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Sample Business ContractsHome: Sample Business Contracts:
OPERATING AGREEMENT
FOR
PLAYBOY TV INTERNATIONAL, LLC
A DELAWARE LIMITED LIABILITY COMPANY
TABLE OF CONTENTS
Page
<S> <C>
ARTICLE 1
DEFINITIONS...........................................................................1
ARTICLE 2
ORGANIZATIONAL MATTERS...............................................................10
2.1 Formation...................................................................10
2.2 Name........................................................................10
2.3 Term........................................................................10
2.4 Office and Agent............................................................10
2.5 Addresses of the Members, the Managers, and the Directors...................10
2.6 Purpose of Company..........................................................11
ARTICLE 3
CAPITAL CONTRIBUTIONS................................................................11
3.1 Initial Capital Contribution................................................11
3.2 Additional Capital Contributions............................................11
3.3 Mandatory Additional Capital Contributions..................................11
3.3.1 Equity Contributions...............................................11
3.3.2 Funding Contributions..............................................11
3.4 Failure to Make Mandatory Additional Capital Contributions..................12
3.4.1 Notice ............................................................12
3.4.2 Remedies...........................................................12
3.4.3 Other Effects......................................................14
3.4.4 Remedies Reasonable................................................15
3.4.5 No Waiver..........................................................15
3.5 Optional Additional Capital Contributions...................................15
3.6 Capital Accounts............................................................15
3.7 No Interest.................................................................15
ARTICLE 4
ALLOCATIONS OF NET INCOME AND NET LOSSES AND DISTRIBUTIONS...........................15
4.1 Allocations of Net Income and Net Loss......................................15
4.2 Distribution of Distributable Cash by the Company...........................16
4.3 Form of Distribution........................................................16
4.4 Restriction on Distributions................................................16
4.4.1 Restriction. .....................................................16
4.4.2 Method of Determination. .........................................16
4.4.3 Personal Liability. ..............................................16
4.5 Return of Distributions.....................................................16
ARTICLE 5
MANAGEMENT AND CONTROL OF THE COMPANY................................................17
5.1 Managers and the Management Committee.......................................17
5.1.1 Managers...........................................................17
5.1.2 General Scope of Authority.........................................17
5.1.3 Voting ............................................................17
5.1.4 Veto Right.........................................................17
5.2 Members of the Management Committee; Appointment and Removal................19
5.3 Matters Determined by Independent Directors.................................20
5.4 Meetings of the Management Committee........................................20
5.5 Delegation of Authority; President and Other Officers.......................21
5.5.1 General Power to Delegate Authority................................21
5.5.2 The President......................................................21
5.5.3 Duties of the President............................................21
5.5.4 Additional Officers................................................22
5.5.5 Officers Serve at the Pleasure of the Management
Committee........................................................22
5.6 Interested Party Transactions...............................................22
5.6.1 Approval...........................................................22
5.6.2 Termination and Remedies...........................................22
5.7 Performance of Duties; Liability of Managers; Liability of Directors........23
5.8 Offices and Facilities; Staff...............................................23
5.8.1 Facilities/Company Location........................................23
5.9 Insurance. .................................................................23
ARTICLE 6
BUSINESS PLANS AND ANNUAL BUDGETS; OPERATION OF COMPANY..............................24
6.1 The Business Plan...........................................................24
6.1.1 The First Business Plan............................................24
6.1.2 Additions to Business Plan.........................................24
6.2 Annual Budgets..............................................................24
6.3 Carryover Plan or Budget....................................................25
6.4 Operation of Company........................................................25
6.4.1 Operations During Transition Period. .............................25
6.4.2 Absorption of Existing Channels. .................................25
6.4.3 German Venture Expenses. .........................................25
6.4.4 Services Provided by PEGI. .......................................25
6.4.5 Creation of Local Ventures and Provision for Local Partners. ......26
6.4.6 Supplemental Programs. ...........................................26
6.4.7 Playboy TV Lite....................................................27
6.4.8 Venus and Spice Hot. .............................................27
6.4.9 U.S. Activities....................................................28
6.4.10 Certain Tax Matters.........................................................28
ARTICLE 7
RIGHTS ACQUISITION FEE...............................................................28
7.1 Rights Acquisition Fee. ....................................................28
7.1.1 Payment of Fee. .................................................28
7.1.2 Allocation of Fee. ...............................................29
7.2 Purchase of U.K. Venture, Japan Venture and Danish Companies................29
ARTICLE 8
MEMBERS..............................................................................30
8.1 Limited Liability...........................................................30
8.2 Admission of Additional Members.............................................30
8.3 Withdrawals or Resignations.................................................30
8.4 Termination of Membership Interest..........................................30
8.5 Remuneration To Members. ..................................................30
8.6 Members Are Not Agents; No Management Authority.............................31
8.7 Meetings of Members.........................................................31
8.7.1 Power to Call Meetings.............................................31
ARTICLE 9
TRANSFER AND ASSIGNMENT OF INTERESTS.................................................31
9.1 Transfer of Membership Interests............................................31
9.2 Change of Control...........................................................32
9.2.1 Changes in General.................................................32
9.2.2 VSI. ............................................................32
9.2.3 PEI/PEGI...........................................................32
9.2.4 Initial Public Offering............................................33
9.3 Substitution of Members.....................................................33
9.4 Effective Date of Permitted Transfers.......................................33
9.5 Rights of Legal Representatives.............................................33
9.6 PEGI Buy-up Option..........................................................33
9.6.1 Option Expiration Date. ...........................................34
9.6.2 Exercise of Buy-up Option..........................................34
ARTICLE 10
CONSEQUENCES OF DISSOLUTION..........................................................35
10.1 Disassociation Event........................................................35
10.1.1 Purchase Price .................................................35
10.1.2 Notice of Intent to Purchase.......................................35
10.1.3 Election to Purchase Less Than All of the Former Member's
Interest.........................................................35
10.1.4 Payment of Purchase Price..........................................35
10.1.5 Closing of Purchase of Former Member's Interest....................36
10.1.6 Purchase Terms Varied by Agreement.................................36
10.2 Bankruptcy..................................................................36
ARTICLE 11
ACCOUNTING, RECORDS, REPORTING BY MEMBERS............................................36
11.1 Books and Records...........................................................36
11.2 Delivery to Members and Inspection..........................................37
11.2.1 Delivery Upon Request. ...........................................37
11.2.2 Inspection .................................................37
11.2.3 Authorized Persons.................................................37
11.3 Periodic Statements.........................................................38
11.3.1 Monthly Report .................................................38
11.3.2 Annual Report .................................................38
11.3.3 Tax Information. .................................................38
11.4 Financial and Other Information.............................................38
11.5 Filings. .................................................................38
11.6 Bank Accounts...............................................................38
11.7 Accounting Decisions and Reliance on Others. ...............................39
11.8 Tax Matters for the Company Handled by Management Committee
and Tax Matters Member....................................................39
ARTICLE 12
DISSOLUTION AND WINDING UP...........................................................39
12.1 Term. .................................................................39
12.2 Dissolution Events..........................................................39
12.3 Effect of Dissolution.......................................................40
12.4 Dissolution.................................................................41
12.5 Certificate of Dissolution..................................................41
12.6 Winding Up..................................................................41
12.7 Distributions in Kind.......................................................41
12.8 Order of Payment of Liabilities Upon Dissolution............................42
12.8.1 Distributions to Members...........................................42
12.8.2 Payment of Debts .................................................42
12.9 Certificate of Cancellation.................................................42
12.10 No Action for Dissolution...................................................43
ARTICLE 13
INDEMNIFICATION AND INSURANCE........................................................43
13.1 Indemnification of Agents. .................................................43
13.2 Insurance .................................................................43
ARTICLE 14
NONCOMPETITION.......................................................................44
14.1 Non-competition.............................................................44
14.2 Separate Covenants..........................................................44
14.3 Injunctive Relief...........................................................44
14.4 Outside Businesses. .......................................................44
ARTICLE 15
MEMBER REPRESENTATIONS AND WARRANTIES................................................45
15.1 Representations and Warranties by Each Member...............................45
15.1.1 Experience .................................................45
15.1.2 No Advertising .................................................45
15.1.3 Investment Intent .................................................45
15.1.4 Purpose of Entity..................................................45
15.1.5 Economic Risk .................................................45
15.1.6 No Registration of Membership Interest.............................45
15.1.7 Membership Interest in Restricted Security.........................45
15.1.8 No Obligation to Register..........................................46
15.1.9 No Disposition in Violation of Law.................................46
15.1.10 Investment Risk .................................................46
15.1.11 Restrictions on Transferability....................................46
15.1.12 Information Reviewed...............................................46
15.1.13 No Representations By Company......................................46
15.1.14 Consultation with Attorney.........................................46
15.1.15 Tax Consequences .................................................47
15.1.16 No Assurance of Tax Benefits.......................................47
15.2 VSI Representations and Warranties. .......................................47
15.3 PEGI Representations and Warranties. ......................................47
15.4 Indemnity .................................................................48
ARTICLE 16
DISPUTE RESOLUTION...................................................................48
16.1 Alternative Dispute Resolution. ..........................................48
16.2 Notification and Negotiation. .............................................48
16.3 Mediation. ................................................................49
16.4 Arbitration. ..............................................................49
16.5 Damages. .................................................................49
16.6 Statute of Limitations. ...................................................49
16.7 Confidential Negotiations. ................................................49
16.8 Service of Process. .......................................................49
16.9 Additional Arbitration Provisions. ........................................50
ARTICLE 17
MISCELLANEOUS........................................................................50
17.1 Superseding Agreements......................................................50
17.2 Documents and Acts..........................................................50
17.3 Time is of the Essence......................................................50
17.4 Remedies Cumulative.........................................................50
17.5 Currency; Payments..........................................................50
17.6 Governing Law...............................................................51
17.7 Assignment; No Third Party Beneficiary......................................51
17.8 Agreement Negotiated........................................................51
17.9 Waivers, Remedies Cumulative, Amendments, etc...............................51
17.10 Notices .................................................................52
17.11 Public Announcements........................................................53
17.12 Survival .................................................................53
EXHIBIT A
CAPITAL CONTRIBUTION AND ADDRESSES OF MEMBERS
AS OF AUGUST 31, 1999................................................................A-1
EXHIBIT B
TAX ALLOCATIONS......................................................................B-1
EXHIBIT C
SCHEDULE OF MANDATORY ADDITIONAL CAPITAL CONTRIBUTIONS...............................C-1
EXHIBIT D
BUSINESS PLAN........................................................................D-1
EXHIBIT E
APPRAISED FAIR MARKET VALUE PROCEDURE................................................E-1
EXHIBIT F
ROLL-UP PROCEDURE....................................................................F-1
</TABLE>
OPERATING AGREEMENT
FOR
PLAYBOY TV INTERNATIONAL, LLC
A DELAWARE LIMITED LIABILITY COMPANY
This Operating Agreement is made and entered into on August 31,
1999 by and between Playboy Entertainment Group, Inc., a Delaware
corporation ("PEGI"), and Victoria Springs Investments Ltd., a British
Virgin Islands corporation ("VSI"), with reference to the following facts:
A. The parties have formed Playboy TV International, LLC, a
limited liability company under the laws of the State of Delaware.
B. The parties desire to adopt and approve an operating agreement
for the Company.
NOW, THEREFORE, the parties by this Agreement set forth the
operating agreement for the Company under the laws of the State of Delaware
upon the terms and subject to the conditions of this Agreement.
ARTICLE 1
DEFINITIONS
When used in this Agreement, the following terms will have the
meanings set forth below:
"Acquired Interests" has the meaning set forth in Section 7.2.
"Act" means the Delaware Limited Liability Company Act, as the
same may be amended from time to time.
"Adult-Oriented" means, with respect to a Service or program, that
such Service or program is erotic in nature and features nudity.
"Affiliate" means any Person, directly or indirectly through one
or more intermediaries, controlling of, controlled by, or under common
control with the specified Person. The term "control" (and "controlled" and
"controlling," respectively), as used in the immediately preceding
sentence, means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of the
specified Person (whether by the holding of shares or other equity
interests, the possession of voting or contract rights or otherwise).
"After Tax Basis" means a basis such that any payment (the
"Original Payment") received or deemed to have been received by a Person
(the "recipient") will be supplemented by a further payment to the
recipient so that the sum of the two payments will equal the Original
Payment, after taking into account (x) all taxes that would result from the
receipt or accrual of such payments, if legally required, and (y) any
reduction in taxes that would result from the deduction of the expense
indemnified against, if legally permissible. In the event that the expense
indemnified against is used to reduce taxes by way of amortization or
depreciation, payments made on an After Tax Basis will be refunded in each
taxable year of the recipient in which such expense is deductible in an
amount equal to the sum of (i) the tax savings attributable to such
deduction plus (ii) any reduction in taxes that would result from the
deduction of any amounts described in clause (i) as increased hereby. All
payments hereunder will be calculated on the assumptions that the recipient
was subject to tax at the highest marginal rates of tax applicable to such
class of taxpayer and that it could benefit from the deduction of any
expense at such rate of tax. In the event that a taxing authority will
treat any indemnification payment as not includible in gross income or
disallow any deduction taken into account hereunder, the indemnification
will be recomputed and further payments or refunds made.
"Agent" has the meaning set forth in Section 13.1.
"Agreement" means this Operating Agreement, as originally executed
and as amended from time to time in accordance with the terms hereof.
"Agreement Outline" means that certain "Playboy TV International,
LLC Agreement Outline" entered into by and among PEII, PEGI and Bloomfield,
dated as of December 16, 1998, as amended.
"Annual Budget" has the meaning set forth in Section 6.2.
"Bankruptcy" with respect to a Member means: (a) the filing of an
application by a Member for, or such Member's consent to, the appointment
of a trustee, receiver, or custodian of such Member's other assets; (b) the
entry of an order for relief with respect to a Member in proceedings under
the United States Bankruptcy Code, as amended or superseded from time to
time; (c) the making by a Member of a general assignment for the benefit of
creditors; (d) the entry of an order, judgment, or decree by any court of
competent jurisdiction appointing a trustee, receiver, or custodian of the
assets of a Member unless the proceedings and the Person appointed are
dismissed within ninety (90) days; or (e) the failure by a Member generally
to pay such Member's debts as the debts become due within the meaning of
Section 303(h)(1) of the United States Bankruptcy Code, as determined by
the Bankruptcy Court, or the admission in writing of such Member's
inability to pay its debts as they become due.
"Bloomfield" means Bloomfield Mercantile, Inc., a Panamanian
company and the assignor of its rights under the Agreement Outline to VSI.
"Business Plan" has the meaning set forth in Section 6.1.
"Capital Account" means with respect to any Member the capital
account that the Company establishes and maintains for such Member pursuant
to Section 3.6 and Article 1 of Exhibit B.
"Capital Contribution" means the total value of cash and fair
market value of property (including promissory notes or other obligation to
contribute cash or property) contributed and/or services rendered or to be
rendered to the Company by Members.
"Certificate" means the Certificate of Formation for the Company
originally filed with the Delaware Secretary of State and as amended from
time to time.
"Channels" mean the television channels operated by the Company or
its subsidiaries, now or in the future (each, a "Channel").
"Claim" has the meaning set forth in Section 15.2.
"Code" means the Internal Revenue Code of 1986, as amended from
time to time, the provisions of succeeding law, and to the extent
applicable, the Treasury Regulations.
"Company" means Playboy TV International, LLC, a Delaware limited
liability company.
"Corporate Income Taxes" means, with respect to any entity, such
entity's United States Federal and State income taxes and franchise taxes
(however denominated) based on such entity's actual net earnings or any
similar taxes (however denominated) payable by such entity to any
jurisdiction based on such entity's actual net earnings, it being agreed
that any taxes (however denominated) required to be withheld by any
jurisdiction in order to permit the remittance of monies from any such
jurisdiction will not be deemed to be a tax based on the actual net
earnings of such entity.
"Corporations Code" means the Delaware General Corporation Law, as
amended from time to time, and the provisions of any succeeding law.
"Danish Companies" means SEI 2 and SEI 3.
"Defaulting Member" has the meaning set forth in Section 3.4.1.
"Director" has the meaning set forth in Section 5.2.1.
"Disassociation Event" means, with respect to any Member, the
Bankruptcy or dissolution of such Member.
"Dissolution Event" has the meaning set forth in Section 12.2.
"Distributable Cash" means the amount of cash that the Management
Committee deems available for distribution to the Members, taking into
account all debts, liabilities and obligations of the Company then due and
amounts that the Management Committee deems necessary to place into
reserves for customary and usual claims with respect to the Company's
business and for future operating needs of the Company.
"Due Diligence" means the right granted to Bloomfield in the
Agreement Outline to investigate matters relevant to the transactions
contemplated in the Agreement Outline.
"Economic Interest" means a Member's share of one or more of the
Company's Net Income, Net Losses, and distributions of the Company's assets
pursuant to this Agreement and the Act, but will not include any other
rights of a Member, including, but not limited to, the right to vote or
participate in the management, or except as provided in Section 18-305 of
the Act, any right to information concerning the business and affairs, of
the Company.
"Equity Matching Right" has the meaning set forth in Section
9.2.3.
"Existing Channel Entities" has the meaning set forth in Section
6.4.2.
"Existing Library Programs" has the meaning set forth in the
Program Supply Agreement.
"Fair Market Value" with respect to the Company or to any asset
means the value determined pursuant to Exhibit E.
"Final First Business Plan" has the meaning set forth in Section
6.1.1.
"Fiscal Year" means the Company's fiscal year, which will be the
calendar year.
"Former Member" has the meaning set forth in Section 10.1.
"Former Member's Interest" has the meaning set forth in Section
10.1.
"Founders' Price" as of a specified date means, with respect to
the price per 1% Percentage Interest, an amount equal to the sum of PEGI's
and VSI's Capital Contributions through and including such date, divided by
100.
"Funding Date" means the date which is ten (10) business days
after this Agreement is executed.
"Funding Side Letter" means the letter agreement of even date
herewith among PEGI, VSI, PTVI, PTVLA, the German Venture and White Oak
Enterprises Ltd. relating to the payment of amounts with respect to
programming and trademark license fees relating to PTVLA, the German
Venture and White Oak Enterprises Ltd. for periods ending on June 30, 1999
and amounts advanced to the U.K. Venture after July 1, 1999 and loaned to
the U.K. Venture before March 31, 1999.
"German Venture" means Playboy TV - GmbH Germany.
"Guaranty" means the Guaranty by Hampstead of the obligations
hereunder of VSI, executed concurrently herewith.
"Hampstead" means Hampstead Management Company Ltd., a British
Virgin Islands corporation.
"Imagen" means Imagen Satelital, S.A., a corporation formed under
the laws of Argentina.
"Indemnified Parties" has the meaning set forth in Section 15.2.
"Indemnifying Party" has the meaning set forth in Section 15.2.
"Independent Directors" has the meaning set forth in Section
5.2.1.
"Japan Venture" means The Playboy Channel Japan, Inc., a Japanese
corporation.
"Licensor" means the licensor under either the Program Supply
Agreement or under the Trademark License Agreement, as the context
dictates.
"Lifford" means Lifford International Co. Ltd., an International
business company incorporated under the laws of the British Virgin Islands.
"Local Partner" has the meaning set forth in Section 6.4.5.
"Majority Interest" means Percentage Interests of one or more
Members that taken together exceed fifty percent (50%) of the aggregate of
all Percentage Interests.
"Management Committee" has the meaning set forth in Section 5.1.1.
"Managers" means the Managers of the Company pursuant to Section
18-402 of the Act.
"Mandatory Additional Capital Contributions" has the meaning set
forth in Section 3.3.2.
"Mandatory Additional Cash Contribution" has the meaning set forth
in Section 3.3.2.
"Mandatory Additional Equity Contributions" has the meaning set
forth in Section 3.3.1.
"Matching Right" has the meaning set forth in Section 9.1.2.
"Member" means each Person who (a) is an initial signatory to this
Agreement or has been admitted to the Company as a Member in accordance
with this Agreement and (b) has not resigned, withdrawn, been expelled or
dissolved.
"Membership Interest" means a Member's entire interest in the
Company including the Member's Economic Interest, the right to vote on or
participate in the management, and the right to receive information
concerning the business and affairs, of the Company.
"Memorandum of Agreement" means that certain Memorandum of
Agreement entered into by and between PEGI and Tohokushinsha Film
Corporation dated as of July 31, 1995, as amended.
"Net Income" and "Net Losses" have the meanings set forth in
Article 2 of Exhibit B hereto.
"New Venus" has the meaning set forth in Section 6.4.8(a).
"New Venus Territory" means Mexico and each country comprising
Central America, South America and the Caribbean Basin. "Caribbean Basin"
means the following territories, and specifically excludes Guadeloupe,
Martinique, and The Netherlands Antilles: Anguilla, Antigua and Barbuda,
Aruba, Barbados, Bermuda, The British Virgin Islands, The Cayman Islands,
Cuba, Dominica, Dominican Republic, Grenada, Haiti, Jamaica, Montserrat,
Puerto Rico, St. Kitts & Nevis, St. Lucia, St. Vincent and the Grenadines,
Trinidad and Tobago, and the Turks, Caicos Islands, and the U.S. Virgin
Islands.
"Non-Independent Director" means any Director who is not an
Independent Director
"Offered Asset" has the meaning set forth in Section 9.2.3.
"Offered Interest" has the meaning set forth in Section 9.1.1.
"Offered Terms" has the meaning set forth in Section 9.1.2.
"Option Expiration Date" has the meaning set forth in Section
9.6.1.
"Option Percentage" has the meaning set forth in Section 9.6.
"Optional Additional Capital Contribution" has the meaning set
forth in Section 3.5.
"PEGI" means Playboy Entertainment Group, Inc., a Delaware
corporation.
"PEGI Directors" has the meaning set forth in Section 5.2.1.
"PEGI Parent" has the meaning set forth in Section 9.2.3.
"PEI" means Playboy Enterprises, Inc., a Delaware corporation and
the ultimate parent corporation of PEGI.
"PEII" means Playboy Enterprises International, Inc., a Delaware
corporation and the direct parent corporation of PEGI.
"Percentage Interest" means the percentage of a Member set forth
opposite the name of such Member under the column "Member's Percentage
Interest" in Exhibit A hereto, as such percentage may be adjusted from time
to time pursuant to the terms of this Agreement.
"Person" means an individual, general partnership, limited
partnership, limited liability company, corporation, trust, estate, real
estate investment trust, association or any other entity.
"Playboy TV Lite" has the meaning set forth in Section 6.4.7.
"President" means the President of the Company from time to time.
"Program Supply Agreement" means the Program Supply Agreement
between PEGI and the Company, executed concurrently herewith.
"Proposed Partner" has the meaning set forth in Section 6.4.5(a).
"Proposed Terms" has the meaning set forth in Section 9.2.3.
"PTVH" means Playboy TV Holdings, LLC, a California limited
liability company.
"PTVLA" means Playboy TV-Latin America, LLC, a California limited
liability company.
"PTVLA/I" has the meaning set forth in Section 3.3.1.
"PTV U.S." means PTV U.S., LLC, a Delaware limited liability
company.
"Reference Rate" means the reference rate as set forth from time
to time by BankAmerica.
"Related Documents" means this Agreement, the Trademark License
Agreement, the Program Supply Agreement, the Stock Purchase Agreements, and
the Guaranty.
"Release" means the Termination of Guaranty by and among PEI,
PEGI, PTVLA and Venevision International, Inc., a Florida corporation,
executed concurrently herewith.
"Remaining Members" has the meaning set forth in Section 10.1.
"Remediable Breach" has the meaning set forth in Section
12.2.2(b).
"Rights Acquisition Fee" has the meaning set forth in Section
7.1.1.
"Securities Act" has the meaning set forth in Section 15.1.6.
"SEI 2" means SEI 2 ApS, a company formed under the laws of
Denmark.
"SEI 3" means SEI 3 ApS, a company formed under the laws of
Denmark.
"Selling Member" has the meaning set forth in Section 9.1.2.
"Services" means the operation of television channels under the
brand names "Playboy," "Spice" and "AdulTVision" (and variations thereof
permitted under the Trademark License Agreement) in the Territory.
"Share Purchase Agreement" means that certain Share Purchase
Agreement dated as of November 26, 1998, by and among Playboy TV
U.K./Benelux Limited, PEGI, PEI, Continental Shelf 16 Limited, Flextech
(1992) Limited, British Sky Limited and Sky Ventures Limited, as amended.
"Southern Cone" means the countries of Argentina, Chile, Peru,
Bolivia, Paraguay, Uruguay and their territories and possessions.
"Stock Purchase Agreements" means, collectively, (i) the Stock
Purchase Agreement entered into by and between PEGI and the Company as of
the date hereof for the purchase of PEGI's interest in the U.K. Venture
(ii) the Stock Purchase Agreement entered into by and between PEGI and the
Company as of the date hereof for the purchase of PEGI's interest in the
Japan Venture; (iii) the Stock Purchase Agreement entered into by and
between PEGI and the Company for the purchase of PEGI's interest in SEI 2;
and (iv) the Stock Purchase Agreement entered into by and between PEGI and
the Company for the purchase of PEGI's interest in SEI 3.
"Supplemental Programs" has the meaning set forth in Section
6.4.6.
"Tax Matters Member" means VSI or such Member's successor as
designated pursuant to Section 11.8.
"Term" has the meaning set forth in Section 12.1.
"Territory" means the World, except for the United States and
Canada and their territories and possessions. For certain programs, the
Territory will exclude Bermuda, as set forth in the Program Supply
Agreement.
"Third Party Buyer" has the meaning set forth in Section 9.1.2.
"Trademark License Agreement" means the Trademark License
Agreement, to be executed concurrently herewith, between PEII and the
Company relating to the license of certain trademarks.
"Transfer" has the meaning set forth in Section 9.1.1.
"Transition Period" has the meaning set forth in Section 6.4.1.
"Treasury Regulations" has the meaning set forth in Exhibit B.
"Troy" means Troy Limited, a Bahamian company.
"U.K. Venture" means Home Video Channel Limited and its subsidiary
Playboy TV U.K./Benelux, Limited, each a company organized under the laws
of England and Wales.
"US Distribution Agreement" means that certain Distribution
Agreement to be entered into between PEGI and PTV U.S.
"U.S. Taxable Activity" has the meaning set forth in Section
6.4.9.
"Venus" means that certain Adult-Oriented television programming
service owned and operated by Imagen, primarily in Argentina.
"VSI Directors" has the meaning set forth in Section 5.2.1.
"Walk Away Notice" means that certain letter from Cisneros
Television Group (on behalf of Bloomfield) to PEGI dated February 12, 1999,
in which Bloomfield exercised its Walk Away Right, as defined in the
Agreement Outline.
"Wallpaper" has the meaning set forth in the Program Supply
Agreement.
"Year 1" means the 12-month period commencing on the Funding Date;
"Year 2" means the 12-month period commencing on the first anniversary of
the Funding Date; and subsequent years will be identified in analogous
fashion.
ARTICLE 2
ORGANIZATIONAL MATTERS
2.1 Formation. Pursuant to the Act, the Members formed a limited
liability company under the laws of the State of Delaware by causing
Christine Tuthill, an authorized person, to file the Certificate with the
Delaware Secretary of State. The Members ratify and confirm the filing the
Certificate. The rights and liabilities of the Members will be determined
pursuant to the Act and this Agreement. To the extent that the rights or
obligations of any Member are different by reason of any provision of this
Agreement than they would be in the absence of such provision, this
Agreement will, to the extent permitted by the Act, control.
2.2 Name. The name of the Company will be "Playboy TV
International, LLC." The business of the Company may be conducted under
such name or, upon compliance with applicable laws, any other name
determined by the Management Committee. The President or another designated
officer of the Company will file any fictitious name certificates and
similar filings, and any amendments thereto, that the Management Committee
considers appropriate or advisable. Notwithstanding the foregoing, if PEGI
is no longer a Member, at PEGI's request the Certificate will be amended to
change the name of the Company to a name that does not contain or utilize
any trademarks licensed under the Trademark License Agreement or any
confusingly similar designation or mark.
2.3 Term. The term of this Agreement will be co-terminus with the
period of duration of the Company provided in the Certificate, unless
extended or sooner terminated as hereinafter provided.
2.4 Office and Agent. The Company will continuously maintain an
office and registered agent in the State of Delaware as required by the
Act. The principal office of the Company will be as set forth in Section
5.9.1 or such other location as the Management Committee may determine. The
Company also may have such offices, anywhere within and without the State
of Delaware, as the Management Committee from time to time may determine,
or the business of the Company may require. The registered agent will be as
stated in the Certificate or as otherwise determined by the Management
Committee.
2.5 Addresses of the Members, the Managers, and the Directors. The
respective addresses of the Members are set forth on Exhibit A, which
exhibit will be modified from time to time to reflect changes therein. The
respective addresses of the Managers and the Directors will be maintained
in the books of the Company and made available to any Member, on request.
2.6 Purpose of Company. The purpose of the Company is to engage in
any lawful activity for which a limited liability company may be organized
under the Act. Notwithstanding the foregoing, without the majority approval
of the Management Committee (and subject to the veto rights of the VSI
Directors and the PEGI Directors under Section 5.1.3), the Company will not
engage in any business other than the business of (i) owning, operating and
distributing the Services in the Territory, (ii) licensing programming to
third parties; and (iii) and such other activities which are ancillary and
related thereto as may be necessary, advisable, or appropriate in the
reasonable opinion of the Management Committee, to further the foregoing
business, including but not limited to the promotion of the Services and
related marketing, distribution and advertising activities.
ARTICLE 3
CAPITAL CONTRIBUTIONS
3.1 Initial Capital Contribution. On the Funding Date, each Member
will contribute such amount as is set forth on Exhibit A as its initial
Capital Contribution to be paid on such date. Both VSI's and PEGI's initial
Capital Contributions will be made in cash. Exhibit A will be further
revised from time to time to reflect any additional contributions made in
accordance with this Agreement.
3.2 Additional Capital Contributions. Except as specifically
provided in Section 3.3, no Member will be required to make any additional
Capital Contributions.
3.3 Mandatory Additional Capital Contributions.
3.3.1 Equity Contributions. VSI will use its reasonable best
efforts to acquire Lifford's interest in PTVLA and Bloomfield's interest in
the German Venture as soon as reasonably practicable. Promptly after the
date of such acquisitions, both VSI and PEGI will contribute to the Company
their equity interests (or those interests belonging to PEGI Affiliates or
VSI Affiliates) in PTVLA and the German Venture at book value (the
"Mandatory Additional Equity Contributions"); provided, however, that VSI
will, until the effective date of the merger of PTVLA into Playboy TV-Latin
America/Iberia, LLC, a Delaware limited liability company ("PTVLA/I"),
retain a 1% membership interest in PTVLA. As of the effective date of such
merger, VSI will contribute such 1% membership interest in PTVLA/I to the
Company.
3.3.2 Funding Contributions. If necessary to cover the
deficits of the Company, each Member will contribute additional capital pro
rata in accordance with their respective Percentage Interests, with such
capital calls subject to the aggregate maximum (including the initial
Capital Contributions described in Section 3.1) of One Hundred Million
Dollars ($100,000,000) (each, a "Mandatory Additional Cash Contribution";
and, together with the Mandatory Additional Equity Contributions, the
"Mandatory Additional Capital Contributions"). A schedule of anticipated
Mandatory Additional Cash Contributions for the first eight (8) quarters of
the Company's operation, which contributions are expected to occur
quarterly at the beginning of each quarter, will be attached hereto as
Exhibit C upon completion of the Final First Business Plan. Subsequent
Mandatory Additional Cash Contributions will be made as set forth in the
Business Plan, as in effect from time to time. The Company will give
written notice to each Member of each Mandatory Additional Capital
Contribution at least fifteen (15) business days prior to the date due,
stating the amount owed by each Member and the date on which such amount is
due.
3.4 Failure to Make Mandatory Additional Capital Contributions.
3.4.1 Notice. If a Member does not timely contribute a
Mandatory Additional Capital Contribution when required, that Member will
be in default under this Agreement (a "Defaulting Member"). In such event,
the Company will send the Defaulting Member written notice of such default,
giving the Defaulting Member fifteen (15) days from the date such notice is
given to contribute the entire amount of the Mandatory Additional Capital
Contribution.
3.4.2 Remedies. If the Defaulting Member does not contribute
the Mandatory Additional Capital Contribution to the Company within the
periods set forth below, the Management Committee, acting for all purposes
of this Section 3.4.2 without the vote of the Directors appointed by the
Defaulting Member, (i.e., acting by a Majority Interest of the members of
the Management Committee appointed by the non-Defaulting Members) may elect
any one or more of the remedies set forth below. Notwithstanding the
foregoing, in no event will the Management Committee be entitled to elect
more than one remedy if the effect of doing so would be duplicative.
(a) Apply Payments. If PEGI (or an Affiliate of PEGI which
is then a Member) is the Defaulting Member, the Management Committee may
elect to withhold the amount that the Defaulting Member has failed to
contribute from amounts otherwise payable to PEGI (or an Affiliate of PEGI)
with respect to the Rights Acquisition Fee or under the Program Supply
Agreement or the Trademark License Agreement and to pay such withheld
amount to the Company on behalf of the Defaulting Member. For all purposes
hereunder, the withheld amount will be treated as though it were paid by
the Company to the party entitled to payment thereof and as though the
Defaulting Member made the capital contribution.
(b) Advance Funds. If the Defaulting Member does not
contribute the Mandatory Additional Capital Contribution within the fifteen
(15) day period following notice from the Company of default, the
Management Committee may elect to permit non-defaulting Members to advance
funds to the Company to cover those amounts that the Defaulting Member
fails to contribute. Amounts that a non-Defaulting Member so advances on
behalf of the Defaulting Member will become a demand loan due and owing
from the Defaulting Member to such non-defaulting Member, bearing interest
at the rate per annum of one hundred fifty (150) basis points above the
Reference Rate as in effect on the date such Mandatory Additional Capital
Contribution was originally due, with such interest being payable monthly.
All cash distributions otherwise distributable to the Defaulting Member
under this Agreement will instead be paid, on the Defaulting Member's
behalf, to the non-Defaulting Members making such advances until such
advances and any accrued but unpaid interest thereon are paid in full. Any
amounts repaid will first be applied to interest and thereafter to
principal. Effective upon a Member becoming a Defaulting Member, such
Member will grant to the non-Defaulting Members who advance funds under
this Section 3.4.2(b) a security interest in its Economic Interest to
secure its obligation to repay such advances and will execute and deliver a
promissory note, security agreement, and such UCC-1 financing statements
and assignments of certificates of membership interest (or other documents
of transfer) in such form as such non-Defaulting Members may reasonably
request.
(c) Adjust Percentage Interest. If the Defaulting Member
does not, within a further period of ninety (90) days, contribute the
Mandatory Additional Capital Contribution and/or repay in full any advances
made by the non-Defaulting Members, the Member who has made a loan pursuant
to Section 3.4.2(b) may elect to convert all or a portion of such loan
(plus any accrued but unpaid interest thereon) to a Capital Contribution.
Upon such election, the Percentage Interests of the Defaulting Member and
the non-Defaulting Member(s) will be adjusted so that each Member's
Percentage Interest will be a fraction, the numerator of which represents
the amount of such Member's Capital Account and the denominator of which
represents the sum of all Members' Capital Accounts, taking into account
the contribution represented by the conversion of the loan.
(d) Dissolve. If the Defaulting Member does not contribute
Mandatory Additional Capital Contributions on three (3) occasions, whether
or not consecutive, and the Defaulting Member has failed to cure each such
failure to contribute within the fifteen (15) day period specified in
Section 3.4.1 above, the Management Committee may propose to dissolve the
Company in which event the Company will be wound-up, liquidated and
terminated pursuant to Article 12.
(e) Purchase Interest. If the Defaulting Member does not
contribute Mandatory Additional Capital Contributions on three (3)
occasions, whether or not consecutive, and the Defaulting Member has failed
to cure each such failure to contribute within the fifteen (15) day period
specified in Section 3.4.1 above, the Management Committee may elect to
permit the Company or the non-Defaulting Members to purchase the Defaulting
Member's entire Membership Interest for the positive balance of such
Member's Capital Account less the total amount owed by such Member to the
Company and non-Defaulting Members in respect of unpaid Mandatory
Additional Capital Contributions or advances by non-Defaulting Members in
respect thereof. Any such purchase of a Member's Percentage Interest will
occur as promptly as practicable following notice of the purchase election
to the Defaulting Member, subject to the receipt of required regulatory
approvals.
3.4.3 Other Effects.
(a) No Distributions. A Defaulting Member will have no right
to receive any distributions from the Company until: (i) the principal and
interest of any outstanding loan made by a non-Defaulting Member pursuant
to Section 3.4.2(a) has been repaid; and (ii) to the extent a
non-Defaulting Member elects to convert any such loan to a Capital
Contribution, such non-Defaulting Member has first received distributions
in an amount equal to the amount of such Capital Contribution, plus a
cumulative, compounded return thereon at the rate per annum of one hundred
fifty (150) basis points above the Reference Rate as in effect on the date
such additional capital was contributed. In the event a non-Defaulting
Member receives a distribution of interest on a Capital Contribution
pursuant to clause (ii) of the preceding sentence, the Capital Account of
such non-Defaulting Member will be increased by the amount of such interest
payment.
(b) No Voting. Except as otherwise provided in this Section
3.4.3(b), if the Management Committee exercises any of the remedies set
forth in paragraphs (d) or (e) of Section 3.4.2, the Defaulting Member
(directly or through the Directors appointed by it) will lose its voting
and approval rights under the Act and this Agreement (unless the Defaulting
Member cures the default and the non-Defaulting Member permits such cure).
Notwithstanding the foregoing, the Directors appointed by the Defaulting
Member will retain their veto rights (to the extent such veto rights were
continuing prior to the exercise of such remedy) with respect to the
matters described in Sections 5.1.4(b) and Section 5.1.4(c). No reduction
in a Member's Membership Interest, pursuant to Section 3.4.2(b) will affect
any of the Defaulting Member's voting or approval rights under this
Agreement (other than to the extent such reduction reduces the voting power
of the Defaulting Member's Directors pursuant to Section 5.2.4).
(c) No Participation in Management. Except as provided in
Section 3.4.3(b), if the Management Committee exercises any of the remedies
set forth in paragraphs (d) or (e) of Section 3.4.2, the Defaulting Member
will lose its ability (whether as a Member or through the Directors
appointed by it) to actively participate in the management and operations
of the Company until the completion of dissolution and the winding up of
the affairs of the Company, or such time as the Defaulting Member cures (if
the non-Defaulting member thereafter permits the Defaulting Member to cure)
the default or its Percentage Interest is purchased.
3.4.4 Remedies Reasonable. Each Member acknowledges and
agrees that the remedies described in this Section 3.4 bear a reasonable
relationship to the damages that the Members estimate may be suffered by
the Company and the non-Defaulting Members by reason of the failure of a
Defaulting Member to make Mandatory Additional Capital Contributions and,
subject to the last sentence of the first paragraph of Section 3.4.2, the
election of any or all of the above-described remedies is not unreasonable.
3.4.5 No Waiver. Subject to the last sentence of the first
paragraph of Section 3.4.2, the election of the Management Committee or of
any non-Defaulting Member to pursue any remedy provided in this Section 3.4
will not be a waiver or limitation of the right of the Management
Committee, the Company or the non-Defaulting Members to pursue an
additional or different remedy available hereunder or of law or equity with
respect to any subsequent default.
3.5 Optional Additional Capital Contributions. To the extent
approved by the Management Committee (subject to the veto rights of the VSI
Directors and PEGI Directors under Section 5.1.3), from time to time, the
Members may be permitted to make additional Capital Contributions if and to
the extent they so desire, and if the Directors determine that such
additional Capital Contributions are necessary or appropriate for the
conduct of the Company's business, including without limitation, expansion
or diversification (each, an "Optional Additional Capital Contribution").
In that event, the Members will have the opportunity, but not the
obligation, to participate in such Optional Additional Capital
Contributions on a pro rata basis in accordance with their Percentage
Interests. Immediately following such Optional Additional Capital
Contributions, the Percentage Interests will be adjusted to reflect the new
relative proportions of the Capital Accounts of the Members.
3.6 Capital Accounts. The Company will establish an individual
Capital Account for each Member in accordance with Article 1 of Exhibit B
hereto. If a Member transfers all or a part of its Membership Interest in
accordance with this Agreement, such Member's Capital Account attributable
to the transferred Membership Interest will carry over to the new owner of
such Membership Interest pursuant to Treasury Regulations Section
1.704-1(b)(2)(iv)(1).
3.7 No Interest. Except as provided in Section 3.4, no Member will
be entitled to receive any interest on its Capital Contributions.
ARTICLE 4
ALLOCATIONS OF NET INCOME AND NET LOSSES AND DISTRIBUTIONS
4.1 Allocations of Net Income and Net Loss. Net Income and Net
Loss will be allocated to the Members in accordance with Article 1 of
Exhibit B.
4.2 Distribution of Distributable Cash by the Company. Subject to
applicable law and any limitations contained elsewhere in this Agreement,
the Management Committee will cause the Company to distribute Distributable
Cash on a quarterly basis to the Members, which distributions will be made
to the Members in proportion to their Percentage Interests as of the end of
the relevant quarter.
4.3 Form of Distribution. Except as provided in Section 12.7, a
Member, regardless of the nature of the Member's Capital Contribution, has
no right to demand and receive any distribution from the Company in any
form other than money. No Member may be compelled to accept from the
Company a distribution of any asset in kind in lieu of a proportionate
distribution of money being made to other Members. Except upon a
dissolution and a winding up of the Company, no Member may be compelled to
accept a distribution of any asset in kind.
4.4 Restriction on Distributions.
4.4.1 Restriction. No distribution will be made if, after
giving effect to the distribution:
(a) The Company would not be able to pay its debts as they
become due in the usual course of business.
(b) The Company's total assets would be less than the sum of
its total liabilities.
4.4.2 Method of Determination. The Management Committee may
base a determination that a distribution is not prohibited on any of the
following: (i) financial statements prepared on the basis of accounting
practices and principles that are reasonable in the circumstances; (ii) a
fair valuation; or (iii) any other method that is reasonable in the
circumstances.
Except as provided in Section 18-607(b) of the Act, the
effect of a distribution is measured as of the date the distribution is
authorized if the payment occurs within one hundred twenty (120) days after
the date of authorization, or the date payment is made if it occurs more
than one hundred twenty (120) days of the date of authorization.
4.4.3 Personal Liability. A Member who receives a
distribution in violation of this Agreement or the Act will be liable to
the Company for the amount of the distribution that exceeds what could have
been distributed without violating this Agreement or the Act. Any Member
who is so liable will be entitled to compel the Company to seek repayment
from each other Member who is so liable.
4.5 Return of Distributions. Except for distributions made in
violation of the Act or this Agreement, no Member will be obligated to
return any distribution to the Company or pay the amount of any
distribution for the account of the Company or to any creditor of the
Company. The amount of any distribution returned to the Company by a Member
or paid by a Member for the account of the Company or to a creditor of the
Company will be added to the account or accounts from which it was
subtracted when it was distributed to the Member.
ARTICLE 5
MANAGEMENT AND CONTROL OF THE COMPANY
5.1 Managers and the Management Committee.
5.1.1 Managers. Each Person duly admitted as a Member of the
Company pursuant to this Agreement will be a Manager of the Company until
such Member's Membership Interest has been transferred or terminated or
such Member has withdrawn in accordance with this Agreement. VSI and PEGI
will be the initial Managers of the Company.
5.1.2 General Scope of Authority. The business and affairs
of the Company will be managed by the Managers through a management
committee consisting of representatives appointed by the Managers, and
through which the Managers will exercise their rights and authority
hereunder (the "Management Committee"). The Management Committee will be
appointed and constituted in the manner provided in Section 5.2 hereof. The
Management Committee will be responsible for all aspects of the operations
and development of the Company and, except as otherwise expressly provided
for in this Agreement, the Management Committee will have exclusive
authority and full discretion with respect to the management of the
business of the Company and will have the exclusive right, power and
authority to cause the Company to do, or cause to be done, all acts and
actions which in its sole judgment are necessary, proper, convenient or
desirable in order to operate and conduct the business of the Company and
to carry out and fulfill the purposes of the Company.
5.1.3 Voting. Except as provided in Section 5.1.4 and in
Section 5.3, all matters submitted to the Management Committee will be
decided by a majority vote of the Non-Independent Directors. The
Non-Independent Directors will have voting power in proportion to the ratio
of Percentage Interests held by the Manager appointing them. All
Non-Independent Directors appointed by a Manager will collectively exercise
such voting power and each Manager will designate one of its
Non-Independent Directors to vote on behalf of all Non-Independent
Directors appointed by such Manager in the event of a disagreement among
the Non-Independent Directors appointed by such Manager.
5.1.4 Veto Right. Notwithstanding anything to the contrary
contained in this Agreement: (i) the VSI Directors may (so long as VSI or
any of its Affiliates is a Manager) and the PEGI Directors may (so long as
PEGI or any of its Affiliates is a Manager) veto any decision of the
Management Committee to perform, or cause the Company to perform, any of
the acts or transactions described in subsections (a) and (b) below; and
(ii) the VSI Directors may (so long as VSI and its Affiliates hold, in
aggregate, Percentage Interests equal to at least 10%) and the PEGI
Directors may (so long as PEGI and its Affiliates hold, in aggregate,
Percentage Interests equal to at least 10%) veto any decision of the
Management Committee to perform, or cause the Company to perform, any of
the following acts or transactions:
(a) any amendment to the Certificate, this Agreement, the
Trademark License Agreement and the Program Supply Agreement;
(b) any merger or other reorganization of the Company or any
sale of all or substantially all of the assets of the Company;
(c) the issuance of additional Membership Interests in the
Company or the call for Optional Additional Capital Contributions;
(d) any distribution by the Company with respect to the
interests therein other than distributions of excess cash (including, but
not limited to, any distribution of non-cash assets);
(e) the approval of any Company Business Plan or Annual
Budget or of any additions or amendments thereto; provided, however, that
in the event of a Licensor Shortfall (as defined in the Program License
Agreement) the VSI Directors may cause an Annual Budget to be amended to
provide for the production and/or acquisition of sufficient programming to
replace the Licensor Shortfall in a manner reasonably related to the nature
and scope of such Licensor Shortfall without the approval of the PEGI
Directors;
(f) the Company taking actions that are inconsistent with an
approved Business Plan or Annual Budget, or which are otherwise outside the
ordinary course of business, including but not limited to the incurrence of
indebtedness in excess of the levels contemplated by the applicable
Business Plan or Annual Budget;
(g) the appointment or dismissal of the President and the
approval of the terms of any employment agreement between the Company and
any senior executive officer;
(h) the Company entering into any line of business except as
contemplated herein;
(i) loans by the Company to any Member;
(j) the Company entering into any transaction with an
Affiliate of any Member (other than the Related Documents, as contemplated
in an approved Business Plan or as provided for in this Agreement);
(k) except as expressly provided herein, the termination,
dissolution or liquidation of the Company;
(l) the decision to admit a Local Partner who will acquire
(y) more than a 50% interest in a local venture for the U.K./Benelux
territory or the "GS Territory" or (z) more than a 33% interest in a local
venture for any other region of the Territory (as described in Section
6.4.5);
(m) the adoption of any different or additional names under
which the Company conducts business, other than the name of any "hot
channel" operated by the Company; or
(n) the location of the Company's principal offices, if
other than as set forth in Section 5.8.1.
Notwithstanding the foregoing, if PEGI has not acquired fifty
percent (50%) of the Percentage Interests in the Company prior to the
Option Expiration Date, then thereafter it may not exercise its veto right
with respect to a matter described in clause (h) above.
5.2 Members of the Management Committee; Appointment and Removal.
5.2.1 For so long as VSI (or its Affiliates) and PEGI (or
its Affiliates) are the only Members and Managers, the Management Committee
will consist of nine members: three Non-Independent Directors selected by
VSI (the "VSI Directors"), three Non-Independent Directors selected by PEGI
(the "PEGI Directors") and three other Directors (each, an "Independent
Director") selected in accordance with the following sentence. VSI and PEGI
will each select one Independent Director, and the two Independent
Directors will select a third Independent Director; provided, however, that
such third Independent Director will be mutually acceptable to both VSI and
PEGI. To qualify as an Independent Director, a person must have, and
continue to have, no material business, financial or familial relationship
with either VSI or PEGI or their Affiliates or with any officer or
executive thereof. Each of VSI and PEGI will identify the Directors it is
to appoint prior to the Funding Date. Each member of the Management
Committee is referred to as a "Director", and, collectively, as the
"Directors." A duly-admitted Manager will have the right to appoint at
least one Non-Independent Director (or such greater number as the
Management Committee may determine); provided, however, that no group of
Affiliated Members will have the right to appoint more than that number of
Directors that could have been appointed by that group's initial holder of
the Membership Interests. A Director need not be a resident of the State of
Delaware or a citizen of the United States. To the fullest extent permitted
by law, no Director will be deemed an agent or sub-agent of the Company.
Each Manager, by execution of this Agreement, agrees to, consents to, and
acknowledges the delegation of powers and authority to such Directors and
the Management Committee, and to the actions and decisions of such
Directors and the Management Committee within the scope of such Director's
and Management Committee's authority as provided herein. No Director will
have the authority in his capacity as a Director to enter into any
transaction on behalf of the Company. The Independent Directors will
receive compensation as determined from time to time by the Management
Committee and as reflected in the applicable Annual Budget.
(a) At such time as either the VSI Directors or the PEGI
Directors are no longer entitled to exercise a veto on matters that may be
determined by the Independent Directors pursuant to Section 5.3, the
Independent Directors will be dismissed from the Management Committee.
5.2.2 Each Manager will have the absolute and unconditional
right from time to time to designate the Directors appointed by it by
delivery of written notice to the Members. A Director may be removed with
or without cause at the sole discretion of the Manager that appointed that
Director by delivery of written notice to the other Manager(s). A vacancy
on the Management Committee may only be filled by the Manager that
originally appointed the Director whose death, disability, removal or
resignation created such vacancy, or, in the case of the third Independent
Director, by the other two Independent Directors. Each Manager will also
have the right to appoint alternates to each Director designated by such
Manager by designating the name of such alternates in a written notice to
the other Manager(s). In case of the absence of a Director, any individual
designated as an alternate for that Director will have the right and power
to exercise all rights and powers of the absent Director.
5.3 Matters Determined by Independent Directors. If the VSI
Directors or the PEGI Directors exercise their veto power under Section
5.1.3 with respect to * * * such Directors will negotiate in good faith for
a period of fifteen (15) business days in order to resolve the deadlock. If
such negotiations are not successful, then such deadlocked matter will be ***
5.4 Meetings of the Management Committee.
5.4.1 Regular quarterly meetings of the Management Committee
will be held without call or notice at such time as will from time to time
be fixed by standing resolution of the Management Committee. Special
meetings of the Management Committee may be held at any time whenever
called by any Director. Written notice of a special meeting of the
Management Committee will be given to the other Directors by the Director
calling the meeting at least three (3) business days before such special
meeting, and such notice will include a proposed agenda for the meeting.
Only matters on the proposed agenda may be put to a vote at such special
meeting. Special meetings may only take place at the Company's principal
offices or in Los Angeles.
5.4.2 For so long as each of VSI (with its Affiliates, in
aggregate) and PEGI (with its Affiliates, in aggregate) each hold
Percentage Interests equal to at least 10%, the location of the Company's
quarterly Management Committee meetings will rotate among the Company's
offices in Miami Beach, PEGI's headquarters in Beverly Hills, PEI's
headquarters in Chicago and an international location to be determined by
the Management Committee. The presence of Directors representing a Majority
Interest at a duly noticed meeting of the Management Committee will
constitute a quorum for the transaction of business; provided that to
transact business with respect to which the Directors appointed by any
Member have a veto right pursuant to Section 5.1.4, at least one such
Director must be present for a quorum to exist. Directors may participate
in a meeting through the use of conference telephone or similar
communications equipment, and such Directors will be considered present in
person as long as all Directors participating in such meeting can hear one
another.
5.4.3 Every act of the Management Committee taken at any
meeting of the Management Committee, however called and noticed or wherever
held, will be as valid as though made or performed at a meeting duly held
after regular call and notice, if a quorum is present and if, either before
or after the meeting, each of the Managers not present or who, though
present, has prior to the meeting or at its commencement, protested the
lack of proper notice to such meeting, signs a written waiver of notice or
a written consent to holding such meeting or approval of the minutes
thereof.
5.4.4 For so long as VSI and PEGI are the only Managers, any
action required or permitted to be taken at any meeting of the Management
Committee may be taken without a meeting if one VSI Director and one PEGI
Director consent thereto in writing, and the writing is filed with the
minutes of proceedings of the Management Committee.
5.5 Delegation of Authority; President and Other Officers.
5.5.1 General Power to Delegate Authority. The Management
Committee may delegate the right, power and authority to manage the day-to-day
business, affairs, operations and activities of the Company to the President
(which authority the President may delegate to other Persons), subject to the
ultimate direction, control and supervision of the Management Committee;
provided, however, that no Person will be authorized to take any action or
engage in any activity subject to the veto right of the VSI Directors and PEGI
Directors under Section 5.1.4 or where the approval of a specified Person is
required, without first obtaining the required approvals.
5.5.2 The President. The Managers intend that the Management
Committee delegate the management of the day-to-day business, affairs,
operations and activities of the Company to a President. The President will be
the most senior executive of the Company and will report directly to the
Management Committee. Subject to the supervisory powers of the Management
Committee, the President will have general and active management of the
business of the Company and will see that all orders and resolutions of the
Management Committee are carried into effect. The President will have the
power to execute any agreements and instruments on behalf of the Company,
except where the execution thereof will be expressly reserved by the
Management Committee or delegated by the Management Committee or the President
to some other officer or agent of the Company. The President will have such
other powers and duties as may be prescribed by the Management Committee or
this Agreement.
5.5.3 Duties of the President. Unless and until any of the
following duties are delegated to another officer by the Management
Committee, the President's duties will include: preparing the Business Plan
and Annual Budget and presenting them to the Members for approval at least
ninety (90) days prior to commencement of the applicable Fiscal Year;
supervision of all key functions of the Company (including launching and
managing Channels; sales and marketing; program acquisition and production;
strategic planning; accounting and financial planning (including
responsibility for the preparation of business plans and annual budgets);
and legal and business affairs); the ability to hire and fire employees
(except employees with compensation packages worth more than $200,000 per
year, in which case such hiring or termination must be approved by the
Management Committee); expending funds in accordance with the approved
Business Plan and Annual Budgets; reporting to the Management Committee on
a regular basis regarding the operations of the Company; and responding to
reasonable requests for information from any VSI Director or PEGI Director.
5.5.4 Additional Officers. The Company may have such other
officers with such powers and duties as the Management Committee will
determine from time to time.
5.5.5 Officers Serve at the Pleasure of the Management
Committee. Subject to whatever rights an officer may have under a contract
of employment with the Company, all officers of the Company will serve at
the pleasure of the Management Committee.
5.6 Interested Party Transactions.
5.6.1 Approval. Except for transactions provided for in the
Related Documents, the Company will only engage in a transaction with a
Member or any Affiliate of a Member if the transaction is on terms and
conditions fair and reasonable to the Company and at least as favorable to
the Company as those generally available in a similar transaction between
parties operating at arm's length and is approved by the Management
Committee. A transaction will conclusively be deemed to have met the above
requirements if, after full disclosure, the transaction is unanimously
approved by the Non-Independent Directors. Each Member agrees to disclose
to the Management Committee the nature and extent of the interest of such
Member and its Affiliates in any transaction to be acted on by the
Management Committee pursuant to this Section 5.6.1 prior to such action.
If a Member or an Affiliate thereof engages in a transaction with the
Company, such Member and/or such Affiliate will have the same rights and
obligations with respect thereto as would be the case if a Person who is
not a Member were the other party to such transaction.
5.6.2 Termination and Remedies. With respect to any contract
between the Company and a Member or any Affiliate of a Member, including
but not limited to every Related Document, the Directors appointed by the
Managers not having an interest in such contract (other than as a Member)
will have the right, acting by majority vote, to determine what actions, if
any, should be taken upon the other party's default and to cause the
Company to exercise any and all remedies it may have under such contract or
applicable law, including without limitation, the termination of such
contract.
5.7 Performance of Duties; Liability of Managers; Liability of
Directors.
5.7.1 A Manager will not be liable to the Company or to any
Member for any loss or damage sustained by the Company or any Member,
unless the loss or damage will have been the result of fraud, deceit, gross
negligence, reckless or intentional misconduct, or a knowing violation of
law by the Manager. The Managers will perform their managerial duties in
good faith, in a manner they reasonably believe to be in the best interests
of the Company and its Members, and with such care, including reasonable
inquiry, as an ordinarily prudent person in a like position would use under
similar circumstances. A Manager who so performs the duties of Manager will
not have any liability by reason of being or having been a Manager of the
Company.
5.7.2 A Director will not be liable to the Company or to any
Member for any loss or damage sustained by the Company or any Member,
unless the loss or damage will have been the result of fraud, deceit, gross
negligence, reckless or intentional misconduct, or a knowing violation of
law by the Director. The Directors will perform their duties in good faith,
in a manner they reasonably believe to be in the best interests of the
Company and its Members, and with such care, including reasonable inquiry,
as an ordinarily prudent person in a like position would use under similar
circumstances. A Director who so performs the duties of Director will not
have any liability by reason of being or having been a Director of the
Company.
5.8 Offices and Facilities; Staff.
5.8.1 Facilities/Company Location. The Company will maintain
offices located either with VSI in the Cisneros Television Group office in
Miami Beach or at another location near such office, except for any
regional sales, marketing, production, technical, or management functions
that are appropriately located in one or more places in the Territory. In
the event that the Company's headquarters are located within VSI's offices
or the offices of an Affiliate of VSI, VSI (or its Affiliate) will charge
the Company for the expenses incurred by VSI (or its Affiliate) on account
of the Company's rent and occupancy, determined on a reasonable allocation
basis.
5.9 Insurance. The Managers will cause the Company to secure
errors and omissions and other customary liability insurance for the
Company covering exhibitions of programming by the Company, which insurance
policies will meet customary standards, and will maintain liability and
other insurance covering the activities of the Company consistent with good
business customs and practices in the Territory and the other locations in
which the Company conducts business. All insurance policies will name each
Member and their respective Affiliates, the Managers, the Directors, the
President and any other officers as named insureds.
ARTICLE 6
BUSINESS PLANS AND ANNUAL BUDGETS; OPERATION OF COMPANY
6.1 The Business Plan.
6.1.1 The First Business Plan. The Management Committee and
the President will conduct the business of the Company in accordance with
the Business Plans and Annual Budgets (each as defined below). Attached
hereto as Exhibit D is the first Business Plan of the Company (as modified
pursuant to the next two sentences and together with additional years added
thereto pursuant to Section 6.1.2, the "Business Plan"). The Members
acknowledge that the first Business Plan needs to be adjusted to reflect
previously agreed (i) changes in assumptions regarding launch dates; (ii)
amounts relating to the final annual budget for 1999 (including the matters
described in the Funding Side Letter); and (iii) changes in assumptions
regarding third party sales for 1999 and 2000 (as so adjusted, the "Final
First Business Plan"). The Members agree to cause the first Business Plan
to be adjusted prior to the Funding Date. The Business Plan is the
financial model for the operation of the Company and the Services. The
Members have, by the execution of this Agreement, approved the first
Business Plan (subject to the preceding two sentences), the Annual Budget
for 1999 and the Capital Contributions contemplated to be made thereunder.
6.1.2 Additions to Business Plan. At least ninety (90) days
prior to the end of the first year of the Company and at least ninety (90)
days prior to the end of every succeeding year of the Term thereafter, the
President will cause the Company to prepare an additional year of the
Business Plan for review and approval by the Management Committee such that
the Business Plan continues to have five years of coverage throughout the
Term. Such additions to the Business Plan will be substantially similar to
the first Business Plan in scope and detail, will include such additional
information relating to the operating and capital forecasts and budgets of
the Company as the Management Committee may direct from time to time, and
will be accompanied by a report and assessment of the Company's performance
under the preceding five year period of the Business Plan.
6.2 Annual Budgets. The Business Plan will be updated annually by
a budget (each, an "Annual Budget") for the coming Fiscal Year. The
President will cause the Company to prepare the Annual Budget and present
it to the Management Committee for approval at least ninety (90) days prior
to commencement of the applicable Fiscal Year. The approved Annual Budget
for a given Fiscal Year will supersede the data contained in the Business
Plan for that Fiscal Year. The Annual Budget for fiscal 1999 is included in
the Business Plan attached as Exhibit D. Each new Annual Budget will be
substantially similar to the 1999 Annual Budget in scope and detail, and
will include a projection of required capital contributions for such Fiscal
Year, if any, and such additional information relating to the operating and
capital forecasts and budgets of the Company as the Management Committee
may direct from time to time. Each Annual Budget will be accompanied by a
report and assessment of the Company's performance under the preceding
Annual Budget.
6.3 Carryover Plan or Budget. In the event the PEGI Directors or
the VSI Directors * * *, the Company will continue to operate in accordance
with the most recently approved Business Plan or Annual Budget, as the case
may be, until * * *
6.4 Operation of Company.
6.4.1 Operations During Transition Period. The parties
anticipate that the Company will require a period of approximately six (6)
months after the Funding Date (the "Transition Period") to arrange
appropriate office space and other facilities and services, hire staff and
otherwise be prepared to fully handle the Company's business. During the
Transition Period, PEGI will provide various services to facilitate the
Company's operations (including, but not limited to, program sales, the
servicing of program license agreements and the collection of license fees)
on the Company's behalf and at the Company's direction. Such services will
be at a level which is consistent with the level of services that PEGI has
historically provided for its international operations. The Company will
reimburse PEGI for any direct expenses reasonably incurred in performing
such services during the Transition Period. To the extent VSI or any of its
Affiliates perform services for the Company during the Transition Period,
the Company will also reimburse the entity providing such services for any
direct expenses incurred in performing such services.
6.4.2 Absorption of Existing Channels. As set forth in
Section 3.1, PEGI and VSI will contribute to the Company their equity
interests in PTVLA and the German Venture, and as set forth in Section 7.2,
the Company will purchase PEGI's interests in the U.K. Venture and the
Japan Venture. (PTVLA, the German Venture, the U.K. Venture and the Japan
Venture will be collectively referred to as the "Existing Channel
Entities").
6.4.3 German Venture Expenses. Notwithstanding the
Percentage Interests of the Members, VSI and PEGI will each pay the
formation expenses of the German Venture (including the costs associated
with obtaining the necessary operating licenses) on a 50/50 basis.
6.4.4 Services Provided by PEGI. The Company will be
entitled to purchase from PEGI specific services, as the Company may
determine, which PEGI routinely performs for itself (such as creative
services, the creation of on-air promos, and residual accounting) at PEGI's
actual direct cost, without mark-up.
6.4.5 Creation of Local Ventures and Provision for Local
Partners. The Company may invite one or more third parties (each a "Local
Partner") to participate as equity owners in the Company's local venture in
a country of the Territory; provided, however, that the Company may only
create a local venture for the primary purpose of operating one or more
Channels in a country and not merely to conduct third party program sales.
The decision to admit a Local Partner will be determined by a majority vote
of the Management Committee, unless such proposed Local Partner will
acquire more than a fifty percent (50%) interest in a local venture for the
U.K./Benelux territory or the "GS Territory" (as defined in that certain
letter agreement between Bloomfield Mercantile, Inc. and PEGI for the
operation of Playboy TV and AdulTVision channels in Germany and Scandinavia
dated October 20, 1997) or more than a thirty-three percent (33%) interest
in a local venture for any other region of the Territory, in which case the
admission of the Local Partner will be subject to the veto rights of the
PEGI Directors and the VSI Directors under Section 5.1.4. The agreement
governing the participation of the Local Partner must include a provision
that restricts the Local Partner's ability to transfer its interest in the
local venture to any Person other than an Affiliate of the original Local
Partner and provide either (i) that any such permitted Affiliate/transferee
must be at least as credit-worthy as the original Local Partner; or (ii)
that such transfer does not release the original Local Partner from its
obligations (including its funding obligations) with respect to the local
venture. Management of each local venture will be controlled by the
Company, and, after admission of a local partner, matters regarding the
local venture of the same type described in Section 5.1.4 will be subject
to the veto rights of the PEGI Directors and the VSI Directors. A Local
Partner may not be any manufacturer of firearms, weapons or explosives; or
any owner, distributor or provider of telephone sex lines, real time
interactive internet sex services, sex clubs or massage parlors.
(a) Local Partners for the U.K. and Germany. If at a time
when PEGI (alone, or collectively with one or more of its Affiliates) owns
less than a 50% interest in the Company, the Company wishes to admit a
third party as a Local Partner for the U.K./Benelux territory or the GS
Territory (a "Proposed Partner"), and such Proposed Partner is to acquire
an ownership interest in such local venture that exceeds 33%, PEGI may
recommend that the Company not admit such Proposed Partner. If the Company
decides, nonetheless, to admit such Proposed Partner, PEGI may prevent such
Proposed Partner from acquiring more than a 33% interest by acquiring the
percentage interests in excess of 33% that the Proposed Partner would have
purchased, on the same pro rata terms as offered to the Proposed Partner.
6.4.6 Supplemental Programs. The Company (or its
subsidiaries) may produce and/or acquire programs whose primary use is
exhibition on one or more of the Channels ("Supplemental Programs"). The
Company will engage in such production or acquisition of Supplemental
Programs in conjunction with PTV U.S., which will obtain the United States
distribution rights, if any, to such programs. PTV U.S. will grant to PEGI
the right to distribute such programming in the United States pursuant to
the US Distribution Agreement. The budget for the production/acquisition
cost of Supplemental Programs for each Fiscal Year will be set forth in the
Annual Budget for such Fiscal Year; provided that such budget will not be
less than $1,500,000. The Supplemental Programs will be consistent with the
content, style and production values of the Existing Library Programs and
the Output Programs provided by PEGI to the Company pursuant to the Program
License Agreement. Upon dissolution of the Company, the Supplemental
Programs will become property of PEGI, for a price to be negotiated by PEGI
and the Company; provided that if the parties cannot reach agreement, the
price will be determined through the dispute resolution procedure set forth
in Article 16.
(a) Produced Supplemental Programs. Unless PEGI otherwise
consents and except as set forth in the rest of this paragraph (a), for any
Supplemental Program produced by the Company, the Company will either
obtain the worldwide rights to such program or will hold sufficient rights
to prevent any third party from exploiting such program. With respect to
any Supplemental Program the Company intends to co-produce with one or more
third parties, the Company will first offer PEGI the opportunity to
co-produce the program with the Company on terms which are as favorable to
the Company as those available from such third party(ies). If PEGI elects
to co-produce such program, PEGI and the Company will each pay that portion
of the budget of such program and otherwise participate in such programs on
terms reasonably and customary for the applicable split of distribution
rights in regions of the Territory between them. If PEGI does not elect to
co-produce such program, the Company may proceed with the third party
co-producers, but such third party co-producers will not acquire the right
to exploit such program using any trademarks licensed to the Company under
the Trademark License Agreement or otherwise associated with the Company.
(b) Acquired Supplemental Programs. If the Company (or its
subsidiaries) acquires the rights to a program for exploitation in any
region of the Territory, it will also acquire the rights for such program
in the United States, or if it does not acquire such US rights, it will
notify PEGI that such rights are available, and PEGI will determine whether
it wishes to acquire such program. If PEGI wishes to acquire the US
distribution rights to such program it will provide to the Company the
range of acceptable terms, and the Company will use its commercially
reasonable efforts to acquire such US distribution rights on PEGI's behalf.
The Company will not enter into any binding agreement on PEGI's behalf
which is outside such range of acceptable terms without PEGI's prior
written consent.
6.4.7 Playboy TV Lite. * * *
6.4.8 Venus and Spice Hot. The parties agree to combine the
current television businesses of Venus and Spice Hot as follows:
(a) Within one hundred and eighty (180) days after the
Funding Date, VSI will use its best efforts to cause its Affiliate, Imagen,
to form one or more new ventures ("New Venus") with the Company. New Venus
will be owned fifty percent (50%) by Imagen and fifty percent (50%) by the
Company. New Venus will be formed for the purpose of developing, marketing,
programming and distributing channels in the genre of the existing Venus
and Spice Hot channels throughout the New Venus Territory; provided that
New Venus will only distribute such channels in Puerto Rico, the U.S.
Virgin Islands and any other territory or possession of the United States
in the Carribean Basin through Galaxy Latin America (or a subsequent DTH
service) and not through any cable systems. New Venus will not license
programming to third parties, other than through the distribution of the
channels. The parties agree and acknowledge that the formation and
governance of New Venus must be structured in accordance with, and not to
violate, the covenants and other obligations of Imagen's indenture dated
April 30, 1998. The charter documents and other documents governing the
management of and interests in New Venus will be subject to the prior
approval of both VSI and PEGI.
(b) Imagen will contribute to New Venus the television
rights for the New Venus Territory to the programming controlled by Venus
and the existing Venus distribution contracts. Imagen will provide New
Venus with a royalty-free exclusive license to use the Venus marks in the
New Venus Territory.
(c) The Company will cause the distribution contracts of
Spice Hot to be contributed to New Venus in a tax efficient manner, and the
Company and PEII will provide New Venus with a royalty-free exclusive
license to use the Spice marks in connection with the operation,
distribution and promotion of the Spice Hot channel in the New Venus
Territory.
(d) New Venus and Imagen will enter into an agreement
pursuant to which Imagen will act as New Venus' exclusive sales agent in
the Southern Cone.
(e) New Venus and Troy will enter into an agreement pursuant
to which Troy will act as New Venus's exclusive sales agent in the New
Venus Territory, other than in the Southern Cone.
(f) Imagen and the Company will enter into a trademark
license agreement pursuant to which Imagen will grant to the Company an
exclusive license to use the Venus name and marks in the Company's
discretion on the Company's "hot" television channels outside of the New
Venus Territory. Such license will bear a royalty of * * * of net channel
revenues.
(g) The Company will have day-to-day management control of
New Venus, subject to the terms of a "Control Channel Joint Venture" under
the Imagen indenture.
(h) The Company, through its subsidiary SEI 2, will supply
New Venus with at least * * * of its annual programming requirements, on
terms to be negotiated by the Company and New Venus; provided that the
program license fees per hour of such programming * * * The parties
acknowledge that the programming rights held by SEI 2 exclude certain
territories (e.g., Puerto Rico and the U.S. Virgin Islands) otherwise
included in the New Venus Territory.
(i) Net profits from New Venus will be split in accordance
with the ownership percentages which Imagen and the Company hold in New
Venus.
(j) Subject only to compliance with Imagen's indenture
described above, the Company will have the option, exercisable at any time,
to acquire Imagen's interest in New Venus for cash consideration equal to
the Fair Market Value thereof. The Company's option will be binding on any
successor or assign of Imagen in New Venus.
6.4.9 U.S. Activities. The Company will conduct no
activities that generate income subject to United States Federal income tax
when earned by a foreign corporation or a non-resident alien individual (a
"U.S. Taxable Activity"). VSI and PEGI contemplate conducting certain
activities which may be U.S. Taxable Activities relating to the
distribution of programming and channels in the United States. VSI and PEGI
(either directly or through wholly-owned subsidiaries) intend to form PTV
U.S. as a separate limited liability company to engage in such activities.
The ownership structure and management of PTV U.S. will mirror the
Company's as provided in this Agreement, mutatis muntandis, and
notwithstanding anything to the contrary in this Agreement, any exercise of
rights or remedies that has the effect of altering the relative Percentage
Interests of the Members must be equally exercised with respect to PTV U.S.
VSI and PEGI agree to use best efforts to prepare and execute the charter
documents and other agreements relating to the formation and operation of
PTV U.S. within 30 days from the date hereof.
6.4.10 Certain Tax Matters. Nothing in this Agreement will
be read to require the Company to conduct its affairs so that: (i) income
from the licensing of programing that might be seen by viewers will be
effectively connected with the conduct of a United States trade or
business; and (ii) income from advertising will be effectively connected
with the conduct of a United States trade or business.
ARTICLE 7
RIGHTS ACQUISITION FEE
7.1 Rights Acquisition Fee.
7.1.1 Payment of Fee. In exchange for the license of the
Existing Library Programs and the Wallpaper material described in the
Program Supply Agreement, the trademark license for Year 1 through Year 10
described in the Trademark License Agreement and the Acquired Interests
described in Section 7.2, the Company will pay to PEGI a "Rights
Acquisition Fee" of One Hundred Million Dollars ($100,000,000), payable as
follows:
(a) On the Funding Date: $30 million
(b) On the first day of Year 2: $7.5 million
(c) On the first day of Year 3: $5 million
(d) On the first day of Year 4: $7.5 million
(e) On the first day of Year 5: $25 million
(f) On the first day of Year 6: $25 million
7.1.2 Allocation of Fee. Unless the parties agree otherwise,
the Rights Acquisition Fee will be allocated as follows:
(a) * * * to the Existing Playboy Library and Wallpaper
(each as defined in the Program Supply Agreement);
(b) * * * to the trademark license for Year 1 through Year
10 pursuant to the Trademark License Agreement;
(c) * * * to the interests in the U.K. Venture (as set forth
in Section 7.2, below);
(d) * * * to the interests in the Japan Venture (as set
forth in Section 7.2, below);
(e) * * * to the interests in SEI 2 (as set forth in Section
7.2 below); and
(f) * * * to the interests in SEI 3 (as set forth in Section
7.2 below).
The foregoing allocation will be applied to each installment of the Rights
Acquisition Fee on a pro rata basis.
7.2 Purchase of U.K. Venture, Japan Venture and Danish Companies.
On the date hereof, PEGI and the Company have entered into the Stock
Purchase Agreements pursuant to which PEGI will transfer, convey and assign
to the Company all of its right, title and interest of any kind in and to
the U.K. Venture, the Japan Venture and the Danish Companies (collectively,
the "Acquired Interests"). The Company will assume PEI's (and its
Affiliates') obligations under the Share Purchase Agreement (relating to
the U.K. Venture) and the Memorandum of Agreement (relating to the Japan
Venture) on the terms set forth in the respective Stock Purchase
Agreements. Schedule 7.2 describes, as of the date hereof, the interests of
PEGI in the U.K. Venture, the Japan Venture and the Danish Companies,
including the type of entity (corporation, partnership, limited liability
company, etc.) and the names and percentage interests of all of the owners
of each entity. The Funding Side Letter sets forth the amount of the funds
advanced by PEGI to the U.K. Venture from and after July 1, 1999, the
amount of the funds loaned to the U.K. Venture prior to March 31, 1999, and
the manner in which such amounts will be paid.
ARTICLE 8
MEMBERS
8.1 Limited Liability. Except as required under the Act or as
expressly set forth in this Agreement, no Member will be personally liable
for any debt, obligation, or liability of the Company, whether that
liability or obligation arises in contract, tort, or otherwise. In the
event any Member becomes personally liable for any debt, obligation or
liability of the Company arising from any action or approval of the Members
or Management Committee taken without the approval of such Member or the
Directors appointed by such Member or Manager where such approval is
required under the terms hereof, then, in addition to any other rights set
forth herein, the Members or Managers taking or who appointed the Directors
taking such action will indemnify and hold harmless such Member from and
against any liability, loss, claim or damage, including but not limited to,
reasonable attorneys fees and cost, arising from or relating to such
action.
8.2 Admission of Additional Members. The Management Committee will
approve the admission of new (and the terms of such admission) Members
through the issuance of additional Membership Interests, subject to the
veto rights of the VSI Directors and the PEGI Directors under Section 5.13.
The Management Committee will admit to the Company as additional Members
any Person who acquires a Membership Interest in accordance with Article 9
of this Agreement.
8.3 Withdrawals or Resignations. No Member may withdraw or resign
from the Company, except as permitted by this Agreement.
8.4 Termination of Membership Interest. Upon the transfer of a
Member's Membership Interest in violation of this Agreement or the
occurrence of a Disassociation Event, the Membership Interest of a Member
will be terminated by the Management Committee and such Membership Interest
will be purchased by the Company or remaining Members as provided in
Article 10. Each Member acknowledges and agrees that such termination or
purchase of a Membership Interest upon the occurrence of any of the
foregoing events is not unreasonable. The rights of the Company and the
non-breaching Members under this Section will be in addition to, and not in
limitation of, any other rights and remedies which the Company and such
other Members may have at law or equity.
8.5 Remuneration To Members. Except as otherwise authorized in, or
pursuant to, this Agreement, no Member is entitled to remuneration for
acting in the Company business, subject to the entitlement of Directors,
Managers or Members winding up the affairs of the Company to reasonable
compensation.
8.6 Members Are Not Agents; No Management Authority. Pursuant to
this Agreement and the Certificate, the management of the Company is vested
in the Managers, who will exercise their authority through the Management
Committee. No Member, acting solely in the capacity of a Member, is an
agent of the Company nor can any Member in such capacity bind nor execute
any instrument on behalf of the Company. The Members will have no power to
participate in the management of the Company except as expressly authorized
by this Agreement and except as expressly required by the Act.
8.7 Meetings of Members. Meetings of Members may be held at such
date, time and place within or without the State of Delaware as the
Management Committee may fix from time to time. No annual or regular
meetings of Members are required. At any Members' meeting, the President
will preside at the meeting and will act as secretary of the meeting.
8.7.1 Power to Call Meetings. Unless otherwise prescribed by
the Act, meetings of the Members may be called by the Management Committee
acting by majority vote or by any Member or group of Members holding more
than ten percent (10%) of the Percentage Interests for the purpose of
addressing any matters on which the Members may vote.
ARTICLE 9
TRANSFER AND ASSIGNMENT OF INTERESTS
9.1 Transfer of Membership Interests.
9.1.1 No Member may transfer, assign, sell, encumber or in
any way alienate or dispose of (each, a "Transfer"), including to an
Affiliate, all of any portion of its Membership Interest (the "Offered
Interest") if such Transfer: (i) would have a material adverse effect on
the other Member or on the Company; (ii) would cause the termination or
dissolution of the Company; or (iii) would cause a termination of the
Program Supply Agreement or of the Trademark License Agreement. If a Member
objects to a proposed Transfer on the grounds set forth above, such dispute
must be resolved prior to the consummation of the proposed Transfer.
9.1.2 Subject to the provisions of Section 9.1.1, if VSI or
PEGI (or any of their respective Affiliates) (a "Selling Member") wishes to
Transfer all or a part of its Membership Interest to an entity which is not
an Affiliate of such Selling Member (a "Third Party Buyer"), the Selling
Member must first offer to sell the Offered Interest to the non-Selling
Member. If the Selling Member is PEGI (or any of its Affiliates) and the
Option Expiration Date has not occurred, the Offered Terms must disclose
whether and to what extent PEGI (or its Affiliates) intends to exercise the
Buy-up Option in anticipation of such Transfer. If the Selling Member and
the non-Selling Member are not able to reach an agreement after a thirty
(30)-day negotiation period, the Selling Member may Transfer the Offered
Interest to the Third Party Buyer; provided, however, that the Selling
Member must give the non-Selling Member: (i) notice of the terms on which
the Selling Member intends to Transfer the Offered Interest to the Third
Party Buyer (the "Offered Terms") and (ii) the right to acquire the Offered
Interest at the price offered by the Third Party Buyer (the "Matching
Right"); provided that to the extent the Offered Terms include non-cash
consideration, the Matching Right will include the right of the non-Selling
Member to pay, in cash, the Fair Market Value to the Selling Member of such
non-cash items, and the time periods prescribed in this Section will be
adjusted to permit the determination of Fair Market Value; but further
provided, that if such non-cash consideration is a promissory note or
similar financial instrument, the non-Selling Member may substitute an
equivalent instrument. If the non-Selling Member fails to exercise the
Matching Right within thirty (30) days after receiving notice of the
Offered Terms, the Selling Member may Transfer the Offered Interest to the
Third Party Buyer on terms which are at least as favorable to the Selling
Member as the Offered Terms. If the Selling Member and Third Party Buyer do
not execute a definitive and binding agreement for the Transfer of the
Offered Interest within thirty (30) days after the date on which the non-
Selling Member declines to exercise the Matching Right, the Selling Buyer
must again re-offer the Offered Interest to the non-Selling Member in
accordance with the terms in this Section.
9.2 Change of Control.
9.2.1 Changes in General. Except as provided in this
Section, a Transfer of the equity or voting interests of a Member or of an
Affiliate of a Member which results, directly or indirectly, in a change of
control of such Member will be permitted so long as such transfer does not
have a material adverse effect on the other Member or the Company.
9.2.2 VSI. Notwithstanding Section 9.2.1, the parties agree
and acknowledge that a Transfer of the equity or voting interests of VSI or
of an Affiliate that controls VSI (a "VSI Parent") will be permitted, so
long as the following conditions are satisfied: (i) notwithstanding such
transfer, Newhaven Overseas Corp. or another member of the Cisneros Group
of Companies retains the right to appoint VSI's representatives on the
Management Committee; and (ii) following such transfer, VSI remains at
least as credit-worthy as PEI (as determined by a nationally-recognized
credit rating agency), and, if it is not, VSI (or an Affiliate of VSI)
provides PEI and PEGI with satisfactory financial assurances (in the form
of a letter of credit, guaranty or otherwise). The parties agree that a
transfer of VSI to a wholly-owned subsidiary of Ibero-America Media
Partners II, LP or of Ibero-America Media Partners B.V. satisfies clause
(ii) of this Section of 9.2.2.
9.2.3 PEI/PEGI. The terms of this Section 9.2.3 will apply
so long as VSI and its Affiliates hold, in the aggregate, a Percentage
Interest of not less than * * *. Notwithstanding Section 9.2.1 of this
Section, in the event PEI, or such other Affiliate of PEI that may control
PEGI (a "PEGI Parent"), wishes to Transfer to one or more third parties, * * *
9.2.4 Initial Public Offering. * * *
9.3 Substitution of Members. A transferee of a Membership Interest
will have the right to become a substitute Member only if (a) the
requirements of Sections 9.1 and 9.2 and any securities or tax requirements
of this Agreement are met, (b) such Person executes an instrument
satisfactory to the Management Committee accepting and adopting the terms
and provisions of this Agreement, and (c) such Person pays any reasonable
expenses in connection with its admission as a new Member. The admission of
a substitute Member will not result in the release of the Member who
assigned the Membership Interest from any liability that such Member may
have to the Company.
9.4 Effective Date of Permitted Transfers. Any permitted transfer
of all or any portion of a Membership Interest will be effective as of the
first business day following the date upon which the requirements of
Sections 9.1, 9.2 and 9.3 have been met. The President will promptly
provide the Members with written notice of such transfer. Any transferee of
a Membership Interest will take subject to the restrictions on transfer
imposed by this Agreement.
9.5 Rights of Legal Representatives. If a Member who is an
individual dies or is adjudged by a court of competent jurisdiction to be
incompetent to manage the Member's person or property, the Member's
executor, administrator, guardian, conservator, or other legal
representative may exercise all of the Member's rights for the purpose of
settling the Member's estate or administering the Member's property,
including any power the Member has under this Agreement to give an assignee
the right to become a Member. If a Member is a corporation or other entity
and is dissolved or terminated, the powers of that Member may be exercised
by its legal representative or successor.
9.6 PEGI Buy-up Option. Starting on the Funding Date and
continuing through the Option Expiration Date (as defined in Section
9.6.1), PEGI (or its Affiliates who are then Members of the Company) has
the option to acquire up to thirty and one-tenths percent (30.1%) of
additional Membership Interests in the Company by purchasing such
additional Membership Interests from VSI (and any of its Affiliates which
hold Member Interests, collectively); provided, however, that if PEGI (and
its Affiliates, collectively) transfer Membership Interests to any
Person(s) which is not an Affiliate of PEGI, such thirty and one-tenths
percent (30.1%) will be adjusted downward, pro rata, in accordance with the
decline in PEGI's and its Affiliates' aggregate Membership Interests in the
Company (the applicable percentage from time to time being the "Option
Percentage"; and further provided, that if at any time PEGI and its
Affiliates collectively do not own at least five percent (5%) of the total
Membership Interests, the option provided in this Section 9.6 will
terminate. The Percentage Interest of VSI (and its Affiliates) subject to
the option described in this Section 9.6 is referred to as the "Option
Percentage."
9.6.1 Option Expiration Date. The "Option Expiration Date"
will be the earlier to occur of (i) the last day of Year 10 and (ii) thirty
(30) days after the date on which the Company reaches "cash breakeven" * * *
9.6.2 Exercise of Buy-up Option. Until the Option Expiration
Date, PEGI (including for the balance of this Section 9.6.2, its Affiliates
who are then Members) may exercise its option to purchase additional
Percentage Interests of the Company up to the Option Percentage from VSI
(including for the balance of this Section 9.6.2, its Affiliates who are
then Members) on December 15 of each year, in increments of * * *;
provided, however, that PEGI may exercise its option: (i) immediately prior
to the Option Expiration Date, with respect to any part or all of the
then-unpurchased portion of the Option Percentage; and (ii) immediately
prior to a transfer that would decrease the Option Percentage, with respect
to that portion of the Option Percentage that would be lost as a
consequence of such transfer. During Year 1, PEGI may buy such additional
percentage interests from VSI at the Founders' Price. During Year 2, Year 3
and Year 4, the price at which PEGI may purchase additional Percentage
Interests from VSI is Founders' Price, plus interest, compounded annually,
at an annual rate equal to the greater of *** with such interest accruing
through the date PEGI pays for such additional Percentage Interests on an
amount equal to the product of the average daily balance (starting from the
Funding Date) of the Members' aggregate unreturned Capital Contributions
multiplied by the Percentage Interest being purchased. In Year 5 through
Year 10, PEGI's buy-in price will be * * * at the time of purchase (as
determined in accordance with Exhibit E). PEGI may pay the purchase price
for the additional Percentage Interests * * *, which election will be set
forth in PEGI's notice that it is exercising its buy-up option. * * * In
the event PEGI fails to timely pay for any additional Percentage Interests
for which it exercised its buy-up option, VSI may elect either: (i) to
terminate PEGI's right to purchase such Percentage Interests; or (ii) to
cause the Company to withhold any payments otherwise due to PEGI under this
Agreement or the Program Supply Agreement and to pay such amounts to VSI
until VSI is paid in full (including interest at the Reference Rate from
the date such payment was due) for such additional interests, and VSI will
then transfer such interests to PEGI.
(a) If PEGI pays for some or all of its purchase in PEI
stock, such stock will be registered or be subject to normal and customary
registration rights.
ARTICLE 10
CONSEQUENCES OF DISSOLUTION
OR BANKRUPTCY OF MEMBER
10.1 Disassociation Event. Upon the occurrence of a Disassociation
Event, the Company will not dissolve. Upon the occurrence of a
Disassociation Event, the Members holding all of the remaining Membership
Interests (the "Remaining Members") and/or, if applicable pursuant to
Section 10.1.3, the Company, will purchase, and the Member whose actions or
conduct resulted in the Disassociation Event ("Former Member") or such
Former Member's legal representative will sell, the Former Member's
Membership Interest ("Former Member's Interest") as provided in this
Section 10.1.
10.1.1 Purchase Price. The purchase price for the Former
Member's Interest will be the lesser of (i) the positive Capital Account
balance of the Former Member or (ii) the Fair Market Value of the Former
Member's Interest. Notwithstanding the foregoing, if the Disassociation
Event results from a breach of this Agreement by the Former Member, the
purchase price paid by the Remaining Members and/or the Company will be
reduced by an amount equal to the damages suffered by such purchasing
parties as a result of such breach.
10.1.2 Notice of Intent to Purchase. Within thirty (30) days
after the President has notified the Remaining Members as to the purchase
price of the Former Member's Interest determined in accordance with Section
10.2, each Remaining Member will notify the President in writing of its
desire to purchase a portion of the Former Member's Interest. The failure
of any Remaining Member to submit a notice within the applicable period
will constitute an election on the part of the Member not to purchase any
of the Former Member's Interest. Each Remaining Member so electing to
purchase will be entitled to purchase a portion of the Former Member's
Interest in the same proportion that the Percentage Interest of the
Remaining Member bears to the aggregate of the Percentage Interests of all
of the Remaining Members electing to purchase the Former Member's Interest.
10.1.3 Election to Purchase Less Than All of the Former
Member's Interest. If any Remaining Member elects to purchase none or less
than all of its pro rata share of the Former Member's Interest, then the
Remaining Members can elect to purchase more than their pro rata share. If
the Remaining Members fail to purchase the entire interest of the Former
Member, the Company will purchase any remaining share of the Former
Member's Interest.
10.1.4 Payment of Purchase Price. The purchase price will be
paid by the Remaining Members and/or the Company, as the case may be, at
the closing one-fifth (1/5) in cash and the balance of the purchase price
in four equal annual principal installments, plus accrued interest, and be
payable each year on the anniversary date of the closing. Any such payment
by the Company will be made solely out of Distributable Cash allocable to
the Remaining Members. The unpaid principal balance will accrue interest at
the current applicable federal rate as provided in the Code for the month
in which the initial payment is made, but the Company and the Remaining
Members will have the right to prepay in full or in part at any time
without penalty. The obligation to pay the balance due will be evidenced by
a promissory note, and if purchased by a Remaining Member, secured by a
pledge of the Membership Interest being purchased.
10.1.5 Closing of Purchase of Former Member's Interest. The
closing for the sale of a Former Member's Interest pursuant to this Article
10 will be held on a business day at the principal office of the Company no
later than sixty (60) days after the determination of the purchase price.
At the closing, the Former Member or such Former Member's legal
representative will deliver to the Company or the Remaining Members an
instrument of transfer (containing warranties of title and no encumbrances)
conveying the Former Member's Interest. The Former Member or such Former
Member's legal representative, the Company and the Remaining Members will
do all things and execute and deliver all papers as may be necessary fully
to consummate such sale and purchase in accordance with the terms and
provisions of this Agreement.
10.1.6 Purchase Terms Varied by Agreement. Nothing contained
herein is intended to prohibit Members from agreeing upon other terms and
conditions for the purchase by the Company or any Member of the Membership
Interest of any Member in the Company desiring to retire, withdraw or
resign, in whole or in part, as a Member.
10.2 Bankruptcy. Upon the Bankruptcy of a Member, the Membership
Interests of such Member, whether held by such Member, its trustee or other
representative in bankruptcy, will be converted to an Economic Interest.
ARTICLE 11
ACCOUNTING, RECORDS, REPORTING BY MEMBERS
11.1 Books and Records. The books and records of the Company will
be kept, and the financial position and the results of its operations
recorded, in accordance with generally accepted accounting principles as in
effect from time to time and the accounting methods followed for federal
income tax purposes. The books and records of the Company will reflect all
the Company transactions and will be appropriate and adequate for the
Company's business. The Company will maintain at its principal office all
of the following:
(a) A current list of the full name and last known business
or residence address of each Member, together with the Capital
Contributions, Capital Account and Percentage Interest of each Member;
(b) A current list of the full name and business or
residence address of each Manager and Director;
(c) A copy of the Certificate and any and all amendments
thereto together with executed copies of any powers of attorney pursuant to
which amendments thereto have been executed;
(d) Copies of the Company's federal, state, and local income
tax or information returns and reports, if any, for the six most recent
taxable years;
(e) A copy of this Agreement and any and all amendments
thereto together with executed copies of any powers of attorney pursuant to
which this Agreement or any amendments thereto have been executed;
(f) Copies of the financial statements of the Company, if
any, for the six most recent Fiscal Years; and
(g) The Company's books and records as they relate to the
internal affairs of the Company for at least the current and past four
Fiscal Years.
11.2 Delivery to Members and Inspection.
11.2.1 Delivery Upon Request. Upon the request of any Member
for purposes reasonably related to the interest of that Person as a Member,
the President will promptly deliver to the requesting Member, at the
expense of the Company, a copy of the information required to be maintained
by Sections 11.1(a), (b) and (d), and a copy of this Agreement, as amended.
The President will promptly furnish to a Member a copy of any amendment to
the Certificate or this Agreement executed by a Manager or Director
pursuant to a power of attorney from the Member.
11.2.2 Inspection. Each Member has the right, upon
reasonable request for purposes reasonably related to the interest of the
Person as Member to:
(a) inspect and copy during normal business hours any of the
Company records described in Sections 11.1(a) through (g); and
(b) obtain from the President, promptly after their becoming
available, a copy of the Company's federal, state, and local income tax or
information returns for each Fiscal Year.
11.2.3 Authorized Persons. Any request, inspection or
copying by a Member under this Section 11.2 may be made by that Person or
that Person's agent or attorney.
11.3 Periodic Statements.
11.3.1 Monthly Report. The Preside |
