Simple LLC Operating Agreement

 

TABLE OF CONTENTS

 

		Page
ARTICLE I	DEFINITIONS	1
ARTICLE II	FORMATION AND NAME; ARTICLES OF ORGANIZATION	13
ARTICLE III	TERM	13
ARTICLE IV	BUSINESS OF THE COMPANY; TITLE TO COMPANY PROPERTY	14
ARTICLE V	PRINCIPAL PLACE OF BUSINESS; REGISTERED AGENT	15
ARTICLE VI	CONTRIBUTIONS	15
ARTICLE VII	CAPITAL ACCOUNTS OF MEMBERS	24
ARTICLE VIII	ALLOCATION OF PROFITS AND LOSSES	25
ARTICLE IX	DISTRIBUTIONS	29
ARTICLE X	MANAGEMENT OF THE COMPANY	33
ARTICLE XI	RECORDS, REPORTS AND TAXES	49
ARTICLE XII	TRANSFER OF MEMBERSHIP INTERESTS; WITHDRAWAL	52
ARTICLE XIII	DISSOLUTION AND WINDING UP	57
ARTICLE XIV	MISCELLANEOUS PROVISIONS	61

 

i

 

OPERATING AGREEMENT

 

OF

 

TRACKPLAY LLC

 

OPERATING AGREEMENT OF TRACKPLAY LLC, a Delaware limited liability company (the “ Company ” ), signed on October 26, 2001 and effective as of July 2, 2001, by and among Autotote Systems, Inc., a Delaware corporation, having an office at 100 Bellevue, P.O. Box 6009, Newark, Delaware 19714-6009 ( “ Autotote ” ) and Arena Leisure Corporation, a Delaware Corporation having an office at 1201 Market Street, Suite 1501, Wilmington, Delaware 19801 ( “ Arena ” ) (Arena and Autotote in their individual capacities, a “ Member ” and sometimes collectively, the “ Members ” ).

 

W   I   T   N   E   S   S   E   T   H :

 

WHEREAS, TRACKPLAY LLC was formed as a Delaware limited liability company on June 14, 2001; and

 

WHEREAS, the Members wish to enter into this Operating Agreement for the purpose of, among other things, governing the operations of the Company and regulating the rights and obligations of the Members of the Company as among themselves.

 

NOW, THEREFORE, the parties hereto, intending to be legally bound, do hereby agree as follows:

 

ARTICLE I

 

Definitions

 

1.1           As used in this Agreement, the following terms shall have the meanings set forth below:

 

 

(a)        “ Act ” shall mean the Delaware Limited Liability Company Act, as amended from time to time.

 

(b)        “ Additional Capital Contribution ” shall mean a Required Budgeted Additional Contribution or a Required Non-Budgeted Additional Contribution required to be contributed by a Member pursuant to this Agreement.

 

(c)        “ Adjusted Capital Account Deficit ” shall mean 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 (i) reducing such balance by the net adjustments, allocations and distributions described in Sections 1.704-1(b)(2)(ii)(d)(4), (5) and (6) of the Treasury Regulations which, as of the end of such Fiscal Year, are reasonably expected to be made to the Capital Account of such Member or to such Member, as the case may be, and (ii) increasing such balance by the sum of (A) the amount, if any, which the Member is required to restore to the Company upon liquidation of such Member’s interest in the Company (or which is so treated pursuant to Section 1.704-1(b)(2)(ii)(c) of the Treasury Regulations) and (B) 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 Treasury Regulations.

 

(d)        “ Affiliate ” or “ affiliate ” of a Person shall mean: (A) any officer, director, manager, trustee or controlling equity owner of such Person; (B) any Person controlling, controlled by or under common Control with such Person; and (C) any officer, director, trustee, manager or controlling equity owner of any Person described in (B) above, and the term “ affiliated ” shall have a meaning correlative to the foregoing.

 

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(e)        “ Agreed Value ” of any asset shall mean: (i) the fair market value (without regard to Section 7701(g) of the Code) of any asset contributed by a Member to the capital of the Company as of the date of contribution, (ii) the fair market value (without regard to Section 7701(g) of the Code) of any asset distributed to a Member by the Company as of the date of distribution or (iii) the fair market value of any asset as of the date of the liquidation of the Company pursuant to Article XIII. In each such case, determination of the fair market value shall be without reduction for any liabilities secured by such contributed asset that the Company is considered to assume or take subject to under Section 752 of the Code and this Agreement. The Agreed Value of assets contributed by the Members to capital of the Company as of the date of this Agreement is shown on Exhibit A.

 

(f)         “ Annual Budget ” shall have the meaning set forth in Section 10.2.

 

(g)        “ Agreement ” shall mean this Operating Agreement of the Company, as the same may be amended or restated from time to time in accordance with its terms.

 

(h)        “ Board ” shall mean the Board of Managers of the Company as described in Article X.

 

(i)         “ Capital Account ” shall have the meaning provided in Section 7.1 of this Agreement.

 

(j)          “ Capital Contribution ” shall mean with respect to any Member, the Initial Capital Contribution and any Additional Capital Contribution contributed by such Member.

 

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(k)           “ Capital Transaction ” shall mean the sale, exchange or other disposition by the Company of all or substantially all of the Company’s assets or of all or substantially all of the assets comprising or related to a Project.

 

(1)          “ Carrying Value ” shall mean, with respect to any asset, that asset’s adjusted basis for federal income tax purposes, except as follows:

 

(i)      The initial Carrying Value of any asset contributed to the Company shall be such asset’s Agreed Value on the date of such contribution;

 

(ii)     The Carrying Values of all Company assets shall be adjusted to equal their respective gross fair market values upon any election by the Company pursuant to Section 1.704-1(b)(2)(iv)(f) of the Treasury Regulations to adjust the Members’ Capital Accounts to reflect a revaluation of Company assets;

 

(iii)    If the adjusted basis of any asset acquired by the Company is determined by reference to the adjusted basis of any other asset of the Company, the Carrying Value of the acquired asset shall be determined by reference to the Carrying Value of the other asset rather than its adjusted basis; and

 

(iv)    If the Carrying Value of an asset has been determined pursuant to clause (i), (ii) or (iii) of this subsection 1.1(1), such Carrying Value shall thereafter be adjusted in the same manner as would the asset’s adjusted basis for federal income tax purposes.

 

(m)         “ CEO ” shall have the meaning set forth in Section 10.1(d) of this Agreement.

 

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(n)         “ Certificate ” shall mean the Certificate of Formation of the Company as filed with the Secretary of State of Delaware on June 14, 2001 for the purpose of forming the Company, as amended or restated.

 

(o)        “ Code ” shall mean the Internal Revenue Code of 1986, as amended from time to time, or any successor federal revenue law.

 

(p)         “ Company ” shall have the meaning set forth in the preamble to this Agreement.

 

(q)         “ Company’s Field ” shall mean the business of exploiting the Trackplay Product by means of the Internet Protocol Rights in the pari-mutuel fixed odds and/or sports betting field.

 

(r)          “ Company Minimum Gain ” shall mean “partnership minimum gain” as defined in Section 1.704-2(b)(2) of the Treasury Regulations and shall be determined in accordance with Section 1.704-2(d) of the Treasury Regulations.

 

(s)          “ Contributing Members ” shall have the meaning set forth in Section 6.2(d) of this Agreement.

 

(t)          “ Control” or “control ” shall mean the possession, directly or indirectly, through one or more intermediaries, of the power to direct or cause the direction of the management and policies of any person whether through voting shares (or interests), by contract or otherwise, and the terms “ controlling ” and “ controlled ” shall have meanings correlative to the foregoing.

 

(u)         “ Deficiency Notice ” shall have the meaning set forth in Section 6.4 of this Agreement.

 

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(v)         “ Distributable Cash ” shall have the meaning set forth in Section 9.1 of this Agreement.

 

(w)         “ Due Date ” shall have the meaning set forth in Section 6.4 of this Agreement.

 

(x)          “ Effective Tax Rate ” shall have the meaning set forth in Section 9.3 of this Agreement.

 

(y)         “ Excess Fair Grounds Contribution ” shall mean any Capital Contribution in excess of US$1,750,000 contributed by Autotote to be used for development or promotion of the Fair Grounds Technology.

 

(z)          “ Existing Targeted Business ” shall have the meaning set forth in Section 6.4(b) of this Agreement.

 

(aa)        “ Fair Grounds Technology ” shall mean the Trackplay Product in a form specifically configured for the United States market as specified in Schedule 4 of the Joint Venture Agreement.

 

(bb)       “ Financing ” shall mean any indebtedness incurred by the Company, whether secured or unsecured, including, without limitation, the refinancing, modification, extension or amendment of any such indebtedness.

 

(cc)        “ Fiscal Year ” shall mean the twelve (12) month period ending December 31 of any year, or ending on such other date as the Board shall determine.

 

(dd)       “ GAAP ” shall mean United States generally accepted accounting principals, then in effect.

 

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(ee)        “ Initial Capital Contribution ” shall have the meaning set forth in Section 6.1 of this Agreement.

 

(ff)         “ Joint Venture Agreement ” shall mean the Joint Venture Agreement, dated April 27, 2001, between Arena Leisure plc and Scientific Games Corporation (f/k/a Autotote Corporation).

 

(gg)       “ Majority-In-Interest of the Members ” shall mean those Members possessing Sharing Ratios, in the aggregate, exceeding fifty percent (50%).

 

(hh)       “ Manager ” shall have the meaning set forth in Section 10.1(b) of this Agreement.

 

(ii)          “ Material Persistent Default ” shall mean a default or breach by a Member on three separate and distinct occasions within any twelve (12) month period (a) in the performance by such Member of any of its material obligations under this Agreement or the Joint Venture Agreement, or (b) of any warranty or representation of such Member set forth in this Agreement or in the Joint Venture Agreement, which default or breach is incapable of being cured, or, which if capable of being cured, is not cured within 30 days of the defaulting Member receiving notice of such breach or default from a non-defaulting Member.

 

(jj)          “ Member ” shall have the meaning set forth in the preamble to this Agreement.

 

(kk)        “ Member Minimum Gain ” shall mean “partner nonrecourse debt minimum gain” as defined in Section 1.704-2(i)(2) of the Treasury Regulations, and shall be determined in accordance with Section 1.704-2(i)(3) of the Treasury Regulations.

 

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(ll)          “ Member Nonrecourse Debt ” shall mean “partner nonrecourse debt” as defined in Section 1.704-2(b)(4) of the Treasury Regulations.

 

(mm)      “ Member Nonrecourse Deductions ” shall mean “partner nonrecourse deductions” as defined in Section 1.704-2(i)(1) of the Treasury Regulations and shall be determined in accordance with Section 1.704-2(i)(2) of the Treasury Regulations.

 

(nn)       “ Membership Interest ” shall mean a Member’s aggregate rights in the Company, including, without limitation, the Member’s right to a share of the Profits and Losses of the Company, the right to receive distributions from the Company and the right to vote and, to the extent permitted in Article X hereof, participate in the management of the Company.

 

(nni)      “ New Business ” shall mean with respect to any Member, the Primary Business or New Targeted Business which such Member operates or engages in (through the Company or a Foreign Entity) or any customer with whom such Member does business (through the Company or a Foreign Entity), in each case without the participation of the Other Members and in accordance with the provisions of Sections 6.4 or 10.5.

 

(oo)       “N ew Targeted Business ” shall have the meaning set forth in Section 6.4(a) of this Agreement.

 

(pp)       “ Non-Contributing Member ” shall have the meaning set forth in Section 6.4 of this Agreement.

 

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

 

(rr)         “ Non-selling Members ” shall have the meaning set forth in Section 12.1 of this Agreement.

 

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(ss)        “ Notice Period ” shall have the meaning set forth in Section 12.1 of this Agreement.

 

(tt)         “ Offer ” shall have the meaning set forth in Section 12.1 of this Agreement.

 

(uu)       “ Offered Interest ” shall have the meaning set forth in Section 12.1 of this Agreement.

 

(vv)       “ Other Members ” shall have the meaning set forth in Section 6.4(a) of this Agreement.

 

(ww)      “ Person ” or “person” shall mean an individual, corporation, limited liability company, limited partnership, general partnership, joint venture, company, trust, bank or other entity.

 

(xx)        “ Primary Business ” shall have the meaning set forth in Section 4.1 of this Agreement.

 

(yy)       “ Profits and Losses ” shall mean, for each Fiscal Year of the Company, an amount equal to the Company’s taxable income or loss for federal income tax purposes for such year determined in accordance with Section 703(a) of the Code (without separately stating items of income, gain, loss or deduction) 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 hereunder shall be added to such taxable income or loss;

 

(ii)     (A) Any expenditures of the Company (I) not deductible in computing its taxable income and not properly chargeable to Capital Accounts or (II) paid or

 

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incurred to organize the Company or promote the sale of an interest in the Company (other than amounts paid or incurred to organize the Company with respect to which the Company has made an amortization election under Section 709(b) of the Code) and (B) any loss incurred in sale or exchange of property of the Company which is disallowed to the Company under Section 267(b) or 707(b) of the Code, which expenditure or loss is not otherwise taken into account in computing Profits or Losses hereunder, shall be subtracted from such taxable income or loss;

 

(iii)     In the event that any asset of the Company is distributed in kind to a Member or there is a liquidation of the Company, the difference between (A) an amount equal to the Carrying Value of such asset on the date of such distribution and (B) the Agreed Value of such asset on that date shall be taken into account as a gain or loss for purposes of computing Profits or Losses;

 

(iv)     Gain or loss resulting from any disposition of an asset by the Company from which gain or loss is recognized for federal income tax purposes shall be computed with reference to the Carrying Value of the asset (after adjustment for depreciation or amortization determined under subsection (v) of this definition), notwithstanding that the adjusted tax basis for federal income tax purposes of such asset differs from its Carrying Value; and

 

(v)      Depreciation or amortization shall be determined based upon the Carrying Value of assets as provided in Section 1.704-1(b)(2)(iv)(g) of the Treasury Regulations.

 

(zz)         “ Project ” shall mean a New Targeted Business or an Existing Targeted Business.

 

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(aaa)      “ Project Sharing Ratio ” shall mean the Sharing Ratio of a Member for purposes of a particular Project, calculated in accordance with the provisions of Section 6.4. A Member may have a different Project Sharing Ratio for one or more Projects as contemplated by Section 6.4.

 

(bbb)     “ Purchaser ” shall have the meaning set forth in Section 12.1 of this Agreement.

 

(ccc)       “ Required Budgeted Additional Contribution ” shall have the meaning set forth in Section 6.2 of this Agreement.

 

(ddd)     “ Required Non-Budgeted Additional Contribution ” shall have the meaning set forth in Section 6.3 of this Agreement.

 

(eee)       “ Required Interests ” shall mean the affirmative vote of Members possessing Sharing Ratios, in the aggregate, exceeding eighty (80%) percent.

 

(fff)        “ Selling Member ” shall have the meaning set forth in Section 12.1 of this Agreement.

 

(ggg)      “ Selling Notice ” shall have the meaning set forth in Section 12.1 of this Agreement.

 

(hhh)     “ Sharing Ratio ” shall mean generally for each Member (i) one hundred percent (100%) multiplied by (ii) a fraction, the numerator of which is the aggregate amount of the Capital Contribution by such Member to the Company and the denominator of which is the aggregate amount of Capital Contributions of all Members to the Company, as of the date such Sharing Ratio is being determined; provided, that a Capital Contribution made by a Member after the date of this Agreement that is included in calculating a Project Sharing Ratio shall not

 

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be included in calculating the Sharing Ratio. A Member may have a Project Sharing Ratio that is different from its Sharing Ratio for one or more Projects as contemplated by, and calculated in accordance with, Section 6.4. For purposes of calculating Sharing Ratios (including any Project Sharing Ratios), any Excess Fair Grounds Contributions shall be excluded from the definition of Capital Contributions. As of the date of this Agreement, the Sharing Ratio of Autotote is seventy percent (70%) and the Sharing Ratio of Arena is thirty percent (30%). The Sharing Ratio may be adjusted from time to time in accordance with the provisions of Section 6.4(c).

 

(iii)          “ Trackplay Product ” shall have the meaning set forth for such term in the Joint Venture Agreement.

 

(jjj)         “ Subsidiary ” of any person, shall mean any corporation, partnership, limited liability company, or other entity of which such person owns, directly or indirectly, securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions.

 

(kkk)       “ Transfer ” shall mean to sell, assign, exchange or otherwise dispose of, or to mortgage, pledge, grant, hypothecate, or otherwise encumber.

 

(lll)          “ Treasury Regulations ” shall mean the regulations promulgated pursuant to the Code (including Temporary Regulations), and any citation to any Treasury Regulations shall include any amendments or successors thereto.

 

Other capitalized terms used in this Agreement but not defined above shall have the meanings given to such terms in this Agreement.

 

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ARTICLE II

 

Formation and Name: Articles of Organization

 

2.1           Name . The Members have formed a limited liability company under the Act under the name Trackplay LLC. The Board may change the name of the Company or adopt such trade or fictitious names as it may determine.

 

2.2           Formation . The Company was formed on June 14, 2001 by the filing of the Certificate with the Secretary of State of the State of Delaware. The Members, Managers and/or officers shall execute and file, if required, such further documents (including amendments to the Certificate) and shall file, record, publish and do such other acts and take such further action as shall be appropriate to comply with the requirements of law for the formation and operation of a limited liability company in all other countries and states where the Company may elect to do business.

 

ARTICLE III

 

Term

 

3.1           Term . The Company commenced as of the date of the filing of the Certificate with the Secretary of State of the State of Delaware and (unless the term shall be extended by amendment to the Agreement and the Certificate in accordance with the procedures for the amendment thereof set forth herein) shall continue until the occurrence of an event requiring the Company to be dissolved and its affairs wound up under the Act or the terms of this Agreement.

 

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ARTICLE IV

 

Business of the Company: Title to Company Property

 

4.1           Business of the Company . The business of the Company shall be (a) to develop and market the Trackplay Product by means of Internet Protocol Rights (as defined in the Joint Venture Agreement) in the pari-mutuel fixed odds and/or sports betting field to licensed totalisator owners, operators and managers (the “ Primary Business ” ), together with such other activities as may be necessary, advisable or convenient to the promotion or conduct of the Primary Business of the Company as aforesaid, including, without limitation, the incurring or refinancing of indebtedness and the granting of liens and security interests on the real, personal and other property of the Company to secure the payment of such indebtedness as permitted by this Agreement; and (b) to engage in any lawful act or activity in which limited liability companies may engage under the Act. The Company shall have the authority to do all things necessary or convenient to accomplish its purpose and operate its business as described in this Article IV.

 

4.2           Title to Company Property . All property owned by the Company, whether real or personal, tangible or intangible, shall be deemed to be owned by the Company as an entity, and no Member, individually, shall have any ownership of such property. The Company may hold any of its assets in its own name or in the name of its nominee, which nominee may be one or more Persons.

 

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ARTICLE V

 

Principal Place of Business; Registered Agent

 

5.1           Principal Place of Business; Registered Agent . The principal place of business of the Company shall be c/o Autotote Systems, Inc., 100 Bellevue, P.O. Box 6009, Newark, Delaware 19714-6009. The registered agent of the Company shall be as stated in the Certificate or as otherwise determined by the Board.

 

ARTICLE VI

 

Contributions

 

6.1           Contributions and Initial Sharing Ratios of the Members . Each Member has contributed the cash and assets set forth opposite such Member’s name on Exhibit A hereto under the column captioned Initial Capital Contribution (the “ Initial Capital Contribution ” ). The initial Sharing Ratios of such Members is as set forth in Section 1.1(hhh) and on Exhibit A. Any changes in the Members or in the Sharing Ratio (including the assignment of, and any changes in, any Project Sharing Ratio) of any Member shall be reflected in an amendment to Exhibit A of this Agreement.

 

6.2           Required Budgeted Additional Capital Contributions . The Annual Budget adopted by the Board shall include a schedule of the amount and timing of additional capital contributions budgeted to be made by each Member during the Fiscal Year covered by such budget for each item or category in the Annual Budget (the “ Budgeted Additional Contributions ” ). The Board shall determine (by the affirmative vote of at least four (4) Managers present at a meeting at which a quorum is present) not later than 30 days prior to the due date for each Budgeted Additional Contribution (a “ Scheduled Payment Date ” ) whether,

 

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and how much of, the Budgeted Additional Contribution will be required, including any amounts required to be contributed for that budget item or category that exceed the Budgeted Additional Contribution for that budget item or category (all additional capital contributions, which the Board determines Members must contribute pursuant to this Section 6.2 are referred to as “ Required Budgeted Additional Contributions ” ). The CEO or any other officer of the Company shall notify each Member of its Required Budgeted Additional Contribution not later than thirty (30) days prior to the due date for such payment. The Required Budgeted Additional Contributions shall be made pro rata by each Member in cash or in current funds in accordance with the Sharing Ratios (or if the Required Budget Additional Contribution is for a Project for which a Member has a separate Project Sharing Ratio, in accordance with the applicable Project Sharing Ratio) for such Members in effect on the applicable payment date; provided, however, that any Capital Contribution in excess of an aggregate of US$2,500,000 required for the development and promotion of the Fair Grounds Technology shall be made solely by Autotote.

 

6.3           Required Non-Budgeted Additional Capital Contribution . The Board may at any time and from time to time determine that the Company requires additional capital contributions that are not included within the Budgeted Additional Contribution or otherwise covered by Section 6.2 (a “ Required Non-Budgeted Additional Contribution ” ). A determination that Members must make a Required Non-Budgeted Additional Contribution shall require the affirmative vote of at least four (4) Managers. The CEO, or any other officer of the Company, shall notify each Member of its Required Non-Budgeted Additional Contribution not later than 30 days prior to the due date for such payment, which notice shall specify the date on or before which such funds are required by the Company and the purposes for which such funds

 

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are required. The Required Non-Budgeted Additional Contribution shall be made pro rata by each Member in cash or in current funds in accordance with the Sharing Ratios (or if the Required Non-Budgeted Additional Contribution is for a Project for which a Member has a separate Project Sharing Ratio, in accordance with the applicable Project Sharing Ratio) for such Member in effect on the applicable payment date; provided, however, that any capital contribution in excess of an aggregate of US$2,500,000 required for the development and promotion of the Fair Grounds Technology shall be made solely by Autotote.

 

6.4           Failure to Make Additional Capital Contributions . If a Member (a “ Non-Contributing Member ” ) fails to pay its proportionate share of an Additional Capital Contribution to the Company on the due date for such payment (the “ Due Date ” ), the CEO shall deliver to all Members written notice of the Non-Contributing Member’s default (the “ Deficiency Notice ” ). The Deficiency Notice shall specify the portion of the Additional Capital Contribution which the Non-Contributing Member failed to make and the date on or before which such funds are finally required by the Company, which date shall not be earlier than five (5) days after the date of the Deficiency Notice (the “ Final Payment Date ” ).

 

(a)           If the Additional Capital Contributions are required primarily to enable the Company to initiate a new project, transaction or other venture or acquire a business or portion thereof (in each case, which is or is intended to be, operated by the Company as a distinct, stand alone business the profits and losses of which are capable of being segregated from the profit and losses of the other businesses of the Company) (the “ New Targeted Business ” ), and the Non-Contributing Member has not contributed the full amount of its proportionate share of the Additional Capital Contribution required to be paid by the Final Payment Date, then:

 

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(i)             the Members who are not Non-Contributing Members (the “ Other Members ” ) acting alone by the affirmative vote of a majority of such Other Members shall elect whether the Company shall initiate, acquire or operate the New Targeted Business; and if the Other Members elect to initiate, acquire or operate the New Targeted Business, such Other Members shall: (A) contribute the balance of the Capital Contributions so required pro rata in accordance with each Other Member’s Sharing Ratio relative to each other or such other proportion as they may agree upon; and (B) indemnify and hold harmless the Non-Contributing Member from any loss, liability, damage or other obligation ( “ Liabilities ” ) incurred by such Non-Contributing Member which (1) relate solely to, or result solely from, the operation of the New Targeted Business and (2) which are incurred solely by virtue of being a Member of the Company. With respect to claims made by a Non-Contributing Member against the Other Members, the foregoing indemnity shall cover only direct damages or other Liabilities which may be incurred by the Non-Contributing Member and shall not include, and the Other Members shall not be obligated to indemnify or hold harmless the Non-Contributing Member for, any claim made by a Non-Contributing Member against the Other Members for special, incidental, indirect, punitive or consequential damages or other Liabilities, or damages or other Liabilities for lost revenue or lost profits, whether foreseeable or not (collectively, “ Special Damages ” ). The foregoing indemnity shall cover both direct damages and Special Damages with respect to claims made by a third party against Non-Contributing Members that are otherwise covered by such indemnity.

 

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(ii)            any portion of the Additional Capital Contribution paid by the Non-Contributing Member shall be returned to such Non-Contributing Members without interest;

 

(iii)           Notwithstanding anything herein or in the Joint Venture Agreement to the contrary:

 

(A)           the Non-Contributing Members shall not be entitled to any Profits, Losses, Distributable Cash or other assets or benefits of any kind from such New Targeted Business, and shall be deemed to have a zero (0%) percent Project Sharing Ratio with respect to such New Targeted Business; and

 

(B)            the Non-Contributing Members and their respective representatives on the Board shall have no voting or other rights with respect to matters relating to the ownership or operation of, or otherwise relating to, such New Targeted Business which do not (1) directly and adversely affect the Fair Grounds Project or any other Project in which such Member has a Project Sharing Ratio that is 20% or more or (2) impose directly any obligation on any Non-Contributing Member (after giving effect to the provisions of Section 6.4(a)(i)). Each Member understands, acknowledges and agrees that the foregoing shall act as a waiver of its rights under Section 10.3 of this Agreement and Schedule 2 of the Joint Venture Agreement, to the extent necessary to a effectuate the foregoing. The “ Fair Grounds Project ” shall mean the development and promotion of the Fair Grounds Technology by the Company.

 

(iv)           The Non-Contributing Member shall have no further rights or obligations to make any Capital Contributions with respect to such New Targeted Business;

 

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(v)            Each Other Member shall be assigned a Project Sharing Ratio solely for such New Targeted Business which shall be equal to 100% multiplied by a fraction, (i) the numerator of which is the applicable amount of Capital Contributions made by such Other Member to such New Targeted Business; and (ii) the denominator of which is the aggregate amount of Capital Contribution made by all Other Members for such New Targeted Business, at the date such Project Sharing Ratio is determined; and

 

(vi)           the failure of the Non-Contributing Member to have paid its full amount of the Additional Capital Contribution shall be deemed to be a “material default” (with the requisite notice deemed given and requisite grace period deemed passed) for purposes of determining whether a Material Persistent Default has occurred under this Agreement and the Joint Venture Agreement, unless such default is waived in writing by the Other Members.

 

(b)            If the Additional Capital Contributions are required primarily to enable the Company to continue to develop or operate an already existing project, transaction, other venture or business or interest therein (in each case which is, or is intended to be, operated by the Company as a distinct stand alone business the profits and losses of which are capable of being segregated from the profits and losses of the other businesses of the Company) (the “ Existing Targeted Business ” ) and the Non-Contributing Member has not contributed the full amount of its proportionate share of the Additional Capital Contribution required to be paid by the Final Payment Date, then:

 

(i)             each Other Member may (A) pro rata (in proportion to the Sharing Ratios or Project Sharing Ratios of all the Other Members relative to each other or in such other proportions as the Other Members may agree upon), make the Additional Capital Contribution to

 

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the Company which the Non-Contributing Member failed to make or (B) elect to have the portion of the Additional Capital Contribution paid by such Other Members returned to such Other Members by the Company;

 

(ii)            the Members shall be assigned a Project Sharing Ratio solely for such Existing Targeted Business which shall be equal to 100% multiplied by a fraction, the numerator of which is the sum of the Member’s Capital Contributions with respect to such Existing Targeted Business and the denominator of which is the sum of the Capital Contributions of all the Members with respect to such Existing Targeted Business. For purposes of this Section 6.4(b), a Member’s Capital Contributions shall include the amount (if any) of the Additional Capital Contribution contributed by the Member for the Existing Targeted Business pursuant to Sections 6.2, 6.3 or 6.4, and if the Existing Targeted Business is the Fair Grounds Technology, Autotote’s Capital Contributions (for purposes of both the numerator and the denominator) shall exclude any Excess Fair Ground Contributions contributed to the Company;

 

(iii)           the failure of the Non-Contributing Member to have paid its full amount of the Additional Capital Contribution shall be deemed to be a “material default” (with the requisite notice deemed given and the requisite grace period deemed passed) for purposes of determining whether a Material Persistent Default has occurred under this Agreement and the Joint Venture Agreement, unless such default is waived in writing by the Other Members.

 

(c)            If the Additional Capital Contribution are required primarily for the general operation and management of the Company or for any other purpose other than those specified in Section 6.4(a) or Section 6.4(b), but not for initiating, acquiring or operating a New Targeted Business or an Existing Targeted Business:

 

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(i)             the Sharing Ratios for the Members shall be adjusted as follows: the Sharing Ratio of each Member shall be equal to 100% multiplied by a fraction, the numerator of which is the sum of the Member’s Capital Contributions, and the denominator of which is the sum of the Capital Contributions of all the Members. For purposes of this Section 6.4(c), a Member’s Capital Contribution shall include the amount (if any) of the Additional Capital Contribution contributed by the Member pursuant to Sections 6.2, 6.3 or 6.4 and shall exclude (for purposes of both the numerator and the denominator) any Excess Fair Grounds Contributions contributed to the Company by Autotote and shall exclude any Capital Contribution made by any Member after the date of this Agreement that is included in calculating a Project Sharing Ratio; and

 

(ii)            the failure of the Non-Contributing Member to have paid its full amount of the Additional Capital Contribution shall be deemed a “material default” (with the requisite notice deemed given and the requisite grace period deemed passed) for purposes of determining whether a Material Persistent Default has occurred under this Agreement or the Joint Venture Agreement, unless such default is waived in writing by the Other Members.

 

(d)            (i)             In the event that (A) one of the Members fails to pay to the Company such Member’s proportionate share of the Additional Capital Contributions and (B) thereafter an amount of Losses otherwise allocable to such Non-Contributing Member pursuant to Section 8.1 would cause such Non-Contributing Member to have an Adjusted Capital Account Deficit while the Other Member or Other Members do not have an Adjusted Capital Account Deficit (such Other Member or Other Members with positive Adjusted Capital Account balances hereinafter referred to as “ Contributing Members ” ), then, notwithstanding Section 8.1

 

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hereof, all Losses shall be allocated to the Contributing Members in proportion to their Sharing Ratios or their Project Sharing Ratios, as the case may be. Notwithstanding the foregoing, in no event shall Losses of the Company continue to be allocated to any Contributing Member pursuant to this Section 6.4(d)(i) if such allocation would cause such Member to have an Adjusted Capital Account Deficit as of the end of such Fiscal Year.

 

(ii)           Before allocating Profits pursuant to Section 8.1 hereof, Profits shall first be allocated to each Contributing Member, in reverse order of allocations of Losses pursuant to Section 6.4(d)(i), in proportion to, and to the extent of, the excess, if any, by which the Losses allocated to such Contributing Member pursuant to Section 6.4(d)(i) for all prior Fiscal Years exceed the cumulative Profits allocated to such Member pursuant to this Section 6.4(d)(ii) for all prior Fiscal Years.

 

(e)           Except as otherwise provided in this Agreement, no Member shall be required to contribute any additional capital to the Company.

 

6.5          No Withdrawal of Capital . A Member shall not be entitled to withdraw any part of such Member’s capital or to receive any distribution from the Company, except as specifically provided in this Agreement. No interest shall be paid on any capital contributed to the Company.

 

6.6          No Liability for Debts of the Company . Except as otherwise provided by applicable law, the debts, obligations and liabilities of the Company, whether arising in contract, tort or otherwise, shall be solely the debts, obligations and liabilities of the Company. Neither the Members, the Managers, the officers, nor any Person affiliated with a Member, a Manager or an officer shall be obligated personally for any such debt, obligation or liability of the Company

 

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solely by reason of being a Member, acting as the Manager or an officer or being an Affiliate of any of them.

 

6.7          No Obligation to Restore Negative Balances in Capital Accounts . No Member with a negative balance in such Member’s Capital Account shall have any obligation to the Company or the other Members to restore such negative balance.

 

ARTICLE VII

 

Capital Accounts of Members

 

7.1          Capital Accounts . The Company shall establish and maintain for each Member a separate capital account ( “ Capital Account ” ) in accordance with the Code. The Capital Account of each Member shall be (a) credited with (i) the amount of any cash and the Agreed Value of any asset contributed by such Member to the Company, (ii) such Member’s distributive share of Profits and any items of income or gain which are specially allocated to such Member and (iii) the amount of any Company liabilities assumed by such Member or which are secured by any asset distributed to such Member, and (b) decreased by (i) the amount of cash distributed to the Member, in its capacity as a Member, by the Company, (ii) such Member’s distributive share of Losses and any items of expense, deduction or loss allocated to such Member, (iii) the Agreed Value of any asset distributed to the Member by the Company, and (iv) the amount of any liabilities of such Member assumed by the Company or which are secured by any asset contributed by such Member to the Company. In determining the amount of any liability for purposes of (a) (iii) and (b) (iii) of this subsection, there shall be taken into account Code Section 752(c) and any other applicable provisions of the Code and Treasury Regulations.

 

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7.2          Substituted Members . Any substituted Member shall succeed to the Capital Account of the transferor with respect to the portion of the Membership Interest acquired, which Capital Account shall then be further adjusted, as necessary, to reflect any election made by the Company with respect to such acquisition pursuant to Sections 734, 743 and 754 of the Code in accordance with Section 1.704-1(b)(2)(iv)(m) of the Treasury Regulations.

 

7.3          Compliance with Treasury Regulations . The foregoing provisions and the other provisions of this Agreement relating to the maintenance of Capital Accounts are intended to comply with Section 1.704-1(b) of the Treasury Regulations, and shall be interpreted and applied in a manner consistent with such Regulations. In the event that the Board shall determine that it is prudent to modify the manner in which the Capital Accounts, or any debits or credits thereto (including, without limitation, debits or credits relating to liabilities which are secured by contributed or distributed property or which are assumed by the Company or the Members) are computed solely in order to comply with such Regulations, the Board may make such modifications, provided that they will not have a material effect on the amounts distributable to any Member upon the dissolution of the Company.

 

ARTICLE VIII

 

Allocation of Profits and Losses

 

8.1          Allocation of Profits and Losses . Subject to Section 6.4(d) hereof, the Profits or Losses of the Company for any Fiscal Year shall be allocated to the Members in accordance with their respective Sharing Ratios, and in the case of Profits and Losses generated or incurred by a Project, in accordance with their respective Project Sharing Ratios for that Project.

 

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8.2          Allocations upon Transfer or Admission . If all or any part of any Membership Interest in the Company is transferred or assigned in accordance with the provisions of this Agreement at any time other than at the end of the Fiscal Year of the Company, or if the interest of any Member or Members changes (including, without limitation, as a result of the admission of a new Member), the amount, in respect of such Membership Interest, of Profits, Losses, and any items of income, gain, deduction or loss as computed both for Company “book” purposes and for federal income tax purposes, shall be allocated to the Member whose Membership Interest was transferred, assigned or changed (as the case may be) in the same ratio as the number of days in such year before the date of such transfer, assignment or change (as the case may be) bears to the number of days in the entire year, the remainder to be allocated to the transferee, assignee or new Member (as the case may be), provided that the amount of Company Profits, Losses, and any items of income, gain, deduction or loss arising out of a Capital Transaction shall be allocated to whoever holds the Membership Interest on the date such Profits, Losses, or other items are earned or incurred.

 

8.3          Elections . Any elections or determinations required or permitted to be made by the Company under the Code will be made by the Board.

 

8.4          Special Allocations .

 

(a)           Notwithstanding any other provision of this Agreement, if there is a net decrease in Company Minimum Gain during any year, each Member shall be specially allocated items of income and gain for such year (and, if necessary, subsequent Fiscal Years) in an amount equal to the portion of such Member’s share of the net decrease in Company Minimum Gain, determined in accordance with Section 1.704-2(g) of the Treasury Regulations. Allocations

 

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pursuant to the previous sentence shall be made in proportion to the respective amounts required to be allocated to each Member pursuant to Section 1.704-2(g) of the Treasury Regulations. The items to be so allocated shall be determined in accordance with Section 1.704-2(f)(6) of the Treasury Regulations. This Section 8.4(a) is intended to comply with the minimum gain chargeback requirement in Section 1.704-2(f) of the Treasury Regulations and shall be interpreted consistently therewith.

 

(b)           Notwithstanding any other provisions of this Agreement except Section 8.4(a), if there is a net decrease in Member Minimum Gain attributable to a Member Nonrecourse Debt during any Fiscal Year, each Member who has a share of the Member Minimum Gain attributable to such Member Nonrecourse Debt, determined in accordance with Section 1.704-2(i)(5) of the Treasury Regulations, shall be specially allocated items of income and gain for such Fiscal Year (and, if necessary, subsequent years) in an amount equal to the portion of such Member’s share of the net decrease in Member Minimum Gain attributable to such Member Nonrecourse Debt, determined in accordance with Section 1.704-2(i)(4) of the Treasury Regulations. Allocations pursuant to the previous sentence shall be made in proportion to the respective amounts required to be allocated to each Member pursuant thereto. The items to be so allocated shall be determined in accordance with Section 1.704-2(i)(4) of the Treasury Regulations. This Section 8.4 (b) is intended to comply with the minimum gain chargeback requirements in Section 1.704-2(i) of the Treasury Regulations and shall be interpreted consistently therewith.

 

(c)           In the event any Member unexpectedly receives any adjustments, allocations, or distributions described in Section 1.704-1(b)(2)(ii)(d)(4), Section 1.704-

 

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1(b)(2)(ii)(d)(5), or Section 1.704-1(b)(2)(ii)(d)(6) of the Treasury Regulations, items of income and gain shall be specially allocated to such Member in an amount and manner sufficient to eliminate, to the extent required by the Treasury Regulations, the Adjusted Capital Account Deficit of such Member as quickly as possible, provided that an allocation pursuant to this Section 8.4(c) shall be made only if and to the extent that such Member would have an Adjusted Capital Account Deficit after all other allocations provided for in this Article 8 have been tentatively made as if this Section 8.4(c) were not in the Agreement.

 

(d)           In the event any Member has a deficit Capital Account at the end of any Fiscal Year which is in excess of the sum of the amount 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 Treasury Regulations, each such Member shall be specially allocated items of income and gain in the amount of such excess as quickly as possible, provided that an allocation pursuant to this Section 8.4(d) shall be made only if and to the extent that such Member would have a deficit in excess of the amount that such Member is so deemed or obligated to restore after all other allocations provided for in this Article 8 have been made as if Section 8.4(c) and this Section 8.4(d) were not in the Agreement.

 

(e)           All Nonrecourse Deductions of the Company for any Fiscal Year, other than Nonrecourse Deductions attributable to Member Nonrecourse Debt, shall be allocated to the Members in accordance with their Sharing Ratios.

 

(f)          &n