EXHIBIT 10.18
EXCHANGE AGREEMENT
THIS EXCHANGE AGREEMENT, dated as of September 23, 2003, is by and
among Oak Street Financial Services, Inc., a Maryland corporation (the
"Company"), Oak Street Operations LLC, a Delaware limited liability company
("OSO") and unitholders ("Unitholders") of Oak Street Mortgage LLC, a Delaware
limited liability company ("OSM").
RECITALS
A. OSO proposes to offer one of its units in exchange for each
unit of OSM held by the Unitholders. Voting units of OSM will be exchanged for
voting units of OSO, and non-voting units of OSM will be exchanged for
non-voting units of OSO. Units of OSM are hereinafter referred to as "OSM
Units." Units of OSO are hereinafter referred to as "OSO Units."
B. Immediately following the exchange of units in Paragraph A,
the Company proposes to offer 1,000 shares of its common stock, $.01 par value
per share ("Common Stock"), in exchange for each OSO Unit held by the
Unitholders, except for the 113,999.95 non-voting OSO Units owned by Sotseks
Corp. ("Sotseks") which shall be the subject of a stock purchase option
referenced in Article II, Section 7. Voting shares of Common Stock will be
exchanged for voting OSO Units on a 1,000 share to one unit basis. Non-voting
shares of Common Stock will be exchanged for non-voting OSO Units on a 1,000
share to one unit basis.
C. Each Unitholder owns the OSM Units listed opposite his, her,
or its name on Exhibit A hereto.
D. OSO desires to acquire the OSM Units from each Unitholder, and
each Unitholder is willing to transfer to OSO, the OSM Units set forth beside
such Unitholder's name on Exhibit A hereto, in exchange, in each case, for the
OSO Units set forth opposite the name of the Unitholder on Exhibit A.
E. The Company desires to acquire the OSO Units from each
Unitholder except Sotseks, and each Unitholder is willing to transfer to the
Company, the OSO Units set forth beside such Unitholder's name on Exhibit A
hereto, in exchange, in each case, for the shares of Common Stock of the Company
set forth opposite the name of such Unitholder on Exhibit A (the "Shares").
F. The parties to this Agreement want to reduce to writing their
agreement with respect to the foregoing.
THEREFORE, in consideration of the mutual covenants contained in this
Agreement and the acts to be performed under this Agreement, the parties hereby
agree to the following:
ARTICLE I - EXCHANGE OF OSM UNITS FOR OSO UNITS
AND OF OSO UNITS FOR SHARES
1. TRANSFER OF THE OSM UNITS. Subject to the terms and conditions
of this Agreement, each Unitholder agrees to transfer to OSO on the Closing Date
(as defined in Section 3) all of the Unitholder's right, title and interest in
and to the OSM Units set forth beside such Unitholder's name on Exhibit A
attached to this Agreement.
2. ISSUANCE OF OSO UNITS. As consideration for the OSM Units, on
the Closing Date OSO shall issue to each Unitholder the OSO Units set forth
opposite such Unitholder's name on Exhibit A.
3. TRANSFER OF OSO UNITS. Subject to the terms and upon the
conditions of this Agreement, each holder of OSO Units except Sotseks agrees to
transfer to the Company on the Closing Date all of such holder's right, title
and interest in and to the OSO Units set forth opposite his, her or its name on
Exhibit A.
4. ISSUANCE OF SHARES. As consideration for the OSO Units
transferred to it on the Closing Date, the Company shall issue to each holder of
OSO Units transferring such OSO Units to the Company, the number and class of
Shares set forth opposite such person's name on Exhibit A.
5. CLOSING. The closing (the "Closing") of the transfer of the
OSM Units and the OSO Units and the acquisition of the OSO Units and the Shares
described in this Agreement shall be held as soon as practicable after OSO and
the Company receive signed signature pages and the OSM Unit Assignment Form from
each Unitholder and the OSO Unit Assignment Form and a signed Form 2553 from
each Unitholder except Sotseks (the "Closing Date"), at the offices of the
Company, 00000 X. Xxxxxxxx Xxxxxx, Xxxxx 000, Xxxxxx, Xxxxxxx 00000, or at such
other time and place as is mutually agreed to by the parties to this Agreement.
6. SUBCHAPTER S PROVISIONS.
(a) The Company intends to elect to be an S Corporation for and
after its date of organization.
(b) Each shareholder of the Company, agrees to sign a Form 2553
including any attachments thereto to make such an election.
The Company will provide each such Unitholder with a copy of
the Form 2553 to be signed by such Unitholder.
7. REPRESENTATIONS AND WARRANTIES OF THE UNITHOLDERS. Each
Unitholder hereby represents and warrants to OSO and to the Company with respect
to the OSM Units and OSO Units set forth beside such Unitholder's name on
Exhibit A, as follows:
(a) The Unitholder is the record and beneficial owner of the OSM
Units.
(b) The transfer of the OSM Units by the Unitholder to OSO
hereunder will vest in OSO good and valid right, title and
interest in and to the OSM Units, free and clear of all
claims, liens, pledges, charges, security interests and
encumbrances of
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any nature. The transfer of the OSO Units to the Company
hereunder will vest in the Company good and valid right, title
and interest in and to the OSO Units, free and clear of all
claims, liens, pledges, charges, security interests and
encumbrances of any nature.
(c) The Unitholder has the full right, power and authority to
execute, deliver and perform this Agreement and to transfer
the OSM Units and, in the case of all Unitholders but Sotseks,
the OSO Units in accordance herewith.
(d) This Agreement constitutes the legal, valid and binding
obligation of the Unitholder, enforceable against such
Unitholder in accordance with its terms, except as such
enforcement may be limited by bankruptcy, insolvency, or other
laws or equitable principles affecting the enforcement of
creditors' rights generally.
(e) The Unitholder has the financial ability to bear the economic
risk of an investment in the OSO Units and in the Shares, as
applicable, has adequate means of providing for his, her or
its current needs and personal contingencies, has no need for
liquidity in such investment and could afford the complete
loss of such investment. The Unitholder's overall commitment
to investments that involve a high degree of risk or that are
not readily marketable is not disproportionate to the
Unitholder's net worth, and the Unitholder's investment in OSO
or in the Company will not cause such overall commitment to
become excessive.
(f) The Unitholder has such knowledge, skill and experience in
business, financial and investment matters that the Unitholder
is capable of evaluating independently the merits and risks of
an investment in OSO Units or in the Shares. To the extent the
Unitholder has determined it to be necessary, the Unitholder
has retained, at the Unitholder's own expense, and relied
upon, appropriate professional advice regarding the
investment, tax and legal merits and consequences of this
Agreement and ownership of the OSO Units or the Shares.
(g) All representations, warranties and covenants contained in
this Agreement shall survive the Closing Date and the death or
disability of the Unitholder if an individual, and shall be
binding on such Unitholder's successors and assigns.
(h) The Unitholder hereby covenants and agrees to notify the
Company upon the occurrence of any event prior to the Closing
Date which would cause any representation or warranty of the
Unitholder contained in this Agreement to be false or
incorrect.
8. REPRESENTATION AND WARRANTIES OF OSO. OSO hereby represents
and warrants to the Unitholders as follows:
(a) OSO is duly formed, validly existing and in good standing
under the laws of the State of Delaware, with full power and
authority to conduct its business and to execute and deliver
this Agreement and to perform its obligations hereunder.
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(b) OSO has duly authorized the sale and issuance of the OSO Units
upon the terms set forth herein by all requisite corporate
action, and this Agreement has been duly authorized, executed
and delivered by it.
(c) this Agreement constitutes the legal, valid and binding
obligation of OSO, enforceable against OSO in accordance with
its terms, except as such enforcement may be limited by
bankruptcy, insolvency or other laws or equitable principles
affecting the enforcement of creditors' rights generally.
9. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
hereby represents and warrants to the Unitholders as follows:
(a) The Company is duly formed, validly existing and in good
standing under the laws of the State of Maryland, with full
power and authority to conduct its business and to execute and
deliver this Agreement and to perform its obligations
hereunder.
(b) The Company has duly authorized the sale and issuance of the
Shares upon the terms set forth herein by all requisite
corporate action, and this Agreement has been duly authorized,
executed and delivered by it.
(c) This Agreement constitutes the legal, valid and binding
obligation of the Company, enforceable against the Company in
accordance with its terms, except as such enforcement may be
limited by bankruptcy, insolvency or other laws or equitable
principles affecting the enforcement of creditors' rights
generally.
10. COVENANTS. Each Unitholder agrees to the following:
(a) The Unitholder understands and agrees that, unless the
Unitholder notifies the Company in writing to the contrary on
or before the Closing Date, all of the Unitholder's
representations and warranties contained in this Agreement
will be deemed to have been reaffirmed and confirmed as of the
Closing Date.
(b) The Unitholder understands that no federal or state agency has
made any findings or determination as to the fairness of an
investment in, or any recommendation or endorsement of, the
OSO Units or the Shares.
(c) The Unitholder acknowledges that OSO and the Company have the
right in their sole and absolute discretion to abandon this
offer at any time prior to the Closing Date and to return to
the Unitholder his, her or its Units.
(d) Each of the Unitholders acknowledges receipt of the letter
dated September ___, 2003, from Xxxxxx Xxxxxx describing the
transactions contemplated by this Agreement, and the
enclosures referred to in that letter (the "Documentation").
Each Unitholder represents that the decision he, she or it has
made regarding whether or not to assign OSM Units to OSO in
exchange for OSO Units, and OSO Units to the Company in
exchange for Shares pursuant to this Agreement ("Exchange
Decision") has been made by such Unitholder independently
after
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considering the Documentation, the tax consequences of that
decision, and other relevant information, and after consulting
any professional advisors deemed appropriate by such
Unitholder. Each Unitholder covenants that he, she or it will
assert no claim against OSM, OSO, the Company, their
subsidiaries, or their officers, directors or agents based on
such Unitholder's Exchange Decision or the disclosures made to
such Unitholder in connection with that Exchange Decision.
Each Unitholder hereby indemnifies and holds harmless OSM, OSO
and the Company, their subsidiaries, and their officers,
directors or agents from and against any loss or liability
occasioned by any such claim of such Unitholder or such
Unitholder's representatives.
11. INFORMATION CONCERNING OSO AND THE COMPANY.
(a) The Unitholder has had the opportunity to obtain information
or documents from, and to ask questions of, representatives of
OSO and the Company in connection with the offering of the OSO
Units and the Shares and any aspect of the business of OSO and
the Company, to the extent necessary to evaluate the merits
and risks (both economic and legal) related to the
Unitholder's investment in OSO and in the Company, and has
received answers therefrom that the Unitholder considers to be
responsive to such questions. Prior to making an investment in
OSO and in the Company, the Unitholder has had the opportunity
to verify the accuracy of any information that has been
provided.
(b) The Unitholder understands that no public market is available
for the sale of the OSO Units or the Shares at this time.
12. RESTRICTIONS ON TRANSFER OR SALE OF OSO UNITS AND SHARES UNDER
SECURITIES LAWS.
(a) The Unitholder is acquiring the OSO Units and, thereafter as
to each Unitholder except Sotseks, the Shares solely for the
Unitholder's own beneficial account, for investment purposes,
and not with a view to, or for resale in connection with, any
distribution of the OSO Units or the Shares (other than in
accordance with applicable federal or state law). The
Unitholder understands that neither the OSO Units nor the
Shares have been registered under the Securities Act of 1933
(the "Securities Act") or any state securities laws by reason
of specific exemptions under the provisions thereof which
depend in part upon the investment intent of the Unitholder
and of the other representations, warranties and covenants
made by the Unitholder in this Agreement. The Unitholder
understands that OSO and the Company are relying upon the
representations, warranties and covenants of the Unitholder
contained in this Agreement for the purpose of determining
whether this transaction meets the requirements for such
exemptions.
(b) The Unitholder understands that the OSO Units and the Shares
are "restricted securities" as that term is defined in Rule
144 promulgated under the Securities Act by the Securities and
Exchange Commission (the "Commission") and that the Securities
Act and Rule 144 and other rules promulgated by the Commission
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provide in substance, if a public market for such securities
develops later, that the Unitholder may dispose of the OSO
Units and the Shares only pursuant to an effective
registration statement under the Securities Act or an
exemption therefrom, and the Unitholder understands that the
Company has no obligation or intention to register any of the
OSO Units or the Shares, or to take action so as to permit
sales pursuant to the Securities Act (including Rule 144).
Accordingly, the Unitholder understands that, under the
Commission's rules, the Unitholder may dispose of the OSO
Units and the Shares principally only in "private placements"
which are exempt from registration under the Securities Act,
in which event the transferee will acquire "restricted
securities" subject to the same limitations as in the hands of
the Unitholder.
(c) With the exception of the transfer of OSO Units to the Company
as contemplated by this Agreement, no Unitholder may offer,
sell or transfer OSO Units or Shares acquired by him, her or
it under this Agreement unless, at the expense of the
transferring Unitholder, the Company, in the case of a
transfer of Shares, or OSO, in the case of a transfer of OSO
Units, has received an opinion of counsel for the Company or
OSO or counsel acceptable to the Company or OSO, as the case
may be, to the effect that such transfer is exempt from
registration requirements under the Securities Act and state
securities laws. OSO's Management Committee as to the OSO
Units and the Company's Board of Directors, as to the Shares,
may, in its sole discretion, waive the requirement for a legal
opinion, but any such waiver will not constitute a waiver of
any such requirement for any subsequent transfer of such OSO
Units or Shares or any interest therein.
(d) With the exception of the transfer of OSO Units to the
Company, as contemplated by this Agreement, the Unitholder
acknowledges and agrees that the Unitholder will not sell,
assign, pledge, give, transfer or otherwise dispose of the OSO
Units or the Shares or any interest therein, or make any offer
or attempt to do any of the foregoing, except pursuant to a
registration of the OSO Units or the Shares, as applicable,
under the Securities Act and all applicable state securities
laws or in a transaction which is exempt from the registration
provisions of the Securities Act and all applicable state
securities laws.
(e) The Unitholder has not offered or sold any portion of the OSO
Units or the Shares and has no present intention of dividing
the OSO Units or the Shares with others or of reselling or
otherwise disposing of any portion of the OSO Units or the
Shares either currently or after the passage of a fixed or
determinable period of time or upon the occurrence or
nonoccurrence of any predetermined event or circumstance.
13. CONDITIONS PRECEDENT TO THE UNITHOLDERS' OBLIGATIONS. All
obligations of the Unitholders under this Agreement are subject to the
fulfillment, prior to or on the Closing Date, of each of the following
conditions:
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(a) OSO's representations and warranties contained in this
Agreement shall be true at the time of Closing as though such
representations and warranties were made at such time;
(b) OSO shall have delivered to Sotseks a certificate representing
the non-voting OSO Units to which such Unitholder is entitled
under this Agreement;
(c) The Company's representations and warranties contained in this
Agreement shall be true at the time of Closing as though such
representations and warranties were made at such time; and
(d) The Company shall have delivered to each Unitholder except
Sotseks the stock certificates representing the number and
class of Shares to which such Unitholder is entitled under
this Agreement.
14. CONDITIONS PRECEDENT TO OSO'S OBLIGATIONS. All obligations of
OSO under this Agreement are subject to the fulfillment, prior to or on the
Closing Date, of each of the following conditions:
(a) The Unitholders' representations and warranties contained in
this Agreement shall be true at the time of Closing as though
such representations and warranties were made at such time;
and
(b) Each Unitholder shall have delivered to OSO on or before the
Closing an OSM Unit Assignment Form which assigns the OSM
Units to OSO.
15. CONDITIONS PRECEDENT TO THE COMPANY'S OBLIGATIONS. All
obligations of the Company under this Agreement are subject to the fulfillment,
prior to or on the Closing Date, of each of the following conditions:
(a) The Unitholders' representations and warranties contained in
this Agreement shall be true at the time of Closing as though
such representations and warranties were made at such time;
(b) Each Unitholder except Sotseks shall have delivered to the
Company on or before the Closing an OSO Unit Assignment Form
which assigns his, her or its OSO Units to the Company, a
signed signature page of this Agreement and an executed Form
2553 for such Unitholder; and
(c) OSO shall have delivered to the Company a certificate
representing the non-voting and voting units to which the
Company is entitled under this Agreement.
16. EFFECT OF CONDITIONS PRECEDENT. In the event the conditions
precedent to consummation of this Agreement are satisfied or waived by the party
they are to benefit on or before September 30, 2003, then the Unitholders, OSO,
and the Company shall proceed with the consummation of this Agreement;
otherwise, the obligations of the Unitholders, the Company, and OSO hereunder
shall be terminated.
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17. COVENANT OF FURTHER ASSURANCES. The Unitholders agree, upon
reasonable request, to deliver such additional documents to OSO or to the
Company or take such additional actions as may be necessary or appropriate to
vest in OSO ownership of the OSM Units and in the Company ownership of the OSO
Units held by unitholders other than Sotseks.
18. OSM OPERATING AGREEMENT. With regard to the exchange of OSM
Units for OSO Units pursuant to this Agreement by any Unitholder of OSM, the
undersigned Unitholder hereby waives any compliance with any and all covenants,
agreements, or requirements set forth in the Limited Liability Company Operating
Agreement of OSM (the "OSM Operating Agreement") or the Redemption Agreements by
and between OSM and certain Unitholders governing or otherwise restricting the
sale, transfer, and assignment of the OSM Units, including, without limitation,
any rights of first refusal or purchase that such Unitholder may have under
Article VII of the OSM Operating Agreement and Section 5 of the Redemption
Agreement. With regard to the exchange of OSM Units for OSO Units pursuant to
this Agreement by any Unitholder of OSM, OSM hereby unanimously waives any
compliance with (i) any and all covenants, agreements, or requirements set forth
in the OSM Operating Agreement governing or otherwise restricting the sale,
transfer, and assignment of the OSM Units, including, without limitation, the
provisions of Sections 7.2 and 7.3 of the OSM Operating Agreement, and (ii) any
and all covenants, agreements, or requirements set forth in the Redemption
Agreements by and between OSM and certain of its Unitholders governing or
otherwise restricting the sale, transfer, and assignment of their OSM Units,
including, without limitation, the provisions of Section 2, 3, 4 and 5 of the
Redemption Agreements. At the Closing, since OSO shall have acquired all OSM
Units, the Unitholders, in their capacity as Unitholders, shall no longer be
subject to the OSM Operating Agreement or the Redemption Agreements.
19. OSO OPERATING AGREEMENT. OSO and Sotseks agree as soon as
practicable after the Closing Date to enter into a Limited Liability Operating
Company Agreement of OSO in the form attached hereto as Exhibit B. Sotseks and
OSO agree not to transfer any OSO Units they receive pursuant to this Agreement
until the OSO Operating Agreement attached hereto as Exhibit B is executed, at
which point they will be subject to the transfer restrictions contained therein.
ARTICLE II - ADDITIONAL TRANSFER
RESTRICTIONS APPLICABLE TO THE SHARES
1. GENERAL RESTRICTIONS. Following the Closing, the Unitholders
acquiring Shares hereunder (the "Shareholders") shall have no right to sell,
assign or in any manner transfer all or any part of the Shares and the
Shareholders hereby agree that the Shareholders will not sell, assign or in any
manner transfer all or any part of the Shares, except as otherwise provided in
this Agreement, without the prior written consent of the Board of Directors of
the Company. The Board of Directors of the Company may require, as a condition
of such a sale, assignment or transfer of Shares, that the transferee execute an
agreement substantially identical in form to this Agreement (other than Article
I) (which may be accomplished by a certificate of acceptance and adoption of
this Agreement (other than Article I), that provides that all of the
transferee's Shares shall be subject to the restrictions on transfer set forth
in this Agreement (other than Article I).
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2. RESTRICTIONS APPLICABLE TO SHAREHOLDERS OTHER THAN EMPLOYEE
SHAREHOLDERS. Except as specifically permitted in this Section 2, no holder of
Shares following the Closing Date who is not an Employee Shareholder, as defined
in Section 3 hereof, subject to the transfer restrictions in Section 3 hereof (a
"Non-Employee Shareholder") may sell, assign or in any manner transfer all or
any part of his, her or its Shares in the Company, without the unanimous written
consent of the Company's Board of Directors.
(a) Permitted Transfers. Notwithstanding anything to the contrary
in this Section 2 and except as provided in this Section 2,
any Non-employee Shareholder (including without limitation
such Non-employee Shareholder's legal guardian, executor or
administrator in the case of an individual Non-employee
Shareholder) desiring to sell, transfer, exchange or encumber
all or part of such Non-employee Shareholder's Shares,
including transfers by gift or by reason of death, may do so
only if such Non-employee Shareholder has complied with the
provisions of this Section 2 unless such provisions have been
waived in writing by the unanimous consent of the Company's
Board of Directors. Upon the transfer by a Non-employee
Shareholder of his, her, or its Shares in accordance with this
Section 2, said Non-employee Shareholder shall promptly
surrender to the Company any and all certificates evidencing
the transferred Shares, and the Company shall thereafter issue
to the new Shareholder a certificate evidencing the number of
Shares so acquired.
(b) Transfers to Family or Affiliates. Any Non-employee
Shareholder may, with the unanimous consent of the Board of
Directors of the Company, which consent shall not be
unreasonably withheld, transfer the Shares held by such
Non-employee Shareholder to persons related by blood to such
Non-employee Shareholder or to an entity in which a majority
of the equity interests or beneficial interests is held by
persons related by blood to such Non-employee Shareholder;
provided however that Xxxx X. Xxxxxx (or at his death, his
personal representative) may transfer his voting Shares to
Xxxxx X. Xxxxxxxx without seeking such consent and Xxxxxx X.
Xxxxxxx (or at his death, his personal representative) may
transfer his voting Shares to Xxxxxx Xxxxxxx Xxxxxxx without
seeking such consent. Such transfer may be made by the
Non-employee Shareholder or, in the event of the Non-employee
Shareholder's death or disability, by his or her personal
representative. A condition of such transfer shall be that
such prospective transferee shall agree to be bound by the
provisions in this Agreement (other than Article I).
(c) Response to Third Party Offer. The Xxxxxx Group shall mean
Xxxx X. Xxxxxx, trusts for the benefit of his children, his
children, and any transferee from any of such persons pursuant
to the provisions of this Section 2. The Skestos Group shall
mean Xxxxxx X. Xxxxxxx, Sotseks and any transferee from any of
such persons pursuant to the provisions of this Section 2. The
Alonso group shall mean Xxxxxx Xxxxxx and any transferee from
him pursuant to the provisions of this Section 2. Such Groups
shall be bound by the majority vote of the Group of which they
are a part. If either the Xxxxxx Group, the Skestos Group or
the Alonso Group receives a written offer, by its terms
irrevocable for at least 30
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days, to purchase all of the Shares and outstanding options of
such Group and such Group wishes to accept such offer, a
representative of such Group shall advise the members of the
other Groups of the terms of such offer within 10 days
following receipt thereof. The other Groups shall have the
right, for a period of 15 days following such receipt, to give
notice in writing to such Group that the other Groups elect to
purchase all of the Shares and outstanding options of such
Group at the price and on the terms proposed by the third
party purchaser, supported by credible financial assurances
that the other Groups are able to do so. Alternatively, the
other Groups may in a writing delivered within the same time
period elect to require that all of their Shares and
outstanding options be purchased at the same price and on the
same terms by the proposed third party purchaser. If the
proposed third party purchaser is unwilling to purchase all of
such offered Shares and outstanding options, then any Group
may reject such offer in its entirety or the Groups may agree
to sell, on a pro rata allocation, such number of Shares and
outstanding options as the proposed third party purchaser is
willing to buy.
(d) Transfer in the Event of the Death or Disability of Xxxxxx
Xxxxxx. In the event of the death or disability of Xxxxxx
Xxxxxx, the Company shall purchase all of the Shares of the
Alonso Group at the value established in accordance with the
valuation procedure described in subsection (g); provided,
however, that Xx. Xxxxxx'x personal representative, in the
event of his death or disability, may by written notice to the
Company elect within 90 days following such event to defer
establishment of the value of the Shares of the Alonso Group
for a period of 36 months following such event. Any purchase
by the Company shall be on a time schedule which accords with
available liquid assets of the Company and covenants in the
Company's financing agreements.
(e) Transfer in the Event of Bankruptcy or Divorce of a
Non-employee Shareholder. In the event of the bankruptcy of a
Non-employee Shareholder or in the event of a transfer of
Shares incident to a divorce, the Company shall purchase all
of the Shares of such Non-employee Shareholder at the value
established in accordance with subsection (g). Any purchase
shall be on a time schedule which accords with the available
liquid assets of the Company and complies with covenants in
its financing agreements.
(f) Other Disposition of Shares. If either the Xxxxxx Group, the
Skestos Group or the Alonso Group wishes to offer for sale all
of its Shares and outstanding options but has not received an
offer from a third party or if either group wishes to
liquidate the Company in order to terminate its interests in
the Company, the value of such interest shall be established
in accordance with the valuation procedure described in
subsection (g). The Groups which did not take the initial
action leading to such valuation (the "non-offering groups")
may elect to tender such Shares and outstanding options for
sale as part of a uniform sales effort or to purchase such
Shares and outstanding options at the value determined
pursuant to subsection (g). In the event that the non-offering
groups do not take action as described above, the Company may
elect to purchase the interest of the offering group at the
value
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determined pursuant to subsection (g). Notice of such group's
election and the Company's election shall be given in writing
to the offering group within 15 days following delivery to it
of such valuation. In the event that the Alonso Group wishes
to offer for sale its Shares, the non-offering group does not
elect to purchase such Shares, and the Company is not willing
or financially able to purchase such Shares except in
accordance with a time schedule which is not acceptable to the
Alonso Group, the Company shall be liquidated.
(g) Valuation Procedures. In all events where the value of Shares
held by a given group is to be determined by independent
experts, the offering group shall select a person and the
non-offering groups shall jointly select a person, each said
person being qualified by experience to value businesses and
these two persons shall undertake to mutually agree upon the
value of such Shares. In the event that such persons are not
able to reach mutual agreement as to such value, they shall
select a third person qualified by experience to value
businesses to provide such valuation and that person's
valuation shall be conclusive.
3. RESTRICTIONS APPLICABLE TO EMPLOYEE SHAREHOLDERS. The
restrictions in this Section 3 shall apply to those holders of Units who are
currently employees of OSM, other than Xxxxxx Xxxxxx (the "Employee
Shareholders"). They are designated as Employee Shareholders on the signature
pages to this Agreement.
(a) Upon the termination of an Employee Shareholder's employment
for any reason, the following actions shall take place:
(i) The Employee Shareholder shall assign and transfer to
the Company all right, title and interest in the
Shares he or she owns, free and clear of all liens,
encumbrances and other claims. Within 10 days of such
termination of employment, the Employee Shareholder
shall deliver to the Company any and all certificates
representing the Shares for redemption and repurchase
by the Company.
(ii) Upon delivery of the Share certificates, the Company
shall redeem and repurchase such Shares at the
Redemption Price. The Redemption Price per Share
shall be an amount equal to the greater of (1) the
Per Share Earnings multiplied by 3 or (2) the book
value of a Share on the date of repurchase by the
Company determined in accordance with generally
accepted accounting principles. "Per Share Earnings"
means the Company's Profit for the 12 consecutive
calendar months preceding the month in which a
termination of employment of the Employer Shareholder
shall occur or the month in which a Transfer Notice
is received by the Company, divided by the total
number of Shares of the Company which are outstanding
on the date of such redemption and repurchase.
"Profit" shall mean the sum of the Company's total
items of income set forth in Section 1367(a)(1)(A)
through (C) of the Code for the period in question
reduced by the sum of the Company's total items of
loss and deduction set forth in Section 1367(a)(2)(B)
through (E) of the Code for the period in question.
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(iii) The Company shall pay the Redemption Price to the
Employee Shareholder in cash or other immediately
available funds no later than 10 days after the
Employee Shareholder's delivery to the Company of the
certificates representing the Shares.
(b) In the event that an Employee Shareholder's employment is
terminated as a result of the Employee Shareholder's death,
all of the obligations of the Employee Shareholder shall be
performed by the Employee Shareholder's personal
representative and the Redemption Price paid by the Company
shall be paid to such personal representative. For this
purpose, the term "personal representative" shall mean an
administrator, executor, trustee, or other personal
representative who is vested with the responsibility for
administering the disposition of any Shares on account of the
Purchaser's death, or any individual who holds such Shares as
a legatee, distributee, or successor in interest, or trustee
where no executor, administrator, or similar fiduciary is
appointed or where any appointed executor, administrator, or
fiduciary does not have control over any of the deceased
Employee Shareholder's Shares.
(c) In the event that an Employee Shareholder desires to sell,
assign or otherwise transfer all or any part of his or her
Shares or if his or her Shares are subject to an involuntary
transfer incident to a divorce or bankruptcy, the Employee
Shareholder shall first comply with the following procedures:
(i) The Employee Shareholder shall deliver to the Company
a written notice of intention to transfer the Shares
(the "Transfer Notice") which shall specify the
number of Shares (the "Subject Shares") that the
Employee Shareholder desires to transfer and such
information regarding the identity of the proposed
transferee as the Company shall require.
(ii) Upon receipt of the Transfer Notice, the Company
shall have a period of 30 days (the "Company Purchase
Period") to redeem and repurchase the Subject Shares
at a per Share price equal to the greater of (1) the
Per Share Earnings multiplied by 3 or (2) the book
value of a Share on the date of repurchase by the
Company determined in accordance with generally
accepted accounting principles. If the Company
notifies the Employee in writing, on or before the
30th day of the Company Purchase Period, that it
intends to redeem and repurchase the Subject Shares,
then the Employee Shareholder shall tender the
Subject Shares, and the Company shall pay the price
set forth above, in the manner described in
Subsection (i), (ii) and (iii) of subsection (a) of
this Section 3.
(iii) If the Company does not notify the Employee
Shareholder in writing that it intends to redeem and
repurchase the Subject Shares on or before the 30th
day of the Company Purchase Period, then the Employee
Shareholder shall be permitted, for a period of 30
days after the expiration of the Company Purchase
Period, to sell, assign or transfer the Subject
Shares to the proposed transferee identified in the
Transfer Notice, subject to the
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transfer restrictions described in this Article II.
The transferee shall, as a condition of such a sale,
assignment or transfer of Shares, execute an
agreement substantially identical in form to this
Agreement (other than Article I) which may be
accomplished by a certificate of acceptance and
adoption of this Agreement (other than Article I).
(iv) If the Employee Shareholder shall fail to sell,
assign or transfer any or all of the Subject Shares
to the proposed transferee identified in the Transfer
Notice on or before the 30th day following the
Company Purchase Period, then the Employee
Shareholder shall not be permitted to sell, assign or
otherwise transfer any Subject Shares not sold,
assigned or transferred during such 30-day period
unless the Purchaser first provides the Company with
a new Transfer Notice and again complies with the
procedures of this subsection (c).
4. INVALIDITY OF TRANSFERS WHICH WOULD TERMINATE COMPANY'S STATUS
AS S CORPORATION. Notwithstanding anything herein contained to the contrary, no
Shareholder shall transfer any of his Shares, or any interest therein if, as a
result of such transfer, any of the following occurs:
(a) The Company's status as an S Corporation would terminate.
Without limiting the generality of the foregoing, no
Shareholder shall transfer any of his, her or its Shares to,
and no Shares shall be acquired by, any person falling within
any of the following categories:
(i) A non-resident alien;
(ii) A corporation, a partnership or a trust which does
not satisfy the requirements of Code
Sections 1361(c)(2), (c)(6), (d) or (e), or their
successor provisions; or
(iii) Any other person or entity, a transfer to whom or
which would result in the termination of the
Company's election to be taxed as an S Corporation
under the applicable Internal Revenue Code
provisions.
(b) Moreover, no Shareholder may transfer any of his, her or its
Shares so as to cause the total number of "shareholders" of
the Corporation, as determined under Section 1361(c) of the
Internal Revenue Code, to exceed seventy-five (75), or such
larger number as may at that time be permitted for S
Corporations by applicable Internal Revenue Code sections or
Internal Revenue Service regulations.
5. ATTEMPTED TRANSFERS IN VIOLATION OF SHARE TRANSFER
RESTRICTIONS. Any purported transfer of Shares in violation of this Article II
shall be null and void and shall have no legal effect. An attempt to transfer an
interest in the Shares of the Company in violation of this Agreement shall be
ineffective and the Company shall refuse to register the Shares in question in
the name of the transferee. Any Shareholder who causes or authorizes a
revocation or transfer that terminates the Company's S election in violation of
Section 1362(a) of the Code (whether in
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his, her, or its capacity as a Shareholder, director, officer, employee or agent
for the Company or otherwise) shall be liable to the Company and to every other
Shareholder for any and all damages, liabilities or costs resulting directly and
indirectly therefrom, including, without limitation, any additional federal or
state tax liability incurred by the Corporation or any other Shareholder as a
result of the improper revocation or termination and any attorneys' fees or
other costs incurred in computing and collecting any such damages; provided,
however, that no Shareholder shall be liable for damages under this Section 5
for making a transfer that terminates the election if the Shareholder acted,
after obtaining a written waiver from the Company's Board of Directors, in
compliance with this Agreement. The additional federal and state tax liability
caused by the improper revocation or termination shall be computed by the
accountant that regularly prepares the Company's tax returns and such
accountant's determination of such liability shall, except as otherwise provided
in this action, be conclusive and binding on all parties hereto for all
purposes.
6. INADVERTENT TERMINATION OF S CORPORATION ELECTION. In the
event that the Company's election to be taxed as an S Corporation is terminated,
except in accordance with this Agreement, the Corporation shall immediately seek
a waiver of such termination from the Internal Revenue Service under Sections
1362(f)(3) and 1362(f)(4) of the Internal Revenue Code, and each Shareholder
agrees to take any action as may be required by the Internal Revenue Service to
obtain such a waiver. The Company shall bear the expense of procuring the
waiver, including the legal, accounting and tax costs of taking such steps and
of making such adjustments as may be required, except to the extent that
Shareholders are required to bear such costs, or any portion of such costs, as a
condition to receiving the waiver. If the Company fails to receive such a
waiver, the Company shall request the consent of the Internal Revenue Service to
re-file an election to be taxed as an S Corporation prior to the time specified
in Section 1362(g) of the Code, and each Shareholder agrees to take any action
as may be required to obtain the consent of the Internal Revenue Service to such
an early re-election by the Corporation to be taxed as an S Corporation.
7. SOTSEKS OPTION. Notwithstanding anything to the contrary in
this Agreement, at such time as Sotseks shall have distributed OSO Units to
persons entitled to become shareholders of the Company pursuant to the
provisions of Code Section 1361(b) or its successor provisions, such persons
shall have the right to transfer all or part of the OSO Units to the Company in
exchange for a number of non-voting OFS Shares equal to 1,000 times the number
of OSO Units which shall be exchanged, subject to appropriate adjustments for
stock splits, stock dividends, recapitalizations and similar events occurring
after the date hereof which may affect the OFS Shares. The Company agrees to
issue the OFS Shares to which such persons would be entitled upon such an
exchange when it receives an appropriate assignment of the OSO Units and
customary representations and warranties from such persons and, if necessary,
from Sotseks as to such exchange.
ARTICLE III - DISTRIBUTIONS
1. DISTRIBUTION OF NET CASH FLOW TO MEET ESTIMATED TAX
OBLIGATIONS. Except in connection with the dissolution and liquidation of the
Company and except as prevented by applicable state law, a dividend distribution
shall be made to each Shareholder, no later than January 1, April 1, June 1 and
September 1 of each year in an amount equal to 43% of the
-14-
estimated income attributable to the pro rata shares of the Company's net long
term and Section 1231 capital gains and non-separately stated items of income
pursuant to Section 1366(a) of the Internal Revenue Code, as amended (as
determined by the Board of Directors of the Company) for the applicable periods
for which estimated federal and state income tax payments must be made by the
Shareholder and, to the extent feasible, all loan agreements and other
arrangements with lenders shall contain a reservation of right on the part of
the Company to make such payments.
2. DISTRIBUTION PROCEDURE. Distributions shall be made to
Shareholders (or to their estates, personal representatives, successor or
assigns, as appropriate) of record on the record date for the dividend
distribution, regardless of whether they hold Shares on the date of
distribution. Any pro rata dividend distributions made during the taxable year
in question to shareholders in excess of 43% of actual tax distribution made in
Section 1 above for the applicable periods can be taken into account in
determining the extent of the future minimum mandatory dividends for the balance
of a taxable year.
3. DISTRIBUTIONS IN THE EVENT OF TERMINATION OF S CORPORATION
STATUS. It is the intent of this Article III to protect Shareholders to the
extent allowed by law and the Company's financing agreements, against the
possibility that they may be subjected to federal or state income taxes based
upon income of the Company for taxable periods but not have adequate payments
from the Company to satisfy such taxes or a timely basis, and to require the
Company to make periodic payments to the Shareholders in the form of dividends
in amounts sufficient to allow them to pay such taxes. In the event that the
status of the Company as an S Corporation terminates for any reason, the Company
shall nonetheless pay sufficient dividends to permit Shareholders to pay any
such taxes attributable to the period prior to the termination of such status.
4. ALLOCATIONS. Allocations of income, gain, deduction and loss
shall be made on a pro rata basis to all persons who were Shareholders at any
time during the taxable year on a per share per diem basis in accordance with
Section 1377(a) of the Internal Revenue Code, or in accordance with such other
methodology as may be permitted by the Code. To the extent permitted under
Section 1377(a)(2), by signing below or subsequently agreeing to be bound by
this Agreement (other than Article I), the "affected Shareholders" hereby
consent in advance to any Company closing of the books election whenever the
Company's Board of Directors deems it appropriate to make such an election.
ARTICLE IV - GENERAL PROVISIONS
1. ENTIRE AGREEMENT. This Agreement, including any document
delivered by the Company, OSO, or the Unitholders in accordance herewith,
constitutes the entire agreement and supersedes all prior agreements and
understandings, oral and written, between the parties to this Agreement with
respect to the subject hereof.
2. BENEFITS; ASSIGNMENT. This Agreement will inure to the benefit
of the parties to this Agreement and shall be binding upon them and their
respective successors and assigns. Neither this Agreement nor any right, remedy,
obligation or liability arising hereunder or by reason hereof shall be
assignable by either the Company, OSO, a Unitholder, or a Shareholder
-15-
without the prior consent of the other parties, except to the extent it is
assigned in connection with transfers of Shares or OSO Units permitted
hereunder.
3. GOVERNING LAW. The parties to this Agreement agree that this
Agreement shall be construed as to both the validity and performance and shall
be enforced in accordance with and governed by the laws of the State of Indiana.
4. LEGEND ON STOCK CERTIFICATES. The certificates for Company
Shares to be acquired by the Unitholders at the Closing shall be endorsed as
follows:
This certificate is transferable only in compliance with the provisions
of the Exchange Agreement dated as of September 23, 2003, affecting the
shares represented hereby, a copy of which is on file in the office of
the Secretary of the Company.
The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended, or the securities laws of
any state. As a result, the securities represented by this certificate
may not be sold or transferred in the absence of registration under
such laws or an opinion from legal counsel satisfactory to the Company
that such registration is not required.
All certificates for Shares hereafter issued to the Shareholders shall bear the
same endorsement. The legend concerning the Exchange Agreement shall be removed
from the certificates following termination of this Agreement.
5. AMENDMENT. This Agreement may be amended prior to the Closing
Date only by unanimous agreement of the Unitholders, the Company, and OSO. From
and after the Closing Date, this Agreement may be amended for the sole purpose
of reflecting a transfer of Shares made in accordance with the terms of the
Agreement by a written amendment signed only by the Company and the transferee.
This Agreement may also be amended by the Company's Board of Directors (a)
solely for the purpose of clarification without substantive change, and (b) if
the amendment is, in the opinion of counsel for the Company, necessary or
appropriate to satisfy current requirements of the Internal Revenue Code with
respect to S Corporations or any federal or state securities laws or
regulations. Shareholders will be notified of any such amendments not requiring
Shareholder approval. No other amendment or modification of this Agreement shall
be valid unless it is approved by the Company's directors, is in writing and
signed by Shareholders holding 100% of the Company's voting Shares then
outstanding, and is duly executed by the Company. Except as to amendments for
the sole purpose of reflecting a transfer of Shares made in accordance with the
terms of this Agreement, all Shareholders shall be given written notice at least
five (5) business days in advance of the effective date of any proposed
amendment.
6. TERM. This Agreement may be terminated at any time prior to
the Closing Date by the Company or by OSO. Following the Closing, Articles II
and II of this Agreement shall terminate, and the certificates representing
Shares subject to this Agreement shall be released from the restrictions on
transferability set forth in Article II hereof, by written agreement signed by
the Company and Shareholders owning not less than 100% of the Company's voting
Shares then outstanding. Articles II and III of this Agreement shall also
terminate if, notwithstanding
-16-
the good faith efforts of all parties, the status of the Company as an S
Corporation is finally and irrevocably terminated, by operation of law or
otherwise, or if the Company closes a public offering of its Shares in a
transaction that results in more than 75 shareholders or in nonqualifying S
Corporation shareholders. Upon the termination of this Agreement, each
Shareholder shall surrender to the Company the certificates for his, her or its
Shares, and the Company shall issue to such Shareholder new certificates for an
equal number of Shares without the legend concerning the Exchange Agreement set
forth in section 4 of this Article IV.
IN WITNESS WHEREOF, this Agreement was executed by the Company and the
Unitholders as of the date first written above.
OAK STREET OPERATIONS LLC OAK STREET FINANCIAL SERVICES, INC.
By: /s/ Xxxxx Xxxxxx By: /s/ Xxxxx Xxxxxx
------------------------------- --------------------------------
Xxxxx Xxxxxx, President Xxxxx Xxxxxx, President
UNITHOLDERS:
/s/ Xxxxx Xxxxxx /s/ Xxxx X. Xxxxxx
------------------------------- --------------------------------
Xxxxxx Xxxxxx Xxxx X. Xxxxxx
/s/ Xxxxx X. Xxxxxxxx /s/ Xxxx X. Xxxxxx
------------------------------- --------------------------------
Xxxxx X. Xxxxxxxx Xxxx X. Xxxxxx
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/s/ Xxxxxx X. Xxxxxx National City Bank, Agent U/A with
Xxxxxx X. Xxxxxx Xxxxxxx X. Nick
By: /s/ Xxxxx X. Xxxxxxx III
National City Bank, Agent U/A with Xxxxx X. Xxxxxxx III, Trust Manager
Xxxxxx X.Xxxxxx
By: /s/ Xxxxx X. Xxxxxxxx
By: /s/ Xxxxx X. Xxxxxxx III Xxxxx X. Xxxxxxxx, Special Trustee
Xxxxx X. Xxxxxxx III, Trust Manager
/s/ Xxxxxx X. Xxxxxxx
By: /s/ Xxxx X. Xxxxxx Xxxxxx X. Xxxxxxx
Xxxx X. Xxxxxx, Special Trustee
By: /s/ Philipp D. Nick /s/ Xxxxx X. Xxxxxxx
Xxxxxxx X. Xxxx, Special Trustee Xxxxx X. Xxxxxxx*
By: /s/ Xxxxxxx X. Xxxxx /s/ Xxxx Xxxxxxx
Xxxxxxx X. Xxxxx, Special Trustee Xxxx Xxxxxxx*
/s/ D. Xxxxx Xxxxx
D. Xxxxx Xxxxxx* /s/ Xxxxxx X. Xxxxx
Xxxxxx X. Xxxxx*
/s/ Xxxx X. Xxxxxxx
Xxxx X. Xxxxxxx* /s/ Xxxxxxx Xxxxx
Xxxxxxx Xxxxx*
/s/ Xxxxx X. Royal
Xxxxx X. Royal* /s/ Xxxxxxx X. Xxxxxxxx
Xxxxxxx X. Xxxxxxxx*
/s/ Xxxxxx Xxxxxxx XX
Xxxxxx Xxxxxxx XX* /s/ Xxxx X. Xxxxx
Xxxx X. Xxxxx*
/s/ Xxxxxxx Xxxxx
Xxxxxxx Xxxxx* SOTSEKS CORP.
/s/ Xxxxxxx Xxxxxx /s/ Xxxxxx X. Xxxxxxx
Xxxxxxx Xxxxxx*
By:
/s/ Xxxx Xxxx
Xxxx Xxxx*
*Employee Shareholders
18
AMENDMENT NO. 1 TO EXCHANGE AGREEMENT
This AMENDMENT NO. 1 TO EXCHANGE AGREEMENT, dated as of April 30, 2004
(the "Amendment"), amends that certain Exchange Agreement, dated as of September
23, 2003 (the "Exchange Agreement"), entered into by and among Oak Street
Financial Services, Inc., a Maryland corporation (the "Company"), Oak Street
Operations LLC, a Delaware limited liability company ("OSO") and the
then-existing unitholders ("Unitholders") of Oak Street Mortgage LLC, a Delaware
limited liability company ("OSM").
RECITALS
A. The Company, OSO and the then-existing unitholders of OSM entered
into the Exchange Agreement pursuant to which (i) all of the members of OSM
exchanged their OSM ownership units for OSO ownership units, and (ii) all of the
OSO unitholders other than Sotseks Corp. exchange their OSO ownership units for
shares of the Company's common stock.
B. The Company's Board of Directors has authorized this Amendment
pursuant to Section 5 of the Exchange Agreement solely to clarify the intent of
the parties with regard to the effective date, for accounting purposes, of the
transactions described therein.
AMENDMENT
1. The Exchange Agreement is hereby amended by replacing the first
introductory paragraph thereof, in its entirety, with the following:
"THIS EXCHANGE AGREEMENT, dated as of September 23, 2003, is by and
among Oak Street Financial Services, Inc., a Maryland corporation (the
"Company"), Oak Street Operations LLC, a Delaware limited liability
company ("OSO") and unitholders ("Unitholders") of Oak Street Mortgage
LLC, a Delaware limited liability company ("OSM"), to be effective for
accounting purposes as of the close of business on September 30, 2003,
so that the results of operations and financial position shall be
included in the Company's consolidated financial statements beginning
September 30, 2003 as if the transactions set forth herein were
effective September 30, 2003."
2. Except as set forth herein, all other terms and provisions set forth in
the Exchange Agreement remain in full force and effect.
IN WITNESS WHEREOF, this Amendment was executed by the undersigned as
of the date first written above.
OAK STREET FINANCIAL SERVICES, INC.
/s/ Xxxxxx Xxxxxx
-------------------------------------
By: Xxxxxx Xxxxxx
President and Chief Executive Officer
EXHIBIT B
--------------------------------------------------------------------------------
OAK STREET OPERATIONS LLC
LIMITED LIABILITY COMPANY OPERATING AGREEMENT
ORGANIZED UNDER THE DELAWARE LIMITED
LIABILITY COMPANY ACT
--------------------------------------------------------------------------------
THE INTERESTS DESCRIBED AND REPRESENTED BY THIS LIMITED LIABILITY
COMPANY AGREEMENT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE
"ACT") OR ANY APPLICABLE STATE SECURITIES LAWS ("STATE ACTS") AND ARE RESTRICTED
SECURITIES AS THAT TERM IS DEFINED IN RULE 144 UNDER THE ACT. THE SECURITIES MAY
NOT BE OFFERED FOR SALE, SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT OR QUALIFICATION UNDER THE ACT AND APPLICABLE
STATE ACTS OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE ACT AND
APPLICABLE STATE ACTS, THE AVAILABILITY OF WHICH IS TO BE ESTABLISHED TO THE
SATISFACTION OF THE COMPANY.
TABLE OF CONTENTS
PAGE
----
ARTICLE I ORGANIZATIONAL MATTERS; DEFINITIONS.........................................................1
1.1 Name...................................................................................1
1.2 Effective Date; Term...................................................................1
1.3 Registered Office; Place of Business; Agent............................................1
1.4 Definitions............................................................................1
1.5 Disregarded Entity.....................................................................1
ARTICLE II PURPOSE.....................................................................................2
2.1 Purpose................................................................................2
ARTICLE III MEMBERS; RIGHTS OF AND LIMITATIONS ON MEMBERS...............................................2
3.1 Members................................................................................2
3.2 Additional Members; Issuance of Additional Units.......................................2
3.3 Unit Register; Certificate of Membership Interest......................................2
3.4 Members May Compete....................................................................3
3.5 Limitations on Members.................................................................3
3.6 Actions Requiring Approval of Members..................................................3
ARTICLE IV MANAGING MEMBERS; RIGHTS AND POWERS OF MANAGING MEMBERS.....................................4
4.1 Managing Members.......................................................................4
4.2 Rights and Powers......................................................................4
4.3 Duties of Managing Member; Not Required to Devote Full Time............................6
4.4 Limitations on Actions of Managing Member..............................................7
4.5 Exculpation of Managing Member; Indemnity..............................................8
4.6 Reliance of Third Parties on Authority of Managing Member..............................9
4.7 Tax Elections; Tax Matters Member......................................................9
4.8 Compensation of Managing Member or Affiliate; Reimbursement of Expenses................9
ARTICLE V COMPANY CAPITAL; ADVANCES BY MEMBERS........................................................9
5.1 Capital Contributions.................................................................10
5.2 Additional Capital....................................................................10
5.3 No Return of Contributions; Loans.....................................................10
ARTICLE VI FISCAL YEAR; ACCOUNTING; ALLOCATION OF PROFITS AND LOSSES; DISTRIBUTIONS...................11
6.1 Fiscal Year...........................................................................11
6.2 Method of Accounting..................................................................11
6.3 Maintenance of Capital Accounts.......................................................11
6.4 Allocation of Profits and Losses......................................................11
6.5 Definition of Net Cash Flow...........................................................13
6.6 Distribution of Net Cash Flow to Meet Estimated Tax Obligations.......................13
6.7 Liability of Member for Return of Distribution........................................13
ARTICLE VII TRANSFER OF COMPANY INTERESTS..............................................................13
7.1 No Transfer of Company Interest.......................................................13
7.2 Compliance with Securities Act of 1933................................................13
7.3 Admission of Transferee as Substituted Members........................................14
7.4 Allocations and Distributions with Respect to Transferred Interests...................14
ARTICLE VIII WITHDRAWAL, DEATH, INCOMPETENCY OR DISSOLUTION OF MEMBERS AND MANAGING MEMBERS.............14
8.1 Withdrawal of Member..................................................................14
8.2 Resignation of Managing Member........................................................14
8.3 Death, Bankruptcy, Liquidation, Etc., of a Member.....................................14
8.4 Death, Bankruptcy, Liquidation, Etc. of a Managing Member.............................15
8.5 Continuation of Company by Members; Designation of New Managing Member................15
8.6 Death or Bankruptcy of Member.........................................................15
8.7 Designation of New Managing Member....................................................15
ARTICLE IX TERMINATION, DISSOLUTION AND LIQUIDATION OF THE COMPANY....................................15
9.1 Events of Dissolution.................................................................15
9.2 Liquidation...........................................................................16
9.3 Election of Liquidating Trustee.......................................................16
9.4 Statements............................................................................17
ARTICLE X AMENDMENT OF THE AGREEMENT.................................................................17
10.1 Amendments by Managing Member.........................................................17
10.2 Other Amendments......................................................................17
ARTICLE XI POWER OF ATTORNEY..........................................................................17
11.1 Appointment of Managers as Attorney...................................................17
11.2 Power of Attorney Irrevocable.........................................................18
11.3 Survival of Power of Attorney on Transfer.............................................18
ARTICLE XII TAX PROVISIONS.............................................................................18
12.1 Allocations Required by Treasury Regulations..........................................18
12.2 Rules of Application..................................................................20
12.3 Rules Concerning Calculations of Profits and Losses and Code Section 704(c) Tax
Allocations...........................................................................21
ARTICLE XIII MISCELLANEOUS..............................................................................22
13.1 Notices...............................................................................22
13.2 No Partition of Company Property......................................................22
13.3 Governing Law.........................................................................23
13.4 Counterparts..........................................................................23
13.5 Language Conventions; Captions........................................................23
13.6 Entire Agreement......................................................................23
13.7 Provisions Severable..................................................................23
13.8 Binding Agreement.....................................................................23
SIGNATURE PAGE
SCHEDULE A
APPENDIX A
APPENDIX B
LIMITED LIABILITY COMPANY OPERATING AGREEMENT
This Limited Liability Company Operating Agreement (the "AGREEMENT")
evidences the mutual agreement of the Existing Members (as hereinafter defined)
to enter into this Agreement as of _______________ (the "EFFECTIVE DATE") to
conduct business as a limited liability company pursuant to the Delaware Limited
Liability Company Act, Del. Code Xxx. title 6, Sections 18-101 et seq., as the
same may be amended from time to time (the "Act").
ARTICLE I
ORGANIZATIONAL MATTERS; DEFINITIONS
1.1 Name. The name of the limited liability company formed hereunder
(the "Company") is Oak Street Operations LLC. The Managing Member may change the
name of the Company at any time and from time to time and may also operate the
business at the same time under one or more fictitious names.
1.2 Effective Date; Term. This Agreement is effective as of
__________________, 2003. The Company was formed as of August 27, 2003, by the
filing of an executed copy of an Amended and Restated Certificate of Formation
required by Section 18-2-1 of the Act (the "Certificate") with the office of the
secretary of state of the State of Delaware. The Company will exist until
terminated in accordance with the provisions of this Agreement or the Act;
provided however, that termination of the Company shall not occur in any event
until the later of 10 years following March 1, 2012 or that date on which all
mortgages insured by the Federal Housing Administration of the U.S. Department
of Housing and Urban Development in which the Company had an interest as a
mortgagee have been released and cancelled because of payment in full of the
debt obligations underlying such mortgages or have been transferred without
recourse by assignment to a Department of Housing and Urban Development approved
mortgagee.
1.3 Registered Office; Place of Business; Agent. The address of the
registered office of the Company as required by Section 18-104 of the Act is
0000 Xxxxxx Xxxxxx, Xxxxxxxxxx, Xxxxxxxx 00000. The principal place of business
of the Company is 00000 Xxxxx Xxxxxxxx Xxxxx, Xxxxx 000, Xxxxxx, XX 00000. The
agent of the Company for service of process, as required by Section 18-104 of
the Act, is The Corporation Trust Company. The Managing Member may change the
location of the registered office, the principal place of business or the agent
for service of process and may establish additional offices or places of
business of the Company or enter into such contracts or hire such agents in such
other locations, inside and outside of the State of Delaware, as it deems
necessary or desirable in the conduct of the business of the Company.
1.4 Definitions. Capitalized terms used in this Agreement have the
meanings as defined throughout the text of this Agreement. A list of defined
terms, including the section of this Agreement in which the term is defined, is
contained in Appendix A, attached hereto and by this reference incorporated
herein.
1.5 Disregarded Entity. In any period during which the Company has only
one Member, unless the Company and its Members have elected to be treated as a
corporation pursuant
to Treas. Reg. Sections 301.7701-2 and -3, the Company shall be treated as a
disregarded entity for federal income tax purposes ("DISREGARDED ENTITY"). In
any period during which the Company is a Disregarded Entity any provisions of
this Agreement which are inconsistent with such status shall be disregarded.
ARTICLE II
PURPOSE
2.1 Purpose. The purpose of the Company is to carry on any lawful
business for which a limited liability company may be organized under the Act,
including without limitation engaging in mortgage lending and other financial
services activities directly or through any subsidiaries, and the exercise of
all powers and activities incident to the Company's business.
ARTICLE III
MEMBERS; RIGHTS OF AND LIMITATIONS ON MEMBERS
3.1 Members. As of the date of this Agreement, the names and addresses
of the Existing Members of the Company (the "EXISTING MEMBERS") are set forth on
Schedule A. Schedule A also identifies the amount of each Existing Member's
contribution to the capital of the Company, the number and type of Units
credited to each Existing Member and each Existing Member's Percentage Interest
(as defined in Section 6.4(a)(ii)) as of the date of this Agreement. The term
"Member," as of any specific time, shall include those persons then Members
whether by means of being Existing Members, having become a Member by
subscribing for Units, or otherwise in accordance with this Agreement.
3.2 Additional Members; Issuance of Additional Units. The Managing
Member may, from time to time, admit additional Members to the Company solely as
provided for in this Agreement by (a) permitting the transfer of Units pursuant
to Section 7.3 or (b) offering and issuing additional Non-Voting Units in
consideration of a contribution to capital of the Company in accordance with the
provisions of Section 5.2. The transferee of an interest in the Company of an
existing Member may not become a Member except in accordance with section 7.3.
3.3 Unit Register; Certificate of Membership Interest. The Record of
ownership of each Unit shall be registered on the unit register maintained by
the Company (the "UNIT REGISTER") and shall be represented by certificates
issued by the Company substantially in the form of the certificates attached
hereto as Appendix B. Each such certificate shall specify the name of the Member
and the number and class (i.e., Voting or Non-Voting) of Units represented by
such certificate and shall be manually signed by a duly authorized designee of
the Managing Member on behalf of the Company. The person in whose name Units
stand on the Unit Register shall be deemed by the Company to be the owner
thereof for all purposes and the Company shall not be bound to recognize any
equitable or other claim to or interest in such Units on the part of any other
person whether or not it shall have express or other notice thereof, as
expressly provided by the Act. Record ownership of Units may be transferred only
as provided for in Article 7. In the event that a Unit certificate is lost or
destroyed, the Company will upon written application from the holder of record
of the Units represented by such certificate, issue a replacement certificate.
However, the Company may, in its sole discretion, require such holder of record
to provide reasonable
2
indemnification or insurance to the Company with respect to such replacement and
may require payment of a fee to cover the reasonable expense of the Company with
respect to such replacement. The Unit certificates shall not be deemed
negotiable instruments but shall be deemed to represent nonnegotiable
instruments representing record ownership of Units which ownership may be
transferred only as provided for in this Agreement.
3.4 Members May Compete. Except as limited by the terms of employment
or consulting agreements with the Company, or while an officer or full time
employee of the Company, Members are not in any way prohibited from or
restricted in engaging in, or owning an interest in or serving on the governing
boards of, any other business venture of any nature, including any venture which
might be competitive with the business of the Company, and the Company may
engage Members, or persons or firms associated with them, for specific purposes
and may otherwise deal with such Members, or persons or firms associated with
them, on terms and for compensation to be agreed upon by the Company.
3.5 Limitations on Members. No Member may take part in the control of
the Company business or sign for or bind the Company by virtue of being a Member
or require partition of Company property or compel any sale or appraisement of
Company assets or sale of a deceased Member's interest therein, except as
otherwise authorized in this Agreement or by the Board of Directors of the
Managing Member.
3.6 Actions Requiring Approval of Board of Directors of Managing
Member. The Managing Member shall not take the following actions on behalf of
the Company unless such actions are unanimously approved by the Board of
Directors of the Managing Member:
(a) Sell, transfer, exchange or otherwise dispose of in a
single or series of related transactions more than 20% of the
Company's assets as valued on its balance sheet other than in
the ordinary course of business;
(b) Change the primary character of the business of the
Company;
(c) Appoint the Company's independent accountants, auditors
and legal counsel;
(d) Authorize or effect transactions between the Company and a
Member or the Affiliate of a Member other than those transactions
authorized pursuant to other provisions of this Agreement;
(e) Authorize distributions of Net Cash Flow (as defined in
section 6.5) not described in section 6.6;
(f) Assign the assets of the Company in trust for creditors or
on the assignee's promise to pay the debts of the Company;
(g) Do any other act that would make it impossible to carry on
the ordinary business of the Company;
3
(h) Compromise or settle any claim against or inuring to the
benefit of the Company involving an amount in controversy in excess of
$500,000;
(i) Confess a judgment;
(j) Cause the Company to commence a voluntary case as debtor
under the United States Bankruptcy Code;
(k) Retain Net Cash Flow for investment in the Company's
business;
(l) Waive any restrictions on transfer of Units or other
interests in the Company set forth in Article VII or admit a transferee
of such Units as a Member;
(m) Take any action with respect to the dissolution or
liquidation of the Company set forth in Article IX; and
(n) Submit a claim or liability of the Company to arbitration
or reference.
ARTICLE IV
MANAGING MEMBER; RIGHTS AND POWERS OF MANAGING MEMBER
4.1 Managing Member. The Managing Member ("MANAGING MEMBER") of the
Company shall be Oak Street Financial Services, Inc. or such other Member or
Members designated by unanimous consent of the Board of Directors of Oak Street
Financial Services, Inc. and identified as such on Schedule A, as such Schedule
shall be amended from time to time. The Managing Member shall have full,
exclusive and complete authority and control in the management of the Company
business with all rights and powers generally conferred by law or necessary or
advisable and consistent therewith and with the provisions of this Agreement. If
there is more than one Managing Member, no Managing Member shall take any action
on behalf of the Company unless such action has been approved by Managing
Members holding a majority of the total Voting Units allocated to all the
Managing Members. The Managing Member may, with the unanimous consent of the
Board of Directors of Oak Street Financial Services, Inc. and subject to Section
4.4, delegate specifically identified rights and powers under this Agreement.
References in this Agreement to the rights, powers, actions and duties of the
Managing Member shall mean the rights, powers, actions and duties of a sole
Managing Member, and a majority of multiple Managing Members acting pursuant to
approval as required by the preceding sentence, unless from the context it is
clear that the reference encompasses all Managing Members.
4.2 Rights and Powers. Subject to the limitations, if any, contained in
section 4.4, the rights and powers of the Managing Member, by way of
illustration but not by way of limitation, shall include the right and power to:
(a) Acquire property (including the Property) on such terms as
it deems reasonable, including borrowing any amounts necessary to
effectuate the purchase;
4
(b) Take any and all actions with respect to the acquisition,
management or disposition of Company properties, including, without
limitation, selling and otherwise disposing of assets of the Company,
borrowing of funds, and negotiation and execution of contracts, deeds,
pledges, bonds, guarantees, notes, and mortgages;
(c) Execute any and all other instruments and perform any acts
determined to be necessary or advisable to carry out the intentions and
purposes of the Company;
(d) Borrow money on such terms as it may determine from banks,
other lending institutions, and other lenders, including any Member or
Affiliate of a Member for any Company purpose, and to pledge or
mortgage Company assets to secure repayment of the borrowed sums, and
to execute in connection therewith any notes, security agreements,
mortgages, pledges, deeds of trust or other loan documents required by
any lender in connection therewith;
(e) Invest Company funds in bank savings accounts, savings and
loan associations, commercial paper, government securities,
certificates of deposit, bankers' acceptances and other
interest-bearing obligations, and deposit, withdraw, pay, retain and
distribute Company funds in any manner consistent with the provisions
of this Agreement;
(f) Admit following unanimous approval of the Board of
Directors of the Managing Member additional Members and substitute
Members;
(g) Perform any and all acts necessary to pay any and all
organizational expense incurred in the creation of the Company and in
raising additional capital, including without limitation broker's
commissions, legal and accounting fees;
(h) Compromise, arbitrate or otherwise settle or adjust claims
in favor of or against the Company and commence or defend litigation
with respect to the Company or any assets of the Company as it deems
advisable and execute, acknowledge and deliver any and all instruments
to effect any and all of the foregoing, all the expenses of which the
Company shall bear;
(i) Purchase goods or services, including management and
leasing services from any corporation or other form of business
enterprise including, with the approval of the Board of Directors of
the Managing Member, a corporation or business enterprise owned or
controlled, or affiliated with any Member, or a corporation or business
enterprise in which any Member may have an interest as a shareholder of
more than five percent or is an officer, director, partner, member or
proprietor;
(j) Establish Company offices at such places as may be
appropriate, hire Company employees, obtain the services of independent
contractors and consultants, engage counsel, and otherwise arrange for
the facilities and personnel necessary to carry out the purposes and
business of the Company;
5
(k) Arrange for a facsimile signature for itself for the
purpose of executing such checks or other writings or legal instruments
as may be necessary or desirable in the Company business; and
(l) Maintain any insurance coverage deemed necessary or
appropriate by the Managing Member, in such amounts and of such types
as shall be determined by the Managing Member, including without
limitation public liability insurance coverage and insurance covering
the indemnification granted by the Company as provided in section 4.5.
4.3 Duties of Managing Member; Not Required to Devote Full Time. The
Managing Member shall manage or cause to be managed the affairs of the Company
in a prudent and businesslike manner and shall devote such time to the Company
affairs as it shall in its discretion exercised in good faith determine is
reasonably necessary for the conduct of such affairs; provided, however, that it
is expressly understood and agreed that the Managing Member shall not be
required to devote its entire time or attention to the business of the Company.
In carrying out its obligations, the Managing Member shall:
(a) Obtain and maintain such public liability, hazard and
other insurance as may be deemed necessary or appropriate by the
Managing Member;
(b) Deposit all funds of the Company in one or more separate
bank accounts with such banks or trust companies as the Managing Member
may designate (withdrawals from such bank accounts to be made upon such
signature or signatures as the Managing Member may designate);
(c) Maintain at the principal place of business of the Company
all of the following:
(i) The Unit Register
(ii) A copy of the Certificate and all certificates
of amendment to it, together with executed copies of any
powers of attorney pursuant to which the Certificate or any
certificate has been executed;
(iii) A copy of this Agreement, all amendments to
this Agreement, and executed copies of any written powers of
attorney pursuant to which the Agreement or amendments thereto
have been executed;
(iv) Copies of the Company's federal, state and local
income tax returns and reports for the three most recent
years;
(v) Copies of any financial statements of the Company
for the three most recent years.
(vi) True and full information regarding the status
of the business and financial condition of the Company;
6
(vii) A current list of the full name and last known
business or residence address of each Member, separately
listing and identifying the Managing Member, set forth in
alphabetical order; and
(viii) True and full information regarding the amount
of cash and a description and statement of the agreed value of
any other property or services contributed by each Member or
which each Member has agreed to contribute in the future, and
the date on which each Member became a member;
The records listed in this subsection shall be subject to
inspection and copying at the reasonable request and expense
of any Member (or his duly authorized representative) during
ordinary business hours;
(d) Maintain at the principal place of business of the Company
complete and accurate records of all properties owned or leased by the
Company and complete and accurate books of account (containing such
information as shall be necessary to compute allocations and
distributions), and make such records and books of account available
for inspection and copying at the reasonable request and expense of any
Member (or his duly authorized representative) during ordinary business
hours;
(e) Cause to be prepared annual operating and capital budgets;
(f) Cause to be prepared and distributed to all Members within
90 days after the end of the Company's fiscal year:
(i) A statement of cash receipts and disbursements;
(ii) A statement of income for such year;
(iii) A balance sheet as of year end; and
(iv) A statement showing all information required by
the Members for preparation of their income tax returns;
(g) Cause to be filed the Certificate and such other
certificates and do such other acts as may be required by law to
qualify and maintain the Company as a limited liability company under
the Act; and
(h) Cause Schedule A to be amended from time to time as
required by this Agreement, and upon each such amendment designate at
the top of such Schedule that it is an "Amended Schedule A" and
indicate immediately under such designation the effective date of such
amendment.
4.4 Limitations on Actions of Managing Member. Notwithstanding the
general authority conferred on the Managing Member pursuant to sections 4.1 and
4.2, those actions
7
requiring the unanimous approval of the Board of Directors of the Managing
Member pursuant to section 3.6 shall be taken by the Managing Member only as
authorized by that section.
4.5 Exculpation of Managing Member; Indemnity. In carrying out its
duties hereunder, the Managing Member shall not be liable to the Company or to
any Member for its good faith actions, or failure to act, or for any errors of
judgment, or for any act or omission believed in good faith to be within the
scope of authority conferred by this Agreement, but only for its own willful
misconduct in the performance of its obligations under this Agreement. Actions
or omissions taken in reliance upon the advice of legal counsel as being within
the scope of authority conferred by this Agreement shall be conclusive evidence
of such good faith; however, good faith may be determined without obtaining such
advice.
The Company does hereby indemnify and hold harmless the Managing
Member, its Affiliates and their agents, officers, employees, partners, members
and directors against and from any and all losses, claims, damages, liabilities,
expenses (including legal fees and expenses), judgments, fines, settlements and
other amounts arising from any and all claims, demands, actions, suits or
proceedings, civil, criminal, administrative or investigative (together,
"CLAIMS"), in which the indemnified person may be involved, or threatened to be
involved, as a party or otherwise by reason of its status as the Managing Member
or an Affiliate thereof, an agent, officer, employee, partner, member or
director of the Managing Member or an Affiliate thereof, or a person serving at
the request of the Company in another entity in a similar capacity, which
relates to or arises out of the Company, its property, business or affairs,
regardless of whether the indemnified person continues to be the Managing Member
or an Affiliate thereof or their agent, officer, employee, partner, member or
director at the time any such liability or expense is paid or incurred, if (i)
the indemnified person acted in good faith and in a manner it believed to be in
or not opposed to the best interests of the Company, (ii) the indemnified
person's conduct did not constitute gross negligence or willful misconduct,
(iii) in connection with any criminal action or proceeding, the indemnified
person had no reasonable cause to believe its conduct was unlawful, (iv) with
respect to Claims by or in the right of the Company, the indemnified person is
not adjudged to be negligent or liable for misconduct, unless a court determines
that indemnification is nonetheless appropriate, and (v) the standards set forth
in clauses (i) and (ii), and, if applicable, (iii) and (iv), are met as
determined in each case by (x) the affirmative vote of holders of a majority of
the then outstanding eligible voting shares of the Managing Manager excluding
from eligible voting shares those shares held by persons who are parties to or
threatened to be made parties to the Claims in issue, (y) by independent legal
counsel, or (z) by an appropriate court. Notwithstanding clauses (iii) and (iv),
an indemnified person shall be eligible for indemnification hereunder to the
extent it has been successful on the merits with respect to any Claim. In no
event shall any Member be required to make an additional capital contribution to
carry out this indemnification provision.
Reasonable third party expenses (including reasonable attorney's fees)
incurred by an indemnified person in defending any Claim shall be advanced by
the Company to the indemnified person or to the third party as due and in
advance of the final disposition of the Claim and a determination of whether the
indemnified person is entitled to indemnification under this section, if the
indemnified person commits (in form and substance satisfactory to the
appropriate person under clauses (w) through (z) above) to repay the advances if
the indemnified person is ultimately determined not to be entitled to
indemnification under this section.
8
An Affiliate of any person ("AFFILIATE") means (i) any person directly
or indirectly owning, controlling or holding the power to vote ten percent or
more of the outstanding voting securities of the specified person; (ii) any
person ten percent or more of whose outstanding voting securities is directly or
indirectly owned, controlled or held with power to vote by the specified person;
(iii) any person directly or indirectly controlling, controlled by, or under
control with a specified person; (iv) any officer, partner, member or director
of the specified person; and (v) any person of which the specified person is an
officer, director or partner.
4.6 Reliance of Third Parties on Authority of Managing Member. No
financial institution or any other person, firm or corporation dealing with any
Managing Member shall be required to ascertain whether such Managing Member is
acting in accordance with this Agreement, but such financial institution or such
other person, firm or corporation shall be protected in relying solely upon the
acts and assurances of and the execution of any instruments by such Managing
Member.
4.7 Tax Elections; Tax Matters Member. The Managing Member shall have
the exclusive right to make and determine, in its sole discretion, all options
and elections with respect to the Internal Revenue Code of 1986, as amended from
time to time (the "CODE") and Treasury Regulations ("TREASURY REGULATIONS" or
"TREAS. REG.") issued thereunder. As an example of, but not in limitation of,
the general authority conferred by the preceding sentence, the Managing Member
shall determine whether and when to make or revoke the election under Code
Section 754. The Managing Member shall be the "tax matters partner" (as defined
in Code Section 6231) and 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, and to expend Company funds for professional
services and costs associated therewith. The tax matters partner shall provide
all notices and perform all acts required of a tax matters partner under
Subchapter C of Chapter 63 of the Code. The Managing Member is authorized to
take any action that it determines to be necessary to comply with the
requirements of Code Sections 1441, 1442, 1445 or 1446 with respect to
withholding certain amounts with respect to payments or distributions to a
Member who is not a U.S. person (as defined in Code Section 7701) or withholding
of certain amounts with respect to the sale of a "United States real property
interest" (as defined in Code Section 897). Notwithstanding the above, the
Managing Member shall not have the authority to agree on behalf of any Member to
an extension of time for assessment under Code Sections 6501(c)(4) or
6229(b)(1)(B).
4.8 Compensation of Managing Member or Affiliate; Reimbursement of
Expenses. The Managing Member, acting on behalf of the Company, may pay a
management fee or other compensation to itself or its Affiliate, for services
rendered in managing the Company and conducting the business of the Company. The
amount of any such management fees or other compensation shall be such amounts
as are deemed reasonable by the Managing Member, in its sole discretion. All
expenses of the Managing Member and its Affiliates incurred in connection with
managing the Company and conducting the business of the Company shall be
reimbursed by the Company, or, if billed directly to the Company, shall be paid
by it.
9
ARTICLE V
COMPANY CAPITAL; ADVANCES BY MEMBERS
5.1 Capital Contributions. As of the date of this Agreement, the
Existing Members have contributed to the capital of the Company the property
listed on Schedule A in consideration of the Units listed on Schedule A. The
capital contributions listed in Schedule A, together with any additional
contributions to the capital of the Company permitted under this Agreement, (the
"CAPITAL CONTRIBUTIONS") are credited to the Capital Accounts maintained by the
Company on behalf of each Member in accordance with section 6.3. Any amounts
contributed to the Company in consideration of additional Units issued pursuant
to Section 3.2 or Section 5.2 shall also be treated as Capital Contributions
credited to the Capital Accounts of the Members. No Member shall have an
obligation to make additional Capital Contributions to the Company in excess of
the contribution to the capital required pursuant to Section 3.2 or 5.2. No
interest will be paid on Capital Contributions.
5.2 Additional Capital. The Managing Member may, following specific
authorization by unanimous consent of the Board of Directors of the Managing
Member, from time to time, obtain additional capital on behalf of the Company by
the sale of additional Non-Voting Units of the Company, by secured or unsecured
borrowings, by contributions to the Company from the Members or by any
combination thereof, all on such terms and conditions as the Managing Member may
deem appropriate. Upon any issuance of additional Non-Voting Units of the
Company, the Company shall issue and deliver Unit certificates evidencing the
additional Non-Voting Units of the Company to the acquirer of such Non-Voting
Units. The selection of alternate means of obtaining additional capital shall
not be dependent upon approval of the Members, who shall be deemed to have
waived all rights, if any, to contest any additional obligations or interest
forming all or any part of such an effort by the Managing Member. The Members
acknowledge that their Percentage Interests may be altered in the event that one
or more Members do not contribute additional capital, or if additional persons
not theretofore Members contribute capital to the Company.
5.3 No Return of Contributions; Loans. Anything in this Agreement to
the contrary notwithstanding, the Managing Member will not be personally liable
for the return of the capital contribution of a Member, or any portion thereof,
it being expressly understood that any such return shall be made solely from
Company assets. A Member shall not have the right to demand or receive property
other than cash in return for his or her contribution. If any Member advances
any monies to the Company in excess of his or her contribution to the capital of
the Company, the amount of any such advance shall not be deemed to be an
additional capital contribution unless specifically so characterized, but
instead shall be treated as a loan bearing interest at the minimum rate required
to avoid the imputation of interest under Code Section 7872 (whether or not such
Section applies to the loan) and shall be an obligation of the Company to such
Member payable in accordance with the other terms of such advance prior to
payment of any cash distribution pursuant to Article VI and, in the case of
liquidation, in accordance with the provisions of section 9.2.
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ARTICLE VI
FISCAL YEAR; ACCOUNTING; ALLOCATION OF PROFITS AND
LOSSES; DISTRIBUTIONS
6.1 Fiscal Year. The fiscal year of the Company is the calendar year.
6.2 Method of Accounting. The Company books will be kept in such manner
and by using such method of accounting as the Managing Member determines, and
the Managing Member may change accounting methods whenever it believes a change
to be in the best interest of the Company.
6.3 Maintenance of Capital Accounts. The Company shall maintain a
capital account ("CAPITAL ACCOUNT") for each Member in accordance with Treas.
Reg. Section 1.704-1(b)(2)(iv). The initial amount credited to the Capital
Account of each Member is the amount of such Member's initial Capital
Contribution. The Capital Account of each Member will also be (a) credited with
the amount of any additional Capital Contributions made by such Member and any
deemed contributions, (b) credited with the amount of any Profits and any other
items of income or gain allocated to such Member, (c) debited by the amount of
any Losses and any other items of loss or deduction allocated to such Member,
and (d) debited with the amount of all actual and deemed distributions made to
such Member. Any contribution or distribution of property in kind will be
credited or debited, respectively, in an amount equal to the Carrying Value of
such property, net of liabilities secured by such property that the Company or a
Member, respectively, is considered to assume or take subject to under Code
Section 752. Upon adjustment to the adjusted tax basis of Company property
pursuant to Code Sections 732, 734 or 743, the Capital Accounts of the Members
will be adjusted as provided in Treas. Reg. Section 1.704-1(b)(2)(iv)(m). The
Capital Accounts shall be restated in the manner and at such time as is required
by Section 704(b) of the Code.
6.4 Allocation of Profits and Losses.
After making the special allocations in (c) hereof, Profits and Losses
shall be allocated as follows:
(a) Profits are allocated to the Members as follows:
(i) first, to those Members who have deficit balances
in their Capital Accounts, pro rata in proportion to such
deficit balances, until such deficit balances have been
eliminated and the balances in their Capital Accounts have
been restored to zero; and
(ii) thereafter, in accordance with the Members'
Percentage Interests. The term "PERCENTAGE INTERESTS" means
the percentage interest of any Member in the Company at any
time outstanding determined by dividing the number of Units
held by such Member, as reflected on the Unit Register, by all
outstanding Units of Company interest. "UNITS" is a term used
in this Agreement for purposes of making allocations and
determining certain votes; the total number of Units
11
presently authorized being 315,378.693 all of which, as of the
date of this Agreement, have been issued to the persons
identified as the Existing Members and allocated among such
Existing Members as indicated on Schedule A. Subject to the
power of the Managing Member, following specific authorization
by unanimous consent of the Board of Directors of the Managing
Member, to authorize and issue additional Units or ownership
interests, the Units are comprised of 3,000 Voting Units,
which Units entitle their holders to exercise the voting
rights set forth in this Agreement and in the Act as modified
by this Agreement (the "VOTING UNITS"), and 312,378.693
Non-Voting Units, which Units do not have any voting rights
(the "NON-VOTING UNITS"). Units do not represent a Member's
interest in the capital of the Company, which is determined
solely by a Member's Capital Account.
(b) Losses are allocated to the Members in accordance with
their Percentage Interests.
(c) The special allocations set forth in Article XII are made
prior to the allocations under (a) and (b) of this section.
(d) "PROFITS" and "LOSSES" mean an amount equal to the
Company's taxable income or loss, respectively, for any period from all
sources, determined in accordance with Code Section 703(a), adjusted in
the following manner: (i) the income of the Company that is exempt from
federal income tax or not otherwise taken into account in computing
Profits and Losses pursuant to this definition will be added to such
taxable income or loss; (ii) any expenditures of the Company described
in Code Section 705(a)(2)(B) or treated as described in such Section
pursuant to Treas. Reg. Section 1.704-1(b)(2)(iv)(i) or not otherwise
taken into account in computing Profits or Losses pursuant to this
definition will be subtracted from such taxable income or loss; (iii)
in the event the Carrying Value of any Company asset is adjusted
pursuant to section 12.3(b), (c) or (d) hereof, the amount of such
adjustment will be taken into account as gain or loss from the
disposition of such asset for purposes of computing Profits and Losses;
(iv) gain or loss resulting from the disposition of an asset will be
computed by reference to the Carrying Value of such asset; (v) a
deduction for Depreciation will be taken in lieu of a deduction for
depreciation, amortization or cost recovery allowable for federal
income tax purposes for such fiscal year; (vi) to the extent an
adjustment under Code Section 734(b) is required by Treas. Reg. 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, the amount of such item will be treated as an item
of gain or loss from the disposition of the asset and will be taken
into account for purposes of computing Profits or Losses; and (vii) any
items that are specially allocated pursuant to Article XII will not be
taken into account in computing Profits and Losses. "DEPRECIATION"
means, for each fiscal year, an amount equal to the depreciation,
amortization or cost recovery deduction allowable for federal income
tax purposes for such fiscal year, unless the Carrying Value for an
asset differs from the adjusted basis of such asset for federal income
tax purposes, in which case Depreciation means an amount that bears the
same ratio to the beginning Carrying Value as the depreciation,
amortization or cost recovery deduction bears to the beginning
12
adjusted tax basis, provided, however that if the adjusted basis of an
asset is zero at the beginning of a fiscal year, Depreciation will be
determined by the Managing Member by using any reasonable method.
6.5 Definition of Net Cash Flow. "NET CASH FLOW" of the Company is
computed by deducting from the gross amounts received by the Company during the
applicable period from all sources: (a) all operating expenses of the business,
including management fees (if any), taxes, and insurance premiums, but excluding
depreciation and amortization allowances, (b) interest and principal payments on
indebtedness of the Company (including advances by Members in accordance with
section 5.3), (c) proceeds from borrowing or proceeds from the sale, exchange or
other disposition of Company assets, (d) additions to reserves, (e) all cash
expenditures for fixed asset additions, improvements and replacements, (f)
capital contributions, and (g) any other amounts, all relating to such period,
that the Managing Member determines, in its sole discretion, the Company shall
retain for investment in its business; provided, however, that for purposes of
the distribution requirements set out in section 6.6, below, Net Cash Flow shall
never be less at the time of such distributions than the amounts determined
pursuant to such section.
6.6 Distribution of Net Cash Flow to Meet Estimated Tax Obligations.
Except in connection with the liquidation of the Company, in which case all
distributions will be made in accordance with Article IX, a distribution of Net
Cash Flow shall be made to each Member, no later than January 1, April 1, June 1
and September 1 of each year in an amount equal to 43% of the estimated Profits
(as determined by the Managing Member) for the applicable periods for which
estimated federal and state income tax payments must be made by the Member and
all loan agreements and other arrangement with lenders shall contain a
reservation of right on the part of the Company to make such payments.
6.7 Liability of Member for Return of Distribution. Each Member
understands that it may be liable to the Company for three years for the return
of any cash or other property it receives in violation of Section 18-607 of the
Act.
ARTICLE VII
TRANSFER OF COMPANY INTERESTS
7.1 No Transfer of Company Interest. Except upon the consent of the
Managing Member, no member may sell, assign or in any manner transfer all or any
part of his, her or its interest in the Company.
7.2 Compliance with Securities Act of 1933. No Member's interest in the
Company has been registered under the Securities Act of 1933 in reliance upon
the exemption provided in Section 4(2) of such act. Notwithstanding any other
provisions in this Agreement, no interest in the Company of a Member may be
offered for sale, sold, transferred or otherwise disposed of unless, at the
expense of the transferring Member, the Company has received an opinion of
counsel for the Company or counsel acceptable to its counsel, to the effect that
such transfer is exempt from registration under the Securities Act of 1933 and
is in compliance with all applicable federal and state securities laws and
regulations. The Managing Member may, in its sole discretion, waive the
requirements of this section with respect to the transfer of any interest, but
any such waiver will
13
not constitute a waiver of any subsequent transfer of such interest or the
transfer of any other interest. The certificates shall contain a legend
referring to the transfer restrictions under the securities laws described in
this Section 7.2.
7.3 Admission of Transferee as Substituted Member. An assignee of a
Member's interest in the Company shall not become a substituted Member unless
and until the Managing Member consents in writing to such substitution, which
consent may be arbitrarily withheld. Upon consent by the Managing Member to the
substitution of an assignee of a Member's interest in the Company, said Member
shall promptly surrender any and all certificates evidencing the Units, and a
new certificate representing the assigned Units shall be issued to the assignee
in the assignee's name. If the Managing Member does not consent to the
substitution of an assignee of a Member's interest in the Company, the
transferor shall not have any rights of a Member under the Act. An assignee of a
Member's interest in the Company who is not admitted as a substituted Member
under this section shall not be entitled to: (a) require any accounting of the
Company's transactions; (b) inspect the Company's books and records; (c) require
any information from the Company; or (d) exercise any privilege or right of a
Member which is not specifically granted to a non-substituted transferee of a
limited liability company interest under the Act.
7.4 Allocations and Distributions with Respect to Transferred
Interests. If any transfer of an interest in the Company permitted by this
Agreement occurs during a fiscal year (whether or not the assignee is admitted
as a substituted Member), then all allocations of Profits and Losses
attributable to the transferred interest for such year will be divided and
allocated between the transferor and the transferee by taking into account their
respective interests (generally determined by the weighted interest held by such
transferor and transferee) during such fiscal period, using any convention or
method of allocation selected by the Managing Member which is then permitted
under Code Section 706 and the regulations promulgated thereunder. All
distributions of Net Cash Flow made prior to the effective date of any such
transfer will be made to the transferor and any such distributions made after
the effective date of such transfer will be made to the transferee.
ARTICLE VIII
WITHDRAWAL, DEATH, INCOMPETENCY OR DISSOLUTION
OF MEMBERS AND MANAGING MEMBER
8.1 Withdrawal of Member. A Member may not withdraw from the Company.
8.2 Resignation as Manager. A Managing Member may resign as manager of
the Company (without withdrawing as a Member) by giving at least 90 but not more
than 180 days' notice in writing of its intention to do so to all the other
Members. Such notice shall not cause the dissolution of the Company. Upon the
resignation of a Managing Member, a new Managing Member shall be designated
pursuant to section 8.7.
8.3 Death, Bankruptcy, Liquidation, Etc., of a Member. A Member (other
than a Managing Member) shall not cease to be a Member by reason of the items
listed in Section 18-304(a)(1) through (6) of the Act. The happening of any such
event shall not operate to cause the dissolution of the Company.
14
8.4 Death, Bankruptcy, Liquidation, Etc. of a Managing Member. On the
bankruptcy, liquidation, dissolution or other cessation of existence of a
Managing Member, the Company shall be dissolved unless Xxxxxx Xxxxxx, Xxxx X.
Xxxxxx and Xxxxxx X. Xxxxxxx, or their respective successors and assigns,
pursuant to section 8.5 unanimously elect to continue the Company.
8.5 Continuation of Company by Members; Designation of New Managing
Member. In the event of the bankruptcy, liquidation, dissolution or other
cessation of existence of a Managing Member, Xxxxxx Xxxxxx, Xxxx X. Xxxxxx and
Xxxxxx X. Xxxxxxx, or their respective successors and assigns, may, by a
unanimous vote within 90 days after the date of any such event, elect to
continue the Company. If such persons elect to continue the Company, a new
Managing Member shall be designated pursuant to section 8.7.
8.6 Death or Bankruptcy of Member. Upon the death or bankruptcy of an
individual Member or the bankruptcy, dissolution or other cessation to exist as
a legal entity of a Member not an individual, and after such time as the Company
shall have received written notice thereof, the authorized representative of
such individual or entity shall have all of the rights of a Member for the
purposes of effecting the orderly winding up and disposition of the affairs of
such individual or entity.
8.7 Designation of New Managing Member. Upon the resignation,
bankruptcy, liquidation, dissolution or other cessation of existence of a
Managing Member, a new Managing Member shall be appointed by the unanimous vote
of Xxxxxx Xxxxxx, Xxxx X. Xxxxxx and Xxxxxx X. Xxxxxxx, or their respective
successors and assigns. The inability of such persons to agree upon the
appointment of a successor Managing Member shall constitute a dissolution event.
If such persons cannot agree on a successor Managing Member and the Company then
has an interest as a mortgagee in mortgages insured by the Federal Housing
Administration of the U.S. Department of Housing and Urban Development, a
successor Managing Member of the Company shall be designated by the holders of a
majority of the outstanding Voting Units, who shall hold office until such
mortgages have been released and canceled because of payment in full of the debt
obligations underlying such mortgages or have been transferred without recourse
by assignment to a Department of Housing and Urban Development approved
mortgagee, and whose authority as Managing Member shall be limited to actions
necessary to effect the release, cancellation or transfer of such mortgages. If
the new Managing Member is not a Member, then such new Managing Member shall
receive Non-Voting Units, which shall be authorized and issued in accordance
with sections 5.2 and 6.4(a)(ii) hereof in exchange for such capital
contribution as the Members may designate.
ARTICLE IX
TERMINATION, DISSOLUTION AND
LIQUIDATION OF THE COMPANY
9.1 Events of Dissolution. Upon the occurrence of any event described
herein which causes dissolution and the failure of the Members to elect to
continue the Company, or upon the determination by the Managing Member that in
its sole discretion it is no longer profitable, feasible or advantageous to
operate the business of the Company, the Company shall be dissolved and
liquidated in accordance with the provisions of this Article.
15
9.2 Liquidation.
(a) Upon the dissolution of the Company, then the Managing
Member, or if there be none, the Liquidating Trustee appointed in
accordance with section 9.3, shall proceed with the liquidation of the
Company, and the liquidation proceeds will be applied in the following
order and thereafter promptly distributed:
(i) To creditors in order of priority as provided by
law, except for any indebtedness owing to any Member.
(ii) To the establishment of any reserves that the
Managing Member or other persons having control of the
liquidation proceedings may deem to be reasonably necessary
for any contingent or unforeseen liabilities or obligations of
the Company;
(iii) To the Members in satisfaction of any
indebtedness owing to them; and
(iv) To the Members in accordance with their positive
Capital Account balances as such balances stand after all
gains, losses and costs relating to operations have been
reflected thereon.
(b) Upon liquidation of the Company, no Member will be
required to contribute any amount to the Company solely because of a
deficit balance in his capital account and any such deficit balance
will not for any purpose be considered an asset of the Company.
(c) For purposes of the liquidation of the Company assets, the
discharge of its liabilities and the distributions of the remaining
funds among the Members as above described, the Managing Member or
Liquidating Trustee will have the authority on behalf of the Company to
sell, convey, exchange or otherwise transfer the assets of the Company
for such consideration and upon such terms and conditions as it deems
appropriate. The Managing Member or the Liquidating Trustee, in its
sole discretion, may make distributions in kind to Members. The
Managing Member will have the authority to purchase any Company assets
at the appraised fair market value. A reasonable time will be allowed
for the orderly liquidation of the assets of the Company and the
discharge of liabilities of the Company to creditors to enable the
Company to minimize normal losses during a liquidation period. Any
return of all or any portion of the contributions made by a Member to
the capital of the Company shall be made solely from Company assets,
and the Managing Member will not be personally liable for any such
return, except to the extent provided in the preceding subsection.
9.3 Election of Liquidating Trustee. In the event there is no Manager
at the time of dissolution, the Members shall elect, by a vote of majority in
interest of all Voting Units, one of their members or any other person, firm or
corporation of their choice to act as liquidating trustee
16
("LIQUIDATING TRUSTEE") in the liquidation of the Company business in accordance
with the provisions of this Article.
9.4 Statements. Each of the Members will be furnished with a statement
prepared by the Company's accountants setting forth the assets and liabilities
of the Company as of the date of complete liquidation. When the Managing Member,
or if there be no Managers, the Liquidating Trustee, has complied with the
distribution plan set forth in this Article, the Managing Member or the
Liquidating Trustee, as the case may be, shall execute and cause to be filed a
Certificate of Cancellation of the Company.
ARTICLE X
AMENDMENT OF THE AGREEMENT
10.1 Amendments by Managing Member. This Agreement may be amended by
the Managing Member without the approval of any Member provided that such
amendment is:
(a) Solely for the purpose of clarification and does not
change the substance hereof;
(b) Otherwise in implementation of the terms of this
Agreement; or
(c) In the opinion of counsel for the Company, necessary or
appropriate to satisfy current requirements of the Code with respect to
partnerships or any federal or state securities laws or regulations.
Any amendment made pursuant to this Section 10.1 may be made effective as of the
date of this Agreement. All Members will be notified as to the substance of any
amendment to this Agreement and upon request shall be furnished a copy thereof.
10.2 Other Amendments. All other amendments to this Agreement require
the unanimous approval of the Board of Directors of the Managing Member.
ARTICLE XI
POWER OF ATTORNEY
11.1 Appointment of Managing Member as Attorney. In order to facilitate
amendments of this Agreement which require the signatures of each Member or a
specified Member and a proposed additional or substituted Member and the
preparation and signing of other documentation in connection with the Company,
each Member by his or her signature hereto irrevocably makes, constitutes and
appoints the Managing Member, including each person who shall hereafter become a
Managing Member, or its designee, his true and lawful attorney in his name,
place and xxxxx with the power from time to time to make, execute, swear to,
acknowledge, verify, deliver, file, record and publish:
(a) All certificates or other instruments which may be
required to be filed by the Company under the laws of the State of
Delaware or of any other state or jurisdiction in
17
which the Company transacts business or in which the Managing Member
deems advisable to file;
(b) All documents, certificates or other instruments,
including, without limiting the generality of the foregoing, any and
all amendments and modifications of this Agreement or of the
instruments described in section 10.1 which may be required or deemed
desirable by the Managing Member to effectuate the provisions of any
part of this Agreement and by way of extension and not in limitation to
do all such other things as are necessary to continue the Company under
the laws of the State of Delaware and of any state or jurisdiction in
which it does business;
(c) All documents, certificates or other instruments deemed
desirable by the Managing Member or required in connection with
amendments to this Agreement which the Managing Member may make without
the approval of any Member pursuant to section 10.1; and
(d) All documents, certificates or other instruments which may
be required to effectuate the dissolution and termination of the
Company or the organization of any new limited liability company
occurring by the withdrawal, death, bankruptcy, liquidation,
dissolution, adjudication of insanity or incompetency or other
cessation of existence of the Managing Member as hereinbefore provided.
11.2 Power of Attorney Irrevocable. It is expressly intended by each
Member that the foregoing power of attorney is a special power of attorney
coupled with an interest in favor of the Managing Member or its designee, and as
such is irrevocable and will survive the death, incompetence or adjudication of
insanity (and, in the case of a Member that is not a natural person, the merger,
dissolution or other termination of existence) of a Member.
11.3 Survival of Power of Attorney on Transfer. The foregoing power of
attorney will survive the delivery of an assignment by any Member of the whole
or any portion of its interest in the Company, except that where an assignee of
such interest has been approved by the Managing Member as a substituted Member,
then the foregoing power of attorney of the assignor Member will survive the
delivery of such assignment for the sole purpose of enabling the Managing Member
or its designee to execute, swear to, acknowledge and file any and all
instruments necessary to effectuate such substitution. The power of attorney may
be exercised by facsimile signature of the Managing Member or its designee, or
by listing all of the Members executing, swearing to or acknowledging any
instrument with a single signature of the Managing Member, or its designee,
acting as attorney-in-fact for all of them.
ARTICLE XII
TAX PROVISIONS
The following provisions apply for all purposes of this Agreement.
12.1 Allocations Required by Treasury Regulations.
18
(a) Subject to the exceptions set forth in Treas. Reg.
Sections 1.704-2(f)(2)-(5), if there is a net decrease in Minimum Gain
during any fiscal year, each Member shall be specially allocated items
of Company income and gain for such year (and, if necessary, subsequent
years) in an amount equal to such Member's share of the net decrease in
Minimum Gain, determined in accordance with Treas. Reg. Section
1.704-2(g)(2). "MINIMUM GAIN" shall have the meaning set forth in
Treas. Reg. Section 1.704-2(b)(2) and 1.704-2(d). This paragraph is
intended to comply with the minimum gain chargeback requirement in
Treas. Reg. Sections 1.704-2(b)(2) and (f) and shall be interpreted
consistently therewith.
(b) Subject to the exceptions set forth in Treas. Reg. Section
1.704-2(i)(4), if there is a net decrease in Member Nonrecourse Debt
Minimum Gain during any fiscal year of the Company, each Member who has
a share of the Member Nonrecourse Debt Minimum Gain, determined in
accordance with Treas. Reg. Section 1.704-2(i)(3), shall be specially
allocated items of Company income and gain for such year (and, if
necessary, subsequent years) in an amount equal to such Member's share
of the net decrease in Member Nonrecourse Debt Minimum Gain, determined
in accordance with Treas. Reg. Section 1.704-2(i)(5). This paragraph is
intended to comply with the minimum gain chargeback requirement in
Treas. Reg. Section 1.704-2(i)(4) and shall be interpreted consistently
therewith. "MEMBER NONRECOURSE DEBT MINIMUM GAIN" means an amount, with
respect to each Member Nonrecourse Debt, determined in accordance with
Treas. Reg. Section 1.704-2(i) with respect to "partner nonrecourse
debt minimum gain." "MEMBER NONRECOURSE DEBT" shall have the meaning
set forth in Treas. Reg. Section 1.704-2(b)(4) for "partner nonrecourse
debt."
(c) In the event any Member unexpectedly receives any
adjustments, allocations or distributions described in Treas. Reg.
Section 1.704-1 (b)(2)(ii)(d)(4), (5) or (6), items of Company income
and gain shall be specially allocated to such Member in an amount and
manner sufficient to eliminate the deficits in its Adjusted Capital
Account Balance created by such adjustments, allocations or
distributions as quickly as possible. This paragraph is intended to
constitute a "qualified income offset" within the meaning of Treas.
Reg. Section 1.704-1 (b)(2)(ii)(d), and shall be interpreted
consistently therewith. "ADJUSTED CAPITAL ACCOUNT BALANCE" means the
balance in the Capital Account of a Member as of the end of the
relevant fiscal year of the Company, after giving effect to the
following: (i) credit to such Capital Account any amounts the Member is
obligated to restore, pursuant to the terms of this Agreement or
otherwise, or is deemed obligated to restore pursuant to the
penultimate sentences of Treas. Reg. Sections 1.704-2(g)(1) and
1.704-2(i)(5), and (ii) debit to such capital account the items
described in Treas. Reg. Sections 1.704-1(b)(2)(ii)(d)(4), (5) and (6).
(d) Nonrecourse Deductions for any fiscal year or other period
shall be specially allocated to the Members in accordance with their
Percentage Interests. "NONRECOURSE DEDUCTIONS" shall have the meaning
set forth in Treas. Reg. Section 1.704-2(b)(1). The amount of
Nonrecourse Deductions for a fiscal year of the Company equals the
excess, if any, of the net increase, if any, in the amount of Minimum
Gain during that fiscal year over the aggregate amount of any
distributions during that fiscal year of proceeds of a Nonrecourse
Liability that are allocable to an increase in Minimum Gain, determined
19
according to the provisions of Treas. Reg. Section 1.704-2(c).
"NONRECOURSE LIABILITY" shall have the meaning set forth in Treas. Reg.
Section 1.704-2(b)(3).
(e) Member Nonrecourse Deductions for any fiscal year or other
period shall be specially allocated to the Member who bears the
economic risk of loss with respect to the Member Nonrecourse Debt to
which such Member Nonrecourse Deductions are attributable in accordance
with Treas. Reg. Section 1.704-2(i). "MEMBER NONRECOURSE DEDUCTIONS"
shall have the meaning set forth in Treas. Reg. Section 1.704-2(i)(2)
for "partner nonrecourse deductions." For any Company taxable year, the
amount of Member Nonrecourse Deductions with respect to a Member
Nonrecourse Debt equals the net increase during the year, if any, in
the amount of Member Nonrecourse Debt Minimum Gain reduced (but not
below zero) by proceeds of the liability that are both attributable to
the liability and allocable to an increase in the Member Nonrecourse
Debt Minimum Gain.
(f) The allocations set forth in section 12.1 are intended to
comply with certain requirements of Treasury Regulations promulgated
under Code Section 704. Such allocations shall be taken into account in
allocating other Profits, Losses, and items of income, gain, loss, and
deduction to each Member so that, to the extent possible, and to the
extent permitted by Treasury Regulations, the net amount of such
allocations of other Profits, Losses, and other items and such
allocations to each Member shall be equal to the net amount that would
have been allocated to each Member if such allocations had not been
made.
12.2 Rules of Application.
(a) Profits and Losses and other items of income, gain, loss
and deduction shall be allocated to the Members in accordance with the
portion of the year during which the Members have held their respective
interests. All items of income, loss and deduction shall be considered
to have been earned ratably over the period of the fiscal year of the
Company, except that (i) gains and losses arising from the disposition
of assets shall be taken into account as of the date thereof, and (ii)
with the consent of the Managing Member and all affected parties, the
preceding items may be allocated by using an "interim closing of the
books" method.
(b) In the event the Company is entitled to a deduction for
interest imputed under any provision of the Code on any loan or advance
from a Member (whether such interest is currently deducted, capitalized
or amortized), such deduction shall be allocated solely to such Member.
(c) To the extent any payments in the nature of fees paid to a
Member are finally determined to be distributions to a Member for
federal income tax purposes, there will be a gross income allocation to
such Member in the amount of such distribution.
(d) Losses may not be allocated to any Member to the extent
that such allocation would result in a deficit in its Adjusted Capital
Account Balance while any other Member continues to have a positive
Adjusted Capital Account Balance; in such event
20
Losses will first be allocated to Members with positive Adjusted
Capital Account Balances in proportion to such balances, until their
positive Adjusted Capital Account Balances have been reduced to zero.
To the extent that any Losses are allocated pursuant to this paragraph,
Profits will thereafter be allocated in reverse order of such
allocations of Losses to the extent of such Losses.
(e) The allocation of Profits and Losses to any Member shall
be deemed to be an allocation to that Member of the same proportionate
part of each separate item of taxable income, gain, loss, deduction or
credit that comprises such Profits and Losses.
12.3 Rules Concerning Calculations of Profits and Losses and Code Section
704(c) Tax Allocations.
(a) For purposes of computing Profits and Losses, "CARRYING
VALUE" means (i) with respect to contributed property, the agreed value
of such property reduced (but not below zero) by Depreciation, (ii)
with respect to property the book value of which is adjusted pursuant
to Treas. Reg. Section 1.704-1(b)(2)(iv)(d), (e) or (f), the amount
determined pursuant to sections 12.2(c)(iii) or (iv), and (iii) with
respect to any other property, the adjusted basis of such property for
federal income tax purposes as of the time of determination.
(b) Upon the occurrence of any of the following events, the
Carrying Value of Company property will be adjusted to its fair market
value, as determined by the Managing Member:
(i) The acquisition of an interest in the Company by
a new or existing Member in exchange for more than a de
minimis contribution of money or property;
(ii) The distribution by the Company to a continuing
or retiring Member of more than a de minimis amount of
property or money in consideration for an interest in the
Company; or
(iii) The "liquidation" of the Company within the
meaning of Treas. Reg. Section 1.704-1(b)(2)(ii)(g).
The revaluation of the Company property referred to in the immediately
preceding sentence shall be made in accordance with Treas. Reg. Section
1.704-1(b)(2)(iv)(f).
(c) Upon an issuance of additional interests in the Company
for cash or contributed property, the Carrying Value of all Company
properties will, immediately prior to issuance, be adjusted (consistent
with the provisions hereof) upward or downward to reflect any
unrealized gain or unrealized loss attributable to each Company
property (as if such unrealized gain or unrealized loss had been
recognized upon an actual sale of such property at the fair market
value thereof immediately prior to such issuance, and had been
allocated to the Members, at such time, pursuant to section 6.4 of the
Agreement). In determining such unrealized gain or unrealized loss
attributable to the properties, the fair
21
market value of Company properties will be determined by the Managing
Member using such reasonable methods of valuation as it may adopt.
(d) Immediately prior to the distribution of any Company
property in liquidation of the Company or in redemption of all or part
of any Member's interest in the Company, the Carrying Values of all
Company properties will be adjusted (consistent with the provisions
hereof) upward or downward to reflect any unrealized gain or unrealized
loss attributable to each Company property (as if such unrealized gain
or unrealized loss had been recognized upon an actual sale of each such
property, immediately prior to such distribution, and had been
allocated to the Members, at such time, pursuant to section 6.4 of the
Agreement). In determining such unrealized gain or unrealized loss
attributable to the properties, the fair market value of Company
properties will be determined by the Managing Member using such
reasonable methods of valuation as it may adopt.
(e) In accordance with Code Section 704(c) and the regulations
thereunder, income, gain, loss and deduction with respect to any
contributed property will, 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 agreed value, pursuant to any method permitted by the
regulations and chosen by the Managing Member.
(f) In the event the Carrying Value of any Company asset is
adjusted as described in paragraph (c) or (d) above, subsequent
allocations of income, gain, loss and deduction with respect to such
asset will take account of any variation between the adjusted basis of
such asset for federal income tax purposes and its Carrying Value in
the same manner as under Code Section 704(c) and the regulations
thereunder.
(g) A transferee of a Company interest will succeed to the
Capital Account relating to the Company interest transferred.
ARTICLE XIII
MISCELLANEOUS
13.1 Notices. Any and all notices or other communications which may be
sent to any Member will be sent to the address of such Member listed on the Unit
Register, unless the Company is notified in writing of any change of address.
Notices or other communications will be deemed to have been given only when hand
delivered or deposited with the United States Post Office by registered or
certified mail addressed as set forth above.
13.2 No Partition of Company Property. Each of the Members hereby
irrevocably waives any and all rights, duties, obligations and benefits with
respect to any action for partition of Company property or to compel any sale
thereof. Further, all rights, duties, benefits and obligations, including
inventory and appraisement of the Company assets or sale of a deceased Member's
interest therein, provision for which is made in the Act, or on account of the
operation of any other rule or law of any other jurisdiction to compel any sale
or appraisement of Company assets or sale of a deceased Member's interest
therein, are hereby waived and dispensed with and the interest in the Company of
a deceased Member will be subject to the provisions of this Agreement.
22
13.3 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware.
13.4 Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original and all of which
constitute one agreement, notwithstanding that all of the parties are not
signatories to the original or the same counterpart, or that signature pages
from different counterparts are combined, and the signature of any party to any
counterpart shall be deemed to be a signature to and may be appended to any
other counterpart.
13.5 Language Conventions; Captions. Words of any gender used in this
Agreement include any other gender, and words of the singular number include the
plural (and vice-versa), when the sense requires. The captions to each Article
and section are inserted only as a matter of convenience and for reference only
and in no way define, limit or describe the scope or intent of this Agreement or
in any way affect it.
13.6 Entire Agreement. This Agreement contains the entire understanding
between the parties and supersedes any prior understanding and agreements
between them respecting the subject matter hereof. There are no representations,
agreements, arrangements or understandings, oral or written, between and among
the parties hereto relating to the subject matter of this Agreement which are
not described herein.
13.7 Provisions Severable. This Agreement is intended to be performed
in accordance with and only to the extent permitted by, all applicable laws,
ordinances, rules and regulations of the jurisdictions in which the Company does
business. If any provision of this Agreement, or the application thereof to any
person or circumstance, shall for any reason and to any extent be invalid or
unenforceable, the remainder of this Agreement and the application of such
provision to other persons or circumstances shall not be affected thereby, but
rather shall be enforced to the greatest extent permitted by law.
13.8 Binding Agreement. This Agreement shall be binding upon and shall
inure to the benefit of all Members and their respective legal representatives,
heirs, permitted successors and permitted assigns.
23
IN WITNESS WHEREOF, all Members holding Voting Units and all Members
holding Nonvoting Units have entered into this Agreement and have hereunto set
their hands to multiple copies hereof to be effective as provided in section
1.2.
VOTING UNIT MEMBER
Oak Street Financial Services, Inc.
By:
----------------------------------------
Print:
-------------------------------------
Its:
---------------------------------------
NON-VOTING UNIT MEMBERS
Oak Street Financial Services, Inc.
By:
----------------------------------------
Print:
-------------------------------------
Its:
---------------------------------------
Sotseks Corp.
By:
----------------------------------------
Print:
-------------------------------------
Its:
---------------------------------------
24
Schedule A
NUMBER OF
UNITS OF
NUMBER OF COMPANY
UNITS OF OSM TYPE OF ALLOCATED TO PERCENTAGE
UNIT HOLDER CONTRIBUTED UNITS UNIT HOLDER TYPE OF UNITS INTEREST
---------------------------------------------------------------------------------------------------------------------
Managing Member
Oak Street Financial Services, 3,000.000 Voting 3,000.000 Voting .95%
Inc
Oak Street Financial Services, 198,378.743 Non-Voting 198,378.743 Non-Voting 62.90%
Inc.
Members
Sotseks Corp. 113,999.950 Non-Voting 113,999.950 Non-Voting 36.15%
Appendix A
The capitalized terms used in the body of this Agreement have the
meanings set forth in the provision referenced below, where such term appears in
boldface print.
(a) "ACT" is defined in the preamble.
(b) "ADJUSTED CAPITAL ACCOUNT BALANCE" is defined in section 12.1(c).
(c) "AFFILIATE" is defined in section 4.5.
(d) "AGREEMENT" is defined in the preamble.
(e) "CAPITAL ACCOUNT" is defined in section 6.3.
(f) "CARRYING VALUE" is defined in section 12.3(a).
(g) "CAPITAL CONTRIBUTIONS" is defined in section 5.1.
(h) "CERTIFICATE" is defined in section 1.2.
(i) "CLAIMS" is defined in section 4.5.
(j) "CODE" is defined in section 4.7.
(k) "COMPANY" is defined in section 1.1.
(l) "DEPRECIATION" is defined in section 6.4(d).
(m) "DISABILITY" is defined in section 4.9(a).
(n) "DISREGARDED ENTITY" is defined in section 1.5.
(o) "EFFECTIVE DATE" is defined in the preamble.
(p) "EXISTING MEMBERS" is defined in section 3.1.
(q) "LIQUIDATING TRUSTEE" is defined in section 9.3.
(r) "LOSSES" is defined in section 6.4(d).
(s) "MANAGING MEMBER" is defined in section 4.1(a).
(t) "MEMBER NONRECOURSE DEBT" is defined in section 12.1(b).
(u) "MEMBER NONRECOURSE DEBT MINIMUM GAIN" is defined in section 12.1(b).
(v) "MEMBER NONRECOURSE DEDUCTIONS" is defined in section 12.1(e).
(w) "MINIMUM GAIN" is defined in section 12.1(a).
(x) "NET CASH FLOW" is defined in section 6.5.
(y) "NONRECOURSE DEDUCTIONS" is defined in section 12.1(d).
(z) "NONRECOURSE LIABILITY" is defined in section 12.1(d).
(aa) "NON-VOTING UNITS" is defined in section 6.4(a)(ii).
(bb) "PERCENTAGE INTERESTS" is defined in section 6.4(a)(ii).
(cc) "PROFITS" is defined in section 6.4(d).
(dd) "PROPERTY" is defined in section 5.1
(ee) "TREASURY REGULATIONS" and "TREAS. REG." are defined in section 4.7.
(ff) "UNITS" is defined in section 6.4(a)(ii).
(gg) "UNIT REGISTER" is defined in section 3.3.
(hh) "VOTING UNITS" is defined in section 6.4(a)(ii).
Appendix B
CERTIFICATE NO. ____ ____ UNITS
CERTIFICATE OF MEMBERSHIP INTEREST
OAK STREET OPERATIONS LLC
This document certifies that ___________________________ is the owner
of a membership interest consisting of_____ voting/non-voting units in Oak
Street Operations LLC, a limited liability company organized under the laws of
the State of Delaware (the "Company").
THE MEMBERSHIP INTEREST EVIDENCED BY THIS CERTIFICATE IS SUBJECT TO
TRANSFER RESTRICTIONS CONTAINED IN THE OPERATING AGREEMENT OF THE COMPANY, A
COPY OF WHICH IS AVAILABLE AT THE PRINCIPAL OFFICE OF THE COMPANY. Subject to
compliance with such agreement, all or part of this membership interest is
transferable on the books of the Company in person or by a duly authorized
attorney upon surrender of this Certificate properly endorsed.
IN WITNESS WHEREOF, the Company has caused this Certificate to be
signed by a duly authorized officer this _____ day of ___________, 2003.
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Signature
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Printed Name and Title
FOR VALUE RECEIVED, ___________________________ HEREBY
SELL, ASSIGN AND TRANSFER UNTO
Please insert Social Security or other
identifying number of Assignee
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------------------------------------
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(PLEASE PRINT OR TYPE NAME AND ADDRESS,
INCLUDING ZIP CODE, OF ASSIGNEE)
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capital units represented by the within Certificate, and do hereby irrevocably
constitute and appoint Attorney to transfer the said units on the books of the
within named Company with full power of substitution in the premises.
Dated
In Presence of
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NOTICE: The signature to this assignment must correspond with the name as
written upon the face of this Certificate in every particular, without
alteration or enlargement or any change whatever.
