OPERATING AGREEMENT
OF
[COMPANY NAME]
A LIMITED LIABILITY COMPANY
ORGANIZED UNDER THE LAWS OF THE STATE OF ____________
[COMPANY]
TABLE OF CONTENTS
Page
ARTICLE I ORGANIZATION OF LIMITED LIABILITY COMPANY .............................................................. 1
Section 1.1 Formation of Limited Liability Company/Company Certificate.............................. 1
Section 1.2 Name and Title to Property.................................................................................... 1
Section 1.3 Term ....................................................................................................................... 2
Section 1.4 Character of Business............................................................................................. 2
Section 1.5 Scope of Members’ Authority ................................................................................ 2
Section 1.6 Principal Place of Business ..................................................................................... 2
Section 1.7 Registered Office and Registered Agent ................................................................ 2
Section 1.8 Amendment of the Agreement .............................................................................. 2
Section 1.9 Certain Definitions ................................................................................................. 2
Section 1.10 Additional Definitions ............................................................................................ 4
ARTICLE II CERTIFICATE, CAPITAL, LOANS AND ADDITIONAL CONTRIBUTIONS................................... 4
Section 2.1 Initial Contributions ............................................................................................... 4
Section 2.2 Additional Capital Contributions and Loans .......................................................... 5
Section 2.3 Distributions of Capital; No Interest on Capital ..................................................... 6
Section 2.4 Responsibility for Recourse Indebtedness .............................................................. 6
Section 2.5 Indemnity and Right of Contribution ..................................................................... 6
Section 2.6 Additional Members or Contributions ................................................................... 7
ARTICLE III DISTRIBUTIONS ................................................................................................................... 7
Section 3.1 Distributions ........................................................................................................... 7
Section 3.2 Distributions to be Made in Cash ........................................................................... 7
Section 3.3 No Liquidation of a Member's Interest .................................................................. 8
ARTICLE IV ALLOCATIONS ...................................................................................................................... 8
Section 4.1 Allocation of Profits and Losses ............................................................................. 8
Section 4.2 Allocations with Respect to Tax Matters ............................................................... 8
Section 4.3 Tax Status............................................................................................................... 9
ARTICLE V ACCOUNTING ...................................................................................................................... 9
Section 5.1 Accounting Methods .............................................................................................. 9
Section 5.2 Fiscal Year .............................................................................................................. 9
Section 5.3 Bank Accounts ........................................................................................................ 9
Section 5.4 Capital Accounts .................................................................................................... 9
Section 5.5 754 Election............................................................................................................ 9
Section 5.6 Company Tax Returns .......................................................................................... 10
ARTICLE VI MANAGEMENT, MEETINGS OF MEMBERS ........................................................................ 10
Section 6.1 Management of the Company ............................................................................. 10
Section 6.2 Meetings of Members; Place of Meetings ........................................................... 10
Section 6.3 Notice of Meetings ............................................................................................... 10
Section 6.4 Waiver of Notice .................................................................................................. 11
Section 6.5 Proxies .................................................................................................................. 11
Section 6.6 Action Without Meeting ...................................................................................... 11
ARTICLE VII TRANSFER OF MEMBERSHIP INTERESTS ........................................................................... 11
Section 7.1 Restrictions........................................................................................................... 11
Section 7.2 Tender of Sale ...................................................................................................... 12
Section 7.3 Effect of Assignment ............................................................................................ 13
Section 7.4 Insurance.............................................................................................................. 13
Section 7.5 Involuntary Transfer of Membership Interests .................................................... 14
Section 7.6 Withdrawal of Member Not Permitted................................................................ 14
ARTICLE VIII DISSOLUTION .................................................................................................................... 15
Section 8.1 Dissolution Acts .................................................................................................... 15
Section 8.2 Distribution on Dissolution................................................................................... 15
Section 8.3 No Liability ........................................................................................................... 16
ARTICLE IX GENERAL ........................................................................................................................... 16
Section 9.1 Notices ................................................................................................................. 16
Section 9.2 Governing Law ..................................................................................................... 17
Section 9.3 Attorneys' Fees; Indemnity; Sharing of Claims .................................................... 17
Section 9.4 Entire Agreement ................................................................................................. 17
Section 9.5 Waiver .................................................................................................................. 17
Section 9.6 Severability........................................................................................................... 17
Section 9.7 Status Reports ...................................................................................................... 17
Section 9.8 Binding Agreement .............................................................................................. 18
ARTICLE X Alternative Dispute Resolution (“ADR”) ............................................................................ 18
Section 10.1 Counterparts ........................................................................................................ 20
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OPERATING AGREEMENT OF
[COMPANY NAME]
This Operating Agreement of [COMPANY] is made and entered into as of this __ day of [DATE],
by and among [COMPANY], ___________________Location________________; and [COMPANY2],
_______________Location______________, a _______Corporation, (hereinafter such persons or
entities sometimes are referred to individually as a “Member” and collectively as the “Members”).
RECITALS
A. The Members desire to form a limited liability company under the laws of the State of
____________ by contributing the certain property set out in Exhibit A attached hereto.
B. It is the purpose of this Agreement to set forth the understandings of the parties hereto
in respect to the foregoing.
AGREEMENT
NOW, THEREFORE, in consideration of mutual covenants and for other good and valuable
consideration, the parties agree as follows:
ARTICLE I
ORGANIZATION OF LIMITED LIABILITY COMPANY
Section 1.1 Formation of Limited Liability Company/Company Certificate.
(A) A limited liability company has been formed pursuant to Articles of Organization filed
with the ____[State]____ Secretary of State on [DATE]. Except as expressly provided in this Agreement
to the contrary, the rights and obligations of the Members and the administration and termination of the
Company shall be governed by the ___[State]___ Limited Liability Company Act (the “Act”).
(B) In conjunction with the execution of this Agreement, the Members agree to file any and
all documents required by law to be filed in connection with the formation and operation of the
Company (including applications for registration as a foreign limited liability company in each jurisdiction
in which business conducted by the Company or the nature of the properties owned makes such
registration necessary or desirable) and to cause such document to be filed in the appropriate
governmental office. Such documentation shall be kept with the Company’s books and records.
Section 1.2 Name and Title to Property.
The business and affairs of the Company shall be conducted solely under the name
“[COMPANY]” and such name shall be used at all times in connection with the Company's business and
affairs. The legal title to all assets and properties of the Company shall be held in the name of the
Company.
A Member’s Membership Interest is personal property for all purposes. All real and other
property (irrespective of its nature) owned by the Company shall be deemed owned by the Company as
an entity, and no Member individually shall have any ownership of such property.
Section 1.3 Term.
The Term of the Company shall be perpetual.
Section 1.4 Character of Business.
The business of the Company (the “Business”) shall be to (i) package, market and broker
extended service contracts and (ii) engaging in any other lawful business for which limited liability
companies may be organized under the Act.
Section 1.5 Scope of Members’ Authority.
Except as otherwise expressly and specifically provided in this Agreement, no Member shall have
any authority to act for, or assume any obligation or responsibility on behalf of any other Member or the
Company.
Section 1.6 Principal Place of Business.
The principal place of business of the Company shall be located at:
___________[Address]____________, or such other location as may be hereafter determined by the
Members.
Section 1.7 Registered Office and Registered Agent.
The address of the registered office: __________[Address]___________ and name of the
registered agent at such address is: ________[Name]_______.
Section 1.8 Amendment of the Agreement.
This agreement shall be amended or restated, as the case may be, only as agreed to in writing
unanimously by all the Members.
Section 1.9 Certain Definitions.
As used herein, the following terms have the following meanings:
(A) “Act” means the Limited Liability Company Act of the State of ____________.
(B) “Agreement” means this Operating Agreement, as amended, modified or supplemented
from time to time.
(C) “Applicable Rate” shall be equal to the applicable Federal rate in effect under section
1274 (d) (as of the day on which the loan is made), compounded semiannually.
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(D) “Approved by the Members” means approved by those Members who own more than
_______ percent (00%) of the Membership Percentage Interests owned by all of the Members entitled
to vote. A determination by those Members owning the requisite Membership Percentage Interests shall
be effective whether or not (i) all of the Members are in attendance at a meeting, or (ii) such
determination is made by formal or informal, oral or written instructions of such Members. Such
determination so made by the Members authorized to do so shall be effective regardless of the number
of Members who may actually vote thereon, or who may have notice of the proposed determination.
(E) “Assignee” means a person (or entity) who has acquired all or a portion of an interest in
the Company by assignment. The assignment becomes “effective” as of the date on which all
requirements of an assignment under this Agreement have been met. An Assignee does not have the
right to become a Member except as provided in Section 7.3 of this Agreement.
(F) “Business Loss Repayment” means a repayment by any Member of any Recourse
Indebtedness on behalf of the Company after a default by the Company in paying the same.
(G) “Capital Account” means the initial capital account established for each Member per
Section 2.1 and as adjusted per Section 5.4.
(H) “Code” means the Internal Revenue Code of 1986, as amended from time to time (or
any corresponding provisions of succeeding law).
(I) “Company” means this limited liability company.
(J) “Majority Vote” means approval by the Members holding at least _________ percent
(00%) of the Membership Percentage Interest held by all of the Members.
(K) “Membership Interest” means a Member’s interest in the Company. A Member’s
Membership Interest is comprised of any and all rights accorded such Member under this Agreement,
the Company's Articles of Organization or the Act. A Member's Membership Interest is personal
property for all purposes.
(L) “Membership Percentage Interest” means, for each Member, the percentage set forth
opposite such Member’s name, as indicated below.
Member %
[COMPANY1] 00%
[COMPANY2] 00%
[OTHER] 00%
Any changes in the Membership Percentage Interests shall be set forth in an attachment to this
Agreement designated as Exhibit B.
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(M) “Net Cash Receipts” means, for the applicable period, the net cash realized by the
Company from investment earnings including rents, dividends, interest, distributions from entities
owned by the Company and proceeds from the sale or redemption of capital assets, or otherwise after
deducting such amounts as may be required by the Company to make Company expenditures (capital
and other), including reinvestment of assets sold or redeemed and to maintain reasonable reserves as
determined by the Members.
(N) “Property” means all property, assets and interests now or hereafter owned or held by
the Company, including the Property initially listed on Exhibit A of this Agreement, and any additional
property contributed to or acquired by the Company, whether real or personal, as well as improvements
developed thereon. Any changes in the Company's Property may be set forth in an attachment to this
Agreement designated as Exhibit C.
(O) “Recourse Indebtedness” means indebtedness of the Company, properly incurred under
the terms of this Agreement, for which any Member (or any person related to a Member) bears the
economic risk of loss for such indebtedness, whether by reason of an obligation to make a payment to a
creditor or to make a contribution to the Company with respect to such indebtedness, either primarily,
as a Member, or under a guaranty or similar agreement.
(P) “Treasury Regulations” means the Income Tax Regulations promulgated under the Code,
as such Regulations may be amended from time to time (including the corresponding provisions of
succeeding regulations).
Section 1.10 Additional Definitions.
For purposes of this Agreement, the use of either the singular or the plural shall be presumed to
include the other and the definitions in the above section shall apply equally to both the singular and
plural forms of the terms defined. Whenever the context may require, any pronoun shall include the
corresponding masculine, feminine and neuter forms. The term “person” includes individuals,
partnerships, corporations, trusts and other associations. The words “include”, “includes” and
“including” shall be deemed to be followed by the phrase “without limitation”. The words “herein”,
“hereof”, “hereunder” and similar terms shall refer to this Agreement, unless the context otherwise
requires.
ARTICLE II
CAPITAL, LOANS
AND ADDITIONAL CONTRIBUTIONS
Section 2.1 Initial Contributions.
(A) The initial capital contributions of the Members shall be set forth on the books of the
Company, which shall reflect the fair market value of all property contributed by the Members as set out
in Exhibit A hereto.
(B) The Capital Account for each Member shall be maintained on the books of the Company
in accordance with generally accepted accounting principles in effect at the time of the agreement and
the provisions of the Code and the Treasury Regulations thereunder.
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Section 2.2 Additional Capital Contributions and Loans.
(A) No additional capital shall be required to be contributed by the Members except as
provided in Section 2.5. However, when Approved by the Members, the Members shall contribute in
cash to the capital of the Company such additional funds as are required to conduct the Company’s
business or for other purposes, in the respective Membership Percentage Interests of the Members.
(B) Nothing in this Agreement shall be construed to create any rights in creditors or any
other persons or entities not a party to this Agreement, including without limitation any rights to any
funds contributed to the Company by the Members pursuant to this Section.
(C) Each capital contribution required under this Section 2.2 shall be made in accordance
with the following terms and conditions:
(i) A call for capital contributions under this Section 2.2 shall be made, as Approved
by the Members, by giving notice to all of the Members, which notice specifies the amount of
and purpose of such contribution.
(ii) Within 15 days of the giving of such notice under clause (i) above, each of the
Members shall be obligated to make his share of the contribution.
(iii) In the event any Member fails or refuses for any reason to contribute in cash
the additional capital required pursuant to the above paragraph within fifteen (15) days after
notification by the Members of the need therefor, then any Member(s) not in default hereunder
(the “Non-Defaulting Members”) may, but shall not be required to, rectify such default by
contributing all or any part thereof for, and on behalf of, such defaulting Member (the
“Defaulting Member”) and any amount so contributed by such Member (the “Contributing
Member”), together with interest thereon from the date of the advance at the Applicable Rate,
shall immediately become due and owing and shall be a debt due from the Defaulting Member
to the Contributing Member. The Contributing Member so rectifying such default, in whole or in
part, shall have (i) a security interest in the Defaulting Member's Membership Interest in the
Company to secure the aggregate amount of said capital contribution made by the Contributing
Member on behalf of the Defaulting Member, together with interest thereon as aforesaid, (ii)
the rights of a secured party under the Uniform Commercial Code of the State of ____________,
and (iii) the right to appropriate any distribution of the Net Cash Flow and other distributions
(including a liquidating distribution) to which the Defaulting Member would otherwise be
entitled under this Agreement, to the extent necessary to recoup the aggregate amount of the
capital contribution made by the Contributing Member on behalf of the Defaulting Member,
together with interest thereon as aforesaid.
(iv) In the event that more than one Member desires to be a Contributing Member
by rectifying a default as set forth in this subsection, such Members shall be entitled to
contribute to such rectification on a pro rata basis in proportion to the then-respective
Membership Percentage Interests of the Members, excluding the Membership Percentage
Interest of the Member in default and those Members not so contributing to rectification of the
default. The exercise by a Member of the right to cure a Defaulting Member's default as
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aforesaid, and the exercise by such Member of the remedies applicable thereto, shall be
without prejudice to any of the Members' other rights and remedies.
Section 2.3 Distributions of Capital; No Interest on Capital.
Except as expressly provided in this Agreement, (i) no Member shall be entitled to withdraw or
to receive distributions of or against such Member's capital contributions, without the prior consent of,
and upon the terms and conditions agreed upon by, all of the other Members; and (ii) no Member shall
be paid interest on any capital contribution.
Section 2.4 Responsibility for Recourse Indebtedness.
Notwithstanding anything to the contrary in this Agreement, each of the Members shall be
responsible, in accordance with their respective Membership Percentages Interests, for repayment of all
Recourse Indebtedness, (including interest thereon), which is attributable to a Company borrowing
property incurred under the terms of this Agreement. If any Member (“Payor Member”) repays any
such Recourse Indebtedness (including interest thereon) on behalf of the Company after a default by the
Company in paying the same (a “Business Loss Repayment”), each Member will be deemed to have
made a capital contribution to the Company pursuant to this Section in the amount of the Business Loss
Repayment multiplied by such Member's Membership Percentage Interest. Each other Member (“Other
Member”) shall then have the obligation to repay the Payor Member the amount of such Other
Member's deemed capital contribution, plus interest thereon at the Applicable Rate from the date of
the Business Loss Repayment to the date the Other Member repays the Payor Member. Such interest
shall be paid monthly on the first day of each month. HOWEVER, if such deemed contribution (together
with all accrued interest thereon) is not repaid by each Other Member within 10 days after demand by
the Payor Member, interest shall accrue at a rate equal to the lesser of (i) the Applicable Rate plus 3%
per annum or (ii) the maximum interest that may be charged on loans under the applicable usury law (if
any). The obligations of the Members under this Section 2.4 are in addition to the obligations of the
Members under Section 2.2.
Section 2.5 Indemnity and Right of Contribution.
If any claim, liability or expense (other than a claim, liability or expense caused by the gross
negligence or intentional wrongful conduct by a Member) shall be asserted against any Member as a
result or the consequence of the conduct or operation of the Company's business (including, without
limitation, liability under the mortgages from time to time encumbering the Property), and if the assets
of the Company are insufficient to satisfy the same, each Member shall bear a share of such claim,
liability or expense in proportion to such Member's Membership Percentage Interest. Each Member
shall cooperate and consult with the other Members in defending any such action and in making any
compromise or settlement thereof. If any Member is required to pay more than his proportionate share
of such a claim against a Member, the Member so paying more than his share shall be entitled to
contribution from the other Members. The right of contribution and rights of indemnity contained in
this Section shall survive and remain in full force and effect notwithstanding any termination of the
Company and this Agreement.
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Section 2.6 Additional Members or Contributions.
The Company may, as Approved by the Members, admit additional Members (“Additional
Members”) to the Company or allow existing Members to contribute additional property, subject to such
terms and conditions of this Agreement. Upon admission of such Additional Members, the capital
contributions of such Members shall be set forth in the books of the Company in the manner set forth in
this Article II and shall be adjusted and maintained in accordance with Section 704 and Treasury
Regulations applicable thereto. Upon the admission of an Additional Member, such Additional Member
shall receive such Membership Percentage Interest as is approved by the Members and the Membership
Percentage Interests of the existing Members shall be adjusted pro-rata, unless otherwise agreed to in
writing by all of the Members.
ARTICLE III
DISTRIBUTIONS
Section 3.1 Distributions.
Distributions of Net Cash Receipts may be made at such times as Approved by the Members,
considering the current needs for operating capital, prudent reserves for future operating capital,
current investment opportunities, and prudent reserves for future investment opportunities, all in
keeping with the business of the Company. Distributions of Net Cash may be made as Approved by the
Members. However, in no event shall such distribution be less than an amount equal to the estimated
federal and state income tax generated from the inclusion of the taxable income of the Company
allocable to each Membership Interest for such year and necessary to pay any Member's tax liability, if
any. In determining the amount of such distributions, each Member shall receive a distribution
calculated using the income tax percentage rate applicable to the Member in the highest income tax
bracket.
The Members, in determining the amount of Net Cash Receipts available for the payment of
distributions, shall take into account the present and future cash needs of the Company in its business,
the amounts of its debts, the necessity or advisability of paying its debts, or at least reducing them
within the limits of the Company's credit, and the preservation of its capital as represented in the
Property of the Company. Any contributed property or funds borrowed by the Company shall be
considered as needed for Company investment purposes, and any cash produced from the sale or
redemption of property contributed to the Company or from the sale of any Property purchased with
borrowed funds, or any reinvestment of any of the Property, including the portion of the sale proceeds
representing capital appreciation, may be considered as needed reserves for the business of the
Company.
Any distribution shall be made to the Members in accordance with their respective Membership
Percentages Interests, unless otherwise approved by the Members.
Section 3.2 Distributions to be Made in Cash.
All distributions to the Members shall be made in cash and no Member shall have the right to
receive such distributions in assets other than cash, unless a distribution in kind is otherwise approved
by the Members.
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Section 3.3 No Liquidation of a Member's Interest.
Notwithstanding anything to the contrary in this Agreement, except as provided in Article VIII
(with respect to the dissolution and liquidation of the Company) or unless agreed to in writing by all of
the Members (i) there shall be no liquidation of a Member's Membership Interest (within the meaning
of Section 761(d) of the Code) by the Company, and (ii) no Member may effect a liquidation of his
Company interest (within the meaning of Section 761(d) of the Code). The foregoing restrictions are set
forth herein so as to prevent noncompliance with Treasury Regulations § 1.704-1(b)(2) and to prevent
withdrawals of Members other than as set forth in Article VIII.
ARTICLE IV
ALLOCATIONS
Section 4.1 Allocation of Profits and Losses.
Except as otherwise provided in this Article IV, for accounting and federal and state income tax
purposes, the Company's profits, losses, income, deductions and credits for each fiscal year of the
Company shall be allocated to the Members in accordance with their respective Membership
Percentage Interests.
Section 4.2 Allocations with Respect to Tax Matters.
Notwithstanding anything in this Article IV to the contrary:
(A) Income, gain, loss and deduction with respect to property contributed to the Company
by any Member shall first (and before allocations are made under Section 4.1) be allocated in
accordance with Section 704(c) of the Code, Treasury Regulations issued thereunder, and Reg. § 1.704-
1(b)(2)(iv)(g), so as to take account of any variation between the basis of the property to the Company
and its fair market value at the time of contribution.
(B) If the Company “revalues” its property under the provisions of Reg. § 1.704-
1(b)(2)(iv)(f), the Members' capital accounts shall be adjusted in accordance with Reg. § 1.704-
1(b)(2)(iv)(g) for allocations to them of depreciation, amortization and gain or loss, as computed for
book purposes, with respect to so much of the Company's property as has been subject to such
revaluation (“Revalued Property”).
(C) The Members' distributive shares of depreciation, amortization and gain or loss, as
computed for tax purposes, with respect to Revalued Property shall be determined so as to take account
of the variation between the adjusted tax basis and book value of such Revalued Property in the same
manner as under Section 704(c) of the Code.
(D) For purposes of determining the Members' respective shares of nonrecourse liabilities
of the Company under Treasury Regulations, it is hereby specified in accordance with Reg. §1.752-
3(a)(3) that each Member's interest in Company profits is such Member’s Membership Percentage
Interest.
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Section 4.3 Tax Status.
Notwithstanding any provision of this Agreement to the contrary, solely for federal income tax
purposes, each of the Members hereby recognizes that the Company will be subject to all provisions of
Subchapter K of Chapter 1 of Subtitle A of the Code; provided, however, the filing of U.S. Company Tax
Returns shall not be construed to extend the purposes of the Company or expand the obligations or
liabilities of the Company.
ARTICLE V
ACCOUNTING
Section 5.1 Accounting Methods.
(A) The Company books and records shall be prepared in accordance with generally
accepted tax accounting principles, consistently applied. Such books and records shall be reviewed
annually by the Company's accountants upon the written request of any Member. The Company will be
on the cash basis for both tax and accounting purposes. All federal, state and local tax returns of the
Company shall be prepared under the direction of the Members. ________[Name]________ is hereby
designated as the “tax matters member” for the Company (as such term is defined in Section 6231(a)(7)
of the Code).
(B) The Company will be taxed as a partnership and be treated as a partnership for all
income tax purposes.
Section 5.2 Fiscal Year.
The fiscal year of the Company shall be the calendar year.
Section 5.3 Bank Accounts.
The funds of the Company shall be deposited in such bank accounts, and/or invested in such
interest-bearing or non-interest-bearing investments, as shall be approved by the Members. Any
disbursement (including all check writing) and all transactions (including loans to the Company) resulting
in a transaction involving in excess of $00,000 shall require the signature and unanimous consent of all
Members. All other transactions may be approved by any Member.
Section 5.4 Capital Accounts.
The Capital Account established for each Member shall be determined, maintained and adjusted
in accordance with Section 704 of the Code and Treasury Regulations applicable thereto or any
successor provisions thereto governing the determination of partners' distributive shares of the income,
gain, loss, deduction or credit (or item thereof) of a partnership.
754 Election.
In the case of a transfer of a Membership Interest which is permitted by this Agreement and
which is made in the manner provided in Section 743 of the Code, then upon the request of the
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transferee of such Membership Interest, the Company may file an election under Section 754 of the
Code in accordance with procedures set forth in the Treasury Regulations applicable thereto, if
approved by Majority Vote.
Company Tax Returns.
Each Member hereby agrees that (i) the Member understands the effect of the provisions of
Article IV and V (the “Tax Provisions”), (ii) the Member will not file any federal, state or local income tax
return that would be inconsistent or at variance with the operation of the Tax Provisions, and (iii) the
Member will not challenge or contest the validity or propriety of the Tax Provisions.
ARTICLE VI
MANAGEMENT; MEETINGS OF MEMBERS
Management of the Company.
The usual business and affairs of the Company shall be managed by the Members, except as
limited by this Agreement. Except as otherwise expressly set forth herein or as required by the Act, any
action which requires an approval or consent of the Members shall be authorized if approved by the
Members.
Meetings of Members; Place of Meetings.
Meetings of the Members may be held for any purpose or purposes, unless otherwise prohibited
by the Act or by the Articles of Organization, and may be called by any Member. All meetings of the
Members shall be held at the offices of the Company or at such other place as shall be designated from
time to time and stated in the notice of the meeting or in a duly executed waiver of the notice thereof.
Members may participate in a meeting of the Members by means of a conference telephone, similar
communications equipment, or otherwise, such that all Members participating in the meeting can hear
and participate in the meeting, and such involvement shall constitute presence in person at the meeting.
At any meeting of the Members, each Member shall have the right to cast a percentage of the aggregate
votes equal to the Membership Percentage Interest held by such Member.
Notice of Meetings.
Except as required by the Act, (a) written notice stating the place, day, hour and purpose for
which a meeting is called shall be mailed not less than five (5) days nor more than sixty (60) calendar
days before the date of the meeting, by or at the direction of the Members calling the meeting, to each
Member entitled to vote at such meeting, and/or (b) notice provided by telephone or facsimile stating
the place, day, hour and purpose for which a meeting is called shall be delivered not less than five (5) nor
more than sixty (60) calendar days before the date of such meeting. Notice to Members, if mailed, shall
be deemed delivered when deposited in the United States Mail, addressed to the Member at the
Member's address as it appears on the records of the Company, with postage prepaid. A Member's
attendance at a meeting (i) waives objection to lack of notice or defective notice of the meeting, unless
such Member, at the beginning of the meeting, objects to holding the meeting or transacting business at
the meeting, and (ii) waives objection to consideration of a particular matter at the meeting that is not
within the purpose or purposes described in the notice of the meeting, unless such Member objects to
considering the matter when it is presented.
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Waiver of Notice.
When notice is required to be given to any Member of the Company hereunder, a waiver thereof
in writing signed by the person entitled to such notice, whether before, at or after the time stated
therein, shall be equivalent to the giving of such notice.
Proxies.
At any meeting of the Members, every Member shall be entitled to vote in person or by proxy
appointed by an instrument in writing signed by such Member. Such proxy shall be valid for eleven (11)
months unless the Member executing the proxy specifies therein the length of time for which such proxy
is to continue in force.
Action Without Meeting.
Any action required or permitted to be taken at any meeting of the Members of the Company
may be taken without a meeting if a consent or consents in writing, setting forth the action so taken shall
be Approved by the Members (or such other percentage if specifically required by this Agreement).
Prompt notice of the taking of action without a meeting by less than unanimous consent shall be
delivered to the Company and to those Members who have not consented in writing.
ARTICLE VII
TRANSFER OF MEMBERSHIP INTERESTS
Section 7.1 Restrictions.
(A) No sale, assignment, encumbrance, or hypothecation shall be made by a Member of the
whole or any part of such Member’s Membership Interest in the Company unless the Member complies
with the provisions of Section 8.2, or as provided in Paragraph (C) below, or as otherwise approved by
Majority Vote.
(B) Notwithstanding any other provision of this Agreement permitting such disposition, no
Member may, without the consent of all of the Members, sell, exchange or otherwise transfer all or any
part of such Member’s Interest if such transfer would cause the termination of the Company for federal
income tax purposes pursuant to Section 708(b)(1)(B) of the Code.
(C) Each Member or other person owning a Membership Interest in the Company may,
notwithstanding the provisions in this Section to the contrary (except as provided in Paragraph (B)
above), by sale, assignment or otherwise:
(i) Assign, encumber, hypothecate or transfer such Member’s Interest, or any part
thereof, if such sale, encumbrance, hypothecation or transfer is made to any Member; any
member of the Member’s family; and/or to any trust primarily for the Member’s benefit and/or
for the benefit of any member of the Member’s family and/or to the beneficiaries of any such
trust (this shall include the right of a Trustee – Member to assign or transfer its interest to the
beneficiaries of such trust);
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(ii) Assign, encumber, hypothecate or transfer such Member’s Membership
Interest, or any part thereof, if such sale, encumbrance, hypothecation or transfer is made to a
partnership, limited liability company or corporation in which 51% or more of the capital and
profits interests (in the case of a partnership), 51% or more of the member interests (in the case
of a limited liability company) or in which 51% or more of the capital stock (in the case of a
corporation) is owned by or for the benefit of the Member and/or members of the Member's
family;
(iii) If the transferring Member is a partnership, limited liability company or a
corporation described in subparagraph (ii) above, assign or transfer its interest in the Company,
or any part thereof, to its partners, members or shareholders, as the case may be; or
(iv) Make a testamentary disposition of the Member’s Membership Interest to an
individual or entity described in subparagraphs (i) through (iii) above pursuant to the properly
probated last will of a Member or transferee or the intestate administration of the estate of
such Member or transferee; or pursuant to the exercise of a limited or general power of
appointment granted in any trust or pursuant to the terms of distribution of any trust.
The term “member of the Member’s family” shall include a spouse, a child, a grandchild, a sister,
a brother, a parent, or lineal descendants or ancestors of any of the foregoing. All interests in the
Company transferred pursuant to the provisions of clauses (i) through (iv) of Paragraph (C) above shall
be subject to the restrictions and obligations set out in this Agreement.
Tender of Sale.
No Member or other person owning a Membership Interest in the Company shall during such
Member’s lifetime transfer, assign or convey any of such Member’s Membership Interest in the
Company to any person, except as provided in Section 8.1, unless a tender of sale of such Membership
Interest has been made to the other Members prior to such transfer or conveyance and such other
Members shall have failed to accept such tender. The aforesaid tender shall be made in accordance
with the following provisions:
(D) Any Member (the “Offering Member”) or other party who has received and who desires
to accept a bona fide offer to purchase such Member’s Membership Interest or any part thereof shall
promptly notify the other Members of the offer (the “Outside Offer”), giving the name and address of
the offeror (the “Outside Offeror”) and a copy of the Outside Offer containing all of the terms and
provisions thereof.
(E) The other Members shall be privileged to purchase all of the Membership Interest of the
Offering Member so offered on the same terms as the Outside Offer in the proportion in which the
Members shall agree, or in the absence of any agreement, according to their respective interests in the
Company.
(F) If the Members or some of them shall not have agreed to purchase all of such offered
interest of the Offering Member as aforesaid, by notice to the Offering Member given within thirty (30)
days after receipt of the Outside Offer, the Offering Member shall be at liberty to sell such offered
interest to the Outside Offeror within three (3) months after the expiration of said 30-day period, upon
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the same terms and conditions contained in the Outside Offer; but if such interest is not so sold, then a
subsequent sale thereof shall not be made without again complying with the provisions of this Section
8.2.
(G) The closing of the purchase of such offered interest of the Offering Member by one or
more other Members pursuant to the provisions above shall be held at a time and place to be specified
by the purchasing Members in their notice of acceptance of such offer, but in any event within sixty (60)
days after such acceptance. Any portion of the purchase price required to be paid in cash shall be paid
by certified or cashier's check at the closing (or as the parties otherwise agree), and, unless the parties
agree otherwise all of the terms and provisions of the Outside Offer shall be complied with by the
purchasing Members. The Offering Member shall at the closing execute and deliver all necessary
documents to transfer the offered interest in the Company to the purchasing Members.
Effect of Assignment.
No sale, assignment or transfer permitted hereunder shall relieve the assignor from any of his,
her or its obligations under this Agreement accruing prior to such sale, transfer or assignment. No
assignee of a Membership Interest hereunder shall become a substitute Member unless (i) Members
owning a majority of the Membership Percentage Interests held by the remaining Members consent to
admit such Assignee as a successor Member, and (ii) such assignee complies with all of the conditions
imposed by the Members, which shall include the following:
(H) execution of this Agreement (as amended) or otherwise agreeing to be bound by this
Agreement; and
(I) paying the Company for its legal, accounting and record-keeping expenses in connection
with the assignment.
(NOTE: An assignee has no voting rights and is only entitled to Company distributions. He also cannot
withdraw. The value of such interest would be based solely upon distribution history and not liquidated
value.)
Insurance.
Either the Company or the Members may purchase life insurance to fund Membership Interest
purchases contemplated by this Agreement. Each Member shall also have the right to purchase any
policies owned by the Company on such Member’s life (or the principal owner’s life of a member entity,
including any corporation or limited liability company) within sixty (60) days after the sale or transfer of
all of such Member’s Membership Interests, or after termination of this Agreement. These rights shall
be exercised by delivering written notices to the Members of the Company and paying the purchase
price in cash. The purchase price shall be equal to the cash surrender value of the policy, reduced by any
unpaid loans made against the policy. If the rights with respect to any policy owned by the Company on
the life of a Member are not exercised by such Member within the above sixty (60) day period, the
Company may surrender the policy for its cash value or dispose of it in any other manner it deems
proper. The parties agree to execute such releases and assignments as may be necessary to effectuate
the provisions of this paragraph.
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Involuntary Transfer of Membership Interests.
If any Membership Interest owned by a Member or other person owning a Membership Interest
in the Company shall be proposed to be or shall be involuntarily sold, transferred or otherwise disposed
of, whether by judicial decree, sale upon execution, foreclosure of any lien or charge, including any
disposition pursuant to a foreclosure sale, by acquisition of an interest therein by a trustee in bankruptcy
or similar office, then such Membership Interest shall be first offered to the Company and second to the
other Members, at a purchase price (to be paid in cash) equal to the book value of the Company as set
forth on the books of the Company multiplied by the applicable Membership Interest Percentage. The
options of the Company and Members to purchase Membership Interests under this Paragraph shall be
governed by the applicable provisions of Section 8.2.
Withdrawal of Member Restrictions
No Member may withdraw from the Company prior to the expiration of the Term of the
Company (as set forth in Section 1.3 hereof) without the consent of all of the other Members. In the
event a Member desires to voluntarily withdraw with the unanimous consent of all other Members, the
Member shall be obliged to sell all of his interest to the Company for his pro-rata share of the value of
Company determined as follows. If the Company and the Members fail to agree upon the value of
Company at the time of the withdrawal, the Members shall unanimously select a qualified mediator to
resolve the valuation dispute. In the event the Members fail to reach an agreement for the
determination of value through the use of a mediator, the Members agree that the Members shall
unanimously jointly select a Certified Public Accountant in order to determine the value of the
Member’s interest within sixty (60) days of the consent to withdraw. The amount for the Member’s
share shall be paid in five (5) equal installments evidenced by a series of promissory notes, the first note
payable six (6) months from the date of exercise of the buy-out and the remaining notes payable at
twelve (12) month intervals thereafter, with interest at the rate of seven percent (7%) per annum
payable on each note at its maturity. The Company may prepay any amount without penalty.
Transfer in the event of Death
In the event of the death of any Member (or the principal owner of a member entity, including
any corporation or limited liability company), the Company may elect to pay to that Member’s estate,
the deceased member’s membership interest for his/its pro-rata share of the value set forth on Exhibit
B, attached hereto, and incorporated herein by reference. The Company and the Members shall
redetermine the value of the Company within ninety (90) days following the end of each calendar year
or at any other times the Members unanimously agree (hereinafter, “Agreed Upon Company Value”).
Such redetermination shall be recorded on Exhibit B attached hereto and made a part hereof. If the
Company and the Members fail to agree upon the required annual redetermination of value for a
particular year, the Members shall unanimously select a qualified mediator to resolve the valuation
dispute. In the event the Members fail to reach an agreement for the determination of value through
the use of a mediator, the Members agree that the surviving members and the personal representative
of the deceased member’s estate shall jointly select a Certified Public Accountant in order to determine
the value of the Member’s interest within sixty (60) days of the deceased member’s death.
Notwithstanding any provision contained herein to the contrary, in the event of the death or disability of
any Member (upon whose life has been secured by the Company), the proceeds of any such insurance
policy shall constitute the primary source of payment to the deceased Member’s estate, as the case may
be.
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In the event of a Member’s death, should Company have purchased life insurance on the
deceased Member as set forth in Section 7.4, the proceeds of the life insurance shall be paid the to
deceased Member’s estate, or revocable trust, whichever may apply, in the form of a lump sum. If the
life insurance proceeds are less in value than the deceased Member’s Membership Value *or the
Member’s life has not been insured by the Company+, the remaining balance shall be paid to the
deceased Member’s estate in five (5) equal installments evidenced by a series of promissory notes, the
first note payable one year from the date of exercise of the option and the remaining notes payable at
twelve (12) month intervals thereafter, with interest at the rate of seven percent (7%) per annum
payable on each note at its maturity. Each note maker may prepay any amount without penalty.
Transfer in the Event of Disability
In the event a Member (or the principal owner of a member entity, including any corporation or
limited liability company) becomes disabled for a period of six (6) months and has become unable to
perform his employment duties to the Company, at the election of the Company, the Member shall be
obliged to sell all of his interest to the Company for his pro-rata share of the latest Agreed Upon
Company Value as set forth on Exhibit B. The amount for the Member’s share shall be paid in five (5)
equal installments evidenced by a series of promissory notes, the first note payable six (6) months from
the date of exercise of the buy-out and the remaining notes payable at twelve (12) month intervals
thereafter, with interest at the rate of seven percent (7%) per annum payable on each note at its
maturity. The Company may prepay any amount without penalty.
ARTICLE VIII
DISSOLUTION
Section 8.1 Dissolution Acts.
The happening of any one of the following events shall work an immediate dissolution of the
Company:
(A) The written agreement of at least two-thirds (2/3) of all Members to dissolve or sell the
assets of the Company; or
(B) The expiration of the term of the Company pursuant to Section 1.3 of this Agreement.
If the Company shall be terminated as set forth in this Agreement, the affairs of the Company
shall be wound up, and, during the winding up period and until such time as the Company's interest in all
of its property and assets have been sold and the proceeds therefrom collected and distributed, the
rights and obligations of the members and other persons owning an interest in the Company shall be
governed and controlled by all of the provisions of this Agreement.
Section 8.2 Distribution on Dissolution.
Upon the dissolution and termination of the Company, the Members shall proceed with the
liquidation of the Company as promptly as possible, but in an orderly and businesslike manner so as not
to involve undue sacrifice. After the payment of all debts and liabilities of the Company, including all
Member loans and all expenses of liquidation, and subject to the right of the Members to set up such
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cash reserves as and for so long as they may deem necessary in good faith for any contingent or
unforeseen liabilities or obligations of the Company, the assets of the Company, whether property or
cash, the proceeds of the liquidation of the Company’s assets and any other funds and/or assets of the
Company shall be distributed to the Members in proportion to the positive balances in the respective
Capital Accounts of the Members (after deducting from the distributive share of a Member any sum
such Member owes the Company or any Member). If a Member has a deficit balance in such Member’s
Capital Account following the liquidation of the Member’s Membership Interest in the Company, as
determined after taking into account all capital account adjustments for the Company taxable year
during which such liquidation occurs, such Member is unconditionally obligated to restore the amount
of such deficit balance to the Company by the end of such taxable year (or, if later, within 90 days after
the date of such liquidation), which amount shall, upon liquidation of the Company, be paid to creditors
of the Company or distributed to other Members in accordance with their positive Capital Account
balances (in accordance with this Section).
No Liability.
Each Member shall look solely to the assets of the Company for all distributions with respect to
the Company and its capital contributions thereto and share of profits or losses t