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Eloyalty Ventures LLC Agreement 07-21-2000

ELOYALTY VENTURES, L.L.C.

 

OPERATING AGREEMENT

 

 

 

DATED AS OF JULY 21, 2000

 

 

 

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TABLE OF CONTENTS

 

 

PAGE

 

 

ARTICLE 1 DEFINED TERMS.....................................................1

 

ARTICLE 2 ORGANIZATIONAL MATTERS............................................4

 

2.1 Formation of Company..............................................4

 

2.2 Name..............................................................4

 

2.3 Principal Office and Registered Agent.............................5

 

2.4 Term..............................................................5

 

ARTICLE 3 PURPOSE...........................................................5

 

3.1 Purpose and Business..............................................5

 

3.2 Powers............................................................5

 

ARTICLE 4 CAPITAL CONTRIBUTIONS.............................................5

 

4.1 Capital Contributions of the Members..............................5

 

4.2 Additional Funding................................................6

 

4.3 Withdrawal of Capital.............................................6

 

4.4 Additional Capital Contributions..................................6

 

4.5 Interest on Capital Contributions.................................6

 

4.6 Additional Offerings of Company Interest..........................6

 

4.7 Enforcement of Capital Call.......................................6

 

ARTICLE 5 DISTRIBUTIONS.....................................................7

 

5.1 Distribution Policy...............................................7

 

5.2 Non-Cash Distributions............................................8

 

5.3 Amounts Withheld..................................................8

 

5.4 Distributions Upon Liquidation....................................8

 

ARTICLE 6 ALLOCATIONS.......................................................8

 

6.1 Allocations of Profits and Losses - General.......................8

 

6.2 Book/Tax Differences..............................................9

 

6.3 Nonrecourse Debt Allocations......................................9

 

6.4 Limitation on Loss Allocations; Qualified Income Offset...........9

 

6.5 Transfer During Year..............................................9

 

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TABLE OF CONTENTS

 

(CONTINUED)

 

PAGE

 

ARTICLE 7 MANAGEMENT AND OPERATIONS OF BUSINESS............................10

 

7.1 Powers of Managers...............................................10

 

7.2 Officers.........................................................11

 

7.3 Major Decisions..................................................12

 

7.4 Investment Committee.............................................12

 

7.5 Interpretation of Rights and Duties of Members, Members of the

Investment Committee, Managers and Authorized Officers........13

 

7.6 Meetings of and Actions by Members...............................14

 

7.7 Certificate of Formation.........................................14

 

7.8 Indemnification..................................................14

 

7.9 Liability of Certain Parties.....................................16

 

7.10 Other Matters Concerning the Managers............................16

 

7.11 Title to Company Assets..........................................16

 

7.12 Reliance by Third Parties........................................16

 

7.13 Covenants Regarding Operations; Investment Restrictions..........17

 

ARTICLE 8 RIGHTS AND OBLIGATIONS OF MEMBERS................................18

 

8.1 Limitation of Liability..........................................18

 

8.2 Management of Business...........................................18

 

8.3 Return of Capital................................................18

 

8.4 Rights of Members Relating to the Company........................19

 

8.5 Confidentiality Obligation of Members............................19

 

8.6 Waiver of Action.................................................19

 

ARTICLE 9 BOOKS, RECORDS, ACCOUNTING AND REPORTS...........................19

 

9.1 Records and Accounting...........................................19

 

9.2 Fiscal Year......................................................20

 

9.3 Reports..........................................................20

 

ARTICLE 10 TAX MATTERS......................................................20

 

10.1 Preparation of Tax Returns.......................................20

 

10.2 Tax Elections....................................................20

 

10.3 Tax Matters Partner..............................................20

 

10.4 Withholding......................................................21

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TABLE OF CONTENTS

 

(CONTINUED)

 

PAGE

 

ARTICLE 11 TRANSFER OF COMPANY INTERESTS....................................22

 

11.1 Transfer of Company Interests....................................22

 

ARTICLE 12 ADMISSION OF MEMBERS.............................................23

 

12.1 Admission of Substituted or Additional Members...................23

 

12.2 Amendment of Agreement and Certificate of Formation..............23

 

ARTICLE 13 DISSOLUTION AND LIQUIDATION......................................23

 

13.1 Dissolution......................................................23

 

13.2 Winding Up.......................................................24

 

13.3 Compliance with Timing Requirements of Regulations...............24

 

13.4 Rights of Members................................................25

 

13.5 Documentation of Liquidation.....................................25

 

13.6 Reasonable Time for Winding-Up...................................25

 

13.7 Liability of the Liquidator......................................25

 

13.8 Waiver of Partition..............................................26

 

ARTICLE 14 AMENDMENT OF OPERATING AGREEMENT.................................26

 

14.1 Amendments.......................................................26

 

ARTICLE 15 GENERAL PROVISIONS...............................................26

 

15.1 Power of Attorney................................................26

 

15.2 Addresses and Notice.............................................27

 

15.3 Titles and Captions..............................................27

 

15.4 Pronouns and Plurals.............................................27

 

15.5 Further Action...................................................27

 

15.6 Binding Effect...................................................28

 

15.7 Creditors........................................................28

 

15.8 Waiver...........................................................28

 

15.9 No Agency........................................................28

 

15.10 Entire Understanding.............................................28

 

15.11 Counterparts.....................................................28

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TABLE OF CONTENTS

 

(CONTINUED)

 

PAGE

 

15.12 Applicable Law...................................................28

 

15.13 Invalidity of Provisions.........................................28

 

15.14 Securities Law Representations, Warranties and Agreements........29

 

15.15 Co-Investment....................................................29

 

15.16 Freedom to Pursue Opportunities, Etc.............................30

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ELOYALTY VENTURES, L.L.C.

OPERATING AGREEMENT

 

 

THIS OPERATING AGREEMENT (the "AGREEMENT"), dated as of ___________,

2000, is entered into by and among the undersigned parties.

 

WITNESSETH

 

WHEREAS, eLoyalty Ventures, L.L.C., a Delaware limited liability

company (the "COMPANY") was formed pursuant to that certain Certificate of

Formation dated May 18, 2000 and filed with the Office of the Secretary of State

of Delaware on May 18, 2000.

 

WHEREAS, the undersigned parties desire to enter into this Operating

Agreement to set forth the agreement among the parties as more fully hereinafter

set forth in this Agreement.

 

NOW, THEREFORE, in consideration of the mutual covenants and agreements

herein contained and other good and valuable consideration, the receipt,

adequacy and sufficiency of which are hereby acknowledged, the parties hereto,

intending legally to be bound, agree as follows:

 

ARTICLE 1

 

DEFINED TERMS

 

Except as otherwise herein expressly provided, the following terms and

phrases shall have the meanings set forth below:

 

"ACT" means Delaware Limited Liability Company Act, 6 Del.

C. Section 18-101, et seq., as it may be amended from time to time (or any

corresponding provisions of succeeding law).

 

"AFFILIATE" means, with respect to any Person, any Person directly or

indirectly Controlling, Controlled by or under common Control with such Person.

 

"AGREEMENT" means this Operating Agreement, as it may be amended,

supplemented or restated from time to time.

 

"AUTHORIZED OFFICER" means any officer of the Company that is

designated an "authorized officer" by the Managers pursuant to Section 7.2

hereof.

 

"CAPITAL ACCOUNT" means the Capital Account maintained for a Member in

accordance with the provisions of Regulations section 1.704-1(b)(2)(iv).

 

"CAPITAL COMMITMENT" A Member's Capital Commitment shall mean the

aggregate amount that such Member has agreed to contribute to the capital of the

Company, including his, her or its initial Capital Contribution, as set forth

opposite the Member's name Exhibit A hereto, as amended from time to time.

 

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"CAPITAL CONTRIBUTION" means, with respect to any Member, any cash or

cash equivalents that such Member contributes to the Company.

 

"CERTIFICATE" means the Certificate of Formation of the Company filed

in the Office of the Secretary of State of the State of Delaware, as amended

from time to time in accordance with the terms hereof and the Act.

 

"CODE" means the Internal Revenue Code of 1986, as amended and in

effect from time to time, as interpreted by the applicable regulations

thereunder. Any reference herein to a specific section or sections of the Code

shall be deemed to include a reference to any corresponding provision of future

law.

 

"COMMITTED CAPITAL" The Company's Committed Capital shall equal the sum

of the aggregate Capital Commitments of all Members.

 

"COMPANY" means eLoyalty Ventures, L.L.C.

 

"COMPANY INTEREST" means an ownership interest in the Company of a

Member, and includes any and all benefits to which the holder of such a Company

Interest may be entitled as provided in this Agreement, together with all

obligations of such Person to comply with the terms and provisions of this

Agreement.

 

"CONTROL" means the possession, directly or indirectly, of the power to

direct or cause the direction of the management and policies of a Person,

whether by ownership of voting securities, by contract or otherwise.

 

"FAIR MARKET VALUE" shall be determined as follows with respect to any

assets owned by the Company: (a) securities that are listed on a recognized

securities exchange or on the NASDAQ National Market System shall be valued at

the last sale price, regular way, or if no such sale takes place, the average of

the closing bid and asked prices, regular way, as reported on the exchange where

such securities are primarily traded for the latest trading day ended prior to

the date of determination; and (b) all other assets shall be valued by the

Managers (with approval by the Investment Committee) at fair market value in

such manner as the Managers may reasonably determine. In determining the

appropriate fair market value for assets pursuant to clause (b) above, the

Managers shall consider all factors, information and data deemed in the judgment

of the Managers to be pertinent, which factors, information and data may include

any of the following: purchase cost, estimates of liquidation value, projected

cash flow, investment risk, over-the-counter price quotes, prices received in

recent private placements of securities of the same issuer and prices recently

received by comparable companies in the same or similar industries.

 

"INDEMNITEES" means the Managers, members of the Investment Committee

and, if designated by the Managers, other officers or employees of the Company.

 

"IRS" means the Internal Revenue Service, which administers the

internal revenue laws of the United States.

 

"INVESTMENT COMMITTEE" has the meaning set forth in 7.4.

 

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"INVESTMENT EXPENSES" means all costs and expenses attributable to

acquiring, holding and disposing of the Company's investments, including without

limitation all accounting, auditing, consulting, legal and other fees and

expenses, financing commitment fees, finders fees, appraisal costs and printing

costs incurred with respect to investment and disposition opportunities of the

Company, whether or not such opportunities are consummated.

 

"LIQUIDATING EVENT(S)" has the meaning set forth in Section 13.1

hereof.

 

"LIQUIDATOR" means the Managers or, in the event there are no Managers,

any Person selected by the Investment Committee, as set forth in Section 13.2(a)

hereof.

 

"MAJORITY" means Members holding a majority of the Company Interests

held by such class.

 

"MANAGER" means such Person or Persons who shall have the powers and

duties described in Section 7.1.

 

"MEMBER" or "MEMBERS" means the Persons identified as Members on

Exhibit A hereto, as the same may be amended from time to time.

 

"OFFER" means a written offer made in good faith by a Person unrelated

to the Member receiving the offer and having sufficient financial resources to

purchase the Company Interests specified in the offer on the terms and

conditions stated therein, provided that (a) the name and residence and business

address of the offeror are stated in the offer, (b) the purchase price and all

other material terms and conditions for the purchase are stated in the offer,

and (c) the offer is accompanied by a deposit in the form of a certified or

cashier's check in an amount equal to not less than five percent (5%) of the

proposed purchase price.

 

"OPERATING EXPENSES" means all reasonable operating costs and expenses

(other than Start-Up Expenses, Investment Expenses, debt service expenses,

litigation expenses (including without limitation all settlement costs), and

indemnification payments) relating to the Company's activities, investments and

business, including without limitation (i) ordinary overhead and operating

administrative expenses of the Company incurred in connection with maintaining

and operating its office, including salaries and other compensation, rent,

utilities, routine office equipment and liability and other insurance premiums,

(ii) travel, lodging, meals and related expenses and other out-of-pocket fees

and expenses incurred by or on behalf of the Company or the Investment Committee

relating to investment and disposition opportunities for the Company whether or

not consummated, (iii) accounting, auditing, consulting, escrow, custodial,

legal and other fees and expenses, including expenses associated with the

preparation of the Company's financial statements and tax returns, (iv) expenses

of the Managers, Investment Committee and Member meetings, (v) the cost of any

insurance obtained pursuant to Section 7.1(b)(ix) hereof, and (vi) any taxes,

fees and other governmental charges levied against the Company.

 

"PERSON" means an individual or a corporation, partnership, trust,

limited liability company, unincorporated organization, association or other

entity.

 

"PRIME RATE" means the rate of interest published from time to time by

The Wall Street Journal as the "prime rate" at large U.S. money center banks.

 

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"REGULATIONS" means the income tax regulations promulgated under the

Code, as such regulations may be amended from time to time (including

corresponding provisions of succeeding regulations).

 

"SECURITIES ACT" means the Securities Act of 1933, as it may be amended

from time to time.

 

"SPECIFIED PRICE" means (a) with respect to any proposed voluntary

Transfer by a Member pursuant to an Offer, the purchase price stated in such

Offer, and (b) with respect to any involuntary Transfer by a Member (e.g., due

to death or bankruptcy), the fair market value as of the date of the involuntary

Transfer of such Company Interests (determined as the amount such Member would

receive as a liquidating distribution under Section 13.2 if the Company sold all

of its assets at their respective Fair Market Values and liquidated), as

reasonably calculated by the Managers.

 

"START-UP EXPENSES" means all expenses incurred (whether prior to or

after the date of this Agreement) during the period ending twelve (12) months

after the date of this Agreement by or on behalf of the Company in connection

with the formation and start-up of the Company, and the admission of the

Members, including without limitation legal and accounting fees and expenses,

reasonable finders' fees, initial employee costs (including employment agency

fees and relocation reimbursements), costs of obtaining and furnishing the

Company's office (including furniture, fixture and equipment costs and leasing

costs), marketing costs and offering costs.

 

"TRANSFER" means a sale, assignment, transfer, gift, hypothecation or

encumbrance.

 

ARTICLE 2

 

ORGANIZATIONAL MATTERS

 

2.1 FORMATION OF COMPANY

 

The Company was formed upon the filing of the Certificate with the

Secretary of State of the State of Delaware. Except as expressly provided herein

to the contrary, the rights and obligations of the Members and the

administration and termination of the Company shall be governed by the Act. The

Company Interests of each Member shall be personal property for all purposes.

 

2.2 NAME

 

The name of the Company is eLoyalty Ventures, L.L.C. The Company's

business may be conducted under any other name or names deemed advisable by the

Managers. The words "Limited Liability Company," "L.L.C.," "LLC," or similar

words or letters shall be included in the Company's name where necessary for

purposes of complying with the laws of any jurisdiction that so requires.

 

 

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2.3 PRINCIPAL OFFICE AND REGISTERED AGENT

 

The initial principal office of the Company is Two Conway Park, 150

Field Drive, Lake Forest, Illinois 60045, or such other place as the Managers

may from time to time designate by notice to the Members. The registered agent

of the Company is CorpAmerica, Inc., 30 Old Rudnick Lane, Dover, Delaware 19901.

The Company may maintain offices at such other place or places within or outside

the State of Delaware as the Managers deem advisable.

 

2.4 TERM

 

The term of the Company commenced upon filing of the Certificate in the

Office of the Secretary of State of Delaware, and shall continue until July 15,

2010, unless it is dissolved sooner pursuant to the provisions of Article 13 or

as otherwise provided by law.

 

ARTICLE 3

 

PURPOSE

 

3.1 PURPOSE AND BUSINESS

 

The purpose and nature of the business to be conducted by the Company

is to (a) invest in the securities of early stage companies in the internet and

technology sectors, and primarily in electronic Customer Relationship Management

software companies and (b) engage in any other lawful activities determined by

the Investment Committee to be necessary or advisable in furtherance of the

foregoing.

 

3.2 POWERS

 

Subject to all of the terms, covenants, conditions and limitations

contained in this Agreement, the Company shall have full power and authority to

do any and all acts and things necessary, appropriate, proper, advisable,

desirable, incidental to or convenient for the furtherance and accomplishment of

the purposes and business described herein and for the protection and benefit of

the Company, including, without limitation, full power and authority, directly

or through its ownership interest in other entities, to enter into, perform and

carry out contracts of any kind, borrow money and provide guarantees in

connection with a borrowing by or other transaction involving an entity in which

the Company has a direct or indirect interest.

 

ARTICLE 4

 

CAPITAL CONTRIBUTIONS

 

4.1 CAPITAL CONTRIBUTIONS OF THE MEMBERS

 

Each Member has contributed in cash to the Company the initial

Capital Contribution in the amount set forth opposite his, her or its name on

Exhibit A hereto. Thereafter, each Member shall contribute capital to the

Company in accordance with such Member's Capital Commitment at such times and in

such amounts as determined by the Investment Committee upon ten (10) business

days' prior written notice.

 

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4.2 ADDITIONAL FUNDING

 

Subject to the restrictions set forth below and in Section 7.13, if the

Company requires funds for any Company purpose in excess of any other funds

determined by the Managers to be available to the Company, the Managers (i) may

cause the Company to borrow such funds from third parties, (ii) may cause the

Company to borrow such funds from one or more Members (including the Managers)

on terms that are commercially reasonable as determined by the Managers in their

reasonable discretion, (iii) may obtain such funds through additional Capital

Contributions from one or more existing Members or (iv) may obtain such funds

from additional Members as provided in Section 4.6 hereof. Notwithstanding the

foregoing, as more fully set forth in Section 7.3 of the Agreement, the

following actions by the Managers shall require the prior approval of the

Investment Committee: (a) causing the Company to borrow money, whether on a

secured or an unsecured basis, if the total borrowings (including guarantees) of

the Company would exceed thirty-five percent (35%) of the aggregate Fair Market

Value of the assets of the Company, and (b) selling additional Company

Interests.

 

4.3 WITHDRAWAL OF CAPITAL

 

A Member shall not be entitled to withdraw any part of such Member's

Capital Account or to receive any distribution from the Company, except as

provided in this Agreement.

 

4.4 ADDITIONAL CAPITAL CONTRIBUTIONS

 

No Member shall be required to make any additional Capital Contribution

after contributing its aggregate Capital Commitment.

 

4.5 INTEREST ON CAPITAL CONTRIBUTIONS

 

No interest shall be due from the Company on any Capital Contribution

of any Member.

 

4.6 ADDITIONAL OFFERINGS OF COMPANY INTEREST

 

The Managers, with the consent of the Investment Committee, shall have

the authority to issue additional Company Interests upon such terms and

conditions (including, without limitation, voting rights and provisions for

repayment of Capital Contributions) as are determined by the Managers, provided

that (1) the additional Company Interests shall be issued at a price that is no

less than a fair market price for such Company Interests (as determined by the

Managers, with advice from the Investment Committee), and (2) the additional

Company Interests shall dilute all existing Company Interests on a pro rata

basis and each existing Member's Capital Account shall be adjusted to equal the

Fair Market Value of such Company Interests.

 

4.7 ENFORCEMENT OF CAPITAL CALL

 

(a) The Company shall be entitled to enforce the obligations

of each Member to make the Capital Contributions specified in paragraph 4.1

above, and the Company shall have all rights and remedies available at law or in

equity in the event that any such Capital Contribution is not made. If any legal

proceedings relating to the failure of a Member to make

 

6

 

<PAGE> 12

 

such a Capital Contribution are commenced, such Member shall pay all costs and

expenses incurred by the Company, including attorneys' fees, in connections with

such proceedings.

 

(b) Additionally, should any Member fail to make any of

Capital Contributions pursuant to paragraph 4.1, such Member shall be in

default, and the Managers shall take the following actions:

 

(i) Notice of default (the "DEFAULT NOTICE") from

the Company shall be transmitted to the defaulting Member by certified or

registered mail, with a copy by first class mail and such Default Notice shall

be deemed effectively given three (3) days after deposit in any United States

mail box. The Default Notice shall (i) describe in reasonable detail the nature

of the default, and (ii) the potential Forfeiture (as defined below) pursuant to

this subparagraph 4.7(b).

 

(ii) The defaulting Member will have thirty (30) days

(the "GRACE PERIOD") after the deemed receipt of the Default Notice to remit to

the Company the payment in cash; provided, however, that in extraordinary

circumstances, in the Managers' sole discretion, alternative payment schedules

may be agreed to in writing by the Managers and the defaulting Member.

 

(iii) If the full amount of such contribution is not

received by the Company by the expiration of the Grace Period, each Member

hereby agrees that as liquidated and agreed current damages to the

non-defaulting Members for such default (it being agreed that it would be

difficult to fix the actual damages to such non-defaulting Members), the

defaulting Member's Capital Account shall be reduced (but not below zero) by

fifty percent (50%), which amount shall thereupon become unrestricted funds of

the Company and shall be allocated pro rata to and among the respective Capital

Accounts of the non-defaulting Members in such proportion as the Capital Account

of each such non-defaulting Member then bears to the sum of the Capital Accounts

of all non-defaulting Members (the "FORFEITURE"). If the imposition of this

reduction in the defaulting Member's Capital Account would reduce the balance

of such account below zero (0), the amount by which such account would be

reduced below zero shall be applied whenever the balance in such account next

becomes positive. Upon the Forfeiture, such Member shall be relieved of any

further obligations to make Capital Contributions pursuant to paragraph 4.1 and

the Managers may, in their sole discretion, allow the non-defaulting Members to

increase the amount of their capital contributions, proportionately based on

their respective Membership Interests, up to the aggregate amount relieved from

the defaulting Member.

 

ARTICLE 5

 

DISTRIBUTIONS

 

5.1 DISTRIBUTION POLICY

 

The Managers may, subject to Investment Committee approval, make

distributions of cash or securities to the Members at any time or from time to

time to all Members in proportion to their respective Capital Accounts. In

addition, the Company will use reasonable efforts, after the end of each fiscal

year during the original term of the Company, to make a distribution to

 

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<PAGE> 13

each Member equal to the excess, if any of (a) the aggregate state and federal

income tax liability such Member would have incurred as a result of such

Member's ownership of an interest in the Company for all prior fiscal years,

calculated as if (i) such Member were a natural person resident in the State of

Delaware and taxable at the maximum rates provided for under applicable federal

and Delaware state income tax laws, and (ii) allocations of income and loss from

the Member were the sole source of income and loss for such Member, over (b) all

prior cash distributions made pursuant to Section 5.1; provided that the

Managers shall not be required to make any such distribution if in the Managers'

reasonable determination cash reserves are inadequate for such purpose in view

of identifiable Company expenses and projected investment activities.

 

5.2 NON-CASH DISTRIBUTIONS

 

In the event of any non-cash distribution pursuant to Section 5.1 above

or Section 5.4 below, the Managers shall, to the greatest extent practicable,

for any such distribution (a) distribute to the Members property of the same

type, and (b) if cash and other property are to be distributed simultaneously,

distribute such cash and other property in the same proportion to each Member,

except to the extent a disproportionate distribution of such property is

necessary to avoid distributing fractional shares. Any property distributed in

kind to the Members shall be treated for all purposes under this Agreement as if

it were sold for cash in an amount equal to its Fair Market Value.

 

5.3 AMOUNTS WITHHELD

 

All amounts withheld pursuant to the Code or any provisions of any

state or local tax law and Section 10.4 hereof with respect to any allocation,

payment or distribution to a Member shall be treated as an advance on amounts

distributed to such Member pursuant to Section 5.1 for all purposes under this

Agreement.

 

5.4 DISTRIBUTIONS UPON LIQUIDATION

 

Liquidating proceeds shall be distributed to the Members in accordance

with Section 13.2.

 

ARTICLE 6

 

ALLOCATIONS

 

6.1 ALLOCATIONS OF PROFITS AND LOSSES - GENERAL

 

The terms "net profits" and "net losses" of the Company shall mean the

net profits or net losses of the Company as determined for federal income tax

reporting purposes in accordance with Regulations section 1.704-1(b)(2)(iv).

After giving effect to the special allocations set forth below in this Article

6, the Company's net profits and all other items of income and gain and net

losses and other items of loss and deduction shall be allocated among the

Members in proportion to their respective Capital Commitment.

 

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<PAGE> 14

 

6.2 BOOK/TAX DIFFERENCES

 

Notwithstanding anything to the contrary contained in this Article 6,

any portion of any income, gain, loss or deduction with respect to property

contributed to the Company by a Member (or revalued by the Company pursuant to

Regulations section 1.704-1(b)(2)(iv)(f)) shall be allocated among the Members

in accordance with Code section 704(c) and Regulations section 1.704-3 so as to

take account of the variation, if any, between the adjusted tax basis of such

property to the Company and its fair market value at the time of the

contribution (or revaluation), provided, however, that allocations to Members

under this Section 6.2 shall not affect a Member's Capital Account to the extent

such amounts have previously been reflected in such Capital Account.

 

6.3 NONRECOURSE DEBT ALLOCATIONS

 

Notwithstanding anything to the contrary contained above in this

Article 6, the Company shall comply with Regulations section 1.704-2, as

amended, with respect to the allocation of deductions and the chargeback of

minimum gain on nonrecourse debts of the Company. For purposes of allocating

Company nonrecourse liabilities among the Members pursuant to Regulations

section 1.752-3, the Members' interests in Company profits shall be determined

based on their respective Company Interests.

 

6.4 LIMITATION ON LOSS ALLOCATIONS; QUALIFIED INCOME OFFSET

 

Notwithstanding anything to the contrary contained in Section 6.1

hereof, no Member shall be allocated net losses that would cause or increase a

deficit balance in his, her or its Capital Account in excess of any actual or

deemed obligation of such Member to restore deficits (as defined in Regulations

section 1.704-1(b)(2)(ii)(c)). If any Member shall receive with respect to the

Company an adjustment, allocation or distribution in the nature described in

Regulations section 1.704-1(b)(2)(ii)(d)(4)-(6) which causes or increases a

deficit in such Member's Capital Account in excess of any actual or deemed

obligation of such Member to restore deficits (as defined in Regulations section

1.704-1(b)(2)(ii)(c)), such Member shall be allocated items of income and gain

in an amount and manner as will eliminate such deficit balance as quickly as

possible; it being intended that this Section 6.4 shall constitute a "qualified

income offset" within the meaning of Regulations section

1.704-1(b)(2)(ii)(d)(3). Any allocations made under this Section 6.4 shall be

taken into account in making allocations under Section 6.1 above so that, to the

extent possible, and to the extent permitted by the Regulations, the cumulative

allocations of net profits, net losses and other items and allocations under

Section 6.1 and this Section 6.4 to each Member shall be equal to the net amount

that would have been allocated to each Member if the allocations under this

Section 6.4 had not been made.

 

6.5 TRANSFER DURING YEAR

 

In the event of the transfer of all or any part of a Company Interest

(in accordance with the provisions of this Agreement) at any time other than the

end of a fiscal year, the share of income or loss (in respect of the Company

Interests so transferred) shall be allocated between the transferor and the

transferee in the same ratio as the number of days in such fiscal year before

and after such transfer. The provisions of this Section 6.5 shall not apply to

any profit or loss

 

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<PAGE> 15

 

attributable to a sale or other disposition of all or substantially all of the

Company's assets, or to other extraordinary non-recurring items. Such profit

and loss shall be allocated to the owner of the Company Interests as of the

date of closing of the sale or other disposition, or, with respect to other

extraordinary non-recurring items, the date the profit is realized or the loss

is incurred, as the case may be.

 

ARTICLE 7

 

MANAGEMENT AND OPERATIONS OF BUSINESS

 

7.1 POWERS OF MANAGERS

 

(a) The Managers shall be appointed by the consent of the Members. The

Members agree that the initial Manager shall be Sarah Faux. A second Manager

will be appointed by the consent of the Members as soon as practicable. Managers

may be removed by the Investment Committee or the Members for any reason or no

reason with thirty (30) days written notice. Managers may resign at any time by

giving thirty (30) days written notice to the Investment Committee. Any such

removal or resignation of any Manager shall not affect any employment agreement

between the Manager and eLoyalty Corporation.

 

(b) Except as otherwise expressly provided in this Agreement, including

without limitation the provisions of Section 7.3 of the Agreement, which require

the prior approval of the Investment Committee for certain actions, all

management powers over the business and affairs of the Company shall be vested

in the Managers. Any conflict between the Managers shall be resolved by a

majority of members of the Investment Committee. Subject to the terms of this

Agreement and to limitations imposed by law, including, without limiting the

foregoing, the Act, and provided the same shall not be prohibited under this

Agreement, the Managers shall have full power and authority to do all things and

perform all acts specified in this Agreement or otherwise deemed necessary or

desirable by it to conduct the business of the Company, to exercise all Company

powers set forth in Section 3.2 hereof and to effectuate the Company purposes

set forth in Section 3.1 hereof, including, without limitation, the full power

to:

 

(i) sell, transfer, assign or otherwise dispose of all or any

portion of the assets of the Company (including a sale or other disposition of

all of the Company assets which is effectuated in the form of a sale and

conveyance of all the Company Interests), provided that a sale, transfer or

other disposition of all or substantially all of the assets of the Company shall

require the prior approval of the Investment Committee in accordance with

Section 7.3(b)(iii) hereof;

 

(ii) employ executive, management or other agents, administrative

or secretarial personnel or other persons necessary for the operation,

management or development of the Company as the Managers deem necessary or

appropriate;

 

(iii) cause the Company to establish and maintain working capital

reserves in such amounts as the Managers deem necessary or appropriate from time

to time;

 

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(iv) except as prohibited in Section 7.14(e), in furtherance of

the Company's purposes and business, borrow money, whether on a secured or

unsecured basis, and/or guarantee the indebtedness of other entities in which

the Company has an ownership interest;

 

(v) enter into transactions with an Affiliate of a Member or

Investment Committee member, provided that the price and other terms of such

transactions are fair to the Company and are not less favorable to the Company

than those generally prevailing with respect to comparable transactions;

 

(vi) execute and deliver such documents on behalf of the Company

as the Managers may deem necessary or desirable for the Company's business,

including, without limitation, guaranties and indemnities;

 

(vii) perform, or cause to be performed, all of the Company's

obligations under any agreement to which the Company is a party;

 

(viii) retain or engage attorneys and accountants, to the extent

such professional services are required during the term of the Company;

 

(ix) cause the Company to obtain and maintain liability insurance

for one or more of the Indemnitees hereunder, but only if the Managers determine

in their sole discretion to obtain such insurance;

 

(x) open and maintain bank accounts for the Company's funds and

make short-term investments of the Company's funds prior to the Company's

investment in other entities;

 

(xi) cause the Company to enter into a merger or consolidation

with any other Person or participate in a tax-free roll-up or convert, by merger

or otherwise, into a Code Subchapter C corporation or any other type of entity

merger, provided that the prior approval of the Investment Committee shall be

required in accordance with Section 7.3(b)(iv) hereof;

 

(xii) incur Start-Up Expenses, Operating Expenses, Investment

Expenses, debt service costs, litigation costs (including without limitation all

settlement costs), and indemnification costs; and

 

(xiii) do any act which is necessary or desirable to carry out any

of the foregoing.

 

7.2 OFFICERS

 

(A) DESIGNATION OF OFFICERS. The Managers may delegate the powers, authorities

and duties reserved to them as set forth in Section 7.1 of this Agreement to

such Persons (each an "AUTHORIZED OFFICER") as the Managers may determine. The

Managers shall have the authority to remove any Authorized Officer of the

Company at any time for any reason or for no reason.

 

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7.3 MAJOR DECISIONS

 

(a) SELECTION OF MANAGERS. The Managers shall be appointed by

consent of a majority of the Investment Committee.

 

(b) INVESTMENT COMMITTEE APPROVAL. Notwithstanding the

provisions of Section 7.1, without the prior approval of the Investment

Committee, the Managers shall not:

 

(i) accept property as a Capital Contribution;

 

(ii) invest in the securities of any companies on behalf

of the Company;

 

(iii) sell, transfer or otherwise dispose of all or

substantially all of the assets of the Company;

 

(iv) merge or consolidate with any other Person or

participate in a tax-free roll-up or convert, by merger or otherwise, into a

Code Subchapter C corporation or any other type of entity;

 

(v) amend, modify, waive, cancel or consent to any

amendment, modification, waiver or cancellation of this Agreement (except as set

forth in Section 14.1(c) hereof);

 

(vi) liquidate or wind up the Company;

 

(vii) grant to any Member or other third party who brings

an investment opportunity to the Company, or who takes an active role in the

management or development of any investment opportunity for the Company, a

separate participation right in the investment opportunity through a direct or

indirect ownership interest (either through investment or options) in the

investment opportunity;

 

(viii) enter into transactions with an Affiliate of a

Manager;

 

(ix) except as prohibited in Section 7.14(e), borrow money

(including without limitation a guarantee of indebtedness), whether on a secured

or an unsecured basis, if the total borrowings (including guarantees) of the

Company would exceed thirty-five percent (35%) of the aggregate Fair Market

Value of the assets of the Company; and

 

(x) sell additional Company Interests of the Company

other than as permitted in Section 4.6 above.

 

7.4 INVESTMENT COMMITTEE

 

(a) The Members shall appoint an Investment Committee of not more than

seven (7) members. Each Member that holds at least a fifteen percent (15%)

Company Interest shall be entitled to appoint one member to the Investment

Committee. Any decision to remove a member of the Investment Committee or to

fill any vacancy created by the resignation or death

 

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<PAGE> 18

 

of a member of the Investment Committee shall be made by the Member that

appointed such member of the Investment Committee pursuant to this Section

7.4(a). The appointed member of eLoyalty Employee Investors, L.L.C. will be

appointed by eLoyalty Corporation. No more than one (1) member of the Investment

Committee may be an employee of eLoyalty Corporation. The Members agree that the

initial members of the Investment Committee will be Ed Brakeman, Kelly Conway,

Tench Coxe and Jay Hoag.

 

(b) The Investment Committee will have the ultimate responsibility for

investment strategy and investment decisions and will approve all proposed

investments to be made by the Company. The Investment Committee will exercise

any and all voting and other rights associated with the Company's ownership

interest in any entity. At least a majority of the Investment Committee will

review and approve all portfolio valuations and investments made by the Company.

 

(c) The presence, in person or by conference telephone or other similar

communications equipment of a majority of the members of the Investment

Committee shall constitute a quorum for the transaction of business of the

Investment Committee. Except as otherwise expressly required by statute, the

Certificate of Formation, as amended from time to time, or this Agreement, the

act of a majority of the members of the Investment Committee present at a

meeting at which a quorum is present shall be the act of the Investment

Committee. The Company shall reimburse each Investment Committee member for his

or her reasonable out-of-pocket expenses incurred in connection with attending

the Investment Committee meetings.

 

7.5 INTERPRETATION OF RIGHTS AND DUTIES OF MEMBERS, MEMBERS OF THE

INVESTMENT COMMITTEE, MANAGERS AND AUTHORIZED OFFICERS

 

To the fullest extent permitted by the Act and other applicable law,

and to the extent not inconsistent with the specific provisions of this

Agreement or the Certificate, it is the intention and agreement of the parties

that:

 

(a) The Members in their respective capacities as such shall have the

rights, powers, authority, duties and responsibilities (if any) of stockholders

of a corporation organized and existing under the General Corporation Law of the

State of Delaware (the "DGCL").

 

(b) Without limiting the powers of the Managers as set forth in

Section 7.1 hereof, the Managers of the Company shall have the statutory and

customary rights, powers, authority, duties and responsibility ("OFFICER

POWERS") of officers of a corporation organized and existing under DGCL and, to

the extent that such Officer Powers are delegated to an Authorized Officer of

the Company, such Authorized Officer in his or her capacity as such shall have

the statutory and customary rights, powers, authority, duties and

responsibilities of an officer with a similar title of a corporation organized

and existing under the DGCL. The members of the Investment Committee hereby

delegate to each officer of the Company such rights, powers and authority with

respect to the management of the business and affairs of the Company as may be

necessary or advisable to effectuate the provisions of this Section 7.6.

 

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7.6 MEETINGS OF AND ACTIONS BY MEMBERS

 

(a) DATE, TIME AND PLACE OF MEETINGS OF MEMBERS. Annual meetings

of Members shall be held at such date, time and place as the Managers may fix

from time to time.

 

(b) POWER TO CALL MEETINGS. Meetings of the Members may be

called by the Managers or the holders of a Majority of the Company Interests.

 

(c) NOTICE OF MEETING. Written notice of a meeting of Members shall be

sent or otherwise given to each Member not less than ten (10) nor more than

sixty (60) days before the date of the meeting. The notice shall specify the

place, date and hour of the meeting and the general nature of the business to be

transacted.

 

(d) MANNER OF GIVING NOTICE. Notice of any meeting of Members

shall be given in the manner prescribed by Section 15.2 hereof.

 

(e) ACTION AT A MEETING. A quorum for the conducting of business at a

meeting of the Members shall consist of a Majority of the Members. The consent

of a Majority of the Members shall be required for any action to be taken by the

Members at a meeting.

 

(f) ACTION BY WRITTEN CONSENT WITHOUT A MEETING. Any action that may

be taken at a meeting of Members may be taken without a meeting, if a consent in

writing setting forth the action so taken is signed and delivered to the Company

by Members having not less than the minimum number of votes that would be

necessary to authorize or take that action at a meeting at which all Members

entitled to vote on that action at a meeting were present and voted.

 

(g) TELEPHONIC PARTICIPATION BY MEMBER AT MEETINGS. Members may

participate in any Members' meeting through the use of any means of conference

telephones or similar communications equipment as long as all Members

participating can hear one another. A Member so participating is deemed to be

present in person at the Meeting.

 

7.7 CERTIFICATE OF FORMATION

 

To the extent that such action is determined by the Managers to be

necessary or appropriate, the Company shall file amendments to and restatements

of the Certificate and do all things necessary or appropriate to maintain the

Company as a limited liability company under the laws of the State of Delaware

and each other jurisdiction in which the Company may elect to do business or own

property. Subject to the terms of Section 8.4(a) hereof, the Managers shall not

be required, before or after filing, to deliver or mail a copy of the

Certificate or any amendment thereto to any Member. The Managers shall use all

reasonable efforts to cause to be filed such other certificates or documents as

may be reasonable and necessary or appropriate for the continuation,

qualification and operation of a limited liability company in the State of

Delaware and any other jurisdiction in which the Company may elect to do

business or own property.

 

7.8 INDEMNIFICATION

 

(a) The Company shall indemnify each Indemnitee from and against any

and all losses, claims, damages, liabilities, joint or several, expenses

(including, without limitation,

 

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attorneys' fees and other legal fees and expenses), judgments, fines,

settlements, and other amounts arising from any and all claims, demands,

actions, suits or proceedings, civil, criminal, administrative or investigative,

that relate to the operations of the Company as set forth in this Agreement in

which such Indemnitee may be involved, or is threatened to be involved, as a

party or otherwise, unless it is established that (i) the act or omission of the

Indemnitee was material to the matter giving rise to the proceedings and either

was committed in bad faith or was the result of active and deliberate

dishonesty; (ii) the Indemnitee actually received an improper personal benefit

in money, property or services; or (iii) in the case of any criminal proceeding,

the Indemnitee had reasonable cause to believe that the act or omission was

unlawful.

 

(b) The right to indemnification conferred in this Section 7.8 shall be

a contract right and shall include the right of each Indemnitee to be paid by

the Company the expenses incurred in defending any such proceeding in advance of

its final disposition; provided, however, that the payment of such expenses in

advance of the final disposition of a proceeding shall be made only upon

delivery to the Company of (i) a written affirmation of the Indemnitee of his or

her good faith belief that the standard of conduct necessary for indemnification

by the Company pursuant to this Section 7.8 has been met, and (ii) a written

undertaking by or on behalf of the Indemnitee to repay all amounts so advanced

if it shall ultimately be determined that the standard of conduct has not been

met.

 

(c) The Company may purchase and maintain insurance, at its expense,

on its own behalf and on behalf of any Indemnitee and of such other Persons as

the Managers shall determine, against any liability (including expenses) that

may be asserted against and incurred by such Person in connection with the

Company's activities pursuant to this Agreement, whether or not the Company

would have the power to indemnify such Person against such liability under the

terms of this Agreement. In addition, the Company may enter into indemnification

agreements with one or more of the Indemnitees pursuant to which the Company

shall agree to indemnify such Indemnitee(s) to the fullest extent permitted by

law, and advance to such Indemnitee(s) all related expenses, subject to

reimbursement if it is subsequently determined that indemnification is not

permitted.

 

(d) In no event may an Indemnitee subject any Member to personal

liability by reason of the indemnification provisions set forth in this

Agreement.

 

(e) An Indemnitee shall not be denied indemnification in whole or in

part pursuant to this Section 7.8 because such Indemnitee has an interest in the

transaction to which the indemnification relates if the transaction otherwise

was permitted by the terms of this Agreement.

 

(f) The provisions of this Section 7.8 are for the benefit of the

Indemnitees, their heirs, successors, assigns, executors and administrators, and

shall not be deemed to create any rights for the benefit of any other Person.

Any amendment, modification or repeal of this Section 7.8 or any provision

hereof shall be prospective only and shall not in any way affect the limitations

of the Company's liability to any Indemnitee under this Section 7.8 as in effect

immediately prior to such amendment, modification or repeal with respect to

claims arising from or relating to matters occurring, in whole or in part, prior

to such amendment, modification or repeal, regardless of when such claims may

arise or be asserted.

 

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7.9 LIABILITY OF CERTAIN PARTIES

 

(a) Notwithstanding anything to the contrary set forth in this

Agreement, no Manager, Member or Investment Committee Member, nor any officer,

employee or agent of the Company acting in such capacity shall be liable for

monetary damages to the Company or any Members for losses sustained or

liabilities incurred as a result of errors in judgment or of any act or omission

unless such Person acted in bad faith.

 

(b) The Managers may exercise any of the powers granted to them by this

Agreement and perform any of the duties imposed upon them hereunder either

directly or by or through their officers, employees, and agents. The Managers

shall not be responsible for any misconduct or negligence on the part of any

such agent appointed by the Managers in good faith.

 

(c) Any amendment, modification or repeal of this Section 7.9 or any

provision hereof shall be prospective only and shall not in any way affect the

limitations on the liability of any Person to the Company and the other Members

under this Section 7.9 as in effect immediately prior to such amendment,

modification or repeal with respect to claims arising from or relating to

matters occurring, in whole or in part, prior to such amendment, modification or

repeal, regardless of when such claims may arise or be asserted.

 

7.10 OTHER MATTERS CONCERNING THE MANAGERS

 

(a) The Managers and each Authorized Officer of the Company may rely,

and shall be protected in acting or refraining from acting, upon any resolution,

certificate, statement, instrument, opinion, report, notice, request, consent,

order, bond, debenture, or other paper or document believed by him, her or it to

be genuine and to have been signed or presented by the proper party or parties.

 

(b) The Managers and any Authorized Officer may consult with legal

counsel, accountants, appraisers, management consultants, investment bankers and

other consultants and advisers selected by the Managers or any Authorized

Officer, and any act taken or omitted to be taken in reliance upon the opinion

of such Persons as to matters that the Managers or any Authorized Officer

reasonably believe to be within such Person's professional or expert competence

shall be conclusively presumed to have been done or omitted in good faith.

 

7.11 TITLE TO COMPANY ASSETS

 

Title to Company assets, whether real, personal or mixed and whether

tangible or intangible, shall be deemed to be owned by the Company as an entity,

and no Member, individually or collectively, shall have any ownership interest

in such Company assets or any portion thereof. Title to any or all of the

Company assets shall be held in the name of the Company.

 

7.12 RELIANCE BY THIRD PARTIES

 

Any Person dealing with the Company shall be entitled to assume that

the Managers or any Authorized Officer have full power and authority to acquire,

sell or otherwise deal with the assets of the Company and to enter into any

contracts on behalf of the Company. Each and every

 

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<PAGE> 22

 

certificate, document or other instrument executed on behalf of the Company by

the Managers or any Authorized Officer shall be conclusive evidence in favor of

any and every Person relying thereon or claiming thereunder that (i) at the time

of the execution and delivery of such certificate, document or instrument, this

Agreement was in full force and effect, (ii) the Person executing and delivering

such certificate, document or instrument was duly authorized and empowered to do

so for and on behalf of the Company, and (iii) such certificate, document or

instrument was duly executed and delivered in accordance with the terms and

provisions of this Agreement and is binding upon the Company.

 

7.13 COVENANTS REGARDING OPERATIONS; INVESTMENT RESTRICTIONS

 

(a) The Company shall use reasonable best efforts not to engage in any

activities which could cause the Company to be engaged in a trade or business

any income of which would (i) be taxable to any tax-exempt Member (or any

tax-exempt partner or member of a Member) as "unrelated business taxable income"

within the meaning of sections 511-514 of the Code, or (ii) be treated by any

foreign Member (or any foreign partner or member of a Member) as income

effectively connected with a United States trade or business under sections

871(a)or 881(a) of the Code.

 

(b) The Company will not invest in the securities of any portfolio

company if the ownership of such securities would cause the Company to be

treated as engaged in a trade or business any income from which would (i) be

taxable to any tax-exempt Member (or any tax-exempt partner or member of a

Member) as "unrelated business taxable income" within the meaning of sections

511-514 of the Code, or (ii) be treated by any foreign Member (or any foreign

partner or member of a Member) as income effectively connected with a United

States trade or business under sections 871(a) or 881(a) of the Code.

 

(c) The Company shall use its reasonable best efforts to ensure that

all of its gross income is from dividends, interest, and capital gains and

losses from the disposition of property, and rents and royalties, but only such

rents and royalties as are excluded, pursuant to sections 512(b)(2) and (3) of

the Code in calculating unrelated business taxable income to ensure that (a) the

Company will not constitute a "business enterprise" for purposes of the excess

business holdings provisions of section 4943 of the Code, and (b) no tax-exempt

Member, or any member or partner of any Member, shall be deemed to have

unrelated business taxable income. The Company shall use its reasonable best

efforts to ensure that the Company not enter into any transaction that would

constitute participation by the Company or any Member in a "prohibited

transaction" under section 4975 of the Code or in an "excess benefit

transaction" under section 4958 of the Code. In no event shall this Section

7.13(c) be interpreted as preventing (or limiting in any respect) the Managers

or the Company from participating in those activities that are customarily

associated with the acquisition, holding of capital appreciation, and sale or

distribution by a professionally managed investment fund of portfolio company

securities, including taking an active role in founding or serving on the boards

of directors of portfolio companies.

 

(d) The Company will use its reasonable best efforts to conduct the

affairs of the Company so as to avoid having the Company treated as engaged in a

trade or business within the United States for purposes of sections 875, 882,

884, and 1446 of the Code, so as to avoid

 

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any Member (or any partner or member of a Member) realizing gain or loss treated

as effectively connected with a U.S. trade or business under section 897 of the

Code and so as to avoid "effectively connected income" within the meaning of

section 864 of the Code. In no event shall this Section 7.13(d) be interpreted

as preventing (or limiting in any respect) the Manager or the Company from

participating in those activities that are customarily associated with the

acquisition, holding of capital appreciation, and sale or distribution by a

professionally managed investment fund of portfolio company securities,

including taking an active role in founding or serving on the boards of

directors of portfolio companies.

 

(e) The Company shall not borrow money or otherwise incur indebtedness,

or guaranty indebtedness of portfolio companies in if in the judgement of the

Managers, based upon advice of counsel, the Members would be required to

recognize unrelated debt-financed income under section 514 of the Code as a

result thereof.

 

(f) In the event that the Company's activities or investments give

rise to any income which would be taxable to any tax-exempt Member (or any

tax-exempt partner or member of a Member) as "unrelated business taxable income"

within the meaning of sections 511-514 of the Code, the Company shall furnish to

such Member as soon as practicable following the Company's awareness of such

event, all information regarding such income as may be reasonably requested by

such Member for the preparation of reports to its partners or members and its

Federal income tax return.

 

ARTICLE 8

 

RIGHTS AND OBLIGATIONS OF MEMBERS

 

8.1 LIMITATION OF LIABILITY

 

The Members shall have no liability under this Agreement except as

expressly provided in this Agreement or under the Act.

 

8.2 MANAGEMENT OF BUSINESS

 

No Member (other than a Member acting in the capacity of a Manager or

an officer, employee or agent of the Company) shall take part in the operation,

management or control (within the meaning of the Act) of the Company's business,

transact any business in the Company's name or have the power to sign documents

for or otherwise bind the Company. The transaction of any such business by any

Manager or any officer, employee or agent of the Company, in their capacity as

such, shall not affect, impair or eliminate the limitations on the liability of

the Members under this Agreement.

 

8.3 RETURN OF CAPITAL

 

No Member shall be entitled to the withdrawal or return of its Capital

Contribution, except to the extent of distributions made pursuant to this

Agreement or upon termination of the Company as provided herein. No Member shall

have priority over any other Member either as to the return of Capital

Contributions or, except to the extent otherwise expressly provided in this

Agreement, as to profits, losses or distributions.

 

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8.4 RIGHTS OF MEMBERS RELATING TO THE COMPANY

 

(a) In addition to other rights provided by this Agreement or by the

Act, and except as limited by Section 8.4(b) hereof, each Member shall have the

right, for a purpose reasonably related to such Member's interest as a Member in

the Company, upon written demand with a statement of the purpose of such demand

and at such Member's own expense, to obtain from the Company the information set

forth in Section 18-305 of the Act; provided, however, that the Managers may

require, as a condition of providing such information to the Member, that the

Member confirm in writing to the Managers that all such information will be held

in strictest confidence and no distribution of such information will be made.

 

(b) Notwithstanding any other provision of this Section 8.4, the

Managers may keep confidential from the Members, for such period of time as the

Managers determine in their sole and absolute discretion to be reasonable, any

information that (i) the Managers believe to be in the nature of trade secrets

or other information the disclosure of which the Managers in good faith believe

is not in the best interests of the Company, or (ii) the Company is required by

law or by agreements with other parties to keep confidential.

 

8.5 CONFIDENTIALITY OBLIGATION OF MEMBERS

 

Any information received by a Member from any Manager, orally or in

writing, that such Manager indicates is nonpublic and needs to remain

confidential (including, but not limited to, information that the Company is

required by law or by agreements with other parties to keep confidential or

information that prevents the Company from trading while the information remains

nonpublic) shall be treated as confidential by such Member until such Member is

advised by such Manager that any such restriction is no longer applicable. Each

Member recognizes the importance of this confidentiality obligation to the

Company and the other Members. Each Member acknowledges that this Agreement is

proprietary to the Company and shall be kept confidential and not disclosed to

any party, except that each Member may provide a copy of the Agreement to his,

her or its attorneys, accountants, and other advisors so long as such advisors

agree that the Agreement shall be kept confidential and not disclosed to other

parties.

 

8.6 WAIVER OF ACTION

 

Each Member irrevocably waives during the term of the Company any right

that it may have to maintain any action for breach of fiduciary duty with

respect to the actions of the Managers and the Investment Committee unless such

person or persons acted in bad faith.

 

ARTICLE 9

 

BOOKS, RECORDS, ACCOUNTING AND REPORTS

 

9.1 RECORDS AND ACCOUNTING

 

The Managers shall keep or cause to be kept at the principal office of

the Company appropriate books and records with respect to the Company's

business, including, without limitation, all books and records necessary to

provide to the Members any information, lists and copies of documents required

to be provided pursuant to Section 8.4 hereof.

 

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9.2 FISCAL YEAR

 

The fiscal year of the Company shall be the calendar year.

 

9.3 REPORTS

 

The Managers shall cause to be provided to the Members (i) annual

reports, which shall include audited financial statements and summaries of the

operations and investments of the Company, (ii) unaudited quarterly financial

statements and summaries of the operations and investments of the Company, and

(iii) information necessary for inclusion on each Member's tax return.

 

ARTICLE 10

 

TAX MATTERS

 

10.1 PREPARATION OF TAX RETURNS

 

The Managers shall arrange for the preparation and timely filing of all

returns of Company income, gains, deductions, losses and other items required of

the Company for federal, state and local income tax purposes, and the delivery

to the Members of all tax information reasonably required by the Members for

federal, state and local income tax reporting purposes.

 

10.2 TAX ELECTIONS

 

The Managers shall, in their sole and absolute discretion, determine

whether to make any available election (including, without limitation, the

election under section 754 of the Code) or choose any available reporting method

pursuant to the Code or state or local tax law. The Managers shall in their sole

and absolute discretion have the right to seek to revoke any such election

(including, without limitation, the election under section 754 of the Code) or

change any reporting method.

 

10.3 TAX MATTERS PARTNER

 

(a) Sarah Faux shall be the initial "tax matters partner" of the

Company for federal income tax purposes. Pursuant to section 6223(c)(3) of the

Code, upon receipt of notice from the IRS of the beginning of an administrative

proceeding with respect to the Company, the tax matters partner shall furnish

the IRS with the name, address and profits interest of each of the Members,

provided that such information is provided to the Company by the Members.

 

(b) The tax matters partner is authorized, but not required:

 

(i) to enter into any settlement with the IRS with respect to

any administrative or judicial proceedings for the adjustment of Company items

required to be taken into account by a Member for income tax purposes (such

administrative proceedings being referred to as a "tax audit" and such judicial

proceedings being referred to as "judicial review"), and in the settlement

agreement the tax matters partner may expressly state that such agreement shall

bind all Members, except that such settlement agreement shall not bind any

Member (x)

 

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who (within the time prescribed pursuant to the Code and Regulations) files a

statement with the IRS providing that the tax matters partner shall not have the

authority to enter into a settlement agreement on behalf of such Member or (y)

who is a "notice partner" (as defined in section 6231 of the Code) or a member

of a "notice group" (as defined in section 6223(b)(2) of the Code);

 

(ii) in the event that a notice of a final administrative

adjustment at the Company level of any item required to be taken into account by

a Member for tax purposes (a "FINAL ADJUSTMENT") is mailed to the tax matters

partner, to seek judicial review of such final adjustment, including the filing

of a petition for readjustment with the Tax Court or the United States Claims

Court, or the filing of a complaint for refund with the District Court of the

United States for the district in which the Company's principal place of

business is located;

 

(iii) to intervene in any action brought by any other Member

for judicial review of a final adjustment;

 

(iv) to file a request for an administrative adjustment with

the IRS at any time and, if any part of such request is not allowed by the IRS,

to file an appropriate pleading (petition or complaint) for judicial review with

respect to such request;

 

(v) to enter into an agreement with the IRS to extend the

period for assessing any tax which is attributable to any item required to be

taken into account by a Member for tax purposes, or an item affected by such

item; and

 

(vi) to take any other action on behalf of the Members of the

Company in connection with any tax audit or judicial review proceeding to the

extent permitted by applicable law or regulations.

 

The taking of any action and the incurring of any expense by the tax

matters partner in connection with any such proceeding, except to the extent

required by law, is a matter in the sole and absolute discretion of the tax

matters partner and the provisions relating to indemnification set forth in

Section 7.8 of this Agreement shall be fully applicable to the tax matters

partner in its capacity as such.

 

(c) The tax matters partner shall receive no compensation for his or

her services as tax partner. All third party costs and expenses incurred by the

tax matters partner in performing its duties as such (including legal and

accounting fees) shall be borne by the Company. Nothing herein shall be

construed to restrict the Company from engaging an accounting firm to assist the

tax matters partner in discharging its duties hereunder.

 

10.4 WITHHOLDING

 

Each Member hereby authorizes the Company to withhold from or pay on

behalf of or with respect to such Member any amount of federal, state, local, or

foreign taxes that the Managers determine that the Company is required to

withhold or pay with respect to any amount distributable or allocable to such

Member pursuant to this Agreement, including, without limitation, any taxes

required to be withheld or paid by the Company pursuant to sections 1441, 1442,

1445, or 1446 of the Code. Any amount paid on behalf of or with respect to a

Member shall constitute a loan by the Company to such Member, which loan shall

be repaid by such

 

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<PAGE> 27

 

Member within fifteen (15) days after notice from the Managers that such payment

must be made unless (i) the Company withholds such payment from a distribution

which would otherwise be made to the Member, or (ii) the Managers determine, in

their sole and absolute discretion, that such payment may be satisfied out of

the available funds of the Company which would, but for such payment, be

distributed to the Member. Any amounts withheld pursuant to the foregoing

clauses (i) or (ii) shall be treated as having been distributed to such Member.

Each Member hereby unconditionally and irrevocably grants to the Company a

security interest in such Member's Company Interests to secure such Member's

obligation to pay to the Company any amounts required to be paid pursuant to

this Section 10.4 and agrees to take such actions as the Managers shall request

in order to perfect or enforce the security interest created hereunder. In the

event that a Member fails to pay any amounts owed to the Company pursuant to

this Section 10.4 when due (i.e., fifteen (15) days after demand), the Company

may exercise any and all rights and remedies the Company may have against such

Member, including foreclosing on its security interest and/or instituting a

lawsuit to collect the unpaid amount (together with interest thereon from the

date such amount is due (i.e., fifteen (15) days after demand) calculated at

five (5) percentage points over the Prime Rate, but not in excess of the highest

rate permitted by law).

 

ARTICLE 11

 

TRANSFER OF COMPANY INTERESTS

 

11.1 TRANSFER OF COMPANY INTERESTS

 

(a) VOLUNTARY TRANSFERS. No Member may Transfer his, her or its

Company Interests unless the Investment Committee in its discretion consents to

such Transfer. Such consent by the Investment Committee will not be unreasonably

withheld. The Investment Committee shall determine any Transfer restrictions

(including without limitation "tag-along" restrictions) on the Company

Interests.

 

(b) INVOLUNTARY TRANSFERS. Upon any involuntary Transfer of a

Company Interest (e.g., due to death or dissolution), the Member or his, her or

its personal representative shall promptly send written notice thereof to the

Company. The Investment Committee shall determine any Transfer restrictions on

the Company Interests.

 

(i) Notwithstanding anything to the contrary contained above

in this Section 11.1, no Transfer of a Company Interest may be made to any

Person that lacks the legal right, power or capacity to own a Company Interest.

In addition, no Transfer of a Company Interest may be made unless the

transferring Member provides evidence satisfactory to the Investment Committee

that such Transfer is being made in compliance with all applicable federal and

state securities laws and regulations.

 

(ii) Notwithstanding anything to the contrary contained above

in this Section 11.1, the Investment Committee shall have the authority to

impose additional limits on Transfers of Company Interests to the extent that

the Investment Committee deems such limitations to be necessary or desirable in

order to ensure that the Company will not be treated as a "publicly traded

partnership" within the meaning of Code section 7704 and the Regulations

 

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<PAGE> 28

 

issued thereunder or become subject to registration under the Investment Company

Act of 1940, as amended.

 

ARTICLE 12

 

ADMISSION OF MEMBERS

 

12.1 ADMISSION OF SUBSTITUTED OR ADDITIONAL MEMBERS

 

No Person not a Member on the date of this Agreement shall become a

Member here-under under any of the provisions hereof unless such Person shall

expressly assume and agree to be bound by all of the terms and conditions of

this Agreement. Each such Person shall also cause to be delivered to the

Company, at his, her or its sole cost and expense such documents or instruments

as may be required in the discretion of the Investment Committee in order to

effect such Person's admission as an additional Member. Upon compliance with all

provisions hereof applicable to such Person becoming a Member, all other Members

agree to execute and deliver such amendments hereto as are necessary to

constitute such person or entity a Member of the Company. Any transferee of a

Company Interest that has not been admitted as a substituted Member shall be an

"assignee," entitled only to allocations of net profits, net losses and other

tax items of the Company and to distributions from the Company, and shall not be

entitled to vote or participate in the affairs and management of the Company.

The Company Interests of any assignee shall be deemed to be voted on all matters

in the same proportion as the remaining Company Interests in such class of

Company Interests were voted.

 

12.2 AMENDMENT OF AGREEMENT AND CERTIFICATE OF FORMATION

 

For the admission to the Company of any Member in accordance with the

provisions of this Agreement, the Managers shall take all steps necessary and

appropriate under the Act to amend the records of the Company and, if necessary,

to prepare as soon as practical an amendment of this Agreement (including an

amendment of Exhibit A) and, if required by law, shall prepare and file an

amendment to the Certificate.

 

ARTICLE 13

 

DISSOLUTION AND LIQUIDATION

 

13.1 DISSOLUTION

 

The Company shall not be dissolved by the withdrawal of any Member or

by the admission of any additional or substituted Member in accordance with the

terms of this Agreement. The Company shall dissolve, and its affairs shall be

wound up, upon the first to occur of any of the following ("LIQUIDATING

EVENTS"):

 

(a) July 15, 2010, subject to an extension of up to three (3) years by

the Company for the limited purpose of holding and liquidating illiquid

securities then in the Company's portfolio;

 

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<PAGE> 29

 

(b) an election to dissolve the Company made in writing by the

Managers; provided, however, that the Managers shall obtain the prior approval

of the Members prior to making any such election;

 

(c) entry of a decree of judicial dissolution of the Company pursuant

to the provisions of the Act; or

 

(d) the sale of all or substantially all of the assets and properties

of the Company, unless the Investment Committee elects to continue the Company

business for the purpose of the receipt and the collection of indebtedness or

the collection of other consideration to be received in exchange for the assets

of the Company (which activities shall be deemed to be part of the winding up of

the Company).

 

13.2 WINDING UP

 

Upon the occurrence of a Liquidating Event, the Company shall continue

solely for the purposes of winding up its affairs in an orderly manner,

liquidating its assets, and satisfying the claims of its creditors and Members.

No Member shall take any action that is inconsistent with, or not necessary to

or appropriate for, the winding up of the Company's business and affairs. The

Managers (or, in the event there is no Manager, any Person selected by the

Investment Committee) (the "LIQUIDATOR") shall be responsible for overseeing the

winding up and dissolution of the Company and shall take full account of the

Company's liabilities and property. The Company property shall be liquidated as

promptly as is consistent with obtaining the fair market value thereof (provided

that the Liquidator in its discretion may distribute assets in kind in lieu of

liquidating the assets of the Company), and the proceeds therefrom shall be

applied and distributed in the following order:

 

(a) First, to the payment and discharge of all of the Company's debts

and liabilities to creditors other than the Members;

 

(b) Second, to the payment and discharge of all of the Company's debts

and liabilities to the Members; and

 

(c) The balance, if any, to the Members in accordance with their

positive Capital Account balances, after giving effect to all contributions,

distributions, and allocations for all periods.

 

13.3 COMPLIANCE WITH TIMING REQUIREMENTS OF REGULATIONS

 

In the event the Company is "liquidated" within the meaning of

Regulations section 1.704-1(b)(2)(ii)(g), distributions shall be made pursuant

to this Article 13 to the Members who have positive Capital Accounts in

compliance with Regulations section 1.704-1(b)(2)(ii)(b)(2). If any Member has a

deficit balance in its Capital Account (after giving effect to all

contributions, distributions and allocations for all taxable years, including

the year during which such liquidation occurs), such Member shall have no

obligation to make any contribution to the capital of the Company with respect

to such deficit, and such deficit shall not be considered a debt owed to the

Company or to any other Person for any purpose whatsoever. In the discretion

 

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<PAGE> 30

 

of the Liquidator, a pro rata portion of the distributions that would otherwise

be made to the Members pursuant to this Article 13 may be:

 

(a) distributed to a trust established for the benefit of the Members

for the purposes of liquidating Company assets, collecting amounts owed to the

Company, and paying any contingent or unforeseen liabilities or obligations of

the Company arising out of or in connection with the Company. The assets of any

such trust shall be distributed to the Members from time to time, in the

reasonable discretion of the Liquidator, in the same proportions as the amount

distributed to such trust by the Company would otherwise have been distributed

to the Members pursuant to this Agreement; or

 

(b) withheld to provide a reasonable reserve for Company liabilities

(contingent or otherwise) and to reflect the unrealized portion of any

installment obligations owed to the Company, provided that such withheld amounts

shall be distributed to the Members as soon as practicable.

 

13.4 RIGHTS OF MEMBERS

 

Except as otherwise provided in this Agreement, each Member shall look

solely to the assets of the Company for the return of its Capital Contribution

and shall have no right or power to demand or receive property other than cash

from the Company. No Member shall have priority over any other Member as to the

return of its Capital Contributions, distributions, or allocations, except as

expressly provided in this Agreement.

 

13.5 DOCUMENTATION OF LIQUIDATION

 

Upon the completion of the liquidation of the Company cash and property

as provided in Section 13.2 hereof, the Company shall be terminated and the

Certificate and all qualifications of the Company as a foreign limited liability

company in jurisdictions shall be canceled and such other actions as may be

necessary to terminate the Company shall be taken. The Liquidator shall have the

authority to execute and record any and all documents or instruments required to

effect the dissolution, liquidation and termination of the Company.

 

13.6 REASONABLE TIME FOR WINDING-UP

 

A reasonable time of no more than three (3) years shall be allowed for

the orderly winding-up of the business and affairs of the Company and the

liquidation of its assets pursuant to Section 13.2 hereof, in order to minimize

any losses otherwise attendant upon such winding-up, and the provisions of this

Agreement shall remain in effect between the Members during the period of

liquidation.

 

13.7 LIABILITY OF THE LIQUIDATOR

 

The Liquidator shall be indemnified and held harmless by the Company

from and against any and all claims, demands, liabilities, costs, damages and

causes of action of any nature whatsoever arising out of or incidental to the

Liquidator's taking of any action authorized under or within the scope of this

Agreement; provided, however, that the Liquidator shall not be

 

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<PAGE> 31

 

entitled to indemnification, and shall not be held harmless, where the claim,

demand, liability, cost, damage or cause of action at issue arises out of:

 

(a) a matter entirely unrelated to the Liquidator's action or

conduct pursuant to the provisions of this Agreement; or

 

(b) the willful misconduct or gross negligence of the Liquidator.

 

13.8 WAIVER OF PARTITION

 

Each Member hereby waives any right to partition of the Company

property.

 

ARTICLE 14

 

AMENDMENT OF OPERATING AGREEMENT

 

14.1 AMENDMENTS

 

(a) Amendments to this Agreement may be proposed by a Majority of the

Members or the Managers. Except as provided in Sections 14.1(b) and (c), a

proposed amendment shall be adopted and be effective as an amendment hereto if

it is approved by the Managers and a Majority of the Members.

 

(b) Notwithstanding anything to the contrary contained in Section

14.1(a) hereof, this Agreement shall not be amended without the prior written

consent of each Member adversely affected if such amendment would (i) modify the

limited liability of a Member, (ii) increase the amount of the Capital

Contributions required from such Member or (iii) adversely affect the timing,

amount or level of priority of distributions to be received by such Member.

 

ARTICLE 15

 

GENERAL PROVISIONS

 

15.1 POWER OF ATTORNEY

 

(a) Each of the Members hereby irrevocably constitutes and appoints the

Managers, with full power of substitution, to be his, her or its true and lawful

attorney-in-fact, in his, her or its name, place and stead to make, execute,

certify, acknowledge, deliver, file and record the following documents relating

to the Company and such Member's Company Interests therein (i) any certificate

or other instruments, or amendments or modifications thereof, which may be

required to be filed by the Company under applicable law, (ii) any documents,

certificates or other instruments, including any and all modifications and

amendments to this Agreement and the Certificate which may be required or deemed

desirable by the Managers (1) to effectuate the provisions of any part of this

Agreement, (2) to effectuate any amendment of this Agreement made in accordance

with the terms hereof (including without limitation amendments to reflect the

admission, substitution, termination or withdrawal of Members made

 

 

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<PAGE> 32

in accordance with the provisions of this Agreement), (3) to effectuate any

sale or other disposition which is in the form of a sale and conveyance of the

Company Interests pursuant to the terms of this Agreement, and (4) by way of

extension and not in limitation, to do all such other things as shall be

necessary to continue and to carry on the business of the Company; and (iii) all

documents, certificates or other instruments which may be required to effectuate

the dissolution and termination of the Company; provided that the power of

attorney granted herein shall be fully subject to all the terms and conditions

of this Agreement.

 

(b) Each of the Members hereby acknowledges that the power of attorney

granted herein (i) is coupled with an interest, (ii) shall be irrevocable, and

(iii) shall survive the incompetence or adjudication of insanity of any such

Member who is an individual.

 

15.2 ADDRESSES AND NOTICE

 

All notices, requests, demands and other communications hereunder to a

Member shall be in writing and shall be deemed to have been duly given if

delivered by hand or if sent by certified mail, return receipt requested,

properly addressed and postage prepaid, or transmitted by commercial overnight

courier to the Member at the address set forth in Exhibit A or at such other

address as the Member shall notify the Managers in writing. Such communications

shall be deemed sufficiently given, served, sent or received for all purposes at

such time as delivered to the addressee (with the return receipt or delivery

receipt being deemed conclusive evidence of such delivery) or at such time as

delivery is refused by the addressee upon presentation.

 

15.3 TITLES AND CAPTIONS

 

All article or section titles or captions in this Agreement are for

convenience only. They shall not be deemed part of this Agreement and in no way

define, limit, extend or describe the scope or intent of any provisions hereof.

Except as specifically provided otherwise, (i) references to "Articles" and

"Sections" are to Articles and Sections of this Agreement, and (ii) references

to "Exhibits" are to the Exhibits attached to this Agreement. Each Exhibit

attached hereto and referred to herein is hereby incorporated by reference.

 

15.4 PRONOUNS AND PLURALS

 

Whenever the context may require, any pronoun used in this Agreement

shall include the corresponding masculine, feminine or neuter forms, and the

singular form of nouns, pronouns and verbs shall include the plural and vice

versa. Any references in this Agreement to "including" shall be deemed to mean

"including without limitation."

 

15.5 FURTHER ACTION

 

The parties shall execute and deliver all documents, provide all

information and take or refrain from taking action as may be necessary or

appropriate to achieve the purpose of this Agreement.

 

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15.6 BINDING EFFECT

 

This Agreement shall be binding upon and inure to the benefit of the

parties hereto and their heirs, executors, administrators, successors, legal

representatives and permitted assigns.

 

15.7 CREDITORS

 

None of the provisions of this Agreement shall be for the benefit of,

or shall be enforceable by, any creditor of the Company.

 

15.8 WAIVER

 

No failure by any party to insist upon the strict performance of any

covenant, duty, agreement or condition of this Agreement or to exercise any

right or remedy consequent upon a breach thereof shall constitute waiver of any

such breach or any other covenant, duty, agreement or condition.

 

15.9 NO AGENCY

 

Nothing contained herein shall be construed to constitute any Member

the agent of another Member, except as specifically provided herein, or in any

manner to limit the Members in the carrying on of their own respective

businesses or activities.

 

15.10 ENTIRE UNDERSTANDING

 

This Agreement constitutes the entire agreement and understanding among

the Members and supersedes any prior understanding and/or written or oral

agreements among them respecting the subject matter herein.

 

15.11 COUNTERPARTS

 

This Agreement may be executed in counterparts, all of which together

shall constitute one agreement binding on all the parties hereto,

notwithstanding that all such parties are not signatories to the original or the

same counterpart. Each party shall become bound by this Agreement immediately

upon affixing its signature hereto.

 

15.12 APPLICABLE LAW

 

This Agreement shall be construed in accordance with and governed by

the laws of the State of Delaware, without regard to the principles of conflicts

of law.

 

15.13 INVALIDITY OF PROVISIONS

 

If any provision of this Agreement is or becomes invalid, illegal or

unenforceable in any respects, the validity, legality and enforceability of the

remaining provisions contained herein shall not be affected thereby.

 

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15.14 SECURITIES LAW REPRESENTATIONS, WARRANTIES AND AGREEMENTS

 

(a) Each Member represents and warrants to the Company and the

other Members as follows:

 

(i) Such Member has such knowledge and experience in

financial and business matters that he, she or it is capable of evaluating the

merits and risks of the investment involved in the purchase of a Company

Interest in the Company and he, she or it has so evaluated this purchase.

 

(ii) Such Member is aware that this investment is

speculative and represents a substantial risk of loss.

 

(iii) Such Member is able to bear the economic risk of

this investment.

 

(iv) In connection with the purchase of his, her or its

Company Interests, such Member has been fully informed as to the circumstances

under which he, she or it is required to take and hold the Company Interests

pursuant to the requirements of the Securities Act and applicable state

securities laws.

 

(v) Such Member understands that the Company Interests are

not registered under the Securities Act or any state securities laws and may not

be transferred, assigned or otherwise disposed of unless his, her or its

partnership interest is so registered or unless an exemption from registration

is available.

 

(b) Each Member agrees as follows:

 

(i) The Company is not under any obligation to register any

Company Interest under the Securities Act or any state securities laws.

 

(ii) The Company will not be required to supply any Member or

other Person with any information necessary to enable any Member to make a sale

of its partnership interest under Rule 144 under the Securities Act or any

corresponding rule under any state securities law.

 

(c) Each Member shall indemnify and hold harmless the Company and the

other Members from and against any and all loss, damage, liability, cost or

expense, including costs of defense and attorneys' fees, arising or resulting

from or attributable to any breach of such Member's representations, warranties

or agreements set forth in this Section 15.14.

 

15.15 CO-INVESTMENT.

 

In the event that the Company or eLoyalty Corporation identifies a

company or other entity as an investment opportunity, and the Company or

eLoyalty Corporation has an initial contact with such company or entity prior to

any contact between such company or entity and any of the other Members, then

the rights of the Members to invest in such company or entity shall be subject

to the following restrictions (which shall also apply to all subsequent rounds

of financing for such company or entity): (a) the proposed co-investment shall

have been first offered to the Company and the Company shall have (as determined

by the Investment Committee) either declined all or part of such prospective

co-investment, and (b) any

 

 

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<PAGE> 35

 

available balance of the proposed co-investment shall be made available to all

of the Members (in accordance with their relative holdings of Company Interests)

on the same terms and conditions as have been made available to the Company. Any

disputes regarding matters related to this Section 15.15 shall be resolved by

the Investment Committee.

 

15.16 FREEDOM TO PURSUE OPPORTUNITIES, ETC.

 

In anticipation that the Company and the Members (or one or more

affiliates, associated investment funds or portfolio companies of any of the

Members) may engage in the same or similar activities or lines of business and

have an interest in the same areas of corporate opportunities, and in

recognition of the difficulties which may confront any Member who desires and

endeavors fully to satisfy such Member's duties in determining the full scope of

such duties in any particular situation, the provisions of this 15.16 are set

forth to regulate, define and guide the conduct of certain affairs of the

Company as they may involve the Members. Except as any of the Members may

otherwise agree in writing after the date hereof:

 

(a) Each Member shall have the right to, and shall have no duty

(contractual or otherwise) not to, directly or indirectly, (i) engage in the

same or similar business activities or lines of business as the Company,

including those competing with the Company, and (ii) conduct business (directly

or through its affiliates) with any portfolio company of the Company;

 

(b) No Member shall be liable to the Company or its affiliates for

breach of any duty (contractual or otherwise) by reason of any such activities

of or the participation of such Member or its affiliates therein; and

 

(c) In the event that a Member acquires knowledge of a potential

transaction or matter that may be a corporate opportunity for both the Company

and such Member, its affiliates or any other person, such Member shall have no

duty (contractual or otherwise) to communicate or present such corporate

opportunity to the Company and, notwithstanding any provision of this Agreement

to the contrary, shall not be liable to the Company or its affiliates for breach

of any duty (contractual or otherwise) by reason of the fact that such Member

directly or indirectly pursues or acquires such opportunity for itself or its

affiliates, directs such opportunity to another person, or does not present such

opportunity to the Company.

 

[SIGNATURE PAGE FOLLOWS]

 

 

 

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as

of the date first written above.

 

ELOYALTY EMPLOYEE INVESTORS, L.L.C.

 

 

 

By:_____________________________________

Name:___________________________________

Title:____________________________________

 

 

BROOKSIDE CAPITAL PARTNERS FUND LP

 

 

By:_____________________________________

Name:___________________________________

Title:____________________________________

 

 

SUTTER HILL VENTURES L.P.

 

 

By:_____________________________________

Name:___________________________________

Title:____________________________________

 

 

TCV IV, L.P. & TCV STRATEGIC PARTNERS IV, L.P.

 

By: Technology Crossover Management IV, LLC,

as General Partner

 

By:_____________________________________

Name: Carla Newell

Title: Attorney-in-Fact

 

<PAGE> 37

 

 

EXHIBIT A

 

MEMBERS, CAPITAL CONTRIBUTIONS AND COMPANY INTERESTS

 

 

NAME AND ADDRESS OF INITIAL CAPITAL TOTAL COMMITTED COMPANY

MEMBER CONTRIBUTION CAPITAL INTERESTS

 

Brookside Capital Partners $0 $ 5,100,000 17%

Fund LP

 

eLoyalty Employee $0 $14,700,000 49%

Investors, L.L.C

 

Sutter Hill Ventures L.P. $0 $ 5,100,000 17%

 

TCV IV, L.P. & TCV $0 $ 5,100,000 17%

Strategic Partners, L.P.