GENERAL. In the event of any dispute, claim or controversy
among the parties arising out of or relating to this Agreement or the
Certificate of Formation, whether in
31
<PAGE>
contract, tort, equity or otherwise, and whether relating to the meaning,
interpretation, effect, validity, performance or enforcement of this
Agreement or the Certificate of Formation, such dispute, claim or controversy
shall be resolved by and through an arbitration proceeding to be conducted
under the auspices and the commercial arbitration rules of the American
Arbitration Association (or any like organization successor thereto) at Los
Angeles, California. The arbitrability of the dispute, claim or controversy
shall likewise be determined in the arbitration. The arbitration proceeding
shall be conducted in as expedited a manner as is then permitted by the
commercial arbitration rules (formal or informal) of the American Arbitration
Association. Both the foregoing agreement of the parties to arbitrate any and
all such disputes, claims and controversies, and the results, determinations,
findings, judgments and/or awards rendered through any such arbitration shall
be final and binding on the parties and may be specifically enforced by legal
proceedings in any court of competent jurisdiction.
(b) GOVERNING LAW. The arbitrator(s) shall follow any
applicable federal law and Delaware state law (with respect to all matters of
substantive law) in rendering an award.
(c) COSTS OF ARBITRATION. The cost of the arbitration
proceeding and any proceeding in court to confirm or to vacate any
arbitration award, as applicable (including, without limitation, each party's
attorneys' fees and costs), shall be borne by the unsuccessful party or, at
the discretion of the arbitrator(s), may be prorated between the parties in
such proportion as the arbitrator(s) determine(s) to be equitable and shall
be awarded as part of the arbitrators' award.
13.5 REMEDIES CUMULATIVE. Except as otherwise provided herein, the
remedies under this Agreement are cumulative and shall not exclude any other
remedies to which any Person may be lawfully entitled.
13.6 NOTICES. Any notice to be given to the Company or any Member,
Economic Interest Holder or Manager in connection with this Agreement must be
in writing and will be deemed to have been given and received when delivered
to the address specified by the party to receive the notice by courier or
other means of personal service, when received if sent by facsimile, or three
(3) days after deposit of the notice by first class mail, postage prepaid, or
certified mail, return receipt requested. Any such notice must be given to
the Company at its principal place of business, and to any Member, Economic
Interest Holder or Manager at the address specified in Exhibit A. Any party
may, at any time by giving five (5) days' prior written notice to the other
parties, designate any other address as the new address to which notice must
be given.
13.7 ATTORNEYS' FEES. Subject to the provisions of Section 13.4
requiring that disputes be submitted to arbitration, in the event that any
dispute between the Company and/or the Members or Economic Interest Holders
and/or the Manager should result in litigation, the prevailing party in that
dispute shall be entitled to recover from the other party all reasonable
fees, costs and expenses of enforcing any right of the prevailing party,
including without limitation, reasonable attorneys' fees and expenses.
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<PAGE>
13.8 GOVERNING LAW; JURISDICTION. The Agreement shall be governed by
and construed in accordance with the laws of the State of Delaware, without
regard to any conflicts of laws principles of the State of Delaware or any
other jurisdiction that would call for the application of the law of any
jurisdiction other than the State of Delaware. Subject to the requirement
that all disputes are to be submitted to arbitration pursuant to Section
13.4, each Member, Economic Interest Holder and Manager consents to the
exclusive jurisdiction of the federal courts sitting in Los Angeles,
California, in any action on a claim arising out of, under or in connection
with this Agreement or the transactions contemplated by this Agreement. Each
Member, Economic Interest Holder and Manager further agrees that personal
jurisdiction over it may be effected by service of process by registered or
certified mail addressed as provided in Section 13.6 and that when so made
shall be as if served upon it personally.
13.9 COMPLETE AGREEMENT. This Agreement and the Certificate of
Formation constitute the complete and exclusive statement of agreement among
the Members, Economic Interest Holders and Manager with respect to their
respective subject matters and supersede all prior written and oral
agreements or statements by and among the Members, Economic Interest Holders
and Manager. No representation, statement, condition or warranty not
contained in any such agreement shall be binding on the Members, Economic
Interest Holders or Managers or have any force or effect whatsoever.
13.10 NO THIRD-PARTY RIGHTS. No Person other than a Member, an
Economic Interest Holder, a Manager or a Person entitled to indemnification
pursuant to ARTICLE XI shall have any legal or equitable right, remedy or
claim, or be a beneficiary, under or in respect of this Agreement.
13.11 BINDING EFFECT. Subject to the provisions of this Agreement
relating to Transferability, this Agreement shall be binding upon and inure
to the benefit of the Members, Economic Interest Holders and Manager and
their respective successors, heirs and assigns.
13.12 SECTION HEADINGS. All Section headings are inserted only for
convenience of reference and are not to be considered in the interpretation
or construction of any provision of this Agreement.
13.13 INTERPRETATION. In the event any claim is made by any Member,
Economic Interest Holder or Manager relating to any conflict, omission or
ambiguity in this Agreement, no presumption or burden of proof or persuasion
shall be implied by virtue of the fact that this Agreement was prepared by or
at the request of a particular Member or Manager or that Member's, Economic
Interest Holder's or Manager's counsel.
13.14 SEVERABILITY. If any provision of this Agreement or the
application of that provision to any person or circumstance shall be held
invalid, the remainder of this Agreement or the application of that provision
to persons or circumstances other than those to which it is held invalid
shall not be affected.
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<PAGE>
13.15 MULTIPLE COUNTERPARTS. This Agreement may be executed in two
or more counterparts, each of which shall be deemed an original, but all of
which shall constitute one and the same instrument.
IN WITNESS WHEREOF, all of the Members and the Manager of the Company
have executed this Agreement, effective as of the date first written above.
CLASS A MEMBER:
InternetStudios.com, Inc.,
a Nevada corporation
By:
------------------------------
Name:
-------------------------------
Title:
-------------------------------
CLASS B MEMBERS:
MediaChase Ltd., a Delaware corporation
By:
---------------------------------
Name:
----------------------------------
Title:
----------------------------------
----------------------------------------
Heidi Lester
----------------------------------------
Steve Fredericks
MANAGER:
InternetStudios.com, Inc.,
a Nevada corporation
By:
---------------------------------
Name:
----------------------------------
Title:
----------------------------------
34
<PAGE>
EXHIBIT A
NAMES, ADDRESSES, AND CAPITAL CONTRIBUTIONS
OF CLASSES OF MEMBERS AND NAME AND ADDRESS OF
MANAGER AS OF
March 28, 2000
<TABLE>
<CAPTION>
MEMBER'S
MEMBER'S CAPITAL VOTING TARGET
MEMBER'S NAME MEMBER'S ADDRESS CONTRIBUTION INTEREST SHARES
<S> <C> <C> <C> <C>
CLASS A MEMBER:
InternetStudios.com, Inc. 1351 4th Street $ 14,924,960 100% 0
Suite 227
Santa Monica, CA 90401
CLASS B MEMBERS:
MediaChase Ltd. 8286 Santa Monica Blvd. $437,507 0% 250,000
West Hollywood, CA 90046
Heidi Lester 1351 4th Street $1,050,016 0% 600,000
Suite 227
Santa Monica, CA 90401
Steve Fredericks 1351 4th Street $700,011 0% 400,000
Suite 227
Santa Monica, CA 90401
MANAGER'S NAME MANAGER'S ADDRESS
InternetStudios.com, Inc. 1351 4th Street
Suite 227
Santa Monica, CA
</TABLE>
<PAGE>
EXHIBIT B
SPOUSAL CONSENT
Each of the undersigned acknowledges as follows:
(a) The undersigned has read the foregoing Limited Liability Company
Agreement (the "Agreement" herein) and understands the contents of the
Agreement, and is aware that by the provisions of the Agreement, the
undersigned's spouse agrees to certain restrictions and requirements relating to
the sale or other Transfer of his/her Membership and/or Economic Interests,
including the undersigned's community property interest therein (if any) of the
Company. THE UNDERSIGNED HAS THE RIGHT TO CONSULT WITH COUNSEL OF HIS OR HER
CHOOSING IN CONNECTION WITH THIS SPOUSAL CONSENT AND HE OR SHE HAS HAD AMPLE
OPPORTUNITY TO DO SO. IF THE UNDERSIGNED HAS NOT CONSULTED WITH COUNSEL IN
CONNECTION HEREWITH, THE UNDERSIGNED HAS KNOWINGLY AND WILLINGLY ELECTED NOT TO
DO SO.
(b) The undersigned (1) consents to any such restrictions and
requirements, (2) agrees that the undersigned's spouse shall have the sole and
exclusive management power with respect to the Membership and/or Economic
Interests subject to the Agreement, and (3) agrees that the undersigned will not
effect or attempt to effect any sale or other Transfer of such Membership and/or
Economic Interests, or of any interest therein.
(c) Should the spouse of the undersigned die and bequeath to the
undersigned any interest in the Membership and/or Economic Interests covered by
the Agreement in such a manner that no probate is required with respect thereto,
or should the applicable probate laws relating to the community property
interest (if any) of the undersigned in such Membership and/or Economic
Interests provide, upon the death of the undersigned's spouse, that the
undersigned is entitled to a portion of such Membership and/or Economic
Interests without such portion being subject to probate, or should the
undersigned acquire any interest in the Membership and/or Economic Interests
during the undersigned's spouse's life by reason of any agreement, court order,
judgment or decree, or for any other reason whatsoever, then the undersigned
further agrees that the undersigned shall perform all of the obligations of the
undersigned's deceased spouse imposed thereunder.
(d) The undersigned shall perform any further acts and execute and
deliver any further documents or procure any court orders which may be
reasonably necessary to carry out the provisions of this Spousal Consent.
--------------------------------
Name:
---------------------------,
Spouse of
----------------------
--------------------------------
Name:
---------------------------,
Spouse of
-----------------------
<PAGE>
EXHIBIT 10.11
CONTRIBUTION, ASSIGNMENT AND ASSUMPTION AGREEMENT
(ASSETS)
This Contribution, Assignment and Assumption Agreement (this
"Agreement") is made and entered into as of March 28, 2000 (the
"Effective Date"), by and between InternetStudios.com, Inc., a Nevada
corporation ("InternetStudios"), and Onlinefilmsales.com, LLC, a Delaware
limited liability company (the "Company"), with reference to the following
facts:
A. The Company is a newly formed Delaware limited liability company.
B. InternetStudios is in the business of compiling an online
database of filmed entertainment and facilitating a digital market targeted
at the entertainment industry (the "Business") and wishes to contribute to
the Company substantially all of the assets and properties held by it in
connection with the Business in exchange for the issuance of a membership
interest in the Company, all upon the terms and conditions set forth below.
NOW, THEREFORE, the parties hereby agree as follows:
1. ASSIGNMENT. Effective as of the Effective Date, except for the
Excluded Assets (as defined below), InternetStudios hereby assigns,
transfers, conveys and delivers to the Company, and the Company hereby
accepts from InternetStudios, all of InternetStudios' right, title and
interest in and to all of the business, goodwill, assets, properties and
rights of every nature, kind and description throughout the world, whether
tangible or intangible, real, personal or mixed, wherever located and whether
or not carried or reflected on the books and records of InternetStudios, to
the extent the same relate to or are used or held for use in connection with
the Business (collectively, the "Assets"). The Assets shall include, but not
be limited to, the following:
(a) all real property interests, including, without limitation,
the office leases listed on Schedule 1 attached hereto, together with all
fixtures, trade fixtures, plant and other improvements located thereon or
attached thereto; all of InternetStudios' rights arising out of use thereof;
and all subleases, licenses, permits, easements and rights-of-way which are
appurtenant thereto;
(b) all inventories, including, without limitation, materials,
supplies and goods relating to or used or held for use in connection with the
Business, whether located on the premises leased by InternetStudios, in
transit to or from such premises, in storage facilities or otherwise
(collectively, the "Inventories");
(c) all equipment, vehicles, furniture, supplies and other
tangible personal property relating to or used or held for use in connection
with the Business, other than the Inventories and the Books and Records
(collectively, the "Tangible Personal Property");
(d) all prepaid items of the Business (such as insurance
deposits, municipal or local tax payments or deposits, utility deposits and
the like), deferred charges,
<PAGE>
reserve accounts and other security and similar deposits relating to or used
or held for use in connection with the Business, other than those which
pertain to the Excluded Assets;
(e) all licenses and permits issued or obtained for the
Business, to the extent assignable;
(f) all of its rights, title and interest in and to that
certain Secured Promissory Note, dated November 12, 1999, by MediaChase Ltd.,
a Delaware corporation ("MediaChase"), payable to the order of
InternetStudios, in the original principal amount of $2,025,000, as amended
by those certain Allonges to Secured Promissory Note, each by MediaChase,
dated November 18, 1999, December 16, 1999, February 1, 2000 and March 27,
2000;
(g) all contracts, agreements, warranties, guaranties, options,
leases (including, without limitation, equipment and automobile leases),
subleases, licenses, purchase orders, sales orders, commitments or binding
arrangements of any nature whatsoever, express or implied, written or
unwritten, and all amendments thereto, entered into by or binding upon
InternetStudios or to which any of the properties relating to or used or held
for use in connection with the Business may be subject (collectively, the
"Contracts and Other Agreements");
(h) all books and records, ledgers, employee records, customer
lists, files, correspondence, and other written records of every kind
relating to or used or held for use in connection with the Business
(collectively, the "Books and Records"), other than those which pertain to
the Excluded Assets;
(i) all rights of InternetStudios under express or implied
warranties from suppliers or contractors with respect to the Assets, to the
extent assignable;
(j) all of InternetStudios' claims, causes of action, choses in
action, rights of recovery and rights of set-off of any kind, to the extent
assignable, other than those which pertain to the Excluded Assets;
(k) all of InternetStudios' rights to receive mail and other
communications, other than mail and communications which pertain to the
Excluded Assets;
(l) all certifications and approvals from all certifying
agencies issued to InternetStudios with respect to the Business and all
rights to all data and records held by certifying agencies to the extent
relating to the Business;
(m) all goodwill of the Business as a going concern;
(n) all proprietary information and rights relating to or used
or held for use in connection with the Business (the "Proprietary Information
and Rights"), including, without limitation, (i) all foreign and domestic
registered and unregistered trademarks, service marks, trade names (other
than "InternetStudios" or "InternetStudios.com") and slogans, the domain
name, onlinefilmsales.com, all applications therefor, and all associated
goodwill; (ii) all statutory, common law and registered copyrights (whether
foreign or domestic), all applications therefor and all associated goodwill;
(iii) all know-how, trade secrets, proprietary information
2
<PAGE>
and other related data, and all associated goodwill; (iv) all "software" and
documentation thereof, (including all electronic data processing systems and
program specifications, source codes, input data and report layouts and
format, record file layouts, diagrams, functional specifications, narrative
descriptions, and flow charts); and (v) all other inventions, discoveries,
improvements, confidential information, know-how and ideas (including those
in the possession of third parties, but relating to or used or held for use
in connection with the Business), and all drawings, records, books or other
tangible media embodying the foregoing;
(o) all accounts, notes, accounts receivable, contract rights,
drafts, and other forms of claims, demands, instruments, receivables and
rights to the payment of money or other forms of consideration, whether for
goods sold or leased, services performed or to be performed, or otherwise, to
the extent relating to or used or held for use in connection with the
Business, together with all guarantees, security agreements and rights and
interests securing the same (collectively, the "Accounts Receivable");
(p) all cash and cash equivalents, bank accounts, certificates
of deposit, bankers' acceptances, United States Government (or Agency)
securities or other securities relating to or used or held for use in
connection with the Business; and
(q) all other properties, tangible and intangible, not
otherwise referred to above to the extent relating to or used or held for use
in connection with the Business, other than those which pertain to the
Excluded Assets.
2. Notwithstanding anything to the contrary set forth herein, the
Assets shall not include any of the following rights, interests or assets,
all of which shall be retained by InternetStudios (the "Excluded Assets"):
(a) all of InternetStudios' rights to refunds of all or any
part of any taxes paid by InternetStudios, including, without limitation, all
federal, state and local income and franchise tax credits and tax refund
claims (and any foreign equivalents thereof) relating to or arising out of
the Business prior the Effective Date;
(b) all contracts, agreements, guaranties, options, rights,
warrants, commitments or binding arrangements of any nature whatsoever,
entered into by or binding upon InternetStudios relating to (i) any
commercial or private financing, or (ii) the sale of InternetStudios' capital
stock or other securities;
(c) all trademarks (whether or not registered, service marks,
trade names, and domain names, containing "InternetStudios.com" or
"InternetStudios", and all associated goodwill;
(d) all of InternetStudios' Stock Option Plans;
(e) all of InternetStudios' tax and information returns; all
correspondence between InternetStudios and its stockholders; all corporate
documents relating to the formation and capitalization of InternetStudios or
pertaining to its relations with its stockholders; stock and minute books,
and all other financial records of InternetStudios which do not relate in any
way to InternetStudios' ownership and operation of the Business; provided,
3
<PAGE>
however, that upon reasonable notice from the Company to InternetStudios or
its successors-in-interest, InternetStudios or its successors-in-interest
shall provide the Company with access at no charge to any of the foregoing
described material and with copies of any of said documents;
(f) all registrations with the Securities and Exchange
Commission and state securities authorities, all registrations and listings
with any securities exchanges and all documents relating thereto;
(g) all of InternetStudios' claims, causes of action, choses in
action, and rights of set-off of any kind against or pertaining to its
stockholders, officers and directors;
(h) all of InternetStudios' property and liability insurance
policies and all rights of every nature and description under or arising out
of such insurance policies;
(i) all of InternetStudios' equity interest in
InternetStudios.com.inc, U.K., Ltd. and all assets thereof;
(j) all of InternetStudios' rights under that certain Letter of
Intent, dated February 4, 2000 with itstv.com and any additional agreements
or instruments entered into in connection with the transactions contemplated
thereby; and
(k) all of InternetStudios' rights to receive mail and other
communications, which do not relate in any way to the operation of the
Business.
3. FAILURE TO OBTAIN CONSENTS. This Agreement shall not constitute
an assignment of any claim, asset, right, contract, permit or license if the
attempted assignment thereof without the consent of the other party thereto
would constitute a breach thereof or in any way adversely affect the rights
of InternetStudios thereunder. If such consent is not obtained, or if any
attempted assignment thereof would be ineffective or would adversely affect
the rights of InternetStudios thereunder so that the Company would not in
fact receive all such rights, then (a) only the proceeds of such claim,
asset, right, contract, permit or license shall be deemed to have been
transferred to the Company pursuant hereto and InternetStudios shall
otherwise retain such claim, asset, right, contract, permit or license and
(b) InternetStudios hereby engages the Company, and the Company hereby
accepts the engagement, to act as the attorney-in-fact of InternetStudios in
order to obtain for the Company the benefit of such claim, asset, right,
contract, permit, franchise or license.
4. ISSUANCE OF MEMBERSHIP INTEREST. In consideration of
InternetStudios' assignment, transfer, conveyance and delivery of the Assets
to the Company, effective as of the Effective Date, the Company shall issue
to InternetStudios a 100% Class A membership interest in the Company (the
"Membership Interest").
5. ASSUMPTION OF LIABILITIES AND OBLIGATIONS. As further
consideration for the assignment, transfer, conveyance and delivery of the
Assets to the Company, effective as of the Effective Date, the Company hereby
assumes and agrees to pay and perform all of the liabilities and obligations
of InternetStudios relating to, arising under or in connection with the
Assets, whether arising or accruing prior to, on or after the Effective Date,
including, without limitation, all liabilities and obligations with respect
to the Contracts and Other Agreements
4
<PAGE>
("Liabilities"); PROVIDED, HOWEVER, that in no event shall Liabilities
include the obligations arising under the instruments set forth on Schedule 2
hereto.
6. REPRESENTATIONS AND WARRANTIES.
(a) Each of InternetStudios and the Company represents and
warrants to the other that (i) it has all requisite power and authority to
execute and deliver this Agreement and any other assignments, instruments and
documents to be executed and delivered to effectuate the assignment and
assumption contemplated hereby (collectively, the "Assignment Documents");
(ii) its execution and delivery of this Agreement and the other Assignment
Documents and the performance of its obligations hereunder and thereunder
have been authorized by all necessary corporate or limited liability company
action and do not violate any laws, regulations or orders by which it is
bound; and (iii) this Agreement and the other Assignment Documents constitute
its legal, valid and binding obligations, enforceable against it in
accordance with the terms hereof and thereof.
(b) InternetStudios represents and warrants to the Company that
(i) it owns, leases or has the legal right to use all of the Assets and, with
respect to rights under the Contracts and the Other Agreements, is a party to
and enjoys the right to the benefits of all such Contracts and Other
Agreements, and (ii) it has good and marketable title to, or in the case of
leased or subleased Assets, valid and subsisting leasehold interests in, all
of the Assets, free and clear of all liens and other encumbrances other than:
(x) liens for current taxes not yet due and payable and (y) minor liens or
other encumbrances which will not materially impair the value or utility of
any material component of the Assets from and after the Effective Date.
(c) The Company understands and agrees that except as set forth
in Section 6(b) above, InternetStudios is making no representation or
warranty whatsoever, express or implied, with respect to the Assets and that
the Company is acquiring the Assets "as is" and "with all faults, if any".
7. DELIVERY. On or promptly following the Effective Date,
InternetStudios shall deliver the following to the Company or to such
location, person or entity as may be designated by the Company:
(a) The Assets, including, without limitation, (i) all Tangible
Personal Property; (ii) all originals and copies of the Contracts and Other
Agreements; and (iii) all Books and Records relating to or included in the
Assets; and
(b) Any other information, document, instrument or agreement
with respect to the Assets in the possession or control of InternetStudios.
8. REIMBURSEMENT OBLIGATION. If an amount is received or recovered
by InternetStudios after the Effective Date in respect of the Assets,
InternetStudios shall promptly pay such amount to the Company after receipt
thereof and assign to the Company any related rights under contract or
otherwise.
9. COLLECTION OF ACCOUNTS RECEIVABLE; SUPPORT SERVICES.
From and after the Effective Date, InternetStudios shall, at no cost to the
Company, assist the Company in
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collecting the Accounts Receivable transferred to
the Company. InternetStudios shall promptly pay over to the Company any amounts
received by it in respect of the Accounts Receivable. In this regard,
InternetStudios shall provide such personnel, equipment and other resources as
the Company may reasonably request to enhance and support the Company's contract
servicing and collection efforts.
10. FURTHER ASSURANCES. Each of InternetStudios and the Company
shall, at any time and from time to time after the date hereof, upon request
of the other party, execute, acknowledge and deliver all such further acts,
deeds, assignments, transfers, conveyances and assurances, and take all such
further actions, as shall be necessary or desirable to give effect to the
transactions hereby consummated and to collect and reduce any and all of the
Assets to the possession of the Company.
11. CHOICE OF LAW. This Agreement shall be governed by, and
construed in accordance with the laws of the State of California.
12. SUCCESSORS AND ASSIGNS. This Agreement and the covenants and
agreements herein contained shall inure to the benefit of and shall bind the
respective parties hereto and their respective successors and assigns.
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IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
InternetStudios.com, Inc.,
a Nevada corporation
By:_________________________________
Its:_________________________________
Onlinefilmsales.com, LLC, a Delaware
limited liability company
By: InternetStudios.com, Inc., a Nevada
corporation, its Manager
By:_________________________________
Its:_________________________________
7
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SCHEDULE 1
REAL PROPERTY
1. Lease with respect to 207-1040 Hamilton Street, Vancouver, BC.
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SCHEDULE 2
EXCLUDED LIABILITIES
Those certain Loan Agreements with Pacific Capital Markets, Inc., dated
August 26, 1999, September 3, 1999, September 24, 1999, February 9, 2000 and
March 13, 2000.
<PAGE>
EXHIBIT 10.12
CONSULTING AGREEMENT
This Agreement is made as of September 30, 1999 (the "EFFECTIVE
DATE"), between Onlinefilmsales.com, LLC, a California limited liability
company, located at 1351 4th Street, Suite 227, Santa Monica, CA 90401
("COMPANY"), and Mediachase, Ltd., a Delaware corporation, located at 8286
Santa Monica Blvd., West Hollywood, CA 90046 ("CONSULTANT").
In consideration of the mutual covenants herein contained, the parties hereby
agree as follows:
1. DEFINITIONS. For purposes of this Agreement, capitalized terms shall have
the following meaning(s):
1.1 "COMPANY MATERIALS" means a copy of all applicable Company Marks
(as defined in Section 10.1) and all other concepts, methods, text, images and
materials (with all materials provided by Company, its advertising agency, or
Company's other agents, including any works of authorship) that Company will
provide to Consultant pursuant to the Project Schedule or otherwise in
connection with Consultant's services hereunder.
1.2 "COMPANY WEB SITE" means the Web Site to be developed by
Consultant and comprised of all the Works as described in the Project Schedule.
1.3 "ERROR" means any reproducible error, problem, or defect resulting
from: (a) an incorrect functioning of the Software that affects the
functionality of the Company Web Site(s) (based upon the specifications provided
by Company in the Project Schedule and approved by Consultant) in any material
respect; or (b) any failure of the Works delivered to Company hereunder to
materially meet the specifications in the Project Schedule.
1.4 "FINAL DELIVERABLE" means the final version of a Company Web Site
or other interactive services product that will be delivered to Company (based
upon the specifications provided by Company in the Project Schedule and approved
by Consultant) after successful completion of a mutually agreed upon testing
plan where Consultant is responsible for verifying that a Company Web Site
performs in accordance with the technical specifications in the Project Schedule
and the Company is responsible for verifying the business function correctness
of the Company Web Site(s) or other interactive services product.
1.5 "INTERNET" means the world-wide network of computers which
provides access to the World Wide Web.
Consultant________________ Company________________
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1.7 "PROJECT SCHEDULE" means the Project Schedule attached hereto as
Schedule 1.
1.8 "SOFTWARE" means computer programming/formatting code or operating
instructions developed by Consultant and used to create any portion of a Company
Web Site, incorporated into a Company Web Site, or used to operate a Company Web
Site or a Web Server in connection with a Company Web Site. Software includes,
for example, any previously developed files necessary to make forms, buttons,
check-boxes, and similar functions and underlying technology or components, such
as animation templates, interface programs which link multimedia and other
programs, customized graphics manipulation engines, and menu utilities.
1.9 "THIRD PARTY SOFTWARE" means any software or other computer
programming material (for example, a standard authoring program or platform or
off-the-shelf software) which is specifically identified in the Project Schedule
as being owned by a company or individual other than Consultant, is generally
available to the public, including Company, under published licensing terms, and
will be used in the development of or to display or run a Company Web Site.
1.10 "WEB BROWSER" means software designed to allow interactive access
to the World Wide Web, including without limitation, Navigator, Microsoft
Internet Explorer, Mosaic, MacWeb/WinWeb, Cello, and Lynx.
1.11 "WEB PAGE" means a document or file that is formatted using HTML,
Java or other programming language now or in the future used by Consultant and
that is intended to be accessible to Internet users with a Web Browser.
1.12 "WEB SERVER" means a computer operated by or for Company (a) that
Consultant or others use in making a Company Web Site available on the Internet
or intranet; or (b) that has a non-live version of a Company Web Site and that
is used for making and testing content or other changes to a Company Web Site
prior to making such changes available to the public over the Internet.
1.13 "WEB SITE" means a series of interconnected Web Pages that may
either be dynamically generated or may reside in a single directory or multiple
directories on a single Web Server or multiple Web Servers.
1.14 "WORKS" mean the items listed as "Works to be Delivered" in the
"Project Timetable, Works Delivery and Payment Schedule" in the Project
Schedule, each in the form that Consultant has specifically agreed to deliver
that item to Company.
1.15 "WORLD WIDE WEB" means all of the Web Pages that are accessible to
a typical computer user with appropriate access to the Internet using a Web
Browser.
Consultant________________ Company________________
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2. SERVICES.
2.1 PROJECT SCHEDULES. Consultant has and shall continue to provide
certain services to Company, including, by way of example and not by limitation,
information architecture development, website design, website content
production, and technical consulting ("SERVICES"), all as more fully described
and specified on the project schedules that shall, from time to time, be defined
and executed by the parties and attached to this Agreement (each, a "PROJECT
SCHEDULE"). The initial Project Schedule has been attached hereto as SCHEDULE 1,
(relating to the Onlinefilmsales.com project). Each Project Schedule shall
include a description of services to be performed and a detailed budget for such
Project Schedule, along with any other supplemental or differing terms from
those contained herein. No Project Schedule is valid until executed by both
parties. Consultant will complete the Company Web Site(s) on the timetable
established in the "Project Timetable, Works Delivery and Payment Schedule" in
the Project Schedule (the "PROJECT TIMETABLE"). Company will provide to
Consultant the Company Materials, including all media elements, materials,
timely approvals necessary for Consultant to complete the Company Web Site(s) on
the Project Timetable.
2.2 MANNER OF PERFORMING SERVICES. Consultant may engage qualified
subcontractors in the performance of the services hereunder, provided however
that Company may have particular subcontractor(s) removed from the project, in
its reasonable discretion, upon two weeks notice to Consultant. Before any
Consultant employee, consultant, agent or subcontractor performs services in
connection with this Agreement, the employee, consultant, agent or subcontractor
and Consultant must have entered into a written agreement containing
"work-made-for-hire" and confidentiality provisions substantially equivalent to
those contained herein. Such agreement shall be substantially in the form
attached hereto; provided, however, that Company pre-approves the existing
agreements listed on Schedule 2 hereto.
2.3 CHANGE ORDERS. The project managers for the parties shall be
authorized to approve or disapprove certain changes to the work, schedules and
other aspects of the services, in their mutual discretion, as is more
particularly described in the attached Project Schedule. Major modifications to
the overall scope of work, budget, or the specifications in a Project Schedule,
however, shall require execution of a written change order by both parties to
this Agreement (a "CHANGE ORDER") in a form mutually acceptable to the parties.
Each Change Order complying with this section shall be deemed to be an amendment
to the applicable Project Schedule and will become part of this Agreement.
2.4 THIRD PARTY SOFTWARE. Development and use of a Company Web Site
may involve Third Party Software. Unless otherwise specified in the Project
Schedule, Consultant will be responsible for payment for, and entering into
appropriate licensing agreements concerning Third Party Software required for
the development of the
Consultant________________ Company________________
3
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Company Web Site(s), which payments will be included in
the agreed upon budget. Unless otherwise specified in the Project Schedule, the
Company will be responsible for payment for, and entering into appropriate
licensing agreements concerning use of Third Party Software required to operate
(i.e., run and display) the Company Web Site(s) or any other licensing
agreements for which Consultant is not responsible hereunder.
2.6 CONSULTANT PROVIDED MATERIALS. With the exception of the Company
Materials and the Third Party Software, Consultant will provide all other
graphics, text, drawings, and other materials required to produce the Company
Web Site(s) or complete any applicable interactive services as set forth in the
Project Schedule.
3. TERM AND TERMINATION. This Agreement shall commence on the Effective Date
and shall continue for a period of one (1) year, unless earlier terminated by
either party upon 30 days' written notice, provided that termination by
Consultant shall not be effective until completion of any specifically defined
term set forth on any Project Schedule applicable at the time of such notice,
unless otherwise agreed.
3.1 DEFAULT. In the event that either party hereto materially defaults
in the performance of any of its duties or obligations under the Agreement and
does not substantially cure such default within 30 days, or fails to commence a
cure within 10 days, after being given written notice specifying the default,
then the non-defaulting party may, by giving written notice thereof to the
defaulting party, terminate this Agreement as of a date specified in such notice
of termination; provided, however, in no event shall the cure for any Company
payment default (other than a payment which is disputed in good faith) hereunder
continue for longer than 5 business days after notice of the default.
3.2 PROJECT SCHEDULE. In the event that either party hereto materially
defaults in the performance of any of its duties or obligations under a Project
Schedule and does not substantially cure such default within 30 days, or fails
to commence a cure within 10 days, after being given written notice specifying
the default, then the non-defaulting party may, by given written notice thereof
to the defaulting party, terminate the Project Schedule as of a date specified
in such notice of termination; provided, however, in no event shall the cure for
any Company undisputed payment default hereunder continue for longer than 5
business days after notice of the default.
3.3 INSOLVENCY. In the event that either party hereto becomes or is
declared insolvent or bankrupt, is the subject of any proceedings relating to
its liquidation, insolvency or for the appointment of a receiver or similar
officer for it, makes an assignment for the benefit of all or substantially all
of its creditors, or enters into an agreement for the composition, extension, or
readjustment of all or substantially all of its obligations, then the other
party hereto may, by giving written notice thereof to such party, terminate this
Agreement as of a date specified in such notice of termination.
Consultant________________ Company________________
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3.4 EFFECT OF TERMINATION. Upon termination of this Agreement, Company
shall be obligated to pay Consultant for all services rendered pursuant to any
outstanding Project Schedules of Work through the effective date of such
termination. Upon termination of a Project Schedule, Company shall be obligated
to pay Consultant for all services rendered pursuant to the Project Schedule
through the effective date of such termination. Termination of this Agreement by
either party pursuant to the provisions of this Section 3 shall terminate each
party's obligations under this Agreement except for the provisions of this
Section 3.4 and Sections 5.1, 6.3, 7, 8, 9, 10, 11, 12, 13, 14, 15 and 16, all
of which shall survive termination of this Agreement.
4. PAYMENT FOR SERVICES; EXPENSES; EQUIPMENT
4.1 CHARGES. As full compensation for the Services to be provided by
Consultant pursuant to any Project Schedule for activities that are budgeted,
reasonably substantiated, and actually worked, Company agrees to pay Consultant
in such amounts, at such times and in such manner as is set forth in the budget
set forth on the Project Schedule. Consultant agrees that such fees will not
exceed Consultant's own actual costs in providing such services (which the
parties acknowledge will contain an overhead component as mutually agreed upon
in the budget).
4.2 EXPENSES. Company is responsible for paying or reimbursing all
reasonable expenses arising from Consultant's performance of the Services as
allowed for in the budget and set forth on the Project Schedule, as well as for
cost increases due to events of force majeure (a material interruption or
interference with the development or other services by any cause outside of
Consultant's reasonable control, including, fire, flood, epidemic, earthquake,
explosion, war, blockade, embargo, act of public enemy, civil disturbance, labor
disputes, strike, lockout, any applicable law, acts of God), changes that could
not be reasonably anticipated at the time the budget was prepared, costs
relating to any acceleration of schedule, costs for which Company is reimbursed
by insurance, costs associated with any delay in obtaining approvals or Company
Materials, and changes requested by Company.
4.3 EQUIPMENT. The party indicated on the appropriate Project Schedule
shall furnish, at that party's expense, all equipment and materials used to
perform the Services.
5. PROVISION OF SERVICES.
5.1 INDEPENDENT CONTRACTOR. It is understood and agreed that
Consultant shall perform the Services as an independent contractor and
consultant. Consultant shall not be deemed to be an employee of Company.
Consultant shall not be entitled to any benefits provided by Company to its
employees, and Company will make no deductions from any of the payments due to
Consultant hereunder to pay any governmental agency or authority, except as may
otherwise be required by law.
Consultant________________ Company________________
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Consultant agrees that Consultant shall be personally responsible for any and
all taxes and other payments due on payments received by him from Company
hereunder.
5.2 KEY PERSONNEL. Christopher Lutz ("LUTZ") has been identified by
the parties as being essential to the performance of the services by Consultant
hereunder. Lutz shall perform the role described below and in the attached
Project Schedule(s) on a first priority, non-exclusive basis, and shall not be
removed the projects associated with such Project Schedule(s) without the prior
written consent of Company. Should Lutz for any reason become unable or
unwilling to continue to perform his role, Company may, in its sole discretion,
immediately terminate this Agreement and all Project Schedules, or request that
Consultant provide replacement personnel. Any replacement personnel shall have
equivalent experience and qualifications and shall be subject to the prior
approval of Company. In consideration of the agreement by Lutz to perform these
services, the parties acknowledge that Company has agreed to pay Lutz (in
addition to the budget specified in the Project Schedule) a monthly consulting
fee as set forth in the Project Shedule attached hereto.
6. DELIVERY AND ACCEPTANCE. The following provisions will apply for delivery
and acceptance of the Works developed hereunder. The standard for acceptance of
the Works developed hereunder shall be material conformity to the specifications
set forth in the Project Schedule.
6.1 Company shall accept or reject the initial version and any
corrected version of each Work within 10 business days after receipt, notifying
Consultant in writing of any Error, deficiencies or inadequacies in the initial
draft. Failure to so notify Consultant within such period shall be deemed
acceptance of the Work.
6.2 If Company rejects the initial version or any corrected version of
any Work, Consultant shall immediately begin commercially reasonable attempts to
correct such Error and shall have a period of 7 business days from receipt of
the written rejection to correct all Errors, deficiencies or inadequacies
specified by Company and submit a revised draft, or such amount of time as is
reasonably agreed upon by the parties.
6.3 In the event that Company and Consultant cannot agree on
acceptance of, or acceptable modifications to, any Work within 30 business days
following the later of (i) the date indicated on the Project Timetable for
delivery of that Work; or (ii) the date of the original submission of that Work
to Company, Company shall have the option of terminating the Project Schedule on
the terms described herein and therein. Unless otherwise expressly provided in
the Project Schedule, upon such termination by Company, Company shall be
obligated to compensate Consultant for all accepted Work to date, and Company
shall not be obligated to compensate Consultant for all work not accepted to
date; provided however, that Company shall have the option to receive such
unaccepted work so long as Company compensates Consultant. In addition,
Consultant________________ Company________________
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subject to payment of the compensation contemplated in this Section 6.3,
Company shall be entitled to receive copies of all Works (including but not
limited to the source code of the Works for use pursuant to the terms herein)
in existence at that point, and to take over development of the project from
that point.
In the event of a dispute between the parties as to whether the Work was
in material conformity to the specifications set forth in the Project Schedule,
the parties agree to submit such dispute to expedited, binding arbitration. The
arbitration shall commence within 30 days after the request for arbitration by
either party and will be conducted in accordance with the Commercial Arbitration
Rules of the American Arbitration Association (the "Rules"). The parties agree
to select a single arbitrator in accordance with the Rules, which arbitrator
shall have knowledge of the technical delivery issues in the new media area. The
arbitrator shall decide all matters in dispute in accordance with the law of the
State of California and the provisions of this Agreement. To the extent that
such Rules are silent, the procedures for arbitration in the State of
California, Cal. Code Civ. Proc ' 1280 et seq., shall be applicable to the
arbitration. Notwithstanding anything to the contrary in the Rules or the Code
of Civil Procedure, the parties agree that there shall be no depositions and
limited document discovery as ordered by the arbitrator. The arbitration shall
be initiated in and take place in Los Angeles County, California, or any other
place selected by mutual, written agreement. All costs incurred in connection
with any arbitration proceedings hereunder shall be divided evenly between the
party(ies). Each party shall bear his, her or its own attorneys' fees and costs.
The award rendered by the arbitrator shall be final and conclusively binding on
the parties, and judgment on such award may be entered in any court of competent
jurisdiction. Neither a party nor an arbitrator may disclose the existence,
content or results of any arbitration hereunder without the prior written
consent of all parties.
7. REPRESENTATIONS AND WARRANTIES OF COMPANY. Company represents and
warrants to Consultant that:
7.1 Company either owns or has the right to the use (as contemplated
herein) of the Company Materials and Company Marks. Company represents and
warrants that the Company Materials and Company Marks are either proprietary to
Company or are the intellectual property of third parties duly licensed to
Company. Company further represents and warrants that it has full right and
power to enter into and perform this Agreement without the consent of any third
party
7.2 Company further represents and warrants that it has either sole,
exclusive title to the Company Materials or the right to license or sub-license
such Company Materials and that such Company Materials do not and will not
infringe upon or violate any U.S. patent, copyright, trademark, trade secret, or
other proprietary or intellectual property rights of any third party. Company
also represents and warrants and covenants that its use of the Final Deliverable
will comply with applicable laws,
Consultant________________ Company________________
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regulations and all third party agreements applicable hereto.
8. REPRESENTATIONS AND WARRANTIES OF CONSULTANT. Consultant hereby
represents and warrants, to the best of Consultant's knowledge, that:
8.1 (a) Consultant is the originator or valid licensee of works
created under this Agreement on behalf of Company and any third parties will
have executed assignment of rights reasonably acceptable to Company; (b) all
work delivered to Company under this Agreement, excluding any Third Party
Software or third party materials and materials provided by Company, does not
infringe the proprietary rights of any third party; (c) none of the Work
produced by Consultant nor any element thereof will be subject to any
restrictions or to any mortgages, liens, pledges, security interests,
encumbrances or encroachments; (d) Consultant will not grant, directly or
indirectly, any rights or interest whatsoever in the Company Materials to third
parties except as provided herein or a Project Schedule; (e) Consultant has full
right and power to enter into and perform this Agreement without the consent of
any third party; (f) Consultant will take all reasonably necessary precautions
to prevent injury to any persons (including employees of Company) or damage to
property (including Company's property) in connection with Consultant's services
during the term of this Agreement; (g) should Company permit Consultant to use
any of Company's equipment, tools, or facilities during the term of this
Agreement, such permission shall be gratuitous and Consultant shall be
responsible for any injury to any person (including death) or damage to property
(including Company's property) arising out of use of such equipment, tools or
facilities, whether or not such claim is based upon its condition or on the
alleged negligence of Company in permitting its use; (h) Consultant shall comply
with all applicable laws and regulations in performance of its services
hereunder. Notwithstanding the foregoing, Consultant shall not be deemed to be
making any representations or warranties that any of the Work or the services of
Consultant hereunder do not violate any pending or issued patent; provided,
however, that Consultant represents and warrants that it has no actual knowledge
(without any investigation) of any such patent violation(s).
8.2 Consultant further represents that, subject to the qualifications
herein, the Final Deliverable accepted by Company will materially comply with
the specifications in the Project Schedule and any Change Orders; and the Final
Deliverable will function with properly configured Web Browsers and with
MailServ, ListServ, GopherServ, FTP servers, and Telnet. The Consultant
expressly disclaims any warranty that the Final Deliverable will be error free
or operate without interruption.
9. CONFIDENTIAL INFORMATION.
9.1 CONFIDENTIALITY. In connection with the purposes of this
Agreement, each party (the "disclosing party") has and will continue to disclose
to the other party (the "receiving party") certain information (i) that is
marked or otherwise identified, orally or in
Consultant________________ Company________________
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writing, as confidential or proprietary information of the disclosing party
or a third party ("CONFIDENTIAL INFORMATION") prior to, upon or promptly
after receipt by the receiving party; or (ii) which the receiving party
should recognize from the circumstances surrounding the disclosure to be
Confidential Information. The receiving party (x) shall hold all Confidential
Information in confidence and will use such information only for the purposes
of fulfilling the receiving party's obligations hereunder and for no other
purpose, and (y) shall not disclose, provide, disseminate or otherwise make
available any Confidential Information of the disclosing party to any third
party, in either case without the express written permission of the
disclosing party.
9.2 SCOPE. The foregoing obligations in Section 9.1 shall not apply to
(a) use or disclosure of any information pursuant to the exercise of the
receiving party's duties under this Agreement; (b) information that is or
becomes generally known or available by publication, commercial use or otherwise
through no fault of the receiving party; (c) information that is independently
developed or learned by the receiving party other than pursuant to this
Agreement; (d) information that is lawfully obtained from a third party who has
the right to make such disclosure without restriction; (e) any disclosure
required by applicable law, provided that the receiving party shall use
reasonable efforts to give advance notice to and cooperate with the disclosing
party in connection with any efforts to prevent such disclosure; or (f)
information that is released for publication by the disclosing party in writing.
10. TRADEMARKS.
10.1 LICENSE TO USE COMPANY MATERIALS, TRADEMARKS AND LOGOS. Subject to
the terms and conditions of this Agreement, Company hereby grants to Consultant
a limited, non-exclusive, non-transferable license to use any Company Materials,
and to use the Company's insignia, tradenames, trademarks, service marks and
logos set forth therein, or as otherwise specified in writing by Company
(collectively the "COMPANY MARKS"), to display Company Marks in order for
Consultant to perform its obligations under this Agreement. Subject to the terms
and conditions of this Agreement, Consultant hereby grants to Company a limited,
non-exclusive, non-transferable license to use any Consultant materials provided
to Company by Consultant (if any) (the "CONSULTANT MATERIALS"), and to use the
Consultant's insignia, tradenames, trademarks, service marks and logos set forth
therein, or as otherwise specified in writing by Consultant (collectively the
"CONSULTANT MARKS"), to display Consultant Marks in order for Company to perform
its obligations under this Agreement.
10.2 ADVERTISING, AND CREDIT. Except as provided herein, no press
release, announcement, publication, or other use of the Consultant Marks or
Company Marks, as applicable (collectively, the "Marks"), shall be made by
either party without the other party's prior written approval. Consultant shall
use only the most current Company Materials and Company Marks, as may be
provided by Company from time to time. Consultant shall not form any combination
marks with Company Marks. Company shall
Consultant________________ Company________________
9
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use only the most current Consultant Marks, as may be provided by Consultant
from time to time. Company shall not form any combination marks with
Consultant Marks. Each party agrees and recognizes the other party's
exclusive ownership of such party's Marks worldwide, and agrees not to take
any action inconsistent with the other party's ownership of the Marks and
agrees that any benefits accruing from use of such Marks shall automatically
vest in the party owning such Marks. Consultant may not modify for public
display any Company Materials or Company Marks, except upon receiving
Company's prior written approval on a case-by-case basis. Company shall not
modify the Consultant Marks. All rights not expressly granted hereunder are
reserved by the parties.
11. NON-INTERFERENCE WITH BUSINESS.
11.1 SUBSTANTIALLY SIMILAR SERVICES. During the Term, Consultant agrees
not to undertake work on a project that is competitive to the project described
in the Project Schedule for any competitor of Company (as determined by Company)
without first receiving written permission to do so from Company. The term
"competitive" shall have the meaning set forth in the Project Schedule.
11.2 COMPANY CLIENTS, ASSOCIATES AND EMPLOYEES. Neither party shall,
directly or indirectly solicit or encourage to cease work with the other party
or any of its affiliates any employee or consultant then under contract with
such party or any of its affiliates within 3 months of the termination of this
Agreement.
12. ALLOCATION OF INTELLECTUAL PROPERTY RIGHTS.
12.1 RIGHTS IN THE SOFTWARE. The Software and all rights and any source
code related to the Software shall be owned exclusively by Consultant.
Consultant shall retain the right to reuse or incorporate Software whether
previously developed or developed pursuant to the Project Schedule, or in other
projects for other customers, provided however, that no Software containing any
Company Materials shall be reused in such manner.
12.2 RIGHTS IN THE WORKS. Subject to the rights of Consultant in the
Software described in Sections 12.1 and with the exception of any Third Party
Software, (i) the services provided by Consultant and the Works shall constitute
"works made for hire" for Company, as that phrase is defined in the Copyright
Act, and (ii) Company shall be considered the author and shall be the copyright
owner of the Works. If any of the Works do not qualify for treatment as "works
for hire" or if Consultant retains any interest in any components of the Works
for any other reason, Consultant hereby grants, assigns and transfers to Company
ownership of all United States and international copyrights and all other
intellectual property rights in the Works, subject to certain rights of
Consultant described herein, and all the rights of use with respect thereof
which are intended to be conferred under this Section 12.2, free and clear of
Consultant________________ Company________________
10
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any and all claims for royalties or other compensation except as stated in a
Project Schedule or herein.
12.3 RIGHTS IN THE MARKS; DOMAIN NAMES. Consultant agrees that the
Company Marks and any goodwill appurtenant thereto shall be owned exclusively by
Company and shall inure solely to the benefit of Company. Company agrees that
the Consultant Marks and any goodwill appurtenant thereto shall be owned
exclusively by Consultant and shall inure solely to the benefit of Consultant.
Company shall own and be the registrant for all domain names associated with any
Company Web Site developed hereunder. If Consultant registers any domain names
on behalf of Company, Consultant shall take all actions necessary to effect
transfer of such domain names to Company.
12.4 LIMITED LICENSE TO THE SOFTWARE. Consultant hereby grants Company
in perpetuity a nonexclusive, non-transferable license throughout the universe
to copy, distribute, transmit, display, perform, create derivative works, and
otherwise use the Software in object code form, in whole or in part, including,
without limitation, the right to add to, subtract from, arrange, rearrange,
revise, modify, change and adapt the Software and any part or element thereof.
All rights under this license shall be exercised by the Company solely to
operate, maintain, and make the Company Web Site(s) available to end users or
for other related business purposes.
12.5 THIRD PARTY SOFTWARE. Consultant has identified in the Project
Schedule certain Third Party Software which may be used in the development of
(or may need to be used by Company in the operation or modification of) the
Company Web Site(s) for which Consultant cannot grant to Company the rights set
forth in Sections 12.2 and 12.3 above. Except to the extent described in a
Project Schedule, Consultant represents and warrants to Company that there are
no restrictions or royalty terms applicable to Consultant's or Company's use of
such Third Party Software in making the Company Web Site(s) available on the
Internet or in preparing modifications of the Company Web Site(s).
13. INDEMNIFICATION.
Company shall defend, indemnify and hold Consultant and its principals,
officers, directors and affiliates harmless from and against any and all
liabilities, losses, damages, costs and expenses (including legal fees and
expenses) associated with any claim or action brought against them by a third
party arising out of (i) any breach or alleged breach of any of the
representations and warranties of Company contained herein, (ii) any breach or
alleged breach by Company of any other covenant contained herein, or (iii) the
production, development or exploitation of the Work or the operation of
Company's business; provided, however, that the foregoing shall not be deemed to
relieve Consultant of its obligation to indemnify Company as provided herein.
Consultant________________ Company________________
11
<PAGE>
Consultant agrees to indemnify and hold Company and its principals, officers,
directors and affiliates harmless from and against any and all liabilities,
losses, damages, costs and expenses (including legal fees and expenses)
associated with any claim or action brought against them by a third party
arising out of (i) any breach of any of the representations and warranties of
Consultant contained herein, or (ii) any breach by Consultant of any other
covenant contained herein.
The party being indemnified hereunder (the "indemnified party") shall notify the
party agreeing to indemnify such party (the "indemnifying party") promptly of
any such claim in writing, provided, however, that the failure to give such
notice shall not relieve the indemnifying party of the indemnifying party's
obligations hereunder except to the extent that the indemnifying party was
actually and materially prejudiced by such failure with the indemnified party's
liability limited to direct damages caused by such failure. The indemnifying
party will have the sole right to conduct the defense of any such claim or
action (with counsel reasonably satisfactory to the indemnified party) and all
negotiations for its settlement or compromise unless otherwise agreed to in
writing. However, if the indemnifying party, after receiving notice of any such
claim, fails promptly to begin the defense of such claim or action, the
indemnified party may (upon notice to the indemnifying party) retain counsel and
commence to undertake the defense, compromise, or settlement of such claim or
action and any such actions shall be at the expense of the indemnifying party
unless and until indemnifying party undertakes the defense as contemplated
herein. Neither party may enter into any compromise or settlement that
materially affects the other party without the other party's written approval.
14. LIMITATION OF LIABILITY. NOTWITHSTANDING ANY TERM OR PROVISION CONTAINED
IN THIS AGREEMENT, IN NO EVENT WHATSOEVER SHALL EITHER PARTY BE LIABLE TO THE
OTHER PARTY OR TO ANY OTHER PERSON, FIRM OR CORPORATION, FOR ANY INDIRECT,
INCIDENTAL, SPECIAL, CONSEQUENTIAL, EXEMPLARY OR PUNITIVE DAMAGES, OR OTHER
SIMILAR TYPE OF DAMAGES, INCLUDING YET NOT LIMITED TO DAMAGES BASED UPON LOSS OF
PROFITS AND/OR LOSS OF BUSINESS ARISING OUT OF OR IN ANY WAY RELATED TO THIS
AGREEMENT, AND/OR SUCH PARTY'S ALLEGED BREACH OF THIS AGREEMENT, WHETHER OR NOT
SUCH PARTY IS INFORMED, KNEW OR SHOULD HAVE KNOWN, OF THE POSSIBILITY OF SUCH
DAMAGES IN ADVANCE.
THE LIMITATIONS ON LIABILITY SET FORTH IN THIS SECTION SHALL APPLY TO ALL CAUSES
OF ACTION, INCLUDING, YET NOT LIMITED TO, BREACH OF CONTRACT, BREACH OF
WARRANTY, STRICT LIABILITY, NEGLIGENCE MISREPRESENTATION AND OTHER TORTS, AND
LIABILITY BASED UPON THE PROVISIONS OF ANY PART OF THIS AGREEMENT AND ANY
FEDERAL, STATE AND/OR LOCAL LAW AND/OR ORDINANCE.
Consultant________________ Company________________
12
<PAGE>
15. EQUITABLE RELIEF. Except for the limitations described in Section 14,
each party recognizes that nothing in this Agreement is intended to limit any
remedy of the other under the California Uniform Trade Secrets Act. In addition,
Consultant recognizes that the covenants contained in Section 8 hereof are
reasonable and necessary to protect the legitimate interests of the Company,
that the Company would not have entered into this Agreement in the absence of
such covenants, and that Consultant's violation or threatened violation of such
covenants will cause Company irreparable harm and significant injury, the amount
of which may be extremely difficult to estimate, thus, making any remedy at law
or in damages inadequate. Therefore, Consultant agrees that Company shall have
the right to apply to any court of competent jurisdiction for an order
restraining any breach or threatened breach of this Agreement and for any other
relief Company deems appropriate, without the necessity of posting of any bond
or security. This right shall be in addition to any other remedy available to
Company in law or equity.
16. MISCELLANEOUS
16.1 RETURN OF COMPANY PROPERTY. On termination of this Agreement, or
at any time the Company so requests, Consultant will deliver immediately to the
Company all property belonging to the Company and all material containing or
constituting Company's Confidential Information, including any copies in its
possession or control, whether prepared by Consultant or by others. On
termination of this Agreement, Company will deliver immediately to the
Consultant all property belonging to the Consultant and all material containing
or constituting Consultant's Confidential Information, including any copies in
its possession or control, whether prepared by Company or by others.
16.2 GOVERNING LAW. This contract will be governed by and construed in
accordance with the laws of the State of California, without giving effect to
its conflicts of laws rules. Any dispute arising under this Agreement shall be
heard in the state or federal courts within Los Angeles County, California.
16.3. SEVERABILITY. If any provision of this Agreement is determined to
be invalid, illegal or unenforceable, the validity or enforceability of the
other provisions shall not be affected.
16.4. ASSIGNMENT. Consultant shall not assign, sell, transfer, delegate
or otherwise dispose of, whether voluntarily or involuntarily, or by operation
of law, any rights or obligations under this Agreement. Any purported
assignment, transfer, or delegation by Consultant shall be null and void. In the
event of any assignment by Company to a third party, Company shall thereafter
remain liable for its obligations hereunder.
Consultant________________ Company________________
13
<PAGE>
16.5 MODIFICATION. No term or provision of this Agreement may be
amended, waived, released, discharged or modified in any respect except in
writing, signed by the parties hereto.
16.6 AMENDMENT. In circumstances where the Services change and/or new
Services arrangements are made, the terms and conditions as described by all
other provisions of this Agreement will remain in full force and effect whether
or not a new Agreement, addendum, or change order is executed by both parties.
16.7 ENTIRE AGREEMENT. This Agreement sets forth the entire
understanding between the parties with respect to the subject matter hereof, and
there are no terms, conditions, representations, warranties or covenants other
than those contained herein. This Agreement supersedes any previous agreements
or understandings between the parties with respect to the subject matter hereof,
whether written or oral.
16.8 HEADINGS AND CAPTIONS. The Headings and Captions in this Agreement
are included for purposes of clarity and do not represent material terms or
conditions of this agreement.
16.9 MODIFICATION, WAIVER. This Agreement may be modified only in a
writing signed by Company. Failure to enforce any provision of this Agreement
shall not constitute a waiver of any term hereof.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and
year set forth above.
AGREED TO BY:
Onlinefilmsales.com, LLC, Mediachase, Ltd.
By:________________________________ By:__________________________________
Title:_____________________________ Title:_______________________________
Date:______________________________ Date:________________________________
Consultant________________ Company________________
14
<PAGE>
SCHEDULE 1
PROJECT SCHEDULE
RELATING TO
ONLINEFILMSALES.COM
The following is Project Schedule No. 1 (the "PROJECT SCHEDULE"), made as of
September 30, 1999 to the Consulting Agreement (the "AGREEMENT") executed on
September 30, 1999, between Onlinefilmsales.com, LLC ("COMPANY"), and
Mediachase, Ltd. ("CONSULTANT"). Except as specifically stated herein, each
capitalized term used in this Project Schedule shall have the same meaning as
is assigned to it in the Agreement.
1. SERVICES TO BE PROVIDED
The "SERVICES," as that term is used in the Agreement, shall include the
following:
Consultant has and shall continue to perform all services and take all
actions necessary to develop, create and facilitate the initial launch on the
Internet of the ONLINEFILMSALES.COM Web Site, as contemplated by the parties
herein. Consultant shall produce and deliver each Work described in section 6
below. Consultant's services shall include all work necessary to create a
working, interactive Web Site which conforms in all material and functional
respects to the prototype delivered to Company by Consultant on February 21,
2000. The standard of acceptance for all Works shall be material conformity
to (i) the prototype; and (ii) the written specifications provided by to
Company by Consultant in the specifications document to be delivered by
Consultant to Company on or before a date to be determined (but currently
anticipated to be on or about April 13, 2000).
2. COMPENSATION.
Company shall cash flow all fees and expenses according to a budget mutually
agreed upon by the parties. The parties agree that prior to the first day of
each calendar month (commencing with April, 2000), the parties will agree
upon the estimated budget of expenses for the upcoming month and the
particular deliverables anticipated for such month. Company will then pay the
estimated amount on the first day of the month. Company will remain obligated
to pay actual costs upon Consultant's request to the extent they exceed the
estimated costs and, in the event actual costs are less than estimated costs,
such amount will be applied against the estimated budget of expenses for the
next month (or upon termination of this Agreement refunded to the Company).
Company shall pay such budgeted amounts in advance each month.
Additionally, the parties acknowledge that such budget shall include a
monthly consulting fee for the services of Lutz in the amount of $14,000 per
month for his services as described in Section 5.2 of the Agreement through
September, 2000. The parties acknowledge that the budget shall also include an
additional bonus to Consultant equal to 80% of the $14,000 monthly fee for
the three months of February, March and April, 2000. The parties further
acknowledge that the general overhead formula and rates for principals of
Consultant (other than Lutz) used in computing the invoices for February,
2000 will be approved for budgeting purpose unless mutually agreed to the
contrary by the parties in writing. The parties acknowledge that MediaChase
shall not be obligated to proceed forward each month unless the monthly
budget and deliverables are agreed to by the parties.
3. PROJECT MANAGERS.
Company and Consultant shall each designate a project manager who will assume
primary responsibility for communicating with the other party and for advancing
the project. In addition, Company will appoint a production accountant who will
be on site at Consultant's offices. Consultant shall not be authorized to pay
any invoices to third parties without the prior approval of the production
accountant.
Consultant Project Manager(s):
Eric Olson and/or
Chris Lutz
Company Project Manager:
Dean Shapiro and/or
Heidi Lester
Company Production accountant:
Bennett Lientz
4. TERM AND TERMINATION.
This Project Schedule shall commence upon the effective date of the Agreement
and shall terminate upon delivery and acceptance of the Works described in
Section 7 (but in no event later than September 30, 2000).
5. COMPANY MATERIALS. Company or other representatives shall provide
Consultant with the following in the formats set forth in the table below
(except for items specifically described below as being provided by
Consultant):
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
MATERIALS TO BE PROVIDED BY COMPANY
------------------------------------------------------------------------------------------------------------------
SECTION OF REQUIRED DETAILED REQUIRED PARTY
WEB SITE CONTENT DESCRIPTION FORMAT RESPONSIBLE DATE DUE
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
[Section] [Content] [Description] [Format] [ Company / Consultant ] [DATE]
TBD TBD TBD TBD TBD TBD
------------------------------------------------------------------------------------------------------------------
</TABLE>
15
<PAGE>
The content list may change throughout the development process. The parties
agree the Consultant Project Manager and Company Project Manager can
authorize reasonable changes to the content list without execution of a
Change Order, but must confirm such changes in writing by fax or email. If
the Project Managers determine that the timing or scope of requested content
changes is likely to effect estimated project costs or milestones, a Change
Order is required before the changes contemplated will be executed by
Consultant.
6. PROJECT TIMETABLE FOR WORKS DELIVERY. Based upon Company's written
specifications, Consultant has described the major milestones, works to be
delivered and dates for delivery of Works, below. Company agrees that any
delay with respect to the provision of Company Materials, approvals, or other
assistance to Consultant, changes in the specifications by Company (or delays
contemplated as a result of the matters described in Section 4.2 of the
Agreement) shall reasonably extend the deadline for subsequent tasks or
milestones set forth in the table below by a period at least equal to such
delays. In addition, for any Company obligation described as time-sensitive
or critical in this Project Schedule, failure of the Company to meet its
deadline due to the delays will entitle Consultant to prepare a revised
Project Timetable based on a realistic estimate of the effect of the delay on
the completion of the project, taking into account other work scheduled by
Consultant. [THE FOLLOWING CHART IS PROVIDED AS AN EXAMPLE. ACTUAL MILISTONE
SCHEDUL TO BE DETERMINED.]
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
PROJECT ESTIMATE
-------------------------------------------------------------------------------------------------------------------
MILESTONE DESCRIPTION OF MILESTONE WORKS TO BE DELIVERED DATE
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Kick-Off Meeting Development process begins, None January 1, 2000
with Consultant design team
beginning work on design
options.
-------------------------------------------------------------------------------------------------------------------
Delivery of Specifications, including Specifications Document [Date]
Specifications a feature summary, TBD
Project timeline, and
deliverables.
-------------------------------------------------------------------------------------------------------------------
Beta Site Completion/ Working site with Prototype with technical
Quality Assurance technical functionality components completed TBD
and revisions based
on client comments.
-------------------------------------------------------------------------------------------------------------------
Launch Delivery of completed version 1 Final Deliverable TBD
(known to the parties as Phoenix
Version 1.0) and debut of the
functioning Web Site.
-------------------------------------------------------------------------------------------------------------------
TOTAL ESTIMATED PRICE: $_______.00
-------------------------------------------------------------------------------------------------------------------
</TABLE>
16
<PAGE>
7. WORKS DELIVERED TO COMPANY. Each item listed in the "Works to be
Delivered" column in the chart above ("WORKS") will be subject to delivery and
acceptance by the Company under the terms of the Agreement and subject to the
agreement of the parties on the actual delivery items and payment of amounts
in advance of each calendar month.
8. THIRD PARTY SOFTWARE. The following Third Party Software will be
necessary for the operation of the Company Website: [TBD]. [Note: Must include
licensing fees per Section 2.4 of the Agreement]
9. COMPLETION DATE. The Project is proposed for completion on or before
[TBD].
10. DEVELOPMENT SITE. The URL for the development site which Company may use
to review progress under this Project Schedule is:
Development Site IP Address: 172.24.24.11
Username:___________________________
Password:___________________________
11. CONSULTANT AND COMPANY CONTACTS.
<TABLE>
<CAPTION>
<S> <C> <C>
Company- Contact Consultant- Technical Contact Consultant- Adminstrative
Heidi Lester Chris Lutz Contact
1351 4th Street, Suite 227 8286 Santa Monica Blvd. Melanie Lutz
Santa Monica, CA 90401 West Hollywood, CA 90046 8286 Santa Monica Blvd.
Phone: 310.394.4025 Phone: 323.822.3600 West Hollywood, CA 90046
Fax: 310.394.2625 Fax: 323.822.3606 Phone: 323.822.3600
[email protected] [email protected] Fax: 323.822.3606
[email protected]
</TABLE>
Company agrees that the individuals listed above have full authority to direct
and provide feedback relating to the services described in this Project
Schedule, including but not limited to the ability to execute a
Milestone/Deliverable Acknowledgement of Acceptance.
12. COMPETITIVE PROJECT. For purposes of Section 11.1 of the Agreement, a
"competive project" shall mean the development of any solution or program
which directly enables users to engage in transactions to purchase or license
rights to completed motion pictures or a database and/or tracking system
relating to the management of the purchase or license of rights to completed
motion pictures.
13. CONSULTANT INTELLECTUAL PROPERTY REPRESENTATIONS. The representations
of Consultant in Section 8.1 of the Agreement, regarding intellectual
property rights, are made to the best of Consultant's knowledge without any
independent investigation.
Onlinefilmsales.com, LLC Mediachase, Ltd.
By:______________________________ By:____________________________________
Title:___________________________ Title:_________________________________
Date:____________________________ Date:__________________________________
17
<PAGE>
EXHIBIT 10.13
LIMITED LIABILITY COMPANY AGREEMENT
OF
REPORTERTV.COM, LLC
A DELAWARE LIMITED LIABILITY COMPANY
THE SECURITIES REPRESENTED BY THIS AGREEMENT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 NOR REGISTERED OR QUALIFIED UNDER ANY STATE SECURITIES
LAWS. SUCH SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, DELIVERED AFTER SALE,
TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS QUALIFIED AND REGISTERED UNDER
APPLICABLE STATE AND FEDERAL SECURITIES LAWS OR UNLESS, IN THE OPINION OF
COUNSEL SATISFACTORY TO THE COMPANY, SUCH QUALIFICATION AND REGISTRATION IS NOT
REQUIRED. ANY TRANSFER OF THE SECURITIES REPRESENTED BY THIS AGREEMENT IS
FURTHER SUBJECT TO OTHER RESTRICTIONS, THE TERMS AND CONDITIONS OF WHICH ARE SET
FORTH IN THIS AGREEMENT.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I DEFINITIONS..............................................................................2
1.1 "Act".........................................................................................2
1.2 "Additional Capital"..........................................................................2
1.3 "Adjusted Capital Account"....................................................................2
1.4 "Adjusted Capital Contribution"...............................................................2
1.5 "Affiliate"...................................................................................2
1.6 "Agreed Overrun"..............................................................................2
1.7 "Agreement"...................................................................................2
1.8 "Affected Interest"...........................................................................2
1.9 "Bankruptcy"..................................................................................2
1.10 "Bona Fide Offer".............................................................................3
1.11 "Budget" .....................................................................................3
1.12 "Capital Account".............................................................................3
1.13 "Capital Contribution"........................................................................3
1.14 "Certificate of Formation"....................................................................3
1.15 "Closing".....................................................................................3
1.16 "Code" .....................................................................................3
1.17 "Company".....................................................................................3
1.18 "Company Minimum Gain"........................................................................3
1.19 "Confidential Information"....................................................................4
1.20 "Contribution Cap"............................................................................4
1.21 "Contribution Loan"...........................................................................4
1.22 "Cumulative Default Amount"...................................................................4
1.23 "Distributable Cash"..........................................................................4
1.24 "Distribution"................................................................................4
1.25 "Economic Interest"...........................................................................5
1.26 "Economic Interest Holder"....................................................................5
1.27 "Economic Risk of Loss".......................................................................5
1.28 "Eligible Members"............................................................................5
1.29 "Fair Market Value"...........................................................................5
1.30 "Fiscal Year".................................................................................5
1.31 "Former Member"...............................................................................5
1.32 "Former Member's Interest"....................................................................5
1.33 "Initial Call Notice".........................................................................5
1.34 "Interest Holder".............................................................................5
1.35 "Joint Designee"..............................................................................5
1.36 "Majority in Interest"........................................................................5
1.37 "Managers"....................................................................................5
1.38 "MediaChase"..................................................................................5
1.39 "Member" .....................................................................................5
1.40 "Member Minimum Gain".........................................................................6
1.41 "Member Nonrecourse Debt".....................................................................6
1.42 "Member Nonrecourse Deductions"...............................................................6
</TABLE>
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<TABLE>
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<S> <C>
1.43 "Membership Interest".........................................................................6
1.44 "Membership Termination Event"................................................................6
1.45 "Net Profits" and "Net Losses"................................................................6
1.46 "Noncompete Date".............................................................................6
1.47 "Nonrecourse Deductions"......................................................................7
1.48 "Nonrecourse Liability".......................................................................7
1.49 "Notice" .....................................................................................7
1.50 "Offered Interest"............................................................................7
1.51 "Onlinefilmsales".............................................................................7
1.52 "Person" .....................................................................................7
1.53 "Preferred Return"............................................................................7
1.54 "Preferred Return Account"....................................................................7
1.55 "Prime" ......................................................................................7
1.56 "Securities Act"..............................................................................7
1.57 "Subsequent Call Notice"......................................................................7
1.58 "Tax Credits".................................................................................7
1.59 "Tax Matters Partner".........................................................................7
1.60 "Transfer"....................................................................................7
1.61 "Treasury Regulations"........................................................................8
1.62 "United States Bankruptcy Code"...............................................................8
1.63 "Unpaid Preferred Return".....................................................................8
1.64 "Voting Interest".............................................................................8
ARTICLE II ORGANIZATIONAL MATTERS....................................................................9
2.1 Name..........................................................................................9
2.2 Term..........................................................................................9
2.3 Office and Agent..............................................................................9
2.4 Purpose of Company............................................................................9
2.5 Intent .......................................................................................9
2.6 Members ......................................................................................9
2.7 Formation Expenses............................................................................9
ARTICLE III CAPITAL CONTRIBUTIONS....................................................................10
3.1 Initial Capital Contributions................................................................10
3.2 Additional Capital Contributions.............................................................10
(a) Additional Contributions by Onlinefilmsales..............................................10
(b) Additional Capital.......................................................................10
(c) Call Procedures; Payment of Call.........................................................10
(d) Contribution of Default Capital..........................................................10
(e) Effects of Contribution of Default Capital...............................................11
(f) Financing of the Company.................................................................13
3.3 Capital Accounts.............................................................................13
3.4 No Withdrawals of Capital....................................................................13
3.5 Loans; No Compensation.......................................................................14
ARTICLE IV MEMBERS..................................................................................14
4.1 Admission of Additional Members..............................................................14
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
Page(s)
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<S> <C>
4.2 Withdrawals or Resignations..................................................................14
4.3 Members Are Not Agents.......................................................................14
4.4 Meetings of Members; Written Consent.........................................................14
ARTICLE V MANAGEMENT AND CONTROL OF THE COMPANY....................................................15
5.1 Management of the Company by the Managers....................................................15
(a) Exclusive Management by the Managers.....................................................15
(b) Powers of the Managers...................................................................15
(c) Agency Authority of the Managers; Delegation by the Managers.............................16
(d) Discretion of the Managers...............................................................16
(e) Performance of Duties; Liability of Managers.............................................17
(f) Devotion of Time.........................................................................17
(g) Decisions of the Managers................................................................17
(h) Meetings of Managers.....................................................................17
5.2 Election of Managers.........................................................................18
(a) Number and Term..........................................................................18
(b) Vacancies................................................................................18
5.3 Limitations on Power of the Managers.........................................................18
5.4 Members Have No Managerial Authority.........................................................19
5.5 Transactions between the Company and the Managers, the Members or their Affiliates...........19
(a) Contracts with Affiliates................................................................19
(b) Contracts with Managers or Affiliates of the Managers....................................19
(c) Treatment of Affiliate Loans and Fees....................................................20
5.6 Officers ....................................................................................20
(a) Appointment of Officers..................................................................20
(b) Signing Authority of Officers............................................................20
(c) Acts of Officers as Conclusive Evidence of Authority.....................................20
5.7 Competing Activities.........................................................................20
(a) Pre-Formation Activities.................................................................20
(b) Post-Formation Activities................................................................21
(c) Specific Enforcement.....................................................................21
(d) Payments to Managers and Others..........................................................22
(e) Expenses.................................................................................22
ARTICLE VI ALLOCATIONS OF NET PROFITS, NET LOSSES AND DISTRIBUTIONS.................................22
6.1 Minimum Gain Chargeback......................................................................22
6.2 Member Minimum Gain Chargeback...............................................................22
6.3 Qualified Income Offset......................................................................22
6.4 Nonrecourse Deductions.......................................................................23
6.5 Member Nonrecourse Deductions................................................................23
6.6 Allocation of Net Profits....................................................................23
6.7 Allocation of Net Losses.....................................................................23
6.8 Distributions by the Company.................................................................23
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Page(s)
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<S> <C>
6.9 Allocation of Net Profits and Losses and Distributions in Respect of a Transferred Interest..24
6.10 Tax Allocation Matters.......................................................................24
(a) Contributed or Revalued Property.........................................................24
(b) Recapture Items..........................................................................24
6.11 Order of Application.........................................................................24
6.12 Allocation of Liabilities....................................................................25
6.13 Form of Distribution.........................................................................25
ARTICLE VII TRANSFER OF INTERESTS....................................................................25
7.1 Transfer of Interests........................................................................25
7.2 [intentionally omitted]......................................................................25
7.3 Right of First Refusal.......................................................................25
7.4 [intentionally omitted]......................................................................26
7.5 [intentionally omitted]......................................................................26
7.6 [intentionally omitted]......................................................................26
7.7 Repurchase Restrictions Imposed by Law.......................................................26
7.8 Further Restrictions on Transfer of Interests................................................27
7.9 Substitution of Members......................................................................27
7.10 Enforcement..................................................................................27
7.11 Effect of Transfers in Violation of Agreement................................................27
ARTICLE VIII CONSEQUENCES OF MEMBERSHIP TERMINATION EVENTS............................................28
8.1 Dissolution of Company.......................................................................28
8.2 Admission or Conversion......................................................................28
8.3 Terms of Transfer............................................................................28
(a) Transferee Bound by Agreement............................................................28
(b) Notice of Repurchase Event...............................................................28
(c) Option to Purchase.......................................................................29
(d) Purchase Price...........................................................................29
(e) Payment of Purchase Price................................................................30
(f) Consummation of Sale.....................................................................31
ARTICLE IX ACCOUNTING, RECORDS, REPORTING BY MEMBERS...........................................31
9.1 Books and Records............................................................................31
9.2 Reports; Annual Statements...................................................................32
(a) Governmental Reports.....................................................................32
(b) Financial Reports........................................................................32
(c) Tax Reports..............................................................................32
9.3 Bank Accounts; Invested Funds................................................................32
9.4 Tax Matters for the Company Handled by Tax Matters Partner...................................32
9.5 Accounting Matters...........................................................................33
9.6 Confidentiality..............................................................................33
ARTICLE X DISSOLUTION AND WINDING UP...............................................................33
10.1 Dissolution..................................................................................33
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Page(s)
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<S> <C>
10.2 Date of Dissolution..........................................................................33
10.3 Winding Up...................................................................................34
10.4 Liquidating Distributions to Economic Interest Holders.......................................34
10.5 Distributions in Kind........................................................................34
10.6 Provision for Debts and Liabilities..........................................................34
10.7 No Liability.................................................................................35
10.8 Limitations on Payments Made in Dissolution..................................................35
10.9 Certificate of Cancellation..................................................................35
10.10 Compensation for Services....................................................................35
ARTICLE XI LIMITATION OF LIABILITY; STANDARD OF CARE; INDEMNIFICATION...............................35
11.1 Limitation of Liability......................................................................35
11.2 Standard of Care.............................................................................35
11.3 Indemnification..............................................................................36
11.4 Contract Right; Expenses.....................................................................36
11.5 Indemnification of Employees and Agents......................................................36
11.6 Nonexclusive Right...........................................................................36
11.7 Severability.................................................................................37
11.8 Insurance....................................................................................37
ARTICLE XII REPRESENTATIONS OF THE MEMBERS...........................................................37
12.1 Preexisting Relationship or Experience.......................................................37
12.2 Access to Information........................................................................37
12.3 Economic Risk................................................................................37
12.4 Investment Intent............................................................................37
12.5 Consultation with Attorney...................................................................38
12.6 Purpose of Entity............................................................................38
12.7 Residency....................................................................................38
12.8 No Advertising...............................................................................38
12.9 Membership Interest is Restricted Security...................................................38
12.10 No Registration of Membership Interest.......................................................38
12.11 Organization.................................................................................38
12.12 Authority....................................................................................38
12.13 Enforceability...............................................................................38
12.14 No Violation.................................................................................38
ARTICLE XIII MISCELLANEOUS............................................................................39
13.1 Legal Counsel................................................................................39
13.2 Amendments...................................................................................39
13.3 Offset Privilege.............................................................................39
13.4 Arbitration..................................................................................39
(a) General..................................................................................39
(b) Governing Law............................................................................40
(c) Costs of Arbitration.....................................................................40
13.5 Remedies Cumulative..........................................................................40
13.6 Notices .....................................................................................40
</TABLE>
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<TABLE>
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<S> <C>
13.7 Attorneys' Fees..............................................................................40
13.8 Governing Law; Jurisdiction..................................................................40
13.9 Complete Agreement...........................................................................41
13.10 No Third-Party Rights........................................................................41
13.11 Binding Effect...............................................................................41
13.12 Section Headings.............................................................................41
13.13 Interpretation...............................................................................41
13.14 Severability.................................................................................41
13.15 Multiple Counterparts........................................................................41
</TABLE>
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<PAGE>
LIMITED LIABILITY COMPANY AGREEMENT
OF
REPORTERTV.COM, LLC
A DELAWARE LIMITED LIABILITY COMPANY
This Limited Liability Company Agreement is made as of March 28, 2000,
by and between Onlinefilmsales.com, LLC, a Delaware limited liability company
("Onlinefilmsales"), and MediaChase Ltd., a Delaware corporation ("MediaChase"),
with reference to the following facts:
A. ReporterTV.com, LLC (the "Company") was formed on March 8, 2000, as
a limited liability company under the laws of the State of Delaware by the
filing of a Certificate of Formation for the Company with the Delaware Secretary
of State.
B. Concurrently herewith, MediaChase will contribute to the capital of
the Company, all of its right, title and interest in and to any assets of
MediaChase used solely in connection with the operation of the business entitled
"ReporterTV.com" (collectively, the "ReporterTV Assets") in consideration of the
issuance by the Company to MediaChase of a one hundred percent (100%) Membership
Interest in the Company.
C. Immediately thereafter, MediaChase will contribute to
Onlinefilmsales, a fifty percent (50%) Membership Interest in the Company, in
consideration of (i) the issuance by Onlinefilmsales to MediaChase of an
interest in Onlinefilmsales (as more fully described in that certain Limited
Liability Company Agreement of Onlinefilmsales.com, LLC, of even date herewith),
(ii) the agreement by Onlinefilmsales herein to make additional contributions to
the capital of the Company upon the satisfaction of certain conditions stated
herein, and (iii) the contribution to Company by Onlinefilmsales (as
successor-in-interest to InternetStudios.com, Inc.) of it rights under that
certain Secured Promissory Note, dated November 12, 1999, by MediaChase payable
to the order of Onlinefilmsales (as successor-in-interest to
InternetStudios.com, Inc.), in the original principal amount of $2,025,000
as amended by those certain Allonges to Secured Promissory Note, each by
MediaChase, dated November 18, 1999, December 16, 1999, February 1, 2000 and
March 27, 2000 (the "MediaChase Note") and the prompt release of MediaChase
of any obligations thereunder.
D. The parties now desire to adopt a limited liability company
agreement to govern their respective rights and obligations as Members of the
Company.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and for other good and valuable consideration, the receipt of which is
acknowledged, the parties agree that the following shall be the Limited
Liability Company Agreement of the Company.
<PAGE>
ARTICLE I
DEFINITIONS
When used in this Agreement, the following terms have the following
meanings:
1.1 "ACT" means the Limited Liability Company Act of the State of
Delaware.
1.2 "ADDITIONAL CAPITAL" has the meaning specified in Section 3.2(b).
1.3 "ADJUSTED CAPITAL ACCOUNT" of an Economic Interest Holder means the
Capital Account of that Economic Interest Holder increased by the Economic
Interest Holder's share of Company Minimum Gain and Member Minimum Gain.
1.4 "ADJUSTED CAPITAL CONTRIBUTION" of an Economic Interest Holder
means the excess of (a) that Economic Interest Holder's Capital Contributions to
the Company, over (b) Distributions to that Economic Interest Holder that are a
return of Capital Contributions under Section 6.8(b) or 3.2(e)(iii).
1.5 "AFFILIATE" of a Member or Manager means (a) a Person directly or
indirectly (through one or more intermediaries) controlling, controlled by or
under common control with that Member or Manager; (b) a Person owning or
controlling ten percent (10%) or more of the outstanding voting securities or
beneficial interests of that Member or Manager; or (c) an officer, director,
partner or member, or a member of the immediate family of an officer, director,
partner or member, of that Member or Manager. For these purposes "control" means
the possession, direct or indirect, of the power to direct or cause the
direction of the management and policies of a Person, whether through the
ownership of voting securities, by contract or otherwise.
1.6 "AGREED OVERRUN" shall have the meaning specified in Section
3.2(e)(ii)(B).
1.7 "AGREEMENT" means this Limited Liability Company Agreement of
ReporterTV.com, LLC.
1.8 "AFFECTED INTEREST" has the meaning specified in Section 8.3.
1.9 "BANKRUPTCY" of a Member means the institution of any proceedings
under any federal or state law for the relief of debtors, including the filing
by or against that Member of a voluntary or involuntary case under the United
States Bankruptcy Code, which proceedings, if involuntary, are not dismissed
within sixty (60) days after their filing; an assignment of the property of that
Member for the benefit of creditors; the appointment of a receiver, trustee or
conservator of any substantial portion of the assets of that Member, which
appointment, if obtained ex parte, is not dismissed within sixty (60) days
thereafter; the seizure by a sheriff, receiver, trustee or conservator of any
substantial portion of the assets of that Member; the failure by that Member
generally to pay its debts as they become due within the meaning of Section
303(h)(1) of the United States Bankruptcy Code, as determined by the Bankruptcy
Court; or that Member's admission in writing of its inability to pay its debts
as they become due.
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1.10 "BONA FIDE OFFER" means an offer in writing to an Interest Holder
offering to purchase all or any part of that Interest Holder's Membership
Interest or Economic Interest and setting forth all of the material terms and
conditions of the proposed purchase from an offeror who is ready, willing and
able to consummate the purchase and who is not an Affiliate of that Interest
Holder.
1.11 "BUDGET" means a weekly expenditure of $50,000 to cover the
customary and usual operating expenses of the Company, which amount may be
increased or decreased from time to time by the mutual agreement of the parties
hereto.
1.12 "CAPITAL ACCOUNT" of an Economic Interest Holder means the capital
account of that Economic Interest Holder determined from the inception of the
Company strictly in accordance with the rules set forth in Section
1.704-1(b)(2)(iv) of the Treasury Regulations. If any Membership Interest and/or
Economic Interest is Transferred pursuant to the terms of this Agreement, the
transferee shall succeed to the Capital Account of the transferor to the extent
the Capital Account is attributable to the Membership Interest and/or Economic
Interest so Transferred. In the event that assets of the Company other than cash
are distributed to an Economic Interest Holder in kind, Capital Accounts shall
be adjusted for the hypothetical "book" gain or loss that would have been
realized by the Company if the distributed assets had been sold for their fair
market values in a cash sale (in order to reflect unrealized gain or loss). In
the event of the liquidation of the Company, Capital Accounts shall be adjusted
for the hypothetical "book" gain or loss that would have been realized by the
Company if all Company assets had been sold for their fair market values in a
cash sale (in order to reflect unrealized gain or loss), whether as an initial
Capital Contribution, an additional Capital Contribution, or Additional Capital.
1.13 "CAPITAL CONTRIBUTION" of a Member, at any particular time, means
the amount of money or property, or a promissory note or other binding
obligation to contribute money or property, which that Member has theretofore
contributed to the capital of the Company, whether as an initial Capital
Contribution, an additional Capital Contribution or Additional Capital and shall
specifically include all amounts actually paid in legal fees (including
paralegal costs) to tax counsel in connection with the organization and
structuring of the Company, Onlinefilmsales, and StudioBuzz, LLC, a Delaware
limited liability company.
1.14 "CERTIFICATE OF FORMATION" means the Certificate of Formation of
the Company as filed under the Act with the Delaware Secretary of State, as the
same may be amended from time to time.
1.15 "CLOSING" has the meaning specified in Section 8.3.
1.16 "CODE" means the Internal Revenue Code of 1986, as amended.
1.17 "COMPANY" means ReporterTV.com, LLC, a Delaware limited liability
company.
1.18 "COMPANY MINIMUM GAIN" with respect to any taxable year of the
Company means the "partnership minimum gain" of the Company computed strictly in
accordance with the principles of Section 1.704-2(d) of the Treasury
Regulations.
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1.19 "CONFIDENTIAL INFORMATION" means all information or material not
generally known by non-Company personnel which (i) gives the Company some
competitive business advantage or the opportunity of obtaining such advantage or
the disclosure of which could be detrimental to the interests of the Company,
(ii) which is owned by the Company or in which the Company has an interest and
(iii) which is (A) marked "Confidential Information," "Proprietary Information,"
or other similar marking, (B) known to be considered confidential and
proprietary by the Company, or (C) from all the relevant circumstances should
reasonably be assumed to be confidential and proprietary to the Company.
Confidential Information includes, but is not limited to, the following types of
information and other information of a similar nature (whether or not reduced to
writing): trade secrets, inventions, drawings, graphics, file data,
documentation, diagrams, specifications, know how, processes, formulas, models,
flow charts, software in various stages of development, source codes, object
codes, research and development procedures, research or development and test
results, marketing techniques and materials, marketing and development plans,
price lists, pricing policies, business plans, information relating to customers
and/or suppliers' identities, characteristics and agreements, financial
information and projections, and employee files. Confidential Information also
includes any information described above which the Company obtains from another
party and which the Company treats as proprietary or designates as Confidential
Information, whether or not owned or developed by the Company. NOTWITHSTANDING
THE ABOVE, HOWEVER, NO INFORMATION CONSTITUTES CONFIDENTIAL INFORMATION IF IT IS
GENERIC INFORMATION OR GENERAL KNOWLEDGE WHICH IS OTHERWISE PUBLICLY KNOWN AND
IN THE PUBLIC DOMAIN. Also, Confidential Information shall not include any
information or material owned by MediaChase and used by MediaChase in the
ordinary course of its business, unless used on an exclusive basis in the
business of the Company.
1.20 "CONTRIBUTION CAP" has the meaning specified in Section 3.2(a).
1.21 "CONTRIBUTION LOAN" has the meaning specified in Section
3.2(e)(ii)(C).
1.22 "CUMULATIVE DEFAULT AMOUNT" has the meaning specified in Section
3.2(e)(iv).
1.23 "DISTRIBUTABLE CASH" at any time means that portion of the cash
then on hand or in bank accounts of the Company which the Managers deem
available for Distribution to the Economic Interest Holders, taking into account
(a) the amount of cash required for the payment of all current expenses,
liabilities and obligations of the Company (whether for expense items, capital
expenditures, improvements, retirement of indebtedness or otherwise) and
specifically including repayments of principal or interest on Contribution
Loans, and (b) the amount of cash which the Managers deem necessary to establish
reserves for the payment of future capital expenditures, improvements,
retirements of indebtedness, operations and contingencies, known or unknown,
liquidated or unliquidated, including, but not limited to, liabilities which may
be incurred in litigation and liabilities undertaken pursuant to the
indemnification provisions of this Agreement.
1.24 "DISTRIBUTION" means the transfer of money or property by the
Company to one or more Economic Interest Holders without separate consideration.
4
<PAGE>
1.25 "ECONOMIC INTEREST" means a share, expressed as a percentage, of
one or more of the Company's Net Profits, Net Losses, Tax Credits, Distributable
Cash or other Distributions, but does not include any other rights of a Member,
including, without limitation, the right to vote or participate in the
management of the Company or the right to information concerning the business
and affairs of the Company. The Economic Interest of each Economic Interest
Holder shall initially be the percentage set forth opposite the name of that
Economic Interest Holder in Exhibit A and may be adjusted from time to time
thereafter pursuant to the provisions of this Agreement, including, without
limitation, the provisions of Sections 3.2, 4.1, 4.2 and 8.1.
1.26 "ECONOMIC INTEREST HOLDER" means the holder of an Economic
Interest, including either a Member, to the extent of the Economic Interest
constituting a part of its Membership Interest, or a Person who is not a member
but holds merely a bare Economic Interest.
1.27 "ECONOMIC RISK OF LOSS" means the economic risk of loss within the
meaning of Section 1.752-2 of the Treasury Regulations.
1.28 "ELIGIBLE MEMBERS" has the meaning specified in Section 7.3.
1.29 "FAIR MARKET VALUE" means, with respect to an asset, the price at
which that asset would be sold for cash payable at closing between a willing
buyer and a willing seller, each having reasonable knowledge of all relevant
facts concerning the asset and neither acting under any compulsion to buy or
sell.
1.30 "FISCAL YEAR" means the Company's fiscal year, which shall be the
calendar year.
1.31 "FORMER MEMBER" has the meaning specified in Section 8.2.
1.32 "FORMER MEMBER'S INTEREST" has the meaning specified in Section
8.2(a).
1.33 "INITIAL CALL NOTICE" has the meaning specified in Section 3.2(c).
1.34 "INTEREST HOLDER" means either a Member or a Person who holds
merely a bare Economic Interest.
1.35 "JOINT DESIGNEE" has the meaning specified in Section 5.2(a).
1.36 "MAJORITY IN INTEREST" means Voting Interests which, taken
together, exceed fifty percent (50%) of the aggregate of all Voting Interests
held by all Members entitled to vote or grant consent with respect to the matter
in question.
1.37 "MANAGERS" means the one or more managers of the Company selected
by the Members pursuant to Section 5.2(a) and shall be deemed to refer to the
sole Manager at all times when there exists only one Manager.
1.38 "MEDIACHASE" means MediaChase Ltd., a Delaware corporation.
1.39 "MEMBER" means each Person who (a) is an initial signatory to this
Agreement, has been admitted to the Company as a Member in accordance with this
Agreement or is a
5
<PAGE>
transferee of a Member who has become a Member in accordance
with Article VII, and (b) has not suffered a Membership Termination Event.
1.40 "MEMBER MINIMUM GAIN" has the meaning given to the term "partner
nonrecourse debt minimum gain" in Section 1.704-2(d) of the Treasury
Regulations.
1.41 "MEMBER NONRECOURSE DEBT" means any "partner nonrecourse
liability" or "partner nonrecourse debt" under Section 1.704-2(b)(4) of the
Treasury Regulations. Subject to the foregoing, it means any Company liability
to the extent the liability is nonrecourse for purposes of Section 1.1001-2 of
the Treasury Regulations and a Member (or related Person within the meaning of
Section 1.752-4(b) of the Treasury Regulations) bears the Economic Risk of Loss
under Section 1.752-2 of the Treasury Regulations because, for example, the
Member or related Person is the creditor or a guarantor.
1.42 "MEMBER NONRECOURSE DEDUCTIONS" means the Company deductions,
losses and Code Section 705(a)(2)(B) expenditures, as the case may be (as
computed for "book" purposes), that are treated as deductions, losses and
expenditures attributable to Member Nonrecourse Debt under Section 1.704-2(i)(2)
of the Treasury Regulations.
1.43 "MEMBERSHIP INTEREST" means a Member's total interest as a Member
of the Company, including that Member's Economic Interest, its options or
similar rights hereunder to acquire Membership Interests or Economic Interests,
its right to inspect the books and records of the Company and its right, to the
extent specifically provided in this Agreement or in the Act and not otherwise
restricted herein, to participate in the business, affairs and management of the
Company and to vote or grant consent with respect to matters coming before the
Company.
1.44 "MEMBERSHIP TERMINATION EVENT" with respect to any Member means
one or more of the following: the withdrawal, resignation, expulsion,
dissolution or occurrence of any other event which terminates the continued
membership of that Member in the Company, other than a Transfer of a Member's
Membership Interest which is made in accordance with the provisions of Article
VII.
1.45 "NET PROFITS" and "NET LOSSES" means, for each fiscal period, the
net income and net loss, respectively, of the Company determined strictly in
accordance with federal income tax principles (including rules governing
depreciation and amortization), except that in computing net income or net loss,
the "book" value of an asset will be substituted for its adjusted tax basis if
the two differ; and the following items shall be excluded from the computation:
(a) any gain, income, deductions or losses specially allocated
under Sections 6.1, 6.2, or 6.3;
(b) any Nonrecourse Deductions; and
(c) any Member Nonrecourse Deductions.
1.46 "NONCOMPETE DATE" has the meaning specified in Section 5.7(b).
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1.47 "NONRECOURSE DEDUCTIONS" in any fiscal period means the amount of
Company deductions that are characterized as "nonrecourse deductions" under
Section 1.704-2(b) of the Treasury Regulations.
1.48 "NONRECOURSE LIABILITY" means a liability treated as a
"nonrecourse liability" under Sections 1.704-2(b)(3) and 1.752-1(a)(2) of the
Treasury Regulations.
1.49 "NOTICE" has the meaning specified in Section 8.3.
1.50 "OFFERED INTEREST" has the meaning specified in Section 7.3.
1.51 "ONLINEFILMSALES" means Onlinefilmsales.com, LLC, a Delaware
limited liability company.
1.52 "PERSON" means any entity, corporation, company, association,
joint venture, joint stock company, partnership, trust, limited liability
company, limited liability partnership, real estate investment trust,
organization, individual (including personal representatives, executors and
heirs of a deceased individual), nation, state, government (including agencies,
departments, bureaus, boards, divisions and instrumentalities thereof), trustee,
receiver or liquidator.
1.53 "PREFERRED RETURN" shall mean with respect to any Member, a
cumulative preferential rate of return in an amount equal to Prime plus two
percentage points (2%) per annum, on its Adjusted Capital Contributions.
1.54 "PREFERRED RETURN ACCOUNT" shall mean with respect to any Member,
the excess of (i) that Member's Preferred Return, over (ii) all allocations to
that Member pursuant to Section 6.6(c) below.
1.55 "PRIME" shall mean at any time that percentage interest rate per
annum then most recently announced by Wells Fargo, N.A., or its successor, in
Los Angeles, California, as its prime or "reference" rate. The Prime Rate is not
necessarily the lowest rate charged to customers. Any change in rate for
purposes of this Agreement shall become effective on the same date on which such
announced rate becomes effective.
1.56 "SECURITIES ACT" means the Securities Act of 1933.
1.57 "SUBSEQUENT CALL NOTICE" has the meaning specified in Section
3.2(c).
1.58 "TAX CREDITS" means all credits against income or franchise taxes
and credits allowable to Economic Interest Holders under state, federal or other
tax statutes.
1.59 "TAX MATTERS PARTNER" means Onlinefilmsales, or any successor in
interest to Onlinefilmsales' entire Membership Interest, except as otherwise
provided in Section 9.4
1.60 "TRANSFER" means, with respect to a Membership Interest, an
Economic Interest or any interest therein, the sale, assignment, transfer,
disposition, pledge, hypothecation or encumbrance, whether direct or indirect,
voluntary, involuntary or by operation of law, and whether or not for value, of
(a) that Membership Interest, Economic Interest or interest therein or
7
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(b) a controlling interest in any Person which directly or indirectly through
one or more intermediaries holds that Membership Interest, Economic Interest
or interest therein. Transfer includes any transfer as a result of or in
connection with any property settlement or judgment incident to a divorce,
dissolution of marriage or separation, and any transfer by decree of
distribution or other court order in proceedings arising from the death of
the spouse of any Member or Economic Interest Holder.
1.61 "TREASURY REGULATIONS" means the regulations of the United States
Treasury Department pertaining to the income tax.
1.62 "UNITED STATES BANKRUPTCY CODE" means the United States Bankruptcy
Code at Title 11, United States Code.
1.63 "UNPAID PREFERRED RETURN" shall mean the excess of (i) the total
cumulative Preferred Return as of any given date over (ii) the sum of all prior
Distributions in payment of the Preferred Return pursuant to Section 6.8(a).
1.64 "VOTING INTEREST" means a Member's percentage right to vote on
matters coming before the Members for action. The Voting Interest of each Member
shall initially be the percentage set forth opposite the name of that Member in
Exhibit A and may be adjusted from time to time thereafter pursuant to the
provisions of this Agreement, including, without limitation, the provisions of
Sections 3.2, 4.1, 4.2 and 8.1. The combined Voting Interest of all Members
shall at all times equal one hundred percent (100%).
References in this Agreement to "Articles," "Sections," "Exhibits" and
"Schedules" shall be to the Articles, Sections, Exhibits and Schedules of this
Agreement, unless otherwise specifically provided; all Exhibits and Schedules to
this Agreement are incorporated herein by reference; any of the terms defined in
this Agreement may, unless the context otherwise requires, be used in the
singular or the plural and in any gender depending on the reference; the words
"herein", "hereof" and "hereunder" and words of similar import, when used in
this Agreement, shall refer to this Agreement as a whole and not to any
particular provision of this Agreement; and except as otherwise specified in
this Agreement, all references in this Agreement (a) to any Person shall be
deemed to include such Person's permitted heirs, personal representatives,
successors and assigns; and (b) to any agreement, any document or any other
written instrument shall be a reference to such agreement, document or
instrument together with all exhibits, schedules, attachments and appendices
thereto, and in each case as amended, restated, supplemented or otherwise
modified from time to time in accordance with the terms thereof; and (c) to any
law, statute or regulation shall be deemed references to such law, statute or
regulation as the same may be supplemented, amended, consolidated, superseded or
modified from time to time.
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ARTICLE II
ORGANIZATIONAL MATTERS
2.1 NAME. The name of the Company shall be "ReporterTV.com, LLC." The
business of the Company may be conducted under that name or, upon compliance
with applicable law, under any other name that the Managers deem appropriate or
advisable.
2.2 TERM. The term of the Company's existence commenced upon the filing
of its Certificate of Formation with the Delaware Secretary of State on March 8,
2000, and shall continue until such time as it is terminated pursuant to Article
X.
2.3 OFFICE AND AGENT. The principal office of the Company shall be at
8286 Santa Monica Boulevard, West Hollywood, California, 90046, or at such other
place as the Managers may determine from time to time. The Company may also have
such other offices within the State of California, or elsewhere, as the Managers
may from time to time determine. The name and business address of the agent for
service of process for the Company in the State of Delaware is Corporation
Service Company, 1013 Centre Road, Wilmington, Delaware, 19805, or such other
Person as the Managers may appoint from time to time.
2.4 PURPOSE OF COMPANY. The Company may engage in any lawful activity
for which a limited liability company may be organized under the Act; however,
its primary purpose shall be to engage in the following business: the creation
and production of an interactive entertainment news magazine in a television
format broadcast via the Internet.
2.5 INTENT. It is the intent of the Members that the Company shall
always be operated in a manner consistent with its treatment as a "partnership"
for Federal and state income tax purposes. It also is the intent of the Members
that the Company not be operated or treated as a "partnership" for purposes of
Section 303 of the United States Bankruptcy Code. No Member or Manager shall
take any action inconsistent with that express intent.
2.6 MEMBERS. The names, addresses, Capital Contributions, Voting
Interests and Economic Interests of the Members as of the date of this Agreement
are set forth in Exhibit A.
2.7 FORMATION EXPENSES. Each Member shall be responsible for and shall
pay all fees and expenses incurred by it in connection with the formation of the
Company, including, without limitation, all legal and accounting fees and
expenses incurred by it in connection with the negotiation, preparation,
execution and delivery of this Agreement and all related agreements and
instruments. The Company shall pay all filing fees, minimum franchise or other
similar taxes and other governmental charges incident to its formation and
qualification to do business.
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ARTICLE III
CAPITAL CONTRIBUTIONS
3.1 INITIAL CAPITAL CONTRIBUTIONS. Each Member initially has
contributed to the Company the monies and/or properties which are specified in
Exhibit A as that Member's initial Capital Contribution.
3.2 ADDITIONAL CAPITAL CONTRIBUTIONS.
(a) ADDITIONAL CONTRIBUTIONS BY ONLINEFILMSALES. Onlinefilmsales
has contributed additional Capital Contributions to the Company in the amounts
set forth on Exhibit A hereto as additional Capital Contributions, and in no
event shall the sum of Onlinefilmsales initial Capital Contribution and its
additional Capital Contributions be required to exceed $1,650,000 ("Contribution
Cap").
(b) ADDITIONAL CAPITAL. In the event that further funds are
required, as determined by the Managers in their absolute discretion, to pay the
obligations of the Company in excess of the funds available from (i)
Onlinefilmsales' initial Capital Contributions, (ii) the additional Capital
Contributions contributed by Onlinefilmsales pursuant to Section 3.2(a) above,
(iii) any prior contributions of Additional Capital, and (iv) the revenues of
the Company, the Managers may call on the Members to contribute such additional
funds ("Additional Capital") if above the Contribution Cap in accordance with
the procedures set forth in Section 3.2(c) below.
(c) CALL PROCEDURES; PAYMENT OF CALL. A call for Additional
Capital above the Contribution Cap shall be made by notice to MediaChase in
substantially the form of Exhibit B (an "Initial Call Notice"). An Initial Call
Notice shall specify the amount to be contributed as Additional Capital, the
date by which the contribution is due and payable and shall be executed by all
of the Managers. The Managers shall use best efforts to attempt to cause an
Initial Call Notice to be given at least five (5) business days prior to the
date such call is due and payable. If MediaChase has not caused to be
contributed to the Company the full amount of such call for Additional Capital
on the date such call is due and payable, a notice (a "Subsequent Call Notice")
shall be sent to Onlinefilmsales setting forth, in addition to the foregoing
information, the balance of the Additional Capital call due but unpaid by
MediaChase (the "Default Capital"). To satisfy any call for Additional Capital,
a Member shall cause to be contributed to the Company immediately available
funds in the amount of such call on or before the date specified as the due date
in the Initial Call Notice or in the Subsequent Call Notice. Contributions of
Additional Capital shall be credited to the respective Capital Accounts and
Capital Contributions of the Members when made.
(d) CONTRIBUTION OF DEFAULT CAPITAL. In the event that a call
is issued pursuant to Section 3.2(c) above for Additional Capital, and
MediaChase does not contribute funds equal to the full amount of such call by
the date on which the contribution is due and payable, then upon receipt of a
Subsequent Call Notice, Onlinefilmsales may (but shall have no obligation to),
in addition to any other right or remedy available under this Agreement, at law
or in equity, contribute in cash up to the amount of the Default Capital.
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(e) EFFECTS OF CONTRIBUTION OF DEFAULT CAPITAL.
(i) For any contribution of Default Capital made by
Onlinefilmsales that when aggregated with all of its other Capital Contributions
is in excess of the Contribution Cap but is not for the Budget or not an Agreed
Overrun, Onlinefilmsales will have its Capital Account and Capital Contributions
increased by the amount of its contribution, but the Economic Interest and
Voting Interest percentages of Onlinefilmsales and MediaChase will remain
unchanged.
(ii) (A) As to any contribution of Default Capital made by
Onlinefilmsales that when aggregated with all of its other Capital
Contributions is in excess of the Contribution Cap and that is for the Budget
or is an Agreed Overrun, the Economic Interest and Voting Interest
percentages of MediaChase shall be reduced by subtracting the following from
such percentages, and the Economic Interest and Voting Interest percentages
of Onlinefilmsales shall be increased by adding the following to such
percentages: a fraction (rounded to the nearest hundredth), the numerator of
which is the amount of the Default Capital contributed by Onlinefilmsales,
and the denominator of which is $15,000. By way of example only, if prior to
the contribution of any Default Capital, MediaChase's Economic Interest and
Voting Interest are each 50%, then upon the contribution by Onlinefilmsales
of Default Capital in the amount of $30,000, MediaChase's Economic Interest
and Voting Interest will be reduced to 48%, and Onlinefilmsales' Economic
Interest and Voting Interest will be increased to 52%. In no event shall the
Economic Interest and Voting Interest of MediaChase be reduced below
twenty-five percent (25%). The Members acknowledge and agree that as a result
of the contribution by Onlinefilmsales to the Company of the MediaChase Note
(principal plus accrued interest of $56,124.11) on the date hereof and the
actual payment by Onlinefilmsales to tax counsel in a manner described in
Section 1.13 hereof of $41,982.50, the total Capital Contributions made by
Onlinefilmsales to the Company equals $2,123,106.16, of which $375,000 shall
be deemed Default Capital contributed for the Budget and as a result, the
Economic and Voting Interest percentages of MediaChase have been reduced to
25% and the Economic and Voting Interest percentages of Onlinefilmsales have
been increased to 75%.
(B) For purposes of this Agreement, an "Agreed Overrun"
means any expenditure in excess of the Budget as may be mutually agreed in
advance and in writing by Onlinefilmsales and MediaChase (which agreement shall
not be unreasonably withheld or delayed), but in no event shall any expenditures
incurred and occasioned by the following be an Agreed Overrun: (i) compliance
with any government regulation, request or order, or (ii) circumstances beyond
the control of MediaChase, including, but not limited to, an Act of God, war,
insurrection, fire, flood, earthquake, accident, strike or other labor
disturbance or interruption of or delay in transportation.
(C) In the event that MediaChase's Economic Interest and
Voting Interest have been reduced to twenty-five percent (25%), and Additional
Capital is thereafter required by the Managers, Onlinefilmsales shall have the
exclusive right (but not the obligation) to advance directly to the Company as a
nonrecourse loan the amount of the requested Additional Capital ("Contribution
Loan"). The Contribution Loan shall bear interest from the date it is advanced
until the date it is paid in full at Prime plus two percentage points (2.0%) per
annum. Principal and accrued interest on the Contribution Loan shall be repaid
in full by the Company. The
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Company will execute a note to reflect any Contribution Loan in form and
substance reasonably satisfactory to Onlinefilmsales.
(iii) Within ten (10) business days following the
conclusion of each calendar month in the year 2000, commencing
in April, 2000, the Managers shall determine the amount of Distributable Cash in
existence as of the close of business on the last business day of such month (in
each case, the "Month-End Distributable Cash"). In the event the Month-End
Distributable Cash exceeds $0, the Managers shall immediately cause the Company
to distribute all of such Month-End Distributable Cash to the Economic Interest
Holders pursuant to Section 6.8, unless distribution of any part of such
Month-End Distributable Cash (in each case, the "Withheld Portion") would not be
in the best interests of the Company in the good faith business judgment of the
Managers because of a reserve necessary for anticipated short-term liabilities
or unless all of the Members otherwise agree in writing, in which case the
Withheld Portion will be not be distributed to the Economic Holders under this
Section 3.2(e)(iii). Within three (3) business days of making the foregoing
determination of Month-End Distributable Cash, the Managers shall provide
written notice to MediaChase of the amount of such Month-End Distributable Cash
together with a description of the planned distribution thereof in accordance
with this Section 3.2(e)(iii) (the "Month-End Distributable Cash Report"). The
provisions of this Section 3.2(e)(iii) shall terminate upon termination of the
dilution provisions of Section 3.2(e)(ii) pursuant to Section 3.2(e)(vi).
(iv) Notwithstanding the dilution provisions of Section
3.2(e)(ii) above, MediaChase shall have the one-time right (the "Buyback Right")
at any time on or before January 31, 2001 to reclaim all or part of its diluted
Economic Interest and Voting Interest (the date of the exercise of such right to
be referred to as the "Buyback Date"); provided, however, that a Buyback Date
must be as of the last business day of a month prior to January 1, 2001 (each a
"Month-End Day"). MediaChase may elect to exercise the Buyback Right with
respect to any Month-End Day by giving written notice to the Company of such
election no later than the last business day of the month immediately following
the month in which the Month-End Day occurs (the "Election Notice"). The
Election Notice shall be accompanied by a contribution of cash equal to all or
less than the following amount (though no less than 25% of the following, with
the full amount of the following referred to as the "Full Buyback Amount"): the
cumulative amount of Default Capital that (A) resulted from the Budget or that
was an Agreed Overrun and (B) that has occurred as of the Buyback Date (the
"Cumulative Default Amount"), less the aggregate amount of all Distributable
Cash that has actually been distributed to Onlinefilmsales as a return of
capital pursuant to Section 6.8(b) from the date of this Agreement through the
close of business on the Buyback Date. Upon receipt by the Company of all or a
portion of the Full Buyback Amount (the actual amount contributed by MediaChase
to be referred to herein as the "MediaChase Contributed Amount"),
Onlinefilmsales will receive an immediate special distribution (notwithstanding
the normal distribution rules of Section 6.8) in cash equal to the amount of the
MediaChase Contributed Amount, which shall be applied first to Onlinefilmsales'
Unpaid Preferred Return accrued as of the date of such contribution and then to
its Adjusted Capital Contributions. Upon the contribution to the Company of the
MediaChase Contributed Amount, the Economic Interest and Voting Interest
percentages of MediaChase shall be increased by adding the following to such
percentages, and the Economic Interest and Voting Interest percentages of
Onlinefilmsales shall be decreased by adding the following to such percentages:
the product (rounded to the nearest hundredth) of 25 and a fraction (rounded to
the
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nearest hundredth), the numerator of which is the MediaChase Contributed
Amount and the denominator of which is the Full Buyback Amount. By way of
example only, if on the Buyback Date: MediaChase's Economic Interest and Voting
Interest have been reduced to 25%, and Onlinefilmsales's Economic Interest and
Voting Interest have been increased to 75%, the Cumulative Default Amount is
$600,000, the Capital Contributions of Onlinefilmsales are $2,250,000 (before
adjustment for any distributions) and of MediaChase are $0, MediaChase
contributes $150,000 in cash, and there has been $200,000 of other Distributable
Cash distributed to Onlinefilmsales under Section 6.8(b), then MediaChase's
Economic Interest and Voting Interest will be increased to 34.38%,
Onlinefilmsales' Economic Interest and Voting Interest will be decreased to
65.62% (($150,000/$600,000 - $200,000) x 25). In no event shall a reversal of
dilution result in MediaChase having any greater Economic Interest and Voting
Interest than it had as of the date hereof, or 50%.
(v) The Company shall give written notice to MediaChase at
least thirty (30) days prior to the consummation of a merger, consolidation or
other business combination involving the Company, where the Company is not the
surviving party, or an acquisition of more than 50% of the assets of the Company
or the issuance, sale, disposition (including by way of merger, consolidation,
share exchange or similar transaction) of securities representing 50% or more of
the voting control of the Company (the date of consummation of such transaction
to be referred to as the "Closing Date"). Such notice shall set forth the Full
Buyback Amount with respect to the Closing Date. Notwithstanding anything to the
contrary set forth in this Agreement, the Closing Date shall be deemed to be a
Month-End Day for all purposes of Section 3.2(e)(iv); provided, however, that in
order to exercise its Buyback Right with respect to the Closing Date, MediaChase
shall give written notice to the Company of its election to do so no later than
5:00 p.m. (Los Angeles time) on the business day immediately preceding the
Closing Date.
(vi) Notwithstanding anything else in this Agreement, from
and after the date on which Onlinefilmsales has been distributed Distributable
Cash pursuant to Section 6.8 and Section 3.2(e)(iii) an amount that has resulted
in both its Unpaid Preferred Return and its Adjusted Capital Contributions as of
such date being reduced to zero, the dilution provisions of Section 3.2(e)(ii)
above shall cease to be operative to effect further dilution from and after such
date.
(f) FINANCING OF THE COMPANY. The Managers shall not be required to
seek third-party financing prior to issuing calls for Additional Capital.
3.3 CAPITAL ACCOUNTS. The Company shall establish and maintain an
individual Capital Account for each Economic Interest Holder.
3.4 NO WITHDRAWALS OF CAPITAL. No Economic Interest Holder shall have
the right to withdraw or reduce its Capital Contributions in the Company except
as a result of the dissolution of the Company or as otherwise provided in
Section 4.2 or the Act, and no Economic Interest Holder shall have the right to
demand or receive property other than cash in return for its Capital
Contributions.
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3.5 LOANS; NO COMPENSATION. No Member or Economic Interest Holder shall
be required to lend any funds to the Company, and no Member or Economic Interest
Holder shall have any personal liability for the repayment of any Capital
Contribution of any other Member or Economic Interest Holder. No Member or
Economic Interest Holder shall receive any interest, salary or drawing with
respect to its Capital Contributions or its Capital Account or for services
rendered on behalf of the Company or otherwise in its capacity as a Member or
Economic Interest Holder, except as otherwise specifically provided in this
Agreement.
ARTICLE IV
MEMBERS
4.1 ADMISSION OF ADDITIONAL MEMBERS. Subject to compliance with
applicable law, additional Members may be admitted to the Company from time to
time upon the unanimous written approval of all Members.
4.2 WITHDRAWALS OR RESIGNATIONS. No Member may withdraw or resign from
the Company except with the prior written consent of the Managers and all other
Members within the Prohibited Transfer Period (as defined in Section 7.1), which
consent may be given or withheld, conditioned or delayed in the Managers' and
the other Members' sole discretion. After the Prohibited Transfer Period, any
Member may withdraw or resign after thirty (30) day's written notice. If the
withdrawing or resigning Member is the last and only remaining Member, the
withdrawal or resignation shall be effective only after the expiration of the
period for Member consent to continue the business of the Company or dissolve,
as provided in Section 8.1. Any withdrawal or resignation (whether prior to or
after the Prohibited Transfer Period) of a Member shall constitute a Membership
Termination Event (other than a Transfer made in accordance with the provisions
of Article VII), and upon the occurrence thereof, that Member's Membership
Interest may, at the election of the Managers, either be converted to a bare
Economic Interest or purchased as provided in Section 8.2(c). If a Member
withdraws in violation of this Agreement, the Member shall forfeit his, her or
its Voting Interest and Economic Interest without further compensation. In
addition, the Member will be liable to the Company and the other Members and/or
Economic Interest Holders for all damages suffered by the Company and the other
Members and/or Economic Interest Holders as a result of such withdrawal.
4.3 MEMBERS ARE NOT AGENTS. The management of the Company is vested
exclusively in the Managers. No Member may be an agent of the Company, nor may
any Member, in its capacity as a Member, bind or execute any agreement,
instrument or document on behalf of the Company without the prior written
consent of the Managers.
4.4 MEETINGS OF MEMBERS; WRITTEN CONSENT. The Members do not
contemplate holding meetings; however, meetings of the Members may be held if
called by the Managers in their sole and absolute discretion, at such times and
places within or without the State of California as the Managers fix from time
to time. No annual or regular meetings of Members are required, but if such
meetings are held, they shall be noticed, held and conducted pursuant to the
Act. Members may participate in any meeting through the use of conference
telephones or similar communications equipment as long as all Members
participating can hear one another. A
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Member so participating is deemed to be present in person at the meeting. Any
action which may be taken by the Members at a meeting may also be taken
without a meeting, if a consent in writing setting forth the action so taken
is signed by Members having not less than the minimum votes that would be
necessary to authorize that action at a meeting of the Members duly called
and noticed.
ARTICLE V
MANAGEMENT AND CONTROL OF THE COMPANY
5.1 MANAGEMENT OF THE COMPANY BY THE MANAGERS.
(a) EXCLUSIVE MANAGEMENT BY THE MANAGERS. The business, property
and affairs of the Company shall be managed exclusively by the Managers. Except
for matters as to which the approval of the Members is expressly required by the
Act, Section 5.3, or otherwise in this Agreement, the Managers shall have full,
complete and exclusive authority, power and discretion to manage and control the
business, property and affairs of the Company, to make all decisions regarding
those matters and to perform any and all other actions customary or incident to
the management of the Company's business, property and affairs.
(b) POWERS OF THE MANAGERS. Without limiting the generality of
the foregoing, the Managers, acting in concert but without the need to obtain
any approval from the Members, except only as required in Section 5.3 or
otherwise in this Agreement or the Act, shall have the exclusive power and
authority to cause the Company:
(i) to do any act in the conduct of its business and to
exercise all powers granted to a limited liability company under the Act,
whether in the state of California or in any other state, territory, district or
possession of the United States or any foreign country, that may be necessary,
convenient, desirable or incidental to the accomplishment of the business
purposes of the Company;
(ii) to own, hold, operate, maintain, finance, refinance,
improve, lease, sell, convey, mortgage, transfer, demolish or dispose of any
asset as may be necessary, convenient, desirable or incidental to the
accomplishment of the business purposes of the Company;
(iii) to enter into, perform and carry out any contracts,
leases, instruments, commitments, agreements or other documents of any kind,
including, without limitation, contracts with any Member or Manager, any
Affiliate thereof or any agent of the Company, necessary, convenient, desirable
or incidental to the accomplishment of the business purposes of the Company;
(iv) to sue and be sued, complain and defend and participate
in administrative or other proceedings, in its own name;
(v) to appoint officers, employees and agents of the
Company, define their duties and fix their compensation, if any, and to select
attorneys, accountants, consultants and other advisors of the Company;
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(vi) to indemnify any Person in accordance with the Act and
to obtain any and all types of insurance;
(vii) to borrow money from any Person, and issue evidences of
indebtedness and to secure the same by mortgages, deeds of trust, security
agreements, pledges, collateral assignments or other liens on the assets of the
Company;
(viii) to negotiate, enter into, renegotiate, extend, renew,
terminate, modify, amend, waive, execute, acknowledge or take any other action
with respect to any loan agreement, commitment, deed of trust, mortgage,
security agreement or other loan document in respect of any assets of the
Company;
(ix) 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;
(x) to make, execute, acknowledge, endorse and file any and
all agreements, documents, instruments, checks, drafts or other evidences of
indebtedness necessary, convenient, desirable or incidental to the
accomplishment of the business purposes of the Company;
(xi) to cease the Company's activities and dissolve and wind
up its affairs upon its duly authorized dissolution; and
(xii) to cause any special purpose subsidiary limited
liability company wholly owned by the Company to do any of the foregoing.
(c) AGENCY AUTHORITY OF THE MANAGERS; DELEGATION BY THE MANAGERS.
Any one Manager shall be authorized to endorse all checks, drafts and other
evidences of indebtedness made payable to the order of the Company and, once
approved as required under Section 5.1(g) or as specifically required elsewhere
in this Agreement, to execute all agreements, contracts, commitments, checks,
instruments and other documents on behalf of the Company. The Managers may also
delegate any or all of their authority, rights and/or obligations, whether
arising hereunder, under the Act or otherwise, to any one or more officers,
agents or other duly authorized representatives of the Company.
(d) DISCRETION OF THE MANAGERS. In making any and all decisions
relating to the conduct of the Company's business or otherwise delegated to them
by any provision of this Agreement, the Managers shall be free to exercise their
sole, absolute and unfettered discretion so long as such decision was made by
the Managers in good faith for a purpose reasonably believed by them to be in,
or not opposed to, the best interests of the Company. The Managers shall not, in
respect of any such decision, be liable to the Company, the Members or any of
their respective Affiliates or constituent owners for any resulting actual or
alleged losses, damages, costs or expenses suffered by them so long as such
decision was made by the Managers in good faith for a purpose reasonably
believed by them to be in, or not opposed to, the best interests of the Company.
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(e) PERFORMANCE OF DUTIES; LIABILITY OF MANAGERS. The Managers
shall perform their managerial duties in good faith and in a manner they believe
to be in, or not opposed to, the best interests of the Company. In performing
their duties, the Managers shall be entitled to rely on information, opinions,
reports or statements, including financial statements and other financial data,
of any attorney, independent accountant or other Person as to matters which the
Managers believe to be within such Person's professional or expert competence
unless the Managers have actual knowledge concerning the matter in question that
would cause such reliance to be unwarranted.
(f) DEVOTION OF TIME. The Managers shall not be obligated to devote
all of their time or business efforts to the affairs of the Company; however,
they shall devote such time, effort and skill as they deem appropriate for the
management and operation of the Company's affairs.
(g) DECISIONS OF THE MANAGERS. Except to the extent that this
Agreement expressly requires the unanimous approval of all of the Managers, any
decision or action taken by a majority in number of the Managers (whether
verbally or in writing, whether in person or by proxy and whether or not at a
formal meeting called pursuant to Section 5.1(h)) shall constitute the act or
decision of the Managers.
(h) MEETINGS OF MANAGERS. Meetings of the Managers may be called by
any Manager or by the Chairperson, President, any Senior Vice-President or
Vice-President or the Secretary of the Company, if any. All meetings shall be
held upon four (4) days' notice by mail or forty-eight (48) hours' notice
delivered personally or by telephone, telegraph or facsimile. A notice need not
specify the purpose of any meeting. Notice of a meeting need not be given to any
Manager who signs a waiver of notice, a consent to holding the meeting or an
approval of the minutes thereof, whether before or after the meeting, or who
attends the meeting without protesting the lack of notice prior to the
commencement of the meeting. All such waivers, consents and approvals shall be
filed with the Company records or made a part of the minutes of the meeting. A
majority of the authorized number of Managers shall constitute a quorum of the
Managers for the transaction of business, and except to the extent that this
Agreement expressly requires the approval of all of the Managers, every act or
decision done or made by a majority in number of the Managers present at a
meeting duly held at which a quorum is present shall be the act of the Managers.
A meeting at which a quorum is initially present may continue to transact
business notwithstanding the withdrawal of Managers if any action taken is
approved by at least a majority of the required quorum for the meeting. Managers
may participate in any meeting of the Managers by means of conference telephones
or similar communications equipment so long as all Managers participating can
hear one another. A Manager so participating is deemed to be present at the
meeting.
The provisions of this Section 5.1(h) govern meetings of the Managers
if the Managers elect, in their discretion, to hold meetings. However, nothing
in this Section 5.1(h) or in this Agreement is intended to require that meetings
of the Managers be held, it being the intent of the Members that meetings of the
Managers are not required.
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5.2 ELECTION OF MANAGERS.
(a) NUMBER AND TERM. Until such time as Onlinefilmsales' Unpaid
Preferred Return and Adjusted Capital Contributions are reduced to zero, the
Company shall have one (1) Manager, who shall be designated by Onlinefilmsales.
The initial Manager shall be Onlinefilmsales. After Onlinefilmsales' Unpaid
Preferred Return and Adjusted Capital Contributions are reduced to zero, the
Company shall have three (3) Managers, one of whom shall be designated by
Onlinefilmsales, one of whom shall be designated by MediaChase, and one of whom
shall be designated by Onlinefilmsales and MediaChase by mutual agreement (the
"Joint Designee"); provided, however, that in the event Onlinefilmsales and
MediaChase are unable in good faith to agree upon the Joint Designee,
Onlinefilmsales shall designate the Joint Designee. A Member shall have the
right to change the identity of the Manager(s) appointed by it at any time and
for any reason, by written notice to the other Member, and each Manager so
appointed shall serve in that capacity until he or she resigns or is removed by
the Member which appointed him or her, in its absolute discretion; provided,
however, that if the Joint Designee is designated by both Onlinefilmsales and
MediaChase, such Joint Designee may only be removed by the mutual agreement of
Onlinefilmsales and MediaChase. The failure of any Member to appoint one or both
Managers which that Member is entitled to appoint shall not limit the right of
the Managers to carry on the business of the Company.
(b) VACANCIES. Any vacancy occurring for any reason in the number
of Managers may be filled by designation of the Member(s) who previously
designated the Manager whose position has become vacant.
5.3 LIMITATIONS ON POWER OF THE MANAGERS. This Section 5.3 shall have
no force or effect until Onlinefilmsales' Unpaid Preferred Return and Adjusted
Capital Contributions are reduced to zero, and until such date, the Managers
shall have no restrictions on their powers under this Section 5.3. From and
after the date on which Onlinefilmsales' Unpaid Preferred Return and Adjusted
Capital Contributions are reduced to zero, the limitations on the Managers'
power in this Section 5.3 shall apply:
(a) the sale, exchange or other disposition of all, or
substantially all, of the Company's assets occurring as part of a single
transaction or plan, or in a series of transactions, shall require not only the
approval of the Managers, but also the affirmative vote or written consent of
Members holding at least seventy-five percent (75%) of all Voting Interests;
(b) the merger of the Company with another limited liability
company or a corporation, general partnership or limited partnership shall
require not only the approval of the Managers, but also the affirmative vote or
written consent of Members holding at least seventy-five percent (75%) of all
Voting Interests; provided, however, that in no event shall a Member be required
to become a general partner in a merger with a general or limited partnership
without that Member's express written consent or unless the agreement of merger
provides each Member with the dissenter's rights described in the Act;
(c) any decision to admit a Person as a Member of the Company shall
require not only the approval of the Managers, but also the affirmative vote or
written consent of all of the Members;
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(d) any decision to compromise the obligation of a Member to a make
a Capital Contribution or to return money or property paid or distributed in
violation of the Act shall require not only the approval of the Managers, but
also the affirmative vote or written consent of Members holding at least
seventy-five percent (75%) of the Voting Interests of all non-interested
Members;
(e) any act which would make it impossible to carry on the ordinary
business of the Company shall require not only approval of the Managers, but
also the affirmative vote or written consent of Members holding at least
seventy-five percent (75%) of all Voting Interests;
(f) any decision to place the Company into Bankruptcy shall require
not only the approval of the Managers, but also the affirmative vote or written
consent of Members holding at least seventy-five percent (75%) of all Voting
Interests; and
(g) any amendment to the Certificate of Formation or this Agreement
shall require not only the approval of the Managers, but also the affirmative
vote or written consent of Members holding at least seventy-five percent (75%)
of all Voting Interests, provided, however, that there shall be no change in the
purpose of the Company and provided further that no amendment will be binding on
a Member that diminishes its rights or increases its obligations unless approved
by such Member.
5.4 MEMBERS HAVE NO MANAGERIAL AUTHORITY. The Members shall have no
power to participate in the management of the Company except as expressly
authorized by this Agreement and except as expressly required by any
non-waivable provision of the Act. Without the written authorization of the
Managers to do so, no Member shall have any power or authority to bind or act on
behalf of the Company in any way, to pledge its assets or to render it liable
for any purpose.
5.5 TRANSACTIONS BETWEEN THE COMPANY AND THE MANAGERS, THE MEMBERS OR
THEIR AFFILIATES.
(a) CONTRACTS WITH AFFILIATES. Notwithstanding that it may
constitute a conflict of interest, the Members that are not also Managers may,
and may cause their Affiliates to, engage in any transaction (including, without
limitation, the purchase, sale, lease or exchange of any property, the lending
of money, the rendering of any service or the establishment of any salary, other
compensation or other terms of employment) with the Company so long as that
transaction is not expressly prohibited by this Agreement and so long as the
transaction is approved by the Managers and the transaction is fair to the
Company and is on commercially reasonable terms.
(b) CONTRACTS WITH MANAGERS OR AFFILIATES OF THE MANAGERS. The
Members acknowledge and intend that the Managers may provide, or cause the
Company to engage one or more of its Affiliates to provide, any or all goods
and/or services required by the Company in the conduct of its business and may
engage in any transaction (including, without limitation, the purchase, sale,
lease or exchange of any property, the lending of money, the rendering of any
service or the establishment of any salary, other compensation or other terms of
employment) with the Company, and that, except only as expressly limited below,
the terms and conditions of
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any such engagement shall be determined exclusively by the Managers in their
sole and absolute discretion; provided, however, that notwithstanding
anything to the contrary set forth in this Agreement, all disinterested
Members must approve the terms and conditions of an agreement with the
Manager or the terms and conditions of any agreement with one or more of the
Managers' Affiliates prior to the Company entering into such agreement, which
approval shall not be unreasonably withheld.
(c) TREATMENT OF AFFILIATE LOANS AND FEES. To the fullest extent
permitted by law, all principal, interest, costs and expenses owing by the
Company to the Members, the Managers and/or Affiliates thereof in repayment of
loans and all fees, commissions and/or reimbursable amounts payable by the
Company to the Members, the Managers and/or Affiliates thereof shall be treated
in the same manner as liabilities payable to unaffiliated creditors of the
Company and shall be paid and taken into account, as such, before any
Distributions of Distributable Cash are made to the Economic Interest Holders.
5.6 OFFICERS.
(a) APPOINTMENT OF OFFICERS. The Managers may, at their discretion,
appoint officers of the Company at any time. The officers of the Company may
include a Chairperson, a President or Chief Executive Officer, one or more
Senior Vice Presidents, one or more Vice Presidents, a Secretary, Assistant
Secretaries, a Chief Financial Officer, a Treasurer and one or more Assistant
Treasurers and a Comptroller. The officers shall serve at the pleasure of the
Managers, subject to all rights, if any, of an officer under any contract of
employment. Any individual may hold any number of offices. Officers of the
Managers may serve as officers of the Company if appointed by the Managers. The
officers shall exercise such powers and perform such duties as are typically
exercised by similarly titled officers in a corporation and as shall be
determined from time to time by the Managers. If any such officer is entitled to
a salary for his or her services, however, all of that salary shall be paid by
the Company.
(b) SIGNING AUTHORITY OF OFFICERS. The officers, if any, shall have
such authority to sign checks, instruments and other documents on behalf of the
Company as may be delegated to them by the Managers in writing.
(c) ACTS OF OFFICERS AS CONCLUSIVE EVIDENCE OF AUTHORITY. Any note,
mortgage, deed of trust, evidence of indebtedness, contract, certificate,
statement, conveyance or other instrument or obligation in writing, and any
assignment or endorsement thereof, executed or entered into between the Company
and any other Person, when signed by the Chairperson, the President or Chief
Executive Officer, any Senior Vice-President and any Secretary, any Assistant
Secretary, any Treasurer, or any Assistant Treasurer of the Company, is not
invalidated as to the Company by any lack of authority of the signing officers
in the absence of actual knowledge on the part of the other Person that the
signing officer(s) had no authority to execute the same.
5.7 COMPETING ACTIVITIES.
(a) PRE-FORMATION ACTIVITIES. Each Member, Economic Interest Holder
and Manager and each of its respective Affiliates may continue to engage or
invest in any activity or project, including, without limitation, those that
might be in direct or indirect competition with
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the Company, if such Member, Manager, Economic Interest Holder and/or
Affiliate was engaged or had an investment in such activity or project prior
to the date hereof (other than, in the case of MediaChase, any activities or
projects relating to the operation of the business of ReporterTV.com, which
shall be conducted exclusively pursuant to the terms of this Agreement)
("Pre-Formation Activity"). For purposes of this Agreement, "competition" or
"competitive" shall mean an online entertainment news program containing
business news for the film and television industry. Neither the Company nor
any other Member, Economic Interest Holder or Manager shall have any right in
or to such Pre-Formation Activity or to the income or proceeds derived
therefrom.
(b) POST-FORMATION ACTIVITIES. Except as provided in Section
5.7(a), no Member, Economic Interest Holder, Manager or Affiliate thereof shall,
at any time prior to the Noncompete Date (as hereinafter defined), directly or
indirectly engage in, or have any interest in, or manage, operate or advise in
any manner, or provide or arrange any financing for, any activity or project
(whether as director, officer, shareholder, owner, employee, agent,
representative, security holder, member, consultant or otherwise) which activity
or project is an online entertainment news program containing business news for
the film and television industry; provided, however, that this limitation (i)
shall not apply to the acquisition of a stock interest in a corporation that
competes with the Company's business, provided (x) such stock is publicly traded
and the stock so acquired (together with all other stock in the corporation
beneficially owned by such Person and/or his or her spouse and any other member
of his or her family) is not more than one percent (1%) of the outstanding
shares of such corporation or (y) such corporation is not primarily engaged in
the production of an online entertainment news program containing business news
for the film and television industry and (ii) shall not prohibit consulting or
work with companies that own activities or projects that are competitive with
the Company's business so long as the consulting or work is not directly related
to the competing activity or project. For purposes of this Section 5.7(b), the
"Noncompete Date" shall be the earlier of (i) the date which is one (1) year
after a Member's Membership Interest or Economic Interest Holder's Economic
Interest is terminated, or a non-Member Manager ceases to act in such capacity
on behalf of the Company (as the case may be), or (ii) the date on which the
Company or its successors in interest cease to engage in the Company's business.
Except as prohibited in this Section 5.7, the Members, Economic Interest Holders
and Managers and their respective Affiliates, may engage or invest in, and
devote their time to, any other business venture or activity of any nature and
description (independently or with others).
(c) SPECIFIC ENFORCEMENT. The parties hereby acknowledge and agree
that any breach or threatened breach of this Section 5.7 or Section 9.6 will
cause irreparable injury to the Company and the other Members and Economic
Interest Holders and that money damages will not constitute an adequate remedy.
Accordingly, if any Member, Economic Interest Holder, Manager or Affiliate
thereof breaches or threatens to breach this Section 5.7 or Section 9.6, the
Company and the other Members and Economic Interest Holders shall, in addition
to all other rights and remedies available to them at law or in equity, be
entitled to obtain equitable relief in the form of specific performance,
temporary restraining order, temporary or permanent injunction or any other
equitable remedy which may then be available from any court having equity
jurisdiction, all without the need to post a bond or other security or to prove
any amount of actual damage or that money damages will not provide an adequate
remedy. The provisions of this Section 5.7 and Section 9.6 are intended for the
sole protection and benefit of the parties
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hereto and their respective successors and assigns, and no other person or
entity shall be the direct or indirect beneficiary of or have any direct or
indirect cause of action or claim in connection of this Section 5.7 or
Section 9.6.
(d) PAYMENTS TO MANAGERS AND OTHERS. The Company is authorized to
pay any Person remuneration or reimbursement for goods and services provided to
the Company. Without limiting the generality of the foregoing, the Company shall
pay the Members, the Economic Interest Holders and their Affiliates for services
rendered or goods provided by them to the Company to the extent that those
Members, Economic Interest Holders or Affiliates are not required to render such
services or goods themselves without charge to the Company, and to the extent
that the fees paid to those Members, Economic Interest Holders or Affiliates do
not exceed the fees that would be payable to independent responsible third
parties that are willing to perform those services or provide those goods.
(e) EXPENSES. The Company shall reimburse the Managers and their
Affiliates for all reasonable out-of-pocket costs and expenses incurred by them
in connection with the business and affairs of the Company, as well as
organizational expenses (including, without limitation, legal and accounting
fees and costs) incurred by them to form the Company and prepare the Certificate
of Formation (other than expenses incurred in connection with the preparation
and negotiation of this Agreement), subject to the Managers receiving advance
approval from all non-Manager Members in the case of expenses (or a series of
related expenses) in excess of $1,000, or such other amount which is agreed to
by all the Members, in any month which do not constitute an Agreed Overrun. The
Managers may allocate to the Company, on any basis selected by them in good
faith which is consistent with good accounting practice, a portion of any and
all expenses, including general, special and administrative expenses, incurred
by them or their Affiliates for the benefit of the Company, subject to the
Managers receiving advance approval from all non-Manager Members in the case of
an allocation to the Company (or a series of related allocations) in excess of
$1,000, or such other amount which is agreed to by all the Members, in any month
which do not constitute an Agreed Overrun.
ARTICLE VI
ALLOCATIONS OF NET PROFITS, NET LOSSES AND DISTRIBUTIONS
6.1 MINIMUM GAIN CHARGEBACK. In the event that there is a net decrease
in the Company Minimum Gain during any taxable year, the minimum gain chargeback
described in Sections 1.704-2(f) and (g) of the Treasury Regulations shall
apply.
6.2 MEMBER MINIMUM GAIN CHARGEBACK. If during any taxable year there is
a net decrease in Member Minimum Gain, the partner minimum gain chargeback
described in Section 1.704-2(i)(5) of the Treasury Regulations shall apply.
6.3 QUALIFIED INCOME OFFSET. Any Economic Interest Holder who
unexpectedly receives an adjustment, allocation or Distribution described in
subparagraphs (4), (5) or (6) of Section 1.704-1(b)(2)(ii)(d) of the Treasury
Regulations, which adjustment, allocation or distribution creates or increases a
deficit balance in that Economic Interest Holder's Capital Account, shall be
allocated items of "book" income and gain in accordance with the provisions
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of the "qualified income offset" as described in Section 1.704-1(b)(2)(ii)(d)
of the Treasury Regulations.
6.4 NONRECOURSE DEDUCTIONS. Nonrecourse Deductions shall be allocated
to the Economic Interest Holders in proportion to their Economic Interests.
6.5 MEMBER NONRECOURSE DEDUCTIONS. Member Nonrecourse Deductions shall
be allocated to the Economic Interest Holders as required in Section
1.704-2(i)(1) of the Treasury Regulations in accordance with the manner in which
the Economic Interest Holders bear the burden of an Economic Risk of Loss
corresponding to the Member Nonrecourse Deductions.
6.6 ALLOCATION OF NET PROFITS. The Net Profits for each fiscal period
of the Company shall be allocated to the Economic Interest Holders in accordance
with the following order of priority:
(a) first, to those Economic Interest Holders with negative
Adjusted Capital Accounts, among them in proportion to the ratio of the negative
balances in their Adjusted Capital Accounts, until no Economic Interest Holder
has a negative Adjusted Capital Account;
(b) second, to those Economic Interest Holders whose Adjusted
Capital Contributions are in excess of their Adjusted Capital Accounts, among
them in accordance with the ratio of these excesses, until all of these excesses
have been eliminated;
(c) third, to each Member in proportion to each Member's Preferred
Return Account, until the Preferred Return Account of each is reduced to zero;
and
(d) finally, to the Economic Interest Holders in proportion to
their Economic Interests.
6.7 ALLOCATION OF NET LOSSES. Net Losses for each fiscal period of the
Company shall be allocated to the Economic Interest Holders in accordance with
the following order of priority:
(a) first, to those Economic Interest Holders with positive
Adjusted Capital Accounts, in proportion to the ratio of the positive balances
in their Adjusted Capital Accounts, until no Economic Interest Holder has a
positive Adjusted Capital Account; and
(b) finally, to the Economic Interest Holders in proportion to
their Economic Interests.
6.8 DISTRIBUTIONS BY THE COMPANY. Subject to applicable law and any
limitations contained elsewhere in this Agreement, the Managers may elect from
time to time to cause the Company to distribute Distributable Cash to the
Economic Interest Holders, which Distributions shall be in the following order
of priority:
(a) first, to each Member in proportion to each Member's Unpaid
Preferred Return, until the Unpaid Preferred Return of each has been reduced to
zero;
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(b) second, to each Member in proportion to each Member's Adjusted
Capital Contributions, until the Adjusted Capital Contributions of each are
reduced to zero; and
(c) finally, to the Economic Interest Holders in proportion to
their Economic Interests.
6.9 ALLOCATION OF NET PROFITS AND LOSSES AND DISTRIBUTIONS IN RESPECT
OF A TRANSFERRED INTEREST. If any Economic Interest is Transferred or is
increased or decreased by reason of the admission of a new Economic Interest
Holder or otherwise during any Fiscal Year, each item of income, gain, loss,
deduction or credit of the Company for that Fiscal Year shall be allocated based
on the "interim closing of the books" method.
6.10 TAX ALLOCATION MATTERS.
(a) CONTRIBUTED OR REVALUED PROPERTY. Each Economic Interest
Holder's allocable share of the taxable income or loss of the Company,
depreciation, depletion, amortization and gain or loss with respect to any
contributed property, or with respect to revalued property where the Company's
property is revalued pursuant to Paragraph (b)(2)(iv)(f) of Section 1.704-1 of
the Treasury Regulations, shall be determined in the manner (and as to
revaluations, in the same manner as) provided in Section 704(c) of the Code. The
allocation shall take into account, to the full extent required or permitted by
the Code, the difference between the adjusted basis of the property to the
Economic Interest Holder contributing it and the fair market value of the
property determined by the Managers at the time of its contribution or
revaluation, as the case may be. The Company shall apply Section 704(c)(1)(A) by
using the "traditional method" as set forth in Section 1.704-3(b) of the
Treasury Regulations.
(b) RECAPTURE ITEMS. In the event that the Company has taxable
income that is characterized as ordinary income under the recapture provisions
of the Code, each Economic Interest Holder's distributive share of taxable gain
or loss from the sale of Company assets (to the extent possible) shall include a
proportionate share of this recapture income equal to that Economic Interest
Holder's share of prior cumulative depreciation deductions with respect to the
assets which gave rise to the recapture income.
6.11 ORDER OF APPLICATION. To the extent that any allocation,
Distribution or adjustment specified in any of the preceding Sections of this
Article VI affects the results of any other allocation, Distribution or
adjustment required herein, the allocations, Distributions and adjustments
specified in the following Sections shall be made in the priority listed:
(a) Section 6.8.
(b) Section 6.1.
(c) Section 6.2.
(d) Section 6.3.
(e) Section 6.4.
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(f) Section 6.5.
(g) Section 6.7.
(h) Section 6.6.
(i) Section 10.4.
These provisions shall be applied as if all Distributions and
allocations were made at the end of the Company's Fiscal Year. Where any
provision depends on the Capital Account of any Economic Interest Holder, that
Capital Account shall be determined after the operation of all preceding
provisions for the Fiscal Year.
6.12 ALLOCATION OF LIABILITIES. Each Economic Interest Holder's
interest in "partnership" profits for purposes of determining that Member's
share of "excess nonrecourse liabilities" of the Company as used in Section
1.752-3(a)(3) of the Treasury Regulations, shall be equal to that Economic
Interest Holder's Economic Interest.
6.13 FORM OF DISTRIBUTION. No Economic Interest Holder, regardless of
the nature of its Capital Contribution, has the right to demand and receive any
Distribution from the Company in any form other than money. No Economic Interest
Holder may be compelled to accept from the Company a Distribution of any asset
in kind in lieu of a proportionate Distribution of money being made to other
Economic Interest Holder(s), and except upon a dissolution and the winding up of
the Company, no Economic Interest Holder may be compelled to accept a
Distribution of any asset in kind.
ARTICLE VII
TRANSFER OF INTERESTS
7.1 TRANSFER OF INTERESTS. Notwithstanding anything to the contrary set
forth elsewhere herein, no Member may, except as permitted in Section 7.3,
Transfer all or any part of its Membership Interest or its Economic Interest,
for any reason, within the one (1) year period (the "Prohibited Transfer
Period") commencing upon the date hereof. Any attempted Transfer during such
Prohibited Transfer Period shall be null and void ab initio, and the transferee
shall not become either a Member or an Economic Interest Holder. After the
Prohibited Transfer Period, any Member may Transfer all or any part of its
Membership Interest or Economic Interest provided it has complied with Section
7.3. After the consummation of any permitted Transfer of all or any part of a
Membership Interest or an Economic Interest, the Membership Interest or Economic
Interest so Transferred shall continue to be subject to the terms and provisions
of this Agreement, and any further Transfers shall be required to comply with
the terms and provisions of this Agreement.
7.2 [intentionally omitted]
7.3 RIGHT OF FIRST REFUSAL. At any time after the Prohibited Transfer
Period, if any Member decides to Transfer all or any part of its Membership
Interest or Economic Interest (the "Offered Interest") pursuant to a Bona Fide
Offer, that Member shall give written notice to the
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Company and to all other Members (the "Eligible Members"), setting forth in
full the terms of such Bona Fide Offer and the identity of the offeror(s).
The Company shall then have the right and option, for a period ending thirty
(30) calendar days following its receipt of the written notice, to elect to
purchase all or any part of the Offered Interest at the purchase price and
upon the terms specified in the Bona Fide Offer, and the Eligible Members
(pro rata in accordance with the ratio of their Economic Interests) shall
then have the right and option, for a period of twenty (20) days thereafter,
to elect to purchase all or any part of the Offered Interest not elected to
be purchased by the Company at the purchase price and upon the terms
specified in the Bona Fide Offer. If all Eligible Members do not elect to
purchase the entire balance of the Offered Interest, then the Eligible
Members electing to purchase shall have the right and option, for a period of
ten (10) days thereafter and pro rata in accordance with the ratio of their
Economic Interests, to elect to purchase the balance of the Offered Interest
available for purchase.
Notwithstanding the foregoing, however, if the Company and/or the
Eligible Members do not elect to purchase all of the Offered Interest subject to
the right of first refusal pursuant to this Section 7.3, the Member desiring to
Transfer may Transfer all of the Offered Interest to the original proposed
transferee upon the terms set forth in the written notice provided to the
Company, whereupon the original proposed transferee shall take and hold the
Offered Interest subject to this Agreement and to all of the obligations and
restrictions upon the Member from whom such Offered Interest was acquired and
shall observe and comply with this Agreement and with all such obligations and
restrictions. Any such Transfer of the Offered Interest to the original proposed
transferee must be effected within ninety (90) calendar days after the date of
the termination of the right of first refusal options provided above. If no such
Transfer is effected within such ninety (90) calendar day period, then any
subsequent proposed Transfer of all or any part of the Membership Interest or
Economic Interest of the Member desiring to Transfer shall once again be subject
to the provisions of this Section 7.3.
For these purposes, if any consideration offered for the Offered
Interest in the Bona Fide Offer consists of rights, interests or property other
than money or an obligation to pay money, the Managers shall, in good faith,
determine the Fair Market Value of that consideration in monetary terms as of
the date the Bona Fide Offer was received by the Member desiring to Transfer.
The Fair Market Value of that consideration in monetary terms, as so determined,
shall be included in the purchase price payable by the Company and/or the
purchasing Members hereunder, but, in order to exercise their rights of first
refusal granted above, neither the Company nor the purchasing Members need
transfer to the Member desiring to Transfer the actual rights, interests or
property offered in the Bona Fide Offer nor afford the Member desiring to
Transfer the same tax treatment which would have been available to it under the
Bona Fide Offer.
7.4 [intentionally omitted]
7.5 [intentionally omitted]
7.6 [intentionally omitted]
7.7 REPURCHASE RESTRICTIONS IMPOSED BY LAW. Notwithstanding anything to
the contrary stated herein, the Company's right to exercise any option provided
in this Article VII shall be subject to the restrictions governing prohibited
Company Distributions set forth in the
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Act and such other pertinent federal and state laws, rules, regulations or
other governmental restrictions as may now or hereafter be in effect.
7.8 FURTHER RESTRICTIONS ON TRANSFER OF INTERESTS. In addition to any
other restrictions found in this Agreement, no Interest Holder may Transfer its
Membership Interest, its Economic Interest or any part thereof (a) without
compliance with the Securities Act, the California Corporate Securities Law of
1968 and any other applicable securities laws, and (b) if the Transfer could
result in the Company not being classified as a partnership for federal or state
income tax purposes, in each case as determined by the Managers. Any attempted
or purported Transfer in violation of this Section 7.8 shall be null and void ab
initio, and the transferee shall not become either a Member or an Economic
Interest Holder.
7.9 SUBSTITUTION OF MEMBERS. Notwithstanding anything in this Agreement
to the contrary, no transferee of the whole or any part of a Membership Interest
shall become a substituted Member in the place of its transferor unless all of
the following conditions are satisfied:
(a) the Transferring Interest Holder and the transferee execute and
acknowledge such other instrument or instruments as the Managers may deem
necessary or desirable to effectuate the admission, including the written
acceptance and adoption by the transferee of all of the terms and conditions of
this Agreement as the same may have been amended; and
(b) The transferee pays to the Company a transfer fee which is
sufficient, in the reasonable discretion of the Managers, to cover all expenses
incurred by the Company in connection with the Transfer and substitution.
7.10 ENFORCEMENT. The Transfer restrictions contained in this Agreement
are of the essence of the ownership of a Membership Interest or an Economic
Interest. Upon application to any court of competent jurisdiction, the Company
shall be entitled to a decree against any Person violating or about to violate
such restrictions, requiring their specific performance, including those
requiring a Member or an Economic Interest Holder to sell all or part of its
Membership Interest or Economic Interest to the Company and/or the other
Members, or prohibiting a Transfer of all or part of a Membership Interest or an
Economic Interest.
7.11 EFFECT OF TRANSFERS IN VIOLATION OF AGREEMENT. If, for any reason,
a court refuses to enforce the provisions of Section 7.1 to the effect that a
Transfer in violation of this Article VII is null and void, then, upon any such
Transfer of a Membership Interest or part thereof in violation of this Article
VII, the transferee shall have no right to vote or participate in the management
of the business, property and affairs of the Company or to exercise any rights
of a Member. The transferee shall only be entitled to become an Economic
Interest Holder to the extent of the Membership Interest attempted or purported
to be Transferred to it in violation of this Agreement and thereafter shall only
receive the share of the Company's Net Profits, Net Losses, Tax Credits,
Distributable Cash, and other Distributions to which the Transferring Interest
Holder would otherwise have been entitled.
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ARTICLE VIII
CONSEQUENCES OF MEMBERSHIP TERMINATION EVENTS
8.1 DISSOLUTION OF COMPANY. The occurrence of a Membership Termination
Event as to any Member other than the last and only remaining Member shall not
dissolve the Company. Upon the occurrence of a Membership Termination Event as
to the last and only remaining Member, the Company shall dissolve unless the
Managers and the successor-in-interest of the last and only remaining Member
consent in writing within ninety (90) days of such Membership Termination Event
to the continuation of the Company and to the admission of such personal
representative or other successor-in-interest, or its designee or nominee, as a
Member.
8.2 ADMISSION OR CONVERSION. Upon the occurrence of a Membership
Termination Event with respect to a Member under circumstances where the Company
does not dissolve, the Managers shall determine which one of the following shall
occur and give written notice thereof to the remaining Members and to the Member
who suffered the Membership Termination Event (the "Former Member"):
(a) the Former Member's successor-in-interest shall be admitted as
a Member of the Company in the place and stead of the Former Member to the
extent of the Former Member's Membership Interest (the "Former Member's
Interest"); provided, however, that the Managers may not elect this alternative
without the affirmative vote or written consent of Members constituting a
Majority in Interest of all remaining Members holding at least seventy-five
percent (75%) of the Voting Interests of all remaining Members;
(b) the Former Member's Interest shall be converted to a bare
Economic Interest, and the Former Member's successor-in-interest shall become
the owner of that Economic Interest; or
(c) the Company, and/or one or more of the remaining Members and/or
any other Person(s) designated by the Managers shall purchase, and the Former
Member or the Former Member's successor-in-interest shall sell, the Former
Member's Interest upon the terms and conditions specified in Section 8.3.
8.3 TERMS OF TRANSFER.
(a) TRANSFEREE BOUND BY AGREEMENT. If all or any part of Member's
Membership Interest or Economic Interest has been Transferred to a transferee,
that transferee shall take and hold such Interest subject to this Agreement and
to all of the obligations and restrictions upon the Member and shall observe and
comply with this Agreement and with all such obligations and restrictions.
(b) NOTICE OF REPURCHASE EVENT. Upon the occurrence of a Membership
Termination Event, the Member affected (the "Transferring Interest Holder")
shall promptly give notice (the "Notice") to the Company and to all Eligible
Members, stating when the Membership Termination Event occurred, the reason
therefor, if applicable, the percentage of the Membership Interest or Economic
Interest so affected, and the name, address and capacity of the transferee, if
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a Transfer has occurred. If no such Notice is given within ten (10) days of
the occurrence of the Membership Termination Event, any Eligible Member may
institute the purchase proceedings by giving a Notice to the Company, the
other Eligible Members and the Transferring Interest Holder. For purposes of
the remainder of this Section 8.3, the term "Affected Interest" shall mean
the Membership Interest or Economic Interest which the Transferring Interest
Holder is required to sell to the Company and the Eligible Members pursuant
to Section 8.2(c) above.
(c) OPTION TO PURCHASE. Upon receipt of any Notice, the Company
shall have the right and option, for a period ending thirty (30) calendar days
following the determination of the purchase price of the Affected Interest, to
elect to purchase all (but not less than all) of the Affected Interest at the
price and upon the terms provided below in this Section 8.3, and the Eligible
Members, pro rata in accordance with the ratio of their Economic Interests,
shall then have the right and option, for a period of twenty (20) days
thereafter, to elect to purchase all or any part of the Affected Interest not
elected to be purchased by the Company upon the same terms and conditions as
exist in favor of the Company. If all Eligible Members do not elect to purchase
the entire balance of the Affected Interest, then the Eligible Members electing
to purchase shall have the right and option, for a period of ten (10) days
thereafter and pro rata in accordance with the ratio of their Economic
Interests, to purchase the balance of the Affected Interest available for
purchase. If the Company and the Eligible Members do not elect to purchase all
of the Affected Interest, the Transferring Interest Holder shall retain all of
the Affected Interest subject to all of the terms of this Agreement.
(d) PURCHASE PRICE.
(i) BY AGREEMENT. Upon the Company's receipt of the Notice,
the Transferring Interest Holder and the Company (acting through the Managers)
shall promptly attempt to agree upon a purchase price for the Affected Interest.
(ii) BY APPRAISAL IF NO AGREEMENT. If the Company and the
Transferring Interest Holder are unable to agree upon a purchase price within
thirty (30) calendar days following the Company's receipt of the Notice, they
shall appoint an appraiser as mutually agreed by the parties to value the Fair
Market Value of the Affected Interest as of the date the Membership Termination
Event occurred. The determination of the purchase price in the by the appraiser
shall be conclusive for all purposes and upon all parties.
The expenses of appraisal shall be borne equally by the Company and the
Transferring Interest Holder. The portion of the compensation and fees allocated
to the Company shall be apportioned, as among the Company and any Members
electing to purchase the Affected Interest, on a pro rata basis to the amount of
the Affected Interest purchased by the Company and each such Member,
respectively.
(iii) QUALIFICATIONS OF APPRAISER. The appraiser selected by
the parties shall be reasonably experienced in valuing interests in businesses
similar to the business then conducted by the Company.
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(e) PAYMENT OF PURCHASE PRICE.
(i) PAYMENT. Except as provided below, the purchase price
for the Affected Interest shall be payable at the option of the Company and each
purchasing Member, severally, either entirely in cash, or partly in cash and
partly by delivery of a promissory note (in which latter case, at least
twenty-five percent (25%) of the purchase price for the Affected Interest shall
be payable in cash at closing with the remainder payable by delivery of a
promissory note). Each promissory note hereunder ("Note") shall be in the form
of a secured promissory note, payable as provided in clause (ii) below.
(ii) PROMISSORY NOTES. Each Note shall be payable in four (4)
equal quarterly principal installments over one year, with fixed interest at
Prime. Interest shall be paid quarterly in addition to principal. Each Note
shall provide that the maker of the Note shall have the right to prepay all or
any part of the principal balance on the Note without penalty or premium and
that any sums paid in any period in excess of the regular installment for that
period shall be applied against installments thereafter falling due, in the
inverse order of their maturity or against all of the remaining installments
equally, at the option of the holder of the Note. Each Note shall also provide
that in case of default in the payment of any installment when due, the entire
principal balance then remaining unpaid shall become immediately due and payable
at the option of the holder, and shall provide for the payment by the maker of
reasonable attorneys' fees to the holder in the event suit is commenced because
of any default. Each Note executed by a Member shall be secured by a security
interest in that part of the Affected Interest purchased by that Member. Each
Note executed by the Company shall be secured by a security interest in all of
the property of the Company. So long as no default occurs in the making of
payments on any Note, the Company and/or the purchasing Members shall have the
right to receive all distributions of Distributable Cash and other Distributions
and all allocations of Net Profits, Net Losses and Tax Credits attributable
thereto. However, upon default by the Company or a purchasing Member in the
payment of its Note, and if that default continues for a period of thirty (30)
days after notice thereof to the Company and/or the purchasing Member, the
Transferring Interest Holder shall thereupon have, in addition to any other
rights or remedies it may have by reason of the default, the right to receive
the distributions of Distributable Cash and other Distributions attributable
thereto (but not the allocations of Net Profits, Net Losses and Tax Credits
attributable thereto, which shall continue to vest until foreclosure in the
legal owners of the Membership Interests or Economic Interest(s) so serving as
security). Any Distributions so received shall be applied to, and shall reduce,
the amount of principal and interest owing on the Note.
(iii) SUBORDINATION OF NOTES. Each Note issued by the Company
shall be subordinated in right of payment to the payment of all Senior Debt (as
defined below) upon such terms and conditions as the holders of the Senior Debt
may determine, and each such Note shall contain subordination provisions which
are approved as to form and substance by all holders of the Senior Debt. For
these purposes "Senior Debt" means financing provided by one or more
institutional or private lenders to fund the Company's business operations. The
parties acknowledge that the Company's ability to make payments under
outstanding Notes may be limited from time to time by any such subordination
provisions, by provisions of applicable law and by provisions of the Articles.
If, as a result of these limitations, the Company is at any particular time able
to make payments under some but not all of its outstanding Notes, it shall
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allocate the payments which it is able to make among the Notes on a strict
"first issued, first paid" basis. Each Note issued by the Company shall provide
that no payments of principal or interest may be made thereon at any time that
the Company is in arrears in the payment of principal or interest on any Note
previously issued by the Company.
(f) CONSUMMATION OF SALE. Unless the parties involved mutually
agree otherwise, delivery to the Company and/or the purchasing Members of the
Affected Interest to be sold hereunder and payment of the purchase price
therefor shall take place at a closing (the "Closing") to be held at the
principal office of the Company within thirty (30) calendar days following the
termination of the last applicable option period. At the Closing, the
Transferring Interest Holder shall deliver to the Company and/or the purchasing
Members a bill of sale and assignment effecting the transfer of the Affected
Interest to be sold, in form and substance satisfactory to the Company and/or
the purchasing Members, and shall deliver, in addition, any other documents
reasonably requested by the Company and/or the purchasing Members to effectuate
the purposes of this Agreement.
ARTICLE IX
ACCOUNTING, RECORDS, REPORTING BY MEMBERS
9.1 BOOKS AND RECORDS. The books and records of the Company shall be
kept, and the financial position and the results of its operations recorded, in
accordance with the method selected by the Managers. The books and records of
the Company shall reflect all the Company transactions and shall be appropriate
and adequate for the Company's business. The Company shall maintain all of the
following at its principal office:
(a) a current list of the full name and last known business or
residence address of each Member and Economic Interest Holder set forth in
alphabetical order, together with the Capital Contributions, Capital Account,
Voting Interest and Economic Interest of each Member and Economic Interest
Holder;
(b) a current list of the full name and business or residence
address of each Manager;
(c) copies of the Certificate of Formation and all amendments
thereto, together with executed copies of any powers of attorney pursuant to
which the Certificate of Formation or any amendments thereto have been executed;
(d) copies of the Company's federal, state and local income tax or
information returns and reports, if any, for the six most recent taxable years;
(e) copies of this Agreement and any and all amendments thereto,
together with executed copies of any powers of attorney pursuant to which this
Agreement or any amendments thereto have been executed;
(f) copies of the financial statements of the Company, if any, for
the six most recent Fiscal Years;
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(g) the Company's books and records pertaining to the internal
affairs of the Company for at least the current and past four Fiscal Years; and
(h) copies of all written consents approving actions taken by the
Members without a meeting pursuant to Section 4.4.
9.2 REPORTS; ANNUAL STATEMENTS.
(a) GOVERNMENTAL REPORTS. The Managers shall cause to be filed all
documents and reports required to be filed with any governmental agency in
accordance with the Act.
(b) FINANCIAL REPORTS. The Managers shall cause to be sent to each
Member of the Company (a) not later than one hundred twenty (120) days after the
close of each Fiscal Year of the Company, the Company's unaudited financial
statements for that Fiscal Year, including a balance sheet as of the end of that
Fiscal Year and an income statement and statement of changes in financial
position for that Fiscal Year, accompanied by the report thereon of the
independent accountants engaged by the Company, and (b) within thirty (30) days
after the end of each of the first three (3) fiscal quarters of each Fiscal Year
of the Company, the Company's unaudited financial statements for such fiscal
quarter, including a balance sheet as of the end of that fiscal quarter and an
income statement and statement of changes in financial position for such fiscal
quarter.
(c) TAX REPORTS. The Managers shall cause to be prepared at least
annually, at Company expense, information necessary for the preparation of the
Members' and Economic Interest Holders' federal and state income tax returns.
The Managers shall send or cause to be sent to each Member and Economic Interest
Holder within ninety (90) days after the end of each taxable year such
information as is necessary to complete federal and state income tax or
information returns.
9.3 BANK ACCOUNTS; INVESTED FUNDS. All funds of the Company shall
be deposited in such account or accounts of the Company as may be determined by
the Managers and shall not be commingled with the funds of any other Person. All
withdrawals therefrom shall be made upon checks signed by such persons and in
such manner as the Managers may determine. Temporary surplus funds of the
Company may be invested in commercial paper, time deposits, short-term
government obligations or other investments determined by the Managers.
9.4 TAX MATTERS FOR THE COMPANY HANDLED BY TAX MATTERS PARTNER. The
Managers shall from time to time cause the Company to make such tax elections as
they deem to be in the best interests of the Company and the Members. The Tax
Matters Partner shall represent the Company (at the Company's expense) in
connection with all administrative and/or judicial proceedings by the Internal
Revenue Service or any government authority involving any return of the Company,
and may expend the Company's funds for professional services and costs
associated therewith. Without limiting the powers which the Tax Matters Partner
may exercise, the Tax Matters Partner shall have the authority to do any of the
following: (a) enter into a settlement agreement with the Internal Revenue
Service which binds the Members, (b) file a petition as contemplated in Section
6226(a) or 6228 of the Code, (c) intervene in any action as
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<PAGE>
contemplated in Section 6226(b)(5) of the Code, (d) file any request
contemplated in Section 6227(b) of the Code, or (e) enter into an agreement
extending the period of limitations as contemplated in Section 6229(b)(1)(B)
of the Code.
9.5 ACCOUNTING MATTERS. All decisions as to accounting matters shall
be made by the Managers.
9.6 CONFIDENTIALITY. All books, records, financial statements, tax
returns, budgets, business plans and projections of the Company, all other
Confidential Information and all of the terms and provisions of this Agreement
shall be held in confidence by the Managers, the Members and the Economic
Interest Holders and their respective Affiliates, subject to any obligation to
comply with (a) any applicable law, (b) any rule or regulation of any legal
authority or securities exchange, or (c) any subpoena or other legal process to
make information available to the Persons entitled thereto. Such confidentiality
shall be maintained to the same degree as each Manager, Member or Economic
Interest Holder maintains its own confidential information and shall be
maintained until such time, if any, as any such confidential information either
is, or becomes, published or a matter of public knowledge. Without limiting the
generality of the foregoing, no Member, Economic Interest Holder or Manager
shall, at any time (both during the period such Person is a Member, Economic
Interest Holder or Manager and thereafter), cause, suffer or permit the
Confidential Information to be used for the gain or benefit of any party outside
of the Company or for such Person's personal gain or benefit outside the scope
of such Person's relationship with the Company.
ARTICLE X
DISSOLUTION AND WINDING UP
10.1 DISSOLUTION. The Company shall be dissolved, its assets disposed
of and its affairs wound up upon the first to occur of the following:
(a) the vote of the Managers and Members holding at least
seventy-five percent (75%) of all Voting Interests;
(b) the occurrence of a Membership Termination Event as to the last
and only remaining Member, if the Managers and that Member's
successor-in-interest fail to consent to the continuation of the Company in
accordance with Section 8.1 within ninety (90) days after the occurrence of that
event;
(c) the sale of all or substantially all of the assets of the
Company; or
(d) the occurrence of an event which makes it unlawful for the
business of the Company to be continued.
10.2 DATE OF DISSOLUTION. Dissolution of the Company shall be effective
on the day on which the event occurs giving rise to the dissolution, but the
Company shall not terminate until the assets of the Company have been liquidated
and distributed as provided herein. Notwithstanding the dissolution of the
Company, prior to the termination of the Company the
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business of the Company and the rights and obligations of the Members and
Economic Interest Holders, as such, shall continue to be governed by this
Agreement.
10.3 WINDING UP. Upon the occurrence of any event specified in Section
10.1, the Company shall continue solely for the purpose of winding up its
affairs in an orderly manner, liquidating its assets and satisfying the claims
of its creditors. The Managers shall be responsible for overseeing the winding
up and liquidation of the Company and shall cause the Company to (a) sell or
otherwise liquidate all of the Company's assets as promptly as practicable,
except to the extent the Managers determine to distribute any assets to the
Economic Interest Holders in kind, (b) allocate any Net Profits or Net Losses
resulting from such sales to the Economic Interest Holders' Capital Accounts in
accordance with this Agreement, (c) discharge or make reasonable provision for
all liabilities of the Company, including all liabilities to the Managers, the
Members and the Economic Interest Holders to the extent permitted by law (other
than liabilities for unpaid distributions to Economic Interest Holders and
former Economic Interest Holders under the Act), and all costs relating to the
dissolution, winding up, and liquidation and distribution of assets, (d)
establish such reserves as may be reasonably necessary to provide for contingent
liabilities of the Company (for purposes of determining the Capital Accounts of
the Economic Interest Holders, the amounts of such reserves shall be deemed to
be an expense of the Company), (e) discharge or make reasonable provision for
any remaining liabilities of the Company to the Economic Interest Holders, other
than on account of their interests in Company capital or profits, and to the
Managers, and (f) distribute the remaining assets to the Economic Interest
Holders in the manner specified in Section 10.4.
10.4 LIQUIDATING DISTRIBUTIONS TO ECONOMIC INTEREST HOLDERS. The
remaining assets of the Company shall promptly be distributed to the Economic
Interest Holders in accordance with Section 6.8, after taking into account
income and loss allocations for the Company's taxable year during which the
liquidation occurs.
10.5 DISTRIBUTIONS IN KIND. Any non-cash asset distributed to one or
more Economic Interest Holders shall first be valued at its Fair Market Value to
determine the Net Profit or Net Loss that would have resulted if that asset had
been sold for that value, the Net Profit or Net Loss shall then be allocated
pursuant to Article VI, and the Economic Interest Holders' Capital Accounts
shall be adjusted to reflect those allocations. The amount distributed and
charged to the Capital Account of each Economic Interest Holder receiving an
interest in the distributed asset shall be the Fair Market Value of the interest
(net of any liability secured by the asset that the Member assumes or takes
subject to). The Fair Market Value of that asset shall be determined by the
Managers.
10.6 PROVISION FOR DEBTS AND LIABILITIES. The payment of a debt or
liability, whether the whereabouts of the creditor is known or unknown, has been
adequately provided for if the payment has been provided for by either of the
following means:
(a) payment has been assumed or guaranteed in good faith by one or
more financially responsible Persons or by the United States government or any
agency thereof, and the provision, including the financial responsibility of the
Person, was determined in good faith and with reasonable care by the Managers to
be adequate at the time of any distribution of the assets pursuant to this
Section; or
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(b) the amount of the debt or liability has been deposited as
provided in Title 12, Section 1197 of the Delaware Code.
This Section 10.6 shall not prescribe the exclusive means of
making adequate provision for debts and liabilities.
10.7 NO LIABILITY. Notwithstanding anything to the contrary in this
Agreement, upon a liquidation within the meaning of Section 1.704-1(b)(2)(ii)(g)
of the Treasury Regulations, if any Economic Interest Holder has a negative
deficit Capital Account balance (after giving effect to all contributions,
distributions, allocations and other Capital Account adjustments for all taxable
years, including the year during which such liquidation occurs), neither that
Economic Interest Holder nor the Managers shall have any obligation to make any
contribution to the capital of the Company, and the negative balance of that
Economic Interest Holder's Capital Account shall not be considered a debt owned
by that Economic Interest Holder or the Managers to the Company or to any other
person for any purpose whatsoever.
10.8 LIMITATIONS ON PAYMENTS MADE IN DISSOLUTION. Except as otherwise
specifically provided in this Agreement, each Economic Interest Holder shall be
entitled to look only to the assets of the Company for the return of that
Economic Interest Holder's positive Capital Account balance and shall have no
recourse for its Capital Contributions and/or share of Net Profits (upon
dissolution or otherwise) against the Managers or any other Economic Interest
Holder.
10.9 CERTIFICATE OF CANCELLATION. Upon completion of the winding up of
the Company's affairs, the Managers shall file a Certificate of Cancellation
with the Delaware Secretary of State.
10.10 COMPENSATION FOR SERVICES. The Managers shall be entitled to
reasonable compensation from the Company for their services in winding up the
affairs of the Company.
ARTICLE XI
LIMITATION OF LIABILITY; STANDARD OF CARE; INDEMNIFICATION
11.1 LIMITATION OF LIABILITY. The debts, obligations and liabilities of
the Company, whether arising in contract, tort or otherwise, shall be solely the
debts, obligations and liabilities of the Company, and no Member, Economic
Interest Holder, Manager or officer of the Company shall be obligated personally
for any such debt, obligation or liability of the Company solely by reason of
being a Member, Economic Interest Holder, Manager and/or officer.
11.2 STANDARD OF CARE. Neither the Managers nor any Member or officer
of the Company shall have any personal liability whatsoever to the Company or to
any Member, Economic Interest Holder or Affiliate of the Company or to any
Affiliate or constituent owner of any Member or Economic Interest Holder on
account of such Person's status as the Manager or as a Member or officer of the
Company or by reason of such Person's acts or omissions in connection with the
conduct of the business of the Company so long as such Person acts in good faith
for a purpose which the Person reasonably believes to be in, or not opposed to,
the best interests of the Company; provided, however, that nothing contained
herein shall protect any
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such Person against any liability to which such Person would otherwise be
subject by reason of (a) any act or omission of such Person that involves
actual fraud or willful misconduct or (b) any transaction from which such
Person derives any improper personal benefit.
11.3 INDEMNIFICATION. The Company shall indemnify and hold harmless any
Person made, or threatened to be made, a party to an action or proceeding,
whether civil, criminal or investigative (a "proceeding"), including an action
by or in the right of the Company, by reason of the fact that such Person was or
is a Manager, a Member (including in the capacity of the Tax Matters Partner) or
an officer of the Company, an Affiliate of a Manager, a Member or an officer of
the Company, or an officer, director, shareholder, partner, member, employee,
manager or agent of any of the foregoing, against all judgments, fines, amounts
paid in settlement and reasonable expenses (including investigation, accounting
and attorneys' fees) incurred as a result of such proceeding, or any appeal
therein (and including, without limitation, indemnification against active or
passive negligence, gross negligence or breach of duty) if such Person acted in
good faith, for a purpose which he reasonably believed to be in, or not opposed
to, the best interests of the Company and in criminal proceedings, in addition,
had no reasonable cause to believe that his conduct was unlawful. The
termination of any such civil or criminal proceeding by judgment, settlement,
conviction or upon a plea of nolo contendere, or its equivalent, shall not in
itself create a presumption that any such Person did not act in good faith, for
a purpose which he reasonably believed to be in, or not opposed to, the best
interests of the Company or that he had reasonable cause to believe that his
conduct was unlawful; provided only that no such Person shall be indemnified or
held harmless if and to the extent that the liability sought to be indemnified
or held harmless against results from (a) any act or omission of such Person
that involved actual fraud or willful misconduct or (b) any transaction from
which such Person derived improper personal benefit. The Company's
indemnification obligations hereunder shall survive the termination of the
Company. Each indemnified Person shall have a claim against the property and
assets of the Company for payment of any indemnity amounts from time to time due
hereunder, which amounts shall be paid or properly reserved for prior to the
making of distributions by the Company to the Members.
11.4 CONTRACT RIGHT; EXPENSES. The right to indemnification conferred
in this Article XI shall be a contract right and shall include the right to
require the Company to advance the expenses incurred by the indemnified Person
in defending any such proceeding in advance of its final disposition; provided,
however, that, if the Act so requires, the payment of such expenses in advance
of the final disposition of a proceeding shall be made only upon receipt by the
Company of an undertaking, by or on behalf of the indemnified Person, to repay
all amounts so advanced if it shall ultimately be determined that such Person is
not entitled to be indemnified under this Article XI or otherwise.
11.5 INDEMNIFICATION OF EMPLOYEES AND AGENTS. The Company may, to the
extent authorized from time to time by the Managers, grant rights to
indemnification and to advancement of expenses to any employee or agent of the
Company to the fullest extent of the provisions of Sections 11.3 and 11.4 with
respect to the indemnification and advancement of expenses of the Managers, the
Members and/or the officers of the Company.
11.6 NONEXCLUSIVE RIGHT. The right to indemnification and the payment
of expenses incurred in defending a proceeding in advance of its final
disposition conferred in this Article XI
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shall not be exclusive of any other right which any Person may have or
hereafter acquire under any statute or agreement, or under any insurance
policy obtained for the benefit of the Managers, the Members and/or the
officers of the Company.
11.7 SEVERABILITY. If any provision of this Article XI is determined to
be unenforceable in whole or in part, such provision shall nonetheless be
enforced to the fullest extent permissible, it being the intent of this Article
XI to provide indemnification to all Persons eligible hereunder to the fullest
extent permitted under law.
11.8 INSURANCE. The Managers may cause the Company to purchase and
maintain insurance on behalf of any Person (including, without limitation, the
Managers or any Member or officer of the Company) who is or was an agent of the
Company against any liability asserted against that Person and incurred by that
Person in any such capacity or arising out of that Person's status as an agent,
whether or not the Company would have the power to indemnify that Person against
liability under the provisions of Sections 11.3 and 11.4 or under applicable
law.
ARTICLE XII
REPRESENTATIONS OF THE MEMBERS
Each Member represents and warrants to the other Members and the
Company as follows:
12.1 PREEXISTING RELATIONSHIP OR EXPERIENCE. (a) The Member has a
preexisting personal or business relationship with the Company or one or more of
its Managers, officers or control persons or (b) by reason of the Member's
business or financial experience, or by reason of the business or financial
experience of the Member's financial advisor who is unaffiliated with and who is
not compensated, directly or indirectly, by the Company or any Affiliate or
selling agent of the Company, the Member is capable of evaluating the risks and
merits of an investment in its Membership Interest and of protecting the
Member's own interests in connection with the investment.
12.2 ACCESS TO INFORMATION. The Member has had an opportunity to review
all documents, records and books pertaining to this investment and has been
given the opportunity to consult with counsel of his or her choice with respect
to all aspects of this investment and the Company's proposed business
activities. Such Member has personally met with the Managers and has been
provided with such information as may have been requested and has at all times
been given the opportunity to obtain additional information necessary to verify
the accuracy of the information received and the opportunity to ask questions of
and receive answers from the Managers concerning the terms and conditions of the
investment and the nature and prospects of the Company's business.
12.3 ECONOMIC RISK. The Member is financially able to bear the economic
risk of an investment in its Membership Interest, including the total loss
thereof.
12.4 INVESTMENT INTENT. The Member is acquiring its Membership Interest
for investment purposes and for the Member's own account only and not with a
view to, or for sale
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in connection with, any distribution of all or any part of its Membership
Interest. Except for the partners or members of the Member, no other Person
will have any direct or indirect beneficial interest in, or right to, its
Membership Interest.
12.5 CONSULTATION WITH ATTORNEY. The Member has been advised to consult
with its own attorney regarding all legal and tax matters concerning an
investment in its Membership Interest and has done so to the extent it considers
necessary.
12.6 PURPOSE OF ENTITY. If the Member is a corporation, partnership,
limited liability company, trust or other entity, it was not organized for the
specific purpose of acquiring its Membership Interest.
12.7 RESIDENCY. The Member is a resident of the state of California.
12.8 NO ADVERTISING. The Member has not seen, received or been
solicited by any leaflet, public promotional meeting, newspaper or magazine
article or advertisement, radio or television advertisement or any other form of
advertising or general solicitation with respect to the sale of its Membership
Interest.
12.9 MEMBERSHIP INTEREST IS RESTRICTED SECURITY. The Member understands
that its Membership Interest, including the Economic Interest constituting a
part thereof, is a "restricted security" under the Securities Act in that the
Membership Interest will be acquired from the Company in a transaction not
involving a public offering, that its Membership Interest and the Economic
Interest constituting a part thereof may be resold without registration under
the Securities Act only in certain limited circumstances and that otherwise its
Membership Interest and such Economic Interest must be held indefinitely.
12.10 NO REGISTRATION OF MEMBERSHIP INTEREST. The Member acknowledges
that its Membership Interest has not been registered under the Securities Act or
qualified under any state securities law in reliance, in part, upon its
representations, warranties and agreements herein.
12.11 ORGANIZATION. The Member is duly organized and validly existing
under the laws of its jurisdiction of formation, with full corporate or limited
liability company power to carry on its business as now or proposed to be
conducted.
12.12 AUTHORITY. The Member has full power and authority to enter into
this Agreement and has taken all action required to authorize the execution,
delivery and performance of this Agreement.
12.13 ENFORCEABILITY. This Agreement constitutes the legal, valid and
binding obligation of the Member, enforceable against the Member in accordance
with its terms, except as the enforcement thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws relating to or limiting
creditors' rights generally and subject to the availability of equitable
remedies.
12.14 NO VIOLATION. None of the execution, delivery or performance by
the Member of this Agreement will: (a) violate any provision of the Certificate
of Incorporation, Certificate of Formation, bylaws, operating agreement or other
charter documents of the Member; (b) violate,
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or constitute a default under any contract or agreement to which the Member
or any of its properties is subject or bound; or (c) violate any law or order
to which the Member or any of its properties is subject.
ARTICLE XIII
MISCELLANEOUS
13.1 LEGAL COUNSEL. The Members acknowledge that Loeb & Loeb LLP is
counsel to Onlinefilmsales with respect to this Agreement and the transactions
contemplated herein and that Loeb & Loeb LLP may in the future represent the
Company in connection with its business and affairs. The Members further
acknowledge that Katz, Golden & Sullivan, LLP has been counsel to MediaChase and
the Company and that Katz, Golden & Sullivan, LLP may in the future represent
the Company in connection with its business and affairs. MediaChase hereby
consents to Loeb & Loeb LLP's representation of Onlinefilmsales with respect to
this Agreement and the transactions contemplated herein and also consents to
Loeb & Loeb LLP's representation of the Company in the future. Onlinefilmsales
hereby consents to Katz, Golden & Sullivan, LLP's representation of MediaChase
and the Company with respect to this Agreement and the transactions contemplated
herein and also to its representation of the Company in the future. Without
limiting the generality of the foregoing, MediaChase and Onlinefilmsales agree
that Loeb & Loeb LLP and Katz, Golden & Sullivan, LLP may, notwithstanding any
past existing or future representation of Onlinefilmsales or MediaChase,
respectively, or any information or experience obtained by Loeb & Loeb LLP or
Katz, Golden & Sullivan, LLP in any such representation, represent
Onlinefilmsales or MediaChase and/or their respective Affiliates, respectively,
in connection with any future litigation, reference or other proceeding or
dispute which may arise from or relate to this Agreement or the transactions
contemplated herein, hereby waiving any rights it may have to object to such
representation under any and all circumstances. Such consent is freely given by
MediaChase and Onlinefilmsales after full consideration of its consequences and
after consultation with independent legal counsel of its respective choice.
13.2 AMENDMENTS. No amendment to this Agreement may be made without
compliance with Section 5.3(g). All amendments to this Agreement must be in
writing.
13.3 OFFSET PRIVILEGE. The Company may offset against any monetary
obligation owing from the Company to any Member, Economic Interest Holder or
Manager any monetary obligation then owing from that Member, Economic Interest
Holder or Manager to the Company.
13.4 ARBITRATION.
(a) GENERAL. In the event of any dispute, claim or controversy
among the parties arising out of or relating to this Agreement or the
Certificate of Formation whether in contract, tort, equity or otherwise, and
whether relating to the meaning, interpretation, effect, validity, performance
or enforcement of this Agreement or the Certificate of Formation, such dispute,
claim or controversy shall be resolved by and through an arbitration proceeding
to be conducted under the auspices and the commercial arbitration rules of the
American Arbitration Association (or any like organization successor thereto) at
Los Angeles, California. The arbitrability of the dispute, claim or controversy
shall likewise be determined in the arbitration.
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The arbitration proceeding shall be conducted in as expedited a manner as is
then permitted by the commercial arbitration rules (formal or informal) of
the American Arbitration Association. Both the foregoing agreement of the
parties to arbitrate any and all such disputes, claims and controversies, and
the results, determinations, findings, judgments and/or awards rendered
through any such arbitration shall be final and binding on the parties and
may be specifically enforced by legal proceedings in any court of competent
jurisdiction.
(b) GOVERNING LAW. The arbitrator(s) shall follow any applicable
federal law and Delaware state law (with respect to all matters of substantive
law) in rendering an award.
(c) COSTS OF ARBITRATION. The cost of the arbitration proceeding
and any proceeding in court to confirm or to vacate any arbitration award, as
applicable (including, without limitation, each party's attorneys' fees and
costs), shall be borne by the unsuccessful party or, at the discretion of the
arbitrator(s), may be prorated between the parties in such proportion as the
arbitrator(s) determine(s) to be equitable and shall be awarded as part of the
arbitrators' award.
13.5 REMEDIES CUMULATIVE. Except as otherwise provided herein, the
remedies under this Agreement are cumulative and shall not exclude any other
remedies to which any Person may be lawfully entitled.
13.6 NOTICES. Any notice to be given to the Company or any Member,
Economic Interest Holder or Manager in connection with this Agreement must be in
writing and will be deemed to have been given and received when delivered to the
address specified by the party to receive the notice by courier or other means
of personal service, when received if sent by facsimile, or three (3) days after
deposit of the notice by first class mail, postage prepaid, or certified mail,
return receipt requested. Any such notice must be given to the Company at its
principal place of business, and to any Member, Economic Interest Holder or
Manager at the address specified in Exhibit A. Any party may, at any time by
giving five (5) days' prior written notice to the other parties, designate any
other address as the new address to which notice must be given.
13.7 ATTORNEYS' FEES. Subject to the provisions of Section 13.4
requiring that disputes be submitted to arbitration, in the event that any
dispute between the Company and/or the Members or Economic Interest Holders
and/or the Managers should result in litigation, the prevailing party in that
dispute shall be entitled to recover from the other party all reasonable fees,
costs and expenses of enforcing any right of the prevailing party, including
without limitation, reasonable attorneys' fees and expenses.
13.8 GOVERNING LAW; JURISDICTION. The Agreement shall be governed by
and construed in accordance with the laws of the State of Delaware, without
regard to any conflicts of laws principles of the State of Delaware or any other
jurisdiction that would call for the application of the law of any jurisdiction
other than the State of Delaware. Subject to the requirement that all disputes
are to be submitted to arbitration pursuant to Section 13.4, each Member,
Economic Interest Holder and Manager consents to the exclusive jurisdiction of
the federal courts sitting in Los Angeles, California, in any action on a claim
arising out of, under or in connection with this Agreement or the transactions
contemplated by this Agreement. Each Member, Economic
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Interest Holder and Manager further agrees that personal jurisdiction over it
may be effected by service of process by registered or certified mail
addressed as provided in Section 13.6 and that when so made shall be as if
served upon it personally.
13.9 COMPLETE AGREEMENT. This Agreement, the Certificate of Formation
and all of the other agreements or instruments entered into by any Member in
connection with the consummation of the transactions contemplated hereby
constitute the complete and exclusive statement of agreement among the Members,
Economic Interest Holders and Managers with respect to their respective subject
matters and supersede all prior written and oral agreements or statements by and
among the Members, Economic Interest Holders and Managers. No representation,
statement, condition or warranty not contained in any such agreement shall be
binding on the Members, Economic Interest Holders or Managers or have any force
or effect whatsoever.
13.10 NO THIRD-PARTY RIGHTS. No Person other than a Member, an Economic
Interest Holder, a Manager or a Person entitled to indemnification pursuant to
Article XI shall have any legal or equitable right, remedy or claim, or be a
beneficiary, under or in respect of this Agreement.
13.11 BINDING EFFECT. Subject to the provisions of this Agreement
relating to Transferability, this Agreement shall be binding upon and inure to
the benefit of the Members, Economic Interest Holders and Managers and their
respective successors and assigns.
13.12 SECTION HEADINGS. All Section headings are inserted only for
convenience of reference and are not to be considered in the interpretation or
construction of any provision of this Agreement.
13.13 INTERPRETATION. In the event any claim is made by any Member,
Economic Interest Holder or Manager relating to any conflict, omission or
ambiguity in this Agreement, no presumption or burden of proof or persuasion
shall be implied by virtue of the fact that this Agreement was prepared by or at
the request of a particular Member or Manager or that Member's, Economic
Interest Holder's or Manager's counsel.
13.14 SEVERABILITY. If any provision of this Agreement or the
application of that provision to any person or circumstance shall be held
invalid, the remainder of this Agreement or the application of that provision to
persons or circumstances other than those to which it is held invalid shall not
be affected.
13.15 MULTIPLE COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
shall constitute one and the same instrument.
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IN WITNESS WHEREOF, all of the Members and the Managers of the Company
have executed this Agreement, effective as of the date first written above.
MEMBERS:
Onlinefilmsales.com, LLC,
Delaware limited liability company
By: InternetSudios.com, Inc.,
a Nevada corporation
Its: Manager
By:_____________________________
Name:______________________
Title:_____________________
MediaChase Ltd.,
a Delaware corporation
By:____________________________________
Name:___________________________
Title:__________________________
MANAGER:
Onlinefilmsales.com, LLC,
Delaware limited liability company
By: InternetSudios.com, Inc.,
a Nevada corporation
Its: Manager
By:_____________________________
Name:______________________
Title:_____________________
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EXHIBIT A
NAMES, ADDRESSES, CAPITAL CONTRIBUTIONS, VOTING AND
ECONOMIC INTERESTS OF MEMBERS AND NAME AND ADDRESS OF
MANAGERS AS OF
MARCH ___, 2000
<TABLE>
<CAPTION>
Member's
Member's Additional Member's Member's
Initial Capital Capital Voting Economic
Member's Name Member's Address Contribution Contributions Interest Interest
- ------------- ---------------- ------------ ------------- -------- --------
<S> <C> <C> <C> <C> <C>
$473,106.61
1351 4th St., Suite 227
Onlinefilmsales.com, LLC Santa Monica, CA 90401 $1,500,000 75% 75%
8286 Santa Monica Blvd.
MediaChase Ltd. West Hollywood, CA 90046 $-0- 25% 25%
MANAGER'S NAME MANAGER'S ADDRESS
1351 4th St., Suite 227
Onlinefilmsales.com, LLC Santa Monica, CA 90401
</TABLE>
<PAGE>
EXHIBIT B
FORM OF CALL NOTICE
[DATE]
You are hereby requested to make a contribution of Additional Capital pursuant
to Section 3.2(c) of that certain Limited Liability Company Agreement of
ReporterTV.com, LLC dated _________________, ____ as set forth below by the date
set forth below. All such contributions should be made in cash or readily
available funds of lawful money of the United States of America.
AMOUNT OF ADDITIONAL CAPITAL DATE DUE AND PAYABLE
Manager:
Onlinefilmsales.com, LLC,
Delaware limited liability company
By: InternetSudios.com, Inc.,
a Nevada corporation
Its: Manager
By:_____________________________
Name:______________________
Title:_____________________
<PAGE>
EXHIBIT 10.14
CONTRIBUTION, ASSIGNMENT AND ASSUMPTION AGREEMENT
This Contribution, Assignment and Assumption Agreement (the
"Agreement") is entered into as of March 28, 2000 (the "Effective Date"), by
and between MediaChase Ltd., a Delaware corporation ("MediaChase") and The
Dot to Watch, LLC, a Delaware limited liability company ("The Dot To Watch"),
on the one hand, and ReporterTV.com, LLC, a Delaware limited liability
company ("ReporterTV"), on the other hand, with reference to the following:
A. MediaChase owned, as of the Effective Date, one hundred percent
(100%) of the membership interests in The Dot To Watch, LLC.
B. As of the Effective Date, MediaChase owned, directly and
indirectly through The Dot To Watch, that certain interactive entertainment
news program known as "ReporterTV" that uses a television format and is
broadcast via the Internet (the "Program") that was developed by MediaChase
and The Dot to Watch.
C. MediaChase has determined that the Program should be owned,
developed, operated and exploited by ReporterTV.
D. Each of MediaChase and The Dot to Watch (each, an "Assignor")
desires to contribute, assign, transfer and convey to ReporterTV the Program
and all goodwill, assets, properties and rights of every nature, kind and
description throughout the world, whether tangible or intangible, real,
personal or mixed, wherever located and whether or not carried or reflected
on its books and records, to the extent the same are used solely in
connection with the development, exploitation and operation of the Program
(together with the Program, collectively referred to as the "Assets"),
subject to all of such Assignor's liabilities and obligations, whether fixed
or contingent, direct or indirect, represented by a written agreement or
otherwise, relating to, arising under or in connection with the Assets,
including without limitation, all intellectual property claims arising out
of, relating to or in connection with the Assets and all other claims arising
from the development and exploitation of the Program (collectively, the
"Liabilities") in exchange for the issuance to MediaChase of one hundred
percent (100%) of the membership interests (the "Membership Interests") in
ReporterTV.
In consideration of the foregoing, the undersigned agree as follows:
1. ASSIGNMENT OF ASSETS. Effective as of the Effective Date, for
good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, each Assignor does hereby contribute, assign, transfer,
and convey to ReporterTV, to have and to hold unto ReporterTV, its successors
and assigns forever, all of such Assignor's right, title and interest in and
to the Assets. In addition, MediaChase hereby grants to ReporterTV, a
royalty-free, non-exclusive, non-transferable license to use the MediaChase
logo on the Program (with the size and positioning to be identical to usage
by MediaChase as of the date hereof) and, to the extent agreed upon by
MediaChase, otherwise in connection with the exploitation of the Program.
The term of the foregoing license shall be agreed upon by the parties, and in
the absence of such
<PAGE>
agreement shall be one year from the date hereof. MediaChase will also
transfer to ReporterTV the employees of MediaChase listed on Schedule "A"
(the "Employees").
2. ACCEPTANCE OF ASSIGNMENT. Effective as of the Effective Date,
ReporterTV hereby accepts the assignment to it of all of each Assignor's
right, title and interest in and to the Assets.
3. ASSUMPTION OF LIABILITIES. As further consideration of the
contribution, assignment, transfer and conveyance of the Assets to
ReporterTV, effective as of the Effective Date, ReporterTV hereby assumes and
agrees to pay and perform all of the Liabilities; provided, however, that
with respect to Liabilities included upon an invoice from MediaChase to
Internetstudios.com, Inc. or Onlinefilmsales.com, LLC, MediaChase will agree
to pay such amounts upon receipt of payment by it from Internetstudios.com,
Inc. or Onlinefilmsales.com, LLC, as the case may be, including without
limitation, the payment received by it on March 27, 2000 in the amount of
$353,335.47. Notwithstanding anything to the contrary set forth herein,
ReporterTV shall not assume nor be liable for any of the following
liabilities or obligations of any Assignor:
a. all liabilities and obligations of any Assignor which
pertain primarily to its assets other than the Assets;
b. any of Assignor's Liabilities for any income taxes of any
nature now or hereafter owed by such Assignor or attributable to the Assets;
c. any taxes or expenses or fees incurred by any Assignor
incident to or arising out of the negotiation, preparation, approval or
authorization of this Agreement or the consummation (or preparation of the
consummation) of the transactions contemplated herein, including, without
limitation, any related attorney's and accountant's fees;
d. any Liabilities now or hereafter arising by reason of any
willful and Knowing breach of contract prior to the Effective Date or any of
the following intentional torts: assault and battery, false imprisonment,
conversion, and so long as it is shown that MediaChase acted with malice,
defamation, intentional infliction of emotional distress, invasion of privacy
and interference with business relations;
e. any Assignor's liabilities or obligations now or hereafter
arising with respect to any period or any portion of any period prior to the
Effective Date under any laws relating to industrial hygiene, occupational
safety conditions or environmental conditions on, under or about property,
emissions, discharges, releases or threatened releases of pollutants,
contaminants, chemicals or industrial, hazardous or toxic materials or wastes
into the environment (including ambient air, surface water, ground water,
land surface or sub-surface strata) or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of pollutants, contaminants, chemicals or industrial hazardous or
toxic materials or wastes ("Environmental Laws");
f. any Liabilities now or hereafter arising by reason of
Assignor engaging, prior to the Effective Date, in sexual harassment,
discrimination or retaliation based on race, religion, color, national
origin, ancestry, physical or mental disability, medical condition, marital
status,
2
<PAGE>
sex, age, and/or pregnancy ("Labor Claims"); provided, however, that for
clarification all other claims relating to past or current employees or
consultants are being assumed by ReporterTV (e.g., claims for compensation or
benefits) to the extent relating to services provided in connection with the
Assets except as otherwise expressly provided herein; and
g. any Liabilities now or hereafter arising by reason of any
willful and Knowing violation by any Assignor, prior to the Effective Date,
of any law or order (other than Environmental Laws and labor laws (including,
without limitation, those giving rise to Labor Claims) which matters are
covered above, and other than laws relating to intellectual property matters,
as ReporterTV is agreeing to assume such Liabilities).
4. ISSUANCE OF MEMBERSHIP INTEREST. In consideration of the
assignment, transfer, conveyance and delivery by the Assignors of the Assets
to ReporterTV, effective as of the Effective Date, ReporterTV shall issue to
MediaChase a 100% Membership Interest.
5. REPRESENTATIONS AND WARRANTIES.
a. Each Assignor, on the one hand, and ReporterTV, on the other
hand, represents and warrants to the other that (i) it has all requisite
power and authority to execute and deliver this Agreement and any other
instruments and documents to be executed and delivered to effectuate this
Agreement and assumption contemplated hereby (collectively, the "Documents");
(ii) its execution and delivery of this Agreement and the other Documents and
the performance of its obligations hereunder and thereunder have been
authorized by all necessary action and do not violate any laws, regulations
or orders by which it is bound; and (iii) this Agreement and the other
Documents constitute its legal, valid and binding obligations, enforceable
against it in accordance with the terms hereof and thereof.
b. MediaChase represents and warrants to ReporterTV as follows:
i) Except for those liabilities arising under the contracts
and agreements listed on Schedule "B" hereto and the other liabilities listed
on Schedule "C", MediaChase does not have any Knowledge (as defined in
Section 14 below) of any other material Liabilities or any circumstances,
conditions, events or arrangements which may hereafter give rise to any
material Liabilities.
ii) No action, suit, arbitration, dispute or other legal or
administrative or other proceeding or governmental investigation is currently
pending, or to the Knowledge of MediaChase, threatened, against any Assignor
and relating to such Assignor's ownership or operation of the Assets and to
the Knowledge of MediaChase there are no outstanding orders, decrees or
stipulations issued by any governmental authority which relate to the Assets.
The Assets are not to the Knowledge of MediaChase subject to any judgment,
order, writ, injunction or decree that has not been satisfied or complied
with in full.
iii) Schedule "B" sets forth a true and complete list of
all written agreements with Employees and consultants being transferred
("Transferred Consultants") now in effect and all written employee benefit
plans (including, without limitation, all health insurance, retirement,
pension, and profit sharing plans) now in effect relating to Employees.
Since February 29, 2000, except as disclosed on invoices issued by MediaChase
to
3
<PAGE>
InternetStudios.com, Inc. or Onlinefilmsales.com, LLC, no Assignor has made
any change in the rate of compensation, commission, bonus or other direct or
indirect remuneration payable, or paid or agreed or orally promised to be
paid, conditionally or otherwise, the rate of any bonus, extra compensation
or severance pay, to any Employee or Transferred Consultant.
iv) All of the accounts payable of each Assignor relating
to the Assets arose from bona fide purchases of goods or services in the
ordinary course of business.
v) To the Knowledge of MediaChase, no Assignor has
breached, in any material respect, any contract or other agreement assigned
by such Assignor to ReporterTV hereunder.
6. FURTHER ASSURANCES. Each Assignor shall, at any time and from
time to time, upon the request of ReporterTV, execute, acknowledge and
deliver all such further deeds, assignments, transfers, conveyances, powers
of attorney and assurances, and take all such further actions, as shall be
necessary or desirable to give effect to the transactions hereby consummated
and to collect and reduce to the possession of ReporterTV any and all assets
and interests hereby transferred to ReporterTV.
7. DELIVERY. On or promptly following the Effective Date, at
ReporterTV's request, each Assignor shall deliver the following to ReporterTV
or to such location, person or entity as may be designated by ReporterTV:
a. the Assets, including, without limitation, (i) all tangible
personal property; (ii) all originals and copies of material written
contracts and other material written agreements being assigned; and (iii) all
books and records relating to or included in the Assets (excluding tax
returns); and
b. any other information, document, instrument or agreement
with respect to the Assets in the possession or control of such Assignor.
8. NO THIRD-PARTY BENEFICIARY. This Agreement is entered into for
the sole protection and benefit of the parties hereto and their respective
successors and assigns, and no other person or entity shall be a direct or
indirect beneficiary of, or shall have any direct or indirect cause of action
or claim in connection with, this Agreement, nor is anything in this
Agreement intended to relieve or discharge the obligation or liability of any
third person or entity to any party to this Agreement.
9. COLLECTION OF ACCOUNTS RECEIVABLES; SUPPORT SERVICES. From and
after the Effective Date, each Assignor shall, at no cost to ReporterTV,
assist ReporterTV in collecting the any accounts receivable transferred to
ReporterTV. Each Assignor shall promptly pay over to ReporterTV any amounts
received by it in respect of such accounts receivable.
10. CHOICE OF LAW. This Agreement shall be governed by the laws of
the State of Delaware and may be executed in counterparts. The parties
hereto agree to execute and deliver any documents reasonably requested by the
other to confirm further and assure consummation of the transaction
consummated hereby.
4
<PAGE>
11. NO ASSIGNMENT. No party to this Agreement shall have the right
to assign this Agreement or any interest, right or obligation under this
Agreement without obtaining the prior written consent of the other parties
hereto.
12. BINDING EFFECT. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective successors
and assigns.
13. ENTIRE AGREEMENT. This Agreement is intended to embody the
final, complete and exclusive agreement among the parties with respect to the
subject matter hereof and is intended to supersede all prior agreements,
understandings and representations, written or oral, with respect thereto;
and may not be contradicted by evidence of any such prior or contemporaneous
agreement, understanding or representation, whether written or oral.
14. AMENDMENTS. No alteration, change, amendment or modification
of or to this Agreement shall be effective unless it is made in writing and
signed on behalf of each party to be charged.
15. KNOWLEDGE. As used herein, the terms "Knowledge" and "Knowing"
shall mean the actual knowledge of Chris Lutz or Melanie Luciano (without
investigation).
16. INDEMNIFICATION. The parties are agreeing to indemnify each
other with respect to the liabilities retained or assumed by them, as
applicable, as set forth in that certain letter agreement, dated of even date
herewith, among MediaChase, StudioBuzz.com, LLC, InternetStudios.com, Inc.,
Onlinefilmsales.com, LLC and ReporterTV.
17. LICENSE. ReporterTV hereby grants to MediaChase, a
royalty-free, perpetual, non-exclusive, non-transferable (except for
sublicenses to Affiliates of MediaChase, as that term is defined in the LLC
Agreement referenced below) license to use the trademark "The Dot To Watch"
for uses which are not "competitive" (as that term is defined in Section
5.7(b) of the Limited Liability Company Agreement of ReporterTV.com, LLC, of
even date herewith (the "LLC Agreement"). MediaChase agrees that all uses of
such trademark will remain comparable in standards of taste as such trademark
is currently used as of the date hereof.
5
<PAGE>
IN WITNESS WHEREOF, the undersigned have entered into this Agreement
on the date first written above.
MEDIACHASE LTD., a Delaware corporation
By:________________________________
Name:
Title:
THE DOT TO WATCH, a Delaware limited
liability company
By: MEDIACHASE LTD., a Delaware
corporation, its sole Member
By:________________________________
Name:
Title:
REPORTERTV.COM, LLC, a Delaware limited
liability company
By: MEDIACHASE LTD., a Delaware
corporation, its sole Member
By:________________________________
Name:
Title:
6
<PAGE>
SCHEDULE "A"
EMPLOYEES
<PAGE>
SCHEDULE "B"
CONTRACTS
<PAGE>
SCHEDULE "C"
OTHER LIABILITIES
<PAGE>
LIMITED LIABILITY COMPANY AGREEMENT
OF
STUDIOBUZZ.COM, LLC
A DELAWARE LIMITED LIABILITY COMPANY
THE SECURITIES REPRESENTED BY THIS AGREEMENT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 NOR REGISTERED OR QUALIFIED UNDER ANY STATE SECURITIES
LAWS. SUCH SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, DELIVERED AFTER SALE,
TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS QUALIFIED AND REGISTERED UNDER
APPLICABLE STATE AND FEDERAL SECURITIES LAWS OR UNLESS, IN THE OPINION OF
COUNSEL SATISFACTORY TO THE COMPANY, SUCH QUALIFICATION AND REGISTRATION IS NOT
REQUIRED. ANY TRANSFER OF THE SECURITIES REPRESENTED BY THIS AGREEMENT IS
FURTHER SUBJECT TO OTHER RESTRICTIONS, THE TERMS AND CONDITIONS OF WHICH ARE SET
FORTH IN THIS AGREEMENT.
<PAGE>
TABLE OF CONTENTS
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ARTICLE I DEFINITIONS..............................................................................1
1.1 "Act".........................................................................................1
1.2 "Adjusted Capital Account"....................................................................2
1.3 "Adjusted Capital Contribution"...............................................................2
1.4 "Affiliate"...................................................................................2
1.5 "Agreement"...................................................................................2
1.6 "Affected Interest"...........................................................................2
1.7 "Bankruptcy"..................................................................................2
1.8 "Bona Fide Offer".............................................................................2
1.9 "Capital Account".............................................................................2
1.10 "Capital Contribution"........................................................................3
1.11 "Certificate of Formation"....................................................................3
1.12 "Closing".....................................................................................3
1.13 "Code"........................................................................................3
1.14 "Company".....................................................................................3
1.15 "Company Minimum Gain"........................................................................3
1.16 "Confidential Information"....................................................................3
1.17 "Contribution Cap"............................................................................4
1.18 "Distributable Cash"..........................................................................4
1.19 "Distribution"................................................................................4
1.20 "Economic Interest"...........................................................................4
1.21 "Economic Interest Holder"....................................................................4
1.22 "Economic Risk of Loss".......................................................................4
1.23 "Eligible Members"............................................................................4
1.24 "Fair Market Value"...........................................................................4
1.25 "Fiscal Year".................................................................................4
1.26 "Former Member"...............................................................................5
1.27 "Former Member's Interest"....................................................................5
1.28 "Interest Holder".............................................................................5
1.29 "Joint Designee"..............................................................................5
1.30 "Majority in Interest"........................................................................5
1.31 "Managers"....................................................................................5
1.32 "MediaChase"..................................................................................5
1.33 "MediaChase Consulting Agreement".............................................................5
1.34 "Member"......................................................................................5
1.35 "Member Minimum Gain".........................................................................5
1.36 "Member Nonrecourse Debt".....................................................................5
1.37 "Member Nonrecourse Deductions"...............................................................5
1.38 "Membership Interest".........................................................................5
1.39 "Membership Termination Event"................................................................6
1.40 "Net Profits"and "Net Losses".................................................................6
1.41 "Noncompete Date".............................................................................6
1.42 "Nonrecourse Deductions"......................................................................6
1.43 "Nonrecourse Liability".......................................................................6
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1.44 "Notice"......................................................................................6
1.45 "Offered Interest"............................................................................6
1.46 "Onlinefilmsales".............................................................................6
1.47 "Person"......................................................................................6
1.48 "Preferred Return"............................................................................6
1.49 "Preferred Return Account"....................................................................7
1.50 "Securities Act"..............................................................................7
1.51 "Tax Credits".................................................................................7
1.52 "Tax Matters Partner".........................................................................7
1.53 "Transfer"....................................................................................7
1.54 "Treasury Regulations"........................................................................7
1.55 "United States Bankruptcy Code"...............................................................7
1.56 "Unpaid Preferred Return".....................................................................7
1.57 "Voting Interest".............................................................................7
ARTICLE II ORGANIZATIONAL MATTERS...................................................................8
2.1 Name..........................................................................................8
2.2 Term..........................................................................................8
2.3 Office and Agent..............................................................................8
2.4 Purpose of Company............................................................................8
2.5 Intent........................................................................................8
2.6 Members.......................................................................................8
2.7 Formation Expenses............................................................................8
ARTICLE III CAPITAL CONTRIBUTIONS....................................................................9
3.1 Initial Capital Contributions.................................................................9
3.2 Additional Capital Contributions..............................................................9
(a) Additional Contributions by Onlinefilmsales..............................................9
(b) Additional Capital.......................................................................9
3.3 Capital Accounts..............................................................................9
3.4 No Withdrawals of Capital.....................................................................9
3.5 Loans; No Compensation........................................................................9
ARTICLE IV MEMBERS..................................................................................9
4.1 Admission of Additional Members...............................................................9
4.2 Withdrawals or Resignations..................................................................10
4.3 Members Are Not Agents.......................................................................10
4.4 Meetings of Members; Written Consent.........................................................10
ARTICLE V MANAGEMENT AND CONTROL OF THE COMPANY...................................................10
5.1 Management of the Company by the Managers....................................................10
(a) Exclusive Management by the Managers....................................................10
(b) Powers of the Managers..................................................................11
(c) Agency Authority of the Managers; Delegation by the Managers............................12
(d) Discretion of the Managers..............................................................12
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(e) Performance of Duties; Liability of Managers............................................12
(f) Devotion of Time........................................................................12
(g) Decisions of the Managers...............................................................12
(h) Meetings of Managers....................................................................13
5.2 Election of Managers.........................................................................13
(a) Number and Term.........................................................................13
(b) Vacancies...............................................................................13
5.3 Limitations on Power of the Managers.........................................................13
5.4 Members Have No Managerial Authority.........................................................14
5.5 Transactions between the Company and the Managers, the Members or their Affiliates...........14
(a) Contracts with Affiliates...............................................................14
(b) Contracts with Managers or Affiliates of the Managers...................................15
(c) Treatment of Affiliate Loans and Fees...................................................15
5.6 Officers.....................................................................................15
(a) Appointment of Officers.................................................................15
(b) Signing Authority of Officers...........................................................15
(c) Acts of Officers as Conclusive Evidence of Authority....................................15
5.7 Competing Activities.........................................................................16
5.8 Payments to Managers and Others..............................................................16
5.9 Expenses.....................................................................................16
ARTICLE VI ALLOCATIONS OF NET PROFITS, NET LOSSES AND DISTRIBUTIONS................................17
6.1 Minimum Gain Chargeback......................................................................17
6.2 Member Minimum Gain Chargeback...............................................................17
6.3 Qualified Income Offset......................................................................17
6.4 Nonrecourse Deductions.......................................................................17
6.5 Member Nonrecourse Deductions................................................................17
6.6 Allocation of Net Profits....................................................................17
6.7 Allocation of Net Losses.....................................................................18
6.8 Distributions by the Company.................................................................18
6.9 Allocation of Net Profits and Losses and Distributions in Respect of a Transferred
Interest.....................................................................................18
6.10 Tax Allocation Matters.......................................................................18
(a) Contributed or Revalued Property........................................................18
(b) Recapture Items.........................................................................19
6.11 Order of Application.........................................................................19
6.12 Allocation of Liabilities....................................................................19
6.13 Form of Distribution.........................................................................19
ARTICLE VII TRANSFER OF INTERESTS...................................................................20
7.1 Transfer of Interests........................................................................20
7.2 [intentionally omitted]......................................................................20
7.3 Right of First Refusal.......................................................................20
7.4 [intentionally omitted]......................................................................21
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7.5 [intentionally omitted]......................................................................21
7.6 [intentionally omitted]......................................................................21
7.7 Repurchase Restrictions Imposed by Law.......................................................21
7.8 Further Restrictions on Transfer of Interests................................................21
7.9 Substitution of Members......................................................................21
7.10 Enforcement..................................................................................22
7.11 Effect of Transfers in Violation of Agreement................................................22
ARTICLE VIII CONSEQUENCES OF MEMBERSHIP TERMINATION EVENTS...........................................22
8.1 Dissolution of Company.......................................................................22
8.2 Admission or Conversion......................................................................22
8.3 Terms of Transfer............................................................................23
(a) Transferee Bound by Agreement...........................................................23
(b) Notice of Repurchase Event..............................................................23
(c) Option to Purchase......................................................................23
(d) Purchase Price..........................................................................24
(e) Payment of Purchase Price...............................................................24
(f) Consummation of Sale....................................................................25
ARTICLE IX ACCOUNTING, RECORDS, REPORTING BY MEMBERS...............................................25
9.1 Books and Records............................................................................25
9.2 Reports; Annual Statements...................................................................26
(a) Governmental Reports....................................................................26
(b) Financial Reports.......................................................................26
(c) Tax Reports.............................................................................27
9.3 Bank Accounts; Invested Funds................................................................27
9.4 Tax Matters for the Company Handled by Tax Matters Partner...................................27
9.5 Accounting Matters...........................................................................27
9.6 Confidentiality..............................................................................27
ARTICLE X DISSOLUTION AND WINDING UP..............................................................28
10.1 Dissolution..................................................................................28
10.2 Date of Dissolution..........................................................................28
10.3 Winding Up...................................................................................28
10.4 Liquidating Distributions to Economic Interest Holders.......................................29
10.5 Distributions in Kind........................................................................29
10.6 Provision for Debts and Liabilities..........................................................29
10.7 No Liability.................................................................................29
10.8 Limitations on Payments Made in Dissolution..................................................29
10.9 Certificate of Cancellation..................................................................30
10.10 Compensation for Services....................................................................30
ARTICLE XI LIMITATION OF LIABILITY; STANDARD OF CARE; INDEMNIFICATION..............................30
11.1 Limitation of Liability......................................................................30
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11.2 Standard of Care.............................................................................30
11.3 Indemnification..............................................................................30
11.4 Contract Right; Expenses.....................................................................31
11.5 Indemnification of Employees and Agents......................................................31
11.6 Nonexclusive Right...........................................................................31
11.7 Severability.................................................................................31
11.8 Insurance....................................................................................31
ARTICLE XII REPRESENTATIONS OF THE MEMBERS..........................................................31
12.1 Preexisting Relationship or Experience.......................................................32
12.2 Access to Information........................................................................32
12.3 Economic Risk................................................................................32
12.4 Investment Intent............................................................................32
12.5 Consultation with Attorney...................................................................32
12.6 Purpose of Entity............................................................................32
12.7 Residency....................................................................................32
12.8 No Advertising...............................................................................32
12.9 Membership Interest is Restricted Security...................................................32
12.10 No Registration of Membership Interest.......................................................33
12.11 Organization.................................................................................33
12.12 Authority....................................................................................33
12.13 Enforceability...............................................................................33
12.14 No Violation.................................................................................33
ARTICLE XIII MISCELLANEOUS...........................................................................33
13.1 Legal Counsel................................................................................33
13.2 Amendments...................................................................................34
13.3 Offset Privilege.............................................................................34
13.4 Arbitration..................................................................................34
(a) General.................................................................................34
(b) Governing Law...........................................................................34
(c) Costs of Arbitration....................................................................34
13.5 Remedies Cumulative..........................................................................34
13.6 Notices......................................................................................34
13.7 Attorneys'Fees...............................................................................35
13.8 Governing Law; Jurisdiction..................................................................35
13.9 Complete Agreement...........................................................................35
13.10 No Third-Party Rights........................................................................35
13.11 Binding Effect...............................................................................35
13.12 Section Headings.............................................................................36
13.13 Interpretation...............................................................................36
13.14 Severability.................................................................................36
13.15 Multiple Counterparts........................................................................36
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LIMITED LIABILITY COMPANY AGREEMENT
OF
STUDIOBUZZ.COM, LLC
A DELAWARE LIMITED LIABILITY COMPANY
This Limited Liability Company Agreement is made as of March 28, 2000,
by and between Onlinefilmsales.com, LLC, a Delaware limited liability company
("Onlinefilmsales"), and MediaChase Ltd., a Delaware corporation ("MediaChase"),
with reference to the following facts:
A. StudioBuzz.com, LLC (the "Company") was formed on March 17, 2000,
as a limited liability company under the laws of the State of Delaware by
filing a Certificate of Formation for the Company with the Delaware Secretary
of State.
B. MediaChase heretofore contributed to the capital of the Company, all
of its right, title and interest in and to any assets of MediaChase used solely
in connection with the operation of the business entitled "StudioBuzz.com"
(collectively, the "StudioBuzz Assets") in consideration of the issuance by the
Company to MediaChase of a one hundred percent (100%) Membership Interest in the
Company.
C. Concurrently herewith, MediaChase is contributing to
Onlinefilmsales, a fifty percent (50%) Economic Interest and a 100% Voting
Interest in the Company, in consideration of (i) the issuance by Onlinefilmsales
to MediaChase of an interest in Onlinefilmsales (as more fully described in that
certain Limited Liability Company Agreement of Onlinefilmsales.com, LLC, of even
date herewith), and (ii) the agreement by Onlinefilmsales herein to make
additional contributions to the capital of the Company upon the satisfaction of
certain conditions stated.
D. The parties now desire to adopt a limited liability company
agreement to govern their respective rights and obligations as Members of the
Company.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and for other good and valuable consideration, the receipt of which is
acknowledged, the parties agree that the following shall be the Limited
Liability Company Agreement of the Company.
ARTICLE I
DEFINITIONS
When used in this Agreement, the following terms have the following
meanings:
1.1 "ACT" means the Limited Liability Company Act of the State of
Delaware.
<PAGE>
1.2 "ADJUSTED CAPITAL ACCOUNT" of an Economic Interest Holder means the
Capital Account of that Economic Interest Holder increased by the Economic
Interest Holder's share of Company Minimum Gain and Member Minimum Gain.
1.3 "ADJUSTED CAPITAL CONTRIBUTION" of an Economic Interest Holder means
the excess of (a) that Economic Interest Holder's Capital Contributions to the
Company, over (b) Distributions to that Economic Interest Holder that are a
return of Capital Contributions under Section 6.8(b).
1.4 "AFFILIATE" of a Member or Manager means (a) a Person directly or
indirectly (through one or more intermediaries) controlling, controlled by or
under common control with that Member or Manager; (b) a Person owning or
controlling ten percent (10%) or more of the outstanding voting securities or
beneficial interests of that Member or Manager; or (c) an officer, director,
partner or member, or a member of the immediate family of an officer, director,
partner or member, of that Member or Manager. For these purposes "control" means
the possession, direct or indirect, of the power to direct or cause the
direction of the management and policies of a Person, whether through the
ownership of voting securities, by contract or otherwise.
1.5 "AGREEMENT" means this Limited Liability Company Agreement of
StudioBuzz.com, LLC.
1.6 "AFFECTED INTEREST" has the meaning specified in Section 8.3.
1.7 "BANKRUPTCY" of a Member means the institution of any proceedings
under any federal or state law for the relief of debtors, including the filing
by or against that Member of a voluntary or involuntary case under the United
States Bankruptcy Code, which proceedings, if involuntary, are not dismissed
within sixty (60) days after their filing; an assignment of the property of that
Member for the benefit of creditors; the appointment of a receiver, trustee or
conservator of any substantial portion of the assets of that Member, which
appointment, if obtained ex parte, is not dismissed within sixty (60) days
thereafter; the seizure by a sheriff, receiver, trustee or conservator of any
substantial portion of the assets of that Member; the failure by that Member
generally to pay its debts as they become due within the meaning of Section
303(h)(1) of the United States Bankruptcy Code, as determined by the Bankruptcy
Court; or that Member's admission in writing of its inability to pay its debts
as they become due.
1.8 "BONA FIDE OFFER" means an offer in writing to an Interest Holder
offering to purchase all or any part of that Interest Holder's Membership
Interest or Economic Interest and setting forth all of the material terms and
conditions of the proposed purchase from an offeror who is ready, willing and
able to consummate the purchase and who is not an Affiliate of that Interest
Holder.
1.9 "CAPITAL ACCOUNT" of an Economic Interest Holder means the capital
account of that Economic Interest Holder determined from the inception of the
Company strictly in accordance with the rules set forth in Section
1.704-1(b)(2)(iv) of the Treasury Regulations. If any Membership Interest and/or
Economic Interest is Transferred pursuant to the terms of this Agreement, the
transferee shall succeed to the Capital Account of the transferor to the extent
the Capital Account is attributable to the Membership Interest and/or Economic
Interest so
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Transferred. In the event that assets of the Company other than cash
are distributed to an Economic Interest Holder in kind, Capital Accounts shall
be adjusted for the hypothetical "book" gain or loss that would have been
realized by the Company if the distributed assets had been sold for their fair
market values in a cash sale (in order to reflect unrealized gain or loss). In
the event of the liquidation of the Company, Capital Accounts shall be adjusted
for the hypothetical "book" gain or loss that would have been realized by the
Company if all Company assets had been sold for their fair market values in a
cash sale (in order to reflect unrealized gain or loss), whether as an initial
Capital Contribution, an additional Capital Contribution, or Additional Capital.
1.10 "CAPITAL CONTRIBUTION" of a Member, at any particular time, means
the amount of money or property, or a promissory note or other binding
obligation to contribute money or property, which that Member has theretofore
contributed to the capital of the Company, whether as an initial Capital
Contribution or an additional Capital Contribution.
1.11 "CERTIFICATE OF FORMATION" means the Certificate of Formation of the
Company as filed under the Act with the Delaware Secretary of State, as the same
may be amended from time to time.
1.12 "CLOSING" has the meaning specified in Section 8.3.
1.13 "CODE" means the Internal Revenue Code of 1986, as amended.
1.14 "COMPANY" means StudioBuzz.com, LLC, a Delaware limited liability
company.
1.15 "COMPANY MINIMUM GAIN" with respect to any taxable year of the
Company means the "partnership minimum gain" of the Company computed strictly in
accordance with the principles of Section 1.704-2(d) of the Treasury
Regulations.
1.16 "CONFIDENTIAL INFORMATION" means all information or material not
generally known by non-Company personnel which (i) gives the Company some
competitive business advantage or the opportunity of obtaining such advantage or
the disclosure of which could be detrimental to the interests of the Company,
(ii) which is owned by the Company or in which the Company has an interest and
(iii) which is (A) marked "Confidential Information," "Proprietary Information,"
or other similar marking, (B) known to be considered confidential and
proprietary by the Company, or (C) from all the relevant circumstances should
reasonably be assumed to be confidential and proprietary to the Company.
Confidential Information includes, but is not limited to, the following types of
information and other information of a similar nature (whether or not reduced to
writing): trade secrets, inventions, drawings, graphics, file data,
documentation, diagrams, specifications, know how, processes, formulas, models,
flow charts, software in various stages of development, source codes, object
codes, research and development procedures, research or development and test
results, marketing techniques and materials, marketing and development plans,
price lists, pricing policies, business plans, information relating to customers
and/or suppliers' identities, characteristics and agreements, financial
information and projections, and employee files. Confidential Information also
includes any information described above which the Company obtains from another
party and which the Company treats as proprietary or designates as Confidential
Information, whether or not owned
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or developed by the Company. NOTWITHSTANDING THE ABOVE, HOWEVER, NO
INFORMATION CONSTITUTES CONFIDENTIAL INFORMATION IF IT IS GENERIC INFORMATION
OR GENERAL KNOWLEDGE WHICH IS OTHERWISE PUBLICLY KNOWN AND IN THE PUBLIC
DOMAIN. Also, Confidential Information shall not include any information or
material owned by MediaChase and used by MediaChase in the ordinary course of
its business, unless used on an exclusive basis in the business of the
Company.
1.17 "CONTRIBUTION CAP" has the meaning specified in Section 3.2(a).
1.18 "DISTRIBUTABLE CASH" at any time means that portion of the cash then
on hand or in bank accounts of the Company which the Managers deem available for
Distribution to the Economic Interest Holders, taking into account (a) the
amount of cash required for the payment of all current expenses, liabilities and
obligations of the Company (whether for expense items, capital expenditures,
improvements, retirement of indebtedness or otherwise) and specifically
including repayments of principal or interest on Contribution Loans, and (b) the
amount of cash which the Managers deem necessary to establish reserves for the
payment of future capital expenditures, improvements, retirements of
indebtedness, operations and contingencies, known or unknown, liquidated or
unliquidated, including, but not limited to, liabilities which may be incurred
in litigation and liabilities undertaken pursuant to the indemnification
provisions of this Agreement.
1.19 "DISTRIBUTION" means the transfer of money or property by the
Company to one or more Economic Interest Holders without separate consideration.
1.20 "ECONOMIC INTEREST" means a share, expressed as a percentage, of one
or more of the Company's Net Profits, Net Losses, Tax Credits, Distributable
Cash or other Distributions, but does not include any other rights of a Member,
including, without limitation, the right to vote or participate in the
management of the Company or the right to information concerning the business
and affairs of the Company. The Economic Interest of each Economic Interest
Holder shall initially be the percentage set forth opposite the name of that
Economic Interest Holder in Exhibit A and may be adjusted from time to time
thereafter pursuant to the provisions of this Agreement, including, without
limitation, the provisions of Sections 4.1, 4.2 and 8.1.
1.21 "ECONOMIC INTEREST HOLDER" means the holder of an Economic Interest,
including either a Member, to the extent of the Economic Interest constituting a
part of its Membership Interest, or a Person who is not a member but holds
merely a bare Economic Interest.
1.22 "ECONOMIC RISK OF LOSS" means the economic risk of loss within the
meaning of Section 1.752-2 of the Treasury Regulations.
1.23 "ELIGIBLE MEMBERS" has the meaning specified in Section 7.3.
1.24 "FAIR MARKET VALUE" means, with respect to an asset, the price at
which that asset would be sold for cash payable at closing between a willing
buyer and a willing seller, each having reasonable knowledge of all relevant
facts concerning the asset and neither acting under any compulsion to buy or
sell.
1.25 "FISCAL YEAR" means the Company's fiscal year, which shall be the
calendar year.
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1.26 "FORMER MEMBER" has the meaning specified in Section 8.2.
1.27 "FORMER MEMBER'S INTEREST" has the meaning specified in Section
8.2(a).
1.28 "INTEREST HOLDER" means either a Member or a Person who holds merely
a bare Economic Interest.
1.29 "JOINT DESIGNEE" has the meaning specified in Section 5.2(a).
1.30 "MAJORITY IN INTEREST" means Voting Interests which, taken together,
exceed fifty percent (50%) of the aggregate of all Voting Interests held by all
Members entitled to vote or grant consent with respect to the matter in
question.
1.31 "MANAGERS" means the one or more managers of the Company selected by
the Members pursuant to Section 5.2(a) and shall be deemed to refer to the sole
Manager at all times when there exists only one Manager.
1.32 "MEDIACHASE" means MediaChase Ltd., a Delaware corporation.
1.33 "MEDIACHASE CONSULTING AGREEMENT" means that certain Consulting
Agreement, of even date herewith, between MediaChase and the Company.
1.34 "MEMBER" means each Person who (a) is an initial signatory to this
Agreement, has been admitted to the Company as a Member in accordance with this
Agreement or is a transferee of a Member who has become a Member in accordance
with Article VII, and (b) has not suffered a Membership Termination Event.
1.35 "MEMBER MINIMUM GAIN" has the meaning given to the term "partner
nonrecourse debt minimum gain" in Section 1.704-2(d) of the Treasury
Regulations.
1.36 "MEMBER NONRECOURSE DEBT" means any "partner nonrecourse liability"
or "partner nonrecourse debt" under Section 1.704-2(b)(4) of the Treasury
Regulations. Subject to the foregoing, it means any Company liability to the
extent the liability is nonrecourse for purposes of Section 1.1001-2 of the
Treasury Regulations and a Member (or related Person within the meaning of
Section 1.752-4(b) of the Treasury Regulations) bears the Economic Risk of Loss
under Section 1.752-2 of the Treasury Regulations because, for example, the
Member or related Person is the creditor or a guarantor.
1.37 "MEMBER NONRECOURSE DEDUCTIONS" means the Company deductions, losses
and Code Section 705(a)(2)(B) expenditures, as the case may be (as computed for
"book" purposes), that are treated as deductions, losses and expenditures
attributable to Member Nonrecourse Debt under Section 1.704-2(i)(2) of the
Treasury Regulations.
1.38 "MEMBERSHIP INTEREST" means a Member's total interest as a Member of
the Company, including that Member's Economic Interest, its options or similar
rights hereunder to acquire Membership Interests or Economic Interests, its
right to inspect the books and records of the Company and its right, to the
extent specifically provided in this Agreement or in the Act and
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not otherwise restricted herein, to participate in the business, affairs and
management of the Company and to vote or grant consent with respect to
matters coming before the Company.
1.39 "MEMBERSHIP TERMINATION EVENT" with respect to any Member means one
or more of the following: the withdrawal, resignation, expulsion, dissolution or
occurrence of any other event which terminates the continued membership of that
Member in the Company, other than a Transfer of a Member's Membership Interest
which is made in accordance with the provisions of Article VII.
1.40 "NET PROFITS" and "NET LOSSES" means, for each fiscal period, the
net income and net loss, respectively, of the Company determined strictly in
accordance with federal income tax principles (including rules governing
depreciation and amortization), except that in computing net income or net loss,
the "book" value of an asset will be substituted for its adjusted tax basis if
the two differ; and the following items shall be excluded from the computation:
(a) any gain, income, deductions or losses specially allocated under
Sections 6.1, 6.2 or 6.3;
(b) any Nonrecourse Deductions; and
(c) any Member Nonrecourse Deductions.
1.41 "NONCOMPETE DATE" has the meaning specified in Section 5.7(b).
1.42 "NONRECOURSE DEDUCTIONS" in any fiscal period means the amount of
Company deductions that are characterized as "nonrecourse deductions" under
Section 1.704-2(b) of the Treasury Regulations.
1.43 "NONRECOURSE LIABILITY" means a liability treated as a "nonrecourse
liability" under Sections 1.704-2(b)(3) and 1.752-1(a)(2) of the Treasury
Regulations.
1.44 "NOTICE" has the meaning specified in Section 8.3.
1.45 "OFFERED INTEREST" has the meaning specified in Section 7.3.
1.46 "ONLINEFILMSALES" means Onlinefilmsales.com, LLC, a Delaware limited
liability company.
1.47 "PERSON" means any entity, corporation, company, association, joint
venture, joint stock company, partnership, trust, limited liability company,
limited liability partnership, real estate investment trust, organization,
individual (including personal representatives, executors and heirs of a
deceased individual), nation, state, government (including agencies,
departments, bureaus, boards, divisions and instrumentalities thereof), trustee,
receiver or liquidator.
1.48 "PREFERRED RETURN" shall mean with respect to any Member, a
cumulative preferential rate of return in an amount equal to seven percent (7%)
per annum, on its Adjusted Capital Contributions.
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1.49 "PREFERRED RETURN ACCOUNT" shall mean with respect to any Member,
the excess of (i) that Member's Preferred Return, over (ii) all allocations to
that Member pursuant to Section 6.6(c) below.
1.50 "SECURITIES ACT" means the Securities Act of 1933.
1.51 "TAX CREDITS" means all credits against income or franchise taxes
and credits allowable to Economic Interest Holders under state, federal or other
tax statutes.
1.52 "TAX MATTERS PARTNER" means Onlinefilmsales, or any successor in
interest to Onlinefilmsales' entire Membership Interest, except as otherwise
provided in Section 9.4.
1.53 "TRANSFER" means, with respect to a Membership Interest, an Economic
Interest or any interest therein, the sale, assignment, transfer, disposition,
pledge, hypothecation or encumbrance, whether direct or indirect, voluntary,
involuntary or by operation of law, and whether or not for value, of (a) that
Membership Interest, Economic Interest or interest therein or (b) a controlling
interest in any Person which directly or indirectly through one or more
intermediaries holds that Membership Interest, Economic Interest or interest
therein. Transfer includes any transfer as a result of or in connection with any
property settlement or judgment incident to a divorce, dissolution of marriage
or separation, and any transfer by decree of distribution or other court order
in proceedings arising from the death of the spouse of any Member or Economic
Interest Holder.
1.54 "TREASURY REGULATIONS" means the regulations of the United States
Treasury Department pertaining to the income tax.
1.55 "UNITED STATES BANKRUPTCY CODE" means the United States Bankruptcy
Code at Title 11, United States Code.
1.56 "UNPAID PREFERRED RETURN" shall mean the excess of (i) the total
cumulative Preferred Return as of any given date over (ii) the sum of all prior
Distributions in payment of the Preferred Return pursuant to Section 6.8(a).
1.57 "VOTING INTEREST" means a Member's percentage right to vote on
matters coming before the Members for action. The Voting Interest of each Member
shall initially be the percentage set forth opposite the name of that Member in
Exhibit A and may be adjusted from time to time thereafter pursuant to the
provisions of this Agreement, including, without limitation, the provisions of
Sections 4.1, 4.2 and 8.1. The combined Voting Interest of all Members shall at
all times equal one hundred percent (100%).
References in this Agreement to "Articles," "Sections," "Exhibits" and
"Schedules" shall be to the Articles, Sections, Exhibits and Schedules of this
Agreement, unless otherwise specifically provided; all Exhibits and Schedules to
this Agreement are incorporated herein by reference; any of the terms defined in
this Agreement may, unless the context otherwise requires, be used in the
singular or the plural and in any gender depending on the reference; the words
"herein", "hereof" and "hereunder" and words of similar import, when used in
this Agreement, shall refer to this Agreement as a whole and not to any
particular provision of this Agreement; and except as otherwise specified in
this Agreement, all references in this Agreement (a) to any
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Person shall be deemed to include such Person's permitted heirs, personal
representatives, successors and assigns; and (b) to any agreement, any
document or any other written instrument shall be a reference to such
agreement, document or instrument together with all exhibits, schedules,
attachments and appendices thereto, and in each case as amended, restated,
supplemented or otherwise modified from time to time in accordance with the
terms thereof; and (c) to any law, statute or regulation shall be deemed
references to such law, statute or regulation as the same may be
supplemented, amended, consolidated, superseded or modified from time to time.
ARTICLE II
ORGANIZATIONAL MATTERS
2.1 NAME. The name of the Company shall be "StudioBuzz.com, LLC." The
business of the Company may be conducted under that name or, upon compliance
with applicable law, under any other name that the Managers deem appropriate or
advisable.
2.2 TERM. The term of the Company's existence commenced upon the filing
of its Certificate of Formation with the Delaware Secretary of State on March
17, 2000 and shall continue until such time as it is terminated pursuant to
Article X.
2.3 OFFICE AND AGENT. The principal office of the Company shall be at
1351 4th Street, Suite 227, Santa Monica, CA 90401, or at such other place as
the Managers may determine from time to time. The Company may also have such
other offices within the State of California, or elsewhere, as the Managers may
from time to time determine. The name and business address of the agent for
service of process for the Company in the State of Delaware is Corporation
Service Company, 1013 Centre Road, Wilmington, Delaware 19805, or such other
Person as the Managers may appoint from time to time.
2.4 PURPOSE OF COMPANY. The Company may engage in any lawful activity for
which a limited liability company may be organized under the Act; however, its
primary purpose shall be to engage in the following business: the creation of an
online database with the capability to store and provide access to information
relating to filmed entertainment rights.
2.5 INTENT. It is the intent of the Members that the Company shall always
be operated in a manner consistent with its treatment as a "partnership" for
Federal and state income tax purposes. It also is the intent of the Members that
the Company not be operated or treated as a "partnership" for purposes of
Section 303 of the United States Bankruptcy Code. No Member or Manager shall
take any action inconsistent with that express intent.
2.6 MEMBERS. The names, addresses, Capital Contributions, Voting
Interests and Economic Interests of the Members as of the date of this Agreement
are set forth in Exhibit A.
2.7 FORMATION EXPENSES. Each Member shall be responsible for and shall
pay all fees and expenses incurred by it in connection with the formation of the
Company, including, without limitation, all legal and accounting fees and
expenses incurred by it in connection with the negotiation, preparation,
execution and delivery of this Agreement and all related agreements
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and instruments. The Company shall pay all filing fees, minimum franchise or
other similar taxes and other governmental charges incident to its formation
and qualification to do business.
ARTICLE III
CAPITAL CONTRIBUTIONS
3.1 INITIAL CAPITAL CONTRIBUTIONS. MediaChase initially has contributed
to the Company the StudioBuzz Assets.
3.2 ADDITIONAL CAPITAL CONTRIBUTIONS.
(a) ADDITIONAL CONTRIBUTIONS BY ONLINEFILMSALES. Onlinefilmsales
shall contribute such monies and/or properties which are hereafter agreed upon
by all the Members. Immediately after such initial contribution by
Onlinefilmsales, the Managers shall complete Exhibit A to describe each Member's
initial Capital Contribution. In no event shall the sum of Onlinefilmsales
initial Capital Contribution and its additional Capital Contributions exceed an
amount hereafter to be agreed upon by all the Members ("Contribution Cap").
(b) ADDITIONAL CAPITAL. No Member or Economic Interest Holder shall
be required to make any additional Capital Contributions not specifically
referred to in Section 3.1.
3.3 CAPITAL ACCOUNTS. The Company shall establish and maintain an
individual Capital Account for each Economic Interest Holder.
3.4 NO WITHDRAWALS OF CAPITAL. No Economic Interest Holder shall have the
right to withdraw or reduce its Capital Contributions in the Company except as a
result of the dissolution of the Company or as otherwise provided in Section 4.2
or the Act, and no Economic Interest Holder shall have the right to demand or
receive property other than cash in return for its Capital Contributions.
3.5 LOANS; NO COMPENSATION. No Member or Economic Interest Holder shall
be required to lend any funds to the Company, and no Member or Economic Interest
Holder shall have any personal liability for the repayment of any Capital
Contribution of any other Member or Economic Interest Holder. No Member or
Economic Interest Holder shall receive any interest, salary or drawing with
respect to its Capital Contributions or its Capital Account or for services
rendered on behalf of the Company or otherwise in its capacity as a Member or
Economic Interest Holder, except as otherwise specifically provided in this
Agreement.
ARTICLE IV
MEMBERS
4.1 ADMISSION OF ADDITIONAL MEMBERS. Subject to compliance with
applicable law, additional Members may be admitted to the Company from time to
time upon the unanimous written approval of all Members.
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4.2 WITHDRAWALS OR RESIGNATIONS. No Member may withdraw or resign from
the Company except with the prior written consent of the Managers and all other
Members within the Prohibited Transfer Period (as defined in Section 7.1), which
consent may be given or withheld, conditioned or delayed in the Managers' and
the other Members' sole discretion. After the Prohibited Transfer Period, any
Member may withdraw or resign after thirty (30) day's written notice. If the
withdrawing or resigning Member is the last and only remaining Member, the
withdrawal or resignation shall be effective only after the expiration of the
period for Member consent to continue the business of the Company or dissolve,
as provided in Section 8.1. Any withdrawal or resignation (whether prior to or
after the Prohibited Transfer Period) of a Member shall constitute a Membership
Termination Event (other than a Transfer made in accordance with the provisions
of Article VII), and upon the occurrence thereof, that Member's Membership
Interest may, at the election of the Managers, either be converted to a bare
Economic Interest or purchased as provided in Section 8.2(c). If a Member
withdraws in violation of this Agreement, the Member shall forfeit his, her or
its Voting Interest and Economic Interest without further compensation. In
addition, the Member will be liable to the Company and the other Members and/or
Economic Interest Holders for all damages suffered by the Company and the other
Members and/or Economic Interest Holders as a result of such withdrawal.
4.3 MEMBERS ARE NOT AGENTS. The management of the Company is vested
exclusively in the Managers. No Member may be an agent of the Company, nor may
any Member, in its capacity as a Member, bind or execute any agreement,
instrument or document on behalf of the Company without the prior written
consent of the Managers.
4.4 MEETINGS OF MEMBERS; WRITTEN CONSENT. The Members do not contemplate
holding meetings; however, meetings of the Members may be held if called by the
Managers in their sole and absolute discretion, at such times and places within
or without the State of California as the Managers fix from time to time. No
annual or regular meetings of Members are required, but if such meetings are
held, they shall be noticed, held and conducted pursuant to the Act. Members may
participate in any meeting through the use of conference telephones or similar
communications equipment as long as all Members participating can hear one
another. A Member so participating is deemed to be present in person at the
meeting. Any action which may be taken by the Members at a meeting may also be
taken without a meeting, if a consent in writing setting forth the action so
taken is signed by Members having not less than the minimum votes that would be
necessary to authorize that action at a meeting of the Members duly called and
noticed.
ARTICLE V
MANAGEMENT AND CONTROL OF THE COMPANY
5.1 MANAGEMENT OF THE COMPANY BY THE MANAGERS.
(a) EXCLUSIVE MANAGEMENT BY THE MANAGERS. The business, property and
affairs of the Company shall be managed exclusively by the Managers. Except for
matters as to which the approval of the Members is expressly required by the
Act, Section 5.3, or otherwise in this Agreement, the Managers shall have full,
complete and exclusive authority, power and
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discretion to manage and control the business, property and affairs of the
Company, to make all decisions regarding those matters and to perform any and
all other actions customary or incident to the management of the Company's
business, property and affairs.
(b) POWERS OF THE MANAGERS. Without limiting the generality of the
foregoing, the Managers, acting in concert but without the need to obtain any
approval from the Members, except only as required in Section 5.3 or otherwise
in this Agreement or the Act, shall have the exclusive power and authority to
cause the Company:
(i) to do any act in the conduct of its business and to
exercise all powers granted to a limited liability company under the Act,
whether in the state of California or in any other state, territory, district or
possession of the United States or any foreign country, that may be necessary,
convenient, desirable or incidental to the accomplishment of the business
purposes of the Company;
(ii) to own, hold, operate, maintain, finance, refinance,
improve, lease, sell, convey, mortgage, transfer, demolish or dispose of any
asset as may be necessary, convenient, desirable or incidental to the
accomplishment of the business purposes of the Company;
(iii) to enter into, perform and carry out any contracts,
leases, instruments, commitments, agreements or other documents of any kind,
including, without limitation, contracts with any Member or Manager, any
Affiliate thereof or any agent of the Company, necessary, convenient, desirable
or incidental to the accomplishment of the business purposes of the Company;
(iv) to sue and be sued, complain and defend and participate
in administrative or other proceedings, in its own name;
(v) to appoint officers, employees and agents of the Company,
define their duties and fix their compensation, if any, and to select attorneys,
accountants, consultants and other advisors of the Company;
(vi) to indemnify any Person in accordance with the Act and
to obtain any and all types of insurance;
(vii) to borrow money from any Person, and issue evidences of
indebtedness and to secure the same by mortgages, deeds of trust, security
agreements, pledges, collateral assignments or other liens on the assets of the
Company;
(viii) to negotiate, enter into, renegotiate, extend, renew,
terminate, modify, amend, waive, execute, acknowledge or take any other action
with respect to any loan agreement, commitment, deed of trust, mortgage,
security agreement or other loan document in respect of any assets of the
Company;
(ix) 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;
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(x) to make, execute, acknowledge, endorse and file any and
all agreements, documents, instruments, checks, drafts or other evidences of
indebtedness necessary, convenient, desirable or incidental to the
accomplishment of the business purposes of the Company;
(xi) to cease the Company's activities and dissolve and wind
up its affairs upon its duly authorized dissolution; and
(xii) to cause any special purpose subsidiary limited liability
company wholly owned by the Company to do any of the foregoing.
(c) AGENCY AUTHORITY OF THE MANAGERS; DELEGATION BY THE MANAGERS.
Any one Manager shall be authorized to endorse all checks, drafts and other
evidences of indebtedness made payable to the order of the Company and, once
approved as required under Section 5.1(g) or as specifically required elsewhere
in this Agreement, to execute all agreements, contracts, commitments, checks,
instruments and other documents on behalf of the Company. The Managers may also
delegate any or all of their authority, rights and/or obligations, whether
arising hereunder, under the Act or otherwise, to any one or more officers,
agents or other duly authorized representatives of the Company.
(d) DISCRETION OF THE MANAGERS. In making any and all decisions
relating to the conduct of the Company's business or otherwise delegated to them
by any provision of this Agreement, the Managers shall be free to exercise their
sole, absolute and unfettered discretion so long as such decision was made by
the Managers in good faith for a purpose reasonably believed by them to be in,
or not opposed to, the best interests of the Company. The Managers shall not, in
respect of any such decision, be liable to the Company, the Members or any of
their respective Affiliates or constituent owners for any resulting actual or
alleged losses, damages, costs or expenses suffered by them so long as such
decision was made by the Managers in good faith for a purpose reasonably
believed by them to be in, or not opposed to, the best interests of the Company.
(e) PERFORMANCE OF DUTIES; LIABILITY OF MANAGERS. The Managers shall
perform their managerial duties in good faith and in a manner they believe to be
in, or not opposed to, the best interests of the Company. In performing their
duties, the Managers shall be entitled to rely on information, opinions, reports
or statements, including financial statements and other financial data, of any
attorney, independent accountant or other Person as to matters which the
Managers believe to be within such Person's professional or expert competence
unless the Managers have actual knowledge concerning the matter in question that
would cause such reliance to be unwarranted.
(f) DEVOTION OF TIME. The Managers shall not be obligated to devote
all of their time or business efforts to the affairs of the Company; however,
they shall devote such time, effort and skill as they deem appropriate for the
management and operation of the Company's affairs.
(g) DECISIONS OF THE MANAGERS. Except to the extent that this
Agreement expressly requires the unanimous approval of all of the Managers, any
decision or action taken
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by a majority in number of the Managers (whether verbally or in writing,
whether in person or by proxy and whether or not at a formal meeting called
pursuant to Section 5.1(h) shall constitute the act or decision of the
Managers.
(h) MEETINGS OF MANAGERS. Meetings of the Managers may be called by
any Manager or by the Chairperson, President, any Senior Vice-President or
Vice-President or the Secretary of the Company, if any. All meetings shall be
held upon four (4) days' notice by mail or forty-eight (48) hours' notice
delivered personally or by telephone, telegraph or facsimile. A notice need not
specify the purpose of any meeting. Notice of a meeting need not be given to any
Manager who signs a waiver of notice, a consent to holding the meeting or an
approval of the minutes thereof, whether before or after the meeting, or who
attends the meeting without protesting the lack of notice prior to the
commencement of the meeting. All such waivers, consents and approvals shall be
filed with the Company records or made a part of the minutes of the meeting. A
majority of the authorized number of Managers shall constitute a quorum of the
Managers for the transaction of business, and except to the extent that this
Agreement expressly requires the approval of all of the Managers, every act or
decision done or made by a majority in number of the Managers present at a
meeting duly held at which a quorum is present shall be the act of the Managers.
A meeting at which a quorum is initially present may continue to transact
business notwithstanding the withdrawal of Managers if any action taken is
approved by at least a majority of the required quorum for the meeting. Managers
may participate in any meeting of the Managers by means of conference telephones
or similar communications equipment so long as all Managers participating can
hear one another. A Manager so participating is deemed to be present at the
meeting.
The provisions of this Section 5.1(h) govern meetings of the Managers if
the Managers elect, in their discretion, to hold meetings. However, nothing in
this Section 5.1(h) or in this Agreement is intended to require that meetings of
the Managers be held, it being the intent of the Members that meetings of the
Managers are not required.
5.2 ELECTION OF MANAGERS.
(a) NUMBER AND TERM. The Company shall have one (1), or such other
number as Onlinefilmsales shall designate from time to time, Manager, who shall
be designated by Onlinefilmsales. The initial Manager shall be Onlinefilmsales.
Onlinefilmsales shall have the right to change the identity and number of the
Manager(s) appointed by it at any time and for any reason, by written notice to
the other Member, and each Manager so appointed shall serve in that capacity
until he or she resigns or is removed by Onlinefilmsales, in its absolute
discretion.
(b) VACANCIES. Any vacancy occurring for any reason in the number of
Managers may be filled by designation of Onlinefilmsales.
5.3 LIMITATIONS ON POWER OF THE MANAGERS. The limitations on the
Managers' power in this Section 5.3 shall apply:
(a) the sale, exchange or other disposition of all, or substantially
all, of the Company's assets occurring as part of a single transaction or plan,
or in a series of transactions,
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shall require not only the approval of the Managers, but also the affirmative
vote or written consent of Members holding at least seventy-five percent
(75%) of all Voting Interests;
(b) the merger of the Company with another limited liability company
or a corporation, general partnership or limited partnership shall require not
only the approval of the Managers, but also the affirmative vote or written
consent of Members holding at least seventy-five percent (75%) of all Voting
Interests; provided, however, that in no event shall a Member be required to
become a general partner in a merger with a general or limited partnership
without that Member's express written consent or unless the agreement of merger
provides each Member with the dissenter's rights described in the Act;
(c) any decision to admit a Person as a Member of the Company shall
require not only the approval of the Managers, but also the affirmative vote or
written consent of all of the Members;
(d) any decision to compromise the obligation of a Member to a make
a Capital Contribution or to return money or property paid or distributed in
violation of the Act shall require not only the approval of the Managers, but
also the affirmative vote or written consent of Members holding at least
seventy-five percent (75%) of the Voting Interests of all non-interested
Members;
(e) any act which would make it impossible to carry on the ordinary
business of the Company shall require not only approval of the Managers, but
also the affirmative vote or written consent of Members holding at least
seventy-five percent (75%) of all Voting Interests;
(f) any decision to place the Company into Bankruptcy shall require
not only the approval of the Managers, but also the affirmative vote or written
consent of Members holding at least seventy-five percent (75%) of all Voting
Interests; and
(g) any amendment to the Certificate of Formation or this Agreement
shall require not only the approval of the Managers, but also the affirmative
vote or written consent of Members holding at least seventy-five percent (75%)
of all Voting Interests, provided, however, that there shall be no change in the
purpose of the Company and provided further that no amendment will be binding on
a Member that diminishes its rights or increases its obligations unless approved
by such Member.
5.4 MEMBERS HAVE NO MANAGERIAL AUTHORITY. The Members shall have no power
to participate in the management of the Company except as expressly authorized
by this Agreement and except as expressly required by any non-waivable provision
of the Act. Without the written authorization of the Managers to do so, no
Member shall have any power or authority to bind or act on behalf of the Company
in any way, to pledge its assets or to render it liable for any purpose.
5.5 TRANSACTIONS BETWEEN THE COMPANY AND THE MANAGERS, THE MEMBERS OR
THEIR AFFILIATES.
(a) CONTRACTS WITH AFFILIATES. Notwithstanding that it may
constitute a conflict of interest, the Members who are not also Managers may,
and may cause their Affiliates to,
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engage in any transaction (including, without limitation, the purchase, sale,
lease or exchange of any property, the lending of money, the rendering of any
service or the establishment of any salary, other compensation or other terms
of employment) with the Company so long as that transaction is not expressly
prohibited by this Agreement, the transaction is approved by the Managers and
the transaction is fair to the Company and is on commercially reasonable
terms.
(b) CONTRACTS WITH MANAGERS OR AFFILIATES OF THE MANAGERS. The
Members acknowledge and intend that the Managers may provide, or cause the
Company to engage one or more of its Affiliates to provide, any or all goods
and/or services required by the Company in the conduct of its business and may
engage in any transaction (including, without limitation, the purchase, sale,
lease or exchange of any property, the lending of money, the rendering of any
service or the establishment of any salary, other compensation or other terms of
employment) with the Company, and that, except only as expressly limited below,
the terms and conditions of any such engagement shall be determined exclusively
by the Managers in their sole and absolute discretion; provided, however, that
notwithstanding anything to the contrary set forth in this Agreement, all
disinterested Members must approve the terms and conditions of any engagement by
the Managers of one or more of the Managers' Affiliates prior to the Company
entering into such engagement, which approval shall not be unreasonably
withheld.
(c) TREATMENT OF AFFILIATE LOANS AND FEES. To the fullest extent
permitted by law, all principal, interest, costs and expenses owing by the
Company to the Members, the Managers and/or Affiliates thereof in repayment of
loans and all fees, commissions and/or reimbursable amounts payable by the
Company to the Members, the Managers and/or Affiliates thereof shall be treated
in the same manner as liabilities payable to unaffiliated creditors of the
Company and shall be paid and taken into account, as such, before any
Distributions of Distributable Cash are made to the Economic Interest Holders.
5.6 OFFICERS.
(a) APPOINTMENT OF OFFICERS. The Managers may, at their discretion,
appoint officers of the Company at any time. The officers of the Company may
include a Chairperson, a President or Chief Executive Officer, one or more
Senior Vice Presidents, one or more Vice Presidents, a Secretary, Assistant
Secretaries, a Chief Financial Officer, a Treasurer and one or more Assistant
Treasurers and a Comptroller. The officers shall serve at the pleasure of the
Managers, subject to all rights, if any, of an officer under any contract of
employment. Any individual may hold any number of offices. Officers of the
Managers may serve as officers of the Company if appointed by the Managers. The
officers shall exercise such powers and perform such duties as are typically
exercised by similarly titled officers in a corporation and as shall be
determined from time to time by the Managers. If any such officer is entitled to
a salary for his or her services, however, all of that salary shall be paid by
the Company.
(b) SIGNING AUTHORITY OF OFFICERS. The officers, if any, shall have
such authority to sign checks, instruments and other documents on behalf of the
Company as may be delegated to them by the Managers in writing.
(c) ACTS OF OFFICERS AS CONCLUSIVE EVIDENCE OF AUTHORITY. Any note,
mortgage, deed of trust, evidence of indebtedness, contract, certificate,
statement, conveyance or
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other instrument or obligation in writing, and any assignment or endorsement
thereof, executed or entered into between the Company and any other Person,
when signed by the Chairperson, the President or Chief Executive Officer, any
Senior Vice-President and any Secretary, any Assistant Secretary, any
Treasurer, or any Assistant Treasurer of the Company, is not invalidated as
to the Company by any lack of authority of the signing officers in the
absence of actual knowledge on the part of the other Person that the signing
officer(s) had no authority to execute the same.
5.7 COMPETING ACTIVITIES. The Manager, the Members and the Economic
Interest Holders, and their respective officers, directors, shareholders,
partners, members, managers, agents, employees and Affiliates, may engage or
invest in, independently or with others, any business activity of any type or
description, including without limitation, those that might be the same as or
similar to the Company's business and that might be in direct or indirect
competition with the Company. None of the Company, the Manager, or any other
Member or Economic Interest Holder shall have the right in or to such other
business activities or to the income or proceeds derived therefrom. None of the
Manager or the Members or Economic Interest Holders shall be obligated to
present any investment opportunity or prospective economic advantage to the
Company or the Manager, other Members or Economic Interest Holders even if the
opportunity is one of the character that, if presented to the Company or the
Manager, other Members or Economic Interest Holders, could be taken by the
Company or any of the Manager, other Members or Economic Interest Holders. The
Manager, the Members and the Economic Interest Holders 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 or
the Manager, other Members or Economic Interest Holders. The Members and
Economic Interest Holders acknowledge that the Manager and the other Members or
Economic Interest Holders and their Affiliates own and/or manage other
businesses, including businesses that may compete with the Company and for the
Manager's and Members' time. The Members and Economic Interest Holders hereby
waive any and all rights and claims which they may otherwise have against the
Manager and the other Members and Economic Interest Holders and their respective
officers, directors, shareholders, partners, members, managers, agents,
employees and Affiliates as a result of any such activities. Notwithstanding the
foregoing, the provisions of this Section 5.7 shall be subject to the terms of
the MediaChase Consulting Agreement (a "Related Party Agreement"), and in the
event of any conflict, the terms and provisions of such separate agreement shall
control.
5.8 PAYMENTS TO MANAGERS AND OTHERS. The Company is authorized to pay any
Person remuneration or reimbursement for goods and services provided to the
Company. Without limiting the generality of the foregoing, the Company shall pay
the Members, the Economic Interest Holders and their Affiliates for services
rendered or goods provided by them to the Company to the extent that those
Members, Economic Interest Holders or Affiliates are not required to render such
services or goods themselves without charge to the Company, and to the extent
that the fees paid to those Members, Economic Interest Holders or Affiliates do
not exceed the fees that would be payable to independent responsible third
parties that are willing to perform those services or provide those goods.
5.9 EXPENSES. The Company shall reimburse the Managers and their
Affiliates for all reasonable out-of-pocket costs and expenses incurred by them
in connection with the business and affairs of the Company, as well as
organizational expenses (including, without limitation,
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legal and accounting fees and costs) incurred by them to form the Company and
prepare the Certificate of Formation (other than expenses incurred in
connection with the preparation and negotiation of this Agreement), subject
to the Managers receiving advance approval from all non-Manager Members in
the case of expenses (or a series of related expenses) in excess of an amount
to be agreed upon by all the Members in any month. The Managers may allocate
to the Company, on any basis selected by them in good faith which is
consistent with good accounting practice, a portion of any and all expenses,
including general, special and administrative expenses, incurred by them or
their Affiliates for the benefit of the Company, subject to the Managers
receiving advance approval from all non-Manager Members in the case of an
allocation to the Company (or a series of related allocations) in excess of
an amount to be agreed upon by all the Members in any month.
ARTICLE VI
ALLOCATIONS OF NET PROFITS, NET LOSSES AND DISTRIBUTIONS
6.1 MINIMUM GAIN CHARGEBACK. In the event that there is a net decrease in
the Company Minimum Gain during any taxable year, the minimum gain chargeback
described in Sections 1.704-2(f) and (g) of the Treasury Regulations shall
apply.
6.2 MEMBER MINIMUM GAIN CHARGEBACK. If during any taxable year there is a
net decrease in Member Minimum Gain, the partner minimum gain chargeback
described in Section 1.704-2(i)(5) of the Treasury Regulations shall apply.
6.3 QUALIFIED INCOME OFFSET. Any Economic Interest Holder who
unexpectedly receives an adjustment, allocation or Distribution described in
subparagraphs (4), (5) or (6) of Section 1.704-1(b)(2)(ii)(d) of the Treasury
Regulations, which adjustment, allocation or distribution creates or increases a
deficit balance in that Economic Interest Holder's Capital Account, shall be
allocated items of "book" income and gain in accordance with the provisions of
the "qualified income offset" as described in Section 1.704-1(b)(2)(ii)(d) of
the Treasury Regulations.
6.4 NONRECOURSE DEDUCTIONS. Nonrecourse Deductions shall be allocated to
the Economic Interest Holders in proportion to their Economic Interests.
6.5 MEMBER NONRECOURSE DEDUCTIONS. Member Nonrecourse Deductions shall be
allocated to the Economic Interest Holders as required in Section 1.704-2(i)(1)
of the Treasury Regulations in accordance with the manner in which the Economic
Interest Holders bear the burden of an Economic Risk of Loss corresponding to
the Member Nonrecourse Deductions.
6.6 ALLOCATION OF NET PROFITS. The Net Profits for each fiscal period of
the Company shall be allocated to the Economic Interest Holders in accordance
with the following order of priority:
(a) first, to those Economic Interest Holders with negative Adjusted
Capital Accounts, among them in proportion to the ratio of the negative balances
in their Adjusted Capital Accounts, until no Economic Interest Holder has a
negative Adjusted Capital Account;
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(b) second, to those Economic Interest Holders whose Adjusted
Capital Contributions are in excess of their Adjusted Capital Accounts, among
them in accordance with the ratio of these excesses, until all of these excesses
have been eliminated;
(c) third, to each Member in proportion to each Member's Preferred
Return Account, until the Preferred Return Account of each is reduced to zero;
and
(d) finally, to the Economic Interest Holders in proportion to their
Economic Interests.
6.7 ALLOCATION OF NET LOSSES. Net Losses for each fiscal period of the
Company shall be allocated to the Economic Interest Holders in accordance with
the following order of priority:
(a) first, to those Economic Interest Holders with positive Adjusted
Capital Accounts, in proportion to the ratio of the positive balances in their
Adjusted Capital Accounts, until no Economic Interest Holder has a positive
Adjusted Capital Account; and
(b) finally, to the Economic Interest Holders in proportion to their
Economic Interests.
6.8 DISTRIBUTIONS BY THE COMPANY. Subject to applicable law and any
limitations contained elsewhere in this Agreement, the Managers may elect from
time to time to cause the Company to distribute Distributable Cash to the
Economic Interest Holders, which Distributions shall be in the following order
of priority:
(a) first, to each Member in proportion to each Member's Unpaid
Preferred Return, until the Unpaid Preferred Return of each has been reduced to
zero;
(b) second, to each Member in proportion to each Member's Adjusted
Capital Contributions, until the Adjusted Capital Contributions of each are
reduced to zero; and
(c) finally, to the Economic Interest Holders in proportion to their
Economic Interests.
6.9 ALLOCATION OF NET PROFITS AND LOSSES AND DISTRIBUTIONS IN RESPECT OF
A TRANSFERRED INTEREST. If any Economic Interest is Transferred or is increased
or decreased by reason of the admission of a new Economic Interest Holder or
otherwise during any Fiscal Year, each item of income, gain, loss, deduction or
credit of the Company for that Fiscal Year shall be allocated based on the
"interim closing of the books" method.
6.10 TAX ALLOCATION MATTERS.
(a) CONTRIBUTED OR REVALUED PROPERTY. Each Economic Interest
Holder's allocable share of the taxable income or loss of the Company,
depreciation, depletion, amortization and gain or loss with respect to any
contributed property, or with respect to revalued property where the Company's
property is revalued pursuant to Paragraph (b)(2)(iv)(f) of Section 1.704-1 of
the Treasury Regulations, shall be determined in the manner (and as to
revaluations, in the same manner as) provided in Section 704(c) of the Code. The
allocation shall
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take into account, to the full extent required or permitted by the Code, the
difference between the adjusted basis of the property to the Economic
Interest Holder contributing it and the fair market value of the property
determined by the Managers at the time of its contribution or revaluation, as
the case may be. The Company shall apply Section 704(c)(1)(A) by using the
"traditional method" as set forth in Section 1.704-3(b) of the Treasury
Regulations.
(b) RECAPTURE ITEMS. In the event that the Company has taxable
income that is characterized as ordinary income under the recapture provisions
of the Code, each Economic Interest Holder's distributive share of taxable gain
or loss from the sale of Company assets (to the extent possible) shall include a
proportionate share of this recapture income equal to that Economic Interest
Holder's share of prior cumulative depreciation deductions with respect to the
assets which gave rise to the recapture income.
6.11 ORDER OF APPLICATION. To the extent that any allocation,
Distribution or adjustment specified in any of the preceding Sections of this
Article VI affects the results of any other allocation, Distribution or
adjustment required herein, the allocations, Distributions and adjustments
specified in the following Sections shall be made in the priority listed:
(a) Section 6.8.
(b) Section 6.1.
(c) Section 6.2.
(d) Section 6.3.
(e) Section 6.4.
(f) Section 6.5.
(g) Section 6.7.
(h) Section 6.6.
(i) Section 10.4.
These provisions shall be applied as if all Distributions and
allocations were made at the end of the Company's Fiscal Year. Where any
provision depends on the Capital Account of any Economic Interest Holder, that
Capital Account shall be determined after the operation of all preceding
provisions for the Fiscal Year.
6.12 ALLOCATION OF LIABILITIES. Each Economic Interest Holder's interest
in "partnership" profits for purposes of determining that Member's share of
"excess nonrecourse liabilities" of the Company as used in Section 1.752-3(a)(3)
of the Treasury Regulations, shall be equal to that Economic Interest Holder's
Economic Interest.
6.13 FORM OF DISTRIBUTION. No Economic Interest Holder, regardless of the
nature of its Capital Contribution, has the right to demand and receive any
Distribution from the Company
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in any form other than money. No Economic Interest Holder may be compelled to
accept from the Company a Distribution of any asset in kind in lieu of a
proportionate Distribution of money being made to other Economic Interest
Holder(s), and except upon a dissolution and the winding up of the Company,
no Economic Interest Holder may be compelled to accept a Distribution of any
asset in kind.
ARTICLE VII
TRANSFER OF INTERESTS
7.1 TRANSFER OF INTERESTS. Notwithstanding anything to the contrary set
forth elsewhere herein, no Member may, except as permitted in Section 7.3,
Transfer all or any part of its Membership Interest or its Economic Interest,
for any reason, within the one (1) year period (the "Prohibited Transfer
Period") commencing upon the date hereof. Any attempted Transfer during such
Prohibited Transfer Period shall be null and void ab initio, and the transferee
shall not become either a Member or an Economic Interest Holder. After the
Prohibited Transfer Period, any Member may Transfer all or any part of its
Membership Interest or Economic Interest provided it has complied with Section
7.3. After the consummation of any permitted Transfer of all or any part of a
Membership Interest or an Economic Interest, the Membership Interest or Economic
Interest so Transferred shall continue to be subject to the terms and provisions
of this Agreement, and any further Transfers shall be required to comply with
the terms and provisions of this Agreement.
7.2 [intentionally omitted]
7.3 RIGHT OF FIRST REFUSAL. At any time after the Prohibited Transfer
Period, if any Member decides to Transfer all or any part of its Membership
Interest or Economic Interest (the "Offered Interest") pursuant to a Bona Fide
Offer, that Member shall give written notice to the Company and to all other
Members (the "Eligible Members"), setting forth in full the terms of such Bona
Fide Offer and the identity of the offeror(s). The Company shall then have the
right and option, for a period ending thirty (30) calendar days following its
receipt of the written notice, to elect to purchase all or any part of the
Offered Interest at the purchase price and upon the terms specified in the Bona
Fide Offer, and the Eligible Members (pro rata in accordance with the ratio of
their Economic Interests) shall then have the right and option, for a period of
twenty (20) days thereafter, to elect to purchase all or any part of the Offered
Interest not elected to be purchased by the Company at the purchase price and
upon the terms specified in the Bona Fide Offer. If all Eligible Members do not
elect to purchase the entire balance of the Offered Interest, then the Eligible
Members electing to purchase shall have the right and option, for a period of
ten (10) days thereafter and pro rata in accordance with the ratio of their
Economic Interests, to elect to purchase the balance of the Offered Interest
available for purchase.
Notwithstanding the foregoing, however, if the Company and/or the
Eligible Members do not elect to purchase all of the Offered Interest subject to
the right of first refusal pursuant to this Section 7.3, the Member desiring to
Transfer may Transfer all of the Offered Interest to the original proposed
transferee upon the terms set forth in the written notice provided to the
Company, whereupon the original proposed transferee shall take and hold the
Offered Interest subject to this Agreement and to all of the obligations and
restrictions upon the Member from
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whom such Offered Interest was acquired and shall observe and comply with
this Agreement and with all such obligations and restrictions. Any such
Transfer of the Offered Interest to the original proposed transferee must be
effected within ninety (90) calendar days after the date of the termination
of the right of first refusal options provided above. If no such Transfer is
effected within such ninety (90) calendar day period, then any subsequent
proposed Transfer of all or any part of the Membership Interest or Economic
Interest of the Member desiring to Transfer shall once again be subject to
the provisions of this Section 7.3.
For these purposes, if any consideration offered for the Offered Interest
in the Bona Fide Offer consists of rights, interests or property other than
money or an obligation to pay money, the Managers shall, in good faith,
determine the Fair Market Value of that consideration in monetary terms as of
the date the Bona Fide Offer was received by the Member desiring to Transfer.
The Fair Market Value of that consideration in monetary terms, as so determined,
shall be included in the purchase price payable by the Company and/or the
purchasing Members hereunder, but, in order to exercise their rights of first
refusal granted above, neither the Company nor the purchasing Members need
transfer to the Member desiring to Transfer the actual rights, interests or
property offered in the Bona Fide Offer nor afford the Member desiring to
Transfer the same tax treatment which would have been available to it under the
Bona Fide Offer.
7.4 [intentionally omitted]
7.5 [intentionally omitted]
7.6 [intentionally omitted]
7.7 REPURCHASE RESTRICTIONS IMPOSED BY LAW. Notwithstanding anything to
the contrary stated herein, the Company's right to exercise any option provided
in this Article VII shall be subject to the restrictions governing prohibited
Company Distributions set forth in the Act and such other pertinent federal and
state laws, rules, regulations or other governmental restrictions as may now or
hereafter be in effect.
7.8 FURTHER RESTRICTIONS ON TRANSFER OF INTERESTS. In addition to any
other restrictions found in this Agreement, no Interest Holder may Transfer its
Membership Interest, its Economic Interest or any part thereof (a) without
compliance with the Securities Act, the California Corporate Securities Law of
1968 and any other applicable securities laws, and (b) if the Transfer could
result in the Company not being classified as a partnership for federal or state
income tax purposes, in each case as determined by the Managers. Any attempted
or purported Transfer in violation of this Section 7.8 shall be null and void ab
initio, and the transferee shall not become either a Member or an Economic
Interest Holder.
7.9 SUBSTITUTION OF MEMBERS. Notwithstanding anything in this Agreement
to the contrary, no transferee of the whole or any part of a Membership Interest
shall become a substituted Member in the place of its transferor unless all of
the following conditions are satisfied:
(a) the Transferring Interest Holder and the transferee execute and
acknowledge such other instrument or instruments as the Managers may deem
necessary or desirable to effectuate the admission, including the written
acceptance and adoption by the
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transferee of all of the terms and conditions of this Agreement as the same
may have been amended; and
(b) The transferee pays to the Company a transfer fee which is
sufficient, in the reasonable discretion of the Managers, to cover all expenses
incurred by the Company in connection with the Transfer and substitution.
7.10 ENFORCEMENT. The Transfer restrictions contained in this Agreement
are of the essence of the ownership of a Membership Interest or an Economic
Interest. Upon application to any court of competent jurisdiction, the Company
shall be entitled to a decree against any Person violating or about to violate
such restrictions, requiring their specific performance, including those
requiring a Member or an Economic Interest Holder to sell all or part of its
Membership Interest or Economic Interest to the Company and/or the other
Members, or prohibiting a Transfer of all or part of a Membership Interest or an
Economic Interest.
7.11 EFFECT OF TRANSFERS IN VIOLATION OF AGREEMENT. If, for any reason, a
court refuses to enforce the provisions of Section 7.1 to the effect that a
Transfer in violation of this Article VII is null and void, then, upon any such
Transfer of a Membership Interest or part thereof in violation of this Article
VII, the transferee shall have no right to vote or participate in the management
of the business, property and affairs of the Company or to exercise any rights
of a Member. The transferee shall only be entitled to become an Economic
Interest Holder to the extent of the Membership Interest attempted or purported
to be Transferred to it in violation of this Agreement and thereafter shall only
receive the share of the Company's Net Profits, Net Losses, Tax Credits,
Distributable Cash, and other Distributions to which the Transferring Interest
Holder would otherwise have been entitled.
ARTICLE VIII
CONSEQUENCES OF MEMBERSHIP TERMINATION EVENTS
8.1 DISSOLUTION OF COMPANY. The occurrence of a Membership Termination
Event as to any Member other than the last and only remaining Member shall not
dissolve the Company. Upon the occurrence of a Membership Termination Event as
to the last and only remaining Member, the Company shall dissolve unless the
Managers and the successor-in-interest of the last and only remaining Member
consent in writing within ninety (90) days of such Membership Termination Event
to the continuation of the Company and to the admission of such personal
representative or other successor-in-interest, or its designee or nominee, as a
Member.
8.2 ADMISSION OR CONVERSION. Upon the occurrence of a Membership
Termination Event with respect to a Member under circumstances where the Company
does not dissolve, the Managers shall determine which one of the following shall
occur and give written notice thereof to the remaining Members and to the Member
who suffered the Membership Termination Event (the "Former Member"):
(a) the Former Member's successor-in-interest shall be admitted as a
Member of the Company in the place and stead of the Former Member to the extent
of the Former Member's Membership Interest (the "Former Member's Interest");
provided, however, that the
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Managers may not elect this alternative without the affirmative vote or
written consent of Members constituting a Majority in Interest of all
remaining Members holding at least seventy-five percent (75%) of the Voting
Interests of all remaining Members;
(b) the Former Member's Interest shall be converted to a bare
Economic Interest, and the Former Member's successor-in-interest shall become
the owner of that Economic Interest; or
(c) the Company, and/or one or more of the remaining Members and/or
any other Person(s) designated by the Managers shall purchase, and the Former
Member or the Former Member's successor-in-interest shall sell, the Former
Member's Interest upon the terms and conditions specified in Section 8.3.
8.3 TERMS OF TRANSFER.
(a) TRANSFEREE BOUND BY AGREEMENT. If all or any part of Member's
Membership Interest or Economic Interest has been Transferred to a transferee,
that transferee shall take and hold such Interest subject to this Agreement and
to all of the obligations and restrictions upon the Member and shall observe and
comply with this Agreement and with all such obligations and restrictions.
(b) NOTICE OF REPURCHASE EVENT. Upon the occurrence of a Membership
Termination Event, the Member affected (the "Transferring Interest Holder")
shall promptly give notice (the "Notice") to the Company and to all Eligible
Members, stating when the Membership Termination Event occurred, the reason
therefor, if applicable, the percentage of the Membership Interest or Economic
Interest so affected, and the name, address and capacity of the transferee, if a
Transfer has occurred. If no such Notice is given within ten (10) days of the
occurrence of the Membership Termination Event, any Eligible Member may
institute the purchase proceedings by giving a Notice to the Company, the other
Eligible Members and the Transferring Interest Holder. For purposes of the
remainder of this Section 8.3, the term "Affected Interest" shall mean the
Membership Interest or Economic Interest which the Transferring Interest Holder
is required to sell to the Company and the Eligible Members pursuant to Section
8.2(c) above.
(c) OPTION TO PURCHASE. Upon receipt of any Notice, the Company
shall have the right and option, for a period ending thirty (30) calendar days
following the determination of the purchase price of the Affected Interest, to
elect to purchase all (but not less than all) of the Affected Interest at the
price and upon the terms provided below in this Section 8.3, and the Eligible
Members, pro rata in accordance with the ratio of their Economic Interests,
shall then have the right and option, for a period of twenty (20) days
thereafter, to elect to purchase all or any part of the Affected Interest not
elected to be purchased by the Company upon the same terms and conditions as
exist in favor of the Company. If all Eligible Members do not elect to purchase
the entire balance of the Affected Interest, then the Eligible Members electing
to purchase shall have the right and option, for a period of ten (10) days
thereafter and pro rata in accordance with the ratio of their Economic
Interests, to purchase the balance of the Affected Interest available for
purchase. If the Company and the Eligible Members do not elect to purchase all
of the Affected Interest, the Transferring Interest Holder shall retain all of
the Affected Interest subject to all of the terms of this Agreement.
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(d) PURCHASE PRICE.
(i) BY AGREEMENT. Upon the Company's receipt of the Notice,
the Transferring Interest Holder and the Company (acting through the Managers)
shall promptly attempt to agree upon a purchase price for the Affected Interest.
(ii) BY APPRAISAL IF NO AGREEMENT. If the Company and the
Transferring Interest Holder are unable to agree upon a purchase price within
thirty (30) calendar days following the Company's receipt of the Notice, they
shall appoint an appraiser as mutually agreed by the parties to value the Fair
Market Value of the Affected Interest as of the date the Membership Termination
Event occurred. The determination of the purchase price in the by the appraiser
shall be conclusive for all purposes and upon all parties.
The expenses of appraisal shall be borne equally by the Company and
the Transferring Interest Holder. The portion of the compensation and fees
allocated to the Company shall be apportioned, as among the Company and any
Members electing to purchase the Affected Interest, on a pro rata basis to the
amount of the Affected Interest purchased by the Company and each such Member,
respectively.
(iii) QUALIFICATIONS OF APPRAISER. The appraiser selected by
the parties shall be reasonably experienced in valuing interests in businesses
similar to the business then conducted by the Company.
(e) PAYMENT OF PURCHASE PRICE.
(i) PAYMENT. Except as provided below, the purchase price for
the Affected Interest shall be payable at the option of the Company and each
purchasing Member, severally, either entirely in cash, or partly in cash and
partly by delivery of a promissory note (in which latter case, at least
twenty-five percent (25%) of the purchase price for the Affected Interest shall
be payable in cash at closing with the remainder payable by delivery of a
promissory note). Each promissory note hereunder ("Note") shall be in the form
of a secured promissory note, payable as provided in clause (ii) below.
(ii) PROMISSORY NOTES. Each Note shall be payable in four(4)
equal quarterly principal installments over one year, with fixed interest at
Prime. Interest shall be paid quarterly in addition to principal. Each Note
shall provide that the maker of the Note shall have the right to prepay all or
any part of the principal balance on the Note without penalty or premium and
that any sums paid in any period in excess of the regular installment for that
period shall be applied against installments thereafter falling due, in the
inverse order of their maturity or against all of the remaining installments
equally, at the option of the holder of the Note. Each Note shall also provide
that in case of default in the payment of any installment when due, the entire
principal balance then remaining unpaid shall become immediately due and payable
at the option of the holder, and shall provide for the payment by the maker of
reasonable attorneys' fees to the holder in the event suit is commenced because
of any default. Each Note executed by a Member shall be secured by a security
interest in that part of the Affected Interest purchased by that Member. Each
Note executed by the Company shall be secured by a security interest in all of
the property of the Company. So long as no default occurs in the making of
payments on any
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Note, the Company and/or the purchasing Members shall have the right to
receive all distributions of Distributable Cash and other Distributions and
all allocations of Net Profits, Net Losses and Tax Credits attributable
thereto. However, upon default by the Company or a purchasing Member in the
payment of its Note, and if that default continues for a period of thirty
(30) days after notice thereof to the Company and/or the purchasing Member,
the Transferring Interest Holder shall thereupon have, in addition to any
other rights or remedies it may have by reason of the default, the right to
receive the distributions of Distributable Cash and other Distributions
attributable thereto (but not the allocations of Net Profits, Net Losses and
Tax Credits attributable thereto, which shall continue to vest until
foreclosure in the legal owners of the Membership Interests or Economic
Interest(s) so serving as security). Any Distributions so received shall be
applied to, and shall reduce, the amount of principal and interest owing on
the Note.
(iii) SUBORDINATION OF NOTES. Each Note issued by the Company
shall be subordinated in right of payment to the payment of all Senior Debt (as
defined below) upon such terms and conditions as the holders of the Senior Debt
may determine, and each such Note shall contain subordination provisions which
are approved as to form and substance by all holders of the Senior Debt. For
these purposes "Senior Debt" means financing provided by one or more
institutional or private lenders to fund the Company's business operations. The
parties acknowledge that the Company's ability to make payments under
outstanding Notes may be limited from time to time by any such subordination
provisions, by provisions of applicable law and by provisions of the Articles.
If, as a result of these limitations, the Company is at any particular time able
to make payments under some but not all of its outstanding Notes, it shall
allocate the payments which it is able to make among the Notes on a strict
"first issued, first paid" basis. Each Note issued by the Company shall provide
that no payments of principal or interest may be made thereon at any time that
the Company is in arrears in the payment of principal or interest on any Note
previously issued by the Company.
(f) CONSUMMATION OF SALE. Unless the parties involved mutually agree
otherwise, delivery to the Company and/or the purchasing Members of the Affected
Interest to be sold hereunder and payment of the purchase price therefor shall
take place at a closing (the "Closing") to be held at the principal office of
the Company within thirty (30) calendar days following the termination of the
last applicable option period. At the Closing, the Transferring Interest Holder
shall deliver to the Company and/or the purchasing Members a bill of sale and
assignment effecting the transfer of the Affected Interest to be sold, in form
and substance satisfactory to the Company and/or the purchasing Members, and
shall deliver, in addition, any other documents reasonably requested by the
Company and/or the purchasing Members to effectuate the purposes of this
Agreement.
ARTICLE IX
ACCOUNTING, RECORDS, REPORTING BY MEMBERS
9.1 BOOKS AND RECORDS. The books and records of the Company shall be
kept, and the financial position and the results of its operations recorded, in
accordance with the method selected by the Managers. The books and records of
the Company shall reflect all the Company
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transactions and shall be appropriate and adequate for the Company's
business. The Company shall maintain all of the following at its principal
office:
(a) a current list of the full name and last known business or
residence address of each Member and Economic Interest Holder set forth in
alphabetical order, together with the Capital Contributions, Capital Account,
Voting Interest and Economic Interest of each Member and Economic Interest
Holder;
(b) a current list of the full name and business or residence
address of each Manager;
(c) copies of the Certificate of Formation and all amendments
thereto, together with executed copies of any powers of attorney pursuant to
which the Certificate of Formation or any amendments thereto have been executed;
(d) copies of the Company's federal, state and local income tax or
information returns and reports, if any, for the six most recent taxable years;
(e) copies of this Agreement and any and all amendments thereto,
together with executed copies of any powers of attorney pursuant to which this
Agreement or any amendments thereto have been executed;
(f) copies of the financial statements of the Company, if any, for
the six most recent Fiscal Years;
(g) the Company's books and records pertaining to the internal
affairs of the Company for at least the current and past four Fiscal Years; and
(h) copies of all written consents approving actions taken by the
Members without a meeting pursuant to Section 4.4.
9.2 REPORTS; ANNUAL STATEMENTS.
(a) GOVERNMENTAL REPORTS. The Managers shall cause to be filed all
documents and reports required to be filed with any governmental agency in
accordance with the Act.
(b) FINANCIAL REPORTS. The Managers shall cause to be sent to each
Member of the Company (a) not later than one hundred twenty (120) days after the
close of each Fiscal Year of the Company, the Company's unaudited financial
statements for that Fiscal Year, including a balance sheet as of the end of that
Fiscal Year and an income statement and statement of changes in financial
position for that Fiscal Year, accompanied by the report thereon of the
independent accountants engaged by the Company, and (b) within thirty (30) days
after the end of each of the first three (3) fiscal quarters of each Fiscal Year
of the Company, the Company's unaudited financial statements for such fiscal
quarter, including a balance sheet as of the end of that fiscal quarter and an
income statement and statement of changes in financial position for such fiscal
quarter.
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(c) TAX REPORTS. The Managers shall cause to be prepared at least
annually, at Company expense, information necessary for the preparation of
the Members' and Economic Interest Holders' federal and state income tax
returns. The Managers shall send or cause to be sent to each Member and
Economic Interest Holder within ninety (90) days after the end of each
taxable year such information as is necessary to complete federal and state
income tax or information returns.
9.3 BANK ACCOUNTS; INVESTED FUNDS. All funds of the Company shall be
deposited in such account or accounts of the Company as may be determined by
the Managers and shall not be commingled with the funds of any other Person.
All withdrawals therefrom shall be made upon checks signed by such persons
and in such manner as the Managers may determine. Temporary surplus funds of
the Company may be invested in commercial paper, time deposits, short-term
government obligations or other investments determined by the Managers.
9.4 TAX MATTERS FOR THE COMPANY HANDLED BY TAX MATTERS PARTNER. The
Managers shall from time to time cause the Company to make such tax elections
as they deem to be in the best interests of the Company and the Members. The
Tax Matters Partner shall represent the Company (at the Company's expense) in
connection with all administrative and/or judicial proceedings by the
Internal Revenue Service or any government authority involving any return of
the Company, and may expend the Company's funds for professional services and
costs associated therewith. Without limiting the powers which the Tax Matters
Partner may exercise, the Tax Matters Partner shall have the authority to do
any of the following: (a) enter into a settlement agreement with the Internal
Revenue Service which binds the Members, (b) file a petition as contemplated
in Section 6226(a) or 6228 of the Code, (c) intervene in any action as
contemplated in Section 6226(b)(5) of the Code, (d) file any request
contemplated in Section 6227(b) of the Code, or (e) enter into an agreement
extending the period of limitations as contemplated in Section 6229(b)(1)(B)
of the Code.
9.5 ACCOUNTING MATTERS. All decisions as to accounting matters shall
be made by the Managers.
9.6 CONFIDENTIALITY. All books, records, financial statements, tax
returns, budgets, business plans and projections of the Company, all other
Confidential Information and all of the terms and provisions of this
Agreement shall be held in confidence by the Managers, the Members and the
Economic Interest Holders and their respective Affiliates, subject to any
obligation to comply with (a) any applicable law, (b) any rule or regulation
of any legal authority or securities exchange, or (c) any subpoena or other
legal process to make information available to the Persons entitled thereto.
Such confidentiality shall be maintained to the same degree as each Manager,
Member or Economic Interest Holder maintains its own confidential information
and shall be maintained until such time, if any, as any such confidential
information either is, or becomes, published or a matter of public knowledge.
Without limiting the generality of the foregoing, no Member, Economic
Interest Holder or Manager shall, at any time (both during the period such
Person is a Member, Economic Interest Holder or Manager and thereafter),
cause, suffer or permit the Confidential Information to be used for the gain
or benefit of any party outside of the Company or for such Person's personal
gain or benefit outside the scope of such Person's relationship with the
Company.
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ARTICLE X
DISSOLUTION AND WINDING UP
10.1 DISSOLUTION. The Company shall be dissolved, its assets disposed
of and its affairs wound up upon the first to occur of the following:
(a) the vote of the Managers and Members holding at least
seventy-five percent (75%) of all Voting Interests;
(b) the occurrence of a Membership Termination Event as to the
last and only remaining Member, if the Managers and that Member's
successor-in-interest fail to consent to the continuation of the Company in
accordance with Section 8.1 within ninety (90) days after the occurrence of
that event;
(c) the sale of all or substantially all of the assets of the
Company; or
(d) the occurrence of an event which makes it unlawful for the
business of the Company to be continued.
10.2 DATE OF DISSOLUTION. Dissolution of the Company shall be
effective on the day on which the event occurs giving rise to the
dissolution, but the Company shall not terminate until the assets of the
Company have been liquidated and distributed as provided herein.
Notwithstanding the dissolution of the Company, prior to the termination of
the Company the business of the Company and the rights and obligations of the
Members and Economic Interest Holders, as such, shall continue to be governed
by this Agreement.
10.3 WINDING UP. Upon the occurrence of any event specified in Section
10.1, the Company shall continue solely for the purpose of winding up its
affairs in an orderly manner, liquidating its assets and satisfying the
claims of its creditors. The Managers shall be responsible for overseeing the
winding up and liquidation of the Company and shall cause the Company to (a)
sell or otherwise liquidate all of the Company's assets as promptly as
practicable, except to the extent the Managers determine to distribute any
assets to the Economic Interest Holders in kind, (b) allocate any Net Profits
or Net Losses resulting from such sales to the Economic Interest Holders'
Capital Accounts in accordance with this Agreement, (c) discharge or make
reasonable provision for all liabilities of the Company, including all
liabilities to the Managers, the Members and the Economic Interest Holders to
the extent permitted by law (other than liabilities for unpaid distributions
to Economic Interest Holders and former Economic Interest Holders under the
Act), and all costs relating to the dissolution, winding up, and liquidation
and distribution of assets, (d) establish such reserves as may be reasonably
necessary to provide for contingent liabilities of the Company (for purposes
of determining the Capital Accounts of the Economic Interest Holders, the
amounts of such reserves shall be deemed to be an expense of the Company),
(e) discharge or make reasonable provision for any remaining liabilities of
the Company to the Economic Interest Holders, other than on account of their
interests in Company capital or profits, and to the Managers, and (f)
distribute the remaining assets to the Economic Interest Holders in the
manner specified in Section 10.4.
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10.4 LIQUIDATING DISTRIBUTIONS TO ECONOMIC INTEREST HOLDERS. The
remaining assets of the Company shall promptly be distributed to the Economic
Interest Holders in accordance with Section 6.8, after taking into account
income and loss allocations for the Company's taxable year during which the
liquidation occurs.
10.5 DISTRIBUTIONS IN KIND. Any non-cash asset distributed to one or
more Economic Interest Holders shall first be valued at its Fair Market Value
to determine the Net Profit or Net Loss that would have resulted if that
asset had been sold for that value, the Net Profit or Net Loss shall then be
allocated pursuant to Article VI, and the Economic Interest Holders' Capital
Accounts shall be adjusted to reflect those allocations. The amount
distributed and charged to the Capital Account of each Economic Interest
Holder receiving an interest in the distributed asset shall be the Fair
Market Value of the interest (net of any liability secured by the asset that
the Member assumes or takes subject to). The Fair Market Value of that asset
shall be determined by the Managers.
10.6 PROVISION FOR DEBTS AND LIABILITIES. The payment of a debt or
liability, whether the whereabouts of the creditor is known or unknown, has
been adequately provided for if the payment has been provided for by either
of the following means:
(a) payment has been assumed or guaranteed in good faith by one
or more financially responsible Persons or by the United States government or
any agency thereof, and the provision, including the financial responsibility
of the Person, was determined in good faith and with reasonable care by the
Managers to be adequate at the time of any distribution of the assets
pursuant to this Section; or
(b) the amount of the debt or liability has been deposited as
provided in Title 12, Section 1197 of the Delaware Code.
This Section 10.6 shall not prescribe the exclusive means of
making adequate provision for debts and liabilities.
10.7 NO LIABILITY. Notwithstanding anything to the contrary in this
Agreement, upon a liquidation within the meaning of Section
1.704-1(b)(2)(ii)(g) of the Treasury Regulations, if any Economic Interest
Holder has a negative deficit Capital Account balance (after giving effect to
all contributions, distributions, allocations and other Capital Account
adjustments for all taxable years, including the year during which such
liquidation occurs), neither that Economic Interest Holder nor the Managers
shall have any obligation to make any contribution to the capital of the
Company, and the negative balance of that Economic Interest Holder's Capital
Account shall not be considered a debt owned by that Economic Interest Holder
or the Managers to the Company or to any other person for any purpose
whatsoever.
10.8 LIMITATIONS ON PAYMENTS MADE IN DISSOLUTION. Except as otherwise
specifically provided in this Agreement, each Economic Interest Holder shall
be entitled to look only to the assets of the Company for the return of that
Economic Interest Holder's positive Capital Account balance and shall have no
recourse for its Capital Contributions and/or share of Net Profits (upon
dissolution or otherwise) against the Managers or any other Economic Interest
Holder.
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10.9 CERTIFICATE OF CANCELLATION. Upon completion of the winding up of
the Company's affairs, the Managers shall file a Certificate of Cancellation
with the Delaware Secretary of State.
10.10 COMPENSATION FOR SERVICES. The Managers shall be entitled to
reasonable compensation from the Company for their services in winding up the
affairs of the Company.
ARTICLE XI
LIMITATION OF LIABILITY; STANDARD OF CARE; INDEMNIFICATION
11.1 LIMITATION OF LIABILITY. The debts, obligations and liabilities
of the Company, whether arising in contract, tort or otherwise, shall be
solely the debts, obligations and liabilities of the Company, and no Member,
Economic Interest Holder, Manager or officer of the Company shall be
obligated personally for any such debt, obligation or liability of the
Company solely by reason of being a Member, Economic Interest Holder, Manager
and/or officer.
11.2 STANDARD OF CARE. Neither the Managers nor any Member or officer
of the Company shall have any personal liability whatsoever to the Company or
to any Member, Economic Interest Holder or Affiliate of the Company or to any
Affiliate or constituent owner of any Member or Economic Interest Holder on
account of such Person's status as the Manager or as a Member or officer of
the Company or by reason of such Person's acts or omissions in connection
with the conduct of the business of the Company so long as such Person acts
in good faith for a purpose which the Person reasonably believes to be in, or
not opposed to, the best interests of the Company; provided, however, that
nothing contained herein shall protect any such Person against any liability
to which such Person would otherwise be subject by reason of (a) any act or
omission of such Person that involves actual fraud or willful misconduct or
(b) any transaction from which such Person derives any improper personal
benefit.
11.3 INDEMNIFICATION. The Company shall indemnify and hold harmless
any Person made, or threatened to be made, a party to an action or
proceeding, whether civil, criminal or investigative (a "proceeding"),
including an action by or in the right of the Company, by reason of the fact
that such Person was or is a Manager, a Member (including in the capacity of
the Tax Matters Partner) or an officer of the Company, an Affiliate of a
Manager, a Member or an officer of the Company, or an officer, director,
shareholder, partner, member, employee, manager or agent of any of the
foregoing, against all judgments, fines, amounts paid in settlement and
reasonable expenses (including investigation, accounting and attorneys' fees)
incurred as a result of such proceeding, or any appeal therein (and
including, without limitation, indemnification against active or passive
negligence, gross negligence or breach of duty) if such Person acted in good
faith, for a purpose which he reasonably believed to be in, or not opposed
to, the best interests of the Company and in criminal proceedings, in
addition, had no reasonable cause to believe that his conduct was unlawful.
The termination of any such civil or criminal proceeding by judgment,
settlement, conviction or upon a plea of nolo contendere, or its equivalent,
shall not in itself create a presumption that any such Person did not act in
good faith, for a purpose which he reasonably believed to be in, or not
opposed to, the best interests of the Company or that he had reasonable cause
to believe that his conduct was unlawful; provided only that no such Person
shall be indemnified or held harmless if and to the extent that the liability
sought to be
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indemnified or held harmless against results from (a) any act or omission of
such Person that involved actual fraud or willful misconduct or (b) any
transaction from which such Person derived improper personal benefit. The
Company's indemnification obligations hereunder shall survive the termination
of the Company. Each indemnified Person shall have a claim against the
property and assets of the Company for payment of any indemnity amounts from
time to time due hereunder, which amounts shall be paid or properly reserved
for prior to the making of distributions by the Company to the Members.
11.4 CONTRACT RIGHT; EXPENSES. The right to indemnification conferred
in this Article XI shall be a contract right and shall include the right to
require the Company to advance the expenses incurred by the indemnified
Person in defending any such proceeding in advance of its final disposition;
provided, however, that, if the Act so requires, the payment of such expenses
in advance of the final disposition of a proceeding shall be made only upon
receipt by the Company of an undertaking, by or on behalf of the indemnified
Person, to repay all amounts so advanced if it shall ultimately be determined
that such Person is not entitled to be indemnified under this Article XI or
otherwise.
11.5 INDEMNIFICATION OF EMPLOYEES AND AGENTS. The Company may, to the
extent authorized from time to time by the Managers, grant rights to
indemnification and to advancement of expenses to any employee or agent of
the Company to the fullest extent of the provisions of Sections 11.3 and 11.4
with respect to the indemnification and advancement of expenses of the
Managers, the Members and/or the officers of the Company.
11.6 NONEXCLUSIVE RIGHT. The right to indemnification and the payment
of expenses incurred in defending a proceeding in advance of its final
disposition conferred in this Article XI shall not be exclusive of any other
right which any Person may have or hereafter acquire under any statute or
agreement, or under any insurance policy obtained for the benefit of the
Managers, the Members and/or the officers of the Company.
11.7 SEVERABILITY. If any provision of this Article XI is determined
to be unenforceable in whole or in part, such provision shall nonetheless be
enforced to the fullest extent permissible, it being the intent of this
Article XI to provide indemnification to all Persons eligible hereunder to
the fullest extent permitted under law.
11.8 INSURANCE. The Managers may cause the Company to purchase and
maintain insurance on behalf of any Person (including, without limitation,
the Managers or any Member or officer of the Company) who is or was an agent
of the Company against any liability asserted against that Person and
incurred by that Person in any such capacity or arising out of that Person's
status as an agent, whether or not the Company would have the power to
indemnify that Person against liability under the provisions of Sections 11.3
and 11.4 or under applicable law.
ARTICLE XII
REPRESENTATIONS OF THE MEMBERS
Each Member represents and warrants to the other Members and the
Company as follows:
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12.1 PREEXISTING RELATIONSHIP OR EXPERIENCE. (a) The Member has a
preexisting personal or business relationship with the Company or one or more
of its Managers, officers or control persons or (b) by reason of the Member's
business or financial experience, or by reason of the business or financial
experience of the Member's financial advisor who is unaffiliated with and who
is not compensated, directly or indirectly, by the Company or any Affiliate
or selling agent of the Company, the Member is capable of evaluating the
risks and merits of an investment in its Membership Interest and of
protecting the Member's own interests in connection with the investment.
12.2 ACCESS TO INFORMATION. The Member has had an opportunity to
review all documents, records and books pertaining to this investment and has
been given the opportunity to consult with counsel of his or her choice with
respect to all aspects of this investment and the Company's proposed business
activities. Such Member has personally met with the Managers and has been
provided with such information as may have been requested and has at all
times been given the opportunity to obtain additional information necessary
to verify the accuracy of the information received and the opportunity to ask
questions of and receive answers from the Managers concerning the terms and
conditions of the investment and the nature and prospects of the Company's
business.
12.3 ECONOMIC RISK. The Member is financially able to bear the
economic risk of an investment in its Membership Interest, including the
total loss thereof.
12.4 INVESTMENT INTENT. The Member is acquiring its Membership
Interest for investment purposes and for the Member's own account only and
not with a view to, or for sale in connection with, any distribution of all
or any part of its Membership Interest. Except for the partners or members of
the Member, no other Person will have any direct or indirect beneficial
interest in, or right to, its Membership Interest.
12.5 CONSULTATION WITH ATTORNEY. The Member has been advised to
consult with its own attorney regarding all legal and tax matters concerning
an investment in its Membership Interest and has done so to the extent it
considers necessary.
12.6 PURPOSE OF ENTITY. If the Member is a corporation, partnership,
limited liability company, trust or other entity, it was not organized for
the specific purpose of acquiring its Membership Interest.
12.7 RESIDENCY. The Member is a resident of the state of California.
12.8 NO ADVERTISING. The Member has not seen, received or been
solicited by any leaflet, public promotional meeting, newspaper or magazine
article or advertisement, radio or television advertisement or any other form
of advertising or general solicitation with respect to the sale of its
Membership Interest.
12.9 MEMBERSHIP INTEREST IS RESTRICTED SECURITY. The Member
understands that its Membership Interest, including the Economic Interest
constituting a part thereof, is a "restricted security" under the Securities
Act in that the Membership Interest will be acquired from the Company in a
transaction not involving a public offering, that its Membership Interest and
the Economic Interest constituting a part thereof may be resold without
registration under the
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Securities Act only in certain limited circumstances and that otherwise its
Membership Interest and such Economic Interest must be held indefinitely.
12.10 NO REGISTRATION OF MEMBERSHIP INTEREST. The Member acknowledges
that its Membership Interest has not been registered under the Securities Act
or qualified under any state securities law in reliance, in part, upon its
representations, warranties and agreements herein.
12.11 ORGANIZATION. The Member is duly organized and validly existing
under the laws of its jurisdiction of formation, with full corporate or
limited liability company power to carry on its business as now or proposed
to be conducted.
12.12 AUTHORITY. The Member has full power and authority to enter into
this Agreement and has taken all action required to authorize the execution,
delivery and performance of this Agreement.
12.13 ENFORCEABILITY. This Agreement constitutes the legal, valid and
binding obligation of the Member, enforceable against the Member in
accordance with its terms, except as the enforcement thereof may be limited
by bankruptcy, insolvency, reorganization, moratorium or similar laws
relating to or limiting creditors' rights generally and subject to the
availability of equitable remedies.
12.14 NO VIOLATION. None of the execution, delivery or performance by
the Member of this Agreement will: (a) violate any provision of the
Certificate of Incorporation, Certificate of Formation, bylaws, operating
agreement or other charter documents of the Member; (b) violate, or
constitute a default under any contract or agreement to which the Member or
any of its properties is subject or bound; or (c) violate any law or order to
which the Member or any of its properties is subject.
ARTICLE XIII
MISCELLANEOUS
13.1 LEGAL COUNSEL. The Members acknowledge that Loeb & Loeb LLP is
counsel to Onlinefilmsales with respect to this Agreement and the
transactions contemplated herein and that Loeb & Loeb LLP may in the future
represent the Company in connection with its business and affairs. The
Members further acknowledge that Katz, Golden & Sullivan, LLP has been
counsel to MediaChase and the Company and that Katz, Golden & Sullivan, LLP
may in the future represent the Company in connection with its business and
affairs. MediaChase hereby consents to Loeb & Loeb LLP's representation of
Onlinefilmsales with respect to this Agreement and the transactions
contemplated herein and also consents to Loeb & Loeb LLP's representation of
the Company in the future. Onlinefilmsales hereby consents to Katz, Golden &
Sullivan, LLP's representation of MediaChase and the Company with respect to
this Agreement and the transactions contemplated herein and also to its
representation of the Company in the future. Without limiting the generality
of the foregoing, MediaChase and Onlinefilmsales agree that Loeb & Loeb LLP
and Katz, Golden & Sullivan, LLP may, notwithstanding any past existing or
future representation of Onlinefilmsales or MediaChase, respectively, or any
information or experience obtained by Loeb & Loeb LLP or Katz, Golden &
Sullivan, LLP in any such
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representation, represent Onlinefilmsales or MediaChase and/or their
respective Affiliates, respectively, in connection with any future
litigation, reference or other proceeding or dispute which may arise from or
relate to this Agreement or the transactions contemplated herein, hereby
waiving any rights it may have to object to such representation under any and
all circumstances. Such consent is freely given by MediaChase and
Onlinefilmsales after full consideration of its consequences and after
consultation with independent legal counsel of its respective choice.
13.2 AMENDMENTS. No amendment to this Agreement may be made without
compliance with Section 5.3(g). All amendments to this Agreement must be in
writing.
13.3 OFFSET PRIVILEGE. The Company may offset against any monetary
obligation owing from the Company to any Member, Economic Interest Holder or
Manager any monetary obligation then owing from that Member, Economic
Interest Holder or Manager to the Company.
13.4 ARBITRATION.
(a) GENERAL. In the event of any dispute, claim or controversy
among the parties arising out of or relating to this Agreement or the
Certificate of Formation whether in contract, tort, equity or otherwise, and
whether relating to the meaning, interpretation, effect, validity,
performance or enforcement of this Agreement or the Certificate of Formation,
such dispute, claim or controversy shall be resolved by and through an
arbitration proceeding to be conducted under the auspices and the commercial
arbitration rules of the American Arbitration Association (or any like
organization successor thereto) at Los Angeles, California. The arbitrability
of the dispute, claim or controversy shall likewise be determined in the
arbitration. The arbitration proceeding shall be conducted in as expedited a
manner as is then permitted by the commercial arbitration rules (formal or
informal) of the American Arbitration Association. Both the foregoing
agreement of the parties to arbitrate any and all such disputes, claims and
controversies, and the results, determinations, findings, judgments and/or
awards rendered through any such arbitration shall be final and binding on
the parties and may be specifically enforced by legal proceedings in any
court of competent jurisdiction.
(b) GOVERNING LAW. The arbitrator(s) shall follow any applicable
federal law and Delaware state law (with respect to all matters of
substantive law) in rendering an award.
(c) COSTS OF ARBITRATION. The cost of the arbitration proceeding
and any proceeding in court to confirm or to vacate any arbitration award, as
applicable (including, without limitation, each party's attorneys' fees and
costs), shall be borne by the unsuccessful party or, at the discretion of the
arbitrator(s), may be prorated between the parties in such proportion as the
arbitrator(s) determine(s) to be equitable and shall be awarded as part of
the arbitrators' award.
13.5 REMEDIES CUMULATIVE. Except as otherwise provided herein, the
remedies under this Agreement are cumulative and shall not exclude any other
remedies to which any Person may be lawfully entitled.
13.6 NOTICES. Any notice to be given to the Company or any Member,
Economic Interest Holder or Manager in connection with this Agreement must be
in writing and will be deemed to have been given and received when delivered
to the address specified by the party to
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<PAGE>
receive the notice by courier or other means of personal service, when
received if sent by facsimile, or three (3) days after deposit of the notice
by first class mail, postage prepaid, or certified mail, return receipt
requested. Any such notice must be given to the Company at its principal
place of business, and to any Member, Economic Interest Holder or Manager at
the address specified in Exhibit A. Any party may, at any time by giving five
(5) days' prior written notice to the other parties, designate any other
address as the new address to which notice must be given.
13.7 ATTORNEYS' FEES. Subject to the provisions of Section 13.4
requiring that disputes be submitted to arbitration, in the event that any
dispute between the Company and/or the Members or Economic Interest Holders
and/or the Managers should result in litigation, the prevailing party in that
dispute shall be entitled to recover from the other party all reasonable
fees, costs and expenses of enforcing any right of the prevailing party,
including without limitation, reasonable attorneys' fees and expenses.
13.8 GOVERNING LAW; JURISDICTION. The Agreement shall be governed by
and construed in accordance with the laws of the State of Delaware, without
regard to any conflicts of laws principles of the State of Delaware or any
other jurisdiction that would call for the application of the law of any
jurisdiction other than the State of Delaware. Subject to the requirement
that all disputes are to be submitted to arbitration pursuant to Section
13.4, each Member, Economic Interest Holder and Manager consents to the
exclusive jurisdiction of the federal courts sitting in Los Angeles,
California, in any action on a claim arising out of, under or in connection
with this Agreement or the transactions contemplated by this Agreement. Each
Member, Economic Interest Holder and Manager further agrees that personal
jurisdiction over it may be effected by service of process by registered or
certified mail addressed as provided in Section 13.6 and that when so made
shall be as if served upon it personally.
13.9 COMPLETE AGREEMENT. This Agreement, the Certificate of Formation,
the MediaChase Consulting Agreement and all of the other agreements or
instruments entered into by any Member in connection with the consummation of
the transactions contemplated hereby constitute the complete and exclusive
statement of agreement among the Members, Economic Interest Holders and
Managers with respect to their respective subject matters and supersede all
prior written and oral agreements or statements by and among the Members,
Economic Interest Holders and Managers. No representation, statement,
condition or warranty not contained in any such agreement shall be binding on
the Members, Economic Interest Holders or Managers or have any force or
effect whatsoever.
13.10 NO THIRD-PARTY RIGHTS. No Person other than a Member, an
Economic Interest Holder, a Manager or a Person entitled to indemnification
pursuant to Article XI shall have any legal or equitable right, remedy or
claim, or be a beneficiary, under or in respect of this Agreement.
13.11 BINDING EFFECT. Subject to the provisions of this Agreement
relating to Transferability, this Agreement shall be binding upon and inure
to the benefit of the Members, Economic Interest Holders and Managers and
their respective successors and assigns.
35
<PAGE>
13.12 SECTION HEADINGS. All Section headings are inserted only for
convenience of reference and are not to be considered in the interpretation
or construction of any provision of this Agreement.
13.13 INTERPRETATION. In the event any claim is made by any Member,
Economic Interest Holder or Manager relating to any conflict, omission or
ambiguity in this Agreement, no presumption or burden of proof or persuasion
shall be implied by virtue of the fact that this Agreement was prepared by or
at the request of a particular Member or Manager or that Member's, Economic
Interest Holder's or Manager's counsel.
13.14 SEVERABILITY. If any provision of this Agreement or the
application of that provision to any person or circumstance shall be held
invalid, the remainder of this Agreement or the application of that provision
to persons or circumstances other than those to which it is held invalid
shall not be affected.
13.15 MULTIPLE COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of
which shall constitute one and the same instrument.
36
<PAGE>
IN WITNESS WHEREOF, all of the Members and the Managers of the
Company have executed this Agreement, effective as of the date first written
above.
MEMBERS:
Onlinefilmsales.com, LLC,
Delaware limited liability company
By: InternetSudios.com, Inc.,
a Nevada corporation
Its: Manager
By:
---------------------
Name:
---------------------
Title:
---------------------
MediaChase Ltd.,
a Delaware corporation
By:
---------------------
Name:
---------------------
Title:
---------------------
MANAGER:
Onlinefilmsales.com, LLC,
Delaware limited liability company
By: InternetSudios.com, Inc.,
a Nevada corporation
Its: Manager
By:
---------------------
Name:
---------------------
Title:
---------------------
37
<PAGE>
EXHIBIT A
NAMES, ADDRESSES, CAPITAL CONTRIBUTIONS, VOTING AND
ECONOMIC INTERESTS OF MEMBERS AND NAME AND ADDRESS OF
MANAGERS AS OF
MARCH 28, 2000
<TABLE>
<CAPTION>
Member's
Member's Additional Member's Member's
Initial Capital Capital Voting Economic
Member's Name Member's Address Contribution Contribution Interest Interest
- ------------- ---------------- --------------- ------------ -------- --------
<S> <C> <C> <C> <C>
1351 4th St., Suite 227
Onlinefilmsales.com, LLC Santa Monica, CA 90401 $ 0 $__________ 100% 50%
8286 Santa Monica Blvd.
MediaChase Ltd. West Hollywood, CA 90046 $ 0 0% 50%
MANAGER'S NAME MANAGER'S ADDRESS
- -------------- -----------------
1351 4th St., Suite 227
Onlinefilmsales.com, LLC Santa Monica, CA 90401
</TABLE>
<PAGE>
EXHIBIT 10.16
CONTRIBUTION, ASSIGNMENT AND ASSUMPTION AGREEMENT
This Contribution, Assignment and Assumption Agreement (the
"Agreement") is entered into as of March 28, 2000 (the "Effective Date"), by
and between MediaChase Ltd., a Delaware corporation ("MediaChase"), and
StudioBuzz.com, LLC, a Delaware limited liability company ("StudioBuzz"),
with reference to the following:
A. MediaChase has developed the concept for an online database
consisting of community portals and databases dedicated to film and
television industry professionals (the "Program").
B. MediaChase desires to contribute, assign, transfer and convey to
StudioBuzz the Program and all goodwill, assets, properties and rights of
every nature, kind and description throughout the world, whether tangible or
intangible, real, personal or mixed, wherever located and whether or not
carried or reflected on the books and records of MediaChase, to the extent
the same are used solely in connection with the development and exploitation
of the Program (together with the Program, collectively referred to as the
"Assets"), subject to all of MediaChase's liabilities and obligations,
whether fixed or contingent, direct or indirect, represented by a written
agreement or otherwise, relating to, arising under or in connection with the
Assets, including, without limitation, all intellectual property claims
arising out of, relating to or in connection with the Assets and all other
claims arising from the development and exploitation of the Program
(collectively, the "Liabilities") in exchange for one hundred percent (100%)
of the membership interests (the "Membership Interests") in StudioBuzz.
In consideration of the foregoing, the undersigned agree as follows:
1. ASSIGNMENT OF ASSETS. Effective as of the Effective Date, for
good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, MediaChase does hereby contribute, assign, transfer, and
convey to StudioBuzz, to have and to hold unto StudioBuzz, its successors and
assigns forever, all of MediaChase's right, title and interest in and to the
Assets. Additionally, MediaChase will transfer to StudioBuzz the employees of
MediaChase listed on Schedule "A" (the "Employees").
2. ACCEPTANCE OF ASSIGNMENT. Effective as of the Effective Date,
StudioBuzz hereby accepts the assignment to it of all of MediaChase's right,
title and interest in and to the Assets.
3. ASSUMPTION OF LIABILITIES. As further consideration of the
contribution, assignment, transfer and conveyance of the Assets to
StudioBuzz, effective as of the Effective Date, StudioBuzz hereby assumes and
agrees to pay and perform all of the Liabilities. Notwithstanding anything to
the contrary set forth herein, StudioBuzz shall not assume nor be liable for
any of the following liabilities or obligations of MediaChase:
<PAGE>
a. all Liabilities of MediaChase which pertain primarily to its
assets other than the Assets;
b. any of MediaChase's Liabilities for any income taxes of any
nature now or hereafter owed by MediaChase or attributable to the Assets;
c. any taxes or expenses or fees incurred by MediaChase
incident to or arising out of the negotiation, preparation, approval or
authorization of this Agreement or the consummation (or preparation of the
consummation) of the transactions contemplated herein, including, without
limitation, any related attorney's and accountant's fees;
d. any Liabilities now or hereafter arising by reason of any
willful and Knowing breach of contract prior to the Effective Date or any of
the following intentional torts: assault and battery, false imprisonment,
conversion, and so long as it is shown that MediaChase acted with malice,
defamation, intentional infliction of emotional distress, invasion of privacy
and interference with business relations;
e. any of MediaChase's Liabilities now or hereafter arising
with respect to any period or any portion of any period prior to the
Effective Date under any laws relating to industrial hygiene, occupational
safety conditions or environmental conditions on, under or about property,
emissions, discharges, releases or threatened releases of pollutants,
contaminants, chemicals or industrial, hazardous or toxic materials or wastes
into the environment (including ambient air, surface water, ground water,
land surface or sub-surface strata) or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of pollutants, contaminants, chemicals or industrial hazardous or
toxic materials or wastes ("Environmental Laws");
f. any Liabilities now or hereafter arising by reason of
MediaChase engaging, prior to the Effective Date, in sexual harassment,
discrimination or retaliation based on race, religion, color, national
origin, ancestry, physical or mental disability, medical condition, marital
status, sex, age, and/or pregnancy ("Labor Claims"); provided, however, that
for clarification all other claims relating to past or current employees or
consultants are being assumed by StudioBuzz (e.g., claims for compensation or
benefits) to the extent relating to services provided in connection with the
Assets except as otherwise expressly provided herein; and
g. any Liabilities now or hereafter arising by reason of any
willful and Knowing violation by MediaChase, prior to the Effective Date, of
any law or order (other than Environmental Laws and labor laws (including,
without limitation, those giving rise to Labor Claims) which matters are
covered above, and other than laws relating to intellectual property matters
as StudioBuzz is agreeing to assume such Liabilities).
4. ISSUANCE OF MEMBERSHIP INTEREST. In consideration of
MediaChase's assignment, transfer, conveyance and delivery of the Assets to
StudioBuzz, effective as of the Effective Date, StudioBuzz shall issue to
MediaChase a 100% Membership Interest.
2
<PAGE>
5. REPRESENTATIONS AND WARRANTIES.
a. MediaChase, on the one hand, and StudioBuzz, on the other
hand, represents and warrants to the other that (i) it has all requisite
power and authority to execute and deliver this Agreement and any other
instruments and documents to be executed and delivered to effectuate this
Agreement and assumption contemplated hereby (collectively, the "Documents");
(ii) its execution and delivery of this Agreement and the other Documents and
the performance of its obligations hereunder and thereunder have been
authorized by all necessary action and do not violate any laws, regulations
or orders by which it is bound; and (iii) this Agreement and the other
Documents constitute its legal, valid and binding obligations, enforceable
against it in accordance with the terms hereof and thereof.
b. MediaChase represents and warrants to StudioBuzz as follows:
i) Except for those liabilities arising under the contracts
and agreements listed on Schedule "B" hereto and the other liabilities listed
on Schedule "C", MediaChase does not have any Knowledge (as defined in
Section 14 below) of any other material Liabilities or any circumstances,
conditions, events or arrangements which may hereafter give rise to any
material Liabilities.
ii) No action, suit, arbitration, dispute or other legal or
administrative or other proceeding or governmental investigation is currently
pending, or to the Knowledge of MediaChase, threatened, against MediaChase
and relating to its ownership or operation of the Assets and to the Knowledge
of MediaChase there are no outstanding orders, decrees or stipulations issued
by any governmental authority which relate to the Assets. The Assets are not
to the Knowledge of MediaChase subject to any judgment, order, writ,
injunction or decree that has not been satisfied or complied with in full.
iii) Schedule "B" sets forth a true and complete list of all
written agreements with Employees and consultants being transferred
("Transferred Consultants") now in effect and all written employee benefit
plans (including, without limitation, all health insurance, retirement,
pension, and profit sharing plans) now in effect relating to Employees. Since
February 29, 2000, except as disclosed on invoices issued by MediaChase to
InternetStudios.com, Inc. or Onlinefilmsales.com, LLC, MediaChase has not
made any change in the rate of compensation, commission, bonus or other
direct or indirect remuneration payable, or paid or agreed or orally promised
to be paid, conditionally or otherwise, the rate of any bonus, extra
compensation or severance pay, to any Employee or Transferred Consultant.
iv) All of the accounts payable of MediaChase relating to
the Assets arose from bona fide purchases of goods or services in the
ordinary course of business.
v) To the Knowledge of MediaChase, it has not breached, in
any material respect, any contract or other agreement assigned to StudioBuzz
hereunder.
6. FURTHER ASSURANCES. MediaChase shall, at any time and from time
to time, upon the request of StudioBuzz, execute, acknowledge and deliver all
such further deeds, assignments, transfers, conveyances, powers of attorney
and assurances, and take all such further actions, as shall be necessary or
desirable to give effect to the transactions hereby consummated and to
3
<PAGE>
collect and reduce to the possession of StudioBuzz any and all assets and
interests hereby transferred to StudioBuzz.
7. DELIVERY. On or promptly following the Effective Date, at
StudioBuzz's request, MediaChase shall deliver the following to StudioBuzz or
to such location, person or entity as may be designated by StudioBuzz:
a. the Assets, including, without limitation, (i) all tangible
personal property; (ii) all originals and copies of material written
contracts and other material written agreements being assigned; and (iii) all
books and records relating to or included in the Assets (excluding tax
returns); and
b. any other information, document, instrument or agreement
with respect to the Assets in the possession or control of MediaChase.
8. NO THIRD-PARTY BENEFICIARY. This Agreement is entered into for
the sole protection and benefit of the parties hereto and their respective
successors and assigns, and no other person or entity shall be a direct or
indirect beneficiary of, or shall have any direct or indirect cause of action
or claim in connection with, this Agreement, nor is anything in this
Agreement intended to relieve or discharge the obligation or liability of any
third person or entity to any party to this Agreement.
9. CHOICE OF LAW. This Agreement shall be governed by the laws of
the State of Delaware and may be executed in counterparts. The parties hereto
agree to execute and deliver any documents reasonably requested by the other
to confirm further and assure consummation of the transaction consummated
hereby.
10. NO ASSIGNMENT. No party to this Agreement shall have the right
to assign this Agreement or any interest, right or obligation under this
Agreement without obtaining the prior written consent of the other parties
hereto.
11. BINDING EFFECT. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective successors
and assigns.
12. ENTIRE AGREEMENT. This Agreement is intended to embody the
final, complete and exclusive agreement among the parties with respect to the
subject matter hereof and is intended to supersede all prior agreements,
understandings and representations, written or oral, with respect thereto;
and may not be contradicted by evidence of any such prior or contemporaneous
agreement, understanding or representation, whether written or oral.
13. AMENDMENTS. No alteration, change, amendment or modification of
or to this Agreement shall be effective unless it is made in writing and
signed on behalf of each party to be charged.
14. KNOWLEDGE. As used herein, the terms "Knowledge" and "Knowing"
shall mean the actual knowledge of Chris Lutz or Melanie Luciano (without
investigation).
4
<PAGE>
15. INDEMNIFICATION. The parties are agreeing to indemnify each
other with respect to the liabilities retained or assumed by them, as
applicable, as set forth in that certain letter agreement, dated of even date
herewith, among MediaChase, StudioBuzz, InternetStudios.com, Inc.,
Onlinefilmsales.com, LLC and ReporterTV.com, LLC.
5
<PAGE>
16. IN WITNESS WHEREOF, the undersigned have entered into this
Agreement on the date first written above.
MEDIACHASE LTD., a Delaware corporation
By:_______________________________
Name:
Title:
STUDIOBUZZ.COM, LLC, a Delaware limited
liability company
By: MEDIACHASE LTD., a Delaware
corporation
By:_______________________________
Name:
Title:
6
<PAGE>
SCHEDULE "A"
EMPLOYEES
<PAGE>
SCHEDULE "B"
CONTRACTS
<PAGE>
SCHEDULE "C"
OTHER LIABILITIES
<PAGE>
EXHIBIT 10.17
CONSULTING AGREEMENT
This Agreement is made effective as of September 30, 1999 (the
"EFFECTIVE DATE") and executed on March 28, 2000 between StudioBuzz.com, LLC,
a California limited liability company, located at 1351 4th Street, Suite
227, Santa Monica, CA 90401 ("COMPANY"), and Mediachase, Ltd., a Delaware
corporation, located at 8286 Santa Monica Blvd., West Hollywood, CA 90046
("CONSULTANT").
In consideration of the mutual covenants herein contained, the parties hereby
agree as follows:
1. DEFINITIONS. For purposes of this Agreement, capitalized terms shall have
the following meaning(s):
1.1 "COMPANY MATERIALS" means a copy of all applicable Company Marks
(as defined in Section 10.1) and all other concepts, methods, text, images and
materials (with all materials provided by Company, its advertising agency, or
Company's other agents, including any works of authorship) that Company will
provide to Consultant pursuant to the Project Schedule or otherwise in
connection with Consultant's services hereunder.
1.2 "COMPANY WEB SITE" means the Web Site to be developed by
Consultant and comprised of all the Works as described in the Project Schedule.
1.3 "ERROR" means any reproducible error, problem, or defect resulting
from: (a) an incorrect functioning of the Software that affects the
functionality of the Company Web Site(s) (based upon the specifications provided
by Company in the Project Schedule and approved by Consultant) in any material
respect; or (b) any failure of the Works delivered to Company hereunder to
materially meet the specifications in the Project Schedule.
1.4 "FINAL DELIVERABLE" means the final version of a Company Web Site
or other interactive services product that will be delivered to Company (based
upon the specifications provided by Company in the Project Schedule and approved
by Consultant) after successful completion of a mutually agreed upon testing
plan where Consultant is responsible for verifying that a Company Web Site
performs in accordance with the technical specifications in the Project Schedule
and the Company is responsible for verifying the business function correctness
of the Company Web Site(s) or other interactive services product.
1.5 "INTERNET" means the world-wide network of computers which
provides access to the World Wide Web.
Consultant_______________ Company______________
1
<PAGE>
1.7 "PROJECT SCHEDULE" means the Project Schedule attached hereto as
Schedule 1.
1.8 "SOFTWARE" means computer programming/formatting code or operating
instructions developed by Consultant and used to create any portion of a Company
Web Site, incorporated into a Company Web Site, or used to operate a Company Web
Site or a Web Server in connection with a Company Web Site. Software includes,
for example, any previously developed files necessary to make forms, buttons,
check-boxes, and similar functions and underlying technology or components, such
as animation templates, interface programs which link multimedia and other
programs, customized graphics manipulation engines, and menu utilities.
1.9 "THIRD PARTY SOFTWARE" means any software or other computer
programming material (for example, a standard authoring program or platform or
off-the-shelf software) which is specifically identified in the Project Schedule
as being owned by a company or individual other than Consultant, is generally
available to the public, including Company, under published licensing terms, and
will be used in the development of or to display or run a Company Web Site.
1.10 "WEB BROWSER" means software designed to allow interactive access
to the World Wide Web, including without limitation, Navigator, Microsoft
Internet Explorer, Mosaic, MacWeb/WinWeb, Cello, and Lynx.
1.11 "WEB PAGE" means a document or file that is formatted using HTML,
Java or other programming language now or in the future used by Consultant and
that is intended to be accessible to Internet users with a Web Browser.
1.12 "WEB SERVER" means a computer operated by or for Company (a) that
Consultant or others use in making a Company Web Site available on the Internet
or intranet; or (b) that has a non-live version of a Company Web Site and that
is used for making and testing content or other changes to a Company Web Site
prior to making such changes available to the public over the Internet.
1.13 "WEB SITE" means a series of interconnected Web Pages that may
either be dynamically generated or may reside in a single directory or multiple
directories on a single Web Server or multiple Web Servers.
1.14 "WORKS" mean the items listed as "Works to be Delivered" in the
"Project Timetable, Works Delivery and Payment Schedule" in the Project
Schedule, each in the form that Consultant has specifically agreed to deliver
that item to Company.
1.15 "WORLD WIDE WEB" means all of the Web Pages that are accessible to
a typical computer user with appropriate access to the Internet using a Web
Browser.
Consultant_______________ Company______________
2
<PAGE>
2. SERVICES.
2.1 PROJECT SCHEDULES. Consultant has and shall continue to provide
certain services to Company, including, by way of example and not by limitation,
information architecture development, website design, website content
production, and technical consulting ("SERVICES"), all as more fully described
and specified on the project schedules that shall, from time to time, be defined
and executed by the parties and attached to this Agreement (each, a "PROJECT
SCHEDULE"). The initial Project Schedule has been attached hereto as SCHEDULE 1,
(relating to the StudioBuzz.com project). Each Project Schedule shall include a
description of services to be performed and a detailed budget for such Project
Schedule, along with any other supplemental or differing terms from those
contained herein. No Project Schedule is valid until executed by both parties.
Consultant will complete the Company Web Site(s) on the timetable established in
the "Project Timetable, Works Delivery and Payment Schedule" in the Project
Schedule (the "PROJECT TIMETABLE"). Company will provide to Consultant the
Company Materials, including all media elements, materials, timely approvals
necessary for Consultant to complete the Company Web Site(s) on the Project
Timetable.
2.2 MANNER OF PERFORMING SERVICES. Consultant may engage qualified
subcontractors in the performance of the services hereunder, provided however
that Company may have particular subcontractor(s) removed from the project, in
its reasonable discretion, upon two weeks notice to Consultant. Before any
Consultant employee, consultant, agent or subcontractor performs services in
connection with this Agreement, the employee, consultant, agent or subcontractor
and Consultant must have entered into a written agreement containing
"work-made-for-hire" and confidentiality provisions substantially equivalent to
those contained herein. Such agreement shall be substantially in the form
attached hereto; provided, however, that Company pre-approves the existing
agreements listed on Schedule 2 hereto.
2.3 CHANGE ORDERS. The project managers for the parties shall be
authorized to approve or disapprove certain changes to the work, schedules and
other aspects of the services, in their mutual discretion, as is more
particularly described in the attached Project Schedule. Major modifications to
the overall scope of work, budget, or the specifications in a Project Schedule,
however, shall require execution of a written change order by both parties to
this Agreement (a "CHANGE ORDER") in a form mutually acceptable to the parties.
Each Change Order complying with this section shall be deemed to be an amendment
to the applicable Project Schedule and will become part of this Agreement.
2.4 THIRD PARTY SOFTWARE. Development and use of a Company Web Site
may involve Third Party Software. Unless otherwise specified in the Project
Schedule, Consultant will be responsible for payment for, and entering into
appropriate licensing agreements concerning Third Party Software required for
the development of the
Consultant_______________ Company______________
3
<PAGE>
Company Web Site(s), which payments will be included in the agreed upon
budget. Unless otherwise specified in the Project Schedule, the Company will
be responsible for payment for, and entering into appropriate licensing
agreements concerning use of Third Party Software required to operate (i.e.,
run and display) the Company Web Site(s) or any other licensing agreements
for which Consultant is not responsible hereunder.
2.6 CONSULTANT PROVIDED MATERIALS. With the exception of the Company
Materials and the Third Party Software, Consultant will provide all other
graphics, text, drawings, and other materials required to produce the Company
Web Site(s) or complete any applicable interactive services as set forth in the
Project Schedule.
3. TERM AND TERMINATION. This Agreement shall commence on the Effective Date
and shall continue for a period of one (1) year, unless earlier terminated by
either party upon 30 days' written notice, provided that termination by
Consultant shall not be effective until completion of any specifically defined
term set forth on any Project Schedule applicable at the time of such notice,
unless otherwise agreed.
3.1 DEFAULT. In the event that either party hereto materially defaults
in the performance of any of its duties or obligations under the Agreement and
does not substantially cure such default within 30 days, or fails to commence a
cure within 10 days, after being given written notice specifying the default,
then the non-defaulting party may, by giving written notice thereof to the
defaulting party, terminate this Agreement as of a date specified in such notice
of termination; provided, however, in no event shall the cure for any Company
payment default (other than a payment which is disputed in good faith) hereunder
continue for longer than 5 business days after notice of the default.
3.2 PROJECT SCHEDULE. In the event that either party hereto materially
defaults in the performance of any of its duties or obligations under a Project
Schedule and does not substantially cure such default within 30 days, or fails
to commence a cure within 10 days, after being given written notice specifying
the default, then the non-defaulting party may, by given written notice thereof
to the defaulting party, terminate the Project Schedule as of a date specified
in such notice of termination; provided, however, in no event shall the cure for
any Company undisputed payment default hereunder continue for longer than 5
business days after notice of the default.
3.3 INSOLVENCY. In the event that either party hereto becomes or is
declared insolvent or bankrupt, is the subject of any proceedings relating to
its liquidation, insolvency or for the appointment of a receiver or similar
officer for it, makes an assignment for the benefit of all or substantially all
of its creditors, or enters into an agreement for the composition, extension, or
readjustment of all or substantially all of its obligations, then the other
party hereto may, by giving written notice thereof to such party, terminate this
Agreement as of a date specified in such notice of termination.
Consultant_______________ Company______________
4
<PAGE>
3.4 EFFECT OF TERMINATION. Upon termination of this Agreement, Company
shall be obligated to pay Consultant for all services rendered pursuant to any
outstanding Project Schedules of Work through the effective date of such
termination. Upon termination of a Project Schedule, Company shall be obligated
to pay Consultant for all services rendered pursuant to the Project Schedule
through the effective date of such termination. Termination of this Agreement by
either party pursuant to the provisions of this Section 3 shall terminate each
party's obligations under this Agreement except for the provisions of this
Section 3.4 and Sections 5.1, 6.3, 7, 8, 9, 10, 11, 12, 13, 14, 15 and 16, all
of which shall survive termination of this Agreement.
4. PAYMENT FOR SERVICES; EXPENSES; EQUIPMENT
4.1 CHARGES. As full compensation for the Services to be provided by
Consultant pursuant to any Project Schedule for activities that are budgeted,
reasonably substantiated, and actually worked, Company agrees to pay Consultant
in such amounts, at such times and in such manner as is set forth in the budget
set forth on the Project Schedule. Consultant agrees that such fees will not
exceed Consultant's own actual costs in providing such services (which the
parties acknowledge will contain an overhead component as mutually agreed upon
in the budget).
4.2 EXPENSES. Company is responsible for paying or reimbursing all
reasonable expenses arising from Consultant's performance of the Services as
allowed for in the budget and set forth on the Project Schedule, as well as for
cost increases due to events of force majeure (a material interruption or
interference with the development or other services by any cause outside of
Consultant's reasonable control, including, fire, flood, epidemic, earthquake,
explosion, war, blockade, embargo, act of public enemy, civil disturbance, labor
disputes, strike, lockout, any applicable law, acts of God), changes that could
not be reasonably anticipated at the time the budget was prepared, costs
relating to any acceleration of schedule, costs for which Company is reimbursed
by insurance, costs associated with any delay in obtaining approvals or Company
Materials, and changes requested by Company.
4.3 EQUIPMENT. The party indicated on the appropriate Project Schedule
shall furnish, at that party's expense, all equipment and materials used to
perform the Services.
5. PROVISION OF SERVICES.
5.1 INDEPENDENT CONTRACTOR. It is understood and agreed that
Consultant shall perform the Services as an independent contractor and
consultant. Consultant shall not be deemed to be an employee of Company.
Consultant shall not be entitled to any benefits provided by Company to its
employees, and Company will make no deductions from any of the payments due to
Consultant hereunder to pay any governmental agency or authority, except as may
otherwise be required by law.
Consultant_______________ Company______________
5
<PAGE>
Consultant agrees that Consultant shall be personally responsible for any and
all taxes and other payments due on payments received by him from Company
hereunder.
5.2 KEY PERSONNEL. Christopher Lutz ("LUTZ") has been identified by
the parties as being essential to the performance of the services by Consultant
hereunder. Lutz shall perform the role described below and in the attached
Project Schedule(s) on a first priority, non-exclusive basis, and shall not be
removed the projects associated with such Project Schedule(s) without the prior
written consent of Company. Should Lutz for any reason become unable or
unwilling to continue to perform his role, Company may, in its sole discretion,
immediately terminate this Agreement and all Project Schedules, or request that
Consultant provide replacement personnel. Any replacement personnel shall have
equivalent experience and qualifications and shall be subject to the prior
approval of Company. In consideration of the agreement by Lutz to perform these
services, the parties acknowledge that Company has agreed to pay Lutz (in
addition to the budget specified in the Project Schedule) a monthly consulting
fee as set forth in the Project Shedule attached hereto.
6. DELIVERY AND ACCEPTANCE. The following provisions will apply for delivery
and acceptance of the Works developed hereunder. The standard for acceptance of
the Works developed hereunder shall be material conformity to the specifications
set forth in the Project Schedule.
6.1 Company shall accept or reject the initial version and any
corrected version of each Work within 10 business days after receipt, notifying
Consultant in writing of any Error, deficiencies or inadequacies in the initial
draft. Failure to so notify Consultant within such period shall be deemed
acceptance of the Work.
6.2 If Company rejects the initial version or any corrected version of
any Work, Consultant shall immediately begin commercially reasonable attempts to
correct such Error and shall have a period of 7 business days from receipt of
the written rejection to correct all Errors, deficiencies or inadequacies
specified by Company and submit a revised draft, or such amount of time as is
reasonably agreed upon by the parties.
6.3 In the event that Company and Consultant cannot agree on
acceptance of, or acceptable modifications to, any Work within 30 business days
following the later of (i) the date indicated on the Project Timetable for
delivery of that Work; or (ii) the date of the original submission of that Work
to Company, Company shall have the option of terminating the Project Schedule on
the terms described herein and therein. Unless otherwise expressly provided in
the Project Schedule, upon such termination by Company, Company shall be
obligated to compensate Consultant for all accepted Work to date, and Company
shall not be obligated to compensate Consultant for all work not accepted to
date; provided however, that Company shall have the option to receive such
unaccepted work so long as Company compensates Consultant. In addition,
Consultant_______________ Company______________
6
<PAGE>
subject to payment of the compensation contemplated in this Section 6.3,
Company shall be entitled to receive copies of all Works (including but not
limited to the source code of the Works for use pursuant to the terms herein)
in existence at that point, and to take over development of the project from
that point.
In the event of a dispute between the parties as to whether the Work was
in material conformity to the specifications set forth in the Project Schedule,
the parties agree to submit such dispute to expedited, binding arbitration. The
arbitration shall commence within 30 days after the request for arbitration by
either party and will be conducted in accordance with the Commercial Arbitration
Rules of the American Arbitration Association (the "Rules"). The parties agree
to select a single arbitrator in accordance with the Rules, which arbitrator
shall have knowledge of the technical delivery issues in the new media area. The
arbitrator shall decide all matters in dispute in accordance with the law of the
State of California and the provisions of this Agreement. To the extent that
such Rules are silent, the procedures for arbitration in the State of
California, Cal. Code Civ. Proc ' 1280 et seq., shall be applicable to the
arbitration. Notwithstanding anything to the contrary in the Rules or the Code
of Civil Procedure, the parties agree that there shall be no depositions and
limited document discovery as ordered by the arbitrator. The arbitration shall
be initiated in and take place in Los Angeles County, California, or any other
place selected by mutual, written agreement. All costs incurred in connection
with any arbitration proceedings hereunder shall be divided evenly between the
party(ies). Each party shall bear his, her or its own attorneys' fees and costs.
The award rendered by the arbitrator shall be final and conclusively binding on
the parties, and judgment on such award may be entered in any court of competent
jurisdiction. Neither a party nor an arbitrator may disclose the existence,
content or results of any arbitration hereunder without the prior written
consent of all parties.
7. REPRESENTATIONS AND WARRANTIES OF COMPANY. Company represents and
warrants to Consultant that:
7.1 Company either owns or has the right to the use (as contemplated
herein) of the Company Materials and Company Marks. Company represents and
warrants that the Company Materials and Company Marks are either proprietary to
Company or are the intellectual property of third parties duly licensed to
Company. Company further represents and warrants that it has full right and
power to enter into and perform this Agreement without the consent of any third
party
7.2 Company further represents and warrants that it has either sole,
exclusive title to the Company Materials or the right to license or sub-license
such Company Materials and that such Company Materials do not and will not
infringe upon or violate any U.S. patent, copyright, trademark, trade secret, or
other proprietary or intellectual property rights of any third party. Company
also represents and warrants and covenants that its use of the Final Deliverable
will comply with applicable laws,
Consultant_______________ Company______________
7
<PAGE>
regulations and all third party agreements applicable hereto.
8. REPRESENTATIONS AND WARRANTIES OF CONSULTANT. Consultant hereby
represents and warrants, to the best of Consultant's knowledge, that:
8.1 (a) Consultant is the originator or valid licensee of works
created under this Agreement on behalf of Company and any third parties will
have executed assignment of rights reasonably acceptable to Company; (b) all
work delivered to Company under this Agreement, excluding any Third Party
Software or third party materials and materials provided by Company, does not
infringe the proprietary rights of any third party; (c) none of the Work
produced by Consultant nor any element thereof will be subject to any
restrictions or to any mortgages, liens, pledges, security interests,
encumbrances or encroachments; (d) Consultant will not grant, directly or
indirectly, any rights or interest whatsoever in the Company Materials to third
parties except as provided herein or a Project Schedule; (e) Consultant has full
right and power to enter into and perform this Agreement without the consent of
any third party; (f) Consultant will take all reasonably necessary precautions
to prevent injury to any persons (including employees of Company) or damage to
property (including Company's property) in connection with Consultant's services
during the term of this Agreement; (g) should Company permit Consultant to use
any of Company's equipment, tools, or facilities during the term of this
Agreement, such permission shall be gratuitous and Consultant shall be
responsible for any injury to any person (including death) or damage to property
(including Company's property) arising out of use of such equipment, tools or
facilities, whether or not such claim is based upon its condition or on the
alleged negligence of Company in permitting its use; (h) Consultant shall comply
with all applicable laws and regulations in performance of its services
hereunder. Notwithstanding the foregoing, Consultant shall not be deemed to be
making any representations or warranties that any of the Work or the services of
Consultant hereunder do not violate any pending or issued patent; provided,
however, that Consultant represents and warrants that it has no actual knowledge
(without any investigation) of any such patent violation(s).
8.2 Consultant further represents that, subject to the qualifications
herein, the Final Deliverable accepted by Company will materially comply with
the specifications in the Project Schedule and any Change Orders; and the Final
Deliverable will function with properly configured Web Browsers and with
MailServ, ListServ, GopherServ, FTP servers, and Telnet. The Consultant
expressly disclaims any warranty that the Final Deliverable will be error free
or operate without interruption.
9. CONFIDENTIAL INFORMATION.
9.1 CONFIDENTIALITY. In connection with the purposes of this
Agreement, each party (the "disclosing party") has and will continue to disclose
to the other party (the "receiving party") certain information (i) that is
marked or otherwise identified, orally or in
Consultant_______________ Company______________
8
<PAGE>
writing, as confidential or proprietary information of the disclosing party
or a third party ("CONFIDENTIAL INFORMATION") prior to, upon or promptly
after receipt by the receiving party; or (ii) which the receiving party
should recognize from the circumstances surrounding the disclosure to be
Confidential Information. The receiving party (x) shall hold all Confidential
Information in confidence and will use such information only for the purposes
of fulfilling the receiving party's obligations hereunder and for no other
purpose, and (y) shall not disclose, provide, disseminate or otherwise make
available any Confidential Information of the disclosing party to any third
party, in either case without the express written permission of the
disclosing party.
9.2 SCOPE. The foregoing obligations in Section 9.1 shall not apply to
(a) use or disclosure of any information pursuant to the exercise of the
receiving party's duties under this Agreement; (b) information that is or
becomes generally known or available by publication, commercial use or otherwise
through no fault of the receiving party; (c) information that is independently
developed or learned by the receiving party other than pursuant to this
Agreement; (d) information that is lawfully obtained from a third party who has
the right to make such disclosure without restriction; (e) any disclosure
required by applicable law, provided that the receiving party shall use
reasonable efforts to give advance notice to and cooperate with the disclosing
party in connection with any efforts to prevent such disclosure; or (f)
information that is released for publication by the disclosing party in writing.
10. TRADEMARKS.
10.1 LICENSE TO USE COMPANY MATERIALS, TRADEMARKS AND LOGOS. Subject to
the terms and conditions of this Agreement, Company hereby grants to Consultant
a limited, non-exclusive, non-transferable license to use any Company Materials,
and to use the Company's insignia, tradenames, trademarks, service marks and
logos set forth therein, or as otherwise specified in writing by Company
(collectively the "COMPANY MARKS"), to display Company Marks in order for
Consultant to perform its obligations under this Agreement. Subject to the terms
and conditions of this Agreement, Consultant hereby grants to Company a limited,
non-exclusive, non-transferable license to use any Consultant materials provided
to Company by Consultant (if any) (the "CONSULTANT MATERIALS"), and to use the
Consultant's insignia, tradenames, trademarks, service marks and logos set forth
therein, or as otherwise specified in writing by Consultant (collectively the
"CONSULTANT MARKS"), to display Consultant Marks in order for Company to perform
its obligations under this Agreement.
10.2 ADVERTISING, AND CREDIT. Except as provided herein, no press
release, announcement, publication, or other use of the Consultant Marks or
Company Marks, as applicable (collectively, the "MARKS"), shall be made by
either party without the other party's prior written approval. Consultant shall
use only the most current Company Materials and Company Marks, as may be
provided by Company from time to time. Consultant shall not form any combination
marks with Company Marks. Company shall
Consultant_______________ Company______________
9
<PAGE>
use only the most current Consultant Marks, as may be provided by Consultant
from time to time. Company shall not form any combination marks with
Consultant Marks. Each party agrees and recognizes the other party's
exclusive ownership of such party's Marks worldwide, and agrees not to take
any action inconsistent with the other party's ownership of the Marks and
agrees that any benefits accruing from use of such Marks shall automatically
vest in the party owning such Marks. Consultant may not modify for public
display any Company Materials or Company Marks, except upon receiving
Company's prior written approval on a case-by-case basis. Company shall not
modify the Consultant Marks. All rights not expressly granted hereunder are
reserved by the parties.
11. NON-INTERFERENCE WITH BUSINESS.
11.1 SUBSTANTIALLY SIMILAR SERVICES. During the Term, Consultant agrees
not to undertake work on a project that is competitive to the project described
in the Project Schedule for any competitor of Company (as determined by Company)
without first receiving written permission to do so from Company. The term
"competitive" shall have the meaning set forth in the Project Schedule.
11.2 COMPANY CLIENTS, ASSOCIATES AND EMPLOYEES. Neither party shall,
directly or indirectly solicit or encourage to cease work with the other party
or any of its affiliates any employee or consultant then under contract with
such party or any of its affiliates within 3 months of the termination of this
Agreement.
12. ALLOCATION OF INTELLECTUAL PROPERTY RIGHTS.
12.1 RIGHTS IN THE SOFTWARE. The Software and all rights and any source
code related to the Software shall be owned exclusively by Consultant.
Consultant shall retain the right to reuse or incorporate Software whether
previously developed or developed pursuant to the Project Schedule, or in other
projects for other customers, provided however, that no Software containing any
Company Materials shall be reused in such manner.
12.2 RIGHTS IN THE WORKS. Subject to the rights of Consultant in the
Software described in Sections 12.1 and with the exception of any Third Party
Software, (i) the services provided by Consultant and the Works shall constitute
"works made for hire" for Company, as that phrase is defined in the Copyright
Act, and (ii) Company shall be considered the author and shall be the copyright
owner of the Works. If any of the Works do not qualify for treatment as "works
for hire" or if Consultant retains any interest in any components of the Works
for any other reason, Consultant hereby grants, assigns and transfers to Company
ownership of all United States and international copyrights and all other
intellectual property rights in the Works, subject to certain rights of
Consultant described herein, and all the rights of use with respect thereof
which are intended to be conferred under this Section 12.2, free and clear of
Consultant_______________ Company______________
10
<PAGE>
any and all claims for royalties or other compensation except as stated in a
Project Schedule or herein.
12.3 RIGHTS IN THE MARKS; DOMAIN NAMES. Consultant agrees that the
Company Marks and any goodwill appurtenant thereto shall be owned exclusively by
Company and shall inure solely to the benefit of Company. Company agrees that
the Consultant Marks and any goodwill appurtenant thereto shall be owned
exclusively by Consultant and shall inure solely to the benefit of Consultant.
Company shall own and be the registrant for all domain names associated with any
Company Web Site developed hereunder. If Consultant registers any domain names
on behalf of Company, Consultant shall take all actions necessary to effect
transfer of such domain names to Company.
12.4 LIMITED LICENSE TO THE SOFTWARE. Consultant hereby grants Company
in perpetuity a nonexclusive, non-transferable license throughout the universe
to copy, distribute, transmit, display, perform, create derivative works, and
otherwise use the Software in object code form, in whole or in part, including,
without limitation, the right to add to, subtract from, arrange, rearrange,
revise, modify, change and adapt the Software and any part or element thereof.
All rights under this license shall be exercised by the Company solely to
operate, maintain, and make the Company Web Site(s) available to end users or
for other related business purposes.
12.5 THIRD PARTY SOFTWARE. Consultant has identified in the Project
Schedule certain Third Party Software which may be used in the development of
(or may need to be used by Company in the operation or modification of) the
Company Web Site(s) for which Consultant cannot grant to Company the rights set
forth in Sections 12.2 and 12.3 above. Except to the extent described in a
Project Schedule, Consultant represents and warrants to Company that there are
no restrictions or royalty terms applicable to Consultant's or Company's use of
such Third Party Software in making the Company Web Site(s) available on the
Internet or in preparing modifications of the Company Web Site(s).
13. INDEMNIFICATION
Company shall defend, indemnify and hold Consultant and its principals,
officers, directors and affiliates harmless from and against any and all
liabilities, losses, damages, costs and expenses (including legal fees and
expenses) associated with any claim or action brought against them by a third
party arising out of (i) any breach or alleged breach of any of the
representations and warranties of Company contained herein, (ii) any breach or
alleged breach by Company of any other covenant contained herein, or (iii) the
production, development or exploitation of the Work or the operation of
Company's business; provided, however, that the foregoing shall not be deemed to
relieve Consultant of its obligation to indemnify Company as provided herein.
Consultant_______________ Company______________
11
<PAGE>
Consultant agrees to indemnify and hold Company and its principals, officers,
directors and affiliates harmless from and against any and all liabilities,
losses, damages, costs and expenses (including legal fees and expenses)
associated with any claim or action brought against them by a third party
arising out of (i) any breach of any of the representations and warranties of
Consultant contained herein, or (ii) any breach by Consultant of any other
covenant contained herein.
The party being indemnified hereunder (the "indemnified party") shall notify the
party agreeing to indemnify such party (the "indemnifying party") promptly of
any such claim in writing, provided, however, that the failure to give such
notice shall not relieve the indemnifying party of the indemnifying party's
obligations hereunder except to the extent that the indemnifying party was
actually and materially prejudiced by such failure with the indemnified party's
liability limited to direct damages caused by such failure. The indemnifying
party will have the sole right to conduct the defense of any such claim or
action (with counsel reasonably satisfactory to the indemnified party) and all
negotiations for its settlement or compromise unless otherwise agreed to in
writing. However, if the indemnifying party, after receiving notice of any such
claim, fails promptly to begin the defense of such claim or action, the
indemnified party may (upon notice to the indemnifying party) retain counsel and
commence to undertake the defense, compromise, or settlement of such claim or
action and any such actions shall be at the expense of the indemnifying party
unless and until indemnifying party undertakes the defense as contemplated
herein. Neither party may enter into any compromise or settlement that
materially affects the other party without the other party's written approval.
14. LIMITATION OF LIABILITY. NOTWITHSTANDING ANY TERM OR PROVISION CONTAINED
IN THIS AGREEMENT, IN NO EVENT WHATSOEVER SHALL EITHER PARTY BE LIABLE TO THE
OTHER PARTY OR TO ANY OTHER PERSON, FIRM OR CORPORATION, FOR ANY INDIRECT,
INCIDENTAL, SPECIAL, CONSEQUENTIAL, EXEMPLARY OR PUNITIVE DAMAGES, OR OTHER
SIMILAR TYPE OF DAMAGES, INCLUDING YET NOT LIMITED TO DAMAGES BASED UPON LOSS OF
PROFITS AND/OR LOSS OF BUSINESS ARISING OUT OF OR IN ANY WAY RELATED TO THIS
AGREEMENT, AND/OR SUCH PARTY'S ALLEGED BREACH OF THIS AGREEMENT, WHETHER OR NOT
SUCH PARTY IS INFORMED, KNEW OR SHOULD HAVE KNOWN, OF THE POSSIBILITY OF SUCH
DAMAGES IN ADVANCE.
THE LIMITATIONS ON LIABILITY SET FORTH IN THIS SECTION SHALL APPLY TO ALL CAUSES
OF ACTION, INCLUDING, YET NOT LIMITED TO, BREACH OF CONTRACT, BREACH OF
WARRANTY, STRICT LIABILITY, NEGLIGENCE MISREPRESENTATION AND OTHER TORTS, AND
LIABILITY BASED UPON THE PROVISIONS OF ANY PART OF THIS AGREEMENT AND ANY
FEDERAL, STATE AND/OR LOCAL LAW AND/OR ORDINANCE.
Consultant_______________ Company______________
12
<PAGE>
15. EQUITABLE RELIEF. Except for the limitations described in Section 14,
each party recognizes that nothing in this Agreement is intended to limit any
remedy of the other under the California Uniform Trade Secrets Act. In addition,
Consultant recognizes that the covenants contained in Section 8 hereof are
reasonable and necessary to protect the legitimate interests of the Company,
that the Company would not have entered into this Agreement in the absence of
such covenants, and that Consultant's violation or threatened violation of such
covenants will cause Company irreparable harm and significant injury, the amount
of which may be extremely difficult to estimate, thus, making any remedy at law
or in damages inadequate. Therefore, Consultant agrees that Company shall have
the right to apply to any court of competent jurisdiction for an order
restraining any breach or threatened breach of this Agreement and for any other
relief Company deems appropriate, without the necessity of posting of any bond
or security. This right shall be in addition to any other remedy available to
Company in law or equity.
16. MISCELLANEOUS
16.1 RETURN OF COMPANY PROPERTY. On termination of this Agreement, or
at any time the Company so requests, Consultant will deliver immediately to the
Company all property belonging to the Company and all material containing or
constituting Company's Confidential Information, including any copies in its
possession or control, whether prepared by Consultant or by others. On
termination of this Agreement, Company will deliver immediately to the
Consultant all property belonging to the Consultant and all material containing
or constituting Consultant's Confidential Information, including any copies in
its possession or control, whether prepared by Company or by others.
16.2 GOVERNING LAW. This contract will be governed by and construed in
accordance with the laws of the State of California, without giving effect to
its conflicts of laws rules. Any dispute arising under this Agreement shall be
heard in the state or federal courts within Los Angeles County, California.
16.3. SEVERABILITY. If any provision of this Agreement is determined to
be invalid, illegal or unenforceable, the validity or enforceability of the
other provisions shall not be affected.
16.4. ASSIGNMENT. Consultant shall not assign, sell, transfer, delegate
or otherwise dispose of, whether voluntarily or involuntarily, or by operation
of law, any rights or obligations under this Agreement. Any purported
assignment, transfer, or delegation by Consultant shall be null and void. In the
event of any assignment by Company to a third party, Company shall thereafter
remain liable for its obligations hereunder.
Consultant_______________ Company______________
13
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16.5 MODIFICATION. No term or provision of this Agreement may be
amended, waived, released, discharged or modified in any respect except in
writing, signed by the parties hereto.
16.6 AMENDMENT. In circumstances where the Services change and/or new
Services arrangements are made, the terms and conditions as described by all
other provisions of this Agreement will remain in full force and effect whether
or not a new Agreement, addendum, or change order is executed by both parties.
16.7 ENTIRE AGREEMENT. This Agreement sets forth the entire
understanding between the parties with respect to the subject matter hereof, and
there are no terms, conditions, representations, warranties or covenants other
than those contained herein. This Agreement supersedes any previous agreements
or understandings between the parties with respect to the subject matter hereof,
whether written or oral.
16.8 HEADINGS AND CAPTIONS. The Headings and Captions in this Agreement
are included for purposes of clarity and do not represent material terms or
conditions of thus agreement.
16.9 MODIFICATION, WAIVER. This Agreement may be modified only in a
writing signed by Company. Failure to enforce any provision of this Agreement
shall not constitute a waiver of any term hereof.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and
year set forth above.
AGREED TO BY:
StudioBuzz.com, LLC Mediachase, Ltd.
By:________________________________ By:__________________________________
Title:_____________________________ Title:_______________________________
Date:______________________________ Date:________________________________
Consultant_______________ Company______________
14
<PAGE>
SCHEDULE 1
PROJECT SCHEDULE
RELATING TO
STUDIOBUZZ.COM
The following is Project Schedule No. 1 (the "PROJECT SCHEDULE"), made as of
September 30, 1999 (the date work commenced by MediaChase on behalf of
StudioBuzz, an entity in formation) to the Consulting Agreement (the
"AGREEMENT") executed on March 28, 2000, between StudioBuzz.com, LLC
("COMPANY"), and Mediachase, Ltd. ("CONSULTANT"). Except as specifically
stated herein, each capitalized term used in this Project Schedule shall have
the same meaning as is assigned to it in the Agreement.
1. SERVICES TO BE PROVIDED
The "SERVICES," as that term is used in the Agreement, shall include the
following:
Consultant has and shall continue to perform all services and take all actions
necessary to develop, create and facilitate the initial launch on the Internet
of the STUDIOBUZZ.COM Web Site, as contemplated by the parties herein.
Consultant shall produce and deliver each Work described in section 6 below.
Consultant's services shall include all work necessary to create a working,
interactive Web Site which conforms in all material and functional respects to
the prototype delivered to Company by Consultant on [TBD]. The
standard of acceptance for all Works shall be material conformity to (i) the
prototype; and (ii) the written specifications provided by to Company by
Consultant in the specifications document to be delivered by Consultant to
Company on or before [TBD].
2. COMPENSATION.
Company shall cash flow all fees and expenses according to the budget to be
mutually agreed upon by the parties. Company shall pay such budgeted amounts
in advance each month. Additionally, the parties acknowledge that such
budget shall include a monthly consulting fee for the services of Lutz in the
amount of $14,000 per month for his services as described in Section 5.2 of
the Agreement through September, 2000 (to the extent such amount has not been
paid pursuant to the Consulting Agreement, between Onlinfilmsales.com, LLC and
MediaChase).
3. PROJECT MANAGERS.
Company and Consultant shall each designate a project manager who will assume
primary responsibility for communicating with the other party and for advancing
the project. In addition, Company will appoint a production accountant who will
be on site at Consultant's offices. Consultant shall not be authorized to pay
any invoices to third parties without the prior approval of the production
accountant.
Consultant Project Manager(s): Eric Olson and/or Chris Lutz
Company Project Manager: Dean Shapiro and/or Heidi Lester
Company Production Accountant: Bennett Lientz
4. TERM AND TERMINATION.
This Project Schedule shall commence upon the effective date of the Agreement
and shall terminate upon delivery and acceptance of the Works described in
Section 7 but not later than September 30, 2000 unless mutually agreed in
writing by the parties.
5. COMPANY MATERIALS. Company or other representatives shall provide
Consultant with the following in the formats set forth in the table below
(except for items specifically described below as being provided by
Consultant):
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------
MATERIALS TO BE PROVIDED BY COMPANY
---------------------------------------------------------------------------------------------------------------
SECTION OF DETAILED PARTY
WEB SITE REQUIRED CONTENT DESCRIPTION REQUIRED FORMAT RESPONSIBLE DATE DUE
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
[TBD] [TBD] [TBD] [TBD] [TBD] [TBD]
---------------------------------------------------------------------------------------------------------------
</TABLE>
15
<PAGE>
The content list may change throughout the development process. The parties
agree the Consultant Project Manager and Company Project Manager can
authorize reasonable changes to the content list without execution of a
Change Order, but must confirm such changes in writing by fax or email. If
the Project Managers determine that the timing or scope of requested content
changes is likely to effect estimated project costs or milestones, a Change
Order is required before the changes contemplated will be executed by
Consultant.
6. PROJECT TIMETABLE FOR WORKS DELIVERY. Based upon Company's written
specifications, Consultant has described the major milestones, works to be
delivered and dates for delivery of Works below. Company agrees that any
delay with respect to the provision of Company Materials, approvals, or other
assistance to Consultant, changes in the specifications by Company (or delays
contemplated as a result of the matters described in Section 4.2 of the
Agreement) shall reasonably extend the deadline for subsequent tasks or
milestones set forth in the table below by a period at least equal to such
delays. In addition, for any Company obligation described as time-sensitive
or critical in this Project Schedule, failure of the Company to meet its
deadline due to the delays will entitle Consultant to prepare a revised
Project Timetable based on a realistic estimate of the effect of the delay on
the completion of the project, taking into account other work scheduled by
Consultant. [THE FOLLOWING CHART IS PROVIDED AS AN EXAMPLE. ACTUAL MILESTONE
SCHEDULE TO BE DETERMINED.]
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
PROJECT ESTIMATE
-------------------------------------------------------------------------------------------------------------------
MILESTONE DESCRIPTION OF MILESTONE WORKS TO BE DELIVERED DATE
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Kick-Off Meeting Development process begins, None October 1, 1999
with Consultant design team
beginning work on design options.
-------------------------------------------------------------------------------------------------------------------
Delivery of Specifications, including Specifications Document [TBD]
Specifications a factor summary, Project
timeline and deliverables.
-------------------------------------------------------------------------------------------------------------------
Beta Site Completion/ Working site with technical Prototype with technical [TBD]
Quality Assurance functionality and revisions components completed
based on client comments.
-------------------------------------------------------------------------------------------------------------------
Launch Delivery of completed version as
agreed by the parties and debut
of the functioning Web Site. Final Deliverable [TBD]
-------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------
</TABLE>
16
<PAGE>
7. WORKS DELIVERED TO COMPANY. Each item listed in the "Works to be
Delivered" column in the chart above ("WORKS") will be subject to delivery and
acceptance by the Company under the terms of the Agreement.
8. THIRD PARTY SOFTWARE. The following Third Party Software will be
necessary for the operation of the Company Website: .[TBD]. [Note: Must include
licensing fees per Section 2.4 of the Agreement]
9. COMPLETION DATE. The Project is proposed for completion on or before
[TBD].
10. DEVELOPMENT SITE. The URL for the development site which Company may use
to review progress under this Project Schedule is:
Development Site IP Address: [TBD]
Username: __________________________
Password: __________________________
11. CONSULTANT AND COMPANY CONTACTS.
<TABLE>
<S> <C> <C>
Company - Contact Consultant - Technical Contact Consultant - Administrative
Heidi Lester Chris Lutz Contact
1351 4th Street, Suite 227 8286 Santa Monica Blvd. Melanie Lutz
Santa Monica, CA 90401 West Hollywood, CA 90046 8286 Santa Monica Blvd.
Phone: 310.394.4025 Phone: 323.822.3600 West Hollywood, CA 90046
Fax: 310.394.2625 Fsx: 323.822.3606 Phone: 323.822.3600
[email protected] [email protected] Fax: 323.822.3606
[email protected]
</TABLE>
Company agrees that the individuals listed above have full authority to direct
and provide feedback relating to the services described in this Project
Schedule, including but not limited to the ability to execute a
Milestone/Deliverable Acknowledgement of Acceptance.
12. COMPETITIVE PROJECT. For purposes of Section 11.1 of the Agreement
"competitive project" shall have the meaning to be mutually agreed by the
parties in writing on or before the time of delivery of specifications.
13. CONSULTANT INTELLECTUAL PROPERTY REPRESENTATIONS. The representations
of Consultant in Section 8.1 of the Agreement, regarding intellectual property
rights, are made to the best of Consultant's knowledge without any
independent investigation.
StudioBuzz.com, LLC Mediachase, Ltd.
By:_________________________________ By:__________________________________
Title:______________________________ Title:_______________________________
Date:_______________________________ Date:________________________________
17
<PAGE>
EXHIBIT 10.18
INTERNETSTUDIOS.COM, INC.
1999 STOCK INCENTIVE PLAN (NON-U.S.)
1. PURPOSE
The purpose of this 1999 Non-U.S. Stock Incentive Plan of InternetStudios.com,
Inc. (the "Company") is to advance the interests of the Company by encouraging
Eligible Employees (as herein defined) to acquire shares of the Company, thereby
increasing their proprietary interest in the Company, encouraging them to remain
associated with the Company and furnish them with additional incentive to
advance the interests of the Company in the conduct of their affairs.
This Plan is specifically designed for Eligible Employees of the Company who are
not residents of the United States and/or subject to taxation in the United
States, although Awards under this Plan may be issued to other Eligible
Employees.
2. DEFINITIONS
As used herein, the following definitions shall apply:
(a) "ADMINISTRATOR" means the Board or a Committee of the Board duly
appointed by the Board as the Administrator hereof;
(b) "AFFILIATE" and "ASSOCIATE" shall have the respective meanings
ascribed to such terms in the Securities Act.
(c) "APPLICABLE LAWS" means the legal requirements relating to the
administration of stock incentive plans, if any, under applicable
provisions of federal securities laws, state corporate and
securities laws, the Securities Act, the rules of any applicable
stock exchange or national market system, and the rules of any
foreign jurisdiction applicable to Awards granted to residents
therein.
(d) "AWARD" means the grant of an Option, SAR, Restricted Stock or
other right or benefit under the Plan. (e) "AWARD AGREEMENT" means
the written agreement evidencing the grant of an Award executed by
the Company and the Grantee, including any amendments thereto.
(f) "BOARD" means the Board of Directors of the Company.
(g) "CAUSE" means, with respect to the termination by the Company or a
Related Entity of the Grantee's Continuous Service, that such
termination is for `Cause' as such term is expressly defined in a
then-effective written agreement between the Grantee and the
Company or such Related Entity, or in the absence of such
then-effective written agreement and definition, is based on, in
the determination of the Administrator, the Grantee's:
<PAGE>
(i) refusal or failure to act in accordance with any specific,
lawful direction or order of the Company or a Related
Entity;
(ii) unfitness or unavailability for service or unsatisfactory
performance (other than as a result of Disability);
(iii) performance of any act or failure to perform any act in bad
faith and to the detriment of the Company or a Related
Entity;
(iv) dishonesty, intentional misconduct or material breach of
any agreement with the Company or a Related Entity; or
(v) commission of a crime involving dishonesty, breach of
trust, or physical or emotional harm to any person.
(h) "CHANGE IN CONTROL" means a change in ownership or control of the
Company effected through either of the following transactions:
(i) the direct or indirect acquisition by any person or related
group of persons (other than an acquisition from or by the
Company or by a Company-sponsored employee benefit plan or
by a person that directly or indirectly controls, is
controlled by, or is under common control with, the
Company) of beneficial ownership of securities possessing
more than fifty percent (50%) of the total combined voting
power of the Company's outstanding securities pursuant to a
tender or exchange offer made directly to the Company's
shareholders which a majority of the Continuing Directors
who are not Affiliates or Associates of the offeror do not
recommend such shareholders accept, or
(ii) a change in the composition of the Board over a period of
thirty-six (36) months or less such that a majority of the
Board members (rounded up to the next whole number) ceases,
by reason of one or more contested elections for Board
membership, to be comprised of individuals who are
Continuing Directors.
(i) "COMMITTEE" means any committee appointed by the Board to
administer the Plan.
(j) "COMMON STOCK" means the common stock of the Company.
(k) "COMPANY" means InternetStudios.com, Inc., a Nevada corporation.
(l) "CONSULTANT" means any person (other than an Employee or, solely
with respect to rendering services in such person's capacity as a
Director) who is engaged by the Company or any Related Entity to
render consulting or advisory services to the Company or such
Related Entity.
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<PAGE>
(m) "CONTINUING DIRECTORS" means members of the Board who either (i)
have been Board members continuously for a period of at least
thirty-six (36) months or (ii) have been Board members for less
than thirty-six (36) months and were elected or nominated for
election as Board members by at least a majority of the Board
members described in clause (i) who were still in office at the
time such election or nomination was approved by the Board.
(n) "CONTINUOUS SERVICE" means that the provision of services to the
Company or a Related Entity in any capacity of Employee, Director
or Consultant, is not interrupted or terminated. Continuous
Service shall not be considered interrupted in the case of (i) any
approved leave of absence, (ii) transfers between locations of the
Company or among the Company, any Related Entity, or any
successor, in any capacity of Employee, Director or Consultant, or
(iii) any change in status as long as the individual remains in
the service of the Company or a Related Entity in any capacity of
Employee, Director or Consultant (except as otherwise provided in
the Award Agreement). An approved leave of absence shall include
sick leave, military leave, or any other authorized personal
leave. For purposes of Options, no such leave may exceed ninety
(90) days, unless reemployment upon expiration of such leave is
guaranteed by statute or contract.
(o) "CORPORATE TRANSACTION" means any of the following transactions:
(i) a merger or consolidation in which the Company is not the
surviving entity, except for a transaction the principal
purpose of which is to change the jurisdiction in which the
Company is organized;
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Company (including
the capital stock of the Company's subsidiary corporations)
in connection with the complete liquidation or dissolution
of the Company; or
(iii) any reverse merger in which the Company is the surviving
entity but in which securities possessing more than fifty
percent (50%) of the total combined voting power of the
Company's outstanding securities are transferred to a
person or persons different from those who held such
securities immediately prior to such merger.
(p) "DIRECTOR" means a member of the Board or the board of directors
of any Related Entity.
(q) "DISABILITY" means that a Grantee is unable to carry out the
responsibilities and functions of the position held by the Grantee
by reason of any medically determinable physical or mental
impairment. A Grantee will not be considered to have incurred a
Disability unless he or she furnishes proof of such impairment
sufficient to satisfy the Administrator in its discretion.
(r) "ELIGIBLE EMPLOYEE" means any person who is an Officer, a
Director, an Employee or a Consultant.
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<PAGE>
(s) "EMPLOYEE" means any person, including an Officer or Director, who
is a full-time or part-time employee of the Company or any Related
Entity.
(t) "FAIR MARKET VALUE" means, as of any date, the value of Common
Stock determined as follows:
(i) Where there exists a public market for the Common Stock,
the Fair Market Value shall be (A) the closing price for a
Share for the last market trading day prior to the time of
the determination (or, if no closing price was reported on
that date, on the last trading date on which a closing
price was reported) on the stock exchange determined by the
Administrator to be the primary market for the Common Stock
or the Nasdaq National Market, whichever is applicable or
(B) if the Common Stock is not traded on any such exchange
or national market system, the average of the closing bid
and asked prices of a Share on the Nasdaq Small Cap Market
for the day prior to the time of the determination (or, if
no such prices were reported on that date, on the last date
on which such prices were reported), in each case, as
reported in THE WALL STREET JOURNAL or such other source as
the Administrator deems reliable; or
(ii) In the absence of an established market for the Common
Stock of the type described in 2.(s)(i), above, the Fair
Market Value thereof shall be determined by the
Administrator in good faith.
(u) "GRANTEE" means an Eligible Employee who receives an Award
pursuant to an Award Agreement under the Plan.
(v) "INSIDER" means:
(i) a Director or Senior Officer of the Company;
(ii) a Director or Senior Officer of a person that is itself an
Insider or Subsidiary of the Company; (iii) a person that
has:
A. direct or indirect beneficial ownership of,
B. control or direction over, or
C. a combination of direct or indirect beneficial
ownership of and control or direction over
securities of the Company carrying more than 10% of
the voting rights attached to all the Company's
outstanding voting securities, excluding, for the
purpose of the calculation of the percentage held,
any securities held by the person as underwriter in
the course of a distribution, or
4
<PAGE>
(iv) the Company itself, if it has purchased, redeemed or
otherwise acquired any securities of its own issue, for so
long as it continues to hold those securities.
(w) "Officer" means a person who is an officer, including a Senior
Officer, of the Company or a Related Entity within the meaning
prescribed to under the Securities Act and the rules and
regulations promulgated thereunder.
(x) "OPTION" means an option to purchase Shares pursuant to an Award
Agreement granted under the Plan. (y) "PARENT" means a "parent
corporation", whether now or hereafter existing, which holds a
majority of the voting shares of the Company.
(z) "PERFORMANCE SHARES" means Shares or an Award denominated in
Shares which may be earned in whole or in part upon attainment of
performance criteria established by the Administrator.
(aa) "PERFORMANCE UNITS" means an Award which may be earned in whole or
in part upon attainment of performance criteria established by the
Administrator and which may be settled for cash, Shares or other
securities or a combination of cash, Shares or other securities as
established by the Administrator.
(bb) "PLAN" means this 1999 Stock Incentive Plan.
(cc) "RELATED ENTITY" means any Parent, Subsidiary and any business,
corporation, partnership, limited liability company or other
entity in which the Company, a Parent or a Subsidiary holds a
substantial ownership interest, directly or indirectly.
(dd) "RESTRICTED STOCK" means Shares issued under the Plan to the
Grantee for such consideration, if any, and subject to such
restrictions on transfer, rights of first refusal, repurchase
provisions, forfeiture provisions, and other terms and conditions
as established by the Administrator.
(ee) "SAR" means a stock appreciation right entitling the Grantee to
Shares or cash compensation, as established by the Administrator,
measured by appreciation in the value of Common Stock.
(ff) "SECURITIES ACT" means the British Columbia Securities Act,
R.S.B.C. 1996, as amended.
(gg) "SENIOR OFFICER" means:
(i) the chair or vice chair of the Board, the president, a
vice-president, the secretary, the treasurer or the general
manager of the Company;
5
<PAGE>
(ii) any individual who performs functions for a person similar
to those normally performed by an individual occupying any
office specified in paragraph 2.(ff)(i) above, and
(iii) the five (5) highest paid employees of the Company,
including any individual referred to in paragraph 2.(ff)(i)
or 2.(ff)(ii) and excluding a commissioned salesperson who
does not act in a managerial capacity.
(hh) "SHARE" means a share of the Common Stock.
(ii) "SUBSIDIARY" means a "subsidiary corporation", whether now or
hereafter existing, as determined by British Columbia corporate
law.
(jj) "RELATED ENTITY DISPOSITION" means the sale, distribution or other
disposition by the Company of all or substantially all of the
Company's interests in any Related Entity effected by a sale,
merger or consolidation or other transaction involving that
Related Entity or the sale of all or substantially all of the
assets of that Related Entity.
3. STOCK SUBJECT TO THE PLAN
Subject to the provisions of Section 10 below, the maximum aggregate number of
Shares which may be issued pursuant to all Awards (including Options) is 500,000
Shares. The Shares to be issued pursuant to Awards may be authorized, but
unissued, or reacquired Common Stock.
Any Shares covered by an Award (or portion of an Award) which is forfeited or
cancelled, expires or is settled in cash, shall be deemed not to have been
issued for purposes of determining the maximum aggregate number of Shares which
may be issued under the Plan. Shares that actually have been issued under the
Plan pursuant to an Award shall not be returned to the Plan and shall not become
available for future issuance under the Plan, except that if Shares are
forfeited or repurchased by the Company at their original purchase price, such
Shares shall become available for future grant under the Plan.
No Insider of the Company is eligible to receive an Award where:
(a) Insiders are not Directors or Senior Officers of the Company and
receiving Options as Consultants of the Company;
(b) any Award, together with all of the Company's other previously
established or proposed Awards could result at any time in:
(i) the number of Shares reserved for issuance pursuant to
Options granted to Insiders exceeding 10% of the
outstanding issue of Common Stock; or
(ii) the issuance to Insiders, within a one year period of a
number of Shares exceeding 10% of the outstanding issue of
the Common Stock;
6
<PAGE>
provided, however, that this restriction on the eligibility of Insiders to
receive an Award will cease to apply if it is no longer required under any
Applicable Laws.
4. ADMINISTRATION
(a) Plan Administrator
(i) ADMINISTRATION WITH RESPECT TO ELIGIBLE EMPLOYEES. With
respect to grants of Awards to Eligible Employees, the Plan
shall be administered by (A) the Board or (B) a Committee
designated by the Board, which Committee shall be
constituted in such a manner as to satisfy the Applicable
Laws. Once appointed, such Committee shall continue to
serve in its designated capacity until otherwise directed
by the Board.
(ii) ADMINISTRATION ERRORS. In the event an Award is granted in
a manner inconsistent with the provisions of this
subsection 4.(a), such Award shall be presumptively valid
as of its grant date to the extent permitted by the
Applicable Laws.
(b) POWERS OF THE ADMINISTRATOR. Subject to Applicable Laws and the
provisions of the Plan (including any other powers given to the
Administrator hereunder), and except as otherwise provided by the
Board, the Administrator shall have the authority, in its
discretion:
(i) to select the Eligible Employees to whom Awards may be
granted from time to time hereunder;
(ii) to determine whether and to what extent Awards are granted
hereunder;
(iii) to determine the number of Shares or the amount of other
consideration to be covered by each Award granted
hereunder;
(iv) to approve forms of Award Agreements for use under the
Plan;
(v) to determine the terms and conditions of any Award granted
hereunder;
(vi) to amend the terms of any outstanding Award granted under
the Plan, including a reduction in the exercise price (or
base amount on which appreciation is measured) of any Award
to reflect a reduction in the Fair Market Value of the
Common Stock since the grant date of the Award, provided
that any amendment that would adversely affect the
Grantee's rights under an outstanding Award shall not be
made without the Grantee's written consent;
(vii) the Administrator shall have the right to suspend the right
of a holder to exercise all or part of a stock option for
any reason that the Administrator considers in the best
interest of the Company;
7
<PAGE>
(viii) to establish additional terms, conditions, rules or
procedures to accommodate the rules or laws of applicable
foreign jurisdictions and to afford Grantees favourable
treatment under such laws; provided, however, that no Award
shall be granted under any such additional terms,
conditions, rules or procedures with terms or conditions
which are inconsistent with the provisions of the Plan; and
(ix) to take such other action, not inconsistent with the terms
of the Plan, as the Administrator deems appropriate.
(c) EFFECT OF ADMINISTRATOR'S DECISION. All decisions, determinations
and interpretations of the Administrator shall be conclusive and
binding on all persons.
5. ELIGIBILITY
Options and Awards other than Options may be granted to Eligible Employees. An
Eligible Employee who has been granted an Award may, if otherwise eligible, be
granted additional Awards.
6. TERMS AND CONDITIONS OF AWARDS
(a) TYPE OF AWARDS. The Administrator is authorized under the Plan to
award any type of arrangement to an Eligible Employee that is not
inconsistent with the provisions of the Plan and that by its terms
involves or might involve the issuance of (i) Shares, (ii) an
Option, (iii) a SAR or similar right with a fixed or variable
price related to the Fair Market Value of the Shares and with an
exercise or conversion privilege related to the passage of time,
the occurrence of one or more events, or the satisfaction of
performance criteria or other conditions, or (iv) any other
security with the value derived from the value of the Shares. Such
awards include, without limitation, Options, SARs, sales or
bonuses of Restricted Stock, Performance Units or Performance
Shares, and an Award may consist of one such security or benefit,
or two (2) or more of them in any combination or alternative.
(b) DESIGNATION OF AWARD. Each Award shall be designated in the Award
Agreement.
(c) CONDITIONS OF AWARD. Subject to the terms of the Plan, the
Administrator shall determine the provisions, terms, and
conditions of each Award including, but not limited to, the Award
vesting schedule, repurchase provisions, rights of first refusal,
forfeiture provisions, form of payment (cash, Shares, or other
consideration) upon settlement of the Award, payment
contingencies, and satisfaction of any performance criteria. The
performance criteria established by the Administrator may be based
on any one of, or combination of, increase in share price,
earnings per share, total shareholder return, return on equity,
return on assets, return on investment, net operating income, cash
flow, revenue, economic value added, personal management
objectives, or other measures of performance selected by the
Administrator. Partial achievement of the specified criteria may
8
<PAGE>
result in a payment or vesting corresponding to the degree of
achievement as specified in the Award Agreement.
(d) ACQUISITIONS AND OTHER TRANSACTIONS. The Administrator may issue
Awards under the Plan in settlement, assumption or substitution
for, outstanding awards or obligations to grant future awards in
connection with the Company or a Related Entity acquiring another
entity, an interest in another entity or an additional interest in
a Related Entity whether by merger, stock purchase, asset purchase
or other form of transaction.
(e) DEFERRAL OF AWARD PAYMENT. The Administrator may establish one or
more programs under the Plan to permit selected Grantees the
opportunity to elect to defer receipt of consideration upon
exercise of an Award, satisfaction of performance criteria, or
other event that absent the election would entitle the Grantee to
payment or receipt of Shares or other consideration under an
Award. The Administrator may establish the election procedures,
the timing of such elections, the mechanisms for payments of, and
accrual of interest or other earnings, if any, on amounts, Shares
or other consideration so deferred, and such other terms,
conditions, rules and procedures that the Administrator deems
advisable for the administration of any such deferral program.
(f) AWARD EXCHANGE PROGRAMS. The Administrator may establish one or
more programs under the Plan to permit selected Grantees to
exchange an Award under the Plan for one or more other types of
Awards under the Plan on such terms and conditions as determined
by the Administrator from time to time.
(g) SEPARATE PROGRAMS. The Administrator may establish one or more
separate programs under the Plan for the purpose of issuing
particular forms of Awards to one or more classes of Grantees on
such terms and conditions as determined by the Administrator from
time to time.
(h) INDIVIDUAL OPTION AND SAR LIMIT. The maximum number of Shares with
respect to which Options and SARs may be granted to any Employee
in any fiscal year of the Company shall be 300,000 Shares. The
foregoing limitation shall be adjusted proportionately in
connection with any change in the Company's capitalization
pursuant to Section 10, below.
(i) EARLY EXERCISE. The Award Agreement may, but need not, include a
provision whereby the Grantee may elect at any time while an
Eligible Employee to exercise any part or all of the Award prior
to full vesting of the Award. Any unvested Shares received
pursuant to such exercise may be subject to a repurchase right in
favour of the Company or a Related Entity or to any other
restriction the Administrator determines to be appropriate.
(j) TERM OF AWARD. The term of each Award shall be the term stated in
the Award Agreement, provided, however, that the term of an Option
shall be no more than ten (10) years from the date of grant
thereof.
9
<PAGE>
(k) TRANSFERABILITY OF AWARDS. Options may not be sold, pledged,
assigned, hypothecated, transferred, or disposed of in any manner
other than by will or by the laws of descent or distribution and
may be exercised, during the lifetime of the Grantee, only by the
Grantee; provided, however, that the Grantee may designate a
beneficiary of the Grantee's Option in the event of the Grantee's
death on a beneficiary designation form provided by the
Administrator. Other Awards shall be transferable to the extent
provided in the Award Agreement.
(l) TIME OF GRANTING AWARDS. The date of grant of an Award shall for
all purposes be the date on which the Administrator makes the
determination to grant such Award, or such other date as is
determined by the Administrator. Notice of the grant determination
shall be given to each Employee, Director or Consultant to whom an
Award is so granted within a reasonable time after the date of
such grant.
7. AWARD EXERCISE OR PURCHASE PRICE, CONSIDERATION, TAXES AND RELOAD OPTIONS
(a) EXERCISE OR PURCHASE PRICE. The exercise or purchase price, if
any, for an Award shall be as determined by the Administrator in
compliance with the Applicable Laws.
(b) CONSIDERATION. Subject to Applicable Laws, the consideration to be
paid for the Shares to be issued upon exercise or purchase of an
Award including the method of payment, shall be determined by the
Administrator (and, in the case of an Option, shall be determined
at the time of grant). In addition to any other types of
consideration the Administrator may determine, the Administrator
is authorized to accept as consideration for Shares issued under
the Plan the following:
(i) cash;
(ii) check;
(iii) surrender of Shares or delivery of a properly executed form
of attestation of ownership of Shares as the Administrator
may require (including withholding of Shares otherwise
deliverable upon exercise of the Award) which have a Fair
Market Value on the date of surrender or attestation equal
to the aggregate exercise price of the Shares as to which
said Award shall be exercised (but only to the extent that
such exercise of the Award would not result in an
accounting compensation charge with respect to the Shares
used to pay the exercise price unless otherwise determined
by the Administrator); or
(iv) any combination of the foregoing methods of payment.
(c) TAXES. No Shares shall be delivered under the Plan to any Grantee
or other person until such Grantee or other person has made
arrangements acceptable to the Administrator for the satisfaction
of any foreign, federal, state, or local
10
<PAGE>
income and employment tax withholding obligations, including,
without limitation, obligations incident to the receipt of
Shares or the disqualifying disposition of Shares received on
exercise of an Option. Upon exercise of an Award, the Company
shall withhold or collect from Grantee an amount sufficient to
satisfy such tax obligations.
(d) RELOAD OPTIONS. In the event the exercise price or tax withholding
of an Option is satisfied by the Company or the Grantee's employer
withholding Shares otherwise deliverable to the Grantee, the
Administrator may issue the Grantee an additional Option, with
terms identical to the Award Agreement under which the Option was
exercised, but at an exercise price as determined by the
Administrator in accordance with the Plan.
8. EXERCISE OF AWARD
(a) PROCEDURE FOR EXERCISE; RIGHTS AS A SHAREHOLDER.
(i) Any Award granted hereunder shall be exercisable at such
times and under such conditions as determined by the
Administrator under the terms of the Plan and specified in
the Award Agreement.
(ii) An Award shall be deemed to be exercised when written
notice of such exercise has been given to the Company in
accordance with the terms of the Award by the person
entitled to exercise the Award and full payment for the
Shares with respect to which the Award is received by the
Company. Until the issuance (as evidenced by the
appropriate entry on the books of the Company or of a duly
authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or
receive dividends or any other rights as a shareholder
shall exist with respect to Shares subject to an Award,
notwithstanding the exercise of an Option or other Award.
The Company shall issue (or cause to be issued) such stock
certificate promptly upon exercise of the Award. No
adjustment will be made for a dividend or other right for
which the record date is prior to the date the stock
certificate is issued, except as provided in the Award
Agreement or Section 10, below.
(b) EXERCISE OF AWARD FOLLOWING TERMINATION OF CONTINUOUS SERVICE.
(i) An Award may not be exercised after the termination date of
such Award set forth in the Award Agreement and may be
exercised following the termination of a Grantee's
Continuous Service only to the extent provided in the Award
Agreement.
(ii) Where the Award Agreement permits a Grantee to exercise an
Award following the termination of the Grantee's Continuous
Service for a specified period, the Award shall terminate
to the extent not exercised on the last day of the
specified period or the last day of the original term of
the Award, whichever occurs first.
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<PAGE>
(c) BUYOUT PROVISIONS. The Administrator may at any time offer to buy
out for a payment in cash or Shares, an Award previously granted,
based on such terms and conditions as the Administrator shall
establish and communicate to the Grantee at the time that such
offer is made.
9. CONDITIONS UPON ISSUANCE OF SHARES
(a) Shares shall not be issued pursuant to the exercise of an Award
unless the exercise of such Award and the issuance and delivery of
such Shares pursuant thereto shall comply with all Applicable
Laws, and shall be further subject to the approval of counsel for
the Company with respect to such compliance.
(b) As a condition to the exercise of an Award, the Company may
require the person exercising such Award to represent and warrant
at the time of any such exercise that the Shares are being
purchased only for investment and without any present intention to
sell or distribute such Shares if, in the opinion of counsel for
the Company, such a representation is required by any Applicable
Laws.
10. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION
Subject to any required action by the shareholders of the Company, the number of
Shares covered by each outstanding Award, and the number of Shares which have
been authorized for issuance under the Plan but as to which no Awards have yet
been granted or which have been returned to the Plan, the exercise or purchase
price of each such outstanding Award, as well as any other terms that the
Administrator determines require adjustment shall be proportionately adjusted
for (i) any increase or decrease in the number of issued Shares resulting from a
stock split, reverse stock split, stock dividend, combination or
reclassification of the Shares, (ii) any other increase or decrease in the
number of issued Shares effected without receipt of consideration by the
Company, or (iii) as the Administrator may determine in its discretion, any
other reorganization transaction with respect to Common Stock; provided, however
that conversion of any convertible securities of the Company shall not be deemed
to have been "effected without receipt of consideration. Such adjustment shall
be made by the Administrator and its determination shall be final, binding and
conclusive. Except as the Administrator determines, no issuance by the Company
of shares of stock of any class, or securities convertible into shares of stock
of any class, shall affect, and no adjustment by reason hereof shall be made
with respect to, the number or price of Shares subject to an Award.
11. CORPORATE TRANSACTIONS/CHANGES IN CONTROL/RELATED ENTITY DISPOSITIONS
Except as may be provided in an Award Agreement the Administrator shall have the
authority, exercisable either in advance of any actual or anticipated Corporate
Transaction, Change in Control or Related Entity Disposition or at the time of
an actual Corporate Transaction, Change in Control or Related Entity Disposition
and exercisable at the time of the grant of an Award under the Plan or any time
while an Award remains outstanding, to provide for the full automatic vesting
and exercisability of one or more outstanding unvested Awards under the Plan and
the release from restrictions on transfer and repurchase or forfeiture rights of
such Awards in
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connection with a Corporate Transaction, Change in Control or Related Entity
Disposition, on such terms and conditions as the Administrator may specify.
The Administrator also shall have the authority to condition any such Award
vesting and exercisability or release from such limitations upon the
subsequent termination of the Continuous Service of the Grantee within a
specified period following the effective date of the Corporate Transaction,
Change in Control or Related Entity Disposition. The Administrator may
provide that any Awards so vested or released from such limitations in
connection with a Change in Control or Related Entity Disposition, shall
remain fully exercisable until the expiration or sooner termination of the
Award. Effective upon the consummation of a Corporate Transaction, all
outstanding Awards under the Plan shall terminate unless assumed by the
successor company or its parent.
12. EFFECTIVE DATE AND TERM OF PLAN
The Plan shall become effective upon the earlier to occur of its adoption by the
Board or its approval by the shareholders of the Company. It shall continue in
effect for a term of ten (10) years unless sooner terminated. Subject to Section
17, below, and Applicable Laws, Awards may be granted under the Plan upon its
becoming effective.
13. AMENDMENT, SUSPENSION OR TERMINATION OF THE PLAN
(a) The Board may at any time amend, suspend or terminate the Plan. To
the extent necessary to comply with Applicable Laws, the Company
shall obtain shareholder approval of any Plan amendment in such a
manner and to such a degree as required.
(b) No Award may be granted during any suspension of the Plan or after
termination of the Plan.
(c) Any amendment, suspension or termination of the Plan (including
termination of the Plan under Section 13.(a), above) shall not
affect Awards already granted, and such Awards shall remain in
full force and effect as if the Plan had not been amended,
suspended or terminated, unless mutually agreed otherwise between
the Grantee and the Administrator, which agreement must be in
writing and signed by the Grantee and the Company.
14. RESERVATION OF SHARES
(a) The Company, during the term of the Plan, will at all times
reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
(b) The inability of the Company to obtain authority from any
regulatory body having jurisdiction, which authority is deemed by
the Company's counsel to be necessary to the lawful issuance and
sale of any Shares hereunder, shall relieve the Company of any
liability in respect of the failure to issue or sell such Shares
as to which such requisite authority shall not have been obtained.
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15. NO EFFECT ON TERMS OF EMPLOYMENT/CONSULTING RELATIONSHIP
The Plan shall not confer upon any Grantee any right with respect to the
Grantee's Continuous Service, nor shall it interfere in any way with his or her
right or the Company's right to terminate the Grantee's Continuous Service at
any time, with or without cause.
16. NO EFFECT ON RETIREMENT AND OTHER BENEFIT PLANS
Except as specifically provided in a retirement or other benefit plan of the
Company or a Related Entity, Awards shall not be deemed compensation for
purposes of computing benefits or contributions under any retirement plan of the
Company or a Related Entity, and shall not affect any benefits under any other
benefit plan of any kind or any benefit plan subsequently instituted under which
the availability or amount of benefits is related to level of compensation.
17. SHAREHOLDER APPROVAL
The Plan shall be subject to the Plan's approval by the shareholders of the
Company within twelve (12) months from the date the Plan is adopted by the
Company's Board of Directors. Such shareholder approval shall be obtained in the
degree and manner required under Applicable Laws. The Administrator may grant
Awards under the Plan prior to approval by the shareholders, but until such
approval is obtained, no such Award shall be exercisable. In the event that
shareholder approval is not obtained within the twelve (12) month period
provided above, all Awards previously granted under the Plan shall be cancelled
and of no force or effect.
18. GOVERNING LAW
The Plan shall be governed by the laws of the Province of British Columbia and
the laws of Canada applicable therein; provided, however, that any Award
Agreement may provide by its terms that it shall be governed by the laws of any
other jurisdiction as may be deemed appropriate by the parties thereto.
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EXHIBIT 10.19
INTERNETSTUDIOS.COM, INC.
1999 STOCK INCENTIVE PLAN (U.S.)
1. PURPOSE
The purpose of this 1999 U.S. Stock Incentive Plan of InternetStudios.com, Inc.
(the "Company") is to advance the interests of the Company by encouraging
Eligible Employees (as herein defined) to acquire shares of the Company, thereby
increasing their proprietary interest in the Company, encouraging them to remain
associated with the Company and furnish them with additional incentive to
advance the interests of the Company in the conduct of their affairs.
This Plan is specifically designed for Eligible Employees of the Company who are
residents of the United States and/or subject to taxation in the United States,
although Awards under this Plan may be issued to other Eligible Employees.
2. DEFINITIONS
As used herein, the following definitions shall apply:
(a) "ADMINISTRATOR" means the Board or a Committee of the Board duly
appointed by the Board as the Administrator hereof;
(b) "AFFILIATE" and "ASSOCIATE" shall have the respective meanings
ascribed to such terms in Rule 12b-2 promulgated under the
Exchange Act.
(c) "APPLICABLE LAWS" means the legal requirements relating to the
administration of stock incentive plans, if any, under applicable
provisions of federal securities laws, state corporate and
securities laws, the Code, the rules of any applicable stock
exchange or national market system, and the rules of any foreign
jurisdiction applicable to Awards granted to residents therein.
(d) "AWARD" means the grant of an Option, SAR, Restricted Stock or
other right or benefit under the Plan.
(e) "AWARD AGREEMENT" means the written agreement evidencing the grant
of an Award executed by the Company and the Grantee, including any
amendments thereto.
(f) "BOARD" means the Board of Directors of the Company.
(g) "CAUSE" means, with respect to the termination by the Company or a
Related Entity of the Grantee's Continuous Service, that such
termination is for `Cause' as such term is expressly defined in a
then-effective written agreement between the Grantee and the
Company or such Related Entity, or in the absence of such
then-effective written agreement and definition, is based on, in
the determination of the Administrator, the Grantee's:
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(i) refusal or failure to act in accordance with any specific,
lawful direction or order of the Company or a Related
Entity;
(ii) unfitness or unavailability for service or unsatisfactory
performance (other than as a result of Disability);
(iii) performance of any act or failure to perform any act in bad
faith and to the detriment of the Company or a Related
Entity;
(iv) dishonesty, intentional misconduct or material breach of
any agreement with the Company or a Related Entity; or
(v) commission of a crime involving dishonesty, breach of
trust, or physical or emotional harm to any person.
(h) "CHANGE IN CONTROL" means a change in ownership or control of the
Company effected through either of the following transactions:
(i) the direct or indirect acquisition by any person or related
group of persons (other than an acquisition from or by the
Company or by a Company-sponsored employee benefit plan or
by a person that directly or indirectly controls, is
controlled by, or is under common control with, the
Company) of beneficial ownership (within the meaning of
Rule 13d-3 of the Exchange Act) of securities possessing
more than fifty percent (50%) of the total combined voting
power of the Company's outstanding securities pursuant to a
tender or exchange offer made directly to the Company's
shareholders which a majority of the Continuing Directors
who are not Affiliates or Associates of the offeror do not
recommend such shareholders accept, or
(ii) a change in the composition of the Board over a period of
thirty-six (36) months or less such that a majority of the
Board members (rounded up to the next whole number) ceases,
by reason of one or more contested elections for Board
membership, to be comprised of individuals who are
Continuing Directors.
(i) "CODE" means the U.S. Internal Revenue Code of 1986, as amended.
(j) "COMMITTEE" means any committee appointed by the Board to
administer the Plan.
(k) "COMMON STOCK" means the common stock of the Company.
(l) "COMPANY" means InternetStudios.com, Inc., a Nevada corporation.
(m) "CONSULTANT" means any person (other than an Employee or, solely
with respect to rendering services in such person's capacity as a
Director) who is engaged by the
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Company or any Related Entity to render consulting or advisory
services to the Company or such Related Entity.
(n) "CONTINUING DIRECTORS" means members of the Board who either (i)
have been Board members continuously for a period of at least
thirty-six (36) months or (ii) have been Board members for less
than thirty-six (36) months and were elected or nominated for
election as Board members by at least a majority of the Board
members described in clause (i) who were still in office at the
time such election or nomination was approved by the Board.
(o) "CONTINUOUS SERVICE" means that the provision of services to the
Company or a Related Entity in any capacity of Employee, Director
or Consultant, is not interrupted or terminated. Continuous
Service shall not be considered interrupted in the case of (i) any
approved leave of absence, (ii) transfers between locations of the
Company or among the Company, any Related Entity, or any
successor, in any capacity of Employee, Director or Consultant, or
(iii) any change in status as long as the individual remains in
the service of the Company or a Related Entity in any capacity of
Employee, Director or Consultant (except as otherwise provided in
the Award Agreement). An approved leave of absence shall include
sick leave, military leave, or any other authorized personal
leave. For purposes of Options, no such leave may exceed ninety
(90) days, unless reemployment upon expiration of such leave is
guaranteed by statute or contract.
(p) "CORPORATE TRANSACTION" means any of the following transactions:
(i) a merger or consolidation in which the Company is not the
surviving entity, except for a transaction the principal
purpose of which is to change the jurisdiction in which the
Company is organized;
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Company (including
the capital stock of the Company's subsidiary corporations)
in connection with the complete liquidation or dissolution
of the Company; or
(iii) any reverse merger in which the Company is the surviving
entity but in which securities possessing more than fifty
percent (50%) of the total combined voting power of the
Company's outstanding securities are transferred to a
person or persons different from those who held such
securities immediately prior to such merger.
(q) "COVERED EMPLOYEE" means an Employee who is a "covered employee"
under Section 162(m)(3) of the Code.
(r) "DIRECTOR" means a member of the Board or the board of directors
of any Related Entity.
(s) "DISABILITY" means that a Grantee is unable to carry out the
responsibilities and functions of the position held by the Grantee
by reason of any medically
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determinable physical or mental impairment. A Grantee will not
be considered to have incurred a Disability unless he or she
furnishes proof of such impairment sufficient to satisfy the
Administrator in its discretion.
(t) "ELIGIBLE EMPLOYEE" means any person who is an Officer, a
Director, an Employee or a Consultant.
(u) "EMPLOYEE" means any person, including an Officer or Director, who
is a full-time or part-time employee of the Company or any Related
Entity.
(v) "EXCHANGE ACT" means the U.S. Securities Exchange Act of 1934, as
amended.
(w) "FAIR MARKET VALUE" means, as of any date, the value of Common
Stock determined as follows:
(i) Where there exists a public market for the Common Stock,
the Fair Market Value shall be (A) the closing price for a
Share for the last market trading day prior to the time of
the determination (or, if no closing price was reported on
that date, on the last trading date on which a closing
price was reported) on the stock exchange determined by the
Administrator to be the primary market for the Common Stock
or the Nasdaq National Market, whichever is applicable or
(B) if the Common Stock is not traded on any such exchange
or national market system, the average of the closing bid
and asked prices of a Share on the Nasdaq Small Cap Market
for the day prior to the time of the determination (or, if
no such prices were reported on that date, on the last date
on which such prices were reported), in each case, as
reported in THE WALL STREET JOURNAL or such other source as
the Administrator deems reliable; or
(ii) In the absence of an established market for the Common
Stock of the type described in paragraph2.(w)(i), above,
the Fair Market Value thereof shall be determined by the
Administrator in good faith.
(x) "GRANTEE" means an Eligible Employee who receives an Award
pursuant to an Award Agreement under the Plan.
(y) "INCENTIVE STOCK OPTION" means an Option within the meaning of
Section 422 of the Code.
(z) "INSIDER" means:
(i) a Director or Senior Officer of the Company;
(ii) a Director or Senior Officer of a person that is itself an
Insider or Subsidiary of the Company;
(iii) a person that has:
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A. direct or indirect beneficial ownership of,
B. control or direction over, or
C. a combination of direct or indirect beneficial
ownership of and control or direction over
securities of the Company carrying more than 10% of
the voting rights attached to all the Company's
outstanding voting securities, excluding, for the
purpose of the calculation of the percentage held,
any securities held by the person as underwriter in
the course of a distribution, or
(iv) the Company itself, if it has purchased, redeemed or
otherwise acquired any securities of its own issue, for so
long as it continues to hold those securities.
(aa) "NON-QUALIFIED STOCK OPTION" means an Option which is not an
Incentive Stock Option.
(bb) "OFFICER" means a person who is an officer, including a Senior
Officer, of the Company or a Related Entity within the meaning of
Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(cc) "OPTION" means an option to purchase Shares pursuant to an Award
Agreement granted under the Plan.
(dd) "PARENT" means a "parent corporation", whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(ee) "PERFORMANCE - BASED COMPENSATION" means compensation qualifying
as "performance-based compensation" under Section 162(m) of the
Code.
(ff) "PERFORMANCE SHARES" means Shares or an Award denominated in
Shares which may be earned in whole or in part upon attainment of
performance criteria established by the Administrator.
(gg) "PERFORMANCE UNITS" means an Award which may be earned in whole or
in part upon attainment of performance criteria established by the
Administrator and which may be settled for cash, Shares or other
securities or a combination of cash, Shares or other securities as
established by the Administrator.
(hh) "PLAN" means this 1999 Stock Incentive Plan.
(ii) "RELATED ENTITY" means any Parent, Subsidiary and any business,
corporation, partnership, limited liability company or other
entity in which the Company, a Parent or a Subsidiary holds a
substantial ownership interest, directly or indirectly.
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(jj) "RESTRICTED STOCK" means Shares issued under the Plan to the
Grantee for such consideration, if any, and subject to such
restrictions on transfer, rights of first refusal, repurchase
provisions, forfeiture provisions, and other terms and conditions
as established by the Administrator.
(kk) "SAR" means a stock appreciation right entitling the Grantee to
Shares or cash compensation, as established by the Administrator,
measured by appreciation in the value of Common Stock.
(ll) "SENIOR OFFICER" means:
(i) the chair or vice chair of the Board, the president, a
vice-president, the secretary, the treasurer or the general
manager of the Company;
(ii) any individual who performs functions for a person similar
to those normally performed by an individual occupying any
office specified in paragraph 2.(ll)(i) above, and
(iii) the five (5) highest paid employees of the Company,
including any individual referred to in paragraph 2.(ll)(i)
or 2.(ll)(ii) and excluding a commissioned salesperson who
does not act in a managerial capacity.
(mm) "SHARE" means a share of the Common Stock.
(nn) "SUBSIDIARY" means a "subsidiary corporation", whether now or
hereafter existing, as defined in Section 424(f) of the Code.
(oo) "RELATED ENTITY DISPOSITION" means the sale, distribution or other
disposition by the Company of all or substantially all of the
Company's interests in any Related Entity effected by a sale,
merger or consolidation or other transaction involving that
Related Entity or the sale of all or substantially all of the
assets of that Related Entity.
3. STOCK SUBJECT TO THE PLAN
Subject to the provisions of Section 10, below, the maximum aggregate number of
Shares which may be issued pursuant to all Awards (including Options) is
1,000,000 Shares. The Shares to be issued pursuant to Awards may be authorized,
but unissued, or reacquired Common Stock.
Any Shares covered by an Award (or portion of an Award) which is forfeited or
cancelled, expires or is settled in cash, shall be deemed not to have been
issued for purposes of determining the maximum aggregate number of Shares which
may be issued under the Plan. Shares that actually have been issued under the
Plan pursuant to an Award shall not be returned to the Plan and shall not become
available for future issuance under the Plan, except that if Shares are
forfeited or repurchased by the Company at their original purchase price, such
Shares shall become available for future grant under the Plan.
No Insider of the Company is eligible to receive an Award where:
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(a) Insiders are not Directors or Senior Officers of the Company and
receiving Options as Consultants of the Company;
(b) any Award, together with all of the Company's other previously
established or proposed Awards could result at any time in:
(i) the number of Shares reserved for issuance pursuant to
Options granted to Insiders exceeding 10% of the
outstanding issue of Common Stock; or
(ii) the issuance to Insiders, within a one year period of a
number of Shares exceeding 10% of the outstanding issue of
the Common Stock;
provided, however, that this restriction on the eligibility of Insiders to
receive an Award will cease to apply if it is no longer required under any
Applicable Laws.
4. ADMINISTRATION
(a) Plan Administrator
(i) ADMINISTRATION WITH RESPECT TO ELIGIBLE EMPLOYEES. With
respect to grants of Awards to Eligible Employees, the Plan
shall be administered by (A) the Board or (B) a Committee
designated by the Board, which Committee shall be
constituted in such a manner as to satisfy the Applicable
Laws. Once appointed, such Committee shall continue to
serve in its designated capacity until otherwise directed
by the Board.
(ii) ADMINISTRATION WITH RESPECT TO COVERED EMPLOYEES.
Notwithstanding the foregoing, grants of Awards to any
Covered Employee intended to qualify as Performance-Based
Compensation shall be made only by a Committee (or
subcommittee of a Committee) which is comprised solely of
two or more Directors eligible to serve on a committee
making Awards qualifying as Performance-Based Compensation.
In the case of such Awards granted to Covered Employees,
references to the "Administrator" or to a "Committee" shall
be deemed to be references to such Committee or
subcommittee.
(iii) ADMINISTRATION ERRORS. In the event an Award is granted in
a manner inconsistent with the provisions of this
subsection 4.(a), such Award shall be presumptively valid
as of its grant date to the extent permitted by the
Applicable Laws.
(b) POWERS OF THE ADMINISTRATOR. Subject to Applicable Laws and the
provisions of the Plan (including any other powers given to the
Administrator hereunder), and except as otherwise provided by the
Board, the Administrator shall have the authority, in its
discretion:
(i) to select the Eligible Employees to whom Awards may be
granted from time to time hereunder;
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(ii) to determine whether and to what extent Awards are granted
hereunder;
(iii) to determine the number of Shares or the amount of other
consideration to be covered by each Award granted
hereunder;
(iv) to approve forms of Award Agreements for use under the
Plan;
(v) to determine the terms and conditions of any Award granted
hereunder;
(vi) to amend the terms of any outstanding Award granted under
the Plan, including a reduction in the exercise price (or
base amount on which appreciation is measured) of any Award
to reflect a reduction in the Fair Market Value of the
Common Stock since the grant date of the Award, provided
that any amendment that would adversely affect the
Grantee's rights under an outstanding Award shall not be
made without the Grantee's written consent;
(vii) the Administrator shall have the right to suspend the right
of a holder to exercise all or part of a stock option for
any reason that the Administrator considers in the best
interest of the Company;
(viii) to establish additional terms, conditions, rules or
procedures to accommodate the rules or laws of applicable
foreign jurisdictions and to afford Grantees favourable
treatment under such laws; provided, however, that no Award
shall be granted under any such additional terms,
conditions, rules or procedures with terms or conditions
which are inconsistent with the provisions of the Plan; and
(ix) to take such other action, not inconsistent with the terms
of the Plan, as the Administrator deems appropriate.
(c) EFFECT OF ADMINISTRATOR'S DECISION. All decisions, determinations
and interpretations of the Administrator shall be conclusive and
binding on all persons.
5. ELIGIBILITY
Options and Awards other than Options may be granted to Eligible Employees. An
Eligible Employee who has been granted an Award may, if otherwise eligible, be
granted additional Awards.
6. TERMS AND CONDITIONS OF AWARDS
(a) TYPE OF AWARDS. The Administrator is authorized under the Plan to
award any type of arrangement to an Eligible Employee that is not
inconsistent with the provisions of the Plan and that by its terms
involves or might involve the issuance of (i) Shares, (ii) an
Option, (iii) a SAR or similar right with a fixed or variable
price related to the Fair Market Value of the Shares and with an
exercise or
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conversion privilege related to the passage of time, the
occurrence of one or more events, or the satisfaction of
performance criteria or other conditions, or (iv) any other
security with the value derived from the value of the Shares.
Such awards include, without limitation, Options, SARs, sales
or bonuses of Restricted Stock, Performance Units or
Performance Shares, and an Award may consist of one such
security or benefit, or two (2) or more of them in any
combination or alternative.
(b) DESIGNATION OF AWARD. Each Award shall be designated in the Award
Agreement. In the case of an Option, the Option shall be
designated as either an Incentive Stock Option or a Non-Qualified
Stock Option. However, notwithstanding such designation, to the
extent that the aggregate Fair Market Value of Shares subject to
Options designated as Incentive Stock Options which become
exercisable for the first time by a Grantee during any calendar
year (under all plans of the Company or any Parent or Subsidiary)
exceeds $100,000, such excess Options, to the extent of the Shares
covered thereby in excess of the foregoing limitation, shall be
treated as Non-Qualified Stock Options. For this purpose, Options
shall be taken into account in the order in which they were
granted, and the Fair Market Value of the Shares shall be
determined as of the date the Option with respect to such Shares
is granted.
(c) CONDITIONS OF AWARD. Subject to the terms of the Plan, the
Administrator shall determine the provisions, terms, and
conditions of each Award including, but not limited to, the Award
vesting schedule, repurchase provisions, rights of first refusal,
forfeiture provisions, form of payment (cash, Shares, or other
consideration) upon settlement of the Award, payment
contingencies, and satisfaction of any performance criteria. The
performance criteria established by the Administrator may be based
on any one of, or combination of, increase in share price,
earnings per share, total shareholder return, return on equity,
return on assets, return on investment, net operating income, cash
flow, revenue, economic value added, personal management
objectives, or other measures of performance selected by the
Administrator. Partial achievement of the specified criteria may
result in a payment or vesting corresponding to the degree of
achievement as specified in the Award Agreement.
(d) ACQUISITIONS AND OTHER TRANSACTIONS. The Administrator may issue
Awards under the Plan in settlement, assumption or substitution
for, outstanding awards or obligations to grant future awards in
connection with the Company or a Related Entity acquiring another
entity, an interest in another entity or an additional interest in
a Related Entity whether by merger, stock purchase, asset purchase
or other form of transaction.
(e) DEFERRAL OF AWARD PAYMENT. The Administrator may establish one or
more programs under the Plan to permit selected Grantees the
opportunity to elect to defer receipt of consideration upon
exercise of an Award, satisfaction of performance criteria, or
other event that absent the election would entitle the Grantee to
payment or receipt of Shares or other consideration under an
Award. The Administrator may establish the election procedures,
the timing of such
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elections, the mechanisms for payments of, and accrual of
interest or other earnings, if any, on amounts, Shares or other
consideration so deferred, and such other terms, conditions,
rules and procedures that the Administrator deems advisable for
the administration of any such deferral program.
(f) AWARD EXCHANGE PROGRAMS. The Administrator may establish one or
more programs under the Plan to permit selected Grantees to
exchange an Award under the Plan for one or more other types of
Awards under the Plan on such terms and conditions as determined
by the Administrator from time to time.
(g) SEPARATE PROGRAMS. The Administrator may establish one or more
separate programs under the Plan for the purpose of issuing
particular forms of Awards to one or more classes of Grantees on
such terms and conditions as determined by the Administrator from
time to time.
(h) INDIVIDUAL OPTION AND SAR LIMIT. The maximum number of Shares with
respect to which Options and SARs may be granted to any Employee
in any fiscal year of the Company shall be 300,000 Shares. The
foregoing limitation shall be adjusted proportionately in
connection with any change in the Company's capitalization
pursuant to Section 10, below.
(i) EARLY EXERCISE. The Award Agreement may, but need not, include a
provision whereby the Grantee may elect at any time while an
Eligible Employee to exercise any part or all of the Award prior
to full vesting of the Award. Any unvested Shares received
pursuant to such exercise may be subject to a repurchase right in
favour of the Company or a Related Entity or to any other
restriction the Administrator determines to be appropriate.
(j) TERM OF AWARD. The term of each Award shall be the term stated in
the Award Agreement, provided, however, that the term of an Option
shall be no more than ten (10) years from the date of grant
thereof. However, in the case of an Incentive Stock Option granted
to a Grantee who, at the time the Option is granted, owns stock
representing more than ten percent (10%) of the voting power of
all classes of stock of the Company or any Parent or Subsidiary,
the term of the Option shall be five (5) years from the date of
grant thereof or such shorter term as may be provided in the Award
Agreement.
(k) TRANSFERABILITY OF AWARDS. Options may not be sold, pledged,
assigned, hypothecated, transferred, or disposed of in any manner
other than by will or by the laws of descent or distribution and
may be exercised, during the lifetime of the Grantee, only by the
Grantee; provided, however, that the Grantee may designate a
beneficiary of the Grantee's Option in the event of the Grantee's
death on a beneficiary designation form provided by the
Administrator. Other Awards shall be transferable to the extent
provided in the Award Agreement.
(l) TIME OF GRANTING AWARDS. The date of grant of an Award shall for
all purposes be the date on which the Administrator makes the
determination to grant such
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Award, or such other date as is determined by the
Administrator. Notice of the grant determination shall be given
to each Employee, Director or Consultant to whom an Award is so
granted within a reasonable time after the date of such grant.
7. AWARD EXERCISE OR PURCHASE PRICE, CONSIDERATION, TAXES AND RELOAD OPTIONS
(a) EXERCISE OR PURCHASE PRICE. The exercise or purchase price, if
any, for an Award shall be as follows:
(i) In the case of an Incentive Stock Option:
A. granted to an Eligible Employee who, at the time of
the grant of such Option owns stock representing
more than ten percent (10%) of the voting power of
all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be
not less than one hundred ten percent (110%) of the
Fair Market Value per Share on the date of grant; or
B. granted to any Eligible Employee other than an
Eligible Employee described in the preceding
paragraph, the per Share exercise price shall be not
less than one hundred percent (100%) of the Fair
Market Value per Share on the date of grant.
(ii) In the case of a Non-Qualified Stock Option, the per Share
exercise price shall be not less than one hundred percent
(100%) of the Fair Market Value per Share on the date of
grant unless otherwise determined by the Administrator.
(iii) In the case of Awards intended to qualify as
Performance-Based Compensation, the exercise or purchase
price, if any, shall be not less than one hundred percent
(100%) of the Fair Market Value per Share on the date of
grant.
(iv) In the case of other Awards, such price as is determined by
the Administrator.
(b) CONSIDERATION. Subject to Applicable Laws, the consideration to be
paid for the Shares to be issued upon exercise or purchase of an
Award including the method of payment, shall be determined by the
Administrator (and, in the case of an Option, shall be determined
at the time of grant). In addition to any other types of
consideration the Administrator may determine, the Administrator
is authorized to accept as consideration for Shares issued under
the Plan the following:
(i) cash;
(ii) check;
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(iii) surrender of Shares or delivery of a properly executed form
of attestation of ownership of Shares as the Administrator
may require (including withholding of Shares otherwise
deliverable upon exercise of the Award) which have a Fair
Market Value on the date of surrender or attestation equal
to the aggregate exercise price of the Shares as to which
said Award shall be exercised (but only to the extent that
such exercise of the Award would not result in an
accounting compensation charge with respect to the Shares
used to pay the exercise price unless otherwise determined
by the Administrator); or
(iv) any combination of the foregoing methods of payment.
(c) TAXES. No Shares shall be delivered under the Plan to any Grantee
or other person until such Grantee or other person has made
arrangements acceptable to the Administrator for the satisfaction
of any foreign, federal, state, or local income and employment tax
withholding obligations, including, without limitation,
obligations incident to the receipt of Shares or the disqualifying
disposition of Shares received on exercise of an Option. Upon
exercise of an Award, the Company shall withhold or collect from
Grantee an amount sufficient to satisfy such tax obligations.
(d) RELOAD OPTIONS. In the event the exercise price or tax withholding
of an Option is satisfied by the Company or the Grantee's employer
withholding Shares otherwise deliverable to the Grantee, the
Administrator may issue the Grantee an additional Option, with
terms identical to the Award Agreement under which the Option was
exercised, but at an exercise price as determined by the
Administrator in accordance with the Plan.
8. EXERCISE OF AWARD
(a) PROCEDURE FOR EXERCISE; RIGHTS AS A SHAREHOLDER.
(i) Any Award granted hereunder shall be exercisable at such
times and under such conditions as determined by the
Administrator under the terms of the Plan and specified in
the Award Agreement.
(ii) An Award shall be deemed to be exercised when written
notice of such exercise has been given to the Company in
accordance with the terms of the Award by the person
entitled to exercise the Award and full payment for the
Shares with respect to which the Award is received by the
Company. Until the issuance (as evidenced by the
appropriate entry on the books of the Company or of a duly
authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or
receive dividends or any other rights as a shareholder
shall exist with respect to Shares subject to an Award,
notwithstanding the exercise of an Option or other Award.
The Company shall issue (or cause to be issued) such stock
certificate promptly upon exercise of the Award. No
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<PAGE>
adjustment will be made for a dividend or other right
for which the record date is prior to the date the stock
certificate is issued, except as provided in the Award
Agreement or Section 10, below.
(b) EXERCISE OF AWARD FOLLOWING TERMINATION OF CONTINUOUS SERVICE.
(i) An Award may not be exercised after the termination date of
such Award set forth in the Award Agreement and may be
exercised following the termination of a Grantee's
Continuous Service only to the extent provided in the Award
Agreement.
(ii) Where the Award Agreement permits a Grantee to exercise an
Award following the termination of the Grantee's Continuous
Service for a specified period, the Award shall terminate
to the extent not exercised on the last day of the
specified period or the last day of the original term of
the Award, whichever occurs first.
(iii) Any Award designated as an Incentive Stock Option to the
extent not exercised within the time permitted by law for
the exercise of Incentive Stock Options following the
termination of a Grantee's Continuous Service shall convert
automatically to a Non-Qualified Stock Option and
thereafter shall be exercisable as such to the extent
exercisable by its terms for the period specified in the
Award Agreement.
(c) BUYOUT PROVISIONS. The Administrator may at any time offer to buy
out for a payment in cash or Shares, an Award previously granted,
based on such terms and conditions as the Administrator shall
establish and communicate to the Grantee at the time that such
offer is made.
9. CONDITIONS UPON ISSUANCE OF SHARES
(a) Shares shall not be issued pursuant to the exercise of an Award
unless the exercise of such Award and the issuance and delivery of
such Shares pursuant thereto shall comply with all Applicable
Laws, and shall be further subject to the approval of counsel for
the Company with respect to such compliance.
(b) As a condition to the exercise of an Award, the Company may
require the person exercising such Award to represent and warrant
at the time of any such exercise that the Shares are being
purchased only for investment and without any present intention to
sell or distribute such Shares if, in the opinion of counsel for
the Company, such a representation is required by any Applicable
Laws.
10. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION
Subject to any required action by the shareholders of the Company, the number of
Shares covered by each outstanding Award, and the number of Shares which have
been authorized for issuance under the Plan but as to which no Awards have yet
been granted or which have been returned to the Plan, the exercise or purchase
price of each such outstanding Award, as well as
13
<PAGE>
any other terms that the Administrator determines require adjustment shall be
proportionately adjusted for (i) any increase or decrease in the number of
issued Shares resulting from a stock split, reverse stock split, stock
dividend, combination or reclassification of the Shares, (ii) any other
increase or decrease in the number of issued Shares effected without receipt
of consideration by the Company, or (iii) as the Administrator may determine
in its discretion, any other reorganization transaction with respect to
Common Stock to which Section 424(a) of the Code applies; provided, however
that conversion of any convertible securities of the Company shall not be
deemed to have been effected without receipt of consideration. Such
adjustment shall be made by the Administrator and its determination shall be
final, binding and conclusive. Except as the Administrator determines, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no
adjustment by reason hereof shall be made with respect to, the number or
price of Shares subject to an Award.
11. CORPORATE TRANSACTIONS/CHANGES IN CONTROL/RELATED ENTITY DISPOSITIONS
Except as may be provided in an Award Agreement:
(a) The Administrator shall have the authority, exercisable either in
advance of any actual or anticipated Corporate Transaction, Change
in Control or Related Entity Disposition or at the time of an
actual Corporate Transaction, Change in Control or Related Entity
Disposition and exercisable at the time of the grant of an Award
under the Plan or any time while an Award remains outstanding, to
provide for the full automatic vesting and exercisability of one
or more outstanding unvested Awards under the Plan and the release
from restrictions on transfer and repurchase or forfeiture rights
of such Awards in connection with a Corporate Transaction, Change
in Control or Related Entity Disposition, on such terms and
conditions as the Administrator may specify. The Administrator
also shall have the authority to condition any such Award vesting
and exercisability or release from such limitations upon the
subsequent termination of the Continuous Service of the Grantee
within a specified period following the effective date of the
Corporate Transaction, Change in Control or Related Entity
Disposition. The Administrator may provide that any Awards so
vested or released from such limitations in connection with a
Change in Control or Related Entity Disposition, shall remain
fully exercisable until the expiration or sooner termination of
the Award. Effective upon the consummation of a Corporate
Transaction, all outstanding Awards under the Plan shall terminate
unless assumed by the successor company or its parent.
(b) The portion of any Option accelerated under this Section 11 in
connection with a Corporate Transaction, Change in Control or
Related Entity Disposition shall remain exercisable as an
Incentive Stock Option under the Code only to the extent the
$100,000 dollar limitation of Section 422(d) of the Code is not
exceeded. To the extent such dollar limitation is exceeded, the
accelerated excess portion of such Option shall be exercisable as
a Non-Qualified Stock Option.
14
<PAGE>
12. EFFECTIVE DATE AND TERM OF PLAN
The Plan shall become effective upon the earlier to occur of its adoption by the
Board or its approval by the shareholders of the Company. It shall continue in
effect for a term of ten (10) years unless sooner terminated. Subject to Section
17, below, and Applicable Laws, Awards may be granted under the Plan upon its
becoming effective.
13. AMENDMENT, SUSPENSION OR TERMINATION OF THE PLAN
(a) The Board may at any time amend, suspend or terminate the Plan. To
the extent necessary to comply with Applicable Laws, the Company
shall obtain shareholder approval of any Plan amendment in such a
manner and to such a degree as required.
(b) No Award may be granted during any suspension of the Plan or after
termination of the Plan.
(c) Any amendment, suspension or termination of the Plan (including
termination of the Plan under Section13.(a), above) shall not
affect Awards already granted, and such Awards shall remain in
full force and effect as if the Plan had not been amended,
suspended or terminated, unless mutually agreed otherwise between
the Grantee and the Administrator, which agreement must be in
writing and signed by the Grantee and the Company.
14. RESERVATION OF SHARES
(a) The Company, during the term of the Plan, will at all times
reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
(b) The inability of the Company to obtain authority from any
regulatory body having jurisdiction, which authority is deemed by
the Company's counsel to be necessary to the lawful issuance and
sale of any Shares hereunder, shall relieve the Company of any
liability in respect of the failure to issue or sell such Shares
as to which such requisite authority shall not have been obtained.
15. NO EFFECT ON TERMS OF EMPLOYMENT/CONSULTING RELATIONSHIP
The Plan shall not confer upon any Grantee any right with respect to the
Grantee's Continuous Service, nor shall it interfere in any way with his or her
right or the Company's right to terminate the Grantee's Continuous Service at
any time, with or without cause.
16. NO EFFECT ON RETIREMENT AND OTHER BENEFIT PLANS
Except as specifically provided in a retirement or other benefit plan of the
Company or a Related Entity, Awards shall not be deemed compensation for
purposes of computing benefits or contributions under any retirement plan of the
Company or a Related Entity, and shall not affect any benefits under any other
benefit plan of any kind or any benefit plan subsequently instituted
15
<PAGE>
under which the availability or amount of benefits is related to level of
compensation. The Plan is not a "Retirement-Plan" or "Welfare Plan" under the
Employee Retirement Income Security Act of 1974, as amended.
17. SHAREHOLDER APPROVAL
The Plan shall be subject to the Plan's approval by the shareholders of the
Company within twelve (12) months from the date the Plan is adopted by the
Company's Board of Directors. Such shareholder approval shall be obtained in the
degree and manner required under Applicable Laws. The Administrator may grant
Awards under the Plan prior to approval by the shareholders, but until such
approval is obtained, no such Award shall be exercisable. In the event that
shareholder approval is not obtained within the twelve (12) month period
provided above, all Awards previously granted under the Plan shall be cancelled
and of no force or effect.
18. GOVERNING LAW
The Plan shall be governed by the laws of California.
16
<PAGE>
EXHIBIT 10.20
LOAN AGREEMENT
March 13, 2000
PACIFIC CAPITAL MARKETS INC., a British Columbia company of 1100 Melville
Street, 6th Floor, Vancouver, B.C., V6E4A6 (the "Lender"), will lend
US$1,000,000 (the "Principal Sum") to INTERNETSTUDIOS.COM,INC., a Nevada
company of 1040 Hamilton Street, Suite 207, Vancouver, B.C., V6B 2R9 (the
"Borrower") on March 12, 2000 ("Date of Advance"). The Borrower will repay
the Principal Sum on April 12, 2000, together with interest calculated and
compounded monthly at the rate of 12 per cent per year from the Date of
Advance. The Borrower will secure its repayment of the Principal Sum with a
promissory note.
The Borrower will use the Principal Sum to implement its business plan.
PROMISSORY NOTE
Made at Vancouver, B.C.
Pricipal Amount US$1,000,000 March 13, 2000
FOR VALUE RECEIVED, the Borrower promises to pay to the order of the Lender
on April 12, 2000, the sum of $1,000,000 lawful money of United States (the
"Principal Sum") together with interest on the Principal Sum from the Date of
Advance, both before and after maturity, default and judgment at the Interest
Rate as defined below.
For the purpose of this promissory note, Interest Rate means 12 per cent per
year. Interest at the Interest Rate must be calculated monthly not in advance
from and including the Date of Advance, compounded monthly and payable
together with the Principal Sum when the Principal Sum is repaid.
The Borrower may pay the Principal Sum in whole or in part at any time.
The Borrower waives presentment, protest, notice of protest and notice of
dishonour of this promissory note.
INTERNETSTUDIOS.COM,INC. PACIFIC CAPITAL MARKETS INC.
_______________________ ___________________________
Authorized Signatory Authorized Signatory
________________________ ___________________________
Authorized Signatory Authorized Signatory
<PAGE>
EXHIBIT 10.22
The Companies Act, 1985
----------------------------
COMPANY LIMITED BY SHARES
----------------------------
Memorandum of Association of
----------------------------
INTERNETSTUDIOS.COM UK LIMITED
1. The name of the Company is INTERNETSTUDIOS.COM UK LIMITED.
2. The Registered Office of the Company will be situated in England.
3. The Objects for which the Company are established are:
(a) To carry on, in conjunction with each other or as
separate and distinct undertakings, all or any of the following
businesses: manufactures, imports, exporters, agents, dealers (both
wholesale and retail) in all articles of commercial, manufacturing
personal and household use and consumption and in all kinds of raw
material; warehousemen; storage contractors, shipping and forwarding
agents; manufactures of an dealers in all types of equipment and
machinery; dealers in property and estates; property developers and
investors; property managers; to offer services of accountant,
bookkeeper or secretary; estate agents, insurance agents and brokers,
financiers, financial agents and to act as nominee, trustee, agent,
factor, broker, executor, administrator, receiver for or otherwise
on behalf of Companies, Corporations, firmsor persons, builders;
scaffolders; contractors; sign makers; heating and ventilation engineers
and contractors; refrigeration engineers, specialists and contractors;
decorators; painters; bricklayers; carpenters; shuttering manufacturers
and erectors; joiners, public works contractors; plasterers, plumbers,
electricians, shop front fitters; carpet dealers and layers; builders and
decorators' merchants; civil, mechanical, constructional,
agricultural, consulting, heating electrical and general engineers;
architects, welders, sheet metal workers; double glazing and window
consultants; blacksmiths, motor engineers; garage proprietors; car
dealers; car hire service, taxi proprietors and operators; travel agents,
tour operators, proprietors of vehicles and vessels of all kinds,
transport and haulage contractors; general engineers; tool makers;
booking agents for, and managers of, theatres, cinemas and all other
kinds of entertainments and sporting events; turf and sporting
accountants in all their branches; proprietors of shops, cafes, clubs,
hotels restaurants, catering contractors, dealers in foods and provisions
of all kinds; wine and spirit merchants; butchers; grocers, greengrocers;
fishmongers and poultry merchants; dealers in health foods; farmers;
florists, horticulturists; bakers; confectioners;
<PAGE>
tobacconists; ironmongers, hardware merchants; dealers in plastics of all
kinds, antique dealers; furniture manufacturers and dealers; leather and
fancy goods dealers; jewelers, radio television and electrical retailers,
dealers and repairers, toys, games and sports equipment dealers;
photographers and dealers in all kinds of photographic material and
equipment, film producers and distributors; footwear manufacturers;
textile merchants, tailors, fashion designers, ladies and gentlemen's
outfitters, clothing manufacturing, boot and shoe retailers,
perfumery and cosmetic dealers, hairdressers; manufacturing and retail
chemists; medical suppliers; printers, publishers, stationers,
advertising and publicity agents; public relation specialists,
consultants, business transfer agents and employment agents; hire
purchase and leasing operators; computer operators, programmers and
dealers; video dealers, market research specialists; business advisers,
mail order specialists; dyers and cleaners; dry cleaners, proprietors of
launderettes, excavation and demolition contractors, locksmiths, security
advisers, plant hirers, scrap iron and waste merchants and commodity
traders and to carry on all or any of the said business, and provide
services in connection therewith, either together as one business or as
separate and distinct businesses, in any part of the world.
(b) To carry on any other business which, in the opinion of the
Company, may be capable of being conveniently or profitably
carried on in conjunction with or subsidiary to any other
business of the Company and is calculated to enhance the value
of the Company's property or further its objects or any of
them.
(c) To purchase or by any other means acquire freehold, leasehold
or any other property for any estate or interest whatever,
movable or immovable, or any interest in such property, and to
sell, lease, let on hire, develop such property, or otherwise
turn the same to the advantage of the Company.
(d) To apply for, register or by other means acquire any patents,
patent rights, brevets d'invention, licenses, trade marks,
concessions and inventions and to use and turn to account the
same or to develop, sell or assign the same or grant licenses
or privileges in respect thereof or otherwise turn the same to
the advantage of the Company.
(e) To build, reconstruct or generally maintain buildings and
works of all kinds, whether or not these are situate on the
property of the Company.
(f) To invest and deal with the monies of the Company in such
shares or upon such securities and in such manner as from time
to time may be determined.
(g) To amalgamate with or to make any agreement or arrangement
with or enter into partnership or joint purse agreement with
any other company, firm or person carrying on business similar
to complementary to the business of the Company or any part
thereof.
2
<PAGE>
(h) To subscribe for, take purchase or otherwise acquire either
for cash, shares or debentures in this Company or any other
consideration any other company or business which, in the
opinion of the Company, may be carried on so as directly or
indirectly to benefit the Company.
(i) To sell or otherwise dispose of the whole or any part of the
business or property of the Company any consideration, shares
or debentures as the Company may think fit.
(j) To lend money to customers, associates and others both
corporate and incorporate and to guarantee the observance and
performance of obligations and contracts by customers and
others.
(k) To borrow or raise money in such manner as the Company thinks
fit and secure the repayment thereof by the creation and issue
of debentures, debenture stock, mortgages or in any other way.
(l) To pay or remunerate any person, firm or company for rendering
services to the Company in the promotion of the Company or the
placing and issue or shares, debentures, debenture stock or
other securities of the Company.
(m) To support and subscribe to any funds and to subscribe to or
assist in the promotion of any charitable, benevolent or
public purpose or object for the benefit of the Company or its
employees, directors or other officers past or present and to
grant pensions to such persons or their dependants.
(n) To draw, make, accept, endorse, discount and execute bills,
warrants, notes or other negotiable or transferable
instruments.
(o) To assist in the promotion of or promote any company or
undertaking which may appear likely to assist or benefit the
Company and to place or guarantee the placing of, subscribe or
underwrite or otherwise acquire any part of the stock,
debentures, debenture stock or other obligations of such
company.
(p) To promote by way of advertising the Company's products and
services in any manner and to reward customers or potential
customers and to promote or take part in any scheme likely to
benefit the Company.
(q) To distribute in specie any of the shares, debentures or
securities of the Company between the members of the Company
in accordance with their rights.
(r) To do all such other things as may be deemed incidental or
conducive to the attainment of the above objects or any of
them.
All the foregoing objects shall be read and construed as separate and
distinct objects and the generality of any such objects shall not be
abridged or cut down by reference to any other object of the Company.
3
<PAGE>
4. The liability of the members is limited.
5. The share capital of the Company is(pound)1,000 divided into 1,000 shares
of (pound)1 each.
We, the several persons whose names, addresses and descriptions are
subscribed are desirous of being formed into a Company in Pursuance of
this Memorandum of Association, and we respectively agree to take the
number of shares in the capital of the Company set opposite our
respective names.
-----------------------------------------------------------------------------
NAMES, ADDRESS AND DESCRIPTIONS Number of shares taken by each subscribe
OF SUBSCRIBERS
-----------------------------------------------------------------------------
GERALD LEWIN ONE
1st Floor Offices
8-10 Stamford Hill
London N16 6XZ
COMPANY REGISTRATION AGENT
MICHAEL HOLDER ONE
1st Floor Offices
8-10 Stamford Hill
London N16 6XZ
COMPANY REGISTRATION AGENT
-----------------------------------------------------------------------------
Dates this 10th day of JANUARY 2000
WITNESS to the above signature -
VIVIENNE LEWIN
1st Floor Offices
8-10 Stamford Hill
London N16 6XZ
COMPANY DIRECTOR
4
<PAGE>
The Companies Act, 1985
----------------------------
COMPANY LIMITED BY SHARES
----------------------------
Articles of Association of
INTERNETSTUDIOS.COM UK LIMITED
PRELIMINARY
1. Subject as hereinafter provided, the regulations contained in Table A
in the Companies (Tables A-F) Regulations 1985 (hereinafter referred to
as Table A) shall apply to the Company.
2. Regulations 2, 3 40, 64, 73-80 (inclusive), 94, 95, 96 and 99 of Table
A aforesaid shall not apply to the Company, but the Articles
hereinafter contained together with the remaining regulations of Table
A, subject to the modifications hereinafter expressed, shall constitute
the regulations of the Company.
CAPITAL
3. The initial share capital of the Company is (pound)1,000 divided into 1,000
shares of (pound)1 each.
4. The shares of the Company, whether forming part of the original capital or
of any increased capital, may be allotted or otherwise disposed of to such
persons and for such consideration and upon such terms as the Directors may
determine subject, in the case of any shares forming part of any increased
capital, to such directions as to the allotment or disposal thereof as
may be given by the Company in general meeting at the time of the
creation of such shares and subject also to the provisions of
Regulation 2 in Table A.
5. Subject to the provisions of the Act any Preference Shares may be
issued on the terms that they are, or at the option of the Company are
liable, to be redeemed.
TRANSFER OF SHARES
6. Any share may be transferred by a member to his or her spouse or lineal
descendant and any share of a deceased member may be transferred to any
such relation as aforesaid of the deceased member. Save as aforesaid
the Directors, in their absolute discretion and without assigning any
reason therefor, may declined to register the transfer of any share
whether or not it is a fully paid share. The first sentence of
Regulation 24 shall not apply to the company.
5
<PAGE>
DIRECTORS
7. No person shall be appointed a Director at any general meeting unless:
(a) he is recommended by the Directors; or
(b) not less than fourteen nor more than thirty-five clear days
before the date appointed for the meeting, notice executed by
a member qualified to vote at the meeting has been given to
the Company of the intention to propose that person for
appointment stating the particulars that would, if he were so
appointed, be required to be included in the Company's
register of Directors together with notice executed by that
person of his willingness to be appointed.
8. Subject as aforesaid, the Company may by ordinary resolution appoint a
person who is willing to act to be a Director either to fill a vacancy
or as an additional Director.
9. The Directors may appoint a person who is willing to act to be a
Director, either to fill a vacancy or as an additional Director,
provided that the appointment does not cause the number of Directors to
exceed any number fixed by or in accordance with the articles as the
maximum number of Directors. A Director so appointed shall hold office
only until the next following annual general meeting but shall be
eligible for reappointment at such annual general meeting. If not so
re-appointed he shall vacate office at the conclusion thereof.
10. A Director who has disclosed his interest in accordance with
Regulations 85 and 86 of Table A and the provision of the Act may vote
in respect of any contract, proposed contract or any arrangement in
which he is interested directly or indirectly and such Director shall
be counted in the quorum at any meeting at which such contract or
proposed contract or arrangement is being considered.
11. A Director may hold any other office or place of profit under the
Company (other than the office of Auditor) in conjunction with his
office of Director for such period and on such terms (as to
remuneration and otherwise) as the Directors may determine.
12. Any Director may act by himself or his firm in a professional capacity
for the Company, and he or his firm shall be entitled to remuneration
for professional services as if he were not a Director; provided that
nothing herein contained shall authorize a Director to act as Auditor
for the Company.
13. The Company shall not be subject to Section 293 of the Act, and
accordingly any person may be appointed or elected as a Director
whatever his age, and no Director shall be required to vacate his
office of Director by reason of his attaining or having attended to age
of seventy years or any other age.
6
<PAGE>
BORROWING POWERS
14. The Directors may exercise all the powers of the Company to borrow
money, and to mortgage or charge its undertaking, property and uncalled
capital, or any part thereof, and, subject to Section 80 of the Act, to
issue debentures, debenture stock, and other securities whether
outright or as security for any debt, liability or obligation of the
Company or of any third party.
SECRETARY
15. The Secretary shall be appointed by the Directors for such term, at
such remuneration and upon such conditions as they may think fit, and
any Secretary so appointed may be removed by them. If at any time there
shall be no Secretary or for any reasons no Secretary capable of
acting, the Directors may appoint an assistant or deputy Secretary.
DIRECTORS
16. The first Director of Directors of the Company shall be the persons
named in the statement delivered under Section 10 of the Act.
17. Unless and until otherwise determined by the Company in General Meeting
the number of Directors (other than alternate directors) shall not be
less than one. If at any time and from time to time there shall be only
one Director (other than alternate directors) of the Company such
Director may act alone in exercising all the powers, discretions and
authorities vested in the Directors, and regulation 89 in Table A shall
be modified accordingly.
SECRETARY
18. The first Secretary of the Company shall be the person named in the
statement delivered under Section 10 of the Act.
7
<PAGE>
NAMES, ADDRESS AND DESCRIPTIONS OF SUBSCRIBERS
----------------------------------------------------------
GERALD LEWIN
1st Floor Offices
8-10 Stamford Hill
London N16 6XZ
COMPANY REGISTRATION AGENT
MICHAEL HOLDER
1st Floor Offices
8-10 Stamford Hill
London N16 6XZ
COMPANY REGISTRATION AGENT
----------------------------------------------------------
Dated this 10th day of JANUARY 2000
WITNESS to the above signatures
VIVIENNE LEWIN
1st Floor Offices
8-10 Stamford Hill
London N16 6XZ
COMPANY DIRECTOR
8
<PAGE>
EXHIBIT 10.23
InternetStudios.com, Inc.
Onlinefilmsales.com, LLC
1351 4th Street
Suite 227
Santa Monica, CA 90401
March 28, 2000
MediaChase Ltd.
8286 Santa Monica Boulevard
West Hollywood, CA 90046
Ladies and Gentlemen:
This letter sets forth the principal terms of the agreement between
InternetStudios.com, Inc., a Nevada corporation ("InternetStudios"),
Onlinefilmsales.com, LLC, a Delaware limited liability company and a
wholly-owned subsidiary of InternetStudios ("Online"), MediaChase Ltd., a
Delaware corporation ("MediaChase"), StudioBuzz.com, LLC, a Delaware limited
liability company owned by MediaChase ("StudioBuzz"), ReporterTV.com, LLC, a
Delaware limited liability company owned by MediaChase ("ReporterTV"), The
Dot To Watch, LLC, a Delaware limited liability company owned by MediaChase
("TDTW") and ReporterTV.com, Inc., a Nevada corporation ("RTVN") regarding
(i) the formation and capitalization of StudioBuzz and ReporterTV, (ii)
Online's acquisition of an interest in StudioBuzz and ReporterTV; (iii)
MediaChase's acquisition of an interest in Online; and (iv) MediaChase's
agreement to provide certain consulting services to StudioBuzz and Online.
Such agreement is made with reference to the following:
A. The Limited Liability Company Agreement of Online, dated of even
date herewith (the "OFS Operating Agreement").
B. The Limited Liability Company Agreement of StudioBuzz, dated of
even date herewith (the "StudioBuzz Operating Agreement");
C. The Limited Liability Company Agreement of ReporterTV, dated of
even date herewith (the "ReporterTV Operating Agreement");
D. The Consulting Agreement between MediaChase and StudioBuzz, dated
of even date herewith (the "StudioBuzz Consulting Agreement");
E. The Consulting Agreement between MediaChase and Online, dated of
even date herewith (the "Online Consulting Agreement");
<PAGE>
F. The Contribution, Assignment and Assumption Agreement, dated of
even date herewith, between MediaChase and The Dot To Watch, LLC, a Delaware
limited liability company owned by MediaChase ("TDTW"), on the one hand, and
ReporterTV, on the other hand (the "RTV Contribution Agreement");
G. The Contribution, Assignment and Assumption Agreement, dated of
even date herewith, between MediaChase and StudioBuzz (the "SB Contribution
Agreement");
H. The Contribution, Assignment and Assumption Agreement, dated of
even date herewith, between RTVN and ReporterTV (the "RTVN Contribution
Agreement");
I. The Contribution, Assignment and Assumption Agreements (other
than the RTV Contribution Agreement, the SB Contribution Agreement and the
RTVN Contribution Agreement) being executed concurrently herewith to
effectuate the transactions contemplated below (such contribution agreements,
together with the RTV Contribution Agreement and the SB Contribution
Agreement are collectively referred to herein as the "Contribution
Agreements");
J. The Assignment of Lease and Landlord's Consent relating to the
transfer to ReporterTV of the Lease Agreement, dated September 30, 1999,
between MediaChase and RTVN, on the one hand, and Maxine Sonnenburg, on the
other hand (the "Lease Assignment"); and
K. The Allonge, dated of even date herewith, transferring to
ReporterTV the Promissory Note executed by MediaChase in favor of Online (as
successor-in-interest to InternetStudios), as amended, and the termination
agreements releasing MediaChase from its obligations thereunder and under the
security documents executed in connection therewith ("Termination Documents").
The OFS Operating Agreement, the StudioBuzz Operating Agreement and the
ReporterTV Operating Agreement are collectively referred to as the "Operating
Agreements." The StudioBuzz Consulting Agreement and the Online Consulting
Agreement are sometimes collectively referred to as the "Consulting
Agreements." The Operating Agreements, the Consulting Agreements, the
Contribution Agreements, the Lease Assignment and the Termination Documents
are collectively referred to as the "Agreements."
With reference to the above, the parties agree as follows:
1. In order to implement the transactions described in the
Agreements, the parties need to take various actions, including, without
limitation, the following:
(a) each of the parties shall use its reasonable and diligent
best efforts to execute such further documents and instruments and perform
such further acts as may be reasonably required or desirable to carry out the
provisions hereof and of the Agreements and the transactions contemplated
hereby and thereby, with the anticipation that all such matters will be
completed by April 30, 2000;
2
<PAGE>
(b) dissolution of RTVN and TDTW; and
(c) obtaining all consents and approvals required as a result
of consummation of the transactions contemplated by the Agreements or the
written waiver of such by the parties required to give such consent.
2. Concurrently with the execution of this Agreement, Online agrees
to pay to MediaChase the amounts outstanding invoices for Online of $418,939.
3. ReporterTV and MediaChase hereby agree that MediaChase shall
have the right on a part-time basis to use following employees being
transferred from TDTW to ReporterTV: Dave Darmour, Terry Lee, Ben Daughtrey
and Michael Wright in connection with MediaChase's business; provided,
however, that MediaChase will promptly upon request reimburse ReporterTV for
a pro rated portion of the weekly base salary payable by ReporterTV to such
employees (based upon the amount of time during normal business hours that
MediaChase uses the employees services during such week) together with a
prorated portion of overhead associated with such employee, if applicable.
Notwithstanding the foregoing, MediaChase agrees that any provision of
services to MediaChase by any of the foregoing employees of ReporterTV shall
take into account the workload of such employee and in the event of any
conflict between the needs of ReporterTV and MediaChase, the needs of
ReporterTV with respect to utilization of such employee shall have priority.
4. ReporterTV hereby agrees to defend, indemnify and hold harmless
MediaChase and its principals, officers, directors, employees and affiliates
from and against any and all liabilities, losses, damages, costs and expenses
(including reasonable legal fees and expenses) associated with any claim or
action brought against them by a third party arising out of, relating to or
otherwise in connection with the Assets and Liabilities (as defined in the
RTV Contribution Agreement) being transferred or assumed by it under the RTV
Contribution Agreement or otherwise relating to its businesses; provided,
however, that the foregoing shall not be deemed to relieve MediaChase of its
obligation to indemnify ReporterTV or its affiliates to the extent provided
herein. StudioBuzz hereby agrees to defend, indemnify and hold harmless
MediaChase and its principals, officers, directors, employees and affiliates
from and against any and all liabilities, losses, damages, costs and expenses
(including reasonable legal fees and expenses) associated with any claim or
action brought against them by a third party arising out of, relating to or
otherwise in connection with the Assets and Liabilities (as defined in the SB
Contribution Agreement) being transferred or assumed by it under the SB
Contribution Agreement or otherwise relating to its businesses; provided,
however, that the foregoing shall not be deemed to relieve MediaChase of its
obligation to indemnify StudioBuzz or its affiliates to the extent provided
herein. MediaChase agrees to indemnify and hold harmless ReporterTV and
StudioBuzz and its principals, officers, directors, employees and affiliates
from and against any and all liabilities, losses, damages, costs and expenses
(including reasonable legal fees and expenses) associated with any claim or
action brought against them by a third party arising out of the liabilities
that are determined to be excluded from the Liabilities under the RTV
Contribution Agreement and the SB Contribution Agreement, respectively. The
party being
3
<PAGE>
indemnified hereunder (the "indemnified party") shall notify the party
agreeing to indemnify such party (the "indemnifying party") promptly of any
such claim in writing, provided, however, that the failure to give such
notice shall not relieve the indemnifying party of the indemnifying party's
obligations hereunder except to the extent that the indemnifying party was
actually and materially prejudiced by such failure with the indemnified
party's liability limited to direct damages caused by such failure. The
indemnifying party will have the sole right to conduct the defense of any
such claim or action (with counsel reasonably satisfactory to the indemnified
party) and all negotiations for its settlement or compromise unless otherwise
agreed to in writing. However, if the indemnifying party, after receiving
notice of any such claim, fails promptly to begin the defense of such claim
or action, the indemnified party may (upon notice to the indemnifying party)
retain counsel and commence to undertake the defense, compromise, or
settlement of such claim or action and any such actions shall be at the
expense of the indemnifying party unless and until indemnifying party
undertakes the defense as contemplated herein. Neither party may enter into
any compromise or settlement that materially affects the other party without
the other party's written approval.
5. The parties agree that the amount set forth in Exhibit A of the
OFS Operating Agreement as InternetStudios' Capital Contribution, shall be
revised following the audit of InternetStudios' Balance Sheet as of March 31,
2000 to reflect the book value of the assets contributed by InternetStudios
to Online as of March 31, 2000.
6. This Agreement and the agreements referred to herein or therein
contain a full and complete statement of the terms of the mutual
understanding of the parties with respect to the subject matter hereof, and
supersede all prior and contemporaneous agreements, understandings,
proposals, representations and warranties. This Agreement can be amended only
by a writing signed by all parties who have signed this Agreement.
7. Except as otherwise provided, the provisions of this Agreement
and all duties, obligations and rights arising herefrom shall be governed by
and interpreted in accordance with the local laws of the State of California,
without giving effect to the principles of conflicts of laws thereof.
8. Whenever possible, each provision of this Agreement will be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision hereof is held to be prohibited or invalid under
applicable law, either in whole or in part, such provision will be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of
this Agreement.
4
<PAGE>
If the above accurately reflects the understanding of the parties,
please so indicate by executing this Agreement in the space provided below.
INTERNETSTUDIOS.COM, LLC
By:_________________________________
Its:_________________________________
ONLINEFILMSALES.COM, LLC
By:_________________________________
Its:_________________________________
Acknowledged and Agreed:
MEDIACHASE, LTD.
By:________________________________
Its:_______________________________
THE DOT TO WATCH, LLC
By:________________________________
Its:_______________________________
STUDIOBUZZ.COM, LLC
By: InternetStudios.com, Inc.,
Its Manager
By:________________________
Name:______________________
5
<PAGE>
REPORTERTV.COM, LLC
By: InternetStudios.com, Inc.,
Its Manager
By:________________________
Name:______________________
REPORTERTV.COM, INC.
By:________________________________
Its:_______________________________
6
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES
<TABLE>
<CAPTION>
COMPANY JURISDICTION OF ORGANIZATION
- ------- ----------------------------
<S> <C>
OnlineFilmSales.com, LLC Delaware
InternetStudios.com UK Limited England
Online Films, LLC Delaware
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 661,124
<SECURITIES> 0
<RECEIVABLES> 1,306,849
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,323,272
<PP&E> 76,401
<DEPRECIATION> 9,960
<TOTAL-ASSETS> 14,151,685
<CURRENT-LIABILITIES> 531,453
<BONDS> 0
0
0
<COMMON> 7,736
<OTHER-SE> 16,359,444
<TOTAL-LIABILITY-AND-EQUITY> 14,151,685
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,723,864
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,947
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-BASIC> 0.32
<EPS-DILUTED> 0.32
</TABLE>
