NOVO NETWORKS, INC.
PACIUGO MANAGEMENT LLC
AND
AD ASTRA HOLDINGS LP
PURCHASE AGREEMENT
December 19, 2002
PURCHASE AGREEMENT
This Purchase Agreement (the "Agreement") is made as of the
19th day of December, 2002 by and among NOVO NETWORKS, INC., a
Delaware corporation ("Purchaser"), PACIUGO MANAGEMENT LLC, a
Texas limited liability company ("Paciugo"), AD ASTRA HOLDINGS
LP, a Texas limited partnership ("AAH") (each of PACIUGO and AAH,
a "Seller" and together the "Sellers"), UGO GINATTA ("Ugo"),
CRISTIANA GINATTA ("Cristiana") and VINCENT GINATTA ("Vincent")
(each of Ugo, Cristiana and Vincent, an "Owner" and together the
"Owners").
RECITALS
A. Whereas, each of the Owners is both a member of Paciugo
and a limited partner of AAH with his/her respective percentage
of ownership thereof as set forth in Exhibit A attached hereto,
and the Owners collectively own 100% of the membership interests
in Paciugo and 99% of the partnership interests (as limited
partners) in AAH;
B. Whereas, Paciugo is the sole general partner of AAH
with a 1% general partner interest therein;
C. Whereas, Purchaser desires to purchase from the Sellers
a membership interest in Paciugo and a limited partnership
interest in AAH (the "Purchased Interests");
D. Whereas, upon the Closing (as hereinafter defined) of
the transactions contemplated herein, Purchaser shall become a
member of Paciugo and a limited partner of AAH;
E. Whereas, Sellers collectively owe the Owners debt for
funds loaned to Sellers and their subsidiaries (the "Owner Debt")
in an aggregate principal amount of $2,001,602 plus accrued
interest.
F. Whereas, the Owner Debt was loaned to Sellers and their
subsidiaries in installments over the period from December 31,
2000 through October 31, 2002.
G. Whereas, upon the Closing, pursuant to this Agreement,
the Owner Debt will be reduced to an aggregate of $450,000, as
follows:
(1) First, the Owners will forgive and cancel all
obligations to pay accrued interest on the Owner Debt
and will contribute to the capital of Paciugo
and AAH a sufficient amount of principal of the Owner
Debt so that, after such contribution to capital, the
aggregate amount of Owner Debt will be principal in an
amount equal to $900,000, consisting of such dollar
amount of the latest funds loaned by the Owners to
Sellers and their subsidiaries.
(2) Immediately thereafter, the Sellers will pay to
Ugo and Cristina (collectively, "Ginatta") $450,000 in
payment of the latest funds loaned by the Owners to
Sellers and their subsidiaries.
H. Whereas, the Sellers agree to sell, and Purchaser
agrees to purchase, the Purchased Interests in accordance with
the terms and conditions contained herein.
The parties hereby agree as follows:
AGREEMENT
1. PURCHASE AND SALE OF INTERESTS.
1.1 PURCHASE AND SALE OF INTERESTS.
(a) Subject to the terms and conditions of this
Agreement, Purchaser agrees to purchase, and each of the Sellers
agrees to sell to Purchaser at the Closing, the Purchased
Interests such that the percentage interests in Paciugo and AAH
following the Closing shall be as set forth on Exhibit B attached
hereto, at a purchase price of $2,500,000 (the "Purchase Price").
(b) Purchaser shall have the option (the
"Option"), exercisable at the sole discretion of Purchaser, to
purchase additional interests of the Sellers ("Additional
Interests") such that the percentage interests in Paciugo and AAH
following the exercise of the Option shall be as set forth in
Exhibit B, at a purchase price of $1,500,000 (the "Additional
Purchase Price"). The Option shall be exercisable for a period of
two (2) years commencing from the Closing and ending on the
second anniversary of the Closing (the "Option Period").
(c) Purchaser shall provide each of the Sellers a
written notice ("Option Notice") at least ten (10) days prior to
exercise of the Option.
1.2 CLOSING; DELIVERY.
(a) The purchase and sale of the Purchased
Interests shall take place at the offices of Purchaser on the
date of execution of this Agreement, or at such other time and
place as the Sellers and Purchaser mutually agree (which time and
place are designated as the "Closing").
(b) At the Closing, Purchaser shall deliver the
Purchase Price to the Sellers by wire transfer to a new bank
account of the Sellers established at J.P. Morgan Chase (the "New
Account").
(c) Upon the closing of the exercise of the
Option, Purchaser shall deliver the Additional Purchase Price by
wire transfer to either the New Account or such other bank
account of the Sellers designated by the Sellers.
(d) For administrative convenience, Purchaser and
the Owners hereby agree to account for the Closing for purposes
of completing tax returns as occurring as of the close of
business on December 31, 2002.
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2. DISTRIBUTION AND COMPENSATION.
2.1 Upon the Closing, the Owner Debt will be reduced
to an aggregate of $450,000, as follows:
(a) First, the Owners will forgive and cancel all
obligations to pay accrued interest on the Owner
Debt and will contribute to the capital of Paciugo
and AAH a sufficient amount of principal of the
Owner Debt so that, after such contribution to
capital, the aggregate amount of Owner Debt will
be principal in an amount equal to $900,000,
consisting of such dollar amount of the latest
funds loaned by the Owners to Sellers and their
subsidiaries.
(b) Immediately thereafter, the Sellers will pay to
Ginatta $450,000 from the New Account ("First
Payment"") in payment of the latest funds loaned
by the Owners to Sellers and their subsidiaries.
To the extent any portion of the First Payment is
required to be classified as interest income, both
the interest income and the corresponding interest
deduction of the Sellers generated thereby shall
be specially allocated to the Owners receiving the
First Payment.
2.2 Upon the closing of the exercise of the Option,
Ginatta shall be entitled to be paid by the Sellers the remaining
amount of the Owner Debt, consisting of a payment of $450,000
("Second Payment") in the principal amount of the Owner Debt plus
accrued interest from the date of the Closing until the payment
of the Second Payment; provided, however, that Ginatta agrees to
contribute to the Sellers an amount sufficient to fund the
payment of the interest charge on the Second Payment.
2.3 The Sellers shall not make any distributions or
debt payments to the Owners or to Purchaser without the prior
approval of Purchaser, other than the First Payment and the
Second Payment and Tax Distributions (as defined and as set forth
in Exhibit C-1 and Exhibit C-2 hereto).
2.4 As used herein, "Owner Equity" shall mean the
following amounts in the aggregate for Ginatta: (i) $1,550,000,
following the First Payment upon the Closing, or (ii) $1,100,000,
following the Second Payment upon the exercise of the Option.
2.5 The Purchase Price and the Additional Purchase
Price shall be considered the aggregate amount of capital
invested in the Sellers by Purchaser, and the Owner Equity shall
be considered the aggregate amount of capital invested in the
Sellers by the Owners (collectively, such amounts being referred
to as "Preferred Equity"). The Preferred Equity shall not be
considered as indebtedness owed to the Purchaser and the Owners
(collectively, the "Equity Holders"). No other amounts
previously advanced to the Sellers by the Owners shall be
considered either as indebtedness or as Preferred Equity.
Notwithstanding the foregoing, if the Second Payment is made to
Ginatta, it shall be treated as repayment of indebtedness owed to
Ginatta consistent with Section 2.2 above and not as a return of
Preferred Equity.
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2.6 All distributions from Paciugo and AAH shall be
divided among the Equity Holders as set forth in Exhibit C-1 and
Exhibit C-2 attached hereto.
2.7 The amount of Owner Debt remaining after the
contributions to capital described above and the payment of the
First Payment (such remaining Owner Debt being $450,000) will
bear interest at a rate of 6.5% per annum and will continue to be
due and payable on September 1, 2010. Such Owner Debt will be
subordinated to any existing bank indebtedness and any funds
subsequently loaned by any party to the Sellers. The Owners agree
to execute such other and further documents as reasonably
required in order to document the subordinated nature of the
remaining Owner Debt. Notwithstanding the foregoing, for all
purposes, including, without limitation, upon liquidation of the
Sellers, the Owner Debt shall be paid as forth in Sections 2.1
and 2.2.
2.8 In the event that the Option expires without being
exercised, upon such expiration, the accrued interest on the
remaining amount of Owner Debt shall be funded by Ginatta and
paid as provided in Section 2.2 hereof and the unpaid principal
amount of the Owner Debt shall automatically, and without any
further action by any of the parties hereto, be contributed by
the Owners to the capital of the Sellers. Such conversion of the
Owner Debt to equity shall have no effect on the amount treated
as Owner Equity for purposes of this Agreement, such that the
Owner Equity following such capitalization shall be $1,550,000.
2.9 The economic capital accounts and allocations of
gains and losses of Owners and Purchaser in the Sellers shall be
adjusted and maintained as described in this Agreement and in
Exhibit C-1 and C-2 attached hereto. Accordingly, the capital
account, allocation and distribution provisions of the LLC
Regulations and Partnership Agreement (each as hereinafter
defined) are hereby amended in their entirety and are replaced by
the provisions set forth in this Agreement and on Exhibit C-1 and
C-2 attached hereto.
3. AMENDMENTS OF LLC REGULATIONS AND PARTNERSHIP
AGREEMENT. This Agreement (which includes all Exhibits hereto)
amends, to the extent necessary to be consistent with this
Agreement, the LLC Regulations and the Partnership Agreement. To
the extent that any provisions contained therein shall be
inconsistent with any provisions contained herein, this Agreement
shall control and such provisions therein shall be deemed
modified by this Agreement.
4. PURCHASER'S SERVICES AND COMPENSATION.
4.1 PURCHASER'S SERVICES. Following the Closing,
Purchaser shall provide or supplement, through Purchaser's
personnel, the administrative, accounting, financial, human
resources, information technology, legal and marketing services
generally necessary to support the business operations of the
Sellers (the "Services"). The Owners and Sellers acknowledge
that the Services shall not include (i) capital expenditures
(such as acquiring computers), unless such items are paid for by
and become the property of the Sellers and (ii) certain service
items customarily performed by third party professionals, such as
the preparation of tax returns and audits of the Sellers'
businesses and engaging attorneys to prosecute or defend claims
and otherwise provide professional advice to the Sellers.
Purchaser covenants and agrees that it shall devote at least one
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hundred fifty (150) hours per month of time of its personnel in
performing the Services (the "Time Commitment"). From time to
time, if the Owners, in good faith, believe that Purchaser has
not satisfied the Time Commitment for any month, the Owners shall
be entitled to deliver a notice of such belief to Purchaser
within fifteen (15) days of the end of such month. Within
fifteen (15) days of the receipt of any such notice, Purchaser
shall provide to the Owners reasonable documentation of whether
Purchaser so satisfied the Time Commitment for the month in
question (the "Reporting Obligation"). If such documentation
shows that Purchaser has satisfied the Time Commitment, the
Reporting Obligation will cease. However, if such documentation
shows that Purchaser has not satisfied the Time Commitment, the
Reporting Obligation will continue for such number of future
months as may be necessary to establish that any such deficiency
has been made up, at which time the Reporting Obligation will
cease.
4.2 COMPENSATION. As compensation for the Services,
Purchaser shall receive annually the greater of (i) $250,000 or
(ii) 2% of the consolidated gross revenues (excluding any
revenues shared with third parties such as Central Market) of the
Sellers and their subsidiaries (the "Compensation"). Gross
revenues shall, for purposes of this Section 4.2, be calculated
on a calendar year end basis, commencing with calendar year 2003.
The Compensation shall be paid monthly in advance (with a monthly
payment of $20,833) on or about the first business day of each
month, with the first payment made on or about January 2, 2003,
with the positive cumulative difference between 2% of such gross
revenues and $20,833 per month, if any, paid within ten (10) days
of the end of each month. As soon as practicable following the
audit of the Sellers upon the close of each calendar year, a
calculation will be made as to whether the cumulative amounts
paid to Purchaser during the preceding calendar year are less
than or greater than the amount of the actual Compensation earned
by Purchaser pursuant to this Section 4.2. Within ten (10) days
of such determination, (i) the Sellers shall deliver to Purchaser
any short-fall in the amount of such Compensation or
(ii) Purchaser shall return to the Sellers any amount received by
Purchaser in excess of the earned Compensation pursuant to this
Section 4.2 (provided, by mutual agreement in lieu of such
refund, the Sellers may offset against future Compensation
payments any such excess amounts paid to Purchaser under
Subclause (ii) hereof).
4.3 CANCELLATION OF SERVICES AND COMPENSATION. The
Services and Compensation as provided this Section 4 shall not be
cancelled or amended without prior written approval of Purchaser.
5. REPRESENTATIONS AND WARRANTIES OF THE SELLERS. Each of
the Sellers, and each of the Owners, jointly and severally,
hereby represents and warrants to Purchaser that, except as set
forth on a Schedule of Exceptions attached hereto, which
exceptions shall be deemed to be representations and warranties
as if made hereunder (for purposes of this Section 5, each
reference to the Sellers shall be construed to include all
subsidiaries of the Sellers unless the context specially provides
to the contrary):
5.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION.
Each of the Sellers is a duly organized, validly existing
business entity and in good standing under the laws of the State
of Texas (other than Paciugo Properties, LP, which is organized
under the laws of the State of Delaware) and has all requisite
power and authority to carry on its business. Such Seller is
duly qualified to transact business and is in good standing in
each jurisdiction in which the failure so to qualify would have a
material adverse effect on its business or properties.
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5.2 OWNERSHIP AND LIENS. The Owners are the
beneficial owners of 100% of the equity interests in the Sellers
as set forth on Exhibit A attached hereto (the "Owner Equity
Interests"):
(a) The Owner Equity Interests are free from all
liens and other encumbrances.
(b) There are no outstanding options, warrants,
rights (including conversion or preemptive rights and rights of
first refusal or similar rights) or agreements, orally or in
writing, for the purchase or acquisition of any equity interests
whatsoever from the Sellers by any person (including the Owners).
5.3 SUBSIDIARIES. The Sellers currently own or
control, directly or indirectly, 100% of the ownership interests
in the entities set forth on Schedule 5.3 attached hereto.
Except as set forth on Schedule 5.3, the Sellers do not own any
equity interests in any other entities.
5.4 AUTHORIZATION. All action on the part of each of
the Sellers and the Owners necessary for the authorization,
execution and delivery of this Agreement, the Employment
Agreements (as hereinafter defined) and collectively with this
Agreement (the "Transaction Agreements"), the performance of all
obligations of each of the Sellers and the Owners hereunder and
thereunder and the authorization, sale and delivery of the
Purchased Interests and the Additional Interests has been taken
prior to the Closing. The Transaction Agreements, when executed
and delivered by each of the Sellers and the Owners, shall
constitute valid and legally binding obligations of the Sellers
and the Owners, enforceable against the Sellers and the Owners in
accordance with their terms except as limited by applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance and other laws of general application affecting
enforcement of creditors' rights generally, as limited by laws
relating to the availability of specific performance, injunctive
relief, or other equitable remedies.
5.5 VALID ISSUANCE OF SECURITIES. The Purchased
Interests that are being sold by the Sellers to Purchaser
hereunder, and the Additional Interests to be sold upon the
exercise of the Option, when sold by the Sellers and delivered in
accordance with the terms hereof for the consideration expressed
herein, will be duly and validly issued, fully paid and
nonassessable and free of restrictions on transfer other than
restrictions on transfer under this Agreement, the Paciugo
Management LLC Regulations (the "LLC Regulations"), the Ad Astra
Holdings LP Agreement of Limited Partnership (the "Partnership
Agreement"), and applicable state and federal securities laws.
5.6 GOVERNMENTAL CONSENTS. No consent, approval,
order or authorization of, or registration, qualification,
designation, declaration or filing with, any federal, state or
local governmental authority on the part of the Sellers or the
Owners is required in connection with the consummation of the
transactions contemplated by this Agreement.
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5.7 LITIGATION. There is no action, suit, proceeding
or investigation pending or, to each of the Seller's knowledge,
currently threatened against either of the Sellers or any of its
subsidiaries that questions the validity of the Transaction
Agreements or the right of such Seller to enter into them, or to
consummate the transactions contemplated hereby or thereby, or
that might result, either individually or in the aggregate, in
any material adverse change in the assets, condition or affairs
of such Seller, financially or otherwise, or any change in the
current equity ownership of such Seller, nor are the Sellers
aware that there is any basis for the foregoing. Neither the
Sellers nor their subsidiaries are a party or subject to the
provisions of any order, writ, injunction, judgment or decree of
any court or government agency or instrumentality.
5.8 INTELLECTUAL PROPERTY. Except as set forth on
Schedule 5.8, each of the Sellers owns or possesses sufficient
legal rights to all patents, trademarks, service marks, trade
names, copyrights, trade secrets, licenses, information and
proprietary rights and processes necessary for its business
without any conflict with, or infringement of, the rights of
others. None of such items are owned by any of the Owners or
their affiliates. Neither of the Sellers has received any
communications alleging that such Seller has violated, or by
conducting its business would violate, any of the patents,
trademarks, service marks, trade names, copyrights, trade secrets
or other proprietary rights or processes of any other person or
entity. Neither of the Sellers is aware that any of its
employees is obligated under any contract (including licenses,
covenants or commitments of any nature) or other agreement, or
subject to any judgment, decree or order of any court or
administrative agency, that would interfere with the use of such
employee's best efforts to promote the interest of such Seller or
that would conflict with such Seller's business. Neither the
execution or delivery of this Agreement, nor the carrying on of
such Seller's business by the employees of such Seller, nor the
conduct of such Seller's business as proposed, will, to such
Seller's knowledge, conflict with or result in a breach of the
terms, conditions, or provisions of, or constitute a default
under, any contract, covenant or instrument under which any such
employee is now obligated. Each Seller does not believe it is or
will be necessary to use any inventions of any of its employees
(or persons it currently intends to hire) made prior to his/her
employment by such Seller.
5.9 CONTRACT AND COMPLIANCE WITH OTHER INSTRUMENTS.
(a) Set forth on Schedule 5.9(a) attached hereto
is a list of all material contracts to the which the Sellers are
a party. True and correct copies of all such contracts have been
previously delivered by the Sellers to Purchaser.
(b) Except as set forth on Schedule 5.9(b)
attached hereto, neither of the Sellers is in violation or
default of any provisions of its LLC Regulations or the
Partnership Agreement or of any instrument, judgment, order,
writ, decree or contract to which it is a party or by which it is
bound, or of any provision of federal or state statute, rule or
regulation applicable to such Seller. The execution, delivery
and performance of the Transactions Agreements and the
consummation of the transactions contemplated hereby or thereby
will not result in any such violation or be in conflict with or
constitute, with or without the passage of time and giving of
notice, a default under either (i) any such provision,
instrument, judgment, order, writ or decree or (ii) any material
contract, lease or other agreement of the Sellers.
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(c) Except as set forth on Schedule 5.9(c)
attached hereto, neither of the Sellers has avoided any
condition, and has not performed any act, the occurrence of which
would result in such Seller's loss of any right granted under any
license, distribution agreement or other agreement.
5.10 NO AMOUNTS OWED TO OWNERS. Except for amounts
previously loaned to the Sellers by the Owners as summarized on
Schedule 5.10 attached hereto (which, as of the Closing, will be
accounted for in the manner described in Article 2 hereof) and
amounts payable after the Closing under the Employment
Agreements, neither of the Sellers is indebted, directly or
indirectly, to any of its officers or to the Owners or to their
respective spouses or children, in any amount whatsoever other
than in connection with expenses or advances of expenses incurred
in the ordinary course of business. To such Sellers' knowledge,
none of such Seller's officers or the Owners or any members of
their immediate families are, directly or indirectly, indebted to
such Seller (other than in connection with purchases of such
Seller's interests) or have any direct or indirect ownership
interest in any firm or corporation with which any of the Sellers
is affiliated or with which any of the Sellers has a business
relationship, or any firm or corporation which competes with any
of the Sellers except that officers and/or owners of such Seller
may own stock in (but not exceeding 5% of the outstanding capital
stock of) any publicly traded company that may compete with such
Seller. To such Seller's knowledge, none of such Seller's
officers or the Owners or any members of their immediate families
are, directly or indirectly, parties to any material contract
with such Seller. Neither of the Sellers is a guarantor or
indemnitor of any indebtedness of any other person, firm or
corporation.
5.11 TITLE TO PROPERTY AND ASSETS. The Sellers own
their property and assets free and clear of all mortgages, liens,
loans and encumbrances, except such encumbrances and liens which
arise in the ordinary course of business and do not materially
impair the Sellers' ownership or use of such property or assets.
With respect to the property and assets they lease, the Sellers
are in compliance with such leases and, to their knowledge, hold
a valid leasehold interest free of any liens, claims or
encumbrances.
5.12 FINANCIAL STATEMENTS. Each of the Sellers has
made available to Purchaser its consolidated unaudited financial
statements (including balance sheet, income statement and
statement of cash flows) as of and for the ten (10) months ending
October 31, 2002 (collectively, the "Financial Statements")
attached hereto as Exhibit 5.12A. Except as set forth on
Schedule 5.12 attached hereto, the Financial Statements fairly
present the financial condition and operating results of such
Seller as of the dates, and for the periods, indicated therein,
subject to normal year-end audit adjustments. Except as set
forth on Schedule 5.12 attached hereto, the Sellers, since the
date of the Financial Statements, have not incurred any material
liabilities other than (i) liabilities incurred in the ordinary
course of business and (ii) obligations under contracts and
commitments incurred in the ordinary course of business, which,
in both cases, individually or in the aggregate are not material
to the financial condition or operating results of such Seller.
5.13 EMPLOYEE BENEFIT PLANS. Except as set forth in
Schedule 5.13 attached hereto, neither of the Sellers has any
Employee Benefit Plan as defined in the Employee Retirement
Income Security Act of 1974.
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5.14 TAX RETURNS AND PAYMENTS. The Sellers have filed
all tax returns and reports as required by law. These returns
and reports are true and correct in all material respects. The
Sellers have paid all taxes and other assessments due.
5.15 INSURANCE. Set forth on Schedule 5.15 attached
hereto is a list of workers compensation, health, liability,
casualty, and related insurance coverage of the Sellers.
5.16 LABOR AGREEMENTS AND ACTIONS. Neither of the
Sellers is bound by or subject to (and none of its assets or
properties is bound by or subject to) any written or oral,
express or implied, contract, commitment or arrangement with any
labor union, and no labor union has requested or, to the
knowledge of such Seller, has sought to represent any of the
employees, representatives or agents of such Seller. There is no
strike or other labor dispute involving such Seller pending, or
to the knowledge of such Seller threatened, which could have a
material adverse effect on the assets, properties, financial
condition, operating results or business of such Seller, nor are
the Sellers aware of any labor organization activity involving
its employees. Except as contemplated by the Employment
Agreements, the employment of each officer and employee of the
Sellers is terminable at the will of the Sellers. Each Seller
has complied in all material respects with all applicable state
and federal equal employment opportunity laws and with other laws
related to employment.
5.17 CONFIDENTIAL INFORMATION AND INVENTION ASSIGNMENT
AGREEMENTS. Except as set forth on Schedule 5.17 attached
hereto, each employee, consultant and officer of the Sellers has
executed an agreement with the Sellers regarding confidentiality
and proprietary information and invention assignment
substantially in the form or forms delivered to the counsel for
Purchaser. The Sellers are not aware that any of its employees
or consultants is in violation thereof, and the Sellers will use
their best efforts to prevent any such violation prior to the
Closing.
5.18 PERMITS. Set forth on Schedule 5.18 and Schedule
5.18-1 attached hereto is a list of all franchises, permits,
licenses, federal Food and Drug Administration or Department of
Agriculture approvals and any similar authority of the Sellers
necessary for the conduct of their business, the lack of which
could materially and adversely affect the business, properties,
prospects or financial condition of the Sellers. Except as set
forth on Schedule 5.18, neither of the Sellers is in default in
any material respect under any of such franchises, permits,
licenses, approvals or other similar authority.
5.19 CORPORATE DOCUMENTS. The LLC Regulations and
Partnership Agreement of the Sellers are in the forms attached
hereto as Exhibits D and E, respectively. The copies of the
minute books of the Sellers provided to Purchaser's counsel
contain minutes of all meetings of managers and Owners and all
actions by written consent without a meeting by the managers and
Owners since the date of incorporation and reflect all actions by
the managers (and any committee of managers) and Owners with
respect to all transactions referred to in such minutes
accurately in all material respects.
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5.20 APPLICABLE LAWS. Neither of the Sellers is in
violation of any applicable statute, law or regulation relating
to its business, including environment or occupational health and
safety laws, and to its knowledge, no material expenditures are
or will be required in order to comply with any such existing
statutes, laws or regulations. No Hazardous Materials (as
defined below) are used or have been used, stored, or disposed of
by either Seller or, to either Seller's knowledge after
reasonable investigation, by any other person or entity on any
property owned, leased or used by either Seller. For the
purposes of the preceding sentence, "Hazardous Materials" shall
mean (a) materials which are listed or otherwise defined as
"hazardous" or "toxic" under any applicable local, state, federal
and/or foreign laws and regulations that govern the existence
and/or remedy of contamination on property, the protection of the
environment from contamination, the control of hazardous wastes
or other activities involving hazardous substances, including
building materials or (b) any petroleum products or nuclear
materials.
5.21 DISCLOSURE. To each Owner's knowledge, no
representation or warranty of such Owner or of the Sellers
contained in this Agreement and the exhibits attached hereto, or
any certificate furnished or to be furnished to Purchaser at the
Closing contains any untrue statement of a material fact or omits
to state a material fact necessary in order to make the
statements contained herein or therein not misleading in light of
the circumstances under which they were made.
6. REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser
hereby represents and warrants to the Sellers that:
6.1 AUTHORIZATION. Purchaser has full power and
authority to enter into the Transaction Agreements. The
Transaction Agreements, when executed and delivered by Purchaser,
will constitute valid and legally binding obligations of
Purchaser, enforceable in accordance with their respective terms,
except as limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance and any other
laws of general application affecting enforcement of creditors'
rights generally, and as limited by laws relating to the
availability of specific performance, injunctive relief or other
equitable remedies.
6.2 PURCHASE ENTIRELY FOR OWN ACCOUNT. Purchaser is
an "accredited investor" as such term is defined in Rule 501
under the Securities Act of 1933, as amended (the "Securities
Act"). With respect to Purchased Interests and Additional
Interests in the Sellers which Purchaser will acquire pursuant to
Article 1, such Purchaser (i) will acquire such Purchased
Interests and Additional Interests for its own account, for
investment only and not with a view to, or any present intention
of, effecting a distribution of such Purchased Interests and
Additional Interests or any part thereof except pursuant to a
registration statement or an available exemption under applicable
law, and (ii) acknowledges that none of such Purchased Interests
and Additional Interests have been registered under the
Securities Act or the securities laws of any state or other
jurisdiction and cannot be disposed of unless they are
subsequently registered under the Securities Act and any
applicable state laws or unless an exemption from such
registration is available. By executing this Agreement,
Purchaser further represents that Purchaser does not presently
have any contract, undertaking, agreement or arrangement with any
person to sell, transfer or grant participations to such person
or to any third person, with respect to any of the Purchased
Interests and the Additional Interests. Purchaser has not been
formed for the specific purpose of acquiring the Purchased
Interests and the Additional Interests.
-10-
6.3 NO PUBLIC MARKET. Purchaser understands that no
public market now exists for any of the Purchased Interests and
the Additional Interests sold by the Sellers, and that neither of
the Sellers has made any assurances that a public market will
ever exist for the Purchased Interests and the Additional
Interests.
7. CONDITIONS PRECEDENT. The obligations of Purchaser to
the Sellers under this Agreement are subject to the fulfillment,
on or before the Closing, of each of the following conditions,
unless otherwise waived:
7.1 EMPLOYMENT AGREEMENTS. The Sellers shall have
executed Employment Agreements with Ugo Ginatta, Cristiana
Ginatta, and Vincent Ginatta substantially in the forms attached
hereto as Exhibits H, I and J (collectively, the "Employment
Agreements").
7.2 TRANSFER OF PARTNERSHIP INTERESTS. Ugo shall have
transferred his 5% interest in Authentic Gelato LP to AAH (such
that AAH will be the sole limited partner thereof).
8. POST-CLOSING COVENANTS.
8.1 BOOKS AND RECORDS. Purchaser shall have free
access to the books and records of the Sellers to both perform
the Services and any act necessary to satisfy its reporting
duties under the Securities Exchange Act of 1934, as amended,
including, without limitation, auditing the financial records and
discussing with the Owners various matters associated the
business of the Sellers. Any audit of the financial records of
the Sellers and their subsidiaries shall be at the cost of the
Sellers; provided, however, the Sellers shall bear no cost for
any portion of any consolidated audit of Purchaser, which
includes the Sellers, beyond the costs of auditing the Sellers as
separate businesses from that of Purchaser's other businesses or
activities.
8.2 VOTING RIGHTS.
(a) Purchaser and the Owners acknowledge and
agree that, consistent with the terms of the LLC Regulations and
the Partnership Agreement, the governance of the Sellers is as
follows:
(i) Paciugo is governed by a Board of
Managers (the "Board"). The Board is appointed by the Members of
Paciugo and the Board appoints the Officers of Paciugo. Each
member of the Board shall have one vote, and the Board shall act
based on majority vote of all members of the Board.
(ii) Paciugo, as the sole general partner of
AAH, is empowered to make all decisions associated with AAH
except for the decisions requiring the approval of the Limited
Partners of AAH as set forth in Section 3.3 of the Partnership
Agreement.
-11-
(iii) The remaining provisions of this
Article 8 are intended to create irrevocable voting agreements
between the Owners and Purchaser concerning the voting of
(A) their Membership Interests in Paciugo to elect the Board in
the manner hereafter described and (B) in their capacities as
Members of Paciugo or Limited Partners of AAH, as applicable,
solely upon such matters as shall require or permit them as
Equity Holders to vote on matters submitted to such Equity
Holders consistent with the LLC Regulations, the Partnership
Agreement, the Texas Limited Liability Company Act or the Texas
Revised Limited Partnership Act, as applicable (collectively, the
"Equity Owners Required Voting Actions"). The Equity Owners
Required Voting Actions shall also be construed, for purposes of
this Agreement, as including any amendment to this Agreement or
of the LLC Regulations or Partnership Agreement.
(b) Purchaser shall be entitled to such number of
representatives on the Board of Paciugo proportionate to
Purchaser's ownership interests of Paciugo, from time to time;
provided, however, in the event the Option is exercised, the
representation on the Board shall be an equal number of
individuals designated by the Owners for election and an equal
number of individuals designated by Purchaser for election, in
each case elected by a majority, measured in terms of percentage
interests, of the Membership Interests of the Members of Paciugo
voting their respective Membership Interests subject to the
voting agreements contained herein.
(c) All Equity Owners Required Voting Actions
shall require the vote or approval, as applicable, of the Equity
Holders holding, in the aggregate, seventy percent (70%) or more
of the outstanding percentage interests in Paciugo or AAH (as
applicable); provided, however, such percentage shall be reduced
to sixty percent (60%) upon any exercise of the Option.
(d) The Owners, among themselves, hereby agree
that this Agreement shall also serve as an irrevocable voting
agreement among the Owners such that in any vote or approval
required of the Owners as Members of Paciugo or as Limited
Partners of AAH (including, without limitation, with respect to
the designation of individuals to be elected to the Board
pursuant to Subclause (b) above and on Equity Owners Required
Voting Actions), all the Owners shall be deemed to have voted all
of their Equity Interests in Paciugo and AAH, as applicable, in
such manner as the holders of a majority of the Equity Interests
owned solely among the Owners so designate, such majority to be
determined based on percentage interests.
(e) Immediately following the Closing, and
consistent with the foregoing, the Board shall be comprised of
the following three (3) individuals:
Owners Designees
Ugo Ginatta
Cristiana Ginatta
Purchaser Designee
Barrett N. Wissman
On all votes to be taken by the Board, the votes of the
Board members designated by the Owners shall be cast as
determined by majority vote among such Board members.
-12-
Further, the Board as comprised above has designated
the following individuals to serve as the Officers of Paciugo
immediately after the Closing (until the earlier of (1)
January 1, 2006, or (2) any such designation is changed by the
Board):
Name Title
------------------- -------------------------------------
Ugo Ginatta Chairman and Chief Executive Officer
Barrett N. Wissman Vice Chairman and President
Cristiana Ginatta Senior Vice President and Chief
Operating Officer
Susie C. Holliday Senior Vice President, Chief Financial
Officer, Assistant Secretary, and
Assistant Treasurer
Steven W. Caple Senior Vice President, General Counsel
and Secretary
Patrick G. Mackey Senior Vice President - Administration,
Treasurer and Assistant Secretary
Vincent Ginatta Senior Vice President
Barrett N. Wissman, Steve W. Caple, Patrick G. Mackey
and Susie C. Holliday shall not be paid any compensation for
their service as officers of Paciugo unless approved by the
Board. This provision will not alter or diminish the Sellers'
obligation to pay to Purchaser the Compensation (as described in
Section 4.2) or Purchaser's obligation to pay such individuals as
employees and officers of Purchaser.
The term of office of each of the designated officers
shall terminate on January 1, 2006, and a new slate of officers
shall be elected by the Board at that time.
In addition, promptly following the Closing, the Board
shall explore obtaining director and officer liability insurance
on behalf of the Sellers for an agreeable reasonable premium cost
(which may include, at the Board's option, adding such
individuals to the current policy of Purchaser, but with the
Sellers paying the costs of securing such addition).
(f) Without otherwise altering the Approval
Actions, the LLC Regulations of Paciugo are amended to provide
that (1) the Chief Executive Officer have the powers and
authority formerly designated in such LLC Regulations as
applicable to the President, and (2) the person holding the
office of President shall be subordinate to the Chief Executive
Officer, and shall have such duties and authority as designated
by the Board.
-13-
(g) The Owners, principally through the efforts
of Ugo, shall have the right to make decisions with respect to
day-to-day operations and product quality and development of the
Sellers and its subsidiaries. The Owners acknowledge that no
personal expenses of the Owners shall be paid by the Sellers
following the Closing other than reimbursable business expenses
properly documented pursuant to the procedures set forth in the
Employment Agreements.
(h) Notwithstanding anything to the contrary in
this Agreement, Purchaser shall be entitled to approve any action
of the Sellers and its subsidiaries which is related to future
asset or equity sales, mergers or acquisitions, strategic
development, capital raising, debt and equity financing
arrangements, executive retentions and perquisites, long-term
contracts and commitments, significant capital expenditures,
other significant uses of cash and similar items (the "Approval
Actions"); provided, however, the Approval Actions shall not be
construed to authorize Purchaser to alter or amend the terms of
the Employment Agreements without the prior consent of the
Owners. The Owners covenant and agree that they shall not allow
the Sellers and their subsidiaries to undertake, or commit to
undertake, any Approval Actions without the prior approval of
Purchaser. Purchaser shall cooperate with the Owners in
facilitating an efficient manner in which Approval Actions are
both sought and approved. Purchaser currently intends that all
such Approval Actions shall be submitted to the President of
Purchaser, whose consent or approval shall be deemed the consent
or approval of Purchaser hereunder; provided, however, the
President of Purchaser may delegate such right (with notice to
the Owners) to certain of the executive officers of Purchaser to
the extent the Approval Action would be more efficiently
authorized or approved by such person given the particular area
of expertise and responsibility of such person.
(i) Consistent with the Owners' responsibility
for day-to-day management as described in Subclause (g) above,
from time to time as required by the Board, but no less
frequently than in December of each calendar year (for the
succeeding calendar year) and in connection with each significant
capital expansion (such as the opening of a new store), the
Owners shall present a budget to the Board for review and
approval (the "Budget"). The Budget for calendar year 2003 shall
be prepared and presented to the Board on or before January 15,
2003. The Board's approval of the Budget shall be in addition
to, and not in lieu of, the Approval Actions of the Purchaser as
described above. Any such Budget may be amended or supplemented,
from time to time, by (1) approval of the Board and (2) to the
extent such modification or change is of an item (such as capital
expenditures) that would constitute an Approval Action, the
written consent of Purchaser.
8.3 NON-COMPETITION. Each of the Owners and Purchaser
agrees that he/she/it, while he/she/it or his/her/its respective
affiliates is an equity holder of the Sellers and for a period of
two (2) years thereafter (collectively, the "Restricted Period"),
will not and will not allow its affiliates to, engage in, or
otherwise directly or indirectly be employed by, or act as a
consultant or lender to, or be a director, officer, employee,
owner or partner of, any other business or organization that
materially competes with the business of the Sellers or any of
their subsidiaries; provided, however, that notwithstanding the
foregoing, the provisions of this Section 8.3 will not be deemed
breached merely because such Owner or Purchaser owns not more
than 5% of the outstanding equity securities of an entity, if, at
the time of its acquisition by such Owner or Purchaser, such
securities are listed on a national securities exchange, is
-14-
reported on NASDAQ, or is regularly traded in the over-the-
counter market by a member of a national securities exchange.
Each of the Owners and Purchaser agrees that he/she/it shall not,
during the Restricted Period, solicit or encourage any employee,
consultant, vendor, supplier or customer of the Sellers to leave
the employment of, or cease or diminish its relations with, the
Sellers.
8.4 BENEFITS. Promptly following the Closing, the
Sellers shall use reasonable efforts to work with Purchaser to
efficiently integrate their insurance coverage and benefits plans
and policies into the standard policies of Purchaser (provided,
such items do not result in any material increase in cost to the
Sellers).
8.5 INDEMNIFICATION.
(a) Each of the Owners, jointly and severally,
shall defend, indemnify and hold Purchaser and its affiliates and
their officers, directors, managers, agents, attorneys and
accountants of each of them (the "Purchaser Indemnitees"),
harmless from and against any damages suffered or incurred
because of the breach or inaccuracy of any representation or
warranty or covenant or agreement made by the Sellers or the
Owners in this Agreement or in any agreement or document executed
or delivered by the Sellers and the Owners to Purchaser in
connection herewith or with the Closing.
(b) Purchaser shall defend, indemnify and hold
each of the Owners and his/her affiliates and the officers,
managers, agents, attorneys and accountants of each of them (the
"Owners Indemnitees"), harmless from and against any damages
suffered or incurred because of the breach or inaccuracy of any
representation or warranty or covenant or agreement made by
Purchaser in this Agreement or in any agreement or document
executed or delivered by Purchaser to the Sellers in connection
herewith or with the Closing.
(c) Notwithstanding Subsections (a) and (b)
above, (I) neither Purchaser (with respect to Subsection (a)) or
the Owners (with respect to Subsection (b)) may make an
indemnification claim hereunder unless the damages suffered by
the Purchaser Indemnities or Owners Indemnities (as applicable)
exceeds, in the aggregate for all claims, $50,000 (in which case
the amount of damages indemnified shall commence with the first
dollar exceeding such $50,000 aggregate damages suffered) (the
"Basket Provision") and (II) all payments to the applicable
indemnified party shall be made in the amount of such recipient
party's applicable ownership percentage (by way of illustration,
if the Purchaser Indemnitees are owed $200,000 at a time at which
the Option has been exercised, then the actual payment to
Purchaser from the Owners shall be the product of 50.3%
multiplied by $200,000). In addition, subject to the Basket
Provision described above, the Owners, jointly and severally,
shall defend and hold harmless the Purchaser Indemnitees for all
damages suffered or incurred for time periods preceding the
Closing associated with the activities of the Sellers described
in (i) in the third paragraph of Schedule 5.12 (overtime pay
description) and (ii) the forth and fifth paragraphs of Schedule
5.18 (no storm water permit).
-15-
(d) The parties agree that claims for
indemnification under this Section 8.5 shall be the sole remedy
available for breach or inaccuracy of any representations or
warranties or covenants or agreements made in this Agreement or
any agreement or document executed or delivered in connection
herewith or with the Closing (other than the Employment
Agreements).
9. TRANSFER OF INTERESTS.
9.1 NO TRANSFERS. Notwithstanding any thing to
contrary as set forth in the LLC Regulations and the Partnership
Agreement, neither the Owners nor Purchaser shall transfer
his/her/its respective interests in Paciugo and AAH as set forth
on Exhibit B, except as prescribed below.
9.2 AFFILIATE TRANSFERS. The Owners or Purchaser may
transfer their respective Equity Interests among each other and
to his/her/its affiliates or family members; provided, however,
such transferees shall agree in writing to be bound by this
Agreement ("Permitted Transfers").
9.3 RIGHT OF FIRST REFUSAL. Other than Permitted
Transfers, either Purchaser or the Owners may transfer
his/her/its Equity Interests to a third party only after the
transferring party gives the other parties hereto a right of
first refusal to purchase the Equity Interests to be sold. In
the event the Owners or Purchaser desires to sell his/her/its
respective Equity Interests, the selling party shall first notify
the other parties hereto of the proposed sale and the other
parties hereto shall the right to purchase such Equity Interests
on a pro rata basis within sixty (60) days of notice on the same
price and terms as the proposed sale.
9.4 CO-SALE. Either the Owners or Purchaser, as
applicable, may sell their respective Equity Interests to a third
party if the other party declines to exercise its right of first
refusal set forth in Section 9.3 above; provided that the other
party shall have the right, exercisable within sixty (60) days,
to participate on a pro rata basis in the sale on the same terms
and conditions as applicable to the selling party.
9.5 TRANSFEREE BOUND. Any transferee under this
Section 9 shall take subject to this Agreement, the LLC
Regulations and the Partnership Agreement.
10. MISCELLANEOUS.
10.1 Survival. Unless otherwise set forth in this
Agreement, the warranties and representations of the Sellers, the
Owners and Purchaser contained in or made pursuant to this
Agreement shall survive the execution and delivery of this
Agreement and the Closing for a period of two (2) years following
the Closing. The covenants and agreements of the Sellers, the
Owners and Purchaser shall also survive the Closing in perpetuity
(or as otherwise specifically set forth herein).
-16-
10.2 TRANSFER; SUCCESSORS AND ASSIGNS. The terms and
conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the
parties. Nothing in this Agreement, express or implied, is
intended to confer upon any party other than the parties hereto
or their respective successors and assigns any rights, remedies,
obligations or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement.
10.3 GOVERNING LAW. This Agreement and all acts and
transactions pursuant hereto and the rights and obligations of
the parties hereto shall be governed, construed and interpreted
in accordance with the laws of the State of Texas, without giving
effect to principles of conflicts of law. Any action to enforce,
construe or interpret this agreement shall be commenced in a
court of competent jurisdiction within the County of Dallas and
the State of Texas.
10.4 COUNTERPARTS. This Agreement may be executed in
two or more counterparts, each of which shall be deemed an
original and all of which together shall constitute one
instrument.
10.5 TITLES AND SUBTITLES. The titles and subtitles
used in this Agreement are used for convenience only and are not
to be considered in construing or interpreting this Agreement.
10.6 NOTICES. Any notice required or permitted by this
Agreement shall be in writing and shall be deemed sufficient upon
delivery, when delivered personally or by overnight courier or
sent by telegram or fax, or forty-eight (48) hours after being
deposited in the U.S. mail, as certified or registered mail, with
postage prepaid, addressed to the party to be notified at such
party's address as set forth on the signature page or below, or
as subsequently modified by written notice, and
if to the Sellers: Care of Ugo Ginatta
or to the Owners Paciugo Management LLC
9761 Justice Way, Suite 170
Dallas, Texas 75220-5330
Fax: 214-654-9509
with a copy to: Jack R. Dugan
Strasburger & Price, L.L.P.
901 Main Street, Suite 4300
Dallas, Texas 75202
Fax: 214-651-4330
if to Purchaser: Steven W. Caple
Senior Vice President
General Counsel and Secretary
Novo Networks, Inc.
2311 Cedar Springs Road, Suite 400
Dallas, Texas 75201
Fax: 214-777-4103
-17-
with a copy to: Victor B. Zanetti
Arter & Hadden LLP
1717 Main Street, Suite 4100
Dallas, Texas 75201
Fax: 214-741-7139
10.7 FINDER'S FEE. Each party represents that it
neither is nor will be obligated for any finder's fee or
commission in connection with this transaction. Purchaser agrees
to indemnify and to hold harmless each of the Sellers from any
liability for any commission or compensation in the nature of a
finder's fee (and the costs and expenses of defending against
such liability or asserted liability) for which each Purchaser or
any of its officers, employees, or representatives is
responsible. Each of the Owners agrees to indemnify and hold
harmless Purchaser from any liability for any commission or
compensation in the nature of a finder's fee (and the costs and
expenses of defending against such liability or asserted
liability) for which any Owner, Seller or any of Sellers'
officers, employees or representatives is responsible.
10.8 FEES AND EXPENSES. The Owners and Purchaser each
shall bear their own legal fees and expenses if the transactions
contemplated by the Transaction Agreements are completed.
10.9 ATTORNEY'S FEES. If any action at law or in
equity (including arbitration) is necessary to enforce or
interpret the terms of any of the Agreements, the prevailing
party shall be entitled to reasonable attorney's fees, costs and
necessary disbursements in addition to any other relief to which
such party may be entitled.
10.10 AMENDMENTS AND WAIVERS. Any term of this
Agreement or the LLC Regulations or the Partnership Agreement may
be amended or waived only with the written consent of the Owners
and Purchaser. Any waiver provided as to any specific item shall
not be deemed to be, or construed as, a waiver of any separate
future item (each of which shall require the written consent or
waiver, as applicable, as to that designated item at that time by
the applicable party).
10.11 SEVERABILITY. If one or more provisions of
this Agreement are held to be unenforceable under applicable law,
the parties agree to renegotiate such provision in good faith.
In the event that the parties cannot reach a mutually agreeable
and enforceable replacement for such provision, then (a) such
provision shall be excluded from this Agreement, (b) the balance
of the Agreement shall be interpreted as if such provision were
so excluded and (c) the balance of the Agreement shall be
enforceable in accordance with its terms.
-18-
10.12 DELAYS OR OMISSIONS. No delay or omission to
exercise any right, power or remedy accruing to any party under
this Agreement, upon any breach or default of any other party
under this Agreement, shall impair any such right, power or
remedy of such non-breaching or non-defaulting party nor shall it
be construed to be a waiver of any such breach or default, or an
acquiescence therein, or of or in any similar breach or default
thereafter occurring; nor shall any waiver of any single breach
or default be deemed a waiver of any other breach or default
theretofore or thereafter occurring. Any waiver, permit, consent
or approval of any kind or character on the part of any party of
any breach or default under this Agreement, or any waiver on the
part of any party of any provisions or conditions of this
Agreement, must be in writing and shall be effective only to the
extent specifically set forth in such writing. All remedies,
either under this Agreement or by law or otherwise afforded to
any party, shall be cumulative and not alternative.
10.13 ENTIRE AGREEMENT. This Agreement, and the
documents referred to herein constitute the entire agreement
between the parties hereto pertaining to the subject matter
hereof, and any and all other written or oral agreements relating
to the subject matter hereof existing between the parties hereto
are expressly canceled unless otherwise stated herein.
10.14 CONFIDENTIALITY. Each party hereto agrees
that, except with the prior written permission of the other
party, it shall at all times keep confidential and not divulge,
furnish or make accessible to anyone any confidential
information, knowledge or data concerning or relating to the
business or financial affairs of the other parties to which such
party has been or shall become privy by reason of this Agreement,
discussions or negotiations relating to this Agreement, the
performance of its obligations hereunder or the ownership of the
interests purchased hereunder. The provisions of this
Section 10.14 shall be in addition to, and not in substitution
for, the provisions of any separate nondisclosure agreement
executed by the parties hereto with respect to the transactions
contemplated hereby. Notwithstanding the foregoing, the Owners
and the Sellers acknowledge and agree that, as a result of
Purchaser's status as a reporting company under the Securities
and Exchange Act of 1934, as amended, substantial information
(including financial information) of the Sellers shall be
required to be reported by Purchaser in its public filings with
the Securities & Exchange Commission. Nothing set forth in this
Section 10.4 shall be construed to limit or otherwise alter the
rights of Purchaser to disclose such information in accordance
with such requirements.
[Signature Pages Follow]
-19-
The parties have executed this Purchase Agreement as of the
date first written above.
PURCHASER:
NOVO NETWORKS, INC.
By: /s/ BARRETT N. WISSMAN
--------------------------
Name: Barrett N. Wissman
Title: President
SELLERS:
PACIUGO MANAGEMENT LLC
By: /s/ UGO GINATTA
---------------------------
Name: Ugo Ginatta
Title: President
AD ASTRA HOLDINGS LP
By: PACIUGO MANAGEMENT LLC,
its sole General Partner
By: /s/ UGO GINATTA
-------------------
Name: Ugo Ginatta
Title: President
SIGNATURE PAGE TO PURCHASE AGREEMENT
OWNERS:
/s/ UGO GINATTA
------------------------------
UGO GINATTA
/s/ CRISTIANA GINATTA
------------------------------
CRISTIANA GINATTA
/s/ VINCENT GINATTA
------------------------------
VINCENT GINATTA
SIGNATURE PAGE TO PURCHASE AGREEMENT
EXHIBITS
Exhibit A Schedule of Owners
Exhibit B Interests Following the Closing
and the Exercise of the Option
Exhibit C -1 Tax Allocations
and C-2
Exhibit D LLC Regulations (omitted pursuant to Item 601(2)
of Regulation S-K; copy will be furnished to the
Securities and Exchange Commission upon request)
Exhibit E Partnership Agreement (omitted pursuant to Item
601(2) of Regulation S-K; copy will be furnished
to the Securities and Exchange Commission upon
request)
Exhibits F,
G and H Form of Employment Agreements (omitted pursuant
to Item 601(2) of Regulation S-K; copy will be
furnished to the Securities and Exchange
Commission upon request)
EXHIBIT A
Percentage Interests of Paciugo and AAH Prior to Purchaser's
Investment
1. Paciugo
Name of Owner Percentage of Ownership
Ugo Ginatta 40.000%
Cristiana Ginatta
40.000%
Vincent Ginatta 20.000%
--------
Total 100%
========
2. AAH
Name of Owner Percentage of Ownership
Limited Partners:
Ugo Ginatta 39.600%
Cristiana Ginatta 39.600%
Vincent Ginatta 19.800%
General Partner:
- ---------------
Paciugo 1.000%
---------
Total 100%
=========
EXHIBIT B
Purchaser's Amount of Investment and Percentage Interests
1. Interests Following the Closing of $2,500,000 Investment
Paciugo
Name of Owners Percentage of Ownership
- -------------- -----------------------
Novo Networks, Inc. 33.000%
Ugo Ginatta 26.800%
Cristina Ginatta 26.800%
Vincent Ginatta 13.400%
-------
Total 100%
=======
AAH
Name of Owners Percentage of Ownership
- -------------- -----------------------
Limited Partners:
- ----------------
Novo Networks, Inc. 32.670%
Ugo Ginatta 26.532%
Cristiana Ginatta 26.532%
Vincent Ginatta 13.266%
General Partner:
- ---------------
Paciugo 1.000%
-------
Total 100%
=======
2. Interests Following Additional $1,500,000 Investment
Paciugo
Name of Owners Percentage of Ownership
- -------------- -----------------------
Novo Networks, Inc. 50.300%
Ugo Ginatta 19.880%
Cristiana Ginatta 19.880%
Vincent Ginatta 9.940%
-------
Total 100%
=======
AAH
Name of Owners Percentage of Ownership
- -------------- -----------------------
Limited Partners:
- ----------------
Novo Networks, Inc. 49.797%
Ugo Ginatta 19.681%
Cristiana Ginatta 19.681%
Vincent Ginatta 9.841%
General Partner:
- ---------------
Paciugo 1.000%
-------
Total 100%
=======
-2-
EXHIBIT C-1 (LLC) AND EXHIBIT C-2 (PARTNERSHIP)
Tax Allocations
EXHIBIT C-1
-----------
Distributions; Allocations; Liquidation Provisions; Definitions
---------------------------------------------------------------
1.1 Distributions. Net Cash shall be distributed among the
Members as follows:
(a) Net Cash From Operations. Subject to Section
1.1(c), Net Cash From Operations shall be distributed among the
Members in proportion to their Ownership Percentages.
(b) Net Cash From Sales or Refinancings. Net Cash
From Sales or Refinancings shall be distributed among the Members
in the following order and priority:
(i) First, to the Members until their Preferred
Equity Balances are reduced to zero (prorata among the Members in
proportion to their Preferred Equity Balances);
(ii) Second, to the Owners until the cumulative
distributions to the Owners pursuant to this Section 1.1(b)(ii)
for all periods are equal to the excess of (i) the cumulative
distributions to the Purchaser pursuant to Section 1.1(b)(i) for
all periods, over (ii) the cumulative distributions to the Owners
pursuant to Section 1.1(b)(i) for all periods (prorata among the
Owners in proportion to their Ownership Percentages); and
(iii) Third, to the Members in proportion to
their Ownership Percentages.
(c) Tax Distributions. The Company shall make
distributions ("Tax Distributions" as provided in this Section
1.1(c).
(i) Distributions. The Company shall make to
each Member, to the extent of Available Net Cash Flow, Tax
Distributions on a quarterly basis to cover estimated tax
payments and final tax liability equal to the excess of
(A) such Member's Cumulative Net Tax Liability, over (B) the
prior cumulative distributions to such Member pursuant to this
Section 1.1(c). To the extent, if at all, Members receive
Tax Distributions that are not proportionate to their Ownership
Percentages (determined with reference to their Ownership
Percentages during the period to which the Tax Distributions
are attributable), distributions ("Additional Distributions")
shall be made (at the time Tax Distributions are made) to one
or more Members to the extent necessary so that, on a cumulative
basis, the aggregate Tax Distributions and Additional
Distributions each Member receives are proportionate to their
Ownership Percentages. Distributions pursuant to this
Section 1.1(c) shall not be treated as distributions pursuant to
Sections 1.1(a) and 1.1(b) for any purpose.
(ii) Definitions.
(A) The "Cumulative Net Tax Liability" of a
Member as of any date shall equal the amount determined by first
computing the "Current Tax Liability" or "Current Tax Benefit" of
the Member with respect to the Company on a year-by-year basis
(for periods commencing on or after the Effective Date) in
accordance with this Section 1.1(c)(ii)(A), and then adding such
liabilities and subtracting such benefits to arrive at the
Cumulative Net Tax Liability, if any. Time value of money
considerations shall not be taken into account in this process.
-1-
The Current Tax Liability or Current Tax
Benefit for each fiscal year shall be deemed to be equal to the
sum of (1) any tax credits of the Company allocated to such
Member, and (2) the product of (x) the "Applicable Tax Rate,"
multiplied by (y) an amount equal to the "Taxable Income" or "Tax
Loss" of the Company, as the case may be, for such year allocated
to such Member (using estimates for the current year for Tax
Distributions with respect to a year made before the final
accounting for such year).
(B) "Taxable Income" or "Tax Loss" for a
year shall be equal to the positive or negative amount of the
Company's taxable income or loss for such year, determined in
accordance with Code Section 703(a), provided that: (i) all
items of income, gain, loss or deduction required to be
separately stated pursuant to Code Section 703(a)(1) shall be
included in taxable income or loss; (ii) any taxable income or
taxable loss attributable to the sale, exchange or other
disposition of Property the proceeds (if any) of which would be
taken into account in determining Net Cash From Sales or
Refinancings shall be disregarded in determining Taxable Income
or Tax Loss; and (iii) with respect to income, gain, loss or
deduction taken into account pursuant to Code Section 704(c), the
Treasury Regulations thereunder, and the applicable principles
with respect thereto ("Section 704(c) Items"): (1) Section
704(c) Items attributable to operations of the Company in the
ordinary course of business ("Ordinary Course") shall be taken
into account in determining Taxable Income or Tax Loss; and (2)
Section 704(c) Items not attributable to the Ordinary Course
shall not be taken into account in determining Taxable Income or
Tax Loss.
(C) The "Applicable Tax Rate" for any year
shall equal the maximum marginal federal income tax rate
applicable to individuals for such year. The actual tax, tax
brackets or other tax attributes of the Members shall be
irrelevant for purposes of determining the Applicable Tax Rate
and the Tax Distributions pursuant to this Section 1.1(c).
(D) "Available Net Cash Flow" means all
cash available to the Company, less reasonable reserves as
determined by the Board, which may be distributed to Members
without breaching contractual obligations of the Company to third
parties (such as lenders).
(d) Change of Control. In the event of a Change of
Control after the Effective Date, the Members agree to share any
proceeds with respect thereto as if such proceeds were Sale or
Refinancing Proceeds distributable pursuant to Section 1.1(b).
"Change of Control" means (i) any merger or consolidation of the
Company with any other entity (other than a wholly-owned entity),
or (ii) any other transaction or series of related transactions
in which more than 50% of the Ownership Percentages will not,
immediately after such acquisition or transaction, be held by the
Members of record as constituted immediately prior to such
acquisition or transaction, provided that any adjustment of
Ownership Percentages among the Members pursuant to the
provisions of the Purchase Agreement shall not constitute a
Change of Control.
-2-
1.2 Allocations.
(a) Profits. After giving effect to the special
allocations set forth in Sections 1.2(c) and 1.2(d), Profits for
any fiscal year or other period beginning on or after the
Effective Date shall be allocated to the Members in the following
order and priority:
(i) First, to the Members in an amount equal to
the excess, if any, of (i) the cumulative Losses allocated
pursuant to Section 1.2(b)(i) for all prior fiscal years or other
periods, over (ii) the sum of the cumulative Profits allocated
pursuant to this Section 1.2(a)(i) and the gain allocated
pursuant to Section 1.2(c)(ix)(A) for all prior fiscal years or
other periods (pro rata among them in proportion to each Member's
excess amount);
(ii) Second, to the Members in an amount equal to
the excess, if any, of (i) the cumulative distributions the
Members have received pursuant to Section 1.1(a), over (ii) the
sum of the cumulative Profits allocated pursuant to this Section
1.2(a)(ii) and the gain allocated pursuant to Section
1.2(c)(ix)(B) for all prior fiscal years and other periods (pro
rata among the Members in proportion to each Member's excess
amount); and
(iii) Third, to the Members in proportion to
their Ownership Percentages.
(b) Losses. After giving effect to the special
allocations set forth in Sections 1.2(c) and 1.2(d), Losses for
any fiscal year or other period beginning on or after the
Effective Date shall be allocated in the following order and
priority:
(i) Except as provided in Sections 1.2(b)(ii) and
1.2(b)(iii), Losses shall be allocated to the Members in
proportion to their Ownership Percentages.
(ii) Except as provided in Section 1.2(b)(iii)
hereof, to the extent Profits have been allocated pursuant to
Section 1.2(a)(iii) for any prior fiscal year or other period,
Losses shall be allocated first to offset any Profits allocated
pursuant to Section 1.2(a)(iii) (pro rata among the Members in
proportion to their shares of the Profits being offset).
(iii) The Losses allocated pursuant to
Sections 1.2(b)(i) and (1.2(b)(ii) shall not exceed the maximum
amount of Losses that can be so allocated without causing any
Member to have an Adjusted Capital Account Deficit at the end of
any fiscal year. In the event some but not all of the Members
would have Adjusted Capital Account Deficits as a consequence of
an allocation of Losses pursuant to Section 1.2(b)(i) or Section
1.2(b)(ii), the limitation set forth in this Section 1.2(b)(iii)
shall be applied on a Member-by-Member basis so as to allocate
the maximum permissible Losses to each Member under Section 1.704-
1(b)(2)(ii)(d) of the Treasury Regulations.
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(c) Special Allocations. The following special
allocations shall be made in the following order:
(i) Minimum Gain Chargeback. Except as provided
in Section 1.704-2(f) of the Treasury Regulations,
notwithstanding any other provision of this Section 1.2, if there
is a net decrease in Minimum Gain during any fiscal year, each
Member shall be specially allocated items of Company income and
gain for such year (and, if necessary, subsequent years) in an
amount equal to the portion of such Member's share of the net
decrease in Minimum Gain, determined in accordance with Treasury
Regulations Section 1.704-2(g). Allocations pursuant to the
previous sentence shall be made in proportion to the respective
amounts required to be allocated to each Member pursuant thereto.
The items to be so allocated shall be determined in accordance
with Sections 1.704-2(f)(6) and 1.704-2(j)(2) of the Treasury
Regulations. This Section 1.2(c)(i) is intended to comply with
the minimum gain chargeback requirement in Section 1.704-2(f) of
the Treasury Regulations and shall be interpreted consistently
therewith.
(ii) Member Nonrecourse Debt Minimum Gain
Chargeback. Except as otherwise provided in Section 1.704-
2(i)(4) of the Treasury Regulations, notwithstanding any other
provision of this Section 1.2 except Section 1.2(c)(i), if there
is a net decrease in Member Nonrecourse Debt Minimum Gain
attributable to a Member Nonrecourse Debt during any Company
fiscal year, each Member who has a share of the Member
Nonrecourse Debt Minimum Gain attributable to such Member
Nonrecourse Debt, determined in accordance with Section 1.704-
2(i)(5), shall be specially allocated items of Company income and
gain for such year (and, if necessary, subsequent years) in an
amount equal to such Member's share of the net decrease in Member
Nonrecourse Debt Minimum Gain attributable to such Member
Nonrecourse Debt, determined in accordance with Treasury
Regulations Section 1.704-2(i)(4). Allocations pursuant to the
previous sentence shall be made in proportion to the respective
amounts required to be allocated to each Member pursuant thereto.
The items to be so allocated shall be determined in accordance
with Sections 1.704-2(i)(4) and 1.704-2(j)(2) of the Treasury
Regulations. This Section 1.2(c)(ii) is intended to comply with
the minimum gain chargeback requirement in Section 1.704-2(i)(4)
of the Treasury Regulations and shall be interpreted consistently
therewith.
(iii) Qualified Income Offset. In the event
any Member unexpectedly receives any adjustments, allocations or
distributions described in Section 1.704-1(b)(2)(ii)(d)(4), (5)
or (6) of the Treasury Regulations, items of Company income and
gain shall be specially allocated to each such Member in an
amount and manner sufficient to eliminate, to the extent required
by the Regulations, the Adjusted Capital Account Deficit of such
Member as quickly as possible, provided that an allocation
pursuant to this Section 1.2(c)(iii) shall be made only if and to
the extent that such Member would have an Adjusted Capital
Account Deficit after all other allocations provided for in this
Section 1.2 have been tentatively made as if this Section
1.2(c)(iii) were not in this Exhibit C-1.
-4-
(iv) Gross Income Allocation. In the event
any Member has a deficit Capital Account at the end of any
Company fiscal year which is in excess of the sum of (i) the
amount such Member is obligated to restore pursuant to any
provision of the Agreement, and (ii) the amount such Member is
deemed to be obligated to restore pursuant to the penultimate
sentences of Treasury Regulations Sections 1.704-2(g)(1) and
1.704-2(i)(5), each such Member shall be specially allocated
items of Company income and gain in the amount of such excess as
quickly as possible, provided that an allocation pursuant to this
Section 1.2(c)(iv) shall be made if and only to the extent that
such Member would have a deficit Capital Account in excess of
such sum after all other allocations provided for in Section 1.2
have been tentatively made as if Section 1.2(c)(iii) hereof and
this Section 1.2(c)(iv) were not in this Exhibit C-1.
(v) Nonrecourse Deductions. Nonrecourse
Deductions for any fiscal year or other period shall be specially
allocated among the Members in proportion to their Ownership
Percentages.
(vi) Member Nonrecourse Deductions. Any Member
Nonrecourse Deductions for any fiscal year or other period shall
be specially allocated to the Member who bears the economic risk
of loss with respect to the Member Nonrecourse Debt to which such
Member Nonrecourse Deductions are attributable in accordance with
Treasury Section 1.704-2(i)(1).
(vii) Section 754 Adjustment. To the extent
an adjustment to the adjusted tax basis of any Property pursuant
to Code Section 734(b) or Code Section 743(b) is required,
pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(m)(2)
or Treasury 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 his
Interest, 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 Property) 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 Treasury 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 Treasury Regulations
Section 1.704-1(b)(2)(iv)(m)(4) applies.
(viii) Interest Deductions. To the extent, if
at all, the Company is entitled to an interest deduction with
respect to payments to the Owners pursuant to Section 2.1 or
Section 2.2 of the Purchase Agreement, such deduction shall be
specially allocated to the Owners (prorata among them in
proportion to their entitlement to any such interest).
(ix) Gain. Any remaining gain for any fiscal year
or other period commencing on or after the Effective Date with
respect to the sale, exchange or other disposition of Property
(other than sales, exchanges or other dispositions in the
ordinary course of business) shall be specially allocated in the
following order and priority:
(A) First, to the Members in an amount equal
to the excess, if any, of (A) the cumulative Losses allocated to
the Members pursuant to Section 1.2(b)(i) for all prior fiscal
years or other periods, over (B) the sum of (1) the cumulative
gain allocated to the Members pursuant to this Section
1.2(c)(ix)(A) for all prior fiscal years or other periods, and
(2) the cumulative Profits allocated to the Members pursuant to
Section 1.2(a)(i) for the current and all prior fiscal years or
other periods (pro rata among them in proportion to each Member's
excess amount);
-5-
(B) Second, to the Members in an amount
equal to the excess, if any, of (i) the cumulative distributions
the Members have received pursuant to Section 1.1(a) during the
current and all prior fiscal years or other periods, over (ii)
the sum of (1) the cumulative gain allocated to the Members
pursuant to this Section 1.2(c)(ix)(B) for all prior fiscal years
or other periods, and (2) the cumulative Profits allocated to the
Members pursuant to Section 1.2(a)(ii) for the current and all
prior fiscal years or other periods (pro rata among them in
proportion to each Member's excess amount);
(C) Third, to each of the Owners in
proportion to their Ownership Percentages until the cumulative
gain allocated pursuant to this Section 1.2(c)(ix)(C) for the
current and all prior fiscal years and other periods is equal to
the aggregate amount the Owners have received or are entitled to
receive pursuant to Section 1.1(b)(ii); and
(D) Fourth, to the Members in proportion to
their Ownership Percentages.
(x) Final Allocations. Notwithstanding any
provision to the contrary in the Agreement (including, without
limitation, this Exhibit C-1), it is the intent of the Members
that, upon the dissolution of the Company and the final
distributions to the Members, the Members' Capital Accounts shall
be in proportion ("Distribution Ratios") to the amounts they are
entitled to receive pursuant to Section 1.1. Accordingly, the
Board shall modify the allocations pursuant to this Exhibit C-1
in such manner and to such extent as may be necessary to cause
the Members' Capital Accounts upon the dissolution of the Company
to be in proportion to their Distribution Ratios, with the result
that, after liquidating distributions are made to the Members,
each Member's Capital Account balance shall be zero (to the
extent possible). The Members acknowledge that all distributions
of the Company to Members shall be made pursuant to the
provisions of Section 1.1 irrespective of the Members' Capital
Accounts at any time. Without limitation, distributions upon the
liquidation of the Company shall be made pursuant to the
provisions of Section 1.1 whether or not each Member's Capital
Account balance is reduced to zero.
(d) Curative Allocations. The allocations set forth
in Sections 1.2(b)(iii) and the foregoing provisions of Section
1.2(c) (other than Sections 1.2(c)(viii), (ix) and (x)) (the
"Regulatory Allocations") are intended to comply with certain
requirements of the Treasury Regulations. It is the intent of
the Members that, to the extent possible, all Regulatory
Allocations shall be offset either with other Regulatory
Allocations or with special allocations of other items of Company
income, gain, loss or deduction pursuant to this Section 1.2(d).
Therefore, notwithstanding any other provision of this Section
1.2 (other than the Regulatory Allocations), the Board shall make
such offsetting special allocations of Company income, gain, loss
or deduction in whatever manner determined to be appropriate so
that, after such offsetting allocations are made, each Member's
Capital Account balance is, to the extent possible, equal to the
Capital Account balance such Member would have had if the
Regulatory Allocations were not part of this Exhibit C-1 and all
Company items were allocated pursuant to this Exhibit C-1 other
than the Regulatory Allocations. In exercising discretion under
this Section 1.2(d), the Board shall take into account future
Regulatory Allocations under Sections 1.2(c)(i) and 1.2(c)(ii)
that, although not yet made, are likely to offset other
Regulatory Allocations previously made under Sections 1.2(c)(v)
and 1.2(c)(vi).
-6-
(e) Other Allocations Rules.
(i) For purposes of determining the Profits,
Losses or any other items allocable to any period, Profits,
Losses and any such other items shall be determined on a daily,
monthly, or other basis, as determined by the Board using any
permissible method under Code Section 706 and the Treasury
Regulations thereunder.
(ii) Except as otherwise provided in this Exhibit
C-1, all items of Company income, gain, loss, deduction, credit
and any other allocations for any fiscal year or other period not
otherwise provided for shall be divided among the Members in the
same proportions as they share Profits or Losses, as the case may
be, for such year or other period.
(iii) The Members are aware of the income tax
consequences of the allocations made pursuant to this Exhibit C-1
and hereby agree to be bound by the provisions of this Exhibit C-
1 in reporting their shares of Company income and loss for income
tax purposes.
(iv) Solely for purposes of determining a Member's
proportionate share of the "excess nonrecourse liabilities" of
the Company within the meaning of Treasury Regulations Section
1.752-3(a)(3), the Members' interests in Company profits are in
proportion to their Ownership Percentages.
(v) To the extent permitted by Section 1.704-
2(h)(3) of the Treasury Regulations, the Board shall endeavor to
treat distributions as having been made from the proceeds of a
Nonrecourse Liability or a Member Nonrecourse Debt only to the
extent that such distributions would cause or increase an
Adjusted Capital Account Deficit for any Member.
(vi) All allocations of income, gain, loss,
deduction and credits with respect to periods ending prior to the
Effective Date ("Prior Allocations") shall be allocated to the
Owners as set forth in the Agreement prior to its amendment by
the Purchase Agreement (including this Exhibit C-1). Prior
Allocations shall not be taken into account as adjustments to the
Capital Accounts of the Owners on or after the Effective Date.
(f) Tax Allocations: Code Section 704(c). In
accordance with Code Section 704(c) and the Treasury Regulations
thereunder, income, gain, loss and deduction with respect to any
property contributed to the capital of the Company shall, solely
for tax purposes, be allocated among the Members so as to take
account of any variation between the adjusted basis of such
property to the Company for federal income tax purposes and its
initial Gross Asset Value (computed in accordance with paragraph
(i) of the definition of Gross Asset Value).
In the event the Gross Asset Value of any Property
is adjusted pursuant to paragraph (ii) of the definition of Gross
Asset Value, subsequent allocations of income, gain, loss and
deduction with respect to such Property shall take account of any
variation between the adjusted basis of such Property for federal
income tax purposes and its Gross Asset Value in the same manner
as under Code Section 704(c) and the Treasury Regulations
thereunder.
-7-
Any elections or other decisions relating to such
allocations shall be made by the Company in any manner that
reasonably reflects the purpose and intention of this Exhibit C-
1. Allocations pursuant to this Section 1.2(f) 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 Profits, Losses, other items or
distributions pursuant to any provision of this Exhibit C-1.
The Members acknowledge that the principles of
Code Section 704(c) and the Treasury Regulations thereunder shall
apply with respect to the restatement of the Gross Asset Values,
Capital Accounts and Capital Contributions of the Owners (as set
forth in the applicable definitions in Section 1.5 of this
Exhibit C-1).
1.3 Compliance with Timing Requirements of Treasury
Regulations. In the event the Company is "liquidated" within the
meaning of Treasury Regulations Section 1.704-1(b)(2)(ii)(g), (i)
distributions shall be made to the Members pursuant to the
distribution provisions of this Exhibit C-1, and (ii) if a
Member's Capital Account has a deficit balance (after giving
effect to all contributions, distributions and allocations for
all taxable years, including the year during which such
liquidation occurs), such Member shall have no obligation to make
any contribution to the capital of the Company with respect to
such deficit, and such deficit shall not be considered a debt
owed to the Company or any other Person for any purpose
whatsoever. In the discretion of the Company, a pro rata portion
of the distributions that would otherwise be made to the Members
may be:
(a) distributed to a trust established for the benefit
of the Members for the purposes of liquidating Company assets,
collecting amounts owed to the Company, and paying any contingent
or unforeseen liabilities or obligations of the Company or of the
Members arising out of or in connection with the Company. The
assets of any such trust shall be distributed to the Members from
time to time, in the reasonable discretion of the Board, in the
same proportions as the amount distributed to such trust by the
Company would otherwise have been distributed to the Members
pursuant to this Exhibit C-1; or
(b) withheld to provide a reasonable reserve for
Company liabilities (contingent or otherwise) and to reflect the
unrealized portion of any installment obligations owed to the
Company, provided that such withheld amounts shall be distributed
to the Members as soon as practicable.
1.4 Deemed Distribution and Recontribution. Notwithstanding
any other provision of the Agreement, in the event the Company is
liquidated within the meaning of Treasury Regulations Section
1.704-1(b)(2)(ii)(g) but no liquidating event has occurred, the
Company's assets shall not be liquidated, the Company's
liabilities shall not be paid or discharged, and the Company's
affairs shall not be wound up. Instead, the Company shall be
deemed to have distributed its assets in kind to the Members, who
shall be deemed to have assumed and taken subject to all Company
liabilities, all in accordance with their entitlement thereto
pursuant to the Exhibit C-1. Immediately thereafter, the Members
shall be deemed to have recontributed the assets in kind to the
Company, which shall be deemed to have assumed and taken subject
to all such liabilities.
-8-
1.5 Definitions. Certain capitalized words and phrases
used in this Exhibit C-1 have the meanings set forth in this
Section 1.5, as follows:
"Adjusted Capital Account Deficit" means, with respect
to any Member, the deficit balance, if any, in such Person's
Capital Account as of the end of the relevant fiscal year, after
giving effect to the following adjustments:
(i) Credit to such Capital Account any amounts which
such Person is obligated to restore pursuant to any provision of
the Agreement or is deemed to be obligated to restore pursuant to
the penultimate sentences of Treasury Regulations Sections 1.704-
2(g)(1) and 1.704-2(i)(5); and
(ii) Debit to such Capital Account the items described
in Sections 1.704-1(b)(2)(ii)(d)(4), (5) and (6) of the Treasury
Regulations.
The foregoing definition of Adjusted Capital Account
Deficit is intended to comply with the provisions of Section
1.704-1(b)(2)(ii)(d) of the Treasury Regulations and shall be
interpreted consistently therewith.
"Agreement" means those certain Regulations with
respect to the Company, as amended by the Purchase Agreement
(including, without limitation, this Exhibit C-1, and as may be
subsequently amended.
"Board" has the meaning set forth in the Purchase
Agreement.
"Capital Account" means, with respect to any Member,
the Capital Account established and maintained for such Person in
accordance with the following provisions:
(i) To each Person's Capital Account there shall be
credited such Person's Capital Contributions, such Person's
distributive share of Profits and any items in the nature of
income or gain which are specially allocated pursuant to Exhibit
C-1, and the amount of any Company liabilities assumed by such
Person or which are secured by any Property distributed to such
Person.
(ii) To each Person's Capital Account there shall be
debited the amount of cash and the Gross Asset Value of any
Property distributed to such Person pursuant to any provision of
this Exhibit C-1, such Person's distributive share of Losses and
any items in the nature of expenses or losses which are specially
allocated pursuant to Exhibit C-1, and the amount of any
liabilities of such Person assumed by the Company or which are
secured by any property contributed by such Person to the
Company.
(iii) In the event any Interest 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.
-9-
(iv) In determining the amount of any liability for
purposes of paragraphs (i) and (ii) of the definitions of Capital
Account and Preferred Equity Balance, there shall be taken into
account Code Section 752(c) and any other applicable provisions
of the Code and Treasury Regulations.
The foregoing provisions and the other provisions of
this Exhibit C-1 relating to the maintenance of Capital Accounts
are intended to comply with Treasury Regulations Section 1.704-
1(b), and shall be interpreted and applied in a manner consistent
with such Treasury Regulations. In the event the Board shall
determine that it is prudent to modify the manner in which the
Capital Accounts, or any debits or credits thereto (including,
without limitation, debits or credits relating to liabilities
which are secured by contributed or distributed property or which
are assumed by the Company or the Members), are computed in order
to comply with such Treasury Regulations, the Board may make such
modification, provided that it is not likely to have a material
effect on the amounts distributable to any Member upon the
dissolution of the Company. The Board also shall (i) make any
adjustments that are necessary or appropriate to maintain
equality between the Capital Accounts of the Members and the
amount of Company capital reflected on the Company's balance
sheet, as computed for book purposes, in accordance with Treasury
Regulations Section 1.704-1(b)(2)(iv)(g), and (ii) make any
appropriate modifications in the event unanticipated events might
otherwise cause this Exhibit C-1 not to comply with Treasury
Regulations Section 1.704-1(b).
The Capital Accounts of the Owners shall be restated as
of the Effective Date to equal the Owners' Capital Contributions,
as restated pursuant to the definition of Capital Contributions.
"Capital Contribution" means, with respect to any
Member, the amount of money and the initial Gross Asset Value of
any asset (other than money) contributed to the Company with
respect to the Interest held by such Member. The Members
acknowledge that: (i) the Capital Contribution of the Purchaser
upon the Effective Date shall be an amount equal to one percent
of the Purchase Price (as defined in the Purchase Agreement);
(ii) the Capital Accounts of the Owners shall be restated as of
the Effective Date to equal their restated Capital Contributions,
which shall be equal to their Owner Equity; and (iii) the
additional Capital Contribution of the Purchaser upon the
exercise (if at all) of the Option (as defined in the Purchase
Agreement) shall be an amount equal to one percent of the
Additional Purchase Price (as defined in the Purchase Agreement).
"Code" means the Internal Revenue Code of 1986, as
amended from time to time (or any corresponding provisions of
succeeding law).
"Company" means Paciugo Management LLC, a Texas limited
liability company.
-10-
"Depreciation" means, for each fiscal year or other
period, an amount equal to the 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 which bears the same
ratio to such beginning Gross Asset Value as the federal income
tax depreciation, amortization or other cost recovery deduction
for such 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 is zero, Depreciation shall be determined with
reference to such beginning Gross Asset Value using any
reasonable method selected by the Company.
"Effective Date" means January 1, 2003. The Members
acknowledge that each and every provision of this Exhibit C-1
(other than Section 1.2(e)(vi)) shall apply only with respect to
periods beginning on or after the Effective Date.
"Gross Asset Value" means, with respect to any asset,
the asset's adjusted basis for federal income tax purposes,
except as follows:
(i) The initial Gross Asset Value of any asset
contributed by a Member to the Company shall be the gross fair
market value of such asset, as determined by the contributing
Member and the Company;
(ii) The Gross Asset Values of all Company assets
shall be adjusted to equal their respective gross fair market
values, as determined by the Company, as of the following times:
(A) the acquisition of an additional Interest by any new or
existing Member in exchange for more than a de minimis Capital
Contribution (including the addition of the Purchaser as a Member
pursuant to the Purchase Agreement); (B) the distribution by the
Company to a Member of more than a de minimis amount of Property
as consideration for an Interest; and (C) the liquidation of the
Company within the meaning of Treasury Regulations Section 1.704-
1(b)(2)(ii)(g); provided, however that the adjustments pursuant
to clauses (A) and (B) above shall be made only if the Board
reasonably determines that such adjustments are necessary or
appropriate to reflect the relative economic interests of the
Members in the Company. The Members acknowledge that the Gross
Asset Values of the Company's assets (excluding the Capital
Contributions of the Purchaser) shall be adjusted, as of the
Effective Date, to equal one percent of the Owner Equity.
(iii) The Gross Asset Value of any Property
distributed to any Member shall be the gross fair market value of
such asset on the date of distribution; and
(iv) The Gross Asset Values of all Property shall
be increased (or decreased) to reflect any adjustments to the
adjusted basis of such Property 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 Treasury Regulation Section 1.704-
1(b)(2)(iv)(m) and paragraph (vi) of the definition of Profits
and Losses and Section 1.2(c)(vii); provided, however, that Gross
Asset Values shall not be adjusted pursuant to this paragraph
(iv) to the extent the Board determines that an adjustment
pursuant to paragraph (ii) of the definition of Gross Asset Value
is necessary or appropriate in connection with a transaction that
would otherwise result in an adjustment pursuant to paragraph
(iv) of the definition of Gross Asset Value.
-11-
If the Gross Asset Value of an asset has been
determined or adjusted pursuant to paragraph (i), (ii) or (iv)
above, such Gross Asset Value shall thereafter be adjusted by
Depreciation taken into account with respect to such asset for
purposes of computing Profits and Losses.
"Interest" means an interest in the Company
representing the rights and obligations under the Agreement of
the Member who holds such Interest.
"Member" means any Person who has been admitted as a
Member or substitute Member pursuant to the terms of the
Agreement and who is the owner of an Interest. "Members" means
all such Persons. For purposes of this Exhibit C-1, "Member"
also means a transferee of an Interest who has not become a
substitute Member.
"Member Nonrecourse Debt" has the meaning set forth in
Section 1.704-2(b)(4) of the Treasury Regulations.
"Member Nonrecourse Debt Minimum Gain" means an amount,
with respect to each Member Nonrecourse Debt, equal to the
Minimum Gain that would result if such Member Nonrecourse Debt
were treated as a Nonrecourse Liability, determined in accordance
with Section 1.704-2(i)(3) of the Treasury Regulations.
"Member Nonrecourse Deductions" has the meaning set
forth in Sections 1.704-2(i)(1) and 1.704-2(i)(2) of the Treasury
Regulations.
"Minimum Gain" has the meaning set forth in Treasury
Regulations Sections 1.704-2(b)(2) and 1.704-2(d).
"Net Cash" means Net Cash From Operations and Net Cash
From Sales or Refinancings. Net Cash shall not include Capital
Contributions.
"Net Cash From Operations" means, on or after the
Effective Date, the gross cash proceeds from Company operations
(including sales, exchanges or other dispositions in the ordinary
course of business) less the portion thereof used to pay or
establish reserves for all Company expenses, debt payments,
capital improvements, new investments, replacements and
contingencies. "Net Cash From Operations" shall not be reduced
by depreciation, amortization, cost recovery deductions or
similar allowances, but shall be increased by any reductions of
reserves previously established.
"Net Cash From Sales or Refinancings" means, on or
after the Effective Date, the net cash proceeds from all sales,
exchanges or other dispositions (other than in the ordinary
course of business), and all financings and refinancings of
Property, less any portion thereof used to establish reserves.
"Net Cash From Sales or Refinancings" shall include all principal
and interest payments with respect to any note or other
obligation received by the Company in connection with sales,
exchanges or other dispositions (other than in the ordinary
course of business) of Property. Net Cash From Sales or
Refinancings thereafter shall be increased in the event of
reductions in reserves previously established pursuant to the
first sentence of the definition of Net Cash From Sales or
Refinancings.
-12-
"Nonrecourse Deductions" has the meaning set forth in
Section 1.704-2(b)(1) of the Treasury Regulations.
"Nonrecourse Liability" has the meaning set forth in
Section 1.704-2(b)(3) of the Treasury Regulations.
"Owner" has the meaning set forth in the Purchase
Agreement.
"Owner Equity" has the meaning set forth in the
Purchase Agreement.
"Ownership Percentage" means, with respect to any
Member at any time, the percentage of ownership of such Member as
set forth in the applicable paragraph of Exhibit B of the
Purchase Agreement. In the event any Interest is transferred in
accordance with the provisions of the Agreement, the transferee
of such Interest shall succeed to the Ownership Percentage of his
transferor to the extent it relates to the transferred Interest.
"Person" means any individual, partnership,
corporation, trust or other entity.
"Preferred Equity Balance" means, as of any day with
respect to a Member, the Member's Capital Contributions, adjusted
as follows:
(i) Increased by the amount of any Company liabilities
which, in connection with distributions to such Member pursuant
to Section 1.1(b)(i), are assumed by the Member or are secured by
any Property distributed to the Member; and
(ii) Reduced by the amount of cash and the Gross Asset
Value of any Property distributed to such Member pursuant to
Section 1.1(b)(i) and the amount of any liabilities of the Member
assumed by the Company or which are secured by any property
contributed by the Member to the Company.
In the event a Member transfers all or any portion of its
Interest in accordance with the terms of this Agreement, its
transferee shall succeed to his Preferred Equity Balance to the
extent it relates to the transferred Interest.
"Profits" and "Losses" means, for each fiscal year or
other period commencing on or after the Effective Date, 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:
(i) Any income of the Company that is exempt from
federal income tax and not otherwise taken into account in
computing Profits or Losses pursuant to the definition of Profits
and Losses shall be added to such taxable income or loss;
(ii) Any expenditures of the Company described in
Code Section 705(a)(2)(B) or treated as Code Section 705(a)(2)(B)
expenditures pursuant to Treasury Regulations Section 1.704-
1(b)(2)(iv)(i), and not otherwise taken into account in computing
Profits or Losses pursuant to the definition of Profits and
Losses shall be subtracted from such taxable income or loss;
-13-
(iii) In the event the Gross Asset Value of
any Company asset is adjusted pursuant to paragraph (ii) or (iii)
of the definition of Gross Asset Value, the amount of such
adjustment shall be taken into account as gain or loss from the
disposition of such asset for purposes of computing Profits or
Losses;
(iv) Gain or loss resulting from any disposition
of Property with respect to which gain or loss is recognized for
federal income tax purposes shall be computed by reference to the
Gross Asset Value of the Property disposed of, notwithstanding
that the adjusted tax basis of such Property differs from its
Gross Asset Value;
(v) In lieu of the depreciation, amortization and
other cost recovery deductions taken into account in computing
such taxable income or loss, there shall be taken into account
Depreciation for such fiscal year or other period, computed in
accordance with the definition of Depreciation;
(vi) To the extent an adjustment to the adjusted
tax basis of any Property pursuant to Code Section 734(b) or Code
Section 743(b) is required pursuant to Treasury 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 Property) or loss (if the adjustment
decreases the basis of the Property) from the disposition of the
asset and shall be taken into account for purposes of computing
Profits or Losses; and
(vii) Notwithstanding any other provision of
the definition of Profits and Losses, any items which are
specially allocated pursuant to Exhibit C-1 shall not be taken
into account in computing Profits or Losses.
The amounts of the items of Company income, gain,
loss, or deduction available to be specifically allocated
pursuant to Exhibit C-1 shall be determined by applying rules
analogous to those set forth in paragraph (i) through (vi) of the
definition of Profits and Losses.
"Property" means all real and personal property
acquired by the Company and any improvements thereto, and shall
include both tangible and intangible property.
"Purchase Agreement" means that certain Purchase
Agreement dated as of the Effective Date among Novo Networks,
Inc., Paciugo Management LLC, Ad Astra Holdings LP, Ugo Ginatta,
Cristiana Ginatta and Vincent Ginatta.
"Purchaser" has the meaning set forth in the Purchase
Agreement.
"Treasury Regulations" means the Income Tax
Regulations, including Temporary Regulations, promulgated under
the Code, as such regulations may be amended from time to time
(including corresponding provisions of succeeding regulations).
-14-
EXHIBIT C-2
EXHIBIT C-2
-----------
Distributions; Allocations; Liquidation Provisions; Definitions
---------------------------------------------------------------
1.1 Distributions. Net Cash shall be distributed among the
Partners as follows:
(a) Net Cash From Operations. Subject to Section
1.1(c), Net Cash From Operations shall be distributed among the
Partners in proportion to their Ownership Percentages.
(b) Net Cash From Sales or Refinancings. Net Cash
From Sales or Refinancings shall be distributed among the
Partners in the following order and priority:
(i) First, to the Partners until their Preferred
Equity Balances are reduced to zero (prorata among the Partners
in proportion to their Preferred Equity Balances);
(ii) Second, to the Owners until the cumulative
distributions to the Owners pursuant to this Section 1.1(b)(ii)
for all periods are equal to the excess of (i) the cumulative
distributions to the Purchaser pursuant to Section 1.1(b)(i) for
all periods, over (ii) the cumulative distributions to the Owners
pursuant to Section 1.1(b)(i) for all periods (prorata among the
Owners in proportion to their Ownership Percentages); and
(iii) Third, to the Partners in proportion to
their Ownership Percentages.
(c) Tax Distributions. The Partnership shall make
distributions ("Tax Distributions" as provided in this Section
1.1(c).
(i) Distributions. The Partnership shall make
to each Member, to the extent of Available Net Cash Flow, Tax
Distributions on a quarterly basis to cover estimated tax
payments and final tax liability equal to the excess of (A) such
Partner's Cumulative Net Tax Liability, over (B) the prior
cumulative distributions to such Partner pursuant to this
Section 1.1(c). To the extent, if at all, Partners receive Tax
Distributions that are not proportionate to their Ownership
Percentages (determined with reference to their Ownership
Percentages during the period to which the Tax Distributions
are attributable), distributions ("Additional Distributions")
shall be made (at the time Tax Distributions are made) to one
or more Partners to the extent necessary so that, on a
cumulative basis, the aggregate Tax Distributions and Additional
Distributions each Partner receives are proportionate to their
Ownership Percentages. Distributions pursuant to this
Section 1.1(c) shall not be treated as distributions pursuant to
Sections 1.1(a) and 1.1(b) for any purpose.
(ii) Definitions.
(A) The "Cumulative Net Tax Liability" of a
Partner as of any date shall equal the amount determined by first
computing the "Current Tax Liability" or "Current Tax Benefit" of
the Partner with respect to the Partnership on a year-by-year
basis (for periods commencing on or after the Effective Date) in
accordance with this Section 1.1(c)(ii)(A), and then adding such
liabilities and subtracting such benefits to arrive at the
Cumulative Net Tax Liability, if any. Time value of money
considerations shall not be taken into account in this process.
-1-
The Current Tax Liability or Current Tax
Benefit for each fiscal year shall be deemed to be equal to the
sum of (1) any tax credits of the Partnership allocated to such
Partner, and (2) the product of (x) the "Applicable Tax Rate,"
multiplied by (y) an amount equal to the "Taxable Income" or "Tax
Loss" of the Partnership, as the case may be, for such year
allocated to such Partner (using estimates for the current year
for Tax Distributions with respect to a year made before the
final accounting for such year).
(B) "Taxable Income" or "Tax Loss" for a
year shall be equal to the positive or negative amount of the
Partnership's taxable income or loss for such year, determined in
accordance with Code Section 703(a), provided that: (i) all
items of income, gain, loss or deduction required to be
separately stated pursuant to Code Section 703(a)(1) shall be
included in taxable income or loss; (ii) any taxable income or
taxable loss attributable to the sale, exchange or other
disposition of Property the proceeds (if any) of which would be
taken into account in determining Net Cash From Sales or
Refinancings shall be disregarded in determining Taxable Income
or Tax Loss; and (iii) with respect to income, gain, loss or
deduction taken into account pursuant to Code Section 704(c), the
Treasury Regulations thereunder, and the applicable principles
with respect thereto ("Section 704(c) Items"): (1) Section
704(c) Items attributable to operations of the Partnership in the
ordinary course of business ("Ordinary Course") shall be taken
into account in determining Taxable Income or Tax Loss; and (2)
Section 704(c) Items not attributable to the Ordinary Course
shall not be taken into account in determining Taxable Income or
Tax Loss.
(C) The "Applicable Tax Rate" for any year
shall equal the maximum marginal federal income tax rate
applicable to individuals for such year. The actual tax, tax
brackets or other tax attributes of the Partners shall be
irrelevant for purposes of determining the Applicable Tax Rate
and the Tax Distributions pursuant to this Section 1.1(c).
(D) "Available Net Cash Flow" means all
cash available to the Partnership, less reasonable reserves as
determined by the Board, which may be distributed to Partners
without breaching contractual obligations of the Partnership to
third parties (such as lenders).
(d) Change of Control. In the event of a Change of
Control after the Effective Date, the Partners agree to share any
proceeds with respect thereto as if such proceeds were Sale or
Refinancing Proceeds distributable pursuant to Section 1.1(b).
"Change of Control" means (i) any merger or consolidation of the
Partnership with any other entity (other than a wholly-owned
entity), or (ii) any other transaction or series of related
transactions in which more than 50% of the Ownership Percentages
will not, immediately after such acquisition or transaction, be
held by the Partners of record as constituted immediately prior
to such acquisition or transaction, provided that any adjustment
of Ownership Percentages among the Partners pursuant to the
provisions of the Purchase Agreement shall not constitute a
Change of Control.
-2-
1.2 Allocations.
(a) Profits. After giving effect to the special
allocations set forth in Sections 1.2(c) and 1.2(d), Profits for
any fiscal year or other period beginning on or after the
Effective Date shall be allocated to the Partners in the
following order and priority:
(i) First, to the Partners in an amount equal to
the excess, if any, of (i) the cumulative Losses allocated
pursuant to Section 1.2(b)(i) for all prior fiscal years or other
periods, over (ii) the sum of the cumulative Profits allocated
pursuant to this Section 1.2(a)(i) and the gain allocated
pursuant to Section 1.2(c)(ix)(A) for all prior fiscal years or
other periods (pro rata among them in proportion to each
Partner's excess amount);
(ii) Second, to the Partners in an amount equal to
the excess, if any, of (i) the cumulative distributions the
Partners have received pursuant to Section 1.1(a), over (ii) the
sum of the cumulative Profits allocated pursuant to this Section
1.2(a)(ii) and the gain allocated pursuant to Section
1.2(c)(ix)(B) for all prior fiscal years and other periods (pro
rata among the Partners in proportion to each Partner's excess
amount); and
(iii) Third, to the Partners in proportion to
their Ownership Percentages.
(b) Losses. After giving effect to the special
allocations set forth in Sections 1.2(c) and 1.2(d), Losses for
any fiscal year or other period beginning on or after the
Effective Date shall be allocated in the following order and
priority:
(i) Except as provided in Sections 1.2(b)(ii) and
1.2(b)(iii), Losses shall be allocated to the Partners in
proportion to their Ownership Percentages.
(ii) Except as provided in Section 1.2(b)(iii)
hereof, to the extent Profits have been allocated pursuant to
Section 1.2(a)(iii) for any prior fiscal year or other period,
Losses shall be allocated first to offset any Profits allocated
pursuant to Section 1.2(a)(iii) (pro rata among the Partners in
proportion to their shares of the Profits being offset).
(iii) The Losses allocated pursuant to
Sections 1.2(b)(i) and (1.2(b)(ii) shall not exceed the maximum
amount of Losses that can be so allocated without causing any
Partner to have an Adjusted Capital Account Deficit at the end of
any fiscal year. In the event some but not all of the Partners
would have Adjusted Capital Account Deficits as a consequence of
an allocation of Losses pursuant to Section 1.2(b)(i) or Section
1.2(b)(ii), the limitation set forth in this Section 1.2(b)(iii)
shall be applied on a Partner-by-Partner basis so as to allocate
the maximum permissible Losses to each Partner under Section
1.704-1(b)(2)(ii)(d) of the Treasury Regulations.
-3-
(c) Special Allocations. The following special
allocations shall be made in the following order:
(i) Minimum Gain Chargeback. Except as provided
in Section 1.704-2(f) of the Treasury Regulations,
notwithstanding any other provision of this Section 1.2, if there
is a net decrease in Minimum Gain during any fiscal year, each
Partner shall be specially allocated items of Partnership income
and gain for such year (and, if necessary, subsequent years) in
an amount equal to the portion of such Partner's share of the net
decrease in Minimum Gain, determined in accordance with Treasury
Regulations Section 1.704-2(g). Allocations pursuant to the
previous sentence shall be made in proportion to the respective
amounts required to be allocated to each Partner pursuant
thereto. The items to be so allocated shall be determined in
accordance with Sections 1.704-2(f)(6) and 1.704-2(j)(2) of the
Treasury Regulations. This Section 1.2(c)(i) is intended to
comply with the minimum gain chargeback requirement in Section
1.704-2(f) of the Treasury Regulations and shall be interpreted
consistently therewith.
(ii) Partner Nonrecourse Debt Minimum Gain
Chargeback. Except as otherwise provided in Section 1.704-
2(i)(4) of the Treasury Regulations, notwithstanding any other
provision of this Section 1.2 except Section 1.2(c)(i), if there
is a net decrease in Partner Nonrecourse Debt Minimum Gain
attributable to a Partner Nonrecourse Debt during any Partnership
fiscal year, each Partner who has a share of the Partner
Nonrecourse Debt Minimum Gain attributable to such Partner
Nonrecourse Debt, determined in accordance with Section 1.704-
2(i)(5), shall be specially allocated items of Partnership income
and gain for such year (and, if necessary, subsequent years) in
an amount equal to such Partner's share of the net decrease in
Partner Nonrecourse Debt Minimum Gain attributable to such
Partner Nonrecourse Debt, determined in accordance with Treasury
Regulations Section 1.704-2(i)(4). Allocations pursuant to the
previous sentence shall be made in proportion to the respective
amounts required to be allocated to each Partner pursuant
thereto. The items to be so allocated shall be determined in
accordance with Sections 1.704-2(i)(4) and 1.704-2(j)(2) of the
Treasury Regulations. This Section 1.2(c)(ii) is intended to
comply with the minimum gain chargeback requirement in Section
1.704-2(i)(4) of the Treasury Regulations and shall be
interpreted consistently therewith.
(iii) Qualified Income Offset. In the event
any Partner unexpectedly receives any adjustments, allocations or
distributions described in Section 1.704-1(b)(2)(ii)(d)(4), (5)
or (6) of the Treasury Regulations, items of Partnership income
and gain shall be specially allocated to each such Partner in an
amount and manner sufficient to eliminate, to the extent required
by the Regulations, the Adjusted Capital Account Deficit of such
Partner as quickly as possible, provided that an allocation
pursuant to this Section 1.2(c)(iii) shall be made only if and to
the extent that such Partner would have an Adjusted Capital
Account Deficit after all other allocations provided for in this
Section 1.2 have been tentatively made as if this Section
1.2(c)(iii) were not in this Exhibit C-2.
(iv) Gross Income Allocation. In the event any
Partner has a deficit Capital Account at the end of any
Partnership fiscal year which is in excess of the sum of (i) the
amount such Partner is obligated to restore pursuant to any
provision of the Agreement, and (ii) the amount such Partner is
deemed to be obligated to restore pursuant to the penultimate
sentences of Treasury Regulations Sections 1.704-2(g)(1) and
1.704-2(i)(5), each such Partner shall be specially allocated
items of Partnership income and gain in the amount of such excess
as quickly as possible, provided that an allocation pursuant to
this Section 1.2(c)(iv) shall be made if and only to the extent
that such Partner would have a deficit Capital Account in excess
of such sum after all other allocations provided for in Section
1.2 have been tentatively made as if Section 1.2(c)(iii) hereof
and this Section 1.2(c)(iv) were not in this Exhibit C-2.
-4-
(v) Nonrecourse Deductions. Nonrecourse
Deductions for any fiscal year or other period shall be specially
allocated among the Partners in proportion to their Ownership
Percentages.
(vi) Partner Nonrecourse Deductions. Any Partner
Nonrecourse Deductions for any fiscal year or other period shall
be specially allocated to the Partner who bears the economic risk
of loss with respect to the Partner Nonrecourse Debt to which
such Partner Nonrecourse Deductions are attributable in
accordance with Treasury Section 1.704-2(i)(1).
(vii) Section 754 Adjustment. To the extent
an adjustment to the adjusted tax basis of any Property pursuant
to Code Section 734(b) or Code Section 743(b) is required,
pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(m)(2)
or Treasury 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 Partner in complete liquidation of his
Interest, 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 Property) or loss (if the adjustment decreases
such basis) and such gain or loss shall be specially allocated to
the Partners in accordance with their interests in the
Partnership in the event that Treasury Regulations Section 1.704-
1(b)(2)(iv)(m)(2) applies, or to the Partners to whom such
distribution was made in the event that Treasury Regulations
Section 1.704-1(b)(2)(iv)(m)(4) applies.
(viii) Interest Deductions. To the extent, if
at all, the Partnership is entitled to an interest deduction with
respect to payments to the Owners pursuant to Section 2.1 or
Section 2.2 of the Purchase Agreement, such deduction shall be
specially allocated to the Owners (prorata among them in
proportion to their entitlement to any such interest).
(ix) Gain. Any remaining gain for any fiscal year
or other period commencing on or after the Effective Date with
respect to the sale, exchange or other disposition of Property
(other than sales, exchanges or other dispositions in the
ordinary course of business) shall be specially allocated in the
following order and priority:
(A) First, to the Partners in an amount
equal to the excess, if any, of (A) the cumulative Losses
allocated to the Partners pursuant to Section 1.2(b)(i) for all
prior fiscal years or other periods, over (B) the sum of (1) the
cumulative gain allocated to the Partners pursuant to this
Section 1.2(c)(ix)(A) for all prior fiscal years or other
periods, and (2) the cumulative Profits allocated to the Partners
pursuant to Section 1.2(a)(i) for the current and all prior
fiscal years or other periods (pro rata among them in proportion
to each Partner's excess amount);
-5-
(B) Second, to the Partners in an amount
equal to the excess, if any, of (i) the cumulative distributions
the Partners have received pursuant to Section 1.1(a) during the
current and all prior fiscal years or other periods, over (ii)
the sum of (1) the cumulative gain allocated to the Partners
pursuant to this Section 1.2(c)(ix)(B) for all prior fiscal years
or other periods, and (2) the cumulative Profits allocated to the
Partners pursuant to Section 1.2(a)(ii) for the current and all
prior fiscal years or other periods (pro rata among them in
proportion to each Partner's excess amount);
(C) Third, to each of the Owners in
proportion to their Ownership Percentages until the cumulative
gain allocated pursuant to this Section 1.2(c)(ix)(C) for the
current and all prior fiscal years and other periods is equal to
the aggregate amount the Owners have received or are entitled to
receive pursuant to Section 1.1(b)(ii); and
(D) Fourth, to the Partners in proportion to
their Ownership Percentages.
(x) Final Allocations. Notwithstanding any
provision to the contrary in the Agreement (including, without
limitation, this Exhibit C-2), it is the intent of the Partners
that, upon the dissolution of the Partnership and the final
distributions to the Partners, the Partners' Capital Accounts
shall be in proportion ("Distribution Ratios") to the amounts
they are entitled to receive pursuant to Section 1.1.
Accordingly, the Board shall modify the allocations pursuant to
this Exhibit C-2 in such manner and to such extent as may be
necessary to cause the Partners' Capital Accounts upon the
dissolution of the Partnership to be in proportion to their
Distribution Ratios, with the result that, after liquidating
distributions are made to the Partners, each Partner's Capital
Account balance shall be zero (to the extent possible). The
Partners acknowledge that all distributions of the Partnership to
Partners shall be made pursuant to the provisions of Section 1.1
irrespective of the Partners' Capital Accounts at any time.
Without limitation, distributions upon the liquidation of the
Partnership shall be made pursuant to the provisions of Section
1.1 whether or not each Partner's Capital Account balance is
reduced to zero.
(d) Curative Allocations. The allocations set forth
in Sections 1.2(b)(iii) and the foregoing provisions of Section
1.2(c) (other than Sections 1.2(c)(viii), (ix) and (x)) (the
"Regulatory Allocations") are intended to comply with certain
requirements of the Treasury Regulations. It is the intent of
the Partners that, to the extent possible, all Regulatory
Allocations shall be offset either with other Regulatory
Allocations or with special allocations of other items of
Partnership income, gain, loss or deduction pursuant to this
Section 1.2(d). Therefore, notwithstanding any other provision
of this Section 1.2 (other than the Regulatory Allocations), the
Board shall make such offsetting special allocations of
Partnership income, gain, loss or deduction in whatever manner
determined to be appropriate so that, after such offsetting
allocations are made, each Partner's Capital Account balance is,
to the extent possible, equal to the Capital Account balance such
Partner would have had if the Regulatory Allocations were not
part of this Exhibit C-2 and all Partnership items were allocated
pursuant to this Exhibit C-2 other than the Regulatory
Allocations. In exercising discretion under this Section 1.2(d),
the Board shall take into account future Regulatory Allocations
under Sections 1.2(c)(i) and 1.2(c)(ii) that, although not yet
made, are likely to offset other Regulatory Allocations
previously made under Sections 1.2(c)(v) and 1.2(c)(vi).
-6-
(e) Other Allocations Rules.
(i) For purposes of determining the Profits,
Losses or any other items allocable to any period, Profits,
Losses and any such other items shall be determined on a daily,
monthly, or other basis, as determined by the Board using any
permissible method under Code Section 706 and the Treasury
Regulations thereunder.
(ii) Except as otherwise provided in this Exhibit
C-2, all items of Partnership income, gain, loss, deduction,
credit and any other allocations for any fiscal year or other
period not otherwise provided for shall be divided among the
Partners in the same proportions as they share Profits or Losses,
as the case may be, for such year or other period.
(iii) The Partners are aware of the income tax
consequences of the allocations made pursuant to this Exhibit C-2
and hereby agree to be bound by the provisions of this Exhibit C-
2 in reporting their shares of Partnership income and loss for
income tax purposes.
(iv) Solely for purposes of determining a
Partner's proportionate share of the "excess nonrecourse
liabilities" of the Partnership within the meaning of Treasury
Regulations Section 1.752-3(a)(3), the Partners' interests in
Partnership profits are in proportion to their Ownership
Percentages.
(v) To the extent permitted by Section 1.704-
2(h)(3) of the Treasury Regulations, the Board shall endeavor to
treat distributions as having been made from the proceeds of a
Nonrecourse Liability or a Partner Nonrecourse Debt only to the
extent that such distributions would cause or increase an
Adjusted Capital Account Deficit for any Partner.
(vi) All allocations of income, gain, loss,
deduction and credits with respect to periods ending prior to the
Effective Date ("Prior Allocations") shall be allocated to the
Owners as set forth in the Agreement prior to its amendment by
the Purchase Agreement (including this Exhibit C-2). Prior
Allocations shall not be taken into account as adjustments to the
Capital Accounts of the Owners on or after the Effective Date.
(f) Tax Allocations: Code Section 704(c). In
accordance with Code Section 704(c) and the Treasury Regulations
thereunder, income, gain, loss and deduction with respect to any
property contributed to the capital of the Partnership shall,
solely for tax purposes, be allocated among the Partners so as to
take account of any variation between the adjusted basis of such
property to the Partnership for federal income tax purposes and
its initial Gross Asset Value (computed in accordance with
paragraph (i) of the definition of Gross Asset Value).
In the event the Gross Asset Value of any Property
is adjusted pursuant to paragraph (ii) of the definition of Gross
Asset Value, subsequent allocations of income, gain, loss and
deduction with respect to such Property shall take account of any
variation between the adjusted basis of such Property for federal
income tax purposes and its Gross Asset Value in the same manner
as under Code Section 704(c) and the Treasury Regulations
thereunder.
-7-
Any elections or other decisions relating to such
allocations shall be made by the Partnership in any manner that
reasonably reflects the purpose and intention of this Exhibit C-
2. Allocations pursuant to this Section 1.2(f) 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 Partner's
Capital Account or share of Profits, Losses, other items or
distributions pursuant to any provision of this Exhibit C-2.
The Partners acknowledge that the principles of
Code Section 704(c) and the Treasury Regulations thereunder shall
apply with respect to the restatement of the Gross Asset Values,
Capital Accounts and Capital Contributions of the Owners (as set
forth in the applicable definitions in Section 1.5 of this
Exhibit C-2).
1.3 Compliance with Timing Requirements of Treasury
Regulations. In the event the Partnership is "liquidated" within
the meaning of Treasury Regulations Section 1.704-1(b)(2)(ii)(g),
(i) distributions shall be made to the Partners pursuant to the
distribution provisions of this Exhibit C-2, and (ii) if a
Partner's Capital Account has a deficit balance (after giving
effect to all contributions, distributions and allocations for
all taxable years, including the year during which such
liquidation occurs), such Partner shall have no obligation to
make any contribution to the capital of the Partnership with
respect to such deficit, and such deficit shall not be considered
a debt owed to the Partnership or any other Person for any
purpose whatsoever. In the discretion of the Partnership, a pro
rata portion of the distributions that would otherwise be made to
the Partners may be:
(a) distributed to a trust established for the benefit
of the Partners for the purposes of liquidating Partnership
assets, collecting amounts owed to the Partnership, and paying
any contingent or unforeseen liabilities or obligations of the
Partnership or of the Partners arising out of or in connection
with the Partnership. The assets of any such trust shall be
distributed to the Partners from time to time, in the reasonable
discretion of the Board, in the same proportions as the amount
distributed to such trust by the Partnership would otherwise have
been distributed to the Partners pursuant to this Exhibit C-2; or
(b) withheld to provide a reasonable reserve for
Partnership liabilities (contingent or otherwise) and to reflect
the unrealized portion of any installment obligations owed to the
Partnership, provided that such withheld amounts shall be
distributed to the Partners as soon as practicable.
1.4 Deemed Distribution and Recontribution.
Notwithstanding any other provision of the Agreement, in the
event the Partnership is liquidated within the meaning of
Treasury Regulations Section 1.704-1(b)(2)(ii)(g) but no
liquidating event has occurred, the Partnership's assets shall
not be liquidated, the Partnership's liabilities shall not be
paid or discharged, and the Partnership's affairs shall not be
wound up. Instead, the Partnership shall be deemed to have
distributed its assets in kind to the Partners, who shall be
deemed to have assumed and taken subject to all Partnership
liabilities, all in accordance with their entitlement thereto
pursuant to the Exhibit C-2. Immediately thereafter, the
Partners shall be deemed to have recontributed the assets in kind
to the Partnership, which shall be deemed to have assumed and
taken subject to all such liabilities.
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1.5 Definitions. Certain capitalized words and phrases
used in this Exhibit C-2 have the meanings set forth in this
Section 1.5, as follows:
"Adjusted Capital Account Deficit" means, with respect
to any Partner, the deficit balance, if any, in such Person's
Capital Account as of the end of the relevant fiscal year, after
giving effect to the following adjustments:
(i) Credit to such Capital Account any amounts which
such Person is obligated to restore pursuant to any provision of
the Agreement or is deemed to be obligated to restore pursuant to
the penultimate sentences of Treasury Regulations Sections 1.704-
2(g)(1) and 1.704-2(i)(5); and
(ii) Debit to such Capital Account the items described
in Sections 1.704-1(b)(2)(ii)(d)(4), (5) and (6) of the Treasury
Regulations.
The foregoing definition of Adjusted Capital Account
Deficit is intended to comply with the provisions of Section
1.704-1(b)(2)(ii)(d) of the Treasury Regulations and shall be
interpreted consistently therewith.
"Agreement" means that certain Partnership Agreement
with respect to the Partnership, as amended by the Purchase
Agreement (including, without limitation, this Exhibit C-2, and
as may be subsequently amended.
"Board" has the meaning set forth in the Purchase
Agreement.
"Capital Account" means, with respect to any Partner,
the Capital Account established and maintained for such Person in
accordance with the following provisions:
(i) To each Person's Capital Account there shall be
credited such Person's Capital Contributions, such Person's
distributive share of Profits and any items in the nature of
income or gain which are specially allocated pursuant to Exhibit
C-2, and the amount of any Partnership liabilities assumed by
such Person or which are secured by any Property distributed to
such Person.
(ii) To each Person's Capital Account there shall be
debited the amount of cash and the Gross Asset Value of any
Property distributed to such Person pursuant to any provision of
this Exhibit C-2, such Person's distributive share of Losses and
any items in the nature of expenses or losses which are specially
allocated pursuant to Exhibit C-2, and the amount of any
liabilities of such Person assumed by the Partnership or which
are secured by any property contributed by such Person to the
Partnership.
(iii) In the event any Interest 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.
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(iv) In determining the amount of any liability for
purposes of paragraphs (i) and (ii) of the definitions of Capital
Account and Preferred Equity Balance, there shall be taken into
account Code Section 752(c) and any other applicable provisions
of the Code and Treasury Regulations.
The foregoing provisions and the other provisions of
this Exhibit C-2 relating to the maintenance of Capital Accounts
are intended to comply with Treasury Regulations Section 1.704-
1(b), and shall be interpreted and applied in a manner consistent
with such Treasury Regulations. In the event the Board shall
determine that it is prudent to modify the manner in which the
Capital Accounts, or any debits or credits thereto (including,
without limitation, debits or credits relating to liabilities
which are secured by contributed or distributed property or which
are assumed by the Partnership or the Partners), are computed in
order to comply with such Treasury Regulations, the Board may
make such modification, provided that it is not likely to have a
material effect on the amounts distributable to any Partner upon
the dissolution of the Partnership. The Board also shall (i)
make any adjustments that are necessary or appropriate to
maintain equality between the Capital Accounts of the Partners
and the amount of Partnership capital reflected on the
Partnership's balance sheet, as computed for book purposes, in
accordance with Treasury Regulations Section 1.704-
1(b)(2)(iv)(g), and (ii) make any appropriate modifications in
the event unanticipated events might otherwise cause this Exhibit
C-2 not to comply with Treasury Regulations Section 1.704-1(b).
The Capital Accounts of the Owners shall be restated as
of the Effective Date to equal the Owners' Capital Contributions,
as restated pursuant to the definition of Capital Contributions.
"Capital Contribution" means, with respect to any
Partner, the amount of money and the initial Gross Asset Value of
any asset (other than money) contributed to the Partnership with
respect to the Interest held by such Partner. The Partners
acknowledge that: (i) the Capital Contribution of the Purchaser
upon the Effective Date shall be an amount equal to 99% of the
Purchase Price (as defined in the Purchase Agreement); (ii) the
Capital Accounts of the Owners shall be restated as of the
Effective Date to equal their restated Capital Contributions,
which shall be equal to their Owner Equity; and (iii) the
additional Capital Contribution of the Purchaser upon the
exercise (if at all) of the Option (as defined in the Purchase
Agreement) shall be an amount equal to 99% of the Additional
Purchase Price (as defined in the Purchase Agreement).
"Code" means the Internal Revenue Code of 1986, as
amended from time to time (or any corresponding provisions of
succeeding law).
"Depreciation" means, for each fiscal year or other
period, an amount equal to the 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 which bears the same
ratio to such beginning Gross Asset Value as the federal income
tax depreciation, amortization or other cost recovery deduction
for such 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 is zero, Depreciation shall be determined with
reference to such beginning Gross Asset Value using any
reasonable method selected by the Partnership.
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"Effective Date" means January 1, 2003. The Partners
acknowledge that each and every provision of this Exhibit C-2
(other than Section 1.2(e)(vi)) shall apply only with respect to
periods beginning on or after the Effective Date.
"Gross Asset Value" means, with respect to any asset,
the asset's adjusted basis for federal income tax purposes,
except as follows:
(i) The initial Gross Asset Value of any asset
contributed by a Partner to the Partnership shall be the gross
fair market value of such asset, as determined by the
contributing Partner and the Partnership;
(ii) The Gross Asset Values of all Partnership
assets shall be adjusted to equal their respective gross fair
market values, as determined by the Partnership, as of the
following times: (A) the acquisition of an additional Interest by
any new or existing Partner in exchange for more than a de
minimis Capital Contribution (including the addition of the
Purchaser as a Partner pursuant to the Purchase Agreement); (B)
the distribution by the Partnership to a Partner of more than a
de minimis amount of Property as consideration for an Interest;
and (C) the liquidation of the Partnership within the meaning of
Treasury Regulations Section 1.704-1(b)(2)(ii)(g); provided,
however that the adjustments pursuant to clauses (A) and (B)
above shall be made only if the Board reasonably determines that
such adjustments are necessary or appropriate to reflect the
relative economic interests of the Partners in the Partnership.
The Partners acknowledge that the Gross Asset Values of the
Partnership's assets (excluding the Capital Contributions of the
Purchaser) shall be adjusted, as of the Effective Date, to equal
99% of the Owner Equity.
(iii) The Gross Asset Value of any Property
distributed to any Partner shall be the gross fair market value
of such asset on the date of distribution; and
(iv) The Gross Asset Values of all Property shall
be increased (or decreased) to reflect any adjustments to the
adjusted basis of such Property 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 Treasury Regulation Section 1.704-
1(b)(2)(iv)(m) and paragraph (vi) of the definition of Profits
and Losses and Section 1.2(c)(vii); provided, however, that Gross
Asset Values shall not be adjusted pursuant to this paragraph
(iv) to the extent the Board determines that an adjustment
pursuant to paragraph (ii) of the definition of Gross Asset Value
is necessary or appropriate in connection with a transaction that
would otherwise result in an adjustment pursuant to paragraph
(iv) of the definition of Gross Asset Value.
If the Gross Asset Value of an asset has been
determined or adjusted pursuant to paragraph (i), (ii) or (iv)
above, such Gross Asset Value shall thereafter be adjusted by
Depreciation taken into account with respect to such asset for
purposes of computing Profits and Losses.
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"Interest" means an interest in the Partnership
representing the rights and obligations under the Agreement of
the Partner who holds such Interest.
"Minimum Gain" has the meaning set forth in Treasury
Regulations Sections 1.704-2(b)(2) and 1.704-2(d).
"Net Cash" means Net Cash From Operations and Net Cash
From Sales or Refinancings. Net Cash shall not include Capital
Contributions.
"Net Cash From Operations" means, on or after the
Effective Date, the gross cash proceeds from Partnership
operations (including sales, exchanges or other dispositions in
the ordinary course of business) less the portion thereof used to
pay or establish reserves for all Partnership expenses, debt
payments, capital improvements, new investments, replacements and
contingencies. "Net Cash From Operations" shall not be reduced
by depreciation, amortization, cost recovery deductions or
similar allowances, but shall be increased by any reductions of
reserves previously established.
"Net Cash From Sales or Refinancings" means, on or
after the Effective Date, the net cash proceeds from all sales,
exchanges or other dispositions (other than in the ordinary
course of business), and all financings and refinancings of
Property, less any portion thereof used to establish reserves.
"Net Cash From Sales or Refinancings" shall include all principal
and interest payments with respect to any note or other
obligation received by the Partnership in connection with sales,
exchanges or other dispositions (other than in the ordinary
course of business) of Property. Net Cash From Sales or
Refinancings thereafter shall be increased in the event of
reductions in reserves previously established pursuant to the
first sentence of the definition of Net Cash From Sales or
Refinancings.
"Nonrecourse Deductions" has the meaning set forth in
Section 1.704-2(b)(1) of the Treasury Regulations.
"Nonrecourse Liability" has the meaning set forth in
Section 1.704-2(b)(3) of the Treasury Regulations.
"Owner" has the meaning set forth in the Purchase
Agreement.
"Owner Equity" has the meaning set forth in the
Purchase Agreement.
"Ownership Percentage" means, with respect to any
Partner at any time, the percentage of ownership of such Partner
as set forth in the applicable paragraph of Exhibit B of the
Purchase Agreement. In the event any Interest is transferred in
accordance with the provisions of the Agreement, the transferee
of such Interest shall succeed to the Ownership Percentage of his
transferor to the extent it relates to the transferred Interest.
"Partner" means any Person who has been admitted as a
Partner or substitute Partner pursuant to the terms of the
Agreement and who is the owner of an Interest. "Partners" means
all such Persons. For purposes of this Exhibit C-2, "Partner"
also means a transferee of an Interest who has not become a
substitute Partner.
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"Partner Nonrecourse Debt" has the meaning set forth in
Section 1.704-2(b)(4) of the Treasury Regulations.
"Partner Nonrecourse Debt Minimum Gain" means an
amount, with respect to each Partner Nonrecourse Debt, equal to
the Minimum Gain that would result if such Partner Nonrecourse
Debt were treated as a Nonrecourse Liability, determined in
accordance with Section 1.704-2(i)(3) of the Treasury
Regulations.
"Partner Nonrecourse Deductions" has the meaning set
forth in Sections 1.704-2(i)(1) and 1.704-2(i)(2) of the Treasury
Regulations.
"Partnership" means Astra Holdings LP, a Texas limited
partnership.
"Person" means any individual, partnership,
corporation, trust or other entity.
"Preferred Equity Balance" means, as of any day with
respect to a Partner, the Partner's Capital Contributions,
adjusted as follows:
(i) Increased by the amount of any Partnership
liabilities which, in connection with distributions to such
Partner pursuant to Section 1.1(b)(i), are assumed by the Partner
or are secured by any Property distributed to the Partner; and
(ii) Reduced by the amount of cash and the Gross Asset
Value of any Property distributed to such Partner pursuant to
Section 1.1(b)(i) and the amount of any liabilities of the
Partner assumed by the Partnership or which are secured by any
property contributed by the Partner to the Partnership.
In the event a Partner transfers all or any portion of its
Interest in accordance with the terms of this Agreement, its
transferee shall succeed to his Preferred Equity Balance to the
extent it relates to the transferred Interest.
"Profits" and "Losses" means, for each fiscal year or
other period commencing on or after the Effective Date, an amount
equal to the Partnership'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:
(i) Any income of the Partnership that is exempt
from federal income tax and not otherwise taken into account in
computing Profits or Losses pursuant to the definition of Profits
and Losses shall be added to such taxable income or loss;
(ii) Any expenditures of the Partnership described
in Code Section 705(a)(2)(B) or treated as Code Section
705(a)(2)(B) expenditures pursuant to Treasury Regulations
Section 1.704-1(b)(2)(iv)(i), and not otherwise taken into
account in computing Profits or Losses pursuant to the definition
of Profits and Losses shall be subtracted from such taxable
income or loss;
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(iii) In the event the Gross Asset Value of
any Partnership asset is adjusted pursuant to paragraph (ii) or
(iii) of the definition of Gross Asset Value, the amount of such
adjustment shall be taken into account as gain or loss from the
disposition of such asset for purposes of computing Profits or
Losses;
(iv) Gain or loss resulting from any disposition
of Property with respect to which gain or loss is recognized for
federal income tax purposes shall be computed by reference to the
Gross Asset Value of the Property disposed of, notwithstanding
that the adjusted tax basis of such Property differs from its
Gross Asset Value;
(v) In lieu of the depreciation, amortization and
other cost recovery deductions taken into account in computing
such taxable income or loss, there shall be taken into account
Depreciation for such fiscal year or other period, computed in
accordance with the definition of Depreciation;
(vi) To the extent an adjustment to the adjusted
tax basis of any Property pursuant to Code Section 734(b) or Code
Section 743(b) is required pursuant to Treasury 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 Partner's Interest, the amount of such
adjustment shall be treated as an item of gain (if the adjustment
increases the basis of the Property) or loss (if the adjustment
decreases the basis of the Property) from the disposition of the
asset and shall be taken into account for purposes of computing
Profits or Losses; and
(vii) Notwithstanding any other provision of
the definition of Profits and Losses, any items which are
specially allocated pursuant to Exhibit C-2 shall not be taken
into account in computing Profits or Losses.
The amounts of the items of Partnership income,
gain, loss, or deduction available to be specifically allocated
pursuant to Exhibit C-2 shall be determined by applying rules
analogous to those set forth in paragraph (i) through (vi) of the
definition of Profits and Losses.
"Property" means all real and personal property
acquired by the Partnership and any improvements thereto, and
shall include both tangible and intangible property.
"Purchase Agreement" means that certain Purchase
Agreement dated as of the Effective Date among Novo Networks,
Inc., Paciugo Management LLC, Ad Astra Holdings LP, Ugo Ginatta,
Cristiana Ginatta and Vincent Ginatta.
"Purchaser" has the meaning set forth in the Purchase
Agreement.
"Treasury Regulations" means the Income Tax
Regulations, including Temporary Regulations, promulgated under
the Code, as such regulations may be amended from time to time
(including corresponding provisions of succeeding regulations).
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