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(n) “One Ring” shall mean, in particular the greatest
and most powerful of the Rings of Power, forged secretly
by Sauron in the fires of Orodruin, granting virtual
immortality and mastery over the nineteen Great Rings,
and all other magical Rings forged in Eregion in the
middle of the Second Age.
ARTICLE II
Formation of Fellowship
2.1 (a) Frodo, Gandalf, Boromir, Aragorn, Legolas, Gimli,
Merry, Pippin, and Sam hereby agree to carry on the
Business in Fellowship under the name and style of THE
FELLOWSHIP OF THE RING, or such other name and style
as may from time to time be substituted therefor in
accordance with the provisions hereof.
2.2 The Fellowship shall commence carrying on the Business
upon the completion of the execution of this Agreement.
2.3 In consideration of the initial Fellowship Interest
referred to in section 3.1, the Fellows shall contribute
the property and assets to be transferred to the Fellowship
in accordance, by way of contribution to the capital
of the Fellowship.
2.4 Notwithstanding any statutory provisions or rules
of law or equity to the contrary, the Fellowship shall
continue until dissolved and terminated in accordance
with the provisions hereof and shall not be dissolved
or terminated except in accordance with such provisions.
2.5 The business of the Fellowship shall be carried
on in and from such places as may be appropriate in
connection with the operation of the Business and from
such other places as may be determined from time to
time.
2.6 Such certificates shall be filed and such other
filings and registrations shall be made in respect of
the Fellowship Business as are required by applicable
law in all jurisdictions in which the Fellowship carries
on the Business, and the same shall be renewed or amended
from time to time as may be required.
ARTICLE III
Fellows' Ratios
3.1 The initial Ratios shall be as follows:
Frodo - 10%, Gandalf - 20%, Boromir - 10%, Aragorn -
10%, Legolas - 10%, Gimli - 10%, Merry - 10%, Pippin
- 10%, and Sam - 10%.
3.2 The Ratios of the Fellows shall not be altered except
as a result of a purchase or sale of a Fellowship Interest
in accordance with the provisions of this agreement,
upon the withdrawal of a Fellow in accordance with the
provisions of this agreement or upon the admission of
a new Fellow in accordance with the provisions of this
agreement, or with the agreement of all Fellows. Without
limiting the generality of the foregoing, the Ratios
of the Fellows shall not be altered by any return of
capital to the Fellows which may be agreed upon from
time to time between the Fellows.
ARTICLE IV
Profits and Losses of the Fellowship
4.1 Profits and losses from the operation of the Business
of the Fellowship shall be determined in accordance
with generally accepted accounting principles. Profits
and losses from the operation of the Business shall
be allocated to the Fellows in proportion to their respective
Ratios. If any change has occurred in the Ratios during
the fiscal year, for purposes of allocation of profits
and losses such year shall be divided into such number
of periods as different Ratios were in effect during
such year and profits and losses shall be allocated
in respect of each such period on the basis of profits
and losses earned or incurred during such period.
4.2 Available cash flow of the Fellowship shall be applied,
after satisfying the current claims of creditors of
the Fellowship, so as to allocate, at the end of each
fiscal quarter of the Fellowship, the estimated net
income of the Fellowship for such quarter ("Net Income")
as follows:
(a) one-third of Net Income shall be retained in the
Fellowship for the purposes of providing working capital;
(b) one-third of Net Income shall be applied in such
manner as may be agreed between the Fellows, but failing
an agreement shall be distributed by the Fellowship;
and
(c) one-third of Net Income shall be distributed quarterly
to the Fellows, on account of the allocation of profits
of the Fellowship in accordance with Section 4.1, in
their respective Ratios, provided that:
(i) such distributions to the Fellows shall be increased,
out of the portion of Net Profits referred to in section
(b), to the extent that any one or more Fellows reasonably
require such additional distributions in order to pay
income taxes due in respect of such Fellow's or Fellows'
shares of profits of the Fellowship on a timely basis;
and
(ii) no such distribution be made during the period
between the time at which an obligation to purchase
or sell a Fellowship Interest has arisen pursuant to
this agreement and the time at which such purchase and
sale is completed, unless such distribution has been
or will be taken into account in determining the purchase
price in respect of such Fellowship Interest.
Following the end of each fiscal year of the Fellowship,
all necessary adjustments shall be made to reflect any
extent to which such distributions during such fiscal
year were more or less than the appropriate shares of
actual net income of the Fellowship for such fiscal
year and any such adjustments shall be added to or subtracted
from subsequent distributions to Fellows.
4.3 If the Committee decides at any time that additional
financing is required by the Fellowship, the Fellowship
shall first endeavour to obtain such financing from
arm's-length lenders, without guarantees from any Affiliates
of the Fellows, or from the Fellows other than on a
basis limited to their Fellowship Interests. If such
financing is not available on reasonable terms and the
Committee determines that capital contributions to the
Fellowship are required from the Fellows, or any guarantees
or other financial support are required to be given
by the Fellows in connection with any borrowing by the
Fellowship from arm's-length lenders, such capital contributions
or guarantees or other financial support ("Fellows'
Financing") shall be provided on a pro rata basis by
the Fellows. If any Fellow (the "defaulting Fellow")
after ten (10) business days notice fails or refuses
to provide its pro rata share of required Fellows' Financing,
the other Fellow (the "non-defaulting Fellow") shall
lend to the Fellowship an amount equal to the defaulting
Fellow's pro rata share of the required Fellows' Financing
for the Fellowship, in which event, such loan by the
non-defaulting Fellow to the Fellowship shall carry
interest on the unpaid balance of such loan at prime
plus five percent (+5%), and repayments on such loan
by the non-defaulting Fellow, including interest, shall
be paid out of the funds normally paid to such defaulting
Fellow under Article 4.2, herein; provided that if such
loan is not being paid off in accordance with the repayment
terms as agreed between the parties, at the option of
the non-defaulting Fellow, the balance then owing on
such loan may be capitalized on any fiscal year end
of the Fellowship, occurring at any time following two
(2) years after the date of such loan, which may result
in an adjustment to the Fellows' ratios in Article III.
4.4 Income or loss computed on the basis provided in
the Middle Earth Income Tax Act and tax deductions,
credits and benefits of the Fellowship shall be allocated
to the Fellows pro rata in respect of each fiscal year
of the Fellowship , promptly following the end of such
fiscal year. If any change has occurred in the Ratios
at any time in a fiscal year, such year shall be divided
into such number of periods as different Ratios were
in effect during such year and such allocations shall
be made in respect of each such period on the basis
of income or loss and deductions, credits or benefits
earned, accrued, arising or incurred during such period.
If a Fellow has ceased to be a Fellow during such year,
it shall be deemed to continue as a Fellow until the
end of the such year solely for the purpose of, and
only to the extent necessary to enable, allocation to
such Fellow in accordance with the foregoing, unless
otherwise agreed between the Fellows. Where the amount
of any deduction which the Fellowship may claim is optional
in any fiscal year of the Fellowship, the Fellowship
shall claim as soon as possible the maximum amount of
such deduction that is available in any such fiscal
year.