LIABILITY COMPANY AGREEMENT
OF
INLAND PACIFIC DEVELOPMENT COMPANY, LLC
A DELAWARE LIMITED LIABILITY COMPANY
TABLE OF CONTENTS
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Page
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Article 1 DEFINITIONS............................................................................................ 1
1.1 "Accountant"........................................................................................ 1
1.2 "Act"............................................................................................... 1
1.3 "Affiliate"......................................................................................... 1
1.4 "Agreement"......................................................................................... 2
1.5 "Bankruptcy"........................................................................................ 2
1.6 "Base Rate"......................................................................................... 2
1.7 "Capital Account"................................................................................... 2
1.8 "Capital Contribution".............................................................................. 2
1.9 "Certificate of Formation".......................................................................... 2
1.10 "Code".............................................................................................. 2
1.11 "Company"........................................................................................... 2
1.12 "Company Budget".................................................................................... 2
1.13 "Distributable Cash" and "Start-Up Distributable Cash".............................................. 2
1.14 "Distribution"...................................................................................... 2
1.15 "Economic Interest"................................................................................. 2
1.16 "Fair Market Value"................................................................................. 3
1.17 "Fiscal Year"....................................................................................... 3
1.18 "Formation Date".................................................................................... 3
1.19 "Former Member"..................................................................................... 3
1.20 "Former Member's Interest".......................................................................... 3
1.21 "IPWC".............................................................................................. 3
1.22 "IPWC Contract"..................................................................................... 3
1.23 "IPWC Development Fees"............................................................................. 3
1.24 "Laws".............................................................................................. 3
1.25 "Management Committee".............................................................................. 3
1.26 "Member"............................................................................................ 3
1.27 "Membership Interest"............................................................................... 4
1.28 "Membership Termination Event"...................................................................... 4
1.29 "Percentage Interest"............................................................................... 4
1.30 "Person"............................................................................................ 4
1.31 "Preferred Return".................................................................................. 4
1.32 "Preferred Return Account".......................................................................... 4
1.33 "President"......................................................................................... 4
1.34 "Project"........................................................................................... 5
1.35 "Project Budget and Plan"........................................................................... 5
1.36 "Related IPWC Agreements"........................................................................... 5
1.37 "Start-Up Capital".................................................................................. 5
1.38 "Start-Up Distributable Cash"....................................................................... 5
1.39 "Start-Up Period"................................................................................... 5
1.40 "Start-Up Percentages".............................................................................. 5
1.41 "Tax Credits"....................................................................................... 5
1.42 "Tax Matters Member"................................................................................ 5
1.43 "Tax Supplement".................................................................................... 5
1.44 "Transfer".......................................................................................... 6
1.45 "Treasury Regulations".............................................................................. 6
Page(s)
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Article 2 ORGANIZATIONAL MATTERS................................................................................... 6
2.1 Name.................................................................................................. 6
2.2 Term.................................................................................................. 6
2.3 Office and Agent...................................................................................... 7
2.4 Purpose of Company.................................................................................... 7
2.5 Intent................................................................................................ 7
2.6 Absence of Other Restrictions......................................................................... 7
Article 3 CAPITAL CONTRIBUTIONS.................................................................................... 7
3.1 Initial Capital Contributions......................................................................... 7
3.2 Project Capital Contributions......................................................................... 9
3.3 Call Notice/Bank Accounts............................................................................. 10
3.4 Capital Accounts...................................................................................... 10
3.5 Preferred Return...................................................................................... 10
3.6 Contribution Accounts and Preferred Return Accounts................................................... 10
3.7 Capital Matters....................................................................................... 11
3.8 IPWC Development Fees................................................................................. 11
3.9 Failure to Contribute Capital......................................................................... 11
Article 4 MEMBERS.................................................................................................. 12
4.1 Limited Liability..................................................................................... 12
4.2 Admission of Additional Members....................................................................... 12
4.3 Withdrawal............................................................................................ 12
4.4 Lack of Member Authority.............................................................................. 13
Article 5 MANAGEMENT AND CONTROL OF THE COMPANY.................................................................... 13
5.1 Management of the Company by Management Committee..................................................... 13
5.2 President of Company.................................................................................. 15
5.3 Performance of Duties; Liability of Members and Officers.............................................. 16
5.4 Major Decisions....................................................................................... 17
5.5 Competing Activities.................................................................................. 18
5.6 Contracts with Affiliates............................................................................. 19
5.7 Company Opportunities................................................................................. 19
5.8 Expenses.............................................................................................. 19
Article 6 PROFITS, LOSSES, DISTRIBUTIONS AND TAX MATTERS........................................................... 20
6.1 Allocation of Income and Losses....................................................................... 20
6.2 Definition of "Distributable Cash".................................................................... 20
6.3 Timing of Distributions............................................................................... 20
6.4 Order of Distribution................................................................................. 20
6.5 Start-Up Period Distributions......................................................................... 21
6.6 Form of Distribution.................................................................................. 21
Article 7 TRANSFER OF INTERESTS.................................................................................... 21
7.1 Transfer of Interests................................................................................. 21
7.2 Permitted Transfers................................................................................... 21
7.3 Substitution of Members............................................................................... 22
7.4 Further Restrictions on Transfer of Interests......................................................... 22
Page(s)
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7.5 Election to Dissolve.................................................................................. 22
Article 8 CONSEQUENCES OF MEMBERSHIP TERMINATION EVENTS............................................................ 22
8.1 Dissolution of Company................................................................................ 22
8.2 Admission or Conversion............................................................................... 23
8.3 Optional Buy-Out...................................................................................... 23
Article 9 ACCOUNTING, RECORDS, REPORTING BY MEMBERS................................................................ 25
9.1 Books and Records/Financial Reports................................................................... 25
9.2 Bank Accounts; Invested Funds......................................................................... 25
9.3 Accounting Matters.................................................................................... 25
Article 10 DISSOLUTION AND WINDING UP.............................................................................. 26
10.1 Dissolution........................................................................................... 26
10.2 Date of Dissolution................................................................................... 26
10.3 Winding Up............................................................................................ 26
10.4 Distributions in Kind................................................................................. 26
10.5 Order of Payment of Proceeds Upon Dissolution......................................................... 27
10.6 Limitations on Payments Made in Dissolution........................................................... 27
10.7 Certificate of Cancellation........................................................................... 27
10.8 Compensation for Services............................................................................. 27
Article 11 INDEMNIFICATION......................................................................................... 27
11.1 Indemnification....................................................................................... 27
11.2 Contract Right; Expenses.............................................................................. 28
11.3 Insurance............................................................................................. 28
Article 12 BUY/SELL................................................................................................ 28
12.1 Put/Call Offering Notice.............................................................................. 28
12.2 Exercise of Put/Call.................................................................................. 29
12.3 Notice................................................................................................ 29
12.4 Designee.............................................................................................. 30
12.5 Closing............................................................................................... 30
12.6 Company Accountant.................................................................................... 31
12.7 Timing of Put/Call and Default Buy-Out................................................................ 31
Article 13 MISCELLANEOUS........................................................................................... 31
13.1 Amendments............................................................................................ 31
13.2 Offset Privilege...................................................................................... 31
13.3 Arbitration........................................................................................... 31
13.4 Notices............................................................................................... 33
13.5 Attorney's Fees....................................................................................... 33
13.6 Jurisdiction.......................................................................................... 33
13.7 Complete Agreement.................................................................................... 33
13.8 Binding Effect........................................................................................ 33
13.9 Section Headings...................................................................................... 34
13.10 Interpretation........................................................................................ 34
13.11 Severability.......................................................................................... 34
Page(s)
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13.12 Multiple Counterparts................................................................................. 34
13.13 Securities Representations and Warranties............................................................. 34
Article 14 DEFAULT REMEDIES........................................................................................ 34
14.1 Events of Default..................................................................................... 34
14.2 Remedies.............................................................................................. 35
14.3 Cumulative Remedies................................................................................... 36
14.4 Litigation Without Termination........................................................................ 36
14.5 No Waiver............................................................................................. 36
iv
LIABILITY COMPANY AGREEMENT
OF
INLAND PACIFIC DEVELOPMENT COMPANY, LLC
A DELAWARE LIMITED LIABILITY COMPANY
This Limited Liability Company Agreement ("Agreement") is dated as of January 1,
2000 (the "Effective Date"), and is made by and between Inland Pacific Partners,
LLC, a Delaware limited liability company ("Inland") and Southwest Water
Company, a Delaware corporation ("SWC") (collectively, the "Members" and
individually, a "Member") with reference to the following facts:
A. The parties desire to form Inland Pacific Development, LLC (the "Company")
as a limited liability company under the laws of the State of Delaware.
B. In furtherance thereof, the parties filed a Certificate of Formation on
November 13, 1999 (the "Formation Date") with the Secretary of State for
the State of Delaware and desire to adopt a limited liability company
agreement to govern their respective rights and obligations as Members of
the Company from and after the Formation Date (as defined in Section 1.18).
NOW, THEREFORE, in consideration of the mutual covenants contained herein and
for other good and valuable consideration, the receipt of which is acknowledged,
the Members agree that the following shall be the Limited Liability Company
Agreement of the Company.
ARTICLE 1
DEFINITIONS
When used in this Agreement, the following terms have the following meanings:
1.1 "Accountant" shall mean the Company's independent certified public
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accounting firm, which initially shall be Ernst & Young Xxxxxxx
Xxxxxxxxx, but may be replaced by the Management Committee from time
to time.
1.2 "Act" means the Limited Liability Company Act of the State of
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Delaware, as amended from time to time (or any corresponding
provisions of any succeeding law).
1.3 "Affiliate" of a Member means (a) a Person directly or indirectly
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(through one or more intermediaries) controlling, controlled by or
under common control with that Member; (b) an officer, director,
partner, shareholder, member or immediate family member of that
Member; (c) a member of the immediate family of an officer, director,
partner, shareholder, or member of that Member, or (d) a Person
directly or indirectly controlled by or under common control with any
member of Inland. For these purposes "control" means the possession,
direct or indirect, of the power to direct or cause the direction of
the management and policies of a Person, whether through the ownership
of voting securities, by contract, or otherwise.
1.4 "Agreement" means this Limited Liability Company Agreement of Inland
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Pacific Development Company, LLC, as originally executed and as
amended from time to time.
1.5 "Bankruptcy" of a Member means the occurrence of any event of
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bankruptcy specified in Section 18-304(a) and (b) of the Act.
1.6 "Base Rate" means the commercial loan rate of interest announced
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publicly from time to time by Bank of America in San Francisco,
California, as such bank's "reference rate" or "prime rate" from time
to time in effect.
1.7 "Capital Account" shall mean with respect to each Member, the
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"Adjusted Capital Account" which the Company establishes and maintains
for that Member pursuant to Article 1 of the Tax Supplement.
1.8 "Capital Contribution" of a Member, at any particular time, means the
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amount of money or the value of property which that Member has
contributed to the capital of the Company. The value of any Capital
Contribution of property (other than money) shall be its Fair Market
Value as determined by the Management Committee using such reasonable
methods of valuation as it may adopt.
1.9 "Certificate of Formation" means the Certificate of Formation of the
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Company as filed under the Act with the Delaware Secretary of State on
November 13, 1999.
1.10 "Code" means the Internal Revenue Code of 1986, as amended from time
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to time (or any corresponding provisions of any succeeding law).
1.11 "Company" means Inland Pacific Development Company, LLC, a Delaware
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limited liability company.
1.12 "Company Budget" means the annual budget of the projected costs (i) to
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fund the day to day administration and operation of the Company,
including, without limitation, the Quincey Employment Agreement, and
(ii) to assist in the business development of Inland Pacific Water
Company. All costs identified in the Company Budget are referred to
herein as "Operating Costs".
1.13 "Distributable Cash" and "Start-Up Distributable Cash" have the
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meanings specified in Section 6.2.
1.14 "Distribution" means the transfer of money or property by the Company
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to one or more Members without separate consideration.
1.15 "Economic Interest" means a share, expressed as a percentage, of one
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or more of the Company's Net Income, Net Losses, Distributable Cash or
other
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Distributions, but does not include any other rights of a Member,
including, without limitation, the right to vote or participate in the
management of the Company or the right to information concerning the
business and affairs of the Company.
1.16 "Fair Market Value" shall mean the value of the Company's assets if
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sold for all cash in an arms-length negotiated sale as determined by
the Members (or the appraised value if the Members are unable to agree
on that value), or as determined by the Management Committee where
stated herein.
1.17 "Fiscal Year" means the Company's fiscal year, which shall be the
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calendar year.
1.18 "Formation Date" means the date the Certificate of Formation is filed
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with the Delaware Secretary of State.
1.19 "Former Member" has the meaning specified in Section 8.2.
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1.20 "Former Member's Interest" has the meaning specified in Section 8.2.
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1.21 "IPWC" means Inland Pacific Water Company, a California corporation.
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1.22 "IPWC Contract" means a municipal water or wastewater contract
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entered into by IPWC.
1.23 "IPWC Development Fees" has the meaning set forth in Section 3.8.
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1.24 "Laws" means all federal, state and local laws, statutes, moratoria,
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initiatives, referenda, ordinances, rules, regulations, standards,
orders, judicial decisions, common law and other governmental, quasi-
governmental and utility company requirements (including those
relating to the environment, health and safety, or handicapped
persons).
1.25 "Management Committee" means the committee appointed by the Members to
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manage the overall business and affairs of the Company and to make all
policy decisions of the Company. Initially, the Management Committee
shall be comprised of those individuals named in Schedule 1.25 hereto.
The initial appointees (and all subsequent appointees) to the
Management Committee are referred to in this Agreement collectively as
the "Managers." As used herein, the terms "approval by the Managers"
or "approval by the Management Committee" means approval by a majority
in number of the Managers, except where this Agreement expressly
requires the unanimous approval of the Managers.
1.26 "Member" means each Person who is an initial signatory to this
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Agreement and any Person who is subsequently admitted as a Member in
accordance with Sections 7.3 or 8.2(a) of this Agreement. A Person who
holds a mere Economic Interest but who has not been admitted as a
Member is referred to herein as an "Interest Holder". Except where
"unanimous approval" is
Page 3
expressly required, "approval by the Members" or "approval of a
majority-in-interest of the Members" as used herein means approval by
Members that own, individually or collectively, a majority of the
Percentage Interests owned by all Members then authorized to vote.
1.27 "Membership Interest" means a Member's total interest as a Member of
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the Company, including that Member's Economic Interest, its right to
inspect the books and records of the Company and its right, to the
extent specifically provided in this Agreement, to participate in the
business, affairs and management of the Company and to vote or grant
consent with respect to matters coming before the Company.
1.28 "Membership Termination Event" with respect to any Member means one or
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more of the following: the death, insanity, permanent disability,
withdrawal, resignation, expulsion, Bankruptcy, dissolution, Transfer,
or occurrence of any other event which terminates the continued
membership of that Member in the Company, including the occurrence of
any of the events set forth in Section 18-304 of the Act, excepting a
Transfer of a Member's Membership Interest which is made in accordance
with the provisions of Section 7.2 shall not constitute a Membership
Termination Event.
1.29 "Percentage Interest" means the percentage of a Member's Membership
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Interest in Company set forth opposite the name of that Member in
Schedule 1.29, as such percentage may be adjusted from time to time
pursuant to the provisions of this Agreement, or, as to an Interest
Holder who owns a mere Economic Interest in Company, the percentage of
that Person's Economic Interest. The Percentage Interest of the
Members for all matters of Net Income and Net Loss related to the
Start-Up Capital, Operating Costs, and IPWC Development Fees during
the Start-Up Period shall be SWC -55%, Inland - 45% (the "Start-Up
Percentages")); thereafter such Percentage Interests for all matters
under this Agreement shall adjust to and remain SWC - 25%; Inland -
75%, unless further adjusted by reason of Transfer or dilution
pursuant to the terms of this Agreement.
1.30 "Person" means any entity, corporation, company, association, joint
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venture, joint stock company, partnership, trust, limited liability
company, limited liability partnership, real estate investment trust,
organization, individual (including personal representatives,
executors and heirs of a deceased individual), nation, state,
government (including agencies, departments, bureaus, boards,
divisions and instrumentalities thereof), trustee, receiver or
liquidator.
1.31 "Preferred Return" shall have the meaning specified in Section 3.5
----------------
hereof.
1.32 "Preferred Return Account" shall have the meaning given such term in
------------------------
Section 3.6(b) hereof.
1.33 "President" means the individual employed by the Company to supervise
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the day to day operations of the Company and to carry out the policy
decisions of
Page 4
the Management Committee. The initial President of the Company shall
be Xxxx Xxxxxxx ("Xxxxxxx") in accordance with the terms of that
certain Employment Agreement attached hereto as Appendix B (the
"Quincey Employment Agreement").
1.34 "Project" means a specific water or wastewater related opportunity or
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other opportunity for investment by Company in utility (sewer, water,
gas, electric, phone, CATV, solid waste, water treatment, etc.) and
natural resource management projects, including, without limitation,
the acquisition, lease and/or sale of water rights, water rights
transfers, the acquisition and/or operation of utility companies,
including water or wastewater companies, the financing, construction,
and/or operation of water and wastewater infrastructure and other
utilities, groundwater retention, recharge and management, NPDES
projects, wetlands management, air quality projects, and/or operating
as a utility purveyor.
1.35 "Project Budget and Plan" means, for each Project, a plan for the
-----------------------
acquisition, development, management, operation, marketing and/or
disposition of the Project and a proforma budget which identifies
projected capital requirements, costs, and revenues for the Project.
1.36 "Related IPWC Agreements" means the Certificate of Formation, the
-----------------------
Cooperative Services Agreement dated December 31, 1999, the IPWC
Stockholders Agreement dated December 31, 1999, and the Agreement for
Services dated December 31, 1999.
1.37 "Start-Up Capital" means all Capital Contributions made by Inland and
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SWC during the Start-Up Period to pay the Operating Costs.
1.38 "Start-Up Distributable Cash" has the meaning specified in Section
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6.2.
1.39 "Start-Up Period" means the period commencing upon the Formation
----------------
Date and ending two(2) years after the Effective Date.
1.40 "Start-Up Percentages" means SWC - 55%, Inland - 45% as further
---------------------
described in Sections 1.29, 3.1(b), 3.8, Appendix A, and Schedule
1.29.
1.41 "Tax Credits" means all credits against income or franchise taxes and
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credits allowable to Members under state, federal, or other tax
statutes.
1.42 "Tax Matters Member" means the Member appointed pursuant to the
------------------
provisions of Section 5.5 of the Tax Supplement to serve as the "Tax
Matters Member" of the Company for purposes of Sections 6221-6233 of
the Code. Initially, the Tax Matters Partner shall be the Member named
on Schedule 1.41 hereto.
1.43 "Tax Supplement" means Appendix A attached hereto.
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Page 5
1.44 "Transfer" means, with respect to a Membership Interest or any
--------
interest therein, including the Economic Interest, the sale,
assignment, transfer, disposition, pledge, hypothecation or
encumbrance, whether direct or indirect, voluntary, involuntary or by
operation of law, and whether or not for value, of (a) all or any part
of that Membership Interest or interest therein or (b) a controlling
interest in any Person which directly or indirectly through one or
more intermediaries holds that Membership Interest or interest
therein, provided a Transfer of a controlling interest in SWC shall
not constitute a Transfer for purposes of this Agreement. Further, the
addition or substitution of any member of Inland where such new member
acquires more than a twenty-five percent (25%) interest in Inland
shall constitute a Transfer. A Transfer referred to in clause (b)
above, except to an "Affiliate," is referred to in this Agreement as a
"Change in Control".
1.45 "Treasury Regulations" means the regulations of the United States
--------------------
Treasury Department pertaining to income tax.
References in this Agreement to "Articles," "Sections," "Appendices" and
"Schedules," shall be to the Articles, Sections, Appendices and Schedules of
this Agreement, unless otherwise specifically provided; all Appendices and
Schedules to this Agreement are incorporated herein by reference; any of the
terms defined in this Agreement may, unless the context otherwise requires, be
used in the singular or the plural and in any gender depending on the reference;
the words "herein", "hereof" and "hereunder" and words of similar import, when
used in this Agreement, shall refer to this Agreement as a whole and not to any
particular provision of this Agreement; and except as otherwise specified in
this Agreement, all references in this Agreement (a) to any Person shall be
deemed to include such Person's permitted heirs, personal representatives,
successors and assigns; and (b) to any agreement, any document or any other
written instrument shall be a reference to such agreement, document, or
instrument together with all exhibits, schedules, attachments and appendices
thereto, and in each case as amended, restated, supplemented or otherwise
modified from time to time in accordance with the terms thereof; and (c) to any
Law(s) shall be deemed references to such Law(s) as the same may be
supplemented, amended, consolidated, superseded or modified from time to time.
ARTICLE 2
ORGANIZATIONAL MATTERS
2.1 Name. The name of the Company shall be "Inland Pacific Development
----
Company, LLC." The business of the Company may be conducted under that
name or, upon compliance with applicable law, under any other name
approved by the Members.
2.2 Term. The term of the Company's existence shall commence upon the
----
Formation Date, and shall continue until such time as it is terminated
pursuant to Article 10.
Page 6
2.3 Office and Agent. The principal office of the Company shall be at 1156
----------------
X. Xxxxxxxx Xxxxxx, Xxxxxx, Xxxxxxxxxx 00000, or at such other place
as a majority of the Managers may determine from time to time. The
Company may also have such offices within and without the State of
California as a majority of the Managers may from time to time
determine. The name and business address of the Company's agent for
service of process in the State of Delaware is Corporation Service
Company, or as may otherwise be determined by approval of the Managers
from time to time.
2.4 Purpose of Company. Subject to any express limitation set forth in
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this Agreement, the Company may engage in any lawful activity in
furtherance of, or related to any Projects (as defined in Section
1.34) with an emphasis on the Inland Empire region of Southern
California.
2.5 Intent. It is the intent of the Members that the Company shall always
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be operated in a manner consistent with its treatment as a
"partnership" for Federal and state income tax purposes. It also is
the intent of the Members that the Company not be operated or treated
as a "partnership" for purposes of Xxxxxxx 000 xx xxx Xxxxxx Xxxxxx
Bankruptcy Code. No Member, Manager, President, or other officer of
Company shall take any action inconsistent with that express intent.
2.6 Absence of Other Restrictions. The Members acknowledge that as of the
-----------------------------
date of this Agreement, the only restrictions on SWC and its
Affiliates and Inland and its Affiliates regarding the conducting of
their respective businesses are set forth in Section 5.5 hereof and in
that certain Cooperative Services Agreement between SWC and Inland
dated December 31, 1999, and that no other restrictions on their
activities have been created hereby or shall be deemed to exist, as a
matter of fiduciary duty, corporate opportunity or otherwise.
ARTICLE 3
CAPITAL CONTRIBUTIONS
3.1 Initial Capital Contributions.
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(a) Pre-Formation Capital. Pursuant to the terms of Section 5.3 of
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that certain Agreement Regarding Formation of Companies between
Inland and SWC dated September 22, 1999 (the "Formation
Agreement"), Inland and SWC shall pay all of the "Consultant Fees"
and related Operating Costs between August 1, 1999 and the
Effective Date in accordance with the following percentages:
Inland 45%
SWC 55%
As of the Effective Date, SWC has paid $110,000 and Inland has
paid $90,000 toward such Consultant Fees and Operating Costs and
SWC and
Page 7
Inland shall each be credited with Start-Up Capital Contributions
in those respective amounts.
(b) Start-Up Capital Contributions. In addition to the Pre-Formation
------------------------------
Treasury Department pertaining to Section 3.1(a), SWC and Inland
agree to contribute, as required by the Management Committee, all
capital required to fund the Company Budget during the Start-Up
Period in accordance with the following percentages to a maximum,
in the aggregate, of Five Hundred Thirty-five Thousand Dollars
($535,000.00) per year; provided the Company Budget may be
increased in the aggregate a maximum of five percent (5%) over
the previous Company Budget approved by the Management Committee
in any twelve-month period by majority approval of the Management
Committee and any further increase in the Company Budget shall be
a Major Decision and require the unanimous vote of the SWC
Manager and Inland Senior Manager.
SWC 55%
Inland 45%
(c) Termination of Cooperative Services Agreement. In the event that
---------------------------------------------
Treasury Department pertaining to terminate the Cooperative
Services Agreement, then SWC shall, within thirty (30) days
following the delivery or receipt of such notice of termination,
elect, by written notice to Inland (the "Election Notice"), to
either withdraw as a Member of Company, whereupon the terms of
Article 8 herein shall apply, or remain as a Member of Company
notwithstanding such termination of the Cooperative Services
Agreement. In the event SWC fails to deliver that Election Notice
to Inland, SWC shall conclusively be deemed to have elected to
withdraw.
Upon the election by SWC (or deemed election) to withdraw as a
Member, and notwithstanding anything to the contrary in this
Article 3, SWC shall cease to have any further obligation to pay
for any Operating Costs of Company except SWC shall pay Company a
percentage of the lump sum amount of Two Hundred Seventeen
Thousand Five Hundred Dollars ($217,500) (the "Termination
Payment") ($217,500 equals nine (9) months of a total one-time
annual severance payment of Two Hundred Ninety Thousand Dollars
($290,000) which would be payable to Quincey in twenty-four (24)
semi-monthly installments under the Quincey Employment Agreement
assuming such Agreement was terminated without cause at the same
time as termination of the Cooperative Services Agreement) as
follows:
(i) During any portion of the nine (9) month period following
the delivery or receipt of the notice terminating the
Cooperative Services Agreement which is within the two (2)
year Start-Up Period, SWC shall pay fifty-five percent
(55%) of the Termination Payment, and
Page 8
(ii) During any portion of such nine (9) month period following
the Start-Up Period, SWC shall pay twenty-five percent
(25%) of the Termination Payment.
For example, if a notice terminating the Cooperative Services
Agreement is delivered by SWC to Inland eighteen (18) months
after the Effective Date, and SWC elected to withdraw as a Member
of the Company, then SWC would cease to have any further
obligation to make any further Capital Contributions to Company
except, SWC would be required to pay Company its Termination
Payment equal to Ninety-seven Thousand Eight Hundred Sixty-nine
Dollars ($97,869) calculated as follows:
(i) Six (6) months at $13,291 ($217,500 / 9 x 55%)
(ii) Three (3) months at $6,041 ($217,500 / 9 x 25%)
Such Termination Payment would be due and payable in full fifteen
(15) days after SWC's election to withdraw (or deemed election to
withdraw).
If SWC elects not to withdraw as a Member of Company upon the
termination of the Cooperative Services Agreement, then SWC shall
continue to make all Capital Contributions as required in
Sections 3.1(b) and 3.2 at the percentages set forth in those
Sections.
Company shall not be required to terminate or amend the Quincey
Employment Agreement by reason of the termination of the
Cooperative Services Agreement; rather SWC and Inland have agreed
herein to calculate the Termination Payment payable by SWC as if
the Quincey Employment Agreement was terminated concurrent with
termination of the Cooperative Services Agreement. The
Termination Payment shall be paid by SWC whether or not the
Quincey Employment Agreement is terminated if SWC elects to
withdraw as a Member of Company upon termination of the
Cooperative Services Agreement.
3.2 Project Capital Contributions. In addition to the Start-Up Capital
-----------------------------
Contributions set forth in Section 3.1, the Members shall contribute
from time to time, in accordance with their Percentage Interests, cash
in amounts as required by the Management Committee to fund all Project
Budgets, to fund the Company Budget after the Start-Up Period, and
otherwise pay the costs of the Company (a "Project Capital
Contribution"). As of the Formation Date, such Percentage Interests,
for all matters under this Agreement, excepting (i) Start-Up Capital
Contributions under Section 3.1(b), and (ii) Net Loss, Net Income, and
Distributions related to such Start-Up Capital Contributions as set
forth in the Tax Supplement (Sections 2.2 and 2.3) and Section 6.5 of
this Agreement, are: SWC- 25%, Inland - 75% (which Percentages are
subject to adjustment by reason of Transfer or dilution pursuant to
the terms of this
Page 9
Agreement). Upon the Formation Date, SWC and Inland shall contribute
the following initial Project Capital Contributions to the Company to
fund future Projects:
SWC $10,000
Inland $30,000
3.3 Call Notice/Bank Accounts. Notice requesting a Capital Contribution
-------------------------
(a "Call Notice") shall, upon unanimous approval of the Management
Committee in accordance with Section 5.4, be sent to each Member by
the President and within thirty (30) days after the mailing of such
notice, each Member shall contribute its respective Percentage
Interest) of such Capital, in cash or by certified check, to the
Company. During the Start-Up Period, Company shall maintain separate
bank accounts for deposit of Start-Up Capital Contributions and
Project Capital Contributions, respectively. Upon distribution of the
Start-Up Distributable Cash (as defined in Section 6.2) pursuant to
Section 6.5, the Start-Up Capital Contribution account shall be closed
by Company. All requests for Capital Contributions are "Major
Decisions" which require unanimous written approval of the Management
Committee in accordance with Section 5.4.
3.4 Capital Accounts. The Company shall establish and maintain an
----------------
individual Capital Account for each Member as set forth in the Tax
Supplement.
3.5 Preferred Return. Each Member shall earn a preferred return on its
----------------
Capital Contributions, except for the Start-Up Capital, in an amount
calculated like interest and accrued on the balance outstanding from
time to time in each Members' Contribution Account (as defined in
Section 3.6(a) below) at Bank of America's Base Rate, compounded
monthly, and determined on a cumulative basis.
3.6 Contribution Accounts and Preferred Return Accounts.
---------------------------------------------------
(a) Contribution Account. The Company shall maintain for accounting
--------------------
purposes the following memorandum account ("Contribution
Account") for each Member. The initial balance of such account
shall be the Member's Initial Capital Contributions set forth in
Section 3.1. The balance of such account shall be increased by,
and as of the date of, each additional Capital Contribution made
by such Member. The balance of the Contribution Account of each
Member shall be decreased by any Distributions to such Member
under Sections 6.4(b) and 10.5.
(b) Preferred Return Account. The Company shall maintain for
------------------------
accounting purposes the following memorandum account ("Preferred
Return Account") for each Member. The initial balance of such
account shall be zero; and the balance of such account shall be
increased by the accrued Preferred Return of each Member. Such
return shall commence as of the funding of a Members' Capital
Contributions
Page 10
pursuant hereto (excepting any Start-Up Capital shall not earn a
Preferred Return), shall be cumulative, and shall compound
monthly (as of the last date of each calendar month). Further,
the balance of the Preferred Return Account of each Member (as
the same may be increased by such compounding) shall be decreased
by any Distributions to such Member under Sections 6.4(a) and
10.5, but only to the extent any Distribution relates to
Distribution of the Preferred Return.
3.7 Capital Matters. Except as otherwise expressly provided in this
---------------
Agreement or as otherwise agreed in writing by the Members, (i) no
Member shall be entitled to receive interest on such Members' Capital
Contributions, (ii) no Member shall be required or obligated to
contribute additional Capital to the Company, (iii) no Capital
Contributions of any Member may be withdrawn by such Member, (iv) no
Member shall have the right to demand or receive property other than
cash in return for such Members' Capital Contributions, and (v) except
as provided in Section 6.4(b), no Member shall have the right to the
return of all or any portion of its Capital Contributions before the
dissolution and termination of the Company and then only to the extent
of the cash and other property, if any, distributable to the Members
upon Company liquidation.
3.8 IPWC Development Fees. IPWC will pay Company an annual fee (a "IPWC
---------------------
Development Fee") in accordance with the Cooperative Services
Agreement during each year of an IPWC Contract. Company shall use all
IPWC Development Fees to first pay all Operating Costs identified in
the Company Budget. All such IPWC Development Fees paid during the
Start-Up Period shall be allocated to the Adjusted Capital Accounts of
the Members for purposes of Net Income, Net Loss, and Distributions in
accordance with the Start-Up Percentages. All IPWC Development Fees
paid after the Start-Up Period shall be allocated in accordance with
the Member's Percentage Interests at that time.
3.9 Failure to Contribute Capital. If a Member fails to timely contribute
-----------------------------
(the "Non-Contributing Member") all or any portion of the cash amounts
required of it by a Call Notice delivered pursuant to Section 3.3 (the
"Default Amount"), then the other Member (the "Contributing Member")
(provided such other Member has contributed all of the capital
required of such Member pursuant to Section 3.3 with respect to that
particular Call Notice) shall have the right, but not the obligation,
at its sole discretion, to either (a) loan to the Non-Contributing
Member all or any portion of the Default Amount within thirty (30)
days following such default (a "Member Loan") with a proportional
amount of the Non-Contributing Member's Membership Interest as
security for such Member Loan and an assignment of any Distributions
otherwise payable to the Non-Contributing Member under Sections 6.4
and 6.5 until the Member Loan is repaid in full; the Member Loan shall
earn Interest equal to the lesser of four hundred (400) basis points
over the Base Rate, or the maximum rate permitted by law (the "Default
Rate"); the Non-Contributing Member hereby
Page 11
irrevocably appoints the Contributing Member as its attorney-in-fact
with full power and authority to prepare, execute, acknowledge,
deliver, file and/or record, as appropriate, any documents,
instruments and agreements reasonably necessary to memorialize the
Member Loan, including, without limitation, any note evidencing the
Member Loan, or (b) contribute all or any portion of the Default
Amount to the Company as an additional Capital contribution whereupon
the Percentage Interests of the Non-Contributing Member shall be
decreased at a dilution ratio of 1.25:1 (the "Dilution Ratio")
determined by dividing the Default Amount paid by Contributing Member
by the total amount of all Capital Contributions of all Members
(including the Default Amount paid by Contributing Member) and
multiplying the quotient by the Dilution Ratio; the resulting
percentage is the amount by which the Percentage Interest of the Non-
Contributing Member is decreased, and the Percentage Interest of the
Contributing Member, increased; the Non-Contributing Member shall have
no right to cure this default after the Default Amount is contributed
by the Contributing Member. In addition to the remedies provided in
this Section 3.9, the Contributing Member shall also have the right to
exercise all other rights and remedies at law or in equity.
ARTICLE 4
MEMBERS
4.1 Limited Liability. Except as required under the Act or as expressly
-----------------
set forth in this Agreement, no Member or Manager shall be personally
liable for any debt, obligation or liability of the Company, whether
that liability or obligation arises in contract, tort or otherwise,
except intentional misconduct, fraud, or gross negligence.
4.2 Admission of Additional Members. Subject to compliance with applicable
-------------------------------
law, additional Members may be admitted to the Company from time to
time upon the unanimous vote of all Members and upon such terms and
conditions as the Members may determine unanimously, and any such
additional Members shall be granted Membership Interests and may
participate in the management, Net Income, Net Losses, Tax Credits and
Distributions of the Company on such terms as the Members unanimously
approve.
4.3 Withdrawal. From and after the date which is six (6) months after the
----------
Effective Date, any Member may withdraw or resign from the Company at
any time and for any reason upon two hundred seventy (270) days prior
written notice to the other Members. Any such withdrawal or
resignation shall constitute a Membership Termination Event and shall
be subject to the provisions of Article 8. Any Member who effects a
voluntary withdrawal or resignation other than as permitted in the
preceding sentence, or as set forth in Section 3.1(c), shall cease to
be a Member, and shall forfeit its rights to receive any further
Distributions, including any Distributions under Article 6 and Article
10 herein, and forfeit its right to receive the fair value of its
Membership Interest as of the date of such withdrawal as otherwise
provided in Section 18-604 of the Act, and the Percentage Interests of
the remaining
Page 12
Member(s) shall be increased, pro rata, based upon the relative
Percentage Interest(s) of such remaining Members, by the total amount
of the Membership Interest forfeited by the withdrawing Member.
4.4 Lack of Member Authority. Unless otherwise expressly stated in this
------------------------
Agreement, no Member, except the Management Committee, has the power
to act for or on behalf of the Company, to do any act that would be
binding on the Company or to make any expenditures or incur any
obligations on behalf of the Company. The Management Committee may
delegate certain powers to act on behalf of the Company to officers,
agents and other Persons.
ARTICLE 5
MANAGEMENT AND CONTROL OF THE COMPANY
5.1 Management of the Company by Management Committee. Except as otherwise
-------------------------------------------------
expressly provided herein, the business and affairs of the Company
shall be managed and controlled exclusively by the Management
Committee.
(a) Management and Management Committee.
-----------------------------------
(i) The Management Committee shall consist of three (3)
individuals, each of whom shall be an Affiliate of a Member
or a senior employee of a Member. SWC shall appoint one
Person to serve on the Management Committee (the "SWC
Manager") and Inland shall appoint two Persons
(collectively, the "Inland Managers", and individually,
each, an "Inland Manager"); Xxxx Xxxxxxx may be an Inland
Manager notwithstanding his employment by Company. The
members of the Committee are referred to herein as the
"Managers". Each Manager shall serve on the Management
Committee until replaced by the Member appointing such
Manager or removed pursuant to Section 8.2(b). The
Management Committee initially shall consist of the
following persons: Xxxxxxx Xxxxxxx (SWC Manager), Xxxx
XxXxxxxx (Inland Senior Manager), and Xxxx Xxxxxxx (Inland
Manager). Each Member shall also designate an alternate
Person(s) to act for it if its appointed Manager is
unavailable. Any written act, approval, consent, or vote of
a Manager or alternate(s) so designated shall be deemed to
be the act, approval, consent, or vote of the Member which
designated such Manager and alternate(s) and neither the
Company, Manager, nor any Member shall be required to
inquire into the authority of such Manager or alternate(s)
as to such written act, approval, consent, or vote on
behalf of the Member which designated such Manager and
alternate(s). Any such Manager or alternate(s) may be
replaced by a successor Manager or alternate(s) by written
notice delivered to the Management Committee and to the
other Member. Any such notice from Inland shall identify
whether the successor Manager
Page 13
is serving in the capacity of "Senior Manager" or "Manager"
for purposes of Section 5.4. Until such further written
notice, the designated Managers and alternates of the
Members shall be as set forth in Schedule 1.25 attached
hereto. In the event SWC acquires more than a fifty percent
(50%) Membership Interest in Company under this Agreement
after the Start-Up Period, then SWC shall have the right to
appoint a second Manager and Inland shall have the right to
appoint only one Manager.
(ii) All powers of the Company shall be exercised by or under
the authority of the Management Committee. Decisions of the
Management Committee within its scope of authority shall be
binding upon the Company and each Member, in its capacity
as a Member of Company. Except as otherwise expressly
provided in this Agreement, no action may be taken by any
Member to bind the Company without the approval of the
Management Committee.
(iii) Meetings of the Management Committee shall be held at the
principal place of business of the Company or at any other
place that a majority of the Managers determine. In the
alternative, meetings may be held by conference telephone,
provided that each Manager can hear the others and it has
been confirmed so, and it has been confirmed that there are
no unauthorized people on the telephone. The presence of
the SWC Manager and either of the Inland Managers in person
or via telephone conference shall constitute a quorum for
the transaction of business. Meetings shall be held once
each month, or otherwise in accordance with a schedule
established by the Management Committee. In addition, any
Manager or Member may convene a meeting of the Management
Committee at the Company's principal place of business upon
at least three (3) business days' prior written notice to
all Members and Managers. The Management Committee also may
make decisions, without holding a meeting, by unanimous
written consent of all of the Managers. Minutes of each
meeting and a record of each decision shall be kept by the
President (defined herein) and shall be given to the
Members promptly after the meeting.
(iv) Decisions of the Management Committee shall require the
approval of a majority of the Managers, except that "Major
Decisions" (as defined in Section 5.4) shall require the
written consent of the SWC Manager and the Senior Inland
Manager.
(b) Agency Authority. Subject to Section 5.4 below, Inland, any two
-----------------
(2) Managers, or, subject to Section 5.2(c), President, acting
alone, is/are
Page 14
authorized to endorse all checks, drafts and other evidences of
indebtedness made payable to the order of the Company and to
execute, on behalf of the Company, all agreements, contracts,
commitments, checks, instruments and other documents approved by
the Management Committee. The Management Committee shall have the
right to delegate in writing any or all of their authority,
rights and/or obligations, whether arising hereunder, under the
Act or otherwise, to any one or more officers, agents or other
duly authorized Persons. Any note, mortgage, deed of trust,
evidence of indebtedness, contract, certificate, statement,
conveyance or other instrument or obligation in writing, and any
assignment or endorsement thereof, executed or entered into
between the Company and any other Person, when signed by Inland,
any two (2) Managers, or by President is not invalidated as to
the Company by any lack of authority of such Persons in the
absence of actual knowledge on the part of the other Person that
such Persons had no authority to execute the same on behalf of
the Company.
(c) Meetings of Members; Written Consent. Annual Meetings of the
---------------------------------------
Members shall be held at such time and place within or without
the State of California as the Members shall determine. No
regular meetings of Members are required, but if such meetings
are held, they shall be noticed, held and conducted pursuant to
the Act. Members may participate in any meeting through the use
of conference telephones or similar communications equipment as
long as all Members participating can hear one another. A Member
so participating is deemed to be present in person at the
meeting. Any action which may be taken by the Members at a
meeting may also be taken without a meeting, if a consent in
writing setting forth the action so taken is signed by Members
having not less than the minimum votes that would be necessary to
authorize that action at a meeting of the Members duly called and
noticed.
5.2 President of Company.
--------------------
(a) Appointment of President. The Management Committee shall appoint
------------------------
an individual to supervise the day-to-day operations of the
Company and such person shall be designated as "President." Such
appointment, if the appointee is other than one of the
individuals listed in Schedule 1.25, shall be a "Major Decision"
pursuant to Section 5.4. The President shall be subject to the
general supervision and control of the Management Committee and
shall carry out the policy decisions made by the Managers. At all
meetings of the Management Committee and meetings of the Members,
the President shall be present and shall report to the Management
Committee and Members on the operation of the Company including
all Projects, or any other matters as any Manager or Member may
request. Xxxx Xxxxxxx shall be employed by Company pursuant to
the terms of the Quincey
Page 15
Employment Agreement as the initial President of the Company and
shall continue to serve as the President until terminated by the
vote of the SWC Manager and Inland Senior Manager (other than
Quincey) in accordance with the Quincey Employment Agreement.
(b) Project Plan and Budgets. The President shall prepare a
------------------------
Project Plan and Budget for each Project, and submit the Project
Plan and Budget to the Management Committee for approval by the
SWC Manager and Inland Senior Manager. The President shall also
prepare and submit annual, operating budgets (a "Company Budget")
to the Company and Management Committee for its approval. The
initial Company Budget approved by the Management Committee is
attached hereto as Schedule 5.2(b). All subsequent Company
Budgets and any amendments thereto shall require the majority
approval of the Management Committee, except any aggregate
------
increase in the Company Budget in excess of five percent (5%)
over the previous Company Budget approved by the Management
Committee in any twelve-month period shall be a Major Decision
requiring the unanimous consent of the SWC Manager and Inland
Senior Manager.
(c) Signing Authority of President. Subject to prior approval by the
------------------------------
Management Committee and Section 5.4 below, the President shall
have the full power to execute, for and on behalf of the Company,
any and all documents and instruments which may be necessary to
carry on the business of the Company, including, without
limitation, any and all deeds, contracts, leases, mortgages,
deeds of trust, promissory notes, guarantees, security
agreements, and financing statements pertaining to the Company's
assets or obligations.
5.3 Performance of Duties; Liability of Members and Officers. No Member,
--------------------------------------------------------
Manager, or President shall be liable to the Company or to any other
Member for any losses or damages suffered by them, as a result of
actions taken within the scope of authority conferred upon them by
this Agreement, or by the Management Committee and in the ordinary
course of business of the Company, except as the result of fraud,
deceit, gross negligence, reckless or intentional misconduct or a
knowing violation of law or this Agreement by that Member, Manager or
President or as a result of acts from which that Member, Manager, or
President derives an improper personal benefit either directly or
indirectly. The Managers and President shall perform their duties in
good faith, in a manner they reasonably believe to be in the best
interests of the Company and the Members. In performing their duties,
the Managers and President shall be entitled to rely on information,
opinions, reports or statements, including financial statements and
other financial data, of the following persons or groups unless they
have knowledge concerning the matter in question that would cause such
reliance to be unwarranted and provided that the Managers and
President act in good faith and after reasonable inquiry when the need
therefor is indicated by the circumstances:
Page 16
(a) one or more agents of the Company whom the Managers or President,
as the case may be, reasonably believe to be reliable and
competent in the matters presented; or
(b) any attorney, independent accountant or other Person as to
matters which the Managers or President, as the case may be,
reasonably believe to be within such Person's professional or
expert competence.
5.4 Major Decisions. Neither President, nor any Member or Manager, may,
---------------
without the unanimous written consent of the SWC Manager and Inland
Senior Manager, take any of the following actions (in each case the
taking of which shall be referred to as a "Major Decision"):
(a) Spend or commit to be spent any of the Company's capital or funds
for a Project until the Project Plan and Project Budget for the
Project is approved by unanimous consent of the SWC Manager and
Inland Senior Manager;
(b) Incur any expenses or liabilities in excess of $25,000 not
identified in a Company Budget or Project Budget previously
approved by unanimous consent of SWC Manager and Inland Senior
Manager;
(c) Sell or encumber any property or assets of the Company not
identified for sale or encumbrance in an approved Project Plan;
(d) Contract on behalf of, or otherwise bind, the Company in
furtherance of a Project until the Project Plan and Project
Budget is approved by unanimous consent of the SWC Manager and
Inland Senior Manager including, making any binding commitments
on behalf of the Company to representatives of any City, County,
or other governmental agency;
(e) Issue any public announcement or press release relating to the
Company, or any Project;
(f) Do any act in contravention of this Agreement;
(g) Possess, assign, or use funds or other property of the Company
for other than a Company purpose;
(h) Make, execute, or deliver on behalf of the Company an assignment
for the benefit of creditors, or cause the Company to be subject
to the authority of any trustee, custodian, or receiver or to be
subject to any proceeding for bankruptcy, insolvency,
reorganization, arrangement, readjustment of debt, relief of
debtors, dissolution, or liquidation or similar proceedings;
(i) Employ or contract with any Affiliate of a Member or any other
person or entity in which any Member or Affiliate of a Member has
a direct or indirect financial interest where such contract
provides for the payment
Page 17
for materials or services at a rate which exceeds the rate that
would be charged by a third party contractor in a competitive
arms-length transaction and/or includes any profit-xxxx-up;
(j) Except where any of such matters is only civil in nature and does
not involve amounts in excess of $25,000, (i) confess a judgment
against the Company, (ii) settle or adjust any claims against the
Company; or (iii) defend, or discontinue the defense of, or
prosecute, or discontinue the prosecution of, any legal action or
proceedings against, or on behalf or in the name of, the Company;
(k) Do any act which would make it impossible to carry on the
business of the Company;
(l) Take any action or make any decision not reasonably contemplated
in this Agreement;
(m) Make any in-kind distributions as provided for in Section 10.4;
(n) Call for any Capital Contributions;
(o) Effectuate any change in number of the Managers;
(p) Sell or otherwise issue any additional Membership Interests in
the Company except as permitted in Section 7.2;
(q) Make any amendment to this Agreement; or
(r) Increase the Company Budget in excess of five percent (5%) over
the previous Company Budget approved by the Management Committee
in any twelve-month period.
5.5 Competing Activities. Each Member and Manager shall be obligated to
--------------------
present any investment opportunity to the Company if the opportunity
concerns a Project within the Inland Empire region of Southern
California (Riverside/San Bernardino Counties and incorporated cities
therein other than the City of Barstow). Each such Project shall be
presented to the Company for consideration by the Management
Committee. The election to proceed with a Project shall be a Major
Decision. If the SWC Manager does not approve of a Project and/or
related Project Budget and Plan then Inland may proceed with the
Project independent of the Company for its own account or recommend
such opportunity to Persons other than the Company or the other
Members. Likewise, if Inland's Senior Manager does not approve of a
Project and/or related Project Budget and Plan then SWC may proceed
with the Project independent of the Company for its own account or
recommend such opportunity to Persons other than the Company or the
other Members. Without limiting the foregoing, any water rights
acquired by Company which Company elects to lease, sell, or transfer
shall first be offered for lease or sale, at the election of Company,
to IPWC at a market rate. In the event IPWC elects not to lease or
purchase such water rights, the rights shall next
Page 18
be offered for lease or sale by Company to SWC; if SWC elects not to
lease or purchase such water rights, the rights may then be offered to
unaffiliated third parties at a price equal to or greater than the
price offered to IPWC and SWC. Notwithstanding any of the foregoing
restrictions in this Section 5.5, any opportunity by a Member or
Manager outside the scope of this covenant does not need to be
presented by a Member or Manager to the Company; provided Quincey may
not proceed with any opportunity independent of the Company if such
conduct would violate any of Quincey's obligations under the Quincey
Employment Agreement.
5.6 Contracts with Affiliates. If the Company uses the personnel or
-------------------------
resources of an Affiliate of a Member or Manager, or otherwise
contracts directly or indirectly with an Affiliate of a Member or
Manager for services or materials, the payment or compensation
therefor shall be at competitive arm's-length rates, and such services
and materials shall be comparable in quality, type, size, and
specifications as would be obtained in a competitive arm's-length
transaction with third-party contractors. All contracts or agreements
with Affiliates of Managers or Members shall be subject to the prior
written approval of the Managers appointed by the non-affiliated
Members in their reasonable discretion. The non-affiliated Managers
acting alone shall have the right on behalf of the Company to send any
appropriate notice of default or termination, to institute legal
proceedings and/or to take such other action as may be necessary or
appropriate to enforce the rights and protect the interests of the
Company pursuant to any agreement now or hereafter entered into
between the Company and an Affiliate of a Member or Manager with
respect to any other rights or remedies of the Company running against
or in connection with any Affiliate of a Member or Manager. Non-
affiliated Members shall mean those Members without a direct or
indirect interest in the contracts or agreements with the Affiliate,
financial or otherwise.
5.7 Company Opportunities. Except as provided in Section 5.5 above, and
---------------------
except as otherwise provided in any contract to which Company is a
party, no Member shall be obligated to present any prospective
project, business venture, investment opportunity or economic
advantage to the Company or to any other Members or Managers, even if
the opportunity is one of the character that, if presented to the
Company or the other Members or Managers, could be taken by the
Company or the other Members or Managers, and each Member or Manager
shall have the right to hold any such prospective project, business
venture, investment opportunity or economic advantage for its own
account or to recommend the same to Persons other than the Company or
the other Members or Managers.
5.8 Expenses. Subject to Sections 5.4 and 5.6 above, the Company shall
--------
reimburse the Members and Managers, for all reasonable out-of-pocket
costs and expenses incurred by them (or by their Affiliates with
approval of the Management Committee) in connection with the business
and affairs of the Company; provided all organizational expenses
(including, without limitation,
Page 19
legal and accounting fees and costs) incurred by each Member to form
the Company shall not be reimbursed by Company.
ARTICLE 6
PROFITS, LOSSES, DISTRIBUTIONS AND TAX MATTERS
6.1 Allocation of Income and Losses. The agreement of the Members
-------------------------------
concerning the maintenance of Capital Accounts, the allocation of
income and loss, deficit restoration, and other related matters is set
forth in Appendix A, attached hereto and made a part hereof.
6.2 Definition of "Distributable Cash". The term "Distributable Cash"
---------------------------------
means all cash of the Company on hand and in banks, saving and loan
associations and cash equivalents, on the date of any proposed
distribution pursuant to this Agreement, after payment or provision
for payment of Company obligations (actual and anticipated),
including, without limitation, provision for working capital needs and
reserves, interest carry, warranties and contingent liabilities of the
Company as reasonably determined by President and approved by the
Management Committee. The term "Start-Up Distributable Cash" as used
herein means Distributable Cash generated from any IPWC Development
Fees paid to Company by IPWC during the Start-Up Period (as prorated
through the expiration of the Start-Up Period) or from any Start-Up
Capital Contributions. The President shall prepare and deliver to the
Management Committee a quarterly report summarizing the sources and
uses of such reserve funds. Notwithstanding anything provided in
Section 6.4 to the contrary, no Distributions shall be made to the
Members until the Company's outstanding debts, if any, to the Members
have been fully repaid.
6.3 Timing of Distributions. Subject to the provisions of this Article 6
-----------------------
and Article 10 (Dissolution and Winding Up), payments and
distributions to the Members of Distributable Cash shall be made at
such times as approved by the Management Committee, but in no event no
less frequently than annually.
6.4 Order of Distribution. Except as provided in Section during the Start-
---------------------
Up Period, and Sections 3.9 and 10.5, Distributable Cash shall be
distributed in the following order of priority (taking into account,
as applicable, the Members then existing Preferred Return Account and
Contribution Account balances);
(a) First: To the Members, pro rata in accordance with the ratios of
-----
their respective accrued and unpaid Preferred Returns until each
Member's respective Preferred Return Account is zero.
(b) Second. To the Members pro rata in accordance with the ratios of
------
their respective Capital Contributions which have not yet been
repaid until each Member's respective Contribution Account is
zero.
(c) Third. To the Members in proportion to the positive balance, if
-----
any, in each such Member's Capital Account.
Page 20
(d) Remainder. Subject to a Member's repayment of any such Member's
---------
outstanding Member Loan pursuant to Section 3.9, all Distributable
Cash in excess thereof shall be distributed to the Members pro rata in
accordance with their respective Percentage Interest.
6.5 Start-Up Period Distributions. All Start-Up Distributable Cash Fees shall,
-----------------------------
be distributed 55% to SWC and 45% to Inland and Section 6.4 above shall not
apply to such distributions of Start-Up Distributable Cash. Upon expiration
of the Start-Up Period, Company shall make a special distribution to Inland
and SWC of all remaining Start-Up Distributable Cash of Company as of such
expiration date in accordance with the Start-Up Percentages (SWC - 55%,
Inland - 45%). Thereafter, all Distributable Cash distributed after the
Start-Up Period under Section 6.4(d) shall be distributed in accordance
with the then Percentage Interests of the Members (SWC - 25%, Inland -
75%), as such percentages may be adjusted upon Transfer or dilution.
6.6 Form of Distribution. No Member has any right to demand and receive any
--------------------
Distribution from the Company in any form other than money. No Member may
be compelled to accept from the Company a Distribution of any asset in kind
in lieu of a proportionate Distribution of money being made to other
Members.
ARTICLE 7
TRANSFER OF INTERESTS
7.1 Transfer of Interests. Except as permitted by Sections 7.2 and 8.3, no
---------------------
Member shall be entitled to Transfer all or any part of its Membership
Interest except with the prior written consent of the other Member(s),
which consent may be given or withheld, conditioned or delayed as the other
Member(s) may determine in its sole and absolute discretion. Any attempted
Transfer without such prior written consent shall constitute a Membership
Termination Event (as of the date of such attempted Transfer) and shall be
null and void ab initio, and the transferee shall not become a Member. A
-- ------
Member who elects to Transfer its Membership Interest is referred to herein
as a "Transferring Member"; the remaining Member(s) is referred to as the
"Remaining Member."
7.2 Permitted Transfers. Subject to the provisions of Section 7.3, the
-------------------
restrictions upon Transfer specified in Section 7.1 shall not apply to any
Transfer of all or any part of a Transferring Member's Membership Interest
to an Affiliate of such Transferring Member (an "Affiliate Transferee") nor
shall it include a Change in Control, merger or sale of all assets of SWC.
The Remaining Member shall receive a minimum of sixty (60) days prior
written notice from Transferring Member of the proposed transfer to an
Affiliate (a "Transfer Notice"). Any Affiliate Transferee permitted under
the preceding sentence shall, subject to Section 7.3(b) and (c), hold the
Membership Interest or part thereof transferred by the Transferring Member
subject to all the provisions of this Agreement. Except for any Transfer to
an Affiliate Transferee permitted
Page 21
under the initial sentence of this Section 7.2, no Member shall Transfer
all or any part of its Membership Interest until such Transferring Member
first offers that Membership Interest for sale to the other Remaining
Member by written notice (the "Withdrawal Offer") whereupon the terms of
Section 8.3 shall apply. For purposes of this Section 7.2, the Member
seeking to transfer its interest shall be deemed to be the "Withdrawing
Member" as used in Section 8.3.
7.3 Substitution of Members. Notwithstanding anything in this Agreement to the
-----------------------
contrary, any transferee of the whole or any part of a Membership Interest
shall hold only the Economic Interest of the Transferring Member as an
Interest Holder and shall not become a substituted Member in the place of a
Transferring Member unless and until all of the following conditions are
satisfied:
(a) The Remaining Member(s) unanimously consents to the admission of the
transferee as a Member;
(b) The Transferring Member and the transferee execute and acknowledge
such other instrument or instruments as the Management Committee may
deem necessary or desirable to effectuate the admission, including the
written acceptance and adoption by the transferee of all of the terms
and conditions of this Agreement as the same may have been amended;
and
(c) At the election of the other Members, the transferee pays to the
Company a transfer fee which is sufficient, in the reasonable
discretion of the other Members, to cover all expenses incurred by the
Company in connection with the Transfer and substitution.
7.4 Further Restrictions on Transfer of Interests. In addition to other
---------------------------------------------
restrictions set forth in this Agreement, no Member shall Transfer all or
any part of such Member's Membership Interest: (i) without compliance with
all federal and state securities laws, (ii) if the Transfer would cause the
tax termination of the Company under Code Section 708, (iii) or if the
Transfer would otherwise result in adverse tax consequences to the Company
and/or the non-transferring Members.
7.5 Election to Dissolve. The Remaining Member(s) may vote to dissolve the
--------------------
Company in accordance with Section 10.1 in the event of a Transfer.
ARTICLE 8
CONSEQUENCES OF MEMBERSHIP TERMINATION EVENTS
8.1 Dissolution of Company. The occurrence of a Membership Termination Event as
----------------------
to any Member other than the last and only remaining Member shall not
dissolve the Company unless the Remaining Member(s) votes to dissolve in
accordance with Section 10.1. Upon the occurrence of a Membership
Termination Event as to the last and only remaining Member, the Company
Page 22
shall dissolve unless the personal representative or other successor-in-
interest of the last and only remaining Member consents in writing within
ninety (90) days of that Membership Termination Event to the continuation
of the Company and to the admission of such personal representative or
other successor-in-interest, or its designee or nominee, as a Member.
8.2 Admission or Conversion. Upon the occurrence of a Membership Termination
-----------------------
Event with respect to a Member under circumstances where the Company does
not dissolve, the Remaining Member(s) shall determine which one of the
following shall occur and give written notice thereof, within sixty (60)
days after the Membership Termination Event, to the Member who suffered the
Membership Termination Event (the "Former Member"):
(a) the Former Member's personal representative or other successor-in-
interest shall be admitted as a Member of the Company in the place and
stead of the Former Member to the extent of the Former Member's
Membership Interest (the "Former Member's Interest"); or
(b) the Former Member's Interest shall be converted to a bare Economic
Interest, with no voting rights and no rights to appoint a Manager
(except the right to participate in decisions regarding confessions,
judgments and suits against Members), and the Former Member's
representative or other successor-in-interest shall become the
Interest Holder of that Economic Interest. The Former Member's
Interest shall also be converted if the Remaining Member(s) fails to
approve a substitution under Section 8.2(a) within the aforementioned
60-day period. Additionally, the Former Member shall not be subject to
additional Capital Contributions, following the expiration of the 270-
day period set forth in Section 4.3.
8.3 Optional Buy-Out.
----------------
(a) The Member causing the Membership Termination Event (the "Withdrawing
Member") shall be deemed to offer for sale (the "Withdrawal Offer") to
the other Member (the "Remaining Member") the Membership Interest of
the Withdrawing Member (the "Withdrawal Interest").
(b) The Withdrawal Offer shall be and remain irrevocable for a period (the
"Withdrawal Offer Period") ending at 11:59 p.m. local time at the
Company's principal office on the sixtieth (60th) day following the
date of the Membership Termination Event provided that the sixty (60)
day period shall be extended during a period of automatic stay
pursuant to bankruptcy. At any time during the Withdrawal Offer
Period, the Remaining Member may accept the Withdrawal Offer by
notifying the Withdrawing Member (the "Withdrawal Notice") of its
acceptance.
(c) If the Remaining Member accepts the Withdrawal Offer (the "Purchasing
Member"), the Withdrawal Notice shall fix a closing date
Page 23
(the "Withdrawal Closing Date") for the purchase that shall not be
earlier than ten (10) or later than sixty (60) days after
determination of the Withdrawal Purchase Price (as defined in (d)
below).
(d) The Purchasing Member shall purchase the Withdrawal Interest for a
price (the "Withdrawal Purchase Price") equal to the amount the
Withdrawing Member would be entitled to receive pursuant to Section
6.4 (taking into account Section 10.5) if the Company sold all of the
Company assets to a third party at their Fair Market Value as of the
date of the Withdrawal Notice. If the Withdrawing Member and
Purchasing Member are unable to reach agreement on the Withdrawal
Purchase Price within thirty (30) days after expiration of the
Withdrawal Offer Period, then the Fair Market Value shall be
determined within thirty (30) days by an independent M.A.I. appraiser
or other qualified appraiser; each Member shall select an appraiser
from a list of five (5) appraisers to be prepared by the Company's
Accountant; if the Members each select a different appraiser, the
Company Accountant shall select one of the remaining three (3)
appraisers to conduct the appraisal; if the Members select the same
appraiser, then that appraiser shall complete the appraisal. The Fair
Market Value shall be determined by Appraiser as of the date of the
Withdrawal Notice. Upon completion of the appraisal, the Company's
Accountant (defined in Section 1.1) shall, within 30 days, determine
the Withdrawal Purchase Price based upon the Fair Market Value. The
Purchasing Member shall approve or disapprove of the Withdrawal
Purchase Price on or before the Withdrawal Closing Date. If approved,
the Withdrawal Purchase Price shall be paid in cash on the Withdrawal
Closing Date. Company shall pay the cost of the appraisal. The
determination of the Appraiser and Accountant shall, for purposes of
this Agreement, be binding and conclusive on the parties.
(e) If the Remaining Member fails to accept the Withdrawal Offer, or if
the Purchasing Member disapproves of the Withdrawal Purchase Price, or
if not all of the Withdrawal Interest is purchased by the Purchasing
Member, then the Withdrawing Member or the Withdrawing Member's
successor, as the case may be, shall continue to be a Former Member
pursuant to Section 8.2 as to that portion of the Withdrawal Interest
retained by the Withdrawing Member, and Withdrawing Member may sell or
otherwise Transfer all or any part of its Membership Interest to any
Person, including any other Member, provided such Membership Interest
shall be converted to a mere Economic Interest pursuant to Section
7.3.
(f) If the Purchasing Member fails to complete its purchase on the
Withdrawal Closing Date (a "Defaulting Purchaser"), then the
Withdrawing Member may either sell or Transfer its Membership Interest
in accordance with (e) above, or elect to dissolve the Company in
accordance with Article 10.
Page 24
ARTICLE 9
ACCOUNTING, RECORDS, REPORTING BY MEMBERS
9.1 Books and Records/Financial Reports. The books and records of the Company
-----------------------------------
shall be kept, and the financial position and the results of its operations
recorded by the President (or by Inland, if no President has been appointed
or if otherwise elected by Inland), in accordance with the accounting
method of the Company approved by the Management Committee. The books and
records of the Company shall reflect all the Company transactions and shall
be appropriate and adequate for the Company's business. Each Member and its
duly authorized representative shall have complete access to all such books
and records at any time. The President (or Inland if no President has been
appointed or if otherwise elected by Inland) shall cause the Company to
deliver to each Member the following:
(a) Quarterly Tax Information: Within forty-five (45) days following the
--------------------------
end of each calendar quarter, a statement of pre-tax net income (loss)
of the Company for the then most recently completed calendar quarter
and the current balance of each Member's Capital Account; and
(b) Annual Tax Information. Within ninety (90) days following the end of
----------------------
each calendar year, a final financial statement of the Company for the
previous calendar year prepared in accordance with generally accepted
accounting principles, consistently applied. Management Committee may
elect to cause the Accountant to audit the Financial Statements of the
Company at the Company's expense. Further, any Member may elect to
cause the Accountant to audit such statements at such Member's
expense; provided, however, that under all circumstances, the
statements of the Company shall only be audited once a year. The year
end financial statements of the Company shall include a balance sheet,
an income statement, statement of cash flow, statement of sources and
uses of funds and such other information and reports as the Management
Committee may reasonably request.
9.2 Bank Accounts; Invested Funds. All funds of the Company shall be deposited
-----------------------------
in such account or accounts of the Company as approved by the Management
Committee and shall not be commingled with the funds of any other Person.
All withdrawals therefrom shall be made upon checks signed by such Persons
and in such manner as the Management Committee may approve. Temporary
surplus funds of the Company may be invested in commercial paper, time
deposits, short-term government obligations or other investments approved
by the Management Committee.
9.3 Accounting Matters. All decisions as to accounting matters shall be
------------------
approved by the Management Committee.
Page 25
ARTICLE 10
DISSOLUTION AND WINDING UP
10.1 Dissolution. The Company shall be dissolved, its assets disposed of and
-----------
its affairs wound up upon the first to occur of the following:
(a) the unanimous vote of the Members or unanimous vote of the Remaining
Member(s) after (i) receipt of a Transfer Notice or Withdrawal Offer,
or (ii) a Membership Termination Event;
(b) the occurrence of a Membership Termination Event as to the last and
only remaining Member if that Member's personal representative or
other successor-in-interest fails to consent to the continuation of
the Company in accordance with Section 8.1 within ninety (90) days
after the occurrence of that event;
(c) the Company's Bankruptcy;
(d) the occurrence of an event which makes it unlawful for the business of
the Company to be continued; and
(e) the expiration of twenty-five (25) years from the Formation Date.
10.2 Date of Dissolution. Dissolution of the Company shall be effective on the
-------------------
day on which the event occurs giving rise to the dissolution, but the
Company shall not terminate until the assets of the Company have been
liquidated and distributed as provided herein. Notwithstanding the
dissolution of the Company, prior to the termination of the Company the
business of the Company and the rights and obligations of the Members, as
such, shall continue to be governed by this Agreement.
10.3 Winding Up. Upon the occurrence of any event specified in Section 10.1, the
----------
Company shall continue solely for the purpose of winding up its affairs in
an orderly manner, liquidating its assets and satisfying the claims of its
creditors. The President, or any other person designated by the Management
Committee, shall be responsible for overseeing the winding up and
liquidation of the Company, shall take full account of the liabilities and
assets of the Company, shall cause its assets either to be sold or
distributed, as they may determine, and shall cause the proceeds therefrom,
to the extent sufficient, to be applied and distributed as provided in
Section 10.5. The President shall give written notice of the commencement
of winding up by mail to all known creditors and claimants whose addresses
appear on the records of the Company.
10.4 Distributions in Kind. Any non-cash assets distributed to any Members shall
---------------------
require the approval of the SWC Manager and Inland Senior Manager in
accordance with Section 5.4. Following such approval, any non-cash asset
distributed to one or more Members shall first be valued at its Fair Market
Value to determine the Net Income or Net Loss that would have resulted if
Page 26
that asset had been sold for that value, the Net Income or Net Loss shall
then be allocated pursuant to the Tax Supplement, and the Members' Capital
Accounts shall be adjusted to reflect those allocations. The amount
distributed and charged to the Capital Account of each Member receiving an
interest in the distributed asset shall be the Fair Market Value of the
interest (net of any liability secured by the asset that the Member assumes
or takes subject to). The Fair Market Value of that asset shall be
determined by an independent M.A.I. appraiser or other qualified appraiser
selected by the Members in accordance with the selection process set forth
in Section 8.3(d).
10.5 Order of Payment of Proceeds Upon Dissolution.
---------------------------------------------
(a) Liquidating Distributions. After determining that all known debts and
-------------------------
liabilities of the Company, including, without limitation, debts and
liabilities to Members who are creditors of the Company, have been
paid or adequately provided for, the remaining assets shall promptly
be distributed to the Members in accordance with Section 6.4, after
taking into account income and loss allocations for the Company's
taxable year during which the liquidation occurs.
(b) No Liability. No Member shall have any liability to the Company,
------------
any other Member, or any creditor of the Company on account of any
deficit balance in its Capital Account.
10.6 Limitations on Payments Made in Dissolution. Except as otherwise
-------------------------------------------
specifically provided in this Agreement, each Member shall be entitled to
look only to the assets of the Company for the return of that Member's
positive Capital Account balance and shall have no recourse for its Capital
Contributions and/or share of Net Income (upon dissolution or otherwise)
against any other Member.
10.7 Certificate of Cancellation. Upon completion of the winding up of the
---------------------------
Company's affairs, the Members shall cause a Certificate of Cancellation to
be filed with the Delaware Secretary of State.
10.8 Compensation for Services. The Persons winding up the affairs of the
-------------------------
Company shall be entitled to reasonable compensation from the Company for
their services.
ARTICLE 11
INDEMNIFICATION
11.1 Indemnification. The Company shall indemnify and hold harmless each of the
---------------
Members, and each of their respective Managers, officers, directors,
shareholders, partners, members, trustees, beneficiaries, employees,
agents, heirs, assigns, successors-in-interest and Affiliates, together
with all officers, employees, or agents of the Company, including President
(collectively, "Indemnified Persons") from and against any and all losses,
damages, liabilities and expenses, (including costs and reasonable
attorneys' fees),
Page 27
judgments, fines, settlements and other amounts (collectively
"Liabilities") reasonably incurred by any such Indemnified Person in
connection with the defense or disposition of any action, suit or other
proceeding, whether civil, criminal, administrative or investigative and
whether threatened, pending or completed (collectively a "Proceeding"), in
which any such Indemnified Person may be involved or with which any such
Indemnified Person may be threatened, with respect to or arising out of any
act performed by the Indemnified Person or any omission or failure to act
if the performance of the act or the omission or failure was done in good
faith and within the scope of the authority conferred upon the Indemnified
Person by this Agreement or by the Act, except for acts of willful
misconduct, gross negligence or reckless disregard of duty, or acts which
constitute a material breach of this Agreement, or acts from which such
Indemnified Person derived an improper personal benefit. The Company's
indemnification obligations hereunder shall apply not only with respect to
any Proceeding brought by the Company or a Member but also with respect to
any Proceeding brought by a third party.
11.2 Contract Right; Expenses. The right to indemnification conferred in this
------------------------
Article 11 shall be a contract right and shall include the right to require
the Company to advance the expenses incurred by the Indemnified Person in
defending any such Proceeding in advance of its final disposition;
provided, however, that, if the Act so requires, the payment of such
-------- -------
expenses in advance of the final disposition of a Proceeding shall be made
only upon receipt by the Company of an undertaking, by or on behalf of the
indemnified Person, to repay all amounts so advanced if it shall ultimately
be determined that such Person is not entitled to be indemnified under this
Article 11 or otherwise.
11.3 Insurance. The Company may purchase and maintain insurance on behalf of any
---------
Person who is or was an agent of the Company against any liability asserted
against that Person and incurred by that Person in any such capacity or
arising out of that Person's status as an agent, whether or not the Company
would have the power to indemnify that Person against liability under the
provisions of Section 11.1 or under applicable law. IPDC shall procure
commercial general liability insurance in the minimum amount of Five
Million Dollars ($5,000,000.00) per occurrence, workers' compensation
insurance, and officers and directors coverage and Inland and SWC shall be
named as additional insured parties.
ARTICLE 12
BUY/SELL
12.1 Put/Call Offering Notice. At any time after the second anniversary of the
------------------------
Effective Date, a Member (the "Initiating Member"), may give written notice
(the "Offering Notice") to the other Member (the "Responding Member") of
its intent to implement the provisions of this Article 12 and to purchase
all, but not less than all, of the Responding Member's Membership Interest.
In such event, the provisions set forth in this Article 12 shall apply. The
Initiating
Page 28
Member shall specify in its Offering Notice the price ("Company Price") the
Initiating Member would be willing in its sole discretion to pay for all of
the assets of the Company free of any monetary liens or encumbrances as of
the date the Offering Notice is given ("Date of Value").
12.2 Exercise of Put/Call. Upon receipt of the Offering Notice, the Responding
--------------------
Member shall then be obligated to either (subject to any required lender
approval): (i) sell to the Initiating Member its Membership Interest at a
price (the "Sales Price") equal to the amount the Responding Member would
have been entitled to receive pursuant to Section 6.4, (taking into account
the terms of Section 10.5) (as determined by the Company's Accountant at
the expense of the Initiating Member), if the Company had sold the Company
assets in a hypothetical sale to a third party for the Company Price on the
Date of Value and liquidated the Company in accordance with Section 10.5
with the proceeds remaining after the application of Paragraph 10.5
distributed in accordance with Paragraph 6.4 of this Agreement; or (ii) to
purchase the Membership Interest of the Initiating Member at a price (the
"Purchase Price") equal to the amount the Initiating Member would have been
entitled to receive pursuant to Section 6.4, (taking into account the terms
of Section 10.5) (as determined by the Accountant at the expense of
Initiating Member), if the Company had sold the Company assets in a
hypothetical sale to a third party for the Company Price on the Date of
Value and liquidated the Company in accordance with Section 10.5 with the
proceeds remaining after the application of Section 10.5 distributed in
accordance with Section 6.4 of this Agreement.
(a) If the Responding Member elects to purchase under (ii) above, then the
Responding Member shall purchase the Initiating Member's entire
Membership Interest and shall pay the Purchase Price as determined in
(ii) above, and shall deposit, within ten (10) days after the election
to purchase is made, ten percent (10%) of the Purchase Price into
escrow at Chicago Title Company, 000 Xxxx Xxxxxxxxxxx Xxxx, Xxx
Xxxxxxxxxx, XX 00000, or such other Title Company approved by both
Members ("Escrow Holder")
(b) If the Responding Member elects to sell under (i) above, the
Initiating Member shall purchase all of the Responding Member's
Membership Interests at the Sales Price determined in (i) above, and
shall deposit ten percent (10%) of the Sales Price into escrow within
ten (10) days after such election.
12.3 Notice. The Responding Member shall notify the Initiating Member of its
------
election under (i) and (ii) above within sixty (60) days after the Date of
Value (the "Election Notice"). In the event the Responding Member fails to
give the Election Notice within the required time period, the Initiating
Member shall be obligated to purchase the Responding Member's Membership
Interest according to the terms of Section 12.2(b). For purposes of this
Article 12 the term "Purchasing Member" shall mean the Member who is
obligated to
Page 29
purchase the other Member's Membership Interest (whether such Member is the
Initiating Member or the Responding Member) and the term "Non-Purchasing
Member" shall mean the Member who is obligated to sell its Membership
Interest to the Purchasing Member.
12.4 Designee. In the event that any Member purchases another Member's
--------
Membership Interest pursuant to this Article 12, such Purchasing Member
shall be entitled to designate any third party to be the Transferee of such
Membership Interest and such Transferee shall be a Member without further
consent of the other Members.
12.5 Closing.
-------
(a) The Members shall meet and exchange documents and pay any amounts due,
and otherwise do all things reasonably necessary to conclude the
transaction set forth herein at the closing of such purchase (the
"Closing"). The Closing shall occur at Escrow Holder on the date that
is sixty (60) days after the date of the Election Notice unless that
day is a Saturday, Sunday, or national or state holiday and, in that
event, on the next business day. At the Closing, the Non-Purchasing
Member shall deliver to the Purchasing Member a duly executed
assignment of its Membership Interest and shall also, upon the
reasonable request of the Purchasing Member, concurrently therewith
(or at any time and from time to time thereafter) execute and deliver
such other documents and records as the Purchasing Member reasonably
determines is necessary or desirable to conclude the Closing and to
transfer the Non-Purchasing Member's Membership Interest. The
Purchasing Member shall deliver the Purchase Price or Sales Price, as
applicable, to the Non-Purchasing Member for the full amount of
consideration for such Membership Interest in accordance with Section
12.5(b) below, and each Member shall deliver any documents reasonably
necessary to conclude the Closing. The Non-Purchasing Member shall
Transfer its Membership Interest free of all liens or encumbrances.
(b) The Purchase Price or Sales Price shall be paid in all cash, by
certified or bank cashier's checks, made payable to the Non-Purchasing
Member, or by a wire transfer of immediately available funds.
(c) If the Purchasing Member fails to close as aforesaid, in addition to
any other remedies available at law or in equity, the Non-Purchasing
Member shall have the right, exercisable by written notice to the
Purchasing Member given within thirty (30) days of the date set for
the Closing, to purchase under this Section 12 the Membership Interest
of that defaulting Member. If the Non-Purchasing Member exercises such
option, the Company Price used for the purposes of this Section
12.5(b) shall be ninety percent (90%) of the Company Price.
Page 30
12.6 Company Accountant. The Company's Accountant shall determine the
------------------
proper application of Section 6.4 (taking into account the terms of
Section 10.5) to arrive at the Purchase Price or Sales Price as
applicable. Each of the Members shall cooperate fully with the
Accountant to assist in such determination. The Accountant shall make
its determination of the Purchase Price or Sales Price within ten (10)
days after submission to the Accountant and the results thereof shall
be binding on the Members. The Initiating Member shall bear the costs
and fees of the Company's Accountant in making its determinations
under this Article 12..
12.7 Timing of Put/Call and Default Buy-Out. If any Member shall have given
--------------------------------------
the other Member notice of the first Member's exercise of its rights
under Section 12.1, then the other Member shall have the right to give
a subsequent notice under Section 12.1, until that first transaction
is completed or terminates.
Article 13
MISCELLANEOUS
13.1 Amendments. All amendments to this Agreement must be in writing and
----------
executed by all of the Members.
13.2 Offset Privilege. Any monetary obligation owing from the Company to
----------------
any Member may be offset by the Company against any monetary
obligation then owing from that Member to the Company.
13.3 Arbitration. Notwithstanding anything to the contrary set forth in
-----------
this Agreement, in the event of any dispute between the Members with
respect to this Agreement, then the Members shall promptly and in good
faith attempt to resolve such dispute by mutual agreement. In the
event the Members are unable to resolve such dispute by mutual
agreement, the matter shall be settled exclusively by a binding
arbitration ("Arbitration"), conducted by a single arbitrator (the
"Arbitrator") chosen by the parties to the litigation as described
below. Any party may initiate the Arbitration by written notice to the
other and to the Arbitration Tribunal. The date on which the notice is
given is called the "Arbitration Initiation Date". The fees and
expenses of the Arbitration Tribunal and the Arbitrator shall be
shared equally by the parties and advanced by them from time to time
as required; provided, however, that at the conclusion of the
Arbitration, the Arbitrator may award costs and expenses (including
the costs of the Arbitration previously advanced and the fees and
expenses of attorneys, accountants and other experts) to the
prevailing party. Except as expressly modified herein, the Arbitration
shall be conducted in accordance with the provisions of Section 1280
et seq. of the California Code of Civil Procedure or their successor
sections ("CCP"), and shall constitute the exclusive remedy for the
determination of any Claim, including whether the Claim is subject to
arbitration; provided the following time periods in the CCP shall be
shortened as follows: Sections 1284, 1288.4, 1290.2 and 1290.6 -
halved, Section 1288 - 4 years to 30 days, and 100 days to 15 days;
Section 1288.2 - 100 days to 30 days. The Arbitration
Page 31
shall be conducted under the procedures of the Arbitration Tribunal,
except as modified herein. The Arbitration Tribunal shall be the Los
Angeles Office of JAMS/ENDISPUTE ("JAMS"), unless the parties to the
dispute cannot agree on a JAMS arbitrator, in which case the
Arbitration Tribunal shall be the Los Angeles Office of the American
Arbitration Association ("AAA"). The Arbitrator shall be a retired
judge or other arbitrator employed by JAMS selected by mutual
agreement of the parties to the dispute, and if they cannot so agree
within thirty (30) days after the Arbitration Initiation Date, then
the Arbitrator shall be selected from the Large and Complex Case
Project ("LCCP") panel of the AAA, by mutual agreement of the parties
to the dispute. If the parties to the dispute cannot agree on the
Arbitrator within sixty (60) days after the Arbitration Initiation
Date, the Arbitrator shall be selected by the AAA, from its LCCP
panel, through such procedures as the AAA regularly follows. In all
events, the Arbitrator must have had not less than fifteen (15) years
experience as a practitioner or arbitrator of complex business
transactions. If, for any reason, the AAA does not so act, any party
to the dispute may apply to the Superior Court in and for Los Angeles
County, California, for the appointment of a single arbitrator. No
pre-arbitration discovery shall be permitted, except that the
Arbitrator shall have the power in his or her discretion, upon either
party's motion but not on his or her own initiative, to order the
parties to engage in pre-arbitration mediation for a period not
exceeding thirty (30) days before a mediator mutually acceptable to
the parties. The Arbitrator shall try any and all issues of law or
fact and be prepared to make the award within ninety (90) days after
the close of evidence in the Arbitration. When prepared to make the
award, the Arbitrator shall first so inform the parties, who shall
have ten (10) days to attempt to resolve the matter by a binding
agreement between them. If the parties do not resolve the matter, the
Arbitrator shall make the award on the eleventh day following his
notice of being prepared to make the award. The Arbitrator's award
shall dispose of all of the claims that are the subject of the
Arbitration and shall follow California law, unless the Claim concerns
the Act, in which event Delaware law shall be applied, and the award
shall include written statements of fact and conclusions of law. The
Arbitrator shall be empowered to (i) enter equitable as well as legal
relief, (ii) provide all temporary and/or provisional remedies, and
(iii) enter binding equitable orders. The award rendered by the
Arbitrator shall be final and not subject to judicial review, and
judgment thereon may be entered in any court of competent
jurisdiction. The prevailing party, as determined by the Arbitrator,
shall be entitled to recover from the other party all reasonable fees,
costs and expenses of enforcing any right of the prevailing party,
including, without limitation, actual attorneys' fees and expenses,
and the other costs of such arbitration. The Arbitrator shall award to
the prevailing party: (i) the reasonable attorneys' fees which the
prevailing party has paid or is obligated to pay; and (ii) the
reasonable costs and expenses which the prevailing party has paid or
is obligated to pay. The "prevailing party," for purposes of this
Agreement, shall be the party who, in light of the issues litigated
and the Arbitrator's decision on these issues, was more successful in
the action. The
Page 32
party who is more successful need not be determined to be the party
who receives the judgment in the action.
13.4 Notices. Any notice to be given to the Company or any Member in
-------
connection with this Agreement must be in writing and will be deemed
to have been given and received when delivered to the address
specified by the party to receive the notice by courier or other means
of personal service, when received if sent by facsimile, or three (3)
days after deposit of the notice by first class mail, postage prepaid,
or certified mail, return receipt requested. Any such notice must be
given to the Company at its principal place of business, and to any
Member at the address specified in Appendix C. Any party may, at any
time by giving five (5) days' prior written notice to the other
parties, designate any other address as the new address to which
notice must be given.
13.5 Attorney's Fees. In the event that any dispute between the Company
---------------
and/or the Members should result in litigation or arbitration, the
prevailing party in that dispute shall be entitled to recover from the
other party all reasonable fees, costs and expenses of enforcing any
right of the prevailing party, including without limitation,
reasonable attorneys' fees and expenses, subject, however to the
provisions of Section 13.3.
13.6 Jurisdiction. Subject to Section 13.3, each Member consents to the
------------
exclusive jurisdiction of the state and federal courts sitting in
Orange, Los Angeles, or San Bernardino, California in any action on a
claim arising out of, under or in connection with this Agreement or
the transactions contemplated by this Agreement. Each Member further
agrees that personal jurisdiction over it may be effected by service
of process by registered or certified mail addressed as provided in
Section 13.4 and that when so made shall be as if served upon it
personally.
13.7 Complete Agreement. This Agreement and the Related IPWC Agreements
------------------
constitute the complete and exclusive statement of agreement among the
Members with respect to their respective subject matters and supersede
all prior written and oral agreements or statements by and among the
Members including that certain Agreement Regarding Formation of
Companies between SWC and Inland dated September 22, 1999 (the
"Formation Agreement"). The Formation Agreement is merged herein and
is of no further force or effect. No representation, statement,
condition or warranty not contained in this Agreement or the
Certificate of Formation shall be binding on the Members or have any
force or effect whatsoever. To the extent that any provision of the
Certificate of Formation conflicts with any provision of this
Agreement, the Certificate of Formation shall control.
13.8 Binding Effect. Subject to the provisions of this Agreement relating
--------------
to Transfers, this Agreement shall be binding upon and inure to the
benefit of the Members and their respective successors and assigns.
Page 33
13.9 Section Headings. All Section headings are inserted only for
----------------
convenience of reference and are not to be considered in the
interpretation or construction of any provision of this Agreement.
13.10 Interpretation. The Members acknowledge and agree that each has been
--------------
given the opportunity to review this Agreement with legal counsel
independently, and/or has the requisite experience and sophistication
to understand, interpret, and agree to the particular language of the
provisions hereof. The Members have equal bargaining power, and intend
the plain meaning of the provisions herein. All words in this Agreement
(including any Exhibit attached to and made a part of this Agreement),
other than those specifically defined, shall have the meanings assigned
to them in American English dictionaries of common usage; there are no
secret meanings or code words. The term "including", whenever used in
this Agreement, shall be deemed to be followed by the words "without
limitation." Words used in the singular number shall include the
plural, and vice versa, and any gender shall be deemed to include each
other gender. Any captions and headings in this Agreement are for
convenience of reference only, and they shall not be deemed to define
or limit the provisions of this Agreement. In the event of an ambiguity
in or dispute regarding the interpretation of same, the interpretation
of this Agreement shall not be resolved by any rule of interpretation
providing for interpretation against the Member who causes the
uncertainty to exist or against the draftsman. This Agreement shall be
interpreted in accordance with the Act, if applicable, and otherwise in
accordance with the internal laws of the State of California without
regard to any choice of law provisions of California law.
13.11 Severability. If any provision of this Agreement or the application of
------------
that provision to any person or circumstance shall be held invalid, the
remainder of this Agreement or the application of that provision to
persons or circumstances other than those to which it is held invalid
shall not be affected.
13.12 Multiple Counterparts. This Agreement may be executed in two or more
---------------------
counterparts, each of which shall be deemed an original, but all of
which shall constitute one and the same instrument.
13.13 Securities Representations and Warranties. Concurrently with the
-----------------------------------------
formation of the Company, each Member makes the securities
representations and warranties set forth on Appendix D attached hereto.
All representations and warranties contained in Appendix D shall
survive the execution of this Agreement, the formation of the Company,
and the liquidation of the Company.
ARTICLE 14
DEFAULT REMEDIES
14.1 Events of Default. The occurrence of any of the following events (or
any other events set forth herein which are deemed to cause a Member to
be in default of this Agreement) by or with respect to a Member or the
Manager
Page 39
appointed by a Member (the "Defaulting Member") shall be defaults
under this Agreement, and if not cured within the applicable notice
and cure period provided below, if any, to such default shall
constitute an "Event of Default" hereunder:
(a) Failure to Perform. Except as provided in Section 14.1(b) below,
------------------
the failure of a Member or Manager appointed by a Member (or any
Affiliate thereof) to comply with or perform any of its (or such
Affiliate's) material obligations under this Agreement and a
continuation of such failure or breach for more than thirty (30)
days after notice to the Defaulting Member that such Member or
Manager (or such Affiliate) has failed to perform any such
obligations under this Agreement; provided, however, if such
failure is of a nature that can be cured but cannot reasonably be
cured within such thirty (30) day period, such period shall be
extended for up to an additional one hundred twenty (120) days so
long as the Defaulting Member (or such Affiliate) in good faith
commences all reasonable curative efforts within such thirty (30)
day period and diligently and expeditiously continues its
curative efforts to completion. "Material" shall mean having a
significant financial impact on the Company through operations or
otherwise.
(b) Failure to Make Capital Contribution. The failure of a Member to
------------------------------------
pay a Capital Contribution within thirty (30) days after receipt
of a Call Notice pursuant to Section 3.3.
(c) Defaults of Individuals. If a Member or its officers, directors,
-----------------------
shareholders, members, or senior employees thereof shall be
convicted of a criminal felony or convicted of an act of fraud or
other abuse subject to material civil penalty, in each case which
causes the Company to suffer material and adverse effects to its
business reputation or purpose.
14.2 Remedies. Upon the occurrence of any Event of Default, the Company
--------
and the other Member (who is not the Defaulting Member) shall have the
following rights and remedies except where such rights and remedies
are expressly limited by the terms and conditions of this Agreement:
(a) Dissolution. The non-Defaulting Member may elect to dissolve the
-----------
Company in accordance with Article 10.
(b) Optional Buy-Out. The non-Defaulting Member may elect to buy-out
----------------
the Defaulting Member's Membership Interest in accordance with
Section 8.3.
(c) Other Rights and Remedies. All other rights and remedies
-------------------------
available to the Members and the Company at law or in equity,
unless expressly limited in this Agreement.
Page 35
14.3 Cumulative Remedies. Except as otherwise stated expressly in this
-------------------
Agreement, no remedy conferred upon the Company or any Member in this
Agreement is intended to be exclusive of any other remedy herein or by
law provided or permitted, but rather each shall be cumulative and
shall be in addition to every other remedy given hereunder or now or
hereafter existing at law, in equity or by statute.
14.4 Litigation Without Termination. Subject to the arbitration provisions
------------------------------
set forth above in Section 13.3, any Member shall be entitled to
maintain, on its own behalf or on behalf of the Company, any action or
proceeding against any other Member or the Company (including, without
limitation, any action for damages, specific performance or
declaratory relief) for or by reason of breach by such party of this
Agreement, notwithstanding the fact that any or all of the parties to
such proceeding may then be Members in the Company, and without
dissolving the Company.
14.5 No Waiver. No waiver by a Member or the Company of any breach of or
---------
default under this Agreement shall be deemed to be a waiver of any
other breach or default of any kind or nature, and no acceptance of
payment or performance by a Member or the Company after any such
breach or default shall be deemed to be a waiver of any breach or
default of this Agreement, whether or not such Member or the Company
knows of such breach or default at the time it accepts such payment or
performance. No failure or delay on the part of a Member or the
Company to act at any time such other may continue to be so in
default, and no such failure or delay shall operate as a waiver of any
default.
/ /
/ /
/ /
/ /
/ /
/ /
/ /
/ /
/ /
/ /
/ /
/ /
Page 36
IN WITNESS WHEREOF, all of the Members of Inland Pacific Development
Company, LLC have executed this Agreement, effective as of the
Effective Date.
INLAND PACIFIC DEVELOPMENT COMPANY, LLC,
a Delaware limited liability company
By: INLAND PACIFIC PARTNERS, LLC,
a Delaware limited liability company
Its Member
By: /s/ XXXXXXX X. XXXXX
--------------------------
Xxxxxxx X. Xxxxx, Manager
By: /s/ XXXXXXX XXXXXXXX
--------------------------
Xxxxxxx XxXxxxxx, Manager
By: /s/ XXXXXXX X. XXXXXX
---------------------------
Xxxxxxx X. Xxxxxx, Manager
By: /s/ XXXX XXXXXXX
---------------------------
Xxxx Xxxxxxx, Manager
By: SOUTHWEST WATER COMPANY,
a California corporation,
Its Member
By: /s/ XXXXX X. GAR
-----------------
Name: Xxxxx X.
President
List of Appendices/Schedules
----------------------------
Appendix A - Tax and Related Matters
Appendix B - Quincey Employment Agreement
Appendix C - Member Notice Addresses
Appendix D - Investment Representations
Schedule 1.25 - Management Committee
Schedule 1.29 - Percentage Interests
Schedule 1.41 - Tax Matters Member
Schedule 5.2(b) - Initial Company Budget
Page 37
APPENDIX A
TAX AND RELATED MATTERS
("Tax Supplement")
Article 1
CAPITAL ACCOUNTS
1.1 Book Capital Accounts. A capital account (the "Book Capital Account")
---------------------
for each Member shall be maintained at all times during the Term in
accordance with this Section 1.1 and the capital accounting rules set
forth in Section 1.704-1(b)(2)(iv) of the Treasury Regulations, as the
same may be amended from time to time ("Regulations") (excluding
however, Section 1.704-1(b)(2)(iv)(f) of the Regulations [permitting
an optional revaluation of Company property in certain circumstances]
except with respect to Company property as to which an election to
revalue the same shall have been made pursuant to subsection (d)
below) except as otherwise specifically provided herein. The Company
shall make all adjustments required by said Section 1.704-1(b)(2)(iv).
In the event that at any time during the term of the Company it shall
be determined that the Book Capital Accounts shall not have been
maintained as required by this Section 1.1, then said accounts shall
be retroactively adjusted so that the same shall conform to this
Section 1.1. The Company shall make all adjustments required by said
Section 1.704-1(b)(2)(iv). In the event that the Company acquires an
interest in another limited liability company or partnership by way of
contribution or owns an interest in any other limited liability
company or partnership at the time of a revaluation of Company
property, the allocation of the Company's distributive share of the
income, gain, loss or deduction of any such subsidiary limited
liability company or partnership shall, to the extent possible, be
made for purposes of this Company as if the subsidiary limited
liability company or partnership's assets were owned directly by the
Company and the property of the subsidiary limited liability company
or partnership was revalued. In addition, the provisions of Section
1.704-2(k) shall be applied in connection with Nonrecourse Deductions
and Member Risk Nonrecourse Deductions when the Company is a partner
in another partnership or a member in another limited liability
company.
(a) Maintenance of Book Capital Accounts. Each Member's Capital
------------------------------------
Account shall be maintained on the Company's books and records in
accordance with the following provisions:
(i) To each Member's Book Capital Account there shall be added
(a) such Member's Capital Contributions, (b) such Member's
allocable share of Net Income and any items in the nature of
income or gain that are specially allocated to such Member
pursuant to Section 2.4 of this Tax Supplement or other
provisions of this Agreement, and (c) the amount of any
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Company liabilities assumed by such Member or which are
secured by any property distributed to such Member.
(ii) From each Member's Book Capital Account there shall be
subtracted (a) the amount of (1) cash and (2) the Fair
Market Value of any Company property (other than cash)
distributed to such Member (other than any payment of
principal and/or interest to such Member pursuant to the
terms of a Member Loan made by the Member to the Company)
pursuant to any provision of this Agreement, (b) such
Member's allocable share of Net Losses and any other items
in the nature of expenses or losses that are specially
allocated to such Member pursuant to Section 2.4 of this
Tax Supplement, or other provisions of this Agreement, and
(c) liabilities of such Member assumed by the Company or
which are secured by any property contributed by such
Member to the Company.
(iii) In determining the amount of any liability for purposes of
subsections (i) and (ii) above, there shall be taken into
account Code Section 752(c) and any other applicable
provisions of the Code and Regulations.
(b) Book Basis. As used herein, "Book Basis" of an item of Company
----------
property means the adjusted basis of such item as reflected in
the books of the Company, determined and maintained in accordance
with the capital accounting rules contained in Section 1.704-
1(b)(2)(iv) of the Regulations (excluding, however,
Section 1.704-1(b)(2)(iv)(f) thereof [permitting an optional
revaluation of
Company property in certain circumstances] except with respect to
Company property as to which an election to revalue the same
shall have been made pursuant to subsection (d) below).
(c) Initial Book Capital Accounts. The initial Book Capital Account
-----------------------------
balances of the Members as of the date hereof shall, based upon
the Capital Contributions made by the Members under Sections
3.1(a) and 3.2, be as follows:
SWC $120,000
Inland $120,000
(d) Optional Revaluations of Company Property. The Management
-----------------------------------------
Committee may cause the Company to make the election to revalue
Company property permitted under Section 1.704-1(b)(2)(iv)(f) of
the Regulations. Should such election be made, the Book Capital
Account of each Member shall be adjusted in accordance with
Section 1.704-1(b)(2)(iv)(g) of the Regulations.
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(e) Book Items. Consistent with the provisions of Section 1.704-
----------
1(b)(2)(iv)(g)(3) of the Regulations, "Book Depreciation"
(which means the depreciation, depletion or amortization [as
the case may be], deduction or allowance that shall be
allowable to the Company with respect to an item of Company
property, determined in the manner hereinafter set forth) for
each item of Company property shall be the amount that bears
the same relationship to the "Adjusted Book Basis" (which means
with respect to an item of Company property, the Book Basis of
such item as the same may be adjusted from time to time by Book
Depreciation allowed with respect to such item of Company
property) of such item of Company property as the depreciation,
depletion or amortization, as the case may be, allowable for
federal income tax purposes with respect to such item of
Company property for such year bears to the "adjusted basis"
(within the meaning of Section 1011(a) of the Code of such item
of Company property). If an item of Company property shall have
an "adjusted basis" (as defined in the preceding sentence)
equal to zero, Book Depreciation shall be determined under a
reasonable method, which method shall be selected by the
Management Committee. Also consistent with the provisions of
Section 1.704-1(b)(2)(iv)(g)(1) of the Regulations, Book Gain
or Book Loss (which means the gain or loss with respect to an
item of Company property with a Book Basis on the Company's
books that differs from the adjusted tax basis of such
property) shall be allocated to the Members' Book Capital
Accounts in lieu of gain or loss with respect to such property
as determined for federal income tax purposes.
(f) Book Adjustments on Distributions. With respect to all
---------------------------------
distributions of Company property to Members, the Company shall
comply with the provisions contained in Section 1.704-
1(b)(2)(iv)(e) of the Regulations (relating to adjustments to
the Members' Book Capital Accounts in connection with such
distributions) and all allocations and adjustments made in
connection therewith shall be in accordance with Article 2 of
this Tax Supplement.
ARTICLE 2
ALLOCATION OF PROFITS AND LOSSES
For purposes of maintaining Book Capital Accounts and in determining the rights
of the Members among themselves, the Company's items of income, gain, loss and
deduction for any taxable year (or portion thereof) shall be allocated to the
Members as provided hereinbelow.
2.1 Preliminary Definitions. When used herein, the following terms shall
-----------------------
have the respective meanings assigned to them in this Article 2:
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(a) Adjusted Capital Account. "Adjusted Capital Account" shall mean the
------------------------
Book Capital Account maintained for each Member as of the end of each
taxable year of the Company (a) increased by any amounts which such
Member is deemed obligated to restore under Regulation Section 1.704-
2(g)(1) and Section 1.704-2(i)(5), and (b) decreased by such Member's
share of the items described in Regulations Sections 1.704-
1(b)(2)(ii)(d)(4), (5) and (6).
(b) Economic Risk of Loss. "Economic Risk of Loss" shall have the meaning
----------------------
set forth in Regulation Section 1.704-2(b)(4).
(c) Minimum Gain Attributable to Member Risk Non-recourse Debt. "Minimum
----------------------------------------------------------
Gain Attributable to Member Risk Non-recourse Debt" shall mean the
amount determined in accordance with the principles of Regulation
Section 1.704-2(i).
(d) Net Income/Net Loss. "Net Income" or "Net Loss", as the case may be,
-------------------
shall mean, for any taxable period, the difference between the
Company's items of income and gain and the Company's items of loss and
deduction for such taxable period. The determination of Net Income or
Net Loss shall be made generally in accordance with Section 703(a) of
the Code; however, (i) all items of income, gain, loss or deduction
required to be stated separately pursuant to Section 703(a)(1) of the
Code will be included in the determination; (ii) any income and gain
that is exempt from tax, and all expenditures described in Section
705(a)(2)(B) of the Code (or treated as expenditures so described
pursuant to Regulations Section 1.704-1(b)(2)(iv)(i) shall be included
in such determination; (iii) Book Gain, Book Loss and Book
Depreciation will be included in such determination in lieu of tax
gain or loss or depreciation; and (iv) the items allocated under
Section 2.4 of this Tax Supplement shall be excluded from such
determination.
(e) Nonrecourse Deductions. "Nonrecourse Deductions" shall have the
-----------------------
meaning set forth in Regulation Section 1.704-2(b)(1).
(f) Nonrecourse Liability. "Nonrecourse Liability" shall have the meaning
----------------------
set forth in Regulation Section 1.704-2(b)(3).
(g) Member Risk Nonrecourse Debt. "Member Risk Nonrecourse Debt" shall
have the meaning set forth in Regulation Section 1.704-2(b)(4) for
"partner nonrecourse debt."
(h) Member's Share of Minimum Gain. "Member's Share of Minimum Gain" shall
--------------------------------
be calculated as set forth in Regulation Section 1.704-2(g)(1).
A-4
(i) Member's Share of Minimum Gain Attributable to Member Risk Nonrecourse
----------------------------------------------------------------------
Debt. "Member's Share of Minimum Gain Attributable to Member Risk
----
Nonrecourse Debt" shall be calculated as set forth in Regulation
Section 1.704-2(i)(5).
(j) Company Minimum Gain. "Company Minimum Gain" shall mean that amount
---------------------
determined in accordance with the principles of Regulation Section
1.704-2(d).
(k) Member Risk Nonrecourse Deductions. "Member Risk Nonrecourse
----------------------------------
Deductions" shall mean any and all items of loss, deduction or
expenditure described in Section 705(a)(2)(B) of the Code (or treated
as an expenditure so described pursuant to Regulation Section 1.704-
1(b)(2)(iv)(i)) that, in accordance with the principles of Regulation
Section 1.704-2(i), are attributable to Member Risk Nonrecourse Debt.
2.2 Net Loss. After giving effect to the allocations set forth in Section 2.4
--------
of this Tax Supplement hereof, and the special allocations for Start-Up
Losses and Start-Up Income (as defined below), all items of income, gain,
loss and deduction taken into account in computing Net Loss for a
particular taxable period shall be allocated in the same manner as such Net
Loss is allocated hereunder, to wit:
(a) First. To the Members to offset any Net Income allocated pursuant to
-----
Sections 2.3(c) and (b) of this Tax Supplement, in that order, pro
rata among the Members in proportion to their respective shares of the
Net Income being offset. To the extent any allocation of Net Income is
offset pursuant to this Section 2.2 of this Tax Supplement, such Net
Income shall be disregarded in making subsequent allocations pursuant
to Section 2.3 of this Tax Supplement.
(b) Second. To the Members in proportion to their respective Percentage
------
Interests; provided, notwithstanding subsection (a) above, net losses
attributable to the expenditure of the Start-Up Capital Contributions
during the Start-Up Period (the "Start-Up Losses") shall be allocated
55% to SWC and 45% to Inland, in accordance with Section 6.5 of the
Agreement, after first offsetting any Start-Up Income allocated
pursuant to Section 2.3 of this Tax Supplement.
2.3 Net Income. After giving effect to the allocations set forth in Section 2.4
----------
of this Tax Supplement, and the special allocation of Start-Up Losses and
Start-Up Income as defined herein, all items of income, gain, loss and
deduction taken into account in computing Net Income shall be allocated in
the same manner as such Net Income is allocated hereunder, to wit:
A-5
(a) First. To the Members to offset any Net Loss allocated pursuant to
-----
Section 2.2(b) of this Tax Supplement pro rata among the Members in
proportion to their respective amount of Net Loss being offset.
(b) Second. To the Members, pro rata, in the same proportion and to the
------
extent of each such Member's accrued Preferred Return during the term
of the Company.
(c) Third. To the Members in accordance with their Percentage Interests;
-----
provided, notwithstanding subsections (a) and (b) above, net income
attributable to the IPWC Contracts and IPWC Development Fees earned
during the Start-Up Period shall be allocated 55% to SWC and 45% to
Inland, in accordance with Section 6.5 of the Agreement, after first
offsetting any Start-Up Losses allocated pursuant to Section 2.2 of
this Tax Supplement.
2.4 Overriding Allocation Provisions. Notwithstanding any other provision of
--------------------------------
this Article 2, the following allocations shall be made:
(a) Qualified Income Offset. Except as provided in Section 2.4(b) of this
-----------------------
Tax Supplement, in the event any Member unexpectedly receives any
adjustments, allocations or distributions described in Regulation
Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5) or 1.704-
1(b)(2)(ii)(d)(6), items of Company income and gain shall be specially
allocated to such Member in an amount and manner sufficient to
eliminate, to the extent required by the Regulations, the Adjusted
Capital Account deficit created by such adjustments, allocations or
distributions as quickly as possible; provided, however, that an
allocation pursuant to this Section 2.4(a) 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 this Article 2
have been tentatively made as if this Section 2.4(a) were not in this
Tax Supplement.
(b) Minimum Gain Chargeback. Notwithstanding the other provisions of this
-----------------------
Article 2, except as provided otherwise in Regulation Section 1.704-
2(f) if there is a net decrease in Company Minimum Gain for any
Company taxable period, each Member shall be allocated items of
Company income and gain for such period (and, if necessary, subsequent
periods) in an amount equal to such Member's share of the net decrease
in Company Minimum Gain for such taxable period.
(c) Nonrecourse Deductions. Nonrecourse Deductions for any taxable period
-----------------------
shall be allocated in accordance with the Members' respective
Percentage Interests in effect during such taxable period.
A-6
(d) Code Section 754 Adjustments. To the extent an adjustment to the
----------------------------
adjusted tax basis of any Company asset pursuant to Section 734(b) or
743(b) of the Code is required, pursuant to Regulations Section 1.704-
1(b)(2)(iv)(m), to be taken into account in determining Book Capital
Accounts, the amount of such adjustment to the Book 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 item of gain or loss shall be specially allocated to the
Members in a manner consistent with the manner in which their Book
Capital Accounts are required to be adjusted pursuant to such Section
of the Regulations.
(e) Member Risk Nonrecourse Deductions. Member Risk Nonrecourse Deductions
----------------------------------
for any taxable period shall be allocated to the Member that bears the
Economic Risk of Loss for such Member Risk Nonrecourse Debt. If more
than one Member bears such Economic Risk of Loss, such Member Risk
Nonrecourse Deductions shall be allocated between or among such
Members in accordance with the ratios in which such Members share such
Economic Risk of Loss.
(f) Member Risk Minimum Gain Chargeback. Notwithstanding the other
-----------------------------------
provisions of this Article 2, except as provided otherwise in
Regulation Section 1.704-2(i) if there is a net decrease in Minimum
Gain Attributable to Member Risk Nonrecourse Debt for any Company
taxable period, each Member with a Member's Share of Minimum Gain
Attributable to Member Risk Nonrecourse Debt at the beginning of such
taxable period shall be allocated items of Company income and gain for
such period (and, if necessary, subsequent periods) in an amount equal
to such Member's share of the net decrease in the Minimum Gain
Attributable to Member Risk Nonrecourse Debt. The items to be so
allocated shall be determined in a manner consistent with the
principles of Regulation Section 1.704-2(f)(5).
(g) Curative Allocations. The allocations set forth in Sections 2.4(a)
--------------------
through (f) of this Tax Supplement (the "Regulatory Allocations") are
intended to comply with certain requirements of Regulations Sections
1.704-1(b) and 1.704-2(i). The Regulatory Allocations may not be
consistent with the manner in which the Members intend to distribute
the cash of the Company or allocate Company income or loss.
Accordingly, the Management Committee is hereby authorized and
directed to cause the allocation of Net Income, Net Loss and other
items of income, gains, loss and deductions to the Members so as to
prevent the Regulatory Allocations from distorting the manner in which
Company distributions will be divided among the Members. In general,
the Members anticipate that this will be accomplished by specially
allocating other Net Profits, Net Losses and other items of income,
gain, loss and deduction to the Members so that, to the extent
A-7
possible, the net amount of such allocations of other Net Income, Net
Loss, and other items and the Regulatory Allocations to the Members
shall be equal to the net amount that would have been allocated among
the Members if the Regulatory Allocations had not occurred.
(h) Liquidation Allocations. It is intended that the amount to be
-----------------------
distributed to a Member pursuant to Section 10.3 of the Agreement
shall equal the amount such Member would receive if liquidation
proceeds were instead distributed in accordance with Section 6.4 of
the Agreement. This intended distribution amount for a member is
referred to as such Member's "Targeted Distribution Amount".
Notwithstanding anything to the contrary in this Tax Supplement, if
upon a termination and liquidation of the Company, any Member's ending
Book Capital Account balance immediately prior to the distributions to
be made pursuant to Section 10.3 of the Agreement is less than the
"Targeted Distribution Amount," then such Member shall be specially
allocated items of gross income or gain for Book Capital Account
purposes for such year (or for prior years to the extent amended tax
returns can be filed for the Company), and items of loss or deduction
for Book Capital Account purposes for such year (or for prior years to
the extent amended tax returns can be filed for the Company), shall be
allocated away from such Member to the other Members, until such
Member's actual Book Capital Account balance equals the Targeted
Distribution Amount for such Member. The special allocation provisions
provided by this Section 2.4(h) shall be applied in such a manner so
as to cause the difference between any Member's Targeted Distribution
Amount and the balance in its Book Capital Account (determined after
this allocation, but immediately prior to the distributions pursuant
to Section 10.3 of the Agreement) to be the smallest dollar amount
possible.
2.5 Allocation of Nonrecourse Liabilities. Nonrecourse Liabilities of the
-------------------------------------
Company in excess of the sum of the amount of Company Minimum Gain and any
tax gain allocable to the Members under Section 704(c) of the Code shall be
allocated in accordance with their respective Percentage Interests.
2.6 Protective Allocations. In the event that any amount claimed by the Company
----------------------
to constitute a deductible expense in any taxable year is recharacterized
for federal income tax purposes as a distribution made to a Member in its
capacity as a member of the Company and not a Section 707(c) Payment or a
payment to a Member not acting in his capacity as a member under Code
Section 707(a), then, in the taxable year of such recharacterization, the
Member who is deemed to have received such distribution shall first be
allocated an amount of Company gross income equal to such payment, its
Capital Account shall be reduced to reflect the distribution, and for
purposes of this Article 2 (other than the allocations in Section 2.4 of
this Tax
A-8
Supplement) Net Income and Net Loss shall be determined after making the
allocation required by this Section 2.6.
ARTICLE 3
DETERMINATIONS OF FAIR MARKET VALUE
FOR BOOK AND TAX PURPOSES
The determination of the Fair Market Value of Company property for book and tax
purposes shall be made by the Company Accountant and approved by the Management
Committee.
ARTICLE 4
DEFICIT FUNDING OBLIGATION
No Member shall be obligated to eliminate any deficit balance in its final Book
Capital Account on the liquidation of the Company.
ARTICLE 5
MISCELLANEOUS
5.1 Allocations to Periods. For purposes of determining the income, gain, loss
----------------------
and deductions allocable to any period, such items shall be determined on
the interim closing the books method.
5.2 Definitions. Terms utilized herein but not defined herein shall have the
-----------
same meanings specified therefor in the Agreement.
5.3 Federal Income Tax Allocations. The following provisions are applicable for
------------------------------
federal and state income tax purposes:
(a) Tax Allocations Follow Book Allocations. Except as otherwise provided
---------------------------------------
herein, and to the extent permitted by Section 1.704-1(b)(4)(i) of the
Regulations, for federal and state income tax purposes each Company
item of income, gain, loss and deduction shall be allocated to the
Members in the same manner as its corresponding item of "book" income,
gain, loss or deduction has been allocated under Article 2 of this Tax
Supplement.
(b) Section 704(c) Allocations. Notwithstanding any provisions hereof to
--------------------------
the contrary, income, gain, loss and deductions with respect to
Section 704(c) Property shall, solely for tax purposes, be allocated
between the Members so as to take account of any variation between the
adjusted tax basis of such property to the Company for federal income
tax purposes and its initial Book Basis. As used herein, "Section
704(c) Property" means (1) each item of Company property which is
contributed to the Company and to which Section 704(c) of the Code or
Section 1.704-1(b)(2)(iv)(d) of the Regulations applies, and (2) each
item of Company property which, as contemplated by Section 1.704-
A-9
1(b)(4)(i) and other analogous provisions of the Regulations, is
governed by the principles of Section 704(c) of the Code (or
principles analogous to the principles contained in Section 704(c) of
the Code) by virtue of (a) an increase or decrease in the Book Capital
Accounts of the Members to reflect a revaluation of Company property
on the company's books as provided by Section 1.704-1(b)(2)(iv)(f) of
the Regulations, (b) the fact that it constitutes a receivable,
account payable, or other accrued but unpaid item which, under
principles analogous to those applying to an item of Company property
having an adjusted tax basis that differs from its Book Basis, is
treated as an item of property described in Section 1.704-
1(b)(2)(iv)(g)(2) of the Regulations, (c) the constructive liquidation
and reconstitution of the Company under Section 708(b)(1)(B) of the
Code (see, e.g., Section 1.704-1(b)(2)(iv)(1) of the Regulations) as
----
the same may from time to time be construed, to the extent that, and
for so long as, such item of Company property continues to be governed
by the principles of Section 704(c) of the Code (or principles
analogous to the principles contained in Section 704(c) of the Code).
Similar principles should be followed in allocating tax items for
state income tax purposes.
(c) Ordinary Income Recapture. If, in the event of a gain on any sale,
-------------------------
exchange or other disposition of Company property, all or a portion of
such gain is characterized as ordinary income ("Recapture") by virtue
of the recapture rules of Section 1250, Section 1245 or otherwise,
then the Recapture shall be allocated to the Members as follows (i.e.,
the portion of the gain allocated to a Member which constitutes
Recapture shall be determined as follows): to the extent possible,
there shall be allocated to each Member that portion of such Recapture
which is equal to the fraction, the numerator of which is the
depreciation deductions (or other items of deduction that generated
such Recapture) allowable with respect to the Company property being
sold theretofore allocated to such Member or its predecessor in
interest for federal income tax purposes, and the denominator of which
is the total depreciation deductions (or other items of deduction that
generated such Recapture) allowable with respect to the Company
property being sold theretofore allocated to any Member or its
predecessor in interest for federal income tax purposes (including, in
the case of property which is contributed to the Company, depreciation
deductions taken or claimed by the contributing Member prior to such
contribution); provided, however, that under no circumstances shall
there be allocated to any Member, Recapture in excess of the gain
allocated to such Member (and such excess shall be allocated instead
to the other Members).
5.4 Tax Elections. All elections required or permitted to be made by the
-------------
Company under the Code and state revenue laws shall be made jointly by the
Members.
A-10
5.5 Tax Matters Member.
------------------
(a) Identity, Etc.. Inland is designated the tax matters member ("TMM")
--------------
for the Company as defined in Section 6231(a)(7) of the Code. The
Manager may resign as TMM for one (1) or more specified Company
taxable years upon thirty (30) days prior notice to the Members. In
the event of any change in TMM, the Member serving as TMM for a given
taxable year shall continue as TMM with respect to all matters
concerning such year. The TMM and the Members shall use their
reasonable efforts to comply with the responsibilities outlined in
this Section 5.5 and in Sections 6222 through 6232 of the Code and in
doing so shall incur no liability to any Members. Notwithstanding
TMM's obligation to use its reasonable efforts in the fulfillment of
its responsibilities, TMM shall not be required to incur any expenses
for the preparation for or pursuance of administrative or judicial
proceedings unless the Members agree on a method for sharing such
expenses.
(b) Inconsistent Treatment. If any Member intends to file a notice of
----------------------
inconsistent treatment under Section 6222(b) of the Code, then such
Member shall give reasonable notice under the circumstances to the
Members of such intent and the manner in which the Member's intended
treatment of an item is (or may be) inconsistent with the treatment of
that item by the Company.
(c) Extension of Limitations. The TMM shall not enter into any extension
------------------------
of the period of limitations for making assessments on behalf of
Members without first obtaining the written consent of the Members,
which consent may not be unreasonably withheld.
(d) Administrative Adjustment. No Member shall file, pursuant to Section
--------------------------
6227 of the Code, a request for an administrative adjustment of items
for any Company taxable year without first notifying the Management
Committee. If the Management Committee agrees with the requested
adjustment, then the TMM shall file the request for administrative
adjustment on behalf of the Company. If unanimous consent is not
obtained within thirty (30) days from such notice, or within the
period required to timely file the request for administrative
adjustment, if shorter, any Member, including the TMM, may file a
request for administrative adjustment on its own behalf.
(e) Judicial Proceedings. Any Member intending to file a petition under
--------------------
Section 6226, 6228, or other section of the Code with respect to any
item or other matters involving the Company shall notify the Members
of such intention and the nature of the contemplated proceeding. In
the case in which the TMM is the Member intending to file such
petition on behalf of the Company, such notice shall be given within a
A-11
reasonable period of time to allow the Members to participate in the
choosing of the forum in which such petition will be filed. If any
Member intends to seek review of any court decision rendered as a
result of a proceeding instituted under the preceding part of this
Section, then such Member shall notify the Members of such intended
action.
(f) Settlements. The TMM shall not bind the Members to a settlement
-----------
agreement without obtaining the written concurrence of the Members.
For purposes of this paragraph, the term "settlement agreement" shall
include a settlement agreement at either the administrative or
judicial level. Any Member who enters into a settlement agreement with
respect to any partnership items, as defined by Section 6231(a)(3) of
the Code, shall notify the Members of such settlement agreement and
its terms within ninety (90) days from the date of settlement.
(g) Survival. The provisions of this Section 5.5 shall survive the
--------
termination of the Company or the termination of any Member's interest
in the Company and shall remain binding on the Members for a period of
time necessary to resolve with the Internal Revenue Service of the
United States of America or the Department of Treasury any and all
matters regarding the federal income taxation of the Company.
A-12
APPENDIX B
QUINCEY EMPLOYMENT AGREEMENT
----------------------------
B-1
APPENDIX C
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MEMBER NOTICE ADDRESSES
-----------------------
Inland: Xx. Xxxx Xxxxxxx
Inland Pacific Partners, LLC
0000 Xxxxx Xxxxxx, Xxxxx Xxxxx
Xxxxxx Xxxxxxxxx, XX 00000
Fax No.: 909/000-0000
SWC: Xx. Xxxx Xxxxxxx
Southwest Water Company
000 Xxxxxxxx Xxxxxx, Xxxxx 000
Xxxx Xxxxxx, XX 00000-0000
Fax No.: 626/000-0000
APPENDIX D
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INVESTMENT REPRESENTATIONS
--------------------------
Each Member acknowledges and agrees as follows with respect to investment
representations:
(a) Each Member understands:
(i) That the Membership Interests in the Company evidenced by
this Agreement have not been registered under the
Securities Act of 1933, 15 U.S.C. (SS) 15b et seq., the
-- ---
California Corporate Securities Law of 1968 or any other
state securities laws (collectively, the "Securities
Acts") because the Company is issuing Membership Interests
in the Company in reliance upon the exemptions from the
registration requirements of the Securities Acts providing
for issuance of securities not involving a public
offering.
(ii) That the Company has relied upon the representation made
by each Member that such Member's Membership Interest in
the Company is to be held by such Member for investment;
and
(iii) That exemption from registration under the Securities Acts
would not be available if any Membership Interest in the
Company was acquired by a Member with a view to
distribution. Each Member agrees that the Company is under
no obligation to register the Membership Interests in the
Company or to assist the Members in complying with any
exemption from registration under the Securities Acts if
the Member should at a later date desire to dispose of
such Member's Membership Interest in the Company.
(b) Each Member hereby represents to the Company that such Member is
acquiring such Member's Membership Interest in the Company for
such Member's own account, for investment and not with a view to
the resale or distribution.
(c) Each Member recognizes that no public market exists with respect
to the Membership Interests and no representation has been made
that such a public market will exist at a future date.
(d) Each Member hereby represents that such Member has not received
any advertisement or general solicitation with respect to the
sale of the Membership Interests.
D-1
(e) Each Member acknowledges that such Member has a preexisting
personal or business relationship with the Company or its
officers, directors, or principal Membership Interest holders,
or, by reason of such Member's business or financial experience
or the business or financial experience of such Member's
financial advisors (who are not affiliated with the Company),
could be reasonably assumed to have the capacity to protect such
Member's own interest in connection with the purchase of the
Membership Interests. Each Member further acknowledges that such
Member is familiar with the financial condition and prospects of
the Company's business, and has discussed with the other Members
the current activities of the Company. Each Member believes that
the Membership Interests are securities of a kind such Member
wishes to purchase and hold for investment, and that the nature
and amount of the Membership Interests are consistent with such
Member's investment program.
(f) Before acquiring any Membership Interest in the Company, each
Member has investigated the Company and its business and the
Company has made available to each Member all information
necessary for the Member to make an informed decision to acquire
a Membership Interest in the Company. Each Member considers
itself to be a person or entity possessing experience and
sophistication as an investor adequate for the evaluation of the
merits and risks of the Member's investment in the Company.
(g) Each Member understands the meaning and consequences of the
representations and warranties made by such Member set forth in
this Appendix and that the Company has relied upon such
representations and warranties. Each Member hereby indemnifies,
defends, protects and holds wholly free and harmless the Company
and the other Members from and against any and all claims,
losses, damages, expenses or liabilities arising out of the
breach and/or inaccuracy of any such representation and warranty.
The indemnification contained in this paragraph shall survive the
execution of this Agreement, the formation of the Company, and
the liquidation of the Company.
D-2
SCHEDULE 1.25
-------------
Initial Management Committee
----------------------------
Inland Representatives
----------------------
Xxxx XxXxxxxx (Senior Manager)
Xxxx Xxxxxxx
Inland Alternates
-----------------
Xxxxxxx X. Xxxxx (Senior Manager)
Xxxxx Xxxxxxxx
Xxxxxxx X. Xxxxxx
Xxxx X. Xxxxxxx
SWC Representatives
-------------------
Xxxxxxx Xxxxxxx
SWC Alternate(s)
----------------
Xxxxxxx Xxxxxxxx
SCHEDULE 1.29
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Percentage Interests
--------------------
Inland 75%
SWC 25%
Start-Up Percentages
--------------------
Inland 45%
SWC 55%
SCHEDULE 1.41
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Tax Matters Member
------------------
Inland Pacific Partners, LLC
SCHEDULE 5.2(a)
---------------
Initial Company Budget
----------------------
