UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(Amendment No. 1)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the period ended July 20, 1996
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
Commission file number 1-5486
THE DIANA CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 36-2448698
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8200 W. Brown Deer Road, Suite 200, Milwaukee, Wisconsin 53223
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (414) 355-0037
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
X Yes ___ No
At August 15, 1996, the registrant had issued and outstanding an
aggregate of 5,028,590 shares of its common stock.
<PAGE>
Part I - Financial Information
Item 1. Financial Statements
The Diana Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
(Dollars in Thousands)
<TABLE>
<CAPTION>
July 20, March 30,
1996 1996
(Unaudited)
Assets
<S> <C> <C>
Current assets
Cash and cash equivalents $ 11,686 $ 6,254
Marketable securities 1,414 1,215
Receivables 21,163 16,171
Inventories 12,373 12,337
Other current assets 974 1,009
------ ------
Total current assets 47,610 36,986
Property and equipment 4,440 4,158
Intangible assets 9,521 11,585
Other assets 3,293 804
------ ------
$ 64,864 $ 53,533
====== ======
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable $ 12,523 $ 13,707
Accrued liabilities 2,442 2,514
Revolving lines of credit 9,256 7,038
Current portion of long-term debt 405 444
------ ------
Total current liabilities 24,626 23,703
Long-term debt 3,468 3,562
Other liabilities 1,615 1,582
Commitments and contingencies
Shareholders' equity
Preferred stock - $.01 par value --- ---
Common stock - $1 par value 5,756 5,526
Additional paid-in capital 72,086 59,456
Accumulated deficit (36,099) (34,776)
Unrealized loss on marketable securities (677) (876)
Treasury stock (5,911) (4,644)
------ ------
Total shareholders' equity 35,155 24,686
------ ------
$ 64,864 $ 53,533
====== ======
</TABLE>
See notes to condensed consolidated financial statements.
1
<PAGE>
The Diana Corporation and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
16 Weeks Ended
July 20, July 22,
1996 1995
<S> <C> <C>
Net sales $ 87,217 $ 81,553
Other income 207 135
------ ------
87,424 81,688
Cost of sales 83,180 78,931
Selling and administrative expenses 5,273 2,751
------ ------
Operating earnings (loss) (1,029) 6
Interest expense (396) (335)
Minority interest 103 ---
Equity in loss of unconsolidated
subsidiaries --- (72)
------ ------
Net loss $ (1,322) $ (401)
====== ======
Loss per common share $ (.25) $ (.09)
====== ======
Weighted average number of common shares
outstanding 5,227 4,316
====== ======
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE>
The Diana Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
16 Weeks Ended
July 20, July 22,
1996 1995
<S> <C> <C>
Operating Activities:
Net loss $(1,322) $ (401)
Reconciliation of net loss to net cash
provided by operating activities:
Depreciation and amortization 513 364
Minority interest (103) ---
Equity in loss of unconsolidated
subsidiaries --- 72
Other (275) (31)
Changes in operating assets and liabilities (3,751) 1,609
------ ------
Net cash provided (used) by operating activities (4,938) 1,613
Investing activities:
Increase in promissory note (5,000) ---
Additions to property and equipment (544) (147)
Purchases of marketable securities --- (161)
Sales of marketable securities --- 4,200
Other --- (3)
------ ------
Net cash provided (used) by investing activities (5,544) 3,889
Financing activities:
Changes in revolving lines of credit 2,218 (2,184)
Payments on long-term debt (133) (87)
Common stock issued 13,918 ---
Cash dividend payment by subsidiary to
minority shareholders (89) ---
------ -----
Net cash provided (used) by financing activities 15,914 (2,271)
------ ------
Increase in cash and cash equivalents 5,432 3,231
Cash and cash equivalents at the
beginning of the period 6,254 2,440
------ ------
Cash and cash equivalents at the end
of the period $11,686 $ 5,671
====== ======
Non-cash transaction:
Acquisition of common stock held by
minority shareholder $ 2,325 $ ---
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
The Diana Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements
July 20, 1996
(Unaudited)
NOTE 1 - Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the sixteen weeks ended July 20, 1996 are not necessarily
indicative of the results that may be expected for the fiscal year ended
March 29, 1997. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's annual report on
Form 10-K for the fiscal year ended March 30, 1996.
The computation of loss per common share is based on the weighted
average common shares outstanding and dilutive common stock equivalents
(stock options).
NOTE 2 - Sattel Communications ("Sattel")
On May 3, 1996, the Company and Sattel Technologies, Inc. ("STI")
entered into a Supplemental Agreement to amend the Exchange Agreement entered
into on January 16, 1996, whereby, among other things, the Company increased
its ownership interest in Sattel from 50% to 80%. STI conveyed to the
Company an additional 15% of Sattel and 50,000 shares of the Company's common
stock (previously acquired by STI on January 16, 1996) in exchange for being
released from the obligation to pay for certain product development and STI's
proportionate share of a $10 million capital contribution to Sattel. In May
1996, the Company contributed $10 million to Sattel pursuant to the
Supplemental Agreement. These transactions resulted in a net reduction of
approximately $1,825,000 of intangible assets which originated from the
January 16, 1996 transaction. In addition, in fiscal 1997 Sattel granted
equity participation interests to certain employees of the Company. The
Company's effective ownership of Sattel remains at approximately 80% after
the grant of these interests. STI's effective ownership interest in Sattel
was reduced to approximately 4% as a result of all of these transactions (see
Note 4).
In June 1996, Concentric Network Corporation ("CNC") executed a
Promissory Note for $5,000,000 in favor of Sattel. In August 1996, the
Promissory Note and accrued interest receivable were converted into 3,729,110
shares of CNC Series D Preferred Stock. In August 1996, Sattel entered into
an agreement with a third party to sell 1,838,234 shares of its CNC Series D
Preferred Stock for $2.5 million. This transaction closed in September 1996.
NOTE 3 - Shareholders' Equity
In April 1996, the Company raised approximately $14 million, after
commissions and expenses, through the sale of 430,000 shares of common stock.
4
<PAGE>
NOTE 4 - Subsequent Event
On September 3, 1996, the Board of Directors declared a 5% stock
dividend which was paid on October 2, 1996 to shareholders of record on
September 16, 1996. Per share amounts in the accompanying financial
statements have been restated for the stock dividend.
On October 14, 1996, the Company acquired from STI its approximate 4%
ownership interest in Sattel for 15,000 shares of the Company's common stock.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
In fiscal 1996, the Company acquired an 80% ownership interest in Valley
and increased its ownership interest in Sattel from 50% to 80%. The results
of operations of Valley were included in the consolidated group beginning in
December 1995 and Sattel beginning in January 1996 (see Notes 1 and 2 to the
fiscal 1996 Consolidated Financial Statements).
The following is a summary of sales by segment (see Note 14 to the
Fiscal 1996 Consolidated Financial Statements) for the first quarter of
fiscal 1997 and 1996, including sales by significant product line for the
meat and seafood segment (in thousands):
1997 1996
Telecommunications equipment $ 7,550 $ 6,266
Network installation and service 3,804 ---
Beef 33,666 36,056
Pork 15,258 16,500
Other 26,939 22,731
------ ------
Meat and seafood total 75,863 75,287
------ ------
$87,217 $81,553
====== ======
For the sixteen weeks ended July 20, 1996, net sales increased
$5,664,000 or 6.9% over fiscal 1996 first quarter net sales. Sales of the
telecommunications equipment segment increased $1,284,000 or 20.5% from
fiscal 1996 first quarter net sales primarily due to the inclusion of Sattel
in the Consolidated Financial Statements. Sattel's commercial sales during
the first quarter of fiscal 1997 were $841,000. Sales of the network
installation and service segment are all attributable to Valley. Sales of
the meat and seafood segment consist of sales made by APC. APC's overall
volume (based on tonnage) during this period decreased by .2% and net sales
increased $576,000 or .8% over fiscal 1996 first quarter net sales.
Other income increased $72,000 or 53.3% from the same period in fiscal
1996. The increase is primarily attributable to an increase in interest
income resulting from increased cash and cash equivalent levels due to the
sale of 600,000 shares of common stock by the Company in March and April
1996.
5
<PAGE>
For the sixteen weeks ended July 20, 1996, gross profit increased
$1,415,000 or 54.0% from the same period in fiscal 1996. On a consolidated
basis, gross profit as a percentage of net sales was 4.6% in the first
quarter of fiscal 1997 as compared to 3.2% in the first quarter of fiscal
1996. The increase in gross profit and the gross profit percentage is
primarily attributable to the inclusion of Sattel and Valley in the
Consolidated Financial Statements in fiscal 1997.
For the sixteen weeks ended July 20, 1996, selling and administrative
expenses increased $2,522,000 or 91.7% from the same period in fiscal 1996.
Selling and administrative expenses as a percentage of net sales were 6.1%
for the sixteen weeks ended July 20, 1996 as compared to 3.4% from the same
period in fiscal 1996. Selling and administrative expenses have increased
primarily because of the inclusion of Sattel and Valley in the Consolidated
Financial Statements in fiscal 1997.
For the sixteen weeks ended July 20, 1996, interest expense increased
$61,000 or 18.2% over the same period in fiscal 1996. The increase in
interest expense is primarily due to an increase in borrowings that were made
in connection with the acquisition of Valley.
Minority interest for the sixteen weeks ended July 20, 1996, consists of
Sattel Technologies Inc.'s proportionate share of Sattel's first quarter loss
partially offset by Valley's minority shareholder's proportionate share of
Valley's first quarter earnings.
The change in equity in loss of unconsolidated subsidiaries is primarily
due to the change in the accounting of Sattel from the equity method of
accounting to consolidation accounting as a result of the increase in the
Company's ownership in Sattel from 50% to 80% in January 1996.
The increase in the Company's net loss for the first quarter of fiscal
1997 as compared to the same period of time in fiscal 1996 is primarily due
to the following: a loss incurred by Sattel primarily due to start-up costs
incurred for the development of its business; a slight loss at C&L which has
been adversely impacted by the competitor company established in 1995 by
several of C&L's former employees; and an increase in APC's loss in fiscal
1997 as compared to fiscal 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company recorded cash outflow from operating activities of $4,938,000
during the first quarter of fiscal 1997 as compared to cash flow of
$1,613,000 in fiscal 1996. The decrease in cash flow is primarily
attributable to an increase in the net loss and less cash provided by the net
change in working capital items. The increase in receivables is primarily
attributable to increased trade accounts receivable at C&L and APC. C&L's
receivables have increased primarily due to an increase in its sales. APC's
receivables have increased due to an increase in accounts receivable from a
large customer resulting from late payments. This customer has substantially
eliminated its past due receivables during August 1996. In addition, the
Company has classified $2,500,000 of the promissory note receivable from CNC
within receivables (see discussion below).
The decrease in intangible assets is primarily attributable to the
transaction discussed in Note 2 to the Condensed Consolidated Financial
Statements.
6
<PAGE>
In the first quarter of fiscal 1997, the Company had $544,000 of capital
expenditures of which $349,000 were made collectively by C&L, Valley and APC.
The Loan and Security Agreements for C&L, Valley and APC include covenants
that restrict capital expenditures. In fiscal 1997, capital expenditures
made by C&L, Valley and APC will be limited to $1,100,000 because of
covenants in their Loan and Security Agreements that restrict capital
expenditures.
C&L has a Loan and Security Agreement ("C&L Revolver") with a lender
providing a revolving line of credit through January 1999 of up to
$6,000,000, with interest at the prime rate or LIBOR plus 2.25%. In
addition, there is an unused line fee of .25%. Borrowings under the C&L
Revolver are restricted based on defined percentages of eligible accounts
receivable and inventories. The amount of borrowings and availability under
the C&L Revolver at July 20, 1996 was $3,043,000 and $1,954,000,
respectively. C&L's Revolver provides for the following financial covenants
during fiscal 1997: minimum tangible net worth of $2,000,000; minimum
cumulative income from operations, calculated on a quarterly basis of
$115,000, $446,000, $730,000 and $1,174,000, respectively; a current ratio of
1:1 and a maximum ratio of total liabilities to equity of 6:1. C&L has met
its financial covenants during fiscal 1997.
Valley has a Loan and Security Agreement ("Valley Revolver") with a
lender providing a revolving line of credit through March 1999 of up to
$2,500,000 with interest at the prime rate or LIBOR plus 2.25%. In addition,
there is an unused line fee of .25%. Borrowings under the Valley Revolver
are restricted based on defined percentages of eligible accounts receivable
and inventories. The amount of borrowings and availability under the Valley
Revolver at July 20, 1996 was $648,000 and $1,653,000, respectively.
APC's credit facility provides a revolving line of credit of up to
$9,500,000 with interest at the prime rate plus 2% through November 1997. A
$2 million letter of credit facility is included within the total credit
facility. At July 20, 1996, APC borrowed $5,565,000 and had letters of
credit of $2,000,000 issued on its behalf. At July 20, 1996, APC had
available unused borrowing capacity of $686,000. APC's revolving line of
credit has the following financial covenants for fiscal 1997: minimum
tangible net worth of $3,900,000 through March 28, 1997 and $4,400,000 on
March 29, 1997, a net loss of not greater than $40,000 and net cash flow on
a rolling 13-period basis (measured at the end of each four week period)
ranging from $385,000 to $500,000. APC violated a financial covenant
requiring net cash flow of $400,000, $385,000 and $405,000 for the 52 week
periods ended June 22, 1996, July 20, 1996, and August 17, 1996,
respectfully. The lender has not waived these violations. In October 1996,
APC refinanced its revolving line of credit with a new lender. The new
credit facility provides for a revolving line of credit up to $10 million
with certain terms more favorable than the previous credit facility.
7
<PAGE>
In May 1996, the Company contributed an additional $10 million to
Sattel. In June 1996, CNC executed a Promissory Note for $5,000,000 in favor
of Sattel. In August 1996, the Promissory Note and accrued interest
receivable were converted into 3,729,110 shares of CNC Series D Preferred
Stock. In August 1996, Sattel entered into an agreement with StreamLogic
Corporation ("StreamLogic") to sell 1,838,234 shares of its CNC Series D
Preferred Stock for $2.5 million. This transaction closed in September 1996.
At July 20, 1996, the Company classified $2,500,000 of the Promissory Note
within receivables and the balance in other assets.
Sattel and StreamLogic have entered into an agreement to establish
SatLogic LLC ("SatLogic"), a company that will be jointly owned by Sattel and
StreamLogic. SatLogic's business purpose will be the implementation and
exploitation, directly or indirectly, of a wholesale business created to sell
or resell network services elements to other value added network service
providers such as Internet service providers as well as other transactions.
SatLogic will initially be capitalized with a $500,000 cash contribution by
Sattel and a contribution by StreamLogic of a promissory note for $1,000,000
secured by the pledge of 735,294 shares of CNC Series D Preferred Stock. In
addition, Sattel and StreamLogic have agreed to a total commitment of capital
to SatLogic of $2 million.
In the fourth quarter of fiscal 1996 and in the first quarter of fiscal
1997, the Company raised approximately $17.4 million, after commissions and
expenses, through the sale of 600,000 shares of Common Stock. The Company
believes that it has adequate resources to meet its liquidity needs for
fiscal 1997. On a long term basis, financing for the Company's operations,
including working capital requirements for Sattel and capital expenditures,
will come from cash generated from operations, the sale of additional equity
or other securities, additional bank borrowings and other sources of capital,
if available. In July 1996, the Company filed a registration statement for
shelf registration of up to 500,000 shares of common stock which was
withdrawn in October 1996.
The Company is investigating how it can be restructured in order to
maximize shareholder value. Management is currently looking at several
alternative approaches, based on separating operating units by industry type
into independent publicly traded companies. Management has retained the
services of Hambrecht & Quist, LLC, an investment banking firm, to assist
them with this effort.
In August 1996, all negotiations and agreements with third parties
concerning the sale of APC were terminated.
8
<PAGE>
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits:
3.1 - By-Laws of Registrant as amended.
4.1 - Loan and Security Agreement by and between Valley Communications,
Inc. and Sanwa Business Credit Corporation dated March 14, 1996.
10.1 - Agreement dated November 17, 1995 between Valley Communications,
Inc. and Communications Workers of America Local 9412.
10.2 - Letter dated September 3, 1996 from Sanwa Business Credit
Corporation to The Diana Corporation
10.3 - Limited Liability Company Agreement of SatLogic LLC dated as of
September 12, 1996
27 - Financial Data Schedule
b) Reports on Form 8-K:
(1) Form 8-K/A (Amendment No. 1) on April 1, 1996 to amend the Form 8-K
filed on January 31, 1996; Item 7. Financial Statements and
Exhibits. The financial statements included in this filing were
the audited financial statements of Sattel Communications Company
for the period November 23, 1994 (inception) through December 31,
1994 and for the year ended December 31, 1995, Unaudited Pro Forma
Condensed Consolidated Balance Sheet of The Diana Corporation at
January 6, 1996 and Unaudited Pro Forma Condensed Consolidated
Statements of Operations of The Diana Corporation for the 52 weeks
ended April 1, 1995 and the 40 weeks ended January 6, 1996.
(2) Form 8-K/A (Amendment No. 2) on July 12, 1996 to amend the Form 8-K
filed on December 5, 1996; Item 7. Financial Statements and
Exhibits. The financial statements included in this filing were
the audited financial statements of Valley Communications, Inc. for
the years ended October 31, 1992, 1993, 1994 and for the ten months
ended August 31, 1995, the Pro Forma Condensed Consolidated Balance
Sheet of The Diana Corporation at October 14, 1995 and the Pro
Forma Condensed Consolidated Statements of Operations of The Diana
Corporation for the 52 weeks ended April 1, 1995 and the 28 weeks
ended October 14, 1995.
(3) Form 8-K/A (Amendment No. 2) on July 15, 1996 to amend the Form 8-K
filed on January 31, 1996; Item 7. Financial Statements and
Exhibits. There were no financial statements included in this
filing.
9
<PAGE>
(4) Form 8-K/A (Amendment No. 3) on August 14, 1996 to amend the Form
8-K filed on January 31, 1996; Item 7. Financial Statements and
Exhibits. The financial statements included in this filing were
the audited financial statements of Sattel Communications Company
for the period November 23, 1994 (inception) through December 31,
1994 and for the year ended December 31, 1995, Unaudited Pro Forma
Condensed Consolidated Balance Sheet of The Diana Corporation at
January 6, 1996 and Unaudited Pro Forma Condensed Consolidated
Statements of Operations of The Diana Corporation for the 52 weeks
ended April 1, 1995 and the 40 weeks ended January 6, 1996.
10
<PAGE>
Signatures
Pursuant to the requirements 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.
THE DIANA CORPORATION
/s/ R. Scott Miswald
Vice President, Treasurer
and Secretary (Principal
Financial and Accounting
Officer)
DATE: October 18, 1996
LIMITED LIABILITY COMPANY
AGREEMENT
OF
SATLOGIC LLC
Delaware Limited Liability Company
Dated as of September 12, 1996
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE 1..................................................... 1
ORGANIZATIONAL MATTERS........................................ 1
1.1 Formation................................................ 1
1.2 Name..................................................... 1
1.3 Principal Place of Business; Other Places of Business.... 1
1.4 Business Purpose......................................... 1
1.5 Certificate of Formation; Filings........................ 1
1.6 Fictitious Business Name Statements...................... 2
1.7 Designated Agent for Service of Process.................. 2
1.8 Term..................................................... 2
ARTICLE 2..................................................... 2
DEFINITIONS................................................... 2
2.1 "Act".................................................... 2
2.2 "Additional Members"..................................... 2
2.3 "Adjusted Capital Account Deficit"....................... 2
2.4 "Affiliate".............................................. 2
2.5 "Agreement".............................................. 3
2.6 "Assignee................................................ 3
2.7 "Capital Account"........................................ 3
2.8 "Capital Contributions".................................. 3
2.9 "Cash Available for Distribution"........................ 4
2.10 "Certificate"............................................ 4
2.11 "Code"................................................... 4
2.12 "Company"................................................ 4
2.13 "Company Assets.......................................... 4
2.14 "Company Minimum Gain"................................... 4
2.15 "Depreciation"........................................... 4
2.16 "Economic Interest"...................................... 4
2.17 "Encumbrance"............................................ 4
2.18 "Gross Asset Value"...................................... 4
2.19 "Immediate Family"....................................... 5
2.20 "Incapacity"............................................. 6
2.21 "Indemnitee"............................................. 6
2.22 "Liquidator"............................................. 6
2.23 "Majority in Interest"................................... 6
2.24 "Majority of Remaining Members".......................... 6
2.25 "Managing Members"....................................... 6
2.26 "Member Minimum Gain".................................... 6
2.27 "Member Nonrecourse Debt"................................ 6
2.28 "Member Nonrecourse Deductions".......................... 6
2.29 "Members"................................................ 6
2.30 "Membership Interest" or "Interest"...................... 6
2.31 "Minimum Capital Account Balance"........................ 6
2.32 "Net Profits" or "Net Losses"............................ 6
2.33 "Nonrecourse Deductions"................................. 7
2.34 "Nonrecourse Liability".................................. 7
2.35 "Operating Cash Expenses"................................ 7
2.36 "Percentage Interest".................................... 8
2.37 "Person"................................................. 8
2.38 "Recourse Liability"..................................... 8
2.39 "Regulations"............................................ 8
i
<PAGE>
2.40 "Regulatory Allocations"................................. 8
2.41 "Required Notice"........................................ 8
2.42 "Reserves"............................................... 8
2.43 "Responsible Party"...................................... 8
2.44 "Substitute Member"...................................... 8
2.45 "Terminating Capital Transaction"........................ 8
2.46 "Termination Payment".................................... 8
2.47 "Transfer"............................................... 8
ARTICLE 3..................................................... 9
CAPITAL; CAPITAL ACCOUNTS AND MEMBERS......................... 9
3.1 Capital Commitments of Members........................... 9
3.2 Capital Contributions by Members......................... 9
3.3 Failure to Contribute.................................... 10
3.4 Capital Accounts......................................... 12
3.5 Additional Members....................................... 12
3.6 Member Capital........................................... 12
3.7 Member Loans............................................. 12
3.8 Liability of Members..................................... 12
ARTICLE 4..................................................... 13
DISTRIBUTIONS................................................. 13
4.1 Distributions of Cash Available for Distribution......... 13
4.2 Distributions Upon Liquidation........................... 13
4.3 Withholding.............................................. 13
4.4 Distributions in Kind.................................... 14
4.5 Limitations on Distributions............................. 14
ARTICLE 5..................................................... 14
ALLOCATIONS OF NET PROFITS AND NET LOSSES..................... 14
5.1 General Allocation of Net Profits and Losses............. 14
5.2 Regulatory Allocations................................... 14
5.3 Tax Allocations.......................................... 16
5.4 Other Provisions......................................... 16
ARTICLE 6..................................................... 17
OPERATIONS AND INDEMNIFICATION................................ 17
6.1 Management............................................... 17
6.2 Limitations on Authority of Managing Members............. 19
6.3 Reliance By Third Parties................................ 20
6.4 Compensation of Managing Members......................... 20
6.5 Records and Reports...................................... 20
6.6 Indemnification and Liability of the Managing Member..... 21
6.7 Removal and Withdrawal of Managing Member................ 22
6.8 Other Activities......................................... 22
ARTICLE 7..................................................... 23
INTERESTS AND TRANSFERS OF INTERESTS.......................... 23
7.1 Transfers and Encumbrances............................... 23
7.2 Further Restrictions..................................... 23
7.3 Rights of Assignees...................................... 24
ii
<PAGE>
7.4 Admissions, Withdrawals and Removals..................... 24
7.5 Payment Upon Withdrawal or Removal of Member............. 24
7.6 Admission of Assignees as Substitute Members............. 24
7.7 Withdrawal of Members.................................... 25
7.8 Conversion of Membership Interest........................ 25
7.9 Compliance With IRS Safe Harbor.......................... 25
ARTICLE 8..................................................... 26
CERTAIN REPRESENTATIONS, WARRANTIES AND COVENANTS............. 26
8.1 Representations of Each Member........................... 26
8.1.1 Status.......................................... 26
8.1.2 Authority....................................... 26
8.1.3 No Breach or Default............................ 26
8.1.4 No Governmental Consents........................ 26
8.1.5 Use of Member's Name............................ 26
8.1.6 Accuracy of Information......................... 26
8.2 Investment Representations............................... 27
ARTICLE 9..................................................... 28
DISSOLUTION, LIQUIDATION, AND TERMINATION OF THE COMPANY...... 28
9.1 Limitations......................................... 28
9.2 Exclusive Causes.................................... 28
9.3 Effect of Dissolution............................... 29
9.4 No Capital Contribution Upon Dissolution............ 29
9.5 Liquidation......................................... 29
ARTICLE 10.................................................... 29
MISCELLANEOUS................................................. 29
10.1 Appointment of Managing Members as Attorney-in-Fact. 29
10.2 Amendments.......................................... 30
10.3 Accounting and Fiscal Year.......................... 31
10.4 Meetings............................................ 31
10.5 Entire Agreement.................................... 31
10.6 Further Assurances.................................. 31
10.7 Notices............................................. 31
10.8 Tax Matters......................................... 32
10.9 Governing Law....................................... 32
10.10 Construction............................... 32
10.11 Captions - Pronouns........................ 32
10.12 Binding Effect............................. 32
10.13 Severability............................... 32
10.14 Confidentiality............................ 32
10.15 Counterparts............................... 33
iii
<PAGE>
LIMITED LIABILITY COMPANY AGREEMENT
OF
SATLOGIC LLC
THIS LIMITED LIABILITY COMPANY AGREEMENT (the "Agreement") is
made and entered into as of the 12th day of September, 1996, by and
between Sattel Communications LLC, a California limited liability
company ("Sattel") and StreamLogic Corporation, a Delaware
corporation ("StreamLogic") (each, a "Member" and, together, the
"Members), for the purpose of forming SatLogic LLC (the "Company")
a limited liability company organized under the Delaware Limited
Liability Company Act (the "Act").
ARTICLE 1
ORGANIZATIONAL MATTERS
1.1 Formation. The Members hereby form the Company under the
Act for the purposes and upon the terms and conditions hereinafter
set forth. The rights and liabilities of the Members of the
Company shall be as provided in the Act, except as otherwise
expressly provided herein. In the event of any inconsistency
between any terms and conditions contained in this Agreement and
any non-mandatory provisions of the Act, the terms and conditions
contained in this Agreement shall govern.
1.2 Name. The name of the Company shall be SatLogic LLC.
The Company may also conduct business at the same time under one or
more fictitious names if the Managing Members determine that such
is in the best interests of the Company. The Managing Members may
change the name of the Company, from time to time, in accordance
with applicable law.
1.3 Principal Place of Business; Other Places of Business.
The principal place of business of the Company is located at 26025
Mureau Road, Calabasas, California 91302, or such other place
within or outside the State of Delaware as the Managing Members may
from time to time designate. The Company may maintain offices and
places of business at such other place or places within or outside
the State of Delaware as the Managing Members deem advisable.
1.4 Business Purpose. The purpose of the Company shall be
the implementation and exploitation, directly or indirectly, of a
wholesale business created to sell or resell network services
elements to other value added network service providers such as
Internet service providers as well as other transactions. The
Company may engage in such additional businesses as are agreed upon
in writing by the Managing Members, provided that the restrictions
contained in Paragraph 6.8(b) shall only apply to such additional
businesses if agreed upon by the Managing Members.
1.5 Certificate of Formation; Filings. The Managing Members
shall cause to be executed and filed a Certificate of Formation
(the "Certificate") in the Office of the Delaware Secretary of
State as required by the Act. The Managing Members may execute and
file any duly authorized amendments to the Certificate from time to
time in a form prescribed by the Act. The Managing Members shall
also cause to be made, on behalf of the Company, such additional
filings and recordings as the Managing Members shall deem necessary
or advisable.
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1.6 Fictitious Business Name Statements. Following the
execution of this Agreement, fictitious business name statements
shall be filed and published when and if the Managing Members
determine it necessary. Any such statement shall be renewed as
required by applicable law.
1.7 Designated Agent for Service of Process. The Company
shall continuously maintain a registered office and a designated
and duly qualified agent for service of process on the Company in
the State of Delaware.
1.8 Term. The Company shall commence on the date that the
Certificate is filed with the Office of the Delaware Secretary of
State, and shall continue until terminated pursuant to this
Agreement.
ARTICLE 2
DEFINITIONS
Capitalized words and phrases used and not otherwise defined
elsewhere in this Agreement shall have the following meanings:
2.1 "Act" is defined in the Preamble.
2.2 "Additional Members" means those Persons admitted to the
Company pursuant to Paragraph 3.4 of the Agreement.
2.3 "Adjusted Capital Account Deficit" means, with respect to
any Member, the deficit balance, if any, in such Member's Capital
Account as of the end of the relevant fiscal year, after giving
effect to the following adjustments:
2.3.1 Add to such Capital Account the following items:
(a) The amount, if any, that such Member is
obligated to contribute to the Company upon
liquidation of such Member's Interest; and
(b) The amount that such Member is obligated to
restore or is deemed to be obligated to restore
pursuant to Regulations Section 1.704-1(b)(2)(ii)(c)
or the penultimate sentence of each of Regulations
Sections 1.704-2(g)(1) and 1.704-2(i)(5); and
2.3.2 Subtract from such Capital Account such Member's
share of the items described in Regulations Sections
1.704-1(b)(2)(ii)(d)(4), (5) and (6).
The foregoing definition of Adjusted Capital Account Deficit is
intended to comply with the provisions of Regulations Section
1.704-1(b)(2)(ii)(d) and shall be interpreted consistently
therewith.
2.4 "Affiliate" means, with reference to a specified Person: (a)
a Person that, directly or indirectly, through one or more
intermediaries, controls, is controlled by, or is under common
control with, the specified Person, (b) any Person that is an
officer, partner or trustee of, or serves in a similar capacity
with respect to, the specified Person, or for which the specified
Person is an officer, partner or trustee, or serves in a similar
capacity, or (c) any member of the Immediate Family of the
specified Person.
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2.5 "Agreement" is defined in the Preamble.
2.6 "Assignee" means any Person (a) to whom a Member (or
assignee thereof) Transfers all or any part of its interest in the
Company, and (b) which has not been admitted to the Company as a
Substitute Member pursuant to Paragraph 7.6 of this Agreement.
2.7 "Capital Account" means the Capital Account maintained for
each Member on the Company's books and records in accordance with
the following provisions:
2.7.1 To each Member's Capital Account there shall be
added (a) such Member's Capital Contributions, (b) such
Member's allocable share of Net Profits and any items in the
nature of income or gain that are specially allocated to such
Member pursuant to Article 5 hereof or other provisions of
this Agreement, and (c) the amount of any Company liabilities
assumed by such Member or which are secured by any property
distributed to such Member.
2.7.2 From each Member's Capital Account there shall be
subtracted (a) the amount of (i) cash and (ii) the Gross Asset
Value of any Company Assets (other than cash) distributed to
such Member (other than any payment of principal and/or
interest to such Member pursuant to the terms of a loan made
by the Member to the Company) pursuant to any provision of
this Agreement, (b) such Member's allocable share of Net
Losses and any other items in the nature of expenses or losses
that are specially allocated to such Member pursuant to
Article 5 or other provisions of this Agreement, and (c)
liabilities of such Member assumed by the Company or which are
secured by any property contributed by such Member to the
Company.
2.7.3 In the event any interest in the Company is
transferred in accordance with the terms of this Agreement,
the transferee shall succeed to the Capital Account of the
transferor to the extent it relates to the transferred
interest.
2.7.4 In determining the amount of any liability for
purposes of Paragraphs 2.7.1 and 2.7.2 hereof, there shall be
taken into account Code Section 752(c) and any other
applicable provisions of the Code and Regulations.
2.7.5 The foregoing provisions and the other provisions
of this Agreement relating to the maintenance of Capital
Accounts are intended to comply with Regulations Sections
1.704-1(b) and 1.704-2 and shall be interpreted and applied
in a manner consistent with such Regulations. In the event
that the Managing Members shall determine that it is prudent
to modify the manner in which the Capital Accounts, or any
additions or subtractions thereto, are computed in order to
comply with such Regulations, the Managing Members may make
such modification, provided that it is not likely to have a
material effect on the amounts distributable to any Member
pursuant to Article 9 hereof upon the dissolution of the
Company. The Managing Members shall also make (a) any
adjustments that are necessary or appropriate to maintain
equality between the Capital Accounts of the Members and the
amount of Company capital reflected on the Company's balance
sheet, as computed for book purposes, in accordance with
Regulations Section 1.704-1(b)(2)(iv)(q), and (b) any
appropriate modifications in the event that unanticipated
events might otherwise cause this Agreement not to comply with
Regulations Sections 1.704-1(b) and 1.704-2.
2.8 "Capital Contributions" means, with respect to any Member,
the total amount of money and the initial Gross Asset Value of
property (other than money) contributed to the capital of the
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Company by such Member, whether as an initial Capital Contribution
or as an additional Capital Contribution.
2.9 "Cash Available for Distribution" means, with respect to any
fiscal year, all Company cash receipts (excluding the proceeds from
any Terminating Cash Transaction), after deducting payments for
Operating Cash Expenses, payments required to be made in connection
with any loan to the Company or any other loan secured by a lien on
any Company Assets, capital expenditures and any other amounts set
aside for the restoration, increase or creation of reasonable
Reserves.
2.10 "Certificate" means the Certificate of Formation of the
Company filed under the Act in the Office of the Delaware Secretary
of State for the purpose of forming the Company as a Delaware
limited liability company, and any duly authorized, executed and
filed amendments or restatements thereof.
2.11 "Code" means the Internal Revenue Code of 1986, as amended
from time to time (or any corresponding provisions of succeeding
law).
2.12 "Company" is defined in the Preamble.
2.13 "Company Assets" means all direct and indirect interests in
real and personal property owned by the Company from time to time,
and shall include both tangible and intangible property (including
cash).
2.14 "Company Minimum Gain" has the meaning set forth in
Regulations Sections 1.704- 2(b)(2) and 1.704-2(d)(1) for the
phrase "partnership minimum gain."
2.15 "Depreciation" means, for each fiscal year or other period,
an amount equal to the federal income tax depreciation,
amortization or other cost recovery deduction allowable with
respect to an asset for such year or other period, 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 year or
other period, Depreciation shall be an amount that bears the same
ratio to such beginning Gross Asset Value as the federal income tax
depreciation, amortization or other cost recovery deduction for
such year or other period bears to such beginning adjusted tax
basis; provided, however, that if the federal income tax
depreciation, amortization or other cost recovery deduction for
such year or other period is zero, Depreciation shall be determined
with reference to such beginning Gross Asset Value using any
reasonable method selected by the Managing Members.
2.16 "Economic Interest" means a Person's right to share in the
Net Profits, Net Losses, or similar items of, and to receive
distributions from, the Company, but does not include any other
rights of a Member including, without limitation, the right to vote
or to participate in the management of the Company, or, except as
specifically provided in this Agreement or required under the Act,
any right to information concerning the business and affairs of the
Company.
2.17 "Encumbrance" means a pledge, alienation, mortgage,
hypothecation, encumbrance or similar collateral assignment by any
other means, whether for value or no value and whether voluntary or
involuntary (including, without limitation, by operation of law or
by judgment, levy, attachment, garnishment, bankruptcy or other
legal or equitable proceedings).
2.18 "Gross Asset Value" means, with respect to any asset, the
asset's adjusted basis for federal income tax purposes, except as
follows:
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2.18.1 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 Managing Members
and the contributing Member.
2.18.2 The Gross Asset Values of all Company Assets
immediately prior to the occurrence of any event described in
subsection (a), subsection (b), subsection (c) or subsection (d)
hereof shall be adjusted to equal their respective gross fair
market values, as determined by the Managing Members using such
reasonable method of valuation as they may adopt, as of the
following times:
(a) the acquisition of an additional interest in the
Company (other than in connection with the execution of this
Agreement) by a new or existing Member in exchange for more than
a de minimis Capital Contribution, if the Managing Members
reasonably determine that such adjustment is necessary or
appropriate to reflect the relative Economic Interests of the
Members in the Company;
(b) the distribution by the Company to a Member of more
than a de minimis amount of Company Assets as consideration for
an interest in the Company, if the Managing Members reasonably
determine that such adjustment is necessary or appropriate to
reflect the relative Economic Interests of the Members in the
Company;
(c) the liquidation of the Company within the meaning of
Regulations Section 1.704-1(b)(2)(ii)(g); and
(d) at such other times as the Managing Members shall
reasonably determine necessary or advisable in order to comply
with Regulations Sections 1.704-1(b) and 1.704-2.
2.18.3 The Gross Asset Value of any Company Asset
distributed to a Member shall be the gross fair market value of
such asset on the date of distribution as determined by the
Managing Members.
2.18.4 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); provided, however, that
Gross Asset Values shall not be adjusted pursuant to this Paragraph
2.18.4 to the extent that the Managing Members reasonably determine
that an adjustment pursuant to Paragraph 2.18.2 above is necessary
or appropriate in connection with a transaction that would
otherwise result in an adjustment pursuant to this Paragraph
2.18.4.
2.18.5 If the Gross Asset Value of a Company Asset has been
determined or adjusted pursuant to Paragraph 2.18.1, Paragraph
2.18.2 or Paragraph 2.18.4 hereof, such Gross Asset Value shall
thereafter be adjusted by the Depreciation taken into account with
respect to such Company Asset for purposes of computing Net Profits
and Net Losses.
2.19 "Immediate Family" means, and is limited to, an individual
Member's current spouse, parents, parents-in-law, grandparents,
children, siblings, and grandchildren, or a trust or estate, all of
the beneficiaries of which consist of such Member or members of
such Member's Immediate Family.
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2.20 "Incapacity" means the entry of an order of incompetence or
of insanity, or the death, dissolution, bankruptcy (as defined in
the Act) or termination (other than by merger or consolidation) of
any Person.
2.21 "Indemnitee" is defined in Paragraph 6.6.1.
2.22 "Liquidator" is defined in Paragraph 9.5.1.
2.23 "Majority in Interest" means Members (including the
Managing Members) holding, in the aggregate, a majority of the
Percentage Interests held by all Members of the Company.
2.24 "Majority of Remaining Members" means Members owning (a) a
majority of the profits interests in the Company held by all
Member, determined and allocated based on any reasonable estimate
of profits from the relevant date to the projected termination of
the Company and taking into account present and future allocations
of profits under the Agreement as it is in effect on the relevant
date, and (b) a majority of the capital interests in the Company,
determined as of the relevant date under this Agreement, owned by
all the Members.
2.25 "Managing Members" shall mean Sattel Communications LLC
and StreamLogic Corporation, and shall include any additional or
successor Managing Members as may be appointed pursuant to
Paragraph 6.7.1 or 6.1.3.
2.26 "Member 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 Regulations
Section 1.704-2(i) with respect to "partner minimum gain."
2.27 "Member Nonrecourse Debt" has the meaning set forth in
Regulations Section 1.704-2(b)(4) for the phrase "partner
nonrecourse debt."
2.28 "Member Nonrecourse Deductions" has the meaning set forth
in Regulations Section 1.704-2(i) for the phrase "partner
nonrecourse deductions."
2.29 "Members" means the Persons owning Membership Interests,
including the Managing Members and any Substitute or Additional
Members, with each Member being referred to, individually, as a
"Member."
2.30 "Membership Interest" or "Interest" means the entire
ownership interest of a Member in the Company at any particular
time, including without limitation, the Member's Economic Interest,
any and all rights to vote and otherwise participate in the
Company's affairs, and the rights to any and all benefits to which
a Member may be entitled as provided in this Agreement, together
with the obligations of such Member to comply with all of the terms
and provisions of this Agreement.
2.31 "Minimum Capital Account Balance" is defined in Paragraph
3.2.4.
2.32 "Net Profits" or "Net Losses" means, for each fiscal year
or other period, an amount equal to the Company's taxable income or
loss for such year or period 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:
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2.32.1 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 Paragraph 2.32
shall be added to such taxable income or loss;
2.32.2 Any expenditure 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 Paragraph 2.32, shall be subtracted
from such taxable income or loss;
2.32.3 Gain or loss resulting from any disposition of
Company Assets where such gain or loss is recognized for federal
income tax purposes shall be computed by reference to the Gross
Asset Value of the Company Assets disposed of, notwithstanding that
the adjusted tax basis of such Company Assets differs from its
Gross Asset Value;
2.32.4 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 fiscal year;
2.32.5 To the extent an adjustment to the adjusted tax
basis of any asset included in Company Assets pursuant to Code
Section 734(b) or Code Section 743(b) is required pursuant to
Regulations Section 1.704-1(b)(2)(iv)(m)(4) to be taken into
account in determining Capital Accounts as a result of a
distribution other than in liquidation of a Member's Interest, the
amount of such adjustment shall be treated as an item of gain (if
the adjustment increases the basis of the asset) or loss (if the
adjustment decreases the basis of the asset) from the disposition
of the asset and shall be taken into account for the purposes of
computing Net Profits and Net Losses;
2.32.6 If the Gross Asset Value of any Company Asset is
adjusted in accordance with Paragraph 2.18.2 or Paragraph 2.18.3 of
this Agreement, the amount of such adjustment shall be taken into
account in the taxable year of such adjustment as gain or loss from
the disposition of such asset for purposes of computing Net Profits
or Net Losses; and
2.32.7 Notwithstanding any other provision of this
Paragraph 2.32, any items that are specially allocated pursuant to
Paragraph 5.2 or Paragraph 5.4.2 hereof shall not be taken into
account in computing Net Profits or Net Losses.
2.33 "Nonrecourse Deductions" has the meaning set forth in
Regulations Sections 1.704-2(b)(1) and 1.704-2(c).
2.34 "Nonrecourse Liability" has the meaning set forth in
Regulations Sections 1.704-2(b)(3) and 1.752-1(a)(2).
2.35 "Operating Cash Expenses" means, with respect to any fiscal
period, the amount of cash disbursed in the ordinary course of
business during the period, including without limitation, all cash
expenses, such as advertising, promotion, property management,
insurance premiums, taxes, utilities, repair, maintenance, legal,
accounting, bookkeeping, computing, equipment use, travel on
Company business, telephone expenses and salaries, and direct
expenses of Company employees (if any) and agents while engaged in
Company business. Operating Cash Expenses shall include fees paid
by the Company to the Managing Members or any Affiliate thereof
permitted by this Agreement, and the actual cost of goods,
materials and administrative services used for or by the Company,
whether incurred by the Managing Members, any Affiliate thereof or
any non-Affiliate in performing functions set forth in this
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Agreement reasonably requiring the use of such goods, materials or
administrative services. Operating Cash Expenses shall not include
expenditures paid from Reserves.
2.36 "Percentage Interest" means, with respect to each Member,
the percentage set forth opposite such Member's name on Exhibit
"A", attached hereto as it may be modified or supplemented from
time to time.
2.37 "Person" means and includes an individual, a corporation,
a partnership, a limited liability company, a trust, an
unincorporated organization, a government or any department or
agency thereof, or any entity similar to any of the foregoing.
2.38 "Recourse Liability" has the meaning set forth in
Regulations Section 1.752-1(a)(1).
2.39 "Regulations" means proposed, temporary and final Treasury
Regulations promulgated under the Code, as such regulations may be
amended from time to time (including corresponding provisions of
succeeding Treasury Regulations).
2.40 "Regulatory Allocations" is defined in Paragraph 5.2.9.
2.41 "Required Notice" is defined in Paragraph 3.2.3(b).
2.42 "Reserves" means funds set aside or amounts allocated to
reserves that shall be maintained in amounts deemed sufficient by
the Managing Members for working capital, to pay taxes, insurance,
debt service, and other costs or expenses incident to the conduct
of business by the Company as contemplated hereunder.
2.43 "Responsible Party" is defined in Paragraph 6.6.6.
2.44 "Substitute Member" means any Person (a) to whom a Member
(or assignee thereof) Transfers all or any part of its interest in
the Company, and (b) which has been admitted to the Company as a
Substitute Member pursuant to Paragraph 7.6 of this Agreement.
2.45 "Terminating Capital Transaction" means any sale or other
disposition of all or substantially all of the assets of the
Company or a related series of transactions that, taken together,
result in the sale or other disposition of all or substantially all
of the assets of the Company.
2.46 "Termination Payment" is defined in Paragraph 7.5.
2.47 "Transfer" means, with respect to any interest in the
Company, a sale, conveyance, exchange, assignment, pledge,
encumbrance, gift, bequest, hypothecation or other transfer or
disposition by any other means (other than an Encumbrance), whether
for value or no value and whether voluntary or involuntary
(including, without limitation, by realization upon any Encumbrance
or by operation of law or by judgment, levy, attachment,
garnishment, bankruptcy or other legal or equitable proceedings),
or an agreement to do any of the foregoing. The term "Transferred"
shall have a correlative meaning.
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ARTICLE 3
CAPITAL; CAPITAL ACCOUNTS AND MEMBERS
3.1 Capital Commitments of Members. Each Member, in exchange
for its initial Membership Interest, shall make a capital
commitment (each, a "Capital Commitment") in the amount specified
opposite such Member's name under the heading "Capital Commitment"
in the Schedule of Members attached hereto as Exhibit "A". Exhibit
"A" shall also reflect the names, addresses, initial Capital
Contributions and Percentage Interests of the Members.
3.2 Capital Contributions by Members.
3.2.1 Except as provided in Paragraphs 3.2.2, 3.2.3 and
3.2.4, no Member shall be permitted or required to make any
additional Capital Contributions to the Company.
3.2.2 Within ten (10) business days of the Agreement Date,
Sattel shall make an initial Capital Contribution of $500,000 in
cash (the "Initial Cash Contribution") and StreamLogic shall make
an initial Capital Contribution of $1,000,000 in the form of a
promissory note in favor of the Company (the "Note"). The Note
shall be secured by a pledge of 735,294 shares of Series D
Preferred Stock of Concentric Network Corporation pursuant to a
Pledge Agreement to be entered into between StreamLogic and the
Company and shall be on such terms as are mutually agreed upon by
the parties thereto. The Note shall bear interest annually in
arrears at a rate equal to one percent (1%) per annum plus the
prime rate listed from time to time in The Wall Street Journal
(which listing appears as of the date hereof under the caption
"Money Rates") or, if such listing is no longer published, then the
reference rate offered at such time by the Bank of America NT&SA.
3.2.3 As and when the Managing Members, in their sole
discretion, determine is appropriate, the Managing Members shall
pay expenses or obligations of the Company, or establish adequate
Reserves therefor, as follows:
(a) It shall first apply the Initial Cash Contribution;
(b) Thereafter, if from time to time the Company requires
additional capital, as determined by the Managing Members, then
the Managing Members may provide written notice thereof to each
Member (the "Required Notice"). Each Member (including the
Managing Members) shall thereafter be required to make
additional Capital Contributions as follows:
(i) each Member shall make additional Capital
Contributions in cash (or such other property as the
Managing Members shall agree upon) on a pro rata basis in
accordance with their respective Percentage Interests
until Sattel has made additional Capital Contributions
pursuant to this Paragraph 3.2.3(b)(i) in the aggregate
amount of $500,000;
(ii) thereafter, StreamLogic shall exclusively make
such additional Capital Contributions in an aggregate
amount equal to all accrued and unpaid interest and the
remaining outstanding principal amount of the Note (after
giving effect to the Capital
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Contributions made by StreamLogic pursuant to Paragraph
3.2.3(b)(i)); and
(iii) thereafter, each Member shall be required to make
additional Capital Contributions on a pro rata basis in
accordance with their respective Percentage Interests;
provided that no Member shall be required to make
additional Capital Contributions pursuant to this
Paragraph 3.2.3 in excess of the then-current amount of
its unused Capital Commitment.
Any and all additional Capital Contributions by StreamLogic made
pursuant to this Paragraph 3.2.3(b) shall reduce StreamLogic's
obligations under the Note (being applied first to accrued and
unpaid interest and thereafter to the then outstanding principal
amount) in an amount equal to such additional Capital
Contributions.
3.2.4 The Managing Members shall at all times maintain, in
the aggregate, a minimum positive Capital Account balance equal to
the lesser of (a) one percent (1%) of total positive Capital
Account balances for all Members or (b) Five Hundred Thousand
Dollars ($500,000) (in either case, the "Minimum Capital Account
Balance"). Upon the making of any Capital Contribution to the
Company by any Member, the Managing Members shall immediately make
additional Capital Contributions, pro rata in accordance with their
respective Percentage Interests, in an amount at least equal, in
the aggregate, to 1.01 percent of such Member's Capital
Contributions or such lesser amount as may be necessary to cause
the positive balances in the Managing Members' Capital Accounts to
equal or exceed, in the aggregate, the Minimum Capital Account
Balance. Notwithstanding the foregoing, the provisions of this
Paragraph 3.2.3 shall cease to apply upon a written determination
by the Managing Members, based on the issuance of new final
Regulations pursuant to Section 7701 of the Code or other changes
in federal tax law and corresponding changes in applicable state
tax laws or regulations (to the extent that such changes do not
automatically follow the changes in federal tax law), to the effect
that such provisions are no longer necessary to cause the Company
to be treated as a partnership for federal and applicable state
income tax purposes.
3.3 Failure to Contribute.
3.3.1 If any Member fails to contribute timely all or any
portion of any Capital Contribution required to be made by such
Member pursuant to this Agreement and such failure continues for a
period of five (5) Business Days after receipt by such Member (such
Member being hereinafter referred to as a "Delinquent Member") of
notice from the Managing Members specifying such failure (such
failure being hereinafter referred to as a "Default"), then the
Managing Members (or, in the event a Managing Member is the
Delinquent Member, the other Managing Member or, in the event both
Managing Members are the Delinquent Members, a Majority in Interest
of the other Members) may, at their option, take one or more of the
following actions:
(a) Take such action (including, without limitation, the
filing of a suit) as they deem appropriate to obtain
payment by the Delinquent Member of that portion of its
Capital Contribution which is in default, together with
interest thereon at the rate of interest equal to five
percent (5%) per annum plus the prime rate listed from
time to time in The Wall Street Journal (which listing
appears as of the date hereof under the caption "Money
Rates") or, if such listing is no longer published,
then the reference rate offered at such time by the
Bank of America NT&SA,
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measured from the date that such Capital Contribution
was due until the date that such Capital Contribution,
together with any costs and expenses incurred by the
Company as a result of the Default, and together with
all interest accrued thereon, is paid to the Company.
Until all such amounts have been paid, all
distributions that would otherwise be made to such
Delinquent Member shall be withheld in partial
satisfaction of such obligations and shall be first
applied to any costs and expenses incurred by the
Company as a result of the Default, then to interest
earned and unpaid, and then to principal;
(b) Advance on a pro rata basis based upon the relative
Percentage Interests of the participating Members, that
portion of such contribution which is in default, on
the following terms: (A) the sums thus advanced shall
be deemed to be demand recourse loans from the Members
participating therein to the Delinquent Member and a
Capital Contribution of such sums to the Company by the
Delinquent Member; (B) such loans shall bear interest
at the rate of interest equal to five percent (5%) per
annum plus the prime rate listed from time to time in
The Wall Street Journal (which listing appears as of
the date hereof under the caption "Money Rates") or, if
such listing is no longer published, then the reference
rate offered at such time by the Bank of America NT&SA,
measured from the date that the advance was made until
the date that such advance, together with any costs and
expenses incurred by the Company as a result of the
Default, and together with all interest accrued
thereon, is repaid to the Members; (C) unless otherwise
paid, the repayment of these loans shall be made from
any and all distributions of the Company otherwise to
be made to the Delinquent Member, with the full amount
of such loan (plus all accrued interest thereon) to be
refunded in full before any distribution is made to the
Delinquent Member during the term of the Company or
upon dissolution; and (D) all such repayments shall be
first applied to any costs and expenses incurred by the
Company as a result of the Default, then to interest
earned and unpaid, and then to principal;
(c) Unless the Delinquent Member shall have theretofore
cured its failure to make the required Capital
Contribution (and reimbursed the Company for all costs
and expenses incurred as a result of such Default),
sell the Delinquent Member's interest in the Company to
the other Members wishing to participate (other than
the Delinquent Member) on a pro rata basis based upon
the relative Percentage Interests of the other
participating Members or to any other Person, to the
extent the Members fail to purchase their pro rata
share, without further notice to the Delinquent Member
on the terms and for such consideration as the
contributing Member(s) may determine in its sole and
absolute discretion. Proceeds from any such sale shall
be retained by the Company or the Members (as the case
may be) to the extent of the amount, including
interest, costs and expenses (including, without
limitation, any and all costs and expenses incurred as
a result of the Default), then owing to the Company or
the Members (as the case may
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be) (the Delinquent Member remaining liable for any
deficiency); any excess shall be paid to the Delinquent
Member; and/or
(d) Exercise such other rights and remedies to which the
contributing Member(s) or the Company may be entitled
at law or in equity or by statute.
3.3.2 No right, power or remedy conferred pursuant to this
Paragraph 3.3 shall be exclusive, and each such right, power or
remedy shall be cumulative and in addition to every other right,
power or remedy whether conferred in this Paragraph 3.3 or now or
hereafter available at law or in equity or by statute or otherwise.
3.4 Capital Accounts. A Capital Account shall be established
and maintained for each Member in accordance with the terms of this
Agreement.
3.5 Additional Members. Following formation of the Company, the
Managing Members are hereby authorized to issue interests in the
Company directly from the Company, and to admit one or more
recipients of such interests as additional Members ("Additional
Members") from time to time, on such terms and conditions and for
such Capital Contributions, if any, as the Managing Members may
determine. No action or consent by any Member other than the
Managing Members shall be required in connection with the admission
of an Additional Member. As a condition to being admitted to the
Company, each Additional Member shall execute an agreement to be
bound by the terms and conditions of this Agreement. It is
anticipated that certain employees and/or officers will be offered
the opportunity to become Additional Members, on such terms and
subject to such conditions as the Managing Members shall determine.
3.6 Member Capital. Except as otherwise provided in this
Agreement or with the prior written consent of the Managing
Members: (a) no Member shall demand or be entitled to receive a
return of or interest on its Capital Contributions or Capital
Account, (b) no Member shall withdraw any portion of its Capital
Contributions or receive any distributions from the Company as a
return of capital on account of such Capital Contributions, and (c)
the Company shall not redeem or repurchase the Interest of any
Member.
3.7 Member Loans. No Member shall be required or permitted to
make any loans or otherwise lend any funds to the Company, except
with the consent of the Managing Members. Notwithstanding the
foregoing, the Managing Members shall be permitted (but not
required) to make loans to the Company to the extent the Managing
Members reasonably determine that such loans are necessary or
advisable for the business of the Company, provided that the terms
of such loans are no less favorable to the Company as may be
available from independent third parties, taking into account,
inter alia, the amount to be borrowed, the unsecured nature of any
such borrowing and the creditworthiness of the Company. No loans
made by any Member to the Company shall have any effect on such
Member's Percentage Interest, such loans representing a debt of the
Company payable or collectible solely from the assets of the
Company in accordance with the terms and conditions upon which such
loans were made.
3.8 Liability of Members. Except as otherwise required by any
non-waivable provision of the Act or other applicable law: (a) no
Member shall be personally liable in any manner whatsoever for any
debt, liability or other obligation of the Company, whether such
debt, liability or other obligation arises in contract, tort, or
otherwise; and (b) no Member shall in any event have any liability
whatsoever
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in excess of (i) the amount of its Capital Contributions, (ii) its
share of any assets and undistributed profits of the Company, (iii)
the amount of any unconditional obligation of such Member to make
additional Capital Contributions to the Company pursuant to this
Agreement, and (iv) the amount of any wrongful distribution to such
Member, if, and only to the extent, such Member has actual
knowledge (at the time of the distribution) that such distribution
is made in violation of Section 18-607 of the Act.
ARTICLE 4
DISTRIBUTIONS
4.1 Distributions of Cash Available for Distribution.
4.1.1 Except as otherwise provided in Article 9, Cash
Available for Distribution shall be distributed to the Members only
at such times as may be determined in the sole discretion of the
anaging Members.
4.1.2 Subject to Article 9 hereof, all distributions of
Cash Available for Distribution shall be distributed to the Members
pro rata in accordance with their respective Percentage Interests.
4.2 Distributions Upon Liquidation. Distributions made in
conjunction with the final liquidation of the Company, including,
without limitation, the net proceeds of a Terminating Capital
Transaction, shall be applied or distributed as provided in Article
9 hereof.
4.3 Withholding. The Company may withhold distributions or
portions thereof if it is required to do so by any applicable rule,
regulation, or law, and each Member hereby authorizes the Company
to withhold from or pay on behalf of or with respect to such Member
any amount of federal, state, local or foreign taxes that the
Managing Members determine that the Company is required to withhold
or pay with respect to any amount distributable or allocable to
such Member pursuant to this Agreement. Any amount paid on behalf
of or with respect to a Member pursuant to this Paragraph 4.3 shall
constitute a loan by the Company to such Member, which loan shall
be repaid by such Member within fifteen (15) days after notice from
the Company that such payment must be made unless: (i) the Company
withholds such payment from a distribution which would otherwise be
made to the Member or (ii) the Managing Members determine in their
sole and absolute discretion that such payment may be satisfied out
of Cash Available For Distribution which would, but for such
payment, be distributed to the Member. Any amounts withheld
pursuant to this Paragraph 4.3 shall be treated as having been
distributed to such Member. Each Member hereby unconditionally and
irrevocably grants to the Company a security interest in such
Member's Interest in the Company to secure such Member's obligation
to pay to the Company any amounts required to be paid pursuant to
this Paragraph 4.3. In the event that a Member fails to pay any
amounts owed to the Company pursuant to this Paragraph 4.3 when
due, the remaining Members may, in their respective sole and
absolute discretion, elect to make the payment to the Company on
behalf of such defaulting Member, and in such event shall be deemed
to have loaned such amount to such defaulting Member and shall
succeed to all rights and remedies of the Company as against such
defaulting Member (including, without limitation, the right to
receive distributions). Any amounts payable by a Member hereunder
shall bear interest equal to five percent (5%) per annum plus the
prime rate listed from time to time in The Wall Street Journal
(which listing appears as of the date hereof under the caption
"Money Rates") or, if such listing is no longer published, then the
reference rate offered at such time by the Bank of America NT&SA,
from the date such amount is due (i.e., 15 days after demand) until
such amount is paid in full. Each Member shall take such actions
as the Company shall request in order to perfect or enforce the
security interest created hereunder.
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A Member's obligations hereunder shall survive the dissolution,
liquidation, or winding up of the Company.
4.4 Distributions in Kind. No right is given to any Member to
demand or receive property other than cash as provided in this
Agreement. The Managing Members may determine in their sole and
absolute discretion to make a distribution in kind of Company
Assets to the Members, and such Company Assets shall be distributed
in such a fashion as to ensure that the fair market value thereof
is distributed and allocated in accordance with this Article 4 and
Articles 5 and 9 hereof; provided, however, that no Member may be
compelled to accept a distribution consisting, in whole or in part,
of any Company Assets in kind unless the ratio that the fair market
value of such distribution in kind bears to such Member's total
distribution does not exceed the ratio that the fair market value
of similar distributions in kind bear to the total distributions of
other Members receiving distributions concurrently therewith (if
any), except upon a dissolution and winding up of the Company.
4.5 Limitations on Distributions. Notwithstanding any provision
to the contrary contained in this Agreement, neither the Company
nor the Managing Members acting on behalf of the Company, shall
knowingly make a distribution to any Member or the holder of any
Economic Interest on account of its Membership Interest or Economic
Interest in the Company (as applicable) in violation of Section
18-607 of the Act.
ARTICLE 5
ALLOCATIONS OF NET PROFITS AND NET LOSSES
5.1 General Allocation of Net Profits and Losses.
5.1.1 Net Profits and Net Losses shall be determined and
allocated with respect to each fiscal year of the Company as of the
end of such fiscal year. Subject to the other provisions of this
Agreement, an allocation to a Member of a share of Net Profits or
Net Losses shall be treated as an allocation of the same share of
each item of income, gain, loss or deduction that is taken into
account in computing Net Profits or Net Losses.
5.1.2 Subject to the other provisions of this Article 5,
Net Profits, Net Losses and any other items of income, gain, loss
and deduction for any fiscal year shall be allocated, for purposes
of adjusting the Capital Accounts of the Members, in proportion to
the Members' respective Percentage Interests.
5.2 Regulatory Allocations. Notwithstanding the foregoing
provisions of this Article 5, the following special allocations
shall be made in the following order of priority:
5.2.1 If there is a net decrease in Company Minimum Gain
during a Company taxable year, then each Member shall be allocated
items of Company income and gain for such taxable year (and, if
necessary, for subsequent 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)(2).
This Paragraph 5.2.1 is intended to comply with the minimum gain
chargeback requirement of Regulations Section 1.704-2(f) and shall
be interpreted consistently therewith.
5.2.2 If there is a net decrease in Member Minimum Gain
attributable to a Member Nonrecourse Debt during any Company
taxable year, each Member who has a share of the Member Minimum
Gain attributable to such Member Nonrecourse Debt, determined in
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accordance with Regulations Section 1.704-2(i)(5), shall be
specially allocated items of Company income and gain for such
taxable year (and, if necessary, subsequent years) in an amount
equal to such Member's share of the net decrease in Member Minimum
Gain attributable to such Member Nonrecourse Debt, determined in a
manner consistent with the provisions of Regulations Section
1.704-2(g)(2). This Paragraph 5.2.2 is intended to comply with the
partner nonrecourse debt minimum gain chargeback requirement of
Regulations Section 1.704-2(i)(4) and shall be interpreted
consistently therewith.
5.2.3 If any Member unexpectedly receives an adjustment,
allocation, or distribution of the type contemplated by Regulations
Section 1.704-1(b)(2)(ii)(d)(4), (5) or (6), items of income and
gain shall be allocated to all such Members (in proportion to the
amounts of their respective Adjusted Capital Account Deficits) in
an amount and manner sufficient to eliminate the Adjusted Capital
Account Deficit of such Member as quickly as possible. It is
intended that this Paragraph 5.2.3 qualify and be construed as a
"qualified income offset" within the meaning of Regulations Section
1.704-1(b)(2)(ii)(d).
5.2.4 If the allocation of Net Loss to a Member as
provided in Paragraph 5.1 hereof would create or increase an
Adjusted Capital Account Deficit, there shall be allocated to such
Member only that amount of Net Loss as will not create or increase
an Adjusted Capital Account Deficit. The Net Loss that would,
absent the application of the preceding sentence, otherwise be
allocated to such Member shall be allocated to the other Members in
accordance with their relative Percentage Interests, subject to the
limitations of this Paragraph 5.2.4.
5.2.5 To the extent that 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 Regulations Section
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 its Interest in the Company, the amount of
such adjustment to the Capital Accounts shall be treated as an item
of gain (if the adjustment increases the basis of the asset) or
loss (if the adjustment decreases 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 Members to whom
such distribution was made in the event that Regulations Section
1.704-1(b)(2)(iv)(m)(4) applies.
5.2.6 The Nonrecourse Deductions for each taxable year of
the Company shall be allocated to the Members in proportion to
their Percentage Interests.
5.2.7 The Member Nonrecourse Deductions shall be allocated
each year to the Member that bears the economic risk of loss
(within the meaning of Regulations Section 1.752-2) for the Member
Nonrecourse Debt to which such Member Nonrecourse Deductions are
attributable.
5.2.8 The allocations set forth in Paragraphs 5.2.1,
5.2.2, 5.2.3, 5.2.4, 5.2.5, 5.2.6 and 5.2.7 hereof (the "Regulatory
Allocations") are intended to comply with certain requirements of
Regulations Sections 1.704-1(b) and 1.704-2(i). Notwithstanding
the provisions of Paragraph 5.1.2, the Regulatory Allocations shall
be taken into account in allocating other items of income, gain,
loss and deduction among the Members so that, to the extent
possible, the net amount of such allocations of other items and the
Regulatory Allocations to each Member shall be equal to the net
amount that would have been allocated to each such Member if the
Regulatory Allocations had not occurred.
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5.3 Tax Allocations.
5.3.1 Except as provided in Paragraph 5.3.2 hereof, for
income tax purposes under the Code and the Regulations, each
Company item of income, gain, loss and deduction shall be allocated
between the Members as its correlative item of "book" income, gain,
loss or deduction is allocated pursuant to this Article 5.
5.3.2 Tax items with respect to Company Assets that are
contributed to the Company with a Gross Asset Value that varies
from its basis in the hands of the contributing Member immediately
preceding the date of contribution shall be allocated between the
Members for income tax purposes pursuant to Regulations promulgated
under Code Section 704(c) so as to take into account such
variation. The Company shall account for such variation under any
method approved under Code Section 704(c) and the applicable
Regulations as chosen by the Managing Members, including, without
limitation, the "traditional method" as described in Regulations
Section 1.704-3(b). If the Gross Asset Value of any Company Asset
is adjusted pursuant to Paragraph 2.18, subsequent allocations of
income, gain, loss and deduction with respect to such Company Asset
shall take account of any variation between the adjusted basis of
such Company Asset for federal income tax purposes and its Gross
Asset Value in the same manner as under Code Section 704(c) and the
Regulations promulgated thereunder under any method approved under
Code Section 704(c) and the applicable Regulations as chosen by the
Managing Members. Allocations pursuant to this Paragraph 5.3.2 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 and
any other items or distributions pursuant to any provision of this
Agreement.
5.4 Other Provisions.
5.4.1 For any fiscal year during which any part of a
Membership Interest or Economic Interest is transferred between the
Members or to another Person, the portion of the Net Profits, Net
Losses and other items of income, gain, loss, deduction and credit
that are allocable with respect to such part of a Membership
Interest or Economic Interest shall be apportioned between the
transferor and the transferee under any method allowed pursuant to
Section 706 of the Code and the applicable Regulations as
determined by the Managing Members.
5.4.2 Notwithstanding the foregoing provisions of Article
5 (other than Paragraph 5.2), each Managing Member's interest in
each item of Company income, gain, loss, deduction or credit shall
equal at least one percent (1%) of each of those items at all times
during the existence of the Company.
5.4.3 In the event that the Code or any Regulations
require allocations of items of income, gain, loss, deduction or
credit different from those set forth in this Article 5, the
Managing Members are hereby authorized to make new allocations in
reliance on the Code and such Regulations, and no such new
allocation shall give rise to any claim or cause of action by any
Member.
5.4.4 For purposes of determining a Member's proportional
share of the Company's "excess nonrecourse liabilities" within the
meaning of Regulations Section 1.752-3(a)(3), each Member's
interest in Net Profits shall be such Member's Percentage Interest.
5.4.5 The Members acknowledge and are aware of the income
tax consequences of the allocations made by this Article 5 and
hereby agree to be bound by the provisions of this Article
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5 in reporting their shares of Net Profits, Net Losses and other
items of income, gain, loss, deduction and credit for federal,
state and local income tax purposes.
ARTICLE 6
OPERATIONS AND INDEMNIFICATION
6.1 Management.
6.1.1 Except as otherwise expressly provided in this
Agreement, the Managing Members shall have sole and complete charge
and management of all the affairs and business of the Company, in
all respects and in all matters. The Managing Members shall be
agents of the Company's business, and the actions of the Managing
Members taken in such capacity and in accordance with this
Agreement shall bind the Company. Each Managing Member shall at
all times be a Member of the Company. Except as otherwise
expressly provided in this Agreement, the Members other than the
Managing Members shall not participate in the control of the
Company, and shall have no right, power or authority to act for or
on behalf of, or otherwise bind, the Company. Unless otherwise
provided herein, all decisions and actions that may be made or
taken by the Managing Members shall be so made or taken, if at all,
by unanimous consent. Except as expressly provided in this
Agreement or required by any non-waivable provisions of applicable
law, Members other than the Managing Members shall have no right to
vote on or consent to any other matter, act, decision, or document
involving the Company or its business.
6.1.2 The Managing Members shall have full, exclusive and
complete discretion to manage and control the business and affairs
of the Company, to make all decisions affecting the business and
affairs of the Company, to take all such actions as they deem
necessary or appropriate to accomplish the purposes and direct the
affairs of the Company and to delegate in writing any of the
foregoing powers to any other Person mutually satisfactory to the
Managing Members. The Managing Members shall have the sole power
and authority to bind the Company, except and to the extent that
such power is expressly delegated in writing to any other Person by
the Managing Members, and such delegation shall not cause the
Managing Members to cease to be a Member or the Managing Members of
the Company.
6.1.3 The Managing Members shall also have the exclusive
right, power and authority, in the management of the business and
affairs of the Company, to do or cause to be done any and all acts,
at the expense of the Company, deemed by the Managing Members to be
necessary or appropriate to effectuate the business of the Company.
Without limiting the generality of the foregoing, the Managing
Members shall have full and complete power and authority, without
the approval of any other Member:
(a) to acquire by purchase, lease, contribution or
otherwise, and/or to otherwise own, hold, operate,
maintain, finance, improve, lease, sell, convey,
mortgage, transfer or dispose of any property or other
assets (real or personal, tangible or intangible) that
the Managing Members deem necessary or advisable;
(b) to negotiate, enter into, perform, modify, extend,
terminate, amend, waive, renegotiate and/or carry out
any contracts and agreements of any kind and nature,
including, without limitation, contracts and agreements
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with any Member or Affiliate thereof, or any other
agent of the Company, as the Managing Members deem
necessary or advisable;
(c) to lend money, to invest and reinvest its funds, and to
take and hold real and/or personal property for the
payment of funds so loaned or invested;
(d) to sue and be sued, complain and defend, and
participate in administrative, judicial and other
proceedings, in the name of, and behalf of, the
Company;
(e) to pay, collect, compromise, arbitrate or otherwise
adjust or settle any and all claims or demands of or
against the Company, in such amounts and upon such
terms and conditions as the Managing Members shall
reasonably determine;
(f) to, from time to time, employ, engage, hire or
otherwise secure the services of such Persons,
including any Member or Assignee, or any Persons
related thereto or Affiliates thereof, as the Managing
Members may deem necessary or advisable for the proper
execution of their respective duties as Managing Member
hereunder, including the hiring of a management team
with the written consent of the Managing Members and to
delegate to such Persons such power and authority as
the Managing Members deem appropriate; provided such
services are within the scope of the foregoing
authority granted to the Managing Members hereunder,
with such employment to be for such compensation and
upon such terms and conditions as the Managing Members
shall determine;
(g) to, from time to time, appoint such officers and agents
of the Company (including, without limitation, a
President, Chief Executive Officer and/or additional
Managing Members) as the Managing Members deem
necessary or advisable, define and modify, from time to
time, such officers' and agents' duties, and fix and
adjust, as appropriate, such officers' and agents'
compensation;
(h) to cause the Company to indemnify any Person in
accordance with, and to the fullest extent permitted
by, applicable law, and to obtain, for or on behalf of
the Company, any and all types of insurance deemed
necessary or advisable by the Managing Members;
(i) to borrow money and issue evidences of indebtedness
necessary, convenient or incidental to the business of
the Company, and secure the same by mortgage, pledge or
other lien on any Company Assets or other assets of the
Company;
(j) to prepare, execute, file, record, publish and deliver
any and all instruments, documents or statements
necessary or convenient to effectuate any and all
actions that the Managing Members are authorized to
take on behalf of the Company;
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(k) to merge the Company with, or consolidate the Company
with or into, any other corporation, partnership,
limited liability company or other Person (whether
domestic or foreign);
(l) to deal with, or otherwise engage in business with, or
provide services to and receive compensation therefor
from, any Person who has provided or may in the future
provide services to, lend money to, sell property to,
or purchase property from the Company, the Members or
any Affiliate of the Members; and
(m) to establish and maintain Reserves for such purposes
and in such amounts as the Managing Members deem
appropriate from time to time.
6.1.4 The Managing Members shall prepare and submit to the
Members an annual business plan, to be adopted within thirty (30)
days prior to the beginning of each fiscal year, to contain, inter
alia, sources and uses of capital, estimated revenues and
expenditures and business goals and strategies. The annual
business plan for the remainder of the current fiscal year and for
the following fiscal year shall be agreed upon by the Managing
Members within ninety (90) days following the execution of this
Agreement.
6.1.5 Except as otherwise expressly provided in this
Agreement or required by any non-waivable provision of the Act or
other applicable law, no Member other than the Managing Members
shall (a) have any right to vote on or consent to any other matter,
act, decision or document involving the Company or its business, or
(b) take part in the day-to-day management, or the operation or
control, of the business and affairs of the Company. Except to the
extent expressly delegated by the Managing Members, no other Member
or Person other than the Managing Members shall be an agent for the
Company or have any right, power or authority to transact any
business in the name of the Company or to act for or on behalf of
or to bind the Company.
6.1.6 Only the Managing Members may commence a voluntary
case on behalf of, or an involuntary case against, the Company
under a chapter of Title 11 U.S.C. by the filing of a "petition"
(as defined in 11 U.S.C. 101(42)) with the United States Bankruptcy
Court. Any such petition filed by any other Member shall be deemed
an unauthorized and bad faith filing and all parties to this
Agreement shall use their best efforts to cause such petition to be
dismissed.
6.2 Limitations on Authority of Managing Members.
6.2.1 Notwithstanding any contrary provision of this
Agreement, without the written consent of a Majority in Interest,
the Managing Members shall not have the authority to:
(a) Dissolve the Company; or
(b) Approve any Terminating Capital Transaction.
6.2.2 Notwithstanding any contrary provision of this
Agreement, without the written consent of all Members, the Managing
Members shall not have the authority to:
(a) Do any act in contravention of this Agreement; or
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(b) Knowingly perform any act that would subject any Member
to liability for the debts, liabilities or obligations
of the Company.
6.3 Reliance By Third Parties. Any Person dealing with the
Company or the Managing Members may rely upon a certificate signed
by the Managing Members as to:
(a) the identity of the Managing Members or any other
Member of the Company;
(b) the existence or non-existence of any fact or facts
which constitute a condition precedent to acts by the
Managing Members or in any other manner germane to the
affairs of the Company;
(c) the Persons who are authorized to execute and deliver
any instrument or document for or on behalf of the
Company; or
(d) any act or failure to act by the Company or as to any
other matter whatsoever involving the Company or any
Member.
6.4 Compensation of Managing Members.
6.4.1 The Managing Members may receive fees for their
services in administering the Company only with the consent of a
Majority in Interest.
6.4.2 The Managing Members shall be entitled to
reimbursement on a monthly basis from the Company for all
out-of-pocket costs and expenses incurred by them, in their
reasonable discretion, for or on behalf of the Company.
6.5 Records and Reports.
6.5.1 The Managing Members shall cause to be kept, at the
principal place of business of the Company, or at such other
location as the Managing Members shall reasonably deem appropriate,
full and proper ledgers, other books of account, and records of all
receipts and disbursements, other financial activities, and the
internal affairs of the Company for at least the current and past
four fiscal years.
6.5.2 The Managing Members shall also cause to be sent to
each Member of the Company, the following:
(a) within ninety (90) days following the end of each
fiscal year of the Company, a report that shall include
all necessary information required by the Members for
preparation of its federal, state and local income or
franchise tax or information returns, including each
Member's pro rata share of Net Profits, Net Losses and
any other items of income, gain, loss and deduction for
such fiscal year; and
(b) a copy of the Company's federal, state and local income
tax or information returns for each fiscal year,
concurrent with the filing of such returns.
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6.5.3 Members (personally or through an authorized
representative) may, for purposes reasonably related to their
Interests, examine and copy (at their own cost and expense) the
books and records of the Company at all reasonable business hours.
6.6 Indemnification and Liability of the Managing Members.
6.6.1 The Company shall indemnify and hold harmless the
Managing Members, their respective Affiliates and subsidiaries, and
all officers, directors, employees, and agents of any of the
foregoing (individually, an "Indemnitee") to the full extent
permitted by law from and against any and all losses, claims,
demands, costs, damages, liabilities, joint and several, expenses
of any nature (including attorneys' fees and disbursements),
judgments, fines, settlements and other amounts arising from any
and all claims, demands, actions, suits or proceedings, civil,
criminal, administrative or investigative, in which the Indemnitee
may be involved, or threatened to be involved as a party or
otherwise, relating to the performance or nonperformance of any act
concerning the activities of the Company, if (i) the Indemnitee
acted in good faith and in a manner it believed to be in, or not
contrary to, the best interests of the Company, and (ii) the
Indemnitee's conduct did not constitute gross negligence or willful
misconduct. The termination of an action, suit or proceeding by
judgment, order, settlement, or upon a plea of nolo contendere or
its equivalent, shall not, in and of itself, create a presumption
or otherwise constitute evidence that the Indemnitee acted in a
manner contrary to that specified in clauses (i) or (ii) above.
6.6.2 Expenses incurred by an Indemnitee in defending any
claim, demand, action, suit or proceeding subject to this Paragraph
6.6 shall be advanced by the Company prior to the final disposition
of such claim, demand, action, suit, or proceeding upon receipt by
the Company of a written commitment by or on behalf of the
Indemnitee to repay such amount if it shall be determined that such
Indemnitee is not entitled to be indemnified as authorized in this
Paragraph 6.6.
6.6.3 Any indemnification provided hereunder shall be
satisfied solely out of the assets of the Company, as an expense of
the Company. No Member shall be subject to personal liability by
reason of these indemnification provisions.
6.6.4 The provisions of this Paragraph 6.6 are for the
benefit of the Indemnitees and shall not be deemed to create any
rights for the benefit of any other Person.
6.6.5 Neither the Managing Members nor any of their
respective subsidiaries or Affiliates nor the officers, directors,
employees or agents of any of the foregoing shall be liable to the
Company or to a Member for any losses sustained or liabilities
incurred as a result of any act or omission of the Managing Members
or any such other Person if (i) the act or failure to act of such
Managing Member(s) or such other Person was in good faith and in a
manner it believed to be in, or not contrary to, the best interests
of the Company, and (ii) the conduct of such Managing Member(s) or
such other Person did not constitute gross negligence or willful
misconduct.
6.6.6 To the extent that either of the Managing Members,
or any Affiliate or subsidiary thereof, or any officer, director,
employee or agent of any of the foregoing (each, a "Responsible
Party") has, at law or in equity, duties (including, without
limitation, fiduciary duties) to the Company, any Member or other
Person bound by the terms of this Agreement, such Responsible
Parties acting in accordance with this Agreement shall not be
liable to the Company, any Member, or any such other Person for its
good faith reliance on the provisions of this Agreement. The
provisions of this Agreement, to the extent that they restrict the
duties of a Responsible Party
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otherwise existing at law or in equity, are agreed by all parties
hereto to replace such other duties to the greatest extent
permitted under applicable law.
6.6.7 Whenever a Responsible Party is required or
permitted to make a decision, take or approve an action, or omit to
do any of the foregoing: (a) in its discretion, under a similar
grant of authority or latitude, or without an express standard of
behavior (including, without limitation, standards such as
"reasonable" or "good faith"), then such Responsible Party shall be
entitled to consider only such interests and factors, including its
own, as it desires, and shall have no duty or obligation to
consider any other interests or factors whatsoever, or (b) with an
express standard of behavior (including, without limitation,
standards such as "reasonable" or "good faith"), then such
Responsible Party shall comply with such express standard but shall
not be subject to any other, different or additional standard
imposed by this Agreement or otherwise applicable law.
6.7 Removal and Withdrawal of Managing Members.
6.7.1 No Managing Member may be removed as the Managing
Member at any time except for actions which constitute gross
negligence or willful misconduct, upon the unanimous vote of the
other Members. Upon (a) the removal of a Managing Member pursuant
to this Paragraph 6.7.1, (b) the withdrawal of a Managing Member as
Managing Member or (c) the occurrence of any event which would
terminate the continued existence of a Managing Member as a Member
(including, without limitation, the Incapacity of the Managing
Member) (if the business of the Company is continued pursuant to
Paragraph 9.2(c)), the Company shall be managed by the other
Managing Member and, if there is no such other Managing Member, by
the Members, with all actions requiring the affirmative vote of a
Majority in Interest (except to the extent a greater percentage is
required under this Agreement or any non-waivable provision of the
Act), unless and until a Majority in Interest of the Members elect
a new Managing Member. Upon removal (pursuant to this Paragraph
6.7.1) or withdrawal (pursuant to Paragraph 6.7.2), such Managing
Member shall remain a Member with all the rights of a Member
(including, without limitation, its Economic Interest) to which it
previously was entitled (other than rights to which it was entitled
solely in its capacity as a Managing Member).
6.7.2 A Managing Member may withdraw as Managing Member at
any time without the prior consent of any other Member by providing
the Members written notice thereof.
6.8 Other Activities.
(a) Subject to Paragraph 6.8(b), the Members (including the
Managing Members) may engage or invest in, and devote their time
to, any other business venture or activity of any nature and
description (independently or with others). Neither the Company
nor any other Member shall have any right by virtue of this
Agreement or the relationship created hereby in or to such other
venture or activity of any Member (or to the income or proceeds
derived therefrom), and the pursuit thereof shall not be deemed
wrongful or improper. Notwithstanding the foregoing, the
Managing Members shall devote such time to the Company as they
deem reasonably necessary for the proper performance of their
obligations and duties hereunder.
(b) No Member shall engage or invest in, or devote their
time to, any business activity or venture that is deemed by the
Managing Members to be competitive with the Company and/or seek
to provide service or products which are substantially the same
as those being offered by the Company.
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ARTICLE 7
INTERESTS AND TRANSFERS OF INTERESTS
7.1 Transfers and Encumbrances.
(a) Subject to Paragraph 7.8, no Member or Assignee may
Transfer all or any portion of its Interest (or beneficial
interest therein) to any other Person without the prior written
consent of the Managing Members, which consent may be given or
withheld in the Managing Members' sole and absolute discretion,
provided that any Member may Transfer all or any portion of its
Interest without the consent of any other Member to any
Affiliate thereof so long as (a) such Affiliate remains an
affiliate of the transferring Member, and (b) the admission of
such Affiliate as a Substitute Member remains subject to the
provisions of Paragraph 7.6. Any purported Transfer which is
not in accordance with this Agreement shall be null and void.
Unless and until the Person receiving an Interest Transferred
pursuant to, and in accordance with, this Paragraph 7.1 is
admitted as a Substitute Member pursuant to Paragraph 7.6, such
Person shall be an Assignee only, and shall have only such
rights as are provided for in Paragraph 7.3.
(b) No Member or Assignee may create an Encumbrance with
respect to all or any portion of its Interest (or any beneficial
interest therein) unless the Managing Members consent in writing
thereto, which consent may be given or withheld, or made subject
to such conditions as are determined by the Managing Members, in
their sole and absolute discretion. Any purported Encumbrance
which is not in accordance with this Agreement shall be null and
void.
7.2 Further Restrictions. Notwithstanding any contrary
provision in this Agreement, any otherwise permitted Transfer shall
be null and void if:
(a) such Transfer would cause a termination of the Company
for federal or state, if applicable, income tax purposes;
(b) such Transfer would, in the opinion of counsel to the
Company, cause the Company to cease to be classified as a
partnership for federal or state income tax purposes;
(c) such Transfer requires the registration of such
Transferred Interest pursuant to any applicable federal or state
securities laws;
(d) such Transfer causes the Company to become a "Publicly
Traded Partnership," as such term is defined in Sections
469(k)(2) or 7704(b) of the Code;
(e) such Transfer subjects the Company to regulation under
the Investment Company Act of 1940, the Investment Advisers Act
of 1940 or the Employee Retirement Income Security Act of 1974,
each as amended;
(f) such Transfer results in a violation of applicable
laws;
(g) such Transfer is made to any Person who lacks the legal
right, power or capacity to own such Interest; or
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(h) the Company does not receive written instruments
(including, without limitation, copies of any instruments of
Transfer and such Assignee's consent to be bound by this
Agreement as an Assignee) that are in a form satisfactory to the
Managing Members (as determined in the Managing Members' sole
and absolute discretion).
7.3 Rights of Assignees. Until such time, if any, as a
transferee of any permitted Transfer pursuant to this Article 7 is
admitted to the Company as a Substitute Member pursuant to
Paragraph 7.6: (i) such transferee shall be an Assignee only, and
only shall receive, to the extent Transferred, the distributions
and allocations of income, gain, loss, deduction, credit, or
similar item to which the Member which Transferred its Interest
would be entitled, and (ii) such Assignee shall not be entitled or
enabled to exercise any other rights or powers of a Member, such
other rights remaining with the transferring Member. In such a
case, the transferring Member shall remain a Member even if he has
transferred his entire Economic Interest in the Company to one or
more Assignees. In the event any Assignee desires to make a
further assignment of any Economic Interest in the Company, such
Assignee shall be subject to all of the provisions of this
Agreement to the same extent and in the same manner as any Member
desiring to make such an assignment.
7.4 Admissions, Withdrawals and Removals. No Person shall be
admitted to the Company as a Member except in accordance with
Paragraph 3.4 (in the case of Persons obtaining an interest in the
Company directly from the Company) or Paragraph 7.6 (in the case of
transferees of a permitted Transfer of an interest in the Company
from another Person). Except as otherwise specifically set forth
in Paragraph 7.7, no Member, including the Managing Member, shall
be entitled to retire or withdraw from being a Member of the
Company without the written consent of a Majority in Interest,
which consents may be given or withheld in each Member's sole and
absolute discretion. Except as otherwise provided in Paragraph
9.2(c), no admission, withdrawal or removal of a Member shall cause
the dissolution of the Company. Any purported admission,
withdrawal or removal which is not in accordance with this
Agreement shall be null and void.
7.5 Payment Upon Withdrawal or Removal of Member. If any Member
withdraws from the Company with the consent of a Majority in
Interest of the remaining Members (other than pursuant to Paragraph
7.7), then such Member automatically shall receive from the Company
a payment equal to the Member's Capital Account balance as adjusted
as of the effective date of the written election of withdrawal (the
"Termination Payment"). The Termination Payment shall be paid on
the effective date of the removal or written election of
withdrawal. If any Member attempts to withdraw from the Company
(other than pursuant to Paragraph 7.7) without the consent of a
Majority in Interest of the remaining Members, then,
notwithstanding the last sentence of Paragraph 7.4, the Managing
Members may, in their sole and absolute discretion, permit such
withdrawal (without waiving, in any manner, any other rights
available to it or the Company at law or in equity and in addition
to, and not in lieu of, any other remedies to which it or the
Company may be entitled), provided that such withdrawing Member
shall not be entitled to any Termination Payment or any other
compensation whatsoever in consideration for its terminated
Membership Interest.
7.6 Admission of Assignees as Substitute Members.
7.6.1 An Assignee shall become a Substitute Member only if
and when each of the following conditions are satisfied:
(a) the assignor of the Interest transferred sends written
notice to the Managing Members requesting the admission of the
Assignee as a Substitute Member and setting forth the name
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and address of the Assignee, the Percentage Interest
transferred, and the effective date of the Transfer;
(b) the Managing Members (or, if at any time no Managing
Member exists, a Majority in Interest of non-transferring the
Members) consent in writing to such admission, which consent may
be given or withheld in the Managing Members' (or such other
non-transferring Members') sole and absolute discretion; and
(c) the Managing Members receive from the Assignee (i) such
information concerning the Assignee's financial capacities and
investment experience as may reasonably be requested by the
Managing Members, and (ii) written instruments (including,
without limitation, copies of any instruments of Transfer and
such Assignee's consent to be bound by this Agreement as a
Substitute Member) that are in a form satisfactory to the
Managing Members (as determined in the Managing Members' sole
and absolute discretion).
7.6.2 Upon the admission of any Substitute Member, Exhibit
"A" shall be amended to reflect the name, address and Percentage
Interest of such Substitute Member and to eliminate or adjust, if
necessary, the name, address and Percentage Interest of the
predecessor of such Substitute Member.
7.7 Withdrawal of Members. If a Member has transferred all of
its Membership Interest to one or more Assignees, then such Member
shall withdraw from the Company if and when all such Assignees have
been admitted as Substitute Members in accordance with this
Agreement.
7.8 Conversion of Membership Interest. Upon the Incapacity of
a Member (and the subsequent continuation of the business of the
Company pursuant to Paragraph 9.2(c) if such Incapacity relates to
any Managing Member), such Incapacitated Member's Membership
Interest shall automatically be converted to an Economic Interest
only, and such Incapacitated Member (or its executor,
administrator, trustee or receiver, as applicable) shall thereafter
be deemed an Assignee for all purposes hereunder, with the same
Economic Interest as was held by such Incapacitated Member prior to
its Incapacity, but without any other rights of a Member unless the
holder of such Economic Interest is admitted as a Substitute Member
pursuant to Paragraph 7.6.
7.9 Compliance With IRS Safe Harbor. The Managing Members shall
monitor the Transfers of Interests in the Company to determine (i)
if such Interests are being traded on an "established securities
market" or a "secondary market (or the substantial equivalent
thereof)" within the meaning of section 7704 of the Code, and (ii)
whether additional Transfers of Interests would result in the
Company being unable to qualify for at least one of the "safe
harbors" set forth in Regulations Section 1.7704-1 (or such other
guidance subsequently published by the IRS setting forth safe
harbors under which Interests will not be treated as "readily
tradable on a secondary market (or the substantial equivalent
thereof)" within the meaning of section 7704 of the Code) (the
"Safe Harbors"). The Managing Members shall take all steps
reasonably necessary or appropriate to prevent any trading of
Interests or any recognition by the Company of Transfers made on
such markets and, except as otherwise provided herein, to ensure
that at least one of the Safe Harbors is met.
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ARTICLE 8
CERTAIN REPRESENTATIONS, WARRANTIES AND COVENANTS
8.1 Representations of Each Member. Each of the Members hereby
makes the following representation and warranties to, and
agreements with, the other Members and the Company as of the
Agreement Date:
8.1.1 Status. Such Member is duly incorporated, organized
or formed (in the event such Partner is not a corporation), validly
existing and in good standing under the laws of its state or
country of incorporation, organization or formation (as the case
may be). Such Member has full power and authority to own its
property and to carry on its business as now conducted.
8.1.2 Authority. Such Member has full power and authority
to execute and deliver this Agreement and to carry out its
obligations hereunder in accordance with the terms and provisions
hereof. The execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated hereby have
been duly authorized by all requisite action, corporate or
otherwise, on the part of such Member. This Agreement constitutes
the valid and legally binding obligation of such Member,
enforceable against it in accordance with its terms, except as
enforceability may be affected by (i) bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the
enforcement of creditors' rights generally; (ii) the limitation of
certain remedies by certain equitable principles of general
applicability; and (iii) the fact that the rights to
indemnification hereunder may be limited by federal or state
securities laws.
8.1.3 No Breach or Default. The execution, delivery and
performance by such Member of this Agreement and the transactions
contemplated hereby will not constitute a material breach of any
term or provision of, or a material default under (i) any
outstanding indenture, mortgage, loan agreement or other similar
contract or agreement to which such Member or any of its Affiliates
is a party or by which it or any of its Affiliates or its or their
property is bound; (ii) its certificate or articles of
incorporation or bylaws or other constituent documents; (iii) any
applicable law, rule or regulation; or (iv) any order, writ,
judgment or decree having applicability to it.
8.1.4 No Governmental Consents. All material consents,
licenses, approvals and authorizations, if any, and all filings and
registrations, required from any governmental body, authority,
bureau or agency for or on the part of any such Member or any of
its Affiliates in connection with its execution and delivery of
this Agreement and its contributions to the capital of the Company
have been obtained prior to the Agreement Date.
8.1.5 Use of Member's Name. With respect to any matters
relating to the Company, such Member shall not use the name of any
other Member in a press release or in any other written
communication to the general public, except as may be required by
law, without the prior written consent of such other Member.
8.1.6 Accuracy of Information. Such Member shall furnish
to the Managing Members all information regarding itself or its
Affiliates reasonably requested by the Managing Members which is or
may be required for inclusion in any documents required to be
prepared or filed in connection with the business of the Company,
and all such information when supplied to the Company and
thereafter will be true and correct in all material respects and
will not omit to state any material fact necessary to be stated
therein in order that such information shall not be misleading.
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8.2 Investment Representations.
8.2.1 Each Member represents and warrants that it is
acquiring its Membership Interest solely for investment, for its
account and not with a view to, or for resale in connection with,
the distribution or other disposition thereof, except for such
distributions and dispositions which are (A) explicitly permitted
or contemplated under the terms of this Agreement as well as (B)
effected in compliance with the Securities Act of 1933, as amended
(the "Securities Act"), the rules and regulations of the Securities
and Exchange Commission promulgated thereunder and all applicable
state securities and "blue sky" laws.
8.2.2 Each Member understands that the purchase of
Membership Interests is a speculative investment which involves a
high degree of risk of loss of its investment therein, there are
substantial restrictions on the transferability of the Membership
Interests under the provisions of this Agreement and the Securities
Act, and there will never be a public market for the Membership
Interests and, accordingly, it may not be possible to liquidate its
investment in the Fund in case of emergency or otherwise.
8.2.3 All information which each Member has provided to
the Managing Members and their Affiliates and representatives, if
any, concerning itself and its financial position is true, complete
and correct in all material respects as of the date of this
Agreement and, if there should be any material change in such
information prior to the date such Member's initial Capital
Contribution or any additional Capital Contributions are made it
will immediately furnish such revised or corrected information to
the Managing Members or their Affiliates or representatives.
8.2.4 Each Member's financial situation is such that it
can afford to bear the economic risk of holding the Membership
Interests for an indefinite period of time and suffer a complete
loss of its investment in the Company.
8.2.5 Each Member's knowledge and experience in financial
and business matters are such that it is capable of evaluating the
merits and risks of its purchase of the Membership Interests or it
has been advised by a representative possessing such knowledge and
experience.
8.2.6 Each Member and its representatives as it deems
necessary, including its professional, tax and other advisors, have
reviewed the purchase of the Membership Interests and such Member
understands and has taken cognizance of (or has been advised by its
representatives as to) all the risk factors related to the purchase
of the Membership Interests.
8.2.7 In making its decision to purchase its Membership
Interest, each Member has relied upon independent investigations
made by it and, to the extent believed by it to be appropriate, its
representatives.
8.2.8 Each Member and its representatives and advisors, if
any, have been afforded the opportunity to examine all documents
related to and, if applicable, executed in connection with, the
transactions contemplated hereby, which such Member or its
representatives or advisors, if any, desire to examine.
8.2.9 The Managing Members, their Affiliates or
representatives have provided each Member with the opportunity to
ask questions of, and to receive answers from, the Managing
Members, their Affiliates, and their representatives concerning the
terms and conditions of the
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purchase of the Membership Interest. No representations or
warranties have been made to such Member or its representatives
concerning the Membership Interests or the Company, their prospects
or other matters except as set forth in this Agreement.
8.2.10 Each Member is an "accredited investor" as defined
in Rule 501(a) under the Securities Act.
8.2.11 As of the date as of which each Member executes this
Agreement and for so long as it holds a Membership Interest
thereafter, that (A) it is not an "investment company" registered
under the Investment Company Act; (B) it is not an entity which
would be defined as an "investment company" under Section 3(a) of
the Investment Company Act but for the exception provided from that
definition by Section 3(c)(1) of the Investment Company Act; (C) it
is not a business development company, as defined in Section
202(a)(22) of the Investment Advisers Act, as amended; (D) it was
not formed for the specific purpose of making an investment in the
Fund; and (E) it is an involuntary, noncontributory pension plan
and constitutes one beneficial owner of the Membership Interest
being purchased by it for purposes of the Investment Company Act.
ARTICLE 9
DISSOLUTION, LIQUIDATION, AND TERMINATION OF THE COMPANY
9.1 Limitations. The Company may be dissolved, liquidated,
and terminated only pursuant to the provisions of this Article 9,
and the parties hereto do hereby irrevocably waive any and all
other rights they may have to cause a dissolution of the Company or
a sale or partition of any or all of the Company Assets.
9.2 Exclusive Causes. Notwithstanding the Act, the following
and only the following events shall cause the Company to be
dissolved, liquidated, and terminated:
(a) By the election of the Managing Members and the written
consent of a Majority in Interest;
(b) The occurrence of a Terminating Capital Transaction;
(c) The Incapacity of any Managing Members (or, if no
Managing Member exists, of any Member), unless a Majority of
Remaining Members votes to continue the Company within ninety
(90) days following the occurrence of any such Incapacity,
provided that, the provisions of this Section 9.2(c) shall cease
to apply upon a written determination by the Members, based on
the issuance of new final Regulations pursuant to Section 7701
of the Code or other changes in federal tax law and
corresponding changes in applicable state tax laws or
regulations (to the extent that such changes do not
automatically follow the changes in federal tax law), to the
effect that such provisions are no longer necessary to cause the
Company to be treated as a partnership for federal and
applicable state income tax purposes; or
(d) Judicial dissolution.
Any dissolution of the Company other than as provided in this
Paragraph 9.2 shall be a dissolution in contravention of this
Agreement.
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9.3 Effect of Dissolution. The dissolution of the Company shall
be effective on the day on which the event occurs giving rise to
the dissolution, but the Company shall not terminate until it has
been wound up and its assets have been distributed as provided in
Paragraph 9.5 of this Agreement. Notwithstanding the dissolution
of the Company, prior to the termination of the Company, the
business of the Company and the affairs of the Members, as such,
shall continue to be governed by this Agreement.
9.4 No Capital Contribution Upon Dissolution. Each Member shall
look solely to the assets of the Company for all distributions with
respect to the Company, its Capital Contribution thereto, its
Capital Account and its share of Net Profits or Net Losses, and
shall have no recourse therefor (upon dissolution or otherwise)
against any other Member. Accordingly, if any Member has a deficit
balance in its Capital Account (after giving effect to all
contributions, distributions and allocations for all taxable years,
including the year during which the liquidation occurs), then such
Member shall have no obligation to make any Capital Contribution
with respect to such deficit, and such deficit shall not be
considered a debt owed to the Company or to any other person for
any purpose whatsoever.
9.5 Liquidation.
9.5.1 Upon dissolution of the Company, the Managing Members
shall act as the "Liquidator" of the Company, provided, however,
that, in the event of a dissolution of the Company pursuant to
Paragraph 9.2(c), a Person designated by a Majority in Interest of
the remaining Members shall act as Liquidator. The Liquidator
shall liquidate the assets of the Company, and after allocating
(pursuant to Article 5 of this Agreement) all income, gain, loss
and deductions resulting therefrom, shall apply and distribute the
proceeds thereof as follows:
(a) First, to the payment of the obligations of the
Company, to the expenses of liquidation, and to the setting up
of any Reserves for contingencies which the Managing Members may
consider necessary.
(b) Thereafter, to the Members in proportion to the
positive balances in the Members' respective Capital Accounts,
determined after taking into account all Capital Account
adjustments for the Company taxable year during which such
liquidation occurs (other than those made as a result of the
distributions set forth in this Paragraph 9.5.1(b) of this
Agreement), by the end of the taxable year in which such
liquidation occurs or, if later, within 90 days after the date
of the liquidation.
9.5.2 Notwithstanding Paragraph 9.5.1 of this Agreement, in
the event that the Managing Members determine that an immediate
sale of all or any portion of the Company Assets would cause undue
loss to the Members, the Managing Members, in order to avoid such
loss to the extent not then prohibited by the Act, may either defer
liquidation of and withhold from distribution for a reasonable time
any Company Assets except those necessary to satisfy the Company's
debts and obligations, or distribute the Company Assets to the
Members in kind.
ARTICLE 10
MISCELLANEOUS
10.1 Appointment of Managing Members as Attorney-in-Fact.
10.1.1 Each Member, including each Additional Member and
Substitute Member, by its execution of this Agreement, irrevocably
constitutes and appoints the Managing Members as its true and
lawful attorney-in-fact with full power and authority in its name,
place and stead to
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execute, acknowledge, deliver, swear to, file and record at the
appropriate public offices such documents as may be necessary or
appropriate to carry out the provisions of this Agreement,
including but not limited to:
(a) All certificates and other instruments (including
counterparts of this Agreement), and all amendments thereto,
which the Managing Members deem appropriate to form, qualify,
continue or otherwise operate the Company as a limited liability
company (or other entity in which the Members will have limited
liability comparable to that provided in the Act), in the
jurisdictions in which the Company may conduct business or in
which such formation, qualification or continuation is, in the
opinion of the Managing Members, necessary or desirable to
protect the limited liability of the Members.
(b) All amendments to this Agreement adopted in accordance
with the terms hereof, and all instruments which the Managing
Members deem appropriate to reflect a change or modification of
the Company in accordance with the terms of this Agreement.
(c) All conveyances of Company Assets, and other
instruments which the Managing Members reasonably deem necessary in
order to complete a dissolution and termination of the Company
pursuant to this Agreement.
10.1.2 The appointment by all Members of the Managing
Members as attorney-in-fact shall be deemed to be a power coupled
with an interest, in recognition of the fact that each of the
Members under this Agreement will be relying upon the power of the
Managing Members to act as contemplated by this Agreement in any
filing and other action by it on behalf of the Company, shall
survive the Incapacity of any Person hereby giving such power, and
the transfer or assignment of all or any portion of the Interest of
such Person in the Company, and shall not be affected by the
subsequent Incapacity of the principal; provided, however, that in
the event of the assignment by a Member of all of its Interest in
the Company, the foregoing power of attorney of an assignor Member
shall survive such assignment only until such time as the Assignee
shall have been admitted to the Company as a Substitute Member and
all required documents and instruments shall have been duly
executed, filed and recorded to effect such substitution.
10.2 Amendments.
10.2.1 Each Additional Member and Substitute Member shall
become a signatory hereto by signing such number of counterpart
signature pages to this Agreement, a power of attorney to the
Managing Members, and such other instruments, in such manner, as
the Managing Members shall determine. By so signing, each
Additional Member and Substitute Member, as the case may be, shall
be deemed to have adopted and to have agreed to be bound by all of
the provisions of this Agreement.
10.2.2 In addition to amendments specifically authorized
herein, any and all amendments to this Agreement may be made from
time to time by the Managing Members without the consent of any
other Member; except that, without the consent of the Members to be
adversely affected, this Agreement may not be amended so as to (a)
modify the limited liability of a Member
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or (c) adversely affect the interest of a Member in Net Profits,
Net Losses or Cash Available for Distribution (other than to
reflect the admission of an Additional Member).
10.2.3 In addition to other amendments authorized herein,
amendments may be made to this Agreement from time to time by the
Managing Members, without the consent of any other Member: (a) to
cure any ambiguity, to correct or supplement any provision herein
which may be inconsistent with any other provision herein, or to
make any other provisions with respect to matters or questions
arising under this Agreement that are not inconsistent with the
provisions of this Agreement; (b) to delete or add any provision of
this Agreement required to be so deleted or added by any federal or
state official, which addition or deletion is deemed by such
official to be for the benefit or protection of all of the Members;
and (c) to take such actions as may be necessary (if any) to insure
that the Company will be treated as a partnership for federal
income tax purposes.
10.2.4 In making any amendments, there shall be prepared
and filed by, or for, the Managing Members such documents and
certificates as may be required under the Act and under the laws of
any other jurisdiction applicable to the Company.
10.3 Accounting and Fiscal Year. Subject to Code Section 448,
the books of the Company shall be kept on such method of accounting
for tax and financial reporting purposes as may be determined by
the Managing Members. The fiscal year of the Company shall end on
December 31 of each year, or on such other date permitted under the
Code as the Managing Members shall determine.
10.4 Meetings. At any time, and from time to time, the Managing
Members may, but shall not be required to, call meetings of the
Members. Written notice of any such meeting shall be given to all
Members not less than two (2) nor more than forty-five (45) days
prior to the date of such meeting. Each meeting of the Members
shall be conducted by the Managing Members or any designee thereof.
Each Member may authorize any other Person (whether or not such
other Person is a Member) to act for it or on its behalf on all
matters in which the Member is entitled to participate. Each proxy
must be signed by the Member or such Member's attorney-in-fact.
All other provisions governing, or otherwise relating to, the
holding of meetings of the Members, shall from time to time be
established in the sole discretion of the Managing Members.
10.5 Entire Agreement. This Agreement constitutes the entire
agreement between the parties hereto pertaining to the subject
matter hereof and fully supersedes any and all prior or
contemporaneous agreements or understandings between the parties
hereto pertaining to the subject matter hereof.
10.6 Further Assurances. Each of the parties hereto does hereby
covenant and agree on behalf of itself, its successors, and its
assigns, without further consideration, to prepare, execute,
acknowledge, file, record, publish, and deliver such other
instruments, documents and statements, and to take such other
action as may be required by law or reasonably necessary to
effectively carry out the purposes of this Agreement.
10.7 Notices. Any notice, consent, payment, demand, or
communication required or permitted to be given by any provision of
this Agreement shall be in writing and shall be (a) delivered
personally to the Person or to an officer of the Person to whom the
same is directed, or (b) sent by facsimile or registered or
certified mail, return receipt requested, postage prepaid,
addressed as follows: if to the Company, to the Company at the
address set forth in Paragraph 1.3 hereof, or to such other address
as the Company may from time to time specify by notice to the
Members; if to a Member, to such Member at the address set forth in
Exhibit "A", or to such other address as such Member may from
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<PAGE>
time to time specify by notice to the Company. Any such notice
shall be deemed to be delivered, given and received for all
purposes as of: (i) the date so delivered, if delivered personally,
(ii) upon receipt, if sent by facsimile, or (iii) on the date of
receipt or refusal indicated on the return receipt, if sent by
registered or certified mail, return receipt requested, postage and
charges prepaid and properly addressed.
10.8 Tax Matters.
10.8.1 Sattel shall be designated and shall operate as "Tax
Matters Partner" (as defined in Code Section 6231), to oversee or
handle matters relating to the taxation of the Company.
10.8.2 The Member designated as "Tax Matters Partner" may
make all elections for federal income and all other tax purposes
(including, without limitation, pursuant to Section 754 of the
Code).
10.8.3 Income tax returns of the Company shall be prepared
by such certified public accountant(s) as the Managing Member shall
retain at the expense of the Company.
10.9 Governing Law. This Agreement, including its existence,
validity, construction, and operating effect, and the rights of
each of the parties hereto, shall be governed by and construed in
accordance with the laws of the State of Delaware without regard to
otherwise governing principles of conflicts of law.
10.10 Construction. This Agreement shall be construed as if all
parties prepared this Agreement.
10.11 Captions - Pronouns. Any titles or captions contained in
this Agreement are for convenience only and shall not be deemed
part of the text of this Agreement. All pronouns and any
variations thereof shall be deemed to refer to the masculine,
feminine, neuter, singular or plural as appropriate.
10.12 Binding Effect. Except as otherwise expressly provided
herein, this Agreement shall be binding on and inure to the benefit
of the Members, their heirs, executors, administrators, successors
and all other Persons hereafter holding, having or receiving an
interest in the Company, whether as Assignees, Substitute Members
or otherwise.
10.13 Severability. In the event that any provision of this
Agreement as applied to any party or to any circumstance, shall be
adjudged by a court to be void, unenforceable or inoperative as a
matter of law, then the same shall in no way affect any other
provision in this Agreement, the application of such provision in
any other circumstance or with respect to any other party, or the
validity or enforceability of the Agreement as a whole.
10.14 Confidentiality. Each Party hereto agrees that the
provisions of this Agreement, all understandings, agreements and
other arrangements between and among the parties, and all other
non-public information received from or otherwise relating to, the
Company shall be confidential, and shall not be disclosed or
otherwise released to any other Person (other than another party
hereto), without the written consent of the Managing Members. The
obligations of the parties hereunder shall not apply to the extent
that the disclosure of information otherwise determined to be
confidential is required by applicable law, provided that, prior to
disclosing such confidential information, a party shall notify the
Company thereof, which notice shall include the basis upon which
such party believes the information is required to be disclosed.
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10.15 Counterparts. This Agreement may be executed in any
number of multiple counterparts, each of which shall be deemed to
be an original copy and all of which shall constitute one
agreement, binding on all parties hereto.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Limited Liability Company Agreement of SatLogic LLC as of the day
and year first above written.
MANAGING MEMBER
/s/ James J. Fiedler
Sattel Communications LLC
MANAGING MEMBER
/s/ J. Larry Smart
StreamLogic Corporation
<PAGE>
EXHIBIT "A"
MEMBERS, CAPITAL COMMITMENTS, CAPITAL CONTRIBUTIONS,
AND PERCENTAGE INTERESTS
<TABLE>
<CAPTION>
Name and Address Capital Initial Capital Percentage
of Members Commitment Contribution Interest
---------------- ---------- --------------- ----------
<S> <C> <C> <C>
Sattel Communications LLC $2,000,000 $500,000 50%
26025 Mureau Road
Calabasas, CA 91302
c/o James J. Fiedler
StreamLogic Corporation $2,000,000 1 year promissory note in 50%
21329 Nordhoff Street aggregate principal amount
Chatsworth, CA 91311 of $1,000,000 to be secured
c/o J. Larry Smart by a pledge of 735,294 shares
of Series D Preferred Stock of
Concentric Network Corporation
</TABLE>
