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SECOND AMENDED AND RESTATED LIMITED
LIABILITY COMPANY AGREEMENT
of
RALPH LAUREN MEDIA, LLC
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Dated as of May 18, 2000
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Second Amended and Restated Limited Liability Company
Agreement of
Ralph Lauren Media, LLC
TABLE OF CONTENTS
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ARTICLE I
DEFINITIONS ................................................................. 2
ARTICLE II
FORMATION AND CONDUCT ....................................................... 19
2.1 Formation and Purpose ............................................. 19
2.2 Name .............................................................. 20
2.3 Principal Office and Place of Business ............................ 20
2.4 Term .............................................................. 20
2.5 Registered Office and Agent ....................................... 20
2.6 Qualification in Other Jurisdictions .............................. 20
2.7 No Liability to Third Parties ..................................... 20
2.8 Business Purpose .................................................. 21
2.9 Business Launch ................................................... 21
2.10 Initial Activities ................................................ 21
2.11 Membership Interests .............................................. 22
2.12 Admission of Additional Members ................................... 23
2.13 Relinquishment of Class B Membership Interests and Class C
Membership Interests .............................................. 23
2.14 Redemption of Class B Membership Interests and Class C Membership
Interests ......................................................... 25
2.15 [Reserved] ........................................................ 25
2.16 Employment by the Company ......................................... 25
2.17 "Drag-Along" Rights Against Class B Members and Class C Members ... 25
2.18 "Tag-Along" Rights of Class B Members and Class C Members ......... 26
2.19 Authorization of Actions Taken by the Company ..................... 28
(a) Ancillary Agreements ....................................... 28
(b) Formation .................................................. 28
(c) Bank Accounts .............................................. 28
ARTICLE III
OPERATIONS .................................................................. 29
3.1 Books and Records ................................................. 29
(a) Books and Accounts .......................................... 29
(b) Other Records ............................................... 29
3.2 Financial Statements; Information; Bank Accounts .................. 29
(a) Preparation in Accordance with GAAP ......................... 30
(b) Monthly Reports ............................................. 30
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(c) Quarterly Report ............................................ 30
(d) Annual Reports .............................................. 30
(e) Other Reports ............................................... 30
(f) Bank Accounts ............................................... 31
3.3 Auditors .......................................................... 31
3.4 Fiscal Year ....................................................... 31
3.5 Demand Registration ............................................... 31
3.6 Piggyback Registrations ........................................... 34
3.7 Lock-Up Provision ................................................. 36
3.8 Exchange of Membership Interests for Common Stock ................. 37
3.9 Employees and Benefit Matters ..................................... 37
(a) Generally ................................................... 37
(b) Member Responsibility ....................................... 37
(c) Non-Solicitation ............................................ 37
3.10 Expense Reimbursement ............................................. 38
3.11 The Members as Third Party Beneficiaries .......................... 38
3.12 Deadlocks ......................................................... 38
(a) Deadlocks of Managers ....................................... 38
(b) Deadlocks of Class A Members ................................ 38
(c) Continuation of Business .................................... 39
(d) Polo Deadlock Call .......................................... 39
(e) Media Members Sale Right .................................... 39
3.13 Change of Control ................................................. 42
(a) Change of Control of a Member ............................... 42
(b) Continuation of Business .................................... 42
(c) NBC Change of Control Call .................................. 42
(d) Polo Change of Control Sale ................................. 43
3.14 Polo Buyout Right ................................................. 43
3.15 Material Deadlock, Change of Control and Polo Buyout Right,
Pricing, Deferred Compensation and Closing ........................ 44
(a) Price of the Media Members Membership Interests ............. 44
(b) [Reserved] .................................................. 44
(c) Closing ..................................................... 44
(d) Services Agreement .......................................... 45
3.16 Media Members IPO Right ........................................... 45
3.17 Certain Restrictions .............................................. 46
ARTICLE IV
RIGHTS AND REPRESENTATIONS AND WARRANTIES OF MEMBERS ........................ 46
4.1 Members' Rights ................................................... 46
4.2 Representations and Warranties .................................... 46
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(a) Due Organization ............................................ 47
(b) Authorization and Validity of Agreement ..................... 47
(c) No Breach or Government Approvals ........................... 47
(d) Certain Fees ................................................ 47
(e) Legal Proceedings ........................................... 48
(f) Employee Benefits Programs .................................. 48
(g) SEC Filings ................................................. 48
(h) Acknowledgment .............................................. 49
4.3 Representations and Warranties of JM .............................. 49
4.4 Title to Company Assets ........................................... 50
ARTICLE V
MANAGEMENT .................................................................. 51
5.1 Management by Managers ............................................ 51
5.2 Management Committee .............................................. 51
(a) Number; Composition ......................................... 51
(b) Appointment of Managers ..................................... 51
(c) Voting ...................................................... 51
(d) Quorum ...................................................... 51
(e) Required Vote for Action .................................... 51
(f) Term ........................................................ 51
(g) Vacancy ..................................................... 52
(h) Removal ..................................................... 52
(i) Resignation ................................................. 52
5.3 Action Requiring Unanimous Vote of Polo Managers and the Media
Managers; Unanimous Vote of the Class A Members ................... 52
(a) Unanimous Vote of the Managers .............................. 52
(b) Unanimous Vote of the Class A Members ....................... 54
5.4 Business Plan ..................................................... 55
5.5 Limitation on Management Committee Authority ...................... 55
5.6 Meetings of the Management Committee .............................. 55
5.7 Methods of Voting; Proxies ........................................ 56
5.8 Order of Business ................................................. 56
5.9 Actions Without a Meeting ......................................... 56
5.10 Telephone and Similar Meetings .................................... 57
5.11 Compensation of Managers .......................................... 57
5.12 Media Representative .............................................. 57
5.13 Waiver of Certain Claims .......................................... 57
ARTICLE VI
OFFICERS .................................................................... 57
6.1 Designation Term; Qualifications .................................. 57
6.2 Chief Executive Officer ........................................... 58
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6.3 Chief Financial Officer ........................................... 58
6.4 Vice President .................................................... 59
6.5 Secretary ......................................................... 59
6.6 Treasurer ......................................................... 59
6.7 Other Officers .................................................... 59
6.8 Removal and Resignation ........................................... 59
6.9 Vacancies ......................................................... 59
6.10 Duties ............................................................ 60
ARTICLE VII
MEETINGS OF CLASS A MEMBERS ................................................. 60
7.1 Meetings of Class A Members ....................................... 60
7.2 Place of Meetings of Class A Members .............................. 60
7.3 Notice of Meetings of Class A Members ............................. 60
7.4 Fixing of Record Date ............................................. 60
7.5 Quorum ............................................................ 60
7.6 Methods of Voting; Proxies ........................................ 61
7.7 Conduct of Meetings ............................................... 61
7.8 Voting on Matters ................................................. 61
7.9 Registered Members ................................................ 61
7.10 Actions Without a Meeting ......................................... 62
7.11 Telephone and Similar Meetings .................................... 62
ARTICLE VIII
CONTRIBUTIONS; CAPITAL ACCOUNTS ............................................. 62
8.1 Initial Contributions ............................................. 62
8.2 Additional Contributions .......................................... 63
8.3 Enforcement of Commitments ........................................ 63
8.4 Maintenance of Capital Accounts ................................... 64
8.5 No Obligation to Restore Deficit Balance .......................... 65
8.6 Withdrawal; Successors ............................................ 65
8.7 Interest .......................................................... 65
8.8 Investment of Capital Contributions ............................... 65
8.9 Advances to the Company ........................................... 65
8.10 Initial Public Offering ........................................... 65
ARTICLE IX
ALLOCATIONS AND DISTRIBUTIONS ............................................... 66
9.1 Profits and Losses ................................................ 66
9.2 Profits ........................................................... 66
9.3 Losses ............................................................ 67
9.4 Special Allocations ............................................... 67
(a) Qualified Income Offset ..................................... 67
(b) Gross Income Allocation ..................................... 67
(c) Curative Allocations ........................................ 67
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(d) Elective Gross Allocations .................................. 68
(e) Subsequent Adjustments to Income ............................ 68
9.5 Other Allocation Rules ............................................ 68
9.6 Tax Allocations ................................................... 69
(a) General Rules ............................................... 69
(b) Mandatory Allocations Under Code Section 704(c) ............. 69
(c) Tax Allocations Binding ..................................... 70
(d) Contributions ............................................... 70
9.7 Distributions to Members .......................................... 70
(a) Amounts and Timing .......................................... 70
(b) Amounts Withheld ............................................ 71
(c) Draws for Payment of Estimated Taxes ........................ 71
ARTICLE X
TAXES ....................................................................... 72
10.1 Tax Characterization .............................................. 72
10.2 Tax Matters Partner, Etc. ......................................... 72
10.3 Tax Returns ....................................................... 73
10.4 Section 83(b) Elections ........................................... 73
ARTICLE XI
TRANSFER OF MEMBERSHIP INTEREST ............................................. 73
11.1 Compliance with Securities Laws ................................... 73
11.2 Transfer of Membership Interest ................................... 74
11.3 Obligations of a Withdrawing Member ............................... 75
(a) Generally ................................................... 75
(b) Non-Disclosure by a Withdrawing Member ...................... 75
(c) Survival .................................................... 75
11.4 Encumbrances ...................................................... 75
11.5 Effect of Unauthorized Transfer ................................... 75
11.6 Standstill Agreement .............................................. 76
ARTICLE XII
DISSOLUTION ................................................................. 77
12.1 Events of Dissolution ............................................. 77
12.2 Liquidation and Distribution Following Dissolution ................ 78
12.3 Final Accounting .................................................. 79
12.4 Winding Up and Certificate of Dissolution ......................... 79
12.5 Use of the Company Name, Etc. Upon Dissolution, Winding Up and
Termination ....................................................... 79
12.6 Payments Upon Certain Dissolutions ................................ 80
ARTICLE XIII
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[RESERVED] .................................................................. 81
ARTICLE XIV
INDEMNIFICATION OF MEMBERS, MANAGERS AND OFFICERS ........................... 81
14.1 Indemnification by a Class A Member ............................... 81
14.2 Indemnification by the Company .................................... 81
14.3 Survival; Limitations; Procedures ................................. 82
14.4 Third-Party Dealings With Members ................................. 83
14.5 Insurance ......................................................... 83
(a) Generally ................................................... 83
(b) Liability Insurance ......................................... 84
14.6 Report to Members ................................................. 84
ARTICLE XV
CLOSING DELIVERIES .......................................................... 84
15.1 Closing Deliveries of Polo ........................................ 84
15.2 Closing Deliveries of the Original Media Members .................. 85
ARTICLE XVI
MISCELLANEOUS ............................................................... 85
16.1 Notices ........................................................... 85
16.2 Public Announcements and Other Disclosure ......................... 86
16.3 Headings and Interpretation ....................................... 86
16.4 Entire Agreement .................................................. 86
16.5 Binding Agreement ................................................. 86
16.6 Saving Clause ..................................................... 86
16.7 Counterparts ...................................................... 87
16.8 Governing Law ..................................................... 87
16.9 No Membership Intended for Nontax Purposes ........................ 87
16.10 No Rights of Creditors and Third Parties under Agreement ........ 87
16.11 Amendment or Modification of Agreement .......................... 87
16.12 Specific Performance ............................................ 87
16.13 General Interpretive Principles ................................. 88
16.14 Consent to Jurisdiction ......................................... 88
16.15 Certain Obligations ............................................. 88
<PAGE>
SECOND AMENDED AND RESTATED LIMITED
LIABILITY COMPANY AGREEMENT
of
RALPH LAUREN MEDIA, LLC
THIS SECOND AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT
(this "Agreement") of Ralph Lauren Media, LLC, a Delaware limited liability
company (the "Company"), dated as of May 18, 2000, by and among Polo Ralph
Lauren Corporation, a Delaware corporation ("Polo"), National Broadcasting
Company, Inc., a Delaware corporation ("NBC"), ValueVision International, Inc.
("ValueVision"), a Minnesota corporation, CNBC.com LLC, a Delaware limited
liability company ("CNBC.com"), NBC Internet, Inc., a Delaware corporation
("NBCi" and together with NBC, CNBC.com and ValueVision, the "Original Media
Members"), and Jeffrey D. Morgan ("JM"). Certain capitalized terms used herein
are defined in Article I of this Agreement and, if not otherwise defined herein,
shall have the meanings ascribed to such terms in the Operating Agreement, dated
as of February 7, 2000, by and among Polo, the Original Media Members and the
Company (the "Operating Agreement").
WHEREAS, Polo filed a Certificate of Formation on February 2, 2000 for
the Company on behalf of itself and the Original Media Members pursuant to the
provisions of the Act;
WHEREAS, a Limited Liability Agreement for the Company was duly adopted
by Polo pursuant to and in accordance with the Act on February 2, 2000 (the
"Original Agreement");
WHEREAS, the Original Agreement was amended and restated as of February
7, 2000 by the Amended and Restated Limited Liability Company Agreement (the
"Existing Agreement") of the Company to permit the admission of the Original
Media Members as Members;
WHEREAS, Polo and the Original Media Members wish to enter into this
Second Amended and Restated Limited Liability Company Agreement of the Company
to permit the admission of JM as a Member and the issuance of Membership
Interests to employees from time to time and to provide for certain rights and
obligations of JM hereunder; and
WHEREAS, Polo, the Original Media Members and JM desire to set forth
their respective rights and obligations as members of the Company and to provide
for the operation
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and governance of the Company.
NOW, THEREFORE, in consideration of the mutual promises and agreements
herein made and intending to be legally bound hereby, the parties hereby agree
to amend and restate the Existing Agreement in its entirety to read as follows:
ARTICLE I
DEFINITIONS
For purposes of this Agreement, unless the context clearly indicates
otherwise, the following terms shall have the following meanings:
"Accessories": Eyewear, jewelry, watches, leather goods, handbags,
luggage, golf bags, fragrances, skin care, cosmetics and other beauty
products and any other similar products, in each case that bear or are
otherwise marketed, advertised or promoted under any of the Polo and Ralph
Lauren Brands.
"Act": The Delaware Limited Liability Company Act, Title 6, Chapter 18,
Section 101 et seq. of the Delaware Code, and all amendments to the Act.
"Additional Contribution": An additional Capital Contribution (other
than a ValueVision Additional Contribution) payable by the Class A Members
to the Company pursuant to Article VIII.
"Additional Contribution Share": A Class A Member's proportionate share
of an Additional Contribution equal to the product of (i) such Class A
Member's Sharing Ratio and (ii) such Additional Contribution, or as
otherwise agreed by the Class A Members under Section 8.2.
"Adjusted Capital Account Deficit": With respect to any Member, the
deficit balance, if any, in such Member's Capital Account as of the end of
the relevant Fiscal Year, after giving effect to the following adjustments:
(i credit to such Capital Account the minimum gain chargeback
that such Member is deemed to be obligated to restore pursuant to the
penultimate sentences of Sections 1.704-2(g)(1) and 1.704-2(i)(5) of
the Regulations; and
(ii debit to such Capital Account the items described in
Sections 1.704-l(b)(2)(ii)(d)(4), 1.704-l(b)(2)(ii)(d)(5), and
1.704-l(b)(2)(ii)(d)(6) of the Regulations.
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The foregoing definition of Adjusted Capital Account Deficit is
intended to comply with the provisions of Section 1.704-l(b)(2)(ii)(d) of
the Regulations and shall be interpreted consistently therewith.
"Advertising Agreement": Advertising Agreement, dated as of February 7,
2000, by and between the Company and NBC.
"Affiliate": A Person that directly, or indirectly through one or more
intermediaries, controls, or is controlled by or under common control with,
the Person specified, for so long as such Person remains so associated to
the specified Person. Control means, with respect to a specified Person,
the possession, directly or indirectly, of the power to direct or cause the
direction of the affairs or management of a Person, whether through the
ownership of voting securities, by contract or otherwise.
"Aggregate Contributions": As defined in Section 12.6.
"Agreement": This Second Amended and Restated Limited Liability Company
Agreement, as the same may be amended, modified or otherwise supplemented
from time to time, all in accordance with this Agreement and the Act.
"Ancillary Agreements": License Agreement, Supply Agreement, Services
Agreement, Advertising Agreement, Promotion Agreement and Operating
Agreement.
"Annual Advertising Obligation": As defined in the Operating Agreement.
"Apparel": Clothing products, including, men's, women's, children's
apparel, swimwear, loungewear, intimate apparel, underwear, socks, hosiery,
sports specialty apparel, outerwear, footwear and all other items included
in International Trademark Class 25, in each case that bear or are
otherwise marketed, advertised or promoted under any of the Polo and Ralph
Lauren Brands.
"Auditors": As defined in Section 3.3.
"Budget": The capital and operating budgets of the Company for any
quarterly period or Fiscal Year, prepared by the management of the Company
and approved by the Management Committee in accordance with Section 5.4,
including all amendments, modifications and revisions thereto, as approved
in accordance with Section 5.4.
"Business": Any business that the Company operates in accordance with
the Business Purpose set forth in Section 2.8.
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"Business Day": Any day other than Saturday, Sunday or any legal
holiday observed in the State of Delaware or New York.
"Business Plan": As defined in Section 5.4(a), including the Initial
Business Plan.
"Business Purpose": As defined in Section 2.8.
"Capital Account": The account maintained for a Member determined in
accordance with Article VIII.
"Capital Contribution": Any contribution of Property or services made
by or on behalf of a Class A Member in accordance with the terms of this
Agreement.
"Catalog": One or more direct marketing publications developed and
produced, or subcontracted to a third party, by the Company for the
promotion and sale of Polo Products under the Licensed Brands.
"Cause": As defined in the JM Employment Agreement.
"CEO": As defined in Section 6.1.
"Certificate of Formation": The Certificate of Formation of the
Company, as amended from time to time, and filed with the Secretary of
State of Delaware.
"CFO": As defined in Section 6.1.
"Change of Control": Either a Polo Change of Control or an NBC Change
of Control.
"Class": The classes into which the Membership Interests may be
classified or divided from time to time pursuant to the provisions of this
Agreement.
"Class A Member": Any Member holding Class A Membership Interests.
"Class A Membership Interest": Any Membership Interest classified as
such pursuant to the provisions of this Agreement.
"Class B Member": Any Member holding Class B Membership Interests.
"Class B Membership Interest": Any Membership Interest classified as
such pursuant to the provisions of this Agreement.
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"Class B Change of Control": (1) The Initial Class A Members (and/or
their Affiliates), individually and/or in the aggregate, hold less than a
majority of the voting power of the Company's outstanding equity securities
and (2) any "person" or "group" (within the meaning of Section 13(d) or
14(d) of the Exchange Act or any successor thereto) (other than the Initial
Class A Members and/or their Affiliates) holds equity securities of the
Company representing a greater percentage of the voting power of the
Company's outstanding equity securities than is held by the Initial Class A
Members and/or their Affiliates, in the aggregate.
"Class C Member": Any Member holding Class C Membership Interests.
"Class C Membership Interest": Any Membership Interest classified as
such pursuant to the provisions of this Agreement.
"Closing": The initial transfer of the ValueVision Initial Capital
Contribution to the Company and the consummation of the other transactions
contemplated by the Existing Agreement and the Operating Agreement on the
Closing Date and the delivery of all certificates and other documents
necessary in connection therewith.
"Closing Date": The date on which the Existing Agreement and the
Ancillary Agreements were executed and delivered.
"CNBC.com": CNBC.com LLC, a Delaware limited liability company, and any
successor thereof.
"Code": The Internal Revenue Code of 1986, as amended from time to
time.
"Collection Brands": Purple Label, Black Label and Collection and other
similarly positioned premier, high-end, limited distribution Polo and Ralph
Lauren Brands that may be developed or acquired in the future.
"Commitment": The Capital Contributions that a Class A Member is
obligated to make, including the ValueVision Additional Contributions and
any Additional Contribution Share of a Class A Member.
"Company": Ralph Lauren Media, LLC, a limited liability company formed
under the laws of the State of Delaware, and any successor limited
liability company.
"Company Assets": Any rights or assets, whether tangible or intangible,
acquired by the Company pursuant to this Agreement or any Ancillary
Agreement, contributed by the Members in accordance with the terms of this
Agreement or any Ancillary Agreement
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or otherwise acquired by the Company.
"Company Customer Data": As defined in Section 3.1(b).
"Company Securities": As defined in Section 3.5(d).
"Continuing Member": As defined in Section 11.2.
"Cumulative Losses": As defined in Section 12.6.
"Damages": As defined in Section 14.1.
"Default Interest Rate": The prime rate published by the Wall Street
Journal for the last Business Day on which a Commitment is payable.
"Delinquent Member": A Member who has failed to meet the Commitment of
that Member.
"Demand Registrable Securities": Any common stock held by a holder or
issuable to a holder upon the exchange of Class A Membership Interests
pursuant to Section 3.8, and any other securities which may be issued or
distributed in respect of such common stock by way of distribution,
recapitalization, reclassification or similar transaction.
"Demand Registration": As defined in Section 3.5.
"Disability": As defined in the JM Employment Agreement.
"Disposition or Dispose": Any sale, assignment, exchange, mortgage,
pledge, grant, hypothecation, lease or other transfer, absolute or as
security or encumbrance (including dispositions by operation of law).
"Distribution": A transfer of Property of the Company to a Member on
account of a Membership Interest as described in Article IX.
"Distribution Interest": As defined in Section 9.7(a)(iv).
"Employee Member": Any employee or former employee of the Company to
whom Class B Membership Interests or Class C Membership Interests are
allocated.
"Exchange Act": the Securities Exchange Act of 1934, as amended.
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"Existing Agreement": As defined in the recitals.
"Fair Market Value":
(i) Fair Market Value of a Membership Interest means, as of
any date (the "Computation Date"), the value of a Membership Interest
as mutually determined by the Media Representative and Polo, or if the
Media Representative and Polo cannot agree, then the Fair Market Value
of any Membership Interest shall be (A) determined by (x) calculating
the aggregate realizable value of all Membership Interests as of the
Computation Date (the "Total Value"), assuming a sale of the Company in
its entirety in a transaction or a series of related transactions to a
third party on an arm's length basis in a controlled auction process
designed to maximize membership value by attracting all possible
bidders and (y) dividing the Total Value by the Membership Interest
(the "Auction Value FMV") or (B) that which would be negotiated in an
arm's length transaction (effected as of the Computation Date) between
two willing parties after giving effect to any increased cost of
ValueVision's services as provided in Section 3.15(d) (the "Private
Value FMV"), as applicable. For all determinations of Fair Market
Value, the License Agreement and the Supply Agreement shall be deemed
to run for the remaining balance of their respective terms.
(ii) If Polo and the Media Representative cannot agree on a
Fair Market Value of a Membership Interest as set forth in paragraph
(i) above within 30 days after the date of notice of the event giving
rise to such Fair Market Value determination, the Media Representative
and Polo shall each appoint a nationally recognized investment bank as
promptly as practicable and in any event within seven days following
the expiration of such 30-day period to determine the Fair Market Value
of such Membership Interest as of the Computation Date as promptly as
possible thereafter and in any event within 30 days of such
appointment. In the event that the higher of the two values determined
by the investment banks is equal to or less than 110% of the lower
value, then the Fair Market Value of such Membership Interest shall be
the average of the two. In the event that the higher value is greater
than 110% of the lower value, then the two investment banks shall
promptly appoint a third investment bank of nationally recognized
standing to determine the Fair Market Value of such Membership
Interest. The third investment bank shall have 30 days to render its
determination of the Fair Market Value and the average of the two
closest such determinations (of the three investment banks) shall be
the Fair Market Value of such Membership Interest. The third investment
bank will not be permitted to see or otherwise have access to, or be
informed of, the results of the determinations made by the first two
investment banks. Each investment bank engaged pursuant
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to this clause (ii) shall promptly deliver to each of Polo and the
Media Representative a written notice in reasonable detail of its
determination of the Fair Market Value made pursuant to the foregoing.
In the event that the determination made by the third investment bank
is higher than the higher of the two previous determinations, the costs
of the third investment bank shall be borne by the Member whose
investment bank submitted the lower of the two previous determinations.
In the event that the determination made by the third investment bank
is lower than the lower of the two previous determinations, the costs
of the third investment bank shall be borne by the Member whose
investment bank submitted the higher of the two previous
determinations. Except as set forth in the two immediately preceding
sentences, each Member shall be responsible for the percentage
represented by such Member's Membership Interest of all costs incurred
in connection with the determination of the Fair Market Value set forth
herein.
"Fair Value": The amount that would be distributed to the Class B
Members or the Class C Members with respect to their Class B Membership
Interests or Class C Membership Interests, respectively, in accordance with
Article IX, in the event of a liquidation of the Company at the date of
determination based upon the value of the Company at such time. Such
valuation of the Company shall be determined by the Management Committee in
good faith using the following assumptions: (i) either (x) a sale of the
Company in its entirety in a transaction or series of transactions to a
third party on an arm's length basis in a controlled auction process
designed to maximize membership value by attracting all possible bidders or
(y) a negotiated arm's length transaction between two willing parties, in
either case after giving effect to any increased cost of ValueVision's
services as provided in Section 3.15(d), and (ii) the License Agreement and
the Supply Agreement shall be deemed to run for the remaining balance of
their respective terms; provided that if Fair Value is being determined for
purposes of JM's Class B Membership Interests, if JM disagrees with the
Management Committee's determination, he may require the Company to retain
an independent investment banker to determine the Fair Value. The Company
will bear the cost of such appraisal, unless the appraised value is 110% or
less than the Management Committee's determination of Fair Value, in which
case JM will bear the cost of such appraisal.
"Family Controlled Entity": (i) Any not-for-profit corporation if at
least a majority of its board of directors is composed of Ralph Lauren
Family Members; (ii) any other corporation if at least a majority of its
outstanding voting power is held by Ralph Lauren Family Members; (iii) any
partnership if at least a majority of the outstanding voting interest of
its partnership interests are owned by Ralph Lauren Family Members; and
(iv) any limited liability or similar company if at least a majority of the
outstanding voting interest of the company is owned by Ralph Lauren Family
Members.
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"Fiscal Quarter": As defined in Section 3.2(c).
"Fiscal Year": As defined in Section 3.4.
"GAAP": As defined in Section 3.1(a).
"Good Reason": As defined in the JM Employment Agreement.
"Governmental Authority": Any nation or government, any state or other
political subdivision thereof, and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"Holder Request": As defined in Section 3.5(a).
"Home Products": Products to furnish and/or decorate the home,
including bedding and bath products, interior decor/furniture and tabletop
items, paints, wallpaper, fabrics, curtains, home fragrance products and
other decorative accessories, in each case bearing or otherwise marketed,
advertised or promoted under any of the Polo and Ralph Lauren Brands.
"Indemnified Party": As defined in Section 14.3(d).
"Indemnifying Member": As defined in Section 14.1.
"Indemnitee": As defined in Section 14.2.
"Initial Business Plan": The Business Plan to be agreed among the
parties hereto.
"Initial Class A Members": Polo and the Original Media Members.
"Initial Membership Interest": With respect to any Member, the Initial
Membership Interest of such Member set forth in Exhibit A.
"Initial Public Offering": The initial offer for sale of capital stock
of the Company pursuant to an effective registration statement filed under
the "Securities Act," which results in an active trading market in such
shares of capital stock (it being understood that such an active trading
market shall be deemed to exist if, among other things, such shares are
listed on the New York Stock Exchange or the Nasdaq Stock Market, Inc.
National Market System or another national securities exchange). In
connection with an Initial Public Offering, the Members agree to take all
actions necessary and appropriate to convert the form of the Company to an
appropriate form
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required for such purpose and make such other adjustments as are necessary
in connection therewith. "JM": As defined in the Preamble.
"JM Employment Agreement": Employment agreement, dated as of February
7, 2000, by and between JM and Polo, and assigned to, and assumed by the
Company.
"JM Interests": As defined in Section 4.3(a).
"Lauren Family Trust": includes trusts the primary beneficiaries of
which are Ralph Lauren, the spouse of Ralph Lauren, Lauren Descendants,
Ralph Lauren's siblings, spouses of Lauren Descendants and their respective
estates, guardians, conservators or committees and/or charitable
organizations, provided that if the trust is a wholly charitable trust, at
least a majority of the trustees of such trust consists of Ralph Lauren,
the spouse of Ralph Lauren and/or Ralph Lauren Family Member.
"License Agreement": License Agreement, dated as of February 7, 2000,
by and between Licensor and the Company.
"Licensed Brands": "Polo by Ralph Lauren," "Ralph (Polo Player Design)
Lauren," "Polo," "Ralph," "Polo (Polo Player Design) Ralph Lauren," "Ralph
Lauren," "RLX," "Polo Sport," "Polo Jeans Co," "Ralph Lauren Home
Collection," the Polo Player Design and such other trademarks which
Licensor licenses to the Company pursuant to the License Agreement. The
term "Licensed Brands" shall specifically exclude the mark "Club Monaco."
"Licensed Materials": Any text, artwork, photographs, transfers,
transparencies, designs, graphic or pictorial or other similar material (i)
furnished to the Company by or on behalf of Licensor for use by the Company
in connection with any Catalog or the Site pursuant to the terms of this
Agreement, the Operating Agreement or the License Agreement or (ii) created
by or on behalf of the Company during the term of the License Agreement
specifically for use in connection with any Catalog or the Site in the
exercise of the Company's rights under the License Agreement, all of which
shall be owned exclusively by Licensor, except to the extent it contains
marks or materials owned or licensed by NBC or its Affiliates.
"Licensor": PRL USA Holdings, Inc.
"Lien": As defined in Section 11.4.
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"Liquidation Payment": As defined in Section 12.6.
"Litigation": As defined in Section 5.3(xx).
"Majority-Owned Affiliates": With respect to any Person, means any
Affiliate of such Person with respect to which such Person owns at least a
majority of the total voting power. For the avoidance of doubt, NBCi shall
not be considered a Majority-Owned Affiliate of NBC except, for purposes of
Section 11.6 hereof only, in the event that NBC shall actually own a
majority of the outstanding voting stock of NBCi.
"Management Committee": As defined in Section 5.1.
"Manager": Any person appointed as a Manager of the Company by any
Class A Member as provided in Section 5.2(b), but does not include any
person who has ceased to be a Manager of the Company.
"Marks": As defined in the License Agreement.
"Material Adverse Effect": Any material adverse effect on (A) the
assets, business, results of operations or condition (financial or
otherwise) of the Company or (B) when used with respect to any Member or
the Company, the ability of such Member or the Company to perform its
obligations hereunder or under the Ancillary Agreements to which it is a
party.
"Material Deadlock": Failure by the Class A Members or the Management
Committee to reach agreement on any matter (i) that is of such magnitude
and is so fundamental to the Business and the Business Purpose that failure
to resolve such issue could reasonably be expected to have a Material
Adverse Effect, (ii) that is so fundamental to the business of Polo or any
Original Media Member that failure to resolve such issue could reasonably
be expected to have a material adverse effect on the assets, business,
results of operations or condition (financial or otherwise) of Polo or any
Original Media Member or (iii) which disagreement is of such a nature that
continuance of operation of the Company as a jointly owned entity by the
Class A Members would be unworkable as a result of the breakdown in the
communications and business relationship of the Class A Members. For the
avoidance of doubt, the Class A Members agree that a failure by the
Managers appointed by either Polo or the Media Members to approve an
Initial Public Offering, in accordance with Section 5.3(x), recommended in
good faith by either Polo or the Media Members, as the case may be, at any
time following the fifth anniversary of the Closing Date shall constitute a
Material Deadlock.
"Material Deadlock Event": As defined in Section 3.12(d).
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"Media Competitor": Any media, telecommunications or Internet company
or similar company, or any Majority-Owned Affiliate thereof, a significant
business of which is any of the three primary businesses of NBC and its
Affiliates at the time of determination; provided, however, that Media
Competitor shall not include any Person identified by Polo in writing to
the Media Representative (a "Request Notice") that the Media Representative
does not identify as a Media Competitor in writing to Polo within thirty
(30) days of such Request Notice.
"Media Manager": Any Manager appointed by the Media Members in
accordance with Section 5.2(b).
"Media Member IPO Right": As defined in Section 3.16.
"Media Members": The Original Media Members and their transferees.
"Media Members' Membership Interests": As defined in Section 3.12(d).
"Media Members Sale Notice": As defined in Section 3.12(e)(i).
"Media Members Sale Right": As defined in Section 3.12(e).
"Media Representative": Initially NBC, or such other party as is
designated as representative by all of NBC, ValueVision, CNBC.com and NBCi
or their permitted transferees by written notice to Polo.
"Member": A Person executing this Agreement when acting in its capacity
as a member of the Company and any Person admitted as an additional or
substitute member of the Company pursuant to this Agreement.
"Member Plans": As defined in Section 4.2(f)(iii).
"Membership Interest": The interest of a Member in the Company,
including a Member's (i) right to receive allocations of Profit and Loss,
Distributions, returns of capital and distribution of assets upon a
dissolution of the Company, (ii) right, if any, to vote on, or to consent
to, or approve or disapprove, certain actions or decisions regarding the
Company as provided in this Agreement and the Operating Agreement or under
the Act and (iii) Initial Membership Interest.
"NBC": National Broadcasting Company, Inc., a Delaware corporation, and
any successor thereof.
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"NBC Change of Control": The occurrence of any of the following: (a)
(i) the acquisition of ownership, directly or indirectly, beneficially or
of record, by any Person, of 25% or more of the voting equity or equity
value of NBC, and General Electric Company and its Affiliates own 25% or
less of the voting equity or equity value of NBC, as applicable, followed
within 180 days by (ii) an event or a series of events which results in
those officers of NBC which are actively involved in making decisions
regarding the Company and this Agreement (and the Operating Agreement),
including as of the date of this Agreement the Chief Executive Officer of
NBC, the President of NBC West Coast and the President of NBC Interactive
Business Development, who are Bob Wright, Scott Sassa and Martin Yudkovitz
(collectively the "NBC Executives"), respectively, as of the date of this
Agreement, or comparable positions at the relevant time, shall no longer be
employees of NBC and such persons shall be replaced by persons who were not
employees of NBC at least two months prior to the earlier of the entry into
an agreement with respect to, or consummation of, the transaction described
in clause (i) or (b) any sale, lease, exchange or transfer (in one
transaction or a series of related transactions) of control of, whether by
transfer of all or substantially all of the assets comprising, or
otherwise, the NBC Television Network other than in a Permitted NBC
Transfer.
"NBC Change of Control Call": As defined in Section 3.13(c).
"NBCi": NBC Internet, Inc., a Delaware corporation, and any successor
thereof.
"NBC Properties": The NBC Television Network, CNBC and NBC-owned and
operated television stations, and other NBC-owned properties as they emerge
in the future.
"Nonrecourse Liability": As defined in Section 1.704-2(b)(3) of the
Regulations.
"Notice of Material Deadlock": As defined in Section 3.12(d).
"Officer": As defined in Section 6.1.
"Online": Any electronic interactive service, system, network or medium
that is available via (a) public or private computer networks such as the
Internet (including the World Wide Web), (b) proprietary online services
such as America Online and Compuserve, (c) hybrid Internet services such as
WebTV and @Home, (d) interactive cable, satellite or broadcast television
and (e) any successor technology to any of the foregoing. "Online" does not
mean traditional person-to-person voice only telephone communications.
"Online Identifier": Any URL, keyword, logo or other identifier
selected by the Company, subject to the License Agreement, for identifying
Online the Company, the
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Business or any of its services.
"Operating Agreement": As defined in the Preamble.
"Operations Manual": As defined in Section 5.4(c).
"Organization": A Person other than a natural person. The term
Organization includes corporations (both non-profit and other
corporations), partnerships (both limited and general), joint ventures,
limited liability companies, and unincorporated associations, but the term
does not include joint tenancies and tenancies by the entirety.
"Original Agreement": As defined in the recitals.
"Original Media Members": As defined in the Preamble.
"Other Indemnified Persons": As defined in Section 14.1.
"Permitted NBC Transfer": Any sale, lease, exchange or transfer (in one
transaction or a series of related transactions) of the NBC Television
Network in which (x) NBC's Membership Interest and all of NBC's rights and
obligations hereunder are transferred to the transferee in such transaction
and (y) any NBC Executive or other executive officer of NBC who was an
officer of NBC for at least two months prior to the public announcement or
execution of a definitive agreement regarding the transaction is employed
by the transferee following such transaction as Chief Executive Officer of
NBC, President of the NBC Television Network or in a similar (or higher)
capacity for a period of at least six months after the consummation of such
transaction.
"Person": Any natural person, corporation, partnership, joint venture,
trust, incorporated organization, limited liability company, other form of
business or legal entity or Governmental Authority.
"Piggyback Registrable Securities": Any common stock held by a holder
or issuable to a holder upon the exchange of Class A Membership Interests
or Class B Membership Interests (in the case of Class B Membership
Interests, only the portion that is not relinquished to the Company in
accordance with Section 2.13) pursuant to Section 3.8, and any other
securities which may be issued or distributed in respect of such common
stock by way of distribution, recapitalization, reorganization,
reclassification, share exchange or similar transaction; provided, however,
that with respect to Employee Members, only Vested Securities shall be
Piggyback Registrable Securities.
"Polo": Polo Ralph Lauren Corporation, a Delaware corporation, and any
successor thereof.
<PAGE>
"Polo and Ralph Lauren Brands": (i) The Licensed Brands and Tradenames,
(ii) any brands that are owned or licensed by Polo or an Affiliate of Polo
or any other Person bound by the License Agreement on or after the date of
this Agreement that are (A) marketed, advertised or promoted under the Polo
or Ralph Lauren name or any part thereof or (B) related for purposes of
Polo's marketing, advertising or promotional strategies to the Polo or
Ralph Lauren names or any part thereof (including initials or any other
derivatives) or, as a result of Polo's marketing, advertising or
promotional strategies, are reasonably likely to be associated by customers
with the Polo and Ralph Lauren Brands and (iii) any other brands that may
from time to time be licensed to the Company pursuant to the License
Agreement. The term Polo and Ralph Lauren Brands shall specifically exclude
the trademark "Club Monaco" and shall include the trademarks "Chaps,"
"Lauren" and "American Living."
"Polo Buyout Right": As defined in Section 3.14(a).
"Polo Change of Control": The occurrence of any of the following: (a)
there shall be consummated (i) any consolidation, merger, recapitalization
or other similar transaction involving Polo in which Polo is not the
continuing or surviving corporation, or pursuant to which the shares of
common stock or other equity securities of Polo (the "Polo Equity") would
be converted in whole or in part into cash, other securities or other
property, other than any such transaction in which (1) Ralph Lauren and his
estate, guardian, conservator or committee , (2) the spouse of Ralph Lauren
and her estate, guardian, conservator or committee, (3) each descendant of
Ralph Lauren and their respective estates, guardians, conservators or
committees (a "Lauren Descendant"), (4) each Family Controlled Entity and
(5) the trustees, in their respective capacities as such, of each Lauren
Family Trust (the "Ralph Lauren Family Members") beneficially hold at least
a majority of the voting equity of the continuing or surviving company
immediately after such transaction, (ii) any consolidation, merger,
recapitalization or other similar transaction in which Polo is the
continuing or surviving company, other than any such transaction in which
Ralph Lauren and/or any Ralph Lauren Family Member beneficially holds at
least a majority of the voting equity of the continuing or surviving
company immediately after such transaction, or (iii) any sale, lease,
exchange or transfer (in one transaction or a series of related
transactions) of all or substantially all of the Licensed Brands or assets
of Polo; (b) any person, other than a Ralph Lauren Family Member, shall
become the beneficial owner (within the meaning of Rule 13d-3 under the
Exchange Act) of the Polo Equity representing 50% or more of the combined
voting equity of Polo as a result of a tender offer or exchange offer, open
market purchases, privately negotiated purchases or otherwise; (c) the
acquisition of ownership, directly or indirectly, beneficially or of
record, by any Media Competitor, of 25% or more of the voting equity of
Polo, and Ralph Lauren and/or Ralph Lauren Family Members collectively own
25% or less of the voting equity of Polo; or (d) the acquisition of
ownership, directly or indirectly, beneficially or of record, by any Media
Competitor from Polo, of 10% or more of the total equity of Polo in a
negotiated transaction in which Polo has not offered NBC a right to acquire
such equity not less than 30 or more than 180 days prior to the acquisition
of
<PAGE>
ownership on the same terms and conditions; provided, however, that any
transfer of Polo Equity that occurs by reason of the laws of inheritance or
through any bona fide testamentary or inter vivos device to a Ralph Lauren
Family Member shall not constitute a Polo Change of Control.
"Polo Change of Control Sale": As defined in Section 3.13(d).
"Polo Deadlock Call": As defined in Section 3.12(d).
"Polo Manager": The Manager appointed by Polo in accordance with
Section 5.2(b).
"Polo Members": Polo and its permitted transferees.
"Polo Offer Notice": As defined in Section 3.12(e)(ii).
"Polo Products": Apparel, Accessories and Home Products which are
manufactured by or under license from Polo, any Affiliate of Polo or any
other Person bound by the License Agreement or any combination of the
foregoing. The definition of Polo Products will be automatically amended to
include any additional products and services as may be determined in
accordance with Section 2.6(c) of the Operating Agreement.
"Preservation Notice": As defined in Section 3.14(b).
"Principal Office": The principal office of the Company as set forth in
Section 2.3.
"Proceeding": Any administrative, judicial, or other adversary
proceeding, including litigation, arbitration, administrative adjudication,
mediation, and appeal or review of any of the foregoing.
"Profits or Losses": For each Fiscal Year, an amount equal to the
Company's taxable income or loss for such Fiscal Year, determined in
accordance with Section 703(a) of the Code (for this purpose, all items of
income, gain, loss, or deduction required to be stated separately pursuant
to Section 703(a)(1) of the Code will be included in taxable income or
loss), with the following adjustments:
<PAGE>
(i Any income of the Company that is exempt from federal
income tax and not otherwise taken into account in computing Profits or
Losses pursuant to this definition will be added to such taxable income
or loss;
(ii Any expenditures of the Company described in Section
705(a)(2)(B) of the Code or treated as Section 705(a)(2)(B) of the Code
expenditures pursuant to Section 1.704-l(b)(2)(iv)(i) of the
Regulations, and not otherwise taken into account in computing Profits
or Losses pursuant to this definition, will be subtracted from such
taxable income or loss;
(iii Notwithstanding any other provisions of this definition,
any items which are specially allocated pursuant to paragraph 9.4 shall
not be taken into account in computing Profits or Losses.
"Promotion Agreement": Promotion Agreement, dated as of February 7,
2000, by and between the Company and NBCi.
"Property": Any property, real or personal, tangible or intangible,
including cash, and any legal or equitable interest in such property, but
excluding services and promises to perform services in the future.
"Purchase Price Notice": As defined in Section 3.14(b).
"Qualified Buyer": Any Person that satisfies as of the date of
determination each of the following requirements: (a) the stockholders'
equity or the market capitalization of such Person is or was, as of the end
of the most recently completed Fiscal Quarter of such Person prior to the
date of entering into any agreement for the transfer to such Person of any
interest in the Company in excess of U.S. $100 million or U.S. $1 billion,
respectively; (b) neither such Person nor any Affiliate of such Person has
been convicted within the prior five years of any criminal violation of law
in any country; (c) neither such Person nor any Subsidiary of such Person
directly or indirectly manages, operates, owns any equity interest in
excess of 10% in or has agreed to purchase a Person listed on Schedule 1;
(d) the admission of such Person as a Member or such Person being, acting
or otherwise exercising the rights of a Member will not have a Material
Adverse Effect on Polo or the Company, or make it illegal or impossible for
the Company or Polo to do business in any country where the Company or Polo
at that time does business; (e) there is not pending any material
litigation against such Person which would be reasonably expected to have a
material adverse effect on the assets, business, results of operations or
condition (financial or otherwise) of such Person; and (f) such Person is
not bankrupt, insolvent or in similar financial condition.
"Quiet Period": The period commencing on the date the Change of Control
notice
<PAGE>
required by Section 3.13(a) is received and ending on the date that is 180
days thereafter.
"Regulations": The federal income tax regulations promulgated by the
United States Treasury Department under the Code as such Regulations may be
amended from time to time. All references herein to a specific section of
the Regulations will be deemed to also refer to any corresponding provision
of succeeding Regulations.
"Regulatory Allocations": As defined in Section 9.4(c).
"Requesting Holder": As defined in Section 3.5(a)(i).
"ROFR Notice": As defined in Section 3.12(e)(iii).
"SEC": The Securities and Exchange Commission.
"SEC Reports": As defined in Section 4.2(g).
"Secretary": As defined in Section 6.5.
"Securities": As defined in Section 11.6(a).
"Securities Act": Securities Act of 1933, as amended.
"Services Agreement": Services Agreement, dated as of February 7, 2000,
by and between the Company and ValueVision.
"Sharing Ratio": With respect to any Member, the Sharing Ratio of each
Member expressed as a pro rata portion of 100%, as set forth opposite each
Member's name on Exhibit A. Exhibit A will be amended from time to time in
accordance with this Agreement. In the event that a Membership Interest is
transferred in accordance with the terms of this Agreement, the transferee
will succeed to the Membership Interest and Sharing Ratio of the
Withdrawing Member.
"Site": With respect to the World Wide Web, the website and pages
developed, produced and maintained by, or at the direction of, the Company
located at or operated under the domain name Polo.com, ralphlauren.com or
any subdomains of either thereof, or any other domain names agreed by the
Class A Members, and successors or extensions thereof, or any comparable
area, site or pages designed to promote the Business in other Online media
or services.
"Subsidiary": Any corporation, partnership, limited liability company,
joint venture or other legal entity of which a Person (either alone,
through or together with any other Subsidiary) that owns or has the right
to acquire, directly or indirectly, more than
<PAGE>
50% of the stock or other equity interests the holder of which is generally
entitled to vote for the election of the board of directors or other
governing body of such corporation or other legal entity.
"Supply Agreement": Supply Agreement, dated as of February 7, 2000, by
and between the Company and Polo.
"Tax Matters Partner": As defined in Section 10.2.
"Territory": As defined in the License Agreement.
"Third Party Claim": As defined in Section 14.3(d).
"Tradename": As defined in the License Agreement.
"Transfer": As defined in Section 11.2.
"Treasurer": As defined in Section 6.6.
"United States": The United States of America (including the District
of Columbia), its possessions and territories and other areas subject to
its jurisdiction (including the Commonwealth of Puerto Rico, the U.S.
Virgin Islands, Guam, American Samoa, Wake Island and the Northern Mariana
Islands).
"ValueVision": ValueVision International, Inc., a Minnesota corporation
and any successor thereof.
"ValueVision Additional Contributions": As defined in Section 8.2(a).
"ValueVision Commitment": $50,000,000.
"ValueVision Initial Capital Contribution": As defined in Section
8.1(a).
"Vested Securities": (i) With respect to JM, at any given time, (A) if
JM is employed by the Company, 25% of JM's initial Class B Membership
Interests (or securities into which such initial Class B Membership
Interests were converted) for each anniversary of the Closing Date that has
passed, commencing on the first anniversary of the Closing Date and (B) if
JM is no longer employed by the Company, that portion of JM's outstanding
Class B Membership Interests (or securities into which such Class B
Membership Interests were converted) no longer subject to relinquishment
pursuant to Section 2.13 and (ii) with respect to other Employee Members,
as set forth in the subscription or other agreements pursuant to which such
Employee Members'
<PAGE>
Membership Interests were issued.
"Vice President": As defined in Section 6.4.
"Withdrawing Member": As defined in Section 11.2.
ARTICLE II
FORMATION AND CONDUCT
2.1 Formation and Purpose. The Members hereby authorize and ratify the
formation of the Company as a Delaware limited liability company pursuant to the
provisions of the Act. The original Certificate of Formation was filed with the
Secretary of State of the State of Delaware on February 2, 2000. On the Closing
Date, the Original Media Members and Polo were admitted as Members. The purposes
of the Company are to engage in the following activities:
(i) to conduct the Business;
(ii) to acquire, hold, own, operate, manage, finance, encumber, sell,
or otherwise Dispose of or otherwise use the Company Assets;
(iii) to enter into any lawful transaction and engage in any lawful
activities as may be necessary, incidental or convenient to carry out the
business of the Company as contemplated by this Agreement, the Ancillary
Agreements and the Business Purpose.
The Company may do any and all acts and things necessary, appropriate,
proper, advisable, or convenient for the furtherance and accomplishment of the
purposes of the Company, including to engage in any kind of activity and to
enter into and perform obligations of any kind necessary to or in connection
with, or incidental to, the accomplishment of the purposes of the Company, so
long as such activities and obligations may be lawfully engaged in or performed
by a limited liability company under the Act. In furtherance of its purposes,
the Company shall have and may exercise all of the powers now or hereafter
conferred by Delaware law on limited liability companies formed under the Act.
2.2 Name. The name of the Company is "Ralph Lauren Media, LLC". All
business of the Company will be conducted under the name of the Company and
title to all property, real, personal or mixed, owned by or leased to the
Company will be held in such name.
2.3 Principal Office and Place of Business. The principal office and
place of
<PAGE>
business of the Company will be located at such place or places as Polo and the
Media Representative may from time to time designate by mutual agreement.
2.4 Term. The term of the Company commenced on the date the Certificate
of Formation was filed with the Secretary of State of the State of Delaware in
accordance with the Act and will continue until the Company is dissolved as
provided in Article XII.
2.5 Registered Office and Agent. The registered agent for the service
of process and the registered office will be that Person and location reflected
in the Certificate of Formation as filed in the office of the Secretary of State
of the State of Delaware. At any time and from time to time the Company may
designate another registered office or agent.
2.6 Qualification in Other Jurisdictions. The Company will be qualified
or registered under foreign qualification or assumed or fictitious name statutes
or similar laws in any jurisdiction in which the Company transacts business and
in which such qualification or registration is determined by the Company to be
necessary or advisable.
2.7 No Liability to Third Parties. No Member, Manager or Officer,
solely by reason of being a Member or acting as a Manager or Officer, will be
subject to any liability in connection with the Company Assets, debts,
obligations, liabilities, acts or affairs of the Company, including under any
Proceeding. The debts, obligations and liabilities of the Company, whether
arising in contract, tort or otherwise, will be solely the debts, obligations
and liabilities of the Company.
2.8 Business Purpose. The Members hereby agree that the following
statement sets forth the purpose of the Company (the "Business Purpose"): (i)
the development of the Company into a world class direct marketer of Polo and
Ralph Lauren Brands; (ii) the establishment, articulation and definition of Polo
and Ralph Lauren Brands' identity Online and, to the extent applicable, in the
Catalog and the creation of an appropriate level of awareness for both; (iii)
the positioning of Online activities and the Catalog as integral components of
new and existing customers' shopping channels; (iv) providing consumer value
through product sales, content and service to the same level that Polo delivers
in free-standing retail stores, but with elimination or reduction of negative
aspects of shopping in a store; (v) providing format and content that promotes
(1) the Business, (2) Polo's business generally with respect to the Licensed
Brands, (3) Collection Brands and (4) in accordance with Section 2.3(a) of the
Operating Agreement, any other Polo and Ralph Lauren Brands provided that such
promotions are not materially competitive with the Business Online; (vi)
focusing on the customer and developing lasting one-to-one relationships; (vii)
providing an interactive shopping experience, comprised of different shopping
modes and customer rapport; (viii) the creation of a direct-to-customer upscale
shopping environment Online, offering products and services at traditional
retail prices, as distinguished from an outlet store or other price-driven
shopping facility; (ix) providing entertaining and engaging experiences Online
itself through means of experience-rich
<PAGE>
promotional events that are interwoven into the merchandising and product
presentations; and (x) the development and promotion, as applicable, of new
products and services under the Polo and Ralph Lauren Brands in accordance with
Section 2.6 of the Operating Agreement.
2.9 Business Launch. The Members recognize the competitive imperative
of launching the Business as promptly as practicable. Pursuant to a phased
market entry outlined in the Initial Business Plan, the Members shall use all
commercially reasonable efforts to launch the Site no later than October 15,
2000. With respect to a Catalog, if the Company does not launch, or sub-contract
with a third party to launch, a Catalog by January 1, 2003, Polo shall have the
right to enter into arrangements with a third party to develop and promote a
Catalog; provided, to the extent such failure to launch was not due to an action
on the part of the Media Members or the failure on the part of any Media Members
to act and the terms of any such arrangement with a third party are materially
more favorable than those offered to the Company, Polo shall offer the Company
the opportunity to agree to launch the Catalog in a reasonable period of time on
such terms and the Company shall have 60 days to advise Polo in writing that it
agrees to all such terms.
2.10 Initial Activities. On the Closing Date, (i) Polo, the Original
Media Members and the Company entered into the Operating Agreement, (ii)
Licensor and the Company entered into the License Agreement, (iii) ValueVision
and the Company entered into the Services Agreement, (iv) Polo and the Company
entered into the Supply Agreement, (v) NBC and the Company entered into the
Advertising Agreement and (vi) NBCi and the Company entered into the Promotion
Agreement.
2.11 Membership Interests. (a) The Membership Interests shall initially
be divided into three Classes, "Class A Membership Interests", "Class B
Membership Interests" and "Class C Membership Interests". Except as expressly
provided in this Agreement to the contrary, (i) any reference to "Membership
Interests" shall include the Class A Membership Interests, Class B Membership
Interests and Class C Membership Interests and (ii) any reference to "Members"
shall include the Class A Members, the Class B Members and the Class C Members.
(b) Class A Membership Interests. As of the date of this Agreement,
Class A Membership Interests are owned by the Class A Members as set forth on
Exhibit A.
(c) Class B Membership Interests and Class C Membership Interests. The
Class B Membership Interests and the Class C Membership Interests shall be
special Classes of Membership Interests in the Company representing only (i) the
right to participate in allocations of Profits and Losses of the Company and to
receive Distributions from the Company in accordance with the terms of this
Agreement and (ii) such other rights expressly provided to the Class B
Membership Interests and the Class C Membership Interests under this Agreement.
Each Class B Member and each Class C Member, by his execution of this Agreement
or
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acceptance of the benefits of the Class B Membership Interests or Class C
Membership Interests, as the case may be, hereby acknowledges and agrees that:
(x) Except as may be expressly provided in this Agreement, no Class B
Member and no Class C Member in their capacity as such shall have any right
to participate in the management of the business and affairs of the Company
or to vote on or approve of any matters requiring the consent or approval
of the Members, including any matter requiring the unanimous or other
consent of the Members or any class of Members under the Act;
(y) No Class B Member and no Class C Member shall have any right or any
obligation to make Capital Contributions to the Company:
(i) At the date of this Agreement, JM will be issued Class B
Membership Interests with a Sharing Ratio as set forth on Exhibit A;
(ii) After the date of this Agreement, Class C Membership
Interests may be issued by the Managers to key employees in accordance
with this Section 2.11; provided that upon any issuance of Class C
Membership Interests, (i) the Sharing Ratio of the Class B Members will
remain the same as the Class B Members prior to such issuance, (ii) the
Sharing Ratio of each Class C Member after the issuance will remain the
same as the Sharing Ratio of such Class C Member prior to such issuance
and (iii) the Sharing Ratio of the Class A Members shall be adjusted
accordingly. The Class C Membership Interests will be issued to key
employees pursuant to the terms and conditions of subscription
agreements and other agreements that are approved by the Management
Committee and such other terms and conditions as are established by the
Management Committee in consultation with the CEO;
(iii) For the avoidance of doubt, under no circumstances will
the Managers issue any Class C Membership Interests that would result
in an aggregate Sharing Ratio of the Class B Members and the Class C
Members exceeding 10%; and
(z) No Class B Member and no Class C Member shall have any rights under
the Operating Agreement.
2.12 Admission of Additional Members. The Class A Members are
authorized to cause the Company to issue new Classes of Membership Interests at
any time or from time to time to existing Members or to other Persons and to
admit such other Persons to the Company as additional Members subject to the
terms and conditions of this Agreement. The Class A Members shall have complete
discretion to determine, with respect to such new Classes, the designations,
preferences and relative rights, powers and duties of such new Class including,
<PAGE>
without limitation: (i) the allocation of items of Company income, gain, loss,
deduction and credit to each such Class, (ii) the rights of each such Class upon
dissolution and liquidation, (iii) the Distribution Interest of such class, (iv)
the terms and conditions upon which each such Class will be issued, subject to
repurchase, and assigned or transferred; and (v) the right of each such Class to
vote on Company matters, including matters relating to the relative rights,
preferences and privileges of each such Class. Upon or prior to the issuance of
any Class, the Class A Members may amend any provision of this Agreement as the
Class A Members determine to be necessary or appropriate in connection therewith
in order to reflect the authorization and issuance of each such Class and the
relative rights and preferences as to the matters set forth herein, provided
that such amendment does not disproportionately reduce the rights of the Class B
Members or Class C Members hereunder in any material respect without consent
from a majority of the holders of Membership Interests of each affected Class
(it being understood that the creation of a new Class of Membership Interests in
connection with the funding by the Class A Members of Additional Contributions
in accordance with Section 8.2(a) and the corresponding adjustment of the
Sharing Ratio or Distribution Interest of any Member shall not in and of itself
constitute an amendment giving rise to the rights of the Class B Members and
Class C Members pursuant to this sentence).
2.13 Relinquishment of Class B Membership Interests and Class C
Membership Interests. (a) The outstanding Class B Membership Interests will be
relinquished to the Company (i.e., automatically deemed to have been canceled
and delivered to the Company without consideration) as follows: (i) if JM's
employment with the Company is terminated by the Company for Cause or if JM's
employment with the Company is terminated by JM without Good Reason prior to the
fourth year anniversary of the Closing Date, then the following percentage of
the outstanding Class B Membership Interests will be relinquished to the Company
effective as of such termination: (1) if termination occurs prior to the
one-year anniversary of the Closing Date, 100%; (2) if termination occurs on or
after the one-year anniversary of the Closing Date but prior to the two-year
anniversary of the Closing Date, 75%; (3) if termination occurs on or after the
two-year anniversary of the Closing Date but prior to the three-year anniversary
of the Closing Date, 50%; and (4) if termination occurs on or after the
three-year anniversary of the Closing Date but prior to the four-year
anniversary of the Closing Date, 25%, (ii) if JM's employment is terminated by
the Company without Cause for reasons related to JM's performance prior to the
date the Site is established and operative in all material respects for public
use, the Class B Membership Interests shall be relinquished to the Company in
accordance with the formula contained in clause (i) above effective as of the
date of termination of JM's employment, provided, that the amount of the Class B
Membership Interests to be relinquished to the Company pursuant to this clause
(ii) will be calculated as if JM's date of termination of employment with the
Company is the one (1) year anniversary of JM's termination of employment with
the Company, and (iii) in the event of JM's death or Disability prior to the
fourth anniversary of the Closing Date, the Class B Membership Interests shall
be relinquished to the Company in accordance with the formula contained in
clause (i) above effective as of the
<PAGE>
date of termination of JM's employment due to death or Disability, provided,
that the amount of the Class B Membership Interests to be relinquished to the
Company pursuant to this clause (iii) will be calculated as if JM's date of
termination of employment with the Company is the one (1) year anniversary of
JM's termination of employment with the Company due to such death or Disability
(e.g., if such termination due to death or Disability occurs eighteen (18)
months after the Closing Date, the termination will be deemed to occur thirty
(30) months after the Closing Date and fifty percent (50%) of the aggregate
amount of Class B Membership Interests would be relinquished to the Company).
(b) The Class C Membership Interests will be subject to relinquishment
as set forth in the subscription or other agreements pursuant to which such
Class C Membership Interests will be issued.
(c) Effective upon the occurrence of any event resulting in the
relinquishment to the Company or upon the repurchase by the Company pursuant to
Section 2.14 of any of the Class B Membership Interests or Class C Membership
Interests, (i) such relinquished or repurchased Membership Interests shall, for
all purposes of this Agreement, be canceled and no longer be considered
outstanding and shall no longer be entitled to receive any distributions
pursuant to Section 9.7 and 12.2 hereof or have any rights hereunder and (ii)
the Sharing Ratio of such Class B Member or Class C Member as set forth on
Exhibit A or otherwise in the applicable subscription or other agreements,
respectively, shall be reduced by the percentage amount of such Class B
Membership Interests relinquished or repurchased or Class C Membership Interests
relinquished or repurchased, as the case may be, and the Sharing Ratio of the
Class A Members shall increase proportionately to the extent such relinquished
or repurchased Class B Membership Interests or Class C Membership Interests, as
the case may be, are not granted to another Person.
2.14 Redemption of Class B Membership Interests and Class C Membership
Interests. (a) If an Employee Member's employment with the Company is
voluntarily or involuntarily terminated for any reason whatsoever, then the
Company shall have an option to purchase all of the Class B Membership Interests
or Class C Membership Interests, as the case may be, that are not relinquished
to the Company. In addition, in the event of a Class B Change of Control, all of
the Class B Membership Interests that have not been previously relinquished to
the Company shall be redeemed by the Company. The purchase price for such Class
B Membership Interests or Class C Membership Interests, as the case may be,
whether upon a Class B Change of Control or a termination of employment, will be
their Fair Value. The Company may make payment of the purchase price in cash or
publicly traded securities of the Company or its Affiliates, if any, or, at the
option of any Class A Members, in publicly traded securities of such Class A
Members of the Company or any combination thereof. The option of the Company
under this Section (and in the case of a Class B Change of Control, the
obligation of the Company) may be assigned by it to any Person or Persons as
long as such Person or
<PAGE>
Persons make payment of the purchase price solely in cash and/or publicly traded
securities of the Initial Class A Members or their Affiliates.
(b) The completion of the purchases pursuant to the foregoing paragraph
(a) shall take place at the principal office of the Company on the sixtieth
(60th) day after the giving of the notice of Class B Change of Control or the
notice of the Company's election to repurchase the Class B Interests or Class C
Interests, as the case may be.
(c) Notwithstanding any of the foregoing, the provisions of this
Section 2.14 shall terminate upon the consummation of an Initial Public
Offering.
2.15 [Reserved]
2.16 Employment by the Company. Nothing contained in this Agreement (i)
obligates the Company to employ JM or any other Member in any capacity
whatsoever or (ii) prohibits or restricts the Company from terminating the
employment of JM or any other Member at any time or for any reason whatsoever.
2.17 "Drag-Along" Rights Against Class B Members and Class C Members.
In the event that any or all of the Initial Class A Members propose to transfer,
in any single or series of related transactions, twenty percent (20%) or more of
the aggregate Class A Membership Interests then owned by all the Initial Class A
Members other than to one or more of their respective Affiliates or to other
Members and their Affiliates, the Initial Class A Member(s) will have the right,
exercisable upon not less than fifteen (15) days' prior written notice from such
Initial Class A Member(s), to require that the Class B Members and Class C
Members transfer their Class B Membership Interests and Class C Membership
Interests, respectively, owned by such Class B Members and Class C Members on
the same terms and conditions as the transfer of Class A Membership Interests
proposed to be made by the Initial Class A Members. Such terms and conditions
shall include, without limitation: the sales price paid; the payment of fees,
commissions and expenses; the provision of representations, warranties and
indemnifications; provided that any indemnification provided by the Class B
Members or the Class C Members, as the case may be, shall (except with respect
to legal title to the relevant securities) be pro rata in proportion with the
total consideration to be received by the Class B Members or the Class C
Members, as the case may be, relative to the total consideration to be received
by the Initial Class A Members. The number of Class B Membership Interests and
Class C Membership Interests to be sold by each Class B Member and Class C
Member, respectively, shall be a percentage of the aggregate Class B Membership
Interests and Class C Membership Interests owned by such Class B Member and
Class C Member, respectively, that is equal to the percentage of the aggregate
Class A Membership Interests owned by the Initial Class A Members that are being
transferred, and such Class B Membership Interests and Class C Membership
Interests shall be converted into Class A Membership Interests based upon the
Fair Value of Class B Membership Interests and Class C Membership Interests at
such time, as determined in good faith by the Management
<PAGE>
Committee; provided that such Class B Members and Class C Members will be
obligated to sell their Vested Securities on a first priority basis prior to
selling any remaining Class B Membership Interests or Class C Membership
Interests. Each of the Class B Members and the Class C Members will, if
requested by the transferring Initial Class A Member, execute and deliver a
power of attorney in form and substance reasonably satisfactory to such Initial
Class A Member and a custody agreement in form and substance reasonably
satisfactory to and signed by the Initial Class A Member with respect to the
Class B Membership Interests and Class C Membership Interests which are to be
sold by such Class B Members and Class C Members, respectively. Notwithstanding
any of the foregoing, the provisions of this Section 2.17 shall terminate upon
the consummation of an Initial Public Offering.
2.18 "Tag-Along" Rights of Class B Members and Class C Members. (a) In
the event that any or all of the Initial Class A Members propose to transfer, in
any single or series of related transactions, twenty percent (20%) or more of
the aggregate Class A Membership Interests then owned by all the Initial Class A
Members other than to one or more of their respective Affiliates or to other
Members and their Affiliates, and other than in an Initial Public Offering, the
Initial Class A Member(s) will notify the Class B Members and the Class C
Members in writing (a "Transfer Notice") of such proposed sale (a "Proposed
Sale") and the material terms of the Proposed Sale as of the date of the
Transfer Notice (the "Material Terms"). The Transfer Notice will be delivered to
the Class B Members and the Class C Members not less than fifteen (15) days
prior to the consummation of the Proposed Sale and not more than five (5) days
after the execution of the definitive agreement relating to the Proposed Sale,
if any (the "Sale Agreement"). If within ten (10) days of receipt by the Class B
Members and the Class C Members of such Notice, the Initial Class A Members
receive from any Class B Members or the Class C Members a written request (a
"Request") to include in the Proposed Sale any Class B Membership Interests or
the Class C Membership Interests, as the case may be, which are Vested
Securities owned by such Class B Members or the Class C Members, respectively
(which Request shall be irrevocable unless (a) there shall be a material adverse
change in the Material Terms or (b) if otherwise mutually agreed to in writing
by the Initial Class A Members and the Class B Members or the Class C Members,
as the case may be), the Class B Membership Interests or the Class C Membership
Interests, as the case may be, so requested will be so included as provided
herein. In the event that the Initial Class A Members sell their Class A
Membership Interests in related transactions with materially different terms,
such transactions shall each be deemed a separate Proposed Sale.
(b) Except as may otherwise be provided herein, the Class B Members'
Class B Membership Interests or the Class C Members' Class C Membership
Interests, as the case may be, which are Vested Securities, subject to a Request
will be included in a Proposed Sale pursuant hereto and in any agreements with
purchasers relating thereto on the same terms and subject to the same conditions
applicable to the Class A Membership Interests which the Initial Class A Members
propose to sell in the Proposed Sale. Such terms and conditions shall include,
<PAGE>
without limitation: the sales price; the payment of fees, commissions and
expenses; the provision of representations, warranties and indemnifications;
provided that any indemnification provided by the Class B Members or the Class C
Members, as the case may be, shall (except with respect to legal title to the
relevant securities) be pro rata in proportion with the total consideration to
be received by the Class B Members or the Class C Members, as the case may be,
relative to the total consideration to be received by the Initial Class A
Members.
(c) The percentage of Class B Membership Interests or Class C
Membership Interests, as the case may be, which are Vested Securities, which
each Class B Member or Class C Member, respectively, will be permitted to
include in a Proposed Sale pursuant to a Request will be any amount of Class B
Membership Interests or Class C Membership Interests, as the case may be, which
are Vested Securities, owned by such Class B Member or Class C Member,
respectively (allocated as provided below), not to exceed a percentage of the
aggregate Class B Membership Interests or Class C Membership Interests, as the
case may be, which are Vested Securities, owned by such Class B Member or Class
C Member, respectively, that is equal to the percentage of the aggregate Class A
Membership Interests owned by the Initial Class A Members that are being
transferred in the transaction subject to such Transfer Notice; provided that if
a proposed transferee in a Proposed Sale advises the Initial Class A Members
that it wants to limit the number of Membership Interests that it purchases to
an amount less than all of the Class A Membership Interests, Class B Membership
Interests or Class C Membership Interests, as the case may be, that would be
available for purchase under this Section 2.18, the Initial Class A Members will
so advise each Class B Member or Class C Member, as the case may be, and the
amount of Class A Membership Interests, Class B Membership Interests or Class C
Membership Interests, as the case may be, to be included in such Proposed Sale,
shall be determined pro rata in proportion to the total number of Class A
Membership Interests, Class B Membership Interests or Class C Membership
Interests, as the case may be, held by each Class A Member, Class B Member and
Class C Member and sought to be included in such sale, in order to meet such
limitation. Such Class B Membership Interests or Class C Membership Interests,
as the case may be, shall be converted into Class A Membership Interests based
upon the Fair Value of Class B Membership Interests or Class C Membership
Interests, as the case may be, at such time, as determined in good faith by the
Management Committee.
(d) Upon delivering a Request, each Class B Member or Class C Member,
as the case may be, will, if requested by any Initial Class A Member, execute
and deliver a custody agreement and power of attorney in form and substance
satisfactory to the Initial Class A Member with respect to such Class B Member's
or Class C Member's Class B Membership Interests or Class C Membership
Interests, respectively, which are to be sold by such Class B Member or Class C
Member, as the case may be, pursuant hereto. Such custody agreement and power of
attorney will provide, among other things, that such Class B Member or Class C
Member, as the case may be, will deliver to and deposit in custody with the
custodian and attorney-in-fact named therein a certificate or certificates
representing such Class B Membership Interests or Class C Membership Interests,
respectively (duly endorsed in blank by the registered
<PAGE>
owner or owners thereof), and irrevocably appoint such custodian and
attorney-in-fact as his agent and attorney-in-fact with full power and authority
to act under such custody agreement and Power of Attorney on his behalf with
respect to the matters specified therein.
(e) The Class B Members' or the Class C Members' rights, as the case
may be, pursuant hereto to participate in a Proposed Sale shall be contingent on
their strict compliance with each of the provisions hereof and their willingness
to execute such documents in connection therewith as may be reasonably requested
by the Initial Class A Members.
(f) Notwithstanding any of the foregoing, the provisions of this
Section 2.18 shall terminate upon the consummation of an Initial Public
Offering.
2.19 Authorization of Actions Taken by the Company.
(a) Ancillary Agreements. The Members hereby ratify, confirm, authorize
and approve the execution and delivery by any officer or other Person duly
authorized by the Company, including Polo, on behalf of the Company of the
Ancillary Agreements and the execution and delivery of such other instruments,
agreements, assignments, certificates or other documents as any such officer or
other Person deems necessary or appropriate in connection therewith.
(b) Formation. The Members hereby ratify, confirm, authorize and
approve the formation of the Company and the contemporaneous filing of the
Certificate of Formation of the Company with the Delaware Secretary of State.
The Members hereby ratify the designation of Polo as an authorized person,
within the meaning of the Act, to execute, deliver and file the Certificate of
Formation and any amendments and/or restatements of the Certificate of Formation
and any other certificates necessary for the Company to qualify to do business
in a jurisdiction in which the Company may wish to conduct business. The
execution by Polo alone of any of the foregoing certificates (and any amendments
and/or restatements thereof) shall be sufficient.
(c) Bank Accounts. The Members hereby ratify, confirm, authorize and
approve the opening of whatever bank accounts shall be deemed necessary by Polo
for the expeditious conduct of the Company's affairs by Polo or any officer on
behalf of the Company in the name of the Company with such financial
institutions selected by Polo or any such officers from time to time, and the
adoption of any and all resolutions required to be adopted by any such financial
institution as a condition to the opening of such accounts are hereby ratified,
confirmed, authorized and approved. Any and all actions described in this
Section 2.19 heretofore taken by Polo on behalf of the Company or by the
Company's officers and agents on behalf of the Company are approved, ratified
and confirmed as the acts of the Company without the necessity of further
evidence.
<PAGE>
ARTICLE III
OPERATIONS
3.1 Books and Records.
(a) Books and Accounts. The Company will keep, or cause to be kept,
accurate, full and complete books and accounts showing assets, liabilities,
income, operations, transactions and the financial condition of the Company. The
books, accounts and records of the Company at all times will be maintained at
the Company's principal office. Such books and accounts will be prepared in
accordance with generally accepted accounting principles in effect in the United
States at the time of preparation of such books and accounts, consistently
applied ("GAAP"). Any Class A Member or its designee and any Manager will have
access to the physical premises, the operations, the books, accounts and records
of the Company at any time during regular business hours and will have the right
to copy any records at its expense. No charges will be made to such Class A
Member, its designee or Manager by the Company for such inspection and audit
other than for out-of-pocket costs of the Company occasioned thereby. The
Company will maintain all such records for a period of three years from the date
of the making or receipt thereof, except for those records, if any, required to
be kept for a longer period under applicable law or which a Class A Member
reasonably requests be maintained for a longer period.
(b) Other Records. The Company will provide, or will cause to be
provided, to the Class A Members real time access to all sales, inventory and
operational data relating to the Business, any and all information relating to
customers and potential customers of the Business or otherwise relating to
Online or Catalog marketing and sales activities of the Company, including data
relating to the volume of traffic generated by the Site, the persons visiting
the Site, the length of time spent at the Site, inventory control, sales
records, history of inventory as well as individual categories of inventory and
such other related information that is or may become available (collectively,
the "Company Customer Data"), provided that the use and disclosure of such
Company Customer Data shall be subject to the confidentiality and use
restrictions set forth in the Operating Agreement.
3.2 Financial Statements; Information; Bank Accounts.
(a) Preparation in Accordance with GAAP. All financial statements
prepared pursuant to this Section 3.2 will present fairly the financial position
and operating results of the Company and will be prepared in accordance with
GAAP.
(b) Monthly Reports. Within 15 Business Days after the end of each
calendar month during the term of this Agreement, commencing with the first
calendar month after the date of this Agreement, the Company shall prepare and
submit or cause to be prepared and
<PAGE>
submitted to the Class A Members and the Management Committee an unaudited
statement of profit and loss of the Company for such month, an unaudited balance
sheet of the Company dated as of the end of such calendar month and an unaudited
statement of cash flows for the Company for such calendar month, in each case,
certified by the CFO as true and correct and prepared in accordance with GAAP
consistently applied.
(c) Quarterly Report. Within 15 days after the end of each quarterly
period (the "Fiscal Quarter") of each Fiscal Year, commencing with the first
Fiscal Quarter after the date of this Agreement, the Company shall prepare and
submit or cause to be prepared and submitted to the Class A Members and the
Management Committee an unaudited statement of profit and loss for the Company
for such Fiscal Quarter, an unaudited balance sheet of the Company dated as of
the end of such Fiscal Quarter, and an unaudited statement of cash flows for the
Company for such Fiscal Quarter, in each case, certified by the CFO as true and
correct and prepared in accordance with GAAP consistently applied.
(d) Annual Reports. Within 30 days after the end of each Fiscal Year
during the term of this Agreement, the Company shall prepare and submit or cause
to be prepared and submitted to the Class A Members and the Management Committee
(i) the following audited statements: a balance sheet, together with a statement
of profit and loss, a statement of cash flows for the Company during such Fiscal
Year, a statement of any amounts contributed and/or distributed to the Class A
Members during such Fiscal Year and a statement of Class A Members' equity, in
each case, prepared in accordance with GAAP consistently applied and (ii) a
report of the activities of the Company during the Fiscal Year.
(e) Other Reports. Subject to the confidentiality and use restrictions
set forth in the Operating Agreement and elsewhere herein, the Company shall
provide to each Class A Member and the Management Committee such other reports
and information concerning the business and affairs of the Company as may be
required by the Act or by any other law or regulation of any regulatory body
applicable to the Company and such other information as may be reasonably
requested by any Class A Member, it being understood that any information
provided to any Class A Member in accordance with this Section 3.2(e) shall be
simultaneously provided to the other Class A Members. Any Class A Member
requesting additional reports or information in accordance with this Section
3.2(e) not otherwise contemplated by this Agreement or the Operating Agreement
shall be required to reimburse the Company for any out-of-pocket costs
associated with producing such additional reports or providing such additional
information. Any such information may be used only by such Class A Member and
its Majority-Owned Affiliates in the ordinary course of its own business and in
connection with its investment in the Company.
(f) Bank Accounts. All funds of the Company will be deposited in the
Company's name in such checking and savings accounts, time deposits,
certificates of deposit or other accounts at the banks designated by the CEO
from time to time, and the CEO will arrange
<PAGE>
for the appropriate conduct of such account or accounts.
3.3 Auditors. The Company's independent public accountants and auditors
will be Deloitte & Touche LLP or such other nationally recognized accounting
firm as Polo and the Media Representative may approve from time to time (the
"Auditors"). The Auditors will initially be appointed pursuant to an engagement
letter between the Company and the Auditors approved by both Polo and the Media
Representative, which letter will provide that (i) a copy of any Management or
Accounting Control Letters of Recommendation or Comment from the Auditors to the
Company will be delivered to the Class A Members approximately contemporaneously
with delivery thereof to the Company, and (ii) the Auditors and their work
papers will be available to any Class A Member at reasonable times and upon
reasonable advance notice to the Auditors and the Company.
3.4 Fiscal Year. The fiscal year of the Company for financial,
accounting and Federal, state and local income tax purposes initially will be
the calendar year (the "Fiscal Year"). Upon the consent of Polo and the Media
Representative as provided in Section 5.3, the beginning and ending dates of the
Fiscal Year may be changed.
3.5 Demand Registration.
(a) Subject to the conditions and limitations hereinafter set forth in
this Section 3.5, at any time and from time to time after the effectuation of an
Initial Public Offering by the Company or in accordance with and as required by
Section 3.16, either the Media Representative or Polo may request in writing
that the Company effect the registration under the Securities Act of all or part
of Polo's or the Media Members', as the case may be, Demand Registrable
Securities specifying in the request the number and type of Demand Registrable
Securities to be registered by each such requesting holder and the intended
method of disposition thereof (such notice is hereinafter referred to as a
"Holder Request"). Registrations requested pursuant to this Section 3.5 are
collectively referred to herein as "Demand Registrations." Upon receipt of such
Holder Request, the Company will, within 10 days, give written notice of such
requested Demand Registration to all other holders of Demand Registrable
Securities, including Polo or the Media Representative, which other holders
shall have the right (subject to the limitations set forth in subsection (f) of
this Section 3.5) to include the Demand Registrable Securities held by them in
such registration and thereupon the Company will, as expeditiously as possible
and subject to the terms of this Agreement, use its best efforts to effect the
registration under the Securities Act of the following:
(i) the Demand Registrable Securities that the Company has been so
requested to register by the holder that submitted the Holder Request (the
"Requesting Holder"); and
(ii) all other Demand Registrable Securities that the Company has been
<PAGE>
requested to register by any other holder thereof by written request given
to the Company within 30 calendar days after the giving of such written
notice by the Company (which request shall specify the intended method of
disposition of such Demand Registrable Securities), all to the extent
necessary to permit the disposition (in accordance with the intended
methods thereof as aforesaid) of the Demand Registrable Securities so to be
registered.
(b) Subject to the provision set forth in subsection (f) of this
Section 3.5, (i) the Company shall not be obligated to effect more than (A) four
(4) Demand Registrations (of which no more than two may be shelf registrations)
pursuant to this Section 3.5 at the request of the Media Representative and (B)
four (4) Demand Registrations (of which no more than two may be shelf
registrations) pursuant to this Section 3.5 at the request of Polo, and (ii) the
Company shall not be obligated to file a registration statement under Section
3.5(a) unless the Company shall have received requests for such registration
with respect to at least 5% of the fully diluted equity of the Company at such
time or shares having a market value of at least $50 million.
(c) The Company shall not be obligated to file a registration statement
relating to any Holder Request under Section 3.5(a) within a period of one year
after the effective date of any registration statement relating to any previous
Demand Registration or an Initial Public Offering.
(d) In connection with any offering pursuant to this Section 3.5, the
only shares that may be included in such offering are (i) Demand Registrable
Securities, (ii) shares of authorized but unissued equity that the Company
elects to include in such offering ("Company Securities"), and (iii) Piggyback
Registrable Securities eligible to be included in such offering.
(e) If the Company or Polo reasonably determines that (i) the filing of
a registration statement or the compliance by the Company with its disclosure
obligations in connection with a registration statement would require the
disclosure of material information regarding the Company or Polo, as the case
may be, that the Company or Polo, as the case may be, has a bona fide business
purpose for preserving as confidential or (ii) such registration would be likely
to have an adverse effect on any proposal or plan by the Company or Polo, as the
case may be, to engage in any financing transaction, acquisition of assets
(other than in the ordinary course of business) or any merger, consolidation,
tender offer or similar transaction, the Company may delay (or Polo may instruct
the Company to delay, as applicable) the filing of a registration statement and
shall not be required to maintain the effectiveness thereof or amend or
supplement a registration statement for a period expiring upon the earlier to
occur of (A) the date on which such material information is disclosed to the
public or ceases to be material, in the case of clause (i), (B) the date on
which such transaction is completed or abandoned, in the case of clause (ii), or
(C) 120 days after the Company or Polo makes such good faith determination, in
<PAGE>
the case of either clauses (i) or (ii); provided that in such event, the holders
of Demand Registrable Securities initiating the request for such registration
will be entitled to withdraw such request, and if such request is withdrawn such
registration will not count as one of the permitted registrations under this
Section 3.5. In any event, the Company will pay all registration expenses in
connection with any registration initiated under this Section 3.5, except as
provided in Section 3.5(i) below.
(f) If, in connection with any underwritten offering, the managing
underwriter shall advise the Company and any holder of Demand Registrable
Securities that has requested registration that, in its judgment, the number of
securities proposed to be included in such offering should be limited due to
market conditions, the Company will so advise each holder of Demand Registrable
Securities that has requested registration, and shares shall be excluded from
such offering in the following order until such limitation has been met: first,
any Piggyback Registrable Securities requested to be included in such offering
pursuant to Section 3.6 shall be excluded pro rata based on the respective
number of Piggyback Registrable Securities as to which registration has been so
requested by all such holders until all such Piggyback Registrable Securities
have been so excluded; second, the Demand Registrable Securities requested to be
included by the Company shall be excluded until all such Demand Registrable
Securities shall have been so excluded; third, the Demand Registrable Securities
requested to be included in such offering pursuant to Section 3.5(a)(ii) shall
be excluded pro rata, based on the respective number of Demand Registrable
Securities as to which registration has been so requested by all such holders
until all such Demand Registrable Securities have been so excluded; and
thereafter, the Demand Registrable Securities requested to be included in such
offering pursuant to Section 3.5(a)(i) by the Requesting Holder shall be
excluded; provided, however, that if, in any case where registration has been
requested pursuant to Section 3.5(a)(i) by Polo or the Media Representative, by
reason of the application of this subsection (f) more than 25% of the Demand
Registrable Securities requested by the Requesting Holder to be included in such
registration shall be excluded therefrom, then such registration will not count
as a Demand Registration requested by the Requesting Holder pursuant to Section
3.5(a).
(g) A Demand Registration will not be deemed to have been effected
unless the registration statement relating thereto has become effective;
provided that if after it has become effective, the offering of Demand
Registrable Securities pursuant to such registration is interfered with by any
stop order, injunction or other order or requirement of the SEC or other
governmental agency or court, such registration will be deemed not to have been
effected. Additionally, a Demand Registration shall not be deemed to have been
effected if:
(i) the registration statement relating thereto does not remain
effective, current and usable by the Requesting Holder until the earlier of
(A) three (3) months following the date on which such registration
statement became effective, subject to the last sentence of Section 3.5(a)
herein and (B) the date on which all of the Demand Registrable Securities
requesting in the Demand Registration to be sold pursuant to such
<PAGE>
registration statement are sold;
(ii) after the registration statement relating thereto has become
effective, such registration statement is interfered with by any stop
order, injunction or other order or requirement of the Commission or other
governmental agency or court for any reason prior to the earlier of (A) the
four (4) months following the date on which such registration statement
became effective, subject to the last sentence of Section 3.5(a) herein and
(B) the date on which all of the Demand Registrable Securities requested in
the Demand Registration to be sold pursuant to such registration statement
are sold; and
(iii) the conditions to closing specified in any purchase agreement or
underwriting agreement entered into in connection with such Demand
Registration are not satisfied, unless the failure to satisfy such
conditions to closing is due to some act or failure to act of the
Requesting Holder.
(h) If the Requesting Holder specifies in the Holder Request an
underwritten offering, such party or parties shall have the right, with the
approval of the Company, which approval shall not be unreasonably withheld, to
select the managing underwriter; provided, however, in the event that the
Company has elected to include Company Securities in such offering, the Company
shall have the right, with the approval of a majority of the holders of Demand
Registrable Securities that have requested to be included in such offering,
which approval shall not be unreasonably withheld, to select the managing
underwriter.
(i) The Company will pay all registration expenses incurred in
connection with each Demand Registration effected by it pursuant to this Section
3.5. The Requesting Holder will be responsible for underwriters discounts,
selling commissions and fees and disbursements of counsel for the Requesting
Holder with respect to the Demand Registrable Securities being sold by it.
(j) The Requesting Holder, upon the approval of the Company, which
shall not unreasonably be withheld, shall have the sole right to determine the
offering price per share and underwriting discounts, if applicable, in
connection with a Demand Registration pursuant to this Section 3.5.
3.6 Piggyback Registrations.
(a) In connection with or after an Initial Public Offering, if the
Company at any time proposes to register any of its equity securities under the
Securities Act (other than a registration on Form S-4 or S-8 or any successor or
similar forms thereto), whether or not for sale for its own account, on a form
and in a manner that would permit registration of Piggyback Registrable
Securities for sale to the public under the Securities Act, it will, within ten
days, give written notice to all the holders of Piggyback Registrable Securities
of its intention to do so,
<PAGE>
describing such securities and specifying the form and manner and the other
relevant facts involved in such proposed registration, including, without
limitation, (x) the intended method to dispose of the securities offered,
including whether or not such registration will be effected through an
underwriter in an underwritten offering or on a "best efforts" basis, and, in
any case, the identity of the managing underwriter, if any, and (y) the price at
which the Piggyback Registrable Securities are reasonably expected to be sold.
Upon the written request of any holder of Piggyback Registrable Securities
delivered to the Company within 20 calendar days after the receipt of any such
notice (which request shall specify the Piggyback Registrable Securities
intended to be disposed of by such holder), the Company will use its
commercially reasonable efforts to effect the registration under the Securities
Act of all the Piggyback Registrable Securities that the Company has been so
requested to register; provided, however, that:
(i) with respect to Piggyback Registrable Securities acquired, directly
or indirectly, in respect of Class B Membership Interests, they shall not
participate in an Initial Public Offering;
(ii) if, at any time after giving such written notice of its intention
to register any securities and prior to the effective date of the
registration statement filed in connection with such registration, the
Company shall determine for any reason not to register such securities, the
Company may, at its election, give written notice of such determination to
each holder of Piggyback Registrable Securities who shall have made a
request for registration as hereinabove provided and thereupon the Company
shall be relieved of its obligation to register any Piggyback Registrable
Securities in connection with such registration (but not from its
obligation to pay the registration expenses in connection therewith);
(iii) if the Company has determined in good faith (A) that the Company
then is unable to comply with its disclosure obligations (because it would
otherwise need to disclose material information which the Company has a
bona fide business purpose for preserving as confidential) or the SEC
requirements in connection with a registration statement or (B) that the
registration and distribution of Piggyback Registrable Securities (or the
use of the registration statement or related prospectus) would interfere
with any pending material financing, acquisition, corporate reorganization
or any other material corporate development involving the Company, the
Company may, at its election, give written notice of such determination to
each holder of Piggyback Registrable Securities included in such
registration and thereupon the Company shall be relieved of any obligation
to maintain the effectiveness thereof or amend or supplement such
registration statement; and
(iv) if such registration involves an underwritten offering, all
holders of Piggyback Registrable Securities requesting to be included in
the Company's registration
<PAGE>
must sell their Piggyback Registrable Securities to the underwriters
selected by the Company on the same terms and conditions as apply to the Company
and the Requesting Holders shall enter into the underwriting agreement agreed to
between the Company and such managing underwriter.
(b) The Company shall not be obligated to effect any registration of
Piggyback Registrable Securities under this Section 3.6 incidental to the
registration of any of its securities in connection with mergers, acquisitions,
exchange offers, dividend reinvestment plans or stock option or other employee
benefit plans.
(c) If a registration pursuant to this Section 3.6 involves an
underwritten offering and the managing underwriter advises the issuer that, in
its opinion, the number of securities proposed to be included in such
registration should be limited due to market conditions, the Company will so
advise each holder of Piggyback Registrable Securities that has requested
registration pursuant to Section 3.6(a), and shares shall be excluded from such
offering in the following order until such limitation has been met: first, the
Piggyback Registrable Securities requested to be included in such offering by
Polo, the Media Representative and any other holder of Piggyback Registrable
Securities requesting to participate therein shall be excluded pro rata, based
on the respective number of Piggyback Registrable Securities as to which
registration has been so requested by such parties, until all such Piggyback
Registrable Securities shall have been so excluded; and thereafter, the
securities requested to be registered by the Company shall be excluded.
(d) In connection with any underwritten offering with respect to which
holders of Piggyback Registrable Securities shall have requested registration
pursuant to this Section 3.6, the Company shall have the right to select the
managing underwriter with respect to the offering; provided that such managing
underwriter shall be a nationally recognized investment bank and the Company
shall have the right to choose a co-managing underwriter.
(e) The Company will pay all registration expenses incurred in
connection with each of the registrations of Piggyback Registrable Securities
effected by it pursuant to this Section 3.6. In addition, the Company shall have
the sole right to determine the offering price per share and underwriting
discounts in connection with any resale of Piggyback Registrable Shares pursuant
to an underwritten offering in connection with a registration pursuant to this
Section 3.6, after consultation with the selling stockholders and due regard for
their view relating thereto.
3.7 Lock-Up Provision. The Members agree that in connection with an
Initial Public Offering or any subsequent offering of the Company's equity
(other than a demand registration) they will each agree not to sell any shares
of the Company's capital stock for a 180- day period following the consummation
of such offering. In addition, in connection with any demand registrations
effected pursuant to Sections 3.5 and 3.6, respectively, the Members
<PAGE>
shall each agree to customary restrictions on the sale of shares of the
Company's capital stock as are determined by the lead underwriters of any such
offering to be necessary in connection therewith.
3.8 Exchange of Membership Interests for Common Stock. In the event
that the Company is converted to a corporation, including, without limitation,
upon an Initial Public Offering, (i) first, all outstanding Class B Membership
Interests and Class C Membership Interests shall be converted into Class A
Membership Interests at Fair Value of such outstanding Class B Membership
Interests and Class C Membership Interests, and (ii) after such conversion, all
Class A Membership Interests owned by a holder shall be exchanged by the Company
for shares of common stock. Any such shares of common stock received by holders
of Class B Membership Interests and Class C Membership Interests shall continue
to be subject to the requirements of Section 2.13 and to any applicable
restrictions on vesting and forfeiture set forth in any agreements to which the
Class B Members or the Class C Members are party. For the avoidance of doubt,
any Class B Membership Interests which are vested and not subject to forfeiture
will be transferrable following the consummation of an Initial Public Offering,
subject to compliance with any and all applicable securities laws.
3.9 Employees and Benefit Matters.
(a) Generally. The Class A Members will use all commercially reasonable
efforts to examine and determine the needs of the Company in respect of
employees and employee benefit matters and to reach a written agreement on such
matters at the earliest practicable date. The Company shall provide for its
management an equity incentive pool of up to 10% of the fully diluted equity of
the Company for the grant of options, restricted units or interests or any other
similar incentive plan (inclusive of any Class B Membership Interests granted as
of the date hereof).
(b) Member Responsibility. Each Class A Member will be responsible for
any rights of its (or its respective Affiliates') respective employees who
become employees of the Company which rights accrued prior to employment by the
Company and by virtue of employment with the Class A Member (or its respective
Affiliates), as the case may be, including any rights accrued under any pension
or other benefit plan.
(c) Non-Solicitation. No Class A Member may, directly or indirectly,
solicit the employment of, or hire, any employee of the Company or of any other
Class A Member with whom it has had contact or who became known to it in
connection with the Business, this Agreement or the Operating Agreement without
the prior consent of Polo, in the case of the Media Members, or the applicable
Media Member, in the case of Polo; provided, however, that the foregoing
provisions will not prevent any Class A Member from employing any such Person
(i) who contacts such Class A Member on his or her own initiative without any
direct or indirect solicitation by or encouragement from such Class A Member and
who has not been employed by such Class A Member or the Company during the
preceding six months, (ii) who is referred to
<PAGE>
such Class A Member by a bona fide employee search firm not specifically
directed to contact such employee or other employees of such Class A Member or
the Co