Exhibit 3.3
OPERATING AGREEMENT
OF
THERMOENERGY POWER SYSTEMS, LLC
Table of Contents
Page
Article 1. Definitions......................................................5
1.1 Definitions......................................................5
Article 2. Organization....................................................10
2.1 Formation.......................................................10
2.2 Adoption of Agreement...........................................10
2.3 Name............................................................10
2.4 Registered Agent and Office; Principal Office...................10
Article 3. Purpose and Powers..............................................11
3.1 Purpose.........................................................11
3.2 Powers..........................................................11
Article 4. Capital Contributions, Membership Interests and Capital
Accounts........................................................11
4.1 Initial Capital Contribution....................................11
4.2 Additional Contributions; Loans.................................11
4.3 Withdrawal or Reduction of Members' Capital Contributions.......11
4.4 Interest and Preferential Rights................................11
4.5 Membership Interests and Exhibit................................11
4.6 Capital Accounts................................................12
(a) Creation of Capital Accounts..............................12
(b) Transfers of Capital Accounts.............................12
(c) Compliance with Regulations...............................12
Article 5. Distributions; Allocation of Profits and Losses; Liquidation
Proceeds........................................................13
5.1 Distribution of Available Cash Flow.............................13
5.2 Allocation of Profits and Losses................................13
5.3 Distributions Upon Liquidation..................................13
5.4 Withholding.....................................................14
Article 6. The Board of Directors..........................................14
6.1 Management by the Board.........................................15
6.2 Number..........................................................15
6.3 Removal or Resignation of Directors.............................15
6.4 Filling of Vacancies............................................15
6.5 Initial Board Members...........................................16
6.6 Powers of Board.................................................16
6.7 Authority of Agents.............................................17
6.8 Right to Rely on Board or Officers..............................17
6.9 Restrictions on Authority of Board..............................17
6.10 Limitation on Liability.........................................18
6.11 Compensation and Reimbursement..................................19
6.12 No Exclusive Duty...............................................19
6.13 Contracts With Affiliates.......................................19
Article 7. Meetings of Directors...........................................20
7.1 Annual Meetings.................................................20
7.2 Regular Meetings................................................20
7.3 Special Meetings................................................20
7.4 Action by the Board Without a Meeting...........................20
7.5 Place of Meetings; Telephone Meetings...........................20
7.6 Notice of Meetings..............................................21
7.7 Waiver of Notice................................................21
7.8 Quorum..........................................................21
7.9 Required Vote; Manner of Acting.................................21
7.10 Executive Committees............................................21
Article 8. Meetings of Members.............................................22
8.1 Annual Meetings.................................................22
8.2 Special Meetings................................................22
8.3 Action by Members Without a Meeting.............................22
8.4 Action on Recommendation of the Board...........................22
8.5 Place of Meetings; Telephone Meetings...........................22
8.6 Notice of Meetings..............................................23
8.7 Waiver of Notice................................................23
8.8 Record Date.....................................................23
8.9 Voting List.....................................................23
8.10 Quorum..........................................................23
8.11 Required Vote; Manner of Acting.................................24
8.12 Proxies.........................................................24
8.13 Limitation on Liability.........................................24
Article 9. Officers........................................................24
9.1 Appointment of Officers.........................................24
9.2 Term............................................................24
9.3 Duties..........................................................24
(a) Chairman..................................................24
(b) President.................................................25
(c) Vice President............................................25
(d) Secretary.................................................25
(e) Assistant Secretary.......................................25
(f) Treasurer.................................................25
(g) Assistant Treasurer.......................................26
9.4 Limitation of Liability.........................................26
9.5 Resignation.....................................................26
Article 10. Indemnification.................................................26
10.1 Standard for Indemnification....................................26
10.2 Effect of Provisions............................................26
10.3 Insurance.......................................................27
10.4 Effect of Provisions............................................27
10.5 Repeal or Modification..........................................27
10.6 Effect of Invalidity of Article.................................27
Article 11. Fiscal Matters..................................................27
11.1 Books and Records...............................................27
11.2 Fiscal Year.....................................................27
11.3 Tax Status......................................................28
11.4 Reports to Members..............................................28
11.5 Accounting Decisions............................................28
11.6 Bank Accounts...................................................28
11.7 Tax Matters Partner.............................................28
Article 12. Transfer and Termination of Membership Interests; Admit New
Members.........................................................29
12.1 Restrictions on Transfers.......................................29
12.2 Transfers of Membership Interests...............................29
12.3 Conditions to Permitted Transfers...............................29
12.4 Right of First Refusal..........................................30
12.5 Expulsion of Members............................................31
12.6 Amendment to Exhibit............................................31
Article 13. Dissolution, Winding Up, and Termination........................32
13.1 Term............................................................32
13.2 Events Causing Dissolution and Winding Up.......................32
13.3 Winding Up Affairs on Dissolution...............................32
13.4 Waiver of Right to Partition and Decree of Dissolution..........32
Article 14. General Provisions..............................................33
14.1 Notices.........................................................33
14.2 Integration.....................................................33
14.3 Governing Law...................................................33
14.4 Severability....................................................33
14.5 Terminology.....................................................33
14.6 Amendment.......................................................33
14.7 Execution of Additional Instruments.............................34
14.8 Waivers.........................................................34
14.9 Rights and Remedies Cumulative..................................34
14.10 Heirs, Successors and Assigns...................................34
14.11 Creditors.......................................................34
14.12 Counterparts....................................................34
14.13 Rules Against Perpetuities......................................34
14.14 Potential Conflicts.............................................34
Exhibit "A"...........................................................36
Exhibit "B"...........................................................37
Operating Agreement
of
ThermoEnergy Power Systems, LLC
This Operating Agreement ("Agreement") is made and entered into by and
between ThermoEnergy Corporation, an Arkansas corporation, and Xxxx Xxxxxxxxxx
(collectively referred to as the "Members" and individually as a "Member").
W I T N E S S E T H:
Whereas, the parties hereto desire to form a limited liability company
under and pursuant to the Act (as defined below), to conduct certain business as
a limited liability company, and to set forth their mutual rights and
obligations in this Agreement.
Now, Therefore, in consideration of the mutual promises, covenants and
undertakings hereinafter contained, and other good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, the Members hereby
agree as follows:
Article 1. Definitions
1.1 Definitions. As used herein the following terms have the indicated
meanings:
(a) "Act" means the Delaware Limited Liability Company Act, codified
at Delaware Code Annotated title 6, Sections 18-101 et seq., as amended
from time to time, and any corresponding provisions of any successor
legislation.
(b) "Affiliate" means, with respect to any Person (as defined herein),
(1) any Person directly or indirectly controlling, controlled by or under
common control with such Person, (2) any Person owning or controlling ten
percent (10%) or more of the outstanding voting securities of such Person,
(3) any officer, director or general partner of such Person, or (4) any
Person who is an officer, director, general partner, trustee or holder of
ten percent (10%) or more of the voting securities of any Person described
in clauses (1) through (3) of this sentence.
(c) "Agreement" means this Operating Agreement, as amended from time
to time.
(d) "Authorized Person" means Xxxxxx X. Xxxxx, the individual who
organized the Company by filing the Certificate of Formation with the
Secretary of State of Delaware on behalf of the Company. Each Member,
jointly and severally, hereby irrevocably constitutes and appoints the
Authorized Person as their true and lawful attorney-in-fact, in their name,
place and xxxxx to make, execute, sign, acknowledge, record and file, on
behalf of them and
on behalf of the Company, the Certificate of Formation, and to take all
such actions, and to execute and deliver all such documents, agreements,
instruments and certificates (with such changes as such Authorized Person
shall approve, such approval to be conclusively evidenced by such
execution), on behalf of the Company, which are necessary, appropriate or
convenient to form the Company in the State of Delaware and to qualify the
Company to do business in any other jurisdiction the laws of which may be
applicable to the Company.
(e) "Available Cash Flow" means all cash, revenues and funds
(including borrowings) received by the Company, less the sum of the
following to the extent paid or set aside by the Company: (1) all principal
and interest payments on indebtedness of the Company and other sums paid to
lenders; (2) all cash expenditures incurred incident to the normal
operation of the Company's business; and (3) such financial reserves as the
Board deems reasonably necessary to the proper operation of the Company's
business.
(f) "Board" means the Board of Directors of the Company.
(g) "Capital Account" means an account established pursuant to Section
4.6 hereof.
(h) "Capital Contribution" means, with respect to any Member, the
amount of money and the initial Gross Asset Value of any property (other
than money) contributed to the Company with respect to the Membership
Interest held by such Member pursuant to the terms of this Agreement. The
principal amount of a promissory note which is not readily traded on an
established securities market and which is contributed to the Company by
the maker of the note (or a Person related to the maker of the note within
the meaning of Regulations Section 1.704-1(b)(2)(ii)(c)) shall not be
included in the Capital Contribution of any Person until the Company makes
a taxable disposition of the note or until (and to the extent) principal
payments are made on the note, all in accordance with Regulations Section
1.704-1(b)(2)(iv)(d)(2).
(i) "Certificate of Formation" means the Certificate of Formation of
the Company filed with the Secretary of State of the State of Delaware, as
amended from time to time.
(j) "Code" means the Internal Revenue Code of 1986, as amended from
time to time, and any corresponding provisions of any successor
legislation.
(k) "Company" means ThermoEnergy Power Systems LLC, a Delaware limited
liability company.
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(l) "Depreciation" means, for each fiscal year or other period, an
amount equal to the depreciation, amortization or other cost recovery
deduction allowable with respect to an asset for such year or other period;
provided, however, that if the Gross Asset Value of an asset differs from
its adjusted basis for federal income tax purposes at the beginning of such
year or other period, Depreciation shall be an amount which bears the same
ratio to such beginning Gross Asset Value as the federal income tax
deduction, amortization or other cost recovery deduction for such year or
other period bears to such beginning adjusted tax basis; and provided,
further, that if the federal income tax depreciation, amortization or other
cost recovery deduction for such year is zero, Depreciation shall be
determined with reference to such beginning Gross Asset Value using any
reasonable method selected by the Board.
(m) "Director" means any natural person elected or appointed to serve
on the Board, as provided in this Agreement.
(n) "Family" means only any person who, at the time of the Permitted
Transfer, is such Member's spouse (provided no divorce proceeding has
commenced or is pending), natural or adoptive lineal ancestors or
descendants, and inter vivos trusts for his or their exclusive benefit.
(o) "Financial Rights" means a Member's rights as a member of the
Company to share in (1) Profits and Losses to the extent provided in this
Agreement, and (2) distributions to the extent provided in this Agreement.
(p) "Financial Rights Owner" means the owner of Financial Rights who
is not a Member.
(q) "Governance Rights" means a right to vote on one or more matters
as specified under this Agreement, the Certificate of Formation and the
Act, and all of a Member's rights as a member of the Company other than
Financial Rights.
(r) "Gross Asset Value" means, with respect to any asset, the asset's
adjusted basis for federal income tax purposes, except as follows:
(1) The initial Gross Asset Value of any asset contributed by a
Member to the Company shall be the gross fair market value of such
asset, as determined by the contributing Member and the Company;
(2) The Gross Asset Values of all Company assets shall be
adjusted to equal their respective gross fair market values, as
determined by the Board, as of the following times: (i) the
acquisition of an additional interest in the Company by any new or
existing Member in exchange for more than a de minimis contribution of
money or other property; (ii) the distribution by the Company of more
than a de minimis amount of money or other property to a Member as
consideration for an interest in the Company; and (iii) the
liquidation of the Company within the meaning of Regulations Section
1.704-1(b)(2)(ii)(g); provided, however, that the adjustments pursuant
to clauses (i) and (ii) shall be made only if the Board reasonably
determines that such adjustments are necessary or appropriate to
reflect the relative economic interests of the Members in the Company;
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(3) The Gross Asset Value of any Company asset distributed to any
Member shall be the gross fair market value of such asset on the date
of distribution; and
(4) The Gross Asset Values of Company assets shall be increased
(or decreased) to reflect any adjustments to the adjusted basis of
such assets pursuant to Code Sections 734(b) or 743(b), but only to
the extent that such adjustments are taken into account in determining
Capital Accounts pursuant to Regulations Section 1.704-1(b)(2)(iv)(m)
and Section 2.7 of Exhibit "B" hereto; provided, however, that Gross
Asset Values shall not be adjusted pursuant to this subparagraph (4)
to the extent the Board determines that an adjustment pursuant to
subparagraph (2) above is necessary or appropriate in connection with
a transaction that would otherwise result in an adjustment pursuant to
this subparagraph (4).
If the Gross Asset Value of an asset has been determined or adjusted
hereunder, such Gross Asset Value shall thereafter be adjusted by the
Depreciation taken into account with respect to such asset for purposes of
computing Profits and Losses.
(s) "Liability", for purposes of Article 10, means the obligation to
pay a judgment, settlement, penalty, fine (including an excise tax assessed
with respect to an employee benefit plan), or expenses (including
attorney's fees) actually and reasonably incurred with respect to a
proceeding.
(t) "Members" means the Persons who are, from time to time, admitted
as members of the Company pursuant to the Act and this Agreement and whose
names are set forth on Exhibit "A" which is attached hereto and made part
of this Agreement, as such Exhibit "A" may be amended from time to time.
(u) "Membership Interest" means a Member's interest in the Company,
which when expressed as a percentage of all Membership Interests in the
Company shall be equal to such Member's Membership Percentage. The
Membership Interest shall consist of the Member's (1) Financial Rights, (2)
right to Transfer Financial Rights to the extent permitted under this
Agreement, the Certificate of Formation and the Act, (3) Governance Rights,
and (4) right to Transfer Governance Rights to the extent permitted under
this Agreement, the Certificate of Formation and the Act.
(v) "Membership Percentage" means the percentage interest of a Member
as shown on Exhibit "A", as amended from time to time as provided in or as
required by this Agreement, the Act or the Code. In the event any portion
of the Financial Rights are Transferred in accordance with the provisions
of this Agreement, the transferee of such Financial Rights shall succeed to
the Membership Percentage of his transferor to the extent it relates to the
transferred interest.
(w) "Officers" means the Chairman, President, Secretary and any other
person elected, appointed or otherwise designated to be an "officer" by the
Board pursuant to this Agreement.
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(x) "Party", for purposes of Article 10, includes any Person who was,
is, or is threatened to be made, a named defendant or respondent in a
Proceeding.
(y) "Person" means any individual, partnership, corporation, trust or
other entity.
(z) "Personal Representative" means any Person who succeeds to such
Member's estate as a result of such Member's death, legal incompetence, or
event of bankruptcy and any transferee of such Member's interest from any
such Person.
(aa) "Proceeding", for purposes of Article 10, means a threatened,
pending, or completed civil, criminal, administrative, arbitration, or
investigative action, suit or proceeding, whether formal or informal,
including an action, suit or proceeding by or in the right of the Company.
(bb) "Profits" and "Losses" mean, for each fiscal year or other
period, an amount equal to the Company's taxable income or loss for such
year or period, determined in accordance with Code Section 703(a) (for this
purpose, all items of income, gain, loss or deduction required to be stated
separately pursuant to Code Section 703(a)(1) shall be included in taxable
income or loss), with the following adjustments:
(1) Income of the Company that is exempt from federal income tax
and not otherwise taken into account in computing Profits or Losses
hereunder shall be added to such taxable income or loss;
(2) Any expenditures of the Company described in Code Section
705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures
pursuant to Regulations Section 1.704-1(b)(2)(iv)(i) and not otherwise
taken into account in computing Profits or Losses hereunder shall be
subtracted from such taxable income or loss;
(3) In the event the Gross Asset Value of any Company asset is
adjusted pursuant to subparagraphs (2) or (3) of the definition of
Gross Asset Value hereunder, the amount of such adjustment shall be
taken into account as gain or loss from the disposition of such asset
for purposes of computing Profits or Losses;
(4) Gain or loss resulting from any disposition of a Company
asset with respect to which gain or loss is recognized for federal
income tax purposes shall be computed by reference to the Gross Asset
Value of the asset disposed of, notwithstanding that the adjusted tax
basis of such asset differs from its Gross Asset Value;
(5) In lieu of the depreciation, amortization and other cost
recovery deductions taken into account in computing such taxable
income or loss, there shall be taken into account Depreciation for
such fiscal year or other period computed in accordance with the
definition of Depreciation contained herein;
9
(6) To the extent an adjustment to the adjusted tax basis of any
Company asset pursuant to Code Sections 734(b) or 743(b) is required
by Regulations Section 1.704-1(b)(2)(iv)(m)(4) to be taken into
account in determining Capital Accounts as a result of a distribution
other than in liquidation of a Member's interest in the Company, the
amount of such adjustment shall be treated as an item of gain (if the
adjustment increases the basis of the asset) or loss (if the
adjustment decreases the basis of the asset) from the disposition of
the asset and shall be taken into account for purposes of computing
Profits or Losses; and
(7) Notwithstanding any other provision herein, any items, which
are specially allocated pursuant to Sections 2 and 3 of Exhibit "B"
hereto, shall not be taken into account in computing Profits or
Losses.
(cc) "Regulations" includes proposed, temporary and final regulations
promulgated under the Code.
(dd) "Successor" means a Member's executor, administrator, guardian,
conservator, other legal representative or successor.
(ee) "Transfer" means, as a noun, any voluntary or involuntary
transfer, sale, pledge, hypothecation, or other disposition and, as a verb,
voluntarily or involuntarily to transfer, sell, pledge, hypothecate or
otherwise dispose of an item, and in either case, including a Transfer by
operation of law, divorce, bankruptcy, foreclosure, judicial sale or
otherwise.
Article 2. Organization
2.1 Formation. The Company was formed on June 1, 2000, upon the filing of
the Certificate of Formation by the Authorized Person with the Secretary of
State of Delaware.
2.2 Adoption of Agreement. The Members hereby adopt this Agreement as the
limited liability company agreement of the Company, as the term "limited
liability company agreement" is used in the Act, to set forth the rules and
regulations regarding the management of the business of the Company, the
governance of the Company, the conduct of its business and the rights and
privileges of its Members.
2.3 Name. The name of the Company shall be ThermoEnergy Power Systems, LLC.
The Company may adopt and conduct its business under such assumed or trade names
as the Board may from time to time determine. The Company shall file any assumed
or fictitious name certificates as may be required to conduct business in any
state.
2.4 Registered Agent and Office; Principal Office. The initial registered
agent and registered office of the Company shall be Corporation Service Company,
0000 Xxxxxx Xxxx, Xxxxxxxxxx, Xxxxxxxx 00000, in New Castle County. The
principal executive office of the Company shall be located at 000 Xxxxxx Xxxxxx,
Xxxxx 0000, Xxxxxx Xxxx, Xxxxxxxx 00000, or such other place as the Board may
from time to time determine.
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Article 3. Purpose and Powers
3.1 Purpose. The purpose of the Company shall be to invest in, acquire,
construct, hold, maintain, operate, mortgage, sell, exchange, lease and
otherwise use real estate, personal property and intangible property of every
class, nature and description, and to engage in any and all activities related
or incidental thereto.
3.2 Powers. The Company may exercise all powers necessary or convenient to
carry out its business and affairs and to effectuate the purposes set forth in
Section 3.1 hereof which may be legally exercised by limited liability companies
under the Act.
Article 4. Capital Contributions, Membership Interests and Capital Accounts
4.1 Initial Capital Contribution. Each Member shall be credited with having
made an initial Capital Contribution to the Company in the amount set forth
opposite such Member's name on Exhibit "A" hereto.
4.2 Additional Contributions; Loans. Except as specified in Section 4.1, no
Member shall be obligated to make any additional Capital Contributions to the
Company without the unanimous approval of the Members. The Members shall be
permitted, but not required, to make loans to the Company. Loans shall not be
treated as a Capital Contribution unless such is approved by Members holding a
majority in interest of the Membership Percentages, and this Agreement is
amended pursuant to Section 4.5 to reflect the same and the effect of such
additional Capital Contributions on the Members' respective Capital Accounts and
Membership Percentages. Loans shall bear interest from the date advanced until
repaid at the fluctuating "prime rate" as quoted in the Southwest Edition of The
Wall Street Journal, with changes in said "prime rate" being effective on the
date first published.
4.3 Withdrawal or Reduction of Members' Capital Contributions. No Member
shall have the right to withdraw or resign. A Member shall not receive out of
the Company's property all or any part of such Member's Capital Contributions
except as provided in Sections 5.3 and 13.3 hereof.
4.4 Interest and Preferential Rights. Except as otherwise provided in this
Agreement, no interest shall accrue on any Capital Contributions and no Member
shall have any preferential rights with respect to distributions or upon
dissolution of the Company.
4.5 Membership Interests and Exhibit "A" Amendments. Each Member shall be
credited with the Membership Percentage set forth opposite such Member's name
and Capital Contributions on Exhibit "A". The amounts shown on Exhibit "A" with
respect to Capital Contributions and Membership Percentages shall be
appropriately adjusted to reflect any additional Capital Contributions by
Members pursuant to Section 4.2 hereof, any withdrawals or reductions in Capital
Contributions, any changes in the membership of the Company or any Transfers of
Membership Interests. Exhibit "A" shall also be amended from time to time to
reflect any changes in the addresses of Members.
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4.6 Capital Accounts.
(a) Creation of Capital Accounts. The Company shall establish a
"Capital Account" for each Member and the Capital Accounts shall initially
be credited with the amount of the Members' respective Capital
Contributions. Notwithstanding anything to the contrary contained in this
Agreement, the Capital Account of each Member shall be determined and
maintained throughout the full term of the Company in accordance with the
capital accounting rules of Regulations Section 1.704-1(b)(2)(iv). In
general, each Member's Capital Account shall be:
(1) credited with such Person's Capital Contributions, such
Person's distributive share of Profits (including Profits from a sale
or disposition of Company assets), and any items in the nature of
income or gain which are specially allocated pursuant to Sections 2
and 3 of Exhibit "B" hereto, and the amount of any Company liabilities
assumed by such Person or which are secured by any Property
distributed to such Person; and
(2) debited with the amount of cash and the Gross Asset Value of
any property distributed to such Person pursuant to any provision of
this Agreement, such Person's distributive share of Losses, and any
items in the nature of expenses or losses which are specially
allocated pursuant to Sections 2 and 3 of Exhibit "B" hereto, and the
amount of any liabilities of such Person assumed by the Company or
which are secured by any property contributed by such Person to the
Company.
(b) Transfers of Capital Accounts. Upon the transfer by any Member of
all or part of his Financial Rights in the Company, the proportionate
amount of his Capital Account, determined as provided herein, shall be
transferred to the transferee of such interest; provided, however, that no
transfer of any interest in the Company shall, in and of itself and to the
extent permitted by law, relieve the transferor of any obligation to the
Company, including, but not limited to, any such transferor's obligation to
contribute to the capital of the Company.
(c) Compliance with Regulations. The foregoing provisions and the
other provisions of this Agreement relating to the maintenance of Capital
Accounts are intended to comply with Regulations Section 1.704-1(b), and
shall be interpreted and applied in a manner consistent therewith. If the
Board determines it prudent to modify the manner in which the Capital
Accounts, or any debits or credits thereto, are computed in order to comply
with such Regulation, the Board may make such modification, provided that
it is not likely to have a material effect on the amounts distributable to
any Member pursuant to Section 5.3 hereof upon the dissolution of the
Company. The Board also shall (1) make any adjustments that are necessary
or appropriate to maintain equality between the Capital Accounts of the
Members and the amount of Company capital reflected on the Company's
balance sheet, as computed for book purposes, in accordance with
Regulations Section 1.704-1(b)(2)(iv)(q), and (2) make any appropriate
modifications in the event unanticipated events might otherwise cause this
Agreement not to comply with Regulations Section 1.704-1(b). The Board
shall take into account Code Section 752(c) and any other applicable
provisions of the Code and Regulations in determining the amount of any
liability to be included in a Member's Capital Account for purposes of
Sections 4.6(a)(1) and (2) hereof.
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Article 5. Distributions; Allocation of Profits and Losses; Liquidation
Proceeds
5.1 Distribution of Available Cash Flow. The Company may, but is not
obligated to, make current distributions out of its Available Cash Flow as the
Board in its sole discretion may determine. Such distributions shall be made to
the Members pro rata based upon their respective Membership Percentages.
5.2 Allocation of Profits and Losses. Subject to the special allocations
contained in Sections 2 and 3 of Exhibit "B" hereto, Profits or Losses of the
Company for each fiscal year, and all items of income, expense and deduction
entering into the determination of such Profits or Losses, shall be allocated to
the Members pro rata in accordance with their respective Membership Percentages.
5.3 Distributions Upon Liquidation. Upon the liquidation of the Company,
the Board or other Persons required or permitted by law to carry out the winding
up of the affairs of the Company shall make or cause to be made a full
accounting of the Company assets and liabilities, and the proceeds therefrom, to
the extent sufficient therefor, shall be applied and distributed in the
following order:
(a) To the extent of a liquidation in cash:
(1) To the payment of creditors in accordance with Section
18-804(a) of the Act (including any Member who has made a loan
pursuant to Section 4.2 hereof), in the order of priority as provided
by law, except any claims of creditors whose obligations will be
assumed or otherwise transferred on the liquidation of the Company
assets;
(2) To the setting up of any reserves which the Board deems
reasonably necessary for any contingencies or unforeseen liabilities
or obligations of the Company. Such reserves shall be paid over by the
Board to a bank or an attorney-at-law as escrow agent to be held for
the purpose of disbursing such reserves in payment of any of the
aforementioned contingencies. At the expiration of such period as the
Board shall deem advisable, the escrow agent shall distribute the
balance thereof in the manner and order as provided in this Section;
(3) To the Members in accordance with the positive balances of
their respective Capital Accounts, as adjusted pursuant to Section 4.6
hereof after allocation of Profits, Losses, and items of income, gain,
loss and deduction for the year of the liquidation in accordance with
Section 5.2 and Exhibit "B" hereto, and after making any distributions
pursuant
13
to Section 5.1 hereof. In the event the proceeds are less than the
total of the Capital Accounts of the Members, said proceeds shall be
distributed among the Members based on the ratio that each Member's
individual Capital Account (as adjusted) bears to the total Capital
Accounts of all Members.
(4) If the Company is "liquidated" within the meaning of
Regulations Section 1.704-1(b)(2)(ii)(g), distributions shall be made
pursuant to this Section 5.3 to the Members who have positive Capital
Accounts in compliance with Regulations Section
1.704-1(b)(2)(ii)(b)(2). If any Member has a deficit balance in his
Capital Account (after giving effect to all contributions,
distributions and allocations for all taxable years, including the
year during which such liquidation occurs), such Member shall have no
obligation to make any contribution to the capital of the Company with
respect to such deficit, and such deficit shall not be considered a
debt owed to the Company or to any other Person for any purpose
whatsoever. Notwithstanding any other provision of this Section 5.3,
in the event the Company is liquidated within the meaning of
Regulations Section 1.704-1(b)(2)(ii)(g) but no event has occurred
under Section 13.2 to dissolve the Company, the Company assets shall
not be liquidated, the Company's liabilities shall not be paid or
discharged, and the Company's affairs shall not be wound up. Instead,
the Company shall be deemed to have distributed its assets in kind to
the Members who shall be deemed to have assumed and taken subject to
all Company liabilities, all in accordance with their respective
Capital Accounts. Immediately thereafter, the Members shall be deemed
to have recontributed the assets in kind to the Company, which shall
be deemed to have assumed and taken subject to all such liabilities.
(b) To the extent of a liquidation of the assets of the Company in
kind, the fair market value thereof shall be determined and each Member
shall receive an undivided interest therein equal to the portion of the
proceeds to which he would be entitled under Section 5.3(a) hereof if such
assets were sold or otherwise converted to cash.
(c) Except as otherwise required by the Act (and subject to Sections
4.1 and 4.2), no Member or Financial Rights Owner shall have any liability
to restore all or any portion of a deficit balance in the Capital Account
of such Member or Financial Rights Owner.
5.4 Withholding. Notwithstanding any other provision of this Agreement, the
Board is authorized to take any action that it determines to be necessary or
appropriate to cause the Company to comply with any withholding requirements
established under the Code or any other federal, state or local law including,
without limitation, pursuant to Code Sections 1441, 1442, 1445 and 1446. To the
extent that the Company is required to withhold and pay over to any taxing
authority any amount resulting from the allocation or distribution of income to
the Member or assignee (including by reason of Code Section 1446), the amount
withheld shall be treated as a distribution of cash in the amount of such
withholding to such Member.
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Article 6. The Board of Directors
6.1 Management by the Board. The business and affairs of the Company shall
be managed by its Board. Except for situations in which the approval of the
Members is expressly required by this Agreement or by non-waivable provisions of
the Act, the Board shall have full, complete and exclusive authority, power and
discretion to manage and control the business, affairs and properties of the
Company, to make all decisions regarding those matters and to perform any and
all other acts or activities customary or incident to the management of the
Company's business.
6.2 Number. The number of Directors which shall constitute the Board shall
be determined by a majority of the entire Board from time to time, but shall
never be less than one (1). The Board shall be elected by the Members entitled
to vote at the regular meeting for a term of one (1) year or until their
successors are elected and qualified. No decrease in the number of Directors
shall shorten the term of any incumbent Director. Directors need not be
residents of the State of Delaware nor hold Membership Interests, but must be
natural persons. No increase in the number of Directors shall be effective
without approval of Members entitled to vote holding a majority in interest of
the Membership Percentages if such increase is by an amount equal to or greater
than the number constituting a majority of the entire Board.
6.3 Removal or Resignation of Directors.
(a) Any or all Directors may be removed with or without cause by a
vote of Members holding a majority in interest of the Membership
Percentages. Such vote may be held at any meeting of the Members, notice of
which shall have referred to the proposed action (except as provided in
Sections 8.3, 8.4 and 8.7).
(b) Any Director may resign at any time by giving written notice to
the Board. The resignation of any Director shall take effect upon receipt
of notice thereof or at such later time as shall be specified in such
notice, and unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
(c) The removal or resignation of a Director who is also a Member
shall not affect the rights of such Director as a Member and shall not in
itself constitute the withdrawal, resignation, retirement or expulsion of
such Member.
6.4 Filling of Vacancies. Newly created Director positions resulting from
an increase in the number of Directors and vacancies occurring in the Board for
any reason may be filled by a vote of a majority of the Directors then in
office, although less than a quorum exists, or any such newly created Director
positions and vacancies occurring in the Board for any reason may be filled by a
vote of the Members at any meeting of the Members, notice of which shall have
referred to the proposed election (except as provided in Sections 8.3, 8.4 and
8.7). Any Director elected to fill a newly created Director position or to fill
a vacancy shall be elected to hold office until the next annual meeting of the
Members at which Directors are elected.
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6.5 Initial Board Members. Initially, and until replaced by the Members
pursuant to Sections 6.2, 6.3 or 6.4, the Board shall be comprised of Xxxxx X.
Xxxxxxx, Xxxxxx X. Xxxxxx, and Xxxx X. Xxxxxxxxxx.
6.6 Powers of Board. Except to the extent otherwise provided herein, the
Board shall have the sole and exclusive right to manage the business of the
Company and shall have all of the rights and powers which may be possessed by a
board of managers under the Act including, without limitation, the right and
power to:
(a) acquire by purchase, or otherwise, from any Person any real or
personal property which may be necessary, convenient, or incidental to the
accomplishment of the purposes of the Company (and the fact that a Director
or a Member is directly or indirectly affiliated or connected with any such
Person shall not prohibit the Board from dealing with that Person);
(b) borrow money and issue evidences of indebtedness necessary,
convenient, or incidental to the accomplishment of the purposes of the
Company, and secure the same by mortgage, pledge, or other lien on any
assets of the Company;
(c) execute, in furtherance of any or all of the purposes of the
Company, any deed, lease, mortgage, deed of trust, mortgage note,
promissory note, xxxx of sale, contract, or other instrument purporting to
convey or encumber any or all of the Company's assets;
(d) prepay in whole or in part, refinance, recast, increase, modify,
or extend any liabilities affecting any of the Company's assets and in
connection therewith execute any extensions or renewals of encumbrances on
any or all of the Company's assets;
(e) hold and own any Company real and/or personal properties in the
name of the Company;
(f) sell or otherwise dispose of assets of the Company in the ordinary
course of the Company's business or grant a security interest in all or
substantially all of the Company assets whether or not in the ordinary
course of the Company's business;
(g) contract on behalf of the Company for the employment and services
of employees and/or independent contractors, such as lawyers and
accountants, and delegate to such Persons the duty to manage or supervise
any of the assets or operations of the Company;
(h) engage in any kind of activity and perform and carry out contracts
of any kind (including contracts of insurance covering risks to Director,
Member or Officer liability) necessary or incidental to, or in connection
with, the accomplishment of the purposes of the Company, as may be lawfully
carried on or performed by a limited liability company under the laws of
the state in which the Company is then formed or qualified;
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(i) make any and all elections for federal, state, and local tax
purposes including, without limitation, any election, if permitted by
applicable law to adjust the basis of any or all Company assets pursuant to
Code Sections 754, 734(b) and 743(b), or comparable provisions of state or
local law, in connection with transfers of Financial Rights and Company
distributions; and
(j) institute, prosecute, defend, settle, compromise, and dismiss
lawsuits or other judicial or administrative proceedings brought on or in
behalf of, or against, the Company, or any Director, Officer or Member in
connection with activities arising out of, connected with, or incidental to
this Agreement, and to engage counsel or others in connection therewith.
6.7 Authority of Agents. Unless authorized to do so by this Agreement or by
the Board, no attorney-in-fact, employee or other agent of the Company shall
have the power or the authority to bind the Company in any way, to pledge its
credit or to render it liable pecuniarily for any purpose. No Member shall have
any power or authority to bind the Company unless the Member has been authorized
by the Board to act as an agent of the Company in accordance with the foregoing.
6.8 Right to Rely on Board or Officers. Any Person dealing with the Company
may rely (without duty or further inquiry) upon a certificate signed by the
Board, the President or the Secretary as to:
(a) the identity of any Director, Officer, or Member;
(b) the existence or nonexistence of any fact or facts which
constitute a condition precedent to acts by the Board or which are in any
other manner germane to the affairs of the Company; or
(c) the Persons who are authorized to execute and deliver any
instrument or document of the Company.
6.9 Restrictions on Authority of Board.
(a) The Board shall have no authority or power to take the following
actions unless first approved by all of the Members:
(1) commingle funds of the Company with the funds of any other
Person;
(2) do any act which would make it impossible to carry on the
ordinary business of the Company; or
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(3) take any other action that would require the consent of all
of the Members pursuant to this Agreement, the Certificate of
Formation or the Act.
(b) The Board shall have no authority or power to take the following
actions unless first approved by Members holding a majority in interest of
the Membership Percentages:
(1) sell, lease, exchange or otherwise dispose of all or
substantially all of the assets of the Company, or enter into any
agreement to do the same, in any single transaction or series of
related transactions; or
(2) dispose of the goodwill of all of the business;
(3) enter into a merger with another entity irrespective of
whether the Company is the surviving entity;
(4) except as specified in Section 18-104 of the Act, amend the
Certificate of Formation or this Agreement;
(5) compromise a Member's obligation to make a Capital
Contribution;
(6) purchase property, directly or indirectly, from any Member,
Director or their respective Affiliates;
(7) make any loan, directly or indirectly, to any Member,
Director or their respective Affiliates; or
(8) take any other action that would require the consent by
Members holding a majority in interest of the Membership Percentages
pursuant to this Agreement, the Certificate of Formation or the Act.
(c) The Board shall have the authority and power to admit a new Member
pursuant to the issuance of a new Membership Interest (a "New Member").
6.10 Limitation on Liability. A Director shall not be liable for any action
taken as a Director, or any failure to take action as a Director, except to the
extent that such Director fails to discharge the duties of the position of a
Director, including any duties as a member of a committee, in good faith, in a
manner in which he reasonably believes to be in the best interests of the
Company, and with the care an ordinarily prudent person in a like position would
exercise in similar circumstances. A Director is entitled to rely upon reports
and information as specified under Section 18-406 of the Act.
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6.11 Compensation and Reimbursement. No Director or Member shall have any
right to compensation for any services performed on behalf of the Company except
as determined from time to time by Members holding a majority in interest of the
Membership Percentages. Notwithstanding the foregoing, a Director shall have the
right to be reimbursed by the Company for any out-of-pocket expenses incurred by
such Director in connection with any services performed by such Director on
behalf of the Company. All normal, day-to-day expenses of operating the Company
(such as salaries of employees, rent and general office expenses) shall be borne
by the Company. The Company shall pay the legal and other expenses incurred in
connection with the formation of the Company and will pay legal and other
expenses associated with its business.
6.12 No Exclusive Duty. Except as otherwise provided in this Agreement, any
Director or Member may engage in or possess an interest in other business
ventures of every nature and description, independently or with others,
including, but not limited to, the acquisition, ownership, financing, leasing,
operation, management, syndication, brokerage, sale, construction, and
development of enterprises engaged in the same business as the Company, and
neither the Company nor the other Members shall have any right by virtue of this
Agreement in or to such independent ventures or to the income or profits derived
therefrom. No Director or Member shall incur any liability to any other Member
or the Company as a result of engaging in any other business or venture.
6.13 Contracts With Affiliates. The Company may acquire property or
services from, and have other transactions with, persons who are Members,
Directors or their respective Affiliates, subject to the following conditions:
(a) Any transaction (other than routine clerical, accounting, legal
and miscellaneous services which are on the whole not material in amount)
between the Company, on the one hand, and a Member, Director or their
respective Affiliates, on the other hand, shall be fully disclosed in
advance to all Members and shall be on terms comparable and competitive
with those which may be obtained from unaffiliated Persons. The Member,
Director or respective Affiliate must be engaged in the business of
rendering such services or selling or leasing such goods, independently of
the Company as an ordinary and ongoing business. Any such transaction must
be pursuant to a written contract which precisely describes the
transaction, and which may be canceled without penalty by either party on
sixty (60) days' written notice, except for the compensation and
reimbursements payable pursuant to Section 6.11 hereof.
(b) No property shall be purchased, directly or indirectly, from any
Member, Director or their respective Affiliates, except with the consent
specified in Section 6.9(b)(6).
(c) No loans shall be made, directly or indirectly, to any Member,
Director or their respective Affiliates, except with the consent specified
in Section 6.9(b)(7).
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Article 7. Meetings of Directors
7.1 Annual Meetings. Each year, the first meeting of the newly elected
Board shall be held immediately after and at the same place as the annual
meeting of Members, provided a quorum is present, and no notice of such meeting
shall be necessary. In the event such meeting of the newly elected Board is not
held at such time and place, the same shall be held at such time and place as
shall be specified in a notice given as hereinafter provided for special
meetings of the Board.
7.2 Regular Meetings. Regular meetings of the Board may be held at such
time and at such place as shall from time to time be determined by the Board.
The dates, times and places of regular meetings shall be announced at a meeting
of the Board and such notice shall be effective immediately as to Directors who
are present at the meeting. As to Directors who are not present at the meeting,
such notice shall be effective as specified in Section 7.6 hereof (which notice
for this purpose may include the minutes of the meeting at which the dates,
times and places of the regular meetings are set). If the date, time and place
of more than one regular meeting is established in accordance with the above
procedure, then no further notice is required. If the date, time and place of
one or more regular meetings is changed, then said changes shall be effective
immediately as to those Directors present at any meeting of the Board at which
such changes are announced, and shall be effective as to those other Directors
when notice is delivered as specified in Section 7.6 hereof (which notice for
this purpose may include the minutes announcing such change).
7.3 Special Meetings. Special meetings of the Board may be called at any
time pursuant to Section 7.6 by the chairman of the Board or the President, or
if either is absent or unable to do so, by any two (2) Directors.
7.4 Action by the Board Without a Meeting. Action required or permitted to
be taken at a meeting of the Board may be taken without a meeting. The
affirmative vote of the number of Directors that would otherwise be necessary to
authorize or to take such action at a meeting shall be sufficient to constitute
the act of the Board without a meeting if the requisite number of Directors
consent to voting on such action without a meeting. The action without a meeting
must be evidenced by one (1) or more written consents describing the action
taken, signed by a majority of the Directors in one (1) or more counterparts,
indicating each signing Director's vote or abstention on the action and
delivered to the Company for inclusion in the minutes or filing with the Company
records. A consent signed under this section has the effect of a meeting vote
and may be described as such in any document.
7.5 Place of Meetings; Telephone Meetings. The Board may designate any
place, either in or outside the State of Delaware, as the place of any meeting
of the Board. If no designation is made, the place of meeting shall be the
principal executive office of the Company in the State of Arkansas. A meeting
may take place by telephone conference call or any other form of electronic
communication through which the Directors participating may simultaneously hear
each other. Such meeting shall be deemed to be held at the principal executive
office of the Company or at the place properly named in the notice calling the
meeting.
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7.6 Notice of Meetings. The annual and all regular meetings of the Board
may be held without notice (except as provided in Section 7.2). Special meetings
shall be held upon notice not less than one (1) day before the meeting (or
waived by those directors not receiving timely notice), which notice shall
specify the date, time and place of the meeting (but it shall not be necessary,
unless required by the Act, for the notice to describe the purpose of the
special meeting). Notice shall be in writing, except that oral notice shall be
effective if it is reasonable under the circumstances. Notice shall be
communicated in person, by telephone, telegraph, teletype, facsimile or other
form of wire or wireless communication or by U.S. Mail or private carrier. No
notice shall be required for action on written consent pursuant to Section 7.4
above.
7.7 Waiver of Notice. When any notice is required to be given to any
Director, a waiver (or counterpart) thereof in writing signed by the Director,
whether before, at, or after the time stated therein, shall be equivalent to the
giving of such notice. Attendance by a Director at a meeting is a waiver of
notice of such meeting, except if the Director objects at the beginning of the
meeting to the transaction of business because the meeting is not lawfully
called or convened and does not otherwise vote for or assent to any action taken
at the meeting.
7.8 Quorum. A majority of Directors then in office shall constitute a
quorum at any meeting of the Board except for any matter that requires the
approval of a greater proportion of the Directors pursuant to the Act, the
Certificate of Formation or this Agreement.
7.9 Required Vote; Manner of Acting. If a quorum is present, the
affirmative vote of a majority of the Directors present at the meeting shall be
the act of the Board, except as to matters which the consent of a greater
proportion of the Directors is otherwise required by the Act, the Certificate of
Formation or this Agreement.
7.10 Executive Committees. The Board, by resolution passed by a majority of
the whole Board, may designate one or more committees, each committee to consist
of one or more of Directors. The Board may designate one or more Directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of the committee. Any such committee, to the extent
provided in the resolution of the Board, shall have and may exercise all the
powers and authority of the Board, in the management of the business and affairs
of the Company. Such committee or committees shall have such name or names as
may be determined from time to time by resolution adopted by the Board. Each
committee shall keep regular minutes of its meetings and report the same to the
Board when required.
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Article 8. Meetings of Members
8.1 Annual Meetings. Annual meetings of the Members, beginning with the
year 2000, shall be held on the second Tuesday in March of each year, if said
date is not a legal holiday, and if a legal holiday, then on the next secular
day following, or at such other date and time as shall be designated from time
to time by the Board, for the purpose of electing the Directors of the Company
and for the transacting of such other business as may properly come before the
meeting.
8.2 Special Meetings. Special meetings of the Members, for any purpose or
purposes, may be called by the Board, President, Secretary or by Members holding
in the aggregate at least ten percent (10%) of the Membership Percentages.
8.3 Action by Members Without a Meeting. Action required or permitted to be
taken at a meeting of Members may be taken without a meeting. If Members holding
a majority of the Membership Percentages consent to voting on such action
without a meeting, the affirmative vote of the Membership Percentages that would
otherwise be necessary to authorize or to take such action at a meeting shall be
sufficient to constitute the act of the Members without a meeting. The action
without a meeting must be evidenced by one (1) or more written consents
describing the action taken, signed by Members holding a majority of the
Membership Interests in one (1) or more counterparts, indicating each signing
Member's vote or abstention on the action and delivered to the Company for
inclusion in the minutes or filing with the Company records. A consent signed
under this section has the effect of a meeting vote and may be described as such
in any document.
8.4 Action on Recommendation of the Board. The Board may make a proposal to
the Members to take an action without a meeting. All Members entitled to vote
shall be given written notice of such proposal. Such notice shall require a
written response within a specified time (but not less than thirty (30) days
from the effective date of the notice) and shall contain the recommendation of
the Board. The failure of a Member to respond within the time specified in the
notice shall constitute a vote in favor of the recommendation of the Board.
8.5 Place of Meetings; Telephone Meetings. The Members may designate any
place, either in or outside the State of Delaware, as the place of any meeting
of the Members. If no designation is made, the place of meeting shall be the
principal executive office of the Company, as designated by its President. A
meeting may take place by telephone conference call or any other form of
electronic communication through which the Members participating may
simultaneously hear each other. Such meeting shall be deemed to be held at the
principal executive office of the Company or at the place properly named in the
notice calling the meeting. The Chairman of the Board, or if absent or unable to
serve, the President, or if absent or unable to serve, the Treasurer or
Secretary, shall call meetings of the Members to order and act as Chairman of
such meetings. The Members may elect any one of their number to act as Chairman
of any meeting in the absence of the aforenamed individuals.
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8.6 Notice of Meetings. Written notice stating the place, day and hour of
the meeting and the purpose or purposes for which the meeting is called shall be
delivered not less than ten (10) days nor more than two (2) months before the
date of the meeting, either personally or by mail, by or at the direction of the
Person calling the meeting, to each Member entitled to vote at such meeting. If
mailed, such notice shall be deemed to be delivered as provided in Section 14.1
hereof. The business conducted at any meeting need not be limited to the matters
referenced in the notice of the meeting. No notice shall be required for action
on written consent pursuant to Sections 8.3 and 8.4 above.
8.7 Waiver of Notice. When any notice is required to be given to any
Member, a waiver (or counterpart) thereof in writing signed by Members entitled
to such notice holding a majority of the Membership Percentages, whether before,
at, or after the time stated therein, shall be equivalent to the giving of such
notice. Attendance by a Member at a meeting is a waiver of notice of such
meeting, except if the Member objects at the beginning of the meeting to the
transaction of business because the meeting is not lawfully called or convened
and does not otherwise participate in the consideration of any matter at the
meeting.
8.8 Record Date. For the purpose of determining Members entitled to notice
of or to vote at any meeting of Members or any adjournment thereof, or Members
entitled to receive payment of any distribution, or in order to make a
determination of Members for any other purpose, the day before the date on which
notice of the meeting is mailed or the date on which the resolution declaring
such distribution is adopted, as the case may be, shall be the record date for
such determination of Members. When a determination of Members entitled to vote
at any meeting of Members has been made as provided in this Section 8.8, such
determination shall apply to any adjournment thereof.
8.9 Voting List. When a record date for any meeting has been set or any
notice of a meeting has been mailed, the Secretary of the Company shall prepare
a list of names of all Members who are entitled to vote at the meeting and show
the address of and Membership Percentages held by each Member as reflected in
the records of the Company. Such list shall be available for inspection and
copying by any Member, beginning two (2) business days after notice of the
meeting is given and continuing through the meeting at the Company's principal
executive office. Such list shall be identical to Exhibit "A" hereto, as amended
from time to time, unless the Secretary prepares an alternative list.
8.10 Quorum. Members holding at least a majority of the Membership
Percentages, represented in person or by proxy, shall constitute a quorum at any
meeting of Members except for any matter that requires the approval of a greater
proportion of the Members pursuant to the Act, the Certificate of Formation or
this Agreement. A quorum, once present, is not broken by the subsequent
withdrawal of any Member. A meeting may be adjourned, despite the absence of a
quorum, by the chairman of the meeting or by Members holding at least a majority
of the Membership Percentages present in person or represented by proxy, until a
quorum shall be present or represented.
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8.11 Required Vote; Manner of Acting. If a quorum is present, the
affirmative vote of Members holding at least a majority of the Membership
Percentages present at the meeting shall be the act of the Members, except as to
matters which the consent of a lesser or a greater proportion of the Members is
otherwise required by the Act, the Certificate of Formation or this Agreement.
8.12 Proxies. At all meetings of Members, a Member may vote in person or by
proxy executed in writing by a Member or by a duly authorized attorney-in-fact.
Such proxy shall be filed with the Company before or at the time of the meeting.
No proxy shall be valid after eleven (11) months from the date of its execution,
unless otherwise provided in the proxy.
8.13 Limitation on Liability. A Member shall not be liable for any action
taken as a Member, except as provided in Sections 4.1 and 4.2, or to the extent
that such Member may be liable for wrongful distributions under Section 18-607
of the Act no later than three (3) years after the distribution.
Article 9. Officers
9.1 Appointment of Officers. The Board shall appoint a Chairman, who will
be the Chief Executive Officer, a President, an Executive Vice-President and a
Secretary to serve as the Officers of the Company as required by this Agreement.
The initial Chairman shall be Xxxxxx Xxxxxx, the initial President shall be
Xxxxx Xxxxxxx, the initial Secretary shall be Xxxxxx Xxxxxx and the initial
Executive Vice President shall be Alex Fassenbender. The same person cannot hold
simultaneously the positions of President and Secretary. The Board may also
choose one or more Vice Presidents (who may have additional designations as to
seniority or function), a Treasurer, or one or more Assistant Secretaries and
Assistant Treasurers, who shall have the powers enumerated herein.
9.2 Term. The Officers shall serve for an indefinite term at the pleasure
of the Board. The Board may remove an Officer from office at any time with or
without cause. The removal of an Officer who is also a Member shall not affect
the rights of such Officer as a Member and shall not in itself constitute the
withdrawal, resignation, retirement or expulsion of such Member.
9.3 Duties.
(a) Chairman. The Chairman shall be the chief executive officer of the
Company, shall preside at all meetings of the Members, shall have general
and active management of the business of the Company and shall see that all
orders and resolutions of the Board and the Members are carried into
effect. Subject to the terms of this Agreement, the Chairman shall be
empowered to execute bonds, mortgages and other contracts on behalf of the
Company, except where the signing and execution thereof shall be expressly
delegated by the Board to some other officer or agent of the Company. The
Chairman shall perform such other duties as are set forth herein, and as
the Board may from time to time prescribe.
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(b) President. The President shall be the principal operating officer
of the Company. He shall assist the Chairman in the general supervision and
control of the business and affairs of the Company. He shall have such
powers and shall perform such duties as from time to time may be declared
by the Chairman or by the Board of Directors. In the absence of the
Chairman or in the event of his inability to act, the President shall
perform the duties of the Chairman and, when so acting, shall have all the
powers of and be subject to all restrictions upon the Chairman.
(c) Vice President. In the absence of the President or in the event of
his inability or refusal to act, the Vice President (or in the event there
be more than one Vice President, the Vice Presidents in the order
designated by the Board, or in the absence of any designation, then in the
order of their election) shall perform the duties of the President, and
when so acting, shall have all the powers of and be subject to all the
restrictions upon the President. The Vice President shall perform such
other duties and have such other powers as are set forth herein, and as the
Board may from time to time prescribe.
(d) Secretary. The Secretary shall attend all meetings of the Members
the Board, and shall be responsible for recording the minutes thereof. The
Secretary shall have the responsibility of authenticating records of the
Company and receiving notices required to be sent to the Secretary and
shall perform such other duties and have such other powers as are set forth
herein, and as the Board may from time to time prescribe.
(e) Assistant Secretary. The Assistant Secretary, or if there be more
than one, the Assistant Secretaries in the order determined by the Board
(or if there be no such determination, then in the order of their
election), shall, in the absence of the Secretary or in the event of his
inability or refusal to act, perform the duties and exercise the powers of
the Secretary and shall perform such other duties and have such other
powers as are set forth herein, and as the Board may from time to time
prescribe.
(f) Treasurer. The Treasurer shall have the custody of Company funds
and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the Company and shall deposit all
moneys and other valuable effects in the name and to the credit of the
Company in such depositories as may be designated by the Board. He shall
disburse the funds of the Company as may be ordered by the Board, taking
proper vouchers for such disbursements, and shall render to the President
and the Board, at their regular meetings, or when the Board so requires, an
account of all his transactions as Treasurer and of the financial condition
of the Company. If required by the Board, he shall give the Company a bond
(which shall be renewed every six years) in such sum and with such surety
or sureties as shall be satisfactory to the Board for the faithful
performance of the duties of his office and for the restoration to the
Company, in case of his death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of
whatever kind in his possession or under his control belonging to the
Company. The Treasurer shall perform such other duties and have such other
powers as are set forth herein, and as the Board may from time to time
prescribe.
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(g) Assistant Treasurer. The Assistant Treasurer, or if there shall be
more than one, the Assistant Treasurers in the order determined by the
Board (or if there be no such determination, then in the order of their
election), shall, in the absence of the Treasurer or in the event of his
inability or refusal to act, perform the duties and exercise the powers of
the Treasurer and shall perform such other duties and have such other
powers as are set forth herein, and as the Board may from time to time
prescribe.
9.4 Limitation of Liability. An Officer shall not be liable for any action
taken as an Officer, or any failure to take action as an Officer, except to the
extent that such Officer fails to discharge the duties of the position of an
Officer in good faith, in a manner in which he reasonably believes to be in the
best interests of the Company, and with the care an ordinarily prudent person in
a like position would exercise in similar circumstances. An Officer is entitled
to rely upon reports and information as specified under Section 18-406 of the
Act.
9.5 Resignation. Any Officer of the Company may resign at any time by
giving written notice to the Board. The resignation of any Officer shall take
effect upon receipt of notice thereof or at such later time as shall be
specified in such notice; and unless otherwise specified therein, the acceptance
of such resignation shall not be necessary to make it effective. The resignation
of an Officer who is also a Member shall not affect the rights of such Officer
as a Member and shall not in itself constitute the withdrawal, resignation,
retirement or expulsion of such Member.
Article 10. Indemnification
10.1 Standard for Indemnification. The Company shall indemnify any Person
(or the estate or personal representative of any Person) who is or was a Party
to, or is threatened to be made a Party to, any threatened, pending or completed
Proceeding, by reason of the fact that such Person is or was a Director,
Officer, employee or agent of the Company, or is or was serving at the request
of the Company as a governor, manager, director, officer, partner, trustee,
employee or agent of another limited liability company, corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise,
against any Liability if such Person (a) acted in good faith, (b) reasonably
believed that the conduct was in, or not opposed to, the best interests of the
Company or the other enterprise, and (c) in the case of a criminal proceeding,
had no reasonable cause to believe the conduct was unlawful. The termination of
a Proceeding by judgment, order, settlement, or conviction or upon a plea of
nolo contendere or its equivalent does not, of itself, establish that the Person
did not meet the criteria.
10.2 Effect of Provisions. If a Person is made or threatened to be made a
Party to a threatened, pending or completed Proceeding, the Company shall pay or
reimburse, upon written request to the Company, reasonable expenses, including
attorney fees and disbursements, incurred by the Person in advance of the final
disposition of the Proceeding, if the Company shall have received a written
affirmation by the Person of a good faith belief that the criteria for
indemnification set forth in Section 10.1 have been satisfied and a written
undertaking by the Person to repay all amounts so paid or reimbursed by the
Company, if it is ultimately determined that the criteria for indemnification
have not been satisfied.
26
10.3 Insurance. The Company may purchase and maintain insurance on behalf
of a Person in that Person's official capacity against any Liability asserted
against and incurred by the Person in or arising from that capacity, whether or
not the Company would have been required to indemnify the Person against the
Liability under the provisions of this Article.
10.4 Effect of Provisions. The rights to indemnification and advancement of
expenses set forth in Section 10.1 are contractual between the Company and the
Person being indemnified, and the heirs, executors and administrators of such
Person, and in this respect are mandatory. The rights to indemnification and
advancement of expenses shall not be deemed exclusive of any other rights to
which those Persons seeking indemnification or advancements of expenses may be
entitled or granted by law, the Certificate of Formation, this Agreement, vote
of the Board or the Members, or an agreement with the Company, which means of
indemnification and advancement of expenses are hereby specifically authorized.
10.5 Repeal or Modification. Any repeal or modification of the provisions
of this Article 10 shall not affect any obligations of the Company or any rights
regarding indemnification and advancement of expenses of a Person with respect
to any Proceeding for which indemnification or the advancement of expenses is
requested, in which the alleged cause of action accrued at any time prior to
such repeal or modification.
10.6 Effect of Invalidity of Article. If this Article 10 or any portion
thereof shall be invalidated on any ground by any court of competent
jurisdiction, then the Company shall nevertheless indemnify a Person as to any
Liability incurred or other amounts to be paid with respect to any Proceeding,
including, without limitation, a grand jury Proceeding and any Proceeding by or
in the right of the Company, to the fullest extent permitted by any applicable
portion of this Article 10 that shall not have been invalidated.
Article 11. Fiscal Matters
11.1 Books and Records. Full and accurate books and records of the Company
(including without limitation all information and records required by the Act)
shall be maintained at its principal place of business showing all receipts and
expenditures, assets and liabilities, profits and losses, and all other records
necessary for recording the Company's business and affairs. All Members shall
have the right to inspect and copy the books and records of the Company, during
regular business hours, at the Company's principal place of business, upon
provision of notice in writing by any Member to the Company at least five (5)
business days before the date on which such Member desires to inspect and copy
said books and records.
11.2 Fiscal Year. The fiscal year of the Company shall be the calendar
year.
27
11.3 Tax Status. Notwithstanding any provision hereof to the contrary,
solely for purposes of the federal income tax laws, each of the Members hereby
recognizes that the Company will be subject to all provisions of Subtitle A,
Chapter 1, Subchapter K of the Code; provided, however, that the filing of a
United States Partnership Return of Income shall not be construed to extend the
purposes of the Company or expand the obligations or liabilities of the Members.
11.4 Reports to Members. Each of the following reports shall be prepared at
the Company's expense, and shall be delivered to each Member:
(a) within seventy-five (75) days after the end of each fiscal year,
all information necessary for the preparation of the Members' federal,
state and local income tax returns;
(b) within thirty (30) days after the end of each fiscal quarter, all
information reasonably requested by Members for the preparation of any
quarterly federal, state or local income tax returns of the Members; and
(c) within ninety (90) days after the end of each fiscal year, an
annual report of the activities of the Company, including a balance sheet,
income statement and a statement of cash flow.
11.5 Accounting Decisions. All decisions as to accounting matters, except
as expressly provided in this Agreement, shall be made by the Board.
11.6 Bank Accounts. All funds of the Company shall be deposited in its name
at the Company's principal financial institution or other financial
institutions, and subject to such signatories, as may be approved by the Board.
11.7 Tax Matters Partner. The "Tax Matters Partner" shall mean the Member
responsible for all administrative and judicial proceedings for the assessment
and collection of tax deficiencies or the refund of tax overpayment arising out
of any Member's distributive share of items of income, deduction, credit and/or
of any other Company item (as that term is defined in the Code or in the
Regulations) allocated to the Members affecting any Member's tax liability. The
Tax Matter Partner shall promptly give notice to all Members of any
administrative or judicial proceeding pending before the Internal Revenue
Service involving any Company item and the progress of any such proceeding. Such
notice shall be in compliance with such regulations as are issued by the
Internal Revenue Service. The Tax Matters Partner shall have all the powers
provided to a tax matters partner in Code Sections 6221 through 6233, including
the specific power to extend the statute of limitations with respect to any
matter which is attributable to any Company item or affecting any item pending
before the Internal Revenue Service and to select the forum to litigate any tax
issue or liability arising from Company items. The Tax Matters Partner shall be
the Member designated as such from time to time by Members holding a majority in
interest of the Membership Percentages. The initial Tax Matters Partner shall be
the President.
28
The Tax Matters Partner shall be entitled to reimbursement for any and all
reasonable expenses incurred with respect to any administrative and/or judicial
proceedings affecting the Company. Notwithstanding the foregoing, the Board
shall be responsible for the preparation and timely filing of all tax returns,
franchise tax returns and annual reports of the Company, and shall have the sole
and absolute discretion to make any and all tax elections with respect thereto.
Article 12. Transfer and Termination of Membership Interests; Admit New
Members
12.1 Restrictions on Transfers. Except as expressly permitted by this
Article 12, no Member or Financial Rights Owner shall Transfer all or any
portion of his Membership Interest or any rights therein. The restrictions
contained in this Article 12 shall be binding upon any transferee of a
Membership Interest or any portions thereof, including Financial Rights. Any
Transfer or attempted Transfer in violation of the preceding sentence shall be
null and void and of no effect whatever. Each Member and Financial Rights Owner
hereby acknowledges the reasonableness of the restrictions on Transfer imposed
by this Agreement in view of the Company purposes and the relationship of the
Members. Accordingly, the restrictions on Transfer contained herein shall be
specifically enforceable.
12.2 Transfers of Membership Interests. No Transfer of all or any portion
of Membership Interest in the Company shall be made except as set forth in this
Section 12.2 and Section 12.3 below:
(a) Any Member may, without the consent of any other Member, freely
Transfer his full Membership Interest in the Company to any other Member
named herein;
(b) A Member or Financial Rights Owner may Transfer his Financial
Rights to a Personal Representative of such Member or Financial Rights
Owner;
(c) A Member or Financial Rights Owner may Transfer his Financial
Rights in the Company to a member of the Family of such Member or Financial
Rights Owner;
(d) A Member or Financial Rights Owner may Transfer his Financial
Rights to a Purchaser (as defined below) pursuant to Section 12.4;
(e) A Member who is the sole Member of the Company may transfer all or
any portion of his Membership Interest to another Person; and
(f) A Member who is not the sole Member of the Company may Transfer
his Governance Rights only upon the written consent of a majority in
interest of the Membership Percentages of the Members, other than the
Member proposing the Transfer, after full disclosure by such Transferring
Member of the proposed transaction.
12.3 Conditions to Permitted Transfers. A Transfer otherwise permitted
under Section 12.2 shall not be effective unless and until the following
conditions are satisfied:
29
(a) Except in the case of a Transfer to a Personal Representative
under Section 12.2(b), the transferor and transferee shall execute such
documents and instruments of conveyance and assumption as may be necessary
or appropriate in the opinion of counsel to the Company to effect such
Transfer and to confirm the transferee's assumption of all monetary
obligations of the transferor Member or Financial Rights Owner with respect
to the interest being transferred and the agreement by the transferor
Member or Financial Rights Owner to guarantee the prompt payment and
performance of such assumed obligations.
(b) In the case of a Transfer to a Personal Representative under
Section 12.2(b), the transferee shall deliver such assurances as may be
necessary or appropriate in the opinion of counsel to the Company to
confirm such Transfer and that such Member or Financial Rights Owner
(and/or his respective estate) remains liable to perform all obligations
with respect to such interest.
(c) Except in the case of a Transfer to a Personal Representative
under Section 12.2(b), the Company shall receive, prior to such Transfer,
an opinion of counsel satisfactory to the Company confirming that such
Transfer will not terminate the Company for federal income tax purposes.
(d) The transferee shall affirmatively agree in writing to be bound by
all of the terms and conditions of this Agreement.
(e) The transferor and the transferee shall pay all reasonable costs
and expenses incurred by the Company in connection with such Transfer.
12.4 Right of First Refusal. In addition to the other limitations and
restrictions set forth in this Article 12, except as permitted by Section 12.2
hereof, no Member shall Transfer all or any portion of his Financial Rights in
the Company ("Offered Interest") unless such Member ( "Seller") first offers to
sell the Offered Interest pursuant to the terms of this Section 12.4.
(a) Bona Fide Offer. No Transfer may be made under this Section 12.4
unless the Seller has received a bona fide written offer ("Purchase Offer")
from a Person (the "Purchaser") to purchase the Offered Interest for a
purchase price ("Offer Price") denominated and payable in United States
dollars at closing or according to specified terms, with or without
interest, which offer shall be signed by the Purchaser and shall be
irrevocable for a period ending no sooner than the day following the end of
the Offer Period, as defined below.
(b) Notice of Offer. Prior to making any Transfer that is subject to
the terms of this Section 12.4, the Seller shall give written notice
("Offer Notice") to the Company and each other Member which shall include a
copy of the Purchase Offer and an offer ("First Offer") to sell the Offered
Interest to the other Members ( "Offerees") for the Offer Price, payable
according to the same terms as (or more favorable terms than) those
contained in the Purchase Offer; provided, however, that the First Offer
shall be made without regard to the requirement of any xxxxxxx money or
similar deposit required of the Purchaser prior to closing, and without
regard to any security (other than the Offered Interest) to be provided by
the Purchaser for any deferred portion of the Offer Price.
30
(c) First Offer Irrevocable. The First Offer shall be irrevocable for
a period ("Offer Period") ending at 11:59 P.M., Central Time, on the
ninetieth (90th) day following the date of the Offer Notice.
(d) Acceptance of First Offer. At any time during the first sixty (60)
days of the Offer Period, any Offeree who is a Member may accept the First
Offer as to that portion of the Offered Interest that corresponds to the
ratio of his then existing Membership Percentage to the then existing
Membership Percentages held by all Offerees who are Members excluding the
Membership Percentages of the Seller and any other Offeree who does not
exercise this option (or as the Offerees themselves may determine), by
giving written notice of such acceptance to the Seller and the Chief
Manager. The Offerees must accept the First Offer with respect to the
entire Offered Interest during the Offer Period, or else the First Offer
shall be deemed to be rejected in its entirety. Nothing herein shall compel
a Member to sell a portion of his Membership Interest.
(e) Closing. If the First Offer is accepted during the Offer Period,
the closing of the sale of the Offered Interest shall take place within
thirty (30) days after the date the First Offer is accepted in its entirety
or, if later, the date of closing set forth in the Purchase Offer. The
Seller and all Offerees accepting the First Offer shall execute such
documents and instruments as may be necessary or appropriate to effect the
sale of the Offered Interest pursuant to the terms of the First Offer and
this Section 12.4.
(f) Sale of Offered Interest Upon Rejection of First Offer. If the
First Offer is not accepted in the manner hereinabove provided, the Seller
may sell the Offered Interest to the Purchaser at any time within sixty
(60) days after the last day of the Offer Period, provided that such sale
shall be made on terms no more favorable to the Purchaser than the terms
contained in the Purchase Offer and provided further that such sale
complies with other terms, conditions, and restrictions of this Agreement
that are applicable to sales of Membership Interests or portions thereof
including, without limitation, the provisions of Section 12.3. In the event
that the Offered Interest is not sold in accordance with the terms of the
preceding sentence, the Offered Interest shall again become subject to all
of the conditions of this Section 12.4.
12.5 Expulsion of Members. Neither the Board nor the Members shall have any
power to expel any Member.
12.6 Amendment to Exhibit "A". An appropriate adjustment to the amounts
shown for Capital Contributions and Membership Percentages on Exhibit "A" hereto
shall be made upon Transfer described in Section 12.2 hereof or the admission of
any New Member under Section 6.9(c) hereof.
31
Article 13. Dissolution, Winding Up, and Termination
13.1 Term. The term of the Company shall be perpetual, unless earlier
terminated in accordance with the provisions this Agreement or the Act.
13.2 Events Causing Dissolution and Winding Up. The Company shall be
dissolved and its affairs wound up upon the occurrence of any of the following
events (individually, a "Dissolution Event"):
(a) at any time there are no Members; provided, however, that the
Company shall not be dissolved and its affairs shall not be wound up if,
within ninety (90) days after the occurrence of the event which terminates
the continued membership of the last remaining Member, the Personal
Representative of the last remaining Member agrees in writing to continue
the Company and its business, and to the admission of the Personal
Representative of such Member or its nominee or designee to the Company as
a Member, effective as of the occurrence of the event which terminated the
continued membership of the last remaining Member;
(b) at any time with the prior approval of Members holding a majority
in interest of the Membership Percentages; or
(c) as may be otherwise required by law.
Upon the occurrence of a Dissolution Event, the Company shall be terminated when
the winding up of Company affairs has been completed following dissolution.
13.3 Winding Up Affairs on Dissolution. Upon dissolution of the Company,
the Officers or other Persons required or permitted by law to carry out the
winding up of the affairs of the Company shall (a) promptly notify all Members
of such dissolution, (b) wind up the affairs of the Company, (c) prepare and
file all instruments or documents required by law to be filed to reflect the
dissolution of the Company, and (d) after collecting the debts and obligations
owed to the Company and after paying or providing for the payment of all
liabilities and obligations of the Company, distribute the assets of the Company
in accordance with Section 5.3 hereof.
13.4 Waiver of Right to Partition and Decree of Dissolution. As a material
inducement to each Member to execute this Agreement, each Member covenants and
represents to each other Member that, during the period beginning on the date of
this Agreement, no Member, nor such Member's heirs, representatives, successors,
transferees or assigns, will attempt to make any partition whatever of the
assets of the Company or any interest therein, whether now owned or hereafter
acquired, and each Member waives all rights of partition provided by statute or
principles of law or equity, including partition in kind or partition by sale.
The Members agree that irreparable damage would be done to the goodwill and
reputation of the Company if any Member should bring an action in any court to
dissolve the Company. The Members agree that there are fair and just provisions
for payment and liquidation of the interest of any Member in the Company, and
fair and just provisions to prevent a Member from selling or otherwise
alienating his or her interest in the Company. Accordingly, each member hereby
waives and renounces his or her right to such a court decree of dissolution or
to seek the appointment by court of a liquidator or receiver for the Company.
32
Article 14. General Provisions
14.1 Notices. Notice must be in writing except that oral notice is
effective if it is reasonable under the circumstances and not otherwise
prohibited by this Agreement. Notice may be communicated in person; by
telephone, telegraph, teletype or other form of wire or wireless communication;
or by mail or private carrier. If personal notice is impracticable, notice may
be communicated by any means not manifestly unreasonable under the
circumstances. Written notice by the Company to a Member is effective when
mailed, if mailed postpaid and correctly addressed to the Member's address as
reflected in the Company's records. Written notice to the Company may be
addressed to the Company's Secretary at the Company's principal executive
office. Written notice is effective at the earliest of the following: (1) when
received; (2) five (5) days after its deposit in the United States mail, if
correctly addressed and first class postage affixed thereon; (3) on the date
shown in the return receipt, if sent by registered or certified mail, return
receipt requested, and the receipt is signed by or on behalf of the addressee;
or (4) twenty (20) days after its deposit in the United States mail, as
evidenced by the postmark if mailed correctly addressed, and with other than
first class, registered or certified postage affixed. Oral notice is effective
when communicated.
14.2 Integration. This Agreement embodies the entire agreement and
understanding among the Members and supersedes all prior agreements and
understandings, if any, among and between the Members relating to the subject
matter hereof.
14.3 Governing Law. This Agreement and the rights of the Members shall be
governed by and construed and enforced in accordance with the laws of the State
of Delaware and specifically the Act.
14.4 Severability. In case any one or more of the provisions contained in
this Agreement or any application thereof shall be invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein and any other application thereof shall
not in any way be affected or impaired thereby.
14.5 Terminology. All personal pronouns used in this Agreement, whether
used in the masculine, feminine, or neuter, gender, shall include all other
genders; and the singular shall include the plural, and vice versa. Titles and
Articles are for convenience only and neither limit nor amplify the provisions
of this Agreement itself.
14.6 Amendment. This Agreement may be amended, modified or supplemented in
writing (1) by the Board with respect to the matters specified in Section 18-104
of the Act, (2) with the consent of the Members holding a majority of the
Membership Percentages, except that any requirement that an action be approved
by Members holding a Membership Percentage other than a majority of the
Membership Percentages shall not be amended except with the consent of Members
holding such other percentage of the Membership Percentages , and (3) with
respect to Exhibit "A" hereto, under the circumstances set forth in Sections
4.2, 4.5 or 6.9(c) hereof. No other written or oral agreement, understanding,
instrument or writing other than this agreement or any amendment hereto shall
constitute part of the operating agreement of the Company.
33
14.7 Execution of Additional Instruments. Each Member hereby agrees to
execute such other and further statements of interest and holdings,
designations, powers of attorney and other instruments necessary to comply with
any laws, rules or regulations.
14.8 Waivers. The failure of any party to seek redress for violation of or
to insist upon the strict performance of any covenant or condition of this
Agreement shall not prevent a subsequent act, which would have originally
constitute a violation, from having the effect of an original violation.
14.9 Rights and Remedies Cumulative. The rights and remedies provided by
this Agreement are cumulative and the use of any one right or remedy by any
party shall not preclude or waive the right to xxx any or all other remedies.
Said rights and remedies are given in addition to any other rights the Members
may have by law, statute, ordinance or otherwise.
14.10 Heirs, Successors and Assigns. Each and all of the covenants, terms,
provisions and agreements herein contained shall be binding upon and inure to
the benefit of the Members hereto and to the extent permitted by this Agreement,
their respective heirs, legal representatives, successors and assigns.
14.11 Creditors. None of the provisions of this Agreement shall be for the
benefit of or enforceable by any creditors of the Company.
14.12 Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original but all of which shall constitute one and the
same instrument.
14.13 Rules Against Perpetuities. The Members hereto intend that the rule
against perpetuities (and any similar rule of law) not be applicable to any
provisions of this Agreement. However, notwithstanding anything to the contrary
in this Agreement, if any provision in this Agreement would be invalid or
unenforceable because of the rule against perpetuities or any similar rule of
law but for this Section 14.13, the Members hereby agree that any future
interest which is created pursuant to such provision shall cease if it is not
vested within twenty-one years after the death of the survivor of the group
composed of the Members set forth on Exhibit "A" hereto and their issue who are
living on the date of this Agreement.
14.14 Potential Conflicts. The Members each acknowledge that the Company's
counsel prepared this Agreement on behalf of and in the course of his
representation of the Company, as directed by the Board and the Members, and
that such Member has (a) been advised that a conflict may exist between his
interests and those of the Company and the other Members; (b) been advised by
the Company's counsel to seek the advice of independent counsel; (c) had the
34
opportunity to seek the advice of independent counsel; (d) received no
representations from the Company's counsel about the tax consequences of this
Agreement; (e) been advised by the Company's counsel that this Agreement may
have tax consequences; (f) been advised by the Company's counsel to seek the
advice of independent tax counsel; and (g) had the opportunity to seek the
advice of independent tax counsel.
IN WITNESS WHEREOF, the undersigned hereby agree, acknowledge and certify
that the foregoing Agreement constitutes the Operating Agreement of ThermoEnergy
Power Systems, LLC, a Delaware limited liability company, duly adopted as of
June 1, 2000, by the Members of the Company.
ThermoEnergy Corporation
/s/ Xxxx Xxxxxxxxxx
------------------------------
Xxxx Xxxxxxxxxx By: /s/ Xxxxxx Xxxxxx
-------------------------------
Name: Xxxxxx Xxxxxx
-------------------------------
Title: CEO and Secretary
-------------------------------
35
Exhibit "A"
to
Operating Agreement of
ThermoEnergy Power Systems, LLC
Capital Membership
Member's Name and Address Contribution Percentage
ThermoEnergy Corporation $85.00 85%
Xxxx Xxxxxxxxxx $15.00 15%
------- -----
$100.00 100.0%
======= =====
36
Exhibit "B"
to
Operating Agreement of
ThermoEnergy Power Systems, LLC
Other Allocation Provisions
1. Definitions Relating to Other Allocation Provisions.
1.1 "Adjusted Capital Account Deficit" means, with respect to any
Member, the deficit balance, if any, in such Member's Capital Account as of
the end of the relevant fiscal year, after giving effect to the following
adjustments:
(a) Credit to such Capital Account any amounts which such Member
is obligated to restore pursuant to any provision of this Agreement or
is deemed to be obligated to restore pursuant to the penultimate
sentences of Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5); and
(b) Debit to such Capital Account the items described in
Regulations Sections 1.704-1(b)(2)(ii)(d)(4), (5), and (6).
The foregoing definition of Adjusted Capital Account Deficit is intended to
comply with the provisions of Regulations Section 1.704-1(b)(2)(ii)(d) and shall
be interpreted consistently therewith.
1.2 "Company Minimum Gain" has the meaning set forth in Regulations
Sections 1.704-2(b)(2) and 1.704-2(d) with respect to "partnership minimum
gain".
1.3 "Member Nonrecourse Debt" has the meaning set forth in Regulations
Section 1.704-2(b)(4) with respect to "partner nonrecourse debt".
1.4 "Member Nonrecourse Debt Minimum Gain" means an amount, with
respect to each Member Nonrecourse Debt, equal to the Company Minimum Gain
that would result if such Member Nonrecourse Debt were treated as a
Nonrecourse Liability, as determined in accordance with Regulations Section
1.704-2(i)(3).
1.5 "Member Nonrecourse Deductions" has the meaning set forth in
Regulations Sections 1.704-2(i)(1) and 1.704-2(i)(2).
1.6 "Nonrecourse Deductions" has the meaning set forth in Regulations
Section 1.704-2(b)(i).
37
1.7 "Nonrecourse Liability" has the meaning set forth in Regulations
Section 1.704-2(b)(3).
2. Special Allocations. The allocations in Article 5 shall be subject to
the following special allocations, which shall be made in the following order of
priority:
2.1 Minimum Gain Chargeback. Except as otherwise provided in
Regulations Section 1.704-2(f), notwithstanding any other provision of
Article 5 or this Exhibit "B", if there is a net decrease in Company
Minimum Gain during any Company fiscal year, each Member shall be specially
allocated items of Company income and gain for such year (and, if
necessary, subsequent fiscal years) in an amount equal to such Member's
share of the net decrease in Company Minimum Gain, determined in accordance
with Regulations Section 1.704-2(g). Allocations pursuant to the previous
sentence shall be made in proportion to the respective amounts required to
be allocated to each Member pursuant thereto. The items to be so allocated
shall be determined in accordance with Regulations Sections 1.704-2(f)(6)
and 1.704-2(j)(2). This Section 2.1 is intended to comply with the minimum
gain chargeback requirement in Regulations Section 1.704-2(f) and shall be
interpreted consistently therewith.
2.2 Member Minimum Gain Chargeback. Except as otherwise provided in
Regulations Section 1.704-2(i)(4), notwithstanding any other provision of
Article 5 or this Exhibit "B", except Section 2.1 hereof, if there is a net
decrease in Member Nonrecourse Debt Minimum Gain attributable to a Member
Nonrecourse Debt during any Company fiscal year, each Member who has a
share of the Member Nonrecourse Debt Minimum Gain attributable to such
Member Nonrecourse Debt, determined in accordance with Regulations Section
1.704-2(i)(5), shall be specially allocated items of Company income and
gain for such year (and, if necessary, subsequent fiscal years) in an
amount equal to such Member's share of the net decrease in Member
Nonrecourse Debt Minimum Gain attributable to such Member Nonrecourse Debt,
determined in accordance with Regulations Section 1.704-2(i)(4).
Allocations pursuant to the previous sentence shall be made in proportion
to the respective amounts required to be allocated to each Member pursuant
thereto. The items to be so allocated shall be determined in accordance
with Regulations Sections 1.704-2(i)(4) and 1.704-2(j)(2). This Section 2.2
is intended to comply with the minimum gain chargeback requirement in
Regulations Section 1.704-2(i)(4) and shall be interpreted consistently
therewith.
2.3 Qualified Income Offset. In the event any Member unexpectedly
receives any adjustments, allocations, or distributions described in
Regulations Section 1.704-1(b)(2)(ii)(d)(4), (5) or (6), items of Company
income and gain shall be specially allocated to each such Member in an
amount and manner sufficient to eliminate, to the extent required by the
Regulations, the Adjusted Capital Account Deficit of such Member as quickly
as possible, provided that an allocation pursuant to this Section 2.3 shall
be made only if and to the extent that such Member would have an Adjusted
Capital Account Deficit after all other allocations provided for in Article
5 and this Exhibit "B" have been tentatively made as if this Section 2.3
were not in the Agreement.
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2.4 Gross Income Allocation. In the event any Member has a deficit
Capital Account at the end of any Company fiscal year which is in excess of
the sum of (a) the amount such Member is obligated to restore pursuant to
any provision of this Agreement and (b) the amount such Member is deemed to
be obligated to restore pursuant to the penultimate sentences of
Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5), each such Member
shall be specially allocated items of Company income and gain in the amount
of such excess as quickly as possible, provided that an allocation pursuant
to this Section 2.4 shall be made only if and to the extent that such
Member would have a deficit Capital Account in excess of such sum after all
other allocations provided for in this Article 5 and this Exhibit "B" have
been made as if Section 2.3 hereof and this Section 2.4 were not in the
Agreement.
2.5 Nonrecourse Deductions. Nonrecourse Deductions for any fiscal year
or other period shall be specially allocated to the Members in proportion
to their respective Membership Percentages.
2.6 Member Nonrecourse Deductions. Any 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 Regulations Section 1.704-2(i)(1).
2.7 Section 754 Adjustments. To the extent an adjustment to the
adjusted tax basis of any Company asset pursuant to Code Sections 734(b) or
743(b) is required, pursuant to Regulations Sections
1.704-1(b)(2)(iv)(m)(2) or 1.704-1(b)(2)(iv)(m)(4), to be taken into
account in determining Capital Accounts as the result of a distribution to
a Member in complete liquidation of its interest in the Company, the amount
of such adjustment to the Capital Accounts shall be treated as an item of
gain (if the adjustment increases the basis of the asset) or loss (if the
adjustment decreases such basis) and such gain or loss shall be specially
allocated to the Members in accordance with their interests in the Company
if Regulations Section 1.704-1(b)(2)(iv)(m)(2) applies, or to the Member to
whom such distribution was made in the event that Regulations Section
1.704-1(b)(2)(iv)(m)(4) applies.
3. Curative Allocations.
3.1 Definitions. The "Regulatory Allocations" consist of the "Basic
Regulatory Allocations," as defined in Section 3.2 hereof, the "Nonrecourse
Regulatory Allocations," as defined in Section 3.3 hereof, and the "Member
Nonrecourse Regulatory Allocations," as defined in Section 3.4 hereof.
3.2 Basic Regulatory Allocations. The "Basic Regulatory Allocations"
consist of allocations pursuant to Sections 2.3, 2.4 and 2.7 of this
Exhibit "B". Notwithstanding any other provision of this Agreement other
than the Regulatory Allocations, the Basic Regulatory Allocations shall be
taken into account in allocating items of income, gain, loss, and deduction
among the Members so that, to the extent possible, the net amount of such
allocations of other items and the Basic Regulatory Allocations to each
Member shall be equal to the net amount that would have been allocated to
each such Member if the Basic Regulatory Allocations had not
39
occurred. For purposes of applying the foregoing sentence, allocations
pursuant to this Section 3.2 shall only be made with respect to allocations
pursuant to Section 2.7 of this Exhibit "B" to the extent the Board
reasonably determines that allocations pursuant to this Section 3.2 will
not otherwise be inconsistent with the economic agreement among the parties
to this Agreement.
3.3 Nonrecourse Regulatory Allocations. The "Nonrecourse Regulatory
Allocations" consist of all allocations pursuant to Sections 2.1 and 2.5 of
this Exhibit "B". Notwithstanding any other provision of this Agreement,
other than the Regulatory Allocations, the Nonrecourse Regulatory
Allocations shall be taken into account in allocating items of income,
gain, loss, and deduction among the Members so that, to the extent
possible, the net amount of such allocations of other items and the
Nonrecourse Regulatory Allocations to each Member shall be equal to the net
amount that would have been allocated to each such Member if the
Nonrecourse Regulatory Allocations had not occurred. For purposes of
applying the foregoing sentence (a) no allocations pursuant to this Section
3.3 shall be made prior to the Company fiscal year during which there is a
net decrease in Company Minimum Gain, and then only to the extent necessary
to avoid any potential economic distortions caused by such net decrease in
Company Minimum Gain, and (b) allocations pursuant to this Section 3.3
shall be deferred with respect to allocations pursuant to Section 2.5 of
this Exhibit "B" to the extent the Board reasonably determines that such
allocations are likely to be offset by subsequent allocations pursuant to
Section 2.1 of this Exhibit "B".
3.4 Member Nonrecourse Regulatory Allocations. The "Member Nonrecourse
Regulatory Allocations" consist of all allocations pursuant to Sections 2.2
and 2.6 hereof. Notwithstanding any other provision of this Agreement,
other than the Regulatory Allocations, the Member Nonrecourse Regulatory
Allocations shall be taken into account in allocating items of income,
gain, loss, and deduction among the Members so that, to the extent
possible, the net amount of such allocations of other items and the Member
Nonrecourse Regulatory Allocations to each Member shall be equal to the net
amount that would have been allocated to each such Member if the Member
Nonrecourse Regulatory Allocations had not occurred. For purposes of
applying the foregoing sentence (a) no allocations pursuant to this Section
3.4 shall be made with respect to allocations pursuant to Section 2.6 of
this Exhibit "B" relating to a particular Member Nonrecourse Debt prior to
the Company fiscal year during which there is a net decrease in Member
Minimum Gain attributable to such Member Nonrecourse Debt, and then only to
the extent necessary to avoid any potential economic distortions caused by
such net decrease in Member Minimum Gain, and (b) allocations pursuant to
this Section 3.4 shall be deferred with respect to allocations pursuant to
Section 2.6 of this Exhibit "B" hereof relating to a particular Member
Nonrecourse Debt to the extent the Board reasonably determines that such
allocations are likely to be offset by subsequent allocations pursuant to
Section 2.2 of this Exhibit "B".
3.5 Discretionary Curative Allocations. The Board shall have
reasonable discretion, with respect to each Company fiscal year, to (a)
apply the provisions of Sections 3.2, 3.3 and 3.4 of this Exhibit "B" in
whatever order is likely to minimize the economic distortions that might
otherwise result from the Regulatory Allocations, and (b) divide all
allocations pursuant to Sections 3.2, 3.3 and 3.4 of this Exhibit "B" among
the Members in a manner that is likely to minimize such economic
distortions.
40
4. Other Allocation Rules.
4.1 Adjustments for Timing Differences. To the extent the Company
recognizes income for federal income tax purposes prior to actual receipt,
appropriate adjustments to distributions shall be made upon receipt thereof
so that such amounts are distributed in the same manner as such income was
allocated.
4.2 Allocation of Certain Recapture Items. To the maximum extent
possible, any income recapture under Code Sections 1245 and 1250 shall be
allocated to the Members in the same proportions as the depreciation
deductions giving rise to such income or recapture were allocated among
such Members and their respective predecessors in interest in accordance
with applicable Regulations.
4.3 Transfer of Financial Rights. In the event of a transfer of any
portion of a Member's Financial Rights in the Company, and/or in the event
of any increase or decrease in the Membership Percentage of any Member in
the Company, whether arising out of or in connection with the entry of a
new Member, the liquidation, partial or whole, of any Member's interest or
otherwise, after the admission of any Member, the share of the Profits,
Losses and gains or losses from the disposition of the Property, and each
item of income and expense pertaining thereto, of the respective Members
shall be fixed and determined by reference to the income and expenses
reflected on the books and records of the Company according to the
following convention: a Member admitted on or before the 15th day of the
month shall be deemed admitted as of the 1st day of that month and a Member
admitted after the 15th day of the month shall be deemed admitted as of the
first day of the following month; provided, however, that if this
convention is not permitted under applicable Regulations, a convention
permitted under such Regulations approximating the foregoing as closely as
possible will be used.
41
4.4 Section 704(c) Allocations. In accordance with Code Section 704(c)
and the Regulations thereunder, items of income, gain, loss and deduction
with respect to any property contributed to the capital of the Company
shall, solely for tax purposes, be allocated among the Members so as to
take account of any variation between the adjusted basis of such property
to the Company for federal income tax purposes and its initial Gross Asset
Value. In the event the Gross Asset Value of any Company asset is adjusted
pursuant to the terms of this Agreement, subsequent allocations of income,
gain, loss and any deduction with respect to such asset shall take account
of any variation between the adjusted basis of such asset for federal
income tax purposes and its Gross Asset Value in the same manner as under
Code Section 704(c) and the Regulations thereunder. Any elections or other
decisions relating to such allocations shall be made by the Board in any
manner that reasonably reflects the purpose and intention of this
Agreement. Allocations pursuant to this Section 4.4 are solely for purposes
of federal, state and local taxes and shall not affect or in any way be
taken into account in computing, any Member's Capital Account or share of
Profits, Losses, other items or distributions pursuant to any provision of
this Agreement.
4.5 Ordinary Income and Capital Gain Items. The characterization of
allocations as ordinary income and capital gains, including the allocation
of gain recognized for federal income tax purposes from a disposition of
Company assets shall be proportionate to allocations of Profits and Losses
to the Members.
4.6 Certain Available Cash Flow Distributions. To the extent permitted
by Regulations Section 1.704-2(h)(3), the Board shall endeavor to treat
distributions of Available Cash Flow as having been made from the proceeds
of a Nonrecourse Liability or a Member Nonrecourse Debt only to the extent
that such distributions would cause or increase an Adjusted Capital Account
Deficit for any Member.
4.7 Allocations to Have "Substantial Economic Effect". The allocations
under the Agreement (including this Exhibit "B") are intended to have
substantial economic effect and/or be in accordance with the Members'
interests in the Company as such terms are defined in Code Section 704(b)
and the Regulations promulgated thereunder.
4.8 Member's Share of Excess Nonrecourse Liabilities. Solely for
purposes of determining a Member's proportionate share of the "excess
nonrecourse liabilities" of the Company within the meaning of Regulations
Section 1.752-3(a)(3), the Members' interests in Company profits are equal
to their respective Membership Percentages.
4.9 Allocations Determinative for Tax Purposes. The Members are aware
of the income tax consequences of the allocations made by Section 5 and
this Exhibit "B", and hereby agree to be bound by the provisions of this
Section 5 in reporting their shares of Company income and loss for income
tax purposes.
42
Index of Defined Terms
Page
Act .........................................................................1
Adjusted Capital Account Deficit............................................34
Affiliate ...................................................................1
Agreement ...................................................................1
Authorized Person............................................................1
Available Cash Flow..........................................................2
Basic Regulatory Allocations................................................36
Board .......................................................................2
Capital Account...........................................................2, 8
Capital Contribution.........................................................2
Certificate of Formation.....................................................2
Code ........................................................................2
Company .....................................................................2
Company Minimum Gain........................................................34
Depreciation.................................................................2
Director ....................................................................3
Dissolution Event...........................................................28
Family ......................................................................3
Financial Rights.............................................................3
Financial Rights Owner.......................................................3
First Offer ................................................................27
Governance Rights............................................................3
Gross Asset Value............................................................3
Liability ...................................................................4
Losses ......................................................................5
Member Nonrecourse Debt.....................................................34
Member Nonrecourse Debt Minimum Gain........................................34
Member Nonrecourse Deductions...............................................34
Member Nonrecourse Regulatory Allocations...............................36, 37
Members .....................................................................4
Membership Interest..........................................................4
Membership Percentage........................................................4
New Member .................................................................15
Nonrecourse Deductions......................................................34
Nonrecourse Liability.......................................................35
Nonrecourse Regulatory Allocations......................................36, 37
Offer Notice................................................................27
Offer Period................................................................27
Offer Price ................................................................26
Offered Interest............................................................26
43
Offerees ...................................................................27
Officers ....................................................................5
Party .......................................................................5
Person ......................................................................5
Personal Representative......................................................5
Proceeding ..................................................................5
Profits .....................................................................5
Purchase Offer..............................................................26
Purchaser ..................................................................26
Regulations .................................................................6
Regulatory Allocations......................................................36
Seller .....................................................................26
Successor ...................................................................6
Tax Matters Partner.........................................................24
Transfer ....................................................................6
44
