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LIMITED LIABILITY COMPANY AGREEMENT
OF
ALBAHEALTH, LLC
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Dated as of September 6, 2002
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TABLE OF CONTENTS
Page
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ARTICLE I DEFINED TERMS..................................................................................1
ARTICLE II ORGANIZATIONAL MATTERS........................................................................2
SECTION 2.1 Formation; Name................................................................2
SECTION 2.2 Purpose and Powers.............................................................2
SECTION 2.3 Offices; Registered Agent......................................................2
SECTION 2.4 Term...........................................................................2
SECTION 2.5 Liability to Third Parties.....................................................2
SECTION 2.6 Admittance.....................................................................3
SECTION 2.7 Members and Membership Interests...............................................3
SECTION 2.8 Withdrawal.....................................................................3
ARTICLE III UNITS........................................................................................3
SECTION 3.1 Authorization and Issuance of Units............................................3
SECTION 3.2 Unit Certificates..............................................................4
SECTION 3.3 Issuance of Additional Units or Convertible Securities.........................4
ARTICLE IV MANAGEMENT OF THE COMPANY.....................................................................6
SECTION 4.1 Board of Managers..............................................................6
SECTION 4.2 Meetings of Members...........................................................13
SECTION 4.3 Officers......................................................................14
SECTION 4.4 Duties of Officers and Managers...............................................15
SECTION 4.5 Indemnification...............................................................15
ARTICLE V CONDUCT OF BUSINESS...........................................................................16
ARTICLE VI CAPITAL AND DISTRIBUTIONS....................................................................16
SECTION 6.1 Capital Contributions.........................................................16
SECTION 6.2 Capital Accounts..............................................................16
SECTION 6.3 No Withdrawal of Capital; Distributions.......................................17
SECTION 6.4 Tax Distributions.............................................................17
SECTION 6.5 No Interest on Capital........................................................18
SECTION 6.6 Allocation of Items of Company Income, Gain, Loss, Deduction and Credit.......18
SECTION 6.7 Withholding...................................................................22
ARTICLE VII TRANSFERS OF COMPANY INTERESTS..............................................................23
SECTION 7.1 Transfer of Units by Members..................................................23
SECTION 7.2 Other Transfer Provisions.....................................................23
SECTION 7.3 Right of First Offer..........................................................23
SECTION 7.4 Tag-Along Rights..............................................................25
SECTION 7.5 Drag-Along Rights.............................................................25
SECTION 7.6 Involuntary Transfers; Insolvency Events......................................26
SECTION 7.7 Prohibited Transfers..........................................................28
SECTION 7.8 Rights of Unadmitted Assignees................................................29
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SECTION 7.9 Admission of Substituted Members..............................................29
SECTION 7.10 Representations Regarding Transfers; Legend...................................30
SECTION 7.11 Distributions and Allocations in Respect of Transferred Units.................31
SECTION 7.12 Termination of Certain Rights.................................................31
ARTICLE VIII BOOKS OF ACCOUNT AND FISCAL YEAR...........................................................31
SECTION 8.1 Books of Account..............................................................31
SECTION 8.2 Fiscal Year...................................................................31
SECTION 8.3 Financial Statements..........................................................31
SECTION 8.4 Tax Returns and Information...................................................32
SECTION 8.5 Fixing Record Date............................................................33
ARTICLE IX DISSOLUTION, LIQUIDATION AND TERMINATION.....................................................34
SECTION 9.1 Dissolution...................................................................34
SECTION 9.2 Liquidation and Termination...................................................34
SECTION 9.3 Cancellation of Filings.......................................................35
ARTICLE X TERM..........................................................................................35
ARTICLE XI MISCELLANEOUS................................................................................35
SECTION 11.1 Jurisdiction..................................................................35
SECTION 11.2 Governing Law.................................................................36
SECTION 11.3 Waiver of Jury Trial..........................................................36
SECTION 11.4 Amendments and Waivers........................................................36
SECTION 11.5 Tax Matters...................................................................37
SECTION 11.6 Notices.......................................................................37
SECTION 11.7 Entire Agreement..............................................................37
SECTION 11.8 Assignment; Successors and Assigns............................................38
SECTION 11.9 No Agency.....................................................................38
SECTION 11.10 Severability..................................................................38
SECTION 11.11 Counterparts..................................................................38
SECTION 11.12 Headings; Exhibits............................................................38
SECTION 11.13 Further Assurances............................................................38
SECTION 11.14 Specific Performance..........................................................39
EXHIBIT A Capital Accounts/Members Schedule......................................................A-1
EXHIBIT B Form of Unit Certificate .............................................................B-1
EXHIBIT C Permitted Affiliate Transactions/Member Activities....................................C-1
EXHIBIT D Form of Subordinated Promissory Note..................................................D-1
EXHIBIT E List of Designees to the Board of Managers............................................E-1
ANNEX I Definitions.......................................................................... I-1
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ALBAHEALTH, LLC
LIMITED LIABILITY COMPANY AGREEMENT
THIS LIMITED LIABILITY COMPANY AGREEMENT (this "AGREEMENT") of
ALBAHEALTH, LLC, a Delaware limited liability company (the "COMPANY"), dated as
of September 6, 2002, is made by and among the Company, ALBA-WALDENSIAN, INC., a
Delaware corporation ("ALBA"), ENCOMPASS GROUP, L.L.C., a Delaware limited
liability company ("ENCOMPASS"), and GENERAL ELECTRIC CAPITAL CORPORATION, a
Delaware corporation ("GE CAPITAL") (Alba, Encompass and GE Capital are each
individually a "MEMBER" and collectively, the "MEMBERS").
W I T N E S S E T H :
- - - - - - - - - -
A. The Company was formed as a limited liability company by the
Members pursuant to the Act on March 12, 2002.
B. Pursuant to the Contribution Agreement, (i) Alba contributed to
the capital of the Company certain assets related to the Health Products
Business having a fair market value of $40,000,000, subject to $28,000,000 of
third-party bank debt, in exchange for 48,325 Common Units of the Company, (ii)
Encompass contributed to the capital of the Company cash in an amount of
$12,000,000 in exchange for 48,325 Common Units of the Company and (iii) GE
Capital contributed to the capital of the Company cash in an amount of
$1,000,000 in exchange for 3,350 Common Units of the Company.
C. The Members intend for the Company to be a separate operating
entity. The Company has been established primarily as a vehicle for the
operation of the Health Products Business and such other businesses as the
Members may, from time to time, agree to operate.
D. The Members and the Company wish to enter into this Agreement in
order to set forth their rights and obligations.
ACCORDINGLY, in consideration of the mutual covenants and agreements
contained herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Members and the Company agree
as follows:
ARTICLE I
DEFINED TERMS
For purposes of this Agreement, the capitalized terms shall have the
meanings set forth on ANNEX I to this Agreement, which is incorporated herein by
reference. Unless otherwise defined, capitalized terms used herein shall have
the meanings set forth in the Contribution Agreement, which defined terms shall
be applicable without regard to the termination of the Contribution Agreement.
ARTICLE II
ORGANIZATIONAL MATTERS
SECTION 2.1 FORMATION; NAME. The Company was formed upon the execution
and filing with the Secretary of State of the State of Delaware, on March 12,
2002, of a Certificate of Formation. This Agreement shall be effective as of the
date hereof. The name of the Company shall be ALBAHEALTH, LLC or such other name
as the Board of Managers of the Company (the "BOARD") may from time to time
hereafter designate in accordance herewith. The Board shall cause to be executed
and filed such further certificates, notices, statements or other instruments
required by law for the operation of a limited liability company in all
jurisdictions where the Company is required to qualify or be authorized to do
business as a foreign limited liability company, or as otherwise necessary to
carry out the purpose of this Agreement and the business of the Company.
SECTION 2.2 PURPOSE AND POWERS. The purpose of the Company shall be to
engage in the Health Products Business and any other lawful business that may be
engaged in by a limited liability company under the Act. The Company shall
possess and may exercise all of the powers and privileges granted by the Act or
by any other law or by this Agreement (if not prohibited by the Act), together
with any powers incidental thereto, so far as such powers and privileges are
necessary or convenient to the conduct, promotion or attainment of the business
purposes or activities of the Company.
SECTION 2.3 OFFICES; REGISTERED AGENT. The principal office of the
Company, and such additional offices as the Company may determine to establish,
shall be located at such place or places inside or outside the State of Delaware
as the Board may designate from time to time. The registered office of the
Company in the State of Delaware is located at The Corporation Trust Company,
Corporation Trust Center, 1209 Orange Street, Wilmington, New Castle County,
Delaware 19801. The registered agent of the Company for service of process at
such address is The Corporation Trust Company.
SECTION 2.4 TERM. The term of the Company commenced on the date its
certificate of formation described in Section 18-201 of the Act was filed in the
office of the Secretary of State of the State of Delaware and shall continue
until terminated in accordance with the terms of this Agreement or the Act.
SECTION 2.5 LIABILITY TO THIRD PARTIES. The debts, obligations and
liabilities of the Company, whether arising in contract, tort or otherwise,
shall be solely the debts, obligations and liabilities of the Company, and no
Member, Manager or Officer of the Company shall be obligated personally for any
such debt, obligation or liability of the Company solely by reason of being a
Member or acting as a Manager or Officer of the Company. Notwithstanding any
provision of this Agreement to the contrary, any Member, at its sole and
absolute discretion, may guarantee all or any portion of any debt, obligation or
liability of the Company.
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SECTION 2.6 ADMITTANCE. Except as specifically provided herein, no new
party shall be admitted as a Member of the Company without the unanimous vote or
written consent of all of the Members, other than any Member with a Percentage
Interest (inclusive of the aggregate Percentage Interest of all Affiliates
thereof) of less than 20% (a "MINOR MEMBER" and, all such Members, the "MINOR
MEMBERS").
SECTION 2.7 MEMBERS AND MEMBERSHIP INTERESTS. A Member's membership
interest ("MEMBERSHIP INTEREST") in the Company is its interest in the Company's
assets, liabilities and capital, income or loss and cash flow, in each case
subject to the provisions of this Agreement and the Act. The Membership
Interests of the Members shall be represented by issued and outstanding Units
with each type having the rights and privileges, including voting rights, set
forth in this Agreement. The Board shall maintain a schedule of all Members from
time to time, their respective mailing addresses, the type and number of Units
held by each of them and their respective Percentage Interests represented by
such Units (as the same may be amended, modified or supplemented from time to
time, the "MEMBERS SCHEDULE"), a copy of which as of the date hereof is included
in Exhibit A attached hereto. Upon a Transfer, issuance or redemption of any
Units made in accordance with this Agreement, the Board shall amend the Members
Schedule to reflect such Transfer, issuance or redemption of Units and the
adjusted Membership Interests and Percentage Interests of the Members.
SECTION 2.8 WITHDRAWAL. A Member may not resign or withdraw from the
Company prior to the dissolution and winding up of the Company except with the
unanimous vote or written consent of all of the Members (excluding any Minor
Member) or a sale or transfer of all of its Units permitted by this Agreement.
ARTICLE III
UNITS
SECTION 3.1 AUTHORIZATION AND ISSUANCE OF UNITS.
(a) COMMON UNITS. The Company hereby authorizes the issuance of (i)
48,325 Common Units to Alba (representing 48.325% of the Membership Interests
outstanding as of the Closing Date), (ii) 48,325 Common Units to Encompass
(representing 48.325% of the Membership Interests outstanding as of the Closing
Date) and (iii) 3,350 Common Units to GE Capital (representing 3.35% of the
Membership Interests outstanding as of the Closing Date). Such Common Units
shall be issued by the Company to each of Alba, Encompass and GE Capital as
consideration for the Alba Contribution, Encompass Contribution and GE
Contribution, respectively, pursuant to the terms of the Contribution Agreement.
(b) The rights, powers and duties relating to the Units authorized for
issuance pursuant to this Section 3.1 are set forth in this Agreement.
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(c) The Company is hereby authorized to issue additional classes of
Units upon such terms and with such rights, preferences and privileges as the
Members may determine subject to Section 4.1(f)(ii) hereof.
SECTION 3.2 UNIT CERTIFICATES.
(a) All Units shall be represented by certificates in the form set
forth in EXHIBIT B, shall be deemed "security" within the meaning of Section
8-102 of Article 8 of the Delaware Uniform Commercial Code and shall be governed
by Article 8 of the Uniform Commercial Code. Each such certificate shall be
signed by the President or Chief Executive Officer and the Secretary of the
Company, certifying the number of Units owned by the holder of such Units and
stating the type of such Units. All certificates for each type and class or
Series of Units shall be consecutively numbered or otherwise identified. The
name of the Person to whom the Units represented thereby are issued, with the
number and type of Units, the date of issue and the Capital Account balance
attributable to such Units, shall be entered on the books of the Company and,
until such Units are transferred on the books of the Company (including the
Members Schedule), such Person shall be deemed to be the owner of such Units for
all purposes. Subject to the provisions of this Agreement, Units shall only be
Transferred on the books of the Company (including the Members Schedule) by the
holder of record thereof or by such holder's attorney duly authorized in
writing, upon surrender to the Company of the certificate(s) for such Units
endorsed by the appropriate Person(s), with such evidence of the authenticity of
such endorsement, transfer, authorization, and other matters as the Company may
reasonably require, and accompanied by all necessary transfer stamps. In that
event, provided all other conditions to Transfer have been met, it shall be the
duty of the Company to issue a new certificate to the Person entitled thereto,
cancel the old certificate(s), and record the transaction on its books
(including the Members Schedule).
(b) The President or Chief Executive Officer and/or the Secretary of
the Company may direct a new certificate(s) to be issued in place of any
certificate(s) previously issued by the Company alleged to have been lost,
stolen, or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate to be lost, stolen, or destroyed. When authorizing such
issue of a new certificate(s), such officer may, in its discretion and as a
condition precedent to the issuance thereof, require the owner of such lost,
stolen, or destroyed certificate(s), or his or her legal representative, to give
the Company a bond sufficient to indemnify the Company against any claim that
may be made against the Company on account of the loss, theft or destruction of
any such certificate or the issuance of such new certificate.
SECTION 3.3 ISSUANCE OF ADDITIONAL UNITS OR CONVERTIBLE SECURITIES.
(a) Prior to a Qualified Offering, except as provided in the last
sentence of this clause (a), the Company shall not authorize, issue or sell, or
cause to be authorized, issued or sold, any additional Units and/or Convertible
Securities unless (i) the Company shall have first offered such Units and/or
Convertible Securities to the Members in accordance with Section 3.3(b) below,
(ii) such issuance and sale of additional Units and/or Convertible Securities is
approved by the Board as required by Section 4.1(f)(ii),
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and (iii) if the Person to whom such certificates are issued is not an existing
Member, such Person becomes a party to this Agreement, by executing and
delivering to the Secretary of the Company a written undertaking to be bound by
the terms and conditions of this Agreement in accordance with Section 7.9. Upon
receipt of such undertaking by the Secretary of the Company and receipt by the
Company of payment for the issuance of the applicable Units and/or Convertible
Securities, such Person shall be admitted as a Member and listed as such on the
books and records of the Company and thereupon shall be issued his or its Units
and/or Convertible Securities. Upon the issuance of Units and/or Convertible
Securities to any Member, the Board shall adjust the Members Schedule to reflect
the issuance of Units and/or Convertible Securities to such Members, and the
Percentage Interests of all other Members shall be reduced on a proportionate
basis in an aggregate amount equal to the Percentage Interest of such additional
Member. The provisions of clause (i) of this Section 3.3(a) shall not apply to
(x) Common Units issued by the Company pursuant to the terms of the Contribution
Agreement, (y) securities issued by the Company (or any successor) pursuant to
an acquisition undertaken by the Company by merger, purchase of assets or other
reorganization of the Company as approved by the Board and otherwise approved as
required by the terms of this Agreement and (z) all Common Units (or options
therefor) hereafter issued or issuable to officers, directors, employees or
consultants of the Company pursuant to any employee or consultant stock
offering, plan or arrangement as approved by the Board and otherwise approved as
required by the terms of this Agreement.
(b) In the event that the Company proposes to issue (a "PROPOSED
ISSUANCE") any additional Units and/or Convertible Securities, the Company shall
deliver a notice at least thirty (30) days prior to a Proposed Issuance, with
respect to such Proposed Issuance (the "PREEMPTIVE NOTICE"), to the Members
setting forth (i) the identity of the proposed purchaser (the "PROPOSED
PURCHASER"), (ii) the type and amount of Units and/or Convertible Securities
proposed to be issued, (iii) the period of time within which the Preemptive
Right must be exercised (the "ACCEPTANCE PERIOD") and (iv) the price and the
material terms and conditions of the Proposed Issuance. Subject to Section
3.3(c) below, the Members shall have the right (the "PREEMPTIVE Right"),
exercisable as hereinafter provided, to participate in such issuance of
additional Units and/or Convertible Securities by purchasing up to an amount of
such additional Units and/or Convertible Securities proposed to be issued to the
Proposed Purchaser equal to the aggregate amount of such additional Units and/or
Convertible Securities multiplied by a fraction, the numerator of which shall be
the aggregate number of Units owned by the Member on the date of such notice and
the denominator of which shall be the total number of Units outstanding on such
date (the "PROPORTIONATE SHARE"), such purchase to be at the same price and on
the same terms and conditions as the Proposed Issuance. The Members that
exercise their option to purchase their full PRO RATA allotment of such
additional Units and/or Convertible Securities shall have a right of
over-allotment (the "OVER-ALLOTMENT RIGHT") such that if any Member fails to
exercise its rights to purchase its full PRO RATA allotment of such additional
Units and/or Convertible Securities, such Members may purchase all or any
portion of such remaining Units and/or Convertible Securities PRO RATA based on
relative ownership (exclusive of all such non-exercising Members) of the Units
issued and outstanding immediately prior to the exercise of such option to
purchase.
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(c) The Preemptive Rights shall be exercisable by delivery of notice to
such effect by the Members to the Company within the Acceptance Period set forth
in the Preemptive Notice, which shall be no less than fifteen (15) days from the
Members' receipt of the Preemptive Notice. If a Member shall fail to respond to
the Company within the Acceptance Period, such failure shall be regarded as a
rejection of the Member's right to exercise its Preemptive Right. The Company
shall notify all exercising Members of any Over-Allotment Right within three (3)
days after the expiration of the Acceptance Period. Members exercising their
Over-Allotment Right as set forth in clause (b) above shall exercise such right
by delivering notice to such effect to the Company within ten (10) days after
the expiration of the Acceptance Period. The closing of any purchase by a Member
under this Section 3.3 shall be held at such time and place upon which the
parties to the transaction may agree. At such closing, the Member shall deliver
by certified bank check or wire transfer, payment in full for such additional
Units and/or Convertible Securities and all parties to the transaction shall
execute such additional documents as are otherwise deemed necessary or
appropriate by the Company. At such closing, the Company may issue and sell to
the Proposed Purchaser such portion of the additional Units and/or Convertible
Securities as have not been purchased by the Members pursuant to the exercise of
their Preemptive Rights and Over-Allotment Rights only at the same price and on
the same terms and conditions as the additional Units and/or Convertible
Securities sold to the Members.
(d) In the event of a Proposed Issuance of additional Units and/or
Convertible Securities, which Proposed Issuance is subject to the Preemptive
Rights and Over-Allotment Rights under this Section 3.3 and which is offered
only in combination with the purchase of debt or debt securities, then the
Preemptive Rights and Over-Allotment Rights shall apply to the combination and
the Members shall be entitled to and, in the event it is exercising such right,
required to purchase their PRO RATA share of both the debt and equity components
of such combination on the basis set forth in Section 3.3(b).
(e) Preemptive Rights and Over-Allotment Rights pursuant to this
Section 3.3 shall terminate upon a Qualified Offering.
ARTICLE IV
MANAGEMENT OF THE COMPANY
SECTION 4.1 BOARD OF MANAGERS.
(a) GENERALLY. All management powers over the business and affairs of
the Company shall be vested in the Board and, subject to the direction of and
any restrictions imposed by the Board, the Officers. Each Manager shall serve
for a term of two (2) years. No Member, by virtue of having the status of a
Member, shall have any management power over the business and affairs of the
Company or actual or apparent authority to enter into contracts on behalf of, or
to otherwise bind, the Company or, except as expressly provided in this
Agreement, to attend or participate in any meeting of the Board. So long as GE
Capital is a Member of the Company, GE Capital shall have the right to have one
representative (the "GE OBSERVER") attend meetings of the Board solely as
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an observer, which GE Observer shall have no voting or other rights whatsoever
(other than the right to observe the meeting of the Board) and shall not be
entitled participate in any discussions at such meetings. Except as otherwise
specifically provided in this Agreement, the authority and functions of the
Board, on the one hand, and of the Officers, on the other, shall be identical to
the authority and functions of the board of directors and officers,
respectively, of a corporation organized under the DGCL. Thus, except as
otherwise specifically provided in this Agreement, the business and affairs of
the Company shall be managed under the direction of the Board, and the
day-to-day activities of the Company shall be conducted on the Company's behalf
by or under the direction of the Officers, who shall be agents of the Company.
(b) SIZE OF BOARD. For as long as each of the combined Percentage
Interest of Alba and its Affiliates, on the one hand, and Encompass and its
Affiliates, on the other hand, is equal to or greater than 40%, each Member
covenants and agrees to vote all Units, and any other securities of the Company
(or any successor thereto) that may be exchangeable for or issued in exchange
for or in respect of the Units (whether by way of a stock split, stock dividend,
combination, reclassification, reorganization or any other means) now owned or
hereafter acquired by such Member which such Member is entitled to vote, in a
manner such that the Board shall consist of five (5) members. In the event that
the combined Percentage Interest of either Alba and its Affiliates, on the one
hand, or Encompass and its Affiliates, on the other hand, becomes less than 40%,
unless otherwise agreed to by unanimous consent of the Members (other than the
Minor Members), the size of the Board shall be determined so that the number of
Managers designated by each Member shall represent, as near as may be
practicable, the same proportion of the entire Board as such Member's Percentage
Interest represents of all Members' Percentage Interests; PROVIDED, that the
number of Managers shall not be in excess of seven (7).
(c) VOTING ARRANGEMENTS FOR MANAGERS. As of the Closing Date, the Board
shall consist of three (3) nominees designated by Alba and two (2) nominees
designated by Encompass, as set forth on EXHIBIT E hereto (which Exhibit E shall
be amended from time to time by the Managers to reflect the resignation or
removal of any Manager or the appointment of new or additional Managers in
accordance with this Agreement), who shall serve for a term of two (2) years as
set forth in Section 4.1(a) above, unless otherwise removed or replaced in
accordance with the terms of this Agreement. Following the expiration of the
initial term of the Managers and for as long as each of the combined Percentage
Interest of Alba and its Affiliates, on the one hand, and Encompass and its
Affiliates, on the other hand, is equal to or greater than 40%, each Member
covenants and agrees to vote all Units, and any other securities of the Company
(or any successor thereto) that may be exchangeable for or issued in exchange
for or in respect of the Units (whether by way of a stock split, stock dividend,
combination, reclassification, reorganization or any other means), now owned or
hereafter acquired by such Member which such Member is entitled to vote in
elections of Managers to cause the election of the Board and continuance as
Managers of three (3) nominees designated by Alba and two (2) nominees
designated by Encompass; PROVIDED, that one of the nominees designated by Alba
(the "THIRD ALBA DESIGNEE") shall be a person who is selected in accordance with
the following procedure:
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To determine the identity of the Third Alba Designee, Alba shall furnish
to Encompass the name of one (1) "QUALIFIED NOMINEE" (I.E., meaning a nominee
meeting the criteria set forth below) selected by Alba, who, at a minimum, shall
meet the following three (3) criteria (unless waived by both Alba and
Encompass):
(i) At the time of the person's initial nomination, such person is not
an employee or director of, or consultant to Alba, Encompass or any of
their Affiliates (excluding the Company) or does not otherwise, directly or
indirectly, have a material business relationship with any such entity
(excluding the Company);
(ii) Such person has a reasonable amount of experience in the health
care industry; and
(iii) Such person is a citizen of the United States.
The criteria identified above are referred to as the "SELECTION
CRITERIA."
Within fifteen (15) days following receipt of the name of the Qualified
Nominee, Encompass shall either accept the nomination of the Qualified Nominee
or deliver its reasonable objection to such nominee. Should Encompass deliver a
reasonable objection to such nominee, such nominee shall be withdrawn and Alba
shall propose a replacement for the objectionable nominee who meets the
Selection Criteria. Once a replacement is designated by Alba to whom no
reasonable objection is made by Encompass within fifteen (15) days following
such designation, Encompass shall promptly accept the Qualified Nominee so
designated, and each Member covenants and agrees to vote all Units, and any
other securities of the Company (or any successor thereto) that may be
exchangeable for or issued in exchange for or in respect of the Units (whether
by way of a stock split, stock dividend, combination, reclassification,
reorganization or any other means) now owned or hereafter acquired by such
Member which such Member is entitled to vote, in such matter in favor of the
Third Alba Designee so accepted by Encompass. Once elected in accordance with
the foregoing, the Third Alba Designee may likewise be removed or replaced
during his or her term by Alba; PROVIDED, that Encompass shall have the right to
object to such removal or replacement so long as it has a reasonable basis for
such objection. If Encompass delivers such a reasonable objection, the Third
Alba Designee shall continue to serve for the duration of his or her term. The
procedures for identifying, nominating and electing the Third Alba Designee
shall also apply to the selection of a replacement to serve as the Third Alba
Designee in the event a vacancy occurs as a result of the death, illness,
incapacity, resignation or removal of such Third Alba Designee.
Each person designated as a Manager pursuant to this Section 4.1(c)
shall hereafter be referred to as a "DESIGNEE." In the event the combined
Percentage Interest of either Alba and its Affiliates, on the one hand, or
Encompass and its Affiliates, on the other hand, becomes less than 40%, each
Member covenants and agrees to vote all Units, and any other securities of the
Company (or any successor thereto) that may be exchangeable for or issued in
exchange for or in respect of the Units (whether by way of a stock split, stock
dividend, combination, reclassification, reorganization or any other means) now
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owned or hereafter acquired by such Member which such Member is entitled to
vote, in a manner such that the number of Managers designated by each Member
shall represent, as near as may be practicable, the same proportion of the
entire Board as such Member's Percentage Interest represents of all Members'
Percentage Interests, unless otherwise agreed to by unanimous consent of the
Members (other than the Minor Members).
(d) EFFECT OF THE PUT OPTION AGREEMENT. In the event that Alba and/or
its Permitted Transferee shall have exercised its Put Option pursuant to the Put
Option Agreement, notwithstanding any provision in this Agreement to the
contrary and notwithstanding the Transfer by Alba and/or its Permitted
Transferees of all of their Units pursuant to the Put Option Agreement, (i) at
least one (1) Designee of Alba shall serve as a Manager of the Company at all
times during the period commencing on the Put Date and ending upon the receipt
by Alba and its Permitted Transferee in full of all of the Put Consideration in
accordance with the terms and conditions set forth in the Put Option Agreement
and (ii) upon the occurrence of a Company Default Event, each Member agrees to
promptly take or cause to be taken all such actions (and to vote any and all
Units that such Member is entitled to vote in such a manner) as is necessary to
cause the provisions of Section 1.5(a) of the Put Option Agreement to have
immediate effect with respect to the Company and the Board, including, without
limitation, the composition and actions of the Board.
(e) VACANCIES. If there is a vacancy in the Board caused by the death,
illness or other incapacity, or resignation, of a Designee or removal of a
Designee by the Member that designated such Designee, the Member that had
designated such deceased, ill, incapacitated, resigned or removed Designee shall
designate a replacement Designee by written notice to the other Members within
five (5) business days after the date of such vacancy, except that in the event
that the Designee to be so replaced is the Third Alba Designee, such written
notice shall be provided within fifteen (15) business days after the date of
such vacancy. The Members shall cause the Company to hold a Members' meeting (or
take action by unanimous written consent of all Members, other than the Minor
Members, in lieu of a meeting) as soon as practicable but in no event later than
five (5) business days after the date such notice is given or, in the case of a
vacancy in the Board seat held by the Third Alba Designee, promptly following
Encompass' acceptance of a Qualified Nominee selected by Alba in accordance with
Section 4.1(c). Except as otherwise expressly provided in Section 4.1(c) with
respect to filling a vacancy in the Board seat held by the Third Alba Designee,
each Member agrees to vote any and all Units that such Member is entitled to
vote to elect to the Board, and thereafter to vote all such Units to continue in
office, such replacement Designee. The Board may not act during the existence of
a vacancy; PROVIDED, that the Board may act by unanimous consent or vote so long
as there are no more than one (1) vacancy in the Board at any time.
(f) IMPERATIVE AND FUNDAMENTAL BOARD DECISIONS. In addition to the
powers that can be granted to managers under the Act, and in furtherance of the
authority granted under Section 4.1(a) and the other provisions of this
Agreement, the Board and, subject to Section 4.1(a) and the other provisions of
this Agreement and the direction of and any restrictions imposed by the Board in
accordance with this Agreement, the Officers shall have full power and authority
(subject to any other provisions of this Agreement) to
9
do all legal things on such terms as they, in their sole discretion, may deem
necessary or appropriate to conduct, or cause to be conducted, the business and
affairs of the Company; PROVIDED, that, except as otherwise provided in Article
V hereof or Section 1.5 of the Put Option Agreement, all Imperative Board
Decisions shall require the approval of both the Designees of Alba, on the one
hand, and the Designees of Encompass, on the other hand, (and, solely in the
case of the Imperative Board Decisions set forth below in clauses (viii) and
(ix) in this Section 4.1(f), shall also require the approval of GE Capital) and
all Fundamental Board Decisions shall require approval of a majority of the
entire Board then in office, in each case, for so long as Alba, together with
its Affiliates, and Encompass, together with its Affiliates, each own at least
20% of the Percentage Interests. "IMPERATIVE BOARD DECISIONS" are the following:
(i) any amendment to this Agreement or any other of the
organizational documents of the Company or any of its Subsidiaries,
including any change in the Company's name;
(ii) any issuance, sale, transfer, purchase or redemption by the
Company of membership interests or other securities (voting or otherwise)
of the Company or any of its Subsidiaries, other than as contemplated by
Article VII hereof;
(iii) approval of the Company's or any of its Subsidiaries' entry into
any business other than the Health Products Business and related
businesses;
(iv) except as otherwise set forth in clause (ii) of this
Section 4.1(f), approval of any reorganization of the Company or any sale
or transaction involving the merger or consolidation of the Company or any
of its Subsidiaries with or into another entity or the sale by the Company
or any of its Subsidiaries of all or any material part (or, whether or not
material, in excess of $1.0 million) of its assets other than the sale of
inventory in the ordinary course of business;
(v) admittance of any new Members to the Company, other than
admittance pursuant to Article VII hereof;
(vi) any transaction with a Member, Manager or Officer of the Company
or any Affiliate thereof, except those transactions set forth on EXHIBIT C
(which transactions shall be on an arm's-length basis, conducted in good
faith and at fair market value), and any modification, amendment or
supplement to such transaction, or any waiver of any material right of the
Company with respect to any of the foregoing, except to the extent the
aggregate transaction value of all such transactions is less than $50,000;
(vii) approval of any change in the Company's auditors or any material
change in the accounting policies or procedures of the Company;
(viii) any agreement or arrangement (or any modification, amendment,
supplement or waiver with respect thereto) (1) that treats, in any material
respect, one Member inconsistently with such Member's Percentage Interest
or (2) which would have a material adverse effect on one Member, not
otherwise included in or contemplated by the annual budget or business
plan; (ix) any agreement or arrangement (or any modification, amendment,
supplement or waiver with respect thereto) which could prevent or limit the
Company or any of its Subsidiaries from engaging in any business or
activity;
10
(x) any bankruptcy filing by or with respect to the Company or any of
its Subsidiaries or any filing seeking other relief with respect to the
Company's or its Subsidiaries' debts or any assignment for the benefit of
the creditors thereof; and
(xi) approval of any liquidation or dissolution of the Company or any
of its Subsidiaries.
"FUNDAMENTAL BOARD DECISIONS" are the following:
(1) any changes in the location of the headquarters of the
Company to a location within the United States;
(2) any changes in the Officers of the Company (other than any
Officers of the Company who were appointed by another Officer pursuant
to Section 4.3(b));
(3) any increase in debt authorization in excess of the amount
stated in the annual budget of the Company for the relevant year, other
than temporary increases in debt authorization necessitated, in the
reasonable judgment of a majority of the Managers, by emergencies or
other sudden adverse occurrences;
(4) approval of capital expenditures in any year which
individually, or in the aggregate, deviate by more than 5% from that set
forth in such year's annual budget for the Company;
(5) approval of (A) any material change with respect to the
compensation or benefits of any of its employees and (B) any employee
incentive compensation plan or payments for the employees of the Company
and/or its Subsidiaries;
(6) any initiation or settlement of (A) any tax proceedings or
(B) any legal proceedings involving the Company and/or any one or more
of its Subsidiaries where the actual or potential liability exceeds
$500,000.
(7) approval of any annual and long-term performance
objectives, budgets, operating plans (or other similar plans), and
annual financial statements of the Company and its Subsidiaries, or any
modification, amendment or supplement thereto;
11
(8) approval of the appointment or removal of the Chief
Executive Officer and the Chief Financial Officer of the Company or any
of its Subsidiaries, subject to Section 4.3(a) hereof and to reasonable
performance standards; and
(9) any investment (including, without limitation, investments
in fixed assets or other entities) or series of related investments by
the Company or any of its Subsidiaries in excess of $200,000.
(g) KEY RESPONSIBILITIES. Except as otherwise provided in this
Agreement, the key responsibilities of the Board shall include, among other
things:
(i) meeting annually to approve business plans of the Company;
(ii) conducting quarterly performance reviews of employees of the
Company;
(iii) monitoring performance of the Company by reviewing monthly reports
prepared by the Officers; and
(iv) managing and supervising the business of the Company, including
overseeing the general progress of operational, development and marketing
activities.
(h) REGULAR AND ANNUAL MEETINGS; NOTICE. Regular meetings of the Board
shall be held at such time and at such place as the Board may from time to time
prescribe, but no less frequently than quarterly. Notice of any regular meeting
shall be provided to each Manager in the manner consistent with the notice
requirements set forth in Section 4.1(i). There shall be distributed to each
Manager no later than five (5) days in advance of each meeting the materials to
be acted upon at the meeting.
(i) SPECIAL MEETINGS; NOTICE. Special meetings of the Board shall be
called by the Secretary of the Company, or an officer of the Company performing
similar functions, upon receipt of a written request of any Manager to do so
specifying the matter or matters appropriate for action at such a meeting that
are proposed to be presented at the meeting. Any such meeting shall be held at
such time and at such place, within or without the State of Delaware. Notice of
such meeting stating the date, time and place thereof and the principal purpose
or purposes of the meeting shall be given by mail, telephone, other electronic
transmission or personally. If by mail, such notice shall be given not less than
five (5) days before the meeting; and if by telephone, other electronic
transmission or personally, not less than two (2) days before the meeting.
Notice of any meeting of the Board need not be given to a Manager, however, if
waived by the Manager in writing before or after such meeting or if the Manager
shall be present at the meeting, except when the Manager attends a meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not called or convened in
accordance with this Agreement.
12
(j) QUORUM; ACTION OF BOARD. At each meeting of the Board, a majority
of the entire Board then in office (which shall include, to the extent each of
Alba and Encompass is entitled have one or more Designees on the Board pursuant
to this Section 4.1, at least one Designee of Alba and, other than during a
Company Default Period, at least one Designee of Encompass) shall constitute a
quorum for the transaction of business; PROVIDED, that in the event a particular
Board meeting which has been duly called with notice given shall have been
adjourned two (2) consecutive times due to the absence (in each case) of all
Designees of either Encompass or Alba (but not due to the absence of all
Designees of both Encompass and Alba), respectively, then a Designee of such
party shall not be required in order to constitute a quorum for the same Board
meeting when next duly called with notice given (without effect on the next
Board meeting unless the circumstances described in this proviso apply to such
meeting). Except as otherwise provided in this Agreement, the vote of a majority
of the entire Board then in office shall be the act of the Board.
(k) INFORMAL ACTION BY MANAGERS. Any action required or permitted to be
taken at a meeting of the Board may be taken without a meeting if a consent in
writing (which may be in counterparts) setting forth the action so taken shall
be signed by the Managers having not less than the minimum number of votes that
would be necessary to authorize or take such action at a meeting (which shall
include, to the extent each of Alba and Encompass is entitled have one or more
Designees on the Board pursuant to this Section 4.1, at least one Designee of
each of Alba and Encompass); PROVIDED, that each Manager shall have been
provided with a copy of the action to be taken and the consent before the action
is to be taken with a reasonable opportunity to sign it; and PROVIDED, FURTHER,
that this written consent procedure shall not be used in lieu of regular
quarterly (or more frequent) Board meetings unless agreed in writing by all the
Managers.
(l) TELEPHONE MEETINGS. The Managers may participate in and hold
meetings by means of conference telephone or similar communications equipment by
means of which all persons participating in the meeting can hear each other.
Such participation in any such meeting will constitute presence in person at
such meeting, except where a person participates in such meeting for the express
purpose of objecting to the transaction of any business on the ground that such
meeting is not called or convened in accordance with this Agreement.
SECTION 4.2 MEETINGS OF MEMBERS.
(a) MEETINGS OF MEMBERS; NOTICE. A meeting of Members may be called at
any time by any Member to vote on, or obtain consent for, any action which,
pursuant to this Agreement, Certificate of Formation or any applicable law,
permits or requires the vote or consent of the Members. Any such meeting shall
be held at such time and at such place, within or without the State of Delaware.
Notice of such meeting stating the date, time and place thereof and the
principal purpose or purposes of the meeting shall be given by mail, telephone,
other electronic transmission or personally. Such notice shall be given not less
than five (5) days before the meeting. Notice of any meeting of the Members need
not be given to a Member, however, if waived by the Member in writing before or
after such meeting or if the Member shall be present at the meeting, except when
13
the Member attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not called or convened in accordance with this Agreement.
(b) QUORUM; ACTION OF MEMBERS. At each meeting of the Members, the
holders of a majority of the issued and outstanding Units entitled to vote at
such meeting present either in person or by proxy shall constitute a quorum for
the transaction of business. Except as otherwise provided in this Agreement, the
vote of the holders of a majority of the issued and outstanding Units shall be
the act of the Members. The vote of each Member will be in proportion to such
Member's Percentage Interest.
(c) INFORMAL ACTION BY MEMBERS. Any action required or permitted to be
taken at a meeting of the Members may be taken without a meeting if a consent in
writing (which may be in counterparts) setting forth the action so taken shall
be signed by the Members having not less than the minimum number of votes that
would be necessary to authorize or take such action at a meeting at which all
interests entitled to vote thereon were present and voted; PROVIDED, that each
Member shall have been provided with a copy of the action to be taken and the
consent before the action is to be taken with a reasonable opportunity to sign
it.
(d) TELEPHONE MEETINGS. The Members may participate in and hold
meetings by means of conference telephone or similar communications equipment by
means of which all persons participating in the meeting can hear each other.
Such participation in any such meeting will constitute presence in person at
such meeting, except where a person participates in such meeting for the express
purpose of objecting to the transaction of any business on the ground that such
meeting is not called or convened in accordance with this Agreement.
(e) VOTING AGREEMENTS. No Member is presently a party to, and no Member
shall enter into, any voting agreements, voting trusts or any other arrangements
or agreements which relate to voting the Units held by such Member, except for
this Agreement and any amendments hereto.
SECTION 4.3 OFFICERS.
(a) IN GENERAL. The Board may, in accordance with Section 4.1 hereof,
appoint a Chairman of the Board, Chief Executive Officer, a President, one or
more Vice Presidents, a Chief Financial Officer, a Treasurer, a Secretary and
such other Officer or Officers of the Company as the Board may deem necessary or
advisable; PROVIDED, that (i) the first Chairman of the Board to be appointed by
the Board pursuant to this Agreement will be Yosef Shiran and (ii) the first
Chief Executive Officer to be appointed by the Board pursuant to this Agreement
will be Dan Mesika. The Chairman of the Board and Chief Executive Officer shall
each have a term of one (1) year. The Officers of the Company will exercise the
powers and perform the duties incident to their offices, subject to the
direction of the Board. If so authorized by the Board, an Officer will have the
authority to bind the Company. In addition, the Secretary, in addition to his or
her customary duties, is empowered to certify resolutions and other documents of
the Company. The Officers
14
(other than the Chairman of the Board) need not be Managers of the Company, and
the Officers will hold office until their successors are appointed and
qualified, unless sooner they die, resign or are removed from office. The Board
is empowered to fill any vacancy in any office of the Company and to remove any
Officer in accordance with this Agreement and applicable law.
(b) APPOINTMENT. All of the Officers of the Company will be appointed
by the Board; PROVIDED that, the Board may delegate its authority to the Chief
Executive Officer to appoint one or more Vice Presidents or any lower ranking
Officer. Any one or more offices may be held by the same person. The Board shall
establish compensation for Officers and any employees of the Company which shall
be at a rate that is customary for the position held.
(c) TERM OF OFFICE. Each Officer shall hold office from the time of
such Officer's appointment and qualification to the time at which such Officer's
successor is appointed and qualified, unless such Officer shall die or resign or
shall be removed pursuant to Section 4.3(e).
(d) RESIGNATION. Any Officer may resign at any time by giving written
notice of such resignation to the Board or the Secretary of the Company. Any
such resignation shall take effect at the time specified therein or, if no time
is specified, upon receipt thereof by the Board or one of the above-named
Officers; and, unless specified therein, the acceptance of such resignation
shall not be necessary to make it effective.
(e) REMOVAL. Subject to the applicable provisions of Sections 4.1(f),
any Officer may be removed at any time from his position as an officer, but not
as a Manager, with or without cause, by the Board.
(f) VACANCIES. A vacancy, however caused, of any Officer of the Company
may be filled in the manner provided by Section 4.3(a) for appointment of such
Officer, subject to the applicable provisions of Section 4.1(f).
SECTION 4.4 DUTIES OF OFFICERS AND MANAGERS. Except as otherwise
specifically provided in this Agreement, the duties and obligations owed to the
Company and to the Members by the Officers and by the Managers shall be the same
as the respective duties and obligations owed to a corporation organized under
the DGCL or its stockholders by its officers and directors, respectively.
SECTION 4.5 INDEMNIFICATION. The Company shall indemnify the Managers,
Officers, employees and agents of the Company to the full extent a corporation
organized under the DGCL is required or permitted to indemnify its directors and
officers under the DGCL.
15
ARTICLE V
CONDUCT OF BUSINESS
Except as contemplated by this Agreement or otherwise unanimously
approved by the entire Board then in office, at any time the aggregate
Percentage Interests of Alba and its Affiliates is equal or greater than twenty
percent (20%), the Company and its Subsidiaries, if any, shall, and each of the
Members shall cause each of the foregoing to, carry on the Business and operate
its assets substantially in the ordinary course, preserve intact the Company's
business organization, including its officers and employees, and preserve the
Business' relationships with its customers, suppliers and others having business
dealings therewith.
ARTICLE VI
CAPITAL AND DISTRIBUTIONS
SECTION 6.1 CAPITAL CONTRIBUTIONS.
(a) Alba, Encompass and GE Capital, as the original members of the
Company, initially contributed to the capital of the Company the assets
described on the first page hereof. The amount of money and the Fair Market
Value of any property (net of any liabilities secured by the property or to
which the property is subject) contributed to the Company by a Member, in
respect of the issuance of Units or otherwise, shall constitute a "CAPITAL
CONTRIBUTION" of such Member. Any reference in this Agreement to the Capital
Contribution of a Member shall include a Capital Contribution of such Member's
predecessors in interest.
(b) Unless there is a final determination of a tax audit that is
inconsistent with this Section 6.1(b) or it is otherwise prohibited by law, the
Members agree that the Company and each of the Members shall file all tax
returns, tax information returns and reports with the Internal Revenue Service
on the basis that the Alba Contribution, including the related assumption of
liabilities by the Company and the execution of this Agreement and the
Contribution Agreement, will not cause the Members or the Company to recognize
gain for U.S. federal income tax purposes.
(c) The Membership Interests of Members shall at all times be
maintained on the Members Schedule, which the Managers shall update from time to
time as necessary to account for additional Members who may become a party to
this Agreement as provided for herein and to accurately reflect the information
therein.
SECTION 6.2 CAPITAL ACCOUNTS.
(a) A separate capital account (each a "CAPITAL ACCOUNT") shall be
maintained for each Member in accordance with Treasury Regulations Section
1.704-1(b) (2)(iv). Each Member's initial Capital Account shall reflect the
Gross Asset Value of such Member's initial Capital Contribution net of any
liabilities secured by the property or to
16
which the property is subject. Subject to the provisions of subsections (b) and
(c) of this Section 6.2, the Capital Account of each Member shall be (i)
increased by (A) the amount of cash and the Gross Asset Value of any property
contributed to the Company by such Member (net of liabilities secured by the
property or to which the property is subject), (B) Profits and any other items
of income and gain allocated to such Member pursuant to Section 6.6, (ii)
decreased by (A) the amount of cash and the Gross Asset Value of any property
distributed to such Member (net of liabilities secured by the property or to
which the property is subject), (B) the Losses and any other items of deduction
and loss allocated to such Member pursuant to Section 6.6, and (iii) otherwise
maintained in accordance with Treasury Regulations Section 1.704-1(b)(2)(iv) in
order for the allocation of Profits and Losses pursuant to Section 6.6 to have
"substantial economic effect" in accordance with Treasury Regulations Section
1.704-1(b)(2).
(b) The foregoing provisions of this Section 6.2 and the other
provisions of this Agreement relating to the maintenance of Capital Accounts are
intended to comply with Treasury Regulations Sections 1.704-1 and 1.704-2 and
will be interpreted and applied in a manner consistent with such Treasury
Regulations and any amendment or successor provision thereto. The Board will
cause appropriate modifications to be made if unanticipated events might
otherwise cause this Agreement not to comply with such Treasury Regulations, so
long as such modifications do not cause a material change in the relative
economic benefit of the Members under this Agreement.
(c) If all or any part of a Member's Units are transferred in
accordance with this Agreement, the Capital Account of the transferor that are
attributable to the transferred Units will carry over to the transferee.
(d) Each Member's Capital Account after giving effect to the
transactions set forth in the Contribution Agreement is set forth on EXHIBIT A
to this Agreement.
SECTION 6.3 NO WITHDRAWAL OF CAPITAL; DISTRIBUTIONS.
(a) Except as otherwise provided in this Agreement or the Contribution
Agreement, no Member shall demand or receive a return of its Capital
Contributions. Under circumstances requiring a return of any Capital
Contributions, no Member shall have the right to receive property other than
cash, except as may be specifically provided in this Agreement. The Board shall
determine the cash needs of the Company on at least a quarterly basis and direct
that all Available Cash shall be distributed to the Members.
(b) Except as provided in Section 9.2, any such distributions shall be
made to all holders of Units as of the record date for the distribution in
accordance with their Percentage Interests.
SECTION 6.4 TAX DISTRIBUTIONS. The Company shall make PRO RATA
distributions of cash to each Member, based on each Member's Percentage
Interest, in order to make available sufficient funds to each Member to pay
federal, state and local income and franchise taxes resulting from the
allocation of the Company's taxable income
17
to its Members. Unless otherwise unanimously agreed by the Members, the total
amount required to be distributed pursuant to this Section, regardless of the
actual amount of taxes ultimately payable by any Member (or its owners), shall
be an amount such that each Member receives, at a minimum, the product of 42.5%
and such Member's allocable share of the taxable income of the Company for the
taxable year. The Company shall make the distributions required in this Section
6.4 in a timely manner to allow the taxes (including, without limitation,
estimated tax payments) attributable to the income of the Company allocated to
any Member to be paid when due.
SECTION 6.5 NO INTEREST ON CAPITAL. No Member shall receive any
interest with respect to its Capital Contributions or its Capital Account.
SECTION 6.6 ALLOCATION OF ITEMS OF COMPANY INCOME, GAIN, LOSS,
DEDUCTION AND CREDIT.
(a) After giving effect to the special allocations set forth in
Section 6.6(c), all Profits and Losses shall be allocated to the Members as
follows:
(i) Profits for each Fiscal Year shall be allocated to the Members in
accordance with their Percentage Interests.
(ii) Losses for each Fiscal Year shall be allocated to the Members in
accordance with their Percentage Interests.
(b) For purposes of this Agreement, the terms "PROFITS" and "LOSSES"
shall mean, for each Fiscal Year as defined in Section 8.2 or other period, an
amount equal to the Company's taxable income or loss, as the case may be, for
such Fiscal Year or period, determined in accordance with Section 703(a) of the
Code (for this purpose, all items of income, gain, loss and deduction required
to be stated separately pursuant to Section 703(a)(1) of the Code shall be
included in taxable income or loss), with the following adjustments:
(i) any income of the Company that is exempt from federal income tax
and not otherwise taken into account in computing Profits or Losses pursuant to
this subparagraph shall be added to such taxable income or loss;
(ii) any expenditures of the Company described in Section 705(a)(2)(B)
of the Code or treated as Section 705(a)(2)(B) of the Code expenditures pursuant
to Treasury Regulations Section 1.704-1(b)(2)(iv)(i), and not otherwise taken
into account in computing Profits or Losses pursuant to this subparagraph (b)
shall be subtracted from such taxable income or loss;
(iii) in the event the Gross Asset Value of any Company Asset is
adjusted pursuant to subparagraph (b), (c) or (d) of the definition thereof, the
amount of such adjustment shall be taken into account as gain or loss from the
disposition of such asset for purposes of computing Profits or Losses;
18
(iv) gain or loss resulting from the disposition of any Company Asset
with respect to which gain or loss is recognized for federal income tax purposes
shall be computed by reference to the Gross Asset Value of the asset disposed
of, notwithstanding that the adjusted tax basis of such asset differs from its
Gross Asset Value;
(v) in lieu of the depreciation, amortization, and other cost recovery
deductions taken into account in computing such taxable income or loss, there
shall be taken into account Depreciation for such Fiscal Year or other period,
computed in accordance with the definition thereof;
(vi) to the extent an adjustment to the adjusted tax basis of any
Company Asset pursuant to Section 734(b) of the Code is required, pursuant to
Treasury Regulations Section 1.704-1(b)(2)(iv)(m)(4), to be taken into account
in determining Capital Accounts as a result of a distribution other than in
liquidation of a Member's interest in the Company, the amount of such adjustment
shall be treated as an item of gain (if the adjustment increases the basis of
the asset) or loss (if the adjustment decreases such basis) from the disposition
of such asset and shall be taken into account for purposes of computing Profits
or Losses; and
(vii) notwithstanding any other provision of this subparagraph (b), any
items which are specially allocated pursuant to Section 6.6(c) shall not be
taken into account in computing Profits and Losses.
(c) SPECIAL ALLOCATIONS. The following special allocations shall be
made in the following order:
(i) MINIMUM GAIN CHARGEBACK. Subject to the exceptions set forth in
Treasury Regulations Section 1.704-2(f), if there is a net decrease in
Company Minimum Gain during a Fiscal Year, each Member shall be specially
allocated items of income and gain for such Fiscal Year (and, if necessary,
for subsequent years) in an amount equal to such Member's share of the net
decrease in Company Minimum Gain during such Fiscal Year (which share of
such net decrease shall be determined under Treasury Regulations Section
1.704-2(g)(2)). It is intended that this Section 6.6(c)(i) shall constitute
a "minimum gain chargeback" as provided by Treasury Regulations Section
1.704-2(f) and shall be interpreted consistently therewith.
(ii) MEMBER NONRECOURSE DEBT MINIMUM GAIN CHARGEBACK. Subject to the
exceptions contained in Treasury Regulations Section 1.704-2(i)(4), if
there is a net decrease in Member Nonrecourse Debt Minimum Gain during a
Fiscal Year, any Member with a share of such Member Nonrecourse Debt
Minimum Gain (determined in accordance with Treasury Regulations Section
1.704-2(i)(5)) as of the beginning of such Fiscal Year shall be specially
allocated items of income and gain for such Fiscal Year (and, if necessary,
for subsequent years) in an amount equal to such Member's share of the net
decrease in Member Nonrecourse Debt Minimum Gain (which share of such net
decrease shall be determined under Treasury Regulations Sections
1.704-2(i)(4) and 1.704-2(g)(2)). It is intended that this Section
6.6(c)(ii) shall constitute a "partner nonrecourse debt minimum gain
chargeback" as provided by Treasury Regulations Section 1.704-2(i)(4) and
shall be interpreted consistently therewith.
19
(iii) QUALIFIED INCOME OFFSET. In the event any Member unexpectedly
receives any adjustments, allocations, or distributions described in
Treasury Regulations Sections 1.704-1(b)(2)(ii)(d)(4),
1.704-1(b)(2)(ii)(d)(5), or 1.704-4(b)(2)(ii)(d)(6) (modified, as
appropriate, by Treasury Regulations Sections 1.704-2(g)(1) and
1.704-2(i)(5)), items of Company income and gain for such Fiscal Year shall
be specially allocated to the Member in an amount and manner sufficient to
eliminate, to the extent required by the Treasury Regulations, any Adjusted
Capital Account Deficit of the Member as quickly as possible; PROVIDED,
that an allocation pursuant to this Section 6.6(c)(iii) shall be made if
and only to the extent that the Member would have an Adjusted Capital
Account Deficit after all other allocations provided for in this Section
6.6 have been tentatively made as if this Section 6.6(c)(iii) were not in
the Agreement.
(iv) NONRECOURSE DEDUCTIONS. Any Nonrecourse Deductions shall be
allocated to the Common Holders in accordance with the Common Percentage
Interests.
(v) MEMBER NONRECOURSE DEDUCTIONS. Any Member Nonrecourse Deductions
shall be allocated to the Member that bears the Economic Risk of Loss for
the Member Nonrecourse Debt to which such deductions relate as provided in
Treasury Regulations Section 1.704-2(i)(1). If more than one Member bears
the Economic Risk of Loss, such deduction shall be allocated between or
among such Members in accordance with the ratios in which such Members
share such Economic Risk of Loss.
(vi) CERTAIN SECTION 754 ADJUSTMENT. To the extent any adjustment to
the adjusted tax basis of any Company Asset pursuant to Section 732(d),
Section 734(b) or Section 743(b) of the Code is required, pursuant to
Treasury Regulations Section 1.704-1(b)(2)(iv)(m), to be taken into account
in determining Capital Accounts as the result of a distribution to a Member
in complete liquidation of its interest in the Company, the amount of such
adjustment to Capital Accounts shall be treated as an item of gain (if the
adjustment increases such basis) or an item of loss (if the adjustment
decreases such basis) and such gain or loss shall be specially allocated to
the Members in accordance with their interests in the Company as determined
under Treasury Regulations Section 1.704-1(b)(3) in the event Treasury
Regulations Section 1.704-1(b)(2)(iv)(m)(2) applies, or to the Member to
whom such distribution was made in the event Treasury Regulations Section
1.704-1(b)(2)(iv)(m)(4) applies.
(vii) LIMIT ON LOSS ALLOCATIONS. Notwithstanding the provisions of
Section 6.6(a) or any other provision of this Agreement to the contrary,
Losses (or items thereof) will not be allocated to a Member if such
allocation would cause or increase a Member's Adjusted Capital Account
Deficit and will be reallocated to the other Members in proportion to their
Percentage Interests, subject to the limitations of this Section
6.6(c)(vii).
20
(viii) CURATIVE ALLOCATIONS. The allocations under Section 6.6(c)(i)
through (c)(vii) (such allocations, the "REGULATORY ALLOCATIONS") are
intended to comply with certain requirements of the Treasury Regulations. It
is the intent of the Members and the Company that, to the extent possible,
all Regulatory Allocations shall be offset either with other Regulatory
Allocations or with special allocations of other items of income, gain, loss
or deduction pursuant to this Agreement. Therefore, notwithstanding any
other provision of this Agreement (other than the Regulatory Allocations),
the Company shall make such offsetting special allocations of income, gain,
loss or deduction in whatever manner the Company determines appropriate so
that, after such offsetting allocations are made, each Member's Capital
Account balance is, to the extent possible, equal to the Capital Account
balance such Member would have had if the Regulatory Allocations were not
part of the Agreement and all items were allocated pursuant to Section
6.6(a) and Section 6.6(c)(xi). In exercising its discretion under this
Section 6.6(c)(viii), the Company shall take into account future Regulatory
Allocations under Section 6.6(c)(i) through (c)(vii) that are likely to
offset other Regulatory Allocations previously made.
(ix) SECTION 482 ALLOCATIONS. If the Internal Revenue Service
reallocates an item of income, deduction or loss to a Member or an Affiliate
pursuant to Section 482 of the Code or any similar rule or principle of law
(a "MEMBER SECTION 482 ALLOCATION"), and the Company has a corresponding
correlative item of deduction, loss or income (as determined under Section
1.482-1(g) of the Regulations (the "COMPANY CORRELATIVE ITEM")), such
Company Correlative Item shall be specially allocated to and reflect in the
Capital Account of the Member that received (or whose Affiliate received)
such Member Section 482 Allocation, and a corresponding deemed contribution
or distribution shall be likewise credited or debited to the Capital Account
of such Member.
(x) MEMBER CORRELATIVE ITEM. If the Internal Revenue Service
reallocates an item of income, deduction or loss to the Company pursuant to
Section 482 of the Code or any similar rule or principle of law (a "COMPANY
SECTION 482 ALLOCATION"), and any Member or its Affiliate has a
corresponding correlative item of deduction, loss or income (as determined
under Section 1.482-1(g) of the Regulations (the "MEMBER CORRELATIVE
ITEM")), such Company Section 482 Allocation shall be specially allocated to
and reflect in the Capital Account of the Member that received (or whose
Affiliate received) such Member Correlative Item, and a corresponding deemed
contribution or distribution shall likewise be credited or debited to the
Capital Account of such Member.
21
(d) CONTRIBUTED ASSETS.
(i) For federal, state and local income tax purposes only, with respect
to any assets contributed by a Member to the Company ("CONTRIBUTED ASSETS")
which have a Gross Asset Value on the date of their contribution which
differs from the Member's adjusted basis therefor as of the date of
contribution, the allocation of Depreciation and gain or loss with respect
to such Contributed Assets shall be determined in accordance with the
provisions of Section 704(c) of the Code and the Treasury Regulations
promulgated thereunder using the remedial method within the meaning of
Treasury Regulations Section 1.704-3(d). For purposes of this Agreement, an
asset shall be deemed a Contributed Asset if it has a basis determined, in
whole or in part, by reference to the basis of a Contributed Asset
(including an asset previously deemed to be a Contributed Asset pursuant to
this sentence).
(ii) In the event the Gross Asset Value of any Company Asset is adjusted
pursuant to subparagraph (b) of the definition thereof, subsequent
allocations of income, gain, loss and deduction with respect to such asset
shall take account of any variation between the adjusted basis of such asset
for federal income tax purposes and its Gross Asset Value in accordance with
the provisions of Section 704(c) of the Code and the Treasury Regulations
thereunder using a method set forth in Treasury Regulations Section 1.704-3
as determined by the Board.
(e) EXCESS NONRECOURSE LIABILITIES. Excess nonrecourse liabilities (as
defined in Treasury Regulations Section 1.752-3(a)(3)) of the Company for U.S.
federal income tax purposes shall first be allocated to Alba up to the amount of
built-in gain that is allocable to Alba with respect to Code Section 704(c)
property (as defined under Treasury Regulations Section 1.704-3(a)(3)(ii)) that
is subject to the excess nonrecourse liability in accordance with Treasury
Regulations Section 1.752-3(a)(3) but only to the extent such built-in gain
exceeds the gain described in Treasury Regulations Section 1.752-3(a)(2) and all
remaining excess nonrecourse liabilities shall be allocated in accordance with
the Members' Percentage Interests; PROVIDED, that the Members shall endeavor to
allocate to Alba in all events at least sufficient nonrecourse liabilities for
purposes of Code Section 752 and the Treasury Regulations promulgated thereunder
to avoid a deemed distribution pursuant to Code Section 752(b) and the Treasury
Regulations promulgated thereunder that would cause Alba to recognize income or
gain.
SECTION 6.7 WITHHOLDING. Notwithstanding any other provision of this
Agreement, the Company shall comply with any withholding requirements under any
law and shall remit amounts withheld to and file required forms with applicable
taxing authorities. To the extent that the Company is required to withhold and
pay over any amounts to any taxing authority with respect to distributions or
allocations to any Member, the amount withheld shall be treated as a
distribution of cash to such Member in the amount of such withholding. If an
amount required to be withheld was not withheld from an actual distribution, the
Company may reduce subsequent distributions by the amount of such required
withholding. Each Member agrees to furnish the Company such forms or
22
other documentation as are reasonably necessary to assist the Company in
determining the extent of, and in fulfilling, its withholding obligations.
ARTICLE VII
TRANSFERS OF COMPANY INTERESTS
SECTION 7.1 TRANSFER OF UNITS BY MEMBERS. Prior to September 6, 2004
(the "INITIAL RESTRICTIVE Period"), no Member (other than GE Capital) shall,
directly or indirectly, Transfer any legal or beneficial interest in the Units,
without the prior written consent of the other Members (excluding any Minor
Member), and no Member (including GE Capital), whether before, during or after
the Initial Restrictive Period, shall, directly or indirectly, Transfer, without
the prior written consent of the other Members (excluding any Minor Member), any
legal or beneficial interest in the Units if such Transfer will result in the
termination of the Company pursuant to Section 708 of the Code.
SECTION 7.2 OTHER TRANSFER PROVISIONS. Any purported Transfer by a
Member of all or any part of such Member's Units in violation of this Article
VII shall be null and void and of no force or effect.
SECTION 7.3 RIGHT OF FIRST OFFER. Except for Transfer of all of its
Units by any Member to one or more of its Affiliates (a "PERMITTED TRANSFEREE"
and, such Transfer, a "PERMITTED TRANSFER") or Transfers made in compliance with
the provisions governing Involuntary Transfers set forth in Section 7.6 hereof,
the Transfer of all or any part of its Units to any Person (a "PURCHASER") by
any Member shall be subject to a right of first offer granted to the Company and
to all other Members holding the same type of Units on the terms set forth
below.
(a) The transferring Member shall first deliver to the Company and each
other Member (the "OFFERED MEMBERS") a written notice (an "OFFER NOTICE") that
shall (i) state the transferring Member's intention to Transfer Units to one or
more Persons in a bona fide, arm's-length transaction, the amount and type of
the Units to be Transferred (the "SUBJECT INTERESTS"), the proposed purchase
price therefor (which shall be payable in cash) and a summary of the other
material terms of the proposed Transfer and (ii) offer the Company and the
Offered Members the option to acquire all or a portion of such Subject Interests
upon the terms and subject to the conditions of the proposed Transfer as set
forth in the Offer Notice (the "OFFER"); PROVIDED that such Offer may provide
that it must be accepted by the Company and the Offered Members (in the
aggregate) on an all or nothing basis (an "ALL OR NOTHING SALE"). The Offer
shall remain open and irrevocable for the periods set forth below (and, to the
extent the Offer is accepted during such periods, until the consummation of the
sale contemplated by the Offer). The Company shall have the right and option but
not the obligation, for a period of thirty (30) days after delivery of the Offer
Notice (the "COMPANY ACCEPTANCE PERIOD"), to accept all or any part of the
Subject Interests at the cash purchase price and on the terms stated in the
Offer Notice. Such acceptance shall be made by delivering a written notice to
the transferring Member and each of the Offered Members within the Company
Acceptance Period.
23
(b) If the Company shall fail to accept all of the Subject Interests
offered pursuant to, or shall reject either in writing or by failing to respond
to the Offer during the Company Acceptance Period, the Offer (the Company being
required to notify in writing the transferring Member and each of the Offered
Members of its rejection or failure to accept in the event of the same), then,
upon the earlier of the expiration of the Company Acceptance Period or the date
five (5) days immediately after the giving of such written notice of rejection
or failure to accept such offer by the Company, each Offered Member shall have
the right and option, for a period of ten (10) days thereafter (the "MEMBER
ACCEPTANCE PERIOD"), to accept for purchase at the cash purchase price and on
the terms stated in the Offer Notice up to the amount of Subject Interests so
offered and not accepted by the Company (the "REFUSED INTERESTS") equal to the
product of (a) the aggregate amount of Refused Interests multiplied by (b) such
Offered Member's First Offer Ratio; PROVIDED, HOWEVER, that, if the Offer
contemplated an All or Nothing Sale, the Offered Members who purchase Refused
Interests pursuant to this Section 7.3 must, in the aggregate, accept the Offer
with respect to all, but not less than all, of the Refused Interests, at the
cash purchase price and on the terms stated in the Offer Notice. Such acceptance
shall be made by an Offered Member by delivering a written notice to the Company
and the transferring Member within the Member Acceptance Period specifying the
amount of Units such Offered Member will purchase (the "FIRST OFFER INTERESTS").
If, upon the expiration of the Member Acceptance Period, the aggregate amount of
the Refused Interests exceeds the aggregate amount of First Offer Interests
(such excess being referred to herein as "EXCESS REFUSED INTERESTS"), each
Offered Member (each, an "ACCEPTING MEMBER") who, during the Member Acceptance
Period, accepted the Offer with respect to the maximum amount of the Refused
Interests allocable to such Offered Member pursuant to the first sentence of
this Section 7.3(b), shall have the right and option to accept within ten (10)
days following conclusion of the Member Acceptance Period (the "EXCESS PERIOD")
for purchase at the cash purchase price and on the terms stated in the Offer
Notice up to the amount of its PRO RATA share of the Excess Refused Interests
or, with respect to an All or Nothing Sale, all, but not less than all, Excess
Refused Interests. All acceptances of Subject Interests by an Offered Member
pursuant to an Offer shall be irrevocable.
(c) If effective acceptances shall not be received by the transferring
Member pursuant to this Section 7.3 with respect to all of the Subject Interests
offered for sale pursuant to the Offer Notice, then the transferring Member may
Transfer all or any portion of the Subject Interests so offered for sale and not
so accepted (or, in the case of an All or Nothing Sale, all, but not less than
all, of the Subject Interests offered for sale pursuant to the Offer Notice), at
a cash price not less than the price, and on terms not more favorable to the
Purchaser or less favorable to the Company and the Members, as the case may be,
than the terms stated in the Offer Notice at any time within ninety (90) days
after the expiration of the Member Acceptance Period (the "SALE PERIOD"). In the
event that all of the Subject Interests are not sold by the transferring Member
during the Sale Period, the right of the transferring Member to Transfer such
Subject Interests shall expire and the obligations of this Section 7.3 shall be
reinstated.
(d) All Transfers of Subject Interests to the Company or the Offered
Members pursuant to this Section 7.3 shall be made free and clear of all liens
(other than
24
this Agreement) and shall be consummated contemporaneously at the offices of the
Company on the later of (a) a mutually satisfactory business day within sixty
days (60) after the expiration of the Member Acceptance Period and (b) the fifth
(5th) business day following the expiration or termination of all waiting
periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1974
applicable to such Transfers, or at such other time and/or place as the parties
may agree. The delivery of certificates or other instruments evidencing such
Subject Interests duly endorsed for Transfer shall be made on such date against
payment of the purchase price for such Subject Interests.
SECTION 7.4 TAG-ALONG RIGHTS. At any time following the Initial
Restrictive Period, except for (i) Permitted Transfers, (ii) Transfers of Units
(A) to another Member or (B) to the Company and (iii) Transfers resulting from
the occurrence of an Involuntary Transfer or Insolvency Event, in the event that
a Member, other than a Minor Member, wishes to Transfer any Units to a Purchaser
the following procedures shall apply:
(a) Any Member, other than a Minor Member (the "TAG-ALONG INITIATOR"),
desiring to Transfer any Units shall, after expiration of all required notice
periods under Section 7.3, give not less than ten (10) days' prior written
notice of such intended Transfer to each other Member (each, a "TAG-ALONG
OFFEREE") and to the Company. Such notice (the "TAG-ALONG NOTICE") shall set
forth the terms and conditions of such proposed Transfer, including the name of
the proposed Purchaser, the amount and type of Units proposed to be transferred
by the Tag-Along Initiator (the "TAG-ALONG INTERESTS"), the purchase price of
such Units proposed to be paid therefor and the payment terms and type of
Transfer to be effectuated. Within ten (10) days after delivery of the Tag-Along
Notice by the Tag-Along Initiator to each Tag-Along Offeree and to the Company,
each Tag-Along Offeree shall, by written notice to the Tag-Along Initiator and
the Company, have the opportunity and right to sell to the transferee in such
proposed Transfer (upon the same terms and conditions as the Tag-Along
Initiator) up to that amount of Units owned by the Tag-Along Offeree equal to
the product of (x) such Tag-Along Offeree's Percentage Interest multiplied by
(y) the aggregate number of Units comprising the Tag-Along Interests. The amount
of Tag-Along Interests to be sold by any Tag-Along Initiator shall be
proportionately reduced to the extent necessary to provide for such sales of
Interests hereunder by Tag-Along Offerees.
(b) At the closing of any proposed Transfer in respect of which a
Tag-Along Notice has been delivered, the Tag-Along Initiator together with all
Tag-Along Offerees electing to sell Units, shall deliver, free and clear of all
liens (other than this Agreement), to the proposed transferee the Units to be
sold thereto and shall receive in exchange therefor the consideration to be paid
or delivered by the proposed transferee in respect of such Units as described in
the Tag-Along Notice.
SECTION 7.5 DRAG-ALONG RIGHTS. Subject to the limitations on Transfer
set forth in Section 7.1 and the right of first refusal of other Members set
forth in Section 7.3 hereof, except as provided in the last sentence of this
Section 7.5, if a Member, other than any Minor Member (a "DRAG-ALONG
INITIATOR"), determines to Transfer or exchange (in a business combination or
otherwise) in one or a series of related bona fide arm's-length transactions
(collectively, the "DRAG-ALONG TRANSACTION") to an unrelated and
25
unaffiliated third party all of the Units held by the Drag-Along Initiator,
then, upon thirty (30) days' written notice from the Drag-Along Initiator to the
other Members and the Company (the "DRAG-ALONG NOTICE"), which notice shall
include reasonable details of the proposed transaction, including the proposed
time and place of closing and the consideration to be received by the Members
(the "DRAG-ALONG CONSIDERATION"), each other Member shall be obligated to, and
shall sell, transfer and deliver, or cause to be sold, transferred and
delivered, to such third party, all of his Units in the same transaction at the
closing thereof (and will deliver the Units to be sold at the closing, free and
clear of all liens, claims, or encumbrances except this Agreement); provided,
HOWEVER, that, no Member shall be obligated to sell, transfer or deliver, or
cause to be sold, transferred or delivered, any of such Member's Common Units in
the event that the Drag-Along Consideration to be received by such Member for
its Common Units is less than, as of the date of the Drag-Along Notice, an
Internal Rate of Return of 25% on such Member's Capital Contributions or, solely
in the case of GE Capital, the Drag-Along Consideration to be received by GE
Capital consists of any type of consideration other than cash or cash
equivalent. Notwithstanding the foregoing, the rights to force another Member to
participate in a Drag-Along Transaction shall not apply to any Transfer
resulting from the occurrence of an Involuntary Transfer or an Insolvency Event.
SECTION 7.6 INVOLUNTARY TRANSFERS; INSOLVENCY EVENTS.
(a) [INTENTIONALLY DELETED].
(b) NOTICE AND OFFER TO SELL. Any Member who makes or suffers an
Involuntary Transfer or who is affected by an Insolvency Event shall be required
to send written notice to the Board and all Members describing in reasonable
detail such Involuntary Transfer, including the identity of the involuntary
transferee (the "INVOLUNTARY TRANSFEREE"), or, as the case may be, the
circumstances giving rise to the Insolvency Event. In the event such notice is
not given as required, the making or suffering of such Involuntary Transfer or
Insolvency Event shall nevertheless be deemed to constitute an offer to sell the
Membership Interest of the affected Member pursuant to the terms of this Section
7.6. Such notice shall be deemed received by the Company three (3) days after
dispatch to the Board and the Members in compliance with Section 11.6 or, if
sooner, ten (10) days after the Board and the other Members acquire actual
notice of the occurrence of the Involuntary Transfer or Insolvency Event, as the
case may be.
(c) PURCHASE OPTION. The Company and the "REMAINING MEMBERS" (I.E., the
Members other than the Member who is subject to the Involuntary Transfer or
Insolvency Event) shall have the option, exercisable by written notice to the
Member undergoing the Involuntary Transfer or Insolvency Event (hereinafter
referred to as the "INVOLUNTARY TRANSFEROR") or to its successor or legal
representative, as appropriate, to purchase all, but not less than all, of the
Membership Interest of the Involuntary Transferor (the "TRANSFER INTEREST"). The
purchase price to be paid to the Involuntary Transferor shall be determined
pursuant to Section 7.6(d) and the payment terms shall be as set forth in
Section 7.6(e). The Company shall have the first option to purchase the Transfer
Interest, which option must be exercised within thirty (30) days after the date
the Company is deemed to receive notice of the Involuntary Transfer or
Insolvency Event. In the event the
26
Company fails to exercise its option with respect to the Transfer Interest
within said thirty (30) day period, then for a period of thirty (30) days
commencing on the day following the Company's option period, the Remaining
Member(s) shall have the option to purchase the Transfer Interest at the same
price and on the same terms. If there exists more than one Remaining Member at
the time such option becomes available, each Remaining Member may purchase that
percentage of the Transfer Interest which bears the same ratio as the membership
interest of such Remaining Member bears to the aggregate membership interests of
all Remaining Members. In the event that a Remaining Member does not purchase
the full amount of the Transfer Interest which such Remaining Member is entitled
to purchase, the other Remaining Members may purchase the excess on a PRO RATA
basis, and the thirty (30) day period specified above shall be extended as
necessary to accommodate this process.
(d) PURCHASE PRICE. The purchase price for a Transfer Interest
purchased pursuant to one of the options described in Section 7.6(c) shall be
equal to the fair market value thereof, determined pursuant to this Section
7.6(d) (such value, as determined is referred to for purposes of this Section
7.6 as the "FMV"). The purchasing party and the Involuntary Transferor shall
have a period of twenty (20) days after exercise of the purchase option to agree
upon the FMV of the Transfer Interest. The FMV shall be determined as if all of
the membership interests of the Members were being purchased by a third party.
In the event the parties are unable to agree on the FMV within twenty (20) days,
the Involuntary Transferor and the purchasing party shall mutually agree on the
selection of an investment banking firm or other valuation firm that shall
provide its appraisal of the Transfer Interest as of the end of the month in
which the Involuntary Transfer or Insolvency Event occurred, which appraisal
shall be accepted as the FMV of the Transfer Interest. When determined
consistent with the foregoing, the FMV determination shall be final and binding
upon the parties, absent bad faith or negligence. The fees and expenses of such
investment banking or other appraisal firm shall be borne one-half by the
Involuntary Transferor and one-half by the purchasing party. If the parties are
unable to mutually agree on the selection of an appraisal firm with ten (10)
days, the Involuntary Transferor and the purchasing party shall each promptly
designate a valuation firm to perform the appraisal, and one of those two
valuation firms shall be selected by an act of chance fair to both parties to
perform the appraisal. At the closing of the purchase, which shall take place no
later than thirty (30) days following completion of the determination of FMV,
the Transfer Interest shall be transferred to the buyer(s), free and clear of
all liens, claims, encumbrances or restrictions of any kind, except those
imposed by this Agreement.
(e) PAYMENT TERMS. The payment terms for a Transfer Interest purchased
pursuant to the options described in Section 7.6(c) shall be as follows: (i) not
less than thirty percent (30%) of the purchase price shall be paid in cash or
certified funds at closing, and (ii) the balance of the purchase price shall be
paid over forty-eight (48) months pursuant to delivery of a subordinated
promissory note of the buyer containing terms and conditions substantially as
provided in EXHIBIT D attached hereto and incorporated herein by reference.
27
(f) FAILURE TO EXERCISE OPTION. In the event the Transfer Interest is
not purchased by the Company or the Remaining Members in accordance with the
foregoing provisions, upon expiration of the option period provided to the
Remaining Members under subsection (c) above, a transfer of the Transfer
Interest may occur in accordance with Article VII or to the extent it is
required to be Transferred as a result of the Involuntary Transfer, and, in such
case, the Involuntary Transferee shall become an unadmitted assignee of the
Transfer Interest (as described in Section 7.8), subject to the right of first
refusal described in Section 7.6(g). The Involuntary Transferee shall be
obligated to provide the following to the Board:
(i) A written agreement of the Involuntary Transferee, in form and
substance satisfactory to the Board, to be bound by this Agreement, which
shall include an agreement of the Involuntary Transferee to execute any and
all other documents that the Board may deem necessary or appropriate to
effect and evidence such transfer and to confirm that the Involuntary
Transferee and the Transfer Interest are subject to and bound by this
Agreement.
(ii) An opinion of counsel, satisfactory in form and substance to the
Board, that the Involuntary Transfer will not terminate the Company or
impair its ability to be taxed as a partnership and that the Involuntary
Transfer constitutes an exempt transaction that does not require
registration under applicable securities laws.
Notwithstanding the transfer of the Transfer Interest to an
Involuntary Transferee, the Involuntary Transferee shall acquire the rights
of a Member and shall be admitted as a Member of the Company only upon the
unanimous consent of the Remaining Members (other than the Minor Members),
as required by Section 2.6.
(g) RIGHT OF FIRST REFUSAL UPON SALE BY TRUSTEE. Upon the occurrence of
an Involuntary Transfer such as a bankruptcy or a foreclosure of a judgment lien
pursuant to which a membership interest of a Member is offered for sale to third
parties (referred to as a "DISTRESSED SALE"), in addition to the option
available to the Company pursuant to Section 7.6(c), the Company also shall be
offered the first right and option to purchase the Transfer Interest for a price
which is equal to the price offered by the highest bidder in the Distressed Sale
on the same terms offered by such bidder. The Company shall be given notice of
all proposed purchase offers, which notice shall specify the purchase price
offered and all other material terms of purchase. Such offer shall be made to
the Company on an all-or-nothing basis and shall remain open and irrevocable for
a period of forty-five (45) days. Acceptance of the offer shall be made by the
Company delivering written notice of acceptance to the Involuntary Transferor
and the Company (and, to the extent applicable, any trustee in bankruptcy)
within the 45-day period. Closing on such a purchase shall be completed within
forty-five (45) days after acceptance.
SECTION 7.7 PROHIBITED TRANSFERS. In the case of a Transfer or
attempted Transfer of Units that is not permitted by, or is not made in
compliance with, this Article VII, the parties engaging or attempting to engage
in such Transfer shall be
28
liable to indemnify and hold harmless the Company and the other Members from all
cost, liability, and damage that the Company and any of such indemnified Members
may incur (including, without limitation, incremental tax liabilities,
attorneys' fees and expenses) as a result of such Transfer or attempted Transfer
and efforts to enforce the indemnity granted hereby.
SECTION 7.8 RIGHTS OF UNADMITTED ASSIGNEES. A Person who acquires Units
but who is not admitted as a substituted Member pursuant to Section 7.9 hereof
shall be entitled only to allocations and distributions with respect to such
Units in accordance with this Agreement, and shall have no right to any
information or accounting of the affairs of the Company, shall not be entitled
to inspect any books or records of the Company, and shall not have any of the
rights of a Member under the Act or this Agreement.
SECTION 7.9 ADMISSION OF SUBSTITUTED MEMBERS. In addition to the other
provisions of this Article VII (other than with respect to a sale of all the
Units in the Company), a transferee of Units may be admitted to the Company as a
substituted Member only upon satisfaction of all of the conditions set forth in
this Section 7.9:
(a) The Units with respect to which the transferee is being admitted
were acquired by means of a Transfer permitted by this Article VII and, in the
case of a transferee acquiring Units pursuant to an Involuntary Transfer, the
Remaining Members have approved the transferee as a new Member;
(b) The transferee of Units (other than, with respect to clauses (i)
and (ii) below, a transferee that was a Member prior to the Transfer) shall, by
written instrument in form and substance reasonably satisfactory to the Board
(and, in the case of clause (iii) below, the transferor Member), (i) make
representations and warranties customary for transactions of a similar type to
each nontransferring Member, (ii) accept and adopt the terms and provisions of
this Agreement, including this Article VII, and (iii) assume the obligations of
the transferor Member under this Agreement with respect to the transferred
Units. The transferor Member shall be released from all such assumed obligations
except (x) those obligations or liabilities of the transferor Member arising out
of a breach of this Agreement, and (y) those obligations or liabilities of the
transferor Member based on events occurring, arising or maturing prior to the
date of Transfer.
(c) The transferee pays or reimburses the Company for all reasonable
legal, filing, and other costs that the Company incurs in connection with the
admission of the transferee as a Member with respect to the transferred Units;
and
(d) Except in the case of an involuntary Transfer by operation of law,
the transferee (other than a transferee that was a Member prior to the Transfer)
shall deliver to the Company evidence of the authority of such Person to become
a Member and to be bound by all of the terms and conditions of this Agreement,
and the transferee and transferor shall each execute and deliver such other
instruments as the Board reasonably deems necessary or appropriate to effect,
and as a condition to, such Transfer, including amendments to the Certificate of
Formation of the Company or any other instrument filed with the State of
Delaware or any other state or governmental authority.
29
In the event that one or more of the foregoing conditions is not met but
a transferee nonetheless acquires Shares in the Company, such transferee shall
have only the rights of an unadmitted assignee as described in Section 7.8.
SECTION 7.10 REPRESENTATIONS REGARDING TRANSFERS; LEGEND.
(a) Each Member hereby represents to, and covenants and agrees with,
the Company, for the benefit of the Company and all Members, that (i) it is not
currently making a market in the Units and will not in the future make a market
in the Units without the prior written approval of the Board, (ii) it will not
Transfer its Units on an established securities market, a secondary market (or
the substantial equivalent thereof) within the meaning of Code Section 7704(b)
(and any Treasury Regulations, proposed Treasury Regulations, revenue rulings,
or other official pronouncements of the Internal Revenue Service or Treasury
Department that may be promulgated or published thereunder), and (iii) in the
event such Treasury Regulations, revenue rulings, or other pronouncements treat
any or all arrangements which facilitate the selling of Units and which are
commonly referred to as "matching services" as being a secondary market or
substantial equivalent thereof, it will not Transfer any Units through a
matching service that is not approved in advance by the Board. Each Member
further agrees that it will not Transfer any Units to any Person unless such
Person agrees to be bound by this Section 7.10(a) and to Transfer such Units
only to Persons who agree to be similarly bound.
(b) Each Member hereby represents and warrants to the Company and the
other Members that such Member's acquisition of Units is or was made as
principal for such Member's own account and not for resale or distribution of
such Units. Each Member hereby agrees that the following legend may be placed
upon any counterpart of this Agreement, the Unit certificate, or any other
document or instrument evidencing ownership of Units:
THE UNITS REPRESENTED BY THIS DOCUMENT HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR THE
SECURITIES LAWS OF ANY STATE. THESE UNITS HAVE BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO DISTRIBUTION OR RESALE. SUCH UNITS MAY
NOT BE OFFERED FOR SALE, SOLD, DELIVERED AFTER SALE, TRANSFERRED,
PLEDGED, ASSIGNED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT COVERING SUCH SECURITIES UNDER THE SECURITIES ACT
AND ANY APPLICABLE STATE SECURITIES LAWS, UNLESS THE HOLDER SHALL HAVE
OBTAINED AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED.
THE UNITS REPRESENTED BY THIS DOCUMENT ARE SUBJECT TO FURTHER
RESTRICTION AS TO THEIR SALE,
30
TRANSFER, PLEDGE, HYPOTHECATION, OR ASSIGNMENT AS SET FORTH IN THE
COMPANY'S LIMITED LIABILITY COMPANY AGREEMENT.
The Company shall cause such legend to be removed at such time as the
Company is advised by its counsel that such legend may be removed, or the
Company has received an opinion of counsel to a Member, in form and substance
reasonably satisfactory to the Company, that such legend may be removed.
SECTION 7.11 DISTRIBUTIONS AND ALLOCATIONS IN RESPECT OF TRANSFERRED
UNITS. If any Units are Transferred in compliance with the provisions of this
Article VII, Profits, Losses, each item thereof, and all other items
attributable to the transferred Units for such Allocation Year shall be divided
and allocated between the transferor and the transferee by taking into account
their varying Percentage Interests during the Fiscal Year in accordance with
Code Section 706(d), using any conventions permitted by law and selected by the
Board. All distributions on or before the date of such Transfer shall be made to
the transferor, and all distributions thereafter shall be made to the
transferee. Neither the Company nor any Member, Manager or Officer shall incur
any liability for making allocations and distributions in accordance with the
provisions of this Section 7.11, whether or not any Member, Manager or Officer
or the Company has knowledge of any Transfer of ownership of any Units.
SECTION 7.12 TERMINATION OF CERTAIN RIGHTS. Upon the occurrence of a
Qualified Offering, Sections 7.1, 7.3, 7.4 and 7.5 and the requirement of the
second legend set forth in Section 7.10 hereof shall terminate.
ARTICLE VIII
BOOKS OF ACCOUNT AND FISCAL YEAR
SECTION 8.1 BOOKS OF ACCOUNT. The Company shall keep complete and
accurate records and accounts necessary or convenient to record the Company's
business and affairs and sufficient to record the determination and allocation
of all items of income, gain, loss, deduction and credit, distributions and
other amounts as may be provided for herein, including records and accounts of
all Company revenues and expenditures and of the acquisition, ownership and
disposition of all properties of the Company.
SECTION 8.2 FISCAL YEAR. The fiscal year of the Company shall end on
the 31st day of December of each year (the "FISCAL YEAR").
SECTION 8.3 FINANCIAL STATEMENTS.
(a) The Company shall cause to be delivered to each Member the
financial statements listed in clauses (i) and (ii) below, prepared, in each
case (other than with respect to Members' Capital Accounts, which shall be
prepared in accordance with
31
this Agreement) in accordance with United States generally accepted accounting
principles as in effect from time to time consistently applied.
(i) As soon as practicable following the end of each Fiscal Year (and
in any event not later than fifty (50) days after the end of such Fiscal
Year) and at such time as distributions are made to the Members pursuant to
Article IX hereof following the occurrence of any of the events described in
Section 9.1, a balance sheet and statement of income of the Company as of
the end of such Fiscal Year, and the related consolidated statements of
operations and retained earnings and cash flow for such Fiscal Year, and
Members' Capital Accounts and changes therein, together with appropriate
notes to such financial statements and supporting schedules, all of which
shall be audited and certified by the Company's accountants, and in each
case, to the extent the Company was in existence, setting forth in
comparative form the corresponding figures for the immediately preceding
Fiscal Year end.
(ii) As soon as practicable following the end of each fiscal quarter of
each Fiscal Year (and in any event not later than thirty (30) days after the
end of each such month), a management report and an unaudited balance sheet
of the Company as of the end of such fiscal quarter and the related
unaudited statements of operations and cash flows for such fiscal quarter
and for the Fiscal Year to date, in each case, to the extent the Company was
in existence, setting forth in comparative form the corresponding figures
for the prior Fiscal Year's corresponding fiscal quarter just completed.
Each such unaudited quarterly balance sheet and the related unaudited
statements of operations and cash flows shall be prepared in a manner
consistent with the preparation of the Company's audited balance sheet and
audited statements of operations and cash flows, except for the accompanying
notes thereto, pursuant to Section 8.3(a)(i).
SECTION 8.4 TAX RETURNS AND INFORMATION.
(a) Alba is hereby designated Tax Matters Member for the Company (the
"TAX MATTERS MEMBER") in accordance with the definition of "tax matters partner"
set forth in Section 6231 of the Code and shall be so designated in each federal
information return filed on behalf of the Company for the taxable years in which
Alba (or Affiliates), collectively, own 40% or more Percentage Interests in the
Company. The Tax Matters Member shall not be liable to the Company or any Member
for any act or omission taken or suffered by it in such capacity in good faith
and in the belief that such act or omission is in or is not opposed to the best
interests of the Company and shall be indemnified by the Company in respect of
any claim based upon such act or omission; PROVIDED, HOWEVER, that such act or
omission is not in violation of this Agreement and does not constitute gross
negligence, fraud or a willful violation of law. The Tax Matters Member shall
inform all other Members of all material tax matters which may come to its
attention in its capacity as tax matters partner by giving the Members notice
thereof within ten (10) days after becoming so informed. All expenses and costs
of Alba in its role as Tax Matters Member shall be borne by the Company.
32
(b) The Company shall cause income and other required federal, state
and local tax returns for the Company to be prepared. The Company shall make
such other elections as it shall deem to be in the best interests of the Company
and the Members. The cost of preparation of such returns by outside preparers
(or by Alba pursuant to the provisions set forth herein), if any, shall be borne
by the Company. In the event of a transfer of an interest in the Company
permitted under this Agreement, the Company shall, at the request of the
transferring Member, file an election under Section 754 of the Code to adjust
the bases of the assets of the Company in accordance with the provisions of
Section 743 of the Code; PROVIDED, HOWEVER, that the consent of Encompass, which
may not be unreasonably withheld, shall be required for the Company to make a
Section 754 election if a material adjustment pursuant to Section 734(b) of the
Code would result for the year with respect to which such Section 754 election
is first made. Any costs associated with such election (such as accounting fees)
shall be borne by the transferring Member.
(c) The Company shall furnish to each Member (i) as soon as reasonably
possible after the close of each Fiscal Year such information concerning the
Company as is reasonably required for the preparation of such Member's income
tax returns (PROVIDED, that if the Company is unable to deliver a Form K-1 by
March 1 following the close of the Fiscal Year, the Company shall use its best
efforts to provide a requesting Member with a good faith estimate of such
information) and (ii) as soon as reasonably possible after the close of each of
the Company's first three fiscal quarters of each Fiscal Year such information
concerning the Company as is reasonably required to enable the Member to pay
estimated taxes.
SECTION 8.5 FIXING RECORD DATE. For the purpose of determining the
Members entitled to notice of or to vote at any meeting of Members or any
adjournment thereof, or entitled to receive payment of any dividend or other
distribution or allotment of any rights or for the purpose of any other lawful
action, the Board may fix, in advance, a record date, which shall not be more
than sixty (60) nor less than ten (10) days before the date of such meeting, nor
more than sixty (60) days prior to any other action. If no record date is fixed
(i) the record date for determining Members entitled to notice of or to vote at
a meeting of Members shall be at the close of business on the day next preceding
the day on which notice is given, or, if notice is waived, at the close of
business on the day next preceding the day on which the meeting is held and (ii)
the record date for determining Members for any other purpose shall be at the
close of business on the day on which the Board adopts the resolution relating
thereto. A determination of Members of record entitled to notice of or to vote
at any meeting of Members shall apply to any adjournment of such meeting;
PROVIDED, HOWEVER, that the Board may fix a new record date for the adjourned
meeting.
33
ARTICLE IX
DISSOLUTION, LIQUIDATION AND TERMINATION
SECTION 9.1 DISSOLUTION. The Company shall be dissolved and its affairs
shall be wound up upon the first to occur of any of the following:
(a) the unanimous approval of such dissolution by the Board; and
(b) the entry of a decree of judicial dissolution under Section 18-802
of the Act.
SECTION 9.2 LIQUIDATION AND TERMINATION. On dissolution of the Company
pursuant to Section 9.1 hereof, the Board shall appoint one or more liquidators
of the Company. The liquidators shall forthwith commence the winding up of the
Company's business and the liquidation of its property in accordance with
applicable law and the following provisions:
(a) Each Member shall pay to the Company all amounts owed by such
Member to the Company.
(b) The Company Assets, including any monies received pursuant to this
Section 9.2, shall be applied in the following order:
FIRST, to the payment of creditors of the Company, including
Members who are creditors, to the extent otherwise permitted by law;
SECOND, to the establishment of any reserves that the Board, in
accordance with sound business judgment, deems reasonably necessary to
provide for the payment when due of any contingent liabilities or
obligations of the Company (which reserves may be paid over by the Board
to a trustee or escrow agent selected by it to be held by such trustee
or escrow agent for purposes of (i) distributing such reserves in
payment of the aforementioned contingencies, and (ii) distributing the
balance of such reserves in the manner provided herein upon the
expiration of such period as the Board may deem advisable); and
THIRD, to the Members in accordance with their positive Capital
Account balances.
(c) In the event of any liquidation pursuant to this Section 9.2, the
Company Assets shall be converted into cash as promptly as possible without
undue sacrifice, and any receivables shall be collected or sold, all in an
orderly and businesslike manner. Notwithstanding the foregoing, the Board may
determine not to sell all or any portion of the Company Assets, in which event
such Company Assets shall be distributed in kind pursuant to Section 9.2(b).
Consistent with the Treasury Regulations issued under Section 704 of the Code,
in the event of a liquidation, as defined in Treasury Regulations Section
1.704-1(b)(2)(ii)(g), the value of all property of the Company to be distributed
34
shall be, or shall have been, appropriately reflected in the Capital Accounts,
and the costs of liquidation shall be borne as a Company expense.
(d) Notwithstanding anything to the contrary in this Agreement, upon a
liquidation (as defined in Treasury Regulations Section 1.704-1(b)(2)(ii)(g)),
if any Member has a deficit Capital Account (after giving effect to all
contributions, distributions, allocations and other Capital Account adjustments
for all Fiscal Years, including the year in which such liquidation occurs), such
Member shall have no obligation solely as a result of such deficit to make any
Capital Contribution, and the negative balance of such Capital Account shall not
be considered a debt owed by the Member to the Company or to any other Person
for any purpose whatsoever.
SECTION 9.3 CANCELLATION OF FILINGS. Upon completion of the
distribution of Company Assets as provided in Section 9.2, the Company is
terminated, and the Board shall cause to be filed a certificate of cancellation
with the Secretary of State of the State of Delaware and shall take such other
actions as may be necessary to terminate the Company.
ARTICLE X
TERM
Unless earlier terminated by written agreement of all the Members, this
Agreement shall be binding upon the Members (and their Permitted Transferees)
and shall continue in full force and effect until the earlier to occur of (i) an
Approved Sale or (ii) the dissolution of the Company; PROVIDED, that the rights
and obligations of the parties, including, without limitation, the rights and
obligations under Article V and Article IX, shall survive termination of this
Agreement to the extent that performance is required after such termination.
ARTICLE XI
MISCELLANEOUS
SECTION 11.1 JURISDICTION.
(a) The Company and each Member hereby consent and agree to commence
any action with respect to any claims or disputes between or among the parties
hereto pertaining to this Agreement or to any matter arising out of or related
to this Agreement in the United States District Court for the Western District
of North Carolina, so long as the action falls within the subject matter
jurisdiction of such court; in the event any such action shall be determined by
the court to be outside its subject matter jurisdiction, then the Company and
each Member agree to commence any such action in the District Court of
Mecklenburg County, North Carolina. The Company and each Member expressly submit
and consent in advance to such jurisdiction in any action or suit commenced in
any such court, and hereby waive any objection which each may have based upon
lack of personal jurisdiction, improper venue or forum non conveniens and hereby
35
consent to the granting for such legal or equitable relief as is deemed
appropriate by such court. The Company and each Member irrevocably consent to
the service of process by registered or certified mail, postage prepaid, to it
at its address given pursuant to Section 11.6. Subject to the foregoing, nothing
in this Agreement shall be deemed or operate to affect the right of the Company
or any Member to serve legal process in any other manner permitted by law, or to
preclude the enforcement by the Company or any Member of any judgment or order
obtained in the forum specified in this subsection or the taking of any action
under this Agreement to enforce the same in any other appropriate forum or
jurisdiction.
(b) To the extent that the Company or any Member has or may hereafter
acquire any immunity from the jurisdiction of any court or from any legal
process (whether through service or notice, attachment prior to judgment,
attachment in aid of execution, execution or otherwise) with respect to such
party or such party's property, the Company and each Member hereby irrevocably
waive such immunity in respect of their respective obligations under this
Agreement.
(c) To the extent permitted by applicable law, the Company and each
Member irrevocably waive any right such party may have to consequential or
punitive damages or any other similar entitlement.
SECTION 11.2 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK
APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE,
WITHOUT REGARD TO THE CONFLICTS OF LAW PRINCIPLES OF SUCH STATE EXCEPT TO THE
EXTENT THE DELAWARE LIMITED LIABILITY COMPANY ACT AND/OR GENERAL CORPORATION LAW
ARE MANDATORILY APPLICABLE.
SECTION 11.3 WAIVER OF JURY TRIAL. THE COMPANY AND EACH MEMBER HEREBY
IRREVOCABLY WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY
THIS AGREEMENT.
SECTION 11.4 AMENDMENTS AND WAIVERS. This Agreement may be amended by
an instrument executed and delivered by the Company and the holders of all of
the Units of the Company (other than Units of the Company held by the Minor
Members) then outstanding and entitled to vote thereon; PROVIDED, that any such
amendment that would reasonably be expected to have a material adverse effect on
the rights or interests of a Minor Member in its capacity as a holder of Units
shall require the prior written consent of such Minor Member. By an instrument
in writing, the Company and the Members may waive compliance by the Company and
any other Member with any provision of this Agreement; PROVIDED, HOWEVER, that
such waiver shall not operate as a waiver of, or estoppel with respect to, any
other or subsequent failure or with respect to the Company or a Member that has
not executed and delivered any such waiver. No failure to exercise and no delay
in exercising any right, remedy, or power hereunder shall operate as
36
a waiver thereof, nor shall any single or partial exercise of any right, remedy,
or power hereunder preclude any other or further exercise thereof or the
exercise of any other right, remedy, or power provided herein or by law or at
equity.
SECTION 11.5 TAX MATTERS. It is the intention of the Members that the
Company shall not be taxed as a corporation for federal, state and local income
tax purposes, but instead shall be taxed as a partnership. The Members agree to
take all reasonable actions, including the execution of other documents, as may
reasonably be required in order for the Company to qualify for and receive such
treatment for such period for federal, state and local income tax purposes.
SECTION 11.6 NOTICES. All notices required or permitted to be given
hereunder shall be in writing and may be delivered by hand, by facsimile, by
private courier, or by United States mail. Notices delivered by mail shall be
deemed delivered five (5) business days after being deposited in the United
States mail, postage prepaid, registered or certified mail, return receipt
requested. Notices delivered by hand, by facsimile, or by private carrier shall
be deemed given on the business day following receipt (unless such day is a
Saturday, Sunday or national holiday, in which case such notice shall be deemed
given on the next business day); PROVIDED, HOWEVER, that a notice delivered by
facsimile shall only be effective if such notice is also delivered by hand, or
deposited in the United States mail, postage prepaid, registered or certified
mail, on or before two (2) business days after its delivery by facsimile. All
notices to the Company shall be delivered to the following address and all
notices to Members shall be delivered to the addresses set forth on EXHIBIT A
(or at such other address for a party as shall be specified by like notice,
except that notices after giving of which there is a designated period within
which to perform an act and notices of changes of address shall be effective
only upon receipt) :
ALBAHEALTH, LLC
201 St. Germain Avenue S.W.
Valdese, North Carolina 28690
Attention: Dan Mesika
Chief Executive Officer
Telephone: (828) 879-6500
Facsimile: (828) 879-6595
Notice of change of address shall be effective only when done in accordance with
this Section 11.6.
SECTION 11.7 ENTIRE AGREEMENT. This Agreement, the Contribution
Agreement and the Non-Disclosure Agreement, together with all Exhibits, Annexes
and Appendices hereto and thereto, and any other written agreements entered into
between any parties to this Agreement on or prior to the date hereof,
constitutes the entire agreement of the parties hereto with respect to the
subject matter hereof and thereof and supersedes all prior agreements and
undertakings, both written and oral, between the parties with respect to the
subject matter hereof and thereof, except for contracts and agreements referred
herein.
37
SECTION 11.8 ASSIGNMENT; SUCCESSORS AND ASSIGNS. The Company and each
Member agrees that it will not assign, sell, transfer, delegate, or otherwise
dispose of, whether voluntarily or involuntarily, any right or obligation under
this Agreement other than as otherwise required or expressly permitted herein or
required under or in connection with the Credit Agreement, dated September 6,
2002 (the "ALBAHEALTH CREDIT Agreement"), by and among the Company and the
lenders thereto and GE Capital, as agent and lender. Any purported assignment,
transfer, or delegation in violation of this Section 11.8 shall be null and
void. Subject to the foregoing limits on assignment and delegation, this
Agreement shall be binding upon and shall inure to the benefit of the parties
and their respective successors and assigns. Except for those enumerated above,
this Agreement does not create, and shall not be construed as creating, any
rights or claims enforceable by any person not a party to this Agreement.
SECTION 11.9 NO AGENCY. Except to the extent expressly provided herein,
this Agreement shall not constitute an appointment of any of the Members as the
legal representative or agent of any other Member, nor shall any Member have any
right or authority to assume, create or incur in any manner any obligation or
other liability of any kind, express or implied, against, or in the name or on
behalf of, any other party. Nothing herein shall be construed to make the
Members joint venturers or partners, other than in their capacity as such for
relevant income tax purposes by reason of their membership herein, as
contemplated by Section 11.5.
SECTION 11.10 SEVERABILITY. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in a mutually acceptable manner in
order that the transactions contemplated hereby be consummated as originally
contemplated to the greatest extent possible.
SECTION 11.11 COUNTERPARTS. This Agreement may be executed in one or
more counterparts, and by the different parties hereto in separate counterparts,
each of which when executed shall be deemed to be an original but all of which
taken together shall constitute one and the same agreement.
SECTION 11.12 HEADINGS; EXHIBITS. The headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. All exhibits and annexes attached
hereto are incorporated in and made a part of this Agreement as if set forth in
full herein.
SECTION 11.13 FURTHER ASSURANCES. The Company and each Member shall
execute and deliver such instruments and take such other actions as may be
reasonably required in order to carry out the intent of this Agreement.
38
SECTION 11.14 SPECIFIC PERFORMANCE. The Company and each of the Members
acknowledges and agrees that in the event of any breach of this Agreement the
non-breaching party would be irreparably harmed and could not be made whole by
monetary damages. It is accordingly agreed that the parties hereto will waive
the defense in any action for specific performance that a remedy at law would be
adequate and that the Company and the Members hereto, in addition to any other
remedy to which they may be entitled at law or in equity, shall be entitled to
compel specific performance of this Agreement.
* * *
39
IN WITNESS WHEREOF, the Company and each of the Members have caused this
Limited Liability Company Agreement to be executed by their duly authorized
representatives as of the day and year first written above.
ALBA-WALDENSIAN, INC.
By: /s/ Dan Mesika
--------------------------------------------
Name:
Title:
ENCOMPASS GROUP, L.L.C
By: /s/
--------------------------------------------
Name:
Title:
GENERAL ELECTRIC CAPITAL CORPORATION
By: /s/
--------------------------------------------
Name:
Title:
ALBAHEALTH, LLC
By: /s/ Dan Mesika
--------------------------------------------
Name:
Title:
EXHIBIT A
---------
CAPITAL ACCOUNTS/MEMBERS SCHEDULE
Pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)
Amount of Capital Account
- --------------------------------------------- ----------------------------------------------- -----------------
COMMON UNITS UNITS
----------------------------------------------- -----------------
NUMBER CASH/FAIR COMMON
OF MARKET PERCENTAGE PERCENTAGE
MEMBER AND ADDRESS UNITS VALUE INTEREST INTEREST
----- ----- -------- --------
Alba-Waldensian Inc. 48,325 $12,000,000 48.325% 48.325%
201 St. Germain Avenue S.W.
Valdese, North Carolina 28690
Attention: Dan Mesika
Chief Executive Officer
Telephone: (828) 879-6500
Facsimile: (828) 879-6595
COURTESY COPY TO:
Dewey Ballantine LLP
1301 Avenue of the Americas
New York, New York 10019
Attention: Morton A. Pierce, Esq.
Telephone: (212) 259-8000
Facsimile: (212) 259-6333
Encompass Group LLC 48,325 $12,000,000 48.325% 48.325%
615 Macon Street
McDonough, Georgia 30253
Attention: David A. Heulsbeck
Chief Operating Officer
Telephone: (770) 957-3981
Facsimile: (770) 957-8728
COURTESY COPY TO:
Winthrop & Weinstine
3000 Dain Rauscher Plaza
60 South Sixth Street
Minneapolis, Minnesota 55402
Attention: Timothy M. Barnett, Esq.
Telephone: (612) 347-0653
Facsimile: (612) 347-0600
A-1
- --------------------------------------------- ----------------------------------------------- -----------------
COMMON UNITS UNITS
----------------------------------------------- -----------------
NUMBER CASH/FAIR COMMON
OF MARKET PERCENTAGE PERCENTAGE
MEMBER AND ADDRESS UNITS VALUE INTEREST INTEREST
----- ----- -------- --------
General Electric Capital Corporation 3,350 $1,000,000 3.35% 3.35%
401 Merritt Seven
Norwalk, Connecticut 06851-1177
Attention: Peter DiBiasi
Account Manager
Telephone: (203) 229-1930
Facsimile: (203) 229-1955
COURTESY COPY TO:
Paul, Hastings, Janofsky & Walker LLP
1055 Washington Boulevard
Stamford, Connecticut 06901
Attention: Mario Ippolito, Esq.
Telephone: (203) 961-7420
Facsimile: (203) 359-3031
A-2
EXHIBIT B
---------
FORM OF UNIT CERTIFICATE
B-1
CERTIFICATE
FOR
LIMITED LIABILITY COMPANY INTEREST
ALBAHEALTH, LLC,
A DELAWARE LIMITED LIABILITY COMPANY
[________] COMMON UNITS
This Certificate is issued under and pursuant to, and the rights of the
holder are subject to and limited by the terms and conditions of, the Limited
Liability Company Agreement of AlbaHealth, LLC (the "Operating Agreement"),
dated as of [________ __], 2002, under which AlbaHealth, LLC, a Delaware limited
liability company (the "Company"), was organized and is existing, copies of
which are on file at the Company's principal office, and for which a Certificate
of Formation of Limited Liability Company is filed for record in the Office of
the Secretary of State of the State of Delaware.
The undersigned hereby certify that [________] is the owner of [________]
Common Units (as such term is defined in the Operating Agreement) in the
capacity of a Member of the Company (the "Membership Interest"). Such Membership
Interest is subject to the terms of the Put Option Agreement, by and among the
Company, Alba-Waldensian, Inc., Encompass Group, L.L.C. and General Electric
Capital Corporation and the Operating Agreement, and the rights, preferences,
and limitations of such Units are set forth in the Operating Agreement.
This Certificate and the Units evidenced hereby are transferable only in
accordance with the provisions contained in the Operating Agreement, and this
Certificate must, in the event of a transfer of all or any portion of such
Units, be surrendered to the Company for cancellation whereupon a replacement
Certificate(s) will be issued to the transferee, in accordance with the
provisions of the Operating Agreement. This Certificate is a security governed
by Article 8 of the Uniform Commercial Code.
NEITHER THIS CERTIFICATE NOR THE UNITS REPRESENTED HEREBY HAS BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
OR ANY APPLICABLE STATE SECURITIES OR "BLUE SKY" LAWS AND MAY NOT BE OFFERED FOR
SALE, SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF FOR
VALUE UNLESS A REGISTRATION STATEMENT HAS BECOME EFFECTIVE WITH RESPECT TO SUCH
SECURITIES UNDER THE SECURITIES ACT AND SUCH STATE SECURITIES OR "BLUE SKY" LAWS
OR IN THE OPINION OF COUNSEL REASONABLY ACCEPTABLE TO THE COMPANY THERE IS AN
APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT
AND APPLICABLE STATE SECURITIES OR "BLUE SKY" LAWS OR SUCH REGISTRATION IS NOT
OTHERWISE REQUIRED. SUCH SALE OR OTHER TRANSFER IS ALSO RESTRICTED BY THE TERMS
OF THE OPERATING AGREEMENT.
DATED: ________, 200_
______________________________
[Name]
Chief Executive Officer
______________________________
[Name]
Secretary
B-2
EXHIBIT C
---------
PERMITTED AFFILIATE TRANSACTIONS/MEMBER ACTIVITIES
Transactions contemplated by the Basic Agreements
C-1
EXHIBIT D
[FORM OF SUBORDINATED PROMISSORY NOTE]
$__________ __________________, 200__
1. FOR VALUE RECEIVED, ____________________________ (the "Borrower"), hereby
promises to pay to the order of ________________________________________ (the
"Holder"), at such location as the Holder may direct, the principal sum of
________________________________________ and ___/100 Dollars ($__________)
together with interest on the unpaid principal balance at the rate of four
percent (4%) per annum.
2. This Note shall be due and payable in forty-eight (48) consecutive monthly
installments of principal (as nearly equal in amount as possible) and accrued
interest, commencing on the ______ day of __________, 200__, and continuing on
the same day of each calendar month thereafter until and including
______________, 200_.
3. All payments made by the Borrower shall, at the option of the Holder, be
applied first to costs of collection, if any, second to accrued interest and the
remainder thereof to principal.
4. The Borrower promises to pay all costs of collection, including, but not
limited to, reasonable attorneys' fees, paid or incurred by the Holder on
account of such collection, whether or not suit is filed with respect thereto
and whether or not such costs are paid or incurred, or to be paid or incurred,
prior to or after the entry of judgment.
5. This Note may be prepaid at any time, either in whole or in part, without
premium or penalty.
6. As used herein, the term "Event of Default" shall mean and include any one or
more of the following events:
a. The Borrower shall fail to pay, within ten (10) days, any amounts
required to be paid by the Borrower under this Note;
b. The Borrower shall file a petition in bankruptcy or for an
arrangement pursuant to any present or future state or federal
bankruptcy act or under a similar federal or state law, or shall be
adjudicated a bankrupt or insolvent, or shall make a general assignment
for the benefit of creditors, or shall be unable to pay its debts
generally as they become due; or if an order for relief under any
present or future federal bankruptcy act or similar state or federal law
shall be entered against the Borrower; or if a petition or answer
requesting or proposing the entry of such order for relief or the
adjudication of the Borrower as a debtor or a bankrupt under a present
or future state or federal bankruptcy act or a similar federal or state
law
D-1
shall be filed in any court and such petition and answer shall not be
discharged or denied within thirty (30) days after the filing thereof;
or if a receiver, trustee or liquidator of all or substantially all of
the assets of the Borrower shall be appointed in any proceeding brought
against the Borrower and shall not be discharged within thirty (30) days
of such appointment; or if the Borrower shall consent to or acquiesce in
such appointment; or if any property of the Borrower shall be levied
upon or attached in any proceeding;
c. Final judgment(s) for the payment of money shall be rendered against
the Borrower and shall remain undischarged for a period of thirty (30)
days during which execution shall not be effectively stayed; or
d. The Borrower shall be or become insolvent (whether in the equity or
bankruptcy sense) or, if an individual, shall die.
7. Upon the occurrence of any Event of Default which is not cured by the
Borrower, and at any time and from time to time thereafter, the Holder shall
have the right to set off any and all amounts due hereunder by the Borrower to
the Holder against any indebtedness or obligation of the Holder to the Borrower.
Upon the occurrence of an Event of Default which is not cured by the Borrower
and at any time thereafter, the unpaid principal balance hereof plus accrued
interest hereon plus all other amounts due hereunder shall, at the option of the
Holder, be immediately due and payable without notice or demand, except that
upon the occurrence of an Event of Default described in Sections 6(b) or 6(d)
hereof, the unpaid principal balance hereof, plus all other amounts due
hereunder shall automatically be due and payable without notice or demand.
8. The Borrower covenants and agrees, and the Holder by acceptance hereof
covenants and agrees, that the payment of the principal and the interest on this
Note is hereby expressly subordinated to the payment in full of all indebtedness
of the Borrower outstanding on the date hereof or hereafter created, incurred,
assumed or guaranteed by the Borrower for money borrowed from banks, finance
companies, trust companies, pension trusts, insurance companies, other financial
institutions or other unaffiliated third-party lenders designated by the Company
as providing senior debt (collectively, "Senior Debt"), unless the instrument
under which such debt is created, incurred, assumed or guaranteed expressly
provides that such debt is not senior or superior in right of payment to this
Note. Upon any distribution of the assets of the Company upon dissolution,
winding up, liquidation or reorganization of the Company, the holders of such
Senior Debt are entitled to receive payment in full in cash before the Holder is
entitled to receive any payment. Notwithstanding the foregoing, the Holder may
accept regularly scheduled payments (but not prepayments) of principal and
interest under this Note so long as no Default or Event of Default (as such
terms may be defined in an agreement relating to such Senior Debt) has occurred
and is continuing under any obligations constituting Senior Debt. Upon receipt
from the Borrower or any holder or agent of Senior Debt of notice of the
occurrence of any such Default or Event of Default, the Holder shall not,
without the Senior Debt holder's prior written consent, demand, receive or
accept any principal or interest payment from the Borrower in respect of this
Note until such Default or Event of Default has been cured or waived in
accordance with the terms of such Senior Debt. If a payment is made to the
Holder in violation of the foregoing, the payment
D-2
made to the Holder shall be segregated from the funds of such Holder and held in
trust for the holders of the Senior Debt and must be paid over to the holder(s)
of such Senior Debt.
9. Demand, presentment, protest and notice of nonpayment and dishonor of this
Note are hereby waived.
10. This Note shall be governed by and construed in accordance with the laws of
the State of ________________.
BORROWER:
---------------------------------
By:
-------------------------------
Its
-------------------------------
D-3
EXHIBIT E
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LISTS OF DESIGNEES TO THE BOARD OF MANAGERS
Designees of Alba-Waldensian, Inc.:
o Yosef Shiran
o Dan Mesika
o Jeff Hale
Designees of Encompass Group, L.L.C.:
o David A. Huelsbeck
o Ed Howard
E-1
ANNEX I
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DEFINITIONS
"ACCEPTANCE PERIOD" has the meaning set forth in Section 3.3(b).
"ACCEPTING MEMBER" has the meaning set forth in Section 7.3(b).
"ACT" means the Delaware Limited Liability Company Act, as in effect
from time to time.
"ADJUSTED CAPITAL ACCOUNT DEFICIT" means the deficit balance (if any) in
a Member's Capital Account as of the end of any Fiscal Year, after:
(a) crediting to such Capital Account any amount which such Member is
obligated to restore pursuant to this Agreement or is deemed obligated to
restore pursuant to the minimum gain chargeback provisions of Treasury
Regulations Sections 1.704-2(f) and (g), and
(b) charging to such Capital Account any adjustments, allocations or
distributions described in the qualified income offset provisions of
Treasury Regulations Section 1.704-1(b)(2)(ii) which are required to be
charged to such Capital Account pursuant to this Agreement.
"AFFILIATE" means, with respect to any specified person, any other
person that directly, through one or more intermediaries, Controls, is
Controlled by, or is under common Control with, such specified person.
"AGREEMENT" has the meaning set forth in the preamble to this Agreement.
"ALBA" has the meaning set forth in the preamble to this Agreement.
"ALBAHEALTH CREDIT AGREEMENT" has the meaning set forth in Section 11.8.
"ALLOCATION YEAR" means (i) the period commencing upon the formation of
the Company and ending on December 31, 2002, (ii) any subsequent twelve (12)
month period commencing on January 1 and ending on December 31, or (iii) any
portion of the period described in clause (ii) of this sentence for which the
Company is required to allocate Profits, Losses and other items of Company
income, gain, loss or deduction pursuant to Section 6.6 hereof.
"ALL OR NOTHING SALE" has the meaning set forth in Section 7.3(a).
"APPROVED SALE" means a sale of the Company to any person or entity
unaffiliated with any Member, whether by merger, consolidation, other business
consolidation, sale of all of the outstanding membership interests in the
Company or a sale of all or substantially all of assets of the Company.
"AVAILABLE CASH" of the Company shall mean, as of any date, all cash
funds of the Company on hand on such date from any source less the sum of (i) an
amount sufficient for the payment of all expenses, debt repayments and tax
distributions of the Company payable as of such time and (ii) reasonable
reserves, including cash required by the Company's budget, for the Company as
determined by the Board.
"BOARD" has the meaning set forth in Section 2.1.
"CAPITAL ACCOUNT" has the meaning set forth in Section 6.2(a).
"CAPITAL CONTRIBUTION" has the meaning set forth in Section 6.1(a).
"CERTIFICATE OF FORMATION" means the Certificate of Formation of the
Company, as filed with the Secretary of State of the State of Delaware, as it
may be amended, supplemented or restated from time to time.
"CODE" means the Internal Revenue Code of 1986, as amended from time to
time.
"COMMON HOLDER" means a holder of Common Units.
"COMMON PERCENTAGE INTEREST" means, with respect to any Common Holder as
of any date, the ratio (expressed as a percentage) of the aggregate number of
Common Units held by such holder on such date to the aggregate number of Common
Units outstanding on such date. The combined Common Percentage Interests of all
Common Holders shall at all times equal 100 percent.
"COMMON UNIT" means a Unit having the rights and obligations specified
with respect to a "Common Unit" in this Agreement.
"COMPANY" has the meaning set forth in the preamble to this Agreement.
"COMPANY ACCEPTANCE PERIOD" has the meaning set forth in Section 7.3(a).
Annex I-2
"COMPANY ASSETS" means any assets, rights and property, whether real,
personal or mixed, tangible or intangible, acquired by the Company pursuant to
this Agreement, contributed by the Members pursuant to Section 6.1 or otherwise
acquired by the Company.
"COMPANY CORRELATIVE ITEM" has the meaning set forth in Section 6.6(c).
"COMPANY DEFAULT EVENT" has the meaning set forth in the Put Option
Agreement.
"COMPANY DEFAULT PERIOD" has the meaning set forth in the Put Option
Agreement.
"COMPANY MINIMUM GAIN" means the amount determined in accordance with
the principles of Treasury Regulations Section 1.704-2(d).
"COMPANY SECTION 482 ALLOCATION" has the meaning set forth in Section
6.6(c).
"CONTRIBUTED ASSETS" has the meaning set forth in Section 6.6(d)(i).
"CONTRIBUTION AGREEMENT" means the contribution agreement, dated
September 6, 2002, by and among Encompass, Alba, GE Capital and the Company, and
all Schedules thereto and all amendments, modifications, and supplements
thereto.
"CONTROL" means, with respect to any Person, the power to control,
directly or indirectly, the direction of the management and policies of a
Person, whether such power is effected through ownership of shares, units or
other securities, by contract, by proxy or otherwise; for the avoidance of
doubt, the ownership of more than fifty percent (50%) of such Person by another
Person, or the ability of another Person to appoint or elect more than fifty
percent (50%) of the board of directors or other equivalent governing board of
such Person shall constitute an example of Control of such Person.
"CONVERTIBLE SECURITIES" shall mean any options, warrants, convertible
notes or other securities or rights, which are convertible, exchangeable or
exercisable, with or without the payment of additional consideration, into or
for Units.
"DEPRECIATION" means, for each Fiscal Year or other period, an amount
equal to the depreciation, amortization or other cost recovery deduction
allowable for federal income tax purposes with respect to an asset for such
Fiscal Year or other period, except that if the Gross Asset Value of any asset
differs from its adjusted basis for federal income tax purposes at the beginning
of such Fiscal Year or other period, Depreciation shall be an amount which bears
the same ratio to such beginning Gross Asset Value as the federal income tax
depreciation, amortization, or other cost recovery deduction for such Fiscal
Year or other period bears to such beginning adjusted tax basis; PROVIDED,
HOWEVER, that if the federal income tax depreciation, amortization or other cost
recovery deduction for such Fiscal Year or other period is zero, Depreciation
shall be determined with reference to such beginning Gross Asset Value using any
reasonable method selected by the Company.
"DESIGNEE" has the meaning set forth in Section 4.1(c).
"DGCL" means the Delaware General Corporation Law, as in effect from
time to time.
"DISTRESSED SALE" has the meaning set forth on Section 7.6(g)
"DRAG-ALONG CONSIDERATION" has the meaning set forth in Section 7.5.
"DRAG-ALONG INITIATOR" has the meaning set forth in Section 7.5.
Annex I-3
"DRAG-ALONG NOTICE" has the meaning set forth in Section 7.5.
"DRAG-ALONG TRANSACTION" has the meaning set forth in Section 7.5.
"ECONOMIC RISK OF LOSS" has the meaning set forth in Treasury
Regulations Section 1.752-2.
"ENCOMPASS" has the meaning set forth in the preamble to this Agreement.
"EXCESS PERIOD" has the meaning set forth in Section 7.3(b).
"EXCESS REFUSED INTERESTS" has the meaning set forth in Section 7.3(b).
"FAIR MARKET VALUE" means, for purposes of this Agreement, the fair
market value of an asset as unanimously determined by the Board.
"FIRST OFFER INTERESTS" has the meaning set forth in Section 7.3(b).
"FIRST OFFER RATIO" means, with respect to (a) an Offered Member and (b)
determining the rights thereof in connection with an Offer, a fraction, the
numerator of which shall be the Percentage Interest of such Offered Member, and
the denominator of which shall be the aggregate Percentage Interests of all of
the Offered Members.
"FISCAL YEAR" has the meaning set forth in Section 8.2.
"FMV" has the meaning set forth in Section 7.6(d).
"FUNDAMENTAL BOARD DECISIONS" has the meaning set forth in Section
4.1(f).
"GE CAPITAL" has the meaning set forth in the preamble to this
Agreement.
"GE OBSERVER" has the meaning set forth in Section 4.1(a) of this
Agreement.
"GROSS ASSET VALUE" shall be determined as follows:
(a) the initial Gross Asset Value of any asset contributed by a Member
to the Company shall be the Fair Market Value of such asset;
(b) the Gross Asset Value of all Company Assets shall be adjusted to
equal their respective Fair Market Values (taking Section 7701(g) of the
Code into account) as of the following times: (i) the acquisition of an
additional interest in the Company by any new or existing Member in exchange
for more than a DE MINIMIS capital contribution; (ii) the distribution by
the Company to a Member of more than a DE MINIMIS amount of Company Assets
as consideration for an interest in the Company, (iii) a change in the
Percentage Interests of the Members, but only if, in the case of either (i),
(ii) or (iii), the Board reasonably determines
Annex I-4
that such adjustment is necessary or appropriate to reflect the relative
economic interests of the Members in the Company and (iv) the liquidation of
the Company;
(c) the Gross Asset Value of any Company Asset distributed to any
Member shall be the Fair Market Value (taking Section 7701(g) of the Code
into account) of such asset on the date of distribution;
(d) the Gross Asset Values of Company Assets shall be increased (or
decreased) to reflect any adjustments to the adjusted basis of such Company
Assets pursuant to Section 732(d), Section 734(b) or Section 743(b) of the
Code, but only to the extent that such adjustments are taken into account in
determining Capital Accounts pursuant to Treasury Regulations Section
1.704-1(b)(2)(iv)(m) and Section 1.704-1(b)(2)(iv)(f); PROVIDED, HOWEVER,
that Gross Asset Values shall not be adjusted pursuant to this subsection
(d) to the extent that the Board determines that an adjustment pursuant to
subsection (b) of this definition is necessary or appropriate in connection
with a transaction that would otherwise result in an adjustment pursuant to
this subsection (d);
(e) if the Gross Asset Value of any Company Asset has been determined
or adjusted pursuant to subsection (a), (b), (c) or (d), such Gross Asset
Value shall thereafter be adjusted by the Depreciation that would be taken
into account with respect to such asset for purposes of computing gains or
losses from the disposition of such asset; and
(f) in all other cases, Gross Asset Value of any Company Asset means
the adjusted basis of such Company Asset for federal income tax purposes.
"HEALTH PRODUCTS BUSINESS" means the business of manufacturing and
selling certain healthcare products, including anti-embolism stockings and
compression therapy systems, sterile wound dressings, non-adhering dressings and
gauze strips, dressing retainers, diabetic socks and slip resistant footwear as
formerly conducted by the Health Products Division of Alba.
"IMPERATIVE BOARD DECISIONS" has the meaning set forth in Section
4.1(f).
"INITIAL RESTRICTIVE PERIOD" has the meaning set forth in Section 7.1.
"INSOLVENCY EVENT" means an event where the Member is unable to pay its
debts generally as they become due.
"INTERNAL RATE OF RETURN" of a Member means the internal rate of return,
compounded semi-annually, determined with reference to a cash flow stream
consisting of "cash ins" and "cash outs." For this purpose, "cash ins" shall
consist of the relevant Capital Contributions of such Member as of the specified
date and "cash outs" shall consist of all amounts of cash distributed to such
Member in respect of such contributions pursuant to Section 6.3(b) hereof.
Annex I-5
"INVOLUNTARY TRANSFER" means the following: the filing by or against a
Member (where not dismissed within sixty (60) days of the date of filing), of a
petition in bankruptcy or a petition in insolvency pursuant to the provisions of
any state or federal insolvency or bankruptcy law or the appointment of a
receiver or trustee of the property of a Member by reason of said Member's
insolvency or inability to pay debts pursuant to said law.
"INVOLUNTARY TRANSFEREE" has the meaning set forth in Section 7.6(b).
"INVOLUNTARY TRANSFEROR" has the meaning set forth in Section 7.6(c).
"LOSSES" has the meaning set forth in Section 6.6(b).
"MANAGER" means a member of the Board designated or elected as provided
in Section 4.1.
"MEMBER ACCEPTANCE PERIOD" has the meaning set forth in Section 7.3(b).
"MEMBER CORRELATIVE ITEM" has the meaning set forth in Section 6.6(c).
"MEMBER SECTION 482 ALLOCATION" has the meaning set forth in Section
6.6(c).
"MEMBER NONRECOURSE DEBT" has the same meaning as the term "partner
nonrecourse debt" in Section 1.704-2(b)(4) of the Regulations.
"MEMBER NONRECOURSE DEBT MINIMUM GAIN" means an amount of gain
characterized as "partner nonrecourse debt minimum gain" under Treasury
Regulations Sections 1.704-2(i)(2) and 1.704-2(i)(3).
"MEMBER NONRECOURSE DEDUCTIONS" has the meaning set forth in Treasury
Regulations Sections 1.704-2(i)(1) and 1.704-2(i)(2).
"MEMBERS" means the Persons listed in the preamble and all other Persons
in whose name Units are registered on the Unit register of the Company and who
are admitted as additional or substituted Members pursuant to this Agreement, so
long as they remain Members. Reference to a "Member" means any one of the
Members.
"MEMBERSHIP INTEREST" shall have the meaning set forth in Section 2.7.
"MEMBERS SCHEDULE" shall have the meaning set forth in Section 2.7.
"MINOR MEMBER" shall have the meaning set forth in Section 2.6.
"MINOR MEMBERS" shall have the meaning set forth in Section 2.6.
"NON-DISCLOSURE AGREEMENT" means the amended and restated non-disclosure
agreement, dated September 6, 2002, by and among Tefron, Alba, Encompass and the
Company.
Annex I-6
"NONRECOURSE DEDUCTIONS" has the meaning set forth in Treasury
Regulations Section 1.704-2(b)(1).
"OFFER" has the meaning set forth in Section 7.3(a).
"OFFERED MEMBERS" has the meaning set forth in Section 7.3(a).
"OFFER NOTICE" has the meaning set forth in Section 7.3(a).
"OFFICER" means any person elected as an officer of the Company as
provided in Section 4.3, but such term does not include any person who has
ceased to be an officer of the Company.
"OVER-ALLOTMENT RIGHT" has the meaning set forth in Section 3.3(b).
"PERCENTAGE INTEREST" means, with respect to any holder of Units as of
any date, the ratio (expressed as a percentage) of the aggregate number of Units
held by such holder on such date to the aggregate number of Units outstanding on
such date. The combined Percentage Interests of all holders of Units shall at
all times equal 100 percent.
"PERMITTED TRANSFER" has the meaning set forth in Section 7.3.
"PERMITTED TRANSFEREE" has the meaning set forth in Section 7.3.
"PERSON" means any individual, partnership, corporation, limited
liability entity, trust, joint venture, unincorporated organization or other
entity.
"PREEMPTIVE NOTICE" has the meaning set forth in Section 3.3(b).
"PREEMPTIVE RIGHT" has the meaning set forth in Section 3.3(b).
"PROFITS" has the meaning set forth in Section 6.6(b).
"PROPORTIONATE SHARE" has the meaning set forth in Section 3.3(b).
"PROPOSED ISSUANCE" has the meaning set forth in Section 3.3(b).
"PROPOSED PURCHASER" has the meaning set forth in Section 3.3(b).
"PURCHASER" has the meaning set forth in Section 7.3.
"PUT CONSIDERATION" has the meaning ascribed thereto in the Put Option
Agreement.
"PUT DATE" has the meaning ascribed thereto in the Put Option Agreement.
"PUT OPTION" has the meaning set forth in the Put Option Agreement.
Annex I-7
"PUT OPTION AGREEMENT" means the Put Option Agreement, dated the date
hereof, by and among the Company, Alba, Encompass and GE Capital.
"QUALIFIED OFFERING" means a public offering of securities of the
Company, or any successor thereto, which involves the sale of equity securities
representing at least twenty percent (20%) of the total voting power of the
Company for aggregate proceeds of not less than $15,000,000.
"QUALIFIED NOMINEE" has the meaning set forth in Section 4.1(c).
"REGULATORY ALLOCATIONS" has the meaning set forth in Section
6.6(c)(viii).
"REFUSED INTERESTS" has the meaning set forth in Section 7.3(b).
"REMAINING MEMBERS" has the meaning set forth in Section 7.6(c).
"SALE PERIOD" has the meaning set forth in Section 7.3(c).
"SELECTION CRITERIA" has the meaning set forth in Section 4.1(c).
"SERIES" means each Series of Membership Interests designated by the
Board in accordance with the terms of this Agreement as set forth on the Members
Schedule hereto, each of which is intended to be a `SERIES' of Membership
Interests as described in SECTION 18-215 of the Act and each of which may have
different Members or groups of Members and may have separate rights, powers or
duties with respect to specified property or obligations of the Company or
profits and losses associated with specified property or obligations, and, may
have a separate business purpose or investment objective.
"SUBJECT INTERESTS" has the meaning set forth in Section 7.3(a).
"SUBSIDIARY" means, with respect to any Person, any other Person
Controlled by such Person.
"TAG-ALONG INITIATOR" has the meaning set forth in Section 7.4(a).
"TAG-ALONG INTEREST" has the meaning set forth in Section 7.4(a).
"TAG-ALONG NOTICE" has the meaning set forth in Section 7.4(a).
"TAG-ALONG OFFEREE" has the meaning set forth in Section 7.4(a).
"TAX MATTERS MEMBER" has the meaning set forth in Section 8.4(a).
"THIRD ALBA DESIGNEE" has the meaning set forth in Section 4.1(c).
"TRANSFER" means, as a noun, any voluntary or involuntary transfer,
sale, pledge or hypothecation or other disposition, whether directly or
indirectly and whether through one or a series of transactions (including by way
of a change of control or any
Annex I-8
Member), and, as a verb, voluntarily or involuntarily to transfer, sell, pledge
or hypothecation or otherwise dispose of, whether directly or indirectly and
whether through one or a series of transactions.
"TRANSFER INTEREST" has the meaning set forth in Section 7.6(c).
"TREASURY REGULATIONS" means the permanent and temporary regulations of
the Department of Treasury promulgated under the Code, as such regulations may
be amended from time to time (including corresponding provisions of succeeding
regulations).
"UNIT" means a unit representing a fractional part of the Membership
Interests of all of the holders of Units of the Company and shall include all
types and classes and/or Series of Units, including Common Units; PROVIDED that
any type or class or Series of Unit shall have the designations, preferences
and/or special rights set forth in this Agreement, and the Membership Interests
represented by such type or class or Series of Unit shall be determined in
accordance with such designations, preferences and/or special rights.
Annex I-9