SECOND AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT OF ZYMAN GROUP, LLC

 

 

 

Section 7.1   Books and Records. At all times during the continuance of the Company, the Company shall maintain and cause each of its subsidiaries, if any, to maintain, at their respective principal place of business, separate books of account that shall show a true and accurate record of all costs and expenses incurred, all charges made, all credits made and received and all income derived in connection with the operation of their respective businesses in accordance with United States generally accepted accounting principles, consistently applied from year to year (“GAAP”). Such books of account, together with a copy of this Agreement and of the Certificate, shall at all times be maintained at the principal place of business of the Company, shall be open to inspection and examination at reasonable times by each Member and its duly authorized representative for any purpose reasonably related to such Member’s interest as a Member of the Company.

 

Section 7.2   Capital Accounts. Each Member’s initial individual capital account (the “Capital Account”) shall be as set forth on Schedule 3.1 and adjusted pursuant to Section 3.1. Each Capital Account shall be maintained by the Company for each Member as provided below:

 

(a) Each Member’s Capital Contributions when made shall be credited to such Member’s Capital Account. The Capital Account of each Member shall, except as otherwise provided in this Agreement, be (i) credited with the amount of cash and the fair market value of any property contributed to the Company by such Member or its predecessor in interest (net of liabilities secured by such contributed property that the Company is considered to assume or take subject to under Section 752 of the Code), (ii) credited with the amount of any Profits or items of income allocated to such member under Section 3.3 or its predecessor in interest for federal income tax purposes, (iii) debited by the amount of any Loss or items of deductions allocated to such member under Section 3.3 or its predecessor in interest for federal income tax purposes, and (iv) debited by the amount of cash or the fair market value of any property distributed to such Member its predecessor in interest (net of liabilities secured by such distributed property that such Member is considered to assume or take subject to under Section 752 of the Code). Immediately prior to any distribution of property by the Company, the Members’ Capital Accounts shall be adjusted, as required by Treasury Regulation Section 1.704-1(b)(2).

 

(b) Any adjustments of basis of Company property provided for under Sections 734 and 743 of the Code and comparable provisions of state law (resulting from an election under Section 754 of the Code or comparable provisions of state law) shall not affect the Capital Accounts of the Members except to the extent required by Treasury Regulation § 1.704-1(b)(2)(iv)(m), and the Members’ Capital Accounts shall be debited or credited pursuant to the terms of this Section 7.2 as if no such election had been made.

 

 

(c) It is the intention of the parties that the Capital Account of each Member be kept in the manner required under Treasury Regulation § 1.704-1(b)(2)(iv).

 

(d) Capital Accounts shall be adjusted, in a manner consistent with this Section 7.2, to reflect any adjustments in items of Company Profits, Losses, income, gain or deduction that result from amended returns filed by the Company or pursuant to an agreement by the Company with the Internal Revenue Service or a final court decision.

 

(e) The “Unit Capital Account” of any Unit owned by a Member shall be equal to the Capital Account of such Member divided by the number of Units owned by such Member. Upon a transfer of Class B Units pursuant to Article X hereof, an allocable portion of the Class B Member’s Capital Account with respect to such Class B Units shall be transferred to the purchaser of such Units.

 

Section 7.3   Tax Matters Partner. The Managers shall appoint one of the Members as the tax matters partner (“TMP”) under Section 6231 of the Code, and until the Managers shall appoint another Member, such TMP shall be MDC. The TMP shall inform each other Member of all significant tax matters that may come to its attention (including, without limitation, any tax audits of the Company) and shall forward to each other Member copies of all written communications it may receive in that capacity. The TMP will permit each Member to participate in any conferences or meetings with any taxing authority relating to any tax audit of the Company and any subsequent administrative or judicial proceedings. Nothing in this Section 7.3 shall limit the ability of any Member to take any action in its individual capacity with respect to tax audit matters that is left to the determination of an individual Member under Sections 6221 through 6233 of the Code or under any similar state or local provision. The TMP shall be entitled to the indemnification provided by the Company as set forth in Article XI.

 

Section 7.4   Tax Elections. The TMP shall make the following elections on behalf of the Company:

 

(a) To elect the fiscal year ending December 31 as the Company’s fiscal year;

 

(b) To elect the accrual method of accounting and partnership tax treatment;

 

(c) To elect, in accordance with Sections 195 and 709 of the Code and applicable Treasury Regulations and comparable state law provisions, to treat all organization costs of the Company as deferred expenses amortizable over 180 months;

 

(d) To elect under Section 754 of the Code to adjust the basis of the Company’s assets pursuant to Sections 734 and 743 of the Code; and

 

(e) To elect with respect to such other federal, state and local tax matters as the Managers shall determine from time to time.

 

 

Section 7.5   Bank Accounts; Investment of Company Funds. The Managers shall cause one or more accounts to be maintained in the name of the Company in one or more banks, which accounts shall be used for the payment of expenditures incurred in connection with the business of the Company and in which shall be deposited any and all receipts of the Company. All amounts shall be and remain the property of the Company and shall be received, held and disbursed for the purposes specified in this Agreement. There shall not be deposited in any of such accounts any funds other than funds belonging to the Company, and no other funds shall in any way be commingled with such funds. The Managers may invest or cause to be invested the Company funds in any manner which the Managers deem appropriate, in their discretion, and is consistent with prudent business practices. Notwithstanding anything in this Section 7.5 to the contrary, the Company and/or its subsidiaries shall maintain such accounts and deposit the funds of the Company and its subsidiaries in such manner as may be required or advisable in connection with (i) the MDC Cash Management Program during the Company’s participation in the program or (ii) an MDC Financing.

 

Section 7.6   Signature of Negotiable Instruments. All bills, notes, checks or other instruments for the payment of money shall be signed or countersigned by such officer, officers, agent or agents, and in such manner, as are permitted by this Agreement and as from time to time may be prescribed by resolution (whether general or special) of the Managers.

 

 

 

Section 8.1   Independent Accountants. Notwithstanding anything to the contrary in this Agreement, MDC shall be entitled to appoint the independent public accountants of the Company to audit the Company’s financial statements.

 

 

 

Section 9.1   Dissolution. The Company shall be dissolved upon the first to occur of either of the approval of the Members or the entry of a decree of judicial dissolution under the Act. As promptly as possible following the occurrence of either of the foregoing events effecting the dissolution of the Company, a Manager of the Company shall execute a statement of intent to dissolve, in such form as shall be prescribed by the Secretary of State of Delaware.

 

Section 9.2   Liquidation. Upon dissolution of the Company, the Members shall appoint a Manager as liquidating trustee, who shall immediately commence to wind up the Company’s affairs; provided, however, that a reasonable time shall be allowed for the orderly liquidation of the assets of the Company and the satisfaction of liabilities to creditors so as to enable the Members to minimize the normal losses attendant upon a liquidation. Any distribution to the Members in liquidation of the Company shall be made by the later of the end of the taxable year in which the liquidation occurs or 90 days after the date of such liquidation. Notwithstanding any provisions in this Agreement to the contrary, no Member shall be obligated to restore a deficit balance in its Capital Account at any time. The proceeds of liquidation shall be distributed, as realized, in the manner provided in the Act, pursuant to Section 3.4. Subject to the immediately following sentence, the Members shall continue to share Profits and Losses during liquidation in the same proportions, as specified in Section 3.3 hereof, as before liquidation. Notwithstanding anything to the contrary herein, the Managers shall in their good faith discretion (and in a manner which reflects the economic interests of the Members consistent with the intent of the transactions set forth in this Agreement and the Purchase Agreement) allocate items of income, gain, deduction, and loss for the year of liquidation (and for earlier years if necessary to the extent then possible) so as to give Members positive Capital Account balances, immediately before the distributions provided for in the second preceding sentence, equal to the amount (if any) that would be distributed to Members if distributions were made in accordance with Section 3.4(a) hereof. In the event that such Manager is unable to perform in his capacity as liquidating trustee due to bankruptcy, dissolution, death, adjudicated incompetency or any other termination of such Manager as an entity, the liquidating trustee shall be a Person approved by the unanimous vote of the Membership Interests. With respect to this provision, the term “liquidation” shall have the same meaning as set forth in Treasury Regulation §1.704-1(b)(2)(ii) as in effect at such time, provided that the events specified in Section 10 shall not be deemed a “liquidation”.

 

 

Section 9.3   Termination. The Company shall terminate when all of the assets of the Company have been distributed in the manner provided for in this Article IX, and the Certificate shall have been canceled in the manner required by the Act.

 

Section 9.4   Claims of the Members. Members and former Members shall look solely to the Company’s assets for the return of their Capital Contributions, and if the assets of the Company remaining after payment of or due provision for all debts, liabilities and obligations of the Company are insufficient to return such Capital Contributions, the Members and former Members shall have no recourse against the Company or any other Member.

 

 

 

Section 10.1   Transfer by the Members.

 

(a) Except as provided in the next sentence, no holder of Class B Units shall directly or indirectly sell, transfer, assign, pledge, encumber, hypothecate, distribute, dividend or similarly dispose of, either voluntarily or involuntarily, or enter into any contract, option or other arrangement or understanding with respect to the sale, transfer, assignment, pledge, encumbrance, hypothecation, distribution, dividend or similar disposition of (collectively, “transfer”) any Class B Unit without the consent of MDC (which shall not be unreasonably withheld in connection with a transfer to any trust for the benefit of a holder of Class B Units or his or her immediate family for estate planning purposes), except in a transaction pursuant to this Article X. Class A Units and any Class B units held by MDC or its transferees shall be freely transferable, directly or indirectly, without restriction.

 

(b) Notwithstanding anything in the foregoing to the contrary, a Management Unitholder may offer to sell any or all of its Class B Units (for purposes of this Section 10.1, the “Subject Units”) to the following Persons in accordance with the following procedures:

 

 

(i) such Management Unitholder shall first offer to sell such Subject Units to the Company and the Company shall have the exclusive right to purchase such Subject Units for a period of 30 days following the later of (x) the receipt of the notice referred to in Section 10.1(c) and (y) the day that is six months and one day after such Subject Units were acquired by the Management Unitholder; and

 

(ii) in the event that not all of the Subject Units are purchased pursuant to clause (i) above by the end of the period specified therein, such Management Unitholder shall offer to sell such unsold Subject Units to MDC and MDC shall have the exclusive right to purchase such Subject Units for a period of 30 days following the termination of the period set forth in clause (i) above. For purposes of this Section 10.1, the Persons described in clauses (i) and (ii) are known collectively as the “Purchasers”.

 

(c) In order for a Management Unitholder to exercise its right to sell its Class B Units pursuant to Section 10.1(b), such Management Unitholder shall deliver a written notice to the Company of its intention to sell its Units pursuant to this Section 10.1, which notice shall set forth the number of Subject Units being offered for sale and the FMV (as defined in Section 10.10) per Unit (which may be the most recent determination made by the Board of Managers). Each Purchaser may exercise its rights under this Section 10.1 by delivering a written notice to the selling Management Unitholder. The purchase and sale of the Units upon the exercise of an offer to sell pursuant to Section 10.1(b) shall be made in accordance with the applicable provisions of Section 10.10.

 

Section 10.2   Special Unit Call; Special Unit Put; Eight Year Call.

 

(a) Subject to Section 10.2(d), at any time during the period commencing on the fifth anniversary of the Effective Time in the case of the Management Unitholders, and the third anniversary of the Effective Time in the case of Zyman, and ending, solely in the case of the Management Unitholders, on the day prior to the eighth anniversary of the Effective time (such period being referred to herein as the “Special Unit Call Period”) (it being understood that with respect to Zyman, the right of MDC to call the Special Zyman Units shall continue indefinitely), MDC shall have the right (but not the obligation), exercisable no more than once in any twelve-month period (but which may be exercised for all or a portion of such Units upon each such exercise) with respect to each of Zyman and each Management Unitholder, to require Zyman and each Management Unitholder to sell to it (such right, the "Call"), in the case of Zyman, up to an aggregate of 2,750,000 Units (such number of Units, the "Special Zyman Units") from time to time, and in the case of each Management Unitholder, up to an aggregate of such Management Unitholder's Pro Rata Portion (as defined in Section 13.1) of 3,250,000 Units during the Special Unit Call Period (such Call, the "Special Unit Call"); provided that MDC shall not be entitled to Call any Units from a Member until the day that is six months and one day after the date on which such Units were acquired by such Member. The purchase and sale of Units upon the exercise of a Special Unit Call shall be made in accordance with the applicable provisions set forth in Section 10.10. Any Call Exercise Notice delivered pursuant to this section or any other relevant section of this Article X shall set forth the number of Units subject to the Call. The Special Zyman Units subject to the Special Unit Call at any time shall be reduced by any Special Zyman Units purchased by MDC pursuant to Section 10.2(b).

 

(b) Subject to Section 10.2(d), at any time on or after April 1, 2008, and so long as, prior to such date, the engagement of Sergio Zyman & Company (“Servicer”) pursuant to that certain Personal Service Agreement dated April 1, 2007 (as amended from time to time, the “PSA”) has not been terminated under any of the circumstances described in Section 10.4(a) (it being understood that the right of Zyman to put the Special Zyman Units described herein shall continue indefinitely; provided that, if Servicer’s engagement pursuant to the PSA is terminated as described in Section 10.4(a), Zyman's rights under this Section 10.2(b) shall automatically terminate), Zyman shall have the right (but not the obligation), exercisable not more than once in any twelve-month period (but, which may be exercised for all or a portion of such Units upon each such exercise), to require MDC to purchase from it (such right, the "Put" (which term shall apply to any similar right held by Zyman or a Management Unitholder under this Article X)), the Special Zyman Units (such Put, the "Special Unit Put"); provided that Zyman shall not be entitled to Put any Units until the day that is six months and one day after the date on which such Units were acquired by Zyman; and provided further, not more than one-half of the Special Zyman Units may be put by Zyman by delivery of a Put Exercise Notice issued prior to April 1, 2009. Subject to the foregoing, Zyman may exercise the Special Unit Put by delivering written notice of exercise ( a "Put Exercise Notice" (which term shall apply to any notice of exercise of a Put pursuant to this Article X) and together with a Call Exercise Notice, an "Exercise Notice") to MDC on or after April 1, 2008. The purchase and sale of the Special Zyman Units upon the exercise of a Special Unit Put shall be made in accordance with the applicable provisions set forth in Section 10.10. Any Put Exercise Notice delivered pursuant to this section or any other relevant section of this Article X shall set forth the number of Special Zyman Units subject to the Put. The Special Zyman Units subject to the Special Unit Put at any time shall be reduced by any Special Zyman Units purchased by MDC pursuant to Section 10.2(a).

 

(c) At any time on or after the eighth anniversary of the Effective Time (the “Eighth Anniversary Call Period”), MDC shall have the right (but not the obligation) to Call any and all Units then owned by Zyman (such right, the “Eight Year Call”); provided that MDC shall not be entitled to Call any Units from Zyman until the day that is six months and one day after the date on which such Units were acquired by Zyman. MDC may exercise the Eight Year Call by delivering a Call Exercise Notice to Zyman during the Eighth Anniversary Call Period. The purchase and sale of the Units upon the exercise of a Call shall be made in accordance with the applicable provisions set forth in Section 10.10.

 

(d) Notwithstanding the foregoing, if the Revenues for the twelve months ending on the date of an Exercise Notice (such date, the “Exercise Date”) are less than the average Revenues for the two consecutive twelve month periods immediately preceding the month of the Exercise Date, then neither MDC nor Zyman may exercise the Special Unit Call or the Special Unit Put, as applicable, in such year.

 

Section 10.3   Put and Call of Zyman Units upon Involuntary Termination of Servicer’s Engagement Pursuant to the PSA.

 

(a)  Notwithstanding the Put and Call Periods described in Section 10.2(a) and Section 10.2(b) above, in the event that during the period commencing on the date hereof and ending on the eighth anniversary of the Effective Time (such period, the “Zyman Involuntary Termination Period”) Servicer shall no longer be engaged under the PSA by reason of SZ’s death, Disability (as defined in the PSA), a termination of Servicer under the PSA by the Company without Cause, or a termination by Servicer for Good Reason under the PSA, then

 

 

(i) Zyman shall be entitled to Put all or a portion of its Units to the Company (the “Zyman Termination Put”) pursuant to and in accordance with the applicable provisions of Section 10.10; provided, that Zyman shall not be entitled to Put any Units that it has held for a period of six months or less. Zyman may exercise the Zyman Termination Put by delivering a Put Exercise Notice to the Company anytime during the Zyman Involuntary Termination Period. The Company shall be entitled to assign its obligation to purchase all or a portion of such Units Put by Zyman to MDC; and

 

(ii) the Company shall be entitled to Call (the “Company Termination Call”) all or a portion of Zyman’s Units pursuant to and in accordance with the applicable provisions of Section 10.10 and, to the extent that the Company has not exercised the Company Termination Call, MDC shall be entitled to Call any remaining Units; provided, that neither the Company nor MDC shall be entitled to Call any Units which have not been held by Zyman for at least six months. Each of the Company and MDC may exercise the Company Termination Call by delivering a Call Exercise Notice to Zyman anytime during the Zyman Involuntary Termination Period.

 

(b) Any Units which have not been purchased pursuant to this Section 10.3 during the Zyman Involuntary Termination Period shall become subject to the Eight Year Call.

 

Section 10.4   Call for Zyman Units upon Servicer Resignation Prior to Third anniversary of Effective Time; Termination for Cause.

 

(a) Notwithstanding the Call Periods described in Section 10.2(a) above, in the event that Servicer voluntarily terminates its engagement with the Company pursuant to the PSA at any time prior to the third anniversary of the Effective Time (other than for Good Reason) or in the event that Servicer’s engagement is terminated by the Company for Cause pursuant to the PSA at any time, then the Company shall have the right to Call all or a portion of Zyman’s Units pursuant to and in accordance with the applicable provisions of Section 10.10 and, to the extent that the Company has not exercised the Call, MDC shall be entitled to Call any remaining Units; provided that neither the Company nor MDC shall be entitled to Call any Units which Zyman has not held for a period of at least six months. Each of the Company and MDC may exercise the Call by delivering a Call Exercise Notice to Zyman. Upon the occurrence of a termination of Servicer’s engagement pursuant the PSA described in this Section 10.4, Zyman shall no longer be entitled to exercise the Special Unit Put.

 

(b) Any Units which have not been purchased pursuant to this Section 10.4 on or before the eighth anniversary of the Effective Time shall become subject to the Eight Year Call.

 

 

Section 10.5   Call for Zyman Units upon Servicer Resignation On or Following the Third Anniversary of Effective Time and Prior to the Eighth Anniversary of the Effective Time.

 

(a) Notwithstanding the Call Periods described in Section 10.2(a) above, in the event that Servicer voluntarily terminates its engagement with the Company pursuant to the PSA at any time on or following the third anniversary of the Effective Time and prior to the eighth anniversary of the Effective Time (including, without limitation, if Servicer gives written notice of his intention not to renew the term of Servicer’s engagement pursuant to the terms of the PSA), then the Company shall have the right to Call all or a portion of Zyman’s Units pursuant to and in accordance with the applicable provisions of Section 10.10 and, to the extent that the Company has not exercised the Call, MDC shall be entitled to Call any remaining Units; provided that neither the Company nor MDC shall be entitled to Call any Units which Zyman has not held for a period of at least six months. Each of the Company and MDC may exercise the Call by delivering a Call Exercise Notice to Zyman.

 

(b) Any Units which have not been purchased pursuant to this Section 10.5 on or before the eighth anniversary of the Effective Time shall become subject to the Eight Year Call.

 

Section 10.6   Put and Call for Management Unitholders’ Units upon Termination of Employment. In the event that a Management Unitholder shall no longer be an employee of the Company or any of its subsidiaries by reason of such Management Unitholder’s death, Disability, a termination by the Company without Cause or a termination by such Management Unitholder for Good Reason, then:

 

(a) such Management Unitholder shall be entitled to Put any such Units to the Company at a price per Unit equal to the FMV by delivering a Put Exercise Notice to the Company (“Manager Termination Put”); provided that such Management Unitholder shall not be entitled to Put any Units which have not been held by such Management Unitholder for a period of at least six months. The Company shall be entitled to assign its obligation to purchase all or a portion of such Units to MDC; and

 

(b) the Company shall be entitled to Call (the “Manager Termination Call”) all or a portion of such Management Unitholder’s Units pursuant to and in accordance with the applicable provisions of Section 10.10 and, to the extent that the Company has not exercised the Manager Termination Call, MDC shall be entitled to Call any remaining Units; provided that neither the Company nor MDC shall be entitled to Call any Units which have not been held by such Management Unitholder for a period of at least six months. Each of the Company and MDC may exercise the Manager Termination Call by delivering a Call Exercise Notice to the Management Unitholder.

 

 

Section 10.7   Call for Management Unitholders’ Units Upon Resignation of a Management Member; Termination for Cause. Notwithstanding the Call Periods described in Section 10.2(a) above, in the event that a Management Unitholder voluntarily terminates his employment with the Company (other than a termination for Good Reason) or in the event that such Management Unitholder’s employment is terminated by the Company for Cause at any time, then the Company shall have the right to Call any or all of such Management Unitholder’s Units pursuant to and in accordance with the applicable provisions of Section 10.10 and, to the extent that the Company has not exercised the Call, MDC shall be entitled to Call any remaining Units; provided that neither the Company nor MDC shall be entitled to Call any Units which have not been held by such Management Unitholder for a period of at least six months. Each of the Company and MDC may exercise the Call by delivering a Call Exercise Notice to the Management Unitholder.

 

Section 10.8   Sale of Units by Zyman to the Company.

 

(a) The Company has established the restricted Unit purchase plan set forth as Exhibit 10.8 (the “Plan”), pursuant to which it will offer to sell up to 4,379,374 Units to employees of the Company, from time to time. Such Units shall be offered for sale to such employees designated by the Chief Executive Officer of the Company and approved by MDC from time to time (the “Employee Offerees”), in accordance with the following schedule:

 

(i) 2,360,000 Units will be offered to the Employee Offerees on or as soon as reasonably practicable after the Closing Date (as defined in the Purchase Agreement) for a period of 60 days;

 

(ii) 1,000,000 Units plus any Units not sold pursuant to clause (i) above will be offered to the Employee Offerees on or before the first anniversary of the Closing Date for a period of 60 days;

 

(iii) 1,000,000 Units plus any Units not sold pursuant to clauses (i) and (ii) above will be offered to the Employee Offerees on or before the second anniversary of the Closing Date for a period of 60 days; and

 

(iv) any Units not purchased pursuant to clauses (i), (ii) and (iii) will be offered to the Employee Offerees on or before the third anniversary of the Closing Date for a period of 60 days;

 

provided, that in the event that Servicer shall no longer be engaged by the Company pursuant to the PSA as a result of SZ’s death or Disability (as defined in the PSA), the Company shall immediately offer to sell to the applicable Employee Offerees any of the 4,379,374 Units which have not previously been offered pursuant to this Section 10.8(a) and, provided further, that Zyman shall be required to hold (and may not Put pursuant to Section 10.3) a number of Units equal to such Units until the 60th day following the date of SZ’s death or the date on which Servicer’s engagement pursuant to the PSA is terminated as a result of SZ’s Disability, as the case may be and shall be required to hold until the closing of the purchase any Units subscribed for pursuant to the offering.

 

(b) Such Units shall be offered to the Employee Offerees pursuant to clause (a) for FMV (as determined based on the most recent valuation prior to the date of each offer) and the consideration in respect of such Units shall be in the form of cash and/or notes payable by the Employee Offerees to the Company substantially in the form of Exhibit 10.8 (each a “Purchase Note”) or, at the election of the relevant Buyer (as defined below), cash.

 

 

(c) In the event that all of the 4,379,374 Units have not been subscribed for by the Employee Offerees pursuant to clause (a) by the 61^st day after the date on which Units are offered pursuant to clause (a)(iv) above and purchased by such Employee Offerees within the time period set forth in Section 10.10(d) to the extent such Units have been subscribed for, the Company shall create a plan pursuant to which it shall offer to the Employee Offerees the option to purchase any such unsold Units beginning no later than the 90^th day after the third anniversary of the Effective Time, which option may be exercised on or before the fifth anniversary of the Effective Time (such period, the “Option Period”) at a price equal to the FMV per Unit as of the date of such offer (such option, the “Employee Option”). The consideration paid by an Employee Offeree upon the exercise of such Employee Option shall be cash in an amount equal to no less than $0.50 per purchased Unit (or such lesser cash amount as determined by the Board of Managers, in its sole discretion) and a Purchase Note for the remaining consideration. Notwithstanding anything in this Agreement to the contrary (including Sections 10.3 and 10.4), during the Option Period, Zyman shall be required to hold a number of Units at least equal to the number of Units subject to the Employee Option (as such number may be reduced from time to time).

 

(d) For each Unit sold by the Company pursuant to this Section 10.8 Zyman shall sell and the Company shall purchase or redeem one Unit from Zyman and in consideration therefor the Company shall pay and assign to Zyman the cash and/or Purchase Notes paid to the Company by any holder in respect of such Units; provided that the Company shall not purchase or redeem any Units which have not been held by Zyman for a period of at least six months.

 

Section 10.9   Binding Obligations Upon Exercise of a Put, a Call or an Offer to Sell. Upon the proper delivery of an Exercise Notice in respect of the exercise of a Put by a Seller or a Call by a Buyer or a notice of an Offer to Sell by the Management Unitholders or the Company, any such Seller shall be obligated to sell the Units subject to the Call or the Offer to Sell or which it has agreed to sell pursuant to a Put as set forth in the applicable notice and any such Buyer shall be obligated to buy the Units subject to the Put or which it has agreed to purchase pursuant to an Offer to Sell or a Call as set forth in the applicable notice, in each case, in accordance with the applicable provisions of Section 10.10.

 

Section 10.10   Put/Call Purchase Price.

 

(a) Calculation/Payment of the Put/Call Purchase Price.

 

(i) In connection with the exercise of any Put pursuant to Section 10.2(b) or Section 10.3(a) or any Call pursuant to Section 10.2(a), Section 10.3(a) or Section 10.5, or Call of the Special Zyman Units pursuant to the Eight Year Call, each Buyer shall calculate and pay to Zyman or the Management Unitholders, as applicable, the following amounts (collectively, the “Put/Call Purchase Price”):

 

(x) within 5 Business Days following the determination of PBT for YP-1, but in no event earlier than the Article X Closing Date (as defined in Section 10.10(d) hereof), an amount (the “First Payment”) equal to:

 

 

 

(y) within 5 Business Days following the determination of PBT for YP, but in no event earlier than the Article X Closing Date), an amount (the “Second Payment”) equal to:

 

{	AP ×	(((PBT for YP-1) + (PBT for YP)) × 4.75)	}	– {First Payment}
		3

(z) within 5 Business Days following the determination of PBT for YP+1, but in no event earlier than the Article X Closing Date), an amount (the “Final Payment”) equal to:

 

{	AP ×	(	((PBT for YP-1) + (PBT for YP) + (PBT for YP+1))	× AM	)	}	–{First Payment + Second Payment}
			3

(ii) In connection with the exercise of the Eight Year Call (except to the extent such Eight Year Call relates to the Special Zyman Units to which clause (i) above shall apply) and a Call pursuant to Section 10.4(a), the Buyer shall calculate and pay to Zyman the product of 50% multiplied by the Put/Call Purchase Price; provided that in connection with a Call pursuant to Section 10.4(a) because Servicer voluntarily terminates its engagement with the Company pursuant to the PSA, the price paid for any Zyman Special Units shall be the Put/Call Purchase Price.

 

(iii) In connection with the exercise of a Call pursuant to Section 10.7 or an option pursuant to Section 10.8(c) or a Put pursuant to Section 10.6, the Buyer shall pay to the applicable seller the product of the number of Units being purchased and the FMV per Unit.

 

(b) Other Definitions.

 

(i) “AM” shall mean the multiple based on applicable PBT Margin and CRGR, as set forth below:

 

PBT Margin		Multiple Range
		CRGR <=10%			CRGR >=25%
< 30%			4.0			4.0
>= 30% & < 35%			4.0			4.5
>= 35% & < 40%			4.5			5.0
>= 40%			5.0			5.5

 

 

To the extent that CRGR and/or PBT Margin are within the ranges noted above, the applicable multiple shall be prorated accordingly.

 

(ii) “Applicable Percentage” or “AP” shall mean the percentage that the Class B Units being sold and purchased pursuant to a Put or Call represents out of the total number of issued and outstanding Units, regardless of class.

 

(iii) “Cumulative Revenue Growth Rate” or “CRGR” shall mean the cumulative annual percentage growth rate in Revenues for the three-year period ending December 31 of YP+1 (based on the applicable Base Revenues). CRGR shall be calculated as follows:

 

CRGR =

[(

Revenues for YP + 1 Base Revenues

)

1/3

– 1

]

× 100%

For purposes of calculating CRGR, the base revenues (“Base Revenues”) shall be the Revenues for YP-2.

 

(iv) “FMV” shall mean, with respect to any Units, the price that would be paid for such Units, assuming a willing seller and a willing buyer, as determined in good faith by the Board of Managers of the Company from time to time (and no less frequently than annually) with the advice of an independent appraiser selected by the Board of Managers of the Company.

 

(v) “Market Value” with respect to the First Payment, Second Payment and Final Payment, as the case may be, shall be the average of the closing prices per share of MDC Stock in United States dollars reported on the NASDAQ Stock Market for the 20 consecutive trading days ending three trading days immediately prior to the date the First Payment, Second Payment, Final Payment, as the case may be, are required to be paid pursuant to Sections 10.10(a)(i)(x), (y), and (z), respectively. The closing price for each day shall be the closing price on the NASDAQ Stock Market.

 

(vi) “Measuring Period” shall mean, as applicable, (x) the calendar year or years included in the applicable Put/Call Purchase Price calculation under Section 10.10(a) above or (y) any Distribution Period Calendar Year.

 

(vii) “PBT Margin” for the Measuring Period shall equal the percentage equivalent of the quotient determined by dividing (a) the total PBT plus Class C PBT for the Measuring Period, by (b) the total Revenues for the Measuring Period. For purposes of this Agreement, the PBT Margin shall be rounded up or down, as the case may be, to the nearest one-tenth of one percent.

 

(viii) “Revenues” during each relevant calendar year or other period, as applicable, shall mean consolidated revenues of the Company and its subsidiaries determined in accordance with GAAP, consistently applied with the accounting principles and procedures historically utilized by the Company.

 

 

(ix) “YP” shall mean the calendar year in which the respective Put or Call was exercised by proper delivery of an Exercise Notice.

 

(x) “YP+1” shall mean the calendar year immediately following YP.

 

(xi) “YP+2” shall mean the calendar year immediately following YP+1.

 

(xii) “YP-1” shall mean the calendar year immediately preceding YP.

 

(xiii) “YP-2” shall mean the calendar year immediately preceding YP-1.

(c) Accounting Procedures.

 

(i) Upon the exercise of (x) a Put pursuant to Section 10.2(b) or Section 10.3(a) or (y) a Call pursuant to Section 10.2(a), Section 10.2(c), Section 10.4(a) or Section 10.5(a) involving the sale of Units representing at least 2% of the outstanding Units, MDC shall, and upon the exercise of any Put or Call pursuant to any of the foregoing sections involving the sale of Units representing less than 2% of the outstanding Units, MDC may at its option, cause KPMG LLP, or another independent national accounting firm chosen by MDC (the “Accountants”), as soon as practicable after the end of years YP, YP+1 and YP+2, to prepare in accordance with GAAP, a report containing an audited consolidated balance sheet of the Company and its subsidiaries, if any, as of the close of business on the anniversary of the Effective Time of each such period, and a related audited consolidated statement of income of the Company and its subsidiaries, if any, for the relevant year then ended, in each case together with a statement of the Accountants based upon such report which (x) states that it was prepared in accordance with this Agreement and (y) sets forth for the period under examination the applicable calculation of PBT, Revenues, PBT Margin and AM, and (z) sets forth all adjustments required to be made to such audited financial statements in order to make the calculations required under this Section 10.10 (the “Annual Determination”). MDC shall instruct the Accountants to deliver a copy of each such Annual Determination to Zyman as soon as possible after the completion of each year and shall use commercially reasonable efforts to have each such Annual Determination delivered not later than 90 days after the end of the period to which such Annual Determination relates.

 

(ii) If Zyman does not agree that any Annual Determination correctly states the applicable calculations of PBT, Revenues, PBT Margin or AM for the period under examination, Zyman shall promptly (but not later than 30 days after the delivery of such Annual Determination to Zyman) give written notice to MDC of any exceptions thereto (in reasonable detail describing the nature of the disagreement asserted). If Zyman and MDC reconcile their differences, the Annual Determination shall be adjusted accordingly and shall thereupon become binding, final and conclusive upon all of the parties hereto and enforceable in a court of law. If Zyman and MDC are unable to reconcile their differences in writing within 20 days after written notice of exceptions is delivered to Zyman (the “Reconciliation Period”), the items in dispute shall be submitted to a mutually acceptable accounting firm (other than the Accountants) (the “Independent Auditors”) for final determination, and the Annual Determination shall be deemed adjusted in accordance with the determination of the Independent Auditors and shall become binding, final and conclusive upon all of the parties hereto and enforceable in a court of law. The Independent Auditors shall consider only the items in dispute and shall be instructed to act within 20 days (or such longer period as Zyman and MDC may agree) to resolve all items in dispute. If Zyman does not give written notice of any exception within 30 days after the delivery of an Annual Determination or if Zyman gives written notification of its acceptance of an Annual Determination prior to the end of such 30 day period, such Annual Determination shall thereupon become binding, final and conclusive upon all the parties hereto and enforceable in a court of law.

 

 

(iii) In the event the Independent Auditors are for any reason unable or unwilling to perform the services required of it under this Section 10.10, then Zyman and MDC agree to select another mutually acceptable accounting firm to perform the services to be performed under this Section 10.10 by the Independent Auditors. If Zyman and MDC fail to select the Independent Auditors as required by clause (i) above within seven days after the expiration of the Reconciliation Period or fail to select another accounting firm within seven days after it is determined that the Independent Auditors will not perform the services required, either Zyman or MDC may request the American Arbitration Association in Atlanta (the “AAA”) to appoint an independent firm of certified public accountants to perform the services required under this Section 10.10 by the Independent Auditors. MDC, on the one hand, and Zyman, on the other hand, shall share the fees of the AAA equally. For purposes of this Section 10.10(c) the term “Independent Auditors” shall include such other accounting firm chosen in accordance with this clause (iii).

 

(iv) The Independent Auditors shall determine the party (i.e., Zyman or MDC) whose asserted position as to the calculation of PBT, Revenues, PBT Margin, or AM for the period under examination before the Independent Auditors is furthest from the determination of PBT, Revenues, PBT Margin, or AM, as the case may be, by the Independent Auditors, which non-prevailing party shall pay the fees and expenses of the Independent Auditors and shall reimburse the prevailing party for the portion of the fees of the AAA previously paid by it.

 

(v) The books and records of the Company and its subsidiaries shall be made available during normal business hours upon reasonable advance notice at the principal office of the Company, to the parties hereto and their representatives, the Accountants and the Independent Auditors to the extent required to determine the calculations required under Section 10.10. Zyman, on the one hand, and MDC, on the other hand, shall make available to the other party and their representatives (including auditors) any back-up materials generated by or for them to support a position that is contrary to the position taken by the other party.

 

 

(d) Closing. The closing for each purchase and sale of Units (an “Article X Closing”) pursuant to this Article X shall be held at the offices of the Company within 30 days after the later of (i) the delivery of an Exercise Notice, (ii) in the case of Offers to Sell, 30 days after the receipt of an acceptance of an Offer to Sell and (iii) the day that is six months and one day after such Units were first acquired by the Seller. The date on which the respective Article X Closing takes place is referred to in this Agreement as its “Article X Closing Date”. At each Article X Closing, the parties shall execute an Assignment of Unit Agreement in form and substance reasonably acceptable to the purchaser and the seller in such transaction and an amendment to this Agreement in accordance with Section 14.4 reflecting such transfer and the reallocated Units (including the related portion of the Capital Account). The transfer of any Units pursuant to this Section 10.10 shall be free and clear of all claims, liens and encumbrances other than as created by the provisions of this Agreement. Prior to any Article X Closing, the applicable purchaser and seller shall use their best efforts to obtain any required governmental or regulatory approval or approvals. MDC shall have the right to postpone any scheduled Article X Closing until any such governmental or regulatory approval is obtained. In connection with a sale pursuant to this Article X, the transferor shall be entitled to distributions pursuant to Section 3.4 as and when declared by the Board of Managers in respect of any amounts which have been allocated to the transferred Units as of the day prior to the effective date of any Put or Call or, in the case of an Offer to Sell, the applicable Article X Closing Date, and the transferee shall be entitled to distributions pursuant to Section 3.4 in respect of any amounts which are allocated to the transferred Units on and after the effective date or the Article X Closing Date, as the case may be.

 

(e) Put/Call Purchase Price Payment.

 

(i) If MDC is purchasing Units from Zyman pursuant to Section 10.2, Section 10.3, Section 10.4 or Section 10.5, payment of each component of the Put/Call Purchase Price shall be made by MDC (x) at least 80% in cash (any amount in excess of 80% will be determined by MDC in its sole discretion) by direct wire transfer to the account of Zyman designated in writing to MDC pursuant to this Agreement and (y) up to 20% of each component of the Put/Call Purchase Price may be made in Class A Shares (subordinate voting shares), of MDC Partners (“MDC Stock”) (rounded up or down to the nearest whole share) having an aggregate Market Value (as defined above) equal to up to 20% of such component of the Put/Call Purchase Price and, if the Company is purchasing Units pursuant to Section 10.2, Section 10.3, Section 10.4 or Section 10.5, the purchase price shall be paid in cash. Each of the First Payment, Second Payment and Final Payment shall be deemed to include imputed interest, to the extent required by the Code. Prior to MDC’s delivery to Zyman of each Put/Call Purchase Price payment in shares of MDC Stock, Zyman shall be required to deliver an Investment Representation Certificate in the form of Exhibit 10.10(e) hereto. The shares of MDC Stock shall be eligible for sale in accordance the applicable securities laws of the U.S. and Canada, and the terms of the Investment Representation Certificate to be delivered by the receipt of such shares of MDC Stock.

 

(ii) Any purchase of Units pursuant to Section 10.1 shall be made in cash; provided that if the Seller is the obligor on any Purchase Note(s) at the time of sale, the Buyer may elect to assume a portion of the amounts outstanding under any such Purchase Note(s) (equal in proportion to the number of Units being purchased by such Buyer relative to the number of Units owned by such Seller immediately prior to the relevant Article X Closing) and the amount of cash payable shall be reduced by the value of the portion of the Purchase Note(s) assumed by such Buyer.

 

 

(iii) Any purchase of Units pursuant to Section 10.6, Section 10.7 or Section 10.8 shall be made in cash and/or Purchase Notes, or some combination thereof in accordance with the terms set forth in such sections (to the extent provided); provided that if the Seller is the obligor on any Purchase Note(s) at the time of sale, the Buyer may elect to assume a portion of the amounts outstanding under any such Purchase Note(s) (equal in proportion to the number of Units being purchased by such Buyer relative to the number of Units owned by such Seller immediately prior to the relevant Article X Closing) and the amount of cash and/or Purchase Notes payable shall be reduced by the value of the portion of the Purchase Note(s) assumed by such Buyer.

 

(f) Effect of Events During Period Class B Units Are Issued. The parties hereto understand and agree that under the terms of each Management Unitholder’s employment agreement with the Company, if any, such Management Unitholder may be terminated for Cause or without Cause. Accordingly, each of the parties hereto agrees that if (a) any Management Unitholder ceases to be an employee of the Company, regardless of the reason therefor, or (b) there are changes in the composition of the Board of Managers of the Company or any subsidiary of the Company, no party to this Agreement or any Person deriving rights through any such party shall have the right to make a claim that such cessation of employment or change in the composition of the Board of Managers of the Company or any subsidiary of the Company (x) constitutes a breach by MDC or any of its Affiliates of this Agreement, (y) resulted in an adverse effect on any Put/Call Purchase Price payment under this Agreement forming the basis for a claim against MDC or any of its Affiliates, or (z) constitutes an event forming the basis for such party to dispute any calculation required to be made pursuant to the accounting procedures set forth in Section 10.10(c) hereof. In the event a Management Unitholder ceases to be employed by the Company, regardless of the reason therefor, such event shall not affect the right of any Unitholder to receive any Put/Call Purchase Price payment under this Agreement.

 

 

 

Section 11.1   Indemnification of Managers and Members. The Company shall indemnify and advance expenses to a Person who was or is threatened to be made a named defendant or respondent in a proceeding because the individual is or was a Manager or Member to the fullest extent permitted or authorized by the laws of the State of Delaware as if the Company was a corporation organized under the laws of Delaware. This indemnification provision shall inure to each of the Managers and Members of the Company, and other Persons serving at the request of the Company (as provided in this Article), and in the event of his death shall extend to his legal representatives; but such rights shall not be exclusive of any other rights to which he may be entitled.

 

Section 11.2   Others. The Company may indemnify and advance expenses to an officer, employee or agent of the Company to the same extent that it is required to indemnify and advance expenses to Managers or Members under this Agreement or by statute. The Company may indemnify and advance expenses to Persons who are not or were not officers, employees or agents of the Company but who are or were “serving at the request of the Company” (as defined in Section 11.5(d)) as a director, officer, partner, manager, member, venturer, proprietor, trustee, employee, agent or similar functionary of another limited liability company, corporation, partnership, employee benefit plan, or other enterprise or entity (individually, an “Other Entity”) to the same extent that the Company is required to indemnify and advance expenses to Managers or Members under this Article or by statute.

 

 

Section 11.3   Insurance and Other Arrangements. The Company may purchase and maintain insurance or establish and maintain another arrangement on behalf of any individual who is or was a Manager, officer, employee, Member or agent of the Company or who is or was serving at the request of the Company as a director, officer, partner, manager, member, venturer, proprietor, trustee, employee, agent or similar functionary of an Other Entity, against or in respect of any liability asserted against him and incurred by him in such a capacity or arising out of his status as such an individual, whether or not the Company would have the power to indemnify him against that liability under this Agreement or by statute. If the insurance or other arrangement is with a Person or entity that is not regularly engaged in the business of providing insurance coverage, the insurance or other arrangement may provide for payment of a liability with respect to which the Company would not have the power to indemnify the Person only if including coverage for the additional liability has been approved by the Members of the Company. Without limiting the power of the Company to purchase, procure, establish or maintain any kind of insurance or other arrangement, the Company may, for the benefit of persons indemnified by the Company, (a) create a trust fund; (b) establish any form of self-insurance; (c) secure its indemnity obligation by grant of a security interest or other lien on the assets of the Company; or (d) establish a letter of credit, guaranty or surety arrangement. The insurance or other arrangement may be purchased, procured, maintained or established within the Company or with any insurer or other Person deemed appropriate by the Managers regardless of whether all or part of the stock or other securities of the insurer or other Person are owned in whole or part by the Company. In the absence of fraud, the judgment of the Managers as to the terms and conditions of the insurance or other arrangement and the identity of the insurer or other Person participating in an arrangement shall be conclusive and the insurance or arrangement shall not be voidable and shall not subject the Managers approving the insurance or arrangement to liability, on any ground, regardless of whether Managers participating in the approval are beneficiaries of the insurance or arrangement.

 

Section 11.4   Report to Members. Any indemnification of or advance of expenses to a Manager or Member in accordance with this Article or the provisions of any statute shall be reported in writing to the Members with or before the notice or waiver of notice of the next Members’ meeting or with or before the next submission to the Members of a consent to action without a meeting and, in any case, within the 12-month period immediately following the date of the indemnification or advance.

 

Section 11.5   Definitions. For purposes of this Article XI:

 

(a) The term “expenses” includes court costs and attorneys’ fees and disbursements;

 

(b) The term “proceeding” means any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative, arbitrative or investigative, any appeal in such an action, suit or proceeding, and any inquiry or investigation that could lead to such an action, suit or proceeding;

 

 

(c) The term “Manager” means any Person who is or was a Manager of the Company and any Person who, while a Manager of the Company, is or was serving at the request of the Company as a director, officer, partner, manager, member, venturer, proprietor, trustee, employee, agent or similar functionary of an Other Entity;

 

(d) The term “serving at the request of the Company” as used above shall include any service as a manager, director, officer, employee or agent of the Company or where any such Person performs duties on or otherwise involves services with respect to an employee benefit plan, or the participants or beneficiaries of the employee benefit plan sponsored by the Company. Excise taxes assessed on a Manager with respect to an employee benefit plan pursuant to applicable law are deemed fines. Action taken or omitted to be taken by a Manager with respect to an employee benefit plan in the performance of his duties for a purpose reasonably believed by him to be in the interest of the participants and beneficiaries of the plan is deemed to be for a purpose which is not opposed to the best interests of the Company.

 

Section 11.6   Severability. The provisions of this Article are intended to comply with the Act. To the extent that any provision of this Article authorizes or requires indemnification or the advancement of expenses contrary to such statute or the Certificate, the Company’s power to indemnify or advance expenses under such provision shall be limited to that permitted by such statute and the Certificate and any limitation required by such statute or the Certificate shall not affect the validity of any other provision of this Article XI.

 

Section 11.7   Nonexclusivity of Rights. The right to indemnification and the advancement and payment of expenses conferred in this Article XI shall not be exclusive of any other right that a Manager or other Person indemnified pursuant hereto may have or hereafter acquire under any law (common or statutory), provision of the Certificate or this Agreement or otherwise.

 

 

 

Section 12.1   “Zyman” Name. The Members hereby agree that (a) all right, title and interest in the trade name “Zyman Group” or any variation thereof belong to the Company and (b) so long as the Company is an Affiliate of MDC Partners, the Company, the Members and SZ shall endeavor to have any materials, documents or other items that reference the name “Zyman Group” or any variations thereof to be followed by the words “an MDC Partners Company”.

 

Section 12.2   2005 Option Plan. For each Unit issued to a participant in the Company’s 2005 Unit Option Plan (the “Plan”) pursuant to the exercise of any option granted under such plan, Zyman shall sell and the Company shall purchase or redeem one Unit from Zyman and, in consideration therefor, the Company shall pay and assign the consideration paid to the Company by such participant upon the exercise of such option. Zyman agrees that, until the expiration of such options, Zyman will hold a number of Units equal to the number of Units issued under the Plan and such Units shall not be subject to any of the Puts or Calls hereunder.

 

 

Section 13.1   Other Definitions. When used herein, the following terms shall have the following meanings:

 

“Additional Payment” shall have the meaning given thereto in the Purchase Agreement.

 

“Adjusted Capital Account Deficit” with respect to any Member means 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 any amounts which such Member is obligated to restore pursuant to any provision of this Agreement or is otherwise treated as being obligated to restore under Treasury Regulation Section 1.704-1(b)(2)(ii)(c) or is deemed to be obligated to restore pursuant to the penultimate sentence of Treasury Regulation Sections 1.704-2(g)(1) and 1.704-2(i)(5); and

 

(ii) Debit to such Capital Account the items described in Treasury Regulation Section 1.704-1(b)(2)(ii)(d)(4), (5), and (6).

 

The foregoing definition of Adjusted Capital Account Deficit is intended to comply with the provisions of Treasury Regulation Section 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith.

 

“Adjusted PBT” for any relevant period shall be equal to the consolidated net income (loss) of the Company and its subsidiaries but before provision for all federal, state and local income taxes for such period, determined in accordance with United States generally accepted accounting principles consistently applied (“GAAP”); provided, that the following items shall be excluded:

 

(A)

Items (A)(1) to (7) listed in the definition of “PBT” hereunder;

 

(B)

any expenses for non-cash equity-based compensation which accrues prior to, on or after Closing and attributable to the 2008 Acquisitions;

 

(C )

any amortization or depreciation expense attributable to the increase in the book value of any assets (whether tangible or intangible) of the Company resulting from the 2008 Acquisitions;

 

(D)

any interest arising from loans or debt incurred by the Company to finance the purchase price of the 2008 Acquisitions; and

 

 

(E)

severance expense arising from a termination of Scott Miller and/or David Morey by the Company, or by Scott Miller and/or David Morey with Good Reason.

 

“Affiliate” of any Person shall mean any Person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with such Person.

 

“Business Day” shall mean any day on which commercial banks are not authorized or required to close in Atlanta, Georgia and Toronto, Ontario.

 

“Buyer” shall mean the purchaser of Units in any transaction described in Article X.

 

“Capital Contribution” shall mean the contribution of a Member and any subsequent contributions of capital made by that Member to the Company as set forth in Article III.

 

“Cause” means, with respect to Servicer, “Cause” as defined in the PSA with the Company and, with respect to any other employee of the Company and its subsidiaries, “Cause” means (A) such employee’s willful failure to perform his or her duties in any material respect (other than as a result of total or partial incapacity due to physical illness), (B) commission of (x) a felony (other than traffic-related) under the laws of the United States or any state thereof or any similar criminal act in a jurisdiction outside the United States or (y) a crime involving moral turpitude, (C) such employee’s willful malfeasance or willful misconduct which is injurious to the Company, (D) any act of fraud by such employee or (E) such employee’s material breach of the Company’s code of conduct.

 

“Class A Distribution Shortfall Amount” with respect to any Distribution Period Calendar Year and any Post-Distribution Period Calendar Year, shall mean the cumulative amount by which distributions under Section 3.4(a)(i) to holders of Class A Units for all preceding years since the Effective Time fell short of the cumulative allocations to holders of Class A Units of PBT under Section 3.5(a)(i) for such prior years (for this purpose treating any negative PBT for any calendar year as $0).

 

“Class A PBT Shortfall Amount” shall mean, with respect to any calendar year other than the first Distribution Period Calendar Year, the amount by which the actual allocation of PBT to holders of Class A Units under Section 3.5(a)(i) for all previous Distribution Period Calendar Year(s) is less than the aggregate Preferred Return Amount(s) with respect to such Distribution Period Calendar Year(s).

 

“Class B Catch-Up Amount” shall mean, with respect to any Distribution Period Calendar Year, the lesser of (i) the difference between (A) the product of the amounts allocated to the holders of Class A Units pursuant to Section 3.5(a)(i) for the current and all previous Distribution Period Calendar Year(s) and the fraction (expressed as a percentage) in which the numerator is the number of outstanding Class B Units and the denominator is the number of outstanding Class A Units and (B) the amounts allocated to the holders of Class B Units pursuant to Section 3.5(a)(ii) for all previous Distribution Period Calendar Year(s) and (ii) the positive difference (if any) of PBT for such Distribution Period Calendar Year less the Preferred Return Amount and less the Class A PBT Shortfall Amount, if any.

 

 

“Class B Distribution Shortfall Amount” with respect to any Distribution Period Calendar Year and any Post-Distribution Period Calendar Year, shall mean the cumulative amount by which distributions under Section 3.4(a)(ii) to holders of Class B Units for all preceding calendar years since the Effective Time fell short of the cumulative allocations to holders of Class B Units of PBT under Section 3.5(a)(ii) for such prior years (for this purpose treating any negative PBT for any calendar year as $0).

 

“Class C PBT” for any relevant period shall mean (Adjusted PBT minus $3,000,000) multiplied by 16%.

 

 “Code” shall mean the Internal Revenue Code of 1986, as amended from time to time, and any successor statute or statutes.

 

“Company Credit Facility” shall mean the revolving credit facility dated as of November 8, 2005 by and between the Company and Wachovia Bank, National Association, as amended, modified or supplemented from time to time.

 

“Company Minimum Gain” shall have the meaning for “Partnership Minimum Gain” set forth in Sections 1.704-2(b)(2) and 1.704-2(d) of the Treasury Regulations.

 

“Depreciation” shall mean for each fiscal year, an amount equal to the depreciation, amortization, or other cost recovery deduction allowable with respect to an asset for such fiscal year, except that if the Gross Asset Value of an asset differs from its adjusted basis for Federal income tax purposes at the beginning of such fiscal year, Depreciation shall be an amount which bears the same ratio to such beginning Gross Asset Value as the Federal income tax depreciation, amortization, or other cost recovery deduction for such fiscal year bears to such beginning adjusted tax basis; provided, however, that if the adjusted basis for Federal income tax purposes of an asset at the beginning of such fiscal year is zero, Depreciation shall be determined with reference to such beginning Gross Asset Value using any reasonable method selected by the TMP.

 

“Disability” means, with respect to SZ, “Disability” as defined in SZ’s employment agreement with the Company and, with respect to any other employee of the Company and its subsidiaries, “Disability” means the inability of an employee to perform the essential functions of the employee’s job, with or without reasonable accommodation, by reason of a physical or mental infirmity, for a continuous period of six months or for an aggregate of nine months in a twenty-four month period.

 

“Distribution Period” shall mean the period from the Effective Time until the earlier of the termination of the Company or the date that is the fifth anniversary of the Effective Time.

 

“Distribution Period Calendar Year” shall mean any of (i) the period from the Effective Time until December 31, 2005, (ii) the period from January 1^st through December 31^st of each of 2006, 2007, 2008 and 2009 and (iii) the period from January 1, 2010 until the date that is the fifth anniversary of the Effective Time; provided that if the Company is terminated prior to the fifth anniversary of the Effective Time, the last calendar year shall be the period from January 1^st of the year in which the Company is terminated until that date on which the Company is terminated.

 

 

“Effective Time” shall mean the date of the closing of the Purchase Transaction.

 

“Good Reason” shall mean, with respect to SZ, “Good Reason” as defined in SZ’s employment agreement with the Company and, with respect to any other employee of the Company and its subsidiaries, “Good Reason” means a failure by the Company to pay such employee’s compensation when due, which failure remains uncured for a period of 20 days after written notice of such breach from the employee to the Company.

 

“Gross Asset Value”, with respect to any asset, the asset’s adjusted basis for Federal income tax purposes, except as follows:

 

(i) Subject to the final sentence of this definition and consistent with the capital accounts as described in Section 3.1, the initial Gross Asset Value of any asset contributed by a Member to the Company shall be the gross fair market value of such asset, as determined by the Board of Managers;

 

(ii) The Gross Asset Value of all Company assets shall be adjusted to equal their respective gross fair market values as of the following times: (a) the acquisition of additional Units by any new or existing Member in exchange for a Capital Contribution; (b) the distribution by the Company to a Member of property as consideration for a Unit; and (c) the liquidation of the Company within the meaning of Treasury Regulations Section 1.704-1(b)(2)(ii)(g); provided, however, that adjustments pursuant to clauses (a) and (b) above shall be made only if the Managers reasonably determine that such adjustments are necessary or appropriate to reflect the relative economic interests of the Members in the Company; and

 

(iii) The Gross Asset Value of any Company asset distributed to any Member shall be adjusted to equal the gross fair market value of such asset on the date of distribution.

 

If the Gross Asset Value of an asset has been determined or adjusted pursuant to clauses (i) or (ii), hereof, such Gross Asset Value shall thereafter be adjusted by the Depreciation taken into account with respect to such asset for purposes of computing Profits and Losses.

 

“MDC Credit Facility” shall mean the Financing Agreement, dated as of June 18, 2007 (as amended, supplemented or otherwise modified from time to time), among MDC Partners Inc., a Canadian corporation, Maxxcom Inc., a Delaware corporation, each subsidiary of MDC Partners listed as a "Guarantor" on the signature pages thereto, the lenders from time to time party thereto, Fortress Credit Corp., as collateral agent for the lenders, and Wells Fargo Foothill, Inc., as administrative agent for the lenders.

 

“Member Nonrecourse Debt” shall have the meaning for “Partner Nonrecourse Debt” set forth in Section 1.704-2(b)(4) of the Treasury Regulations.

 

 

“Member Nonrecourse Debt Minimum Gain” shall mean an amount, with respect to each Member Nonrecourse Debt, equal to the Company Minimum Gain that would result if such Member Nonrecourse Debt were treated as a Nonrecourse Liability, determined in accordance with Section 1.704-2(i)(3) of the Treasury Regulations.

 

“Member Nonrecourse Deductions” shall have the meaning set forth in Section 1.704-2(i)(2) of the Treasury Regulations.

 

“Membership Interest” of any Member shall mean such Member’s interest in the Company under this Agreement (including, without limitation, such Member’s interest in Profits and Losses, distributions, voting, and management, all as specified in this Agreement).

 

“Nonrecourse Deductions” shall have the meaning set forth in Section 1.704-2(b)(1) of the Treasury Regulations.

 

“Nonrecourse Liability” shall have the meaning set forth in Section 1.704-2(b)(3) of the Treasury Regulations.

 

“Offer to Sell” shall mean an offer to sell Units pursuant to Section 10.1 or Section 10.8.

 

“Original Unitholders” shall mean, those Members who owned Membership Units immediately prior to the consummation of the transactions contemplated by the Purchase Agreement.

 

“PBT” for any relevant period shall mean:

 

(A) the consolidated net income (loss) of the Company and its subsidiaries but before provision for all federal, state and local income taxes for such period, determined in accordance with United States generally accepted accounting principles consistently applied (“GAAP”); provided, that the following amounts shall be excluded:

 

(1) any expenses for non-cash equity-based compensation which accrues prior to, on or after Closing and is attributable to transactions contemplated by the Purchase Agreement.

 

(2) any amortization or depreciation expense attributable to the increase in the book value of any assets (whether tangible or intangible) of the Company resulting from the merger into the Company of the Nevada limited liability company predecessor of the Company, any amortization or depreciation expense attributable to the increase in the book value of any assets (whether tangible or intangible) of the Company resulting from any acquisition of any Units by MDC pursuant to the Purchase Agreement, and interest payable by or for the Company on indebtedness related to any such acquisition;

 

(3) neither the proceeds from nor any dividends or refunds with respect to, nor any increases in the cash surrender value of, any life insurance policy under which the Company, or any subsidiary thereof, is the named beneficiary or otherwise entitled to recovery shall be included as income, nor shall the premiums payable with respect to any such life insurance policy be considered an expense for a period to the extent a death covered by such life insurance policy occurs in any such period;

 

 

(4) any intercompany management fees and overhead allocations charged by MDC or any Affiliate of MDC, to the Company or any of its subsidiaries;

 

(5) any interest arising from loans to finance the payment of any of the Purchase Price payments and from any indebtedness allocated to the Company by MDC as a result of MDC’s acquisition of Membership Interests of the Company; provided, however, that any interest or fees (other than fees incurred in connection with terminating the Company Credit Facility) arising under the Company Credit Facility (or any interest or fees allocable to the Company under the MDC Credit Facility, if such facility is used to refinance the Company Credit Facility) and any working capital loans provided by MDC to the Company from time to time shall be included in determining PBT;

 

(6) any interest charges incurred by the Company or any subsidiary resulting from any MDC Financing (as defined in the Purchase Agreement);

 

and, solely for the purposes of calculating any Puts or Calls or Offers to Sell exercised by Zyman,

 

(7) any extraordinary or unusual gains or losses and any gains or losses from the sale of any capital assets used by the Company or any subsidiary thereof in its operations (as opposed to assets acquired in the ordinary course of the business of the Company and its subsidiaries for resale or other disposition);

 

(8) severance expense arising from a termination of SZ by the Company or by SZ with Good Reason; and

 

(9) premiums of up to $75,000 payable with respect to any life insurance policy under which the Company, or any subsidiary thereof, is the named beneficiary or otherwise entitled to recovery to the extent not already excluded pursuant to (3) above;

 

 

(B) the Class C PBT for such period.

 

“Person” shall mean an individual, partnership, limited partnership, limited liability company, trust, estate, corporation, custodian, trustee, executor, administrator, nominee or entity in a representative capacity.

 

“Post Distribution Period Calendar Year” shall mean (i) the period from the fifth anniversary of the Effective Time until December 31, 2010 and (ii) thereafter, each calendar year ending December 31; provided that if the Company is terminated prior to December 31 in any calendar year, the last calendar year shall be the period from January 1 of the year in which the Company is terminated until the date on which the Company is terminated.

 

 

“Preferred Return Amount” shall mean, with respect to any Distribution Period Calendar Year, the sum of (i) $13,000,000 (provided, that with respect to the first and last Distribution Period Calendar Years, the amount in this clause (i) shall be equal to the product of $13,000,000 and the fraction (expressed as a percentage) in which the numerator is the number of days elapsed in such Distribution Period Calendar Year and the denominator is 365) and (ii) in the event that an Additional Payment (as defined in Section 13.1) is made, from the date on which such Additional Payment is made, an amount equal to the product of 20% multiplied by the amount of such Additional Payment (the “Additional Payment Amount”) (provided, that with respect to the first and last Distribution Period Calendar Years, the amount in this clause (ii) shall be equal to the product of the Additional Payment Amount and the fraction (expressed as a percentage) in which the numerator is the number of days elapsed in such Distribution Period Calendar Year and the denominator is 365).

 

“Profits and Losses”, shall mean, 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 shall be included in taxable income or loss), with the following adjustments:

 

(i) Any income of the Company that is exempt from Federal income tax and not otherwise taken into account in computing Profits or Losses pursuant to this definition shall be added to such taxable income or loss;

 

(ii) Any expenditures of the Company described in Section 705(a)(2)(B) of the Code or treated as Code Section 705(a)(2)(B) expenditures pursuant to Section 1.704-1(b)(2)(iv)(i) of the Treasury Regulations, and not otherwise taken into account in computing Profits or Losses pursuant to this definition, shall be subtracted from such taxable income or loss;

 

(iii) In the event the Gross Asset Value of any Company asset is adjusted pursuant to clauses (ii) or (iii) of the definition of “Gross Asset Value” herein, the amount of such adjustment shall be taken into account as gain or loss from the disposition of such asset for purposes of computing Profits or Losses;

 

(iv) Gain or loss resulting from any disposition of property with respect to which gain or loss is recognized for Federal income tax purposes shall be computed by reference to the Gross Asset Value of the property disposed of, notwithstanding that the adjusted tax basis of such property differs from its Gross Asset Value;

 

(v) In lieu of the depreciation, amortization, and other cost recovery deductions taken into account in computing such taxable income or loss, there shall be taken into account depreciation for such fiscal year or other period, computed in accordance with the definition thereof;

 

(vi) To the extent an adjustment to the adjusted tax basis of any Company asset pursuant to Code Section 734(b) or Code Section 743(b) is required pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(m)(4) to be taken into account in determining Capital Accounts as a result of a distribution other than in liquidation of a Member’s Units, the amount of such adjustment shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases the basis of the asset) from the disposition of the asset and shall be taken into account for the purposes of computing Profits or Losses; and

 

 

(vii) Notwithstanding any other provisions of this definition, any items which are specially allocated pursuant to Section 3.3(b) and (c) shall not be taken into account in computing Profits or Losses.

 

“Pro Rata Portion” shall mean, with respect to any Management Unitholder at any given time, the number of Units held by such Management Unitholder relative to the number of Units held by all of the Management Unitholders.

 

“Seller” shall mean the seller of Units in any transaction described in Article X.

 

“Treasury Regulations” shall mean final regulations issued by the Department of the Treasury interpreting the Code.

 

“Units” shall mean Class A Units or Class B Units, as applicable.

 

 

 

Section 14.1   Manner of Giving Notice. Whenever under the provisions of the Act, the Certificate or this Agreement, notice is required to be given to the Company, any Member or Manager of the Company, and no provision is made as to how such notice shall be given, any such notice to be given hereunder shall be in writing and shall be deemed to have been given (a) upon personal delivery, if delivered by hand or courier, (b) three days after the date of deposit in the mails, postage prepaid, or (c) the next Business Day if sent by facsimile transmission (if transmission is electronically confirmed) or by a prepaid overnight courier service, and in each case at the respective addresses or numbers set forth below or such other address or number as such party may have fixed by notice:

 

If to MDC or MDC Partners, to:

 

MDC Partners

45 Hazelton Avenue

Toronto, Ontario

Canada M5R 2E3

Attention: Graham Rosenberg

Fax: (416) 960-9555

Attention: Mitch Gendel

Fax: (212) 463-3274

 

 

with a copy to:

 

Simpson Thacher & Bartlett LLP

425 Lexington Avenue

New York, New York 10017

Attention: Marni Lerner, Esq.

Fax: (212) 455-2502

 

If to Zyman, to:

 

Zyman Company, Inc.

100 South Point Drive

Apartment 2905/06

Miami Beach, Florida 33139-7373

Attention: Sergio Zyman

Fax: (305) 674-3806

 

with a copy to:

 

Zyman Group LLC

950 East Paces Ferry Road, N.E.

Suite 3300

Atlanta, Georgia 30326

Attention: Chief Financial Officer

Fax:

 

with a copy to:

 

Jones Day

1420 Peachtree Street, N.E.

Suite 800

Atlanta, Georgia 30309-3053

Attention: Milford B. Hatcher

Fax: (404) 581-8330

 

If to the Company, to:

 

c/o MDC Partners Inc.

45 Hazelton Avenue

Toronto, Ontario

Canada M5R 2E3

Attention: Graham Rosenberg

Fax: (416) 960-9555

Attention: Mitch Gendel

Fax: (212) 463-3274

 

 

with a copy to:

 

Simpson Thacher & Bartlett LLP

425 Lexington Avenue

New York, New York 10017

Attention: Marni Lerner, Esq.

Fax: (212) 455-2502

 

If to any Management Unitholder, to such person at the address set forth on the signature pages hereto.

 

or to such other address or fax as hereafter shall be designated in writing by the applicable party sent in accordance herewith or in the records of the Company.

 

Section 14.2   Waiver of Notice. Whenever any notice is required to be given to any Member or Manager of the Company under the provisions of the Act, the Certificate or this Agreement, a waiver thereof in writing signed by the Person or Persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice.

 

Section 14.3   No Company Seal. The Company shall not have a Company seal, and no agreement, instrument or other document executed on behalf of the Company that would otherwise be valid and binding on the Company shall be invalid or not binding on the Company solely because no Company seal is affixed thereto.

 

Section 14.4   Amendment or Modification. The power to adopt, alter, amend or repeal this Agreement is vested solely in the Members. Except for the amendments contemplated by Sections 2.1, Section 2.3, and Section 2.4 hereof and subject to the provisions of Section 4.1, this Agreement may be altered or amended only by the vote or written consent of MDC and holders of a majority of the outstanding Class B Units; provided that, in the event that an amendment does not affect the interests of any holder of Class B Units other than Zyman, then such amendment may only be effected with the vote or written consent of MDC and Zyman (it being understood that the consent of any other holders of Class B Units shall not be required to effect such amendment).

 

Section 14.5   Binding Effect; Assignment. Subject to the restrictions on transfer and assignment set forth in Article X of this Agreement, this Agreement is binding on and inures to the benefit of the Members and their respective successors and assigns, including without limitation, any Lender who exercises a default remedy under any agreement entered into in connection with an MDC Financing. Except as expressly provided herein, none of the Company, Zyman nor any Management Unitholder shall be entitled to assign any of its rights or obligations under this Agreement. Except as expressly provided herein, the rights and obligations of MDC under this Agreement shall be freely assignable; provided that, except in connection with a transfer by MDC of its Units (in which case MDC shall have no further obligations hereunder), MDC shall continue to remain liable for any of its obligations under this Agreement in the event that MDC assigns its rights hereunder.

 

Section 14.6   Governing Law; Severability. This Agreement is governed by and shall be construed in accordance with the law of the State of Delaware without regard to the principles of conflict of laws thereof. In the event of a direct conflict between the provisions of this Agreement and any provision in the Certificate or any mandatory provision of the Act, the applicable provisions of the Certificate or the Act shall control. If any provision of this Agreement or the application thereof to any Person or circumstance is held invalid or unenforceable to any extent, the remainder of this Agreement and the application of that provision to other Persons or circumstances is not affected thereby and that provision shall be enforced to the greatest extent permitted by law.

 

 

Section 14.7   Counterparts. This Agreement may be executed by the parties hereto in any number of counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same agreement.

 

Section 14.8   Entire Agreement. This Agreement, including the other documents referred to herein and the Exhibits and Schedules hereto that form a part hereof, contains the entire understanding of the parties hereto with respect to the subject matter contained herein and therein. This Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter, including without limitation, the Original Operating Agreement.

 

Section 14.9   Consent and Acknowledgement. Sergio Zyman, Sergio Zyman & Company (a Georgia corporation), and each of the parties hereto hereby consent and agree (i) to the proposed 2008 Acquisitions by the Company; (ii) to the proposed hiring of each of Scott Miller and David Morey, on the terms and conditions proposed and presented to the Company's Board of Managers; and (iii) that the proposed duties and responsibilities of Sergio Zyman and Sergio Zyman & Company, after giving effect to the 2008 Acquisitions and the hiring of Scott Miller and David Morey, shall not constitute "good reason" as defined in Section 5 of that certain Personal Services Agreement dated as of April 1, 2007.

 

 

IN WITNESS WHEREOF, the undersigned have executed this Second Amended and Restated Limited Liability Company Agreement as of the day and year first above written.

 

MDC PARTNERS INC.   By: ___________________________________ Name: Graham Rosenberg Title: Managing Director   By: ___________________________________ Name: Mitchell Gendel Title: Secretary   ZG ACQUISITION INC.   By: ___________________________________ Name:  Title:    By: ___________________________________ Name:  Title:    ZYMAN COMPANY INC.   By: ___________________________________ Name: Title:   ZYMAN GROUP LLC   By: __________________________________ Name: Title:

MANAGEMENT UNITHOLDER   By: __________________________________ Name: Address:   c/o MDC Partners Inc. 45 Hazelton Avenue Toronto, Ontario Canada M5R 2E3   SERGIO ZYMAN & COMPANY   By: __________________________________ Name: Title:   By: ___________________________________ Sergio Zyman