OPERATING AGREEMENT
OF
THE MOUNTAIN AREA EXCHANGE LLC
Effective as of June 11, 1997
OPERATING AGREEMENT
OF
THE MOUNTAIN AREA EXCHANGE LLC
THIS OPERATING AGREEMENT ("Agreement") is made and entered into as of the
11th day of June, 1997, by and between the persons listed in EXHIBIT B attached
hereto and incorporated herein by this reference.
W I T N E S S E T H:
WHEREAS, articles of organization for The Mountain Area eXchange LLC
("Company") were filed by its organizer with the Secretary of State of the State
of Colorado on June 11, 1997; and
WHEREAS, The persons listed in EXHIBIT B are the present Members (defined
below) of the Company which, since its formation, has not been subject to a
written operating agreement; and
WHEREAS, the persons listed in EXHIBIT B hereto now desire to memorialize
the terms and conditions of their agreements with respect to the Company, and
otherwise continue the Company.
NOW, THEREFORE, in consideration of the foregoing, of the mutual promises
of the parties hereto, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree to continue The Mountain Area eXchange LLC as follows:
ARTICLE 1
DEFINITIONS
1.1 DEFINED TERMS. The capitalized terms used in this Operating Agreement
shall have the meanings provided in EXHIBIT A attached hereto and incorporated
herein by this reference.
ARTICLE 2
THE COMPANY
2.1 NAME. The name of the company shall be The Mountain Area eXchange
LLC.
2.2 PRINCIPAL PLACE OF BUSINESS. The initial principal place of business
of the Company shall be as established by a majority of the Managers. The
Managers may change the principal place of business of the Company upon ten (10)
Business Days notice to the Members.
2.3 REGISTERED AGENT. The name and business address of the Company's
initial registered agent for service of process are Xxxxxxx Xxxxx Xxxxxxx, 000
Xxxxxxxx Xxxxxx, Xxxxxxx, XX 00000. The Managers may, from time to time, change
the Company's registered agent. In the event the registered agent ceases to act
as such for any reason, the Managers shall promptly designate a replacement
registered agent. In the event of any change in the name or business address of
the Company's registered agent, the Managers shall timely make such filings as
are required by the Act.
2.4 TERM. The term of the Company commenced June 11, 1997, and shall
continue until the winding up and liquidation of the Company and its business
are completed following an Event of Dissolution.
2.5 PURPOSE OF THE COMPANY. The purpose of the Company shall be to
facilitate the exchange of electronic data at the lowest practicable cost for
the mutual benefit of the Members and the customers of the Company, and to
engage in any and all activities incidental or related thereto.
2.6 TITLE TO PROPERTY. All real and personal property owned by the
Company shall be owned by the Company as an entity and no Member shall have any
ownership interest in such property in its individual name or right, and each
Member's interest in the Company shall be personal property for all purposes.
Notwithstanding anything contained herein to the contrary, the Members shall be
entitled to bring their individual personal assets to the place or places where
the Company's business is conducted, and such assets shall remain the separate
property of such Members.
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2.7 PAYMENTS OF INDIVIDUAL OBLIGATIONS. The Company's credit and assets
shall be used solely for the benefit of the Company, and no asset of the Company
shall be transferred or encumbered for or in payment of any individual
obligation of any Member.
2.8 MEMBERS. The names, addresses, and Interests of the Members of the
Company are as set forth in EXHIBIT B attached hereto and incorporated herein by
this reference. At such time that other Persons are admitted to the Company as
Members, their names, addresses, and Interests shall be included in EXHIBIT B
attached hereto which shall be amended from time to time by the Managers to
reflect such admissions to, as well as withdrawals from, the Company.
ARTICLE 3
MANAGEMENT OF COMPANY
3.1 AUTHORITY OF THE MANAGERS. Subject to the limitations and
restrictions set forth in this Agreement, the Managers shall have the sole and
exclusive right to manage the business of the Company and shall have all of the
rights and powers which may be possessed by Managers under the Act.
3.2 LIMITATIONS ON AUTHORITY OF MANAGERS. Notwithstanding any other
provision of this Agreement, the Managers shall have no authority to perform any
of the following acts without the concurring vote of all of the Members:
(a) Cause or permit the Company to engage in any activity that is not
consistent with the purposes of the Company as set forth in Section 2.5;
(b) Knowingly do any act in contravention of this Agreement, except
as required by applicable law;
(c) Knowingly do any act which would make it impossible to carry on
the ordinary business of the Company, except as otherwise provided by this
Agreement or required by applicable law;
(d) Compromise, settle, or confess judgment on any claim against or
inuring to the benefit of the Company or make any assignment for the
benefit of creditors;
(e) Knowingly perform any act which would expose the Members to
unlimited liability for any debt of the Company; or
(f) Sell, exchange or otherwise dispose of all or substantially all
of the assets of the Company.
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3.3 ACTIONS BY THE MANAGERS. Any action that may be taken by the Managers
shall require the consent of a majority of the Managers; PROVIDED, HOWEVER, that
the Managers may, by unanimous agreement, delegate to one or more of their
number the right and power to deal with any aspect of the Company's business
and/or take any action that the Managers are authorized to take, without the
further consent of the other Managers.
3.4 DUTIES OF THE MANAGERS. The Managers shall devote such time and
attention as shall be appropriate to manage and supervise the Company's business
properly and efficiently, and shall take all such actions as shall be prudent
and appropriate for the proper management and supervision of the business of the
Company and the accomplishment of its purposes.
3.5 SEPARATE OPERATION OF COMPANY BUSINESS. The Managers shall cause the
Company to conduct its business and operations separate and apart from that of
any Manager, Member, or Affiliate of a Manager or Member.
3.6 APPOINTMENT, NUMBER, TENURE AND QUALIFICATIONS OF MANAGERS. The
number of Managers of the Company shall be fixed from time to time by vote of
Members owning two-thirds (2/3) or more of the Interests, but in no instance
shall there be fewer than three (3) Managers. Each Manager shall hold office
until the next annual meeting of Members or until his/her successor shall have
been elected and qualified. Managers shall be elected by a vote of two-thirds
(2/3) or more in Interest of the Members.
3.7 RIGHT TO RELY ON MANAGERS. Any Person dealing with the Company may
rely (without duty of further inquiry) upon a certificate signed by any Manager
as to:
(i) The identity of any Manager or Member;
(ii) The existence or nonexistence of any fact or facts which
constitute a condition precedent to acts by a Manager or which are in
any other manner germane to the affairs of the Company;
(iii) The Persons who are authorized to execute and deliver any
instrument or document of the Company; or
(iv) Any act or failure to act by the Company or any other matter
whatsoever involving the Company or any Member.
3.8 SALARIES AND REIMBURSEMENTS. The salaries and other compensation
of the Managers of the Company shall be fixed from time to time by the vote
of two-thirds (2/3) or more in Interest of the Members, and no Manager shall
be prevented from receiving such salary by reason of the fact that he or she
is also a Member of the Company. The Managers shall be reimbursed by the
Company
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for all reasonable expenses incurred by them on the Company's behalf.
3.9 OTHER ACTIVITIES.
(a) Subject to the terms and conditions of this Section 3.9, each
Manager shall be free to serve any other Person or enterprise in any capacity
that such Manager may deem appropriate in its discretion provided that if
activities of the other Person or enterprise competes, directly or indirectly,
with the business of the Company, the Manager shall disclose in writing to the
other Managers and to the Members information relating to its relationship to
the other Person or enterprise and the activities thereof.
(b) Any Manager may acquire or hold any ownership interest in any
activity, business, or enterprise that is or may become competitive with the
Company or which is within or related to the business purpose of the Company,
provided that, in the case of any such activity, business, or enterprise that is
or may become competitive with the Company or which is within or related to the
business purpose of the Company, each such Manager shall disclose in writing to
the other Managers and to the Members information relating to the fact of such
ownership interests and the activities involved therein.
3.10 LIABILITY. Notwithstanding anything to the contrary in this
Agreement, and except to the extent required by applicable law, the Managers
shall not be liable to the Company or to any Member for any action taken or
omitted to be taken by such Manager, provided that such Manager acted in good
faith and such action or omission does not involve the gross negligence, willful
misconduct, or fraud of such Manager.
3.11 INDEMNIFICATION OF MANAGERS.
(a) The Company, its receiver, or its trustee (in the case of its
receiver or trustee, to the extent of Company Property) shall, except as
otherwise provided below in Section 3.11(d), indemnify, save harmless, and pay
all judgments and claims against each Manager relating to any liability or
damage incurred by reason of any act performed or omitted to be performed by
such Manager in connection with the business and activities of the Company,
including attorneys' fees incurred by such Manager in connection with the
defense of any action based on any such act or omission, which attorneys' fees
may be paid as incurred, as permitted by law.
(b) In the event of any action by a Member against any Manager (in
their respective capacities as such) the Company shall, except as otherwise
provided below in Section 3.11(d), indemnify, save harmless, and pay all
expenses of such Manager,
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including attorneys' fees, incurred in the defense of such action, if such
Manager is successful in such action.
(c) The Company shall, except as otherwise provided below in
Section 3.11(d), indemnify, save harmless and pay all expenses, costs, or
liabilities of any Manager who for the benefit of the Company makes any deposit,
acquires any option, or makes any other similar payment or assumes any
obligations in connection with any property proposed to be acquired by the
Company and who suffers any financial loss as the result of such action.
(d) Notwithstanding the foregoing provisions of this Section, no
Manager shall be indemnified from any liability arising as a consequence of
fraud, bad faith, willful misconduct, or gross negligence by such Manager.
(e) Notwithstanding any other provision to the contrary in this
Section above, in the event that any provision in any of this Section is
determined to be invalid in whole or in part, such Section shall be enforced to
the maximum extent permitted by law.
3.12 RESIGNATION. Any Manager of the Company may resign at any time by
giving two (2) weeks written notice to the Members and to the Company. The
resignation of any Manager shall take effect two (2) weeks following receipt of
notice thereof by the Company, or at such later time as shall be specified in
such notice. Unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
3.13 REMOVAL. All or any lesser number of Managers may be removed at any
time at a meeting called expressly for that purpose, by the affirmative vote of
the Members owning two-thirds (2/3) or more of the Interests. Any Manager who
is also a Member of the Company shall lose its status as a Manager for all
purposes hereunder on the effective date of its dissociation from the Company
under Article 12 hereof.
3.14 VACANCIES. Any vacancy occurring for any reason in the group of
Managers may be filled by written agreement of a majority of the remaining
Managers. A Manager chosen to fill a vacancy shall serve the unexpired term of
his or her predecessor in office. Any Manager's position to be filled by reason
of an increase in the number of Managers shall be filled by written agreement of
a majority of the Managers then in office or by election at an annual meeting or
at a special meeting of Members called for that purpose. A Manager chosen to
fill a position resulting from an increase in the number of Managers shall hold
office until the next annual meeting of Members and until his successor has been
elected and qualified.
3.15 CONFIDENTIALITY. Each Manager acknowledges that he has or may have
obtained knowledge of confidential matters, trade
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secrets, techniques, accounting procedures, and other methods developed by
the Company or the other Members which are owned by the Company or the other
Members and necessary and essential to the operation of their businesses,
without which information the Manager could not efficiently, effectively, and
profitably discharge his obligations as a Manager of the Company. Each
Manager further acknowledges that some of such confidential information was
or may have been unknown to him prior to association with the Company and
that the methods developed by the Company and the other Members for their
respective businesses may be unique and novel to them. Each Manager agrees
that he will take all necessary steps, at his own expense, to protect such
information as he knows is confidential and which was so obtained and that he
will not divulge same, either during or upon termination of this Agreement,
without the prior written consent of the Company and the other Member to whom
such confidential information belongs. Each Manager acknowledges the
Company's exclusive right to its business systems, its methods of operation,
its distinguishing characteristics, including but not limited to, service
marks, trademarks, tradenames, copyrights, certification marks, designs,
slogans, logos, names, and other advertising copy now or hereafter displayed,
used, or becoming a part of the Company's business. Each Manager agrees
neither to infringe upon, use, or imitate said system or any of the
Company-distinguishing characteristics after termination of this Agreement
without the prior written consent of the Company and the other Members.
Because of the difficulty of measuring economic loss to the Company as a
result of the breach of any of the covenants of this Section 3.15, and
because of the immediate and irreparable harm that such a breach would cause
the Company, for which it would have no adequate remedy, each Manager agrees
that any of the foregoing covenants may be enforced by injunction and
restraining order. In the event the Company is required to employ an
attorney to enforce any of the covenants of this Section 3.15, or to
institute legal proceedings incident to such enforcement, each Manager
expressly covenants and agrees to pay, in addition to all other sums for
which such Manager may be found liable, reasonable attorneys' fees, court
costs, and litigation expenses incurred by the Company.
3.16 TECHNICAL REVIEW COMMITTEE. The Managers shall appoint a Technical
Review Committee of no fewer than three (3) persons. All customer initial
service connections and service connection changes shall be subject to the
approval of the Technical Review Committee. The Technical Review Committee
shall advise the Managers on technical issues of the Company's business, and
shall recommend to the Managers the cessation of service to any customer whose
service connection interferes with the service of other Internet users. The
Managers shall adopt a recommendation of the Technical Review Committee unless
it clearly violates state law, this Agreement, or the policies of the Company.
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ARTICLE 4
MEMBERS
4.1 AUTHORITY. No Member of the Company, in his capacity solely as a
Member, shall have any power or authority to bind the Company in any way, to
pledge its credit, or to render it liable for any purpose.
4.2 LIMITATION OF LIABILITY. Each Member's liability for the debts and
obligations of the Company shall be limited as set forth in the Act and other
applicable law.
4.3 PRIORITY AND RETURN OF CAPITAL. Except as expressly provided herein,
no Member shall have priority over any other Member, either as to the return of
Capital Contributions or as to Net Profits, Net Losses, or distributions;
provided that this Section shall not apply to loans (as distinguished from
capital contributions) which a Member has made to the Company.
ARTICLE 5
MEETINGS OF, AND ACTIONS BY, MEMBERS
5.1 ACTIONS BY MEMBERS. Except as provided in Section 5.2, all actions
required or permitted to be taken by the Members as a group (as opposed to any
Member individually) shall only be taken at a meeting held in accordance with
the provisions of this Article 5. If a quorum is present at such meeting, the
affirmative vote of Members holding at least two-thirds (2/3) or more in
Interest of the Members represented at such meeting, in person or by proxy,
entitled to vote on the subject matter shall be the act of the Members, unless
the vote of a greater or lesser proportion or number is otherwise required by
the Act, by the Articles or by this Agreement.
5.2 ACTION WITHOUT A MEETING. Action required or permitted to be taken by
the Members as a group may be taken without a meeting if the action is evidenced
by one or more written consents describing the action taken, signed by each
Member entitled to vote and delivered to the Managers of the Company for
inclusion in the minutes or for filing with the Company records. Action taken
pursuant to this Section is effective when all Members entitled to vote have
signed the consent, unless the consent specifies a different effective date.
The record date for determining Members entitled to take action without a
meeting shall be the date the first Member signs a written consent.
5.3 ANNUAL MEETING. The annual meeting of the Members shall be held on
such date and at such time and place, either within or without the State of
Colorado, as designated by the Managers from time to time, for the purpose of
the transaction of such business as may come before the meeting.
5.4 SPECIAL MEETINGS. Special meetings of the Members, for any purpose or
purposes, unless otherwise prescribed by statute,
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may be called by any Manager or by any Member or Members holding at least 10%
of the votes entitled to be cast at such meeting. The date, time and place
of a special meeting of the Members shall be set by the person or persons
calling such special meeting, provided that the place of the special meeting
shall be within the State of Colorado at a reasonably convenient location,
and the time and date of the special meeting shall be reasonable.
5.5 NOTICE OF MEETINGS. Whenever Members are required or permitted to
take any action at a meeting, a written notice of the meeting shall be given
which shall state the place, date and hour of the meeting, and, in the case of a
special meeting, the purpose or purposes for which the meeting is called.
Unless otherwise provided by law, the written notice of any meeting shall be
given not less than ten days or more than fifty days before the date of the
meeting, either personally or by mail, to each Member entitled to vote at such
meeting. If mailed, such notice shall be deemed to be given when deposited in
the United States mail, postage prepaid, directed to the Member at his address
as it appears on the records of the Company. Notwithstanding the foregoing, any
required notice may be waived by any Member by execution of a written waiver
either prior to or at a meeting for which notice was required to be given.
5.6 WAIVER OF NOTICE. When any notice is required to be given to any
Member, a waiver thereof in writing signed by the Person entitled to such
notice, whether before, at, or after the time stated therein, shall be
equivalent to the giving of such notice. If a Member attends any meeting, such
Member (i) waives objection to lack of notice or defective notice of such
meeting unless the Member, at the beginning of the meeting, objects to the
holding of the meeting or the transacting of business at the meeting; and (ii)
waives objection to consideration at such meeting of a particular matter not
within the purpose or purposes described in the meeting notice unless the Member
object to considering the same when it is presented.
5.7 RECORD DATE. For the purpose of determining Members entitled to
notice of or to vote at any meeting of Members or any adjournment thereof, or
Members entitled to receive payment of any distribution, or in order to make a
determination of Members for any other purpose, the date on which notice of the
meeting is mailed or the date on which the resolution declaring such
distribution is adopted, as the case may be, shall be the record date for such
determination of Members. When a determination of Members entitled to vote at
any meeting of Members has been made as provided in this Section, such
determination shall apply to any adjournment thereof.
5.8 PROXIES. At all meetings of Members, a Member may vote in person
or by proxy executed in writing by the Member or by a duly authorized
attorney-in-fact. Such proxy shall be filed with the Manager of the Company
before or at the time of the meeting.
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No proxy shall be valid after eleven months from the date of its execution,
unless otherwise provided in the proxy.
5.9 VOTING POWER. Each Member shall have one vote, or fraction of a vote,
for each percentage point, or fraction of a percentage point, in the Member's
Interest, determined as of the relevant record date.
5.10 QUORUM. Members holding at least two-thirds (2/3) in Interest of the
total votes held by all Members, represented in person or by proxy, shall
constitute a quorum at any meeting of Members.
ARTICLE 6
CAPITAL
6.1 MEMBERS' INITIAL CONTRIBUTIONS. The amount of cash and the nature and
agreed value of any property, initially contributed or to be contributed to the
Company by each Member, are set forth on EXHIBIT B hereto.
6.2 ADDITIONAL CONTRIBUTIONS. The Members shall make additional capital
contributions to the Company from time to time in accordance with this Section.
(a) Additional capital contributions from the Members may be
required during the term of the Company in such amounts as may be necessary to
fund the operations of the Company in the ordinary course of its business and
provide for timely payment of its obligations.
(b) Any additional capital contribution must be approved by the
affirmative vote of Members owning not less than two-thirds (2/3) of the Company
Interests, and in the event of such approval, it shall be binding upon all
Members.
(c) Unless the Members unanimously otherwise agree, additional
capital contributions shall be contributed by the Members in proportion to their
Interests.
(d) Each Member agrees to pay to the Company all additional
capital contributions which are approved as provided in paragraph (b), above
within ten (10) days following notice of assessment of such additional capital
contribution by the Managers. Notice of assessment shall state the aggregate
amount of the additional capital contribution called for and each Member's share
thereof.
6.3 RIGHTS NON-PERFORMING MEMBER. Whenever a Member shall have failed
to perform his obligations under Section 6.2 or 6.6, the Member shall have no
vote in the decisions of the Company and shall be bound by all decisions of
the remaining Members who did perform such obligations. Furthermore, the
non-performing Member's distribution of capital, profit, and cash flow shall
be
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applied to such payment obligation until such obligation is met. At such
time that the non-performing Member shall have paid all such obligations,
with interest at the rate of twelve percent (12%) per annum, such Member's
rights suspended under this Section 6.3 shall be reinstated on a prospective
basis. The rights and remedies provided in this Section 6.3 shall be the
exclusive rights and remedies of the Members and the Company for such
non-performance.
6.4 WITHDRAWAL OR REDUCTION OF MEMBERS' CONTRIBUTIONS TO CAPITAL. A
Member, irrespective of the nature of his or her contribution, has only the
right to demand and receive cash in return for his or her contribution to
capital.
6.5 INTEREST ON AND RETURN OF CAPITAL CONTRIBUTIONS. No Member shall be
entitled to interest on his Capital Contribution or to return of his Capital
Contribution except with the consent of the Members or as otherwise specifically
provided for herein.
6.6 PROPORTIONATE HOLD-HARMLESS. It is recognized by the Company that, in
order to obtain the necessary loans needed to carry on the purposes of the
Company, it may be necessary for the individual Members to execute loan
agreements which call for individual, joint and several liability. If such
loans are approved by affirmative vote of Managers owning two-thirds (2/3) or
more in Interest of the voting power in the Company, the Members hereby agree to
execute such loan agreements upon request by the Managers. Notwithstanding such
individual liability to third parties, as among the Members, it is specifically
understood and agreed that no Member or Members shall be forced to suffer any
greater liquidated loss than is equal to their percentage of the net losses of
the Company. Further, the Members hereby agree that those Members which are
obligated to pay more than their proportional share of any Company loan shall be
reimbursed by those Members who are required to pay less than their proportional
share of any such loan so that liability for such loan is ultimately shared by
all Members in proportion to their interest in the losses of the Company. The
sole remedies for non-performance by any Member under this Section 6.6 shall be
limited to those provided above in Section 6.3.
6.7 NO THIRD PARTY BENEFICIARIES. This Article 6 shall not confer any
rights or benefit to or upon any person or entity not a party to this Agreement,
including, but not limited to, any holder of any obligation secured by a
mortgage, deed of trust, security interest or other lien or encumbrance upon or
affecting the Company, its assets or any interest of a Member therein.
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ARTICLE 7
DISTRIBUTIONS
7.1 DISTRIBUTIONS. The Managers shall distribute any cash of the Company
which they, in the reasonable exercise of their discretion, believe is not
required to meet the anticipated cash requirements of the Company.
Distributions of cash shall be made to the Members in proportion with their
Interests.
7.2 WITHHOLDING. All amounts withheld pursuant to the Code or any
provisions of state or local tax law with respect to any payment or distribution
to the Members from the Company shall be treated as amounts distributed to the
relevant Member or Members.
ARTICLE 8
ALLOCATIONS
8.1 GENERAL ALLOCATIONS OF PROFITS AND LOSSES. Subject to the other
provisions of this Article 8, the Profits and Losses of the Company for each
Fiscal Year shall be allocated to and shared by the Members in proportion to
their Interests.
8.2 RECAPTURES. All recapture of income tax deductions resulting from the
sale or disposition of Company property shall be allocated to the Member or
Members to whom the deduction that gave rise to such recapture was allocated
hereunder to the extent that such Member is allocated any gain from the sale or
other disposition of such property.
8.3 LIMITATION ON ALLOCATION OF LOSSES. Notwithstanding any other
provision of this Agreement, no allocation of losses, or any item in the nature
of expenses or losses shall be made to a Member if such allocation would cause
or increase an Adjusted Capital Account Deficit for such Member. The amount
otherwise allocable to a Member but for the foregoing sentence shall instead be
allocated to the other Members in proportion to their Interests, subject again
to the first sentence of this Section.
8.4 ALLOCATION IN THE EVENT OF A CHANGE IN INTEREST. In the event that a
Member's interest in the Company changes during any Fiscal Year, the Managers
shall determine such Member's distributive share of any item of income, gain,
loss, deduction, or credit for such Fiscal Year by reference to this Agreement
and by using any convention permitted by Code Section 706 and the Regulations
thereunder.
8.5 QUALIFIED INCOME OFFSET. In the event a Member receives any
adjustments, allocations, or distributions described in Section
1.704-1(b)(2)(ii)(d)(4), (5), or (6) of the Regulations, items of Company
income and gain (consisting of a pro rata portion of each item of Company
income, including gross income, and gain for such year) shall be specially
allocated to that Member in an amount and manner sufficient to eliminate, to
the extent required
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by the Regulations, any Adjusted Capital Account Deficit of that Member as
quickly as possible, provided that an allocation pursuant to this Section
shall be made only if and to the extent that the Member would have an
Adjusted Capital Account Deficit after all other allocations provided for in
this Agreement have been tentatively made as if this Section were not in this
Agreement. The provisions of this Section are intended to comply with the
requirements of Section 1.704-1(b)(2)(ii)(d) of the Regulations, and shall be
interpreted consistently therewith.
8.6 GROSS INCOME ALLOCATION. In the event any Member has a deficit
Capital Account at the end of any Company Fiscal Year which is in excess of the
sum of (i) the amount such Member is obligated to restore, and (ii) the amount
such Member is deemed to be obligated to restore pursuant to the penultimate
sentences of Sections 1.704-2(g)(1) and 1.704-2(i)(5) of the Regulations, each
such Member shall be specially allocated items of Company income and gain in the
amount of such excess as quickly as possible, provided that an allocation
pursuant to this Section shall be made if and only to the extent that such
Member would have a deficit Capital Account in excess of such sum after all
other allocations provided for in this Agreement have been tentatively made as
if this Section and Section 8.5 hereof were not in this Agreement.
8.7 SPECIAL PROVISIONS APPLICABLE IN THE EVENT OF NONRECOURSE BORROWINGS.
(a) Capitalized terms used in this Section and not otherwise
defined shall have the meaning given them in Section 1.704-2 of the Regulations.
(b) Nonrecourse Deductions of the Company for any fiscal year or
other period shall be allocated in the same manner as Net Losses under Section
8.1.
(c) Any Partner Nonrecourse Deductions for any Fiscal Year shall
be specially allocated to the Member who bears the economic risk of loss with
respect to the Partner Nonrecourse Debt to which such Partner Nonrecourse
Deductions are attributable in accordance with Regulations Section
1.704-2(i)(1).
(d) Except as otherwise provided in Section 1.704-2(f) of the
Regulations, notwithstanding any other provision of this Article 8, if there is
a net decrease in Partnership Minimum Gain during any Company Fiscal Year, each
Member shall be specially allocated items of Company income and gain for such
Fiscal Year (and, if necessary, subsequent Fiscal Years) in an amount equal to
such Member's share of the net decrease in Partnership Minimum Gain, determined
in accordance with the Regulations Section 1.704-2(g). Allocations pursuant to
the previous sentence shall be made in proportion to the respective amounts
required to be allocated to each Member pursuant thereto. The items to be so
allocated shall be determined in accordance with Sections 1.704-2(f)(6) and
1.704-
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2(j)(2) of the Regulations. This Section 8.7(d) is intended to comply with
the minimum gain chargeback requirement in Section 1.704-2(f) of the
Regulations and shall be interpreted consistently therewith.
(e) Except as otherwise provided in Section 1.704-2(i)(4) of the
Regulations, notwithstanding any other provision of this Article 8, if there is
a net decrease in Partner Nonrecourse Debt Minimum Gain attributable to a
Partner Nonrecourse Debt during any Company Fiscal Year, each Member who has a
share of the Partner Nonrecourse Debt Minimum Gain attributable to such Partner
Nonrecourse Debt, determined in accordance with Section 1.704-2(i)(5) of the
Regulations, shall be specially allocated items of Company income and gain for
such Fiscal Year (and, if necessary, subsequent Fiscal Years) in an amount equal
to such Member's share of the net decrease in Partner Nonrecourse Debt Minimum
Gain attributable to such Partner Nonrecourse Debt, determined in accordance
with Regulations Section 1.704-2(i)(4). Allocations pursuant to the previous
sentence shall be made in proportion to the respective amounts required to be
allocated to each Member pursuant thereto. The items to be so allocated shall
be determined in accordance with Section 1.704-2(i)(4) and 1.704-2(j)(2) of the
Regulations. This Section 8.7(e) is intended to comply with the minimum gain
chargeback requirement in Section 1.704-2(i)(4) of the Regulations and shall be
interpreted consistently therewith.
(f) To the extent permitted by Section 1.704-2 of the Regulations,
the Managers shall endeavor to treat distributions of cash as having been made
from the proceeds of a Nonrecourse Liability or a Partner Nonrecourse Liability
only to the extent that such distributions would cause or increase an Adjusted
Capital Account Deficit for any Member.
8.8. The allocations set forth in Section 8.5, 8.6, and 8.7 ("Regulatory
Allocations") are intended to comply with certain requirements of the
Regulations. It is the intent of the Members that, to the extent possible, all
Regulatory Allocations shall be offset either with other Regulatory Allocations
or with special allocations of other items of Company income, gain, loss, or
deduction pursuant to this Section 8.7. Therefore, notwithstanding any other
provision of this Article 8 (other than the Regulatory Allocations), the
Managers shall make such offsetting special allocations of Company income, gain,
loss, or deduction in whatever manner they determine appropriate so that, after
such offsetting allocations are made, each Member's Capital Account balance is,
to the greatest extent possible, equal to the Capital Account balance such
Member would have had if the Regulatory Allocations were not part of this
Agreement and all Company items were allocated pursuant to the other Sections of
this Article 8. In exercising their discretion under this Section, the Managers
shall take into account future Regulatory
14
Allocations that, although not yet made, are likely to offset other
Regulatory Allocations previously made.
8.9 TAX ALLOCATIONS: CODE SECTION 704(c).
(a) In accordance with Code Section 704(c) and the Regulations
thereunder, income, gain, loss, and deduction with respect to any property
contributed to the capital of the Company shall, solely for tax purposes, be
allocated among the Members so as to take account of any variation between the
adjusted basis of such property to the Company for federal income tax purposes
and its initial Gross Asset Value.
(b) In the event the Gross Asset Value of any Company asset is
adjusted pursuant to the definition thereof contained in EXHIBIT A hereto,
subsequent allocations of income, gain, loss and deduction with respect to such
asset shall take account of any variation between the adjusted basis of such
asset for federal income tax purposes and its Gross Asset Value in the same
manner as under Code Section 704(c) and the Regulations thereunder.
ARTICLE 9
ADMINISTRATIVE MATTERS
9.1 BOOKS AND RECORDS. At the expense of the Company, the Managers shall
maintain at the principal place of business of the Company separate books and
records of all operations and expenditures of the Company. The books and
records of the Company shall be maintained in accordance with generally accepted
accounting practices and principles. The Managers shall further maintain at the
principal place of business of the Company the following documents:
(a) A current list of the full name and last known business,
residence, or mailing address of each Member and Manager, both past and
present;
(b) A copy of the Articles of Organization of the Company and all
amendments thereto;
(c) Copies of the Company's federal, state and local income tax
returns and reports, if any, for the four most recent years;
(d) Copies of the Company's currently effective written Operating
Agreement, copies of any writings permitted or required with respect to a
Member's obligation to contribute cash, property or services to the Company
for the three most recent Fiscal Years;
(e) Minutes of every annual, special and court-ordered meeting of
the Members;
15
(f) Any written consents obtained from Members for actions taken
by Members without a meeting.
Any Member or his designated representative shall have the right, at any
reasonable time, to have access to and inspect and copy the contents of the
books and records of the Company and the other documents described in this
Section.
9.2 ANNUAL REPORTS. Within ninety (90) days after the end of each Fiscal
Year, the Managers shall cause to be prepared, and each Member furnished with,
an annual report of the Company's operations, prepared on the basis of the
accounting method specified in Section 9.1, and consisting of at least a balance
sheet of the Company as of the last day of such Fiscal Year, a statement of
income and expenses for such Fiscal Year, and a statement of each Member's
Capital Account as of the end of such Fiscal Year. Such annual reports shall be
reviewed by an independent Certified Public Accountant. The Managers shall
cooperate with any Members and the accountants who desire an audit of the books
and records of the Company. The scope and nature of any such audit shall be
clearly defined by the requesting Members, and they shall bear the full cost of
all such work including any out of pocket expenses incurred by the Company in
connection therewith.
9.3 RETURNS AND ELECTIONS.
(a) The Managers shall cause the preparation and timely filing of
all tax returns required to be filed by the Company pursuant to the Code and all
other tax returns deemed necessary and required in each jurisdiction in which
the Company does business. Copies of such returns, or pertinent information
therefrom, shall be furnished to the Members within a reasonable time after the
end of the Company's Fiscal year.
(b) All elections permitted to be made by the Company under
federal or state laws shall be made by the Managers in their sole discretion.
9.4 TAX MATTERS MEMBER. Colorado Internet Cooperative Association is
hereby designated the "tax matters partner [member]" as defined in Section
6231(a)(7) of the Code for U.S. income tax administration and reporting
purposes. The tax matters partner[member] is authorized and required to
represent the Company, at the Company's expense, in connection with all
examinations of the Company's affairs by tax authorities, including resulting
judicial and administrative proceedings, and to expend Company funds for
professional services and costs associated therewith.
9.5 LOANS TO COMPANY. Any Person, with the consent of the Managers, may
lend or advance money to the Company. If any Member makes any loan or loans to
the Company or advances money on its
16
behalf, the amount of any such loan or advance shall not be treated as a
Capital Contribution but shall be a debt due from the Company. The amount of
any such loan or advance by a lending Member shall be repayable out of the
Company's cash and shall bear interest at such rate as the Managers and the
lending Member shall agree but not in excess of the maximum rate permitted by
law. If any Manager, or an Affiliate of any Manager is the lending Person,
the rate of interest shall be determined by the Managers taking into
consideration, without limitation, prevailing interest rates and the interest
rates the lender is required to pay in the event such lender has itself
borrowed funds to loan or advance to the Company and the terms and
conditions of such loan, including the rate of interest, shall be no less
favorable to the Company than if the lender had been an independent third
party. None of the Members shall be obligated to make any loan or advance to
the Company unless otherwise unanimously agreed by them.
9.6 LIMITATION ON OUT-OF STATE BUSINESS.
(a) In addition to any other limitation or restriction contained
herein on the activities of the Company, the Company shall not, without the
unanimous consent of the Members, engage in any business or activity outside the
State of Colorado unless the Company shall have first satisfied the following
prerequisites:
(1) The Company shall have satisfied the requirements, if
any, imposed by the law of such other state relating to registration
or qualification of foreign limited liability companies doing business
in such other state; and
(2) The Company shall have received the opinion of its
legal counsel to the effect that the liability of the Members for
Company obligations arising under the law of such other state will not
exceed the liability of the Members under the Act.
9.7 TRANSACTIONS WITH MEMBERS AND MANAGERS. To the extent permitted by
applicable law and except as otherwise provided in this Agreement, the Managers
are hereby authorized to purchase property from, sell property to, or otherwise
deal with any Member or Manager acting on its own behalf, or any Affiliate of
any Member or Manager, provided that such purchase, sale or other transaction
shall be made on terms and conditions which are no less favorable to the Company
than if the sale, purchase or other transaction has been entered into with an
independent third party.
ARTICLE 10
RESTRICTIONS ON TRANSFERABILITY
10.1 GENERAL. Except as otherwise specifically provided herein or by
operation of law, a Member shall not have the right or power to sell, assign,
pledge, transfer, or in any other manner
17
whatsoever dispose of all or any part of its Membership interest in the
Company (including, without limitation, voting rights or the rights to
receive the Member's share of profits or other compensation by way of income
and the return of contributions) in the Company. Any purported transfer of
all or any part of a Member's Membership interest made in violation of this
Agreement shall be void as against the Company, its Managers, and its Members.
10.2 RIGHT OF FIRST REFUSAL.
(a) Except as set forth in Section 10.3 and Section 10.2(b) below,
if a Member ("Selling Member") desires to sell or transfer all or any portion of
its Membership interest in the Company ("Offered Interest"), the Selling Member
shall give notice ("Offering Notice") to the Company and the other Members
stating the Selling Member's desire to sell, the identity of the proposed
purchaser (if known), the proposed purchase price and any other material terms
of the proposed sale (including, without limitation, the terms of any purchase
of indebtedness owed by the Company to the Selling Member). The other Members
shall then have a right to purchase all, but not less than all, of the Offered
Interest, in the manner set forth below.
(i) The Company, as an entity, upon the approval of
two-thirds (2/3) or more in Interest of the Members, shall purchase all of
the Offered Interest. In the event that the Company does not so purchase
the Offered Interest within thirty (30) days after receiving the Offering
Notice, each Member (other than the Selling Member) shall have the right to
purchase all or a portion of his pro rata share of the Offered Interest, and
all or a portion of his pro rata share of the amount of the Offered Interest
another Member has the right to purchase but declines to purchase. For this
purpose, the Members' pro rata shares shall be determined by reference to the
respective Interests of the Members desiring to acquire a portion of the
Offered Interest.
(ii) A Member's or the Company's right to purchase shall be
exercised by giving notice ("Acceptance Notice") to the Selling Member within
thirty (30) days after receiving the Offering Notice. The Acceptance Notice of
a Member shall state the portion of the Offered Interest that the Member desires
to purchase, and shall constitute a binding contract to purchase that portion of
Offered Interest, or the portion of the Offered Interest the Member has the
right to purchase, whichever is less.
(iii) The aggregate consideration to be paid by the Company
or the other Members upon exercise of the right of first refusal option granted
by this paragraph, shall consist of (A) cash in an amount equal to the sum of
(I) the amount of cash, if any, and (II) the value, determined by agreement of
the parties or by independent appraisal, of any non-cash consideration, included
in the consideration for purchase of the Offered Interest
18
and Company indebtedness described in the Offering Notice (without regard to
any differences in tax consequences to the Selling Member of receiving cash
in lieu of such other consideration); and (B) if the terms described in the
Offering Notice contemplate payment of any portion of the purchase price in
the form of a promissory note or other obligation to pay cash in the future,
a note or obligation of the Company or other Members, as applicable, upon
terms equivalent thereto in all material respects.
(iv) If the Company or other Members elect to purchase the
full amount of the Offered Interest, the closing of the purchase shall occur not
later than 45 days after the expiration of the 30-day option period.
(v) If the Company or other Members do not collectively
elect to purchase the entire Offered Interest, the Selling Member shall, for a
period of ninety (90) days after the expiration of the 30-day option period, be
free to sell the Offered Interest to any financially responsible purchaser upon
terms no more favorable to the purchaser than those disclosed in the Offering
Notice.
(b) Upon the death of a Member, Section 10.2(a) above shall apply to
the deceased Member's Membership Interest and his estate shall be treated as the
Selling Member; PROVIDED, HOWEVER, the purchase price of said interest shall be
determined by the appraisal of the interest employed and the value reported for
federal estate tax purposes (or if no such value is determined, the appraisal of
said interest by a licensed appraiser mutually selected by the decedent's
personal representative and the remaining Members). The cost of any such
appraisal shall be solely borne by decedent's estate.
10.3 ENCUMBRANCES BY A MEMBER. No Member, and no joint tenant in a
Membership interest, shall have the right to pledge, mortgage, assign for
security purposes or hypothecate all or any portion of its Membership interest
or joint tenancy therein at any time, except with the written consent of all
other Members. Violation of this provision shall afford each other Member the
right and option to void any such pledge, mortgage, assignment or hypothecation
within ninety (90) days after receiving actual written notice of such event.
The right to invalidate a transaction shall be exercised by serving written
notice upon the creditor or other third party, and upon the Member who violated
this provision, and the invalidation shall be effective ten (10) days
thereafter. If a Member or a joint tenant in a Membership interest violates
this provision, it agrees to hold harmless and indemnify all other Members and
the Company from all costs and expenses, including attorneys' fees, in regard
thereto or as the result of the taking of action pursuant to this section.
10.4 TRANSFEREE NOT SUBSTITUTE MEMBER IN ABSENCE OF UNANIMOUS CONSENT.
19
(a) Notwithstanding anything contained herein to the contrary,
if all of the remaining Members do not approve of the proposed sale,
transfer, or assignment of the Selling Member's interest by unanimous written
consent, the proposed purchaser, transferee, or assignee of the Selling
Member's interest shall have no right to participate in the management of the
business and affairs of the Company or to become a Member. The purchaser,
transferee, or assignee shall only be entitled to receive the share of
profits or other compensation by way of income and the return of
contributions, to which the Selling Member would otherwise be entitled
("Economic Interest" of a Member). No transfer of a Member's interest in the
Company (including any transfer of the Economic Interest or any other
transfer which has not been approved by unanimous written consent of the
Members) shall be effective unless and until written notice (including the
name and address of the proposed purchaser, transferee or assignee and the
date of such transfer) has been provided to the Company and the
non-transferring Member(s) in accordance with the requirements of this
Article 10.
(b) Upon and contemporaneously with any transfer of a Selling
Member's Economic Interest in the Company which does not at the same time
transfer the Selling Member's other Membership interests in the Company
(including, without limitation, the voting rights of the Selling Member), the
Company shall purchase from the Selling Member, and the Selling Member shall
sell to the Company, all remaining Membership interests retained by the
Selling Member which were previously attributable to the transferred Economic
Interest for a purchase price of $100.00.
(c) The restrictions on transfer contained in this Section are
intended to comply (and shall be interpreted consistently) with the
restrictions on transfer set forth in Section 7-80-702 of the Act.
10.6 EXECUTION OF CERTIFICATES, ETC. In the event of the sale, transfer
or assignment of a Selling Member's interest in the Company, and as a
condition to recognizing the effectiveness and the binding nature of any such
sale, transfer, or assignment as against the Company or otherwise,
(irrespective of whether the Members unanimously approve the substitution of
the purchaser, transferee, or assignee as a new Member) the remaining Members
may require the Selling Member and the proposed purchaser, transferee, or
assignee to execute, acknowledge, and deliver to the transferee, or assignee
to execute, acknowledge, and deliver to the Company such instruments of
transfer, assignment and assumption and such other certificates,
representations and documents, and to perform all such other acts which the
remaining Members may deem necessary or desirable to:
(i) constitute such purchaser, transferee, or assignee as such;
20
(ii) confirm that the person desiring to acquire an interest or
interests in the Company, or to be admitted as a Substituted Member, has
accepted, assumed and agreed to be subject and bound by all of the terms,
obligations and conditions of the Operating Agreement, as the same may have
been further amended;
(iii) preserve the Company after the completion of such sale,
transfer, or assignment under the laws of each jurisdiction in which the
Company is qualified, organized or does business;
(iv) maintain the status of the Company as an association not
taxable as a corporation under the then applicable provisions of the Code;
and
(v) assure compliance with any applicable state and federal
securities laws and regulations.
Without limiting the generality of the foregoing, the effectiveness of any
sale, transfer, or assignment by a Member may be conditioned, in the
discretion of the Managers, upon receipt by the Company of:
(A) an opinion of counsel satisfactory to the Managers (both as to
opinion and counsel), the cost of which shall be borne by the transferor, to
the effect that such transfer will be exempt from registration under the
Securities Act of 1933, as amended, and any applicable state securities laws,
and
(B) any other documentation determined by the Managers to be
necessary or advisable in order to assure that such transfer will not violate
applicable securities laws. In addition, without violating the generality of
the foregoing, the Managers may prohibit any transfer by a Member if such
transfer would result in the "termination" of the Company pursuant to Section
708 of the Code.
10.7 EFFECTIVE DATE OF TRANSFER. Any sale, transfer, or assignment of a
Membership interest in the Company or subscription of a Member made in
compliance with this Article 10 shall be deemed effective as of the last day
of the calendar month in which the remaining Members' consent thereto was
given.
10.8 COVENANTS OF SELLING MEMBER. The Selling Member agrees, upon
request of the remaining Members, to execute such certificates or other
documents and perform such other acts as may be reasonably requested by the
remaining Members from time to time in connection with such sale, transfer,
assignment, or substitution. The Selling Member hereby indemnifies the
Company and the remaining Members against any and all loss, damage, or
expense (including, without limitation, tax liabilities or loss of tax
benefits) arising directly or indirectly as a result of any transfer or
purported transfer in violation of this Article 10.
21
10.9 OTHER RESTRICTIONS AND LIMITATIONS ON TRANSFER.
(a) In the event that, as a consequence of a sale, transfer, or
assignment of all or a portion of a Member's Membership interest, two or more
persons or entities (at least one of whom is not a Member) hold interests in
such Membership interest, such sale, transfer, or assignment shall be void as
against the Company, its Managers, and its Members unless and until all of
the persons and entities holding an interest in such Membership interest
designate in writing to the Managers one among them as their representative
for purposes of receiving and giving all notices or other communications
provided for herein and all dealings with the Company and its Members.
(b) No sale, transfer, or assignment of a Member's entire
interest shall be made unless the purchaser, transferee, or assignee
concurrently acquires all indebtedness of the Company to the Member.
ARTICLE 11
ADDITIONAL MEMBERS
11.1 ADMISSION OF NEW MEMBERS. From the date of the formation of the
Company, any Person or Entity acceptable to the Members by their unanimous
vote thereof may become a Member in this Company by the sale of new
Membership Interests for such consideration as the Members by their unanimous
votes shall determine, or as a transferee of a Member's Interest or any
portion thereof, subject to the terms and conditions of this Operating
Agreement. No person shall be eligible to become an Additional Member unless
such person is a National Service Provider or has a direct inter-network
connection at 45 megabits per second or greater to a National Service
Provider. The Managers may, at their option, at the time an Additional
Member is admitted, close the Company books (as though the Company's tax year
had ended) or make pro rata allocations of loss, income and expense
deductions as to an Additional Member for that portion of the Company's tax
year in which an Additional Member was admitted in accordance with the
provisions of Section 706(d) of the Code and the Regulations promulgated
thereunder.
ARTICLE 12
DISSOCIATION OF A MEMBER
12.1 A Person shall cease to be a Member upon the happening of any of
the following events:
(a) The delivery by the Member to all other Members of his
resignation from the Company;
(b) In the case of a Member who is a natural person, the death of
a Member or the entry of an order by a court of competent jurisdiction
adjudicating the Member incompetent;
22
(c) In the case of a Member who is acting as a Member by virtue of
being a trustee of a trust, the termination of the trust (but not merely
the substitution of a new trustee);
(d) In the case of a Member that is a separate entity other than a
corporation, the dissolution and commencement of winding up of the separate
entity;
(e) In the case of a Member that is a corporation, the filing of a
certificate of dissolution, or its equivalent, for the corporation or the
revocation of its charter;
(f) In the case of an estate, the distribution by the fiduciary
of the estate's entire interest in the Company; or
(g) In the case of a Member that is not a natural person, the
acquisition of direct or indirect ownership of fifty percent (50%) or more
of the value of or voting power in the Member.
12.2 COVENANT NOT TO DISSOCIATE. Each of the Members hereby covenants
and agrees that it shall not voluntarily taken any action which would cause
him to cease to become a Member under the provisions of Section 12.1 without
the prior approval of other Members holding a majority of the votes held by
such other Members. If a Member breaches this covenant he shall be liable to
the Company for any damages caused by such breach, which may be offset
against the amount otherwise distributable to such Member under this
Agreement.
12.3 STATUS OF A DISSOCIATING MEMBER. In the event any Member ceases to
be a Member by virtue of the provisions of Section 12.1, such Member shall
have no right to participate in the management of the business or affairs of
the Company and shall be entitled to receive only the share of profits and
distributions to which such Member would have been entitled had such Member
not resigned or withdrawn.
ARTICLE 13
DISSOLUTION AND TERMINATION
13.1 DISSOLUTION. The Company shall be dissolved upon the unanimous
written agreement of all Members ("Event of Dissolution").
13.2 STATEMENT OF INTENT TO DISSOLVE. As soon as possible following the
occurrence of an Event of Dissolution, the appropriate representative of the
Company shall execute a statement of intent to dissolve in such form as shall
be prescribed by the Colorado Secretary of State and file same with the
Colorado Secretary of State's office. Upon the filing by the Colorado
Secretary of State of a statement of intent to dissolve,
23
the Company shall cease to carry on its business, except insofar as may be
necessary for the winding up of its business, but its separate existence
shall continue until a certificate of dissolution has been issued by the
Secretary of State or until a decree dissolving the Company has been entered
by a court of competent jurisdiction.
13.3 WINDING UP, LIQUIDATION AND DISTRIBUTION OF PROPERTY. Upon
dissolution, the Managers shall immediately proceed to wind up the affairs of
the Company and distribute the Property in the following manner:
(a) The Managers shall (i) sell or otherwise liquidate all of the
Property as promptly as practicable (except to the extent the Managers may
determine to distribute any items of Property to the Members in kind), (ii)
allocate any profit or loss resulting from such sales to the Members'
Capital Accounts, (iii) discharge all liabilities of the Company (other
than liabilities to Members), including all costs relating to the
dissolution, winding up, and liquidation and distribution of assets, (iv)
establish such reserves as may be reasonably necessary to provide for
contingent and unknown liabilities of the Company (for purposes of
determining the Capital Accounts of the Members, the amounts of such
reserves shall be deemed to be an expense of the Company, (v) discharge any
liabilities of the Company to the Members other than on account of their
interests in Company capital or profits, and (vi) distribute the remaining
assets in the following order:
(I) If items of Property are to be distributed in
kind, the net fair market value of items as of the date of dissolution
shall be determined by independent appraisal or by agreement of the
Members. Such items shall be deemed to have been sold as of the date
of dissolution for their fair market value, and the Capital Accounts
of the Members shall be adjusted to reflect such deemed sale.
(II) The positive balance of each Member's Capital Account
as determined after taking into account all Capital Account
adjustments for the Company's Fiscal Year during which the liquidation
occurs, and the adjustments described in Section 13.3(a)(I) above,
shall be distributed to the Members, either in cash or in kind, as
determined by the Managers, with any items of Property distributed in
kind being valued for this purpose at their fair market value as
determined pursuant to Section 13.3(a)(I). Any such distributions to
the Members in respect of their Capital Accounts shall be made in
accordance with the time requirements set forth in Section
1.704-1(b)(2)(ii)(b)(2) of the Regulations.
24
(b) The Managers shall comply with any applicable requirements of
law pertaining to the winding up of the affairs of the Company and the
final distribution of its assets.
(c) Upon completion of the winding up, liquidation and
distribution of the assets, the Company shall be deemed terminated.
13.4 ARTICLES OF DISSOLUTION. When all debts, liabilities and
obligations have been paid and discharged or adequate provisions have been
made therefor and all of the Property has been distributed to the Members,
articles of dissolution containing the information required by the Act shall
be executed in duplicate, verified by the person signing the articles, and
filed in duplicate with the Colorado Secretary of State. The Manager shall
have authority to distribute any Company property discovered after
dissolution, convey real estate and take such other action as may be
necessary on behalf of or in the name of the Company.
13.5 RETURN OF CONTRIBUTION NON-RECOURSE TO OTHER MEMBERS. Except as
provided by law, upon dissolution, each Member shall look solely to the
assets of the Company for the return of his Capital Contribution. If the
Company property remaining after the payment or discharge of the debts and
liabilities of the Company is insufficient to return the cash or other
property contribution of one or more Members, such Member or Members shall
have no recourse against any other Member.
13.6 DEEMED DISTRIBUTION AND RECONTRIBUTION. Notwithstanding any other
provisions of this Article 13, in the event the Company is "liquidated"
within the meaning of Regulations Section 1.704-1(b)(2)(ii)(g) but no Event
of Dissolution has occurred, the assets of the Company shall not be sold, the
Company's liabilities shall not be paid or discharged, and the Company's
affairs shall not be wound up. Instead, solely for federal income tax
purposes, the Company shall be deemed to have distributed the Property in
kind to Members, who shall be deemed to have assumed and taken subject to all
Company liabilities, all in accordance with their respective Capital
Accounts. Immediately thereafter, the Members shall be deemed to have
recontributed the Property in kind to the Company, which shall be deemed to
have assumed and taken subject to all such liabilities.
ARTICLE 14
MEDIATION AND ARBITRATION
14.1 PROCEDURE. Except for any claim for injunctive relief, any
controversy, claim, or dispute arising under this Agreement ("Controversy")
shall be first submitted to mediation before a mediator jointly selected by
the Members within thirty (30) days
25
of written demand therefor by a Member. In the event that the Members are
unable to agree upon the selection of a mediator, then the Members shall
request that Xxxxxxx Xxxxx Xxxxxxx select a mediator to assist in the
resolution of the Controversy. Any mediator selected hereunder shall have
not less than five (5) years of experience in the area of businesses similar
in scope and nature to the business of the Company either as a business
owner, an attorney representing business owners, or a judge deciding issues
affecting such business owners, and shall not be related or affiliated in any
way with any of the parties to the Controversy. In the event an attempted
mediated resolution of any Controversy is not reached within one hundred
twenty (120) days of commencement of such efforts, then the Controversy shall
be submitted to the American Arbitration Association for resolution under its
expedited procedures provided that the arbitration decision shall be made by
a panel of three (3) arbitrators by majority vote. The American Arbitration
Association shall provide a list of arbitrators equal to 3 plus the number of
parties to the Controversy. Each party to the Controversy shall strike one
(1) name from the list and the remaining 3 shall be the arbitration panel.
14.2 AWARDS. Any arbitration award shall be final and binding on all
parties to the extent and in the manner provided by applicable state statute.
All awards may be filed with the clerk of one or more courts, state or
federal, having jurisdiction over the party against whom such award is
rendered or his property, as a basis of judgment and of the issuance of
execution for its collection.
14.3 GOVERNING LAW. Venue shall be in Colorado and Colorado law shall
govern.
ARTICLE 15
MISCELLANEOUS PROVISIONS
15.1 NOTICES. Any notice, demand, or communication required or
permitted to be given by any provision of this Operating Agreement shall be
deemed to have been sufficiently given or served for all purposes if
delivered personally to the party or to an executive officer of the party to
whom the same is directed or, if sent by registered or certified mail,
postage and charges prepaid, addressed to the Member's and/or Company's
address, as appropriate, which is set forth in this Operating Agreement.
Except as otherwise provided herein, any such notice shall be deemed to be
given three business days after the date on which the same was deposited in a
regularly maintained receptacle for the deposit of United States mail,
addressed and sent as aforesaid.
15.2 APPLICATION OF COLORADO LAW. This Operating Agreement, and the
application and interpretation hereof, shall be governed exclusively by its
terms and by the laws of the State of Colorado and specifically the Act.
26
15.3 WAIVER OF ACTION FOR PARTITION. Each Member irrevocably waives
during the term of the Company, any right that he may have to maintain any
action for partition with respect to the property of the Company.
15.4 AMENDMENTS. This Agreement may not be amended except by the
unanimous written agreement of all of the Members.
15.5 EXECUTION OF ADDITIONAL INSTRUMENTS. Each Member hereby agrees to
execute such other and further statements of interest and holdings,
designations, powers of attorney and other instruments necessary to comply
with any laws, rules or regulations.
15.6 CONSTRUCTION. Whenever the singular number is used in this
Agreement and when required by the context, the same shall include the
plural, and the masculine general shall include the feminine and neuter
genders and vice versa; and the word "person" or "party" shall include a
corporation, firm, partnership, proprietorship or other form of association.
15.7 HEADINGS. The headings in this Agreement are inserted for
convenience only and are in no way intended to describe, interpret, define,
or limit the scope, extent or intent of this Agreement or any provision
hereof.
15.8 WAIVERS. The failure of any party to seek redress for violation of
or to insist upon the strict performance of any covenant or condition of this
Agreement shall not prevent a subsequent act, which would have originally
constituted a violation, from having the effect of an original violation.
15.9 RIGHTS AND REMEDIES CUMULATIVE. The rights and remedies provided
by this Agreement are cumulative and the use of any one right or remedy by
any party shall not preclude or waive the right to use any or all other
remedies. Said rights and remedies are given in addition to any other rights
the parties may have by law, statute, ordinance or otherwise.
15.10 SEVERABILITY. If any provision of this Agreement or the
application thereof shall be invalid, illegal or unenforceable to any extent,
the remainder of this Operating Agreement and the application thereof shall
not be affected and shall be enforceable to the fullest extent permitted by
law.
15.11 HEIRS, SUCCESSORS AND ASSIGNS. Each and all of the covenants,
terms, provisions and agreements herein contained shall be binding upon and
inure to the benefit of the parties hereto, and to the extent permitted by
this Agreement, their respective heirs, legal representatives, successors and
assigns.
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15.12 CREDITORS. None of the provisions of this Agreement shall be for
the benefit of or enforceable by any creditors of the Company.
15.13 COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be deemed an original and all of which shall constitute
one and the same instrument.
15.14 TAX LANGUAGE. The parties intend and agree that the provisions
hereof, including the provisions of Article 8 and 13, shall be and are hereby
amended to include any provision necessary for this Agreement to have
"substantial economic effect" for purpose of the Code and thereby allow this
Agreement to avoid containing a capital account deficit restriction
provision. To the extent possible, distributions will be made such that they
do not result in any capital account deficits.
CERTIFICATE
The undersigned hereby agree, acknowledge, and certify that the
foregoing Operating Agreement constitutes the Operating Agreement of The
Mountain Area eXchange LLC and they hereby set their hands as of the 11th day
of June, 1997.
COLORADO INTERNET COOPERATIVE ROCKY MOUNTAIN INTERNET, INC.
By: By:
--------------------------- -----------------------------
Name: Name:
--------------------- ------------------------
Title: Title:
-------------------- -----------------------
Date: Date:
--------------------- ------------------------
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EXHIBIT A
TO OPERATING AGREEMENT
OF
THE MOUNTAIN AREA EXCHANGE LLC
"ACT" shall mean the Colorado Limited Liability Company Act, Colo. Rev.
Stat. Section 7-80-102, ET SEQ.
"ADJUSTED CAPITAL ACCOUNT DEFICIT" means, with respect to any Member the
deficit balance, if any, in such Member's Capital Account as of the end of
the relevant Fiscal Year, after giving effect to the following adjustments:
(a) Credit to such Capital Account any amounts which such Member
is obligated to restore or is deemed to be obligated to restore pursuant to
the penultimate sentences of Regulations Sections 1.704-2(g)(1) and
1.704-2(i)(5); and
(b) Debit to such Capital Account the items described in Sections
1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), and 1.704-1(b)(ii)(d)(6)
of the Regulations.
The foregoing definition of Adjusted Capital Account Deficit is intended to
comply with the provisions of Section 1.704-1(b)(2)(ii)(d) of the Regulations
and shall be interpreted consistently therewith.
"AFFILIATE" means, with respect to any Person, (i) any Person directly
or indirectly controlling, controlled by, or under common control with such
Person, (ii) any Person owning or controlling ten percent (10%) or more of
the outstanding voting interests of such Person, (iii) any officer, director,
or general partner of such Person, or (iv) any Person who is an officer,
director, general partner, trustee, or holder of ten percent (10%) or more of
the voting interests of any Person described in clauses (i) through (iii) of
this sentence.
"AGREEMENT" shall mean this Operating Agreement.
"ARTICLES" means the Articles of Organization of the Company, as amended
from time to time.
"BUSINESS DAY" means a day of the year on which banks are not required
or authorized to close in Boulder, Colorado.
"CAPITAL ACCOUNT" means, with respect to any Member, the capital account
maintained for such Person in accordance with the following provisions:
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(a) To each Member's Capital Account there shall be credited such
Member's Capital Contributions, such Member's distributive share of Profits
and any items in the nature of income or gain which are specially allocated
to such Member, and the amount of any Company liabilities assumed by such
Member or which are secured by any Company Property distributed to such
Member.
(b) To each Member's Capital Account there shall be debited the
amount of cash and the Gross Asset Value of any Company Property
distributed to such Member pursuant to any provision of this Agreement,
such Member's distributive share of Losses and any items in the nature of
expenses or losses which are specially allocated to such Member, and the
amount of any liabilities of such Member assumed by the Company or which
are secured by any property contributed by such Member to the Company.
(c) In the event all or a portion of an interest in the Company is
transferred in accordance with the terms of this Agreement, the transferee
shall succeed to the Capital Account of the transferor to the extent it
relates to the transferred interest.
(d) In determining the amount of any liability for purposes of
subsections (a) and (b) above, there shall be taken into account Code
Section 752(c) and any other applicable provisions of the Code and
Regulations.
The foregoing provisions and the other provisions of this Agreement
relating to the maintenance of Capital Accounts are intended to comply with
the Regulations Section 1.704-1(b), and shall be interpreted and applied in a
manner consistent with such Regulations. In the event the Managers shall
determine that it is prudent to modify the manner in which the Capital
Accounts or any debits or credits thereto (including, without limitation,
debits or credits relating to liabilities that are secured by contributed or
distributed property or that are assumed by the Company or the Members), are
computed in order to comply with such Regulations, the Managers may make such
modification, provided that it is not likely to have a material effect on the
amounts distributable to any Member pursuant to Section 13 hereof upon the
dissolution of the Company. The Managers also shall (i) make any adjustments
that are necessary or appropriate to maintain equality between the Capital
Accounts of the Members and the amount of Company capital reflected on the
Company's balance sheet, as computed for book purposes, in accordance with
Regulations Section 1.704-1(b)(2)(iv)(g), and (ii) make any appropriate
modifications in the event unanticipated events (for example, the acquisition
by the Company of oil or gas properties) might otherwise cause this Agreement
not to comply with Regulations Section 1.704-1(b).
30
"CAPITAL CONTRIBUTIONS" means, with respect to any Member, the amount of
money and the initial Gross Asset Value of any property (other than money)
contributed to the Company with respect by such Member. The principal amount
of a promissory note which is not readily traded on an established securities
market and which is contributed to the Company by the maker of the note (or a
Person related to the maker of the note within the meaning of Regulations
Section 1.704-1(b)(2)(ii)(c)) shall not be included in the Capital Account of
any Member until the Company makes a taxable disposition of the note or until
(and to the extent) principal payments are made on the note, all in
accordance with Regulations Section 1.704-1(b)(2)(iv)(d)(2).
"CODE" shall mean the Internal Revenue Code of 1986 or corresponding
provisions of subsequent superseding federal revenue laws.
"COMPANY" shall refer to The Mountain Area eXchange LLC, a Colorado
limited liability company.
"DEPRECIATION" means, for each Fiscal Year, an amount equal to the
depreciation, amortization, or other cost recovery deduction allowable with
respect to an asset for such Fiscal Year, except that if the Gross Asset
Value of an asset differs from its adjusted basis for federal income tax
purposes at the beginning of such Fiscal Year, Depreciation shall be an
amount which bears the same ratio to such beginning Gross Asset Value as the
federal income tax depreciation, amortization, or other cost recovery
deduction for such Fiscal Year bears to such beginning adjusted tax basis;
PROVIDED, HOWEVER, that if the adjusted basis for federal income tax purposes
of an asset at the beginning of such Fiscal Year is zero, Depreciation shall
be determined with reference to such beginning Gross Asset Value using any
reasonable method selected by the Managers.
"FISCAL YEAR" means the Company's fiscal year, which shall be the
calendar year.
"GROSS ASSET VALUE" means, with respect to any asset, the asset's
adjusted basis for federal income tax purposes, except as follows:
(a) The initial Gross Asset Value of any asset contributed by a
Member to the Company shall be the gross fair market value of such asset,
as reasonably determined by the contributing Member and the Managers,
provided that, if the contributing Member is a Manager, the determination
of the fair market value of a contributed asset shall be determined by
appraisal;
(b) The Gross Asset Values of all Company assets shall be adjusted
to equal their respective gross fair market
31
values, as determined by the Managers as of the following times: (a) the
acquisition of an additional interest in the Company by any new or
existing Member in exchange for more than a DE MINIMIS Capital
Contribution; (b) the distribution by the Company to a Member of more than
a DE MINIMIS amount of Company Property as consideration for an interest
in the Company; and (c) the liquidation of the Company within the meaning
of Regulations Section 1.704-1(b)(2)(ii)(g); PROVIDED, HOWEVER, that the
adjustments pursuant to clauses (a) and (b) above, shall be made only if
the Managers reasonably determine that such adjustments are necessary or
appropriate to reflect the relative economic interest of the Members in
the Company;
(c) The Gross Asset Value of any Company asset distributed to any
Member shall be adjusted to equal the gross fair market value of such asset
on the date of distribution as determined by the distributee and the
Managers, provided that, if the distributee is a Manager, the determination
of the fair market value of the distributed asset shall be determined by
appraisal; and
(d) The Gross Asset Values of Company assets shall be increased
(or decreased) to reflect any adjustments to the adjusted basis of such
assets pursuant to Code Section 734(b) or Code Section 743(b), but only to
the extent that such adjustments are taken into account in determining
Capital Accounts pursuant to Regulation Section 1.704-1(b)(2)(iv)(m);
PROVIDED, HOWEVER, that Gross Asset Values shall not be adjusted pursuant
to this subsection to the extent the Managers determine that an adjustment
pursuant to subsection to (b) above, is necessary or appropriate in
connection with a transaction that would otherwise result in an adjustment
pursuant to this subsection.
If the Gross Asset Value of an asset has been determined or adjusted pursuant
to subsection (a), (b), or (c) above, such Gross Asset Value shall thereafter
be adjusted by the Depreciation taken into account with respect to such asset
for purposes of computing Profits and Losses.
"INTEREST" shall mean the relationship of a Member's interest in profits
and losses under Section 2.8 to the aggregate interest in profits and losses
under Section 2.8 of all Members, expressed as a percentage.
"MANAGERS" shall mean all of the Managers of the Company, or the Manager
of the Company if there is only one Manager. Until the next annual meeting
of the Company, the Managers are and shall be Xxxxx Xxxxxxxx, Xxxxxxx Xxxxxx,
and Xxxxx Loud.
"MEMBER" shall mean each of the parties who executes a counterpart of
this Agreement as a Member and each of the parties
32
who may hereafter become Members of the Company. To the extent a Manager is
a Member, he will have all the rights of a Member with respect to such
Membership interest, and the term "Member" as used herein shall include a
Manager to the extent he is a Member.
"NATIONAL SERVICE PROVIDER" means an organization with a nationwide
network architecture of 45 megabits per second or greater over which
inter-network services are provided to the public.
"PERSON" means any individual, partnership, corporation, trust, or other
entity.
"PROFITS" and "LOSSES" means, for each Fiscal Year, an amount equal to
the Company's taxable income or loss for such year or period, determined in
accordance with Code Section 703(a) (for this purpose, all items of income,
gain, loss, or deduction required to be stated separately pursuant to Code
Section 703(a)(1) shall be included in taxable income or loss), with the
following adjustments:
(a) Any income of the Company that is exempt from federal income
tax and not otherwise taken into account in computing Profits and Losses
pursuant to this Section shall be added to such taxable income or loss;
(b) Any expenditures of the Company described in Code Section
705(a)(2)(b) or treated as Code Section 705(a)(2)(b) expenditures pursuant
to Regulations Section 1.704-1(b)(2)(iv)(i), and not otherwise taken into
account in computing Profits or Losses pursuant to this Section shall be
subtracted from such taxable income or loss;
(c) In the event the Gross Asset Value of any Company asset is
adjusted pursuant to Section 1.14 (b) or (c), the amount of such adjustment
shall be taken into account as gain or loss from the disposition of such
asset for purposes of computing Profits and Losses;
(d) Gain or loss resulting from any disposition of Company
Property with respect to which gain or loss is recognized for federal
income tax purposes shall be computed by reference to the Gross Asset Value
of the property disposed of, notwithstanding that the adjusted tax basis of
such property differs from its Gross Asset Value;
(e) In lieu of the depreciation, amortization, and other cost
recovery deductions taken into account in computing such taxable income or
loss, there shall be taken into account Depreciation for such Fiscal Year
or other period;
33
(f) To the extent an adjustment to the adjusted tax basis of any
Company asset pursuant to Code Section 734(b) or Code Section 743(b) is
required pursuant to Regulations Section 1.704-1(b)(2)(iv)(m)(4) to be
taken into account in determining Capital Accounts as a result of a
distribution other than in liquidation of a Member's interest in the
Company, the amount of such adjustment shall be treated as an item of gain
(if the adjustment increases the basis of the asset) or loss (if the
adjustment decreases the basis of the asset) from the disposition of the
asset and shall be taken into account for purposes of computing Profits or
Losses;
(g) Notwithstanding any other provision of this Section, any items
of income, gain, loss or deduction which are specially allocated to a
Member shall not be taken into account in computing Profits or Losses.
The amounts of the items of Company income, gain, loss, or deduction
available to be specially allocated pursuant to Sections hereof shall be
determined by applying rules analogous to those set forth in subsections (a)
through (f) above.
"PROPERTY" means all real and personal property acquired and operated by
the Company, and any improvements thereto, and shall include both tangible
and intangible property.
"PRO RATA" shall mean in proportion to the Members' Interests.
"REGULATIONS" means the Income Tax Regulations, including Temporary
Regulations, promulgated under the Code, as such regulations may be amended
from time to time (including corresponding provisions of succeeding
regulations).
"SECTION" when capitalized, shall mean a section of this Agreement,
unless the context otherwise requires.
34
