EXHIBIT 10.39
SECOND AMENDED AND RESTATED
OPERATING AGREEMENT
OF
SLINGSHOT NETWORKS, LLC
This SECOND AMENDED AND RESTATED OPERATING AGREEMENT (the "Agreement") is
entered into as of June 21, 2000, between Anschutz Digital Media, Inc., a
Colorado corporation ("ADMI"), and U.S. Telesource, Inc., a Delaware corporation
("UST"), both of which are referred to as the "Members" and individually as a
"Member."
A limited liability company was formed in accordance with the provisions of
the Delaware Limited Liability Company Act (the "Act") under the name of
Slingshot Networks, LLC (the "Company") pursuant to a Certificate of Formation
filed July 14, 1999, with the Delaware Secretary of State. An Operating
Agreement of the Company was entered into as of that same date, under which ADMI
was the sole member. Pursuant to a Subscription Agreement by and between Qwest
Communications International Inc., a Delaware corporation ("Qwest"), and the
Company dated as of October 22, 1999 (the "Subscription Agreement"), Qwest
agreed to purchase an equity interest in the Company. Additionally, ADMI agreed
under a Contribution Agreement dated as of October 22, 1999 by and among ADMI
and the Company (the "Contribution Agreement") to contribute certain assets (the
"ADMI Contributed Assets") to the Company. In conjunction with the Subscription
Agreement and the Contribution Agreement, on October 22, 1999 ADMI and Qwest
entered into an Amended and Restated Operating Agreement. Subsequently, Qwest
transferred its interest in the Company to its wholly owned subsidiary UST
(references to UST herein shall be deemed to include Qwest as its predecessor in
interest). On June __, 2000 ADMI and UST entered into a Unit Purchase Agreement
(the "Purchase Agreement") pursuant to which UST purchased a portion of ADMI's
equity interest in the Company in exchange for cash and a promissory note (the
"Purchase Note"). In light of the foregoing, the Members now desire to amend and
restate the Amended and Restated Operating Agreement of the Company.
Accordingly, from and after the date hereof, the affairs of the Company will be
governed by this Second Amended and Restated Operating Agreement. In
consideration of the foregoing, and of the mutual promises contained herein, the
Members agree as follows:
ARTICLE 1
THE LIMITED LIABILITY COMPANY
1.1 Name. The name of the limited liability company shall be Slingshot
Networks, LLC.
1.2 Certificate of Formation. A Certificate of Formation that complies
with the requirements of the Act has been properly filed with the
Delaware Secretary of State. In the future, the Managers shall execute
such further documents (including amendments to the Certificate of
Formation) and take such further action as shall be appropriate or
necessary to comply with the requirements of law for the formation and
operation of a limited liability company in all states and counties
where the Company elects to carry on its business.
1.3 Business. The business of the Company shall be (a) to provide advanced
digital production, post-production and transmission facilities,
digital media storage and distribution services, telephony-based data
storage and enhanced services, access and routing services; (b) to do
any and all other things necessary, desirable or incidental to the
foregoing purposes; and (c) to engage in such other legal and lawful
business activities as the Management Committee may deem desirable.
The Company may sell or otherwise dispose of all or substantially all
of its assets and any such sale or disposition shall be considered to
be within the scope of the Company's business.
1.4 Registered Office; Agent. The registered office of the Company shall
be at 950 Seventeenth Street, Suite 2050, Denver, Colorado 80202, or
such other place in Colorado as may be selected by the Management
Committee. The Company's registered agent at such address shall be
Brad Hamilton.
ARTICLE 2
DEFINITIONS
2.1 Cash Flow. "Cash Flow" shall mean the excess of all cash receipts of
the Company over all cash disbursements of the Company.
2.2 Code. "Code" shall mean the Internal Revenue Code of 1986, as amended,
or any successor statute.
2.3 Manager. "Manager" is defined in Section 7.1(a).
2.4 Profit or Loss. "Profit" or "Loss" shall mean the profit or loss of
the Company as determined under the capital accounting rules of
Treasury Regulation Section 1.704-1(b)(2)(iv) for purposes of
adjusting the capital accounts of the Members including, without
limitation, the provisions of paragraphs (b), (f) and (g) of those
regulations relating to the compu- tation of items of income, gain,
deduction and loss.
2.5 Sharing Ratio. "Sharing Ratio" shall mean the percentage representing
the ratio that the number of Units owned by a Member bears to the
aggregate number of Units owned by all of the Members. Upon the
issuance of additional Units or the transfer, repurchase or
cancellation of any outstanding Units, the Sharing Ratios of the
Members shall be recalculated as of the date of such issuance,
transfer, repurchase or cancellation. The recalculated Sharing Ratio
of each Member shall be the per- centage representing the ratio that
the number of Units owned by the Member bears to the aggregate number
of Units owned by all of the Members after giving effect to the
issuance, trans- fer, repurchase or cancellation.
2.6 Treasury Regulations. "Treasury Regulations" shall mean regulations
issued by the Department of Treasury under the Code. Any reference to
a specific section or sections of the Treasury Regulations shall be
deemed to include a reference to any corresponding provision of future
regulations under the Code.
2.7 Units. "Unit" shall mean an equity interest in the Company. The
Company shall have two classes of Units: Class A and Class B. The two
classes of Units shall be identical in all respects except for their
respective Voting Interests. The number of Units owned by each Member
shall be determined in connection with the issuance of a membership
interest in the Company in exchange for the capital contribution made
by such Member. Initially the Units shall not be represented by
certificates. If the Management Committee determines that it is in the
interest of the Company to issue certificates represent- ing the
Units, certificates shall be issued and the Units shall be represented
by such certificates. The Company is authorized to issue 200,000,000
Class A Units and 100,000,000 Class B Units.
2.8 Voting Interest. (a) With respect to the Class A Units, "Voting
Interest" shall mean that number of Class A Units held by a Member,
and (b) with respect to the Class B Units, "Voting Interest" shall
mean that number of Class B Units held by a Member divided by 10.
ARTICLE 3
CAPITAL CONTRIBUTIONS
3.1 Initial Capital Contributions.
(a) In accordance with the terms of the Contribution Agreement, ADMI
contributed to the Company all of its right, title and interest
in and to the ADMI Contributed Assets. As a result of such
contribution, ADMI was initially credited with a capital account
equal to $84,816,696, and received 84,816,696 Class A Units.
(b) In accordance with the terms of the Subscription Agreement, UST
contributed to the Company, a promissory note (the "Capital
Note") in the amount of $84,816,696, and such amount shall be
credited to UST's capital account when and as the payments of
principal are made on the Capital Note. As a result of UST's
agreement to make such contribution and pursuant to the
Subscription Agreement, UST was admitted as a Member of the
Company, and received 84,816,696 Class A Units.
(c) Since October 22, 1999, each of UST and ADMI have made contri-
butions of $11,578,518.50 to their respective capital accounts in
exchange for 11,578,518 Class A Units. In accordance with the
terms of the Purchase Agreement, UST acquired 48,197,607 Class A
Units from ADMI in exchange for cash and the Purchase Note. As a
result, 48,197,607 Class A Units were transferred from ADMI to
UST.
(d) As a result of the transactions described above, the Members own
the number and classes of Units and have capital account balances
attributable to the Units as set forth below:
- ------------------------------- ------------------------- ------------------------ -----------------------------------
Class A Units Class B Units Capital Account Balance
- ------------------------------- ------------------------- ------------------------ -----------------------------------
ADMI 48,197,607 -0- $48,197,607
- ------------------------------- ------------------------- ------------------------ -----------------------------------
UST 144,592,821 -0- $59,776,125
- ------------------------------- ------------------------- ------------------------ -----------------------------------
(e) Based on the above, the Sharing Ratio of ADMI is 25%, and the
Sharing Ratio of UST is 75%.
3.2 Additional Capital Contributions.
(a) If, from time to time in the reasonable judgment of the Manage-
ment Committee, the Company requires additional capital for any
purpose, the Management Committee is hereby authorized to cause
the Company to issue additional Units, on terms and conditions
and with repayment priorities as approved by the Management
Committee. Notwithstanding the foregoing, until a third party
becomes a Member, Units shall not be issued at a price per Unit
that is less than $1.00.
(b) If the Company desires to issue additional Units pursuant to (a)
above, the Company hereby grants to the Members the right of
first refusal to purchase a pro rata share (equaling the Member's
respective Sharing Ratio on the day before such additional Units
are to be issued) of the additional Units which the Company
proposes to issue. If the Company proposes to issue such
additional Units, it shall give the Members written notice of its
intention, describing the price and terms upon which the Company
proposes to issue the Units. Each Member shall have 15 days from
the date such notice is sent by the Company to agree to purchase
the portion of the additional Units issued which it is entitled
to purchase for the price and upon the terms so specified in the
notice. Such notice shall be in writing and shall specify the
quantity of additional Units to be purchased. If any Member fails
to exercise the right of first refusal within the 15-day period,
the Company shall have the right thereafter to sell or issue
those additional Units upon terms no more favorable to the
purchasers of the additional Units than specified in the
Company's notice to Members.
3.3 Return of Capital Contributions. Capital contributions shall be
expended in furtherance of the business of the Company. All costs and
expenses of the Company shall be paid from its funds. No interest
shall be paid on capital contributions. No Manager shall have any
personal liability for the repayment of any capital contribution to a
Member.
3.4 Loans.
(a) The Company may borrow additional capital from any source, in-
cluding any Member. No Member shall be obligated to make a loan
to the Company.
(b) If from time to time in the reasonable judgment of the Manage-
ment Committee the Company requires additional capital for any
purpose related to the business of the Company, the Management
Committee is authorized to cause the Company to borrow such
capital, on terms and conditions as approved by the Management
Committee. If the Management Committee decides to borrow such
capital from a Member (the "Loan Amount"), each Member shall be
given the opportunity, but shall not be obligated, to loan its
share of the Loan Amount to the Company. A Member's share of the
Loan Amount shall be the Loan Amount multiplied by the Member's
Sharing Ratio. The loans shall be made within 10 days after
request by the Management Committee to the Members. Such request
shall be in writing and shall specify the amount of the Loan
Amount. If a Member does not loan its share of the Loan Amount
(the "Shortfall Amount") and the other Member does loan its share
(a "Participating Member"), the Participating Member shall have
the right, exercisable within 10 days after notice, to loan the
Company the Shortfall Amount. The loans to the Company by the
Participating Members shall be unsecured, evidenced by promissory
Note of the Company, shall accrue interest at a rate determined
by the Management Committee, shall be payable on a pro rata basis
solely from Cash Flow prior to any distributions to Members, and
shall not contain any default interest or penalty provisions.
ARTICLE 4
DISTRIBUTIONS
4.1 Nonliquidating Distributions. Cash Flow shall be distributed to the
Members in amounts deemed appropriate by the Management Committee
after establishing appropriate reserves. Except as provided in Section
4.2, all distributions of Cash Flow shall be made among the Members in
accordance with their respective Sharing Ratios.
4.2 Liquidating Distributions. All distributions made in connec- tion with
the sale or exchange of all or substantially all of the Company assets
and all distributions made in connection with the liquidation of the
Company shall be made to the Members in accordance with their relative
capital account balances at the time of distribution.
ARTICLE 5
ALLOCATION OF PROFIT AND LOSS
5.1 Determination of Profit and Loss. Profit or Loss shall be de- termined
on an annual basis and for such other periods as may be required.
5.2 Loss Allocation. Except as provided in Section 5.4, Loss shall be
allocated among the Members in accordance with their relative Sharing
Ratios.
5.3 Profit Allocation.
(a) Except as provided in Section 5.3(b) and Section 5.4, Profit
shall be allocated among the Members in accordance with their
relative Sharing Ratios.
(b) Any Profit with respect to the sale, exchange or other disposi-
tion of all or substantially all of the Company assets or with
respect to the liquidation of the Company shall be allocated
among the Members so that their capital account balances are
proportionate to their Sharing Ratios.
(c) For purposes of Section 5.3(b), the capital accounts of the
Members shall be determined (i) before giving effect to
distributions under Section 4.2; (ii) after allocating all other
items of Profit and Loss; and (iii) after making all
distributions under Section 4.1.
5.4 Regulatory Allocations and Curative Provision.
(a) The "qualified income offset" provisions of Treasury Regulation
Section 1.704-1(b)(2)(ii)(d) are incorporated herein by ref-
erence and shall apply to adjust the allocation of Profit and
Loss otherwise provided for under Sections 5.2 and 5.3 to the
extent provided in that regulation.
(b) The "minimum gain" provisions of Treasury Regulation Section
1.704-2 are incorporated herein by reference and shall apply to
adjust the allocation of Profit and Loss otherwise provided for
under Sections 5.2 and 5.3 to the extent provided in that
regulation.
(c) Notwithstanding the provisions of Section 5.2, if during any
fiscal year of the Company the allocation of any loss or
deduction, net of any income or gain, to a Member would cause or
increase a negative balance in a Member's capital account as of
the end of that fiscal year, only the amount of such loss or
deduction that reduces the balance to zero shall be allocated to
the Member and the remaining amount shall be allocated to the
other Member. For the purpose of the preceding sentence, a
capital account shall be reduced by the adjustments, allocations
and distributions described in Treasury Regulations Section
1.704-1(b)(2)(d)(4), (5) and (6), and increased by the amount, if
any, that the Member is obligated to restore to the Member's
capital account within the meaning of Treasury Regulation Section
1.704-1(b)(2)(ii)(c) as of that time or is deemed obligated to
restore under Treasury Regulation Section 1.704-2(g)(1) or
Section 1.704-2(i)(5).
(d) All allocations pursuant to the foregoing provisions of this
Section 5.4 (the "Regulatory Allocations") shall be taken into
account in computing allocations of other items under Sections
5.2 and 5.3, including, if necessary, allocations in subsequent
fiscal years, so that the net amounts reflected in the Members'
capital accounts and the character for income tax purposes of the
taxable income recognized (e.g., as capital or ordinary) will, to
the extent possible, be the same as if no Regulatory Allocations
had been given effect.
ARTICLE 6
ALLOCATION OF TAXABLE INCOME AND LOSS
6.1 In General.
(a) Except as provided in Section 6.2, each item of income, gain,
loss and deduction of the Company for federal income tax pur-
poses shall be allocated among the Members in the same manner as
such item is allocated for capital account purposes under Article
5.
(b) To the extent of any recapture income (as defined below) re-
sulting from the sale or other taxable disposition of a Company
asset, the amount of any gain from such disposition allocated to
(or recognized by) a Member (or its successor in interest) for
federal income tax purposes shall be deemed to consist of
recapture income to the extent such Member (or such Member's
predecessor in interest) has been allocated or has claimed any
deduction directly or indirectly giving rise to the treatment of
such gain as recapture income. For this pu- pose "recapture
income" shall mean any gain recognized by the Company (but
computed without regard to any adjustment re- quired by sections
734 and 743 of the Code) upon the disposi- tion of any property
or asset of the Company that does not constitute capital gain for
federal income tax purposes because such gain represents the
recapture of deductions previously taken with respect to such
property or assets.
6.2 Allocation of Section 704(c) Items. The Members recognize that with
respect to property contributed to the Company by a Membe and with
respect to property revalued in accordance with Trea- sury Regulation
Section 1.704-1(b)(2)(iv)(f), there will be a difference between the
agreed values or "carrying values" of such property at the time of
contribution or revaluation and the adjusted tax basis of such
property at that time. All items of tax depreciation, cost recovery,
amortization, amount realized and gain or loss with respect to such
assets shall be allocated among the Members to take into account the
book-tax disparities in accordance with the provisions of sections
704(b) and 704(c) of the Code and the Treasury Regulations under those
sections.
6.3 Integration With Section 754 Election. All items of income, gain,
loss, deduction and credit recognized by the Company for federal
income tax purposes and allocated to the Members in accordance with
the provisions hereof and all basis allocations to the Members shall
be determined without regard to any election under section 754 of the
Code that may be made by the Company; provided, however, such
allocations, once made, shall be adjusted as necessary or appropriate
to take into account the adjustments permitted by sections 734 and 743
of the Code.
ARTICLE 7
MANAGEMENT
7.1 Management Committee.
(a) Management of the Company shall be vested in a management
committee (the "Management Committee"). Until such time as the
Purchase Note is paid in full by UST in accordance with its
terms, the Management Committee shall consist of six members
(each, a "Manager"), three of whom shall be appointed by ADMI and
three of whom shall be appointed by UST. Upon the full
satisfaction of the Purchase Note in accordance with its terms,
the Management Committee shall consist of nine Managers, three of
whom shall be appointed by ADMI, four of whom shall be appointed
by UST, one of whom shall be appointed by ADMI and UST as
mutually agreed upon and one of whom shall be the Chief Executive
Officer of the Company. Subject to the limitations of Section
8.9, the Management Committee shall have the exclusive power and
authority to conduct the business of the Company. In conducting
the business of the Company, the Management Committee shall have
all rights, duties and powers conferred by the Act, except as
limited hereby. The Management Committee is hereby expressly
authorized on behalf of the Company to make all de- cisions with
respect to the Company's business and to take all actions
necessary to carry out such decisions. No actions shall be taken,
nor any decisions made, by any Manager or officer of the Company
without the prior approval of, or pursuant to an express
delegation of authority by, the Management Committee. Subject to
the limitations of Section 8.9 and clauses (b) and (c) below, the
act of the majority of the members of the Management Committee
shall be the act of the Management Committee. Notwithstanding the
foregoing, all documents executed on behalf of the Company need
only be signed by a Manager or by an officer of the Company who
has been given the power and authority to do so by the Management
Committee.
(b) The Management Committee shall have the power to appoint
individuals to serve as the Chief Executive Officer, Chief
Financial Officer and Chief Operating Officer of the Company. In
addition, the Management Committee shall have the right to
delegate all or portions of its management authority to one or
more officers of the Company. Any officer may be removed or its
authority withdrawn at any time by the Management Committee.
Notwithstanding any other provision of this Operating Agreement
to the contrary, until such time as the Purchase Note is paid in
full by UST in accordance with its terms (i) no individual may be
appointed or terminated as Chief Executive Officer, Chief
Financial Officer or Chief Operating Officer of the Company
without the prior approval of the Managers appointed by ADMI (the
"ADMI Managers"), and (ii) all determinations as to compensation
and benefits to be paid or granted to the Chief Executive
Officer, Chief Financial Officer or Chief Operating Officer shall
require the approval of the ADMI Managers.
(c) Until such time as the Purchase Note is paid in full by UST in
accordance with its terms, without the prior approval of the ADMI
Managers, the Company may not directly or indirectly through a
subsidiary or other controlled entity (i) incur Indebtedness (as
defined below) for an amount individually or in the aggregate in
excess of $10 million, (ii) issue equity interests or securities
for consideration individually or in the aggregate in excess of
$10 million, (iii) make any single capital expenditure in excess
of $2 million, (iv) acquire or dispose of assets with a value in
excess of $2 million in any single transaction, (v) approve or
enact any annual budget of the Company or (vi) amend or repeal
any material provision of the Company's Operating Agreement. For
purposes of this Agree- ment, "Indebtedness" shall mean with
respect to any person, without duplication, all indebtedness in
respect of money borrowed, including without limitation, all
obligations under capital leases, all synthetic lease
obligations, the deferred purchase price of any property or
services, the aggregate face amount of all surety bonds, letters
of credit, and bankers' acceptances, and all payment and
reimbursement obligations in respect thereof whether or not
matured, evidenced by a promissory note, bond, debenture or
similar written obligation for the payment of money (including
reimbursement agreements and conditional sales or similar title
retention agreements), including all such items incurred by any
partnership or joint venture as to which such person is liable as
a general partner or joint venturer, other than trade payables
and accrued expenses incurred in the ordinary course of business.
7.2 Management Committee Meetings.
(a) The Management Committee will hold regular quarterly meetings
without call or notice at such time as will from time to time be
fixed by standing resolution of the Management Committee.
(b) Special meetings of the Management Committee may be called by any
two Managers. All meetings will be held upon 10 days' notice by
mail or 72 hours' notice delivered personally or by tel- phone or
facsimile. A notice need not specify the purpose of any meeting.
Notice of a special meeting need not be given to any Manager who
signs a waiver of notice or a consent to holding the meeting or
an approval of the minutes thereof, whether before or after the
meeting, or who attends the meeting without protesting, prior to
its commencement, the lack of notice to such Manager. All such
waivers, consents and approvals will be filed with the Company
records or made a part of the minutes of the meeting.
(c) Meetings of the Management Committee may be held at any place
within or without the State of Delaware that has been desig-
nated in the notice of the meeting or at such place as may be
approved by the Management Committee. Managers may participate in
a meeting through use of conference telephone or similar
communications equipment, so long as all Managers participating
in such meeting can hear one another. Participation in a meeting
in such manner constitutes a presence in person at such meeting.
7.3 Duties. The Managers shall carry out their duties in good faith,
in a manner the Managers believe to be in the best interests of
the Company, and with such care as an ordinarily prudent person
in a like position would use under similar circumstances. A
Manager who so performs its duties shall not have any liability
by reason of being or having been a Manager of the Company.
7.4 Time Devoted to Business. The Members and the Managers shall
devote such time to the business of the Company as they, in their
discretion, deem necessary for the efficient carrying on of the
Company's business. The Members and the Managers shall at all
times be free to engage for their own account in any business
that competes with any business of the Company.
7.5 Reliance by Third Parties. No third party dealing with the
Company shall be required to ascertain whether any Manager is
acting in accordance with the provisions of this Agreement. All
third parties may rely on a document executed by a Manager (or an
officer duly authorized by the Management Committee to exe- cute
such document) as binding the Company. The foregoing pro- visions
shall not apply to third parties who are affiliates of a Member,
the Managers, or an officer of the Company. A Manager or officer
acting without authority shall be liable to the Members for any
damages arising out of its unauthorized actions.
7.6 Resignation. Any Manager may be removed at any time with or
without cause by the Member who appointed such Manager. Any
Manager may resign at any time by giving written notice to the
Members. Unless otherwise specified in the notice, the resig-
nation shall take effect upon receipt by the Members, and the
acceptance of the resignation shall not be necessary to make it
effective. Upon the resignation, retirement, death or removal of
any Manager, the Member who appointed such Manager will nominate
and appoint a replacement Manager.
7.7 Transactions Between Company and Managers. The Members hereby
acknowledge that the Company may be required to borrow funds from
any Manager or such Manager's affiliates, from time to time and
at any time, in connection with the business of the Company. Each
Manager is hereby authorized, without further approval by the
Members, to execute all documents and take all action necessary
to consummate any loans, secured and/or unsecured by the assets
of the Company, to the Company by such Manager or an affiliate of
such Manager, on terms and conditions that are acceptable to such
Manager and consistent with the provisions of Section 3.4. In
addition, each Manager is hereby authorized to contract and deal
with the Company, or cause any person or entity affiliated with
such Manager to otherwise contract or deal with the Company,
provided such contracts and dealings either are on terms
comparable to and competitive with those available to the Company
from others dealing at arm's length or are approved by
disinterested Members having more than 50% of the Sharing Ratios
of all disinterested Members.
7.8 Reimbursements. Each Manager and each officer shall be reim-
bursed by the Company for any reasonable out-of-pocket costs
incurred on behalf of the Company and a reasonable charge for the
cost of general office and administrative overhead attributable
to the performance of their duties to the Company, together with
reasonable interest that has accrued on such amounts from the
date incurred until paid.
7.9 Insurance. The Company shall maintain for the protection of the
Company and all of its Members such insurance as the Management
Committee, in its sole discretion, deems necessary for the
operations being conducted.
7.10 Exculpation. The Management Committee and any officer appointed
by the Management Committee shall not be liable to the Company or
to any Member for any act or failure to act, nor for any errors
of judgment, but only for willful misconduct or gross negligence.
The Company shall indemnify and hold harmless each member of the
Management Committee, each officer and their agents and employees
against and from any liability other than such person's willful
misconduct or gross negligence. Any such indemnification shall be
paid only from the assets of the Company, and no Member, Manager,
officer or third party shall have recourse against the personal
assets of any Member for such indemnification.
7.11 Informal Action. Any action required or permitted to be taken by
the Management Committee may be taken without a meeting if the
action is evidenced by a written consent describing the action
taken, signed by each member of the Management Committee. Action
taken under this section is effective when all members of the
Management Committee have signed the consent, unless the consent
specifies a different effective date.
ARTICLE 8
MEMBERS
8.1 Participation. A Member, in its capacity as a Member, shall take
no part in the control, management, direction or oper- ation of
the affairs of the Company and shall have no power to bind the
Company.
8.2 Quorum. A majority of the outstanding Voting Interests, rep-
resented in person or by proxy, shall be necessary to constitute
a quorum at meetings of the Members. Each of the Members hereby
consents and agrees that one or more Members may participate in a
meeting of the Members by means of conference telephone or
similar communication equipment by which all persons participat-
ing in the meeting can hear one another at the same time, and
such participation shall constitute presence in person at the
meeting. If a quorum is present, the affirmative vote of the
majority of the Voting Interests represented at the meeting and
entitled to vote on the subject matter shall be the act of the
Members, unless a greater number is required by the Act. In the
absence of a quorum, those present may adjourn the meeting for
any period, but in no event shall such period exceed 60 days.
8.3 Informal Action. Any action required or permitted to be taken at
a meeting of the Members may be taken without a meeting if the
action is evidenced by a written consent describing the action
taken, signed by each Member entitled to vote. Action taken under
this section is effective when all Members entitled to vote have
signed the consent, unless the consent specifies a different
effective date.
8.4 Meetings. Meetings of the Members for any purpose or purposes may
be called by the Management Committee or by holders of not less
than 10% of all Voting Interests. The place of meeting shall be
the registered office of the Company.
8.5 Notice of Meeting. Written notice stating the place, day and hour
of the meeting of the Members and the purpose or purposes for
which the meeting is called, shall be delivered either personally
or by mail, by or at the direction of the Management Committee or
other person calling the meeting, to each Member of record
entitled to vote at such meeting. If mailed, such notice shall be
deemed delivered as provided in the Act. Waiver of notice and
actions taken at a meeting shall be effective as provided in the
Act.
8.6 Proxies. At all meetings of Members, a Member may vote in per-
son or by proxy executed in writing by the Member or by his dul
authorized attorney-in-fact. Such proxy shall be filed with the
Management Committee before or at the time of the meeting. No
proxy shall be valid after eleven months from the date of its
execution, unless otherwise provided in the proxy.
8.7 Conduct of Meeting. At each meeting of the Members, a Chairman
for that particular meeting shall be elected. The Chairman shall
be the Member in attendance who has received the vote of the
majority of the Voting Interests represented at the meeting. The
Chairman shall preside over and conduct the meeting and shall
appoint someone in attendance to make accurate minutes of the
meeting. Following each meeting, the minutes of the meeting shall
be sent to the Management Committee and each Member.
8.8 Tax Matters Member. UST is hereby designated as the tax matters
Member for the Company pursuant to section 6231(a) of the Code.
UST is authorized to perform, on behalf of the Company or any
Member, any act that may be necessary to make this designation
effective.
8.9 Miniority Protections. Notwithstanding any other provision of
this Operating Agreement to the contrary, without the approval of
ADMI or its successor until such time as ADMI (a) holds less than
10% of the voting equity of the Company on a fully diluted basis
or (b) sells or otherwise transfers to a non-affiliate more than
50% of its equity holdings in the Company as of June 21, 2000,
the Company may not
(i) authorize (w) a liquidation, dissolution winding up of the
affairs of the Company (or any of its sub- sidiaries), (x) a
recapitalization or reorganization of the Company that would
be reasonably likely to have a material adverse effect on
ADMI's (1) Units, (2) Capital Account, (3) relative rights
or obligations under this Agreement or (4) status as a
Member generally, (y) a Change in Ownership (as defined
below), or (z) a Funda- mental Change (as defined below);
(ii) permit any subsidiary to issue or sell, or obligate it- self
to issue or sell, except to the Company or any wholly-owned
subsidiary of the Company, any capital stock of such
subsidiary in excess of 20% in the aggr- gate of the
outstanding capital stock of such subsidiary on a fully
diluted basis as of the date hereof (as the same may be
adjusted by any transaction approved by ADMI);
(iii) permit the Company or any of its subsidiaries to enter into
any agreement for the acquisition of any business through
purchase of assets, purchase of stock, licensing arrangement
or otherwise involving consideration of $100,000,000 or
more;
(iv) increase or decrease the outstanding equity ownership
available in the Company, or authorize the same, other than
additional issuances of equity (or a reduction in the amount
of outstanding equity) not to exceed 20% in the aggregate of
the outstanding equity of the Company on a fully diluted
basis as of the date hereof (as the same may be adjusted by
any transaction approved by ADMI);
(v) authorize the issuance or restructuring of any debt
securities of the Company or any of its subsidiaries or
otherwise incur Indebtedness directly or through a sub-
sidiary, including increases to any revolving line of credit
maximum limits, other than (1) purchase money indebtedness,
(2) nonrecourse indebtedness on receiv- ables and (3)
unsecured indebtedness in an aggregate amount not to exceed
$75,000,000;
(vi) authorize the payment of any dividends or distributions,
except as may be required to allow for the payment of taxes
when due attributable to a Member as the result of the
allocation of income in accordance with the terms of this
Agreement;
(vii) enter into any transaction with an affiliate with an
aggregate transaction value (based on goods or services
provided or received or to be provided or received in excess
of $25,000,000);
(viii) increase or decrease the authorized size of the Company's
Management Committee or alter the representative composition
thereof;
(ix) increase the equity interests available to employees,
advisors, management or consultants in excess of 10% in the
aggregate of the outstanding equity of the Company on a
fully diluted basis as of the date hereof (as the same may
be adjusted by any transaction approved by ADMI); or
(x) amend or repeal any provision of the Company's Operating
Agreement that would be reasonably likely to have a material
adverse effect on ADMI's (w) Units, (x) Capital Account, (y)
relative rights or obligations under this Agreement or (z)
status as a Member generally.
For purposes of clauses (i) and (x) of this Section 8.9, any alteration of
the Company's Operating Agreement that would be reasonably likely to have an
adverse financial impact to ADMI shall be deemed material.
For purposes of this Section 8.9: (1) "Change in Ownership" means any sale,
transfer or issuance or series of sales, transfers and/or issuances of equity
interests in the Company by the Company or any holders thereof which results in
any Person or group of Persons (as the term "group" is used under the Securities
Exchange Act of 1934, as amended), other than the holders of equity interests as
of May, 2000, owning equity interests of the Company possessing the voting power
(under ordinary circumstances) to elect at least 50% of the Company's Management
Committee; (2) "Fundamental Change" means (A) any sale or transfer of more than
50% of the assets of the Company and its subsidiaries on a consolidated basis
(measured either by book value in accordance with generally accepted accounting
principles consistently applied or by fair market value determined in the
reasonable good faith judgment of the Management Committee) in any transaction
or series of transactions (other than sales in the ordinary course of business),
and (B) any merger or consolidation to which the Company is a party, except for
a merger in which the Company is the surviving entity, the terms of the
outstanding equity interests of all holders thereof are not changed and none of
the outstanding equity interests are exchanged for cash, securities or other
property, and after giving effect to such merger, the holders of the Company's
outstanding equity interests possessing the voting power (under ordinary
circumstances) to elect a majority of the Company's Management Committee
immediately prior to the merger shall continue to own the Company's outstanding
equity interests possessing the voting power (under ordinary circumstances) to
elect a majority of the Company's Management Committee; (3) "Person" means an
individual, a partnership, a corporation, a limited liability company, a limited
liability partnership, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof; and (4) "subsidiary" means,
with respect to any Person, any other Person of which securities or other
ownership interests having ordinary voting power to elect a majority of the
board of directors or other persons performing similar functions are at the time
directly or indirectly owned by the Person.
Notwithstanding any other provision of this Operating Agreement to the
contrary, all rights of ADMI or its successors under this Section 8.9 shall
lapse upon the completion by the Company of an initial public offering of its
equity securities in accordance with the rules and regulations of the Securities
Act of 1933, as amended, by means of an effective registration statement under
Form S-1 (or any successor form thereto).
ARTICLE 9
ACCOUNTING AND REPORTING
9.1 Books. The Management Committee shall maintain complete and
accurate books of account at the registered office of the
Company. The Management Committee shall provide any Member any
information requested relating to the business of the Company.
During ordinary business hours any Member or its authorized
representative shall have access to all books, records and
materials regarding the Company and its activities.
9.2 Capital Accounts. The Management Committee shall maintain a
separate capital account for each Member in accordance with the
Treasury Regulations under section 704(b) of the Code and such
other accounts as may be necessary or desirable to comply with
the requirements of applicable laws and regulations.
9.3 Transfers During Year. In order to avoid an interim closing of
the Company's books, the share of profits and losses under
Article 5 of a Member who transfers part or all of its interest
in the Company during the Company's accounting year may be
determined by taking its pro rata share of the amount of such
profits and losses for the year. The proration shall be based on
the portion of the Company's accounting year that has elapsed
prior to the transfer or may be determined under any other
reasonable method; provided, however, that any gain or loss from
the sale of Company assets shall be allocated to the owner of the
Company interest at the time of such sale. The balance of the
profits and losses attributable to the Company interest
transferred shall be allocated to the transferee of such
interest.
9.4 Reports. The books of account shall be closed promptly after the
end of each fiscal year. As soon as practicable thereafter, the
Management Committee shall deliver a written report to each
Member, which shall include a statement of receipts, expendi-
tures, profits and losses for the year, a statement of each
Member's capital account and such additional statements with
respect to the status of the Company's assets and the distribu-
tion of Company funds as are necessary to advise the Members
properly about their investment in the Company. Prior to March
15th of each year, the Members shall also be provided with a copy
of the Company federal income tax return (Form 1065) to b filed
for the preceding year.
9.5 Section 754 Election. If requested by a Member the Company shall
make the election provided for under section 754 of the Code. Any
costs attributable to making such election shall be borne solely
by the requesting Member.
ARTICLE 10
TRANSFERS; RIGHT OF FIRST REFUSAL
10.1 Additional Members. Additional Members shall not be admitted to
the Company without the written consent of Members having a
Sharing Ratio of more than 50%.
10.2 Offer to Other Members. If at any time any Member proposes to
sell, assign or otherwise transfer all or any part of its
interest in the Company, such Member ("Offeror") shall first make
a written offer to sell such interest in the Company to the other
Members on the same terms and subject to the same con- ditions as
those on which the Offeror proposes to transfer the interest in
the Company. Such offer shall state the name of the proposed
transferee and all the terms and conditions of the proposed
transfer, including the price to the proposed transferee.
Notwithstanding anything in this Section 10.2 to the contrary,
any Member shall be free to transfer all or any portion of its
interest in the Company free of the right of first refusal
provided that such Member transfers its interest to an entity
controlled by the transferor. A transferee of a Member pursuant
to the foregoing sentence shall be subject to the right of first
refusal contained in this Section 10.2.
10.3 Acceptance of Offer. The other Members shall have the right for a
period of 30 days after receipt of the offer from the Offeror, or
such longer period as may be required under Section 10.5, to
elect to purchase all of the interest in the Company offered. In
exercising their right to purchase, the other Members may divide
the interest offered in any manner to which they all agree and in
the absence of agreement the offered interest shall be divided
among the Members in proportion to the relative Sharing Ratios of
the Members who choose to partici- pate. To exercise their rights
to purchase, the other Members shall give written notice to the
Offeror. Upon the exercise of a right to purchase and provided
the right is exercised with respect to all of the interest in the
Company offered, the purchase shall be closed and payment made on
the same terms and conditions as those on which the Offeror
proposes to transfer the interest in the Company.
10.4 Failure to Accept Offer. If the other Members do not elect to
purchase all of the interest in the Company offered, the Offeror
may transfer the offered interest to the proposed transferee
named in the offer to the Company. However, if that transfer is
not made within 90 days after the end of the period provided for
in Section 10.3, a new offer shall be made to the other Members
and the provisions of Sections 10.1, 10.2 and 10.3 shall again
apply.
10.5 Cash Equivalents. If the proposed offer under Section 10.2 is for
consideration other than cash or cash plus deferred pay- ments of
cash, the purchasing Members may pay the present value cash
equivalent of such other consideration or may pay using the same
instrument as contemplated by the proposed offer. The Offeror and
the purchasing Members shall attempt to agree upon a cash
equivalent of such other consideration. If they cannot agree
within 20 days after the beginning of the 30-day period under
Section 10.3, any of such Members may, by five days' written
notice to the others, initiate arbitration proceedings for
determination of the cash equivalent without regard to income tax
consequences to the Offeror as a result of receiving cash rather
than the other consideration. The purchasing Members may elect to
purchase the interest at the determined cash equivalent by notice
of such election to the Offeror within 10 days after the
arbitrator's decision.
10.6 Direct and Indirect Transfers. For purposes of this agreement,
restrictions upon the sale, assignment or other transfer of a
Member's interest shall extend to any direct or indirect trans-
fer including, without limitation, an involuntary transfer such
as a transfer pursuant to a foreclosure sale or a transfer re-
sulting by operation of law.
10.7 Substitution of a Member.
(a) No assignee, legatee, or transferee (by conveyance,
operation of law or otherwise) of the whole or any portion
of a Member's interest in the Company shall have the right
to become a sub- stituted Member without the written consent
of Members other than the assignor, legator or transferor,
as the case may be, having a Sharing Ratio of more than 50%.
The granting or denial of a request for such written consent
shall be within the absolute discretion of each Member. A
substituted Member shall succeed to all the rights and
interest of its assignor in the Company. An assignee of a
Member that is not admitted as a Member shall be entitled
only to the distributions to which its assignor would
otherwise be entitled.
(b) If a Member shall be dissolved, merged or consolidated, its
successor in interest shall have the same rights and
obligations that such Member would have had if it had not
been dissolved, merged or consolidated, except that the
successor shall not become a substituted Member without the
prior written consent of Members other than the predecessor
Member having a Sharing Ratio of more than 50%.
(c) As conditions to its substitution as a Member (a) any
successor of a Member shall execute and deliver such
instruments, in form and substance satisfactory to the
Management Committee, as the Management Committee shall deem
necessary, and (b) such successor shall pay all reasonable
expenses in connection with its admission as a substituted
Member.
10.8 Conditions to Transfer. No transfer of any interest in the
Company otherwise permitted under this agreement shall be
effective for any purpose whatsoever until the transferee shall
have assumed the transferor's obligations to the extent of the
interest transferred and shall have agreed to be bound by all the
terms and conditions hereof, by written instrument, duly
acknowledged, in form and substance reasonably satisfactory to
the Management Committee.
ARTICLE 11
TAG-ALONG RIGHTS
Subject to the provisions of Section 10, in the event a Member (an
"Offering Member") intends to transfer all or any part of its interest in the
Company (also referred to as "Offered Interests"), such Offering Member shall
notify each other Member who has a Sharing Ratio of more than 10%, in writing,
of such proposed transfer and its terms and conditions, including, without
limitation, (i) its bona fide intention to sell or transfer the Offered
Interests, (ii) the number and class of Units of Offered Interests to be
transferred, (iii) the price and terms, if any, for which it proposes to
transfer the Offered Interests and (iv) the name and address of the proposed
purchaser or transferee and that such purchaser or transferee is committed to
acquire the stated number of Units on the stated price and terms ("Offering
Member Notice"). Within ten days of the date of such notice, each Member (other
than the Offering Member) shall notify the Offering Member in writing (the
"Co-Sale Notice") if it elects to participate in such transfer. Each Member that
so notifies the Offering Member shall have the right to sell, at the same price
and on the same terms as the Offering Member, an amount of Units equal to the
Units the third party proposes to purchase multiplied by a fraction, the
numerator of which shall be the number of Units owned by such Member and the
denominator of which shall be the aggregate number of Units owned by the
Offering Member and each Member exercising its rights under this Section 11.
Nothing contained in this Section 11 shall in any way limit or restrict the
Offering Member's ability to amend, modify or terminate any agreement with a
third party with respect to any transfer of its Units pursuant to this Section
11, and the Offering Member shall have no liability to any Member with respect
to such amendment, modification or termination unless any of the foregoing
breaches this Agreement. If no Co-Sale Notice is received during the ten-day
period referred to above (or if the Co-Sale Notice does not cover all of the
Units proposed to be transferred), the Offering Member shall have the right, for
a sixty-day period after the expiration of the ten-day period referred to above,
to transfer the Units so specified in the Offering Member Notice (or the
remaining Units) at the same or a lower price and on other terms and conditions
no more favorable than those stated in the Offering Member Notice.
ARTICLE 12
TERM
Subject to Section 8.9, the Company shall continue until dissolved by the
written consent of Members having a Sharing Ratio of more than 50% or upon sale
of all or substantially all of its assets.
ARTICLE 13
INITIAL PUBLIC OFFERING
13.1 Conversion to Corporation. If the Company decides to initiate an
initial public offering, and if that decision requires that the
Company be restructured into a corporation (the "Resulting
Corporation"), then, subject to the approval of the Management
Committee pursuant to Section7.1:
(a) the Resulting Corporation will be organized and incorporated
under the Laws of the State of Delaware;
(b) the Certificate of Incorporation and Bylaws of the Resulting
Corporation will include standard and customary provisions
as will then be applicable to public corporations
incorporated under the Laws of the State of Delaware, and
such other provisions as may be agreed upon by the
Management Committee; and
(c) the Members and the Company will negotiate in good faith
with the intent of entering into a shareholders' agreement
that will contain customary provisions, including "tag
along" rights.
ARTICLE 14
DISSOLUTION AND TERMINATION
14.1 Final Accounting. In case of the dissolution of the Company, a
proper accounting shall be made as provided in Section 9.4 from
the date of the last previous accounting to the date of
dissolution.
14.2 Liquidation. Upon the dissolution of the Company, the Management
Committee shall select a person to act as liquidator to wind up
the Company. The liquidator shall have full power and authority
to sell, assign and encumber any or all of the Company's assets
and to wind up and liquidate the affairs of the Company in an
orderly and businesslike manner. All proceeds from liquidation
shall be distributed in the following order of priority: (i) to
the payment of debts and liabilities of the Company and the
expenses of liquidation; (ii) to the setting up of such reserves
as the liquidator may reasonably deem necessary for any
contingent liabilities of the Company; and (iii) to the Members
in accordance with Article 4.
14.3 Distribution in Kind. If the liquidator shall determine that a
Company asset should be distributed in kind, the liquidator shall
obtain an independent appraisal of the fair market value of the
asset as of a date reasonably close to the date of liquidation.
Any unrealized appreciation or depreciation with respect to such
asset shall be allocated among the Members (in accordance with
the provisions of Article 5 assuming that the asset was sold for
the appraised value) and taken into consid- eration in
determining the balance in the Member' capital accounts as of the
date of liquidation. Distribution of any such asset in kind to a
Member shall be considered a distribution of an amount equal to
the asset's fair market value for purposes of Section 14.2. The
liquidator, in its sole discretion, may distribute any percentage
of any asset in kind to a Member eve if such percentage exceeds
the percentage in which the Member shares in distributions as
long as the sum of the cash and fair market value of all the
assets distributed to each Member equals the amount of the
distribution to which each Member is entitled.
14.4 Waiver of Right to Court Decree of Dissolution. The Members agree
that irreparable damage would be done to the Company if any
Member brought an action in court to dissolve the Company.
Accordingly, each of the Members accepts the provisions of thi
Agreement as its sole entitlement on termination of the Member's
membership in the Company. Each Member hereby waives and
renounces all rights to seek a court decree of dissolution or to
seek the appointment by a court of a liquidator for the Company.
14.5 Articles of Dissolution. Upon the completion of the distribu-
tion of Company assets as provided in this Article 14, the
Company shall be terminated and the person acting as liquidator
shall file articles of dissolution and shall take such other
actions as may be necessary to terminate the Company.
ARTICLE 15
NOTICES
15.1 Method of Notices. All notices required or permitted by this
agreement shall be in writing and shall be hand delivered or sent
by registered or certified mail, postage prepaid, and shall be
effective when received or, if mailed, on the date se forth on
the receipt of registered or certified mail, or on the fifth day
after mailing, whichever is earlier.
15.2 Computation of Time. In computing any period of time under this
agreement, the day of the act, event or default from which the
designated period of time begins to run shall not be included The
last day of the period so computed shall be included, unless it
is a Saturday, Sunday or legal holiday, in which event the period
shall run until the end of the next day which is not a Saturday,
Sunday or legal holiday.
ARTICLE 16
INVESTMENT REPRESENTATIONS
16.1 Investment Purpose. In acquiring an interest in the Company, each
Member represents and warrants to the Company that it is
acquiring such interest for its own account for investment and
not with a view to its sale or distribution. Each Member
recognizes that investments such as those contemplated by the
Company are speculative and involve substantial risk. Each Me-
ber further represents and warrants that it has not received any
guaranty or representation upon which it has relied concerning
the possibility or probability of profit or loss as a result of
its acquisition of an interest in the Company.
16.2 Investment Restriction. Each Member recognizes that: (a) its
Units have not been registered under the Securities Act of 1933,
as amended, in reliance upon an exemption from such registra-
tion, (b) a Member may not sell, offer for sale, transfer, pledge
or hypothecate all or any part of its interest in the Company in
the absence of an effective registration statement covering such
interest under the Securities Act of 1933, as amended, unless
such sale, offer of sale, transfer, pledge or hypothecation is
exempt from registration under the Securities Act of 1933, as
amended, (c) the Company has no obligation to register any
Member's interest for sale, or to assist in estab- lishing an
exemption from registration for any proposed sale, and (d) the
restrictions on transfer may severely affect the liquidity of a
Member's investment.
ARTICLE 17
GENERAL PROVISIONS
17.1 Entire Agreement. This Agreement embodies the entire under-
standing and agreement among the parties concerning the Company
and supersedes any and all prior negotiations, understandings or
agreements in regard thereto.
17.2 Amendment. Except as otherwise specifically provided in this
Agreement, this Agreement may not be amended nor may any rights
hereunder be waived except by an instrument in writing signed by
Members having a Sharing Ratio of more than 50% in the aggregate.
17.3 Applicable Law. This Agreement shall be construed in accordance
with and governed by the laws of the State of Delaware.
17.4 Pronouns. References to a Member, including by use of a pro-
noun, shall be deemed to include masculine, feminine, singular,
plural, individuals, partnerships, corporations or other legal
entities where applicable.
17.5 Counterparts. This instrument may be executed in any number of
counterparts each of which shall be considered an original.
* * * * * * *
[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF the parties have executed this Agreement effective as of
the date first above written.
Anschutz Digital Media, Inc.
By: /s/ Craig D. Slater
Name: Craig D. Slater
Title: Vice President
U.S. TELESOURCE, INC.
By: /s/ Marc B. Weisberg
Name: Marc B. Weisberg
Title: President and Chief Executive Officer