Exhibit 11.03
LIMITED LIABILITY COMPANY
OF
SYLVAN VENTURES, LLC
BY AND AMONG
SYLVAN LEARNING SYSTEMS, INC.,
AP EDUCATE INVESTMENTS, LLC,
SYLVAN VENTURES, INC.,
R. CHRISTOPHER HOEHN-SARIC,
AND
DOUGLAS L. BECKER
JUNE 30, 2000
Table of Contents
Page
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Article I Defined Terms
1.1 Defined Terms................................... 1
Article II Organization
2.1 Formation....................................... 17
2.2 Name............................................ 17
2.3 Purpose......................................... 17
2.4 Term............................................ 17
2.5 Registered Office; Principal Place of Business.. 17
2.6 Registered Agent................................ 17
2.7 Members......................................... 17
Article III Capital Contributions; Additional
Preferred Units; Membership Profit Interest Plan
3.1 Capital Contributions........................... 18
3.2 Issuance of Additional Units.................... 21
3.3 Membership Profit Interest Plan................. 22
Article IV Allocations and Distributions
4.1 Distributions .................................. 22
4.2 Allocations .................................... 27
4.3 Special Allocations............................. 30
4.4 Other Allocation and Distribution Rules......... 32
Article V Management: Board of Managers, etc.
5.1 Authority of Board; Election of Managers; Removal;
Vacancies; Meetings of the Board................ 34
5.2 Meetings of Members............................. 42
5.3 Officers........................................ 43
5.4 Waiver of Notification.......................... 44
5.5 Personal Services............................... 44
5.6 Limitation on Authority of Members.............. 44
5.7 Liability and Indemnification................... 44
Article VI Transfer of Membership Interests
6.1 No Transfer or Voluntary Withdrawal............. 46
6.2 Transfer of Preferred Units..................... 47
6.3 Transfer by Management Members.................. 47
6.4 Transfer of Membership Profit Interests......... 48
6.5 Tag-Along Rights................................ 48
6.6 Registration Rights............................. 49
6.7 Admission of Transferee as Member............... 49
Article VII Miscellaneous Agreements
7.1 Preemptive Rights............................... 50
7.2 Optional Conversion of Preferred Units.......... 52
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7.3 Qualified IPO................................... 57
7.4 Exclusivity..................................... 59
7.5 Real Estate Assets.............................. 60
7.6 Investment Company Act.......................... 61
7.7 Plan Assets..................................... 61
Article VIII Dissolution, Liquidation, and Termination of the Company
8.1 Events of Dissolution........................... 61
8.2 Procedure for Winding Up and Dissolution........ 62
Article IX Books, Records, Accounting
9.1 Books and Records; Accounting Period and
Policies...................................... 62
9.2 Bank Accounts................................... 63
9.3 Taxes and Reports............................... 63
Article X General Provisions
10.1 Title to Company Property....................... 64
10.2 Arbitration..................................... 64
10.3 Assurances...................................... 65
10.4 Notifications................................... 65
10.5 Specific Performance............................ 65
10.6 Entire Agreement; Amendment; Waiver............. 65
10.7 Applicable Law; Jurisdiction.................... 66
10.8 Word Meanings; Headings......................... 66
10.9 Binding Effect.................................. 66
10.10 Interpretation.................................. 66
10.11 Separability.................................... 66
10.12 Counterparts.................................... 66
List of Exhibits
Exhibit A Members, Initial Capital Contributions,
Commitments, Units and Percentages
Exhibit B Certificate of Formation and Certificate of Amendment
Exhibit C Membership Profit Interest Plan
Exhibit D Calculation of Conversion of Membership
Profit Interests Upon a Qualified IPO
Exhibit E Description of Real Estate Assets
Exhibit F Permitted Affiliate Transactions
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LIMITED LIABILITY COMPANY AGREEMENT
OF
SYLVAN VENTURES, LLC
THIS LIMITED LIABILITY COMPANY AGREEMENT (this "Agreement") is executed on
this 30th day of June, 2000 (the "Effective Date"), by and among SYLVAN LEARNING
SYSTEMS, INC., a Maryland corporation ("Sylvan"), AP EDUCATE INVESTMENTS, LLC, a
Delaware limited liability company ("Apollo"), SYLVAN VENTURES, INC., a Delaware
corporation ("Holding"), R. CHRISTOPHER HOEHN-SARIC ("Hoehn-Saric"), and DOUGLAS
L. BECKER ("Becker"), and the other "Members" (as defined below).
WHEREAS, the parties hereto have entered into that certain Formation
Agreement of even date herewith (the "Formation Agreement") setting forth
certain representations, warranties, covenants and agreements in connection with
the formation and capitalization of the "Company," as defined herein.
WHEREAS, the parties hereto have further agreed to organize and operate
the Company in accordance with the terms and conditions set forth in this
Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements set forth herein, the parties hereto, intending to be legally
bound, hereby agree as follows:
ARTICLE I
Defined Terms
1.1 Defined Terms.
The following capitalized terms shall have the meanings specified in this
Article I. Other terms are defined in the recitals hereto or in the text of this
Agreement, and shall have the meanings respectively ascribed to them.
"Act" means the Delaware Limited Liability Company Act (6 Del. C.
ss.ss.18-101 et. seq.), as amended from time to time.
"Acquiring Persons" has the meaning set forth in Section 7.1.1
hereof.
"Additional Capital Call" has the meaning set forth in Section 3.1.3
hereof.
"Additional Units" has the meaning set forth in Section 3.2 hereof.
"Adjusted Capital Account Balance" means, with respect to each
Membership Interest Holder, the balance of the Capital Account of such
Membership Interest Holder as of the end of the applicable Fiscal Year of the
Company, adjusted for the following:
(i) Such Capital Account shall be credited for any amounts
which such Membership Interest Holder is obligated or treated as obligated to
restore with respect to any deficit balance in its Capital Account pursuant to
Regulation Sections 1.704-1(b)(2)(ii)(b)(3) and 1.704-1(b)(2)(ii)(c),
respectively.
(ii) Such Capital Account shall be credited for any amounts
which such Membership Interest Holder is deemed to be obligated to restore with
respect to any deficit balance in his or its Capital Account pursuant to the
next to last sentences of each of Regulation Section 1.704-2(g)(1) (that is, the
Membership Interest Holder's share of Minimum Gain) and Regulation Section
1.704-2(i)(5) (that is, the Membership Interest Holder's share of partner
nonrecourse debt minimum gain).
(iii) Such Capital Account shall be debited for any
adjustment, allocation or distribution described in paragraph (4), (5) or (6) of
Regulation Section 1.704-1(b)(2)(ii)(d).
"Adjusted Capital Account Deficit" means, with respect to any
Membership Interest Holder, the deficit balance, if any, in such Membership
Interest Holder's Capital Account as of the end of the relevant taxable year,
after giving effect to the following adjustments:
(i) The deficit shall be decreased by the amounts, if any,
which such Membership Interest Holder is obligated to restore pursuant to
Section 3.1.2 hereof, or is deemed obligated to restore pursuant to Regulations
Section 1.704-1(b)(2)(ii)(c), 1.704-2(g)(1) and 1.704-2(i)(5); and
(ii) The deficit shall be increased by the items described in
Regulations Section 1.704-1(b)(2)(ii)(d)(4), (5), and (6).
The foregoing definition of Adjusted Capital Account Deficit is intended to
comply with Regulations Section 1.704-1(b)(2)(ii)(d) and shall be interpreted
consistently therewith.
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"Affiliate" means either:
(i) with respect to any Person other than an individual, any
other Person who, directly or indirectly through one or more intermediaries,
Controls, or is Controlled by, or is under common Control with, such Person; and
(ii) with respect to an individual:
(A) any other Person, directly or indirectly through one
or more intermediaries, Controlled by such individual;
(B) any parent, grandparent, sibling, lineal descendant,
or the spouse, of such individual;
(C) any trust established for the benefit of such
individual or for the benefit of any other individual described in subsection
(B) above; or
(D) the testamentary estate, executor, executrix,
administrator, personal representative, heir, or devisee of such individual.
"Affiliate Transaction" has the meaning set forth in Section
5.1.1 hereof.
"Agreement" means this Agreement and all Exhibits attached
hereto, as originally executed and as amended from time to time, as the context
requires. Words such as "herein," "hereinafter," "hereof," "hereto," "hereby"
and "hereunder," when used with reference to the Agreement, refer to this
Agreement as a whole, unless the context otherwise requires.
"Apollo" has the meaning set forth in the preamble hereto.
"Apollo Permitted Transferee" means any Affiliate or Related
Person of Apollo.
"Apollo Person" means Apollo or any member of Apollo.
"Becker" has the meaning set forth in the preamble hereto.
"Board" means the Board of Managers of the Company elected by
the Members in accordance with the provisions of this Agreement.
"Business" means the business of the Company of (i) making
(directly or through intermediate Persons) Investments in Subject Companies,
(ii) promoting the development of Portfolio Companies, including without
limitation, management and supervision (depending on the level of investment),
(iii) providing
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strategic guidance and operational support to such Portfolio Companies, (iv)
promoting collaboration among such Portfolio Companies, and (v) owning and
managing the Real Estate Assets.
"Call Due Date" has the meaning set forth in Section 3.1.3 hereof.
"Capital Account" means the capital account maintained by the
Company for each Membership Interest Holder in accordance with the following
provisions:
(i) A Membership Interest Holder's Capital Account shall be
credited with the Membership Interest Holder's Capital Contributions, the amount
of any Company liabilities assumed by the Membership Interest Holder (or which
are secured by Company property distributed to the Membership Interest Holder),
the Membership Interest Holder's allocable share of Profit, Real Estate Profit,
and any share of income or gain specially allocated to such Membership Interest
Holder pursuant to the provisions of Section 4.3 (other than Section 4.3.3)
hereof; and
(ii) A Membership Interest Holder's Capital Account shall be
debited with the amount of money and the fair market value of any Company
property distributed to the Membership Interest Holder, the amount of any
liabilities of the Membership Interest Holder assumed by the Company (or which
are secured by property contributed by the Membership Interest Holder to the
Company), the Membership Interest Holder's allocable share of Loss, Real Estate
Loss, and any share of deductions or losses specially allocated to the
Membership Interest Holder pursuant to the provisions of Section 4.3 (other than
Section 4.3.3) hereof.
If any Membership Interest is transferred pursuant to the terms of this
Agreement, the transferee shall succeed to the Capital Account of the transferor
to the extent the Capital Account is attributable to the transferred Membership
Interest. It is intended that the Capital Accounts of all Membership Interest
Holders shall be maintained in compliance with the provisions of Regulations
Section 1.704-1(b), and all provisions of this Agreement relating to the
maintenance of Capital Accounts shall be interpreted and applied in a manner
consistent with such Regulations.
"Capital Contribution" means, with respect to any Member at any
time, the aggregate amount of cash and the fair market value of other assets
(net of liabilities secured by such assets) contributed (or deemed contributed
under Regulations Section 1.704-1(b)(2)(iv)(d)) to the Company by such Member at
or prior to such time.
"Capital Proceeds" means the net amount of cash or other
consideration received by the Company from a Capital Transaction other than Real
Estate Proceeds, after payment of all expenses associated with the Capital
Transaction.
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"Capital Transaction" means any transaction not in the ordinary
course of business which results in the Company's receipt of cash or other
consideration (other than Capital Contributions), including, without limitation,
proceeds of sales or exchanges or other dispositions of substantially all of the
Company's property or substantially all of any Investment, financings,
refinancings, condemnations, recoveries of damage awards, and insurance
proceeds.
"Certificate" has the meaning set forth in Section 2.1 hereof.
"Code" means the Internal Revenue Code of 1986, as amended, or any
corresponding provision of any succeeding law.
"Commitment" means, with respect to each Member, the maximum amount
of Capital Contributions which such Member may be obligated to contribute to the
Company pursuant to Section 3.1 hereof, less the aggregate amount of such
Capital Contributions actually contributed to the Company by such Member. The
respective Commitments of each of Sylvan, Apollo, Holding and the Management
Members are set forth on Exhibit A attached hereto.
"Commitment Ratio" means, with respect to any Member, a fraction,
the numerator of which is such Member's Commitment as of the date of such
determination, and the denominator of which is the sum of the Commitments of all
Members as of the date of such determination.
"Common Units" means Units designated as Common Units on Exhibit A
hereof.
"Company" means the limited liability company formed in accordance
with this Agreement and the Act, as said limited liability company may be
constituted from time to time.
"Company Acceptance Notice" has the meaning set forth in Section
7.4.2 hereof.
"Company Subsidiary" means any Person Controlled by the Company or
by any other Company Subsidiary.
"Consent of the Members" means the vote or written consent of
Members owning more than 50% of the Percentages.
"Consent of the Preferred" means the vote or written consent of
Members owning more than 50% of the outstanding Preferred Units.
"Control" means, with respect to any Person, the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and
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policies of such Person through the ownership of voting securities, by contract
or otherwise.
"Conversion Price" has the meaning set forth in Section 7.2.1
hereof.
"Convertible Securities" has the meaning set forth in Section 7.2.4
hereof.
"Corporate Successor" means the corporate successor of the Company
(other than Holding) formed in connection with a Qualified IPO.
"Defaulting Member" has the meaning set forth in Section 3.1.3
hereof.
"Dilutive Event" has the meaning set forth in Section 7.2.4 hereof.
"Effective Date" has the meaning set forth in the preamble hereto.
"Escrow Account" means an account maintained with the Escrow Agent,
into which the Company shall deposit funds as required pursuant to Section
4.1.6.
"Escrow Agent" means a bank or other corporation selected by the
Board, that (a) is organized and doing business under the laws of the United
States of America or of any state thereof or of the District of Columbia
authorized under such laws to exercise corporate trustee power, (b) is subject
to supervision or examination by Federal or state or the District of Columbia
authority, and (c) has a combined capital and surplus of at least $100,000,000
as set forth in its most recent published annual report of condition.
"Exchange Act" has the meaning set forth in the definition of Fair
Market Value in this Section 1.1.
"Fiscal Year" means each year ended December 31, and the period
beginning on January 1 and ending on the date on which the Company is fully and
finally liquidated.
"Fair Market Value" means, with respect to any security or other
asset constituting an Investment held by the Company, the value of such security
or other asset determined as set forth below:
(a) The value of securities that are not registered under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the value
of any other asset that is not a security shall be:
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(i) the value of such security or asset evidenced by the most
recently completed arm's-length transaction between the Company and a Person
other than an Affiliate of the Company, the consummation of which shall have
occurred within the ninety (90) days immediately preceding the date of
determination;
(ii) if no such transaction shall have occurred within such
ninety (90)-day period, the value of such security or asset most recently
determined as of a date within the ninety (90) days immediately preceding the
date of determination by an independent financial expert of national standing
mutually acceptable to the Board and a majority in interest of the Plan
Membership Interest Holders; or
(iii) if neither clause (i) nor (ii) is applicable, the value
of the security or other asset as determined pursuant to a unanimous vote of the
members of the Board taking into account the Valuation Adjustment Factors;
provided, however, that if the members of the Board are unable to unanimously
agree upon such value within a reasonable time, the Board shall select an
independent financial expert of national standing mutually acceptable to the
Board and a majority in interest of the Plan Membership Interest Holders who
shall determine the value of such security or asset (taking into account the
Valuation Adjustment Factors).
(b) The value of securities that are registered under the Exchange
Act shall be based on the average of the daily market prices for each business
day during the period commencing fifteen (15) business days before the date of
determination and ending on the date one day prior to such date or, if the
security has been registered under the Exchange Act for less than thirty (30)
consecutive business days before such date, then the average of the daily market
prices for all of the business days before such date for which daily market
prices are available. If the market price is not determinable for at least
fifteen (15) business days in such period, the value of the security shall be
determined as if the security were not registered under the Exchange Act.
"Formation Agreement" has the meaning set forth in the preamble hereto.
"Fully-Diluted Basis" means and includes (i) the aggregate number of all
Common Units outstanding at the time of determination, plus (ii) the aggregate
number of all Common Units issuable upon conversion of all Preferred Units
outstanding at the time of determination, plus (iii) the aggregate number of all
Common Units issuable upon the exercise or conversion of all Options and
Convertible Securities.
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"Gross Asset Value" means, with respect to any asset, the asset's adjusted
basis for United States federal income tax purposes, subject to the following
exceptions and adjustments:
(a) The initial Gross Asset Value of any asset contributed by a
Member to the Company will be the gross Fair Market Value of such asset;
(b) The Gross Asset Value of all Company assets shall be adjusted to
equal their respective gross Fair Market Values immediately preceding the
occurrence of any of the following events: (i) a contribution of money or other
property (other than a de minimis amount) as consideration for the acquisition
of an additional interest in the Company by any new or existing Member if the
Board determines that such adjustment is necessary or appropriate to reflect the
relative economic interests of the Member in the Company; (ii) the distribution
by the Company to a Member of more than a de minimis amount of money or other
property as consideration for an interest in the Company if the Board determines
that such adjustment is necessary or appropriate to reflect the relative
economic interests of the Members in the Company; (iii) the liquidation or
dissolution of the Company within the meaning of Regulation Section
1.704-1(b)(2)(ii)(g); and (iv) a grant or forfeiture under the Membership Profit
Interest Plan;
(c) The Gross Asset Value of any Company asset distributed to any
Member will be the gross Fair Market Value of such asset on the date of
distribution;
(d) The Gross Asset Values of Company assets will be increased (or
decreased) to reflect any adjustment to the adjusted basis of such assets
pursuant to Code Section 734(b) or Section 743(b), but only to the extent that
such adjustments are taken into account in determining Capital Accounts pursuant
to Regulations Section 1.704-1(b)(2)(iv)(m); and
(e) If the Gross Asset Value of an asset has been determined or
adjusted pursuant to subsection (a), (b), or (d) above, such Gross Asset Value
will thereafter be adjusted by the book depreciation (calculated in accordance
with Regulations Section 1.704-1(b)(2)(iv)(g)) rather than depreciation or
amortization or other cost recovery deduction as determined for United States
federal income tax purposes, taken into account with respect to such asset for
purposes of computing Profit or Loss.
"Hoehn-Saric" has the meaning set forth in the preamble hereto.
"Holding" has the meaning set forth in the preamble hereto.
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"Industry Companies" has the meaning set forth in Section 7.4.1 hereof.
"Investment Committee" has the meaning set forth in Section 5.1.7 hereof.
"Investment Notice" has the meaning set forth in Section 7.4.1 hereof.
"Investments" means investments in equity and equity-related securities,
notes, debentures, limited partnership interests, limited liability company
interests, and other equity or debt instruments, interests or investments of any
nature whatsoever, including without limitation, common or preferred stock,
assets, and options, warrants and other rights to purchase any such Investments.
"Investor Committee Members" has the meaning set forth in Section 5.1.7
hereof.
"Investor Managers" has the meaning set forth in Section 5.1.2 hereof.
"Involuntary Withdrawal" means, with respect to any Member, the occurrence
of any of the events set forth in Section 18-801(b) of the Act.
"Management Member(s)" means each of Hoehn-Saric and Becker and any
transferees permitted pursuant to Section 6.3 hereof.
"Management Employment Documents" has the meaning set forth in Section 3.3
hereof.
"Management Transaction" means any contract, agreement, arrangement or
transaction between (a) the Company or any Company Subsidiary, on the one hand,
and (b) either any director, officer or employee (including without limitation
Hoehn-Saric and Becker) of the Company or any Company Subsidiary, or any
Affiliate of any such director, officer or employee (other than the Company, any
Company Subsidiary, Sylvan and/or any Sylvan Subsidiary), on the other hand.
Notwithstanding the foregoing, a Management Transaction shall not include the
hiring of any prospective employee by the Company or any Company Subsidiary, and
the terms and conditions of such employment provided that such terms and
conditions are customary for employees of similar rank and position.
"Manager" means each individual who from time to time serves as a member
of the Board. Each Manager shall be a "manager" (within the meaning of Section
18-101(10) of the Act) of the Company.
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"Maximum Number" has the meaning set forth in Section 6.5.2 hereof.
"Member(s)" means each of Sylvan, Apollo, Holding, the Management Members,
and each Person, if any, who subsequently is admitted as a Member in accordance
with this Agreement.
"Member Loan Nonrecourse Deductions" means any Company deduction that
would be a Nonrecourse Deduction if it was not attributable to a loan made or
guaranteed by a Member or a Person related to a Member within the meaning of
Regulations Section 1.704-2(i).
"Membership Interest" means the ownership interest of a Member in the
Company, including without limitation, rights to distributions (liquidating or
otherwise), allocations, information, and to consent, approve or vote upon
matters which Members are entitled to so consent to, approve, or vote upon
hereunder. All Membership Interests shall be represented by Units.
"Membership Interest Holder" means any Person who holds a Membership
Interest, whether as a Member or as an unadmitted assignee of a Member.
"Membership Profit Interest" means the aggregate number of Common Units
granted from time to time by the Company as performance incentives to certain
officers, employees or consultants of the Company, pursuant to the Membership
Profit Interest Plan.
"Membership Profit Interest Plan" means the Company's Membership Profit
Interest Plan adopted by the Board (and approved by the Members pursuant to
Section 3.3 hereof) as of the Effective Date, a copy of which is attached hereto
as Exhibit C, as amended from time to time in accordance with the terms thereof.
"Minimum Gain" has the meaning set forth in Regulations Section
1.704-2(d). Minimum Gain shall be computed separately for each Member in a
manner consistent with the Regulations under Code Section 704(b).
"Negative Capital Account" means a Capital Account with a balance less
than zero dollars ($0.00).
"Net Capital Investment-Common Units" means, with respect to each
Membership Interest Holder owning Common Units, the aggregate Capital
Contributions by such Membership Interest Holder with respect to its Common
Units (excluding the Capital Contribution of the Real Estate Assets by Sylvan),
reduced by any distributions to such Membership Interest Holder pursuant to
Sections 4.1.2(ii) and (iv) hereof.
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"Net Capital Investment-Preferred Units" means, with respect to each
Membership Interest Holder owning Preferred Units, the aggregate Capital
Contributions by such Membership Interest Holder with respect to its Preferred
Units, reduced by any distributions to such Membership Interest Holder pursuant
to Section 4.1.2(i) hereof.
"Net Capital Proceeds" means, with respect to any Capital Proceeds
realized by the Company upon disposition of an Investment, the portion of such
Capital Proceeds that exceeds the sum of (i) the amount of cash or the Fair
Market Value of other securities or property paid by the Company to make such
Investment (such Fair Market Value being determined as of the time such
Investment was made) and (ii) all expenses associated with such Investment.
"Net Cash Flow" means all cash funds derived from the operations of the
Company (including interest received on reserves and Investments and dividends
and other distributions received in respect of Investments, but excluding
management and other fees received from Portfolio Companies and reimbursements
of costs and expenses charged by the Company to Portfolio Companies), without
reduction for any non-cash charges. Net Cash Flow shall not include Capital
Proceeds, Real Estate Proceeds or Capital Contributions.
"Nonrecourse Deductions" has the meaning set forth in Regulations Section
1.704-2(b)(1). The amount of Nonrecourse Deductions for a taxable year of the
Company equals the net increase, if any, in the amount of Minimum Gain during
that taxable year, determined according to the provisions of Regulations Section
1.704-2(c).
"Nonrecourse Liability" means any liability defined in Regulation Section
1.704-2(b)(3).
"Notice of Acceptance" has the meaning set forth in Section 7.1.2 hereof.
"Notification" means a writing containing the information required by this
Agreement to be communicated to any Person, as provided in Section 10.4 hereof.
"Offer" has the meaning set forth in Section 7.1.1 hereof.
"Offered Securities" has the meaning set forth in Section 7.1.1 hereof.
"Options" has the meaning set forth in Section 7.2.4 hereof.
"Participating Members" has the meaning set forth in Section 6.5.1 hereof.
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"Percentage" means, with respect to each Membership Interest Holder, a
fraction (expressed as a percentage), the numerator of which is the sum of the
number of Common Units then held by such Membership Interest Holder and the
number of Common Units issuable upon conversion of all Preferred Units then held
by such Membership Interest Holder, and the denominator of which is the sum of
all Common Units then held by all Membership Interest Holders and the number of
Common Units then issuable upon conversion of all Preferred Units then held by
all Membership Interest Holders.
"Permitted Fund" means an investment fund or investment entity whose
general partner (or, in the case of a limited liability company, the general
manager) is (i) an Apollo Person, (ii) an Affiliate of an Apollo Person, or
(iii) an officer, director, general partner or manager of an Apollo Person or an
Affiliate of an Apollo Person.
"Person" means any individual, corporation, partnership, joint venture,
association, limited liability company, joint-stock company, trust, estate, or
other entity, unincorporated organization or government or other agency or
political subdivision thereof.
"Plan Assets" has the meaning set forth in Section 6.1.2 hereof.
"Plan Membership Interest Holder" means any Person granted a Membership
Interest under the Membership Profit Interest Plan pursuant to Section 3.3
hereof.
"Portfolio Companies" means and includes, at any time, Subject Companies
in which the Company has any Investment at such time.
"Preferred Units" means Units designated as Preferred Units on Exhibit A
hereof.
"Pro Forma Return Ratio" means, as of any date of calculation and with
respect to any proposed distribution, the ratio of:
(a) the sum of (i) all amounts held in the Escrow Account on such
date (immediately prior to any deposit on such date) pursuant to the provisions
of Section 4.1.6 plus (ii) the Fair Market Value, as of the date of calculation,
of all Temporary Investments and all Investments in Portfolio Companies, in each
case, that would be held by the Company immediately after making such proposed
distribution plus (iii) except to the extent taken into account under clauses
(i) and (ii) above, the amount of Net Cash Flow, and the amount of Capital
Proceeds from dispositions of Investments in Portfolio Companies, in each case,
received by the Company in cash on or prior to such date, less (iv) all Net Cash
Flow and Capital
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Proceeds distributed to Plan Membership Interest Holders pursuant to Article IV
including amounts contributed to the Escrow Account,
divided by
(b) the aggregate amount of Capital Contributions made by all the
Members, on or prior to such date (without giving effect to any return of
capital), less Capital Contributions attributable to Real Estate Assets.
"Profit" and "Loss" means, for each taxable year of the Company (or other
period for which Profit or Loss must be computed), and without duplication, the
Company's taxable income or loss determined in accordance with Code Section
703(a), with the following adjustments:
(i) All items of income, gain, loss, deduction, or credit required
to be stated separately pursuant to Code Section 703(a)(1) shall be included in
computing taxable income or loss;
(ii) Any tax-exempt income of the Company, not otherwise taken into
account in computing Profit or Loss, shall be included in computing taxable
income or loss;
(iii) Any expenditures of the Company described in Code Section
705(a)(2)(B) (or treated as such pursuant to Regulations Section
1.704-1(b)(2)(iv)(i)) and not otherwise taken into account in computing Profit
or Loss, shall be subtracted from taxable income or loss;
(iv) Gain or loss resulting from any disposition of Company property
shall be computed by reference to the Gross Asset Value of the property disposed
of, notwithstanding the fact that such Gross Asset Value differs from the
adjusted basis of the property for United States federal income tax purposes;
(v) If the Gross Asset Value of any Company asset is adjusted
pursuant to section (b) or (d) of the definition of Gross Asset Value, the
amount of such adjustment will be taken into account as gain or loss from the
disposition of such asset for purposes of computing Profit or Loss;
(vi) In lieu of the depreciation, amortization, or cost recovery
deductions allowable in computing taxable income or loss, there shall be taken
into account the depreciation computed based upon the adjusted book value of the
asset; and
(vii) Notwithstanding any other provision of this definition, any
Real Estate Profit, Real Estate Loss and any items which are specially
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allocated pursuant to Section 4.3 hereof shall not be taken into account in
computing Profit or Loss.
"Proposed Investment" has the meaning set forth in Section 7.4.1 hereof.
"Proposed Transferee" has the meaning set forth in Section 6.5.1 hereof.
"Purchase Offer" has the meaning set forth in Section 6.5.1 hereof.
"Qualified IPO" means the sale of more than 10% of the common stock of
Holding or the Corporate Successor, in accordance with the Qualified IPO
Structure, at a pre-money valuation of at least One Billion Dollars
($1,000,000,000) in a bona fide underwritten initial public offering of common
stock registered under the Securities Act of 1933, as amended, resulting in a
listing of such securities on a national securities exchange or quotation on
NASDAQ National Market.
"Qualified IPO Structure" has the meaning set forth in Section 7.3.1
hereof.
"Real Estate Assets" means all of the right, title and interest in and to
those certain direct or indirect fee interests in commercial real property, as
more fully described on Exhibit E attached hereto, which Exhibit E shall be
updated from time to time upon the contribution by Sylvan of such Real Estate
Assets (which contribution must be acceptable to Apollo in its reasonable
discretion) pursuant to Section 7.5 hereof and Section 3.02(b) of the Formation
Agreement.
"Real Estate Investment" means, with respect to Sylvan, the direct or
indirect Capital Contribution attributable to the Real Estate Assets, reduced by
(i) any funds applied to the Sylvan Commitment pursuant to Section 4.1.3(i)
hereof and (ii) any distributions to Sylvan pursuant to Section 4.1.3(ii)
hereof.
"Real Estate Proceeds" means the net amount of cash received by the
Company from a Capital Transaction involving the Real Estates Assets (or any
portion thereof) after satisfaction of all liabilities in connection with the
Real Estate Assets and payment of all expenses associated with such Capital
Transaction.
"Real Estate Profit" and "Real Estate Loss" means, for each taxable year
of the Company (or other period for which Real Estate Profit and Real Estate
Loss must be computed), Profit and Loss (as each term is defined herein, but
with respect to clause (vii) of the definition thereof, without regard to the
reference to Real Estate Profit and Real Estate Loss) which is attributable
solely to the Real Estate Assets, the calculation of which shall include, inter
alia, an allocable share of overhead
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expenses incurred for and on behalf of the Company in connection with the Real
Estate Assets.
"Registration Agreement" has the meaning set forth in Section 6.6 hereof.
"Regulations" means the federal income tax regulations promulgated under
the Code, as amended from time to time, and including corresponding provisions
of succeeding regulations.
"Related Person" means (i) any Apollo Person, (ii) any officer, director,
partner or member of, or Person Controlling, an Apollo Person, or (iii) any
other Person that is (x) an Affiliate of an Apollo Person, (y) an Affiliate of
the general partner(s) (or, in the case of a limited liability company, the
general manager(s)) of an Apollo Person, or (z) a Permitted Fund.
"Selling Member" has the meaning set forth in Section 6.5.1 hereof.
"Secretary of State" means the Secretary of State of the State of
Delaware.
"Subject Companies" means Persons that, as a significant component of the
value of their business, directly or directly (a) provide, deliver or develop
goods, services or content on the Internet or any similar computer network, (b)
facilitate commercial transactions or educational programming conducted on the
Internet or any similar computer network, (c) provide world wide web or similar
development services and related software, (d) provide access to the Internet or
any similar computer network, (e) provide hardware or software tools for use of
the Internet or any similar computer network, (f) employ electronic or computer
technology for educational purposes, or (g) are involved in the creation,
production or delivery of new media products or content.
"Sylvan" has the meaning set forth in the preamble hereto.
"Sylvan Board" has the meaning set forth in Section 5.1.2 hereof.
"Sylvan Committee Members" has the meaning set forth in Section 5.1.7
hereof.
"Sylvan Exclusivity Period" has the meaning set forth in Section 7.4.2
hereof.
"Sylvan Managers" has the meaning set forth in Section 5.1.2 hereof.
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"Sylvan Subsidiaries" means any Person Controlled by Sylvan or by any
other Sylvan Subsidiary.
"Tag Along Members" has the meaning set forth in Section 6.5.1 hereof.
"Tag Along Rights Notice" has the meaning set forth in Section 6.5.1
hereof.
"Tax Matters Member" means the Member designated in Section 9.3 hereof as
the "tax matters partner" as defined in Section 6231(a)(7) of the Code.
"Temporary Investments" means Investments:
(i) in direct obligations of the United States of America, or
obligations of any instrumentality or agency thereof, payment of principal and
interest of which is unconditionally guaranteed by the United States of America,
having a final maturity of not more than One (1) year and One (1) day from the
date of issue thereof;
(ii) in certificates of deposit or repurchase agreements having a
final maturity not more than One (1) year and One (1) day from the date of
acquisition thereof issued by any bank or trust company organized under the laws
of the United States of America or any state thereof having capital and surplus
of at least $100,000,000; and
(iii) in commercial paper payable on demand or having a final
maturity not more than One (1) year and One (1) day from the date of acquisition
thereof which has the highest credit rating of either Standard & Poor's
Corporation or Moody's Investors Service, Inc.
"Transfer" means, when used as a noun, any voluntary sale, conveyance,
hypothecation, pledge, assignment, attachment, or other transfer, and, when used
as a verb, means, voluntarily to sell, convey, hypothecate, pledge, assign, or
otherwise transfer.
"Unit" means a share of Membership Interest. Each Unit owned by any Member
shall be designated by the Company on Exhibit A hereof as a "Common Unit" or
"Preferred Unit," and each such class of Units shall have the respective rights
and obligations set forth in this Agreement.
"Valuation Adjustment Factors" means, with respect to any securities or
other assets, all factors that might reasonably affect the sales price thereof,
including without limitation, if and as appropriate, (i) any restrictions on the
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marketability of such securities or other assets, (ii) the amount of such
securities relative to the trading volume of securities of the same class, (iii)
the existence or absence of a control premium, if any, associated with such
securities, (iv) the lack of a market for such securities, (v) the anticipated
effect of immediate sale of such securities or other assets, (vi) the time
before sales of such securities or other assets become possible, (vii) the cost
and complexity of such sales, and (viii) any other factors that are customarily
taken into account in determining the fair market value of securities or other
assets.
"Voluntary Withdrawal" means a Member's dissociation with the
Company by means other than by a Transfer or an Involuntary Withdrawal.
ARTICLE II
Organization
2.1 Formation. Sylvan, Apollo, Holding and the Management Members hereby
organize a limited liability company pursuant to the Act and the provisions of
this Agreement and, for that purpose, have authorized Sylvan to cause that
certain Certificate of Formation and Certificate of Amendment (collectively, the
"Certificate") to be prepared, executed and filed for record with the Secretary
of State on or before the Effective Date. A copy of such Certificate is attached
hereto as Exhibit B.
2.2 Name. The name of the Company shall be "Sylvan Ventures, LLC". The
Company may do business under that name and under any other name or names which
the Board shall select. If the Company does business under a name other than
that set forth in the Certificate, as amended from time to time, the Company
shall file any certificates or documents required by law.
2.3 Purpose. The purposes for which the Company is organized are to (i)
conduct the Business and (ii) do any and all things necessary or incidental to
the foregoing.
2.4 Term. The term of the Company shall commence as of the date of filing
of the Certificate with the Secretary of State, and shall continue perpetually,
unless the Company is dissolved and its affairs wound up pursuant to Article
VIII hereof.
2.5 Registered Office; Principal Place of Business. The registered office
of the Company in the State of Delaware shall be located at 1013 Centre Road in
the City of Wilmington, County of New Castle, or at any other place within the
State of Delaware which the Board shall select. The principal place of business
of the Company shall be at such location as the Board shall select.
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2.6 Registered Agent. The name and address of the Company's initial
registered agent for service of process in the State of Delaware shall be
Corporation Service Company, 1013 Centre Road, Wilmington, Delaware.
2.7 Members. The name, present mailing address, initial Capital
Contribution, Commitment, number of Units and Percentage of each Member (as of
the Effective Date) are set forth on Exhibit A attached hereto. From time to
time, the Board shall cause to be prepared and distributed to all Members a
revised Exhibit A reflecting all modifications and additions to Exhibit A,
including without limitation, the issuance of Common Units of Membership Profit
Interests pursuant to the Membership Profit Interest Plan.
ARTICLE III
Capital Contributions; Capital Accounts
3.1 Capital Contributions.
3.1.1 The parties hereto acknowledge and agree that,
contemporaneously with the execution of this Agreement, each of Sylvan, Apollo,
Holding and the Management Members contributed to the Company its respective
initial Capital Contribution set forth on Exhibit A attached hereto in
accordance with the terms and conditions set forth in the Formation Agreement.
3.1.2 Except as set forth in Section 3.1.3 hereof, no Member shall
be required to contribute any additional capital to the Company, and except as
set forth in the Act, no Member shall have any personal liability for any
obligation of the Company. Except as set forth in Section 4.1.5(b) hereof, no
Member shall have any obligation to restore any deficit balance in its Capital
Account. Membership Interest Holders shall not be paid interest on their Capital
Contributions. Except as otherwise provided in the Act and in this Agreement, no
Membership Interest Holder shall have the right to receive the return of any
Capital Contribution; provided, however, that if a Membership Interest Holder is
entitled to receive a return of a Capital Contribution, the Membership Interest
Holder shall not have the right to receive anything but cash in return of such
Capital Contribution, and the Company may distribute cash, notes, other property
or a combination thereof to the Membership Interest Holder in return of such
Capital Contribution; provided further, however, that (i) the Company may only
distribute Real Estate Assets to the Membership Interest Holders in the order
specified in Section 4.1.3; and (ii) except upon a dissolution of the Company,
the Company may not distribute notes or property (other than cash and/or the
Real Estate Assets as provided herein).
3.1.3 If, at any time and from time to time prior to a Qualified
IPO, the Board determines that it is advisable and in the best interests of the
Company to raise additional capital to make an Investment in a Subject Company,
the Board shall
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make one or more calls for additional cash Capital Contributions to the Company
(each, an "Additional Capital Call") in an aggregate amount equal to the amount
of cash needed for such Investment. In addition, if, at any time and from time
to time prior to a Qualified IPO, the Board determines that the amount of cash
and Temporary Investments held by the Company is insufficient for the reasonable
day-to-day operating expenses relating to the Business (not including amounts
that constitute Investments), then the Board shall make one or more Additional
Capital Calls for the purpose of obtaining cash to fund such reasonable
operating expenses; provided, however, that with respect to Additional Capital
Calls described in this sentence, (A) without the prior written consent of
Apollo, (i) the aggregate amount of all such Additional Capital Calls made
during any one Fiscal Year shall not exceed $10,000,000, and (ii) the Company
shall not make any such Additional Capital Call for less than an aggregate of
$2,500,000; and (B) the Company shall not make any such Additional Capital Call
if, after giving effect thereto, the aggregate amount of the Members'
Commitments is not greater than zero. In the event of any Additional Capital
Call, each Member shall be obligated to make an additional Capital Contribution
equal to the lesser of (a) such Member's Commitment, and (b) the product of (i)
the aggregate amount of the Additional Capital Call, multiplied by (ii) such
Member's Commitment Ratio.
(i) The Board shall make any such Additional Capital Call by
providing a Notification to each Member setting forth (A) the purpose for the
Additional Capital Call, (B) the aggregate amount of the Additional Capital
Call, (C) each Member's respective share of the Additional Capital Call, and (D)
the date on which such Additional Capital Call is due (the "Call Due Date"),
which Call Due Date shall be no earlier than twenty (20) business days from the
date of such Notification. Each Member shall be obligated to pay any such
Additional Capital Call on or before the Call Due Date.
(ii) If any Member fails to fully pay any Additional Capital Call on
or before the Call Due Date (a "Defaulting Member"), such Defaulting Member
shall forfeit all of its Membership Interest, a corresponding reduction shall be
made to such Defaulting Member's Capital Account, and such Defaulting Member
shall no longer be a Member.
(iii) If any Membership Interest is forfeited during the Fiscal Year
pursuant to this Section 3.1.3, the Company's books shall be closed as of the
Call Due Date on which such forfeiture is effective. For the period ending on
each such date, Profit, Loss and distributions shall be allocated and
distributed pursuant to the provisions of Article IV according to the relative
Percentages in effect prior to the date of such adjustment, and Profit, Loss and
distributions for the balance of such Fiscal Year shall be allocated and
distributed pursuant to the provisions of Article IV according to the relative
Percentages as so adjusted.
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(iv) The parties hereto acknowledge and agree that the provisions of
Section 3.1.3(ii) shall be in addition to, and not in lieu of, any and all other
remedies that the Company may have in connection with any Additional Capital
Call pursuant to this Agreement.
(v) For purposes of this Section 3.1.3, at the time of any
Additional Capital Call, Sylvan's Commitment shall be determined without
reduction for Sylvan's direct or indirect Capital Contribution attributable to
the Real Estate Assets; provided, however, that upon the Transfer of the Real
Estate Assets (or any interest therein) by the Company pursuant to Section 7.5
hereof, Sylvan shall be deemed to make a Capital Contribution to the extent of
the Real Estate Proceeds, if any, received by the Company and retained in
accordance with Section 4.1.3(i) hereof.
(vi) Notwithstanding anything in the last sentence of the first
paragraph of Section 3.1.3 above, in the event one or more Additional Capital
Calls are made by the Board hereunder after February 21, 2001:
(A) Sylvan agrees to pay (as an additional Capital
Contribution) that portion of such Additional Capital Calls otherwise payable by
Apollo under this Section 3.1.3 up to an amount (the "Sylvan Advance
Commitment") equal to the excess of (x) the "Year 2000 Loss Allocation" as
defined in Section 4.2.1(c)(i) hereof, over (y) the aggregate amount of Profit
allocated from time to time to Apollo pursuant to Section 4.2.1(c)(ii) hereof
(the actual amount paid by Sylvan hereunder is referred to herein as the "Sylvan
Advance Contribution"); provided, however, that (i) in no event (except as
provided in Section 3.1.3(vii)(C) hereof) shall the Commitment of Apollo be
reduced (or be deemed to be reduced) by Sylvan's obligation to pay (and payment
of) all or any portion of such Sylvan Advance Commitment and Sylvan Advance
Contribution; and (ii) Sylvan's Commitment shall be reduced to the extent of the
Sylvan Advance Contribution but such reduction shall not be taken into account
in determining Sylvan's relative Commitment Ratio for purposes of calculating
the Members' relative funding obligations pursuant to clause "(b)" of the last
sentence of the first paragraph of Section 3.1.3 hereof.
(B) In the event Sylvan pays all or any portion of the Sylvan
Advance Commitment, and the Sylvan Advance Commitment is reduced to zero
(whether as a result of such payments or as a result of allocations of Profit to
Apollo pursuant to Section 4.2.1(c)(ii) hereof), Apollo agrees to pay (as an
additional Capital Contribution) that portion of such Additional Capital Calls
otherwise payable by Sylvan under this Section 3.1.3 up to an amount equal to
the lesser of (x) the amount of the Sylvan Advance Contribution, and (y) the
aggregate amount of Profit allocated to Apollo pursuant to Section 4.2.1(c)(ii)
hereof; provided, however, that Apollo's Commitment shall be reduced to the
extent Apollo pays any amount pursuant to this Section 3.1.3(vi)(B), and to the
same extent, such amount shall be taken into account in determining the relative
Commitment Ratios of Apollo and Sylvan (notwithstanding anything in Section
3.1.3(vi)(A)(ii) to the contrary).
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(vii) In the event the aggregate Capital Contributions (including
the Sylvan Advance Contribution) of the Members equal or exceed an amount equal
to the excess of Four Hundred Million Dollars ($400,000,000) (such amount to be
adjusted upward to reflect the additional Commitments upon issuance of
Additional Units in accordance with Section 3.2 hereof) over the Year 2000 Loss
Allocation (the "Trigger Level") and, as of the date on which such Trigger Level
is reached, Apollo has not been allocated Profit in the full amount of the Year
2000 Loss Allocation pursuant to Section 4.2.1(c)(ii) hereof (such deficiency is
referred to herein as the "Allocation Deficiency"), the Company shall deliver a
Notification to Apollo stating that the Trigger Level has been reached and
Apollo shall have the right (exercisable by delivering a Notification (the
"Election Notice") to the Company within fifteen (15) days after the Company
gives such Notification to Apollo) to elect to either:
(A) make an additional Capital Contribution (within twenty
(20) business days after delivering the Election Notice) in an amount equal to
the Allocation Deficiency, and receive the gross income allocations described in
Section 4.2.1(d) hereof, in which case Section 3.1.3(vi)(B) hereof shall
terminate and be of no further force or effect immediately upon Apollo's payment
of such additional Capital Contribution; or
(B) continue to be bound by the provisions of Section
3.1.3(vi)(B) hereof; or
(C) reduce Apollo's Commitment by an amount equal to the
Allocation Deficiency, in which case Section 3.1.3(vi)(B) hereof shall terminate
and be of no further force or effect immediately upon Apollo's delivery of such
Election Notice.
In the event Apollo fails to deliver the Election Notice within such
fifteen (15) day period, Apollo shall be deemed to have elected option "(B)"
above.
3.1.4 The Members hereby acknowledge and agree that, in connection
with a Qualified IPO prior to the seventh anniversary of the Effective Date, the
Board, if so advised by the managing underwriter of such Qualified IPO, may
require all (but not less than all) of the Members to make Capital Contributions
in each case in an amount equal to the total amount of any and all distributions
of Net Cash Flow or Capital Proceeds that, in accordance with Article IV hereof
(collectively, "Distributions"), were received by such Member any time after the
Effective Date, but only to the extent that such Distributions exceed the
aggregate amount of Profit of the Company allocated to such Member at any time
after the Effective Date; provided, however, that (a) the maximum amount of such
Capital Contributions required to be made by any Member pursuant to this Section
3.1.4 shall not exceed the sum of such Member's initial Capital Contribution
plus such Member's Commitment (determined, for purposes of this Section 3.1.4,
by reducing the amount of such Member's previous Capital Contributions by the
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amount of Distributions previously received by such Member); and (b) that for
purposes of this Section 3.1.4, Profit and Loss of the Company shall be
determined without regard to the provisions of clause (v) of the definition of
"Profit" and "Loss."
3.2 Issuance of Additional Units. The Members hereby acknowledge and agree
that Sylvan shall have the right, from time to time, to require the Board to
cause the Company to issue Units (including, without limitation, Preferred
Units) to one (1) or more purchasers (and to admit such purchasers as Members)
on terms no more favorable to the purchasers of such Units than the terms on
which Apollo is purchasing its Preferred Units (collectively, the "Additional
Units"); provided, however, that (a) any such purchaser of Additional Units
shall not have any rights pursuant to this Agreement that are granted herein
specifically to Apollo and not generally to all holders of Preferred Units, (b)
any and all purchasers of Additional Units shall be reasonably acceptable to
Apollo as evidenced by its written consent, which consent shall not be
unreasonably withheld, and (c) without the written consent of Apollo (which may
be granted or withheld in its absolute discretion), (i) the maximum amount of
Capital Contributions payable to the Company for such Additional Units
(including, without limitation, any Additional Units acquired by Apollo upon
exercise of its preemptive rights in accordance with Section 7.1 hereof) shall
be One Hundred Million Dollars ($100,000,000), and (ii) the sale and issuance of
Additional Units shall not result in the treatment of the Company as a
"publicly-traded partnership" for tax purposes within the meaning of Section
7704 of the Code.
3.3 Membership Profit Interest Plan. The Members hereby (i) consent to and
approve the Membership Profit Interest Plan, (ii) acknowledge and agree that
grants of Membership Profit Interests available under the Membership Profit
Interest Plan shall be made to such grantees (including, without limitation, the
Management Members) and in such amounts as the Board (or an authorized committee
or other designee thereof) shall determine in accordance with such Membership
Profit Interest Plan; provided, however, that each of Hoehn-Saric and Becker
shall be granted that number of Common Units of Membership Profit Interests set
forth in, and in accordance with, their respective Employment Agreements and
Membership Profit Interest Grant Agreements with the Company dated as of the
Effective Date (collectively, the "Management Employment Documents"), and (iii)
acknowledge and agree that upon the grant of Membership Profit Interests to a
grantee under the Membership Profit Interest Plan, and the execution and
delivery of a counterpart signature page to this Agreement by such grantee, such
grantee shall be admitted as a Member of the Company.
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ARTICLE IV
Allocations and Distributions
4.1 Distributions.
4.1.1 General. After taking into consideration distributions made
pursuant to Section 4.1.4 hereof, (i) during the period commencing on the
Effective Date and continuing until December 30, 2001, the Board may (but shall
not be required to) distribute Net Cash Flow, Capital Proceeds, and Real Estate
Proceeds to and among the Membership Interest Holders, at such times as the
Board may determine, in accordance with the provisions of this Article IV;
provided, however, that any such Capital Proceeds that are not distributed to
the Membership Interest Holders, must be used to purchase Investments or
Temporary Investments (and may not be used to fund operating expenses of the
Company); and (ii) during the period commencing on December 30, 2001 and
continuing until the earlier of the consummation of a Qualified IPO or the
dissolution and termination of the Company, the Board shall distribute Net Cash
Flow to and among the Membership Interest Holders, on a quarterly basis, in
accordance with the provisions of this Article IV and the Board shall distribute
Capital Proceeds and Real Estate Proceeds to and among the Membership Interest
Holders as soon as practicable following receipt thereof by the Company, in
accordance with the provisions of this Article IV.
4.1.2 Distribution of Net Cash Flow and Capital Proceeds. Except as
otherwise provided in Sections 4.1.1, 4.1.5, 4.1.6 and 4.4.6 hereof, upon any
distribution of Net Cash Flow and Capital Proceeds to the Membership Interest
Holders, Net Cash Flow and Capital Proceeds shall be distributed in the
following order of priority:
(i) First, an aggregate amount equal to the aggregate Net
Capital Investment-Preferred Units shall be distributed to the Membership
Interest Holders owning Preferred Units, pro-rata, in proportion to their
respective Net Capital Investment-Preferred Units.
(ii) Second, Net Cash Flow and Capital Proceeds shall be
distributed (A) fifty percent (50%) to the Plan Membership Interest Holders, pro
rata, in proportion to their relative Percentages; and (B) fifty percent (50%)
to the Membership Interest Holders owning Common Units, pro-rata, in proportion
to their respective Net Capital Investment-Common Units, until either (1) the
Plan Membership Interest Holders have received distributions pursuant to this
Section 4.1.2(ii) equal to the lesser of (a) twenty percent (20%) of the total
amount to be distributed that consists of Net Cash Flow or Capital Proceeds or
(b) the aggregate amount of Profit allocated to the Plan Membership Interest
Holders pursuant to Section 4.2.l(a)(iv); or (2) the Membership Interest Holders
owning Common Units have received distributions
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pursuant to this Section 4.1.2(ii), in the aggregate, equal to their respective
Net Capital Investment-Common Units.
(iii) Third, to the extent that the Plan Membership Interest
Holders have not received distributions pursuant to Section 4.1.2(ii) equal to
the lesser of (A) twenty percent (20%) of the total amount to be distributed
that consists of Net Cash Flow or Capital Proceeds or (B) the aggregate amount
of Profit allocated to them pursuant to Section 4.2.l(a)(iv), then to the Plan
Membership Interest Holders, pro rata, in proportion to their relative
Percentages, until they have received distributions of Net Cash Flow and Capital
Proceeds pursuant to Sections 4.1.2(ii) and (iii) equal to the lesser of (1)
twenty percent (20%) of the total amount to be distributed that consists of Net
Cash Flow or Capital Proceeds or (2) the aggregate amount of Profit allocated to
them pursuant to Section 4.2.l(a)(iv).
(iv) Fourth, to the extent that the Membership Interest
Holders owning Common Units have not received distributions pursuant to Section
4.1.2(ii) equal to their respective Net Capital Investment-Common Units, then to
the Membership Interest Holders owning Common Units, pro-rata, in proportion to
their respective Net Capital Investment-Common Units, until they have received
distributions pursuant to Sections 4.1.2(ii) and (iv), in the aggregate, equal
to their respective Net Capital Investment-Common Units.
(v) Finally, any remaining Net Cash Flow and Capital Proceeds
shall be distributed to the Membership Interest Holders (other than the Plan
Membership Interest Holders), pro-rata, in proportion to the relative
Percentages owned by such Membership Interest Holders.
4.1.3 Distribution of Real Estate Proceeds. Subject to the
provisions of Section 4.1.1 hereof and except as otherwise provided in Section
4.1.5 hereof, Real Estate Proceeds shall be distributed or otherwise applied as
follows and in the following order of priority:
(i) First, an aggregate amount equal to any unfunded
Commitment of Sylvan with respect to any Additional Capital Call shall be
retained by the Company and applied in full or partial (as the case may be)
satisfaction of such Commitment and shall reduce the Capital Contribution
required by Sylvan under Section 3.1 hereof.
(ii) Second, an aggregate amount equal to the Real Estate
Investment shall be distributed (which shall include deemed distributions
pursuant to Section 4.1.3(i) hereof) to Sylvan.
(iii) Third, any remaining Real Estate Proceeds shall be
distributed to the Membership Interest Holders owning Common Units (other than
Apollo, its Transferees and other holders of Preferred Units or Common Units
issued
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upon conversion of the Preferred Units), in proportion to the allocations of
Real Estate Profit to such Membership Interest Holders pursuant to Section
4.2.2(a)(ii) until such Membership Interest Holders have received Real Estate
Proceeds equal to the amount of such allocations. For purposes of this clause
"(iii)", allocations of Real Estate Profit to Sylvan pursuant to Section
4.2.2(a)(ii) shall be reduced to the extent Real Estate Proceeds allocated to
Sylvan pursuant to Section 4.1.3(i) exceed the Real Estate Investment.
(iv) Finally, any remaining Real Estate Proceeds shall be
distributed to Sylvan.
4.1.4 Mandatory Tax Distributions. Notwithstanding anything to the
contrary contained in this Article IV, no later than ninety (90) days after the
end of each Fiscal Year of the Company, the Board shall, subject to the net
profit, Net Cash Flow, Net Capital Proceeds and Real Estate Proceeds limitations
described in the succeeding sentence hereto, make distributions (i) to the
Membership Interest Holders, pro-rata in accordance with their relative
Percentages, equal to the sum of (a) forty percent (40%) of all Profit for such
Fiscal Year that is treated as long-term capital gain for United States federal
income tax purposes, plus (b) forty-two percent (42%) of all Profit for such
Fiscal Year that is treated as ordinary income or short-term capital gain for
United States federal income tax purposes; and (ii) to the Plan Membership
Interest Holders, pro-rata in accordance with their relative Percentages, equal
to the sum of (a) twenty-five percent (25%) of all Real Estate Profit allocated
to the Plan Membership Interest Holders for such Fiscal Year that is treated as
long-term capital gain for United States federal income tax purposes, plus (b)
forty-five percent (45%) of all Real Estate Profit allocated to the Plan
Membership Interest Holders for such Fiscal Year that is treated as ordinary
income or short-term capital gain for United States federal income tax purposes.
Mandatory tax distributions described in (i) above shall be made only (A) to the
extent Profits exceed Losses previously realized by the Company in the Fiscal
Year and all prior Fiscal Years, and (B) to the extent of available Net Cash
Flow and Net Capital Proceeds; and mandatory tax distributions described in (ii)
above shall be made only (Y) to the extent Real Estate Profits exceed Real
Estate Losses previously realized by the Company in the Fiscal Year and all
prior Fiscal Years, and (Z) to the extent of Real Estate Proceeds and all other
proceeds attributable to the Real Estate Assets. All such distributions pursuant
to this Section 4.1.4 shall be treated as an advance with respect to amounts
otherwise distributable to the Membership Interest Holders under this 4.1.
4.1.5 Distributions upon Liquidation; Limited Deficit Restoration
Obligation.
(a) Upon the liquidation of the Company, the assets of the
Company (including any net proceeds from the sale of any Company assets) shall
be distributed and applied as follows and in the following order of priority:
(i) first, to the creditors of the Company for the payment or due provisions for
the liabilities of the
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Company (including loans, if any, to the Company from any Membership Interest
Holders), and (ii) second, to the Membership Interest Holders, pro-rata, in
accordance with their respective positive Capital Account balances (after the
allocation of all items of Profit, Loss, deduction, credit and deduction (or
items thereof) under and pursuant to this Article IV).
(b) Each Plan Membership Interest Holder shall have an
obligation to restore a Negative Capital Account upon the liquidation of his or
her interest or upon a liquidation or dissolution of the Company to the extent
such Plan Membership Interest Holder has received aggregate distributions in
accordance with this Agreement in excess of the sum of (i) such Plan Membership
Interest Holder's Capital Contributions, plus (ii) such Plan Membership Interest
Holder's net allocation of Profit pursuant to this Article IV. If a Plan
Membership Interest Holder is obligated to make a payment to the Company
pursuant to this Section 4.1.5(b), such payment must be made by the end of the
Company's Fiscal Year (or, if later, within ninety (90) days after the date of
the liquidation) and, upon the liquidation or dissolution of the Company, the
Company shall distribute such amount in accordance with the provisions of
Section 4.1.5(a).
4.1.6 Escrow Account.
(a) Notwithstanding the other provisions of this Section 4.1
(other than Section 4.1.4), (i) if, on any date prior to a Qualified IPO, there
is to be a distribution (other than a distribution pursuant to Section 4.1.4
hereof) to the Plan Membership Interest Holders, then the Board shall calculate
the Pro Forma Return Ratio as if the distribution had occurred and (ii) if the
Pro Forma Return Ratio as so computed is less than 1.15, then the Company shall
deposit in the Escrow Account all or a portion of the then proposed distribution
to the Plan Membership Interest Holders as may be required to the extent
necessary so that the Pro Forma Return Ratio, calculated with effect to the
holding in the Escrow Account of such distribution or portion thereof, is 1.15.
(b) If the Company is required to deposit funds in the Escrow
Account pursuant to Section 4.1.6(a) and after giving effect to such deposit the
Pro Forma Return Ratio is less than 1.15, then, subject to Section 4.1.6(d)
below, the Plan Membership Interest Holders shall immediately deposit in the
Escrow Account an amount sufficient so that the Pro Forma Return Ratio,
calculated with effect to the holding in the Escrow Account, is 1.15.
(c) On the last day of the second and fourth fiscal quarter of
each fiscal year of the Company, prior to a Qualified IPO, the Board shall
calculate the Pro Forma Return Ratio. If the Pro Forma Return Ratio on such date
is less than 1.15, then, subject to Section 4.1.6(d) below, the Plan Membership
Interest Holders shall immediately deposit in the Escrow Account an amount
sufficient so that the Pro Forma Return Ratio, calculated with effect to the
holding in the Escrow Account of such amount, is 1.15. If the Pro Forma Return
Ratio on such date is greater than 1.15, then all amounts held in the Escrow
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Account in excess of the amount required to maintain the Pro Forma Return Ratio
at 1.15 shall be paid to the Plan Membership Interest Holders pro-rata, in
proportion to the respective Percentages owned by such Plan Membership Interest
Holders.
(d) If the Plan Membership Interest Holders are required to
make any deposit to the Escrow Account pursuant to the provisions of Section
4.1.6(b) or Section 4.1.6(c), then each of the Plan Membership Interest Holders
shall be obligated to fund its pro-rata portion of such deposit, in proportion
to the respective Percentages owned by each of the Plan Membership Interest
Holders. Notwithstanding the foregoing, each of the amounts that each of the
Plan Membership Interest Holders shall be obligated to deposit in the Escrow
Account shall not exceed the aggregate net amount of cash that such Plan
Membership Interest Holder has previously received from the Company pursuant to
the provisions of Section 4.1.2 and this Section 4.1.6 (taking into account any
amounts deposited by such Plan Membership Interest Holder in the Escrow Account
and any payments from the Escrow Account to such Plan Membership Interest
Holder).
(e) The amounts deposited in the Escrow Account shall be
invested in Temporary Investments and the earnings on such account shall remain
in such account until distributed in accordance with the provisions hereof.
(f) Upon dissolution and liquidation of the Company, subject
to the requirements of the Act, any amounts then held in the Escrow Account
shall first be used to satisfy the obligations of the Plan Membership Interest
Holders pursuant to Section 4.1.5(b), and then shall be distributed to the Plan
Membership Interest Holders pro-rata, in proportion to the respective
Percentages owned by such Plan Membership Interest Holders.
(g) For all purposes of this Agreement (including, without
limitation, the determination of the Capital Accounts of the Plan Membership
Interest Holders and the determination of allocations pursuant to Section 4.2),
any amounts held in the Escrow Account shall be considered to have been
distributed to the Plan Membership Interest Holders.
(h) Notwithstanding the other provisions of this Section
4.1.6, all amounts held in the Escrow Account shall be distributed to the Plan
Membership Interest Holders pro-rata, in proportion to the respective
Percentages owned by such Plan Membership Interest Holders, immediately upon the
consummation of a Qualified IPO.
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4.2 Allocations.
4.2.1 Allocation of Profit and Loss.
(a) Subject to the provisions of Sections 4.3 and 4.4.6 hereof
and Sections 4.2.1(c) and 4.2.1(d) hereof, Profit for each Fiscal Year (or other
period) shall be allocated as follows and in the following order of priority:
(i) First, to the Members, to the extent of any
allocations of Loss pursuant to Section 4.2.1(b)(iv) (in proportion to the
amount of Loss allocated pursuant to Section 4.2.1(b)(iv)), until the aggregate
allocations pursuant to this Section 4.2.1(a)(i) equal the aggregate allocations
pursuant to Section 4.2.1(b)(iv).
(ii) Second, to the Members owning Preferred Units, to
the extent of any allocations of Loss pursuant to Section 4.2.1(b)(iii) (in
proportion to the amount of Loss allocated pursuant to Section 4.2.1(b)(iii)),
until the aggregate allocations pursuant to this Section 4.2.1(a)(ii) equal the
aggregate allocations pursuant to Section 4.2.1(b)(iii).
(iii) Third, to the Members owning Common Units, to the
extent of any allocations of Loss pursuant to Section 4.2.1(b)(ii) (in
proportion to the amount of Loss allocated pursuant to Section 4.2.1(b)(ii)),
until the aggregate allocations pursuant to this Section 4.2.1(a)(iii) equal the
aggregate allocations pursuant to Section 4.2.1(b)(ii).
(iv) Thereafter, Profit shall be allocated (A) twenty
percent (20%) to the Plan Membership Interest Holders, pro-rata, in proportion
to the relative Percentages owned by the Plan Membership Interest Holders, and
(B) eighty percent (80%) to the Membership Interest Holders (other than the Plan
Membership Interest Holders), pro-rata, in proportion to the relative
Percentages owned by such Membership Interest Holders.
(b) Subject to the provisions of Section 4.3 hereof and
Sections 4.2.1(c) and 4.2.1(d) hereof, Loss for each Fiscal Year (or other
period) shall be allocated as follows and in the following order of priority:
(i) First, to the Members, to the extent of any
allocations of Profit pursuant to Section 4.2.1(a)(iv) (in proportion to the
amount of Profit allocated to each such Membership Interest), until the
aggregate allocations pursuant to this 4.2.1(b)(i) equals the aggregate
allocations pursuant to Section 4.2.1(a)(iv).
(ii) Second, Loss shall be allocated to the Members
owning Common Units (in proportion to their positive Adjusted Capital Account
Balances) until the positive Adjusted Capital
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Account Balances of each such Membership Interest Holder has been reduced to
zero (0).
(iii) Third, Loss shall be allocated to the Members
owning Preferred Units (in proportion to their positive Adjusted Capital Account
Balances) until the positive Adjusted Capital Account Balance of each such
Membership Interest Holder has been reduced to zero (0).
(iv) Finally, any remaining Loss shall be allocated (A)
twenty percent (20%) to the Plan Membership Interest Holders, pro-rata, in
proportion to the relative Percentages owned by the Plan Membership Interest
Holders, and (B) eighty percent (80%) to the Membership Interest Holders (other
than the Plan Membership Interest Holders), pro-rata, in proportion to the
relative Percentages owned by such Membership Interest Holders.
(c) Notwithstanding any other provision contained in this
Section 4.2.1 (other than Section 4.2.1(d)), and subject to Section 4.3, the
Members acknowledge and agree as follows:
(i) Up to Ten Million Dollars ($10,000,000) of Loss for
the Fiscal Year ending December 31, 2000, shall be allocated to Apollo based on
its relative Percentage (the actual amount of such Loss allocation is referred
to herein as the "Year 2000 Loss Allocation"). Allocations of Loss to Apollo
pursuant to this Section 4.2.1(c)(i) shall consist of a pro rata portion of each
Company item of expense, deduction and loss that is taken into account in
determining Loss for the Fiscal Year.
(ii) For the Fiscal Years of the Company following the
Fiscal Year ending December 31, 2000, the Members acknowledge and agree that
Profit shall first be allocated to Apollo to reverse the allocations of Loss to
Apollo made pursuant to Section 4.2.1(c)(i). Allocations of Profit to Apollo
pursuant to this Section 4.2.1(c)(ii) shall consist of a pro rata portion of
each Company item of income and gain that is taken into account in determining
Profit for the Fiscal Year for which the allocation is made.
(d) Notwithstanding any other provision contained in this
Section 4.2.1, and subject to Section 4.3, the Members further acknowledge and
agree that, if Apollo elects pursuant to Section 3.1.3(vii)(A) to (i) make an
additional Capital Contribution to the Company in an amount equal to the
Allocation Deficiency; and (ii) receive gross income allocations under this
Section 4.2.1(d), the Company shall, immediately after Apollo makes the
additional Capital Contribution described above, begin making allocations of
gross income and gain (other than gross income and gain attributable to the Real
Estate Assets) to Apollo until Apollo has received, in the aggregate, gross
income and gain allocations pursuant to this Section 4.2.1(d) in an amount equal
to (i) the Allocation Deficiency; plus (ii) all items of expense and deduction
allocable to Apollo during the period during which Apollo receives gross income
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allocations pursuant to this Section 4.2.1(d). Allocations of gross income and
gain to Apollo pursuant to this Section 4.2.1(d) shall consist of a pro rata
portion of each Company item of income and gain (other than income and gain
attributable to the Real Estate Assets) for the Fiscal Year for which the
allocation is made.
4.2.2 Allocation of Real Estate Profit and Real Estate Loss.
(a) Subject to the provisions of Section 4.3 hereof, the
distributive shares of each item of Real Estate Profit for any taxable year of
the Company (or other period) shall be allocated as follows and in the following
order of priority:
(i) First, an aggregate amount of Real Estate Profit
shall be allocated to the Membership Interest Holders owning Common Units (other
than Apollo, its Transferees hereunder and other holders of Preferred Units or
Common Units issued upon conversion of the Preferred Units), pro-rata, in
proportion to the relative Percentages owned by such Membership Interest
Holders, until the cumulative amount of Real Estate Profit allocated to such
Membership Interest Holders pursuant to this Section 4.2.2(a)(i) equals the
aggregate cumulative amount of Real Estate Loss previously allocated to such
Membership Interest Holders pursuant to Section 4.2.2(b)(ii) hereof.
(ii) Finally, any remaining Real Estate Profit shall be
allocated to the Membership Interest Holders owning Common Units (other
than Apollo, its Transferees hereunder and other holders of Preferred Units or
Common Units issued upon conversion of the Preferred Units), pro-rata, in
proportion to the relative Percentages owned by such Membership Interest
Holders.
(b) Subject to the provisions of Sections 4.2.2(c) and 4.3
hereof, the distributive shares of each item of Real Estate Loss for any taxable
year of the Company (or other period) shall be allocated as follows and in the
following order of priority:
(i) First, an aggregate amount of Real Estate Loss shall
be allocated to the Membership Interest Holders owning Common Units (other than
Apollo, its Transferees hereunder and other holders of Preferred Units or Common
Units issued upon conversion of the Preferred Units), pro-rata, in proportion to
the relative Percentages owned by such Membership Interest Holders, until the
cumulative amount of Real Estate Loss allocated to such Membership Interest
Holders pursuant to this Section 4.2.2(b)(i) equals the aggregate cumulative
amount of Real Estate Profit previously allocated to such Membership Interest
Holders pursuant to Section 4.2.2(a)(ii) hereof.
(ii) Finally, any remaining Real Estate Loss shall be
allocated to the Membership Interest Holders owning Common Units (other
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than Apollo, its Transferees hereunder and other holders of Preferred Units or
Common Units issued upon conversion of the Preferred Units), pro-rata, in
proportion to the relative Percentages owned by such Membership Interest
Holders.
(c) To the extent any Real Estate Loss cannot be allocated to
any Membership Interest Holder as a result of Section 4.3.1, such Real Estate
Loss shall be reallocated to the Membership Interest Holders owning Common Units
(other than Apollo, its Transferees hereunder and other holders of Preferred
Units or Common Units issued upon conversion of the Preferred Units) with
Adjusted Capital Account Balances that are greater than zero (0).
4.3 Special Allocations.
4.3.1 Qualified Income Offset. No Membership Interest Holder shall
be allocated Losses or deductions if the allocation (i) causes a Membership
Interest Holder to have an Adjusted Capital Account Deficit or (ii) increases a
Membership Interest Holder's Adjusted Capital Account Deficit. If a Membership
Interest Holder receives an allocation of Loss or deduction (or item thereof),
or any distribution, which (i) causes the Membership Interest Holder to have an
Adjusted Capital Account Deficit or (ii) increases a Membership Interest
Holder's Adjusted Capital Account Deficit, at the end of any taxable year, then
all items of income and gain of the Company (consisting of a pro-rata portion of
each item of Company income, including gross income and gain) for that taxable
year shall be allocated to that Membership Interest Holder before any other
allocation is made of Company items for that taxable year, in the amount and
proportion required to eliminate the deficit as quickly as possible. This
Section 4.3.1 is intended to comply with, and shall be interpreted consistently
with, the "qualified income offset" provisions of the Regulations promulgated
under Code Section 704(b).
4.3.2 Minimum Gain Chargeback. Except as set forth in Regulations
Section 1.704-2(f), if, during any taxable year, there is a net decrease in
Minimum Gain, each Membership Interest Holder, prior to any other allocation
pursuant to this Section IV, shall be specially allocated items of gross income
and gain for such taxable year (and, if necessary, subsequent taxable years) in
an amount equal to that Membership Interest Holder's share of the net decrease
of Minimum Gain, computed in accordance with Regulations Section 1.704-2(g).
Allocations of gross income and gain pursuant to this Section 4.3.2 shall be
made first from gain recognized from the disposition of Company assets subject
to Nonrecourse Liabilities to the extent of the Minimum Gain attributable to
those assets, and thereafter, from a pro-rata portion of the Company's other
items of income and gain for the taxable year. It is the intent of the parties
hereto that any allocation pursuant to this Section 4.3.2 shall constitute a
"minimum gain chargeback" under Regulations Section 1.704-2(f).
4.3.3 Contributed Property. In accordance with Code Section 704(c)
and the Regulations thereunder, as well as Regulations
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Section 1.704-1(b)(2)(iv)(d)(3), income, gain, loss, and deduction with respect
to any property contributed (or deemed contributed) to the Company shall, solely
for tax purposes, be allocated among the Membership Interest Holders so as to
take account of any variation between the adjusted basis of the property to the
Company for United States federal income tax purposes and its fair market value
at the date of contribution (or deemed contribution). If the fair market value
of any Company asset is adjusted as provided herein, subsequent allocations of
income, gain, loss, and deduction with respect to such asset shall take account
of any variation between the adjusted basis of such asset for United States
federal income tax purposes and its fair market value in the manner required
under Code Section 704(c) and the Regulations thereunder. In connection
therewith, it is understood and agreed that any tax items under Code Section
704(c) shall be allocated to the Membership Interest Holders in accordance with
the "traditional method" of allocation as set forth in Regulation Section
1.704-3(b).
4.3.4 Code Section 754 Adjustment. To the extent an adjustment to
the tax basis of any Company asset pursuant to Code Section 734(b) or 743(b) is
required, pursuant to Regulations Section 1.704-1(b)(2)(iv)(m), to be taken into
account in determining Capital Accounts, the amount of the adjustment to the
Capital Accounts shall be treated as an item of gain (if the adjustment
increases the basis of the asset) or loss (if the adjustment decreases such
basis), and the gain or loss shall be specially allocated to the Membership
Interest Holders in a manner consistent with the manner in which their Capital
Accounts are required to be adjusted pursuant to those Sections of the
Regulations.
4.3.5 Nonrecourse Deductions. Nonrecourse Deductions relating to the
Real Estate Assets for a taxable year or other period shall be specially
allocated among the Membership Interest Holders owning Common Units (other than
Apollo, its Transferees hereunder and other holders of Preferred Units or Common
Units issued upon conversion of the Preferred Units) in proportion to their
respective Percentages. All other Nonrecourse Deductions for a taxable year or
other period shall be specially allocated (A) twenty percent (20%) to the Plan
Membership Interest Holders, pro-rata, in proportion to the relative Percentages
owned by Plan Membership Interest Holders, and (B) eighty percent (80%) to the
Membership Interest Holders (other than the Plan Membership Interest Holders),
pro-rata, in proportion to the relative Percentages owned by such Membership
Interest Holders.
4.3.6 Member Loan Nonrecourse Deductions. Any Member Loan
Nonrecourse Deduction for any taxable year or other period shall be specially
allocated to the Member who bears the risk of loss with respect to the loan to
which the Member Loan Nonrecourse Deduction is attributable in accordance with
Regulations Section 1.704-2(b).
4.3.7 Gross Income Allocations. To the extent that any Membership
Interest Holder has an Adjusted Capital Account Deficit at the end of any
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taxable year, then all items of income and gain of the Company (consisting of a
pro-rata portion of each item of Company income, including gross income and
gain) for that taxable year shall be allocated to that Membership Interest
Holder before any other allocation is made of Company items for that taxable
year, in the amount and proportion required to eliminate the deficit as quickly
as possible.
4.3.8 Subsequent Allocations. Any special allocations of items of
income, gain, loss or deduction pursuant to Sections 4.3.1, 4.3.2, 4.3.4, 4.3.5,
4.3.6 or 4.3.7 hereof (collectively, the "Regulatory Allocations") shall be
taken into account in computing subsequent allocations of Profits pursuant to
this Article IV, so that the net amount of any items so allocated and the
Profits, Losses and all other items allocated to each Membership Interest Holder
pursuant to this Article IV shall, to the extent possible, be equal to the net
amount that would have been allocated to each such Membership Interest Holder
pursuant to the provisions of this Article IV if such special allocations had
not been required. This provision shall take into account future Regulatory
Allocations that, although not yet made, are likely to offset Regulatory
Allocations previously made under this Section 4.3.
4.4 Other Allocation and Distribution Rules.
4.4.1 Authority of Board. The Board is hereby authorized, upon the
advice of the Company's tax counsel, to amend this Article IV to comply with the
Code and the Regulations promulgated under Code Section 704(b); provided,
however, that no such amendment shall materially affect distributions to a
Membership Interest Holder without the Membership Interest Holder's prior
written consent.
4.4.2 Transfer of Membership Interest. If any Membership Interest is
Transferred or forfeited during any accounting period in compliance with the
provisions of this Agreement, Profits, Losses, each item thereof and all other
items attributable to such Membership Interest for such period shall be divided
and allocated between the transferor and the transferee by taking into account
their varying Membership Interests during the period in accordance with Code
Section 706(d), using any conventions permitted by law and selected by the
Board.
4.4.3 Withholding. All amounts required to be withheld pursuant to
Section 1446 of the Code or any other provision of United States federal, state,
or local tax law shall be treated as amounts actually distributed to the
affected Membership Interest Holders pursuant to this Article IV for all
purposes under this Agreement or, in the discretion of the Board, to the extent
such withholding has not reduced the amounts actually distributed to an affected
Membership Interest Holder, as a demand loan to such Member, which demand loan
shall bear interest at a rate of 10% per annum for all purposes of this
Agreement.
4.4.4 Limitation on Distributions. Notwithstanding anything herein
to the contrary, the Company shall not make any distributions to the extent the
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Board determines that such distributions are prohibited under the Act (including
without limitation, Section 18-607 thereof) or other applicable law.
4.4.5 Guaranteed Payment. To the extent any compensation paid to any
Member by the Company is determined by the Internal Revenue Service (i) not to
be a guaranteed payment under Code Section 707(c), and (ii) not to be paid to
the Member other than in the Person's capacity as a Member within the meaning of
Code Section 707(a), in each such case the Member shall be specially allocated
gross income of the Company in an amount equal to the amount of such
compensation, and the Member's Capital Account shall be adjusted to reflect such
allocations and the payment of such compensation.
4.4.6 Plan Membership Interest Holder Allocation and Distribution
Limitation. The Members hereby acknowledge and agree that the references to
twenty percent (20%) in Sections 4.1.2, 4.2.1, 4.3.5 and 7.3.4 (the "Ceiling
Percentages") shall apply to the Plan Membership Interest Holders on a
particular allocation or distribution date only to the extent that the Plan
Membership Interest Holders hold all of the Units issuable under the Membership
Profit Interest Plan as of that particular date. To the extent that the Plan
Membership Interest Holders do not hold all of the Units issuable under the
Membership Profit Interest Plan as of a particular date, the Ceiling Percentages
shall be reduced for purposes of applying Sections 4.1.2, 4.2.1, 4.3.5 and 7.3.4
to a percentage determined by multiplying the Ceiling Percentages by a fraction,
the numerator of which shall equal the number of outstanding Units granted to
the Plan Membership Interest Holders under the Membership Profit Interest Plan
on the date in question, and the denominator of which shall equal the maximum
amount of Units issuable to the Plan Membership Interest Holders under the
Membership Profit Interest Plan as of that date. Further, to the extent that the
Ceiling Percentages are reduced for purposes of applying Sections 4.1.2, 4.2.1
and 4.3.5 pursuant to the provisions of this Section 4.4.6, the references to
eighty percent (80%) in Sections 4.1.2, 4.2.1 and 4.3.5 (the "Floor
Percentages") shall be increased by an amount equal to the amount by which the
Ceiling Percentages were reduced. For example, if (i) the Plan Membership
Interest Holders collectively hold eighty (80) Units that have been granted
under the Membership Profit Interest Plan on December 31, 2000, and (ii) as of
December 31, 2000, the Company has the authority to issue a total of one hundred
(100) Units to the Plan Membership Interest Holders under the Membership Profit
Interest Plan, then (iii) for purposes of applying Sections 4.1.2, 4.2.1, 4.3.5
and 7.3.4 on December 31, 2000, (A) the Ceiling Percentages shall be reduced by
four percent (4%) from twenty percent (20%) to sixteen percent (16%) (20% x
80/100 = 16%), and (B) the Floor Percentages shall be increased by four percent
(4%) from eighty percent (80%) to eighty-four percent (84%) (80% + 4% = 84%).
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ARTICLE V
Management: Board of Managers, etc.
5.1 Authority of Board; Election of Managers; Removal; Vacancies; Meetings
of the Board.
5.1.1 Authority of Board.
(i) The Business of the Company shall be managed under the
direction and control of the Board, which shall consist of Managers who shall
act as fiduciaries of the Company in accordance with, and pursuant to, this
Agreement. Decisions of the Board within its scope of authority shall be binding
upon the Company and each Member. Managers need not be Members. Subject to the
limitations set forth in Sections 5.1.1(ii), (iii), (iv) and (v) hereof, all
powers of the Company shall be exercised by or under the authority of the Board,
and the Board shall have full, exclusive and complete discretion, power and
authority to manage, control, administer and operate the Business, including,
without limitation, the power to:
(A) make Investments in Subject Companies; provided,
however, that all such Investments shall be approved (prior to making such
Investment) by the Investment Committee;
(B) make Temporary Investments;
(C) exercise all rights, powers, privileges and other
incidents of ownership with respect to the Company's Investments and Temporary
Investments, including without limitation, representation in the management of
Portfolio Companies;
(D) Transfer any or all of the Company's Investments and
Temporary Investments;
(E) make Additional Capital Calls, subject to and in
accordance with, Section 3.1.3 hereof;
(F) employ officers, other management personnel and
other personnel, and engage consultants, professionals or other specialists in
any field of endeavor, including Persons who are Members, or delegate authority
to do so;
(G) grant Membership Profit Interests in accordance with
the Membership Profit Interest Plan, and grant options or other equity
incentives (in the Company or in any Portfolio Company) to Management Members or
other officers, employees and consultants of the Company, or delegate authority
to do so;
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(H) determine, settle and pay all expenses, debts and
obligations of, and claims against, the Company, and make all accounting and
financial determinations and decisions;
(I) enter into, make and perform all contracts,
agreements and other undertakings (and execute all other certificates,
instruments and documents of any kind) which the Board determines to be
necessary, advisable or incidental to the conduct of the Business;
(J) make any and all expenditures which the Board deems
necessary or appropriate in connection with the management of the affairs of the
Company and the carrying out of its obligations and responsibilities under this
Agreement, including, without limitation, all legal, accounting and other
related expenses incurred in connection with the organization, financing and
operation of the Company; and
(K) engage in any kind of activity necessary or
incidental to the accomplishment of the purposes of the Company.
(ii) Notwithstanding anything to the contrary in this
Agreement, the Company shall not (and the Board shall have no authority to cause
the Company to) engage in any Management Transaction without the consent of
Apollo; provided, however, that this Section 5.1.1(ii) shall terminate and be of
no further force or effect upon the first date on which Apollo and the Permitted
Funds cease to own, in the aggregate, at least 50% of the Units which Apollo
held as of the Effective Date (subject to adjustment for any change to such
Units by reason of conversion, split, recapitalization or other similar
transaction).
(iii) Notwithstanding anything to the contrary in this
Agreement, the Company shall not (and the Board shall have no authority to cause
the Company to) issue any Units or Convertible Securities (other than Membership
Profit Interests in accordance with the Membership Profit Interest Plan) or
engage in any other equity financing, in each case if the aggregate amount of
Commitments is not less than Five Hundred Million Dollars ($500,000,000), or
make any Additional Capital Calls (except in accordance with Section 3.1.4
hereof) after the Company has received Capital Contributions in the aggregate
amount of Five Hundred Million Dollars ($500,000,000), without the consent of
Apollo; provided, however, that this Section 5.1.1(iii) shall terminate and be
of no further force or effect upon the first date on which neither Apollo nor
any Permitted Fund is a Member, or if earlier (1) upon a Qualified IPO with
respect to any issuance where the securities issued reflect a valuation of the
Company of at least the valuation reflected in the Qualified IPO, or (2) upon
the first anniversary of a Qualified IPO with respect to any other issuance.
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(iv) Notwithstanding anything to the contrary in this
Agreement, the Company shall not (and the Board shall have no authority to cause
the Company to) engage in any of the following transactions without the consent
of Apollo; provided, however, that (x) clauses "(A)" and "(C)" of this Section
5.1.1(iv) shall terminate and be of no further force or effect upon the first
date on which neither Apollo nor any Permitted Fund is a Member, or if earlier
upon a Qualified IPO, and (y) clause "(B)" of this Section 5.1.1(iv) shall
terminate and be of no further force or effect upon the first date on which the
number of Investor Managers is reduced to zero (0):
(A) issuing any indebtedness or borrowing any amounts
whatsoever (other than trade payables owed to suppliers and other trade
creditors incurred in the ordinary course of the Company's Business);
(B) changing the compensation payable by the Company to
Hoehn-Saric or Becker, solely with respect to (i) granting options to
Hoehn-Saric or Becker or other equity incentives in the Company or in any
Portfolio Company, (ii) increasing the respective interests of Hoehn-Saric
and/or Becker in the Membership Profit Interest Plan as set forth in Section 3.3
hereof, and (iii) changing the vesting schedule applicable to any options or
other equity incentives;
(C) taking any action that would result in (i) the
Company incurring any item of "unrelated business taxable income" (within the
meaning of Section 512 of the Code) or "debt-financed income" (within the
meaning of Section 514 of the Code); (ii) withholding tax obligations with
respect to Apollo, or (iii) the treatment of the Company as a "United States
Real Property Holding Corporation" (within the meaning of Section 897 of the
Code) for Federal income tax purposes (tested as if the Company were a
corporation for such purposes); and
(D) amending or modifying the Certificate or this
Agreement in a manner that adversely affects Apollo or any holder of Preferred
Units.
(v) Notwithstanding anything to the contrary in this
Agreement, the Company shall not (and the Board shall have no authority to cause
the Company to) engage in any transaction (other than a Management Transaction
approved in accordance with the preceding clause "(ii)", and other than the
transactions set forth on Exhibit F hereof) with an Affiliate of the Company (an
"Affiliate Transaction") unless:
(A) such Affiliate Transaction is fair and reasonable to
the Company, and no less favorable to the Company than could have been obtained
in an arm's length transaction with a non-Affiliate; and
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(B) if such Affiliate Transaction involves consideration
to either the Company or such Affiliate in excess of One Million Dollars
($1,000,000), such Affiliate Transaction is approved by a majority of the
Managers who are disinterested in such Affiliate Transaction; and
(C) if such Affiliate Transaction involves consideration
to either the Company or such Affiliate in excess of Five Million Dollars
($5,000,000), the Company obtains a written favorable opinion from an
independent investment banking or valuation firm of national reputation as to
the fairness (from a financial viewpoint) of such Affiliate Transaction to the
Company.
5.1.2 Election of Managers. The Managers shall be nominated and
elected by the Members as provided herein, and each Manager shall serve as a
Manager until the next annual meeting of the Members (or until his earlier
resignation or removal) and thereafter until his successor is duly elected and
qualified.
(i) Each Member agrees to vote or cause to be voted all Units
owned by it or over which it has voting control, and shall take all other
necessary or desirable actions within its control (whether in its capacity as a
Member, Manager, member of a committee of the Board, officer of the Company or
otherwise, including without limitation, attendance at meetings in person or by
proxy for purposes of obtaining a quorum and execution of written consents in
lieu of meeting), and the Board shall cause the Company to take all necessary or
desirable actions within its control (including, without limitation, calling
special Board or Member meetings), so that:
(A) at all times, the authorized number of Managers on
the Board shall be established at nine (9) Managers;
(B) at all times, seven (7) Managers, and at all times
after the effective date of a Qualified IPO, seven (7) directors of the
Corporate Successor, designated by Sylvan (collectively, the "Sylvan Managers")
shall be elected to the Board (or the board of directors of the Corporate
Successor, as the case may be); provided, however, that (i) in no event shall
any Person who is not a member of the board of directors of Sylvan (the "Sylvan
Board") be designated to serve (or otherwise serve) as a Sylvan Manager; (ii) in
no event shall any member of the Sylvan Board designated as such by Apollo or
any of its Affiliates be designated to serve (or otherwise serve) as a Sylvan
Manager; and (iii) in all events, no more than two (2) of the Sylvan Managers
shall be employees of Sylvan, Holding and/or the Company;
(C) at all times, subject to Section 5.1.2(ii) hereof,
two (2) Managers (or directors of the Corporate Successor following a Qualified
IPO) designated by Apollo (collectively, the "Investor Managers") shall be
elected to the Board (or the board of directors of the Corporate Successor, as
the case may be); provided, however, that in the event (and to the extent)
Apollo and/or any of
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its Affiliates has the right to designate one or more members of the Sylvan
Board, such individuals shall be designated as the Investor Managers; and
(D) The Members hereby acknowledge and agree that, at any time
following a Qualified IPO, the number of members of the board of directors of
the Corporate Successor may be increased or decreased from time to time, subject
to Sections 5.1.2(i)(B) and 5.1.2(i)(C) hereof.
(ii) Notwithstanding anything in Section 5.1.2(i) hereof, if
the number of Units (including the Common Units into which the Preferred Units
are converted) or, after the effective date of a Qualified IPO, the number of
shares of common stock of the Corporate Successor, held by Apollo and Permitted
Funds in the aggregate (as adjusted for Unit splits, stock splits and similar
transactions, the conversion of Preferred Units into Common Units pursuant to
Section 7.2 hereof, and the conversion of Units into shares of stock in
connection with the Qualified IPO) is less than the number specified below (as
so adjusted), then the number of Investor Managers (or directors, as the case
may be) shall be reduced as follows:
Number of Units or Shares Investor Managers (or directors)
Less than 33.23 (but greater than or equal to 9.97) 1
Less than 9.97 0
Notwithstanding the preceding Section 5.1.2(ii), in the event Apollo Transfers
any Units pursuant to clause (i) of Section 6.2 hereof, to a Person that is not
an Affiliate of Apollo, the respective "Number of Units or Shares" set forth
above shall be reduced proportionately based on Apollo's initial ownership of
99.7 Units as of the Effective Date.
(iii) Notwithstanding anything to the contrary in this Section
5.1.2:
(A) if, at any time, the number of Units held by Sylvan
represents less than 40% of the aggregate number of all outstanding Units
determined on a Fully-Diluted Basis (but, for purposes of this Section
5.1.2(iii), without regard to Units issued or issuable pursuant to the
Membership Profit Interest Plan), the Managers shall be elected pursuant to
cumulative voting by the Members, with each Member having a number of votes
equal to the product of the number of Units held by such Member times the total
number of Managers to be elected by the Members at a meeting of Members duly
called and at which a quorum is present; and
(B) in the event the number of Investor Managers is
reduced pursuant to Section 5.1.2(ii) hereof, the total number of Managers shall
likewise be reduced.
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5.1.3 Removal. The Managers may be removed at any time, as follows:
(i) Sylvan may remove any or all of the Sylvan Managers from
office, with or without cause, and may designate (in the manner set forth in
Section 5.1.2 for the election of the Sylvan Managers) a successor or successors
to fill any resulting vacancies for the unexpired term and thereafter until a
successor or successors are duly elected and qualified; and
(ii) Apollo may remove any or all of the Investor Managers
from office, with or without cause, and may designate (in the manner set forth
in Section 5.1.2 for the election of the Investor Managers) a successor or
successors to fill any resulting vacancies for the unexpired term and thereafter
until a successor or successors are duly elected and qualified; and
(iii) In the event the number of Investor Managers is reduced
pursuant to Section 5.1.2(ii) hereof, Apollo shall designate which of the
Investor Managers shall be removed.
5.1.4 Vacancies. Vacancies in the Board shall be filled as follows:
(i) If the office of a Sylvan Manager becomes vacant for any
reason, such vacancy shall be filled by Sylvan (in the manner set forth in
Section 5.1.2 for the election of the Sylvan Managers), and any such successor
Manager shall serve for the unexpired term and thereafter until a successor is
duly elected and qualified; and
(ii) If the office of an Investor Manager becomes vacant for
any reason (except in accordance with Section 5.1.3(iii)), such vacancy shall be
filled by Apollo (in the manner set forth in Section 5.1.2 for the election of
the Investor Managers), and any such successor Manager shall serve for the
unexpired term and thereafter until a successor is duly elected and qualified.
5.1.5 Meetings.
(i) General.
(A) The Board may hold meetings, both regular and
special, either within or without the State of Delaware. Regular meetings of the
Board may be held at such time and at such place as may from time to time be
determined by the Board. Special meetings of the Board may be called by the
President or by the Chairman of the Board, if there be one, or by any Manager.
Notification of meetings, both regular and special, stating the place, date and
hour of the meeting shall be given to
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each Manager by reputable next day courier or facsimile not less than
forty-eight (48) hours before the date of the meeting.
(B) Any action required or permitted to be taken at any
meeting of the Board or of any committee thereof may be taken without a meeting,
if all the members of the Board or committee, as the case may be, consent
thereto in writing, and the consents are filed with the minutes of proceedings
of the Board or committee.
(C) Members of the Board, or any committee thereof, may
participate in a meeting of the Board or such committee by means of a conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear and speak to each other, and participation
in a meeting pursuant to this Section 5.1.5(i)(C) shall constitute presence in
person at such meeting.
(ii) Quorum; Voting. At all meetings of the Board, a majority
of the entire Board shall constitute a quorum for the transaction of business,
and the act of a majority of the entire Board shall be the act of the Board. If
a quorum shall not be present at any meeting of the Board, the Managers present
thereat may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present.
5.1.6 Committees-In General. The Board may, by resolution passed by
a majority of the entire Board, designate one or more committees, each committee
to consist of two or more of the Managers; provided however, (i) as long as
Sylvan shall be entitled to designate at least one (1) Sylvan Manager (or
director, as the case may be), a Sylvan Manager shall serve on each committee of
the Board, and (ii) as long as Apollo shall be entitled to designate at least
one (1) Investor Manager (or director, as the case may be), an Investor Manager
shall serve on each committee of the Board. Any committee, to the extent allowed
by law and provided in the resolution establishing such committee, shall have
and may exercise all the powers and authority of the Board in the management of
the business and affairs of the Company. Each committee shall keep regular
minutes and report to the Board when required.
5.1.7 Investment Committee. The Board shall designate an Investment
Committee which shall have the exclusive power and authority to approve (by
majority vote) all of the Company's proposed Investments in Subject Companies
(the "Investment Committee"); provided, however, that upon a Qualified IPO of
Holding or the Corporate Successor (as the case may be), all such power and
authority of the Investment Committee shall terminate and such authority shall
vest directly in the Board of Directors of Holding or the Corporate Successor
(as the case may be).
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(i) The Board shall cause the Company to take all necessary or
desirable actions within its control (including, without limitation, calling
special Board or Member meetings), so that:
(A) the authorized number of Persons serving on the
Investment Committee shall be established at six (6);
(B) three (3) Persons designated by Sylvan
(collectively, the "Sylvan Committee Members") shall be appointed to the
Investment Committee, subject to Section 5.1.7(ii) hereof; and
(C) three (3) Persons designated by Apollo
(collectively, the "Investor Committee Members") shall be appointed to the
Investment Committee, subject to Section 5.1.7(ii) hereof; and
(ii) Notwithstanding anything in Section 5.1.7(i) hereof, (A)
in the event the number of Investor Managers is reduced at any time in
accordance with Section 5.1.2(ii) hereof, the number of Investor Committee
Members shall likewise be reduced to equal the number of Investor Managers, and
(B) in the event the number of Sylvan Managers is reduced at any time in
accordance with Section 5.1.2(iii) hereof, the respective number of Sylvan
Committee Members shall likewise be reduced to equal the number of Sylvan
Managers (but the number of Investor Committee Members shall not be reduced).
5.1.8 Compensation. The Managers may be paid their expenses, if
any, for attendance at each meeting of the Board, and the Managers (who are not
employees of Sylvan, the Company, Holding, any Company Subsidiary or any other
entity Controlled by Holding or Sylvan) may be paid a fixed sum for attendance
at each meeting of the Board or a stated salary as Manager. Subject to Apollo's
approval rights set forth in Section 5.1.1(iv) hereof, no such payment shall
preclude any Manager from serving the Company in any other capacity and
receiving compensation therefor. Members (who are not employees of Sylvan, the
Company, Holding, any Company Subsidiary or any other entity Controlled by
Holding or Sylvan) of special or standing committees may be allowed like
compensation for attending committee meetings.
5.1.9 Nominations. The Company shall at all times before and after
a Qualified IPO support the nominations to the Board (or the board of directors
of the Corporate Successor) of the Persons designated by the Members in
accordance with the provisions of Section 5.1.2, and the board of directors of
the Corporate Successor, if any (and the Corporate Successor's nominating
committee, if any) shall recommend the inclusion of such Persons in the slate of
nominees recommended to stockholders for election as directors of the Corporate
Successor at each annual meeting of stockholders of the Corporate Successor.
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5.2 Meetings of Members.
5.2.1 Place of Meeting. Meetings of the Members for the election of
Managers or for any other purpose shall be held at such time and place, either
within or without the State of Delaware, as shall be designated from time to
time by the Board and stated in the Notification of the meeting or in a duly
executed waiver of notice thereof.
5.2.2 Annual Meetings. The annual meeting of Members shall be held
on such date and at such time as shall be designated from time to time by the
Board and stated in the Notification of the meeting, at which meeting the
Members shall elect the Board and transact such other business as may properly
be brought before the meeting. Notification of the annual meeting stating the
place, date and hour of the meeting shall be given to each Member entitled to
vote at such meeting by reputable next day courier or facsimile not less than
forty-eight (48) hours before the date of the meeting.
5.2.3 Special Meetings. Special meetings of Members, for any purpose
or purposes, may be called by the Chairman of the Board, if there is one, by the
Board, or by any Manager. Such request shall state the purpose or purposes of
the proposed meeting. Notification of a special meeting stating the place, date
and hour of the meeting and the purpose or purposes for which the meeting is
called shall be given by reputable next-day courier or facsimile not less than
forty-eight (48) hours before the date of the meeting to each Member entitled to
vote at such meeting.
5.2.4 Quorum. At all meetings of the Members, the holders of more
than 50% of the Percentages held by Members, present in person or represented by
proxy, shall constitute a quorum for the transaction of business. If, however,
such quorum shall not be present or represented at any meeting of the Members,
the Members entitled to vote thereat, present in person or represented by proxy,
shall have power to adjourn the meeting from time to time, without notice other
than announcement at the meeting, until a quorum shall be present or
represented. At such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been transacted at
the meeting as originally noticed. If the adjournment is for more than
forty-five (45) days, or if after the adjournment a new record date is fixed for
the adjourned meeting, a notice of the adjourned meeting shall be given to each
Member entitled to vote at the meeting.
5.2.5 Voting. Except as otherwise provided in this Agreement, the
holders of the Preferred Units and the holders of Common Units shall vote
together as a single class on all matters submitted to a vote of the Members.
Unless otherwise required by law, the Certificate, or this Agreement, any
question brought before any meeting of Members shall be decided by Consent of
the Members. Except as otherwise permitted in connection with cumulative voting
pursuant to Section 5.1.2(iii) hereof, each Member represented at a meeting of
Members shall be entitled to one (1) vote for each
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Unit held by such Member (determined on a Fully-Diluted Basis) on each motion
submitted to a vote at a meeting of the Members; provided, however, that for
purposes of any such vote, each Member that holds Preferred Units shall be
deemed to hold the number of Common Units into which such Preferred Units are
then convertible. Such votes may be cast in person or by proxy, but no proxy
shall be voted on or after three (3) years from its date, unless such proxy
provides for a longer period. The Board, in its discretion, or the officer of
the Company presiding at a meeting of Members, in his discretion, may require
that any votes cast at such meeting shall be cast by written ballot.
5.2.6 Consent of Members in Lieu of Meeting. Any action required or
permitted to be taken at any annual or special meeting of Members, may be taken
without a meeting, without prior Notification and without a vote, if a consent
in writing, setting forth the action so taken, shall be signed by Members
holding not less than the minimum number of votes that would be necessary to
authorize or take such action at a meeting at which all Units entitled to vote
thereon were present and voted. Prompt notice of the taking of the action
without a meeting by less than unanimous written consent shall be given to those
Members who have not consented in writing.
5.3 Officers.
5.3.1 General. The Board, in its discretion, may appoint officers of
the Company, which officers may include a President, a Chairman of the Board
(who must be a Manager), a Treasurer, a Secretary, and one or more Vice
Presidents, Assistant Secretaries, Assistant Treasurers and other officers, each
of which shall have the respective power and authority designated by the Board
from time to time. Any number of offices may be held by the same Person, unless
otherwise prohibited by law. The officers of the Company need not be Members,
nor, except in the case of the Chairman of the Board, need such officers be
Managers.
5.3.2 Election. The Board, at its first meeting held after each
annual meeting of Members, shall elect the officers of the Company who shall
hold their offices for such terms and shall exercise such powers and perform
such duties as shall be determined from time to time by the Board, and all
officers of the Company shall hold office until their successors are chosen and
qualified, or until their earlier resignation or removal. Any officer elected by
the Board may be removed at any time by the affirmative vote of a majority of
the Board. Any vacancy occurring in any office of the Company shall be filled by
the Board.
5.4 Waiver of Notification. Whenever any Notification is required by law
or this Article V to be given to any Manager, member of a committee, or Member,
a waiver thereof in writing, signed by the Person or Persons entitled to said
Notification, whether before or after the time stated therein, shall be deemed
equivalent thereto.
5.5 Personal Services. No Member shall be required to perform services for
the Company solely by virtue of being a Member. Unless approved by the
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Board, no Member (or Affiliate thereof) shall be entitled to compensation for
any services performed for the Company other than as an employee of the Company.
5.6 Limitation on Authority of Members.
5.6.1.No Member is an agent of the Company solely by virtue of being
a Member, and no Member has authority to act for the Company solely by virtue of
being a Member.
5.6.2.This Section 5.6 supersedes any authority granted to the
Members pursuant to Section 18-402 of the Act. Any Member who takes any action
or binds the Company in violation of this section shall be solely responsible
for any loss and expense incurred by the Company as a result of the unauthorized
action and shall indemnify and hold the Company harmless with respect to such
loss or expense.
5.7 Liability and Indemnification.
5.7.1. Right to Indemnification. Subject to the limitations and
conditions set forth in this Section 5.7, each Person who was or is made a party
(or is threatened to be made a party) to, or is involved in any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative, arbitrative or investigative proceeding (hereinafter a
"Proceeding"), or any appeal in such a Proceeding or any inquiry or
investigation that could lead to such a Proceeding, by reason of the fact that
he or she, or a Person of whom he or she is the legal representative, is or was
a Manager or officer of the Company or while a Manager or officer of the Company
is or was serving at the request of the Company as a manager, director, officer,
partner, venturer, proprietor, trustee, employee, agent, or similar functionary
of another Person (each, an "Indemnified Person"), shall be indemnified by the
Company, against judgments, penalties (including excise and similar taxes and
punitive damages), fines, settlements and reasonable expenses (including,
without limitation, attorneys' fees) actually incurred by such Indemnified
Person in connection with such Proceeding, and indemnification under this
Section 5.7 shall continue as to an Indemnified Person who has ceased to serve
in the capacity which initially entitled such Indemnified Person to indemnity
hereunder. The rights granted pursuant to this Section 5.7 shall be deemed
contract rights, and no amendment, modification, or repeal of this Agreement
shall have the effect of limiting or denying any such rights with respect to
actions taken or Proceedings arising prior to any such amendment, modification
or repeal. The indemnification provided in this Section 5.7 could involve
indemnification for negligence or under theories of strict liability but shall
not extend to any matter for which the final disposition of the Proceeding
determines that the conduct of such Indemnified Person constituted self-dealing
or fraud.
5.7.2. Advance Payment. The right to indemnification conferred in
this Section 5.7 shall include the right to be paid or reimbursed by the Company
the
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reasonable expenses incurred by an Indemnified Person who was, is or is
threatened to be made a named defendant or respondent in a Proceeding in advance
of the final disposition of the Proceeding and without any determination as to
the Indemnified Person's ultimate entitlement to indemnification; provided,
however, that the payment of such expenses incurred by any such Indemnified
Person in advance of the final disposition of a Proceeding shall be made only
upon delivery to the Company of a written affirmation by such Indemnified Person
of his or her good faith belief that he or she has met the standard of conduct
necessary for indemnification under this Section 5.7 and a written undertaking,
by or on behalf of such Indemnified Person, to repay all amounts so advanced if
it shall ultimately be determined that such Indemnified Person is not entitled
to be indemnified under this Section 5.7 or otherwise.
5.7.3. Indemnification of Employees and Agents. The Company, by
adoption of a resolution of the Board, may (i) indemnify and advance expenses to
an employee or agent of the Company to the same extent and subject to the same
conditions under which it may indemnify and advance expenses to an Indemnified
Person under this Section 5.7; and (ii) indemnify and advance expenses to
Persons who are not or were not Managers, officers, employees or agents of the
Company but who are or were serving at the request of the Company as a manager,
director, officer, partner, venturer, proprietor, trustee, employee, agent or
similar functionary of another Person against any liability asserted against him
and incurred by him in such a capacity or arising out of his status as such a
Person to the same extent which it may indemnify and advance expenses to an
Indemnified Person under this Section 5.7.
5.7.4. Appearance as a Witness. Notwithstanding any other provision
of this Section 5.7, the Company shall pay or reimburse expenses incurred by a
Manager or officer in connection with his appearance as a witness or other
participation in a Proceeding at a time when he is not a named defendant or
respondent in the Proceeding.
5.7.5. Nonexclusivity of Rights. The right to indemnification and
the advancement and payment of expenses conferred in this Section 5.7 shall not
be exclusive of any other right which a Manager, officer or other Person
indemnified pursuant to Section 5.7.3. may have or hereafter acquire under any
law (common or statutory), provision of the Certificate, this Agreement, any
other agreement, vote of Members or disinterested Managers or otherwise.
5.7.6. Savings Clause. If this Section 5.7 or any portion hereof
shall be invalidated on any ground by any court of competent jurisdiction, then
the Company shall nevertheless indemnify and hold harmless each Manager or
officer or any other Person indemnified pursuant to this Section 5.7 as to
costs, charges and expenses (including reasonable attorneys' fees), judgments,
fines and amounts paid in settlement with respect to any action, suit or
proceeding, whether civil, criminal, administrative or investigative to the full
extent permitted by any applicable portion of this Section 5.7 that shall not
have been invalidated and to the fullest extent permitted by applicable law.
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5.7.7. Limitation on Liability. No Manager or officer shall be
personally liable, as such, for any action taken or omitted from being taken
unless: (i) such Manager or officer breached or failed to perform the duties of
his office; and (ii) such breach or failure to perform constituted self-dealing
or fraud. The foregoing shall not apply to any responsibility or liability under
a criminal statute or liability for the payment of taxes under Federal, state,
or local law.
ARTICLE VI
Transfer of Membership Interests
6.1 No Transfer or Voluntary Withdrawal.
6.1.1. General Restriction. Except as set forth in this Article VI,
during the period commencing on the Effective Date and ending on the earlier to
occur of (i) the third anniversary of the Effective Date, and (ii) the
consummation of a Qualified IPO (and, in the case of a Qualified IPO, the
termination of the applicable lock-up period required by the managing
underwriters of such Qualified IPO, such period not to exceed One Hundred Eighty
(180) days), no Member may Transfer to any Person all or any portion of its
Membership Interest, directly or indirectly, without both the prior Consent of
the Members and the prior Consent of the Preferred. Any Transfer in
contravention of this Section 6.1 shall be null and void. The Company shall not
be required to recognize any Transfer until the instrument conveying such
Membership Interest has been delivered to the Company for recordation on the
books of the Company. Unless an assignee becomes a Member in accordance with the
provisions of Section 6.7, it shall not be entitled to any of the rights granted
to a Member hereunder, other than the right to receive all or part of the share
of the Profits, Losses, distributions of cash or property or returns of capital
to which his assignor would otherwise be entitled. No Member shall Voluntarily
Withdraw or otherwise resign or retire from the Company without the prior
Consent of the Members.
6.1.2 .Special Restriction. Notwithstanding any other provision of this
Agreement, no Member may Transfer all of any part of its Membership Interests
and no attempted or purported Transfer of such Membership Interests shall be
effective (i) if, in the opinion of counsel to the Company, such Transfer (A)
may not be affected without registration under the Securities Act of 1933, as
amended (the "Securities Act"); (B) would result in the violation of any
applicable state securities laws; (C) would result in the treatment of the
Company as an association taxable as a corporation or as a "publicly-traded
partnership" for tax purposes, unless such a Transfer is consented to in writing
by all of the Members; (D) would result in the Company becoming subject to the
Investment Company Act of 1940, as amended (the "Investment Company Act");
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or (E) would cause the Company to be deemed to hold "plan assets," as such term
is defined in United States Labor Regulations, 29 CFR Section 2510.3-101 ("Plan
Assets"), or result in a nonexempt prohibited transaction pursuant to Section
406 of the Employee Retirement Income Security Act of 1974, as amended, or Code
Section 4975; and (ii) unless such Member Transfers a pro-rata portion of such
Member's stock of Holdings, if any, contemporaneously with such Transfer of
Membership Interests.
6.2 Transfer of Preferred Units. Notwithstanding anything in Section 6.1.1
hereof to the contrary (but subject to Section 6.1.2 hereof), Apollo and the
Permitted Funds shall be permitted to Transfer (i) up to 19.94 Preferred Units
(subject to adjustments for Unit splits and similar transactions) to Persons
(reasonably acceptable to Sylvan) who are not Affiliates of Apollo; and (ii) any
number of Units to any Apollo Permitted Transferee (including any non-Affiliates
of Apollo in excess of the Units permitted under (i) above), in each case with
prior Notification to Sylvan and the Company; provided, however, that (1) in the
case of clauses (i) and (ii) hereof, such Transferee is financially able to
satisfy any and all Additional Capital Calls with respect to the Commitment
related to the Transferred Units (taking into account the financial condition of
such Transferee and any guarantor of such Transferee's obligations with respect
to such Commitment); and (2) in the case of clause (ii) hereof, any such
Transferee who is not either a Permitted Fund or an Affiliate of an Apollo
Person shall not have any of the rights granted pursuant to this Agreement
specifically to Apollo and not generally to all holders of Preferred Units.
6.3. Transfer by Management Members. Notwithstanding anything in Section
6.1.1 hereof to the contrary (but subject to Section 6.1.2 hereof), each of the
Management Members shall be permitted to Transfer any or all Units held by him
to one or more of his respective Affiliates (including, without limitation, (i)
a limited partnership or limited liability company Controlled by Hoehn-Saric and
Becker, and (ii) Sterling Capital, Ltd., an Illinois limited partnership,
Sterling Advisors, and Sterling Venture Partners, LP, an Illinois limited
partnership); provided, however, that (A) such Transferee is financially able to
satisfy any and all Additional Capital Calls with respect to the Commitment
related to the Transferred Units (taking into account the financial condition of
such Transferee and any guarantor of such Transferee's obligations with respect
to such Commitment), and (B) such Transferee shall agree to be subject to the
same restrictions on Transfer and other provisions hereof applicable to the
Management Members.
6.4. Transfer of Membership Profit Interests. Notwithstanding anything in
Section 6.1.1 hereof to the contrary (but subject to Section 6.1.2 hereof),
Common Units granted to participants in (and in accordance with) the Membership
Profit Interest Plan shall be Transferable only in accordance with the terms and
conditions set forth in the applicable Management Employment Documents.
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6.5 Tag-Along Rights.
6.5.1. Subject to the provisions of Sections 6.1 and 6.2, if any of
any Management Member, Sylvan, Apollo or any Apollo Permitted Transferee (other
than a Related Person that is not either a Permitted Fund or an Affiliate of an
Apollo Person) (collectively, the "Tag Along Members") negotiates or receives
and elects to accept one or more bona fide offers from a third party buyer who
is not an Affiliate of such Tag Along Member (the "Proposed Transferee") to
purchase or otherwise acquire for value any Units held by such Tag Along Member
(excluding with respect to any Management Member, any Membership Interest
received pursuant to the Membership Profits Interest Plan) (the "Selling
Member") pursuant to a Transfer by such Selling Member, then such Selling Member
shall notify in writing the other Tag Along Members (the "Participating
Members") and the Company of the terms and conditions of such offer (a "Purchase
Offer") and the number and class of Units proposed for Transfer pursuant to the
Purchase Offer. Such notice (the "Tag-Along Rights Notice") shall be delivered
by the Selling Member, promptly following the date that the Selling Member
elects to accept the Purchase Offer, and must include therewith a copy of drafts
of all materials, if any, relating to the Purchase Offer.
6.5.2. The Participating Members shall have the right, exercisable
upon Notification to the Selling Member within twenty (20) days after the date
of receipt of the Tag-Along Rights Notice, to participate in accordance with the
terms and conditions set forth below in the Selling Member's Transfer of Units
pursuant to the specified terms and conditions of such Purchase Offer. To the
extent any of the Participating Members exercise such right of participation,
the number of Units that the Selling Member may sell pursuant to such Purchase
Offer shall be correspondingly reduced. Each Participating Member may sell all
or any part of that number of Units owned by such Participating Member (the
"Maximum Number") that is not in excess of the product of (i) the total number
of Units proposed for Transfer pursuant to the Purchase Offer multiplied by (ii)
a fraction, the numerator of which is the number of Units held by such
Participating Member (determined on a Fully-Diluted Basis), and the denominator
of which is the total number of Units held by the Selling Member and all the
Participating Members that elect to sell Units pursuant to the Purchase Offer
(determined on a Fully-Diluted Basis).
6.5.3. The Selling Member and the Participating Members shall sell
to the Proposed Transferee all, or, at the option of the Proposed Transferee,
any part, of the Units proposed for Transfer pursuant to the Purchase Offer at
not less than the price and upon such other terms and conditions, if any, not
more favorable to the Proposed Transferee than those set forth in the Tag Along
Rights Notice; provided, however, that any purchase of less than all of such
Units by the Proposed Transferee shall be made from the Selling Member and the
Participating Members pro-rata based upon the relative amount of the Units that
each such Member is otherwise entitled to sell pursuant to Section 6.5.2. In the
event that the Proposed Transferee refuses to comply with any or part of the
provisions set forth in this Section 6.5, the Selling
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Member shall be prohibited from Transferring any of his or her Units, and any
Transfer in violation of this Section 6.5 above shall be considered null and
void and without effect. If there is any material adverse change in the terms
and conditions of the transaction described in the Tag-Along Rights Notice
(including, without limitation, any decrease in the purchase price) after a
Participating Member makes the election set forth above, then such Participating
Member shall have the right to withdraw from participation in such transaction
any or all of its Units prior to the closing.
6.5.4. The exercise or non-exercise of the rights of the
Participating Members to participate in one or more Transfers of Units made by a
Selling Member shall not adversely affect the rights of the Participating
Members to participate in subsequent Transfers by a Selling Member pursuant to
this Section 6.5.
6.5.5. This Section 6.5 shall survive the consummation of a
Qualified IPO; provided however that the rights set forth in this Section 6.5
shall terminate and be of no further force or effect (i) with respect to Sylvan,
on the first date on which Sylvan ceases to own at least 50% of the Units
(subject to adjustment for any change to such Units by reason of conversion,
split, recapitalization or other similar transaction) which it held as of the
Effective Date; and (ii) with respect to Apollo and any Apollo Permitted
Transferee who has such rights pursuant to this Section 6.5, on the first date
on which Apollo, the Permitted Funds, and/or such Apollo Permitted Transferee
cease to own in the aggregate at least 50% of the Units (subject to adjustment
for any change to such Units by reason of conversion, split, recapitalization or
other similar transaction) which Apollo held as of the Effective Date.
6.5.6. This Section 6.5 shall not apply to Transfers of Units
pursuant to Rule 144.
6.6. Registration Rights. The holders of Units shall have the registration
rights set forth in that certain Registration Rights Agreement, dated as of the
Effective Date, by and between the Company and such holders (the "Registration
Agreement").
6.7 Admission of Transferee as Member. No transferee of any portion of any
Membership Interest shall be admitted as a Member unless:
6.7.1 such Membership Interest is transferred in compliance with the
applicable provisions of this Agreement;
6.7.2 such transferee shall have executed and delivered to the
Company such instruments as the Company or its counsel deems necessary or
desirable to effectuate the admission of such transferee as a Member and confirm
the agreement of such transferee to be bound by all of the terms and provisions
of this Agreement with respect to such Membership Interest.
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6.7.3 if requested by a Member or the Company, such transferee shall
have delivered to the Company, at the transferee's sole cost and expense, a
favorable opinion of legal counsel reasonably acceptable to the Company, to the
effect that:
(i) such transferee has the legal right, power and capacity to
own the Membership Interest proposed to be transferred; and
(ii) such Transfer does not violate any provision of Section
6.1.2. hereof.
As promptly as practicable after the admission of any Person as a Member, the
books and records of the Company shall be changed to reflect such admission. All
reasonable costs and expenses incurred by the Company in connection with any
Transfer of any Membership Interest (and, if applicable, the admission of any
transferee as a Member) shall be paid by the transferee.
ARTICLE VII
Miscellaneous Agreements
7.1 Preemptive Rights.
7.1.1. If, at any time prior to a Qualified IPO, the Company
proposes to issue any Units, Options or Convertible Securities, including,
without limitation, Additional Units (collectively, the "Offered Securities"),
the Company shall first deliver to Apollo a Notification of such proposed
issuance of Offered Securities (the "Offer"), which Offer shall
(i) identify and describe the Offered Securities,
(ii) describe the price and other terms upon which the Offered
Securities are to be issued and the number and amount of the Offered Securities
to be issued, all as shall at the time of such Offer, have been fully
negotiated,
(iii) identify the acquiring Person or Persons (the "Acquiring
Persons"), and
(iv) include an offer to issue to Apollo a pro-rata portion of
the Offered Securities determined by multiplying the number of Offered
Securities by a fraction, the numerator of which is the sum of (a) the aggregate
number of Common Units then held, in the aggregate, by Apollo and its Permitted
Funds on a
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Fully-Diluted Basis plus (b) the aggregate number of Common Units (on a
Fully-Diluted Basis) Transferred by Apollo pursuant to the provisions of Section
6.2(i) hereof, and the denominator of which is the total number of Common Units
then outstanding on a Fully-Diluted Basis (the "Pro-Rata Share").
7.1.2. To accept an Offer, in whole or in part, Apollo must deliver
a Notification to the Company prior to the fifteenth (15th) day following
receipt of the Offer, setting forth the portion of Apollo's Pro-Rata Share which
Apollo elects to purchase (the "Notice of Acceptance"). The Company shall have
ninety (90) days from the expiration of such fifteen (15) day period to issue
all or any part of such Offered Securities as to which a Notice of Acceptance
has not been given by Apollo, but only upon terms and conditions that are not
more favorable, in the aggregate, to the Acquiring Persons or less favorable to
the Company than those set forth in the Offer. Upon the closing of the issuance
of the Offered Securities, Apollo shall acquire from the Company, and the
Company shall issue to Apollo, the number of Offered Securities specified in the
Notice of Acceptance, upon the terms and conditions specified in the Offer. Any
Offered Securities not acquired by Apollo or the Acquiring Persons in accordance
with this Section 7.1.2 may not be issued, sold or exchanged until they are
again offered to Apollo under the procedures specified in this Section 7.1.
7.1.3. Notwithstanding anything in this Section 7.1 to the contrary,
the term "Offered Securities" shall not include:
(i) Common Units issued as a distribution to holders of Common
Units or upon any split, subdivision, combination or other reclassification of
shares of Common Units;
(ii) Common Units issued upon conversion of Preferred Units;
(iii) Common Units issued pursuant to the Membership Profit
Interest Plan;
(iv) securities issued in consideration for the acquisition
(whether by merger or otherwise) by the Company of all or substantially all of
the stock (or other equity interests) or assets of any other Person;
(v) Units sold by the Company (or shares of stock sold by the
Corporate Successor) in a Qualified IPO;
(vi) common stock and Options issued to Plan Membership
Interest Holders pursuant to Section 7.3.4; or
(vii) Additional Capital Calls.
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7.1.4. This Section 7.1. shall terminate and be of no further force
or effect upon the purchase by Apollo of Offered Securities that, when added to
the amount of Offered Securities previously purchased by Apollo pursuant to the
provisions of this Section 7.1, equal or exceed an amount of Offered Securities
in respect of which Apollo shall have made (or may be required to make pursuant
to the terms hereof or of such securities) Capital Contributions equal to Twenty
Five Million Dollars ($25,000,000) or more.
7.2 Optional Conversion of Preferred Units.
7.2.1. In General. At any time and from time to time prior to the
consummation of a Qualified IPO, any Member holding Preferred Units may convert
all or any of the Preferred Units held by such Member into a number of Common
Units (including fractional interests in such Common Units) computed by
multiplying the number of Preferred Units proposed to be converted by One
Million Dollars ($1,000,000), and dividing the result by the applicable
"Conversion Price" (as defined herein) then in effect. The initial conversion
rate for Preferred Units surrendered for conversion shall be one (1) Common Unit
for each Preferred Unit surrendered for conversion, representing an initial
"Conversion Price" of One Million Dollars ($1,000,000) per Common Unit, subject
to adjustment as hereinafter provided. The Members acknowledge and agree that
the One Million Dollar ($1,000,000) amounts in this Section 7.2.1 represent the
quotient of the aggregate Capital Contributions (other than the Real Estate
Investment) and Commitments of all Members ($400,000,000), divided by the
aggregate number of Units (400) other than Units issuable under the Membership
Profit Interest Plan.
7.2.2 Conversion Procedure.
(i) Any holder of Preferred Units desiring to convert any
portion thereof into Common Units shall provide Notification to the Company of
its election to convert the same. Conversion shall be effective upon receipt by
the Company of such Notification. In case of any liquidation, dissolution and
winding up of the Company, such right shall cease and terminate at the close of
business on the business day fixed for payment of the amount distributable to
the holders of Preferred Units pursuant to Section 4.1.5.
(ii) The Company shall assist and cooperate with any holder of
Preferred Units required to make any governmental filings or obtain any
governmental approval prior to or in connection with any conversion of Preferred
Units hereunder (including, without limitation, making any filings required to
be made by the Company). The Company shall take all such actions as may be
reasonably necessary to ensure that all such Common Units may be so issued
without violation of any applicable law or governmental regulation.
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7.2.3 Subdivision or Combination of Common Units. If the Company
subdivides (by any Unit split, dividend, distribution, recapitalization or
otherwise) the outstanding Common Units into a greater number of Units, the
applicable Conversion Price in effect immediately prior to such subdivision
shall be proportionately decreased to account for such subdivision, and if the
Company combines (by reverse Unit split or otherwise) the outstanding Common
Units into a smaller number of Units, the applicable Conversion Price in effect
immediately prior to such combination shall be proportionately increased.
7.2.4 Adjustment of Conversion Price Upon Certain Issuances of
Units. If the Company shall issue or sell, or is, in accordance with
subparagraphs 7.2.4(i) through 7.2.4(vi), deemed to have issued or sold, any
Units (including Common Units and all Options and Convertible Securities) for a
consideration per Unit less than the applicable Conversion Price for the
Preferred Units in effect immediately prior to the time of such issue or sale (a
"Dilutive Event"), then, forthwith upon such Dilutive Event, such applicable
Conversion Price shall be reduced concurrently with such issue to an amount
equal to the quotient of (i) (A) the Conversion Price immediately prior to such
Dilutive Event, multiplied by (B) the number of Common Units outstanding
immediately prior to such Dilutive Event determined on a Fully-Diluted Basis
(including, but not limited to, all Units issued and issuable pursuant to the
Membership Profit Interest Plan), plus (C) the aggregate consideration, if any,
received or to be received by the Company upon such Dilutive Event, divided by
(ii) the sum of the number of Common Units outstanding immediately after such
Dilutive Event, determined on a Fully-Diluted Basis (including, but not limited
to, all Units issued and issuable pursuant to the Membership Profit Interest
Plan). The Conversion Price shall be determined in accordance with the foregoing
formula and shall be rounded to the nearest one tenth of one cent ($0.001).
Notwithstanding the foregoing, if, as of the effective date of any
conversion of Preferred Units under Sections 7.2 or 7.3.2 hereof, the Member
converting all or any of its Preferred Units has not made aggregate Capital
Contributions equal to the full amount of such Member's Commitment as set forth
on Exhibit A hereof, the Conversion Price shall be readjusted to eliminate the
effect of any and all prior Dilutive Events with respect to which the aggregate
consideration per Unit received by the Company in connection with such Dilutive
Effect was equal to or greater than the quotient of the aggregate Capital
Contributions of such Member, divided by the aggregate number of Preferred Units
held by such Member.
For purposes of this Section 7.2.4, the following subparagraphs (i)
to (v) shall also be applicable:
(i) Issuance of Rights or Options. In case the Company shall
in any manner grant (whether directly or by assumption in a merger or otherwise)
any warrants or other rights to subscribe for or to purchase, or any options for
the purchase of, Common Units or any Units or security convertible into or
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exchangeable for Common Units (such warrants, rights or options being called
"Options" and such convertible or exchangeable Units or securities being called
"Convertible Securities"), whether or not such Options or the right to convert
or exchange any such Convertible Securities are immediately exercisable, and the
price per Unit for which Common Units are issuable upon the exercise of such
Options or upon the conversion or exchange of such Convertible Securities
(determined by dividing (a) the total amount, if any, received or receivable by
the Company as consideration for the granting of such Options, plus the minimum
aggregate amount of additional consideration payable to the Company upon the
exercise of all such Options, plus, in the case of such Options which relate to
Convertible Securities, the minimum aggregate amount of additional
consideration, if any, payable upon the issue or sale of such Convertible
Securities and upon the conversion or exchange thereof, by (b) the total maximum
number of Common Units issuable upon the exercise of all such Options or upon
the conversion or exchange of all such Convertible Securities issuable upon the
exercise of such Options) shall be less than the applicable Conversion Price for
the Preferred Units immediately prior to the time of the granting of such
Options or Convertible Securities, then the total maximum number of Common Units
issuable upon the exercise of such Options or upon conversion or exchange of the
total maximum amount of such Convertible Securities issuable upon the exercise
of such Options shall be deemed to have been issued for such price per Unit as
of the date of granting of such Options or the issuance of such Convertible
Securities and thereafter shall be deemed to be outstanding. Except as otherwise
provided in subparagraph (iii), no adjustment of any Conversion Price shall be
made upon the actual issue of such Common Units or of such Convertible
Securities upon exercise of such Options or upon the actual issue of such Common
Units upon conversion or exchange of such Convertible Securities.
(ii) Issuance of Convertible Securities. In case the Company
shall in any manner issue (whether directly or by assumption in a merger or
otherwise) or sell any Convertible Securities, whether or not the rights to
exchange or convert any such Convertible Securities are immediately exercisable,
and the price per Unit for which Common Units are issuable upon such conversion
or exchange (determined by dividing (a) the total amount received or receivable
by the Company as consideration for the issue or sale of such Convertible
Securities, plus the minimum aggregate amount of additional consideration, if
any, payable to the Company upon the conversion or exchange thereof, by (b) the
total maximum number of Common Units issuable upon the conversion or exchange of
all such Convertible Securities) shall be less than the applicable Conversion
Price for the Preferred Units immediately prior to the time of such issue or
sale, then the total maximum number of Common Units issuable upon conversion or
exchange of all such Convertible Securities shall be deemed to be outstanding,
provided that (a) except as otherwise provided in subparagraph (iii), no
adjustment of any Conversion Price shall be made upon the actual issue of such
Common Units upon conversion or exchange of such Convertible Securities, and (b)
if any such issue or sale of such Convertible Securities is made upon exercise
of any Options to purchase any such Convertible Securities for which
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adjustments of any Conversion Price have been or are to be made pursuant to
other provisions of this Section 7.2.4., no further adjustment of such
Conversion Price shall be made by reason of such issue or sale.
(iii) Change in Option Price or Conversion Rate. Upon the
happening of any of the following events, namely, if the purchase price provided
for in any Option referred to in subparagraph (i), the additional consideration,
if any, payable upon the conversion or exchange of any Convertible Securities
referred to in subparagraph (i) or (ii), or the rate at which Convertible
Securities referred to in subparagraph (i) or (ii) are convertible into or
exchangeable for Common Units shall change at any time (including, but not
limited to, changes under or by reason of provisions designed to protect against
dilution), the applicable Conversion Price for the Preferred Units at the time
of such event shall forthwith be readjusted to the Conversion Price which would
have been in effect at such time had such Options or Convertible Securities
still outstanding included such changed purchased price, additional
consideration or conversion rate, as the case may be, at the time initially
granted, issued or sold, but in no event will the applicable Conversion Price be
readjusted to an amount greater than the applicable Conversion Price which would
have been in effect had the Options or Convertible Securities subject to the
above described consideration changes never been granted, issued or sold. In
addition, on the expiration or exchange of any Option or Convertible Securities
prior to the conversion of the Preferred Units, the applicable Conversion Price
then in effect hereunder shall forthwith be adjusted to the applicable
Conversion Price which would have been in effect had such Options or Convertible
Securities never been issued; provided, that any consideration which was
actually received by the Company in connection with the issuance or sale of such
Options or Convertible Securities shall be included in the readjustment
computation even though such Options or Convertible Securities shall have
expired or terminated; provided, further, that no such readjustment to the
Conversion Price shall affect any Common Units previously issued upon conversion
of Preferred Units.
(iv) Distribution of Units. In case the Company shall make any
distribution upon any Common Units of the Company payable in Common Units,
Options or Convertible Securities, any Common Units, Options or Convertible
Securities, as the case may be, issued in payment of such distribution shall be
deemed to have been issued or sold at a consideration equal to $.01 per Unit.
(v) Consideration. In case any Common Units, Options or
Convertible Securities shall be issued or sold for cash, the consideration
received therefor shall be deemed to be the amount received by the Company
therefor, net of accrued interest, but without deduction therefrom of any
expenses incurred or any underwriting commissions or concessions paid or allowed
by the Company in connection therewith. In case any Common Units, Options or
Convertible Securities shall be issued or sold for a consideration other than
cash, the amount of the consideration other than cash received by the Company
shall be deemed
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to be the fair value of such consideration as determined in good faith by the
Board, without deduction of any amounts paid or receivable for accrued interest
and any expenses incurred or any underwriting commissions or concessions paid or
allowed by the Company in connection therewith. In case any Options shall be
issued in connection with the issue and sale of other securities of the Company,
together comprising one integral transaction in which no specific consideration
is allocated to such Options by the parties thereto, the consideration shall be
allocated between the Options and such other securities as determined in good
faith by the Board.
(vi) Adjustment. In case any event shall occur as to which the
provisions of this Section 7.2.4 are not strictly applicable but the failure to
make any adjustment would not fairly protect the conversion rights of the
holders of the Preferred Units in accordance with the essential intent and
principles of such provisions, then, in each such case, the Company shall make a
good faith adjustment to the Conversion Price in accordance with the intent of
this Section 7.2.4 and, upon the written request of the holders of a majority of
the Preferred Units, shall appoint a firm of independent certified public
accountants of recognized national standing (which may be the regular auditors
of the Company), which shall give their opinion upon the adjustment, if any, on
a basis consistent with the essential intent and principles established in this
Section 7.2.4, necessary to preserve, without dilution, the conversion rights
associated with the Preferred Units. Upon receipt of such opinion, the Company
shall promptly mail a copy thereof to the holders of each Preferred Unit and
shall make the adjustments described therein.
7.2.5.Notification. Immediately upon any adjustment of the
applicable Conversion Price, the Company shall give Notification thereof to all
Members holding Preferred Units, setting forth in reasonable detail, and
certifying, the calculation of such adjustment.
7.2.6.Certain Issues of Common Units Excepted. The Company shall not
be required to make any adjustment of the applicable Conversion Price in the
case of the issuance of:
(i) Units issued or issuable upon conversion of Preferred
Units;
(ii) Units issued or issuable as a distribution on Preferred
Units;
(iii) Units issued or issuable pursuant to the Membership
Profit Interest Pool;
(iv) Units, the issuance of which is approved by the Investor
Managers;
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(v) common stock and options issued to Plan Membership
Interest Holders pursuant to Section 7.3.4; or
(vi) Units issued or issuable by reason of a dividend, split,
or other distribution on Units excluded from adjustment of the applicable
Conversion Price pursuant to the preceding clauses (i), (ii), (iii), (iv) and
(v).
7.3 Qualified IPO.
7.3.1.Authority. If the Board determines that it is advisable and in
the best interests of the Company to consummate a Qualified IPO, Sylvan and
Apollo shall negotiate in good faith to determine (A) whether such Qualified IPO
is to be effected by Holding, the Company or otherwise, taking into account all
reasonable tax, financial, accounting, marketing and other considerations (the
"Qualified IPO Structure"), (B) any and all events of dissolution of the Company
and Holding, and (C) in the event of a Qualified IPO of Holding, (i) the
applicable conversion ratio for Units converted or convertible into shares of
common stock of Holding, (ii) the timing of any such conversion, and (iii)
whether any such conversion is mandatory or elective; provided, that, upon
determination of the Qualified IPO Structure, the Board shall have the power and
authority to take any and all actions necessary or desirable to consummate such
Qualified IPO including without limitation, incorporating the business of the
Company to form the Corporate Successor or merge the Company with and into
Holding (depending on the nature of the Qualified IPO Structure), and each
Member hereby agrees to cooperate with the Company in connection with such
Qualified IPO (including, without limitation, such incorporation or merger) and
to execute and deliver any and all certificates, instruments and documents
necessary or desirable to effectuate such Qualified IPO, it being acknowledged
and agreed by the Members that, whether the Qualified IPO is effected by
Holding, the Company or otherwise, the Members shall take any and all actions
necessary or desirable to cause all rights and obligations of the Members under
this Agreement which by their terms survive a Qualified IPO, to so survive.
7.3.2.Mandatory Conversion of Preferred Units. Immediately prior to
the consummation of a Qualified IPO of Holding (or, in the event of a Qualified
IPO of the Corporate Successor, immediately prior to the conversion of the
Company into such Corporate Successor), each Preferred Unit shall automatically
be converted into Common Units at the then effective applicable Conversion
Price.
7.3.3.Optional Conversion of Common Units. From and after the date
immediately prior to the consummation of a Qualified IPO of Holding, any Member
holding Common Units may convert all or any of such Units into shares of common
stock of Holding at the conversion ratio determined in accordance with Section
7.3.1 hereof.
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7.3.4.Conversion of Membership Profit Interests. Upon the
consummation of a Qualified IPO and approval by the Board, the Membership Profit
Interests shall be converted into common stock of the Corporate Successor (or
Holding, as the case may be) based upon the pre-money valuation (calculated
based on the actual Qualified IPO price per share but without regard to receipt
of proceeds from the Qualified IPO) of the Corporate Successor (or Holding, as
the case may be) in accordance with the positive Capital Account balances of the
Plan Membership Interest Holders; provided, however, that such common stock (and
the options to be issued pursuant to the next sentence hereof) shall be subject
(i) to the same vesting and forfeiture provisions applicable to the Membership
Profit Interests prior to such conversion; and (ii) at the request of the Sylvan
Board, to reasonable restrictions on transfer. In addition, the Corporate
Successor (or Holding, as the case may be) will grant to the Plan Membership
Interest Holders, as compensation for services, ten (10) year options to
purchase a number of shares of common stock in the Corporate Successor (or
Holdings, as the case may be) so that the sum of (i) the common stock issued
pursuant to the preceding sentence and (ii) the common stock issuable upon the
exercise of the options granted pursuant to this sentence equals, in the
aggregate, twenty percent (20%) (subject to Section 4.6.4 hereof) of the
outstanding shares of the Corporate Successor (or Holding, as the case may be)
on a fully diluted basis immediately prior to the Qualified IPO. The options
issued pursuant to this Section 7.3.4 shall be issued at an exercise price per
share equal to the price per share issued in the Qualified IPO. Calculations
made pursuant to this Section 7.3.4 shall be made in accordance with the
methodology employed in the following examples:
Example 1: If (i) an aggregate of $200 million in Capital
Contributions are made to the Company (with the remaining Commitments being
cancelled in accordance with Section 7.3.6 hereof), (ii) the number of issued
and outstanding shares of stock of the Corporate Successor determined on a
Fully-Diluted Basis (but without regard to the conversion of the Membership
Profit Interests) is 100,000,000, and (iii) the pre-money valuation of the
Company at the time of the Qualified IPO (calculated based on the actual
Qualified IPO price per share but without regard to receipt of proceeds from the
Qualified IPO) is One Billion Dollars ($1,000,000,000), then, in such case, the
Membership Profit Interests shall be converted, in the aggregate, into
19,047,619 shares of common stock with a pre-money valuation of $160 million
(i.e., 20% of the excess of $1 billion over $200 million). In addition, as
compensation for services, options to purchase 5,952,381 shares of common stock
at an exercise price per share equal to the Qualified IPO price shall be granted
to the Plan Membership Interest Holders. Such calculation is set forth on
Exhibit D hereto.
Example 2: Assuming the same facts as in Example 1 above, except in
accordance with Section 3.1.4 hereof as a result of advice of the managing
underwriter with respect to the Qualified IPO, that $100,000,000 of the
remaining Commitments be paid as Capital Contributions in connection with the
Qualified IPO, then, in such case, the Membership Profit Interests shall be
converted, in the
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aggregate, into 16,279,070 shares of common stock with a pre-money valuation of
$140 million (i.e., 20% of the excess of $1 billion over $300 million). In
addition, as compensation for services, options to purchase 8,720,930 shares of
common stock at an exercise price per share equal to the Qualified IPO price
shall be granted to the Plan Membership Interest Holders. Such calculation is
set forth on Exhibit D hereto.
7.3.5.Special Right to Cause a Qualified IPO. If neither the Company
nor Holding has consummated a Qualified IPO on or before the third anniversary
of the Effective Date, Apollo shall have the right to provide Notification to
the Company and Sylvan, and pursuant thereto require Sylvan and the Company to
pursue a Qualified IPO with an underwriter selected by Apollo and reasonably
acceptable to Sylvan (such acceptance not to be withheld unreasonably);
provided, however, that the determination of the Qualified IPO Structure shall
be made as set forth in Section 7.3.1 hereof.
7.3.6.Cancellation of All Commitments. Upon the consummation of a
Qualified IPO, all remaining Commitments automatically shall be cancelled;
provided, however, that nothing herein shall be deemed to terminate or otherwise
limit the Members' respective obligations under Sections 3.1.3 and 3.1.4 hereof
incurred prior to such Qualified IPO; provided, further, that notwithstanding
anything in Sections 3.1.3 or 7.3.6 hereof to the contrary, immediately prior to
a Qualified IPO, Apollo shall have the right (exercisable by delivering a
Notification to the Company) to elect to either: (A) make an additional Capital
Contribution (immediately prior to the Qualified IPO) in an amount equal to the
excess, if any, of (i) the amount of the Sylvan Advance Contribution over (ii)
the aggregate amounts previously paid by Apollo pursuant to Section 3.1.3(vi)(B)
hereof, and receive allocations of Profit from the Fiscal Year including or
ending on the date of the Qualified IPO equal to the amount of the additional
Capital Contribution it makes pursuant to this Section 7.3.6; or (B) cancel
Apollo's remaining Commitment in accordance with this Section 7.3.6. In the
event Apollo fails to deliver such Notification on or before the date that is
thirty (30) days prior to the consummation of a Qualified IPO, Apollo shall be
deemed to have elected option "(B)" above.
7.4 Exclusivity.
7.4.1.Sylvan hereby acknowledges and agrees that, as long as Sylvan
owns 40% or more of the outstanding Units (determined on a Fully-Diluted Basis),
(i) Sylvan shall not finance any incubator (other than the Company), the primary
purpose of which is to provide funding to Industry Companies (as defined
herein), and (ii) Sylvan shall (and shall cause the Sylvan Subsidiaries to)
provide a Notification to the Company (the "Investment Notice") prior to Sylvan
or such Sylvan Subsidiaries making any Investment in any Person that, as the
primary component of such Person's business, provides, delivers or develops
goods, services or content relating to education or testing through the use of
the Internet or similar network or by electronic or computer technology
(collectively, "Industry Companies"). Such
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Investment Notice shall set forth the material terms and conditions of such
Investment (a "Proposed Investment") to the extent then known by Sylvan.
7.4.2.The Company shall have thirty (30) days from the date of the
Investment Notice to provide Notification to Sylvan of the Company's decision to
make the Proposed Investment (the "Company Acceptance Notice"). In the event the
Company fails to provide the Company Acceptance Notice to Sylvan within such
thirty (30) day period, or in the event the Company at any time provides
Notification to Sylvan of the Company's decision not to make the Proposed
Investment, or in the event the Company fails to make such Proposed Investment
or any other Investment in such Industry Company within ninety (90) days from
the date of the Company Acceptance Notice, Sylvan and the Sylvan Subsidiaries
shall have the exclusive right for a period of ninety (90) days (the "Sylvan
Exclusivity Period") to make the Proposed Investment on terms and conditions no
more favorable to Sylvan (and the Sylvan Subsidiaries) than those set forth in
the Investment Notice. If Sylvan does not consummate the Proposed Investment
during the Sylvan Exclusivity Period, then Sylvan shall not make the Proposed
Investment without again complying with all the provisions of this Section 7.4.
7.4.3.This Section 7.4 shall not apply to (i) any Proposed
Investment with a purchase price of Twenty-Five Million Dollars ($25,000,000) or
more as a result of which Sylvan and/or the Sylvan Subsidiaries would control
70% or more of the voting or economic rights related to the Industry Company in
which the Proposed Investment would be made; or (ii) any supplement to the
delivery, support or use of a then-existing product or service of Sylvan and/or
its Sylvan Subsidiaries to take advantage of technology (including the Internet
or similar network or electronic or computer technology) without fundamentally
altering the nature of such product or service.
7.5. Real Estate Assets.
7.5.1.The Members hereby acknowledge and agree that, as soon as
practicable after the Effective Date and as part of the initial capitalization
of the Company, Sylvan shall identify and acquire the Real Estate Assets and
contribute to the Company all of Sylvan's rights, title and interest in and to
such Real Estate Assets in accordance with Section 3.02(b) of the Formation
Agreement.
7.5.2.Without the prior written consent of Sylvan, the Company shall
not Transfer the Real Estate Assets (or any interest therein) for so long as the
Real Estate Assets serve a business purpose for the Company (including, without
limitation, collateralizing the preferential return on the Preferred Units
pursuant to Section 4.1.2 hereof; provided, however, that, upon Notification by
Apollo to the Company (for so long as Apollo is a Member), the Company shall
distribute or otherwise Transfer the Real Estate Assets (in a manner reasonably
determined by Sylvan, and at Sylvan's option, to Sylvan or any Member other than
Apollo)
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immediately prior to a Qualified IPO or, if earlier, at such time as Apollo
reasonably determines to be in the best interests of the Company.
7.5.3.Sylvan hereby agrees to indemnify, defend and hold harmless
the Company, Apollo, the direct and indirect owners of Apollo and Holding from
and against any and all losses (other than losses allocated hereunder to
Holding), damages, costs, expenses, claims, suits, actions and proceedings,
directly or indirectly related to or arising out of the Real Estate Assets, or
the ownership by the Company thereof, including, without limitation, (i) taxes
(other than taxes on income allocated hereunder to Holding from the Real Estate
Assets), interest and penalties imposed or assessed against such Persons
resulting from the Company's ownership or disposition of the Real Estate Assets,
and (ii) claims under any Federal, state, local or foreign laws relating to
protection of the environment related to or arising from the ownership or
disposition of the Real Estate Assets.
7.6 Investment Company Act. The Company shall use its best efforts to
ensure that the Company and its Investments are structured to avoid the Company
and Sylvan becoming an "investment company" within the meaning of the Investment
Company Act; provided, however, that this Section 7.6 is not intended (and shall
not be construed) to limit in any manner the authority of the Board and the
Investment Committee to exercise their respective power and authority and to
carry out their respective duties in accordance with Article V hereof. If
changing laws, regulations and interpretations make it necessary or advisable to
register the Company under the Investment Company Act, the Board shall have the
power to take such action as it may reasonably deem advisable (provided that
such action is not adverse to the interests of any Member) in light of changing
regulatory conditions in order to permit the Company to continue in existence
and to carry on its activities as provided for herein, including, without
limitation, registering the Company under the Investment Company Act and taking
any and all action necessary to secure such registration, and amending this
Agreement as provided in Section 10.6 hereof.
7.7 Plan Assets. Apollo hereby covenants and agrees that, as long as
Apollo is a Member of the Company, Apollo shall not hold Plan Assets.
ARTICLE VIII
Dissolution, Liquidation, and
Termination of the Company
8.1 Events of Dissolution. The Company shall be dissolved upon the
happening of any of the following events prior to a Qualified IPO:
8.1.1.upon the Consent of the Members and Consent of the Preferred;
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8.1.2.upon the entering of a decree of judicial dissolution under
ss.18-802 of the Act;
8.1.3.upon the sale of all or substantially all of the assets of the
Company; or
8.1.4.upon each anniversary of the Effective Date occurring on or
after the tenth anniversary of the Effective Date, unless the Members vote to
not dissolve the Company at such time, pursuant to a Consent of the Members and
a Consent of the Preferred.
An Involuntary Withdrawal of a Member shall not cause the
termination or dissolution of the Company, and the business of the Company shall
continue. Upon any such occurrence, subject to Section 6.7 hereof, the trustee,
receiver, executor, administrator, committee, guardian or conservator of such
Member shall have all the rights of such Member for the purpose of settling or
managing its estate or property, subject to satisfying conditions precedent to
the admission of any assignee as a substitute Member. The Transfer by such
trustee, receiver, executor, administrator, committee, guardian or conservator
of any Membership Interest shall be subject to all of the restrictions hereunder
to which such Transfer would have been subject if such Transfer had been made by
such Member.
8.2 Procedure for Winding Up and Dissolution. If the Company is dissolved,
the Board shall have full authority and shall proceed without any unnecessary
delay to wind up the affairs of the Company. Upon winding up of the Company,
each Member shall be furnished with a statement prepared by the Company's
independent accountants setting forth the assets and liabilities of the Company
as of the date of dissolution, and the assets of the Company shall be
distributed in accordance with Section 4.1.5 hereof. If the Company is
dissolved, the Board shall promptly execute, deliver and file any and all
certificates, statements or documents with the Secretary of State as may be
required under the Act.
ARTICLE IX
Operations
9.1 Books and Records; Accounting Period and Policies.
9.1.1.The Board shall keep or cause to be kept complete and accurate
books and records of the Company and supporting documentation of the
transactions with respect to the conduct of the Company's Business. The records
shall include, but not be limited to, (i) true and full information regarding
the state of the Business and financial condition of the Company, (ii) a copy of
the Certificate and this
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Agreement, and all amendments to the Certificate and/or this Agreement, (iii) a
current list of the name and last known business, residence, or mailing address
of each Member; and (iv) copies of the Company's federal, state, and local
income tax or information returns and reports.
9.1.2.The Company's books and records shall be maintained in
accordance with United States generally accepted accounting principles and shall
be available at the Company's principal office for examination by any Member or
a Member's duly authorized representative at any and all reasonable times during
normal business hours. Each Member shall reimburse the Company for all costs and
expenses incurred by the Company in connection with the Member's inspection and
copying of the Company's books and records.
9.1.3.Unless otherwise determined by the Board, the Company's fiscal
year and taxable year shall be the calendar year, subject to the requirements
and limitations of the Code.
9.2 Bank Accounts. All funds of the Company shall be deposited in a bank
account or accounts maintained in the Company's name. The Board shall determine
the institution or institutions at which the accounts will be opened and
maintained, the types of accounts, and the Persons who will have authority with
respect to the accounts and the funds therein.
9.3 Taxes and Reports.
9.3.1.The Company shall duly and timely file with appropriate United
States federal, state and other governmental agencies all tax returns and other
reports required to be filed by it. At least twenty (20) days prior to the
filing of such tax returns with such governmental agencies, the Company shall
deliver to the Board draft tax returns. The Company shall timely pay in full
and/or make adequate provisions for the payment of all taxes, interest,
penalties, assessments or deficiencies shown to be due on tax returns or by any
taxing authorities. Within seventy-five (75) days after the end of each taxable
year of the Company, the Board shall cause to be sent to each Person who was a
Member at any time during the accounting year then ended: (i) an annual
compilation report, prepared by the Company's independent accountants in
accordance with standards issued by the American Institute of Certified Public
Accountants; and (ii) a report summarizing the fees and other remuneration paid
by the Company to any Member in respect of the taxable year. In addition, within
seventy-five (75) days after the end of each taxable year of the Company, the
Board shall cause to be sent to each Person who was a Membership Interest Holder
at any time during the taxable year then ended, the tax information concerning
the Company which is necessary for preparing the Membership Interest Holder's
income tax returns for that year. At the request of any Member, and at the
Member's expense, the Board shall cause an audit of the Company's books and
records to be prepared by the Company's independent accountants for the period
requested by the Member.
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9.3.2.Sylvan shall be the Company's Tax Matters Member so long as it
is a Member. Subject to the direction of the Board, the Tax Matters Member shall
have all powers and responsibilities of the "tax matters partner" provided in
Code Section 6221, et seq. The Tax Matters Member shall keep all Members
informed of all notices from government taxing authorities which may come to the
attention of the Tax Matters Member. The Company shall pay and be responsible
for all reasonable third-party costs and expenses incurred by the Tax Matters
Member in performing those duties. A Member shall be responsible for any costs
incurred by the Member with respect to any tax audit or tax-related
administrative or judicial proceeding against any Member, even though it relates
to the Company.
9.3.3.Until such time as the Company determines to convert to a
corporation pursuant to Section 7.3 hereof, the Tax Matters Member and the
Company shall take any and all actions required to classify the Company as a
partnership for United States federal income tax purposes (and shall take no
action inconsistent with the Company's intent to be classified as a partnership
for United States federal income tax purposes). By executing this Agreement,
each of the Members hereby consents to actions taken by the Company and the Tax
Matters Member consistent with this Section 9.3.
9.3.4.The Board shall have the authority to cause the Tax Matters
Member to make all Company elections permitted under the Code, including,
without limitation, elections of methods of depreciation and elections under
Code Section 754.
ARTICLE X
General Provisions
10.1 Title to Company Property. All property owned by the Company shall be
owned by the Company as an entity and, insofar as permitted by applicable law,
no Member shall have any ownership interest in any Company property in its
individual name or right, and each Member's Membership Interest shall be
personal property for all purposes.
10.2 Arbitration. Subject to Section 10.5 hereof, in the event of any
dispute between the Members arising under or relating to this Agreement, the
Members shall use their best efforts to resolve such dispute by negotiation,
including pursuing available dispute resolution procedures such as mediation. If
the Members are unable to resolve such dispute within ten (10) days after either
Member provides Notification to the other of such Member's intent to submit the
dispute to arbitration pursuant hereto, such dispute shall be submitted by the
Members to arbitration in accordance with the procedures of the American
Arbitration Association. Any resulting hearing shall be held in the Baltimore,
Maryland area, or at such other location as may be agreed upon by the
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Members. The resolution of any dispute achieved through such arbitration shall
be binding and enforceable by a court of competent jurisdiction. The costs of
any arbitration shall be borne equally by the parties.
10.3 Assurances. Each Member shall execute all such certificates and other
documents and shall do all such filing, recording, publishing and other acts as
the Board deems appropriate to comply with the requirements of law for the
formation and operation of the Company and to comply with any laws, rules, and
regulations relating to the acquisition, operation, or holding of property of
the Company.
10.4 Notifications. Any notice, demand, consent, election, offer,
approval, request, or other communication (each, a "Notification") required or
permitted under this Agreement must be in writing and either delivered
personally or sent by certified or registered mail, postage prepaid, return
receipt requested. A Notification must be addressed to a Membership Interest
Holder at the Membership Interest Holder's last known address on the records of
the Company. A Notification to the Company must be addressed to the Company's
principal office (Attention: Chief Executive Officer). A Notification delivered
personally will be deemed given only when acknowledged in writing by the Person
to whom it is delivered. A Notification that is sent by certified or registered
mail will be deemed given on the date of certification or registry thereof. Any
party may designate, by Notification to all of the others, substitute addresses
or addressees for notices, and, thereafter, notices are to be directed to those
substitute addresses or addressees.
10.5 Specific Performance. The parties recognize that irreparable injury
will result from a breach of any provision of this Agreement and that money
damages will be inadequate to fully remedy such injury. Accordingly, in the
event of a breach or threatened breach of one or more of the provisions of this
Agreement, any party who may be injured shall be entitled to seek (in addition
to any other remedies which may be available to that party) one or more
preliminary or permanent orders (i) restraining and enjoining any act which
would constitute a breach or (ii) compelling the performance of any obligation
which, if not performed, would constitute a breach.
10.6 Entire Agreement; Amendment; Waiver. This Agreement, the Formation
Agreement, the Registration Agreement, the Management Employment Documents and
that certain Purchase Agreement dated February 23, 2000, by and among Sylvan,
Apollo Investment Fund IV, LP and certain other Persons (other than that certain
Term Sheet attached as Exhibit 7.4 to such Purchase Agreement (the "Term
Sheet")), as amended, constitute the entire agreement between the parties
pertaining to the subject matter hereof, and supersede any and all prior
agreements, understandings, negotiations, and discussions of the parties,
whether oral or written, including without limitation the Term Sheet. Except as
set forth in Section 4.4.1 hereof, no amendment, modification or waiver of this
Agreement shall be binding unless approved in writing by Consent of the Members
(subject to Section 5.1.1(iv)(D) hereof), or in the case of a waiver, by the
party for whom such benefit was intended. No waiver of any of the provisions of
this
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Agreement shall be deemed or shall constitute a waiver of any other provision of
this Agreement, whether or not similar, nor shall such waiver constitute a
continuing waiver unless otherwise expressly so provided in writing.
10.7 Applicable Law; Jurisdiction. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of Delaware
without regard to principles of conflict of laws, and the rights, duties, and
obligations of the Members shall be as stated in the Act except as provided
herein. Any suit involving any dispute or matter arising under this Agreement
may only be brought in the United States District Court for the State of
Delaware or any Delaware court having jurisdiction over the subject matter of
the dispute or matter. Each Member consents to the exercise of personal
jurisdiction by any such court with respect to any such proceeding.
10.8 Word Meanings; Headings. In this Agreement, the singular shall
include the plural and the masculine gender shall include the feminine and
neuter and vice versa unless the context otherwise requires. The headings herein
are inserted as a matter of convenience only, and do not define, limit, or
describe the scope of this Agreement or the intent of the provisions hereof.
10.9 Binding Effect. This Agreement shall be binding upon, and shall inure
to the benefit of, the parties hereto and their respective successors and
permitted assigns.
10.10 Interpretation. The parties and their respective legal counsel
actively participated in the negotiation and drafting of this Agreement, and in
the event of any ambiguity or mistake herein, or any dispute among the parties
with respect to the provisions hereof, no provision of this Agreement shall be
construed unfavorably against any of the parties on the ground that he, it, or
his or its counsel was the drafter thereof.
10.11 Separability. Each provision of this Agreement shall be considered
separable, and if, for any reason, any provision or provisions herein are
determined to be invalid and contrary to any existing or future law, such
invalidity shall not impair the operation of or affect those portions of this
Agreement which are valid.
10.12 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 and the same document.
[THIS SPACE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the date set forth above.
WITNESS/ATTEST: MEMBERS:
SYLVAN LEARNING SYSTEMS, INC.
- ------------------------------ By: /s/
------------------------------------
Name:
Title:
AP EDUCATE INVESTMENTS, LLC
By: APOLLO MANAGEMENT IV,
L.P., its manager
By: AIF IV MANAGEMENT,
INC., its General Partner
- ------------------------------ By: /s/
------------------------------------
Name:
Title:
SYLVAN VENTURES, INC.
- ------------------------------ By: /s/
------------------------------------
Name:
Title:
BBHT EDUCATE INVESTMENT, LLC
- ------------------------------- By: /s/
------------------------------------
Name:
Title:
BBHT EDUCATE INVESTMENT II, LLC
- -------------------------------- By: /s/
------------------------------------
Name:
Title:
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INCUBATOR INVESTMENT, LLC
- -------------------------------- By: /s/
------------------------------------
Name:
Title:
- -------------------------------- /s/B. Lee McGee
-------------------------------------------
Name: B. Lee McGee
- -------------------------------- /s/Timothy Daniels
-------------------------------------------
Name:
- -------------------------------- /s/Bruce Davis
-------------------------------------------
Name: Bruce Davis
- -------------------------------- /s/Brett Forman
-------------------------------------------
Name: Brett Forman
- -------------------------------- /s/Earle Pratt
-------------------------------------------
Name: Earle Pratt
- -------------------------------- /s/David C. Benoit
-------------------------------------------
Name: David C. Benoit
- -------------------------------- /s/Mark Sneff
-------------------------------------------
Name: Mark Sneff
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SYLVAN VENTURES, LLC
AMENDED AND RESTATED OPERATING AGREEMENT
LIST OF EXHIBITS
Exhibit A List of Members, Initial Capital Contributions, Commitments,
Units and Percentages
Exhibit B Certificate of Organization and Certificate of Amendment
Exhibit C Membership Profit Interest Plan
Exhibit D Calculation of Conversion of Membership Profit Interests upon
Qualified IPO
Exhibit E Description of Real Estate Assets
Exhibit F Permitted Affiliate Transactions
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