AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT OF I | M 1, LLC A CALIFORNIA LIMITED LIABILITY COMPANY Effective Date: January 6, 2017
Exhibit
6.19
AMENDED
AND RESTATED
OF
I | M
1, LLC
A
CALIFORNIA LIMITED LIABILITY COMPANY
Effective
Date: January 6, 2017
THE
LIMITED LIABILITY COMPANY MEMBERSHIP UNITS REPRESENTED BY THIS
LIMITED LIABILITY COMPANY AGREEMENT HAVE NOT BEEN REGISTERED WITH
THE SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR UNDER THE SECURITIES ACTS OR LAWS OF ANY STATE
IN RELIANCE UPON EXEMPTIONS UNDER THOSE ACTS. THE SALE OR OTHER
DISPOSITION OF SUCH MEMBERSHIP UNITS IS RESTRICTED AS STATED IN
THIS LIMITED LIABILITY COMPANY AGREEMENT, AND IN ANY EVENT IS
PROHIBITED UNLESS THE LLC RECEIVES AN OPINION OF COUNSEL
SATISFACTORY TO IT AND ITS COUNSEL THAT SUCH SALE OR OTHER
DISPOSITION CAN BE MADE WITHOUT REGISTRATION UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, AND ANY APPLICABLE STATE SECURITIES ACTS
AND LAWS. BY ACQUIRING MEMBERSHIP UNITS REPRESENTED BY THIS LIMITED
LIABILITY COMPANY AGREEMENT, EACH MEMBER REPRESENTS THAT IT WILL
NOT SELL OR OTHERWISE DISPOSE OF ITS MEMBERSHIP UNITS WITHOUT
COMPLYING WITH THE PROVISIONS OF THIS LIMITED LIABILITY COMPANY
AGREEMENT AND REGISTRATION OR OTHER COMPLIANCE WITH THE AFORESAID
ACTS AND THE RULES AND REGULATIONS ISSUED
THEREUNDER.
1
AMENDED
AND RESTATED
OF
I | M
1, LLC
A
CALIFORNIA LIMITED LIABILITY COMPANY
THIS AMENDED AND RESTATED LIMITED LIABILITY
COMPANY AGREEMENT (this “Agreement”) is made and entered
into effective as of January 6, 2017 (the “Effective Date”) by and among the
Persons whose names and addresses are listed on the Information
Exhibit attached hereto as Exhibit A. Unless otherwise
indicated, capitalized words and phrases in this Agreement shall
have the meanings set forth in the Glossary of Terms attached
hereto as Exhibit
B.
RECITALS
A. I
| M 1, LLC, a California limited liability company (the
“LLC”), was
formed pursuant to the Act on September 23, 2016 upon the filing of
the Articles of Organization with the Secretary of State of the
State of California.
B. On
December 29, 2016, the LLC and IM1 Holdings entered into that
certain Limited Liability Company Agreement of the LLC (the
“Original Operating
Agreement”) as the sole member of the
Company.
C. On
the date hereof, (i) Level Brands, Inc., a North Carolina
corporation (“Level”) acquired 583,000 Class A
Units of the LLC from IM1 Holdings pursuant to the Member Interests
Exchange Agreement dated as of January 6, 2017, by and between
Level and IM1 Holdings (the “Exchange Agreement”) and, upon the
execution of this Agreement, Level became a Member.
D. The
undersigned parties hereto wish to amend and restate the Original
Operating Agreement in its entirety as of the date hereof to read
as follows and wish to provide herein for the management and the
conduct of the business and affairs of the LLC and their relative
rights and obligations with respect thereto.
AGREEMENT
In
consideration of the mutual promises of the parties hereto, and
other good and valuable consideration, the receipt and legal
sufficiency of which is hereby acknowledged, the parties hereto,
intending to be legally bound, do hereby agree that the Amended and
Restated Limited Liability Company Agreement of the LLC shall be as
follows:
2
ARTICLE
I
FORMATION;
GOVERNING LAW
Section
1.1 Formation;
Governing Law; Ratification. The LLC was formed on September
23, 2016 upon the filing of the Articles of Organization with the
Secretary of State of the State of California. The rights and
obligations of the Members and the terms and conditions of the LLC
shall be governed by the Act and this Agreement, including all the
Exhibits to this Agreement. To the extent the Act and this
Agreement are inconsistent with respect to any subject matter
covered in this Agreement, this Agreement shall, to the extent
permitted by the Act, govern. The Manager shall cause to be
executed and filed on behalf of the LLC all other instruments or
documents, and shall do or cause to be done all such filing,
recording or other acts, including the filing of the LLC’s
annual report with the Secretary of State of the State of
California, as may be necessary or appropriate from time to time to
comply with the requirements of law for the continuation and
operation of a limited liability company in California and in the
other states and jurisdictions in which the LLC shall transact
business. The Members and the LLC hereby ratify and approve all
actions taken by the LLC, its Manager and the other Members prior
to the date hereof, including, but not limited to, the appointment
of the new Manager set forth herein, any and all actions taken by
the organizer, the transfer and sale of the membership interests in
the LLC, the actions set forth above in the Recitals, and the class
designations of the Members set forth on Exhibit A attached
hereto.
Section
1.2 Name. The
name of the LLC shall be “I | M 1, LLC”. The name of
the LLC shall be the exclusive property of the LLC and no Member
shall have any commercial rights in the LLC’s name or any
derivation thereof, even if the name contains such Member’s
own name or a derivation thereof. The LLC’s name may be
changed only by an amendment to the Articles of Organization
adopted by the Manager.
Section
1.3 Purposes.
The LLC has been formed for the purpose of engaging in any lawful
business.
Section
1.4 Registered Agent;
Registered Office. The LLC’s registered agent and
registered office are set forth in the Articles of Organization and
may be changed from time to time by the Manager pursuant to the
provisions of the Act.
Section
1.5 Commencement and
Term. The LLC commenced at the time and on the date
appearing in the Articles of Organization and shall continue until
it is dissolved, its affairs are wound up and final liquidating
distributions are made pursuant to this Agreement.
Section
1.6 No State Law
Partnership. The Members intend that the LLC not be a
partnership (including, without limitation, a limited partnership)
or joint venture, and that no Member be a partner or joint venturer
of any other Member by virtue of this Agreement, for any purposes
other than as set forth in the last sentence of this Section 1.6, and neither
this Agreement nor any other document entered into by the LLC or
any Member relating to the subject matter hereof shall be construed
to suggest otherwise. The Members intend that the LLC shall be
treated as a partnership for federal and, if applicable, state or
local income tax purposes, and that each Member and the LLC shall
file all tax returns and shall otherwise take all tax and financial
reporting positions in a manner consistent with such
treatment.
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ARTICLE
II
CAPITAL
ACCOUNTS
Section
2.1 Class A Units and
Class B Units. The names, addresses, Capital Contributions
and Units, as of the date hereof are set forth on Information Exhibit. The
Manager shall update the Information Exhibit from time
to time to reflect changes thereto in accordance herewith. In the
event the Information
Exhibit is not so amended, such matters shall be reflected
in the books and records of the LLC, and the books and records of
the LLC shall be controlling. Each Member acknowledges and agrees
that the number and class of Units held by each Member as of the
date of this Agreement is reflected opposite such Member’s
name on the Information Exhibit.
Section
2.2 Additional Capital
Contributions; Participation Rights.
(a) Subject to the
provisions in Article V, the Manager may from time to time
authorize and cause the LLC to issue additional Interests, secured
or unsecured debt obligations of the LLC, debt obligations of the
LLC convertible into Interests, options or warrants to purchase
Interests, or any combination of the foregoing (collectively,
“New
Securities”) with such terms and conditions and in
exchange for such cash or other property as it may determine;
provided, however, no Member shall have any obligation to
contribute additional capital to the LLC except to the extent such
Member exercises its participation rights pursuant to this Section
2.2 or elsewhere as provided in this Agreement. The LLC shall offer
to each Member holding Units the right to purchase all or any
portion of that number of New Securities being issued equal to (i)
the number of New Securities being issued times (ii) a fraction,
the numerator of which is the number of Units held by such Member,
and the denominator of which is the number of Units held by all
Members, on the same terms and subject to the same conditions as
the proposed issuance to others. Any New Securities not initially
subscribed for by the holders of Units (the “Unsubscribed Securities”) shall be
reoffered to those Persons electing initially to purchase their
full proportionate share of New Securities hereunder in proportion
to the number of Units held by them or in such other amounts as
they may agree. Any Unsubscribed Securities not subscribed for by
the Members in accordance with the previous sentence may be offered
to those Persons selected by the Manager. The failure of any Member
to exercise participation rights hereunder shall not alter the
obligation of the Manager to ensure that the issuance of New
Securities is fair to all impacted classes of Units.
(b) Subject to the
provisions in Article V, the LLC shall not (i) issue or sell any
additional Interests, secured or unsecured debt obligations of any
of the Subsidiaries, debt obligations of any of the Subsidiaries
convertible into equity securities, options or warrants to purchase
equity securities, or any combination of the foregoing, or any
securities convertible into, or exchangeable or exercisable for,
any equity securities or debt obligations of any of its
Subsidiaries, or any combination of the foregoing (collectively,
the “Other
Securities”), or (ii) permit any of its Subsidiaries
to issue or sell any Other Securities to any Person that is a
Member or an Affiliate of a Member without offering the Members
holding Units the right to purchase such Other Securities to the
same extent that such Members would be entitled under the
provisions of this Section 2.2 if such issuance or sale of Other
Securities were an issuance of New Securities, and no Member shall,
or shall permit any of its Affiliates to, acquire any Other
Securities other than pursuant to an issuance or sale in accordance
with this sentence. The Manager shall determine the timing and such
other procedures as may be necessary and appropriate to enable the
holders of Units to exercise their rights under this Section 2.2,
provided that in no event shall such Persons be given less than ten
(10) days nor more than thirty (30) days prior notice before being
required to commit to purchase any New Securities or Other
Securities which they may initially become entitled to purchase
pursuant to this Section 2.2. The participation rights set forth in
this Section 2.2 may be waived on behalf of all Members upon the
receipt of both (i) the Approval of the Members and (ii) the
written approval and consent of the holders of at least a majority
of the Class B Units.
4
Section
2.3 Liability of
Members. No Member shall be liable for any debts or losses
of capital or profits of the LLC or be required to guarantee the
liabilities of the LLC. Except as set forth in Sections 2.1, 2.2
(to the extent such Member exercises its participation rights) and
3.4 of this Agreement, no Member shall be required to contribute or
lend funds to the LLC. In no event shall any Member be liable with
respect to, or be required to contribute capital to restore, a
negative or deficit balance in such Member’s Capital Account
upon the dissolution or liquidation or at any other time of either
the LLC or such Member’s Interest. No Member shall be
entitled to withdraw or demand any part of such Member’s
Capital’s Account. No Member shall be liable for the return
of any other Member’s Capital Contributions; any such return
shall be made solely from the assets of the LLC available
therefore. No interest shall accrue for the benefit of, or be paid
to, any Member on such Member’s Capital Contributions. A
Member has no right to, interest in, or claim against any specific
property of the LLC by reason of the Member's
Interests.
Section
2.4 Maintenance of
Capital Accounts; Withdrawals; Interest. Separate Capital
Accounts amounts shall be maintained for each of the Members. No
Members shall be entitled to withdraw or receive any part of its
Capital Account or receive any distribution with respect to its
Interest except as provided in this Agreement. No Member shall be
entitled to receive any interest on its Capital Account. Each
Member shall look solely to the assets of the LLC for distributions
with respect to its Interest and, except as otherwise provided in
this Agreement, shall have no right or power with respect to its
Interest to demand or receive any property or cash from the LLC. No
Member shall have priority over any other Member as to LLC
distributions or allocations relating to its Units except as
provided in this Agreement.
Section
2.5 Classes of
Units. Each Member shall hold an Interest. Each
Member’s Interest shall be denominated in Units, and the
relative rights, privileges, preferences and obligations with
respect to each Member’s Interest shall be determined under
this Agreement and the Act to the extent herein provided based upon
the number and the class of Units held by such Member with respect
to its Interest. The total number of Units which the LLC initially
shall have authority to issue is One Million One Hundred
Forty-Three Thousand One Hundred and Thirty-Seven (1,143,137),
divided into two (2) classes: Five Hundred Eighty-Three Thousand
(583,000) Class A Units and Five Hundred Sixty Thousand One Hundred
and Thirty-Seven (560,137) Class B Units. The Class A Units and
Class B Units shall be identical and of equal rank, except with
respect to voting rights as provided below. The number and class of
Units held by each Member on the Effective Date is set forth
opposite each Member’s name on the Information Exhibit. On
the date hereof, the total number of Units set forth on the
Information Exhibit (comprising all the Class A Units and Class B
Units) are issued and outstanding. A description of the classes of
Units are as follows:
5
(a) Class A Units
(Voting). “Class A
Units” shall consist of those Units designated as
Class A Units held by the Members listed on the Information Exhibit
as holding Class A Units. Class A Units shall have all the rights,
privileges, preferences and obligations as are specifically
provided for in this Agreement for Class A Units, and as may
otherwise be generally applicable to all classes of Units, unless
such application is specifically limited to one or more other
classes of Units. On the Effective Date, Class A Units are issued
and are outstanding as set forth on Exhibit A.
(b) Class B Units
(Non-Voting). “Class B
Units” shall consist of those Units designated as
Class B Units held by the Members listed on the Information Exhibit
as holding Class B Units. Class B Units shall, to the extent
permitted by the Act, be “non-voting” Units, but have
all the rights, privileges, preferences and obligations as are
specifically provided for in this Agreement for Class B Units, and
as may otherwise be generally applicable to all classes of Units,
unless such application is specifically limited to one or more
other classes of Units. The only difference in the rights,
privileges, preferences and obligations as between the Class A
Units and the Class B Units shall be that the Class B Units are
“non-voting” Units. On the Effective Date, the Class B
Units issued and are outstanding shall be as set forth on
Exhibit
A.
ARTICLE
III
DISTRIBUTIONS
Section
3.1 Tax
Distributions. To the extent permitted under the Act, within
fifteen (15) days following the end of each Tax Estimation Period,
the Manager shall use commercially reasonable efforts to cause the
LLC to distribute to the Members cash in an amount equal to the
LLC’s Adjusted Taxable Income allocated to such Member for
the Tax Estimation Period in question (provided that the
LLC’s Adjusted Taxable Income is a positive number),
multiplied by the Combined Effective Marginal Tax. Additionally, in
the event that based on the LLC’s tax returns the Manager
determines that the LLC’s actual Adjusted Taxable Income
computed through the end of the preceding Fiscal Year is more than
the amount used for purposes of computing the amount distributable
pursuant to the previous sentence, the Manager shall use
commercially reasonable efforts to cause the LLC to distribute,
within ninety (90) days after the end of that Fiscal Year, any
additional amounts the Manager determines are necessary to account
for the taxes attributable to such increased Adjusted Taxable
Income. If the Manager determines that the tax distributions
pursuant to this Section 3.1 with respect to a Tax Estimation
Period cannot be made in full or that that it is not in the
interest of the Members to make such tax distributions in full,
then the tax distributions shall be made in the highest aggregate
amount the Manager determines to be appropriate and shall be
apportioned among the Members based on their relative entitlement
to distributions pursuant to this Section 3.1.
To the
extent distributions are made pursuant to this Section 3.1, all
such distributions shall be treated as advances against, and thus
shall reduce the amount of, distributions otherwise to be made to
such Member pursuant to this Agreement, including Sections 3.2, 3.3
and 8.3 hereof, currently or in future periods, and such
distributions shall be deemed to have been received pursuant to the
particular Sections or subsections (other than this Section 3.1)
against which the tax distributions are treated as
advances.
6
Section
3.2 Discretionary
Distributions. At any time prior to a Capital Transaction or
the dissolution of the LLC, the LLC may make discretionary
distributions of cash or property to the extent permitted under the
Act, subject to Section 3.4, in such amounts, at such times and as
of such record dates as the Manager shall determine to the holders
of Class A Units and Class B Units in proportion to the number of
such Units held by them. Distributions under Section 3.2 shall be
made to the Members in the proportion that the number of Units held
by such Person bears to the total number of Units.
Section
3.3 Capital Transaction
Distributions. Proceeds from a Capital Transaction, after
payment of, or adequate provision for, the debts and obligations of
the LLC, shall be distributed and applied in accordance with
Section 3.2.
Section
3.4 Withholding.
In the event any federal, foreign, state or local jurisdiction
requires the LLC to withhold taxes or other amounts with respect to
any Member’s allocable share of Profits, taxable income or
any portion thereof, or with respect to distributions, the LLC
shall withhold from distributions or other amounts then due to such
Member an amount necessary to satisfy the withholding
responsibility and shall pay any amounts withheld to the
appropriate taxing authorities. In such a case, for purposes of
this Agreement the Member for whom the LLC has paid the withholding
tax shall be deemed to have received the withheld distribution or
other amount due and to have paid the withholding tax directly and
such Member’s share of cash distributions or other amounts
due shall be reduced by a corresponding amount.
If it
is anticipated that at the due date of the LLC’s withholding
obligation the Member’s share of cash distributions or other
amounts due is less than the amount of the withholding obligation,
the Member with respect to which the withholding obligation applies
shall pay to the LLC the amount of such shortfall within thirty
(30) days after notice of such shortfall is given to such Member by
the LLC. In the event a Member fails to make the required payment
when due hereunder, and the LLC nevertheless pays the withholding,
in addition to the LLC’s remedies for breach of this
Agreement, the amount paid shall be deemed a recourse loan from the
LLC at the prime rate of interest plus two percent (2%), and the
LLC shall apply all distributions or payments that would otherwise
be made to such Member toward payment of the loan and interest,
which payments or distributions shall be applied first to interest
and then to principal until the loan is repaid in
full.
Section
3.5 Noncash
Distributions. The Manager may cause the LLC to make
distributions to the Members in property (valued for such purpose
at its fair market value determined in good faith by the Manager)
other than in cash in accordance with the provisions of Section
3.2, 3.3 or 8.3, as applicable, so long as such non-cash property
is distributed among all the Members entitled to receive such
distributions in proportion to the total amounts each Member is
entitled to receive in respect of such distributions.
ARTICLE
IV
ALLOCATIONS
Section
4.1 Profits and
Losses. Except as otherwise provided in the Regulatory
Allocations Exhibit, Profits (and items thereof) and Losses (and
items thereof) for each Fiscal Year shall be allocated among the
Members such that the ending Capital Account of each Member,
immediately after giving effect to such allocations, is, as nearly
as possible, equal to (a) the amount of the distributions that
would be made to such Member pursuant to Section 8.3 if (i) the LLC
were dissolved and terminated at the end of the Fiscal Year; (ii)
its affairs were wound up and each asset on hand at the end of the
Fiscal Year were sold for cash equal to its Agreed Value; (iii) all
liabilities of the LLC were satisfied (limited with respect to each
nonrecourse liability to the fair market value of the assets
securing such liability); and (iv) the net assets of the LLC were
distributed to the Members in accordance with Section 8.3; minus
(b) such Member’s share of LLC Minimum Gain and Member
Nonrecourse Debt Minimum Gain, computed immediately prior to the
hypothetical sale of assets.
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Section
4.2 Code Section 704(c)
Tax Allocations. Income, gain, loss and deduction with
respect to any Section 704(c) Property shall, solely for tax
purposes, be allocated among the Members so as to take account of
any variation between the adjusted basis of such property to the
LLC for federal income tax purposes and its initial Agreed Value
using any permissible method under Code § 704(c) and the
Treasury Regulations promulgated thereunder, as determined by the
Manager; provided, however, that no method other than the
“traditional method” described in Treasury Regulations
§1.704-3(b) may be selected without the written approval and
consent by holders of at least fifty-one percent (51%) of the Class
B Units. Notwithstanding any other provision of this Agreement,
allocations pursuant to this Section 4.2 are solely for purposes of
federal, state and local taxes and shall not be taken into account
in computing any Member’s Capital Account, share of Profits,
Losses, or distributions (including tax distributions pursuant to
Section 3.1) pursuant to any provision of this
Agreement.
Section
4.3 Miscellaneous.
(a) Allocations
Attributable to Particular Periods. For purposes of determining
Profits, Losses or any other items allocable to any period, such
items shall be determined on a daily, monthly or other basis, as
determined by the Manager using any permissible method under Code
§ 706 and the Treasury Regulations promulgated
thereunder.
(b) Other Items. Except
as otherwise provided in this Agreement, all items of LLC income,
gain, loss, deduction, credit and any other allocations not
otherwise provided for shall be divided among the Members in the
same proportion as they share Profits or Losses, as the case may
be, for the year.
(c) Tax Consequences;
Consistent Reporting. The Members are aware of the income tax
consequences of the allocations made by this Article IV and by the
Regulatory Allocations and hereby agree to be bound by and utilize
those allocations as reflected on the information returns of the
LLC in reporting their shares of LLC income and loss for income tax
purposes. Each Member agrees to report its distributive share of
LLC items of income, gain, loss, deduction and credit on its
separate return in a manner consistent with the reporting of such
items to it by the LLC. Any Member failing to report consistently
shall notify the Internal Revenue Service of the inconsistency as
required by law and shall reimburse the LLC for any legal and
accounting fees incurred by the LLC in connection with any
examination of the LLC by federal or state taxing authorities with
respect to the year for which the Member failed to report
consistently.
8
ARTICLE
V
ADMINISTRATION AND
MANAGEMENT
Section
5.1 Manager.
Except as otherwise provided in this Agreement, including, but not
limited to, Section 5.2, the overall direction and management of
the business and affairs of the LLC (including, without limitation,
investment and acquisition decisions) shall be the responsibility
of the Manager. The Manager may appoint or remove, from time to
time, one or more officers who shall have and may exercise all the
powers and authority of the Manager in the management of the
business, property and affairs of the LLC as set forth in Section
5.2.
Section
5.2 Officers.
The LLC shall have a President, Chief Financial Officer and
Secretary. The LLC may also have, at the discretion of the Manager,
such other officers as may be appointed by the Manager. The current
officers of the LLC shall continue in such roles until replaced by
the Manager (with to the approval of the Class B
Member).
(a) President. Subject
to such supervisory powers, if any, as may be given by the Manager,
the President shall be the chief executive officer of the LLC and
shall, subject to the control of the Manager, have general
supervision, direction and control of the business and the officers
of the corporation. The President shall preside at all meetings of
the Members. The President shall have the general powers and duties
of management usually vested in the office of president of a
corporation, and shall have such other powers and duties as may be
prescribed by the Manager or this Agreement.
(b) Chief Financial
Officer. The Chief Financial Officer shall keep and maintain, or
cause to be kept and maintained, adequate and correct books and
records of accounts of the properties and business transactions of
the LLC, including accounts of its assets, liabilities, receipts,
disbursements, gains, losses, capital, retained earnings and Units.
The books of account shall at all reasonable times be open to
inspection by the Manager and the Members. The Chief Financial
Officer shall deposit all moneys and other valuables in the name
and to the credit of the LLC with such depositaries as may be
designated by the Manager. The Chief Financial Officer shall
disburse the funds of the LLC as may be ordered by the President or
the Manager, shall render to the President and the Manager,
whenever they request it, an account of all transactions as chief
financial officer and of the financial condition of the
corporation, and shall have such other powers and perform such
other duties as may be prescribed by the Manager or this
Agreement.
(c) Secretary. The
Secretary shall keep or cause to be kept, at the principal
executive office or such other place as the Manager may order, a
book of minutes of all meetings and actions of the Manager and
Members, with the time and place of holding, whether regular or
special, and, if special, how authorized, the notice thereof given,
the names of those present and the number of shares present or
represented at Members’ meetings, and the proceedings
thereof. The Secretary shall keep, or cause to be kept, at the
principal executive office or at the office of the LLC’s
transfer agent or registrar, as determined by the Manager, the
Information Exhibit, or a duplicate of the Information Exhibit,
showing the names of all Members and their addresses, the number
and classes of Units held by each, the number and date of
certificates, if any, issued for the same, and the number and date
of cancellation of any such certificate surrendered for
cancellation. The Information Exhibit shall be kept in written or
electronic form or in any other form capable of being converted
into written or electronic form. The Secretary shall give, or cause
to be given, notice of all meetings of the Members required by this
Agreement or by law to be given, and the Secretary shall keep the
seal of the LLC, if one be adopted, in safe custody, and shall have
such other powers and perform such other duties as may be
prescribed by the Manager or this Agreement.
9
Section
5.3 Certain
Decisions. Notwithstanding anything to the contrary
contained herein, the following actions shall not be taken by the
LLC or any of its Subsidiaries without the written approval and
consent by holders of at least a majority of the Class B
Units:
(a) the issuance or
creation of any class or series of Units with rights upon
liquidation or otherwise superior or pari passu to the Class B
Units or modification to the preferences and rights of existing
equity securities;
(b) any change to the
authorized number of Units;
(c) any issuances of
New Securities or Other Securities;
(d) any amendment to
this Agreement;
(e) any action
contemplated by Section 8.1;
(f) the
conversion of the LLC into a corporation; and
(g) any transaction,
contract or business arrangement with any Member or Affiliate
thereof, other than the License Agreement (but including any
amendment to the License Agreement).
Section
5.4 Member
Approval. No amendment, variation, or modification of this
Agreement shall be effective or valid if such amendment, variation
or modification alters a Member’s personal liability for any
liability or obligation of the LLC or the Member’s obligation
to make capital contributions or loans to the LLC, unless, in
addition to any other consent or other approval or action required
by this Agreement, such Member (regardless of whether such Member
is otherwise entitled to vote or participate in management under
this Agreement) consents to such amendment, variation or
modification. The Members understand, approve, consent to and
acknowledge that kiWW has entered into the License Agreement with
the LLC for certain intellectual property dated January 6,
2017.
Section
5.5 Effect of
Terminating Event on Manager.
(a) A Person shall
immediately terminate as and cease to be a Manager upon the written
resignation as Manager (a “Terminating Event”).
(b) The termination of
the Manager shall be deemed to occur immediately.
(c) In the event the
Manager, or his successor (if any), ceases to be the Manager
pursuant to the terms above, a new Manager shall be appointed upon
the Approval of the Members.
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Section
5.6 Standard of
Care.
(a) In acting on behalf
of the LLC, a Covered Person shall act in good faith and with that
degree of care that an ordinarily prudent Person in a like position
would use under similar circumstances and shall perform diligently
and faithfully the Covered Person's duties for the benefit of the
LLC in accordance with the LLC’s purposes, policies,
procedures and objectives. A Covered Person shall devote such time
and effort to such duties as the Covered Person deems necessary and
appropriate.
(b) In performing any
duty, a Covered Person shall be entitled to rely on information,
opinions, reports or statements, including financial statements and
other financial data, in each case prepared or presented
by:
(i)
one or more agents
or employees of the LLC;
(ii)
counsel, public
accountants, business, investment or financial consultants or
advisors, or other Persons as to matters that such Covered Person
believes to be within such Person's professional or expert
competence; or
(iii)
another Member,
Manager or Officer duly designated in accordance with this
Agreement, as to matters within designated authority of such
Member, Manager or Officer which the Covered Person believes to
merit confidence;
provided that in so
relying, such Covered Person shall be acting in good faith and with
such degree of care, but such Covered Person shall not be
considered to be acting in good faith if such Covered Person has
knowledge concerning the matter in question that would cause such
reliance to be unwarranted.
(c) A Covered Person
performing such Covered Person's duties in accordance with this
Agreement shall have no liability by reason of being or having been
a Covered Person or acting on behalf of the LLC pursuant to the
provisions and authority of this Agreement, unless such liability
shall have been the result of fraud, deceit, gross negligence, bad
faith, willful misconduct or wrongful taking by such Covered
Person.
Section
5.7 Limitation of
Liability. No Covered Person shall be liable to the LLC or
any Member for any damages suffered or incurred by any Person on
account of, or by reason of any claim based on or arising from, any
act taken or omitted to be taken in the course of representing or
performing services for the LLC or otherwise in the capacity as a
Member, Manager or Officer, including, without limitation, the
appointment or retention of, or reliance upon, any employee or
agent of the LLC or any Person except to the extent that a judgment
or other final adjudication (in each case which is not subject to
appeal) adverse to the Covered Person establishes that (a) the acts
of the Covered Person or omissions were in violation of any
provision of this Agreement, or were the result of fraud, deceit,
gross negligence, bad faith, willful misconduct or wrongful taking
by such Covered Person or involved a knowing violation of law, (b)
such Covered Person, in fact, personally gained a financial profit
or other advantage to which such Member, Manager or Officer was not
legally entitled or (c) with respect to a distribution was made in
violation of the Act, the acts of the Covered Person were not
performed in accordance with this Agreement.
11
Section
5.8 Indemnification.
The LLC shall at all times maintain managers’ and
officers’ insurance coverage, in an amount customary for a
similar business and otherwise in form and substance satisfactory
to the Manager. The LLC shall indemnify each Covered Person and
hold each Covered Person harmless from and against any damages
suffered or incurred by such Covered Person, as such, in the course
of serving in any office of, or otherwise representing or acting
for or on behalf of the LLC (in each case within the scope of the
authority of the Covered Person), except to the extent that a
judgment or other final adjudication (in each case which is not
subject to appeal) adverse to such Covered Person establishes (a)
that acts of the Covered Person were committed in bad faith or were
the result of fraud, deceit, gross negligence, willful misconduct
or wrongful taking or (b) that the Covered Person personally gained
in fact a financial profit or other advantage to which the Covered
Person was not legally entitled; provided that, any other provision
hereof notwithstanding, any such indemnification shall be solely
from the net assets of the LLC, and no Member shall be required to
make any capital contribution or otherwise pay any amount from such
Member's own assets as a result thereof. The LLC may procure
insurance in such amounts and covering such risks as the Manager
determines to be appropriate to fund any indemnification required
or permitted to be made hereunder. Upon making a claim for
indemnification, a Covered Person, as applicable, may request in
writing that the LLC advance to such Covered Person the expenses of
defending the claim, action, suit or proceeding giving rise to such
indemnification claim and the LLC shall advance such expenses;
provided that the Covered Person furnishes the LLC with such
assurances and security as may be reasonably requested by the LLC
to assure repayment of the amounts advanced by the LLC in the event
that a judgment or other final adjudication (in each case which is
not subject to appeal) is rendered holding that such Covered Person
was not entitled to be indemnified by the LLC pursuant to this
Agreement. Any such Covered Person shall agree to return to the LLC
amounts advanced by the LLC in the event that a judgment or other
final adjudication (in each case which is not subject to appeal) is
rendered holding that such Covered Person is or was not entitled to
be indemnified by the LLC in accordance with this Agreement or
applicable law.
Section
5.9 Bank
Accounts. The LLC shall maintain one or more accounts
(including, but not limited to, brokerage, custodial, checking,
cash management and/or money market accounts) in such banks,
brokerage houses or other financial institutions as the Manager may
determine. All amounts deposited by or on behalf of the LLC in
those accounts shall be and remain the property of the LLC and be
used only for the benefit of the LLC. All withdrawals from such
accounts shall be made only by the Manager or any Officer. No funds
of the LLC shall be kept in any account other than an LLC account,
and funds of the LLC shall not be commingled with the funds of any
other Person; and no Member, Manager or Officer shall apply, or
permit any other Person to apply, such funds in any manner, except
for the benefit of the LLC.
Section
5.10 Organizer
Indemnification. The Organizer’s acts and conduct in
connection with the organization of the LLC are hereby ratified and
adopted by the LLC as acts and conduct by and on behalf of the LLC
and are deemed to be in its best interest. The organizational and
other activities for which the Organizer was responsible have been
completed, the LLC is hereby relieved of any further duties and
responsibilities in that regard, and the LLC and the Members hereby
jointly and severally agree to indemnify and hold harmless the
Organizer for any loss, liability, or expense arising from his
actions or conduct in his capacity as organizer of the
LLC.
12
Section
5.11 Independent
Activities.
(a) The Manager shall
be required to devote only such time to the affairs of the LLC as
the Manager determines in its sole discretion may be necessary to
manage and operate the LLC in accordance with this Agreement, and,
subject to the foregoing, the Manager shall be free to serve any
other Person or enterprise in any capacity that the Manager may
deem appropriate in the Manager’s discretion.
(b) Each Member
acknowledges that the Manager and other Members and their
Affiliates are free to engage or invest in an unlimited number of
activities, businesses or entities, any one or more of which may be
related to the activities or businesses of the LLC (including, but
not limited to, investing in securities or financial instruments
that are the same or similar to those purchased or held by the LLC
or licensing rights that are the same or similar to the rights
licensed to or by the LLC), without having or incurring any
obligation to offer any interest in such activities to the LLC or
any Member, and neither this Agreement nor any activity undertaken
pursuant to this Agreement shall prevent any Member from engaging
in such activities, or require any Member to permit the LLC or any
Member to participate in any such activities, and as a material
part of the consideration for the execution of this Agreement by
each Member, each Member hereby waives, relinquishes, and renounces
any such right or claim of participation. The Members acknowledge
that certain conflicts of interest may thus arise and hereby agree
that the specific rights with respect to the Members' and their
Affiliates' freedom of action provided in this Section 5.11(b) are
sufficient to protect their respective interests in relation to
such possible conflicts and are to be in lieu of all other possible
limitations that might otherwise be implied in fact, in law, or in
equity.
ARTICLE
VI
TRANSFER OF
INTERESTS
Section
6.1 In General.
A Member may not Transfer all or any portion of its Interest or
Units unless such Transfer complies with the provisions of this
Article VI. Any Transfer that does not comply with the provisions
of this Article VI shall be void.
Section
6.2 Limited Exception
for Transfers of Interests. A Member may Transfer all or any
portion of its Units if each of the following conditions are
satisfied:
(a) Prior Notice. The
Member proposing to effect a Transfer of such Units delivers a
Transfer Notice at least twenty (20) days prior to any such
proposed Transfer, which Transfer Notice shall indicate the
transferee of such Units, the number and class of Units to be
transferred and the price and other terms on which the Transfer is
to be effected.
(b) Securities Law
Compliance. Either (i) the Units proposed to be transferred are
registered under the Securities Act and the rules and regulations
thereunder and any applicable state securities laws; or (ii) the
LLC and its counsel determine, in their reasonable discretion, that
the Transfer qualifies for an exemption from the registration
requirements of the Securities Act, any applicable state securities
laws and any securities laws of any applicable jurisdiction and, if
requested by the LLC, counsel to the Member proposing to effect
such Transfer provides a written legal opinion to that
effect.
13
(c) Member Consent. The
Transfer has received both (i) the Approval of the Members and (ii)
the written approval and consent of the holders of at least a
majority of the Class B Units.
Notwithstanding the
foregoing, the consents required by clause (c) above shall not be
required for a Permitted Transfer. Any attempted Transfer not in
compliance with any of the above conditions shall be null and void,
and the LLC shall not recognize the attempted purchaser, assignee
or transferee for any purpose whatsoever, and the Member attempting
such Transfer shall have breached this Agreement for which the LLC
and the other Members shall have all remedies available for breach
of contract.
Section
6.3 Legends.
Unit certificates, if any are issued, shall have imprinted thereon
a legend substantially to the following effect:
“The
securities represented hereby have not been registered under the
Securities Act of 1933, as amended, or under the securities laws of
any state or other jurisdiction (together, the “Securities Laws”) and may not be
offered for sale, sold or otherwise transferred or encumbered in
the absence of compliance with such Securities
Laws.”
“The sale,
transfer or other disposition or pledge or other encumbrance of
shares represented by this Certificate is subject to an Amended and
Restated Limited Liability Company Agreement dated January 6, 2017
(as may be further amended, restated and otherwise modified from
time to time, the “Agreement”), among I | M 1, LLC, a
California limited liability company (the “Company”), the Member named on
this Certificate and certain other parties named in the Agreement,
which Agreement includes certain restrictions on transfer of the
Units represented by this Certificate. A copy of the Agreement is
on file in the office of the Secretary of the Company and may be
reviewed by application thereto. Each holder hereof shall be bound
by all provisions of the Agreement.”
Section
6.4 Rights of
Assignees. If a Transfer complies with the provisions of the
preceding Section 6.2, but the Person acquiring such Units is not
admitted as a Member as a result of such Person’s failure to
comply with the provisions of Section 6.5, such Person shall become
an assignee with respect to such Units. An assignee with respect to
any Units is entitled only to receive distributions and allocations
with respect to such Units as set forth in this Agreement, and
shall have no other rights, benefits or authority of a Member under
this Agreement or the Act, including no right to receive notices to
which Members are entitled under this Agreement, no right to vote,
no right to inspect the books or records of the LLC, no right to
bring derivative actions on behalf of the LLC, no right to purchase
additional Interests, and no other rights of a Member under the Act
or this Agreement; provided, however, that the Units of an assignee
shall be subject to all of the restrictions, obligations and
limitations under this Agreement and the Act, including the
restrictions on Transfer contained in this Article VI.
14
Section
6.5 Admission as a
Member. No Person taking or acquiring, by whatever means,
all or any portion of any Units and the Interest represented
thereby shall be admitted as a Member unless such Person (a) elects
to become a Member and, together with its transferor, executes,
acknowledges and delivers to the LLC a written assignment of such
Units and Interest in such form as may be reasonably required by
the Manager as well as a joinder to this Agreement, and (b) such
Person has the Approval of the Members and the written approval and
consent of the holders of at least a majority of the Class B Units
to be a full substitute Member. Any transferee shall automatically
be admitted as a Member of the LLC upon compliance with this
Section 6.5 and shall succeed to all of the rights, restrictions
and obligations of the transferor under this Agreement. The Manager
shall amend the Information Exhibit from time to time to reflect
the admission of Members pursuant to this Section 6.5.
Section
6.6 Distributions and
Allocations With Respect to Transferred Units. If any Units
are transferred in compliance with the provisions of this Article
VI, then (a) Profits, Losses and all other items attributable to
such Units for such period shall be divided and allocated between
the transferor and the transferee by taking into account their
varying interests during such Fiscal Year in accordance with Code
§ 706(d) using any conventions permitted by the Code and
selected by the transferor and transferee in connection with the
transfer and Approved by the Members; (b) all distributions on or
before the date of such Transfer shall be made to the transferor,
and all distributions thereafter shall be made to the transferee;
and (c) the transferee shall succeed to and assume the Capital
Account and other similar items of the transferor to the extent
related to the transferred Units. Solely for purposes of making the
allocations and distributions, the LLC shall recognize such
Transfer not later than the end of the calendar month during which
the LLC receives notice of such Transfer and all of the conditions
in Section 6.2 are satisfied. If the LLC does not receive a notice
stating the date the Units were transferred and such other
information as the LLC may reasonably require within thirty (30)
days after the end of the Fiscal Year during which the Transfer
occurs, then all of such items shall be allocated, and all
distributions shall be made to the Person, who, according to the
books and records of the LLC on the last day of the Fiscal Year
during which the Transfer occurs, was the owner of such Units.
Neither the LLC nor any Member shall incur any liability for making
allocations and distributions in accordance with the provisions of
this Section 6.6, whether or not such Person had knowledge of any
transfer of ownership of any Units.
ARTICLE
VII
MEMBERSHIP
Section
7.1 When Membership
Ceases. A Person who is a Member shall cease to be a Member
upon the Transfer of such Member’s entire Interest as
permitted under this Agreement. A Member is not entitled to
withdraw voluntarily from the LLC.
15
Section
7.2 Deceased,
Incompetent or Dissolved Members. The personal
representative, executor, administrator, guardian, conservator or
other legal representative of a deceased individual Member or of an
individual Member who has been adjudicated incompetent may exercise
the rights of the Member for the purpose of administration of such
deceased Member’s, estate or such incompetent Member’s
property. The beneficiaries of a deceased Member’s estate
shall become Members of the LLC only upon compliance with the
conditions of this Agreement. If a Member who is a Person other
than an individual is dissolved, the legal representative or
successor of such Person may exercise the rights of the Member
pending liquidation. The distributees of such Person may become
assignees of the dissolved Member only upon compliance with the
conditions of this Agreement.
Section
7.3 Consequences of
Cessation of Membership. In the event a Person ceases to be
a Member as provided in Section 7.1 above, the Person (or the
Person’s successor in interest) shall continue to be liable
for all obligations of the former Member to the LLC and, with
respect to any Interest owned by such Person, shall be an assignee
with only the rights and subject to the restrictions, conditions
and limitations described above.
ARTICLE
VIII
DISSOLUTION,
WINDING UP AND LIQUIDATING DISTRIBUTIONS
Section
8.1 Dissolution
Triggers. The LLC shall dissolve upon the first occurrence
of the following events (“Liquidating Events”):
(a) The determination
by Approval of the Members that the LLC should be
dissolved;
(b) The sale or other
disposition of all or substantially all of the assets of the LLC;
or
(c) The entry of a
decree of judicial dissolution or the administrative dissolution of
the LLC as provided in the Act.
Section
8.2 Winding Up;
Termination. Upon the occurrence of a Liquidating Event, the
LLC 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 and Members and neither the Manager nor any
Member shall take any action that is inconsistent with, or not
necessary to or appropriate for, the winding up of the LLC’s
business and affairs. The Manager, or, if there is no Manager, a
court appointed liquidating trustee, shall, as promptly as
practicable, take full account of the LLC’s assets and
liabilities and wind up the affairs of the LLC. The Persons charged
with winding up the LLC shall settle and close the LLC’s
business, and dispose of and convey the LLC’s noncash assets
as promptly as reasonably possible following dissolution as is
consistent with obtaining the fair market value for the LLC’s
assets.
Section
8.3 Liquidating
Distributions. Upon a dissolution of the LLC pursuant to
Section 8.1 and subject to the provisions of Section 3.3 relating
to Capital Transactions, the LLC’s cash, the proceeds, if
any, from the disposition of the LLC’s noncash assets and
those noncash assets to be distributed to the Members, shall be
distributed in the following order:
16
(a) First, to the
LLC’s creditors, including Members who are creditors, to the
extent otherwise permitted by law, in satisfaction of liabilities
of the LLC;
(b) Next, to the
Members who are creditors whose claims are not satisfied by
distributions pursuant to the preceding subsection;
and
(c) Next, to the
holders of Units as set forth in Section 3.2.
ARTICLE
IX
BOOKS
AND RECORDS
Section
9.1 Books and
Records. The LLC shall keep adequate books and records at
its principal place of business, which shall set forth an accurate
account of all transactions of the LLC as well as the other
information required by the Act.
Section
9.2 Taxable Year;
Accounting Methods. The LLC shall use the Fiscal Year as its
taxable year unless otherwise required by applicable law. The LLC
shall report its income for income tax purposes using such method
of accounting selected by the Manager and permitted by
law.
Section
9.3 Information.
(a) Tax Information.
Estimated tax information necessary to enable each Member to
prepare its state, local and foreign income tax returns shall be
delivered to each Member within sixty (60) days of the end of each
tax year. Final tax information necessary to enable each Member to
prepare its state, federal, local and foreign income tax returns
shall be delivered to each Member within seventy-five (75) days of
the end of each tax year.
(b) Other
Information.
(i)
Within forty-five
(45) days of the end of each calendar quarter, the LLC shall
deliver to each Member holding Units an unaudited consolidated
balance sheet and statements of income and cash flows of the LLC
and its Subsidiaries for and as of the end of such quarter, in
reasonable detail, consistently applied (with the exception that no
notes need be attached to such statements and year-end audit
adjustments may not have been made), which statements shall also
set forth year-to-date information.
(ii)
As soon as
available after the close of each calendar year but no later than
one hundred (120) days thereafter, the LLC will deliver to each
Member holding Units an audited consolidated balance sheet and
statements of income and retained earnings and of cash flows of the
LLC and its Subsidiaries audited by a firm of independent certified
public accountants of national standing showing the financial
condition of the LLC and its Subsidiaries as of the close of such
calendar year and the results of the operations of the LLC and its
Subsidiaries during such calendar year, prepared in accordance with
GAAP, consistently applied.
17
(iii)
The LLC shall
provide to each Member holding Units such other information
relating to the financial condition, business, prospects or
corporate affairs of the LLC and its Subsidiaries as such Member
may from time to time reasonably request.
(c) Confidentiality.
(i)
Each Member agrees
that the provisions of this Agreement, all understandings,
agreements and other arrangements between and among the LLC, the
Members and its and their Affiliates, and all other non-public
information received from or otherwise relating to the LLC, or
disclosed to such Members and/or their Affiliates as a consequence
of or through their relationship with the LLC, shall be
confidential, and shall not be disclosed or otherwise released to
any other Person, other than such Member’s Affiliates and the
attorneys, accountants, agents, representatives, lenders and other
parties having a need to know such confidential information and
with whom such Member or such Member’s Affiliates deal
(collectively, the “Necessary
Parties”). Each Member shall use all reasonable
efforts to cause his, her or its Affiliates and the Necessary
Parties of such Member and its Affiliates to treat such
confidential information as confidential. Each Member shall be
responsible for any breach of this Section 9.3(c) by his, her
or its Affiliates or by any of the Necessary Parties of such Member
or any of his, her or its Affiliates. The obligations hereunder
shall not apply to the extent that the disclosure of information
otherwise confidential is required by applicable law, provided that, prior to disclosing such
confidential information, the applicable Member, Affiliate or
Necessary Party shall notify all other Members thereof, which
notice shall include the basis upon which such Member, Affiliate or
Necessary Party believes the information is required to be
disclosed and, if practicable, shall be delivered at least
seventy-two (72) hours prior to the making of such disclosure, so
that the LLC or such other Members may seek a protective order or
other appropriate remedy and/or waive compliance with the
provisions of this Section 9.3(c)(i).
Notwithstanding anything to the contrary contained herein,
confidential information does not include information received by
any party in connection with the LLC which (a) is or becomes
generally available to the public other than as a result of a
disclosure by such party or its Necessary Parties, or (b) becomes
available to such party on a non-confidential basis from a source
other than the LLC, any other party or any of their respective
Necessary Parties, provided
that such source is not known by such party to be bound by a
confidentiality agreement with or other contractual, legal or
fiduciary obligation of confidentiality to the LLC, any other party
or any other Person with respect to such information.
(ii)
The Company,
Manager and the Members understand that the Company will be deemed
a consolidated reporting entity with the Class A Member, and that
the Class A Member will have accounting and other public reporting
obligations concerning the Company, its financials and its
business. The Company agrees to cooperate with the Class A Member
with respect to any such financial statement consolidation. To the
extent that the Class A Member believes it reasonably necessary to
report on events, financial condition or other confidential
information in its filings with the Securities and Exchange
Commission, any national exchange or other regulatory authority,
the Company and the Members hereby waive any provisions in this
Section 9.3 to the
contrary.
18
ARTICLE
X
MISCELLANEOUS
Section
10.1 Notices. Any
notice, payment, demand or communication required or permitted to
be given by any provision of this Agreement shall be in writing and
shall be delivered personally to the Person or to an officer of the
Person to whom the same is directed, or sent by registered or
certified United States mail return receipt requested, or by
nationally recognized overnight delivery service, or by electronic
mail to such address provided on the Information Exhibit, addressed
as follows: if to the LLC or the Manager, to the LLC’s
principal office address as set forth in the Articles of
Organization, or to such address provided on the Information
Exhibit, or to such other address as may be specified from time to
time by notice to the Members; if to a Member, to the
Member’s address as set forth on the Information Exhibit, or
to such other address as may be specified from time to time by
notice to the Members; if to the Manager, to the address of the
Manager as set forth in the records of the LLC (with a copy to the
Member entitled to designate the Manager), or to such address
provided on the Information Exhibit, or to such other address as
the Manager may specify from time to time by notice to the Members.
Any such notice shall be deemed to be delivered, given and received
for all purposes as of the date and time of actual
receipt.
Section
10.2 Binding
Effect. Except as otherwise provided in this Agreement,
every covenant, term and provision of this Agreement shall be
binding upon and inure to the benefit of the Members, and their
respective Permitted Transferees, heirs, legatees, legal
representatives and permitted successors, transferees and
assigns.
Section
10.3 Construction.
Every covenant, term and provision of this Agreement shall be
construed simply according to its fair meaning and not strictly for
or against any Member. No provision of this Agreement is to be
interpreted as a penalty upon, or a forfeiture by, any party to
this Agreement. The parties acknowledge that each party to this
Agreement, together with such party’s legal counsel, has
shared equally in the drafting and construction of this Agreement
and, accordingly, no court construing this Agreement shall construe
it more strictly against one party hereto than the other. All
pronouns and any variations thereof shall be deemed to refer to
masculine, feminine or neuter, singular or plural, as the identity
of the Person or Persons may require. Time is of the essence with
respect to each and every term and provision of this
Agreement.
Section
10.4 Entire Agreement;
No Oral Agreements; Amendments to the Agreement. This
Agreement constitutes the entire agreement among the Members with
respect to the affairs of the LLC and the conduct of its business,
and supersedes all prior agreements and understandings, whether
oral or written. The LLC shall have no oral operating agreements.
This Agreement may not be amended without the written Approval of
the Members and written approval and consent by holders of at least
fifty-one percent (51%) of the Class B Units.
19
Section
10.5 Headings.
Article, Section and other headings contained in this Agreement are
for reference purposes only and are not intended to describe,
interpret, define or limit the scope, extent or intent of this
Agreement or any provision hereof.
Section
10.6 Severability.
Every provision of this Agreement is intended to be severable. If
any term or provision hereof is illegal or invalid for any reason
whatsoever, such illegality or invalidity shall not affect the
validity or legality of the remainder of this
Agreement.
Section
10.7 Additional
Documents. Each Member, upon the request of the Manager,
agrees to perform all further acts and execute, acknowledge and
deliver any documents that may be reasonably necessary, appropriate
or desirable to carry out the provisions of this
Agreement.
Section
10.8 Governing Law;
Consent to Exclusive Jurisdiction; Submission to
Jurisdiction. The laws of the State of California shall
govern the validity of this Agreement, the construction and
interpretation of its terms, the organization and internal affairs
of the LLC and the limited liability of the Members. Each of the
Members (a) agrees not to commence any suit, action or other
proceeding arising out of or based upon this Agreement except in
the federal or state courts of the State of California, and (b)
hereby waives, and agrees not to assert, by way of motion, as a
defense, or otherwise, in any such suit, action or proceeding, any
claim that such Member is not subject personally to the
jurisdiction of the above-named courts, that such Member or such
Member’s property is exempt or immune from attachment or
execution, that the suit, action or proceeding is brought in an
inconvenient forum, that the venue of the suit, action or
proceeding is improper or that this Agreement or the subject matter
hereof may not be enforced in or by such court. Each Member shall
bear its own costs in respect of any disputes arising under this
Agreement. The prevailing party shall be entitled to reasonable
attorneys’ fees, costs, and necessary disbursements in
addition to any other relief to which such party may be entitled.
Each of the Members to this Agreement consents to personal
jurisdiction for any equitable action sought in any federal or
state court of the State of California having subject matter
jurisdiction.
Section
10.9 Waiver of Action
for Partition. Each of the Members irrevocably waives any
right that it may have to maintain any action for partition with
respect to any of the assets of the LLC.
Section
10.10 Counterpart
Execution; Facsimile or Electronic Mail Execution. This
Agreement may be executed in any number of counterparts with the
same effect as if all of the Members had signed the same document.
Such executions may be transmitted to the LLC and/or the other
Members by facsimile or electronic mail and such facsimile or
electronic mail execution shall have the full force and effect of
an original signature. All fully executed counterparts, whether
original, facsimile or electronic mail executions or a combination,
shall be construed together and shall constitute one and the same
agreement.
20
Section
10.11 Tax Matters
Member. The Manager shall be the “tax matters
partner” of the LLC within the meaning of Code §
6231(a)(7) and the “representative” of the LLC within
the meaning of Code § 6223(a) (as amended by the Bipartisan
Budget Act of 2015) (the “Tax
Matters Member”), and shall serve as the Tax Matters
Member until its successor is duly designated by both the Approval
of the Members and the written approval and consent of the holders
of at least a majority of the Class B Units. The Tax Matters Member
shall have authority to take any action that may be taken by a
“tax matters partner” or a
“representative,” as applicable, under the
Code.
Section
10.12 Creditors.
None of the provisions of this Agreement shall be for the benefit
of or enforced by any creditor of the LLC or of any
Member.
Section
10.13 Remedies
Cumulative. No remedy herein conferred upon any party is
intended to be exclusive of any other remedy, and each and every
such remedy shall be cumulative and shall be in addition to every
other remedy given hereunder or now or hereafter existing at law or
in equity or by statute or otherwise. No single or partial exercise
by any party of any right, power or remedy hereunder shall preclude
any other or further exercise thereof.
Section
10.14 Exhibits.
The Exhibits to this Agreement, each of which is incorporated by
reference, are:
Exhibit
A:
Information
Exhibit
Exhibit
B.
Glossary of
Terms
Exhibit
C:
Regulatory
Allocations Exhibit
[Signature
Page Follows]
21
IN
WITNESS WHEREOF, the Members and the Manager have executed this
Agreement on the following execution pages, to be effective as of
the Effective Date.
MEMBERS:
CLASS A
MEMBER
/s/ Xxxxxx X. Xxxxxxxxxx
Name:
Xxxxxx X. Xxxxxxxxxx
Title:
Chief Executive Officer
CLASS B
MEMBER
IM1
HOLDINGS, LLC
/s/ Xxxxxxx Xxxxxxxxx
Name:
Xxxxxxx Xxxxxxxxx
Title:
President
MANAGER:
/s/ Xxxxxx X. Xxxxxxxxxx
Name:
Xxxxxx X. Xxxxxxxxxx
Title:
Chief Executive Officer
22
EXHIBIT
A
INFORMATION EXHIBIT
Member
Name and Notice Address
|
Class A
Units
|
Class B
Units
|
|
|
|
0000
Xxxxxx Xxxx, Xxx. 000, Xxxxxxxxx, XX 00000
|
583,000
|
0
|
IM1
Holdings, LLC
00
Xxxxxxxxx Xxxxx, Xxxxxx Xxxxxx, XX
|
0
|
560,137
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
583,000
|
560,137
|
A-1
EXHIBIT
B
GLOSSARY OF TERMS
Many of
the capitalized words and phrases used in this Agreement are
defined below. Some defined terms used in this Agreement are
applicable to only a particular Section of this Agreement or an
Exhibit and are not listed below, but are defined in the Section or
Exhibit in which they are used.
“Act” means the California Revised
Uniform Limited Liability Company Act, California Corporations Code
Sections 17701.01 to 17713.06, as amended from time to time (or any
corresponding provisions of succeeding law).
Adjusted Taxable Income” means the
LLC’s items of taxable income or gain less items of loss or
deduction under the Code computed for the applicable Tax Estimation
Period.
“Affiliate” means, with respect to
any Person, (a) any Person directly or indirectly controlling,
controlled by or under common control with such Person, (b) any
Person directly or indirectly owning or controlling fifty percent
(50%) or more of any class of outstanding equity interests of such
Person or of any Person which such Person directly or indirectly
owns or controls fifty percent (50%) or more of any class of equity
interests, (c) any employee, officer, director, general partner or
trustee of such Person, or any Person of which such Person is an
employee, officer, director, general partner or trustee, or (d) any
Person who is an officer, director, general partner, trustee or
holder of fifty percent (50%) or more of the equity interests of
any Person described in clauses (a) through (c) of this sentence;
provided, that in the case of a Person who is an individual, such
terms shall also include members of such specified Person’s
immediate family (as defined in Instruction 2 of Item 404(a) of
Regulation S-K under the Securities Act).
“Agreed Value” means with respect
to any noncash asset of the LLC an amount determined and adjusted
in accordance with the following provisions:
(a) The
initial Agreed Value of any noncash asset contributed to the
capital of the LLC by any Member shall be its gross fair market
value, as agreed to by the contributing Member and the
LLC.
(b) The
initial Agreed Value of any noncash asset acquired by the LLC other
than by contribution by a Member shall be its adjusted basis for
federal income tax purposes.
(c) The
initial Agreed Value of all the LLC’s noncash assets,
regardless of how those assets were acquired, shall be reduced by
depreciation or amortization, as the case may be, determined in
accordance with the rules set forth in Treasury Regulations §
1.704-1(b)(2)(iv)(f) and (g).
(d) The
initial Agreed Value, as reduced by depreciation or amortization,
of all noncash assets of the LLC, regardless of how those assets
were acquired, shall be adjusted from time to time to equal their
gross fair market values, as determined by the Manager, as of the
following times:
B-1
(i) the
acquisition of an Interest or an additional Interest in the LLC by
any new or existing Member in exchange for more than a de minimis
Capital Contribution;
(ii) the
distribution by the LLC of more than a de minimis amount of money
or other property as consideration for all or part of an Interest
in the LLC;
(iii) the
termination of the LLC for federal income tax purposes pursuant to
Code § 708(b)(1)(B); and
(iv) each
issuance of Units.
“Agreement” means this Limited
Liability Company Agreement of the LLC (including all exhibits
hereto), as amended from time to time.
“Approval of the Members” shall
mean the approval by vote or written consent of the holders holding
at least a majority of the issued and outstanding Class A
Units.
“Articles of Organization” means
the articles or organization filed by the LLC on September 23, 2016
pursuant to the Act together with any amendments
thereto.
“Capital Account” means with
respect to each Member or assignee an account maintained and
adjusted in accordance with the following provisions:
(a) Each
Person’s Capital Account shall be increased by such
Person’s Capital Contributions, such Person’s
distributive share of Profits, any items in the nature of income or
gain that are allocated pursuant to the Regulatory Allocations and
the amount of any LLC liabilities that are assumed by such Person
or that are secured by LLC property distributed to such
Person.
(b) Each
Person’s Capital Account shall be decreased by the amount of
cash and the Agreed Value of any LLC property distributed to such
Person pursuant to any provision of this Agreement, such
Person’s distributive share of Losses, any items in the
nature of loss or deduction that are allocated pursuant to the
Regulatory Allocations, and the amount of any liabilities of such
Person that are assumed by the LLC or that are secured by any
property contributed by such Person to the LLC.
In the
event all or any portion of an Interest is transferred in
accordance with the terms of this Agreement, the transferee shall
succeed to the Capital Account of the transferor to the extent it
relates to the portion of the Interest so transferred. In the event
the Agreed Value of the LLC assets is adjusted pursuant to the
definition of Agreed Value contained in this Agreement, the Capital
Accounts of all Members shall be adjusted simultaneously to reflect
the aggregate adjustments as if the LLC recognized gain or loss
equal to the amount of such aggregate adjustment.
The
foregoing provisions and the other provisions of this Agreement
relating to the maintenance of Capital Accounts are intended to
comply with Treasury Regulations § 1.704-1(b), and shall be
interpreted and applied in a manner consistent with such
regulations.
B-2
“Capital Contribution” means with
respect to any Member, the amount of money and the initial Agreed
Value of any property contributed to the LLC with respect to the
Interest of such Member.
“Capital Transaction” means (a) the
acquisition by any Person or Persons (other than a Subsidiary of
the LLC) of all or substantially all of the assets of the LLC in
one or a series of related transactions, (b) the merger of the LLC
with or into any Person (other than a subsidiary of the LLC), or
(c) the termination or liquidation of the LLC.
“Class A Member” shall mean any
Member holding Class A Units.
“Class A Units” shall have the
meaning set forth in Section 2.5(a).
“Class B Member” shall mean any
Member holding Class B Units.
“Class B Units” shall have the
meaning set forth in Section 2.5(b).
“Code” means the United
States Internal Revenue Code of 1986, as amended from time to time,
or any corresponding provisions of succeeding law.
“Combined Effective Marginal Tax
Rate” means the single highest single combined rate
(expressed as a percentage) of United States federal, state and
local income taxation that would be applicable to any Member who is
a natural person determined as of the last day of each Tax
Estimation Period, without giving effect to the deductibility (or
any limitation on the deductibility) of state and local taxes and
other itemized deductions in computing United States federal
taxable income and assuming that such Member is subject to the
highest United States federal and highest state and local ordinary
income tax rates on all income allocated by the LLC.
“Covered Person” means any Person who or
that is or was a Member, Manager, Officer or any successor of any
of the foregoing.
“Depreciation” means, for each
Fiscal Year, an amount equal to the depreciation, amortization or
other cost recovery deduction allowable for federal income tax
purposes with respect to an asset for such Fiscal Year, provided,
however, that if the Agreed Value of an asset differs from its
adjusted basis for federal income tax purposes at the beginning of
such Fiscal Year, Depreciation shall be an amount that bears the
same ratio to such beginning Agreed Value as the federal income tax
depreciation, amortization or other cost recovery deduction with
respect to such asset for such Fiscal Year bears to such beginning
adjusted tax basis; and, provided further, that if the federal
income tax depreciation, amortization or other cost recovery
deduction for such Fiscal Year is zero, Depreciation shall be
determined with reference to such beginning Agreed Value using any
reasonable method selected by the Manager.
“Effective Date” shall have the
meaning set forth in the introductory paragraph of this
Agreement.
“Exchange Agreement” shall have the
meaning set forth in the Recitals.
B-3
“Family Member” means, with respect
to any Person, such Person’s spouse or descendants (whether
natural or adopted).
“Fiscal Year” means, with respect
to the year of the LLC’s formation, the period beginning upon
such formation and ending on September 30 of each year and, with
respect to the last year of the LLC, the period beginning on the
preceding January 1 and ending with the date of the final
liquidating distributions.
“IM1 Holdings” means IM1 Holdings,
LLC, a California limited liability company.
“Information Exhibit” means the
Information Exhibit attached hereto as Exhibit A.
“Interest” means all of the rights
of a Member or assignee with respect to the LLC created under this
Agreement or under the Act.
“kiWW” means xxxxx xxxxxxx
Worldwide, LLC, a California s-corporation.
“License Agreement” means that
certain License Agreement between kiWW and the LLC for certain
intellectual property dated January 6, 2017.
“Liquidating Events” shall have the
meaning set forth in Section 8.1.
“LLC” means the limited liability
company formed pursuant to the Articles of Organization filed with
the Secretary of State of California.
“Manager” shall initially mean
Level Brands, Inc. and then any successors appointed in accordance
with this Agreement.
“Members” shall refer collectively
to the Persons listed on the Information Exhibit as Members and to
any other Persons who are admitted to the LLC as Members or who
become Members under the terms of this Agreement until such Persons
have ceased to be Members under the terms of this Agreement.
“Member” means any one of the Members.
“Necessary Parties” shall have the
meaning set forth in Section 9.3(c).
“New Securities” shall have the
meaning set forth in Section 2.2(a).
“Officers” means the Officers of
the LLC as initially set forth in Section 5.2 and, thereafter, as
designated by the Manager pursuant to the terms hereof.
“Officer” means
any one of the Officers.
“Organizer” means the Person
signing the Articles of Organization as the organizer.
“Original Operating Agreement”
shall have the meaning set forth in the Recitals.
“Other Securities” shall have the
meaning set forth in Section 2.2(b).
“Permitted Transfer” means any of
the following: (a) any Transfer by a Member of all or any part of
his, her or its Units into a trust or other estate planning vehicle
for estate tax or estate planning purposes where (in each case) the
beneficiary is primarily said Member and/or a Family Member and
from which such Units, pursuant to the express terms of the
governing instrument of such trust, cannot be distributed other
than to said Member during said Member’s lifetime and such
Member retains voting control of said Units during said
Member’s lifetime; provided, however that the LLC shall not
be obligated to recognize any such Transfer into trust (including
without limitation a voting trust) until such trustee has agreed in
writing to be bound as a “Member” under this Agreement
and to hold the Units transferred subject to all the terms and
conditions hereof; (b) upon termination of a trust, custodianship,
guardianship or similar arrangement, the beneficiary of which is
either a Member or a Permitted Transferee, a Transfer by the
trustee, custodian, guardian or other fiduciary to the Person or
Persons who, in accordance with the provisions of said trust,
custodianship, guardianship or similar arrangement, are entitled to
receive the Units held therein; (c) with respect to a Member that
is a corporation, partnership or limited liability company, a
Transfer of all or a portion of such Member’s Units on a
pro-rata basis to the shareholders of such corporation, partners of
such partnership or the members of such limited liability company;
and (e) any Transfer of all or a portion of a Member’s Units
to an Affiliate. Each Member shall be solely responsible for any
and all tax consequences to him, her or it resulting from any
Permitted Transfers under this Agreement. Notwithstanding the
foregoing, however, a Transfer shall not be deemed to be a
Permitted Transfer unless the Permitted Transferee of the Units
expressly assumes, in writing, all of the obligations of the
transferring Member under this Agreement and agrees in writing to
be bound by the provisions of this Agreement as a holder of such
Units.
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“Permitted Transferee” shall mean a
Transferee of any Unit in a Permitted Transfer.
“Person”
means any natural person, partnership, trust, estate, association,
limited liability company, corporation, custodian, nominee,
governmental instrumentality or agency, body politic or any other
entity in its own or any representative capacity.
“Profits and Losses” means, for
each Fiscal Year or other period, an amount equal to the
LLC’s taxable income or loss for such year or period,
determined in accordance with Code § 703(a) (for this purpose,
all items of income, gain, loss or deduction required to be stated
separately pursuant to Code § 703(a)(1) shall be included in
taxable income or loss), with the following
adjustments:
(a) Any
income of the LLC that is exempt from federal income tax and not
otherwise taken into account in computing Profits or Losses shall
be added to such taxable income or subtracted from such
loss;
(b) Any
expenditures of the LLC described in Code § 705(a)(2)(B) or
treated as Code § 705(a)(2)(B) expenditures pursuant to
Treasury Regulations § 1.704-1(b)(2)(iv)(i), and not otherwise
taken into account in computing Profits or Losses, shall be
subtracted from such taxable income or added to such
loss;
(c) Gain
or loss resulting from dispositions of LLC assets with respect to
which gain or loss is recognized for federal income tax purposes
shall be computed by reference to the Agreed Value of the property
disposed of, notwithstanding that the adjusted tax basis of such
property differs from its Agreed Value.
B-5
(d) In
the event the Agreed Value of any LLC asset is adjusted in
accordance with paragraph (d) or paragraph (e) of the definition of
“Agreed Value” above, the amount of such adjustment
shall be taken into account as gain or loss from the disposition of
such asset for purposes of computing Profits or
Losses;
(e) In
lieu of the depreciation, amortization and other cost recovery
deductions taken into account in computing such taxable income or
loss, there shall be taken into account Depreciation for such
Fiscal Year, and
(f) Notwithstanding
any other provision of this definition, any items that are
specially allocated pursuant to this Agreement shall not be taken
into account in computing Profits and Losses.
The
amounts of the items of LLC income, gain, loss or deduction
available to be specially allocated pursuant to this Agreement
shall be determined by applying rules analogous to those set forth
in subparagraphs (a) through (f) above.
“Regulatory Allocations Exhibit”
means the Regulatory Allocations Exhibit attached hereto as
Exhibit
C.
“Section 704 Property” shall have
the meaning ascribed such term in Treasury Regulation §
1.704-3(a)(3) and shall include assets treated as Section 704(c)
property by virtue of revaluations of LLC assets as permitted by
Treasury Regulation § 1.704-1(b)(2)(iv)(f).
“Securities Act” means the
Securities Act of 1933, as amended, and applicable rules and
regulations thereunder, and any successor to such statute, rules or
regulations. Any reference herein to a specific section, rule or
regulation of the Securities Act shall be deemed to include any
corresponding provision of future law.
“Subsidiaries” means any other
Person all or any portion of the equity interest of which is owned,
directly or indirectly, by the LLC.
“Tax Estimation Period” means (a)
January, February and March, (b) April and May, (c) June, July and
August, and (d) September, October, November and December of each
year during the term of the LLC, or other periods for which
estimates of individual federal income tax liability are required
to be made under the Code; provided, that the LLC’s first Tax
Estimation Period shall begin on the Effective Date of this
Agreement.
“Terminating Event” shall have the
meaning set forth in Section 5.5(a).
“Transfer” means, directly or
indirectly, any sale, assignment, transfer, conveyance, pledge,
hypothecation or other disposition, voluntarily or involuntarily,
by operation of law, with or without consideration or otherwise
(including, by way of intestacy, will, gift, bankruptcy,
receivership, levy, execution, charging order or other similar sale
or seizure by legal process or transfer of equity interests) of all
or any portion of any Interest. The terms “Transferee,”
“Transferor,” “Transferred,” and other
forms of the word “Transfer” shall have the correlative
meanings.
B-6
“Transfer Notice” means a written
notice given to the LLC of all details of any proposed Transfer of
any Interest including the name of the proposed transferee, the
date of the proposed Transfer of the Interest, the portion of the
Member’s Interest to be transferred, the price or other
consideration, if any, to be received, and a complete description
of all noncash consideration to be received.
“Treasury
Regulations” means the final and temporary Income Tax
Regulations promulgated under the Code, as such regulations may be
amended from time to time (including corresponding provisions of
succeeding regulations).
“Units” represent the basis on
which Interests are denominated and the basis on which the
Members’ relative rights, privileges, preferences and
obligations are determined under this Agreement and the Act, and
the total number and class of Units attributed to each Member shall
be the number recorded on the Information Exhibit as of the
relevant time. Unless specifically denominated as Class A Units or
Class B Units, all references in this Agreement to
“Units” shall mean the Class A Units and the Class B
Units taken collectively.
“Unsubscribed Securities” shall
have the meaning set forth in Section 2.2(a).
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B-7
EXHIBIT
C
REGULATORY ALLOCATIONS EXHIBIT
This
Exhibit contains special rules for the allocation of items of LLC
income, gain, loss and deduction that override the basic
allocations of Profits and Losses in Section 4.1 of the Agreement
to the extent necessary to cause the overall allocations of items
of LLC income, gain, loss and deduction to have substantial
economic effect pursuant to Treasury Regulations § 1.704-1(b)
and shall be interpreted in light of that purpose. Subsection (a)
below contains special technical definitions. Subsections (b)
through (h) contain the Regulatory Allocations themselves.
Subsections (i) and (j) are special rules applicable in applying
the Regulatory Allocations.
(a) Definitions
Applicable to Regulatory Allocations. For purposes of the
Agreement, the following terms shall have the meanings
indicated:
(i)
“Adjusted Capital Account” means,
with respect to any Member or assignee, such Person’s Capital
Account as of the end of the relevant Fiscal Year increased by any
amounts which such Person is obligated to restore, or is deemed to
be obligated to restore pursuant to the next to last sentences of
Treasury Regulations §§ 1.704-2(g)(1) (share of minimum
gain) and 1.704-2(i)(5) (share of member nonrecourse debt minimum
gain).
(ii)
“LLC Minimum Gain” has the meaning
of “partnership minimum gain” set forth in Treasury
Regulations § 1.704-2(d), and is generally the aggregate gain
the LLC would realize if it disposed of its property subject to
Nonrecourse Liabilities in full satisfaction of each such liability
and for no other consideration, with such other modifications as
provided in Treasury Regulations § 1.704-2(d). In the case of
Nonrecourse Liabilities for which the creditor’s recourse is
not limited to particular assets of the LLC, until such time as
there is regulatory guidance on the determination of minimum gain
with respect to such liabilities, all such liabilities of the LLC
shall be treated as a single liability and allocated to the
LLC’s assets using any reasonable basis selected by the
Manager.
(iii)
“Member Nonrecourse Deductions”
means losses, deductions or Code § 705(a)(2)(B) expenditures
attributable to Member Nonrecourse Debt under the general
principles applicable to “partner nonrecourse
deductions” set forth in Treasury Regulations §
1.704-2(i)(2).
(iv)
“Member Nonrecourse Debt” means any
LLC liability with respect to which one or more but not all of the
Members or related Persons to one or more but not all of the
Members bears the economic risk of loss within the meaning of
Treasury Regulations § 1.752-2 as a guarantor, lender or
otherwise.
(v)
“Member Nonrecourse Debt Minimum
Gain” means the minimum gain attributable to Member
Nonrecourse Debt as determined pursuant to Treasury Regulations
§ 1.704-2(i)(3). In the case of Member Nonrecourse Debt for
which the creditor’s recourse against the LLC is not limited
to particular assets of the LLC, until such time as there is
regulatory guidance on the determination of minimum gain with
respect to such liabilities, all such liabilities of the LLC shall
be treated as a single liability and allocated to the LLC’s
assets using any reasonable basis selected by the
Manager.
C-1
(vi)
“Nonrecourse Deductions” means
losses, deductions, or Code § 705(a)(2)(B) expenditures
attributable to Nonrecourse Liabilities (see Treasury Regulations
§ 1.704-2(b)(1). The amount of Nonrecourse Deductions for a
Fiscal Year shall be determined pursuant to Treasury Regulations
§ 1.704-2(c), and shall generally equal the net increase, if
any, in the amount of LLC Minimum Gain for that taxable year,
determined generally according to the provisions of Treasury
Regulations § 1.704-2(d), reduced (but not below zero) by the
aggregate distributions during the year of proceeds of Nonrecourse
Liabilities that are allocable to an increase in LLC Minimum Gain,
with such other modifications as provided in Treasury Regulations
§ 1.704-2(c).
(vii)
“Nonrecourse Liability” means any
LLC liability (or portion thereof) for which no Member bears the
economic risk of loss under Treasury Regulations §
1.752-2.
(viii)
“Regulatory Allocations” means
allocations of Nonrecourse Deductions provided in Paragraph (b)
below, allocations of Member Nonrecourse Deductions provided in
Paragraph (c) below, the minimum gain chargeback provided in
Paragraph (d) below, the member nonrecourse debt minimum gain
chargeback provided in Paragraph (e) below, the qualified income
offset provided in Paragraph (f) below, the gross income allocation
provided in Paragraph (g) below, and the curative allocations
provided in Paragraph (h) below.
(b) Nonrecourse
Deductions. All Nonrecourse Deductions for any Fiscal Year
shall be allocated to the Members in proportion to the number of
Units held by such Member during such Fiscal Year.
(c) Member
Nonrecourse Deductions. All Member Nonrecourse Deductions
for any Fiscal Year shall be allocated to the Member who bears the
economic risk of loss under Treasury Regulations § 1.752-2
with respect to the Member Nonrecourse Debt to which such Member
Nonrecourse Deductions are attributable.
(d) Minimum
Gain Chargeback. If there is a net decrease in LLC Minimum
Gain for a Fiscal Year, each Member shall be allocated items of LLC
income and gain for such year (and, if necessary, subsequent years)
in an amount equal to such Member’s share of such net
decrease in LLC Minimum Gain, determined in accordance with
Treasury Regulations § 1.704-2(g)(2) and the definition of LLC
Minimum Gain set forth above. This provision is intended to comply
with the minimum gain chargeback requirement in Treasury
Regulations § 1.704-2(f) and shall be interpreted consistently
therewith.
C-2
(e) Member
Nonrecourse Debt Minimum Gain Chargeback. If there is a net
decrease in Member Nonrecourse Debt Minimum Gain attributable to a
Member Nonrecourse Debt for any Fiscal Year, each Member who has a
share of the Member Nonrecourse Debt Minimum Gain attributable to
such Member Nonrecourse Debt as of the beginning of the Fiscal
Year, determined in accordance with Treasury Regulations §
1.704-2(i)(5), shall be allocated items of LLC income and gain for
such year (and, if necessary, subsequent years) in an amount equal
to such Member’s share of the net decrease in Member
Nonrecourse Debt Minimum Gain attributable to such Member
Nonrecourse Debt, determined in accordance with Treasury
Regulations §§ 1.704-2(i)(4) and (5) and the definition
of Member Nonrecourse Debt Minimum Gain set forth above. This
Paragraph is intended to comply with the member nonrecourse debt
minimum gain chargeback requirement in Treasury Regulations §
1.704-2(i)(4) and shall be interpreted consistently
therewith.
(f) Qualified
Income Offset. In the event any Member unexpectedly receives
any adjustments, allocations, or distributions described in
Treasury Regulations §§ 1.704-1(b)(2)(ii)(d)(4), (5), or
(6), items of LLC income and gain (consisting of a pro rata portion
of each item of LLC income, including gross income, and gain for
such year) shall be allocated to such Member in an amount and
manner sufficient to eliminate any deficit in such Member’s
Capital Account created by such adjustments, allocations or
distributions as quickly as possible. This provision is intended to
constitute a “qualified income offset” within the
meaning of Treasury Regulation § 1.704-1(b)(2)(ii)(d) and
shall be interpreted consistently therewith.
(g) Gross
Income Allocation. In the event any Member has a deficit in
its Adjusted Capital Account at the end of any Fiscal Year, each
such Member shall be allocated items of LLC gross income and gain,
in the amount of such Adjusted Capital Account deficit, as quickly
as possible.
(h) Curative
Allocations. When allocating Profits and Losses under
Section 4.1, such allocations shall be made so as to offset any
prior allocations of gross income under paragraphs (b) through (g)
above and paragraph (j) below to the greatest extent possible so
that overall allocations of Profits and Losses shall be made as if
no such allocations of gross income occurred.
(i) Ordering.
The allocations in this Exhibit to the extent they apply shall be
made before the allocations of Profits and Losses under Section 4.1
and in the order in which they appear above.
(j) Code
Section 754 Adjustments. To the extent an adjustment to the
adjusted tax basis of any LLC asset pursuant to Code § 734(b)
or Code § 743(b) is required, pursuant to Treasury Regulations
§ 1.704-1(b)(2)(iv)(m), to be taken into account in
determining Capital Accounts, the amount of such adjustment to the
Capital Accounts shall be treated as an item of gain (if the
adjustment increases the basis of the asset) or loss (if the
adjustment decreases such basis), and such gain or loss shall be
specially allocated to the Members in a manner consistent with the
manner in which their Capital Accounts are required to be adjusted
pursuant to such Section of the Regulations.
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C-3