U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB
(Mark One)
[X] Annual report under Section 13 or 15(d) of the Securities Exchange Act of
1934.
For the fiscal year ended December 31, 1999
OR
[_] Transition report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the transition period from __________ to __________.
Commission File Number: 0-9201
LIBERTY GROUP HOLDINGS, INC.
(Name of Small Business Issuer in Its Charter)
Delaware 59-3453151
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
11 52nd Street
Brooklyn, New York 11232
(Address of Principal Executive (Zip Code)
Offices)
Registrant's telephone number, including area code: (718) 492-1200
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act:
Name of Each Exchange
Title of Each Class: on which Registered:
------------------- -------------------
Common Stock, $0.004 par value None
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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.
Yes [X] No [_]
Check if there is no disclosure of delinquent filers pursuant to Item 405
of Regulation S-B is contained in this form, and no disclosure will 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-KSB
or any amendment to this Form 10-KSB. [ ]
The issuer's revenues for its most recent fiscal year were $1,670,000 which
reflects five weeks of operations of the issuer's primary subsidiary.
The aggregate market value of the voting stock of the registrant held by
non-affiliates of the registrant as of March 27, 2000, was $3,034,500.
As of March 27, 2000, 6,375,000 shares of the registrant's Common Stock
were outstanding.
Transitional Small Business Disclosure Format. Yes [_] No [X]
<PAGE>
PART I
The information set forth in this Report on Form 10-KSB including,
without limitation, that contained in Item 6, Management's Discussion and
Analysis and Plan of Operation, contains "forward looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. Actual results may
materially differ from those projected in the forward-looking statements as a
result of certain risks and uncertainties set forth in this report. Although
management believes that the assumptions made and expectations reflected in the
forward-looking statements are reasonable, there is no assurance that the
underlying assumptions will, in fact, prove to be correct or that actual future
results will not be different from the expectations expressed in this report.
Item 1. Description of Business
Overview
Liberty Group Holdings, Inc. (the "Company"), a Delaware corporation, is a
holding company which owns various subsidiaries. Through Liberty Food Group,
LLC, a Delaware limited liability company, the Company markets and distributes
restaurant and pizzeria food items and supplies. Through Liberty Group Services,
LLC, a Delaware limited liability company, the Company owns a majority equity
share in AskTheRobot, LLC, a New York limited liability company ("AskTheRobot"),
which provides personnel services to internet and e-commerce companies. Prior to
the Merger (as described below) the Company was known as Bio-Response, Inc.
("Bio-Response"), which was incorporated in Delaware on February 9, 1972 to
support various research activities, primarily in the area of immunology.
Bio-Response conducted an initial public offering of its common stock in 1979
and after pursuing its business for several years filed a voluntary petition
under Chapter 11 of the Bankruptcy Act in September 1989. In July 1997,
Bio-Response was restructured as a "public shell" for the purpose of effecting a
business combination transaction with a suitable privately held company. As a
result of the bankruptcy, until the Merger and Asset Purchase (as described
below), Bio-Response had no assets, liabilities, management or ongoing
operations and was not engaged in any business activities.
On November 23, 1999, Bio-Response and BR Acquisition Corp., a Delaware
corporation and a wholly owned subsidiary of Bio-Response ("Merger Sub"),
executed an Agreement and Plan of Merger with Liberty Food Group, Ltd., a
Delaware corporation ("Liberty"), pursuant to which Merger Sub merged with and
into Liberty (the "Merger"), and Bio-Response issued 4,500,000 shares of common
stock, par value $0.004 per share (the "Common Stock") to the stockholders of
Liberty. As a direct result of the Merger, Liberty Food Group, LLC, a Delaware
limited liability company which is wholly owned by Bio-Response (the "Buyer" or
"Liberty Food Group LLC"), purchased all the assets of Ferro Foods Corporation,
a New York corporation ("Ferro"), in consideration of 2,000,000 shares (the
"Ferro Shares") of Common Stock, 1,000,000 of which were issued directly by the
Company and 1,000,000 shares came from the Liberty stockholders. The purchase by
Liberty Food Group, LLC of the assets of Ferro is hereinafter referred to as the
"Asset Purchase". In connection with the Merger and Asset Purchase, the Board of
Directors of Bio-Response effected a change in its name to "Liberty Group
Holdings, Inc." The Board believed that a change in the name of Bio-Response was
necessary and appropriate to reflect the change in Bio-Response's status from a
dormant company to a company with assets and operations.
Ferro was in the business of marketing and distributing restaurant and
pizzeria food items and supplies. Upon consummation of the Asset Purchase, the
Company, through Liberty Food Group LLC, owns all the assets necessary to
operate the business of Ferro, including without limitation, the inventory,
accounts receivable, equipment, vehicles, contract rights, the name "Ferro Foods
Corporation," the "Casa Ferro" brand and the goodwill of the business. The sole
consideration paid for the assets was the Ferro Shares. The Company did not
assume any debts, liabilities or obligations of Ferro in the Asset Purchase.
The Ferro Shares represented 31.37% of the issued and outstanding share
capital of the Company after the consummation of the Merger and Asset Purchase.
The Ferro Shares have been placed in escrow and shall not be released until the
Buyer determines, in its sole and absolute discretion, that Ferro has entered
into a financial accommodation sufficient to satisfy the outstanding debts and
liabilities connected with the business of Ferro. It is the intention of Ferro
and its shareholders that the escrow shares be used, to the extent possible, to
satisfy outstanding debts and liabilities in connection with the business of
Ferro. Accordingly, additional shares may be forfeited by Ferro in the event
that such liabilities and obligations, which were not assumed by Liberty, are
not satisfied.
Moreover, the Ferro Shares are subject to a lock-up agreement and may not
be sold or transferred (other than to the two shareholders of Ferro) until
November 24, 2001. In addition, Ferro and its principals executed a Voting Trust
and Proxy Agreement pursuant to which Barry Hawk, the President, Chief
Operations Officer and a director of the Company, has the sole power to vote the
Ferro Shares. See "Certain Relationships and Related Transactions" below for a
discussion of the lock-up, escrow and voting trust agreements.
Business Strategy
The Company's growth strategy is two-fold. The Company is developing its
core business by hiring additional sales personnel and increasing its systems
efficacy. Concurrently, the Company is also actively engaged in discussions and
negotiations for acquisitions of companies that complement its core business but
which are not as efficient in processes and strategies. The Company believes
that vertical integration and the leverage of distribution channels from the
acquisition of synergistic companies will result in increased sales and cost
savings. The Company intends to continue its policy of reviewing potential
acquisitions.
Products and Markets
The Company, through Liberty Food Group LLC, markets and distributes food
and food-related items and supplies, including fresh and dry groceries,
refrigerated and frozen items, paper and plastic goods and disposables,
janitorial supplies, kitchenware and tabletop items, to the wholesale market,
restaurants and pizzerias and institutions, primarily in the northeastern and
midatlantic states.
Distribution Methods
The Company, through Liberty Food Group LLC, utilizes outside sales
personnel as well as internal sales and support personnel to execute sales on a
weekly, biweekly and monthly basis to its customer base. Through the use of
sophisticated computer technology, Liberty Food Group LLC is able to track sales
and customer usage in order to maximize sales and customer relationships. The
Liberty Food Group LLC's refrigerated fleet of tractor trailers, straight trucks
and delivery vans service multiple states from its New York warehouse facility.
Technology
The Company's recent upgrade of its systems to an enterprise-wide
application based software running on an NT platform automates and manages its
entire accounting and distribution operations on a real time basis.
Competition
The Company competes with small independent and national distributors.
The Company, however, believes that it holds a dominant place in the marketing
and distribution of restaurant, pizzeria and institutional food items and
supplies in the northeastern and midatlantic states due to its brand recognition
and quality of products and service.
Raw Materials
The Company purchases its raw materials and supplies from numerous
suppliers located throughout the United States, Europe and the Far East.
Alternate sources of raw materials and supplies, which are readily available,
can be obtained at competitive prices.
Dependence on Major Customers
The Company is not dependent upon any single customer.
Intellectual Property
The Company does not hold any patents. The Company owns the "Liberty
Perfecto" and "Casa Ferro" tradenames. The Company has applied for trademark
registration for all of its corporate names, logos and brands.
Seasonality
The Company's business is not seasonal.
Employees
As of March 1, 2000, the Company had approximately 45 employees, of whom
approximately 43 were full-time employees and none of whom are covered by
collective bargaining agreements. The Company considers its employee relations
to be satisfactory.
AskTheRobot
On March 14, 2000, the Company, through Liberty Group Services, Inc.
("Services"), a Delaware limited liability company and a wholly-owned subsidiary
of the Company, acquired a 51% equity interest in AskTheRobot, LLC for a
purchase price of $175,000 in cash and the cancellation of a loan to AskTheRobot
in the principal amount of $25,000. Services will provide additional funding of
up to a total of $1,000,000 and the issuance of common stock of the Company,
subject to AskTheRobot achieving certain milestones over a 15-month period.
Additionally, Services will provide certain management services to AskTheRobot
for a fee and options to purchase additional equity interests in AskTheRobot.
AskTheRobot provides subscription-based on-line personnel recruiting and
placement services to internet and e-commerce companies through its website
AskTheRobot.com. The Company believes that AskTheRobot utilizes a subscription
based business model which distinguishes itself in the market from traditional
recruiters who receive payment upon placement.
Item 2. Description of Property
The Company leases approximately 41,000 square feet of space in Brooklyn,
New York, for its warehouse/distribution and executive offices pursuant to a
10-year lease which expires in January, 2010, for which the Company has paid a
base monthly rental of $15,000. Pursuant to the terms of the lease, the Company
may terminate the lease upon 60 days notice without penalty. The Company
believes that these premises are sufficient for its current needs, however, in
connection with the Company's expansion goals, the Company may purchase or lease
additional warehouse space if warranted.
Item 3. Legal Proceedings
On February 22, 2000, F&A Dairy Products, Inc. ("F&A") commenced a lawsuit
against Ferro and Liberty in the United States District Court, Western District
of Wisconsin, seeking a temporary restraining order ordering Ferro and Liberty
to escrow $1,707,310, or in the alternative, to enjoin Ferro and Liberty from
removing the Ferro Shares from escrow. F&A is Liberty's largest supplier of
cheeses and other dairy products. The parties have agreed to settle the lawsuit,
and subject to the execution and delivery of definitive documentation evidencing
the settlement agreement (collectively, the "Definitive Documents"), the lawsuit
will be dismissed. The terms of the settlement include the execution of a
14-month note by Ferro for the amount of the outstanding balance owed by Ferro
to F&A, a guarantee by Liberty of said note thirty days after the execution
thereof, and a pledge by Ferro of 500,000 shares of Common Stock.
PART II
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Market for Common Equity and Related Stockholder Matters
The Company's Common Stock is traded on the over-the-counter bulletin
board (OTCBB) under the trading symbol "LGHI" (formerly BRSP). Set forth below
are the high and low bid prices for a share of the Common Stock for the first
fiscal quarter of 2000 and each fiscal quarter during the prior two fiscal
years, as reported in published financial sources. The bid quotations set forth
below reflect inter-dealer prices, without retail markup, mark-down or
commission and may not necessarily represent actual transactions.
High Low
Fiscal Year Ended December 31, 1998
First Quarter........................ 1 1/2 1/2
Second Quarter....................... 1/2 1/2
Third Quarter........................ 41/64 1/2
Fourth Quarter....................... 41/64 5/16
Fiscal Year Ended December 31, 1999
First Quarter........................ 2 5/16
Second Quarter....................... 2 1/4 1/32
Third Quarter........................ 2 1/4 1/2
Fourth Quarter....................... 3 3/8 1/2
First Fiscal Quarter
(through March 1, 2000) 2 3/41 1/2
As of March 27, 2000, there were approximately 2,100 stockholders of
record and the closing bid price of a share of Common Stock was $3.00 on March
27, 2000.
The Company has not paid any cash dividends on its Common Stock over the
last two fiscal years.
Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion and analysis of the Company's results of
operations and financial condition should be read in conjunction with the
Company's audited consolidated financial statements and notes thereto.
Results of Operations
From July 1997 until November 23, 1999, the Company was actively seeking
an acquisition. Prior to November 23, 1999, the Company had no assets,
liabilities or obligations and did not engage in any operations or generate any
revenues.
On November 23, 1999 the Company acquired the assets of Ferro. See Item 1,
"Description of Business" above.
Liquidity/Capital Resources
The Company is reviewing its options for additional sources of capital and
may offer securities of the Company to provide for future acquisitions.
Material Commitments for Capital Expenditures
Pursuant to the Company's acquisition of AskTheRobot, the Company, through
a wholly-owned subsidiary, will provide additional funding on a quarterly basis
commencing June 14, 2000 of up to $1,000,000 and the issuance of Common Stock of
the Company equal to the greater of $3.00 per share and the current market value
of the stock on the date of issuance, if AskTheRobot achieves certain milestones
over a 15-month period commencing June 14, 2000.
Item 7. Financial Statements
This Annual Report will be amended to provide the consolidated financial
statements of the Company and its subsidiaries including the notes thereto,
together with the reports thereon of JH Cohen LLP and Friedman Alpren.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Section 16(a) Beneficial Ownership Reporting Compliance
Set forth below are the name, age and positions with the Company, their
business experience during the last five years and the year each was first
elected a director of the Company:
Name Age Position
Dennis E. Lane.............. 47 Director, Chairman, Chief Executive
Officer and Treasurer
Barry L. Hawk............... 31 Director, President, Chief Operations
Officer and Secretary
Dennis E. Lane, 47, has been a Director and Chairman, Chief Executive
Officer and Treasurer of the Company since November 1999 upon the consummation
of the Merger. Since October 1998, Mr. Lane was Vice President-Business
Development of Ferro. From January 1995 until September 1998, Mr. Lane was a
director of Winderby Management, S.A., an import/export operations and trade
development company with business in Europe, the Mediterranean, North Africa and
the Pacific Rim. From April 1993 until January 1995, Mr. Lane was a director of
Livan Partners, S.A., an import/export operations and trade development company
with business in Europe, the Mediterranean and North Africa.
Barry L. Hawk, 31, has been a Director, President, Chief Operations Officer
and Secretary of the Company since November 1999 upon consummation of the
Merger. Since December 1998, Mr. Hawk was Vice President-Corporate Development
of Ferro. From February 1998 until December 1998, Mr. Hawk was a Vice President
of Crestwood Capital Group, Corp., a New York-based company which provided
corporate financing and management consulting services to both public and
private companies. From March 1996 until February 1998, Mr. Hawk was the
President of Win Capital Corp, a New York-based company corporate finance,
trading and consulting company. From December 1994 until March 1996, Mr. Hawk
was a Managing Director of Precision Consulting Group, Inc., a pension and
investment consulting company. Mr. Hawk graduated Yeshiva University with a B.A.
with honors in 1990.
Sally A. Fonner, the sole director and officer of the Company resigned
from all of her positions with the Company upon the consummation of the Merger.
The directors serve until the next annual meeting of stockholders and
until their respective successors are elected and qualified. Officers serve at
the discretion of the Board of Directors.
Board of Directors and Committees
The Board of Directors took five actions during the fiscal year ended
December 31, 1999. The Board does not have any committees.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's executive officers, directors and persons who beneficially own more
than 10% of a registered class of the Company's equity securities to file with
the Securities and Exchange Commission initial reports of ownership and reports
of changes in ownership of equity securities of the Company. Such persons are
required by Commission regulations to furnish the Company with copies of all
Section 16(a) forms they filed.
To the Company's knowledge, based solely on the Company's review of Forms
3 (Initial Statement of Beneficial Ownership of Securities), Forms 4 (Statement
of Changes in Beneficial Ownership) and Forms 5 (Annual Statement of Changes in
Beneficial Ownership) furnished to the Company and the current information
concerning the ownership of its securities, Bob Williams, who failed to file a
Form 3 in April 1999, was the only person who has failed to file any such form
in a timely manner.
Item 10. Executive Compensation.
Summary Compensation Table
The following table presents certain specific information regarding the
compensation of the Chief Executive Officer of the Company and the only other
executive officer of the Company:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation
Securities
Underlying
Fiscal Bonus Stock Options All other
Name and Principal Position Year Salary ($) ($) (#) Compensation
- --------------------------- ---- ---------- --- --- ------------
<S> <C> <C> <C> <C> <C>
Dennis E. Lane, Chairman, 1999 14,583(2) --- 2,175,000(3) ---
Chief Executive Officer and 1998 --- --- --- ---
Treasurer 1997 --- --- --- ---
Barry L. Hawk, President, 1999 13,333 (2) --- 2,175,000(3) ---
Chief Operations Officer and 1998 --- --- --- ---
Secretary 1997 --- --- --- ---
- ---------------
</TABLE>
(1) Sally A. Fonner served as President, Secretary and Treasurer of Bio-Response
until her resignation as the sole officer of the Company effective upon the
closing of the Merger on November 23, 1999. She received no monetary
compensation for services performed during her tenure. Effective upon the
closing of the Merger, Mr. Lane was appointed Chairman, Chief Executive Officer
and Treasurer and Mr. Hawk was appointed President, Chief Operations Officer and
Secretary of the Company.
(2) Messrs. Lane and Hawk employment with the Company did not commence until
November 23, 1999. Compensation for such individuals reflects a pro rata amount
of annual base compensation received from the Company from November 23, 1999
through December 31, 1999 pursuant to Employment Agreements between Liberty and
each of Messrs. Lane and Hawk which were assumed by the Company pursuant to the
Merger.
(3) These options were granted pursuant to option agreements between Liberty and
each of Messrs. Lane and Hawk which were assumed by the Company pursuant to the
Merger. See discussion below in "Option Grants" as to vesting on achievement of
certain Company benchmarks.
Employment Agreements
Pursuant to the Merger, the Company assumed employment agreements between
Liberty and each of Messrs. Hawk and Lane (the "Employment Agreements"). The
Employment Agreements are for a five-year term which commenced July 1, 1999 and
are automatically extended on a year-to-year basis unless terminated by either
party by notice given not less than 60 days prior to the end of the then current
employment term. Commencing as of July 1, 1999, Messrs. Lane and Hawk are
entitled to receive a base salary of $175,000 and $160,000, respectively, per
year, with annual increases each year thereafter at the greater of 10% of the
previous year's base salary or in an amount which is equal to the proportional
annual increase in the Consumer Price Index - All Items. Each of Messrs. Lane
and Hawk are entitled to a cash bonus equal to no less than 10% of their
respective annual base salary if the Company has achieved either $100,000
pre-tax earnings or a 10% growth in revenues for the previous 12-month period
(measured each July 1st through June 30th). The amount of the bonus, which is
payable based on the Company's unaudited financials as of June 30th each year of
the employment agreement, shall not be less than 10% and not more than 100% of
the amount of the then current base salary.
Each of the Employment Agreements are subject to termination by the
Company only for cause upon 90 days' written notice if either Mr. Lane or Mr.
Hawk, as the case may be, has been convicted for any material act of fraud,
misappropriation, embezzlement, disloyalty, dishonesty or breach of trust
against the Company or any of its subsidiaries or affiliated companies.
Notwithstanding such termination, the Company will remain obligated to pay the
employee his annual base salary through the date of termination. In the event of
the employee's death or total disability, or a change of control of the Company,
he will be entitled to receive a death or disability benefit equal to the
remainder of the base salary and the bonus as if the earnings or growth levels
were met for the balance of the five-year term of the Employment Agreement.
Each of Messrs. Lane and Hawk are entitled to participate, at the
Company's expense, in all insurance and medical plans of the Company available
to its most senior employees and are entitled to reimbursement for business and
entertainment expenses.
401(k) Plan
The Ferro 401(k) and Profit Sharing Plan was assumed by the Company in the
Merger. The Plan provides for Company contributions on behalf of eligible
employees who elect to defer up to 25% of their annual compensation, up to a
maximum of $10,500 for the year 2000. No Company matching contribution or other
discretionary contribution has been made by the Company to date.
Option Grants
Pursuant to the Merger, the Company assumed option agreements between
Liberty and each of Messrs. Hawk and Lane (the "Option Agreements"). The Option
Agreements entitle Messrs. Hawk and Lane to exercise their options to purchase
275,000 shares of Common Stock of the Company at an exercise price of $.004 per
share. Said options are exercisable if from July 1, 1999 through June 30, 2000
Liberty either (a "Threshold Benchmark") achieved a 20% growth in revenues or
acquired a company with at least $5,000,000 in revenues. The Option Agreements
also provide for the following vesting of options exercisable for shares of
Common Stock by each of Messrs. Hawk and Lane: (i) if between July 1, 2000 and
June 30, 2001 a Threshold Benchmark is met, options to acquire 400,000 shares of
Common Stock at an exercise price of $1.00; (ii) if between July 1, 2001 and
June 30, 2002 a Threshold Benchmark is met, options to acquire 450,000 shares of
Common Stock at an exercise price of $1.50; (iii) if between July 1, 2002 and
June 30, 2003 a Threshold Benchmark is met, options to acquire 500,000 shares of
Common Stock at an exercise price of $2.00; (iv) if between July 1, 2003 and
June 30, 2004 a Threshold Benchmark is met, options to acquire 550,000 shares of
Common Stock at an exercise price of $2.50. The foregoing options automatically
vest upon the death, total disability or termination without cause of the
optionee as an officer and director of the Company. The options contain
customary anti-dilution provision, except that there is no anti-dilution
adjustment if the Company effectuates a reverse stock split. The options are
exercisable for a period of seven years from the date such option vested.
The table below contains the estimated present value of stock options
granted in 1999, as of their issue date.
OPTION GRANTS IN LAST FISCAL YEAR
% of
Total
Number of Options
Securities Granted to
Underlying Employees Exercise or
Options in Fiscal Base Price Expiration
Name Granted (#) Year ($/SH) Date
Dennis E. Lane.. 2,175,000(1) 50% (1) (1)
Barry L. Hawk... 2,175,000(1) 50% (1) (1)
(1) See discussion above in "Option Grants" as to vesting on the achievement of
certain Company benchmarks and the applicable exercise price.
There were no exercises of stock options or stock appreciation rights by
any named officer during fiscal 1999.
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth the beneficial ownership of the Company's
Common Stock on March 27, 2000 by persons who either (i) are beneficial owners
of 5% of the Company's Common Stock, or (ii) are directors or officers of the
Company. The information contained in the table is based on the Company's
current information concerning the ownership of its securities.
As of March 27, 2000, there were 6,375,000 shares of Common Stock
outstanding.
Beneficial Percent
Name and Address of Beneficial Owner(1) Ownership of Class
of Common Stock
Ferro Foods Corporation 1,933,000(2) 30.32%
28 53rd Street
Brooklyn, NY 11232
All officers and directors of the Company 5,001,250(6) 72.22%
as a group (two persons)
(1) Except as noted in these footnotes or as otherwise stated above,
each person has sole voting and investment power.
(2) 2,000,000 shares were issued to Ferro in consideration for the
transfer and sale of all of the assets of Ferro to the Company. See
Item 1 "Description of Business-Overview." Such shares are subject
to a Voting Trust and Proxy Agreement by and among Liberty, Ferro,
Frank Ferro, Sr. and Frank Gambino (the "Voting Agreement"),
pursuant to which Mr. Hawk has full voting power over such shares
until November 23, 2001. Moreover, in connection with the
acquisition of the assets from Ferro, these shares were placed in
escrow pursuant to an Escrow Agreement dated as of November 23, 1999
(the "Escrow Agreement"). Pursuant to Amendment No. 1 to the Escrow
Agreement dated as of February 1, 2000, 67,000 shares of Common
Stock were forfeited by Ferro and released from escrow to various
third parties. Since the financial accommodation to satisfy debts of
Ferro was not established, these 1,933,000 shares are to remain in
escrow and will not be released until Liberty determines, in its
sole and absolute discretion, that Ferro has entered into a
financial accommodation sufficient to satisfy the outstanding debts
and liabilities connected with the business of Ferro.
(3) Each of the trusts was a stockholder of Liberty, and received the
number of shares of Common Stock set forth opposite its respective
name as a result of the Merger. Dennis Lane and his wife, Diane, are
the trustees of both the Haines City Trust and Potomac River Trust
(which holds 280,000 shares of Common Stock, or 4.39% of the issued
and outstanding share capital). Diane Lane and David Lubin, Esq.,
are the trustees of the Great Falls Trust (which holds 280,000
shares of Common Stock, or 4.39% of the issued and outstanding share
capital). Each trust agreed with the Company that it will not sell
the shares of Common Stock until November 24, 2001. Although each of
the trustees has joint and several discretion on the voting and
investment power of each of the respective trusts, each of the
trustees expressly disclaims beneficial ownership of the shares of
Common Stock held by each such trust.
(4) Each of the trusts was a stockholder of Liberty, and received the
number of shares of Common Stock set forth opposite its respective
name as a result of the Merger. Barry Hawk and his wife, Lisa, are
the trustees of both the Willow Road Trust and Crafton Trust (which
holds 250,000 shares of Common Stock, or 3.92% of the issued and
outstanding share capital). Lisa Hawk and David Lubin, Esq., are the
trustees of the Steel II Trust. Each trust agreed with the Company
that it will not sell the shares of Common Stock until November 24,
2001. Although each of the trustees has joint and several discretion
on the voting and investment power of each of the respective trusts,
each of the trustees expressly disclaims beneficial ownership of the
shares of Common Stock held by each such trust.
(5) Each of Messrs. Hawk and Lane are entitled to purchase 275,000
shares of Common Stock at an exercise price of $.004 per share
pursuant to option agreements which were assumed by the Company in
the Merger. Said options were exercisable if between July 1, 1999
through June 30, 2000 Liberty either achieved a 20% growth in
revenues or acquired a company with at least $5,000,000 in revenues.
(6) These shares are attributed to Messrs. Hawk and Lane.
Item 12. Certain Relationships and Related Transactions.
See "Option Grants" and "Employment Agreements" above for a description of
the Employment Agreements and Option Agreements with Messrs. Lane and Hawk
assumed by the Company in the Merger.
The Company entered into an indemnification agreement with each of Messrs.
Lane and Hawk, pursuant to which each of Messrs. Lane and Hawk is provided with
contractual indemnification to the fullest extent permitted by law, and for the
advancement of legal fees and other expenses and require the Company to use its
best efforts to maintain designated directors' and officers' liability insurance
coverage.
On November 23, 1999, each of Ferro, the Haines City Trust, the Willow
Road Trust, the Steel II Trust, the Crafton Trust, the Potomac River Trust and
the Great Falls Trust, entered into a Lock-Up Agreement dated November 23, 1999,
in favor of the Company which provides that it shall not (a) promote or
otherwise maintain a market for the Common Stock; (b) engage in any "buy-side"
trading activities, hedging transactions or other activities that could
reasonably be expected to influence the market price of the Common Stock; (c)
sell, transfer, gift or otherwise dispose of any of the Common Stock until
November 24, 2001; and after such time, (i) shall not sell any Common Stock in a
transaction that is effected at a price which is lower than the quoted bid price
of the Common Stock at the time of sale; (ii) if it engages in multiple sales of
shares of Common Stock in any five consecutive business day period, it shall not
sell any shares of Common Stock in a transaction that is effected at a price
which is lower than the last price received by it for the shares of Common
Stock; and (iii) shall not sell more than ten percent (10%) of the shares of
Common Stock held by it in any calendar month.
Upon the consummation of the Asset Purchase on November 23, 1999, the
Ferro Shares were placed in escrow, in accordance with the terms of an Escrow
Agreement dated as of November 23, 1995, as amended February 1, 2000, by and
among Ferro, the Buyer, Frank Ferro, Sr. ("FF") and Frank Gambino ("FG") and
Herrick, Feinstein LLP, as escrow agent (the "Escrow Agreement"), and shall be
released, at such times and in such amounts, upon written instructions from the
Buyer, when it, in its sole and absolute discretion, is satisfied that all
liabilities or obligations of Ferro, FF and FG in connection with Ferro's
business and assets have been satisfied. Pursuant to Amendment No. 1 to the
Escrow Agreement dated as of February 1, 2000 ("Amendment No. 1 to Escrow
Agreement"), 67,000 shares of Common Stock were forfeited by Ferro and released
from escrow to various third parties. Since a financial accommodation to satisfy
the debts of the business was not established, the balance of the shares are to
remain in escrow and are to be released only upon the written instructions of
the Buyer. It is the intention of Ferro, FF and FG that the escrow shares be
used, to the extent possible, to satisfy outstanding debts and liabilities in
connection with the business of Ferro. Accordingly, additional shares may be
forfeited by Ferro in the event that such liabilities and obligations are not
satisfied.
Subsequent to the consummation of the Merger on November 23, 1999, the
Company advanced funds to Ferro in the aggregate amount of approximately
$1,400,000 to satisfy certain obligations and liabilities of Ferro. The loan is
secured by a revolving credit line mortgage.
The Company leases from Ferro approximately 41,000 square feet of
warehouse and office space for which it pays $15,000 per month, in a building in
Brooklyn, New York, for a ten-year term. See Item 2, "Description of Property"
above.
The Company has director and officer liability insurance.
Item 13. Exhibits, List and Reports on Form 8-K.
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit Description Incorporated by Exhibit No. in
Number Reference from Referenced Document
Document
<S> <C> <C> <C>
3.1 Certificate of Incorporation of Bio-Response A 3(a)
3.2 By-laws of Bio-Response, as amended B 3(b)
3.3 Amendment to Certificate of Incorporation of Bio-Response C 3.1
dated March 31, 1999
4.1 Specimen Certificate for shares of Common Stock $.004 par value C 4.1
9.1 Voting Trust (See Exhibit 10.4 below)
10.1 Agreement and Plan of Merger, dated as of November 23, 1999, D 10.1
by and among Bio-Response, Inc., BR Acquisition Corp. and
Liberty Food Group, Ltd.
10.2 Asset Purchase Agreement dated as of November 23, 1999, by and D 10.2
among Liberty Food Group, LLC, Ferro Foods Corporation, Frank
Ferro, Sr. and Frank Gambino
10.3 Escrow Agreement, dated as of November 23, 1999, by and among D 10.3
Liberty Food Group, LLC, Ferro Foods Corporation, Frank Ferro,
Sr., Frank Gambino, and Herrick, Feinstein LLP, as escrow agent
10.4 Voting Trust and Proxy Agreement, dated as of November 23, D 10.4
1999, by an among Ferro Foods Corporation, Frank Ferro, Sr.,
Frank Gambino, and Barry Hawk
10.5 Employment Agreement, dated as of July 1, 1999, by and between D 10.5
Liberty Food Group, Ltd. and Barry Hawk, as assumed and
assigned by BR Acquisitions Corp to Liberty Group Holdings,
Inc., f/k/a Bio-Response, Inc.
10.6 Employment Agreement, dated as of July 1, 1999, by and between D 10.6
Liberty Food Group, Ltd. and Dennis Lane, as assumed and
assigned by BR Acquisitions Corp to Liberty Group Holdings,
Inc., f/k/a Bio-Response, Inc.
10.7 Option Agreement, dated as of July 1, 1999, by and between D 10.7
Liberty Food Group, Ltd. and Dennis Lane, as assumed and
assigned by BR Acquisitions Corp to Liberty Group Holdings,
Inc., f/k/a Bio-Response, Inc.
10.8 Option Agreement, dated as of July 1, 1999, by and between D 10.8
Liberty Food Group, Ltd. and Barry Hawk, as assumed and
assigned by BR Acquisitions Corp to Liberty Group Holdings,
Inc., f/k/a Bio-Response, Inc.
10.9 Press Release issued by Liberty Group Holdings, Inc. f/k/a D 10.9
Bio-Response, Inc.
10.10 Amendment No. 1 to Escrow Agreement dated as of February 1, E 10.10
2000, by and among Liberty Food Group, LLC, Ferro Foods
Corporation, Frank Ferro, Sr., Frank Gambino, and Herrick,
Feinstein LLP, as escrow agent
10.11 Limited Liability Company Agreement of AskTheRobot dated March * *
14, 2000, by and among AskTheRobot, the Company, Michael Vogel
and Douglas Capeci
10.12 Management Agreement dated March 14, 2000, between the Company * *
and AskTheRobot, LLC
10.13 Subscription Agreement dated March 14, 2000, between the * *
Company and AskTheRobot, LLC
21 Subsidiaries of the Company. * *
</TABLE>
Notes:
* Filed herewith.
A. Registration Statement of Bio-Response on Form S-2, No. 33-965
B. Annual Report of Bio-Response on Form 10-K for the year ended
December 31, 1998
C. Current Report of Bio-Response on Form 8-K dated March 31, 1999
D. Current Report of the Company on Form 8-K dated November 23, 1999
(b) Reports on Form 8-K.
One Current Report on Form 8-K was filed by the Company during the quarter
ended December 31, 1999 and reported Items 1, 2 and 5 ("Form 8-K"). The date of
the Form 8-K was November 23, 1999. A Current Report on Form 8-K/A was filed on
March 14, 1999 to amend Item 7 of the Form 8-K by providing Financial Statements
of Business Acquired and Pro Forma Financial Information and reported Item 5.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
LIBERTY HOLDINGS GROUP, INC.
By: /s/ Dennis E. Lane
--------------------
Dennis E. Lane, Chairman,
Chief Executive Officer, Treasurer
By: /s/ Barry L. Hawk
-------------------
Barry L. Hawk, President,
Chief Operations Officer, Secretary
In accordance with the requirements of the Securities Exchange Act of
1934, this report has been signed by the following persons on behalf of the
registrant in the capacities and on the dates indicated.
By: /s/ Dennis E. Lane April 14, 2000
--------------------------------
Dennis E. Lane, Director,
Chairman, Chief Executive
Officer, Treasurer
By: /s/ Barry L. Hawk April 14, 2000
--------------------------------
Barry L. Hawk, Director,
President, Chief Operations
Officer, Secretary
MANAGEMENT AGREEMENT
Management Agreement made as of this 14th day of March, 2000 (this
"Agreement") between Liberty Group Services, LLC, a Delaware limited liability
company ("Liberty"), and AskTheRobot, LLC, a New York limited liability company
(the "Company").
WHEREAS, the Company desires to retain Liberty to render certain
services to the Company with respect to the strategy of the Company and the
administration of the Company's business affairs, and the Company is willing to
render such services;
NOW, THEREFORE, the parties agree as follows:
1. Appointment. The Company hereby appoints Liberty to provide
management services to the Company to administrator its business affairs until
this Agreement is terminated by either party in accordance with the terms
hereof. Liberty accepts such appointment and agrees to render the services
herein described, for the compensation herein provided.
2. Duties. Liberty will provide implementation of the Company's
strategy as well as administer the Company's business affairs as requested by
the Company, and, in connection therewith, the Company will furnish to Liberty
and its affiliates, agents and representatives with office facilities and
utilities as well as with clerical, bookkeeping and recordkeeping services at
such office facilities, communications equipment and services including
telephone and telefax facilities, and computer equipment and services. The
services of Liberty to the Company under this Agreement are not to be deemed
exclusive, and Liberty will be free to render similar services to others.
3. Management Fee. For the services provided hereunder, the Company
shall pay Liberty a fee of $5,000 per month, payable in options to purchase
membership interests of the Company at a pre-money valuation of $6 million. Said
fee shall be payable for the term of this Agreement, provided, however, that
notwithstanding any termination of this Agreement prior to the anniversary date
hereof or any sale or merger or public offering of the Company during said
twelve (12) month period, said management fee (i.e., the right to purchase
equity interests in the Company) shall survive for not less than a 12-month
period (i.e., the right to purchase $60,000 worth of membership interests of the
Company at a pre-money valuation of $6 million).
4. Limitation of Liability. (a) None of Liberty or any of its
members, managers or their respective stockholders, controlling persons,
officers, directors, employees, representatives or agents or any of their
respective affiliates, employees, agents or principals (collectively, "Covered
Persons") will be liable to the Company for any act or omission taken or
suffered by such Covered Person in good faith and in the reasonable belief that
such act or omission is within the scope of authority granted to such Covered
Person by this Agreement; provided that such act or omission does not constitute
fraud, willful misfeasance, bad faith, or gross negligence by the Covered Person
in the conduct of the duties of the Covered Person ("Disabling Conduct").
(b) A Covered Person will incur no liability in acting upon any
signature or writing reasonably believed by him to be genuine, and may rely on a
certificate signed by an executive officer of any person in order to ascertain
any fact with respect to such person or within such person's knowledge and may
rely on an opinion of counsel selected by such Covered Person with respect to
legal matters unless such Covered Person engaged in Disabling Conduct. Each
Covered Person may act directly or through its agents or attorneys. Each Covered
Person may consult with counsel, appraisers, engineers, accountants and other
skilled persons of its choosing, and will not be liable for anything done,
suffered or omitted in good faith in reasonable reliance upon the advice of such
persons unless such Covered Person engaged in Disabling Conduct. No Covered
Person will be liable to the Company for any mistake of fact or judgment by the
Covered Person in conducting the affairs of the Company or otherwise acting in
respect of and within the scope of this Agreement unless such person engaged in
Disabling Conduct.
5. Confidentiality. (a) Liberty hereby severally covenants and
agrees that Liberty and each of its officers, directors, members, employees,
agents and representatives shall retain in strict confidence, and shall not use
for any purpose whatsoever, or divulge, disseminate or disclose to any third
party (other than in furtherance of the business purposes of the Company or as
may be required by law) all proprietary or confidential information relating to
the Company's business, including, without limitation, financial information,
development plans, pricing information, business methods, management information
systems and software, customer lists, supplier lists, leads, solicitations and
contacts, know-how, show-how, inventions, techniques, improvements,
specifications, trade secrets, agreements, research and development, business
plans and marketing plans of the Company, whether or not any of the foregoing
are copyrightable or patentable.
(b) If Liberty breaches, or threatens to commit a breach of,
any of the provisions of this Section 5, then the Company shall have the
following rights and remedies, each of which rights and remedies shall be
independent of the other and severally enforceable, and all of which rights and
remedies shall be in addition to and not in lieu of, any other rights and
remedies that are available at law or in equity:
(i) The right and remedy to have the covenants
contained herein specifically enforced by any court having equity jurisdiction,
it being acknowledged and agreed that any such breach or threatened breach will
cause irreparable injury to the Company and that money damages will not provide
an adequate remedy to the Company; and/or
(ii) The right and remedy to declare a material
default of this Agreement by Liberty and to recover damages therefor in
accordance with applicable law.
If any court determines that any of the covenants contained in this
Section 5, or any part thereof, is unenforceable because of, among other
reasons, the duration of such provision or the restrictive area covered thereby,
such court shall have the power to reduce the duration or restrictive area of
such provision and, in its reduced form, such provision will then be enforceable
and shall be enforced.
6. Indemnification. (a) The Company will, to the fullest extent
permitted by applicable law, indemnify and hold harmless each Covered Person
from and against all claims, liabilities and expenses of whatever nature, known
or unknown, liquidated or unliquidated ("Claims") relating to or arising from
activities undertaken in connection with the Company or otherwise relating to
this Agreement, including, but not limited to, amounts paid in satisfaction of
judgments, in compromise or as fines and penalties, and counsel fees and
expenses (all of such amounts are referred to as "Damages") incurred in
connection with the defense or disposition of any action, suit or other
proceeding (a "Proceeding"), whether civil or criminal, before any court or
administrative body in which such Covered Person may be or may have been
involved as a party or otherwise or with which such Covered Person may be or may
have been threatened, while acting as such Covered Person except with respect to
any matter as to which such Covered Person shall have engaged in Disabling
Conduct.
(b) Expenses incurred by a Covered Person in defense or settlement
of any Claim that may be subject to a right of indemnification hereunder may be
advanced by the Company prior to the final disposition thereof upon receipt of
an undertaking by or on behalf of the Covered Person to repay such amount if it
shall be determined ultimately that the Covered Person is not entitled to be
indemnified hereunder. The right of any Covered Person to the indemnification
provided herein shall be cumulative with, and in addition to, any and all rights
to which such Covered Person may otherwise be entitled by contract or as a
matter of law or equity and shall extend to such Covered Person's successors,
assigns and legal representatives.
(c) Promptly after receipt by a Covered Person of notice of the
commencement of any action or proceeding involving a Claim, such Covered Person
will, if a claim for indemnification in respect thereof is to be made against
the Company, give written notice to the Company of the commencement of such
action; provided that the failure of any Covered Person to give notice as
provided herein shall not relieve the Company of its obligations under this
Section 5, except to the extent that the Company is actually prejudiced by such
failure to give notice. In case any such action is brought against a Covered
Person, the Company will be entitled to participate in and to assume the defense
thereof to the extent that the Company may wish, with counsel reasonably
satisfactory to such Covered Person. After notice from the Company to such
Covered Person of the Company's election to assume the defense thereof, the
Company will not be liable for expenses subsequently incurred by such Covered
Person in connection with the defense thereof. The Company will not consent to
entry of any judgment or enter into any settlement that does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Covered Person of a release from all liability in respect to such claim or
litigation.
7. No Restriction on Activities. Nothing in this Agreement shall
limit or restrict the right of any member, employee, agent or officer of Liberty
to engage in any other business or to devote his time and attention in part to
the management or other aspects of any business, whether of a similar or
dissimilar nature, nor limit or restrict the right of Liberty to engage in any
other business or to render services of any kind to any other corporation, firm,
individual or association.
8. Termination. This Agreement shall continue in effect for as long
as the parties hereto mutually agree, until otherwise terminated in accordance
with the provisions hereof, provided, however, that the right of Liberty to
purchase membership interests in the Company for an exercise price of $60,000 at
a $6 million pre-money valuation shall continue in full force and effect
notwithstanding any termination of this Agreement.
9. Notices. Any notice or other communication required to be
-------
given pursuant to this Agreement shall be deemed duly given if delivered or
mailed by registered mail, postage prepaid, (1) to the Company at 29 East
31st Street, New York, New York 10016; or (2) to Liberty at 11 52nd Street,
Brooklyn, New York 11232, and in either case, with a copy to David Lubin,
Esq., at Herrick, Feinstein LLP, 2 Park Avenue, New York, New York 10016.
10. Amendments and Waivers. This Agreement may be amended by mutual
consent of the parties. Any amendment to this Agreement shall be in writing
signed by the parties hereto. No provision of this Agreement shall be deemed to
have been waived except if the giving of such waiver is contained in a written
notice given to the party claiming such waiver and no such waiver shall be
deemed to be a waiver of any other or further obligation or liability of the
party or parties in whose favor the waiver was given.
11. Counterparts. This Agreement may be executed in any number
------------
of counterparts, each of which will be deemed an original and all of which
taken together shall constitute a single instrument.
12. Headings. The headings of the sections of this Agreement
--------
are inserted for convenience only and shall not be deemed to constitute a
part hereof.
13. Successors and Assigns; Parties in Interest. This Agreement
--------------------------------------------
will inure to the benefit of and be binding upon the parties and to their
respective heirs, executors, administrators, successors and permitted
assigns.
14. Severability. Any provision of this Agreement that is prohibited
or unenforceable in any jurisdiction will, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction will not invalidate or render unenforceable
such provision in any other jurisdiction. To the extent permitted by applicable
law, the parties waive any provision of law that renders any provision hereof
prohibited or unenforceable in any respect. Notwithstanding the foregoing, if
any provision is so prohibited or unenforceable, the parties will, to the extent
lawful and practicable, use their best efforts to enter into arrangements to
effect the intent of such provision.
15. Governing Law. This Agreement will be governed by and
--------------
construed in accordance with the laws of the State of New York.
16. Entirety of Agreement. This Agreement constitutes the
-----------------------
entire agreement among the parties hereto with respect to the subject matter
hereof.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument
to be executed by their duly authorized signatories below as of the day and year
first above written.
ASKTHEROBOT, LLC
By:
Michael Vogel
By:
Douglas Capeci
LIBERTY GROUP SERVICES, LLC
By Liberty Group Holdings, Inc.,
its Manager
By: _________________________
Name: Barry Hawk
Title: President
OPERATING AGREEMENT
OF
ASKTHEROBOT, LLC
OPERATING AGREEMENT of ASKTHEROBOT, LLC, dated as of March 14, 2000 (this
"Agreement"), by and among AskTheRobot, LLC, a New York limited liability
company (the "Company"), Liberty Group Services, LLC, a Delaware limited
liability company ("Liberty"), and Michael Vogel ("MV") and Douglas Capeci
("DC", and together with Liberty and MV (the "Members" and each individually, a
"Member").
W I T N E S S E T H:
WHEREAS, on July 9, 1999, Spidermaze.com, Inc. was formed as
a New York corporation ("Spidermaze"); and
WHEREAS, on January 11, 2000, the Company was formed as a New York limited
liability company pursuant to the Limited Liability Company Law of the State of
New York; and
WHEREAS, pursuant to the merger of Spidermaze and the Company which
occurred on January 24, 2000, all of the assets, rights, obligations and
liabilities of Spidermaze became the assets, rights, obligations and liabilities
of the Company; and
WHEREAS, as of the date hereof, Liberty is subscribing for the Preferred
Interests (as defined herein) pursuant to the Subscription Agreement dated as of
March ___, 2000 by and between the Company and Liberty; and
WHEREAS, the Company and the Members wish to enter into this Agreement to
provide for, among other things, the creation of the Preferred Interests, the
terms and conditions of the operation and management of the Company and the
parties' relative rights, duties and obligations with respect to the Company and
each other; and
WHEREAS, on the date hereof each Member owns the interests in the Company
as set forth on the Schedule of Members (as defined herein) attached hereto as
Exhibit A;
NOW, THEREFORE, in consideration of the premises and the agreements and
obligations set forth herein and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, and intending to be
legally bound hereby, the Members and the Company hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. As used in this Agreement, the following
terms shall have the following meanings:
"Acceptance Notice" shall have the meaning set forth in Section
8.4(c).
"Act" means the New York Limited Liability Company Law, as amended
from time to time, except that, for purposes of this Agreement, no provision
thereof adopted after the date of this Agreement that would only be applicable
to the Company absent a provision in this Agreement to the contrary will be
applicable to the Company unless such provision is approved by the Supervisory
Board.
"Adjusted Capital Account Deficit" means, with respect to any Member,
the deficit balance, if any, in such Member's Capital Account as of the end of
the relevant taxable year, after giving effect to the following adjustments:
(i) Credit to such Capital Account any amounts which such Member is
deemed to be obligated to restore pursuant to the penultimate sentences in
Sections 1.704-2(g)(1) and 1.704-2(i)(5) of the Regulations; and
(ii) Debit to such Capital Account the items described in Sections
1.704-(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5) and 1.704-1(b)(2)(ii)(d)(6) of
the Regulations.
The foregoing definition of Adjusted Capital Account Deficit is intended to
comply with the provisions of Section 1.704- 1(b)(2)(ii)(d) of the Regulations
and shall be interpreted consistently therewith.
"Affiliate" means, with respect to any Person, (i) any Person that
directly or indirectly Controls, is Controlled by, or is under common Control
with, such Person, (ii) any executive officer (as such term is defined by Rule
501 promulgated under the Securities Act) or director (or individual with a
similar capacity) of such Person, or (iii) when used with respect to an
individual, shall include the Family Group Members of such individual.
"Annual Budget" means the budget and business plan for the Company in
respect of each Fiscal Year which shall include, without limitation, a cash flow
projection, an operating budget, a capital expenditures budget and an
acquisition budget.
"Business" shall have the meaning set forth in Sections 2.2.
"Business Day" means any day (other than that which is not a Saturday
or Sunday) on which both federally and New York State chartered banks are
generally open for business in New York, New York.
"Capital Account" means, with respect to any Member, the Capital
Account maintained for such Member in accordance with the following provisions:
(i) To each Member's Capital Account there shall be credited (A) such
Member's Capital Contributions, (B) such Member's distributive share of Net
Profits and any items in the nature of income or gain which are specially
allocated pursuant to Section 10.7 or Section 10.8 hereof, and (C) the amount of
any Company liabilities assumed by such Member or which are secured by any
property distributed to such Member. The principal amount of a promissory note
which is not readily traded on an established securities market and which is
contributed to the Company by the maker of the note (or a Member related to the
maker of the note within the meaning of Regulations Section
1.704?1(b)(2)(ii)(c)) shall not be included in the Capital Account of any Member
until the Company makes a taxable disposition of the note or until (and to the
extent) principal payments are made on the note, all in accordance with
Regulations Section 1.704?1(b)(2)(iv)(d)(2);
(ii) To each Member's Capital Account there shall be debited (A) the
amount of money and the Gross Asset Value of any property distributed to such
Member pursuant to any provision of this Agreement, (B) such Member's
distributive share of Net Losses and any items in the nature of expenses or
losses which are specially allocated pursuant to Section 10.7 or Section 10.8
hereof, and (C) the amount of any liabilities of such Member assumed by the
Company or which are secured by any property contributed by such Member to the
Company;
(iii) In the event of a Transfer of Membership Interests in
accordance with the terms of this Agreement, the transferee shall succeed to the
Capital Account of the transferor to the extent that it relates to the Transfer
of Membership Interests; and
(iv) In determining the amount of any liability for purposes of
subparagraphs (i) and (ii) above, there shall be taken into account Code Section
752(c) and any other applicable provisions of the Code and Regulations.
The foregoing provisions and the other provisions of this Agreement
relating to the maintenance of Capital Accounts are intended to comply with
Regulations Section 1.704?1(b), and shall be interpreted and applied in a manner
consistent with such Regulations. In the event that the Tax Matters Partner
shall determine that it is prudent to modify the manner in which the Capital
Accounts, or any debits or credits thereto (including, without limitation,
debits or credits relating to liabilities which are secured by contributed or
distributed property or which are assumed by the Company or any Members) are
computed in order to comply with such Regulations, the Tax Matters Partner may
make such modification, provided that it is not likely to have a material effect
on the amounts distributed to any Person pursuant to this Agreement upon the
dissolution of the Company. The Tax Matters Partner also shall (i) make any
adjustments that are necessary or appropriate to maintain equality between the
Capital Accounts of the Members and the amount of capital reflected on the
Company's balance sheet, as computed for book purposes, in accordance with
Regulations Section 1.704-1(b)(2)(iv)(g), and (ii) make any appropriate
modifications in the event that unanticipated events might otherwise cause this
Agreement not to comply with Regulations Section 1.704-1(b).
"Capital Contribution" means, with respect to any Member, the
aggregate amount of money and the fair market value of any property (other than
money) contributed to the Company with respect to such Member's Interest, less
any return of a Member's Capital Contribution pursuant to Sections 10.1 and
10.3, provided, that any shares of Common Stock contributed by Liberty shall be
valued at the greater of (i) $3.00 per share and (ii) the per share market value
of the Common Stock on the Performance Measurement Date (as such terms are
defined in the Subscription Agreement). In the case of a Member that acquires an
interest in the Company by virtue of an assignment or transfer in accordance
with the terms of this Agreement, "Capital Contribution" means the Capital
Contribution of such Member's predecessor in interest.
"Capital Transaction" means (i) any disposition of all or
substantially all of the assets of the Company, including, without limitation, a
license of all or substantially all of the intellectual property of the Company;
(ii) a Conversion Event, including, without limitation, a Plan of Incorporation;
(iii) change in capital of the Company; or (iv) Sale of the Company.
"Claimant" shall have the meaning set forth in Section 14.1.
"Common Stock" means the common stock, par value $.004 per share, of
LGHI.
"Liberty Appointees" means Barry Hawk and Dennis Lane or any other
individual appointed to the Supervisory Board or majority-in-interest of the
Liberty Members.
"Liberty Members" means Liberty or any other Person who subsequently
becomes a Liberty Member pursuant to the terms of this Agreement.
"Code" means the Internal Revenue Code of 1986, as amended from time
to time, or any corresponding federal tax statute enacted after the date of this
Agreement. A reference to a specific section of the Code refers not only to such
specific section but also to any corresponding provision of any federal tax
statute enacted after the date of this Agreement, as such specific section or
corresponding provision is in effect on the date of application of the
provisions of this Agreement containing such reference.
"Company Minimum Gain" means the amount determined in accordance with
the definition of "partnership minimum gain" set forth in Regulations Sections
1.704-2(b)(2) and 1.704-2(d).
"Control" (including the terms "controlled by" and "under common
control with", with respect to the relationship between or among two or more
Persons), means the possession, directly or indirectly, of the power to direct
or cause the direction of the affairs or management of a Person, whether through
the ownership of voting securities, by contract or otherwise, including, without
limitation, the ownership, directly, or indirectly, of securities having the
power to elect a majority of the board of directors or similar body governing
the affairs of such Person.
"Conversion Event" means the earlier to occur of (i) the consummation
of an IPO or (ii) a Sale of the Company, provided that such transaction is based
on a Company valuation of not less than $50,000,000 and provided further that if
the surviving entity is not publicly traded, the equity of the Company after the
consummation of the transaction shall not be less than $40,000,000.
"Demand Registration" shall have the meaning set forth in Section
12.1.
"Depreciation" means, for each taxable year, an amount equal to the
depreciation, amortization, or other cost recovery deduction allowable with
respect to an asset for such taxable year, except that if the Gross Asset Value
of an asset differs from its adjusted basis for federal income tax purposes at
the beginning of such taxable year, Depreciation shall be an amount which bears
the same ratio to such beginning Gross Asset Value as the federal income tax
depreciation, amortization, or other cost recovery deduction for such taxable
year bears to such beginning adjusted tax basis; provided, however, that if the
adjusted basis for federal income tax purposes of an asset at the beginning of
such taxable year is zero, Depreciation shall be determined with reference to
such beginning Gross Asset Value using any reasonable method selected by the
Supervisory Board.
"Distributions" means any and all amounts of the Company's Net Cash
Flow and Net Proceeds from a Capital Transaction that has been properly
distributed to the Members pursuant to Section 10.1 below.
"Encumbrance" means any security, interest, pledge, mortgage, lien
(including, without limitation, environmental and tax liens), charge,
encumbrance, adverse claim, option, warrant, preferential arrangement or
restrict of any kind, including, without limitation, any restrict on the use,
voting, transfer, receipt of income or other exercise of any attributes of
ownership.
"Excess Amount" shall have the meaning set forth in Section 8.4(c).
"Family Group Members" means (i) the parents, grandparents,
brothers, sisters, descendants (whether natural or adopted) and spouse of the
specified individual; (ii) any spouse or descendant of any person specified in
clause (i) above; (iii) any trust created solely for the benefit of any
individual described in clauses (i) through (ii) above; (iv) any executor or
administrator for any of the individuals or their respective estates described
in clauses (i) through (ii) above; (v) any partnership or limited liability
company consisting solely of individuals described in clauses (i) through (iv)
above; and (vi) any tax exempt corporate foundation created by any of the
Persons described in clauses (i) through (v) above exclusively engaged in
charitable purposes.
"Fiscal Year" means (i) any twelve (12) month period commencing on
January 1 and ending on December 31, or (ii) any portion of the period described
in clause (ii) of this sentence of which the Company is required to allocate Net
Profits, Net Losses, and other items of Company income, gain, loss or deduction
pursuant to this Agreement.
"Founder Appointee" means MV, DC and another nominee appointed by MV
and DC, or any other individuals appointed to the Supervisory Board by MV and
DC.
"GAAP" shall mean United States generally accepted accounting
principles as in effect from time to time.
"Gross Asset Value" means with respect to any asset, the asset's
adjusted basis for federal income tax purposes, except as follows:
(i) The initial Gross Asset Value of any asset contributed by a
Member to the Company shall be the gross fair market value of such asset, as
determined by the Tax Matters Partner; provided that the initial Gross Asset
Values of the assets contributed to the Company shall be as set forth in the
Schedule of Members;
(ii) The Gross Asset Values of all Company assets shall be adjusted to
equal their respective gross fair market values (taking Code Section 7701(g)
into account), as determined by the Supervisory Board as of the following times:
(A) the acquisition of an additional interest in the Company by any new or
existing Member in exchange for more than a de minimis capital contribution; (B)
the distribution by the Company to a Member of more than a de minimis amount of
Company property as consideration for an interest in the Company; and (C) the
liquidation of the Company within the meaning of Regulations Section
1.704-1(b)(2)(ii)(g), provided that an adjustment described in clauses (A) and
(B) of this subparagraph shall be made only if the Tax Matters Partner
reasonably determines that such adjustment is necessary to reflect the relative
economic interests of the Members in the Company;
(iii) The Gross Asset Value of any item of Company assets distributed
to any Member shall be adjusted to equal the gross fair market value (taking
Code Section 7701(g) into account) of such asset on the date of distribution as
determined by the Tax Matters Partner; and
(iv) The Gross Asset Values of Company assets shall be increased (or
decreased) to reflect any adjustments to the adjusted basis of such assets
pursuant to Code Section 734(b) or Code Section 743(b), but only to the extent
that such adjustments are taken into account in determining Capital Accounts
pursuant to Regulations Section 1.704?1(b)(2)(iv)(m) and subparagraph (vi) of
the definition of Net Profits and Net Losses or Section 10.7(g) hereof;
provided, however, that Gross Asset Values shall not be adjusted pursuant to
this subparagraph (iv) to the extent that an adjustment pursuant to subparagraph
(ii) is required in connection with a transaction that would otherwise result in
an adjustment pursuant to this subparagraph (iv).
If the Gross Asset Value of an asset has been determined or adjusted
pursuant to subparagraph (ii) or (iv), such Gross Asset Value shall thereafter
be adjusted by the Depreciation taken into account with respect to such asset,
for purposes of computing Net Profits and Net Losses.
"Incorporation Effective Time" means the time at which the Membership
Interests are exchanged for, converted into or otherwise transformed into
capital stock of a corporation pursuant to a Plan of Incorporation.
"Initial Capital Account Balance" means the amount designated on the
Schedule of Members as the initial Capital Contribution of a Member.
"IPO" means the initial offering of the Company's securities to the
public in a bona fide underwriting, pursuant to a registration statement under
the Securities Act which results in net proceeds to the Company of not less than
$10,000,000 and is based on a pre-money valuation of the Company of not less
than $50,000,000.
"Investor" shall mean Peter J. McLaughlin, who has the right to
purchase the Reserved Interests within ten (10) days from the date hereof. In
the event such interests are not purchased, all references herein to the
Investor shall have no force or effect unless decided otherwise by the Members.
"Junior Securities" shall have the meaning set forth in Section 9.1.
"Lending Member" shall have the meaning set forth in Section 3.3.
"LGHI" means Liberty Group Holdings, Inc., a Delaware
corporation.
"Management Agreement" means the Management Agreement dated as of the
date hereof by and between the Company and Liberty.
"Manager" means MV or any other Person subsequently appointed as the
Manager in accordance with Section 4.1.
"Member" means each of the parties hereto and any Person admitted as a
Member pursuant to the provisions of this Agreement, in such Person's capacity
as a member of the Company and "Members" means two or more of such Persons when
acting in their capacities as members of the Company.
"Membership Interest" or "Interest" means a Member's limited
liability company interest in the Company which represents such Member's share
of the Net Profits and Net Losses and such Member's right to receive
distributions of the Company's assets in accordance with the provisions of this
Agreement and the Act.
"Member Nonrecourse Debt" has the meaning set forth in Section
1.704-2(b)(4) of the Treasury Regulations.
"Member Nonrecourse Debt Minimum Gain" means an amount, with respect
to each Member Nonrecourse Debt, equal to the Company Minimum Gain that would
result if such Member Nonrecourse Debt were treated as a Nonrecourse Liability,
determined in accordance with Section 1.704-2(i)(3) of the Treasury Regulations.
"Member Nonrecourse Deductions" has the meaning set forth in Sections
1.704-2(i)(1) and 1.704-2(i)(2) of the Treasury Regulations.
"Net Cash Flow" means all cash receipts of the Company (including
Capital Contributions), and the fair market value of any property received in
connection therewith, in any fiscal year from whatever source derived (except
the proceeds of a Capital Transaction), plus any cash which the Manager decides
to, or is required to, release from Reserves, less: (A) payment of all of the
Company's expenses including, without limitation, debt service, if any, and
payment of all salaries, bonuses, perquisites and other benefits to which the
Members, the Manager, the members of the Supervisory Board or employees are
entitled, and payments due to Liberty pursuant to the Management Agreement, and
(B) payment of unincorporated business taxes, other than such taxes which are
allocable to a Capital Transaction, if any.
"Net Proceeds from a Capital Transaction" means the gross cash
proceeds, and the fair market value of any property received in connection
therewith, of a Capital Transaction, less all expenses thereof, including,
without limitation, attorneys' fees, accountants' fees and other professional
fees, brokers' fees, all expenses of sale, closing costs, appraisal costs,
transfer taxes, recording fees, charges and taxes, including unincorporated
business taxes which are allocable to such Capital Transaction, all expenses,
the payment of which is deferred to be paid out of such Net Proceeds of a
Capital Transaction and less any Reserves.
"Net Profits" and "Net Losses" mean, for each taxable year, an amount
equal to the Company's taxable income or loss for such taxable year, determined
in accordance with Code Section 703(a) (for this purpose, all items of income,
gain, loss, or deduction required to be stated separately pursuant to Code
Section 703(a)(1) shall be included in taxable income or loss), with the
following adjustments (without duplication):
(i) Any income of the Company that is exempt from federal income tax
and not otherwise taken into account in computing Net Profits or Net Losses
pursuant to this definition of "Net Profits" and "Net Losses" shall be added to
such taxable income or loss;
(ii) Any expenditures of the Company described in Code Section
705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures pursuant to
Regulations Section 1.704?1(b)(2)(iv) (i), and not otherwise taken into account
in computing Net Profits or Net Losses pursuant to this definition of "Net
Profits" and "Net Losses" shall be subtracted from such taxable income or loss;
(iii) In the event the Gross Asset Value of any Company asset is
adjusted pursuant to subparagraphs (ii) or (iii) of the definition of Gross
Asset Value, the amount of such adjustment shall be treated as an item of gain
(if the adjustment increases the Gross Asset Value of the asset) or an item of
loss (if the adjustment decreases the Gross Asset Value of the asset) from the
disposition of such asset and shall be taken into account for purposes of
computing Net Profits or Net Losses;
(iv) Gain or loss resulting from any disposition of property with
respect to which gain or loss is recognized for federal income tax purposes
shall be computed by reference to the Gross Asset Value of the property disposed
of, notwithstanding that the adjusted tax basis of such property differs from
its Gross Asset Value;
(v) In lieu of the depreciation, amortization, and other cost
recovery deductions taken into account in computing such taxable income or loss,
there shall be taken into account Depreciation for such taxable year, computed
in accordance with the definition of Depreciation;
(vi) To the extent that an adjustment to the adjusted tax basis of
any Company asset pursuant to Code Section 734(b) is required, pursuant to
Regulations Section 1.704?(b)(2)(iv)(m)(4), to be taken into account in
determining Capital Accounts as a result of a distribution other than in
liquidation of a Member's interest in the Company, the amount of such adjustment
shall be treated as an item of gain (if the adjustment increases the basis of
the asset) or loss (if the adjustment decreases such basis) from the disposition
of such asset and shall be taken into account for purposes of computing Net
Profits or Net Losses; and
(vii) Notwithstanding any other provision of this definition, any
items which are specially allocated pursuant to Section 10.7 or Section 10.8
hereof shall not be taken into account in computing Net Profits or Net Losses.
The amounts of the items of Company income, gain, loss or deduction
available to be specially allocated pursuant to Sections 10.7 and 10.8 hereof
shall be determined by applying rules analogous to those set forth in
subparagraphs (i) through (vi) above.
"New Securities" means any Membership Interests or other securities
or other rights convertible or exchangeable into or exercisable for Membership
Interests; provided, however, that "New Securities" does not include: (i)
securities issued to management, directors or employees of, or consultants to,
the Company pursuant to or in connection with an option plan, an employee stock
option plan, an employee stock purchase plan or other employee benefit plan
approved by the Supervisory Board; (iii) securities issued by the Company as
part of any public offering pursuant to an effective registration statement
under the Securities Act; (iv) securities issued in connection with any stock
split, stock dividend or recapitalization of the Company; (v) securities issued
as consideration for, or in connection with, any merger or acquisition of the
stock or assets of any Person acquired by the Company; (vi) the Reserved
Interests reserved for the Investor; or (vii) the securities and to be granted
to Liberty pursuant to the Management Agreement dated the date hereof between
the Company and Liberty.
"Nonrecourse Deductions" has the meaning set forth in Section
1.704-2(b)(1) of the Regulations.
"Nonrecourse Liability" has the meaning set forth in Section
1.704-2(b)(3) of the Regulations.
"Non-Selling Members" shall have the meaning provided in Section
8.4(a).
"Offered Interest" shall have the meaning set forth in Section
8.4(a).
"Percentage Interest" means the number, expressed as a percentage of
one hundred percent, derived by dividing the Membership Interest of any Member
as shown on the Schedule of Members, as such Schedule of Members may be amended
from time to time, by the total amount of Membership Interests then issued.
"Permitted Transferee" means (i) with respect to any Member that is
not an individual, any Affiliate thereof, including, without limitation, any
limited or general partner thereof, (ii) with respect to a Member that is an
individual, any Family Group Member, (iii) with respect to such individual
Member, a corporation or other entity all of the share capital or other equity
interests are owned by such individual Member and/or any Family Group Member and
(iv) with respect to an individual Member, a Person to whom Membership Interests
have been transferred by operation of law, by will or by the laws of descent.
"Person" means any individual, partnership, firm, corporation,
limited liability company, association, trust, estate, unincorporated
organization or other entity, as well as any syndicate or group that would be
deemed to be a person under Section 13(d)(3) of the Securities Exchange Act of
1934, as amended.
"Piggyback Registration" shall have the meaning set forth in Section
12.2.
"Plan of Incorporation" shall have the meaning set forth in Section
11.1(a).
"Preferred Interests" means the Membership Interest issued to Liberty
and if so purchased, the Investor, containing the rights, preferences and
designations contained in this Agreement.
"Preferred Interest Preference" shall be equal to the sum of (i) the
amount of the Capital Contributions received by the Company from Liberty and the
Investor, if he purchases the Reserved Interests, with respect to such Preferred
Interests and (ii) the Preferred Rate calculated through the date in question,
whether or not then payable.
"Preferred Rate" means the respective Capital Account Balance of
Liberty and the Investor, if he purchased the Reserved Interests,plus interest
at an annual rate of 6%, compounded annually, commencing on the date the Capital
Contribution is made by Liberty and the Investor, as the case may be.
"Registrable Securities" means the Preferred Interests and the shares
of preferred stock representing the Preferred Interests after the Incorporation
Effective Time.
"Regulations" means the income tax regulations promulgated from time
to time by the U.S. Department of the Treasury.
"Regulatory Allocations" shall have the meaning set forth in Section
10.8.
"Related Party" shall have the meaning set forth in Section 14.1.
"Remaining Members" shall have the meaning set forth in Section 8.5.
"Reserved Interests" shall have the meaning set forth in Section 3.2.
"Reserves" means any amount of reserves as the Manager shall decide
in his sole discretion to establish for future expenses of operating the Company
or any contingent or unforeseen liabilities or obligations in connection
therewith.
"Sale Notice" shall have the meaning set forth in Section 8.6.
"Sale of the Company" means the occurrence of any of: (i) any merger
or consolidation involving the Company if the equity owners of the Company
immediately before such merger or consolidation do not own, directly or
indirectly, immediately following such merger or consolidation, more than fifty
percent (50%) of the combined voting power of the outstanding voting securities
of the entity resulting from such merger or consolidation in substantially the
same proportion as their pre- merger or pre-consolidation ownership; (ii) any
sale, lease, license, exchange or other transfer (in one transaction or a series
of related transactions) of all, or substantially all, of the business and/or
assets of the Company, including, without limitation, the exclusive licensing of
substantially all of the Company's intellectual property; (iii) any Person who
was not, as of the date hereof, a "controlling person" (as defined in Rule 405
under the Securities Act) of the Company shall become the beneficial owner of
over 50% of the combined voting power of the Company's then outstanding voting
securities entitled to vote generally; or (iv) the execution by the Company of
an agreement to which the Company is a party or by which it is bound, providing
for any of the events set forth above in (i), (ii) or (iii).
"Schedule of Members" means the schedule to this Agreement attached
hereto as Exhibit A, as it may be amended from time to time by the Manager in
accordance with the terms of this Agreement, setting forth the name and mailing
address of each Member, the class of Membership Interest held by each Member,
the initial Capital Contribution of each Member, the agreed value of each
Members' Capital Contribution, the amount of additional Capital Contributions
made by each Member and the Percentage Interest of each Member.
"Securities Act" means the Securities Act of 1933, as amended.
"Selling Member" shall have the meaning set forth in Section 8.4(a).
"Shelf Registration" shall have the meaning set forth in Section
12.3.
"Subscription Agreement" means the Subscription Agreement dated the
date hereof by and between the Company and Liberty.
"Substitute Member" means a Person who is admitted to the Company as
a Member pursuant to the terms of this Agreement, and who is named as a Member
on the Schedule of Members.
"Super Majority-in-Interest" means the holders of more than eighty
percent (80%) of the specified Membership Interests.
"Supervisory Board" means the supervisory board of the Company
established and governed pursuant to the terms of this Agreement.
"Tag-Along Notice" shall having the meaning set forth in Section
8.5(b).
"Tax Attributes" means with respect to each contributed asset, the
following items: (1) federal income tax basis as of the date contributed to the
Company; (2) date placed in service by the Member; (3) accumulated depreciation
allowable through the day immediately preceding the date of contribution to the
Company; (4) the method of depreciation used for federal income tax purposes;
and (5) the depreciable life used for federal income tax purposes.
"Tax Matters Partner" shall have the meaning set forth in Section
7.5(a).
"Total Advance" shall have the meaning set forth in Section 3.3.
"Transfer" shall have the meaning set forth in Section 8.1.
"Transfer Notice" shall have the meaning set forth in Section 8.4(a).
"Transfer Offer" shall have the meaning set forth in Section 8.4(b).
"Treasury Secretary" shall have the meaning set forth in Section
7.5(a).
"Violations" shall have the meaning set forth in Section 12.6.
1.2 Headings; Pronouns. The headings and subheadings in this Agreement are
included for convenience and identification only and are in no way intended to
describe, interpret, define or limit the scope, extent or intent of this
Agreement or any provision hereof. Words and phrases used herein in the singular
shall be deemed to include the plural and vice versa, and nouns and pronouns
used in any particular gender shall be deemed to include any other gender,
unless the context requires otherwise.
ARTICLE II
FORMATION
2.1. Formation; Name; Office. The Company was organized and formed under
and pursuant to the Act, by the filing of articles of organization with the
Secretary of State of the State of New York on January 20, 2000. The name of the
Company is "ASKTHEROBOT, LLC" or such other name as the Supervisory Board shall
determine. The primary business office of the Company shall be located at 29
East 31st Street, New York, New York, or at such other place or places as the
Supervisory Board may from time to time designate.
2.2. Purposes. The purposes for which the Company has been
formed are:
(a) To provide on-line personnel services;
(b) To negotiate, execute and enter into and perform any and all
contracts and agreements necessary for, or otherwise related to, the foregoing,
including, without limitation, the operation or management of the Company or the
ownership, operation or management of any asset owned by the Company;
(d) To accomplish any lawful business whatsoever or which shall at
any time appear conducive to, or expedient for, the protection or benefit of the
Company or its assets;
(e) To engage in any lawful act or activity for which
limited liability companies may be formed under the Act; and
(f) To engage in all activities necessary, customary,
convenient or incident to any of the foregoing.
2.3. Duration. The term of existence of the Company
commenced on the date of the filing of its articles of
organization and shall be perpetual, unless the Company is
earlier dissolved in accordance with either the terms of this
Agreement or the Act.
2.4. Designated Agent. The designated agent of the Company upon whom
process against the Company may be served is set forth in the articles of
organization of the Company or any amendment thereof. The designated agent may
be changed from time to time by the Manager in accordance with the Act. If the
Company's designated agent shall ever resign, then the Manager shall promptly
appoint a successor.
2.5 Title to Company Property. All property of the Company, whether real,
personal or mixed, tangible or intangible, shall be deemed to be owned by the
Company as an entity, and no Member individually, shall have any direct
ownership in such property.
ARTICLE III
CAPITAL CONTRIBUTIONS
3.1. Capital Contributions.
(a) Each Member has contributed to the capital of the Company the
amount and type of property (if other than cash) set forth opposite the Member's
name on the Schedule of Members. The agreed value of the Capital Contributions
made or deemed to have been made by each Member shall be set forth on the
Schedule of Members.
(b) In consideration for the Capital Contribution made by each of the
Members to the Company as indicated on the Schedule of Members, the Company
shall issue to each of the Members an Interest in the Company as described and
provided for in Section 3.2 below.
3.2. Membership Interests and Percentage Interest. Effective as of the
date hereof, the Membership Interest of each Member in the Company and their
respective Percentage Interest in the total capital of the Company, as the same
may be adjusted from time to time pursuant to the terms and conditions of this
Agreement or in order to reflect changes in the Capital Accounts of the Members,
is as follows:
Member Class Membership Interest and Percentage
Interest
Liberty Preferred Interest 51%
Investor Preferred Interest 8.335%
MV Common Interest 15.6675%
DC Option Pool Common Interest Common Interest
15.6675%9.33%
TOTAL 100.00%
The foregoing is based on the Capital Contributions made by the
Members on the date hereof, and all the parties hereby agree that any additional
Capital Contributions made by Liberty pursuant to the Subscription Agreement
after the date hereof shall not increase the Membership Interest of Liberty.
The 8.335% indicated above (the "Reserved Interests") is the
percentage interest reserved for the Investor, who has the right to purchase all
or any portion of the Reserved Interest at a capital contribution of $500,000
(for the full amount of the Reserved Interests) within thirty (30) days from the
date hereof. In the event such interest is not purchased, the Reserved Interests
shall be returned to MV and DC pro ratably.
The Membership Interest and the Percentage Interest of each Member is
subject to adjustment in accordance with the terms and provisions of this
Agreement. To the extent that any such adjustment is required pursuant to this
Agreement, the parties hereto acknowledge and agree that the Schedule of Members
and the above table contained in this Section 3.2 shall automatically be deemed
amended and restated to reflect the correct Membership Interest and Percentage
Interest of each Member without further action by any of the parties hereto.
3.3. Advances. No Member shall advance any funds to the Company without
the prior approval of the Supervisory Board and compliance with the provisions
of this Section 3.3. If any Member (in such capacity, a "Lending Member") shall
agree to advance any funds (the "Total Advance") to the Company in excess of its
Capital Contributions, the amount of any such Total Advance or portion thereof
shall neither increase its Capital Account nor entitle it to any increase in its
share of the distributions of the Company. In addition, if any such Lending
Member agrees to advance the Total Advance of the Company, then the other
Members shall each have the right, but not the obligation, to advance their pro
rata portion (based on Percentage Interests) of any such Total Advance to the
Company on the same terms and conditions as the Lending Member, and the amount
of the Total Advance of the Lending Member shall be reduced by the amount that
the other Members advance to the Company. The amount of any such advance shall
be a debt obligation to the Company to such Member and shall be subject to such
terms and conditions as may be acceptable to the Company and such Member. Any
such advances shall be payable and collectible only out of Company assets, and
the other Members shall not be personally obligated to repay any part thereof.
No Person who makes any nonrecourse loan to the Company shall have or acquire,
as a result of making such loan, any direct or indirect interest in the profits,
capital or property of the Company, other than as a creditor. No Member shall
have any obligation whosoever to advance any funds to the Company.
3.4. Preemptive Rights.
(a) If the Supervisory Board seeks to raise additional capital for the
Company by issuing New Securities or by authorizing the Company to enter into
any contract, commitment, agreement, understanding or arrangement of any kind
relating to the issuance or sale of New Securities, the Company shall first
offer to sell the New Securities to Liberty and the Investor pro rata in
accordance with their Percentage Interests at the same price and on the same
terms proposed to be issued or sold by the Company so that each of Liberty and
the Investor would, after the issuance or sale of all such New Securities, hold
the same Percentage Interest as it had immediately prior to the issuance or sale
of the New Securities. Each of Liberty and the Investor shall be required to
deposit with the Company the additional capital contribution required by such
notice by the date specified therein, which shall be not earlier than 45 days
following the date of such notice. If either Liberty or the Investor does not
exercise its entire right to purchase such additional New Securities or any
portion thereof, the Company shall notify the party exercising their rights
herein that they shall have the opportunity to purchase such additional New
Securities not purchased to the full extent of the amount of the additional New
Securities proposed to be sold.
(b) If Liberty and the Investor fail to exercise in full such right
within the time specified in the Company's notice to such Members pursuant to
this Section 3.4, the Company shall have 90 days thereafter to sell the New
Securities in respect of which Liberty's and the Investor's rights were not
exercised, at a price and upon general terms and conditions no more favorable to
the purchasers thereof than specified in the Company's notice to Liberty and the
Investor. If the Company has not sold all the New Securities within such 90
days, the Company shall not thereafter issue or sell any New Securities without
first offering such securities to Liberty and the Investor in the manner
provided above.
(c) Any sale of New Securities pursuant to this Section 3.4 shall be
made on such terms and conditions as are determined by the Supervisory Board,
which terms and conditions may include, among other things, a preferential
return on such investment, superior dividend, voting and liquidation rights,
and/or a pro rata reduction in the Members' Percentage Interest based on their
Percentage Interest immediately prior to the issuance to reflect the issuance of
additional Membership Interests.
(d) If the Company desires to raise additional capital and receives a
term sheet or other similar type of letter or arrangement from a potential third
party investor, the holders of the Preferred Interests, in proportion to their
respective interests thereof, shall have the right to make the investment
contemplated therein upon notice to the Company within twenty (20) days' of
receipt of such arrangement delivered to Liberty and the Investor by the
Company.
3.5. Withdrawal of Capital; Source of Distribution.
(a) Unless the consent of the Supervisory Board and the holders of a
Super Majority-in-Interests of the holders of the Preferred Interest, shall have
been obtained, and except as otherwise provided in this Agreement, no Member
shall have the right to withdraw any part of such Member's Capital Contributions
prior to the liquidation and termination of the Company pursuant to this
Agreement. Except as otherwise provided in this Agreement, any Capital
Contributions which are permitted to be withdrawn from the Company by the
Members shall be done so on a pro rata basis, provided, however, that the shares
of Common Stock shall not be distributed but all said shares are subject to a
Lock-Up Agreement between the Company and LGHI.
(b) No Member, member of the Supervisory Board, the Manager or other
Related Party shall be personally liable for the return of the Capital
Contributions of any other Member, or any portion thereof, it being expressly
understood that any such return shall be made solely from the Company's assets.
ARTICLE IV
THE MANAGER; THE SUPERVISORY BOARD
4.1 The Manager. Subject to the terms and provisions of this Agreement,
including, without limitation, Sections 4.3 and 4.4, any and all decisions
concerning the business and affairs of the Company shall be made by the Manager.
The Members hereby unanimously appoint MV as the Manager. Unless MV is removed
or resigns in accordance with the terms of this Agreement, the Manager shall
hold office until a successor shall have been appointed. The resignation of the
Manager shall not affect the Manager's rights as a Member and shall not
constitute his withdrawal as a Member. The Manager may be removed upon the
consent of a majority-in-interest of the Members holding the Preferred
Interests. Any vacancy occurring for any reason in the position of the Manager
may be filed upon the consent of a majority-in-interest of the Members holding
the Preferred Interests.
4.2. Supervisory Board.
(a) The Company has established a Supervisory Board, consisting of
six (6) individuals: (i) one appointee nominated by the Investor in the event
the Reserved Interests are purchased, (ii) two (2) Liberty Appointees, and (iii)
three (3) Founder Appointees. Each of the Investor Appointee, the Liberty
Appointees and the Founder Appointees shall serve at the pleasure of the
appointing Member and may be removed from the Supervisory Board at any time only
by such appointing Member. If for any reason any member of the Supervisory Board
who is previously appointed by a Member ceases to hold office, that nominating
Member (e.g., either the Investor, in the case of the Investor Appointee, or
Liberty, in the case of any Liberty Appointee or MV, in the case of any Founder
Appointee) shall promptly appoint an individual to fill the vacancy so created.
The Liberty Appointee shall be a member of any committee of the Supervisory
Board and a director of any subsidiaries or companies established by the
Company. Each member of the Supervisory Board who is not either an officer or
employee of the Company shall (i) be entitled to reasonable direct out-of-pocket
expenses approved by advance by the Manager in connection with services as a
member of the Supervisory Board and (ii) be entitled to options as approved by
the Supervisory Board. In the event the Reserved Interests are not purchased by
the Investor, the members of the Supervisory Board shall determine the filling
of the vacancy on the Supervisory Board.
(b) Meetings of the Supervisory Board shall be held no less than four
(4) times per Fiscal Year of the Company, or more or less times as the members
of the Supervisory Board otherwise determine. Meetings may be called by the
Manager, any Liberty Appointee, the Investor Appointee or at least two of the
Founder Appointees, upon not less than one Business Days' notice delivered by
the individual or group calling such meeting to each member of the Supervisory
Board at their last known address indicated on the records of the Company. Such
notice shall contain the agenda items of the meeting. Requirements for a quorum
for the transaction of any business at any meeting of the Supervisory Board
shall be, unless otherwise provided for in this Agreement, a majority of the
entire six (6) member Supervisory Board, in person or by proxy, provided that
the Liberty Appointees are present. Any action may be taken without a meeting,
without prior notice, and without a vote, if consents in writing, setting forth
the action so taken, are signed by a majority of the members of the Supervisory
Board, provided that the Liberty Appointees execute the consent. Every written
consent shall bear the date and signature of each member of the Supervisory
Board who signs the consent. Any meeting of the Supervisory Board may be held by
telephone conference call or similar communications equipment as long as the
applicable quorum requirements are met.
4.3. Super-Majority Rights of the Supervisory Board. Notwithstanding
anything contained in this Agreement to the contrary, the Company, the Manager
and the Supervisory Board shall not, and no officer, employee or agent of the
Company shall have authority, in the name or on behalf of the Company, to take
any of the following actions, directly or indirectly, without the prior approval
of at least five (5) of the six (6) members of the Supervisory Board:
(a) incur any indebtedness or issue or grant New
Securities;
(b) enter into any material transaction between the Company and its
Members, their respective Family Group Members, or its or their respective
Affiliates including, without limitation, hiring said Persons as employees
and/or consultants of the Company, increasing their compensation or entering
into any material transaction out of the ordinary course of business, other than
the Management Agreement;
(c) change or enter into any business other than the
Business or change the purpose of the Business;
(d) adopt or amend the Annual Budget, provided, however, that the
Annual Budget must be approved by the Liberty Appointees, with a 25% variance on
each line item;
(e) the hiring and firing of key employees and executive officers of
the Company and the compensation and benefit arrangements payable to any key
employee or executive officer of the Company;
(f) any sale, exchange, lease or other disposition (whether in a
single transaction or by a series of related transactions) other than in the
ordinary course of business of a material portion of the Company's intellectual
property, including, without limitation, its technology;
(g) the use of Capital Contributions received by the
Company;
(h) commence or settle any litigation or threatened
litigation; and
(i) any voluntary liquidation or dissolution of the Company, the
filing of a voluntary petition of the Company under Chapter 7 or Chapter 11 of
the United States Bankruptcy Code or a determination to not contest an
involuntary petition of bankruptcy or otherwise institute insolvency proceedings
or otherwise seek any relief under laws relating to the relief from debts or the
protections of debtors generally; seek or consent to the appointment of a
receiver, liquidator, assignee, trustee, sequestrator, custodian or any similar
official for the Company or all or any portion of its properties; make any
assignment for the benefit of the Company's creditors; take any action that
would cause the Company to become insolvent (as defined by the Bankruptcy Code);
or take any action which consents to a case in a bankruptcy or other insolvency
proceedings against the Company or waives or releases any right or claims of the
Company in any such case or proceeding.
4.4. Actions Requiring Approval of Super Majority-in- Interests.
Notwithstanding anything contained in this Agreement to the contrary, the
Company, the Manager and the Supervisory Board shall not, and no officer,
employee or agent of the Company shall have authority, in the name or on behalf
of the Company, to take any of the following actions, directly or indirectly,
without the prior approval of the holders of a Super Majority-in- Interests of
the Members:
(a) amend or modify the rights, preferences,
designations and privileges of any of the outstanding Membership
Interests;
(b) amend the articles of organization of formation of
the Company or this Agreement, except as otherwise specifically
provided herein;
(c) redeem or repurchase any Membership Interest,
other than pursuant to this Agreement;
(d) a Sale of the Company;
(d) increase the number of members of the Supervisory Board
above six (6);
(f) declare or pay any divided or other distribution
of cash, Membership Interests or other assets of the Company;
(g) appoint and retain any accounting firm; and
(h) the appointment of the managing underwriter of any
registration of securities of the Company.
ARTICLE V
DUTIES OF THE MEMBERS
5.1. Confidentiality. Each Member hereby severally covenants and agrees
that such Member shall retain in strict confidence, and shall not use for any
purpose whatsoever, or divulge, disseminate or disclose to any third party
(other than in furtherance of the business purposes of the Company or as may be
required by law) all proprietary or confidential information relating to the
Company's business, including, without limitation, financial information,
development plans, pricing information, business methods, management information
systems and software, customer lists, supplier lists, leads, solicitations and
contacts, know-how, show-how, inventions, techniques, improvements,
specifications, trade secrets, agreements, research and development, business
plans and marketing plans of the Company, whether or not any of the foregoing
are copyrightable or patentable. The provisions of this Section 5.1 shall
survive and continue to bind the Members notwithstanding any Member ceasing to
be a Member.
5.2. Proprietary Rights. Each Member hereby severally covenants and agrees
that such Member shall, for so long as it is a Member of the Company,
communicate and make known to the Company all knowledge and information
possessed by such Member relating to any methods, developments, know how,
inventions, techniques or improvements which concern in any way the Company's
business (or the industry of which it is a part); provided, however, that
nothing herein shall be construed as requiring any communication where the
information is lawfully protected from disclosure as the proprietary right of a
third party or by any other legal bar to such communication. Any developments
relating to the Company's business, in which any party hereto has participated,
shall be considered works-for-hire for the Company, which shall have the
exclusive rights thereto; and each party hereto shall sign and deliver to the
Company, and shall cause any instruments necessary to effect the assignment of
such rights to the Company.
5.3. Rights and Remedies Upon Breach of Restrictive Covenants. If a
Member breaches, or threatens to commit a breach of, any of the provisions of
this Article V, then the Company and the other Members shall have the following
rights and remedies, each of which rights and remedies shall be independent of
the other and severally enforceable, and all of which rights and remedies shall
be in addition to and not in lieu of, any other rights and remedies that are
available at law or in equity:
(a) The right and remedy to have the covenants contained herein
specifically enforced by any court having equity jurisdiction, it being
acknowledged and agreed that any such breach or threatened breach will cause
irreparable injury to the Company and the non-breaching Members and that money
damages will not provide an adequate remedy to the Company and the non-
breaching Members; and/or
(b) The right and remedy to declare a material default of this
Agreement by the breaching Member and to recover damages therefor in accordance
with applicable law and/or the provisions of this Agreement.
If any court determines that any of the covenants contained herein,
or any part thereof, is unenforceable because of, among other reasons, the
duration of such provision or the restrictive area covered thereby, such court
shall have the power to reduce the duration or restrictive area of such
provision and, in its reduced form, such provision will then be enforceable and
shall be enforced.
5.4. Employment Agreements. Notwithstanding anything contained herein to
the contrary, if any Member shall be a party to an Employment Agreement with the
Company, to the extent that the terms and conditions of said Employment
Agreement conflict with or limit the provisions hereof, the provisions of the
Employment Agreement shall govern the obligations of such Member regardless of
the provisions of this Article V.
5.5. Certain Representations and Warranties of the Members.
Each Member hereby severally represents and warrants to the
Company and each other Member as follows:
(a) Each Member which is either a corporate entity or a limited
liability company represents and warrants that it is duly organized, validly
existing and in good standing under the laws of the state of its respective
jurisdiction. Each Member has all necessary power and authority to enter into
this Agreement, to carry out its obligations hereunder and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
by each Member, the performance by each Member of its obligations hereunder and
the consummation by each Member of the transactions contemplated hereby: (i)
have been duly authorized by all necessary action on the part of each Member,
and no other proceedings on the part of such Member are necessary to authorize
this Agreement or to consummate the transactions contemplated hereby, and (ii)
do not contravene or otherwise conflict with any agreement, document or
instrument to which such Member is a party or pursuant to which such Member's
assets are subject. This Agreement has been duly executed and delivered by each
Member and, assuming due authorization, execution and delivery by the other
parties hereto, this Agreement constitutes a legal, valid and binding obligation
of each Member enforceable against it in accordance with its terms.
(b) Each Member represents and warrants that such Member has acquired
such Member's Membership Interest for such Member's own account, for investment
and not with a view to the distribution or resale thereof and understands that:
(i) such Member's Membership Interest has not been registered under the
Securities Act, or any applicable securities or Blue Sky law of any state or
other jurisdiction; and (ii) a Transfer may not be made unless the transferring
Member's Membership Interest is registered under such laws or any exemption from
such registration is available, and such Member complies with the applicable
provisions of this Agreement.
ARTICLE VI
MEETINGS AND VOTING OF MEMBERS; OFFICERS
6.1. Meetings of the Members.
(a) Meetings of the Members may be called at any time by the
Supervisory Board, the Manager or by a majority-in- interest of the Members.
Upon receipt of a written request that a meeting is to be held and stating the
purposes of the meeting, the Manager shall provide all of the Members, within
two (2) days after receipt of said request, with notice of the meeting and the
purposes of such meeting. No meeting shall be held less than two (2) nor more
than thirty (30) days after notice thereof; provided, however, that any Member
may, with respect to himself or itself, waive the notice requirements herein set
forth.
(b) All meetings of the Members shall be held at the principal place
of business of the Company or at such other place as shall be specified or fixed
in the notices thereof, provided that any or all Members may participate in any
such meeting by means of conference telephone or similar communications
equipment. A quorum shall be present at a meeting of the Members if the holders
of a majority-in-interest are represented at the meeting in person or by proxy.
With respect to any matter, other than a matter for which a requisite
affirmative vote of the Supervisory Board or the consent of the holders of a
specific portion of the Membership Interests entitled to vote is required by
this Agreement or the Act, the affirmative vote of a majority- in-interest at a
meeting of Members at which a quorum is present shall be the act of the Members.
Notwithstanding the provisions or this Agreement, the holders of a
majority-in-interest shall have the power to adjourn such meetings from time to
time, without any notice other than announcement at the meeting of the time and
place of the holding of the adjourned meeting. If such meeting is adjourned by
the Members, such time and place shall be determined by a vote of the holders of
a majority-in-interest. Upon the resumption of such adjourned meeting, any
business may be transacted that might have been transacted at the meeting as
originally called.
(c) Any action required or permitted to be taken at meeting of the
Members may be taken without a meeting, without prior notice, and without a
vote, if consents in writing, setting forth the action so taken, are signed by
the Members having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which the requisite
amount of Membership Interests entitled to vote on the action were present and
voted, provided, however, that any such action shall not be taken without the
consent of the holders of the Super Majority-in-Interests of the Preferred
Interests. Every written consent shall bear the date and signature of each
Member who signs the consent. Prompt notice of the taking of action without a
meeting by less than unanimous written consent shall be given to all Members who
have not consented in writing to such action.
6.2. Officers.
(a) Subject to the provisions of Section 4.3(e), the Manager, upon
prior consultation with the Supervisory Board, may, from time to time, designate
one or more individuals to be officers of the Company. Any officers so
designated shall only have such authority and perform such duties as the Manager
may, from time to time, delegate to them. The Manager may assign titles to
particular officers. Each officer shall hold office until his successor shall be
duly designated by the Manager, which shall only occur after prior consultation
with the Supervisory Board, or until his death or until he shall resign or shall
have been removed in the manner hereinafter provided. Any number of offices may
be held by the same Person.
(b) Any officer may resign as such at any time. Such resignation
shall be made in writing and shall take effect at the time specified therein, or
if no time be specified, at the time of its receipt by the Company. The
acceptance of a resignation shall not be necessary to make it effective, unless
expressly so provided in the resignation. Any officer may be removed as such,
either with or without cause, by the Supervisory Board or the Manager whenever
in their or his, as the case may be, judgment the best interests of the Company
will be served thereby; provided, however, that such removal shall not limit the
contract rights, if any, of the Company and/or the person so removed.
Designation of an officer shall not of itself create contract rights.
ARTICLE VII
ACCOUNTING PROVISIONS; INFORMATION RIGHTS
7.1. Fiscal and Taxable Year. The Fiscal Year and taxable
year of the Company shall be the calendar year, unless the
Supervisory Board designates a different Fiscal Year or taxable
year.
7.2. Books and Accounts.
(a) The Manager shall cause the Company to keep and maintain complete
and accurate books and accounts for the Company at the Company's principal place
of business or at such other place or places as the Manager shall select. Such
books and accounts shall be kept for fiscal and tax purposes on the cash or
accrual basis, as the Manager shall determine, in accordance with GAAP and shall
include separate accounts for each Member. Each Member or such Member's duly
authorized representative, at such Member's own expense and upon delivering
advance written notice to the Company, shall at all reasonable times and upon
reasonable advance notice have access to, and may inspect and make copies of,
such books and accounts and any other records of the Company.
(b) All funds received by the Company shall be deposited in the name
of the Company in such bank account or accounts as the Manager may designate
from time to time, and withdrawals therefrom shall be made upon such signatures
on behalf of the Company as the Manager may designate from time to time. In the
discretion of the Manager, and subject to the Annual Plan all deposits and other
funds not needed in the operation of the Company's business may be deposited in
interest- bearing bank accounts, in money market funds, or invested in treasury
bills, certificates of deposit, U.S. government security- backed repurchase
agreements or similar short-term money market instruments, and/or funds
investing in any of the foregoing or similar types of short-term investments.
7.3. Tax Reports. The Manager shall cause to be prepared after the end of
each taxable year of the Company and filed, on or before their respective due
dates (as the same may be extended), all federal and state income tax returns of
the Company for such taxable year and shall take all action as may be necessary
to permit the Company's regular accountants to prepare and timely file such
returns. Form 1065 (Schedule K?1) shall be sent to each Member after the end of
each taxable year reflecting the Member's pro rata share of income, loss, credit
and deductions for such taxable year.
7.4. Tax Elections. Unless the Manager determines otherwise, the Company,
at the request of any Member, will make an election pursuant to the provisions
of Section 754 of the Code. Any other elections required or permitted to be made
by the Company under the Code shall be made by the Manager in such manner as
will, in the Manager's opinion, be most advantageous to the holders of a Super
Majority-in-Interest of the Preferred Interests.
7.5. Tax Audits.
(a) The Manager shall serve as the tax matters partner for the Company
(the "Tax Matters Partner"). Each Member, by the execution hereof, consents to
the Manager serving as the Tax Matters Partner and agrees to execute, certify,
acknowledge, deliver, swear to, file and record at the appropriate public
offices such documents as may be necessary or appropriate to evidence such
consent. To the extent and in the manner provided by applicable law and
regulations, the Tax Matters Partner shall furnish the name, address, profits
interest, and taxpayer identification number of each Member to the Secretary of
the Treasury or his delegate (the "Treasury Secretary"). The Tax Matters Partner
shall keep the Members informed of the administrative and judicial proceedings
for the adjustment at the Company level of any item required to be taken into
account by a Member for income tax purposes (such administrative proceedings
referred to hereinafter as a "tax audit") and such judicial proceeding referred
to hereinafter as "judicial review").
(b) The Tax Matters Partner is hereby authorized, but
not required:
(i) to enter into any settlement with the Internal Revenue
Service or the Treasury Secretary with respect to any tax audit or judicial
review, in which agreement the Tax Matters Partner may expressly state that such
agreement shall bind the Members, except that such settlement agreement shall
not bind any Member who (within the time prescribed pursuant to the Code and
regulations thereunder) files a statement with the Treasury Secretary providing
that the Tax Matters Partner shall not have the authority to enter into a
settlement agreement on the behalf of such Member;
(ii) in the event that a notice of a final partnership
administrative adjustment at the Company level of any item required to be taken
into account by a Member for tax purposes (a "final adjustment") is mailed to
the Tax Matters Partner, to seek judicial review of such final adjustment,
including the filing of a petition for readjustment with the Tax Court, the
District Court of the United States for the district in which the Company's
principal place of business is located, or the United States Court of Federal
Claims;
(iii) to intervene in any action brought by
any Member for judicial review of a final adjustment;
(iv) to file a request for an administrative adjustment with the
Treasury Secretary at any time and, if any part of such request is not allowed
by the Treasury Secretary, to file a petition for judicial review with respect
to such request;
(v) to enter into an agreement with the Internal Revenue Service
to extend the period for assessing any tax which is attributable to any item
required to be taken into account by a Member for tax purposes, or an item
affected by such item; and
(vi) to take any other action on behalf of the Members of the
Company in connection with any administrative or judicial tax proceeding to the
extent permitted by applicable law or regulations.
(c) The Company shall indemnify and reimburse the Tax Matters Partner
for all expenses, including legal and accounting fees, claims, liabilities,
losses, and damages incurred in connection with any administrative or judicial
proceeding with respect to the tax liability of the Members. The payment of all
such expenses shall be made before any distributions are made to Members or any
discretionary reserves are set aside by the Manager. The taking of any action
and the incurring of any expense by the Tax Matters Partner in connection with
any such proceeding, except to the extent required by law, is a matter in the
sole discretion of the Tax Matters Partner and the provisions on limitations of
liability and indemnification set forth herein shall be fully applicable to the
Tax Matters Partner in his capacity as such.
(d) Anything herein to the contrary notwithstanding, the Tax Matters
Partner shall not make any decision binding on the Company in any proceedings or
negotiations with any taxing authority without the consent of the Supervisory
Board.
7.6. Information. The Company covenants and agrees to deliver to (i)
Liberty and the Investor the information specified in this Section 7.6 and (ii)
each Member who holds at least 5% of the outstanding Membership Interests (on a
fully diluted basis) the information specified in Section 7.6(c).
(a) Monthly Reports and Financial Statements. As soon as available,
but in any event not later than ten (10) days after the end of each month, (i) a
report from the Manager describing the activities of the Company for such
period, including, without limitation, sales figures, new customers, market
penetrations and marketing activities for such period, and (ii) the unaudited
and unreviewed consolidated balance sheet of the Company as at the end of each
such period and the related unaudited and unreviewed consolidated statements of
income and cash flows of the Company for such period.
(b) Quarterly Financial Statements. As soon as unavailable, but in
any event not later than thirty (30) days after the end of each quarter (other
than the last quarter in any Fiscal Year), the unaudited but reviewed
consolidated balance sheet of the Company as at the end of each such period and
the related unaudited but reviewed consolidated statements of income and cash
flows of the Company for such period. All such financial statements shall be
prepared in accordance with GAAP applied on a consistent basis throughout the
period reflected thereon, provided that certain disclosures such as footnotes
may be excluded therefrom.
(c) Annual Financial Statements. As soon as available, but in any
event within forty-five (45) days after the end of each Fiscal Year, a copy of
the audited balance sheet of the Company as at the end of such Fiscal Year and
the related audited statements of operations and cash flows of the Company for
such Fiscal Year, accompanied by an opinion of an accounting firm of recognized
national standing selected in accordance with the terms of this Agreement, which
opinion shall state that such accounting firm's audit was conducted in
accordance with generally accepted auditing standards. All such financial
statements shall be prepared in accordance with GAAP applied on a consistent
basis throughout the periods reflected therein except as stated therein.
(d) Budgets. As soon as available, but in any event not later than
thirty (30) days prior to the beginning of each fiscal year of the Company, the
Annual Budget.
(e) Inspection Rights. In addition to the other rights granted to
Liberty and the Investor in this Agreement, at law and otherwise, each of
Liberty and the Investor shall have the right, upon reasonable notice to the
Company, to visit the premises of the Company and inspect any of the properties,
books and records of the Company and to discuss the Company's affairs, finances
and accounts with its officers, employees and representatives.
ARTICLE VIII
TRANSFERS OF A MEMBERSHIP INTEREST; RIGHT OF FIRST REFUSAL;
TAG ALONG RIGHTS; SALE OF THE COMPANY
8.1. Transfer of a Member's Membership Interest. Until the earlier of the
consummation of the IPO or the expiration of the fifth (5th) anniversary of the
date hereof, without the prior written consent of Liberty and except as
otherwise contemplated pursuant to Sections 8.2, 8.3, 8.4 and 8.5 below, MV and
DC may not and shall not, directly or indirectly, sell, transfer, gift, assign
or otherwise dispose of, or permit, voluntarily or involuntarily, any
Encumbrance upon all or any portion of such Member's Membership Interest or any
interest therein. Any such purported sale, transfer, gift, assignment or other
disposition or Encumbrance of a Member's Membership Interest (hereinafter
collectively referred to as a "Transfer") without such consent shall be invalid
and void, shall not bind the Company and shall have no effect whatsoever on the
Company or its Members. If Liberty shall have consented to the Transfer, such
Transfer may be made only if (a) the provisions of Section 8.3 below do not
otherwise prohibit the Transfer, (b) a duly executed and acknowledged
counterpart of the instrument effecting such Transfer, in form and substance
satisfactory to Liberty, shall have been delivered to the Company, and the
assignor shall have indicated such intention of substitution in the instrument
effecting such Transfer, (c) the assignee shall have expressly agreed to be
bound by the provisions of this Agreement and to assume all of the obligations
imposed upon the Members hereunder, including, without limitation, those
obligations set forth in this Article VIII, (d) the assignor and the assignee
shall have executed or delivered such other instruments as Liberty and the
Investor may deem necessary or desirable to effectuate such admission,
including, but not limited to, an opinion of counsel that the Transfer complies
with the registration provisions of the Securities Act and any applicable
securities or Blue Sky law of any state or other jurisdiction, or an exemption
therefrom, and (e) the assignor or assignee shall have paid all reasonable
expenses and legal fees relating to the Transfer. Furthermore, the parties
hereto agree and acknowledge that no Member which is an entity shall Transfer
any portion of an equity, partnership, membership or other interest in itself to
any third party except as permitted in Section 8.2 below, and that any such
Transfer shall be subject to the right of first refusal set forth in Section 8.4
and to the tag-along rights of Section 8.5 below.
8.2. Permitted Transfers. The consent of Liberty and the Investor shall
not be required for a Transfer of all or a part of MV's or DC's Membership
Interest to a Permitted Transferee, provided that, in all cases, any such
Transfer is otherwise made in accordance with and subject to the provisions of
Section 8.1 above, this Section 8.2 and Section 8.3 below. Any Transfer to a
Permitted Transferee shall not be subject to the right of first refusal granted
in Section 8.4 below or the tag-along right granted in Section 8.5 below;
provided, that any Permitted Transferee that receives any Membership Interest
shall hold such Membership Interest subject to all of the terms and conditions
of this Agreement and shall, as a condition of receiving such Membership
Interest, execute and deliver documentation confirming that they shall be bound
hereby, including, without limitation, all of the documentation required by
Section 8.1 above.
8.3. Further Limitations on Transfers. In no event may a Transfer by any
Member be made if the Transfer would result in (i) the termination of the
Company as a limited liability company for federal income tax purposes pursuant
to Section 708(b)(1)(B) of the Code, or (ii) the dissolution of the Company
pursuant to the Act, and, if so attempted, the Transfer shall be void and shall
not bind the Company. In making the determination whether a Transfer will result
in such a termination, Liberty, in its sole discretion, may require the assignee
to furnish, at such assignee's expense, an opinion of counsel passing on this
issue, with such counsel to be reasonably acceptable to Liberty. Furthermore,
each Member agrees that it shall not, except in connection with a Sale of the
Company, directly or indirectly transfer its Membership Interests to any Person
that is a direct or indirect competitor of the Company.
8.4. Right of First Refusal.
(a) Prior to the effective date of an IPO, Transfers of all or any
part of MV's or DC's Membership Interest may be made to bona fide third party
purchasers, provided that all of the terms of this Section 8.4 have been fully
complied with. If MV or DC (the "Selling Member") wishes to Transfer all or any
part of his Membership Interest (the "Offered Interest"), the Selling Member
shall first notify Liberty, the Investor and any other Person hereafter admitted
to the Company as a Member as a result of a Transfer by Liberty or the Investor
(collectively the "Non-Selling Members") in writing (the "Transfer Notice") of
the proposed Transfer, the proposed price and the terms of the Transfer.
(b) The Transfer Notice shall constitute an irrevocable offer to the
Non-Selling Members (the "Transfer Offer") to sell the Offered Interest to the
Non-Selling Members pursuant to the provisions of this Section 8.4, for the
consideration and on the other terms stated in the Transfer Notice (or the
reasonable equivalent thereof in the case of non- monetary consideration of a
type which is personal to the third party offeror).
(c) The Non-Selling Members shall have the right to accept the
Transfer Offer within 20 Business Days after receipt of the Transfer Notice by
delivery of a written notice ("Acceptance Notice") to the Selling Member, which
shall specify the amount of Membership Interests which such Non-Selling Member
desires to purchase. The Acceptance Notice may, at the Non- Selling Member's
option, indicate the maximum number of Offered Interest such Non-Selling Member
is willing to purchase in excess of such Non-Selling Member's Percentage
Interest of the Offered Interest (the "Excess Amount"). If one or more
Non-Selling Members does not give a timely Acceptance Notice, or elects in an
Acceptance Notice to purchase less than such Non-Selling Member's Percentage
Interest, then the remaining Offered Interest shall automatically be deemed to
be accepted by Non-Selling Members who specified an Excess Amount in their
respective Acceptance Notice, allocated among such Non-Selling Members in
proportion to their respective Percentage Interests determined based only on
those Non-Selling Members who have given timely Acceptance Notices which
specified an Excess Amount. In no event shall an amount greater than a
Non-Selling Member's Excess Amount be allocated to such Non-Selling Member. Any
excess Offered Interest shall be further allocated among the Non-Selling Members
whose specified Excess Amount has not been satisfied in proportion to their
respective Percentage Interest, determined based only on those Non-Selling
Members whose specified Excess Amount has not yet been satisfied, and such
procedure shall be employed until the entire Excess Amount of each Non-Selling
Member has been satisfied or all the remaining Offered Interest has been
allocated.
In the event that the Offered Interests are not fully subscribed for
by the Non-Selling Members, then the Selling Member shall have the right, in its
sole discretion, to sell all the Offered Interests to a third party and/or sell
a portion of the Offered Interests to the Non-Selling Members, all on terms not
less favorable than those contained in the Transfer Notice.
(d) In the event that the Non-Selling Members exercise their first
refusal rights with respect to all of the Offered Interest, then the Selling
Member must sell the Offered Interest to the Non-Selling Members within 10
Business Days after the date of receipt of the last Acceptance Notice received
by the Selling Member.
(e) If all notices required to be given pursuant to subsections (a)
through (c) above have been duly given and the Non-Selling Members shall have
determined not to exercise their respective first refusal rights granted herein,
then the Selling Member shall have the right, for a period of 30 calendar days
after expiration of the last applicable option period specified in subsection
(c), to sell the Offered Interest remaining unsold on the terms and provisions
set forth in the Transfer Notice.
(f) Upon the consummation of any purchase by a third party and/or the
Non-Selling Members of the Offered Interest, the Selling Member shall deliver
certificates evidencing the Offered Interest sold, duly endorsed, or accompanied
by written instruments of transfer, free and clear of any Encumbrances, other
than those imposed by this Agreement, against delivery of the purchase price
thereof.
8.5. Tag-Along Right.
(a) Prior to the effective date of an IPO, if any Selling Member
wishes to Transfer any or all of the Member's Membership Interest, either in one
transaction or a series of related transactions, and the Offered Interest is not
purchased by the Non-Selling Members, then as a condition to such Transfer, the
Selling Member shall permit (or cause to be permitted) all other Non-Selling
Members who did not seek to purchase the Offered Interest pursuant to Section
8.4 (other than Members who elected to purchase the Offered Interest and failed
to close on the purchase thereof) or were unable to purchase the Offered
Interest as a result of the failure of the Non-Selling Members to purchase all
the Offered Interest (in the event that such a purchase is a condition which is
described in the Transfer Notice) (the "Remaining Members") to sell, either to
the prospective purchaser of the Offered Interest or to another financially
reputable purchaser reasonably acceptable to such Remaining Members, up to the
same proportion of the Membership Interests then owned by each such Remaining
Member as the proportion that the amount of Offered Interest the Selling Member
proposes to Transfer bears to the total amount of Membership Interests held by
the Selling Member on equivalent terms and at an equivalent price and for the
same type of consideration to that offered by the third-party offeror, taking
into account any difference in the type of securities.
(b) The Selling Member shall give written notice (the "Tag-Along
Notice") to the Remaining Members of each proposed Transfer giving rise to the
rights referred to in this Section 8.5 immediately following the end of the 20
Business Day period provided in Section 8.3(d) and at least 20 days prior to the
proposed consummation of such Transfer, setting forth the name of the
prospective purchaser, the maximum number of Offered Interest proposed to be
Transferred, the proposed amount and form of consideration and the other terms
and conditions of the proposed transaction. The Tag-Along Notice shall also
provide that each of the Remaining Members may elect to exercise such rights
within 15 days following the giving of the Tag-Along Notice, by delivery, on or
before the expiration of such time period, of a written notice to the Seller
indicating such desire to exercise its rights under this Section 8.5 and
specifying the amount of Membership Interests, he, she or it desires to sell. No
present or future Tag-Along Rights of a Member shall be adversely affected by
its failure to exercise such rights in the past.
(c) The sale of Membership Interests in any sale proposed in a
Tag-Along Notice shall be effected on substantially the terms and conditions set
forth in such Tag-Along Notice (except in the case of non-monetary consideration
which is unique to the third party as to which there shall be paid the
reasonable equivalent thereof). The number of Membership Interests to be sold by
the Selling Member shall be reduced by the aggregate number of Membership
Interests to be sold by each of the Remaining Members who have exercised
Tag-Along Rights in connection with such Transfer.
8.6. Sale of the Company. If Liberty and the Investor and the holders of a
Super Majority-in-Interest of the outstanding Membership Interests approve a
Sale of the Company to a third party, the Company shall deliver a notice to each
Member containing the material terms thereof (a "Sale Notice"). Each Member
agrees to vote, if such a vote is required under applicable law, all of its
Membership Interest in favor of such a Sale of the Company, and to sell all of
its Membership Interests on the terms and subject to the terms and subject to
the conditions contained in the Sale Notice. Each Member and the Company agrees
to cooperate in any such Sale of the Company and agrees to execute and deliver
all documents and instruments as is required in the transaction which is the
subject of the Sale Notice and which are requested in order to effect such Sale
of the Company.
ARTICLE IX
PREFERRED INTERESTS
9.1. Preference of Preferred Interests. The Preferred Interests shall rank
prior to all other classes of Membership Interests (collectively the "Junior
Securities") and shall have in addition to the other rights contained in this
Agreement the preferences, designations and privileges contained in this Article
IX.
9.2. Dividends. The holders of the Preferred Interests shall be entitled
to receive dividends, when and as declared by the Supervisory Board prior to the
payment of any dividend or other similar distribution in respect of any Junior
Securities. Upon payment of the Preferred Interest Preference in full, the
holders of Preferred Interests will participate in any and all other divided
distributions to be made to the holders of Junior Securities.
9.3. Voting Rights. Except as otherwise required by law or
as set forth in this Agreement, the holders of the Preferred
Interests shall at all times be entitled to vote, in person or by
proxy, on all matters, together as a single class with the
holders of the Junior Securities.
9.4. Liquidation. Upon any liquidation, dissolution or winding up of the
Company, whether voluntary or involuntary, any surplus assets of the Company
shall be distributed among the Members pursuant to Section 10.1(b). Upon a Sale
of the Company, any assets of the Company shall be distributed among the Members
in accordance with Section 10.1(b).
ARTICLE X
DISTRIBUTIONS AND ALLOCATIONS
10.1. Distributions of Net Cash Flow and Net Proceeds
from a Capital Transaction.
(a) Except as otherwise required by this Agreement or by law,
Distributions of Net Cash Flow shall be made at such times and in such amounts
as the Supervisory Board in its sole discretion shall determine, provided,
however, that if the Company has Net Profits for a Fiscal Year, the Manager
shall cause the Company to distribute amounts to enable the Members to meet
their respective income tax obligations with respect to the Profits of the
Company for such Fiscal Year or gain recognized by a Member under Code Section
704(c)(1)(B) or 737(a) as a result of a distribution by the Company. Any tax
distributions under this Section 10.1 shall be made to each Member in an amount
equal to the product of (a) the Net Profits allocated to such Member for such
Fiscal Year and not offset by net cumulative Net Losses previously allocated to
such Member and (b) the highest applicable marginal federal and applicable state
corporate income tax rate (or such other single rate specified by the Manager to
reflect a change in applicable federal or state corporate income tax rates).
(b) Except as otherwise required by this Agreement or by law,
Distributions of Net Proceeds from a Capital Transaction shall be made in the
following order of priority:
(i) First, the Manager shall cause the Company to distribute
amounts to enable the Members to meet their respective tax obligations with
respect to the Profits of the Company and/or gains recognized by a Member under
Code Section 704(c)(1)(B) or 737(a) as a result of the distribution in
accordance with the last sentence of Section 10.1(a) above;
(ii) Second, to the holders of Preferred
Interests in the amount of the Preferred Interest Preference, if
so elected by the holders of a Super Majority-in-Interest of the
holders of the Preferred Interest;
(iii) Third, to the Members, but excluding the holders of
Preferred Interests, pro rata, in an amount equal to their respective Capital
Contribution, provided, however, that if the holders of the Preferred Interests
do not elect to receive the Preferred Interest Preference, then to all the
Members, including the holders of Preferred Interests pro rata; and
(iv) Last, the balance, if any, to all of the
Members in proportion to their respective Percentages of
Interests.
10.2. Allocation of Net Profits.
After giving effect to the special allocations set forth in this
Agreement, Net Profits shall be allocated among the Members as follows:
(a) First, to the Members to the extent of and in proportion to the
Net Losses previously allocated to each Member pursuant to Section 10.3(b)
below, minus the aggregate amount of Net Profits previously allocated to each
Member pursuant to this subparagraph (a);
(b) Next, to the Members to the extent of and in proportion to the
Net Losses previously allocated to each Member pursuant to Section 10.3(a)
above, minus the aggregate amount of Net Profits previously allocated to each
Member pursuant to this subparagraph (b); and
(c) The balance, if any, to the Members in accordance with their then
respective Percentages of Membership Interest.
10.3. Allocation of Net Losses.
After giving effect to the special allocations set forth in this
Agreement, Net Losses shall be allocated as follows:
(a) First, to the Members to the extent of and in proportion to the
excess of (1) the Net Profits previously allocated to the Members pursuant to
Section 10.2(c) over (2) the Net Losses previously allocated to the Members
pursuant to this subparagraph (a); and
(b) The balance, if any, to the holders of the
Preferred Interests in proportion to their positive Capital
Account balance;
( c) to the Members, excluding the holders of the
Preferred Interests, in proportion to their positive Capital
Account balance; and
(d) The balance, if any, among the Members in accordance with their
respective Percentage Interests.
10.4. No Return of Distributions. No Member shall have any obligation to
refund to the Company any amount that shall have been properly distributed to
such Member pursuant to this Agreement, subject, however, to the rights of any
third party creditor under law.
10.5. Allocations between Assignor and Assignee Members. In the case of a
Transfer, the assignor and assignee shall each be entitled to receive
distributions of Net Cash Flow and/or Net Proceeds of a Capital Transaction and
allocations of Net Profits or Net Losses and Nonrecourse Deductions as follows:
(a) Unless the assignor and assignee agree to the contrary and shall
so provide in the instrument effecting the Transfer, distributions shall be made
to the person owning the Member's Membership Interest on the date of the
distribution; and
(b) Net Profits or Net Losses and Nonrecourse Deductions shall be
allocated by the number of days of the fiscal year in which each person held the
Member's Membership Interest, except that if the assignor and the assignee
desire, and shall so advise the Company in writing within ten (10) days after
the end of the taxable year in which the Transfer occurs, Net Profits
attributable to a Capital Transaction or Net Losses attributable to a Capital
Transaction shall be allocated to the holder of the Member's Membership Interest
on the day that the Capital Transaction occurred during such year.
10.6. Tax Credits. Any Company tax credits relating to
activities from and after January 1, 2000 shall be allocated
among the Members in proportion to their respective Percentage
Interest.
10.7. Further Allocation Rules. Anything herein to the
contrary notwithstanding:
(a) Minimum Gain Chargeback. Except as otherwise provided in Section
1.704-2(f) of the Regulations, notwithstanding any other provision of this
Article X, if there is a net decrease in Company Minimum Gain during any taxable
year, each Member shall be specially allocated items of Company income and gain
for such taxable year (and, if necessary, subsequent taxable years) in an amount
equal to such Member's share of the net decrease in Company Minimum Gain,
determined in accordance with Regulations Section 1.704-2(g). Allocations
pursuant to the previous sentence shall be made in proportion to the respective
amounts required to be allocated to each Member pursuant thereto. The items to
be so allocated shall be determined in accordance with Sections 1.704-2(f) (6)
and 1.704- 2(j) (2) of the Regulations. This Section 11.7(a) is intended to
comply with the minimum gain chargeback requirement in Section 1.704-2(f) of the
Regulations and shall be interpreted consistently therewith.
(b) Member Minimum Gain Chargeback. Except as otherwise provided in
Section 1.704-2(i) (4) of the Regulations, notwithstanding any other provision
of this Article X, if there is a net decrease in Member Nonrecourse Debt Minimum
Gain attributable to a Member Nonrecourse Debt during any taxable year, each
Member who has a share of the Member Nonrecourse Debt Minimum Gain attributable
to such Member Nonrecourse Debt, determined in accordance with Section
1.704-2(i) (5) of the Regulations, shall be specially allocated items of Company
income and gain for such taxable year (and, if necessary, subsequent taxable
years) in an amount equal to such Member's share of the net decrease in Member
Nonrecourse Debt, determined in accordance with Regulations Section 1.704-2(i)
(4). Allocations pursuant to the previous sentence shall be made in proportion
to the respective amounts required to be allocated to each Member pursuant
thereto. The items to be so allocated shall be determined in accordance with
Sections 1.704-2(i) (4) and 1.704- 2(j) (2) of the Regulations. This Section
10.7(b) is intended to comply with the minimum gain chargeback requirement in
Section 1.704-2(i) (4) of the Regulations and shall be interpreted consistently
therewith.
(c) Qualified Income Offset. In the event any Member unexpectedly
receives any adjustments, allocations, or distributions described in Sections
1.704-1(b)(2)(ii)(d)(4), 1.704?1(b)(2)(ii)(d)(5), or 1.704-1(b)(2)(ii)(d)(6) of
the Regulations, items of Company income and gain shall be specially allocated
to such Member in an amount and manner sufficient to eliminate, to the extent
required by the Regulations, the Adjusted Capital Account Deficit of the Member
as quickly as possible, provided that an allocation pursuant to this Section
10.7(c) shall be made only if and to the extent that the Member would have an
Adjusted Capital Account Deficit after all other allocations provided for in
this Article X have been tentatively made as if this Section 10.7(c) was not
contained in this Agreement.
(d) Gross Income Allocation. In the event any Member has a deficit
Capital Account at the end of any taxable year which is in excess of the sum of
(i) the amount that such Member is obligated to restore pursuant to the
penultimate sentences of Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5),
each such Member shall be specially allocated items of Company income and gain
in the amount of such excess as quickly as possible, provided that an allocation
pursuant to this Section 11.7(d) shall be made only if and to the extent that
such Member would have a deficit Capital Account in excess of such sum after all
other allocations provided for in this Article XI have been made as if Section
10.7(c) and this Section 10.7(d) were not contained in this Agreement.
(e) Nonrecourse Deductions. Nonrecourse Deductions
for any taxable year shall be specially allocated to the Members
in proportion to their respective Percentage Interests.
(f) Member Nonrecourse Deductions. Any Member Nonrecourse Deductions
for any taxable year shall be specially allocated to the Member who bears the
economic risk of loss with respect to the Member Nonrecourse Debt to which such
Member Nonrecourse Deductions are attributable in accordance with Regulations
Section 1.704-2(i) (1).
(g) Section 754 Adjustments. To the extent an adjustment to the
adjusted tax basis of any Company asset, pursuant to Code Section 734(b) or Code
Section 743(b) is required, pursuant to Regulations Section
1.704?1(b)(2)(iv)(m)(2) or 1.704?1(b)(2)(iv)(m)(4), to be taken into account in
determining Capital Accounts as the result of a distribution to a Member in
complete liquidation of such Member's interest in the Company, the amount of
such adjustment to Capital Accounts shall be treated as an item of gain (if the
adjustment increases the basis of the asset) or loss (if the adjustment
decreases such basis) and such gain or loss shall be specially allocated to the
Members in accordance with their interests in the Company in the event that
Regulations Section 1.704?1(b)(2)(iv)(m)(2) applies, or to the Member to whom
such distribution was made in the event that Regulations Section
1.704?1(b)(2)(iv)(m)(4) applies.
10.8 Curative Allocations. The allocations set forth in Sections 10.7(a),
10.7(b), 10.7(c), 10.7(d), 10.7(e), 10.7(f), 10.7(g) and 10.9 (the "Regulatory
Allocations") are intended to comply with certain requirements of the
Regulations. It is the intent of the Members that, to the extent possible, all
Regulatory Allocations shall be offset either with other Regulatory Allocations
or with special allocations of other items of Company income, gain, loss or
deduction pursuant to this Section 11.8. Therefore, notwithstanding any other
provision of this Article X (other than the Regulatory Allocations), the Manager
shall make such offsetting special allocations of Company income, gain, loss or
deduction in whatever manner the Manager determines to be appropriate so that,
after such offsetting allocations are made, each Member's Capital Account
balance is, to the extent possible, equal to the Capital Account balance that
such Member would have had if the Regulatory Allocations were not part of this
Agreement and all Company items were allocated pursuant to Sections 10.2 and
10.3.
10.9. Loss Limitation. Net Losses allocated pursuant to Section 10.3 hereof
shall not exceed the maximum amount of Net Losses that can be allocated without
causing any Member to have an Adjusted Capital Account Deficit at the end of any
taxable year. In the event that some but not all of the Members would have
Adjusted Capital Account Deficits as a consequence of an allocation of Net
Losses pursuant to Section 10.3 hereof, the limitation set forth in this Section
10.9 shall be applied on a Member by Member basis, and Net Losses not allocable
to any Member as a result of such limitation shall be allocated to the other
Members in accordance with the positive balances in such Member's Capital
Accounts so as to allocate the maximum permissible Net Losses to each Member
under Section 1.704- 1(b)(2)(ii)(d) of the Regulations.
10.10. Other Allocation Rules.
(a) Except as otherwise provided herein, for purposes of determining
the Net Profits, Net Losses, or any other items allocable to any period, Net
Profits, Net Losses, and any such other items shall be determined on a daily,
monthly, or other basis, as determined by the Board of Managers, using any
permissible method under Code Section 706 and the Regulations thereunder.
(b) The Members are aware of the income tax consequences of the
allocations made by this Article X and hereby agree to be bound by the
provisions of this Article X in reporting their shares of Company income and
loss for income tax purposes.
(c) Solely for purposes of determining a Member's proportionate share
of the excess nonrecourse liabilities of the Company within the meaning of
Regulations Section 1.752-3(a) (3), the Members' interests in Company profits
are in proportion to their Percentages of Membership Interests.
(d) To the extent permitted by Section 1.704-2(h) (3) of the
Regulations, the Manager shall endeavor to treat distributions of Net Cash Flow
and Net Proceeds of Capital Transactions as having been made from the proceeds
of a Nonrecourse Liability or a Member Nonrecourse Debt only to the extent that
such distributions would not cause or increase an Adjusted Capital Account
Deficit for any Member.
10.11. Tax Allocations: Code Section 704(c). In
accordance with Code Section 704(c) and the Regulations
thereunder, income, gain, loss, and deduction with respect to any
property contributed to the capital of the Company shall, solely
for tax purposes, be allocated among the Members so as to take
account of any variation between the adjusted basis of such
property to the Company for federal income tax purposes and its
initial Gross Asset Value (computed in accordance with the
definition of Gross Asset Value), using such method as the Tax
Matter Partner shall select.
In the event that the Gross Asset Value of any Company asset is
adjusted pursuant to subparagraph (ii) of the definition of Gross Asset Value,
subsequent allocations of income, gain, loss, and deduction with respect to such
asset shall take account of any variation between the adjusted basis of such
asset for federal income tax purposes and its Gross Asset Value in the same
manner as provided in Code Section 704(c) and the Regulations thereunder.
Any elections or other decisions relating to such allocations shall
be made by the Tax Matters Partner in any manner that reasonably reflects the
purpose and intention of this Agreement. Allocations pursuant to this Section
10.11 are solely for purposes of federal, state, and local taxes and shall not
affect, or in any way be taken into account in computing, any Member's Capital
Account or share of Net Profits, Net Losses, other items, or distributions
pursuant to any provision of this Agreement.
ARTICLE XI
INCORPORATION
11.1. Incorporation of the Company.
(a) Promptly upon the approval of Liberty and a Super
Majority-in-Interest of the Members, the Company shall commence the
documentation (the "Plan of Incorporation") required to convert the Company from
a limited liability company to a corporation.
(b) The Plan of Incorporation may provide for the specific form of
the transaction including, without limitation, a merger or consolidation of the
Company with or into a corporation, a share exchange, or an exchange of assets
of the Company for securities of a corporation or some other similar type of
transaction or other transaction having generally the same effect, the resulting
structure of the ongoing entity, management positions and responsibilities, the
assumption of various contracts and obligations (including employment contracts)
and revisions to any such contracts to accommodate the objectives of the
foregoing and any other matters relating to the incorporation and the resulting
structure of the ongoing entity as the Manager, with the consultation of
Liberty, may otherwise deem necessary or appropriate in its discretion;
provided, however, that
(i) the Plan of Incorporation shall, to the extent reasonably
practicable, provide for a transaction in which no gain or loss is recognized by
the Company or any Member for United States federal income tax purposes; and
(ii) there shall be issued at the Incorporation Effective Time
shares of common stock and shares of one or more series of preferred stock
taking into account the rights, preferences and designations of each Membership
Interest outstanding at such time.
ARTICLE XII
REGISTRATION RIGHTS
12.1. Demand Registration Rights. At any time hereafter, if the Company
receives written notice from the holders holding over 80% of a majority of the
Registrable Securities demanding the registration of all or any portion of the
Registrable Securities and specifies the intended methods of disposition
thereof, then the Company shall cause to be prepared a registration statement,
file and obtain a receipt for the registration statement as soon as practicable
(but not later than 90 days after the date of such demand), and exercise its
best efforts to file a final registration statement, to obtain a receipt
therefor as soon as practicable thereafter and to have such registration
statement declared effective as soon as practicable thereafter, under the
Securities Act the end that the Registrable Securities held by all demanding
holders may be sold thereunder as soon as practicable after the receipt of such
notice, and the Company will use its best efforts to ensure that a distribution
of such securities pursuant to the registration statement may continue for up to
six months from the date of the effective date of the registration statement or
such later time pursuant to the method of disposition specified in the demand
for registration; provided, however, that the Company shall not be obligated to
take any action to effect such registration, qualification or compliance
pursuant to this Section 11.1 if the Company filed a registration statement
within the ninety (90) day period prior to receipt of the notice demanding
registration. Each such registration shall hereinafter be called a "Demand
Registration." The holders of Registrable Securities shall be entitled to
request two Demand Registrations. A Demand Registration shall not count as such
until a registration statement becomes effective; provided, that if, after such
registration statement has become effective, the offering pursuant to the
registration statement is interfered with by any stop order, injunction or other
order or requirement of the Securities and Exchange Commission or any other
governmental authority, such registration shall be deemed not to have been
effected unless such stop order, injunction or other order shall subsequently
have been vacated or otherwise removed. The holders of Registrable Securities
requesting such registration shall select the underwriters of any underwritten
offering pursuant to a registration statement filed pursuant to this Section
12.1.
12.2. Piggyback Registration Rights. Subject to applicable stock exchange
rules and securities regulations, at least 30 days prior to the filing of any
registration statement for any public offering of any of its securities for the
account of the Company or any other Person (other than a registration statement
on Form S-4 or S-8 (or any successor forms under the Securities Act) or other
registrations relating solely to employee benefit plans or any transaction
governed by Rule 145 of the Securities Act), the Company shall give written
notice of such proposed filing and of the proposed date thereof to each holder
of Registrable Securities and if, on or before the twentieth (20th) day
following the date on which such notice is given, the Company shall receive a
written request from any such holder requesting that the Company include among
the securities covered by such registration statement any Registrable Securities
held by such holder for offering for sale in a manner and on terms set forth in
such request, the Company shall include such Registrable Securities in such
registration statement, if filed, so as to permit such Registrable Securities to
be sold or disposed of in the manner and on the terms of the offering thereof
set forth in such request. Each such registration shall hereinafter be called a
"Piggyback Registration".
12.3. Shelf Registration. If and when the Company becomes eligible to file
a registration statement on Form S?3 (a "Shelf Registration"), the Company, upon
the written request of the holders of all the Registrable Securities, shall file
a Shelf Registration and shall take all such steps as may be necessary to
maintain the effectiveness of such Shelf Registration until the Registrable
Securities have been sold thereunder.
12.4. Terms and Conditions of Registration or
Qualification. In connection with any registration statement
filed pursuant to Article XII hereof, the following provisions
shall apply:
(i) Each selling holder of Registrable Securities shall, if
requested by the managing underwriter, agree not to sell any securities held by
such selling holder (other than the securities so registered) for such period of
time following the effective date of the registration statement relating to such
offering as the managing underwriter may require and the Company shall agree.
(ii) If the managing underwriter advises that the inclusion in
such registration or qualification of some or all of the Registrable Securities
sought to be registered by the holder exceeds the number (the "Saleable Number")
that can be sold in an orderly fashion within a price range acceptable to the
Company, then (A) the Company shall not effect the proposed registration if the
Saleable Number does not include at least half of the amount of securities
desired to be sold by the holders of the Registrable Securities and (B) the
shares held by officers, members of the Supervisory Board and employees of the
Company may not be included in the registration unless all the Registrable
Securities requested to be registered by the holders thereof are included
therein.
(iii) The holder of Registrable Securities will promptly provide
the Company with such information concerning the holder thereof, its ownership
of the Registrable Securities and its intended methods of distribution as the
Company shall reasonably request in order to prepare such registration statement
and, upon the Company's request, each holder of Registrable Securities shall
provide such information in writing and signed by such holder and stated to be
specifically for inclusion in the registration statement. If the distribution of
the Registrable Securities covered by the registration statement shall be
effected by means of an underwriting, the right of any holder of Registrable
Securities to include its securities in such registration shall be conditioned
on such securityholder's execution and delivery of a customary underwriting
agreement with respect thereto.
(iv) The Company shall bear all expenses in connection with the
preparation of any registration statement filed pursuant to this Article,
including the fees and disbursements of one counsel for the selling holder of
Registrable Securities, except for the underwriting discounts and commissions
with respect to securities of the selling holders which shall be borne by the
selling Securityholders.
12.5. Indemnification. In the event of the registration or qualification of
any Registrable Securities under the Securities Act or any other applicable
securities laws for sale pursuant to the provisions of this Article XII, each
selling securityholder of Registrable Securities, each underwriter, broker and
dealer, if any, of such securities, and each other Person, if any, who controls
any such holder, underwriter, broker or dealer within the meaning of the
Securities Act, agrees severally and jointly, to indemnify and hold harmless the
Company, each Person who controls the Company within the meaning of the
Securities Act, and each Member, officer and director of the Company from and
against any and all losses, claims, damages or liabilities (or actions in
respect thereof), including without limitation attorneys' fees and expenses
joint or several, to which the Company, such controlling Person or any such
officer or director may become subject under the Securities Act or any other
applicable securities laws or otherwise, insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) arise out of or are based upon
any of the following statements, omissions or violations (collectively,
"violations") by the selling securityholder; (i) any untrue statement of any
material fact contained in any registration statement under which such
securities were registered or qualified under the Securities Act or any other
applicable securities laws, any preliminary prospectus or final prospectus
relating to such Registrable Securities, or any amendment or supplement thereto,
or arise out of or are based upon an untrue statement; (ii) the omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, or (iii) any Violation or alleged
Violation by the seller of the securities under the Securities Act, the
Securities Exchange Act of 1934, as amended, any state securities law or any
rule or regulation promulgated under the Securities Act, the Exchange Act or any
state securities law in connection with the offering covered by the registration
statement. If the indemnification provided for hereunder is held by a court of
competent jurisdiction to be unavailable to an indemnified party with respect to
any such loss, claim, damage, liability or action, the holder of Registrable
Securities, in lieu of indemnifying such indemnified party, shall to the extent
permitted by applicable law contribute to the amount paid or payable by such
indemnified party as a result of such loss in such proportion as is appropriate
to reflect the relative fault of the holder of Registrable Securities on the one
hand and the indemnified party on the other in connection with the Violations
that resulted in the loss, as well as any other relevant equitable
considerations.
12.6. Superior Registration Rights. The Company shall
not grant parity or superior registration rights to any Person
and no other securities of the Company shall be deemed
Registrable Securities without the prior written consent of the
holders of a Super Majority-in-Interest of the Preferred
Interests.
ARTICLE XIII
LIQUIDATION AND TERMINATION OF THE COMPANY
13.1. General. The Company shall be dissolved and terminated upon the
earlier to occur of the following: (i) the consent of the Supervising Board,
subject to Section 4.3 and 4.4; or (ii) the entry of a decree of judicial
dissolution under the Act. Upon the termination of the Company, the Company
shall be liquidated in accordance with this Article and the Act. The liquidation
shall be conducted by the Manager, under the supervision of the Supervisory
Board, who shall have all of the rights and powers with respect to the assets
and liabilities of the Company in connection with the liquidation and
termination of the Company. Without limiting the foregoing, the Manager is
hereby expressly authorized and empowered to execute and deliver any and all
documents which are necessary or desirable to effectuate the liquidation and
termination of the Company and the transfer of any asset or liability of the
Company. The Manager shall have the right from time to time, by revocable powers
of attorney, to delegate to one or more Persons any or all of such rights and
powers and such authority and power to execute and deliver documents, and, in
connection therewith, to fix the reasonable compensation of each such Person,
which compensation shall be charged as an expense of liquidation.
13.2. Statements on Termination. Each Member shall be furnished with a
statement prepared by the Company's regular accountants setting forth the assets
and liabilities of the Company as of the date of complete liquidation, and each
Member's share thereof. Upon compliance with the distribution plan set forth in
Section 13.3 of this Agreement, the Members shall cease to be such, and the
Manager shall execute, acknowledge and cause to be filed, where appropriate
under law, articles of dissolution of the Company.
13.3. Priority on Liquidation. The Manager shall, to the extent feasible,
liquidate the assets of the Company as promptly as shall be practicable. To the
extent that the proceeds are sufficient therefor, as the Manager and the
Supervisory Board shall deem appropriate, the proceeds of such liquidation shall
be applied and distributed in the following order of priority:
(a) To pay the costs and expenses of the liquidation
and termination; and
(b) Then, in the same manner and priorities as are set forth for
Distributions of Net Proceeds from a Capital Transaction pursuant to Section
10.1(b) hereof.
13.4. Distribution of Non-Liquid Assets. If the Manager shall determine
that it is not practicable to liquidate all of the assets of the Company, then
the Manager and the Supervisory Board shall cause the fair market value of the
assets not so liquidated to be determined by appraisal by an independent
appraiser. Such assets, as so appraised, shall be retained or distributed by the
Manager and the Supervisory Board as follows:
(a) The Manager shall retain assets having a fair market value equal
to the amount, if any, by which the net proceeds of liquidated assets are
insufficient to satisfy the debts and liabilities of the Company (other than any
debt or liability for which neither the Company nor the Members are personally
liable), to pay the costs and expenses of the dissolution and liquidation, and
to establish reserves, all subject to the provisions of Section 13.3 of this
Agreement. The foregoing shall not be construed, however, to prohibit the
Manager from distributing, pursuant to Section 13.4(b) of this Agreement,
property subject to liens at the value of the Company's equity therein.
(b) The remaining assets (including, without limitation,
receivables, if any) shall be distributed to the Members by way of undivided
interests therein in such proportions as shall be equal to the respective
amounts to which each Member is entitled pursuant to Section 13.3(b) of this
Agreement. If, in the judgment of the Manager, it shall not be practicable to
distribute to each Member an undivided aliquot share of each asset, the Manager
may allocate and distribute specific assets to one or more Members as
tenants-in-common as the Manager shall determine to be fair and equitable,
taking into consideration, inter alia, the basis for tax purposes of each asset
distributed.
(c) Nothing contained in this Article XIII or elsewhere in this
Agreement is intended to cause any in-kind distributions to be treated as sales
for value.
13.5. Orderly Liquidation. A reasonable time shall be
allowed for the orderly liquidation of the assets of the Company
and the discharge of liabilities to creditors, so as to minimize
the losses normally attendant upon a liquidation.
ARTICLE XIV
INDEMNIFICATION
14.1. Claims. Except as otherwise provided in this Article XIV, the
Company, or its receiver or trustee, shall pay all judgments and claims asserted
by anyone (a "Claimant") against, and shall indemnify and hold harmless, the
Manager, the Supervisory Board, each member thereof, and each Member, and, to
the extent applicable, each employee, officer, director, agent, representative
and other retained persons of the Manager, the Supervisory Board and each Member
or any direct or indirect Affiliate of any of the foregoing (collectively the
"Related Parties" and individually a "Related Party") from and against, any
liability or damage to a Claimant, incurred by reason of any act performed or
omitted to be performed by any Related Party in connection with the business of
the Company, including, without limitation, reasonable attorneys' fees and
disbursements incurred by any Related Party in connection with the defense of
any action based on any such act or omission. If a claim for indemnification
(other than for expenses incurred in a successful defense) is asserted against
the Company by any Related Party and the Manager is uncertain whether such
indemnification is permitted by law, then the Company shall, unless, in the
opinion of its counsel, the matter has been settled by controlling precedent in
favor of such indemnification, submit to a court of competent jurisdiction the
question of whether such indemnification by the Company is not against public
policy, which final adjudication shall be binding on all parties.
14.2. Procedure. Upon a Related Party's discovery of any claim by a third
party which, if sustained, would be subject to indemnification pursuant to
Section 14.1 of this Agreement, the Related Party shall give prompt notice to
the Manager and the Company of such claim, provided, however, that the failure
of the Related Party to so promptly notify the Company of such claim shall not
relieve the Company of any indemnification obligation under this Agreement
unless the Company shall have been substantially prejudiced thereby. Unless the
Related Party shall, in its sole discretion, agree in writing to assume and
control the defense of any action for which indemnification may be sought, the
Company shall assume and control such defense, in which event the Related Party
shall have the right to retain its own counsel in each jurisdiction for which
the Related Party determines that counsel is required, at the expense of the
Company. If the Company shall fail or refuse to undertake the defense within
fifteen (15) days after receiving notice that a claim has been made, the Related
Party shall have the right (but not the obligation) to assume the defense of
such claim in such manner as it deems appropriate until the Company shall, with
the consent of the Related Party, assume control of such defense, and the
Company shall indemnify the Related Party pursuant to Section 14.1 of this
Agreement from and against the costs and expenses of such defense. The party
hereto handling the defense of an action shall keep the other party hereto fully
informed at all times of the status of the claim. Neither the Company nor the
Related Party, when handling the defense of a claim for which indemnification
may be sought by the Related Party, shall settle such claim without the consent
of the other party (which consent shall not be unreasonably withheld or delayed)
unless such settlement shall: (i) impose no additional liability or obligation
upon such party (or his or its employees, shareholders, officers, directors,
agents and representatives or any direct or indirect affiliate of any of the
foregoing) whose consent would otherwise be required; and (ii) where the Company
is handling the defense and settlement of the claim, provide the Related Party
with a general release with respect to the subject claim.
14.3. Members' Claims. Except as otherwise provided in this Article XIV,
in any action by an owner of a Membership Interest against a Related Party,
including a Company derivative suit, the Company shall indemnify and hold
harmless each Related Party from and against any liability or damage incurred by
any of them, including, without limitation, reasonable attorneys' fees and
disbursements incurred in defense of such action, if: (i) the Related Party is
successful in such action; or (ii) in the opinion of the Company's counsel, the
matter has been settled by controlling precedent in favor of such
indemnification, and if the matter has not been settled by such controlling
precedent, the Company shall submit to a court of appropriate jurisdiction the
question of whether such indemnification by the Company is not against public
policy, which final adjudication shall be binding on all parties.
14.4. Expenses. In any matter with respect to which a Related Party may be
entitled to indemnification from the Company pursuant to this Article XIV, the
Company shall, to the extent not prohibited by applicable law, advance to the
Related Party, pending the final disposition of such matter, all costs and
expenses which the Related Party may incur in such matter, including, without
limitation, all attorneys' fees and disbursements, court costs and the fees and
disbursements of accountants, other experts and consultants.
14.5. Limitations on Indemnification. Notwithstanding Sections 14.1, 14.3
or 14.4 of this Agreement, no Related Party shall be entitled to indemnification
from any liability imposed by law for fraud, bad faith, willful neglect or gross
negligence. Under no circumstances shall any Related Party be personally liable
in respect of any indemnification obligation set forth in this Article XIV.
14.6. Indemnification for Liability Arising from Incorrect Tax
Information. Anything to the contrary notwithstanding, if the adjusted tax
basis, accumulated depreciation, depreciation method or depreciable life of any
asset contributed by a Member is incorrect (a "Misstated Asset"), and as a
result of an adjustment (a "Tax Adjustment") to any of such items by the
Internal Revenue Service or any state or local taxing authority, the Member who
did not contribute such assets is assessed additional income taxes and such
assessment becomes final, the Member who contributed such Misstated Asset shall
reimburse the other Member for any interest and penalties, incurred thereby and,
in addition, shall be solely responsible for all professional fees and
disbursements incurred by the Company if the Company shall contest such Tax
Adjustment.
ARTICLE XV
POWER OF ATTORNEY
15.1 General. Each Member irrevocably constitutes and appoints with full
power of substitution, the true and lawful attorney of such Member to execute,
acknowledge, swear to and file any of the following:
(a) Any amendment to the certificate of formation
pursuant to the Act;
(b) Any certificate or other instrument (x) that may be required to
be filed by the Company under the laws of the United States, the State of New
York or any other state in which any of the Members reside or in which the
Company engages in business or (y) which the Manager deems advisable to file;
(c) Any amendments to the certificates or other
instruments referred to in paragraphs (a) and (b) of this Section
15.1;
(d) Any document that may be required to effectuate
the liquidation or termination of the Company; and
(e) Any amendment to this Agreement or the foregoing certificates,
instruments or documents necessary to effect any change permitted under this
Agreement, including, without limitation, to reflect any change in the ownership
of Interests in the Company.
It is expressly acknowledged by each Member that the foregoing power of
attorney is coupled with an interest and shall survive the disability of such
Member or a Transfer by such Member, provided, however, that if such Member
shall make a Transfer of all of such Member's Membership Interest and the
transferee shall, in accordance with the provisions of Article VIII of this
Agreement, become a successor Member, such power of attorney shall survive the
Transfer only for the purpose of executing, acknowledging, swearing to and
filing any and all instruments which are necessary to effectuate such
substitution.
Notwithstanding the foregoing, no power conferred upon the Manager by this
Article XV shall materially alter the powers, rights and obligations of the
parties hereunder.
Each Member hereby agrees to execute concurrently herewith or upon five
(5) days' prior written notice, a special power of attorney containing the
substantive provisions of this Agreement in form satisfactory to the Manager.
15.2. Successor Members. A power of attorney similar to
that contained in Section 15.1 of this Agreement shall be one of
the instruments that the Manager may require a successor Member
to execute, acknowledge and swear to pursuant to Sections 8.1 or
8.2 of this Agreement.
ARTICLE XVI
SPECIFIC PERFORMANCE
16.1. Specific Performance. The parties recognize and acknowledge that
their Membership Interests are closely held and that, accordingly, in the event
of a breach or default by one or more of the parties hereto of the terms and
conditions of this Agreement, the damages to the Company and the remaining
parties to this Agreement, or any one or more of them, may be impossible to
ascertain and such parties will not have an adequate remedy at law. In the event
of any such breach or default in the performance of the terms and provisions of
this Agreement, any party or parties thereof aggrieved thereby shall be entitled
to institute and prosecute proceedings in any court of competent jurisdiction,
either at law or in equity, to enforce the specific performance of the terms and
provisions of this Agreement, to enjoin further violations of the terms and
provisions of this Agreement and/or to obtain damages. Such remedies shall,
however, be cumulative and not exclusive and shall be in addition to any other
remedies which any party may have under this Agreement or at law.
ARTICLE XVII
MISCELLANEOUS PROVISIONS
17.1. Governing Law. This Agreement shall be governed
by, and construed in accordance with, the laws and decisions of
the State of New York, without regard to conflict of law rules
applied in such State.
17.2. Consent To Jurisdiction. All actions and proceedings arising out
of, or relating to, this Agreement shall be heard and determined in any state or
federal court sitting in New York, New York. The undersigned, by execution and
delivery of this Agreement, expressly and irrevocably: (i) consent and submit to
the personal jurisdiction of any of such courts in any such action or
proceeding; (ii) consent to the service of any complaint, summons, notice or
other process relating to any such action or proceeding by delivery thereof to
such party by hand or by certified mail, delivered or addressed as set forth in
Section 17.4 of this Agreement; and (iii) waive any claim or defense in any such
action or proceeding based on any alleged lack of personal jurisdiction,
improper venue or forum non conveniens or any similar basis.
17.3. Oral Modification. This Agreement constitutes the entire
understanding among the parties hereto, including without limitation any and all
agreements prior to the date hereof among MV, DC and/or the Company and its
predecessor-in-interest and the letter of intent between the Company and
Liberty. No waiver or modification of the provisions of this Agreement shall be
valid unless it is in writing and signed by the party to be charged and then
only to the extent therein set forth.
17.4. Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given or made (and
shall be deemed to have been duly given or made upon receipt) by delivery in
person, by courier service, by telecopy, by facsimile or by registered or
certified mail (postage prepaid, return receipt requested) to the respective
parties at the following addresses (or at such other address for a party as
shall be specified in a notice given in accordance with this Section 17.4):
(a) if to the Company:
ASKTHEROBOT, LLC
29 East 31st Street
New York, NY 10016
Attn: Manager
(b) if to Liberty:
Liberty Group Services, LLC
c/o Liberty Group Holdings, LC
11 52nd Street
Brooklyn, New York 11232
Attn: Barry Hawk, President
Fax No.: 718-492-3482
(c) if to DC:
Douglas Capeci
236 Wyckoff Avenue
Wyckoff, New Jersey 07481
Facsimile: __________
(d) if to MV:
Michael Vogel
86-66 Palermo Street
Holliswood, New York 11423
(e) In all cases where notices are sent or delivered pursuant to this
Section 17.4, copies thereof shall be sent or delivered in the same manner,
simultaneously therewith, to:
Herrick, Feinstein LLP
2 Park Avenue
New York, New York 10016
Attn: David Lubin, Esq.
Facsimile: (212) 592-1500
17.5. Captions. The captions used in this Agreement are
intended for convenience of reference only, shall not constitute
any part of this Agreement and shall not modify or affect in any
manner the meaning or interpretation of any of the provisions of
this Agreement.
17.6. Execution. This Agreement may be executed in
counterparts and, as so executed, shall constitute one agreement
binding on the Company and the Members.
17.7. Amendments. Other than as expressly provided herein, this Agreement
may be amended upon the consent of Members holding a Super Majority-in-Interest,
provided, however, that no amendment may be effective to change the obligations
or rights of any Member as to allocations or distributions without that Member's
consent.
17.8. Binding Effect. Except as otherwise provided
herein, this Agreement shall be binding upon and shall inure to
the benefit of the respective heirs, executors, administrators,
legal representatives, and permitted successors and assigns of
the parties hereto.
17.9. Separability. In case any one or more of the provisions contained in
this Agreement or any application thereof shall be deemed invalid, illegal or
unenforceable in any respect, such affected provisions shall be construed and
deemed rewritten so as to be enforceable to the maximum extent permitted by law,
thereby implementing, to the maximum extent possible, the intent of the parties
hereto, and the validity, legality and enforceability of the remaining
provisions contained in this Agreement shall not in any way be affected or
impaired thereby.
17.10. Further Assurances. The Members shall execute and
deliver such further instruments and documents and do such
further acts and things as may be required to carry out the
intent and purposes of this Agreement.
17.11. No Third Party Beneficiaries. Except as is otherwise specifically
provided for in this Agreement or as may otherwise be specifically agreed in
writing by all of the Members, the provisions of this Agreement are not intended
to be for the benefit of any creditor or other person (other than a Related
Party) to whom any debts, liabilities, or obligations are owed by (or who
otherwise has any claim against) the Company or any of the Members or any
Related Party; and no such creditor or other person shall obtain any benefit
from such provisions or shall, by reason of any such foregoing provision, make
any claim in respect of any debt, liability, or obligation against the Company,
any of the Members, or any Related Party.
[Remainder of Page Intentionally Omitted; Signature Pages to
Follow]
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Operating Agreement as of the date first written above.
COMPANY:
ASKTHEROBOT, LLC
By: ________________________
Name: Michael Vogel
Title: Member
Name: Douglas Capeci
Title: Member
MEMBERS:
LIBERTY GROUP SERVICES, LLC
By: Liberty Group Holdings,
Inc.,
Its Manager
By:
Name: Barry Hawk
Title: President
Douglas Capeci
Michael Vogel
ACKNOWLEDGMENTS
STATE OF NEW YORK )
) SS.:
COUNTY OF NEW YORK )
On the _____ day of March, 2000, before me the undersigned personally
appeared ____________________ to me known, who being duly sworn, did depose and
say that he resides at ______________________________, that he is the __________
of ASKTHEROBOT, LLC, the limited liability company described in and which
executed the foregoing instrument; that he signed his name thereto by order of
the board of directors of such corporation.
----------------------------------
Sworn to before me this
___ day of March, 2000
- ---------------------------
Notary Public
STATE OF NEW YORK )
) SS.:
COUNTY OF NEW YORK )
On the _____ day of March, 2000, before me the undersigned personally
appeared Michael Vogel personally known to me or proved to me on the basis of
satisfactory evidence to be the individual whose name is subscribed to the
within instrument and acknowledged to me that he executed the same in his
capacity, and that by his signature on the instrument, the individual, or the
person upon behalf of which the individual acted, executed the instrument.
----------------------------------
Sworn to before me this
___ day of March, 2000
- ---------------------------
Notary Public
STATE OF NEW YORK )
) SS.:
COUNTY OF NEW YORK )
On the _____ day of March, 2000, before me the undersigned personally
appeared ____________________ to me known, who being duly sworn, did depose and
say that he resides at ______________________________, that he is the __________
of Liberty Group Holdings, LC, the sole member of LIBERTY GROUP SERVICES, LLC,
the corporation described in and which executed the foregoing instrument; that
he signed his name thereto by order of the board of directors of such
corporation.
----------------------------------
Sworn to before me this
___ day of March, 2000
- ---------------------------
Notary Public
STATE OF NEW YORK )
) SS.:
COUNTY OF NEW YORK )
On the _____ day of March, 2000, before me the undersigned personally
appeared Douglas Capeci personally known to me or proved to me on the basis of
satisfactory evidence to be the individual whose name is subscribed to the
within instrument and acknowledged to me that he executed the same in his
capacity, and that by his signature on the instrument, the individual, or the
person upon behalf of which the individual acted, executed the instrument.
----------------------------------
Sworn to before me this
___ day of March, 2000
- ---------------------------
Notary Public
EXHIBIT A
Schedule of Members-_ As of March__, 2000
Member Class of Initial Agreed Value Percent
Membership Capital of Capital age
Interest Contribut Contribution Interes
ion t
Liberty Group Preferred $________ $________ 51%
Services, LLC
c/o Liberty Group
Holdings, Inc.
11 52nd Street
Brooklyn, New York
11232
Douglas Capeci Common $________ $________ 15.6675
236 Wyckoff Avenue %
Wyckoff, New Jersey
07481
Michael Vogel Common $________ $________ 15.6775
86-66 Palermo Street %
Holliswood, New York
11423
Employees who Common $________ $________
exercise options 9.33%
100%
Investor Reserved
Interest
Peter J. McLaughlin Preferred $________ $________ 8.335%
12 Downing Road
Hanover, New
Hampshire 03755
SUBSCRIPTION AGREEMENT
This SUBSCRIPTION AGREEMENT, dated as of March ____, 2000 (this
"Agreement"), is made and entered into by and between AskTheRobot, LLC, a New
York limited liability company (the "Company"), and Liberty Group Services, LLC,
a Delaware limited liability company ("Liberty").
RECITALS:
A. Liberty wishes to subscribe for Preferred Membership Interests of the
Company (the "Preferred Interests") which will contain the rights, preferences
and designations contained in the Letter of Intent dated March __, 2000 by and
between the Company and Liberty (the "LOI") and which will represent a Liberty
beneficially and of record owning 51% equity interest in the Company on a
fully-diluted basis for Liberty on the Closing Date (as defined below).
B. Liberty desires to purchase from the Company, and the Company is
willing to sell to Liberty, the Preferred Interests on the terms and subject to
the conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the representations,
warranties and covenants contained in this Agreement, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
ARTICLE I
SUBSCRIPTION; CLOSING; CONTRIBUTION AMOUNT
1.1 Subscription; Closing of the Subscription.
-----------------------------------------
(a) Subject to the terms and conditions hereinafter set forth, upon the
consummation of the transactions contemplated by this Agreement (the
"Closing"), the Company shall issue to Liberty, and Liberty shall purchase from
the Company, the Preferred Interests, representing 51% of the membership
interests in the Company on a fully-diluted basis, in exchange for the payment
to the Company of the Contribution Amount (as defined in Section 1.2(b)).
(b) The Closing will take place at the offices of Herrick, Feinstein LLP, Two
Park Avenue, New York, New York 10016 at 10:00 a.m., local time, on the
business day (the "Closing Date") immediately following satisfaction or waiver
of the conditions set forth in Sections 4.1 and 4.2, or at such other time or
on such other date as the Company and Liberty may mutually agree upon in
writing. It is anticipated that the Closing Date shall occur simultaneous with
the execution of this Agreement.
<PAGE>
1.2 Contribution Amount.
-------------------
(a) The amount to be paid for the Preferred Interests to be issued on
the Closing Date to Liberty shall be as follows: (i) a cash payment in the
amount of $175,000; (ii) if, and only if, the Company achieves the
milestones indicated on Schedule I attached hereto ("Milestones"), the cash
payments indicated on Schedule I on each of June 13, 2000, September 13,
2000, December 13, 2000, March 13, 2000 and June 13, 2000 (each such date
hereinafter being referred to as a "Performance Measurement Date"); and
(iii) if, and only if, the Company achieves the specified Milestones on
each of the Performance Measurement Dates, Liberty shall cause Liberty
Group Holdings, Inc., a Delaware company ("LGHI"), to issue to the Company
the number of shares of common stock of LGHI (the "Common Stock") indicated
on Schedule I at the greater of (a) $3.00 per share of Common Stock and (b)
the market value per share of Common Stock on the date of the Performance
Measurement Date.
(b) Notwithstanding anything contained herein to the contrary, if a
Milestone is not met by a Performance Measurement Date, no such additional
cash payment and no shares of Common Stock shall be due to the Company for
the Preferred Interests. The amounts to be paid by Liberty pursuant to
Section 1.2(a) shall hereinafter be referred to as the "Contribution
Amount".
1.3 Certain Transactions to be Effected at the Closing.
--------------------------------------------------------
Subject in each case to the terms and conditions contained in this
Agreement, the following actions shall be taken at or prior to the Closing
Date:
(a) Liberty shall deliver, or cause to be delivered, to the
Company the following:
(i) One Hundred Seventy-Five Thousand U.S Dollars ($175,000),
payable in cash by wire transfer in immediately available Federal
funds to an account to be designated by the Company; and
(ii) an executed counterpart signature page to the Operating
Agreement of the Company dated as of the Closing Date (the
"Operating Agreement").
(b) The Company shall deliver, or cause to be delivered, to
Liberty the following:
(i) executed counterpart signature pages to the Operating
Agreement from the Company and the current members of the Company;
(ii) executed counterpart signature page to the
Management Agreement ("Management Agreement"), duly executed by
---------------------
the Company;
(iii) an Employment Agreement by and between the Company
and each of Michael Vogel ("MV") and Douglas Capeci ("DC"),
satisfactory in form and substance to Liberty;
(iv) a true and complete copy of the resolutions duly and
validly adopted by members of the Company evidencing its
authorization of the execution and delivery of this Agreement, the
Management Agreement and the consummation of the transactions
contemplated hereby; and
(v) any other documents requested by Liberty or its
counsel.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF LIBERTY
Representations and Warranties of Liberty. Liberty hereby represents
------------------------------------------
and warrants to the Company the following:
2.1 Authority. Liberty is a limited liability company duly organized and
validly existing under the laws of its jurisdiction of organization. Liberty has
the absolute and unrestricted right, power, authority and capacity to execute
and deliver this Agreement, the Operating Agreement, the Management Agreement
and all other documents and instruments contemplated herein and therein
(collectively, the "Transaction Documents"), to carry out its obligations
hereunder and thereunder and to consummate the transactions contemplated hereby.
Each of the Transaction Documents has been duly executed and delivered by each
of Liberty and, assuming due authorization, execution and delivery by the
Company, each of the Transaction Documents constitutes a legal, valid and
binding obligation of Liberty, enforceable against Liberty in accordance with
its terms.
2.2 No Default. The execution, delivery and performance of the Transaction
Documents by Liberty does not and will not give rise to, or result in any breach
or default of any provision of any law, regulation, agreement, commitment,
ruling, judgement or order to which it is a party or by which it or its assets
are bound, including without limitation, under any of its charter documents.
2.3 Claims; Litigation. No actions, suits, claims, litigation, arbitration
proceedings, administrative proceedings or investigations are pending or, to
Liberty's knowledge, threatened against Liberty, which could adversely affect
the consummation of the transaction contemplated by this Agreement.
2.4 Investment Representations and Warranties.
------------------------------------------
(a) Liberty understands that the offering and sale of the Preferred
Interests is intended to be exempt from registration under the Securities Act of
1933, as amended (the "Securities Act"), by virtue of Section 4(2) of the
Securities Act and the provisions of Regulation D promulgated thereunder and
that the Company's reliance on such exemption is predicated upon, among other
things, the bona fide nature of Liberty's investment intent expressed herein.
(b) Liberty believes it has received all the information, records and
books it considers necessary or appropriate for deciding whether to purchase the
Preferred Interests.
(c) Liberty has had a reasonable opportunity to ask questions and receive
answers from all persons acting on behalf of the Company concerning the Company
and the Preferred Interests, and all such questions have been answered to the
full satisfaction of Liberty. Nothing contained in Section 2.4(b) and (c) in any
way derogates from the representations and warranties of the Company made herein
or Liberty's reliance thereon.
(d) Liberty is not subscribing for the Preferred Interests as a result of
or subsequent to any advertisement, article, notice or other communication
published in any newspaper, magazine or similar media or broadcast over
television or radio, or presented at any seminar or meeting, or any solicitation
of a subscription by a person other than a member or agent of the Company.
(e) Liberty has such knowledge and experience in financial, tax and
business matters so as to enable it to utilize the information made available it
to evaluate the merits and risks of an investment in the Company, and to make an
informed investment decision with respect thereto.
(f) Liberty will not sell or otherwise transfer any of the Preferred
Interests without registration under the Securities Act or applicable state
securities laws, or pursuant to an exemption therefrom. The Preferred Interests
have not been registered under the Securities Act or under the securities laws
of any states. Liberty represents that (i) it is purchasing the Preferred
Interests for its own account, for investment and not with an intention to
resell or distribute the Preferred Interests, (ii) it is aware that there is
currently no market for the Preferred Interests and (iii) an exemption from the
registration requirements of the Securities Act pursuant to Rule 144 promulgated
thereunder is not presently available.
(g) Liberty recognizes that an investment in the Company involves
substantial risks, including loss of the entire amount of such investment, and
has taken full cognizance of, and understands all of the risks related to, the
purchase of the Preferred Interests.
(h) Liberty has no agreement or arrangement with any person or entity to
sell, transfer or pledge the Preferred Interests, and Liberty is the sole party
in interest with regard to the Preferred Interests.
(i) Liberty has substantial experience in making investment decisions of
this type and is aware of the fundamental risks and financial hazards of
purchasing the Preferred Interests hereby subscribed for and acknowledges that
an investment in the Company should be considered only by a sophisticated
investor financially able to maintain such investor's investment and pay taxes
with respect thereto from other sources, and who can afford to lose all or a
substantial part of such investment.
(j) Liberty agrees that the Preferred Interests will not be sold,
transferred or otherwise disposed of without complying with the Securities Act
and any applicable state securities law.
(k) Liberty acknowledges and agrees that any and all projections or
analyses delivered to it by the Company, the members or employees of the Company
or its respective agents or representatives should not be construed or relied
upon as an indication of the Company's future or anticipated financial
performance, provided that the Company has no knowledge that the assumptions
underlying such projections or analyses are untrue as of the date hereof.
2.5 Brokers. No broker, investment banker, financial advisor or other
person or entity is entitled to any broker's, finder's, financial advisor's or
other similar fee or commission in connection with the transactions contemplated
by this Agreement based on arrangements made by or on behalf of Liberty, other
than the payment to be made to Eli Goldin, who shall be entitled to a commission
from the Company.
2.6 Disclosure. Neither this Agreement nor any certificates, instruments
or other documents delivered or to be delivered by Liberty or its
representatives to the Company and its representatives in connection with this
Agreement or the transactions contemplated hereby, contains any untrue statement
of a fact or omits to state a fact required to be contained herein or therein or
necessary in order to make the statements herein or therein, in light of the
circumstances in which they were made, not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Representations and Warranties of the Company. The Company hereby
represents and warrants to Liberty the following:
3.1 Authority. The Company is a limited liability company duly organized
and validly existing under the laws of the State of New York. The Company has
the absolute and unrestricted right, power, authority and capacity to execute
and deliver the Transaction Documents, to carry out its obligations hereunder
and thereunder and to consummate the transactions contemplated hereby, subject
only to the adoption of the Operating Agreement and to create the Preferred
Interests. All acts and proceedings required to be taken by the Company for the
authorization, execution, delivery and performance of the Transaction Documents
will have been lawfully and validly taken prior to the Closing Date. This
Agreement has been duly executed and delivered by the Company and, assuming due
authorization, execution and delivery by Liberty, this Agreement constitutes a
legal, valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms.
3.2 No Default. The execution, delivery and performance of the Transaction
Documents by the Company does not and will not (x) require any consent,
approval, authorization, exemption of or filing with any third party, including,
without limitation, its members or any governmental authority, (y) conflict with
or violate any provision of either (i) the charter documents, subject to the
second sentence contained in Section 3.1 above, or (ii) any law, rule,
regulation, order, writ, judgement, injunction, decree, determination or award
applicable to the Company, or (z) result in any breach of, or constitute a
default (or event which the giving of notice or lapse of time, or both, would
become a default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, or result in the creation of any lien or
encumbrance pursuant to, any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument to which the
Company is a party or by which it or any of its assets are bound or affected.
The Company is not subject to any restriction of any kind or character which
adversely affects in any way its business, properties, assets or prospects or
which prohibits the Company from entering into the Transaction Documents or
would prevent or restrict its performance of or compliance with all or any part
of the Transaction Documents or the consummation of the transactions
contemplated hereby or thereby.
3.3 Claims; Litigation. No actions, suits, claims, litigation, arbitration
proceedings, administrative proceedings or investigations are pending or, to the
Company's knowledge, threatened against the Company or any of its members or
employees (in their capacity as such), nor is the Company aware that there is
any basis for any of the foregoing. The foregoing includes, to the Company's
best knowledge, without limiting its generality, actions pending or threatened
involving the prior employment of any of the Company's employees or use by any
of them in connection with the Company's business of any information, property
or techniques allegedly proprietary to any of their former employers. The
Company is not a part to or subject to the provisions of any order, writ,
injunction, judgment, decree of any court or governmental agency or
instrumentality. There is no action, suit, proceeding or investigation by the
Company currently pending or that the Company intends to initiate.
3.4 Capitalization. The current outstanding membership interests in the
Company and all outstanding subscriptions, options, employee options, warrants
and all other subscription agreements of the Company are set forth on Schedule
3.4 attached hereto. There are no outstanding options, warrants, rights to
subscribe to, calls or commitments of any character (including, without
limitation, registration rights) relating to, or securities or rights
convertible into, or exercisable for, interests of the Company, or contracts,
commitments or arrangements obligating the Company to issue additional
membership interests or options, warrants or rights to purchase or acquire any
membership interests in the Company. There are no outstanding contractual
obligations of the Company to repurchase, redeem, or otherwise acquire any
equity interests or any other security, instrument or right to acquire any
equity interest in the Company or to provide funds to, or make any investment
(in the form of a loan, capital contribution or otherwise) in the Company or any
other person or entity. There are no agreements or understandings with respect
to the voting, sale, transfer, preemptive rights, rights of first refusal,
rights of first offer, proxy or registration of any interests and option
agreements thereunder of the Company. The Company does not own any share capital
or other equity interest in any company or other entity, and is not a
participant in any partnership or joint venture. The Company is not a party to
any voting agreements, nor do any voting agreements exist among any of Company's
members.
The Company agrees and acknowledges that any shares of Common Stock
which it may receive shall be subject to a 2-year lock-up agreement, in the form
of Exhibit A attached hereto.
3.5 Indebtedness. The Company has no liabilities, debts or obligations,
whether accrued, absolute or contingent, other than as indicated on Schedule 3.5
attached hereto. Except as set forth in Schedule 3.5, the Company has not (i)
declared or paid any dividends, or authorized or made any distribution upon or
with respect to any class or series of its interests, (ii) incurred any material
indebtedness for money borrowed or any other material liabilities, (iii) made
any loans or advances to any person, or given a guarantee for any obligation of
any person, or (iv) sold, exchanged or otherwise disposed of any of its assets
or rights, other than the sale of its inventory in the ordinary course of
business.
3.6 Agreements. Schedule 3.6 attached hereto contains a true and complete
list of all contracts and agreements to which the Company is a party or by which
its properties are bound, including, without limitation, all employee
confidentiality and assignment agreements. Each of said agreements is, to the
best of the Company's knowledge, in full force and effect, and neither the
Company nor any other party thereto is in breach thereof. The Company has
delivered true and complete copies of each said agreement, including all
exhibits and amendments thereto, to the Liberty prior to the date hereof. Except
as set forth in Schedule 3.6, there are no agreements, understandings,
instruments, contracts, proposed transactions, judgments, orders or decrees to
which the Company is a party or, to the best of its knowledge, by which it is
bound, including, without limitation, agreements, understandings or proposed
transactions between the Company, and any of its officers, directors, members,
affiliates, or any affiliate thereof.
3.7 Insurance. The Company has no insurance policies in effect. Promptly
after the date hereof the Company will consider obtaining insurance policies by
insurers of recognized responsibility insuring the Company and its properties
and business against such losses and risks as determined.
3.8 Employees; Employee Benefit Plans. Other than the employment
agreements listed on Schedule 3.6, there are no employment, consulting,
severance or indemnification contracts or agreements between the Company, on the
one hand, and any other person, member, manager, director, officer or other
employee of the Company, on the other hand. The Company does not have any
deferred compensation or other bonus or other incentive compensation, stock
purchase, stock option and other equity compensation plan, program, agreement or
arrangement; severance or termination pay, medical, surgical, hospitalization,
life insurance and other welfare plan, fund or program (within the meaning of
Section 3(1) of Employee Retirement Income Security Act of 1974, as amended),
other than as contemplated by the employment agreements listed on Schedule 3.6.
3.9 Intellectual Property. All copyrights, licenses, patents, trademarks,
service marks, trade names, and applications, licenses and rights with respect
to the foregoing owned or used by the Company are listed on Schedule 3.9
attached hereto (all of said assets, along with the technology used by the
Company, shall hereinafter be collectively referred to as the "Intellectual
Property"). The Company owns or has the right to use, free and clear of all
liens, claims and restrictions, the Intellectual Property used in the conduct of
its business without infringing upon or violating any right of any other party,
and except as described in Schedule 3.9, the Company is not obligated or under
any liability whatsoever to make any payments by way of royalties, fees or
otherwise to any owner or licensee of, or other claimant to, with respect to the
use of the Intellectual Property. Any and all Intellectual Property developed by
any employee or consultant of the Company while in the employ of the Company
shall be the sole property of the Company, and shall not belong to any third
party, including, without limitation, the members of the Company. The Company
hereby represents that the members of the Company have no personal right
whatsoever directly or indirectly in the Company's technologies. The Company has
taken security measures to protect the secrecy, confidentiality and value of the
Intellectual Property, which measures are reasonable and customary in the
industry in which the Company operates. The Company has no knowledge of any
communications alleging that the Company has violated, or by conducting its
business as proposed, would violate, any of the patents, trademarks, service
marks, trade names or copyrights or trade secrets or other proprietary rights of
any other person or entity, nor is the Company aware of any infringement of the
foregoing rights by others. The Company hereby represents that neither the
execution nor delivery of this Agreement, nor the carrying on of the Company's
business by the employees of the Company, or the conduct of the Company's
business, will conflict with or result in a breach of the terms, conditions or
provisions of, or constitute a default under, any contract, covenant or
instrument under which it, or, to the best knowledge of the Company, any of its
employees, is now obligated. Each employee and/or consultant of the Company has
executed and delivered a Confidentiality and Assignment Agreement as indicated
on Schedule 3.6. to the Company, copies of which have previously been provided
to Liberty.
3.10 Title to Property; Leases. The Company has good and marketable title
to all of the properties, both real and personal, tangible and intangible, that
it purports to own, and except for properties held under valid and existing
leases, such properties are not subject to any mortgage, pledge, lien, security
interest, conditional sale agreement, encumbrance or charge, except statutory
routine liens securing liabilities not yet due and payable and minor liens,
encumbrances, restrictions, exceptions, limitations and other imperfections
which do not materially detract from the value of the specific assets affected
or the present use of such assets. All leases under which the Company is lessee
of any real or personal property (a list of which is attached hereto as Schedule
3.10) are valid, enforceable and effective in accordance with their respective
terms, and there is not under any such lease any existing or claimed default by
the Company or event or condition which with notice or lapse of time or both
would constitute a default by the Company.
3.11 Taxes. The Company has filed all tax returns (federal, state and
local) required to be filed by it. All taxes shown to be due and payable on such
returns, any assessments imposed thereon, and to the Company's knowledge, all
other taxes due and payable for all periods prior to the Closing Date have been
paid or will be paid prior to the time they become delinquent. The Company has
no knowledge of any liability of any tax to be imposed upon its properties or
assets as of the date of this Agreement that is not adequately provided for.
3.12 Securities Laws. Assuming the accuracy of the representations and
warranties of Liberty set forth in Section 2.4 of this Agreement, the offer,
issuance and sale of the Preferred Interests in accordance with the terms hereof
are and will be exempt from the registration and prospectus delivery
requirements of the Securities Act.
3.13 Related Party Transactions. Except as provided in Schedule
3.13, the Company has not entered into any transactions with any of the members
of the Company or their respective affiliates. Without detracting from the
foregoing, except as provided in Schedule 3.13, the Company is not indebted to
any of the members of the Company or their respective affiliates.
3.14 Financial Statements. 3.16 The Company's financial statements
----------------------
are attached hereto as Schedule 3.14. Since July 1, 1999, there has been no
-------------
adverse material effect to the Company's business or financial condition.
3.15 Labor Agreements and Actions. To the Company's best knowledge, the
Company is not bound by or subject to any written or oral, express or implied,
contract, commitment or arrangement with any labor union, and, to the Company's
best knowledge, no labor union has requested to represent any of the employees,
representatives or agents of the Company. There is no strike or other labor
dispute involving the Company pending, or to the best knowledge of the Company's
threatened, which could have a material adverse effect on the Company nor is the
Company aware of any labor organization activity involving its employees.
3.16 Brokers. No broker, investment banker, financial advisor or other
person or entity is entitled to any broker's, finder's, financial advisor's or
other similar fee or commission in connection with the transactions contemplated
by this Agreement based on arrangements made by or on behalf of the Company,
other than to Eli Goldin, who shall be entitled to a payment from the Company of
5% of the Capital Contribution upon payment thereof, 4% of the second $1 million
of the Capital Contribution, etc.
3.18 Disclosure. Neither this Agreement nor any certificates, instruments
or other documents delivered or to be delivered by the Company or its
representatives to Liberty and its representatives in connection with this
Agreement or the transactions contemplated hereby, contains any untrue statement
of a material fact or omits to state a material fact required to be contained
herein or therein or necessary in order to make the statements herein or
therein, in light of the circumstances in which they were made, not misleading
other than where such untrue statement or omission would not have a material
adverse effect on the business, assets, operations, prospects or financial or
other condition of the Company. The Company has fully provided Liberty with all
information requested by them and all other information which the Company
believes is reasonably necessary to enable Liberty to decide whether or not to
purchase the interests in the Company.
3.19 Spidermaze. The Company was initially incorporated as a New York
corporation under the name "Spidermaze.com, Inc." ("Spidermaze"). All the issued
and outstanding shares of Spidermaze have been duly converted into the issued
and outstanding membership interests of the Company prior to the date hereof. By
virtue of the merger of Spidermaze and the Company which occurred on January 24,
2000, all the assets, rights, liabilities and obligations of Spidermaze became
the assets, rights, liabilities and obligations of the Company. All references
in this Article III shall automatically be deemed to include Spidermaze, the
predecessor-in-interest to the Company. Accordingly, all the representations and
warranties contained herein shall be true, correct and accurate with respect to
Spidermaze.
ARTICLE IV
CONDITIONS TO CLOSING
4.1 Conditions to the Obligation of Liberty to Close. The obligation of
Liberty to consummate the transactions contemplated by this Agreement shall be
subject to the fulfillment, at or prior to the Closing Date of each of the
following conditions, any one or more of which may be waived by both Liberty:
(a) Accuracy of Representations and Warranties. The representations and
warranties of the Company contained in this Agreement shall be true and accurate
in all material respects on and as of the Closing Date, with the same force and
effect as if made on the Closing Date.
(b) Performance of Covenants. The Company shall have performed and
complied in all respects with all covenants, obligations and agreements to be
performed or complied with by the Company on or before the Closing Date pursuant
to this Agreement, including, but not limited to, the delivery of the documents
indicated in Section 1.3(b).
(c) Consents. All required consents, approvals, permits, orders and
authorizations of, and any filings, registrations or qualifications required
with, any governmental agency or other person, with respect to the transactions
contemplated by this Agreement, including without limitation, the approval of
the Board of Directors of Liberty and the adoption of the Operating Agreement,
and shall be in full force and effect.
(d) No Proceedings or Litigation. No provision of any applicable law,
statute, rule, regulation or ordinance and no judgment, injunction, order or
decree applicable to the Company shall prohibit the consummation of the
transactions contemplated by this Agreement in accordance with its terms.
(e) Proceedings and Documents. All corporate and other proceedings and actions
taken in connection with the transactions contemplated by this Agreement and
all certificates, opinions, agreements, instruments and documents mentioned
herein or necessary for the consummation of the transaction contemplated
hereby, including, without limitation, the terms and provisions of the
Operating Agreement and the Schedules provided herein, shall be satisfactory in
form and substance to Liberty and its counsel.
(f) Due Diligence Investigation. Liberty shall have completed its
-----------------------------
due diligence investigation of the Company, its operations, business, and any
other matters, to its sole and absolute discretion.
4.2 Conditions to the Obligation of the Company to Close. The obligation
of the Company to consummate the transactions contemplated by this Agreement
shall be subject to the fulfillment, at or prior to the Closing Date of each of
the following conditions, any one or more of which may be waived by the Company:
(a) Accuracy of Representations and Warranties. The representations and
warranties of Liberty contained in this Agreement shall be true and accurate in
all material respects on and as of the Closing Date, with the same force and
effect as if made on the Closing Date.
(b) Performance of Covenants. Liberty shall have performed and complied in
all respects with all covenants, obligations and agreements to be performed or
complied with by it on or before the Closing Date pursuant to this Agreement.
(c) Consents. All required consents, approvals, permits, orders and
authorizations of, and any filings, registrations or qualifications required
with, any governmental agency or other person, with respect to the transactions
contemplated by this Agreement shall have been obtained by Liberty and shall be
in full force and effect.
(d) No Proceedings or Litigation. No provision of any applicable law,
statute, rule, regulation or ordinance and no judgment, injunction, order or
decree applicable to Liberty shall prohibit the consummation of the transactions
contemplated by this Agreement in accordance with its terms.
(e) Proceedings and Documents. All corporate and other proceedings and
actions taken in connection with the transactions contemplated by this Agreement
and all certificates, opinions, agreements, instruments and documents mentioned
herein or necessary for the consummation of the transaction contemplated hereby
shall be satisfactory in form and substance to the Company and its counsel.
ARTICLE V
INDEMNIFICATION
5.1 Indemnification by Liberty. The Company and its members, manager, officers,
employees, agents, affiliates, consultants, representatives and their
respective successors and assigns shall be indemnified and held harmless by
Liberty at all times from and after the Closing Date against and in respect of
damages, losses, liabilities, taxes and deficiencies and penalties and interest
thereon and costs and expenses (collectively, "Damages") resulting from any
misrepresentation, breach of warranty or nonfulfillment of any covenant or
agreement on the part of Liberty, and actions, suits, proceedings, claims,
demands, assessments, judgments, costs, losses, liabilities and reasonable
attorney's fees and other expenses incident to the foregoing.
5.2 Indemnification by the Company. Liberty and its respective members,
managers, directors, officers, stockholders, employees, agents, affiliates,
consultants, representatives and their respective successors and assigns shall
be indemnified and held harmless by the Company, MV and DC at all times from and
after the Closing Date against and in respect of Damages resulting from any
misrepresentation, breach of warranty or nonfulfillment of any covenant or
agreement on the part of the Company, and actions, suits, proceedings, claims,
demands, assessments, judgments, costs, losses, liabilities and reasonable
attorney's fees and other expenses incident to any of the foregoing.
5.3 Limitations. Notwithstanding any provision contained in this Agreement
to the contrary, (i) Liberty shall not have any liability for indemnification
hereunder, and the Company shall not make any claims against Liberty for
breaches of representations, warranties, covenants and agreements under this
Agreement, until the dollar amount of all Damages under such claims shall equal
Fifty Thousand Dollars ($50,000) (the "Deductible Amount"); and if claims for
Damages exceed the Deductible Amount, Liberty shall only be liable for such
claims for Damages in excess of the Deductible Amount; and (ii) the aggregate
liability for any and all breaches of any representations, warranties, covenants
or agreements claimed or imposed against Liberty shall not exceed the respective
Contribution Amount paid by Liberty.
5.4 Notice to the Indemnitor. As a condition precedent to any
indemnification under this Article V, promptly after the assertion of any claim
or action by a third party or occurrence of any event which may give rise to a
claim or action for indemnification from an indemnitor (the "Indemnitor") under
this Article V, an indemnified party (the "Indemnified Party") shall notify the
Indemnitor in writing of such claim or action, and in such writing the
Indemnified Party shall describe in reasonable detail the facts and
circumstances with respect to the subject matter of such claim or action and the
basis on which indemnification is sought pursuant to this Agreement. The failure
to provide such notice shall not release the Indemnitor from any of its
obligations under this Article V except to the extent the Indemnitor is
materially prejudiced by such failure and shall not relieve the Indemnitor from
any obligation that it may have to an Indemnified Party otherwise than under
this Article V.
5.5 Rights of Parties to Settle or Defend. The Indemnitor shall have the
right to direct, through counsel of its own choosing, the defense or settlement
of any claim or proceeding at its own expense pursuant to which the Indemnified
Party is seeking indemnification pursuant to this Agreement. If the Indemnitor
elects to assume the defense of any such claim or proceeding, the Indemnified
Party may participate in such defense, but in such case the expenses of the
Indemnified Party shall be paid by the Indemnified Party. The Indemnified Party
shall provide the Indemnitor with access to its records and personnel relating
to any such claim, assertion, event or proceeding during normal business hours
and shall otherwise cooperate with the Indemnitor in the defense or settlement
thereof. If the Indemnitor elects to direct the defense of any such claim or
proceeding, the Indemnified Party shall not pay, or permit to be paid, any part
of any claim or demand arising from such asserted liability, unless the
Indemnitor consents in writing to such payment or unless the Indemnitor, subject
to the last sentence of this Section 5.5, withdraws from the defense of such
asserted liability, or unless a final judgment from which no appeal may be taken
by or on behalf of the Indemnitor is entered against the Indemnified Party for
such liability. The Indemnitor, if it shall assume the defense or settlement of
such claim, shall not effect any settlement of such claim which does not provide
for a complete release of liability of the Indemnified Party without the written
consent of the Indemnified Party, which consent shall not be unreasonably
withheld or delayed. If the Indemnitor shall fail to defend, or if, after
commencing or undertaking any such defense, the Indemnitor fails to prosecute or
withdraws from such defense, the Indemnified Party shall have the right to
undertake the defense or settlement thereof, at the Indemnitor's expense.
5.6 Costs of Disputed Indemnification Obligations. In the event of a
dispute between an Indemnitor and an Indemnified Party over the obligation to
provide indemnification for a specific claim, and it is finally determined by a
court of competent jurisdiction (or other resolution agreed to in writing by the
Indemnitor and Indemnified Party) that (i) the Indemnitor was obligated to
provide such indemnification, then the Indemnitor shall bear all costs and
expenses, including reasonable attorney's fees, of resolving such dispute or
(ii) the Indemnitor was not obligated to provide such indemnification, then the
Indemnified Party shall bear all costs and expenses, including reasonable
attorney's fees, of resolving such dispute.
ARTICLE VI
MISCELLANEOUS
6.1 Terms of the Preferred Interests. The rights, preferences and
designations of the Preferred Interests to be contained in the Operating
Agreement shall be those rights, preferences and designations which are set
forth in the LOI.
6.2 Use of Proceeds. The Company agrees to use the Contribution Amount for
working capital and its operations, advertising and market penetration of its
products, all in accordance with the provisions of the Operating Agreement.
6.3 Amendment. This Agreement may not be amended except by an instrument
in writing signed on behalf of the party against whom such amendment is sought
to be enforced.
6.4 Fees and Expenses. Each party hereto will pay its own expenses
incident to preparing, entering into and carrying out this Agreement and the
consummation of the transactions contemplated hereby, provided, however, that
all reasonable and customary fees, due diligence expenses and the expenses of
Herrick, Feinstein LLP, legal counsel to Liberty, shall be paid by the Company
at the Closing, up to a maximum of all such fees and expenses in an amount not
to exceed thirty-five thousand dollars ($15,000).
6.5 Extension; Waiver. Any agreement on the part of a party to waive any
provision of this Agreement, or to extend the time for any performance
hereunder, will be valid only if set forth in an instrument in writing signed on
behalf of such party. The failure of any party to this Agreement to assert any
of its rights under this Agreement or otherwise will not constitute a waiver of
such rights.
6.6 Entire Agreement; Third-Party Beneficiaries. Other than as provided in
the LOI, this Agreement constitutes the entire agreement among the parties
hereto with respect to the subject matter hereof and supersedes all prior
agreements and understandings, both written and oral, among the parties with
respect to such matters. The members of the Company will be third party
beneficiaries of any rights or remedies provided by this Agreement. Except as
otherwise provided in this Section 6.6, this Agreement is not intended to confer
upon any person other than the parties hereto any rights or remedies.
6.7 Governing Law. This Agreement will be governed by, and construed in
accordance with, the laws of the State of New York, regardless of the laws that
might otherwise govern under applicable principles of conflict of laws thereof.
6.8 Notices. Any notice required to be given hereunder will be sufficient
if in writing and sent by facsimile transmission and by courier service (with
proof of service), hand delivery or certified or registered mail (return receipt
requested and first-class postage prepaid), addressed as follows:
--------------------------------------------------------------
If to Company, MV or DC:
AskTheRobot, LLC
29 East 31st Street
New York, New York 10016
--------------------------------------------------------------
<PAGE>
If to Liberty:
Liberty Group Services, LLC
c/o Liberty Group Holdings, Inc.
11 52nd Street
Brooklyn, New York 11232
Attn: Barry Hawk, President
Fax No.: 718-492-3482
with a copy to:
Herrick, Feinstein LLP
Two Park Avenue
New York, New York 10016
Attn: David Lubin, Esq.
Fax No.: 212-592-1500
--------------------------------------------------------------
or to such other address as any party may specify by written notice so given,
and such notice will be deemed to have been delivered as of the date so
telecommunicated, personally delivered or mailed.
6.9 Further Assurances. From and after the date of this Agreement, upon
the request of Liberty or the Company, the other party or parties will execute
and deliver such instruments, documents and other writings as may be reasonably
necessary or desirable to confirm and carry out and to effectuate fully the
intent and purposes of this Agreement.
6.10 Severability. Whenever possible, each provision or portion of any
provision of this Agreement will be interpreted in such manner as to be
effective and valid under applicable law but if any provision or portion of any
provision of this Agreement is held to be invalid, illegal or unenforceable in
any respect under any applicable law or rule in any jurisdiction, such
invalidity, illegality or unenforceability will not affect any other provision
or portion of any provision in such jurisdiction, and this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision or portion of any provision had never been
contained herein.
6.11 Counterparts. This Agreement may be executed in one or more
counterparts, all of which will be considered one and the same instrument and
will become effective when one or more counterparts have been signed by each
party and delivered to the other parties.
6.12 Headings. The descriptive headings contained herein are for
convenience and reference only and will not affect in any way the meaning or
interpretation of this Agreement.
[Remainder of Page Intentionally Omitted; Signature Pages to Follow]
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Subscription Agreement to be signed as of the day and year first written above.
ASKTHEROBOT, LLC
By:___________________________
Name: Michael Vogel
By:___________________________
Name: Douglas Capeci
LIBERTY GROUP SERVICES, LLC
By: Liberty Group Holdings, Inc.,
its Manager
By: ________________________
Name: Barry Hawk
Title: President
Liberty Group Holdings, Inc.
SUBSIDIARIES
COMPANY STATE OF FORMATION DATE OF FORMATION
Liberty Food Group, LLC Delaware November 12, 1999
L.F.G. Transport, LLC Delaware November 18, 1999
Liberty Group Services, LLC Delaware January 12, 2000
Liberty Group Media, LLC Delaware January 12, 2000
Liberty Group Trading, LLC Delaware January 21, 2000
caseXpress, LLC Delaware January 12, 2000
Liberty Coffee & Tea, LLC Delaware February 28, 2000
