Agreement of Limited Partnership - Macroweb LC, Trout Ltd., Richard Yoo, Patrick Condon, and Dirk Elmendorf
AGREEMENT OF LIMITED PARTNERSHIP
OF
RACKSPACE, LTD.
This Agreement of Limited Partnership (hereinafter referred to as the
"Agreement") is entered into the 29th day of December, 1998, between Macroweb,
LC, a Texas limited liability company (the "General Partner"), Trout, Ltd, a
Texas limited partnership ("Trout"), Richard Yoo ("Yoo"), Patrick Condon
("Condon") and Dirk Elmendorf ("Elmendorf) (Trout, Yoo, Condon and Elmendorf
are sometimes referred to herein as the "Limited Partners"). The General
Partner and the Limited Partners are sometimes hereinafter collectively
referred to as the "Partners."
W I T N E S S E T H:
WHEREAS, the parties hereto desire to form the Partnership in order to
more conveniently conduct all business for which a partnership may be formed:
Now, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
ARTICLE 1.
DEFINED TERMS
The capitalized terms used in this Agreement, unless the context
otherwise requires, shall have the meanings specified in this Article 1.
ACT. Texas Revised Limited Partnership Act, as set forth at Article
6132a-1 in Vernon's Annotated Texas Civil Statutes, as it may be amended from
time to time.
ADDITIONAL LIMITED PARTNERS. The Limited Partners who are admitted to the
Partnership by the General Partner after the date of this Agreement on terms
negotiated by the General Partner consistent with the General Partner's
fiduciary duty to the Partnership, who shall become a party to this Agreement
upon their execution of a counterpart to this Agreement, all in accordance
with the terms and conditions of this Agreement.
AFFILIATE. Means, with respect to any Person, any corporation, limited
liability company, partnership, individual, trust or association controlled
by, controlling or under common control with such Person, with the concept of
control in this context meaning the ownership of at least 10% of the
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voting securities or partnership, equity or other beneficial interest of the
controlled entity.
AGREEMENT. This Agreement of Limited Partnership of Rackspace, Ltd. as
originally executed and as subsequently amended from time to time.
APPROVAL OF THE CLASS A LIMITED PARTNERS. Means and includes the approval
of Yoo (to the extent he is employed by the Partnership), or, the approval by
Elmendorf and Condon (to the extent that both are employed by the
Partnership), or, if only one of Elmendorf, Condon and Yoo are employed by the
Partnership, the approval of the one who is employed by the Partnership. To
the extent that none of the foregoing are employed by the Partnership, the
approval of either Yoo, Condon or Elmendorf, so long as such persons own in
aggregate at least 15% of the Ownership Percentage Interest in the
Partnership. Otherwise, the Approval of the Class A Limited Partners shall be
deemed to be obtained regardless of any action or inaction of Yoo, Condon or
Elmendorf.
CAPITAL ACCOUNT. The Capital Account of a Partner determined from the
inception of the Partnership strictly in accordance with the rules set forth
in Treas. Reg. Section 1.704-1(b)(2)(iv) or any successor provisions.
Subject to the previous sentence, Capital Account means (a) the amount of all
Capital Contributions of such Partner to the Partnership (valuing all capital
contributions at fair market value determined by the General Partner),
increased by (b) the amount of net income and gain allocated to the Partner,
decreased by (c) the amount of losses allocated to the Partner, and further
decreased by (d) the amount of cash distributed and the net fair market value
of all property distributed by the Partnership to the Partner.
CAPITAL CONTRIBUTION. The amount of money and the net fair market value
of any property (other than money) contributed to the Partnership by any
Partner.
CASH AVAILABLE FOR DISTRIBUTION. All cash received by the Partnership
from all sources (including capital contributions and borrowings), less cash
expended or reserved, in the discretion of the General Partner, (i) for
liabilities (contingent or otherwise), federal, state and local taxes,
expenses, capital expenditures, and obligations of the Partnership or
obligations secured by the assets of the Partnership, or (ii) for any other
reason deemed beneficial by the General Partner for the Partnership or the
Partners but not necessarily for any assignees of the Partners.
CERTIFICATE OF LIMITED PARTNERSHIP. The certificate of limited
partnership, as amended or restated, filed with the Secretary of State of the
State of Texas forming the Partnership as a Texas limited partnership.
CLASS A LIMITED PARTNERS. Collectively, Yoo, Elmendorf and Condon and
their successors and assigns.
CLASS B LIMITED PARTNER. Trout, its successors and assigns.
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CONCEPT. The offering of full web-server hosting services through the
leasing of internet servers, bandwidth, connectivity and administration of all
aspects of servers; and all copyrights, patents, inventions, trade secrets,
trademarks, service marks, trade logos, trade names, trade dress and other
intellectual property rights that relate thereto.
CODE. The Internal Revenue Code of 1986, as amended from time to time.
FAMILY MEMBER. A spouse, sibling, parent, child or grandchild of a
Person, including adopted children, and relations in law.
GENERAL PARTNER. Macroweb, LC, a Texas limited liability company
("Macroweb"), or any Person subsequently admitted to the Partnership as a
General Partner pursuant to the terms of Section 3.3 of this Agreement.
GENERAL PARTNER INTEREST. The interest in the Partnership owned by the
General Partner representing the rights and interests of the General Partner
under this Agreement.
INITIAL CAPITAL CONTRIBUTION. The Capital Contribution made by Trout in
the amount of $200,000.00.
LIMITED PARTNERS INTEREST. The interest in the Partnership owned by the
Limited Partners representing the rights and interests of the Limited
Partners under this Agreement.
LIMITED PARTNERS. Trout, Yoo, Condon and Elmendorf, any other person
admitted to the Partnership by the General Partner as a Limited Partner in
accordance with this Agreement, and the successors and assigns of any of the
foregoing.
LOSS RECAPTURE ALLOCATIONS. The allocation of Partnership net income
and gain to any Limited Partners in an amount equal to the cumulated amount
of any Specially Allocated Losses.
MAJORITY IN INTEREST OF THE LIMITED PARTNERS. Limited Partners who own,
at the time of determination, more than fifty percent (50%) of the Ownership
Percentage Interests owned by all Limited Partners.
MILLER. Morris A. Miller
OWNERSHIP PERCENTAGE INTEREST. The Ownership Percentage Interests of the
Partners as described in Section 5.1 of this Agreement.
PARTNERS. All of the General and Limited Partners of the Partnership.
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PARTNERSHIP. The limited partnership formed under the Act, known as
"Rackspace Ltd".
PERSON. Any natural person, limited liability company, general or limited
partnership, corporation, joint venture, trust or association.
REGULAR ALLOCATION. The allocation of Partnership net income and gain,
after the Loss Recapture Allocation, made to all the Partners in accordance
with their Ownership Percentage Interests.
REGULAR DISTRIBUTIONS. The distributions made to all the Partners out of
Cash Available for Distribution, in accordance with the Capital Accounts, but
after Tax Distributions.
REGULAR LOSS ALLOCATION. The allocation of Partnership losses among the
Partners in accordance with their Ownership Percentage Interests in the
Partnership until the Capital Accounts of Yoo, Condon and Elmendorf (and their
assignees) are reduced to zero.
RELATED PARTY. Shall mean as to any Partner, (i) any Affiliate of such
Partner, (ii) any employee, officer, director, shareholder, member, manager or
partner of such Partner or of any Affiliate of such Partner, (iii) any Family
Member of any Person that is a Related Party of such Partner, and (iv) all
agents (whether or not disclosed) acting on behalf of or by the direction of any
of the foregoing, and shall mean, as to Weston and Miller, (I) any Affiliate of
Weston or Miller, (II) any Family Member of Weston or Miller or any Family
Member of any Person that is a Related Party of Weston or Miller, and (III) all
agents (whether or not disclosed) acting on behalf of or by the direction of any
of the foregoing.
SECURITIES ACT. The Securities Act of 1933, as amended.
SPECIALLY ALLOCATED LOSSES. Allocations of Partnership losses to Trout in
the event the Capital Accounts of all other Limited Partners are zero.
SUBSTITUTE LIMITED PARTNERS. Those Limited Partners admitted pursuant to
the provisions of Section 8.6 of the Agreement.
TAX DISTRIBUTIONS. The distributions made to the Partners to pay the
federal tax liabilities of the Partners.
WESTON. Graham M. Weston.
UNIT. A unit of ownership in the Partnership initially representing a
.01% Ownership Percentage Interest and the rights and interests of a Partner
under this Agreement.
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ARTICLE 2
THE LIMITED PARTNERSHIP
SECTION 2.1 NAME. The business of the Partnership shall be conducted
under the name "Rackspace, Ltd." or any other name deemed advisable by the
General Partner.
SECTION 2.2 PRINCIPAL OFFICE. The principal office of the Partnership
and the address of the General Partner shall be 111 Soledad, Ste, 1100, San
Antonio, Texas 78205; provided, however, that the General Partner may, by
notice to the Limited Partners, change the address of the principal office.
The Partnership may maintain such other offices at such other places as the
General Partner deems advisable.
SECTION 2.3 PURPOSE AND POWER OF THE PARTNERSHIP. The Partnership has
the power and authority to conduct any lawful business. The Partnership is
organized for the following purposes:
a. To purchase all of the assets of Cymitar Technology Group, Inc.
("Cymitar");
b. To further develop the Concept;
c. To continue to support the Cymitar customer contracts that are
assigned to the Partnership; and
d. To enter into, make and perform all contracts and other
undertakings, and engage in all activities and transactions, as may be
necessary or advisable to carry out any of the foregoing purposes.
SECTION 2.4 TERM. The Partnership commenced upon the filing of the
Certificate of Limited Partnership with the Secretary of State of the State of
Texas and shall continue in existence until the close of Partnership business
on DECEMBER 31, 2050, or until the earlier termination of the Partnership in
accordance with the provisions of this Agreement.
SECTION 2.5 TAX STATUS. Neither the General Partner nor any other
Partner shall file an election for the Partnership to be treated as other than
a Partnership for federal income tax purposes; provided that this prohibition
shall not in any manner affect, limit or reduce the General Partner's rights
and authorities under Sections 13 and 14 below. Each of the Partners hereby
recognizes that this Partnership will be subject to the provisions of
Sub-Chapter K of Chapter 1 of Subtitle A of the Code. The Partners agree that
the Partnership shall not be required to file any election under Section 754
of the Code.
SECTION 2.6 REGISTERED OFFICE AND AGENT. The post office address of
the registered office of the Partnership is 111 Soledad, Ste. 1100 San
Antonio, Texas 78205, and
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the name of the registered agent of the Partnership at such address is Morris
A. Miller.
SECTION 2.7 FISCAL YEAR. The fiscal year of the Partnership shall be
the calendar year ending December 31.
ARTICLE 3.
MANAGEMENT OF PARTNERSHIP
SECTION 3.1 AUTHORITY OF GENERAL PARTNER. Subject to the limitations
imposed in this Agreement, the General Partner shall have full and complete
power and authority, in the name and on behalf of the Partnership, to manage,
control, administer and operate its business and affairs, and to do or cause
to be done any and all acts, to incur and pay out of the funds of the
Partnership any and all fees, costs and expenses, and to execute, deliver,
file and record any and all instruments and documents of every character
deemed by the General Partner to be appropriate. Except as otherwise set forth
herein, the scope of such power and authority shall encompass all matters in
any way connected with, incidental to, or necessary for the business and
affairs of the Partnership. Without in any way limiting the generality of the
foregoing, the General Partner shall have the following specific powers:
a. To borrow on behalf of the Partnership;
b. To employ such agents, employees, consultants, brokers,
accountants and other persons necessary or appropriate to carry out the
Partnership's business and to cause the Partnership to pay fees, expenses,
salaries, wages and other compensation to such persons;
c. To procure and maintain general liability insurance and
insurance on the properties and assets of the Partnership;
d. To negotiate the terms of and execute such notes, evidences of
indebtedness, deeds of trust, contracts, documents and instruments relating to
Partnership business as may, in the opinion of the General Partner, be
appropriate, necessary or advisable;
e. To incur and pay out of the funds of the Partnership, any and
all fees, costs and expenses deemed by the General Partner to be appropriate,
necessary or advisable in the operation of the business of the Partnership;
f. To cause the Partnership to purchase or lease, land, supplies,
equipment and other materials and assets;
g. Consistent with the General Partner's fiduciary duty to the
Partnership, to hold title, or designate others to hold title, to properties
of the Partnership;
h. To mortgage, pledge or sell any properties or assets of the
Partnership;
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i. To receive, issue receipts for and otherwise dispose of and
deal in all checks, deeds, monies, and other personal property which arise out
of or are related to the Partnership's business;
j. To open, maintain and close bank accounts and draw checks or
other orders for the payment of money for the management and operation of the
Partnership;
k. To make any and all expenditures that it reasonably deems
necessary or appropriate in connection with the management of the operation of
the Partnership, including reimbursing the General Partner as provided in
Section 3.11 hereof;
l. To manage and supervise the maintenance and operation of all
assets that are owned by the Partnership;
m. To pay, extend, renew, modify, adjust, submit to arbitration,
prosecute, defend or compromise, upon such terms as the General Partner may
determine and upon such evidence as it may deem sufficient, any obligation,
suit, liability, cause of action or claim, either in favor of or against the
Partnership;
n. To loan funds to the Partnership, provided that the interest
charged to the Partnership shall not exceed the lesser of (i) the General
Partner's actual interest cost, or (ii) the rate that would be charged the
Partnership by unrelated lenders on comparable loans;
o. To declare bankruptcy on behalf of the Partnership or assign
property of the Partnership in trust for creditors of the Partnership;
p. To take any action authorized by any Section of this Agreement;
and
q. To take all necessary and reasonable actions to fulfill its
duties hereunder.
SECTION 3.2 SPECIFIC LIMITATIONS ON GENERAL PARTNER. Notwithstanding
any other provision of this Agreement or the Act to the contrary, without the
Approval of the Class A Limited Partners to the specific act in question, the
General Partner shall have no right, power or authority to undertake,
authorize or permit any of the following acts or decisions except in
accordance with the limitations or conditions set forth below as to each
specific act:
a. To allow the Partnership to enter into any transaction of any
nature whatsoever, (including but not limited to, issuing interests under
Sections 9.1 and 9.3 or paying compensation for services), whether directly
or indirectly, with any General Partner, Trout, Miller or Weston or a Related
Party of any General Partner, Trout, Miller or Weston, unless, prior to
entering into such transaction, a fairness opinion is obtained from (i) an
independent third party mutually agreed upon by the Class A Limited Partners
and the General Partner, or (ii) a big 6 accounting firm which is not utilized
by the General Partner,
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Weston or Miller or any affiliate of the General Partner, Weston or Miller,
which concludes that the proposed transaction would be fair to the
Partnership; provided however, this limitation shall not apply to
non-recurring single transactions which are less than $5,000.00; provided that
no more than $10,000.00 of such transactions occur in any calendar year;
b. To allow the Partnership to enter into any additional capital
raising or other financing transaction (other than a public offering pursuant
to Article 15 below) until such time as $1,050,000 has been advanced to the
Partnership pursuant to Section 4.5;
c. To sell the Partnership (whether by merger, statutory exchange,
consolidation, recapitalization, sale of all or substantially all of its
assets), unless all of the holders of Units or other Partnership Interests
will receive the same form and amount of consideration per Unit or other
Partnership Interests, or if any holders are given an option as to the form
and amount of consideration to be received, all holders will be given the same
option;
d. To admit any Person as a General Partner of the Partnership;
e. To possess Partnership property or assign its right in
Partnership property, other than for a Partnership purpose;
f. To admit any Additional Limited Partner to the Partnership,
except in accordance with Article 9 of this Agreement;
g. To allow the Partnership to incur indebtedness to Trout, any
General Partner, Weston or Miller or a Related Party of any General Partner,
Trout, Weston or Miller, except for the $1,050,00.00 loan described in Section
4.5 below and any indebtedness that (a) bears interest at the lessor of (i)
the lender's actual interest cost, (ii) the rate that would be charged the
Partnership by unrelated lenders on comparable loans, and (iii) the prime rate
charged by Frost National Bank, N.A. plus 5%, and (b) has an amortization term
of not less than five years (without regard to the maturity date of the loan);
and
h. To amend (i) the Promissory Note and Security Agreement each of
even date herewith and each between the Partnership and Exeter Financial, LC,
or (ii) the Credit Agreement of even date herewith among the Partnership,
Exeter Financial, LC, Miller and Weston.
SECTION 3.3 REPLACEMENT OF GENERAL PARTNER.
a. Replacement. The General Partner may not be replaced except in
the event of such General Partner's dissolution, resignation or bankruptcy or
in the event (a) the General Partner, in violation of this Agreement, makes a
disposition of its Units or Interests in the Partnership, (b) Trout makes a
disposition of its Units or interests in the Partnership in violation of this
Agreement, (c) Weston or Miller makes a disposition of their partnership,
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membership or other ownership interests in the General Partner or Trout in
violation of the Support Agreement ("Support Agreement ) dated of even date
herewith among the Class A Limited Partners, the Partnership, Miller and
Weston. In the event that the General Partner may be replaced pursuant to (a),
(b) or (c),the Class A Limited Partners may remove the General Partner and
select a new General Partner. However, before the General Partner is replaced
pursuant to (a), (b) or (c) above, the General Partner shall have thirty (30)
days from receipt of notice from the Class A Limited Partners (and the Class A
Limited Partners shall be required to provide such notice prior to removing
the General Partner) to reverse the transaction giving rise to the right to
remove the General Partner, and if the transaction is reversed, the General
Partner may not be replaced.
b. Dissolution, Resignation or Bankruptcy. In the event of the
dissolution, resignation or bankruptcy of the General Partner where the
Partnership is continued pursuant to Section 11.1(d) hereof, a successor
General Partner shall be admitted to the Partnership upon the approval of a
Majority in Interest of the Limited Partners; provided however, in the event
that 100% of the membership or other ownership interest of the new General
Partner will not be owned by Miller and Weston (or their successors and
assigns who have taken such interests in accordance with this agreement), or
Miller and Weston (or their successors and assigns who have taken such
interests in accordance with this agreement) otherwise fail to control the new
General Partner, the new General Partner shall be selected and Approval of the
Class A Limited Partners. Each successor General Partner shall have equal
responsibility for the management and operation of the Partnership to that of
the General Partner and shall succeed to the rights and obligations of the
original General Partner as set forth in Section 3.1. Any Partner who ceases
to be a General Partner for any reason shall immediately and without further
action of any party lose all rights and privileges incident to such office,
and the General Partner Interest of such former General Partner shall
immediately be converted to a Limited Partner Interest.
SECTION 3.4 OBLIGATIONS OF THE GENERAL PARTNER. The General Partner
shall manage the affairs of the Partnership in accordance with the Act and all
other legal requirements and contractual obligations applicable to the
Partnership, including the General Partner's duty to act in good faith and in
the best interests of the Partnership. The General Partner shall devote such
part of its time to the Partnership as may be required to perform and execute
its responsibilities hereunder. The General Partner shall cause Miller and
Weston to provide the Partnership with time and attention when called to do so
by the Partnership to assist the Partnership to succeed in its business
endeavors (and by separate agreement Miller and Weston have agreed to provide
such time and attention to the Partnership). For so long as Yoo is employed by
the Partnership, the General Partner shall discuss with Yoo important
decisions related to the Partnership. For so long as any of the Class A
Limited Partners are employed by the Partnership and thereafter so long as
they in aggregate own at least 15% of the Ownership Percentage Interest in the
Partnership, one of them shall be elected to serve on the General Partner's
board of directors. Furthermore, for so long as the Class A Limited Partners
are employed by the Partnership, they shall hold the following Partnership
titles and shall have such duties and authority as prescribed by the General
Partner from time to time: Yoo - President/CEO, Condon - Chief Operating
Officer, Elmendorf - Chief Technology
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Evangelist. In addition, on or before April 1, 1998, the General Partner shall
cause the Partnership to pay Yoo, Condon and Elmendorf a sufficient amount
(net of taxes) to enable them to pay any federal income taxes accruing to them
as shareholders of Cymitar, as a result of the Partnership's purchase of
Cymitar's assets. The General Partner agrees to cause the Partnership to pay
all rent and other costs and expenses associated with the lease agreement
pertaining to the leasehold at 9828 Lorene Lane, San Antonio, Texas 78216, the
Partnership agrees to indemnify Yoo from and against any liability associated
with such lease.
SECTION 3.5 LIABILITIES OF GENERAL PARTNER. In carrying out its duties
hereunder, the General Partner shall not be liable to the Partnership or to
any other Partner for any actions taken in good faith and reasonably believed
to be in the best interests of the Partnership, or for errors in judgment, but
shall only be liable for willful misconduct, gross negligence, or breach of
its fiduciary obligations under this Agreement.
SECTION 3.6 REPORTS. The General Partner shall maintain all of the
financial records of the Partnership, in accordance with such generally
accepted method as the General Partner deems most appropriate, and otherwise
in accordance with generally accepted accounting principles consistently
applied. Each of the Partners agree to furnish to the General Partner all
cost, expense or other financial information which is necessary to keep such
records. Within 120 days of the close of the Partnership's fiscal year, which
shall correspond with the calendar year, the General Partner will give each
Partner a financial statement for the preceding twelve (12) months, prepared
at the expense of the Partnership by a firm of certified public accountants
selected by the General Partner, which need not be audited. The General
Partner will use its best efforts to give each Partner the information
necessary for tax reporting purposes within ninety (90) days of the close of
the fiscal year.
SECTION 3.7 TAX RETURNS. The Partners intend for the Partnership to be
treated as a partnership for tax purposes. The General Partner shall cause to
be prepared, at the cost and expense of the Partnership, all federal, state
and local income and other tax returns and statements, if any, which must be
filed on behalf of the Partnership with any taxing authority. The General
Partner shall timely file the returns on behalf of the Partnership.
SECTION 3.8 TAX MATTERS PARTNER. The General Partner shall be the "tax
matters partner" of the Partnership, within the meaning of Section 6231(a)(7)
of the Code and any regulations issued thereunder, unless the Code, or the
regulations issued thereunder, require another person to be the tax matters
partner. Said tax matters partner is authorized and required to represent the
Partnership (at the Partnership's expense) in connection with all examinations
of the Partnership's affairs by tax authorities, including resulting
administrative and judicial proceedings, and shall have the following duties
and obligations:
a. The tax matters partner shall have a continuing obligation to
provide the Internal Revenue Service with sufficient information so that
proper notice can be mailed to all Partners as provided in Section 6223 of the
Code, and the Partners shall furnish the tax matters partner with such
information (including information specified in Section 6230(e) of the Code)
as the tax matters partner may reasonably request for such purpose.
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b. The tax matters partner shall keep each Partner informed of all
administrative and/or judicial proceedings for the adjustment of the
partnership items (as defined in Section 6231(a)(3) of the Code and
regulations promulgated thereunder) at the partnership level. Without limiting
the generality of the foregoing sentence, within fifteen (15) days of
receiving any written or oral notice of the time and place of a meeting or
other proceeding from the Internal Revenue Service regarding a partnership
proceeding (and in any event, within a reasonable time prior to such meeting
or proceeding), the tax matters partner shall furnish a copy of such written
communication or notice, or inform the Partners in writing of the substance of
any such oral communication. This obligation of the tax matters partner to
inform the Partners shall not extend to routine and minor events.
c. If any administrative proceeding contemplated under Section
6223 of the Code has begun, the Partners shall, upon request by the tax
matters partner, notify the tax matters partner of their treatment of any
Partnership item on their federal income tax return which is or may be
inconsistent with the treatment of that item on the Partnership's return.
d. Any Partner that enters into a settlement agreement with the
Secretary of the Treasury with respect to the partnership items shall notify
the other Partners of such settlement agreement and its terms within thirty
(30) days after the date of such settlement.
e. If the tax matters partner elects not to file suit concerning
an administrative adjustment or request for administrative adjustment and
another Partner elects to file such a suit, such other Partner shall notify
all Partners of such intention and the forum or forums in which such suit
shall be filed shall be agreed to by all of the Partners.
f. The tax matters partner shall have the authority to extend the
statute of limitations, file a request for administrative adjustment, file
suit concerning any tax refund or deficiency relating to any Partnership
administrative adjustment or enter into any settlement agreement relating to
any Partnership item of income, gain, loss, deduction or credit for any
taxable year of the Partnership.
g. Each Partner shall be entitled to participate in all
administrative proceedings with the Internal Revenue Service, as provided by
Code Section 6224(a).
h. The obligations imposed on the tax matters partner and
participation rights afforded the Partners by this Agreement and Sections 6221
through 6233 of the Code may not be restricted or limited in any fashion by
the tax matters partner or any Partner or Partners without the written consent
of all of the Partners.
Each Partner agrees to cooperate with the tax matters partner and to do
or refrain from doing any or all things reasonably required by said Partner to
conduct such proceedings. In the event that said Partner, while acting as the
"tax matters partner," ceases to be the General Partner for any reason, the
remaining Partners shall immediately elect a substitute tax matters partner
who shall be the "tax matters partner" of the Partnership.
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SECTION 3.9 BANK ACCOUNTS. The General Partner shall establish one or
more bank accounts in the name of the Partnership into which all funds of the
Partnership shall be deposited. No other funds shall be deposited or commingled
in these accounts. Partnership funds may be withdrawn from the accounts upon the
signature of the General Partner, or its designee, for the purpose of paying the
debts of the Partnership, reimbursing the General Partner for expenses incurred
pursuant to Section 3.11, distributing Cash Available for Distribution to the
Partners, or any other purpose authorized under this Agreement.
SECTION 3.10 BOOKS AND RECORDS. The General Partner, on behalf of the
Partnership, shall keep and maintain at the principal office of the
Partnership the following records:
a. List of Partners. A current list that states the name and
mailing address of each Partner, the Ownership Percentage Interest in the
Partnership owned by each Partner; the number of Units owned by Limited Partner
b. Tax Returns. Copies of the Partnership's federal, state, and
local information or income tax returns for each of the Partnership's six most
recent tax years.
c. Agreement. A copy of this Agreement and the Certificate of
Limited Partnership; copies of any restatements of this Agreement; and
executed copies of any powers of attorney under which this Agreement, the
Certificate of Limited Partnership, and all amendments or restatements thereto
have been executed.
d. Books. Correct and complete books and records of account of the
Partnership.
Each of the Partners agree to furnish the General Partner all documents
regarding costs and expenses and other financial information which are
necessary to maintain such records. Any Partner (or their duly authorized
representatives), on written request to the General Partner, stating the
purpose, may examine and copy, at any reasonable time, for any proper purpose,
and at the Partner's expense, these records and other information kept by the
General Partner on behalf of the Partnership. However, under no circumstances
shall the Partnership or the General Partner have the obligation to provide
information regarding the Partnership to any Limited Partner, except to the
extent that such information is requested for a proper purpose and the General
Partner determines that the disclosure of such information will not harm the
Partnership. The above notwithstanding, if a Class A Limited Partner is no
longer employed by the Partnership, then he (and any transferee or assignee of
such Class A Limited Partner) shall lose his rights to review the books of the
Partnership, to receive any reports from the Partnership and any other right
of a Limited Partner other than the right to receive the distributions and
allocations from the Partnership at such times as those distributions and
allocations may be made by the Partnership. However, at the Class A Limited
Partner's sole cost and expense, at the request of such Class A Limited
Partner, the Partnership shall have the books and records of the Partnership
audited to determine whether or not the Partnership has properly made
distributions and allocations to such Class A Limited Partner. If the audit
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determines that such distributions and allocations have been improperly made,
and such discrepancy is at least a 5% difference between the proper allocation
or distribution, and the allocation or distribution made by the General
Partner, then the Partnership shall pay the cost of the audit.
SECTION 3.11 REIMBURSEMENT OF GENERAL PARTNER. The General Partner is
entitled to be reimbursed for reasonable out-of-pocket costs and expenses
incurred by the General Partner on behalf of the Partnership; provided that if
any costs and expenses are incurred to reimburse any Related Party of the
General Partner, Miller, Weston or Trout, the transaction giving rise to such
reimbursement shall have been made on terms no less favorable to the
Partnership than could be reasonably expected to be obtained from a third
party. Without the approval of the Class A Limited Partners, the General
Partner will not be reimbursed for any of its overhead costs and expenses.
ARTICLE 4.
RIGHTS, PROHIBITIONS, AND LIABILITIES OF LIMITED PARTNERS
SECTION 4.1 RIGHTS OF LIMITED PARTNERS. The Limited Partners shall be
entitled to the rights provided by the Act, as the same may be lawfully
modified by the terms of this Agreement.
SECTION 4.2 PROHIBITIONS WITH RESPECT TO LIMITED PARTNERS. The Limited
Partners shall not have the right to:
a. Participate in the control of the business affairs of the
Partnership except as expressly provided herein; transact any business on
behalf of or in the name of the Partnership; or have any power or authority to
bind or obligate the Partnership;
b. Have their original investments, if any, repaid (i) until the
Partnership is dissolved, all Partnership liabilities have been paid or funds
have been set aside therefor, and compliance with the provisions for
dissolution hereunder cause such repayment, or (ii) unless the terms of the
Act, as the same may be lawfully modified by the terms of this Agreement, are
complied with and the same require such repayment, except that distributions
authorized by Section 7.2 hereof shall be made from time to time and may in
some cases represent a return of a Limited Partners' original investment; or
c. Sell or assign any of such Limited Partner's interest in the
Partnership, except as expressly provided herein.
SECTION 4.3 LIABILITIES OF LIMITED PARTNERS. A Limited Partner shall
not be personally liable for any amounts other than the amounts subscribed by
such Limited Partner to the capital of the Partnership, and shall not be
liable for any debts, obligations or losses of the Partnership or of the
General Partner.
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SECTION 4.4 DEFICIT CAPITAL ACCOUNTS. The Limited Partners shall not
be obligated to restore the amount of any deficit balance in their respective
Capital Accounts, as such term is hereinafter defined, upon the liquidation of
their interest in the Partnership or upon the liquidation of the Partnership
itself.
SECTION 4.5 LOANS TO THE PARTNERSHIP. Trout agrees to cause the
Partnership to be lent up to $1,050,000.00, $550,000.00 of which is
non-discretionary as further described below and $500,000.00 of which shall
be to fund positive circumstances; provided that Trout, in its sole
discretion determines that such $500,000.00 is needed by the Partnership and
that such loan can be prudently made by the lender. Such loan or loans will
bear interest at the annual rate of 8% interest compounded annually. No
payments of principle or interest will be due for the first three years from
the date funds are first advanced. Beginning in the fourth year monthly
payments of principal and interest will be due and payable based upon an
amortization of the principle and accrued interest (as of the end of the
third year) over the following five years. Such loan or loans will be fully
secured by the assets of the Partnership. The loan or loans may be prepaid at
anytime by the Partnership without penalty. Upon the execution of this
Agreement, not less than $150,000.00 will be advanced to the Partnership by
Exeter Financial, LC pursuant to this Section 4.5. Within six months of the
execution of this Agreement, Trout will cause Exeter Financial LC to advance
an additional advance of $400,000.00 to the Partnership. These two initial
advances shall not be subject to Trout's discretion. Any guaranty by Trout of
the Partnership's debts and obligations shall be treated as an advance under
this paragraph, provided that no interest shall be paid to Trout in respect
of the guaranteed amount unless Trout is forced to pay on the guaranty.
SECTION 4.6 LIFE INSURANCE. The Partnership will purchase a key-man
policy in the amount of $1,250,000 for Yoo. The policy shall be structured to
require, that upon the death of Yoo, Trout is paid $200,000 of the proceeds,
the Partnership's lender (as referenced in Section 4.5) receives the remaining
proceeds up to the amount owing under its loan to the Partnership (and such
amount will fully discharge such loan as well as any obligation of Trout to
cause additional funds to be loaned to the Partnership pursuant to Section 4.5
above), and any remainder is paid to the Partnership.
SECTION 4.7 LOCATION FOR SERVERS. Trout agrees to use its reasonable
best efforts to secure a location for the Partnership's data center and
offices at favorable rent.
ARTICLE 5.
OWNERSHIP PERCENTAGE INTERESTS AND CAPITAL CONTRIBUTIONS
SECTION 5.1 PARTNER'S OWNERSHIP PERCENTAGE INTERESTS.
a. Upon the creation of the Partnership, the Ownership Percentage
Interest of the General Partner shall be .1 percent (.1%), represented by
1,000 Units.
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b. Upon the creation of the Partnership, the Ownership Percentage
Interest of Trout will be 50.90% represented by 509,000 Units.
c. Upon the creation of the Partnership, the Ownership Percentage
Interest of Yoo, Condon and Elmendorf shall be Yoo - 37% represented by
370,000 Units, Condon - 8% represented by 80,000 Units, Elmendorf - 4%
represented by 40,000 Units.
d. One Million Units will be issued incident to the creation of
the Partnership. However, a total of Ten Million Units may be issued by the
General Partner to Additional Limited Partners in accordance with the terms of
this Agreement. In the event Additional Limited Partners are admitted to the
Partnership in accordance with the terms of this Agreement, the Ownership
Percentage Interests of each Partner shall be adjusted pro rata, and the
Ownership Percentage Interests of such Additional Limited Partner(s) shall be
established by the General Partner, as provided herein. The General Partner's
rights hereunder are not intended to reduce the General Partner's fiduciary
duty to the Limited Partners.
SECTION 5.2 CAPITAL CONTRIBUTIONS.
a. The General Partner is not required to make any contribution of
capital to the Partnership except as otherwise provided in this Agreement.
b. Trout is required to make an initial capital contribution in
the amount of $200,000 upon the execution of this Agreement. No other Partner
is required to make any capital contribution to the Partnership, except to the
extent required by the General Partner for Additional Limited Partners.
SECTION 5.3 ADDITIONAL CAPITAL. The Partners shall not be obligated to
contribute additional capital to the Partnership beyond their initial Capital
Contributions (to the extent required) nor shall the Partners be obligated to
guarantee any debt or obligation of the Partnership, except as otherwise set
forth in this Agreement.
SECTION 5.4 ESTABLISHMENT OF CAPITAL ACCOUNTS. An individual Capital
Account shall be established for each Partner, which account shall be credited
with the amounts of each Partner's Capital Contributions to the Partnership
from time to time. A Partner shall not be entitled to interest on his or its
Capital Contribution, or to withdraw any part of his or its Capital Account,
or to receive any distribution from the Partnership, except as specifically
provided herein.
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ARTICLE 6.
ALLOCATIONS OF INCOME, GAIN AND LOSS
SECTION 6.1 ALLOCATION OF PARTNERSHIP NET INCOME AND GAIN. All
Partnership net income and gain for each tax year of the Partnership will be
allocated as follows:
FIRST: LOSS RECAPTURE ALLOCATION. To the Limited Partners in an amount equal
to the cumulated amount of any Specially Allocated Losses.
SECOND: REGULAR ALLOCATION. The remainder, to all the Partners in accordance
with their Ownership Percentage Interests in the Partnership.
SECTION 6.2 ALLOCATION OF PARTNERSHIP LOSSES. All Partnership losses
shall be allocated among the Partners in accordance with their Ownership
Percentage Interests in the Partnership until the Capital Accounts of all
Limited Partners other than Trout, are reduced to zero (the "Regular Loss
Allocation"). To the extent that the Capital Account balances of all the
Limited Partners other than Trout are zero, any additional losses (the
"Specially Allocated Losses") will be allocated to Trout (and its assigns).
SECTION 6.3 SPECIAL TAX ALLOCATIONS. Notwithstanding anything to the
contrary in this Agreement, the Partnership shall make the following tax
allocations if so required by the Code or Regulations:
SECTION 704(C) PROVISIONS. Upon the sale of the Partnership property
contributed by a Partner (or any property received in exchange for
such property), the resulting gain or loss shall be allocated to that
Partner and/or to any transferee of any interest in the Partnership
from such Partner for income tax purposes as provided in Section
704(c) of the Code and applicable Regulations.
QUALIFIED INCOME OFFSET. Any Partner who unexpectedly receives an
adjustment, allocation, or distribution described in subparagraphs
(4), (5) or (6) of Treas. Reg. Section 1.704-1(b)(2)(ii)(d), which
adjustment, allocation or distribution creates or increases a deficit
balance in that Partner's Capital Account, shall be allocated items
of book income and gain in an amount and manner sufficient to
eliminate the deficit balance in that Partner's Capital Account so
created or increased as quickly as possible in accordance with
Treas. Reg. Section 1.704-1(b) (2)(ii)(d) and its requirements for
a "qualified income offset."
MINIMUM GAIN CHARGEBACK. If Regulations relating to Section 704(b) of
the Code require a Minimum Gain Chargeback to cause the allocations
under Section 3.1 of this Agreement to have substantial economic
effect, the tax
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allocations described in Section 3.1 shall be adjusted to accommodate
the necessary Minimum Gain Chargeback.
ARTICLE 7.
DISTRIBUTIONS
SECTION 7.1 GENERAL. The General Partner shall cause the Partnership
to distribute cash for Tax Distributions to the Partners on an annual basis.
However, to the extent the Partnership incurs losses, no Tax Distributions
will be made until the cumulated net income and gain of the Partnership
exceeds the cumulated amount of such losses. Otherwise, the Partnership will
only distribute cash to the extent that the General Partner determines that
such cash is not needed for Partnership operations and expansion, working
capital and contingencies ("Cash Available for Distribution").
SECTION 7.2 DISTRIBUTION OF CASH AVAILABLE FOR DISTRIBUTION. To the
extent that Tax Distributions or distributions of Cash Available for
Distribution are made by the Partnership, such distributions shall be made as
follows:
FIRST: TAX DISTRIBUTIONS. Tax Distributions shall be made to the Partners in
an amount equal to the amount of any federal income tax estimated by
the General Partner to be incurred by the Partners (such estimate to
be made on the assumption that all of the Partners will be taxed at
the highest marginal tax rate applicable to individuals, which is
currently 39.59%) on their allocable share of any net income or gain
from the Partnership which is recognized for federal income tax
purposes during the prior year and not otherwise distributed to the
Partners. However, to the extent the Partnership incurs losses, no
Tax Distributions will be made until the cumulated net income and
gain of the Partnership exceeds the cumulated amount of such losses.
Tax Distributions shall be made not later than February 28th of each
year.
SECOND: REGULAR DISTRIBUTIONS. Regular Distributions of the remaining Cash
Available for Distribution shall be made to all the Partners in
accordance with their Capital Accounts.
ARTICLE 8.
DISPOSITION OF UNITS
SECTION 8.1 REPURCHASE OF CLASS A LIMITED PARTNERS' UNITS BY
PARTNERSHIP. As set forth below and subject to the limitations set forth
herein, the Partnership will have the right to purchase all or a portion (as
described in more detail below) of Condon and
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Elmendorf's Units (and they shall have the obligation to sell such Units) in
the event that either of them are no longer employed by the Partnership,
whether as a result of death, resignation, termination for cause, termination
without cause, disability or otherwise; provided that the triggering event
(end of employment) occurs prior to the end of the four year employment term
(as set forth in the employment agreement between each of Condon and Elmendorf
and the Partnership (the "Employment Agreements")). Notwithstanding the
foregoing, the Partnership will not have the right to purchase Elmendorf's and
Condon's Units under this Section 8.1 if the termination of their employment
occurs on or after January 1, 2003. To the extent that: (i) the right to
purchase arises prior to January 1, 2001 and arises out of the resignation or
termination for "cause" (as defined in the Employment Agreements), the
purchase price for Condon or Elmendorf's Units will be the book value of the
Units, (ii) the right to purchase arises at any time and arises out of the
termination of employment without "cause" (as defined in the Employment
Agreements) the purchase price will be the greater of the fair market value
(with no minority ownership or control discount applied) for the Units being
sold (determined by an independent appraiser, who is either (a) selected by
the mutual agreement of the Partner whose Units are being repurchased and the
Partnership, (b) a "big six" accounting firm selected by the Partnership
(provided such accounting firm is not utilized by the Partnership, the General
Partner, Weston or Miller or any Related Party of the foregoing), or, (c) a
third party independent appraiser designated by a "big six" accounting firm
selected by the Partnership (provided such accounting firm is not utilized by
the Partnership, the General Partner, Weston or Miller or any Related Party of
the foregoing)), or the amount of the respective annual salaries of Elmendorf
or Condon, as to Units sold by each of them, respectively, (iii) the right to
purchase arises under any other event, the purchase price will be the fair
market value for the Units being sold (with no minority ownership or control
discount applied), as determined by an independent appraiser selected in
accordance with the provision set forth above. Payment for the Units shall be
20% in cash and the remainder paid pursuant to a promissory note bearing
interest at the rate of 8%, fully amortized over four years. However, in the
event that the purchase arises out of the termination without "cause", 30%
will be paid in cash and the balance will be paid over three years on the
other terms described in the preceding sentence. The Partnership's right to
purchase all of Condon's and Elmendorf's Units in the event that their
employment ends prior to January 1, 2003 is limited by the following: (A) If
(i) Condon or Elmendorf, as the case may be, provides the Partnership with 45
days prior written notice of his election to resign and such resignation takes
place on or after January 1, 2001, or (ii) prior to January 1, 2001, Condon or
Elmendorf dies, becomes disabled, or is terminated by the Partnership without
cause, Elmendorf or Condon, as the case may be, may elect to retain up to
fifty percent (50%)of his Units, (B) To the extent that the termination of
employment occurs after January 1, 2001, Condon or Elmendorf, as the case may
be, may elect to retain that percentage of his Units which is determined by
dividing the number of months that Condon or Elmendorf, as the case may be, is
employed by the Partnership from January 1,1999, by 48. The Partnership shall
have the exact same rights with respect to Yoo and Yoo shall have the exact
same obligations as set forth above, except that if prior to January 1, 2002,
Yoo is terminated for "cause" (as defined in the Employment Agreement between
the Partnership and Yoo) or Yoo resigns prior to January 1, 2002 (or Yoo
otherwise resigns at anytime without giving 45 days prior written notice), the
Partnership will have the right to purchase
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all of his Units at book value, and if Yoo is terminated without "cause" (as
defined in the Employment Agreement), the purchase price for his Units will be
the greater of the fair market value (as determined by an independent
appraiser selected in the method described above and with no minority
ownership or control discount applied) of his Units being sold or an amount
equal to 1.5 multiplied by Yoo's annual salary in effect immediately prior to
then end of his employment. With respect to Condon and Elmendorf, the
Partnership, to the extent it desires to exercise its right to purchase their
Units, must purchase all of the Units which are subject to the right of
purchase. With respect to Yoo, the Partnership, to the extent that it desires
to exercise its right to purchase his Units, may purchase less than all of the
Units which are subject to the right of purchase. However, the Partnership may
not elect to leave Yoo with a de minimis number of Units. The book value and
fair market value of Units subject to sale to the Partnership, shall be
determined as of the end of the last fiscal quarter of the Partnership
immediately prior to the end of employment, provided that the appraiser shall
be entitled to take into consideration any events occurring after the last
fiscal quarter which may have a material effect on the fair market value of
the Units, including the departure of any key employee. The above
notwithstanding, in the event of a merger or other business combination, sale
of all or substantially all of the Partnership's assets or in the event that
the Partnership (or a successor entity created for the purpose of making a
public offering) completes a public offering underwritten by a nationally
recognized underwriter and raises more than $10,000,000.00 for the Partnership
(or the successor entity), all the rights of the Partnership to repurchase the
Yoo's Elmendorf's and Condon's Units shall automatically terminate. In order
to clarify the rights of the Partnership described in this Section 8.1,
Exhibit B is attached hereto to outline the rights and obligations of the
parties.
SECTION 8.2 PROHIBITED DISPOSITIONS. Elmendorf, Yoo and Condon
(collectively, the "Class A Partners") shall not make any sale, transfer,
pledge, assignment or other disposition of any of their Units which may be
purchased by the Partnership pursuant to the Partnership's rights under
Section 8.1 above. Therefore, as to each Class A Limited Partner, for so long
as the Partnership has the right to acquire any of such Class A Partners'
Units in the event that he is no longer employed by the Partnership, no
disposition of those Units which may be acquired by the Partnership may be
made by such Class A Partner. In any circumstances where the prior two
sentences do not restrict the transfer of the Units owned by the Class A
Partners, no Limited Partner (including any assignee of a Limited Partner)
other than Trout may propose to make any sale, transfer, pledge, assignment or
other disposition of all or any part of their Units or other Limited
Partnership interests (such interests referred to as the "Units Offered for
Sale") except in exchange for cash or a combination of cash and promissory
notes. Prior to making such disposition, the Class A Limited Partner (the
"Selling Partner") shall first offer his or her Units Offered for Sale to
Trout under the same terms and conditions as the proposed sale (the "Terms of
Sale"). Such offer shall be in writing and delivered to Trout, along with the
name of the proposed purchaser of the Units Offered for Sale. The Selling
Partner shall provide to Trout all information regarding the proposed sale and
the proposed purchaser, as may be reasonably requested by Trout. Trout shall
have four business (4) days from the receipt of such written offer to (i)
elect in writing to purchase all of such Units Offered for Sale, and (ii) make
available to the Selling Partner at the offices of the General Partner, an
amount equal to ten
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(10%) percent of the purchase price of the Units Offered for Sale as a
non-refundable deposit. Payment for the Units Offered for Sale shall be made
in accordance with the Terms of Sale. If Trout does not elect to purchase all
the Units Offered for Sale, the Selling Partner shall be free to sell all, but
not less than all of such Units Offered for Sale for a period of sixty (60)
days after the expiration of the Trout's option, provided that any such sale
must be made under the same terms and conditions as the Terms of Sale and to
the proposed purchaser named in the Terms of Sale. The Selling Partner shall
provide all information relating to the transferee of the Units Offered for
Sale which is reasonably requested by the General Partner. Trout and Macroweb
may not propose to make any sale, transfer (which shall include a merger,
statutory exchange, consolidation of either Trout or Macroweb), pledge,
assignment or other disposition of all or any part of their Units or other
interests in the Partnership (such interests desired to be sold, transferred,
pledged or assigned are referred to as the "Controlling Units offered for
Sale") except by sale of cash or a combination of cash and promissory notes.
Prior to making such disposition, Trout or Macroweb, as the case may be, shall
first offer the Controlling Units Offered for Sale to the Class A Limited
Partners, in proportion to their Ownership Interests in the Partnership under
the same terms and conditions as the proposed sale (the "Terms of Sale").
Trout and/or Macroweb shall provide to the Class A Limited Partners all
available information regarding the proposed sale and the proposed purchaser,
as may be reasonably requested by the Class A Limited Partners. The Class A
Limited Partners shall have four (4) business days from the receipt of such
written offer to (i) elect in writing to purchase all of the Controlling Units
Offered for Sale (in proportion to their Ownership Interests in the
Partnership, or in whatever other proportion they may otherwise agree), and
(ii) make available to Trout and Macroweb at the offices of the General
Partner, an amount equal to ten (10%) percent of the purchase price of the
Controlling Units Offered for Sale as a non-refundable deposit; provided that,
in lieu of such deposit, the Class A Limited Partners may pledge (under a
pledge agreement acceptable to Trout or Macroweb, as the case may be) their
Units as security for their obligation to pay an amount equal to 10% of the
purchase price of the Controlling Units Offered for Sale as a non-refundable
deposit. Payment for the Controlling Units Offered for Sale shall be made in
accordance with the Terms of Sale. In addition, to the extent that the Terms
of Sale require a note or notes, the Class A Limited Partners, to the extent
they desire to purchase all of the Controlling Units Offered for Sale, shall
be required to demonstrate that they have at least the same credit worthiness
as the proposed purchaser. If the Class A Limited Partners do not elect to
purchase all of the Controlling Units Offered for Sale or cannot demonstrate
the same credit worthiness as the proposed purchaser under Terms of Sale which
include a note or notes, Trout and/or Macroweb, as the case may be, shall be
free to sell all the Controlling Units Offered for Sale for a period of sixty
(60) days after the expiration of the Class A Limited Partners' option,
provided that any such sale must be made under the same terms and conditions
as the Terms of Sale. Trout shall provide all information relating to the
transferee of the Controlling Units Offered for Sale which is reasonably
requested by the General Partner. Except as specifically allowed under this
Agreement, no Limited Partner may sell, assign, transfer, mortgage, encumber,
hypothecate, pledge or otherwise dispose of all or any part of such Limited
Partner's interests in the Partnership and any attempt to take such action and
any purported separate sale, transfer, assignment, mortgage, encumbrance,
hypothecation, pledge, or other disposition by any Limited Partner shall be
void. In the event of any sale, transfer,
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assignment or other disposition which is not made in accordance with this
Agreement, and without herein recognizing such as being permitted or valid,
the Limited Partner making the same shall remain and continue to be liable for
the performance of all of its obligations hereunder and the Partnership shall
continue to make any distributions, if any, to said Limited Partner. All
subsequent owners of any Units, or other Limited Partnership interests
hereunder shall hold same subject to all the terms and provisions hereof. To
the extent that the provisions of this Section 8.2 and the other provisions of
this Agreement are followed incident to any sale of Units, the transferee of
such Units shall become a Substitute Limited Partner of the Partnership with
the written consent of the General Partner, which consent shall not be
withheld or delayed. With respect to any transfer of all of the Units and
interests in the Partnership held by Macroweb, the transferee shall become the
substitute General Partner of the Partnership, provided that the provisions of
this Section 8.2 and all other provisions of this Agreement are followed
incident to the sale of such Units and interests.
SECTION 8.3 TRANSFERS TO A FAMILY MEMBER. Any Limited Partner shall be
permitted to transfer his or her Units or other Limited Partnership interests
to a Family Member or a trust established for the benefit of a Family Member
("Trust") without subjecting such Units to the right of first refusal contained
in Section 8.2 above, provided that written notice of such transfer is
provided to the General Partner at least thirty (30) days prior to the
transfer. However, no such Family Member or Trust shall become a Substitute
Limited Partner without the express written consent of the General Partner and
the Approval of the Class A Limited Partners, which consent may be arbitrarily
withheld. It is expressly agreed that Trout may transfer its Units to Miller,
Weston or any of their Family Members or a trust established for the benefit
of a Family Member.
SECTION 8.4 TRANSFER OF UNITS. Each Partner affirms that he/she/it has
purchased and now holds his, her or its Units for his, her or its own account,
solely for investment and not with any intention of distributing, dividing, or
reselling the same. In addition to other restrictions on transfer contained in
this Agreement, the Units and any other Limited Partnership interests may be
assigned, pledged, or subjected to a security interest (collectively referred
to as "disposition") only if:
a. Such disposition is consistent with such affirmation;
b. The transferee of such disposition is not a competitor of the
Partnership;
c. Except with respect to a transfer to a Family Member or a trust
established for the benefit of a Family Member, such Partner has first offered
to sell the Units or other Limited Partnership interests in accordance with
Section 8.2 above; and
d. The following conditions to such disposition have been met,
unless such conditions have been waived in writing by the General Partner in its
sole discretion which discretion, may be arbitrarily exercised:
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(i) the transferee has delivered an instrument reasonably
satisfactory to the General Partner which accepts and adopts the
terms and provisions of this Agreement, including the assumption of
all obligations of the transferor to the Partnership and an
agreement to be subject to all transfer restrictions applicable to
his/her or its transferor;
(ii) the transferor has delivered to the General Partner an
opinion of counsel, who is reasonably satisfactory to the General
Partner, in form and substance satisfactory to counsel designated by
the General Partner to the effect that the tax status of the
Partnership will not be adversely affected by the transfer;
(iii) the transferor has delivered to the General Partner an
opinion of counsel, who is reasonably satisfactory to the General
Partner, in form and substance satisfactory to counsel designated by
the General Partner to the effect that neither the assignment nor any
offering in connection therewith violates any provision of any
federal or state securities or comparable law;
(iv) the General Partner has determined that the transfer would
not cause a termination of the Partnership within the meaning of
Section 708(b) of the Code; and
(v) the transferor pays for all expenses incurred by the
Partnership in connection with such disposition.
It is further expressly provided herein that the Partners shall not make
any transfer, assignment, lease, or gift of any interest in the Partnership to
a "tax exempt entity" as that term is defined in the Code which would cause
such tax exempt entity to become directly or indirectly a Partner in the
Partnership. Any such transfer to such a tax exempt entity shall be void.
SECTION 8.5 PARALLEL EXIT. No Partner (including any transferee or
assignee)or any Family Member or trust established for the benefit of a Family
Member which has received Units from a Partner (a "Transferee"), may sell any
of their Units without first offering to all of the Limited Partners
(including any Additional Limited Partners), the right to participate in such
transfer, on a pro rata basis, on the same terms and conditions as the
proposed sale by the Partner or Transferee seeking to transfer Units. Before
making any sale the Partner or any Transferee shall provide each of the other
Limited Partners and any Additional Limited Partners with written notice of
the date and terms of the proposed sale and each of the other Limited Partners
and the Additional Limited Partners shall each have the right to sell his or
her Units or other Limited Partnership interests pursuant to such sale in an
amount equal to the Units subject to purchase, multiplied by a fraction, the
numerator of which shall be the Ownership Percentage Interests held by such
Limited Partner or Additional Limited Partner, as the case may be, and the
denominator of which is the total amount of the Ownership Percentage Interests
held by all the Partners electing to participate in such sale. Any Limited
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Partner or Additional Limited Partner who elects to participate in such sale,
shall be required to irrevocably make its election within four business days
of receipt of written notice from the Limited Partner or Transferee.
Notwithstanding the foregoing, any purchase of less than all of the Units
elected to be sold as provided above, shall be made from all parties
participating in the sale, pro rata, based on the number of Units to be sold
by each. The provisions of this Section 8.5 will not apply to any involuntary
sale of Units, such as a sale under the terms of a pledge or security
agreement, nor does this provision apply to any transfer to a Family Member
of a Limited Partner or a trust established for the benefit of a Family
Member of a Limited Partner.
SECTION 8.6 STATUS OF TRANSFEREE. The transfer by a Limited Partner of
his/her or its Units, or other Limited Partnership interests shall not
constitute the person acquiring such Units, or other Limited Partnership
interests, to become a Substitute Limited Partner, except with the express
written consent of the General Partner. Such consent may not be withheld if
all of the requirements for transfer which are set forth herein have been met.
No such substitution shall become effective until such transferee and all of
the Partners, (either individually or through their agent or attorney in fact,
including the General Partner as such attorney-in-fact) execute all
amendments, certificates and other documents and perform all acts relating to
such substitution which the General Partner deems appropriate to comply with
applicable requirements of law so as to preserve the limited liability status
of the Partnership upon the completion of such substitution under the laws of
the jurisdictions in which the Partnership is doing business. Without in any
way limiting the power of attorney contained in Article 12, each Partner
agrees upon request of the General Partner to execute such amendments,
certificates or other documents and perform such acts.
SECTION 8.7 EFFECTIVE TIME OF TRANSFER. A purported transfer of a
Unit(s), or any other Limited Partnership interest shall be valid as to the
Partnership and the General Partner on the first day of the month following
the month in which the foregoing conditions have been met (whereupon the
General Partner shall cause the name of the transferee to be registered as the
holder of such Unit or Units upon the records maintained for that purpose as
provided in Section 3.12).
SECTION 8.8 SUBDIVIDED UNITS PROHIBITED. Without the written consent
of the General Partner, which may be arbitrarily withheld, Limited Partners
shall not be permitted to sell, transfer, assign, convey, give, donate or
bequeath a fractional part of a Unit, or other fractional part of a Limited
Partnership interest, except to the extent such fractional part was issued as
such upon the formation of the Partnership.
SECTION 8.9 TRANSFER TO BELL AND GRUBBS. Notwithstanding anything
herein to the contrary, Yoo is specifically authorized to transfer and assign
5000 Units to Brian Bell and 5000 Units to Edwin Grubbs, and Yoo agrees to
make such assignment as soon as practicable after the execution of this
Agreement. The General Partner specifically consents to such alignment and
such assignment shall not be subject to the rights of first refusal contained
in Section 8.2; however, the parties shall be required to comply with the
requirements of Section 8.3. Brian Bell and Edwin Grubbs shall be assignees
only and shall not become Substitute
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Limited Partners.
ARTICLE 9.
ADDITIONAL LIMITED PARTNERS
SECTION 9.1 ADMISSION OF NEW PARTNERS. In order to raise additional
capital for the Partnership, the General Partner is authorized to admit
Additional Limited Partners and to sell additional Units and other Limited
Partnership interests in the Partnership, under such terms and conditions as
may be negotiated by the General Partner in an arms-length transaction
consistent with the General Partner's fiduciary duty to the Partnership.
However, unless and until at least $1,050,000 has been loaned to the
Partnership pursuant to Trout's obligations under Section 4.5 above (i)
neither Trout, Macroweb, Miller, Weston or any of their Related Parties may be
sold additional Units and other Limited Partnership interests in the
Partnership, and (ii) no sale of the Partnership's Units will be made without
the Approval of the Class A Limited Partners. Incident to admitting
Additional Limited Partners and notwithstanding anything in this Agreement to
the contrary, the terms of this Agreement may be amended by the General
Partner without the consent of the Limited Partners in order to provide for
the rights and duties of such Additional Limited Partners. In the event
Additional Limited Partners are admitted to the Partnership by the General
Partner, the Ownership Percentage Interests of each existing Partner shall be
adjusted on a pro rata basis and the Ownership Percentage Interests of such
Additional Limited Partner shall be established by the General Partner.
SECTION 9.2 PREEMPTIVE RIGHTS. To the extent that the General Partner
proposes to sell additional Units or other Limited Partnership interests or
securities exercisable for or convertible into such Units or other Limited
Partnership Interests as permitted in Section 9.1 above for cash, the General
Partner shall first offer such Limited Partnership interests to all the
Partners and each Partner shall be entitled to purchase an amount of such
Limited Partnership interests in proportion to the Ownership Percentage
Interest of each Partner. Upon receipt of the offer, to the extent that any of
the Limited Partners desire to accept the offer they must, within four
business days of receipt of the offer, (i) notify the General Partner in
writing of acceptance, and (ii) deposit 10% of the purchase price with the
Partnership.
SECTION 9.3 INTERESTS GRANTED TO KEY PERSONNEL. In order to attract
qualified personnel or to reward personnel (collectively, "Key Personnel') for
their efforts, the General Partner has the right to grant Units and Limited
Partnership interests and options to acquire Units and Limited Partnership
interests to such persons in exchange for their future services. The grant of
such Limited Partnership interests shall not be subject to the preemptive
rights provided for in Section 9.2 above. Incident to granting any such
Limited Partnership interests and notwithstanding anything in this Agreement
to the contrary, the terms of this Agreement may be amended by the General
Partner without the consent of the Limited Partners in order to provide for
the rights and duties of such additional Limited Partners. In the event such
Additional Limited Partners are admitted to the Partnership by the General
Partner, the Ownership Percentage Interests of each existing Partner shall be
adjusted on a pro rata basis
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<PAGE>
and the Ownership Percentage Interests of such Additional Limited Partners
shall be established by the General Partner. The above notwithstanding, unless
the Approval of the Class A Limited Partners is obtained, the General Partner
shall not, in any calendar year of the Partnership, grant to Key Personnel
Units, Limited Partnership interests or options to acquire the same, to the
extent that the aggregate amount of such Units, Limited Partnership interests
and options to acquire the same, constitute more than 10% of the outstanding
Units of the Partnership at the beginning of such calendar year.
ARTICLE 10.
TERMINATION, DEATH, BANKRUPTCY
SECTION 10.1 TERMINATION OF AGREEMENT. Upon dissolution of the
Partnership and termination of this Agreement, the General Partner or the
liquidator, as the case may be, shall promptly liquidate the affairs of the
Partnership by discharging all debts and liabilities of the Partnership and by
distributing all remaining assets in cash or in kind, or partly in cash and
partly in kind, in accordance with Sections 11.2 and 11.3 hereof.
SECTION 10.2 NO RECOURSE. Upon liquidation and termination of the
Partnership, each Limited Partner shall look solely to the assets of the
Partnership for the return of his investment, and such Limited Partner shall
have no recourse or further right or claim in connection therewith against the
General Partner or any other Limited Partner. In winding up the affairs of the
Partnership and distributing its assets, the General Partner or liquidator, as
the case may be, shall set up a reserve to meet any contingent or unforeseen
liabilities or obligations and deposit funds for such purpose, together with
funds held by the Partnership for distribution to Partners which remain
unclaimed after a reasonable period of time, with an escrow agent for the
purpose of disbursing such reserves and funds. The General Partner or
liquidator, as the case may be, shall have sole discretion in establishing and
maintaining such reserves and the amount thereof. The escrow agent is
authorized and directed at the expiration of such period as the liquidator
shall deem advisable, to distribute the balance thereafter remaining in the
manner provided in Article 11.
SECTION 10.3 DEATH, INCAPACITY OR BANKRUPTCY. The death, legal
incapacity or bankruptcy of a Limited Partner (or, in the case of a Limited
Partner that is a partnership, joint venture, association, corporation or
trust, in its insolvency, dissolution or bankruptcy) shall not dissolve nor
terminate the Partnership. In such event, the personal representative,
guardian or other successor in interest of such Limited Partner shall have the
rights of a Limited Partner for the sole purpose of settling the estate of
such Limited Partner and may sell or transfer the Unit(s) of such Limited
Partner only pursuant to the provisions of Article 8.
25
<PAGE>
ARTICLE 11.
DISSOLUTION AND WINDING UP
SECTION 11.1 DISSOLUTION. The Partnership shall be dissolved only upon
the happening of any of the following events:
a. The expiration of the term of the Partnership set forth in
Section 2.5 hereof;
b. Any disposition by the Partnership of all or substantially all
of its assets;
c. The General Partner elects to dissolve (provided such election
takes place after January 1, 2001); or
d. The withdrawal, termination (by the filing of articles of
dissolution of the General Partnership if it is a limited liability company)
or bankruptcy of the General Partner, unless the Partnership is continued
pursuant to the written consent of the Limited Partners owning at least 15% of
the Ownership Percentage Interests of all the Partners.
Upon dissolution, the General Partner or liquidator, as the case may be, shall
proceed with reasonable promptness to liquidate the business of the
Partnership. The Partners shall share in the profits and losses of the
business during the period of liquidation pursuant to the provisions of
Article 6.
SECTION 11.2 DISTRIBUTION UPON LIQUIDATION. Upon dissolution and
termination of the Partnership, any proceeds of liquidation shall be applied
in the following order of priority and according to the following procedures:
a. To pay debts and liabilities of the Partnership (including
loans or advances by the Partners) not otherwise adequately provided for by
reserves held by the Partnership, and the expenses of liquidation;
b. To set up reasonable reserves for any remaining contingent or
unforeseen liabilities of the Partnership not otherwise provided for, to be
maintained in a regular trust fund account for a reasonable period of time and
if any excess funds thereafter remain, then to be distributed pursuant to this
Section 11.2;
c. After giving effect to all contributions and all prior
distributions, and after all Net Income, Net Loss and other items have been
allocated in accordance with Article 6, to the Partners in accordance with and
to the extent of their respective positive Capital Accounts; and
26
<PAGE>
d. Liquidating distributions shall then be made to and among the
Partners based upon their distribution rights provided for in Section 7.2.
PURSUANT TO SECTION 4.4 HEREOF, IF ANY PARTNER HAS A DEFICIT BALANCE IN THE
PARTNER'S CAPITAL ACCOUNT FOLLOWING LIQUIDATION OF THE PARTNER'S INTEREST AS
DETERMINED AFTER TAKING INTO ACCOUNT ALL CAPITAL ACCOUNT ADJUSTMENTS FOR THE
PARTNERSHIP'S TAXABLE YEAR IN WHICH SUCH LIQUIDATION OCCURS, SAID PARTNER
SHALL NOT BE OBLIGATED TO RESTORE THE AMOUNT OF SUCH DEFICIT BALANCE TO THE
PARTNERSHIP. It is the express intention of the Partners to override the
holding of PARK CITIES CORPORATION V. BYRD, 534 S.W.2d 668 (Tex. 1976), as
contemplated herein, and to satisfy the economic effect requirements of
Subchapter K of the Code by the use of the qualified income offset provided
in Section 6.3 hereof.
SECTION 11.3 LIQUIDATION. The General Partner shall act as liquidator,
except in the event of the withdrawal, dissolution or bankruptcy of the
General Partner, in which case a Majority in Interest of the Limited Partners
shall appoint one or more liquidators. A reasonable time shall be allowed for
the orderly liquidation of the assets of the Partnership and the discharge of
liabilities to creditors so as to enable the liquidator to minimize the normal
losses attendant upon the liquidation. Each of the Partners shall be furnished
with a statement which shall set forth the assets and liabilities of the
Partnership as of the date of complete liquidation.
SECTION 11.4 GAINS OR LOSSES IN PROCESS OF LIQUIDATION. Any property
distributed in kind in liquidation shall be treated as though the property
were sold at its fair market value and the cash proceeds were distributed. The
difference between the value of the property distributed in kind and its book
value shall be treated as a gain or loss on sale of the property and shall be
credited to or charged against the interest of the Partners in the proportions
set forth in Article 6. In the event there is Partnership property which has
not been sold and the undivided interests distributed to the respective
Partners, such property will be distributed subject to such liens,
encumbrances, restrictions, contracts, obligations, commitments or
undertakings as existed with respect to such property at the time acquired by
the Partnership or were subsequently created or entered into by the
Partnership, and otherwise not released or terminated.
ARTICLE 12.
POWER OF ATTORNEY
SECTION 12.1 APPOINTMENT OF GENERAL PARTNER. By execution hereof, the
Limited Partners, irrevocably constitutes and appoints the General Partner as
each such Limited Partner's true and lawful attorney-in-fact and agent with
full power and authority to act in his, her or its name and place in
executing, filing and recording (i) any documents or statements required to
change the registered office and/or registered agent of the Partnership, (ii)
this Agreement and the Certificate of Limited Partnership, (iii) any
amendments or restatements
27
<PAGE>
to the Certificate of Limited Partnership required to reflect the admission of
a new General Partner, the withdrawal of a General Partner, a change in name
of the Partnership or other proper amendments made in accordance with Article
13, (iv) a certificate of cancellation upon the completion of the winding up
of the Partnership, (v) any documents or certificates required by law to merge
the Partnership with another limited partnership or other entity as permitted
by this Agreement, (vi) any documents or certificates required to be filed as
a result of the admission of additional or substitute General Partners or
Limited Partners, (vii) any amendments to this Agreement incident to admitting
new Limited Partners in accordance with Article 9 of this Agreement, and
(viii) any amendments to this Agreement which do not affect the rights and
obligations of the Partners but are made to correct a mistake or an omission
to this Agreement. Each Limited Partner further authorizes such
attorney-in-fact to take any further action which such attorney-in-fact shall
consider necessary or advisable in connection with any of the foregoing,
hereby giving such attorney-in-fact full power and authority to do and perform
each and every act or thing whatsoever requisite or advisable to be done in
and about the foregoing as fully and to the same extent as each such Limited
Partner might or could do if personally present, hereby ratifying and
confirming all that such attorney-in-act shall lawfully do or cause to be done
by virtue hereof; provided, that in no event may the attorney-in-fact utilize
this power of attorney to cast any vote or consent of the undersigned other
than as to matters with respect to which the attorney-in-fact is specifically
authorized so to act hereunder or which the undersigned has consented to in
writing. Each Limited Partner has and does hereby agree to execute any and all
additional forms, documents or instruments as may be reasonably necessary or
required by each Limited Partner to evidence this power of attorney.
This power of attorney is coupled with an interest, is irrevocable,
survives the death, incompetency, termination or dissolution of any Limited
Partner, and is binding on any assignee of all or part of a Partnership
interest hereunder. Each Limited Partner agrees to be bound by any
representation made by the attorney-in-fact acting in good faith pursuant to
such power of attorney, and hereby waives any and all defenses which may be
available to protest, negate or disaffirm the actions of the attorney-in-fact
taken in good faith under such power of attorney.
ARTICLE 13.
AMENDMENTS
SECTION 13.1 AUTHORITY TO AMEND. Except as otherwise expressly provided
for herein, this Agreement may be amended with the consent of the General
Partner and the Approval of the Class A Limited Partners.
SECTION 13.2 NOTICE OF AMENDMENTS. A copy of any amendment to be
approved by the Limited Partners shall be mailed in advance to such Limited
Partners.
28
<PAGE>
ARTICLE 14.
MERGER OF PARTNERSHIP
Pursuant to the Act, and with the prior written consent the General
Partner the Partnership may adopt a plan of merger and may merge with one or
more domestic or foreign limited partnerships, corporations, general
partnerships, limited liability companies, associations or other legal entity
organized pursuant to the laws of the state of Texas or any other state to the
extent of such laws or the constituent documents of such entity would permit
such entity to enter into a merger with the Partnership. The approval of the
Class A Limited Partners shall be required to approve such merger unless all
of the holders of Units will receive the same form and amount of consideration
per Unit, or if any holders are given an option as to the form and amount of
consideration to be received, all holders are given the same option.
ARTICLE 15.
PUBLIC OFFERING
Notwithstanding anything herein to the contrary, the General Partner is
authorized, without the consent of the Limited Partners, to cause the
Partnership to merge with a new corporation or to contribute all of the
Partnership's assets and liabilities to a new corporation, incident to a
public offering of the stock of such successor entity, provided that the
offering raises at least $10,000,000. In such event, the Partnership will be
terminated and each Partner will receive, incident to such merger or transfer,
shares of stock in the successor entity, in proportion to each Partner's
respective positive Capital Account balance adjusted by treating the
Partnership as having liquidated and gains and losses allocated in accordance
with Section 11.4 hereof.
ARTICLE 16.
PROTECTION OF PARTNERSHIP
INFORMATION/BUSINESS OPPORTUNITIES
All Partners, and their respective officers, directors, members, managers
and employees (including Miller and Weston) acknowledge and agree that the
Partnership has and will continue to develop proprietary information which is
essential for the success of the Partnership. Such information, includes but
is not limited to marketing plans, strategies, financial data, customer lists,
supplier lists, source code, business ideas (collectively, the "Confidential
Information'), whether oral or embodied in documents (including writings,
drawings, graphs, charts, photographs, phonorecords, video recordings, and
other data compilations from which information can be obtained) or tangible
things. The Partners agree to keep the Confidential Information secret at all
times, and not to disclose such information to any third party without the
consent of the General Partner. The Partners and their
29
<PAGE>
respective officers, directors, members, managers and employees (including
Miller and Weston) all agree, and shall be prohibited from using the
Confidential Information for any purpose other than the purpose of the
Partnership.
All of the Partners, for so long as they own Units or Limited Partnership
interests (whether directly or indirectly), agree to promptly bring to the
attention of the General Partner and the Partnership, any business opportunity
which become known to them which relates to the business of the Partnership.
The above notwithstanding, the parties acknowledge that Weston and Miller
shall have no duty to bring any business opportunity to the Partnership unless
the business opportunity relates to Partnership's core business activity at
the time, which is currently, commercially developing the Concept. Pursuant to
a separate agreement between the Partnership, Weston and Miller, Weston and
Miller have agreed that they will not compete with the core business
activities of the Partnership for so long as they control the General Partner
and for a period of one year after they lose control of the General Partner.
MISCELLANEOUS
SECTION 16.1 LIABILITY OF GENERAL PARTNER. The General Partner, its
officers, directors, representatives, employees and agents shall not be liable
to the Partnership or to the Limited Partners for losses sustained or
liabilities incurred as a result of any error in judgment or mistake of law or
fact (including simple negligence) or for any act done or omitted to be done
in good faith in conducting the Partnership business, unless such error,
mistake, act or omission was performed or omitted fraudulently or in bad faith
or constituted gross negligence or self-dealing.
SECTION 16.2 INDEMNIFICATION OF THE GENERAL PARTNER. THE PARTNERSHIP
SHALL INDEMNIFY THE GENERAL PARTNER, ITS OFFICERS, DIRECTORS, REPRESENTATIVES,
EMPLOYEES AND AGENTS (collectively referred to as the "GENERAL PARTNER" for
this Section 17.2 only), AGAINST EXPENSES (INCLUDING COURT COSTS AND
ATTORNEY'S FEES), LOSSES AND JUDGEMENTS INCURRED BY THE GENERAL PARTNER IN
CONNECTION WITH ANY THREATENED, PENDING OR COMPLETED ACTION, SUIT OR
PROCEEDING, WHETHER CIVIL, CRIMINAL, ADMINISTRATIVE, ARBITRABLE OR
INVESTIGATIVE, ANY APPEAL IN SUCH AN ACTION, SUIT OR PROCEEDING, IN WHICH THE
GENERAL PARTNER IS NAMED DEFENDANT OR RESPONDENT BECAUSE IT IS OR WAS THE
GENERAL PARTNER OF THE PARTNERSHIP, IS OR WAS SERVING AT THE REQUEST OF THE
PARTNERSHIP, OR OTHERWISE ACTING AS THE GENERAL PARTNER OF THE PARTNERSHIP, TO
THE MAXIMUM EXTENT PERMITTED UNDER THE ACT OR OTHERWISE BY TEXAS LAW, BUT ONLY
TO THE EXTENT THAT THE SAME WERE NOT CAUSED BY THE GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT OF THE GENERAL PARTNER.
30
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SECTION 16.3 INDEMNIFICATION OF THE CLASS A LIMITED PARTNERS. THE
PARTNERSHIP SHALL INDEMNIFY YOO, ELMENDORF AND CONDON AGAINST EXPENSES
(INCLUDING COURT COSTS AND ATTORNEY'S FEES), LOSSES AND JUDGEMENTS INCURRED BY
THEM IN CONNECTION WITH ANY THREATENED, PENDING OR COMPLETED ACTION, SUIT OR
PROCEEDING, WHETHER CIVIL, CRIMINAL, ADMINISTRATIVE, ARBITRABLE OR
INVESTIGATIVE, ANY APPEAL IN SUCH AN ACTION, SUIT OR PROCEEDING, IN WHICH THEY
ARE NAMED DEFENDANT OR RESPONDENT BECAUSE IT IS OR WAS EMPLOYED BY THE
PARTNERSHIP, TO THE MAXIMUM EXTENT PERMITTED UNDER THE ACT OR OTHERWISE BY
TEXAS LAW, BUT ONLY TO THE EXTENT THAT THE SAME WERE NOT CAUSED BY THE GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT OF YOO, ELMENDORF OR CONDON, AS THE CASE MAY
BE.
SECTION 16.4 CONSTRUCTION. The indemnification provided by this Article
shall be subject to all valid and applicable laws, including, without
limitation, Article 11 of the Act, and, in the event this Article or any of
the provisions hereof or the indemnification contemplated hereby are found to
be inconsistent with or contrary to any such valid laws, the latter shall be
deemed to control and this Article shall be regarded as modified accordingly,
and, as so modified, to continue in full force and effect.
SECTION 16.5 PARTNERSHIP PROPERTY. The legal title to the real or
personal property or interest therein now or hereafter acquired by the
Partnership shall be owned, held or operated in the name of the Partnership,
and no Partner, individually, shall have any ownership of such property.
SECTION 16.6 NOTICES. Any notice, payment, demand or communication
required or permitted to be given by the provisions of this Agreement shall be
deemed to have been sufficiently given or served for all purposes if delivered
personally to the party or to an officer of the party to whom the same is
directed, or if sent by Registered or Certified Mail, postage and charges
prepaid, to the address of a Partner as shown on Exhibit "A" of this
Agreement, or to such other address as shall be furnished in writing by any
party to another. Any such notice shall be deemed to be transmitted as of the
date so delivered, if delivered personally, or two business days after the
date on which the same was deposited with adequate postage in a regularly
maintained receptacle for the deposit of United States mail, addressed and
sent as aforesaid. All notices hereunder shall be effective on transmittal,
except where actual receipt is required by an express provision hereof. Each
Partner agrees to promptly provide his current address and telephone number to
the General Partner in the event the last address and telephone number
previously provided to the General Partner becomes inaccurate.
SECTION 16.7 SECTION HEADINGS. Section and other headings contained in
this Agreement are for reference purposes only and are in no way intended to
describe, interpret, define or limit the scope, extent or intent of this
Agreement or any provision hereof.
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SECTION 16.8 SEVERABILITY. Every provision of this Agreement is
intended to be severable. If any term or provision hereof is illegal or
invalid for any reason whatsoever, such illegality or invalidity shall not
affect the validity of the remainder of this Agreement.
SECTION 16.9 MEETINGS. In connection with any vote of the Limited
Partners required hereunder, the General Partner or any Limited Partner may
call meetings of the Partners which shall be held in San Antonio, Bexar
County, Texas. The call shall state the nature of the business to be
transacted. Partners may vote at such meeting in person, by proxy or by
written consent to the actions taken at the meeting. All Partners shall
exercise best efforts in attempting to be present at any meeting called as so
provided.
SECTION 16.10 COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original and all of which shall
constitute one agreement, and the signatures of any party to any counterpart
shall be deemed to be a signature to, and may be appended to, any other
counterpart.
SECTION 16.11 PARTIES IN INTEREST. Each and all of the covenants, terms,
provisions and agreements herein contained shall be binding upon and inure to
the benefit of the parties hereto and their respective heirs, assigns,
successors and legal representatives.
SECTION 16.12 GENDER. All words herein in the male gender shall be
deemed to include words in the female gender wherever the context shall so
require, and all words in the neuter gender shall be deemed to include words
in male and female gender wherever the context shall so require.
SECTION 16.13 TIME. Time is of the essence of this Agreement.
SECTION 16.14 CONTRACTS WITH RELATED PARTIES; COMPETITION. Subject to
such additional requirements as may be stated in this Agreement, nothing in
this Agreement shall be construed to prevent any Partner from dealing with the
Partnership and receiving payment for services, materials furnished or
professional services given or for money loaned to the Partnership, provided
such compensation shall be fair, reasonable and competitive and so long as the
terms of such agreement or transaction are no less favorable to the
Partnership than what the Partnership could obtain from an unrelated third
party.
SECTION 16.15 WAIVER OF PARTITION. EACH OF THE PARTIES HERETO
IRREVOCABLY WAIVES, DURING THE TERM OF THE PARTNERSHIP, ANY RIGHT TO MAINTAIN
ANY ACTION FOR PARTITION WITH RESPECT TO THE PROPERTY OF THE PARTNERSHIP. NO
PARTNER SHALL HAVE AN OWNERSHIP INTEREST IN SPECIFIC PROPERTY.
SECTION 16.16 ARBITRATION. Except as specifically provided in this
Agreement or as provided in any employment agreement or other written
agreement between the parties hereto, or between the Partnership and any of
the parties hereto which expressly
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<PAGE>
provide that such is not subject to binding arbitration, the parties agree
that all disputes, controversies or claims that may arise between them
(including their agents and employees) including, without limitation, any
dispute, controversy or claim as to the interpretation or enforcement of any
of the provisions of this Agreement, shall be submitted first to mediation and
then to binding arbitration in the city of San Antonio, Texas in accordance
with the rules of the American Arbitration Association and judgment upon the
award rendered by the arbitrator(s) may be entered in any court having
jurisdiction.
a. MEDIATION. If a controversy or claim arises between the parties then
that controversy or claim will be mediated within one month of its
identification by the parties.
b. BINDING ARBITRATION. In the event that the parties cannot resolve
their dispute by mediation within one month, the parties then agree to bring
the dispute to binding arbitration within one month of the conclusion of the
mediation.
REMAINDER OF PAGE LEFT BLANK INTENTIONALLY.
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<PAGE>
c. EFFECTIVE DATE. This Agreement shall be dated and shall be
effective as of the date when this Agreement shall have been signed by all
respective parties and the Certificate of Limited Partnership filed with the
Secretary of State of Texas.
IN WITNESS WHEREOF, the General Partner and the Limited Partners have
executed this Agreement as of the date first above written.
GENERAL PARTNER:
Macroweb, LC
By:/s/ Morris A. Miller, Member
------------------------------------
Morris A. Miller, Member
By:/s/ Graham M. Weston
------------------------------------
Graham M. Weston, Member
LIMITED PARTNERS:
/s/ Richard Yoo
---------------------------------------
Richard Yoo
/s/ Dirk Elmendorf
---------------------------------------
Dirk Elmendorf
/s/ Patrick Condon
---------------------------------------
Patrick Condon
Trout, Ltd.
By: Knightsbridge, L.C., General
Partner
By: /s/ Morris Miller
-------------------
Its: member
-------------------
34
<PAGE>
EXHIBIT A
NAMES AND ADDRESSES OF PARTNERS
Macroweb, LC
111 Soledad
Suite 1100
San Antonio, Texas 78205
Trout, Ltd:
111 Soledad
Suite 1100
San Antonio, Texas 78205
Dirk Elmendorf
12221 Blanco Rd. #2303
San Antonio, Texas 78216
Patrick R. Condon
13515 West Ave. #236
San Antonio, Tx 78216
Richard K. Yoo
100 Lorene #102
San Antonio, Tx 78209
Any notice to Dirk Elmendorf, Patrick Condon or Richard Yoo shall also be sent
to:
Fulbright & Jaworski
Attn: Daryl Lansdale
300 Convent Street
Suite 2200
San Antonio, Tx 78205
35
<PAGE>
FIRST AMENDMENT TO
AGREEMENT OF LIMITED PARTNERSHIP
OF
RACKSPACE, LTD.
This First Amendment to Agreement of Limited Partnership of
(hereinafter referred to as the "Agreement") is made effective the 29th day
of September, 1999 (the "Effective Date"), Rackspace, Ltd. (the
"Partnership"), Macroweb, LC, a Texas limited liability company (the "General
Partner" or "Macroweb"), Trout, Ltd, a Texas limited partnership ("Trout"),
Richard Yoo ("Yoo"), Patrick Condon ("Condon") and Dirk Elmendorf
("Elmendorf) (Macroweb, Trout, Yoo, Condon and Elmendorf are sometimes
referred to herein as the "Partners"). This Agreement amends the Agreement of
Limited Partnership between the parties hereto dated December 29, 1999 (the
"Partnership Agreement").
WHEREAS, Exeter Financial, LC ("Exeter") advanced $1,050,000.00 to the
Partnership pursuant to the Credit Agreement dated December 29, 1999; and
WHEREAS, Trout caused Exeter to commit to advance the Partnership an
additional $500,000 over the next six months, as needed by the Partnership
(the "Second Financial Commitment") of which $225,000.00 has been advanced to
the Partnership as of the date of this Agreement, which commitment is set
forth in the agreement entitled "Second Financial Commitment" of even date
herewith;
WHEREAS, as of the Effective Date of this Amendment, the Partnership
owes Exeter $1,308,139.73 (principal and interest)(the "Outstanding
Balance"); and
WHEREAS, incident to obtaining the Second Financial Commitment, the
Partnership and the Partners have agreed to convert $1,050,000.00 of the
outstanding principal balance and $32,531.51 of accrued but unpaid interest
(the "Converted Debt") to equity in the Partnership; and
WHEREAS, Trout has acquired the right to receive the Converted Debt
from Exeter and therefore the $1,082,531.51 of contributed capital resulting
from the conversion will be credited to Trout's capital account and Trout's
Ownership Percentage Interest will be increased pursuant to the provisions
set forth below.
NOW, THEREFORE, FOR AND IN CONSIDERATION OF THE MUTUAL PROMISES HEREIN
MADE, THE PARTIES AGREE AS FOLLOWS:
1. DEBT CONVERSION. Trout represents and warrants that it owns the
Converted Debt pursuant to an agreement between Trout and Exeter whereby
Trout purchased the converted Debt from Exeter and as represented by Exeter
under the Second Financial Commitment. Trout hereby contributes the Converted
Debt to the Partnership and as a result, (i) Trout's capital
<PAGE>
account is increased by $1,082,531.51 and (ii) Trout receives an additional
190,476.19 Units in the Partnership.
2. RESULT OF DEBT CONVERSION. The Partners and the Partnership agree
that as a result of the Debt Conversion, the Partners (and assignees), the
number of Units owned by them and their respective Ownership Percentage
Interests are as follows:
Partner Units Ownership Percentage Interest
------- ----- -----------------------------
Macroweb 1,000 Units .084%
Trout 699,476.19 Units 58.756%
Yoo 360,000 Units 30.24%
Condon 80,000 Units 6.72%
Elmendorf 40,000 Units 3.36%
Grubbs (assignee only) 5,000 Units .42%
Bell (assignee only) 5,000 Units .42%
Total Units Outstanding 1,090,476.19 Units 100.00%
3. Capital Contribution of Trout. Under the Partnership Agreement,
Trout agreed to initially contribute $200,000.00 to the Partnership, but
mistakenly contributed $192,369 rather than $200,000.00. The Partnership and
Trout agree that, as of the date hereof, Trout owes the Partnership $8,090.95
($7,631.00 principal and $495.95 interest)(the "Amount Owed"). Trout agrees
to pay the Amount Owed to the Partnership within 30 days of the date hereof.
Executed by the Partners and the Partnership this 11 day of November,
1999, but made effective on the date first stated above.
RACKSPACE, LTD.
By: Macroweb, LC
Its: General Partner
/s/ Graham M. Weston
----------------------------
Graham M. Weston, Member
/s/ Morris A. Miller, member
----------------------------
Morris A. Miller, Member
<PAGE>
Macroweb, LC
/s/ Morris A. Miller, member
----------------------------
Morris A. Miller, Member
/s/ Graham M. Weston
----------------------------
Graham M. Weston, Member
LIMITED PARTNERS:
/s/ Richard Yoo 11/11/99
---------------------------------
Richard Yoo
/s/ Dirk Elmendorf 11/11/99
---------------------------------
Dirk Elmendorf
/s/ Patrick Condon 11/11/99
---------------------------------
Patrick Condon
Trout, Ltd.
By: Knightsbridge, L.C., General
Partner
By: /s/ Morris Miller
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Its: manager
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<PAGE>
SECOND AMENDMENT TO
AGREEMENT OF LIMITED PARTNERSHIP
OF
RACKSPACE, LTD.
This Second Amendment to Agreement of Limited Partnership of Rackspace,
Ltd. (hereinafter referred to as the "Second Amendment") is made effective
the 30th day of November, 1999 (the "Effective Date"), by and among
Rackspace, Ltd. (the "Partnership"), Macroweb, LC, a Texas limited liability
company (the "General Partner" or "Macroweb"), Trout, Ltd., a Texas limited
partnership ("Trout'), Richard Yoo ("Yoo"), Patrick Condon ("Condon") and
Dirk Elmendorf ("Elmendorf'), (Macroweb, Trout, Yoo, Condon and Elmendorf are
sometimes referred to herein as the "Existing Partners"), and Isom Capital
Partners I, L.P. ("Isom"), First Inning Investors, L.P. ("First Inning"), The
Hamilton Companies LLC, a Colorado limited liability company ("Hamilton"),
Weston Investment Interests, LLC, a Nevada limited liability company ("Weston
Entity"), and MiniPat & Company, Ltd., a Texas limited partnership
("MiniPat"). This Second Amendment amends the Agreement of Limited
Partnership dated December 29, 1999 between the Existing Partners
(hereinafter referred to as the "Agreement" or "Partnership Agreement").
Except as amended by this Second Amendment and by the First Amendment to
Agreement of Limited Partnership of Rackspace, Ltd., the terms of the
Partnership Agreement shall continue in full force and effect. Capitalized
terms used herein shall, unless otherwise specified, have the meanings
assigned to them in the Partnership Agreement.
WHEREAS, Trout, the Class B Limited Partner, desires to purchase
additional Units in the Partnership;
WHEREAS, Isom, First Inning, Hamilton, Weston Entity, and MiniPat desire
to purchase Units in the Partnership and to become Limited Partners in the
Partnership pursuant to the terms hereof.;
WHEREAS, the Partnership and the Existing Partners desire to have Trout,
MiniPat, Isom, First Inning, Hamilton and Weston Entity make the investments
in the Partnership as set forth herein and to have such persons become
Limited Partners of the Partnership.
NOW, THEREFORE, FOR AND IN CONSIDERATION OF THE MUTUAL PROMISES HEREIN
MADE, THE PARTIES AGREE AS FOLLOWS:
1. ADMISSION OF NEW PARTNERS. Upon the execution of this Second
Amendment by all the parties hereto, Isom, First Inning, Hamilton, Weston
Entity, and MiniPat shall become Additional Limited Partners of the
Partnership as "Class C Limited Partners," having the rights and interests
set forth in this Second Amendment. For the purposes of the Partnership
Agreement, the
SECOND AMENDMENT TO AGREEMENT
OF LIMITED PARTNERSHIP OF RACKSPACE, LTD. 1
<PAGE>
Class C Limited Partners are included in the definition of "Partner" and
"Limited Partner." The Units issued to MiniPat pursuant to this Second
Amendment shall not be subject to the repurchase and sale provisions of
Section 8.1 hereof, even though MiniPat is owned or controlled by Condon.
2. INCREASE IN NUMBER OF UNITS. Section 5.2 of the Partnership
Agreement permits the General Partner to issue up to Ten Million Units to
Additional Limited Partners. The parties agree to increase the number of
Units which may be issued under Sections 5.2 and 9.1 of the Partnership
Agreement by the General Partner to One Hundred Million Units. In addition,
the number of Units outstanding as of the date of this Second Amendment
(1,190,476.19) shall be split on a 10 for 1 basis such that number of Units
outstanding shall be increased by a multiple often to 11,904,761.9 (prior to
the issuance of the additional Units contemplated herein) and the number of
Units (and options to acquire Units) which may be issued or granted by the
General Partner to Key Personnel under Section 9.3 is increased by a multiple
of ten.
The term "Unit" in the Partnership Agreement shall be amended to read:
"Unit. A unit of ownership in the Partnership initially represents a .00001%
Ownership Percentage Interest and the rights and interests of a Partner under
this Agreement, subject to adjustment upon the issuance of additional Units;
provided that all Units at any time outstanding shall represent the same
fractional parts of the Ownership Percentage Interests of the Limited
Partners.
3. CONTRIBUTION OF CAPITAL.
a. Upon the execution of this Second Amendment, Isom, First
Inning, Trout and Condon shall contribute the amounts set forth below to the
Partnership (the "New Contributions to Capital"):
Isom: $2,560,000.00
First Inning: $1,300,000.00
Hamilton: $ 500,000.00
Weston Entity: $ 750,000.00
Trout: $ 500,000.00
Condon: $ 200,000.00
Total Contribution: $5,810,000.00
The $500,000.00 contributed by Trout consists of conversion of existing
debt of the Partnership in that amount (including principal and interest)
(the "Existing Debt"). All other contributions are made in cash, except for
the Weston Entity contribution which is being made in the form of a
short-term promissory note. The Existing Debt constitutes advances made by
Exeter Financial, LC to the Partnership. By separate agreement, Trout has
acquired from Exeter Financial, LC the right to be repaid the Existing Debt.
Contemporaneously with the execution of this Second Amendment, Trout and
Exeter Financial, LC have delivered a certificate evidencing that no sums are
owed to either of them by the Partnership for advances made by either of
Trout or Exeter
SECOND AMENDMENT TO AGREEMENT
OF LIMITED PARTNERSHIP OF RACKSPACE, LTD. 2
<PAGE>
Financial, LC. The $500,000.00 contribution by Trout satisfies and discharges
the obligation of Exeter to advance $500,000.00 to advance such sum to the
Partnership pursuant to the Second Financial Commitment dated September 29,
1999.
b. Contemporaneously with the $1,300,000.00 contribution made by
First Inning, the Partnership shall enter into the agreement ("Option
Agreement") attached hereto as EXHIBIT A entitled "Option for Investment"
with First Inning's general partner, Trango Capital L.L.C. ("Trango"),
pursuant to which Trango has the right, but not the obligation to contribute
$800,000.00 to the Partnership and receive Units as a Class C Limited
Partner. The purchase price per Unit acquired by Trango will be $2.10 per
Unit subject to adjustment as provided in the Option Agreement. The parties
expressly agree that upon the Closing (as defined in the) Option Agreement,
Trango shall acquire additional Units in accordance with the Option
Agreement. At such time, the General Partner, at its option, shall have the
right to revalue the Partnership property in accordance with Treasury
Regulation 1.704-1(b)(2)(iv)(f).
c. At any time on or prior to January 17, 2000 (the "Expiration
Date"), Hamilton shall have the option, but not the obligation, to contribute
an additional $500,000.00 to the Partnership and receive additional Units as
a Class C Limited Partner. The purchase price per Unit pursuant to this
option shall be $2.10 per Unit. The issuance of these Units shall not be
subject to the preemptive rights in Section 9.2 of the Partnership Agreement.
The option shall be exercisable by Hamilton delivering to the General Partner
written notice of such exercise at any time before the Expiration Date. If
this option shall be exercised subsequent to any recapitalization, merger,
consolidation, combination or exchange of Units, reorganization or
liquidation of the Partnership occurring after the date hereof, as a result
of which securities of any class shall be issued in respect of outstanding
Units, Hamilton shall receive, for the aggregate price paid upon such
exercise, the aggregate number and class of securities which Hamilton would
have received if this option had been exercised immediately prior to such
recapitalization, merger, consolidation, combination or exchange of Units,
reorganization or liquidation.
This option shall not be transferable or assignable by Hamilton, except
upon the prior written consent of the General Partner which consent may be
withheld in the General Partner's sole discretion.
4. ADJUSTMENT TO CAPITAL ACCOUNTS. The parties to this Second Amendment
have made a determination that the fair market value of the assets of the
Partnership, immediately prior to the contributions required by this Second
Amendment, is $25,000,000.00 (the "Current Valuation"). However, the parties
further agree that the value of the assets is extremely speculative and may
in fact be substantially more or substantially less than $25,000,000.00. The
number of Units received by Isom, First Inning, Trout, Hamilton, Weston
Entity, and MiniPat are based upon the parties' mutual determination that the
value of the Partnership's assets immediately prior to closing of the sale of
such additional Units is $25,000,000.00. The Capital Accounts of each of the
Existing Partners shall be adjusted in accordance with Treasury Regulation
1.704-1(b)(2)(iv)(f) to reflect the Current Valuation as follows:
SECOND AMENDMENT TO AGREEMENT
OF LIMITED PARTNERSHIP OF RACKSPACE, LTD. 3
<PAGE>
Pre-Offering Post-Offering
Adjusted Adjusted
Partner Capital Account Capital Account
------- --------------- ---------------
CLASS A
-------
Yoo $ 7,487,999.97 $ 7,487,999.97
Condon 1,663,999.99 1,663,999.99
Elmendorf 832,000.00 832,000.00
Grubbs* 104,000.00 104,000.00
Bell* 104,000.00 104,000.00
CLASS B
-------
Macroweb $ 20,800.00 $ 20,800.00
Trout 14,787,200.04 15,287,200.04
CLASS C
-------
First Inning --- $ 1,300,000.00
Isom --- 2,560,000.00
Hamilton 500,000.00
Weston Entity --- 750,000.00
MiniPat --- 200,000.00
TOTAL $25,000,000.00 $30,810,000.00
--------------- ---------------
*ASSIGNEE ONLY
The parties agree that hereafter the Partners' Capital Accounts shall be
adjusted, and the Partners' distributive shares of income, gain, loss and
deduction of the Partnership, determined for purposes of computing their book
Capital Accounts, shall be determined in accordance with, Treasury
Regulations Sections 1.704-1(b) (including without limitation Sections
1.704-1(b)(2)(iv)(f) and (g)) and 1.704-2.
5. OWNERSHIP PERCENTAGES AND UNITS. As a result of the contributions of
capital set forth in paragraph 3 above, the Ownership Percentage Interests and
number of Units held by each Partner is as follows:
SECOND AMENDMENT TO AGREEMENT
OF LIMITED PARTNERSHIP OF RACKSPACE, LTD. 4
<PAGE>
Ownership
Percentage
Partner Units Interests
------- ----- ---------
CLASS A
-------
Yoo 3,600,000.00 24.537%
Condon 800,000.00 5.453%
Elmendorf 400,000.00 2.726%
Grubbs (assignee of Class A) 50,000.00 .341%
Bell (assignee of Class A) 50,000.00 .341%
CLASS B
-------
Macroweb 10,000.00 .068%
Trout* 7,232,856.20 49.299%
CLASS C
-------
First Inning 619,047.61 4.219%
Isom 1,219,047.62 8.309%
Hamilton** 238,095.24 1.623%
Weston Entity 357,142.86 2.434%
MiniPat 95,238.10 .649%
TOTAL UNITS OUTSTANDING 14,671,428.58
----------------------- -------------
*AS A CONSEQUENCE OF THE NEW CONTRIBUTIONS TO CAPITAL, TROUT HAS BEEN
ISSUED AN ADDITIONAL 238,095 UNITS TO BE HELD AS A CLASS B LIMITED PARTNER.
**THIS DOES NOT INCLUDE 238,095.24 UNITS TO BE ISSUED HAMILTON SHOULD IT
EXERCISE ITS OPTION TO PURCHASE $500,000.00 OF ADDITIONAL UNITS AT $2.10
PER UNIT PRIOR TO THE EXPIRATION DATE.
6. ALLOCATIONS. Article 6 of the Partnership Agreement is amended and
restated in its entirety to read as follows:
ARTICLE 6.
ALLOCATIONS OF INCOME AND LOSS
SECTION 6.1 ALLOCATIONS OF PARTNERSHIP INCOME AND LOSS FOR PERIODS PRIOR
TO THE SECOND AMENDMENT. Partnership net income or net loss and items of
Partnership income, gain, loss and deduction allocable in accordance
with Section 6.6 to taxable years or periods ending on or before the
date of the Second Amendment shall be allocated among the Existing
Partners (defined in the Second Amendment) in accordance with the
Partnership Agreement as in effect prior to the Second Amendment. For
this purpose, items of Partnership income, gain, loss and deduction
arising from the transactions contemplated by the Second
SECOND AMENDMENT TO AGREEMENT
OF LIMITED PARTNERSHIP OF RACKSPACE, LTD. 5
<PAGE>
Amendment (including, without limitation, any cancellation of
indebtedness income of the Partnership resulting from Trout's
acquisition of the right to be repaid the Existing Debt (as defined in
the Second Amendment) and the contribution of such right to the
Partnership pursuant to Section 3 of the Second Amendment) shall be
deemed to have been realized and recognized by the Partnership on or
before the date of the Second Amendment and shall be allocated solely to
the Existing Partners.
SECTION 6.2 ALLOCATIONS OF PARTNERSHIP NET INCOME FOR PERIODS AFTER
THE SECOND AMENDMENT. Partnership net income (determined for purposes of
maintaining the Partners' Capital Accounts and after any allocations for
such taxable year or period pursuant to Section 6.4) allocable to
taxable years or periods beginning after the date of the Second
Amendment shall be allocated to the Partners as follows:
(a) First, to the General Partner until the cumulative
allocations of net income made to the General Partner pursuant to
this Section 6.2(a) equal the cumulative allocations of net loss
previously made to the General Partner pursuant to the proviso
clause of Section 6.3(b);
(b) Second, to the Limited Partners in proportion to and to
the extent of the excess, if any, of (i) the cumulative allocations
of net loss previously made to them pursuant to Section 6.3(b),
over (ii) the cumulative allocations of net income previously made
to them pursuant to this Section 6.2(b); and
(c) Third, to the Partners in proportion to their Ownership
Percentage Interests.
SECTION 6.3 ALLOCATIONS OF PARTNERSHIP NET LOSS FOR PERIODS AFTER
THE SECOND AMENDMENT. Partnership net loss (as determined for purposes
of maintaining the Partners' Capital Accounts and after any allocations
for such taxable year or period pursuant to Section 6.4) allocable to
taxable years or periods beginning after the date of the Second
Amendment shall be allocated to the Partners as follows:
(a) First, to the Partners in proportion to and to the extent
of the excess, if any, of (i) the cumulative allocations of net
income previously made to them pursuant to Section 6.2(c), over
(ii) the cumulative allocations of net loss previously made to them
pursuant to this Section 6.3(a); and
(b) Second, to the Partners in accordance with their
Ownership Percentage Interests; PROVIDED THAT to the extent any
such loss allocation would cause or increase a deficit balance in
any Limited Partner's Capital Account (after adjustment for any
applicable increases described in the penultimate sentences of
Treasury regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5) and
after any applicable decreases described in Treasury regulations
Sections 1.704-1(b)(2)(ii)(d)(4), (5) and (6)
SECOND AMENDMENT TO AGREEMENT
OF LIMITED PARTNERSHIP OF RACKSPACE, LTD. 6
<PAGE>
(hereinafter, a Partner's "Adjusted Capital Account"), the amount
thereof shall instead be allocated to Limited Partners with
positive Adjusted Capital Accounts, if any, in proportion to and to
the extent of their positive Adjusted Capital Accounts, and the
balance, if any, shall be allocated to the General Partner.
SECTION 6.4 SPECIAL ALLOCATIONS OF ITEMS OF PARTNERSHIP INCOME,
GAIN, LOSS AND DEDUCTION FOR PERIODS AFTER THE SECOND AMENDMENT. Before
giving effect to allocations of net income or net loss for a taxable
year or period pursuant to Sections 6.2 and 6.3, the following items of
Partnership income, gain, loss and deduction (determined for purposes of
maintaining the Partners' Capital Accounts) shall be specially allocated
to the Partners, as follows and in the following order of priority:
(a) If there is a net decrease in "partnership minimum gain"
(as defined in Treasury regulations Section 1.704-2(d)), items of
income and gain (determined in accordance with Treasury regulations
Section 1.704-2(f)(6))) shall, to the extent required by the
Treasury regulations, be specially allocated to the Partners in an
amount equal to each Partner's share of the net decrease in
partnership minimum gain (determined in accordance with Treasury
regulations Section 1.704-2(g)). This Section 6.4(a) shall be
applied consistently with, and subject to the exceptions contained
in, the minimum gain chargeback requirements of Treasury
regulations Section 1.704-2(f).
(b) If there is a net decrease in "partner nonrecourse debt
minimum gain" (as defined in Treasury regulations Section
1.704-2(i)(2)), items of income and gain (determined in accordance
with the provisions of Treasury regulations Section 1.704-2(i)(4))
shall, to the extent required by the Treasury regulations, be
specially allocated to the Partners in an amount equal to each
Partner's share of the net decrease in partner nonrecourse debt
minimum gain (determined in accordance with the provisions of
Treasury regulations Section 1.704-2(i)(5)). This Section 6.4(b)
shall be applied consistently with, and subject to the exceptions
contained in, the partner nonrecourse debt minimum gain chargeback
requirements of Treasury regulations Section 1.704-2(i)(4).
(c) if a Partner unexpectedly receives any adjustment,
allocation or distribution described in Treasury regulations
Sections 1.704-1(b)(2)(ii)(d)(4), (5) or (6) that causes or
increases a deficit balance in the Partner's Adjusted Capital
Account, items of income and gain shall be specially allocated to
the Partner in an amount and manner sufficient to eliminate, to the
extent required by the Treasury regulations, such deficit balance
in the Partner's Adjusted Capital Account as quickly as possible,
provided that an allocation pursuant to this Section 6.4(c) shall
be made only to the extent that the Partner has a deficit balance
in its Adjusted Capital Account after all other allocations
provided for in this Article IV have been tentatively made as if
this Section 6.4(c) were not in this Agreement. This Section 6.4(c)
shall be interpreted
SECOND AMENDMENT TO AGREEMENT
OF LIMITED PARTNERSHIP OF RACKSPACE, LTD. 7
<PAGE>
consistently with the "qualified income offset" provisions of Treasury
regulations Section 1.704-1(b)(2)(ii)(d).
(d) If any Partner has a deficit balance in its Capital
Account at the end of any taxable year or period that is in excess
of the sum of any amount the Partner is obligated to restore
pursuant to this Agreement and any amount the Partner is treated as
obligated to restore pursuant to the penultimate sentences of
Treasury regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5),
items of income and gain in the amount of such excess shall be
specially allocated to the Partner as quickly as possible, provided
that an allocation pursuant to this Section 6.4(d) shall be made
only to the extent of any such excess determined after all other
allocations provided for in this Article IV have been tentatively
made as if Section 6.4(c) and this Section 6.4(d) were not in this
Agreement.
(e) "Nonrecourse deductions" (as defined in Treasury
regulations Section 1.704-2(c)) shall be specially allocated to,
and "excess nonrecourse liabilities" (as defined in Treasury
regulations Section 1.752-3(a)(3)) shall be shared among, the
Partners in proportion to their Ownership Percentage Interests.
(f) "Partner nonrecourse deductions" (as defined in Treasury
regulations Section 1.704-2(i)(2)) shall be specially allocated to
the Partners who bear the economic risk of loss for the liability
to which those deductions are attributable, determined in
accordance with the principles of Treasury regulations Section
1.704-2(i)(l).
(g) To the extent an adjustment to the adjusted tax basis of
any Partnership asset under Code Sections 734(b) or 743(b) is
required to be taken into account in determining Capital Accounts
under Treasury regulations Section 1.704-1(b)(2)(iv)(m), the amount
of the Capital Account adjustment shall be treated as an item of
income (if positive) or loss (if negative) and shall be specially
allocated to the Partners consistent with the manner in which their
Capital Accounts are required to be adjusted by such Treasury
Regulation.
(h) To minimize any distortions in the manner that the
Partners would have shared Partnership distributions if the special
allocations required by Sections 6.4(a) through (g) had not been
part of this Agreement, the General Partner shall specially
allocate to the Partners offsetting items of income, gains, loss or
deduction so that the net amounts allocated to each Partner
pursuant to Section 6.2, Section 6.3 and this Section 6.4 will, to
the extent reasonably possible, equal the net amounts that would
have been allocated to each Partner pursuant to Sections 6.2 and
6.3 had Sections 6.4(a)-(g) not been part of this Agreement. In
exercising its authority hereunder, the General Partner may
consider any expected future allocations pursuant to Sections
6.4(a) and 6.4(b) that are likely to offset other allocations made
pursuant to Sections 6.4(a) through 6.4(g).
SECOND AMENDMENT TO AGREEMENT
OF LIMITED PARTNERSHIP OF RACKSPACE, LTD. 8
<PAGE>
SECTION 6.5 ALLOCATIONS FOR FEDERAL INCOME TAX PURPOSES.
(a) Except as provided in Section 6.5(b), for each taxable
year or period of the Partnership, items of taxable income, gain,
loss and deduction of the Partnership, determined solely for
federal income tax purposes, shall be allocated to the Partners in
the same manner as each correlative item of income, gain, loss,
and deduction is allocated to the Partners pursuant to Sections
6.1 through 6.4.
(b) In accordance with Section 704(c) of the Code and the
Treasury regulations thereunder, solely for federal income tax
purposes, items of taxable income, gain, loss and deduction with
respect to any Partnership asset other than money that has been
contributed to the Partnership or revalued on the books of the
Partnership shall be allocated among the Partners in a manner that
takes into account the difference, at the time of contribution or
revaluation, between the adjusted tax basis of the asset and the
amount by which it is carried on the books of the Partnership for
purposes of maintaining the Partner's Capital Accounts. Such
allocations shall be made utilizing the "Remedial Method" described
in Treasury regulations Section 1.704-3(d). Allocations pursuant to
this Section 6.5 are solely for federal income tax purposes and
shall not affect the Partners' Capital Accounts.
SECTION 6.6. VARYING INTERESTS. To reflect the varying interests
of the Partners during any taxable year, net income or net loss and
items of income, gain, loss and deduction of the Partnership shall be
determined on a daily, monthly or other basis using any convention or
method permitted under Code Section 706 and the Treasury regulations
thereunder, provided that gain or loss arising from dispositions of
Partnership assets shall be allocated to the Partners on the date of the
disposition. Notwithstanding the foregoing, for the Partnership's 1999
taxable year such items shall be allocated as follows:
a. The Partnership's books shall be closed as of June 30,
1999, and net income or net loss and items of income, gain, loss
and deduction of the Partnership for the period ending on June 30,
1999 shall be allocated to the persons who were Partners on June
30, 1999.
b. Proration of Tax items For Second Half of 1999. Net
income or net loss and items of income, gain, loss and deduction of
the Partnership for the period beginning on July 1, 1999 and ending
on December 31, 1999 shall, except as otherwise provided in Section
6.1, be allocated to the persons who were Partners during such
period by assigning an equal portion of each such item to each day
in such period and allocating the amount assigned to each day among
the persons who were Partners on such day in accordance with the
provisions of this Agreement in effect on such day.
SECOND AMENDMENT TO AGREEMENT
OF LIMITED PARTNERSHIP OF RACKSPACE, LTD. 9
<PAGE>
7. CERTAIN DEFINED TERMS. The defined terms: Loss Recapture
Allocation, Regular Allocation, Regular Loss Allocation and Specially
Allocated Losses contained in Article I of the Partnership Agreement are
deleted.
8. DISTRIBUTIONS. Section 7.2 of the Partnership Agreement is amended
and restated in its entirety as follows:
SECTION 7.2 DISTRIBUTIONS OF CASH AVAILABLE FOR DISTRIBUTION. To
the extent that Tax Distributions or distributions of Cash Available for
Distribution are made by the Partnership, such distributions shall be made
as follows:
FIRST: TAX DISTRIBUTIONS. Tax Distributions shall be made to the
Partners in an amount equal to the amount of any federal
income tax estimated by the General Partner to be incurred
by the Partners (such estimate to be made on the assumption
that all of the Partners will be taxed at the highest
marginal federal income tax rate applicable to individuals,
which is currently 39.59%) on their allocable share of any
net income or net gain from the Partnership which is
recognized for federal income tax purposes during the prior
year and not otherwise distributed to the Partners.
However, to the extent that a Partner has been allocated
losses, no Tax Distributions will be made to the Partner
until the cumulative net income and gain of the Partnership
allocated to the Partner exceeds the cumulative amount of
losses allocated to the Partner. Tax Distributions shall be
made not later than February 28th of each year. To the
extent the Partnership makes Tax Distributions, subsequent
distributions that would have been made pursuant to Sections
7.2 Second and 11.2(c) shall first be made among the
Partners in a manner that, to the extent possible, will
cause the cumulative distributions pursuant to Article 7 and
Section 11.2(c) to each Partner to be equal to the amount
that would have been distributed to each Partner had Section
7.2 First not been part of this Agreement; and
notwithstanding Sections 4.4 and 11.2(c) to the contrary,
the amount of any such excess distributions to a Partner
remaining upon liquidation of the Partnership or the
Partner's interest in the Partnership shall be immediately
repaid to the Partnership by the Partner for distribution to
the other Partners.
SECOND: REGULAR DISTRIBUTIONS. Regular Distributions of the
remaining Cash Available for Distribution shall be made to
all the Partners in accordance with their Ownership
Percentage Interests.
9. RIGHTS AND OBLIGATIONS OF CLASS C PARTNERS. The Class C Limited
Partners shall have all of the rights and all of the obligations which apply
to Limited Partners. In addition, the following terms shall apply:
SECOND AMENDMENT TO AGREEMENT
OF LIMITED PARTNERSHIP OF RACKSPACE, LTD. 10
<PAGE>
a. SECTION 3.2. Section 3.2 of the Partnership Agreement
restricts the General Partner from taking certain actions without the
approval of the Class A Limited Partners (the "Restricted Acts"). Section
3.2 is hereby amended to require the General Partner to obtain the "Approval
of the Class C Limited Partners" before taking the Restricted Act in
question, in addition to the approval of the Class A Limited Partners.
For the purposes of this Second Amendment, the "Approval of the Class C
Limited Partners" shall mean the approval of 65% of Limited Partners Interest
held by the Class C Limited Partners. A Class C Limited Partner's approval or
consent shall be pursuant to a vote or written consent as provided in Section
16.9.
b. SECTION 3.3 Section 3.3 addresses when the General Partner may
be removed or replaced. The parties agree that in the event the General
Partner may be removed and replaced under Section 3.3(a), such removal and
replacement shall require the Approval of the Class A Limited Partners and
the Class C 3 Limited Partners, but at all times subject to the rights
contained in Section 3.3 of the General Partner to reverse the transaction
giving rise to the removal. Provided, however, at any time the General
Partner may be removed upon the approval of 60% of the Limited Partners
Interests. In the event of the dissolution, bankruptcy or resignation of the
General Partner under Section 3.3(b), where a successor General Partner is
appointed which is not owned 100% by Graham M. Weston ("Weston") and Morris
A. Miller ("Miller"), the new General Partner will be selected by and with
the Approval of the Class A Limited Partners and the Class C Limited Partners.
c. SECTION 8.2 (RESTRICTIONS ON TRANSFER). Section 8.2 of the
Partnership Agreement is amended to read in its entirety as follows:
SECTION 8.2 PROHIBITED DISPOSITIONS.
a. CLASS A PARTNER RESTRICTION. The Class A Limited
Partners shall not make any sale, transfer, pledge, assignment or
other disposition of any of their Units which may be purchased by the
Partnership pursuant to the Partnership's rights under Section 8.1
above. Therefore, as to each Class A Limited Partner, for so long as
the Partnership has the right to acquire any of such Class A Partners'
Units in the event that he is no longer employed by the Partnership,
no disposition of those Units which may be acquired by the Partnership
under Section 8.1 may be made by such Class A Partner.
b. TRANSFERS PROHIBITED. Except as specifically
allowed under this Agreement, no Limited Partner may sell, assign,
transfer, mortgage, encumber, hypothecate, pledge or otherwise dispose
of all or any part of such Limited Partner's interests in the
Partnership and any attempt to take such action and any purported
separate sale, transfer, assignment, mortgage, encumbrance,
SECOND AMENDMENT TO AGREEMENT
OF LIMITED PARTNERSHIP OF RACKSPACE, LTD. 11
<PAGE>
hypothecation, pledge, or other disposition by any Limited Partner
shall be void. In the event of any sale, transfer, assignment or other
disposition which is not made in accordance with this Agreement, and
without herein recognizing such as being permitted or valid, the
Limited Partner making the same shall remain and continue to be liable
for the performance of all of its obligations hereunder and the
Partnership shall continue to make any distributions, if any, to said
Limited Partner. All subsequent owners of any Units, or other Limited
Partnership interests hereunder shall hold same subject to all the
terms and provisions hereof. To the extent that the provisions of this
Section 8.2 and the other provisions of this Agreement are followed
incident to any sale of Units, the transferee of such Units shall
become a Substitute Limited Partner of the Partnership with the
written consent of the General Partner, which consent shall not be
withheld or delayed. With respect to any transfer of all of the Units
and interests in the Partnership held by Macroweb, the transferee
shall become the substitute General Partner of the Partnership,
provided that the provisions of this Section 8.2 and all other
provisions of this Agreement are followed incident to the sale of such
Units and interests.
c. RIGHT OF FIRST REFUSAL. Subject to transfers of
Units of the Class A Limited Partner in accordance with Section 8.1
above, no Limited Partner (including any assignee of a Limited
Partner) may propose to make any sale, transfer, pledge, assignment or
other disposition of all or any part of their Units or other Limited
Partnership interests (such interests referred to as the "Units
Offered for Sale") except in exchange for cash or a combination of
cash and promissory notes. Prior to making such disposition, the
Limited Partner desiring to make such sale (the "Selling Partner")
shall first offer his or her Units Offered for Sale to each of the
other Limited Partners under the same terms and conditions as the
proposed sale (the "Terms of Sale"). Such offer shall be in writing
(the "Offer Notice") and delivered to the other Partners, along with
the name of the proposed purchaser of the Units Offered for Sale. The
Selling Partner shall provide to the other Partners all information
regarding the proposed sale and the proposed purchaser, as may be
reasonably requested by the other Partners. For a period of 15
Business Days after the date of the Offer Notice is given, a Partner
may accept the Selling Partner's offer with respect to the portion of
the Units Offered for Sale that corresponds to the ratio of the
accepting Partner's Limited Partners interest to the Limited Partners
Interest of all the other Partners (other than the Selling Partner) by
giving written notice
SECOND AMENDMENT TO AGREEMENT
OF LIMITED PARTNERSHIP OF RACKSPACE, LTD. 12
<PAGE>
of such acceptance to the Selling Partner and the General Partner.
Beginning with the expiration of 15 Business Days after the date
the Offer Notice is given and ending on the 20th Business Day after
the date the Offer Notice was given, the Partnership or the General
Partner may, in the sole discretion of the General Partner, accept
the Seller's offer with respect to all of the remaining portion of
the Units Offered for Sale by giving written notice of such
acceptance to the Seller and the other Partners. Unless the other
Partners and the Partnership (in the aggregate) accept the Seller's
offer with respect to all of the Units Offered for Sale, the
Selling Partner's offer shall be deemed rejected in its entirety.
Upon an election to purchase all of such Units Offered for Sale as
provided above, the purchasing Partners (and the Partnership as the
case may be) shall make available to the Selling Partner at the
offices of the General Partner, an amount equal to ten (10%)
percent of the purchase price of the Units Offered for Sale as a
non-refundable deposit. In addition, to the extent that the Terms
of Sale require a note or notes, the accepting Limited Partners
shall be required to demonstrate that they have at least the same
credit worthiness as the proposed purchaser. Payment for the Units
Offered for Sale shall be made in accordance with the Terms of
Sale. If the Partners and the Partnership do not elect to purchase
all the Units Offered for Sale, the Selling Partner shall be free
to sell all, but not less than all of such Units Offered for Sale
for a period of sixty (60) days after the expiration of the option
of the other Partners, provided that any such sale must be made
under the same terms and conditions and to the same purchaser as
described in the Terms of Sale. The Selling Partner shall provide
all information relating to the transferee of the Units Offered for
Sale which is reasonably requested by the General Partner.
d. SECTION 8.3 (TRANSFERS TO A FAMILY MEMBER). Section 8.3 of the
Partnership Agreement is amended to read in its entirety as follows:
Any Limited Partner shall be permitted to transfer his or her Units or
other Limited Partner Interests to (i) a Family Member or a trust
established for the benefit of a Family Member ("Trust"), (ii)
Affiliates of the Limited Partner, (iii) to the General Partner, (iv)
to the Partnership, (v) to Persons to whom the interest is transferred
by reason by the Limited Partner's death or involuntarily by operation
of law, or (vi) pursuant to a transfer in accordance with the
provisions of Section 8.2. However, no such transferee shall become a
Substitute Limited Partner except in accordance with Section 8.6 of
the Partnership Agreement. It is expressly agreed that
SECOND AMENDMENT TO AGREEMENT
OF LIMITED PARTNERSHIP OF RACKSPACE, LTD. 13
<PAGE>
Trout may transfer its Units to Miller, Weston or any of their Family
Members or a trust established for the benefit of a Family Member.
In addition, the definition of "Affiliate" shall be amended to read in its
entirety:
"AFFILIATE" means a Person who directly or indirectly
controls, is controlled by, or is under common control with, the
Person referred to. For this purpose, "control" means the ability to
direct or cause the direction of the management or affairs of a
Person, whether through the ownership of voting securities, by
contract or otherwise.
e. SECTION 13.1 (AMENDMENTS TO PARTNERSHIP AGREEMENT). In
such instances when Section 13.1 of the Partnership Agreement requires the
Approval of the Class A Limited Partners, the General Partner shall be
required to obtain both the Approval of the Class A Limited Partners and the
Approval of the Class C Limited Partners. In addition Section 13.1 is further
amended to add a second sentence to read in its entirety: "The consent of
each Limited Partner must be obtained for any amendment which would
materially affect the Limited Partner's rights to distributions (other than
by virtue of additional Capital Contributions by other Partners), its
obligations for Capital Contributions, adversely affect its limited liability
as a Limited Partner, modify the provisions of this SECTION 13.1, or lower
the threshold required by the Partnership Agreement or the Act for obtaining
the vote, consent or approval of the Limited Partners with respect to any
action or undertaking."
f. ARTICLE 14 (MERGER OF PARTNERSHIP). The last sentence of
Article 14 Merger of Partnership is deleted and the following shall be added
in its place: "The Approval of the Class A Limited Partners and the Approval
of the Class C Limited Partners shall be required to approve such merger,
unless all of the holders of Units will be given the same or substantially
the same rights as they have pursuant to this Second Amendment (including,
without limitation, preferences, rights of first refusal, options, conversion
rights, preemptive rights, voting rights, or registration rights). Provided,
however, no Approval of the Class A Limited Partners nor Class C Limited
Partners shall be required for a transaction to convert the Partnership to a
corporation (whether by virtue of merger, conversion or other transaction)
which is consummated solely for the purpose of changing the form of entity
used to conduct business of the Partnership, so long as the Limited Partners
have the same or substantially the same rights, obligations and interests in
the new entity as they enjoyed as Partners of the Partnership, including,
without limitation, preferences, rights of first refusal, options, conversion
rights, preemptive rights, voting rights and registration rights, but
excluding any rights to limit the General Partner as provided in Section 3.2
of the Partnership Agreement. In the event any transaction pursuant to this
Article 14 results in the termination of the Partnership, each Partner will
receive, incident to such merger or other transaction, shares of stock in the
successor entity, in proportion to each Partner's then current respective
positive Capital Account balance, as adjusted by treating the Partnership as
having liquidated and gains and losses allocated in accordance with Section
11.4 hereof."
SECOND AMENDMENT TO AGREEMENT
OF LIMITED PARTNERSHIP OF RACKSPACE, LTD. 14
<PAGE>
g. ARTICLE 15 (PUBLIC OFFERING). Article 15 is amended to read in
its entirety:
"Notwithstanding anything herein to the contrary, the Partners agree
that incident to an initial public offering of the securities of the
Partnership or any successor entity, which raises at least
$10,000,000.00, the following rights contained in this Agreement shall
be terminated: (i) preemptive rights, (ii) parallel exit rights, (iii)
rights of first refusal, and (iv) transfer restrictions (other than as
required by applicable securities laws)."
h. REPRESENTATION ON BOARD OF DIRECTORS. If the Partnership
converts to a corporation, limited liability company or other entity (whether
by virtue of corporate reorganization, merger, conversion or
otherwise)(herein referred to as the "Successor Entity"): (i) the Class C
Limited Partners, for so long as the Class C Limited Partners hold at least
10% of the equity interests (capital stock, membership interests or
otherwise) of the Successor Entity, they shall have the right to designate
one director or manager of such entity; (ii) Hamilton, for so long as
Hamilton holds at least 2.5% of the equity interests (capital stock,
membership interests or otherwise) of the Successor Entity (either directly
or indirectly through their limited partner interest in Isom), it shall have
the right to designate one director or manager of such entity; and (iii)
Trout, for so long as Trout holds at least 20% of the equity interest
(capital stock, member interest or otherwise) of the Successor Entity, it
shall have the right to designate up to five (5) directors or managers of
such entity. Provided, however, should Hamilton not exercise its option to
purchase $500,000.00 in additional Units prior to the Expiration Date, as
provided in Section 3.c. of this Second Amendment, then its right to
designate a director or manager shall be subject to termination in the
discretion of the Partnership or the Successor Entity. Provided, further,
should Trout elect to waive its right to designate any directors (so that it
has no right to designate any director or manager) in connection with a sale
of securities of the Partnership or Successor Entity which raises
$10,000,000.00 or more, then the Class C Limited Partners and Hamilton will
agree to waive their designation right as well. There shall be not more than
7 directors or managers of the Successor Entity, except upon the consent of
the Class C Limited Partners and Hamilton (so long as Hamilton has a
designation right). The designation of the director or manager by the Class C
Limited Partners shall be determined by a vote of 65% of the Class C Limited
Partners other than Hamilton for so long as Hamilton has a right to designate
a director or manager, and thereafter upon the Approval of the Class C
Limited Partners (including Hamilton).
10. DISSOLUTION (SECTION 11.1.c.). Section 11.1.c. of the Partnership
Agreement is amended in its entirety to read:
c. The General Partner, upon approval of a Majority
in Interest of the Limited Partners, elects to dissolve (provided such
election takes place after January 1, 2001).
SECOND AMENDMENT TO AGREEMENT
OF LIMITED PARTNERSHIP OF RACKSPACE, LTD. 15
<PAGE>
11. MEETING & VOTING OF LIMITED PARTNERS. Section 16.9 of the Partnership
Agreement is amended to read in its entirety as follows:
SECTION 16.9. MEETINGS & VOTING BY LIMITED PARTNERS.
a. MEETINGS. Within a reasonable time after each
fiscal year and at such other times as the General Partner, in its
sole discretion, shall determine, the General Partner shall call a
meeting of the Partners for the purpose of discussing the affairs
of the Partnership and acting on any matter permitted or required
by this Agreement or the Act to be acted on by the Limited
Partners. The General Partner shall give not less than ten days
prior written notice of the meeting, specifying the time and
location of the meeting and the matters to be discussed or acted
upon. Meetings may be held at any time during normal business hours
and at any place within San Antonio, Texas as the General Partner
may select. Partners may waive notice of or attendance at the
meeting and may vote in Person, by proxy, by delivering a signed
written consent specifying its vote for or against a matter to the
General Partner at or prior to the meeting, or by telephone or
other electronic communication device. Attendance at a meeting
shall constitute waiver of notice of the meeting. The General
Partner or its designee shall chair the meeting and may conduct the
meeting under such rules as it may reasonably select.
b. VOTING BY LIMITED PARTNERS. Unless by vote
pursuant to a meeting called in accordance with SECTION 16.9.a, a
Limited Partner's approval or consent shall be conveyed in writing
to the General Partner not later than 15 Business Days after the
date the approval or consent was requested by the General Partner.
A failure to respond in any such time period shall constitute a
consent or approval which is consistent with the General Partner's
recommendation with respect to the proposal. If the General Partner
receives the necessary vote, approval or consent of the Limited
Partners to any action, the General Partner shall be authorized and
empowered to implement such action without further authorization by
the Limited Partners. The Limited Partners shall have the right to
consent, approve or vote with respect to a matter only as
specifically reserved for their consent, approval or vote pursuant
to this Agreement or any nonvariable provision of the Act. Unless
otherwise required by this Agreement or any nonvariable provision
of the Act, the vote, consent or approval of the Limited Partners on
any matter required or permitted to be submitted to their vote,
consent or
SECOND AMENDMENT TO AGREEMENT
OF LIMITED PARTNERSHIP OF RACKSPACE, LTD. 16
<PAGE>
approval shall be had only by a Majority in Interest of the Limited
Partners.
c. TIME PERIODS FOR CONSENTS. Notwithstanding anything
in the Agreement to the contrary, the Class C Limited Partners
shall not have less than 15 Business Days to make any election or
give any consent, whether in connection with the election to
exercise preemptive rights, parallel exit rights or otherwise. In
the case of exercise of preemptive rights under Section 9.2 of the
Agreement, the 15 Business Days time period shall commence to run
upon the Limited Partners' receipt from the General Partner of a
description (containing all material terms) of the proposed
offering giving rise to the preemptive rights. The term "Business
Day" as used in this Agreement shall mean Monday through Friday,
except any of those days in any week in which the national banks of
the U.S.A. are closed for business.
12. TAX PROVISIONS. Incident to a sale of Units in compliance with the
terms of the Partnership Agreement, upon request of the transferring Partner,
the General Partner shall, to the extent permitted by law, make the
appropriate election to adjust the basis of Partnership properties pursuant
to Code Sections 754, 755, 734(b) and 743(b), or comparable provisions of
state or local law, in connection with transfers of interests and Partnership
distributions; PROVIDED, HOWEVER, that the General Partner, as a condition to
making any such election, may require any Partner or transferee requesting
such election to pay or make adequate provisions for payment of the
reasonable costs and expenses incurred by the Partnership in making and as a
consequence of making such election.
13. REGISTRATION RIGHTS. The Class C Limited Partners and Trout shall
be granted demand and piggy-back registration rights for the Units acquired
pursuant to this Second Amendment, as more particularly set forth in that
certain Registration Rights Agreement by and among the Partnership, the Class
C Limited Partners and Trout entered into contemporaneously with this Second
Amendment.
14. PARTIES BOUND. The Class C Limited Partners agree, that by
executing this Second Amendment, they are bound to the terms contained herein
as well as the terms contained in the Partnership Agreement as if they had
become direct signatories to the Partnership Agreement.
15. RELATED PARTIES. The parties to the Second Amendment acknowledge
that the Weston Entity may meet the definition of a Related Party of Weston
under the terms of the Partnership Agreement. To the extent that the Weston
Entity does meet the definition of a Related Party of Weston, with the
respect to the issuance of Units to the Weston Entity pursuant to the terms
of this Second Amendment, the parties agree to waive the requirements of
Section 3.2(a) of the Partnership Agreement.
SECOND AMENDMENT TO AGREEMENT
OF LIMITED PARTNERSHIP OF RACKSPACE, LTD. 17
<PAGE>
16. KEY MAN LIFE INSURANCE. For a period of two (2) years, the
Partnership shall maintain Key Man Life Insurance on the life of Graham M.
Weston in an amount of not less than $4,000,000.00.
17. OPTIONS TO KEY PERSONNEL.
a. Section 9.3 to of the Partnership Agreement permits the
General Partner to issue Units and options to acquire Units to Key Personnel.
The Partners desire to cap the number of Units, Limited Partnership
Interests, or options to acquire the same at 10% of the outstanding Units.
Therefore, the last sentence of Section 9.3 is hereby amended to read in its
entirety: "The above notwithstanding, except upon the Approval of the Class A
Limited Partners and the Approval of the Class C Limited Partners (including
the affirmative approval of Isom), the General Partner shall not grant to any
Key Personnel, any Units, Limited Partnership Interests, or options to
acquire the same, to the extent that the aggregate amount of all such
interests granted to Key Personnel would (if fully exercised) constitute more
than 10% of the then outstanding number of Units or Limited Partners
Interests of the Partnership." All the options contemplated to be granted to
the Certain Key Employees (as defined below) and First Inning pursuant to
this Second Amendment and the Option Agreement shall be counted towards the
10% cap on such interests.
b. Currently, Richard Yoo ("Yoo"), Pat Condon ("Condon") and Dirk
Elmendorf ("Elmendorf") are subject to employment agreements with the
Partnership and are paid annualized salaries of $3,000.00 per month, with the
right to receive an annual bonus of $15,000.00 to the extent that the
Partnership has repaid all principal owing to Exeter Financial, LC. If the
bonus were paid and spread throughout the year, the monthly salary of Yoo,
Condon and Elmendorf would be $4,250.00. Miller and Weston are employees at
will and are not currently being paid a salary, but may be paid an annual
salary not in excess of $100,000 in 2000, $110,000 in 2001 and $121,000 in
2002. The parties agree that the General Partner may issue options to Yoo,
Condon, Elmendorf, Miller and Weston (collectively "Certain Key Personnel")
to acquire Units, in lieu of their salary, in accordance with the following
general terms, SUBJECT TO execution of definitive option agreements:
(i) Yoo, Condon and Elmendorf may elect at the beginning of
each calendar quarter, during 2000, to forgo some or all of their monthly
salary and earn the right to receive options to acquire Units. Each of Yoo,
Condon and Elmendorf, to the extent that any of them elect not to continue
their salary at $3,000 per month for the next twelve months and not receive a
bonus (or elect to receive such amount less than $4,250 per month) he will
earn options to acquire such number of Units determined by dividing the
difference between $12,750 (3 months salary and imputed bonus amount) and the
actual cash salary and bonus paid to them in the applicable quarter of 2000,
by the Fair Market Unit Value. The "Fair Market Unit Value" shall mean $2.10
through December 31, 2000, and thereafter shall be determined on each
calendar quarter to be the lesser of: (i) 120 times the gross revenues of the
Partnership for the month immediately preceding the month of determination
and then divided by the number of Units outstanding; or (ii) the highest
sales price of any Units sold by the Partnership, if any, during any of the
four months immediately preceding determination.
SECOND AMENDMENT TO AGREEMENT
OF LIMITED PARTNERSHIP OF RACKSPACE, LTD. 18
<PAGE>
(ii) Weston and Miller may elect at the beginning of each
calendar quarter (or for the entire year at their election), during 2000,
2001 and 2002 to forgo some or all of their monthly salary and earn the right
to receive options to acquire Units. Miller and Weston, to the extent that
they elect not to receive any salary (or to the extent that elect to receive
part cash, then the difference between the cash compensation received and the
applicable compensation level for that year) they will receive options to
acquire such number of Units determined by dividing the difference between
the amount of their monthly salary earned for such quarter and the amount of
the cash salary, if any, actually paid to them in the applicable quarter, by
the Fair Market Unit Value.
(iii) The foregoing options to Certain Key Personnel shall be
earned and calculated on a quarterly basis throughout the year and granted at
the end of each year. The exercise price of the options shall be $.01 per
Unit (payable in cash or netted out of the number of Units granted). The
options shall be subject to forfeiture by each of the Certain Key Personnel
if their employment with the Partnership (or any successor entity) is
terminated voluntarily or involuntarily, for cause, or without cause, prior
to June 30, 2001, unless employment is terminated due to death, disability,
or in connection with the sale of substantially all the ownership interests
or assets of the Partnership (whether by sale, merger or other transaction)
to a third party. In the event of such forfeiture, the terminated employee
shall be entitled to receive the salary he would have received during the
time of employment but for his election to earn the options.
c. The option agreements for the Certain Key Personnel (including
amendments, as necessary, to the employment agreements of Yoo, Condon and
Elmendorf) shall contain the terms as outlined in Section 17(b)(i), (ii)
and (iii) above, be in a form acceptable to the General Partner and shall
contain anti-dilutions provisions, forfeiture provisions upon termination of
employment or competition with the Partnership, and other provisions which
are customary and reasonable.
18. ASSIGNMENT OF CERTAIN RIGHTS. Notwithstanding anything in the
Partnership Agreement or this Second Amendment to the contrary, a Limited
Partner which has executed this Second Amendment may assign any right of
first refusal, preemptive right or other right to acquire Units to any (i)
current limited partner, partner, shareholder or member of such Limited
Partner, or an Affiliate of such Person, or an entity controlled by such
Persons or their Affiliates, or (ii) another Person upon the prior consent of
the General Partner in the General Partner's sole discretion (a "Current
Affiliate") and provide the General Partner written notice of such assignment
within five (5) Business Days. Upon any such assignment, the Current
Affiliate shall be subject to the rights, obligations, and restrictions
provided in the Partnership Agreement (as amended) with respect to exercising
any such rights and becoming a Limited Partner or Substitute Limited Partner.
19. REPRESENTATION. The parties to this Second Amendment acknowledge
that the law firm of Matthews and Branscomb, P.C. has assisted in the
preparation of this document on behalf of and as counsel for Trout, Ltd. and
the General Partner, and further acknowledge that the Partnership will pay
the fees and expenses associated with such services.
SECOND AMENDMENT TO AGREEMENT
OF LIMITED PARTNERSHIP OF RACKSPACE, LTD. 19
<PAGE>
20. MULTIPLE COUNTERPARTS. This Second Amendment may be executed in one
or more counterparts, each of which shall be deemed an original but all of
which together will constitute one and the same instrument.
REMAINDER OF PAGE LEFT INTENTIONALLY BLANK
SECOND AMENDMENT TO AGREEMENT
OF LIMITED PARTNERSHIP OF RACKSPACE, LTD. 20
<PAGE>
Executed as of the date first written above.
RACKSPACE, LTD.
By: Macroweb, LC
Its: General Partner
/s/ Graham M. Weston
----------------------------
Graham M. Weston, Member
/s/ Morris A. Miller, Member
----------------------------
Morris A. Miller, Member
GENERAL PARTNER:
Macroweb, LC
/s/ Morris A. Miller, Member
----------------------------
Morris A. Miller, Member
/s/ Graham M. Weston
----------------------------
Graham M. Weston, Member
LIMITED PARTNERS:
/s/ Richard Yoo
----------------------------
Richard Yoo
/s/ Dirk Elmendorf
----------------------------
Dirk Elmendorf
/s/ Patrick Condon
----------------------------
Patrick Condon
Trout, Ltd.
By: Knightsbridge, L.C.,General Partner
By: /s/ Morris Miller, Member
-------------------------
Its: Member
-------------------------
SECOND AMENDMENT TO AGREEMENT
OF LIMITED PARTNERSHIP OF RACKSPACE, LTD.
<PAGE>
Isom Capital Partners I, L.P.
By: BESK Funding, Inc., General Partner
By: /s/ S. James Bishkin
-------------------------------
S. James Bishkin
President
First Inning Investors, L.P.
By: Trango Capital L.L.C., General Partner
By: /s/ Quincy J. Lee
-------------------------------
Quincy J. Lee, Manager
The Hamilton Companies LLC
By: /s/ Frederic C. Hamilton
-------------------------------
Title: President
---------------------------
Weston Investment Interests, LLC
By: /s/ Graham M. Weston
------------------------------
Title: Manager
---------------------------
MiniPat & Company, Ltd.
By: /s/ Patrick Condon
-----------------------------
Title: President
--------------------------
SECOND AMENDMENT TO AGREEMENT
OF LIMITED PARTNERSHIP OF RACKSPACE, LTD.
<PAGE>
Isom Capital Partners I, L.P.
By: BESK Funding, Inc., General Partner
By: /s/ S. James Bishkin
--------------------------
S. James Bishkin
President
First Inning Investors, L.P.
By: Trango Capital L.L.C., General Partner
By: /s/ Quincy J. Lee
-------------------------------
Quincy J. Lee, Manager
The Hamilton Companies LLC
By: /s/ Frederic C. Hamilton
------------------------------
Title: President & Man.
---------------------------
Weston Investment Interests, LLC
By: /s/ Graham Weston
-----------------------------
Title: Manager
--------------------------
MiniPat & Company, Ltd.
By: /s/ Patrick Condon
----------------------------
Title: Manager
-------------------------
SECOND AMENDMENT TO AGREEMENT
OF LIMITED PARTNERSHIP OF RACKSPACE, LTD.
<PAGE>
THIRD AMENDMENT TO
AGREEMENT OF LIMITED PARTNERSHIP
OF
RACKSPACE, LTD.
This Third Amendment to Agreement of Limited Partnership of
Rackspace, Ltd. (hereinafter referred to as the "Third Amendment") is made
this 22nd day of February, 2000, by and among Rackspace, Ltd. (the
"Partnership"), Macroweb, LC, a Texas limited liability company (the "General
Partner" or "Macroweb"), Trout, Ltd., a Texas limited partnership ("Trout"),
Richard Yoo ("Yoo"), Patrick Condon ("Condon") and Dirk Elmendorf
("Elmendorf"), Isom Capital Partners I, L.P. ("Isom"), First Inning
Investors, L.P. ("First Inning"), The Hamilton Companies LLC, a Colorado
limited liability company ("Hamilton"), Weston Investment Interest, L.L.C., a
Nevada limited liability company ("Weston Entity"), MiniPat & Company, Ltd.,
a Texas limited partnership ("MiniPat")(Macroweb, Trout, Yoo, Condon,
Elmendorf, Isom, First Inning, Hamilton, Weston Entity and MiniPat are
sometimes referred to herein as the "Existing Partners") and 2M Technology
Ventures, L.P. (the "New Partner" or "2M"). This Third Amendment amends the
Agreement of Limited Partnership dated December 29, 1998, as amended on
September 29, 1999 (the "First Amendment") and again on November 30, 1999
(the "Second Amendment," and collectively, hereinafter referred to as the
"Agreement" or "Partnership Agreement"). Except as amended by this Third
Amendment, the Second Amendment and the First Amendment to Agreement of
Limited Partnership of Rackspace, Ltd., the terms of the Partnership
Agreement shall continue in full force and effect. Capitalized terms used
herein shall, unless otherwise specified, have the meanings assigned to them
in the Partnership Agreement.
WHEREAS, Hamilton has exercised its right to contribute an
additional $500,000.00 to the Partnership and thereby receive an additional
238,095.24 Units to be held as a Class C Limited Partner; and
WHEREAS, 2M desires to contribute $250,000.00 to the Partnership, to
become a Class C Limited Partner and to receive 119,047.62 Units in
accordance with the terms of this Agreement.
WHEREAS, the Partnership and the Existing Partners desire to have 2M
make an investment in the Partnership as set forth herein and to have it
become a Limited Partner of the Partnership.
NOW, THEREFORE, FOR AND IN CONSIDERATION OF THE MUTUAL PROMISES
HEREIN MADE, THE PARTIES AGREE AS FOLLOWS:
1. ADMISSION OF NEW PARTNER. Upon the execution of this Third
Amendment by all the parties hereto, effective January 21, 2000 2M shall
become an Additional Limited Partner of the
<PAGE>
Partnership as a "Class C Limited Partner," having the rights and interests
of a Class C Limited Partner as set forth in the Second Amendment except as
otherwise provided herein.
2. CONTRIBUTION OF CAPITAL.
a. Upon the execution of this Third Amendment, 2M shall
contribute $250,000.00 to the Partnership (the "New Contribution to Capital")
and effective January 21st, 2000 shall be deemed to have received 119,047.62
Units as a Class C Limited Partner.
b. On January 21st, 2000 Hamilton contributed an additional
$500,000.00 to the Partnership and received 238,095.24 additional Units as a
Class C Limited Partner.
3. CAPITAL ACCOUNTS. The parties to this Third Amendment have made a
determination that the fair market value of the assets of the Partnership,
immediately prior to the contributions by Hamilton and 2M described in 2
above, was $30,810,000.00 (the "Valuation"). However, the parties further
agree that the value of the assets is extremely speculative and may in fact
be substantially more or substantially less than $30,810,000.00. The number
of Units received by Hamilton and 2M are based upon the parties' mutual
determination that the value of the Partnership's assets immediately prior to
closing of the sale of such additional Units is $30,810,000.00. The parties
agree as of and immediately prior to January 21, 2000, the Partners' Capital
Accounts shall be adjusted to reflect the Valuation and the Partners'
distributive shares of tax items shall be determined all in accordance with
Treasury Regulation 1.704-1(b)(2)(iv)(f) and (g). The parties further agree
that immediately prior to any subsequent contribution to the Partnership or
distribution from the Partnership, Capital Accounts shall be adjusted in
accordance with the provisions of Code Section 704(b) and the Regulations,
including Treasury Regulation 1.704-1(b)(2)(iv)(f) and (g).
4. OWNERSHIP PERCENTAGES AND UNITS. As a result of the contributions
of capital set forth in paragraph 3 above, the Ownership Percentage Interests
and number of Units held by each Partner is as follows:
Ownership
Percentage
Partner Units Interests
------- ----- ---------
CLASS A
Yoo 3,600,000.00 23.95437%
Condon 800,000.00 5.32319%
Elmendorf 400,000.00 2.66159%
Grubbs (assignee of Class A) 50,000.00 .33269%
Bell (assignee of Class A) 50,000.00 .33269%
CLASS B
2
<PAGE>
Macroweb 10,000.00 .06653%
Trout 7,232,856.20 48.12737%
CLASS C
First Inning 619,047.61 4.11913%
Isom 1,219,047.62 8.11153%
Hamilton 476,190.48 3.16856%
Weston Entity 357,142.86 2.37642%
MiniPat 95,238.10 .63371%
2M 119,047.62 .79214%
TOTAL UNITS OUTSTANDING 15,028,570.49
5. WAIVER OF PRE-EMPTIVE RIGHTS. The parties to this Agreement
hereby waive any pre-emptive rights that they may have to acquire Units
issued by the Partnership, but only with respect to the Units issued by the
Partnership which are set forth in 4 above (and Units issued under Options in
effect prior to the date hereof) and not with respect to any Units issued by
the Partnership after the date of this Agreement.
6. RIGHT TO APPOINT DIRECTORS. Notwithstanding Section 9(h) of the
Second Amendment to the Agreement of Limited Partnership of Rackspace, Ltd.
to the contrary, 2M shall not have the right to participate with the other
Class C Limited Partners in designating one director or manager of the
Successor Entity under the terms set forth in such Section 9(h), nor for the
purposes of Section 9(h) shall 2M's equity interest in the Partnership be
included in determining whether the Class C Limited Partners hold 10% of the
equity interests of the Successor Entity.
7. PARTIES BOUND/ADDITIONAL AGREEMENTS. The parties hereto agree
that Hamilton and 2M, by executing this Third Amendment, are bound to and
have the benefit of the terms contained herein as well as the terms contained
in the First Amendment, the Second Amendment and the Partnership Agreement as
if they had become direct signatories to such agreements.
8. REPRESENTATION. The parties to this Third Amendment acknowledge
that the law firm of Matthews and Branscomb, P.C. has assisted in the
preparation of this document on behalf of and as counsel for Trout, Ltd. and
the General Partner, and further acknowledge that the Partnership will pay
the fees and expenses associated with such services.
9. MULTIPLE COUNTERPARTS. This Third Amendment may be executed in
one or more counterparts, each of which shall be deemed an original but all
of which together will constitute one and the same instrument.
REMAINDER OF PAGE LEFT INTENTIONALLY BLANK
3
<PAGE>
Executed as of the date first written above.
RACKSPACE, LTD.
By: Macroweb, LC
Its: General Partner
/s/ Graham M. Weston
---------------------------------
Graham M. Weston, Member
/s/ Morris A. Miller
---------------------------------
Morris A. Miller, Member
GENERAL PARTNER:
Macroweb, LC
/s/ Morris A. Miller
---------------------------------
Morris A. Miller, Member
/s/ Graham M. Weston
---------------------------------
Graham M. Weston, Member
LIMITED PARTNERS:
/s/ Richard Yoo
---------------------------------
Richard Yoo
/s/ Dirk Elmendorf
---------------------------------
Dirk Elmendorf
/s/ Patrick Condon
---------------------------------
Patrick Condon
Trout, Ltd.
By: Knightsbridge, L.C.,General Partner
By: /s/ Graham M. Weston
---------------------------------
Its:
---------------------------------
4
<PAGE>
Isom Capital Partners I, L.P.
By: BESK Funding, Inc., General Partner
By: /s/ S. James Bishkin
--------------------------
S. James Bishkin
President
First Inning Investors, L.P.
By: Trango Capital L.L.C., General
Partner
By: /s/ Quincy J. Lee
-----------------------
Quincy J. Lee, Manager
The Hamilton Companies LLC
By: /s/ Frederic C. Hamilton
-----------------------------
Title: President
--------------------------
Weston Investment Interest, L.L.C.
By: /s/ Graham Weston
-----------------------------
Title: Member
--------------------------
MiniPat & Company, Ltd.
By: /s/ Patrick Condon
----------------------------
Title: President
-------------------------
2M Technology Ventures, L.P.
By: 2M Technology Group, L.L.C.
Its: General Partner
By: /s/ Steven Leeke
-------------------------
5
<PAGE>
FOURTH AMENDMENT TO
AGREEMENT OF LIMITED PARTNERSHIP
OF
RACKSPACE, LTD.
This Fourth Amendment to Agreement of Limited Partnership of Rackspace,
Ltd. (hereinafter referred to as the ("Fourth Amendment") is made effective the
27 day of March, 2000 (the "Effective Date"), by and among Rackspace, Ltd. (the
"Partnership"), Macroweb, LC, a Texas limited liability company (the "General
Partner" or "Macroweb"), Trout, Ltd., a Texas limited partnership ("Trout"),
Richard Yoo ("Yoo"), Patrick Condon ("Condon"), Dirk Elmendorf ("Elmendorf"),
Isom Capital Partners I, L.P. ("Isom"), First Inning Investors, L.P. ("First
Inning"), The Hamilton Companies LLC, a Colorado limited liability company
("Hamilton"), Beaulieu River Capital LC (formerly, Weston Investment Interest,
L.L.C.), a Nevada limited liability company ("Beaulieu"), MiniPat & Company,
Ltd., a Texas limited partnership ("MiniPat"), 2M Technology Ventures, L.P.
("2M") (Macroweb, Trout, Yoo, Condon, Elmendorf, Isom, First Inning, Hamilton,
Weston Entity, MiniPat and 2M are sometimes referred to herein as the "Existing
Partners"), Norwest Venture Partners VII, L.P. ("Norwest"), Red Hat, Inc. ("Red
Hat") and Tailwind Capital Partners 2000, L.P. ("Thomas Weisel"). This Fourth
Amendment amends the Agreement of Limited Partnership dated December 29, 1998,
as amended on September 29, 1999 (the "First Amendment"), on November 30, 1999
(the "Second Amendment") and again on February 22, 2000 (the "Third Amendment")
(collectively, hereinafter referred to as the "Agreement" or the "Partnership
Agreement"). Except as amended by this Fourth Amendment, the Third Amendment,
the Second Amendment and the First Amendment to Agreement of Limited Partnership
of Rackspace, Ltd., the terms of the Partnership Agreement shall continue in
full force and effect. Capitalized terms used herein shall, unless otherwise
specified, have the meanings assigned to them in the Partnership Agreement.
WHEREAS, Norwest desires to contribute $5,750,000, to become a Class C
Limited Partner and to receive Units in accordance with the terms of this
Agreement.
WHEREAS, Red Hat desires to contribute $2,000,000, to become a Class C
Limited Partner and to receive Units in accordance with the terms of this
Agreement.
WHEREAS, Thomas Weisel desires to contribute $300,000, to become a Class
C Limited Partner and to receive Units in accordance with the terms of this
Agreement.
<PAGE>
WHEREAS, the Partnership and the Existing Partners desire to have
Norwest, Red Hat and Thomas Weisel invest in the Partnership as set forth
herein and to have them become Limited Partners of the Partnership.
NOW, THEREFORE, FOR AND IN CONSIDERATION OF THE MUTUAL PROMISES HEREIN
MADE, THE PARTIES AGREE AS FOLLOWS:
1. ADMISSION OF NEW PARTNERS. Upon the execution of this Fourth
Amendment by all the parties hereto, effective the date set forth above,
Norwest, Red Hat and Thomas Weisel shall become Additional Limited Partners of
the Partnership as "Class C Limited Partners", having the rights and interests
of Class C Limited Partners as set forth in the Second Amendment except as
otherwise provided herein. For the purposes hereof, references to the "Partners"
or the "Limited Partners" shall include Norwest, Red Hat and Thomas Weisel.
2. CONTRIBUTION OF CAPITAL/WARRANTS. Upon the execution of this
Fourth Amendment, (i) Norwest shall contribute $5,750,000 to the Partnership
and shall receive 1,015,901 Class C Units to be held as a Class C Limited
Partner, (ii) Red Hat shall contribute $2,000,000 to the Partnership and shall
receive 353,356.89 Class C Units to be held as a Class C Limited Partner, and
Thomas Weisel shall contribute $300,000 to the Partnership and shall receive
53,003.53 Class C Units to be held as a Class C Limited Partner (collectively,
the "New Contributions to Capital). In addition, Norwest shall receive a
warrant (the "Norwest Warrant") to purchase an amount of Class C Units (which
have the same rights and obligations as the Units initially purchased by
Norwest), determined by dividing $3,000,000 by the greater of the $18.24 or the
mid-point in the filing range (the "Mid-point") set forth in the preliminary
prospectus (commonly referred to as the "red herring") which is first circulated
by the Company. After the Mid-point is established, the warrant may be
exercised at anytime before one year after the date of issuance, unless the
Mid-point is not established within four months of the date hereof, in which
case it may be exercised after four months from the date of issuance. A copy of
the warrant is attached as Exhibit A.
3. CAPITAL ACCOUNTS. The parties to this Fourth Amendment have made
a determination that the fair market value of the assets of the Partnership,
immediately prior to the contributions by Norwest, Red Hat and Thomas Weisel
described in 2 above, was $85,000,000.00 (the "Valuation"). However, the parties
further agree that the value of the assets is extremely speculative and may in
fact be substantially more or substantially less than $85,000,000. The number
of Units received by Norwest, Red Hat and Thomas Weisel is based upon the
parties' mutual determination that the value of the Partnership's assets
immediately prior to the Effective Date, was $85,000,000. The parties agree as
of and immediately prior to the Effective Date, the Partners' Capital Accounts
shall be adjusted to reflect the Valuation and the Partners' distributive shares
of tax items shall be determined all in accordance with Treasury Regulation
1.704-1(b)(2)(iv)(f) and (g). The parties further agree that immediately prior
to any subsequent contribution to the Partnership or distribution from the
Partnership, Capital Accounts shall be adjusted in accordance with the
provisions of Code Section 704(b) and the Regulations, including Treasury
Regulation 1.704-1(b)(2)(iv)(f) and (g). The Capital Accounts of all of the
Partners as of the Effective Date are as set forth on Exhibit "B" attached
hereto.
2
<PAGE>
4. OWNERSHIP PERCENTAGES AND UNITS. As a result of the contributions
of capital set forth in paragraph 2 above, the Ownership Percentage Interests
and number of Units held by each Partner is as follows:
Ownership
Percentage
Partner Units Interests
------- ----- ---------
CLASS A
Yoo 3,600,000 21.88339%
Condon 800,000 4.86298%
Elmendorf 400,000 2.43149%
Grubbs (assignee of Class A) 50,000 .30394%
Bell (assignee of Class A) 50,000 .30394%
CLASS B
Macroweb 10,000 .06079%
Trout 7,232,856.20 43.96651%
CLASS C
First Inning 619,047.61 3.76302%
Isom 1,219,047.62 7.41025%
Hamilton 476,190.48 2.89463%
Beaulieu 357,142.86 2.17097%
MiniPat 95,238.10 .57893%
2M 119,047.62 .72366%
Norwest 1,015,901 6.17538%
Red Hat 353,356.89 2.14796%
Thomas Weisel 53,003.53 .32219%
TOTAL UNITS OUTSTANDING 16,450,831.91
5. NEW INVESTORS. It is expressly agreed that the General Partner
may cause the Partnership to issue up to 530,035.34 Class C Units (the
"Additional Units") to one or more additional persons or entities (the "New
Investors") and to admit them as Class C Limited Partners, provided that the
aggregate purchase price per Unit is not less than $5.66 per Unit. In addition,
the General Partner may cause the Partnership to issue a warrant to the New
Investors with the same terms as contained in the Norwest Warrant, including
terms as to amount of Units subject to purchase, price, and the time period in
which it may be exercised. It is the intention of the parties hereto that such
New Investors shall have the benefits and obligations of the Class C Limited
Partners, except to the extent limited by paragraph 7 below, and that they may
become signatories to this Agreement without any further consent or agreement of
the parties to this agreement. To the extent that such New Investors become
parties to this agreement, the schedule set forth in paragraph 4 above shall be
appropriately
3
<PAGE>
adjusted and the capital accounts of all the Partners will be "booked-up" in
accordance with paragraph 3 above at the time of the investment to reflect the
valuation of the Partnership at that time. To the extent that the New Investors
are admitted to the Partnership, for the purposes hereof, references to the
"Partners" or the "Limited Partners" shall include the New Investors.
6. WAIVER OF PRE-EMPTIVE RIGHTS. The parties to this Agreement
hereby waive any pre-emptive rights that they may have to acquire Units issued
by the Partnership, but only with respect to the Units issued by the Partnership
which are set forth in 4 above, Units issued upon options in effect prior to the
date hereof, or Units issued to New Investors under paragraph 5 above, and not
with respect to any Units issued by the Partnership after the date of this
Agreement. In addition, with respect to the Units purchased by Norwest, Red
Hat, Thomas Weisel and the New Investors, if any, the parties hereto waive any
rights of first refusal which may exist with respect to the resale of those
Units by any of them.
7. RIGHT TO APPOINT DIRECTORS. Notwithstanding Section 9(h) of the
Second Amendment to the Agreement of Limited Partnership of Rackspace, Ltd. to
the contrary, Norwest, Red Hat, Thomas Weisel and the New Investors, if any,
shall not have the right to participate with the other Class C Limited Partners
in designating one director or manager of the Successor Entity under the terms
set forth in such Section 9(h), nor for the purposes of Section 9(h) shall
Norwest's, Red Hat's, Thomas Weisel's or the New Investors equity interest in
the Partnership be included in determining whether the Class C Limited Partners
hold 10% of the equity interests of the Successor Entity.
8. PARTIES BOUND/ADDITIONAL AGREEMENTS. The parties hereto agree
that Norwest, Red Hat, Thomas Weisel and the New Investors, if any, by
executing this Fourth Amendment, are bound to and have the benefit of the terms
contained herein as well as the terms contained in the First Amendment, the
Second Amendment, the Third Amendment and the Partnership Agreement as if they
had become direct signatories to such agreements.
9. REPRESENTATION. The parties to this Fourth Amendment acknowledge
that the law firm of Matthews and Branscomb, P.C. has assisted in the
preparation of this document on behalf of and as counsel for Trout, Ltd. and the
General Partner, and further acknowledge that the Partnership will pay the fees
and expenses associated with such services.
10. MULTIPLE COUNTERPARTS. This Fourth Amendment may be executed in
one or more counterparts, each of which shall be deemed an original but all of
which together will constitute one and the same instrument.
[REMAINDER OF PAGE LEFT INTENTIONALLY BLANK]
4
<PAGE>
Executed as of the date first written above.
RACKSPACE, LTD.
By: Macroweb, LC
Its: General Partner
/s/ Graham M. Weston
-------------------------------------
Graham M. Weston, Member
/s/ Morris A. Miller
-------------------------------------
Morris A. Miller, Member
GENERAL PARTNER:
Macroweb, LC
/s/ Morris A. Miller
-------------------------------------
Morris A. Miller, Member
/s/ Graham M. Weston
-------------------------------------
Graham M. Weston, Member
LIMITED PARTNERS:
/s/ Richard Yoo
-------------------------------------------
Richard Yoo
/s/ Dirk Elmendorf
-------------------------------------------
Dirk Elmendorf
/s/ Patrick Condon
-------------------------------------------
Patrick Condon
Trout, Ltd.
By: Knightsbridge, L.C.,General Partner
By: /s/ Morris Miller
----------------------------------
Its: Member
---------------------------------
5
<PAGE>
Isom Capital Partners I, L.P.
By: BESK Funding, Inc., General Partner
By: /s/ S. James Bishkin
----------------------------------
S. James Bishkin
President
First Inning Investors, L.P.
By: Trango Capital L.L.C., General
Partner
By: /s/ Quincy J. Lee
----------------------------------
Quincy J. Lee, Manager
The Hamilton Companies LLC
By: /s/ Frederic C Hamilton
---------------------------------------
Beaulieu River Capital LC
(formerly, Weston Investment Interest,
L.L.C.)
By: /s/ Graham Weston
---------------------------------------
MiniPat & Company, Ltd.
By: /s/ Patrick Condon
---------------------------------------
6
<PAGE>
2M Technology Ventures, L.P.
By: 2M Technology Group, L.L.C.
Its: General Partner
By: /s/ Steven [ILLEGIBLE]
----------------------------------
Red Hat, Inc.
By: /s/ Walter McCormick
---------------------------------------
Norwest Venture Partners VII, L.P.
By: /s/ George Still, Jr.
---------------------------------------
General Partner
Tailwind Capital Partners 2000, L.P.
By: Thomas Weisel Capital Partners LLC,
general partner
By: /s/ David A. Baylor
----------------------------------
David A. Baylor, General Counsel
NEW INVESTORS:
7
<PAGE>
FOURTH AMENDMENT TO
AGREEMENT OF LIMITED PARTNERSHIP OF
RACKSPACE, LTD.
Separate Signature Page for New Investors
With respect to the 466,431 Class C Units purchased by Sequoia Capital Franchise
Fund for $2,640,000.
Sequoia Capital Franchise Fund
By: /s/ illegible
---------------------------
With respect to the 63,604 Class C Units purchased by Sequoia Capital Franchise
Partners for $360,000.
Sequoia Capital Franchise Partners
By: /s/ illegible
---------------------------
8