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LIMITED LIABILITY COMPANY AGREEMENT
OF
PCRS CAPITAL PARTNERS, LLC
THE SECURITIES REPRESENTED BY THIS AGREEMENT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 NOR REGISTERED NOR QUALIFIED UNDER ANY STATE SECURITIES LAWS. SUCH
SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, DELIVERED AFTER SALE, TRANSFERRED, PLEDGED,
OR HYPOTHECATED UNLESS QUALIFIED AND REGISTERED UNDER APPLICABLE STATE AND FEDERAL
SECURITIES LAWS OR UNLESS, IN THE OPINION OF COUNSEL SATISFACTORY TO THE COMPANY, SUCH
QUALIFICATION AND REGISTRATION IS NOT REQUIRED. ANY TRANSFER OF THE SECURITIES
REPRESENTED BY THIS AGREEMENT IS FURTHER SUBJECT TO OTHER RESTRICTIONS, TERMS, AND
CONDITIONS WHICH ARE SET FORTH HEREIN.
TABLE OF CONTENTS
Page
ARTICLE 1 GENERAL TERMS ................................................................................................................................... 1
1.01 Formation of Limited Liability Company and No State-Law Partnership.............................................. 1
1.02 Name of Company ......................................................................................................................................... 1
1.03 Purposes ......................................................................................................................................................... 1
1.04 Principal Place of Business .......................................................................................................................... 1
1.05 Agent for Service of Process ....................................................................................................................... 1
1.06 Term of Company .......................................................................................................................................... 1
1.07 Filing of Certificate of Formation ................................................................................................................ 1
1.08 Filings.............................................................................................................................................................. 2
1.09 Company Property ........................................................................................................................................ 2
1.10 Definitions ...................................................................................................................................................... 2
ARTICLE 2 CAPITALIZATION ...................................................................................................................................... 2
2.01 Capital Accounts........................................................................................................................................... 2
(a) Establishment....................................................................................................... 2
(b) General Rules for Adjustment of Capital Accounts ....................................... 2
(c) Special Rules ........................................................................................................ 2
(i) Time of Adjustment for Capital Contributions ........................... 2
(ii) Capital Account for Transferred Interest .................................... 2
(iii) Intent to Comply with Treasury Regulations .............................. 2
2.02 Initial Capital Contributions......................................................................................................................... 2
2.03 Additional Capital Contributions ................................................................................................................ 3
(a) Required Additional Capital Contributions ..................................................... 3
(b) Failure To Make Additional Capital Contribution.......................................... 3
(c) Modification of Schedule 1................................................................................ 3
2.04 Loans............................................................................................................................................................... 3
2.05 No Withdrawal of Capital............................................................................................................................. 3
2.06 No Interest on Capital Account Balances .................................................................................................3
ARTICLE 3 PROFITS AND LOSSES ......................................................................................................................... 3
3.01 Profits .............................................................................................................................................................. 3
3.02 Losses ............................................................................................................................................................. 4
(a) General .................................................................................................................. 4
(b) Limitation .............................................................................................................. 4
3.03 Regulatory and Curative Allocations ......................................................................................................... 4
(a) Qualified Income Offset...................................................................................... 4
(b) Allocations Attributable to Nonrecourse Liabilities ...................................... 4
(c) Curative Allocations ........................................................................................... 4
(d) Gain Chargeback.................................................................................................. 5
3.04 Allocation of Credits..................................................................................................................................... 5
3.05 Tax Allocations ........................................................................................................................................... 5
(a) Contributed Property .......................................................................................... 5
(b) Revalued Property............................................................................................... 5
(c) Effect ..................................................................................................................... 5
3.06 Change in Members' Interests..................................................................................................................... 5
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Page
ARTICLE 4 DISTRIBUTIONS ....................................................................................................................................... 5
4.01 Distributions .................................................................................................................................................. 5
(a) Distribution of Distributable Income................................................................ 5
4.02 Liquidating Distributions ............................................................................................................................. 6
ARTICLE 5 ACCOUNTING, RECORDS AND REPORTS .................................................................................. 6
5.01 Fiscal Year ...................................................................................................................................................... 6
5.02 Method of Accounting ................................................................................................................................ 6
5.03 Books of Account ......................................................................................................................................... 6
5.04 Tax and Financial Reporting ........................................................................................................................ 6
(a) Tax ..................................................................................................................... 6-7
(b) Financial................................................................................................................ 6
5.05 Taxation. ......................................................................................................................................................... 6
(a) Elections ............................................................................................................... 6
(b) Company Tax Returns ........................................................................................ 6
(c) Tax Audits ............................................................................................................ 7
ARTICLE 6 MANAGEMENT ......................................................................................................................................... 7
6.01 Management of the Company ..................................................................................................................... 7
6.02 The Board ....................................................................................................................................................... 7
(a) Purposes ............................................................................................................... 7
(b) Board Members ............................................................................................... 8-9
(c) Procedures............................................................................................................ 8
(i) Regular Meetings ............................................................................ 8
(ii) Special Meetings ............................................................................. 9
(iii) Telephonic Meetings...................................................................... 9
(iv) Notices .............................................................................................. 9
(v) Quorum ............................................................................................. 9
(vi) Approval Requirements .................................................................9
6.03 Voting; Meetings of Members .................................................................................................................... 9
(a) Voting.................................................................................................................... 9
(b) Meetings of Members ........................................................................................ 9
(i) Date, Time and Place of Meetings of Members; Secretary....... 9
(ii) Notice of Meeting ........................................................................... 9
(iii) Action by Written Consent without a Meeting .......................10
(iv) Telephonic Participation by Member at Meetings ..................... 9
(v) Proxies .............................................................................................10
6.04 Management Fee; Compensation and Reimbursement .........................................................................10
(a) Manager Reimbursement .................................................................................10
(b) Management Fee ...............................................................................................10
(c) Loans and Other Transactions with Members or Affiliates .......................10
(d) Referral/Finder's Fee .........................................................................................10
6.05 Removal of Manager; Purchase of Manager’s Interes t ........................................................................10
6.06 Liability of the Members; Indemnification ..............................................................................................10
(a) Exculpation of Members, Board Members and Manager............................11
(b) Indemnification of Members by the Company .......................................11-12
6.07 Time Devoted to Company; Other Activities Permitted........................................................................11
6.08 Confidentiality .............................................................................................................................................12
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Page
ARTICLE 7 THE MEMBERS.......................................................................................................................................12
7.01 Assignments and Transfers of Member Interests .................................................................................12
(a) Assignments by Members.........................................................................12-13
(b) Family Transfers ................................................................................................13
(c) Substituted Members .......................................................................................13
(d) Corresponding Changes to Agreements .......................................................13
(e) Prohibited Assignments and Transfers .........................................................13
(f) Withdrawal by a Member.................................................................................13
7.02 Options to Purchase ...................................................................................................................................13
(a) Option Event and Option Period.....................................................................14
(b) Exercise of Options ...........................................................................................14
(c) Value of Interest and Option Price..................................................................15
(i) Value................................................................................................15
(ii) Price of Interest..............................................................................15
(iii) Costs; Binding Effect....................................................................15
(d) Method of Payment ..........................................................................................15
(e) Default.................................................................................................................15
(f) Failure to Exercise..............................................................................................16
7.03 Right of First Refusal ..................................................................................................................................16
(a) Offer and Right to Sell ......................................................................................16
(b) Notice ..................................................................................................................16
(c) Election to Purchase .........................................................................................16
(d) Sale to Third Party.............................................................................................16
(e) Lapse of Right to Sell........................................................................................16
7.04 Admission of Additional Members; Dilution .........................................................................................17
(a) Additional Funds Required .............................................................................17
(i) Price for Additional Interest ........................................................17
(ii) Right of First Offer ........................................................................17
(iii) Admission of Additional Members; Dilution of Existing
Members’ Percentage Interests ..................................................17
(iv) Amendment of this Agreement ...................................................17
(v) Acknowledgment of Dilution and Dilution Method ..........17-18
ARTICLE 8 DISSOLUTION AND TERMINATION ...............................................................................................18
8.01 No Termination ............................................................................................................................................18
8.02 Events of Dissolution .................................................................................................................................18
8.03 Procedures Upon Dissolution ...................................................................................................................18
(a) General ................................................................................................................18
(b) Control of Winding Up...............................................................................18-19
(c) Manner of Winding Up ....................................................................................19
(d) Profits and Losses.............................................................................................19
(e) Application of Assets ......................................................................................19
(i) Creditors .........................................................................................19
(ii) Members .........................................................................................19
8.04 Right to Possess Assets ............................................................................................................................19
8.05 No Recourse.................................................................................................................................................19
8.06 Termination of Company............................................................................................................................19
ARTICLE 9 INVESTMENT REPRESENT ATIONS.............................................................................................19
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Page
9.01 Preexisting Relationship or Experience ..............................................................................................19-20
9.02 No Advertising ............................................................................................................................................20
9.03 Investment Intent ........................................................................................................................................20
9.04 Purpose of Entity.........................................................................................................................................20
9.05 Residency .....................................................................................................................................................20
9.06 Economic Risk..............................................................................................................................................20
9.07 No Registration of Interest ........................................................................................................................20
9.08 Interest in Restricted Securities ................................................................................................................20
9.09 No Obligation to Register ..........................................................................................................................20
9.10 No Disposition in Violation of Law ..........................................................................................................20
9.11 Legends ..................................................................................................................................................20-21
9.12 Investment Risk ...........................................................................................................................................21
9.13 Investment Experience................................................................................................................................21
9.14 Restrictions on Transferability..................................................................................................................21
9.15 Potential Dilution.........................................................................................................................................21
9.16 Information Reviewed.................................................................................................................................21
9.17 No Representations by Company.............................................................................................................21
9.18 Consultation with Attorney.......................................................................................................................21
9.19 Tax Consequences ......................................................................................................................................21
9.20 No Assurance of Tax Benefits ..................................................................................................................22
9.21 Indemnity......................................................................................................................................................22
ARTICLE 10 MISCELLANEOUS PROVISIONS ......................................................................................................22
10.01 Disclaimer of Agency .................................................................................................................................22
10.02 Power of Attorney.......................................................................................................................................22
10.03 Amendment ............................................................................................................................................22-23
10.04 Notices ..........................................................................................................................................................23
10.05 Successors and Assigns............................................................................................................................23
10.06 Entire Agreement.........................................................................................................................................23
10.07 Counterparts/Facsimile Signatures ...........................................................................................................23
10.08 Severability...................................................................................................................................................23
10.09 Applicable Law ............................................................................................................................................23
10.10 Submission to Arbitration..........................................................................................................................23
10.11 Counsel to the Company............................................................................................................................23
LIMITED LIABILITY COMPANY AGREEMENT SIGNATURE PAGE .............................................................................24
SCHEDULE 1 ............................................................................................................................................................25
APPENDIX A ......................................................................................................................................................26-31
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LIMITED LIABILITY COMPANY AGREEMENT
OF
PCRS CAPITAL PARTNERS, LLC
THIS LIMITED LIABILITY COMPANY AGREEMENT ("Agreement") is entered into as of the Effective
Date, by and between Taiwanese American Elders Corp., a California corporation dba PCRS Capital Management
Company [“PCRS Management”], as Manager and the persons listed on Schedule 1 attached hereto (collectively, the
"Members").
R EC I T A L S
WHEREAS, the Members desire to conduct the business described herein as a limited liability company
under the laws of the State of Delaware.
NOW, THEREFORE, in consideration of the mutual covenants and conditions contained herein, the parties
hereby agree as follows:
ARTICLE 1
GENERAL TERMS
1.01 Formation of Limited Liability Company and No State-Law Partnership. The Members hereby form
a limited liability company (the "Company") under the Delaware Limited Liability Company Act, as amended from time
to time (“Act”), for the purposes, and subject to the other provisions, set forth herein, effective as of the date
("Effective Date") provided in its certificate of formation, as described in Section 1.06. The Members intend that the
Company not be a partnership (including a limited partnership) or joint venture, and that no Member be a partner or
joint venturer of any other Member for any purposes other than federal and state income tax purposes, and this
Agreement may not be construed to suggest otherwise.
1.02 Name of Company. The name of the Company shall be PCRS CAPITAL PARTNERS, LLC, or such
other name as shall be designated by the Manager.
1.03 Purposes. The purposes of the Company are to: (a) explore investment in and to invest in start up
companies with emphasis in the technology sector; (b) engage in such activities as are customary to venture capital
or emerging growth investment funds; (c) conduct the PCRS CAPITAL PARTNERS, LLC business; and (d) do all
things necessary or appropriate to further such purpose.
1.04 Principal Place of Business. The Company's principal place of business shall be 5325 E. Pacific
Coast Highway, Long Beach, California 90804, or such other place as may be determined by the Manager.
1.05 Agent for Service of Process . The name and address of the Company’s agent for service of
process is John C. Wang, 5325 E. Pacific Coast Highway, Long Beach, California 90804, or any successor as
appointed in accordance with applicable law.
1.06 Term of Company. The Company shall begin as of the Effective Date and shall continue until
December 31, 2045, unless terminated earlier as provided herein.
1.07 Filing of Certificate of Formation. PCRS Management caused a certificate of formation to be
executed and filed with the office of the Delaware Secretary of State in accordance with the Act providing that the
Company is formed on December 8, 1999.
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1.08 Filings. The Manager shall cause to be executed, filed and published all such other certificates,
notices, statements or other instruments, and amendments thereto under the laws of the States of Delaware and
California and other applicable jurisdictions as the Manager deems necessary or advisable for the operation of the
Company.
1.09 Company Property. All property of the Company, whether real or personal, tangible or intangible,
shall be deemed to be owned by the Company as an entity and no Member shall individually have any ownership
interest in such property. Title to any such property of the Company shall be held solely in the name of the
Company.
1.10 Definitions. See Appendix A.
ARTICLE 2
CAPITALIZATION
2.01 Capital Accounts.
(a) Establishment. An individual Capital Account shall be maintained for each Member in
accordance with this Section 2.01.
(b) General Rules for Adjustment of Capital Accounts . The Capital Account of each Member
shall be:
(i) increased by (A) the amount of cash contributed to the Company by such
Member, and (B) such Member's distributive share of Profits and any items of income or gain of the Company
allocated to such Member pursuant to Section 2.01(c)(iii) or Section 3.03; and
(ii) decreased by (A) the amount of cash distributed to such Member from the
Company, (B) the Book Value of property distributed in kind to such Member (net of liabilities secured by such
property that such Member is considered to assume or take subject to under Code Section 752 and Treasury
Regulations thereunder), and (C) such Member's distributive share of Losses and any items of loss or deduction
allocated to such Member pursuant to Section 2.01(c)(iii) or Section 3.03.
(c) Special Rules.
(i) Time of Adjustment for Capital Contributions . For purposes of computing the
balance in a Member's Capital Account, no credit shall be given for any Capital Contribution which su ch Member is
obligated to make under this Agreement until such contribution is actually made.
(ii) Capital Account for Transferred Interest. If any Company Interest or part thereof
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 transferred Company Interest.
(iii) Intent to Comply with Treasury Regulations . The foregoing provisions and the
other provisions of this Agreement relating to the maintenance of Capital Accounts are intended to comply with
Treasury Regulation Section 1.704-1(b), and shall be interpreted and applied in a manner consistent with such
regulations. To the extent such provisions are inconsistent with such regulations or are incomplete with respect
thereto, the Capital Accounts of the Members shall be maintained in accordance with such regu lations.
2.02 Initial Capital Contributions . The Members’ initial required capital contributions ("Initial Capital
Contributions") to the Company shall be twenty percent (20% ) of the amount as set fo rth beside their respective
names on Schedule 1 attached hereto.
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2.03 Additional Capital Contributions . Except as set forth below or as agreed by all Members, no
Member shall be required or permitted to make additional capital contributions ("Additional Capital Contributions")
to the Company.
(a) Required Additional Capital Contributions . The Members shall be required to make
Additional Capital Contributions in accordance with this Section 2.03(a) on a pro rata basis, up to the amount set
forth beside their respective names on Schedule 1 less their Initial Capital Contribution, when so requested by the
Manager in writing (the “Additional Capital Call”). The Additional Capital Call shall be provided by the Manager as
far in advance of the due date of such payment as is deemed appropriate by the Manager, but in no event less than
ten (10) days prior to such due date, and shall state the aggregate amount of Additional Capital Contributions
required of all Members as well as each Member’s pro rata share and the date by which the Additional Capital
Contributions must be paid to the Company (the “Payment Date”). Each Member shall contribute , on or before the
Payment Date, cash in an amount equal to his share in the Additional Capital Call.
(b) Failure To Make Additional Capital Contribution.
(i) If any Member ("Delinquent Member") fails to make any portion of an Additional
Capital Contribution required pursuant to Section 2.03(a) ("Delinquent Portion") within ten (10) days after the
Payment Date ("Default Date"), the other Members ("Nondelinquent Members") and/or the Comp any may, but shall
not be obligated, to do either or both of the following:
(A) Within ten (10) days after the Default Date, contribute all or part of the
Delinquent Portion as the Nondelinquent Members and the Company agree; if they cannot agree, the Nond elinquent
Members may contribute any portion which the Company does not first elect to contribute, pro rata based on the
aggregate of the Percentage Interests of Nondelinquent Members wishing to participate in the Delinquent Portion.
(B) Exercise an Option to purchase such Delinquent Member's Interest
pursuant to Section 7.02(a)(v).
(ii) In the event that a Member fails, within fifteen (15) days of a request to
contribute additional capital, to contribute up to the full amount of the additional Capital Cont ribution represented by
his Company Interest (or as otherwise requested), his Percentage Interest shall be reduced proportionately, and the
Percentage Interest of any contributing Member shall be increased proportionately.
(c) Modification of Schedule 1. Schedule 1 shall from time to time be updated and modified
by the Manager to reflect any changes in the Investors’ Percentage Interest, and to account for any Additional
Capital Calls.
2.04 Loans. Except as otherwise expressly provided in this Agreement or as agreed in writing by all
Members, no Member shall be required to lend or advance any money to the Company or for the Company's benefit.
2.05 No Withdrawal of Capital. Except as expressly set forth herein, no Member shall be entitled to
withdraw any portion of his Capital Contributions or Capital Account balance.
2.06 No Interest on Capital Account Balances . No Member shall be entitled to receive any interest on
the balance in such Member's Capital Account.
ARTICLE 3
PROFITS AND LOSSES
3.01 Profits. After giving effect to the special allocations set forth in Section 3.03, Profits with respect to
any Fiscal Year shall be allocated to the Members:
3
(a) First, until the cumulative Profits allocated pursuant to this Section 3.01(a) are equal to the
cumulative Losses allocated pursuant to Section 3.02(b), to the Members in reverse order of such allocations, pro rata
based on such allocations;
(b) Second, until the cumulative Profits allocated pursuant to this Section 3.01(b) are equal to
the cumulative Losses allocated pursuant to Section 3.02(a), to the Members in reverse order of such allocations, pro
rata based on such allocations; and
(c) The balance, as follows: 20% to the Management Team and 80% to the Members in
accordance with their Percentage Interests.
3.02 Losses. After giving effect to the special allocations set forth in Section 3.03 and subject to
Section 3.02(b), Losses with respect to any Fiscal Year shall be allocated to the Members as follows:
(a) General. To the Members in accordance with their Percentage Interests.
(b) Limitation. Losses allocated to any Member pursuant to Section 3.02(a) with respect to
any Fiscal Year shall not exceed the maximum amount of Losses that may be so allocated without causing such
Member to have an Adjusted Capital Account Deficit at the end of such year. All Losses in excess of the limitation
set forth in this Section 3.02(b) shall be allocated:
(i) First, to any Member who will not be subject to this limitation, to the extent
possible until such Member becomes subject to this limitation; and
(ii) Any remaining amount to the Members, in accordance with their Percentage
Interests, unless otherwise required by the Code or Treasury Regulations.
3.03 Regulatory and Curative Allocations .
(a) Qualified Income Offset. Notwithstanding anything herein to the contrary, but only if
required by Treasury Regulation section 1.704-1(b) in order for the allocations provided for herein to be considered to
have substantial economic effect or to be deemed to be in accordance with the Memb ers' interests in the Company, if
in any Fiscal Year, a Member unexpectedly receives an adjustment, allocation or distribution described in Treasury
Regulation section 1.704 1((b)(2)(ii)(d)(4)), (5) or (6), and such adjustment, allocation or distribution c auses or
increases an Adjusted Capital Account Deficit, such Member shall be allocated items of income and gain (consisting
of a pro rata portion of each item of Company income, including gross income and gain) in an amount and manner
sufficient to eliminate such deficit balance as quickly as possible. This Section 3.03(a) is intended to comply with
Treasury Regulation section 1.704-1((b)(2)(ii)(d) and shall be interpreted consistently therewith.
(b) Allocations Attributable to Nonrecourse Liabilities . Notwithstanding anything in this
Agreement to the contrary, to the extent the allocations set forth in this Article 3 are inconsistent with Treasury
Regulation section 1.704-2 as such Treasury Regulation addresses allocations attributable to the presence of
nonrecourse debt (including exculpatory liabilities as described in the Preamble to Treasury Regulation section 1.704-
2), allocations under this Article shall be made in accordance with such Treasury Regulation.
(c) Curative Allocations. Special allocations of items of income, gain, loss or deduction
pursuant to Section 3.03(a) or Section 3.03(b) (collectively, the "Regulatory Allocations") may not be consistent with
the manner in which the Members intend to divide the Company Profits, Losses, gain and other items. Accordingly,
Profits, Losses, and other items shall be allocated subsequent to any Regulatory Allocations among the Members
consistent with Treasury Regulation section 1.704-1(b) and 1.704-2 so that following any such subsequent
allocations, each Member's Capital Account is, to the extent possible, equal to the Capital Account balance such
Member would have had if the Regulatory Allocations were not part of the Agreement.
4
(d) Gain Chargeback. Except as otherwise provided in Section 1.704-2(i)(4) of the Regulations,
notwithstanding any other provision of this Article 3, if there is a net d ecrease in Member Nonrecourse Debt
Minimum Gain attributable to a Member Nonrecourse Debt as defined by Section 1.704-2(b)(4) of the Regulation,
during any Company Fiscal Year, each Member who has a share of the Member Nonrecourse Debt Maximum Gain
attributable to such Member Nonrecourse Debt determined in accordance with Section 1.704-2(i)(5), shall be specially
allocated items of Company income and gain for such Fiscal Year (and, if necessary, subsequent Fiscal Years) in an
amount equal to such Member’s s hare of the net decrease in Member Nonrecourse Debt Minimum Gain attributable
to such Member Nonrecourse Debt, determined in accordance with Regulations Section l.704-2(i)(4) arid 1.704 2(j)(2)
of the Regulations. This Section 3.03(c) is intended to comply with the minimum gain chargeback requirement in such
Section of the Regulations and shall be interpreted consistently therewith.
3.04 Allocation of Credits. All tax credits shall be allocated among the Members in accordance with
their Percentage Interests or in accordance with applicable provisions of the Code or Treasury Regulations to the
extent any such provision is inconsistent with such allocation.
3.05 Tax Allocations.
(a) Contributed Property. In the event any property is contributed to the capital of the
Company, income, gain, loss and deduction with respect to such property shall be allocated solely for tax purposes
among the Members in accordance with Code section 704(c) and Treasury Regulations thereunder so as to take
account of any variation between the adjusted basis of such property to the Company for federal income tax
purposes and its initial Book Value.
(b) Revalued Property. If the Company assets are revalued as set forth in the definition of
"Book Value" in Appendix A, subsequent allocations of income, gain, loss and deduction with respect to revalued
Company assets shall take into account any variation between the adjusted basis of such assets for federal income
tax purposes and their adjusted value in the same manner as under Code section 704(c) and Treasury Regulations
thereunder.
(c) Effect. Allocations pursuant to this Section 3.05 are solely for purposes of federal, state
and local taxes and shall not affect, or in any way be taken into account in computing any Member's Capital Account
or share of Profits, Losses, or other items or distributions pursuant to any provision of this Agreement.
3.06 Change in Members' Interests . In the event there is any change in the Members' Percentage
Interests in the Company during any Fiscal Year, Profits or Losses shall be allocate d among the Members in
accordance with their Percentage Interests from time to time during such Fiscal Year in accordance with Code
section 706, using any convention permitted by law and selected by the Manager.
ARTICLE 4
DISTRIBUTIONS
4.01 Distributions. Within ninety (90) days after the end of each Fiscal Year (or such other period as
determined by the Manager), the Manager, in the exercise of its discretion, shall determine the amount of
Distributable Income, if any, available for distribution to the Members.
(a) Distribution of Distributable Income. The Distributable Income, if any, shall be distributed
as follows
(i) First, to each Member to the extent necessary to result in aggregate distributions
to such Member with respect to any Fiscal Year which are not less than t he amount of federal and state income tax
which such Member would be obligated to pay with respect to all allocations to such Member for such Fiscal Year
5
pursuant to Article 3, assuming that the maximum combined effective marginal income tax rate applicable to
individuals under federal and California state income tax applies to such allocations.
(ii) Second, to the Members in accordance with their Percentage Interest up to the
amount of their aggregate Capital Contributions as set forth in Schedule 1.
(iii) Third, to the management team in an amount equal to any accrued but unpaid
Management Team Compensation. The Management Team Compensation shall represent 20% of the Profits of the
Company, but shall accrue and not be paid until such time as all Members receive the return of their Capital
Contributions as set forth in Section 4.02(a)(ii) above.
(iv) Finally, the balance as follows: 20% to the Management Team and 80% to the
Members in accordance with their Percentage Interest.
4.02 Liquidating Distributions . Distributions upon liquidation of the Company shall be made as
described in Section 8.03(e).
ARTICLE 5
ACCOUNTING, RECORDS AND REPORTS
5.01 Fiscal Year. The fiscal year ("Fiscal Year") of the Company shall be December 31 or such other
fiscal year required by the Code or Treasury Regulations.
5.02 Method of Accounting. The Company's books shall be maintained (a) in whatever method of
accounting the Manager determines is consistent with the Code or Treasury Regulations after consultation with the
CPA, and (b) in accordance with generally accepted accounting principles for financial reporting purposes.
5.03 Books of Account. Proper and complete books of account of the Company's business shall be
kept by the Company at its principal place of business and shall be open to inspection by any of the Members or
their representatives at any reasonable time during business hours.
5.04 Tax and Financial Reporting.
(a) Tax. The Manager shall use reasonable efforts to cause to be delivered to each person
who was a Member at any time during the Fiscal Year of the Company within 90 days after the end of such Fiscal
Year all information necessary for the preparation of such Member's federal income tax returns, including a statement
showing such Member's share of gains, income, losses, deductions or credits for such year for federal income tax
purposes and the amount of any distribution made to or for the account of such Member pursuant to this Agreement,
and any information necessary for the preparation of any state income tax returns which must be filed by such
Member.
(b) Financial. The Manager shall arrange for compiled year-end financial statements to be
prepared for the Company by the CPA. Such reports shall be sent to all Members.
5.05 Taxation.
(a) Elections. The Manager shall cause the Company to make such elections under the Code
or Treasury Regulations as the Manager may choose with the approval of the Board.
(b) Company Tax Returns. The Manager shall arrange for the necessary federal and state
Company tax returns to be prepared by the CPA and timely filed with the appropriate authorities. Each Member shall
6
provide such information, if any, that may be needed by the Company for purposes of preparing such tax returns, and
shall make such information readily available from regularly maintained accounting records.
(c) Tax Audits. PCRS Management shall be the tax matters partner of the Company (the "Tax
Matters Partner") within the meaning of Code section 6231(a)(7) with respect to federal income tax audits. The Tax
Matters Partner, as an authorized representative of the Company, shall direct the defense of any claims made by the
Internal Revenue Service to the extent that such claims relate to the adjustment of partnership items at the Company
level.
ARTICLE 6
MANAGEMENT
6.01 Management of the Company. Except as otherwise expressly provided herein, the management,
decisions and control of the Company shall be exercised exclusively by a manager ("Manager") who shall have the
exclusive authority to bind the Company within the meaning of section 18-402 of the Act with respect to any matter,
including without limitation, to contracts, obligations, and commitments to third parties. Subject to this Section 6.01
and Section 6.05, the Manager shall be PCRS Management. Subject to the restrictions set forth in this Agreement,
and the Manager's authority to delegate pursuant to this Section 6.01, the Manager shall act on behalf of the
Company in all matters affecting the day-to-day management and supervision of the operations of the Company and
its business affairs. The Manager may elect, in its sole discretion, to appoint officers of the Company and to delegate
to such officers or other Persons selected by the Manager those functions regarding day-to-day operations deemed
appropriate by the Manager; provided that, no such officer or other Person shall be authorized to bind the Company
within the meaning of section 18-402 of the Act. Upon the death, incapacity, removal pursuant to Section 6.05, or
withdrawal from the Company of the Manager, unless the Company is dissolved pursuant to Section 8.03(e), a
successor Manager shall be selected by Members holding a Majority in Capital, which successor Manager must be a
Member.
6.02 The Board. The Company shall have a board ("Board") for the purposes set forth in Section
6.02(a). Neither the Board, nor any member of the Board, nor any Nonmanaging Member shall have the authority to
bind the Company within the meaning of section 18-402 of the Act.
(a) Purposes. Subject to the exclusive binding authority of the Manager pursuant to Sections
6.01 and 6.02, the Manager agrees that it will not take the following actions without obt aining the approval of the
Board.
(i) Subject to Section 6.03(c), sell or exchange (other than in the ordinary course of
the Company's business), or mortgage, pledge or otherwise transfer all or any substantial portion of the assets of the
Company;
(ii) Cause there to be substantial change in the nature of the Company's business to
include anything other than as set forth in Section 1.03 above;
(iii) Admit additional Members of the Company in accordance with Section 7.04(a);
(iv) Except for debts or obligations incurred in the ordinary course of the Company's
business which shall not be subject to this limitation, cause the Company to become obligated or indebted for
amounts in excess of an aggregate of $25,000;
(v) Except in the ordinary course of the Company's business or with the approval of
a majority vote of the Board, extend to any person, firm or corporation credit on behalf of the Company in excess of
$25,000;
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(vi) Except in the ordinary course of the Company's business or with the approval of
a majority vote of the Board, make, execute or deliver on behalf of the Company any indemnity bond or surety bond;
(vii) Except with the approval of a majority vote of the Board, make, execute or deliver
on behalf of the Company an assignment for the benefit of creditors;
(viii) Except with the approval of a majority vote of the Board, appoint the CPA for the
Company;
(ix) Except with the approval of a majority vote of the Board or the members, approve
the Manager's compensation;
(x) Except with the approval of a majority vote of the Board, make an election
pursuant to Section 5.05(a);
(xi) Except with the approval of a majority vote of the Board, approve the provision
of security pursuant to Section 6.06(b);
(xii) Except with the approval of a majority vote of the Board, cause the Company to
exercise an Option pursuant to Section 7.02(b);
(xiii) Except with the approval of a majority vote of the Board, cause to the Company
to make a distribution pursuant to Section 7.04(b)(vi);
(xiv) Except with the approval of a majority vote of the Board, compromise or settle
disputes in excess of $25,000;
(xv) Except with the approval of a majority vote of the Board, make any investment in
any company or venture;
(xvi) Except with the approval of a majority vote of the Board, determine the manner in
which the management fee is to be allocated.
(b) Board Members. The Board shall consist of three (3) individual members, each a "Board
Member," whose appointment and term shall be elected annually as follows:
(i) The Manager shall be entitled to elect one (1) Board Member at each meeting or
pursuant to each consent of the Company’s Members for the election of Board Members, and to remove from office
such Board Member and to fill any vacancy caused by the resignation, death or removal of such Board Members;
(ii) The Members (other than the Manager) shall be entitled to elect one (1) Board
Member at each meeting or pursuant to each consent of the Company’s Members for the election of Board Memb ers,
and to remove from office such Board Member and to fill any vacancy caused by the resignation, death or removal of
such Board Member; and
(iii) The Members (including the Manager) shall elect the remaining Board Member at
each meeting or pursuant to each consent of the Company’s Members for the election of Board Members, and to
remove from office such Board Member and to fill any vacancy caused by the resignation, death or removal of such
Board Member.
(c) Procedures.
(i) Regular Meetings. The Board shall meet quarterly on a date, time and place
selected by the Board.
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(ii) Special Meetings. A special meeting of the Board shall be held at the election of
the Manager to consider any of the matters listed in Section 6.02(a).
(iii) Telephonic Meetings. Any meeting of the Board may be held by conference
telephone call or through similar communications equipment by means of which all persons participating in the
meeting can hear each other. Participation in a telephonic meeting held pursuant to this Section 6.02(c)(iii) shall
constitute presence in person at such meeting.
(iv) Notices. The Manager shall provide notice of each regular and special meeting
of the Board in accordance with Section 10.04 not less than five days prior to the date of such meeting, which notice
shall state the date and hour of the meeting and the purposes for which the meeting is called. Each such notice shall
contain such information as the Manager deems in his reasonable discretion to be necessary for the Board Members
to prepare for such meeting.
(v) Quorum. At each meeting of the Board, the presence in person or by telephone,
as appropriate, of at least a majority of the Board members shall constitute a quorum for the transaction of business.
(vi) Approval Requirements. Except as otherwise provided in Section 6.02(a),
consent or approval of the Board shall mean the affirmative vote of a majority of the Board Members, as voted by
Board Members who are present in person or by telephone, and who are voting at a duly held meeting of the Board.
6.03 Voting; Meetings of Members .
(a) Voting. Except as expressly provided in this Agreement, a Nonmanaging Member shall
not be entitled to vote on any matter.
(b) Meetings of Members.
(i) Date, Time and Place of Meetings of Members; Secretary. No annual or regular
meeting of Members is required. Meetings of Members may be held at such date, time and place as the Manager may
fix from time to time. In addition, Members holding at least a Majority in Capital may call a meeting of Members and
shall determine the time and place.
(ii) Notice of Meeting. Written notice of a meeting of Members called by the
Manager shall be provided by the Manager to each Member in accordance with Section 10.04 not less than ten (10)
nor more than sixty (60) days before the date of the meeting. The notice shall specify the place, date and hour of the
meeting and the general nature of the business to be transacted. No other business may be transacted at this
meeting. Upon written request to the Manager by a representative of Members holding a Majority in Capital who
voted to call a meeting, which request shall include a copy of such call signed by such Majority in Capital, the
Manager shall immediately provide written notice, not less than ten (10) days nor more than sixty (60) days after the
receipt of the request, to all Members that a meeting will be held at a date and time requested by the Members calling
the meeting, which date and time shall be stated in such notice. If the Manager fails to give such notice, the
Members who called the meeting may give the notice.
(iii) Action by Written Consent without a Meeting. Any action permitted to be taken
at a meeting of Members pursuant to this Section 6.04 may be taken without a meeting, if a consent in writing setting
forth the action so taken, is signed and delivered to the Manager by Members having not less than the minimum
number of votes that would be necessary to authorize or take that action at a meeting at which all Members entitled
to vote on that action were present and voted. All such consents shall be maintained in the Company records.
(iv) Telephonic Participation by Member at Meetings . Members may participate in
any Members' meeting by conference telephone or through similar communications equipment by means of which all
Members participating in the meeting can hear each other. A Member so p articipating shall constitute presence in
person at such meeting.
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(v) Proxies. Every Member entitled to vote on any matter shall have the right to do
so either personally or by one or more agents authorized by a written pro xy signed by such Member and filed with
the Manager. A proxy shall be deemed signed if the Member's name is placed on the proxy (whether by manual
signature, typewriting, telegraphic transmission, electronic transmission or otherwise) by the Member or the
Member's attorney-in-fact. A validly executed proxy which does not state that it is irrevocable shall continue in full
force and effect unless (i) revoked by the Member executing it, before the vote utilizing that proxy, by a writing
delivered to the Company stating that the proxy is revoked, or by a subsequent proxy executed by, or attendance at
the meeting and voting in person by, the Member executing the proxy; or (ii) written notice of the death or incapacity
of the Member executing that proxy is received by the Company before the vote utilizing that proxy is counted;
provided, however, that no proxy shall be valid after the expiration of eleven (11) months from the date of the proxy,
unless otherwise provided in the proxy.
6.04 Management Fee; Compens ation and Reimbursement. Except as provided in this Agreement, no
Member or Affiliate of such Member shall be entitled to any fees or compensation for services rendered in
connection with the activities of the Company, or to reimbursement for costs or expenses incurred on behalf of the
Company. The fees and expenses of all consultants, lawyers, accountants and other professionals providing
services to the Company in accordance with this Agreement at the request of the Manager shall be paid by the
Company, or, at the discretion of the Manager, by the Manager and reimbursed by the Company.
(a) Manager Reimbursement. The Manager shall be reimbursed currently from all available
sources, including without limitation financing proceeds, for reasonable out -of-pocket expenditures incurred on
behalf of the Company.
(b) Management Fee. An annual management fee in an amount equal to two percent (2%) of
the balance of the aggregate cash capital contributions of all Members at the commencement of the Fiscal Year shall
be charged for administrative and management expenses, including but not limited to, (a) compensat ion of Board
Members, officers and committee members (as approved by the Manager), (b) compensation of the Manager (as
approved by the Board) and (c) such other purposes as approved by the Manager and the Board. The management
fee shall be paid in twelve (12) equal monthly installments on the first day of each month.
(c) Loans and Other Transactions with Members or Affiliates . The Manager may cause the
Company to borrow money from, employ, contract with or enter into any other transaction with a Member or an
Affiliate, so long as the price charged by such Member or Affiliate for such loan or other business does not exceed
the price charged for similar business transactions by u nrelated parties experienced in such transactions. Subject to
applicable law, such Member has the same rights and obligations with respect to such loan or other transaction as a
Person who is not a Member.
(d) Referral/Finder’s Fee. The Manager may cause the Company to pay a referral or finder’s
fee to a Person (including any Member of the Company but excluding the Manager or its Affiliates) for referring an
investment to the Company, which fee shall not exceed four (4%) of the Profits realized from any the investment.
6.05 Removal of Manager; Purchase of Manager’s Interest. Subject to the terms and conditions of this
Section 6.05, Members holding at least 75% in Capital of all Members (excluding PCRS Management) may elect to
remove PCRS Management as Manager only for Cause by issuing a written notice ("Removal Notice") to PCRS
Management, Attention: John Wang, signed by the required number of Members, which Removal Notice shall state
in detail the basis for concluding that Cause exists; provided that, the vote of all Members excluding PCRS
Management must be solicited at least 15 days prior to the Members' vote on such proposed removal in a solicitation
containing a copy of the proposed Removal Notice, and PCRS Management shall be given a copy of such solicitation
concurrently with the other Members.
6.06 Liability of the Members; Indemnification.
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(a) Exculpation of Members, Board Members and Manager. Neither a Member, a Board
Member, the Manager, an officer nor a shareholder, constituent partner, officer, director, employee or agent of a
Member, a Board Member, or the Manager or their respective Affiliates (individually, an "Indemnitee") shall be liable,
responsible or accountable in damages or otherwise to the Company or any of the Members for any act or omission
performed or omitted (i) in good faith on behalf of the Company, (ii) in a manner reasonably believed by such
Indemnitee to be within the scope of the authority granted to such Indemnitee by this Agreement, and (iii) in a
manner not constituting willful misconduct, fraud or gross neg ligence.
(b) Indemnification of Members by the Company. The Company shall indemnify, defend and
hold harmless each Indemnitee for any and all claims or threats thereof, expenses and liabilities or threats thereof
(including, without limitation, attorneys' fees and costs of investigation and defense relating to the Company) which
such party may incur by reason of being a Member, the Manager, an officer or a shareholder, constituent partner,
officer, director or employee or agent of a Member or the Manager or their respective Affiliates (regardless of the
disclosure or lack of disclosure of such status) or by virtue of taking any action pursuant to this Agreement in such
capacity unless such claim, expense or liability is caused by an act or omission performed or omitted by the
Indemnitee in a manner constituting willful misconduct, fraud or negligence. Expenses incurred by a Indemnitee in
defense or settlement of any claim that may be subject to indemnification may be advanced by the Company prior to
the final disposition thereof upon (i) receipt of an undertaking by or on behalf of such Indemnitee to repay such
amount to the extent that it shall be determined ultimately that such Indemnitee is not entitled to indemnification and
(ii) a reasonable determination that such Indemnitee is able to repay such amounts under such circumstances,
including the provision of such security or assurance of repayment as reasonably requested by the Board. This
indemnification specifically does not provide a Member with an indemnification with regard to income tax
consequences.
6.07 Time Devoted to Company; Other Activities Permitted. The Manager shall devote whatever time,
effort and skill may be reasonably necessary to carry out the Manager's duties hereunder. The Members, either
individually or collectively, may participate in other ventures, but may not participate in ventures whic h conflict with
the business of the Company without the prior written consent of the Manager. No Member is required to offer any
investment opportunity to the Company or the other Members, and neither the Company nor the other Members
shall have any rights in such activities or any income or profits derived therefrom.
6.08 Confidentiality. During and after the term of this Agreement, without the written consent of the
Manager, no Member shall disclose to any person (other than an agent of the Company) any trade secret or
confidential information relating to the business of the Company or any affiliate of the Company, which secret or
information was obtained by such Member in its capacity as a Member of the Company. This provision shall cease
to be operative when such information ceases to be confidential or is generally available to the public.
Notwithstanding the foregoing, no Member shall be precluded from disclosures respecting the Company when made
pursuant to compulsory legal process or when otherwise required by an appropriate government agency.
ARTICLE 7
THE MEMBERS
7.01 Assignments and Transfers of Member Interests . For purposes of this Agreement, in the context
of a transfer or assignment of an Interest or of an interest in a Member, "transfer" or "assignment" means a sale,
assignment, transfer, hypothecation, pledge or other disposition (whether as security or otherwise) of all or part of
such Interest.
(a) Assignments by Members . Except as otherwise provided in Section 7.01(b), Section 7.02,
Section 7.03 or Section 6.05 and subject to Section 7.03, a Member may not assign or transfer all or any portion of
such Member's Interest in the Company unless each of the following conditions is satisfied (in which event, a
permitted assignee shall be subject to the final clause of this Section 7.01(a)):
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(i) Unless this condition is waived by the Manager, the effect of the assignment will
not be to terminate the Company pursuant to Code section 708(b) or any similar successor provision of the Code, or
cause any other material adverse tax consequences to the Company or any other Member;
(ii) The assignment will not cause the Company to cease to be treated as a
partnership for federal income tax purposes,
(iii) The transfer is accomplished in a non-public offering in compliance with, and
exempt from registration and qualification requirements of all federal and state securities laws;
(iv) The assignor and/or assignee bears all reasonable costs of the Company and the
other Members in connection with the assignment, including costs incurred in amending this Agreement;
(v) The assignment does not result in a default under or breach of any material
obligation contained in any material agreement to which the Company is a party or by which its property is bound;
(vi) If the assigning Member is the Manager, the identity of the assign ee has been
consented to in writing by Members who are not the Manager (each a "Nonmanaging Member") holding at least a
Majority in Capital, which consent shall not be unreasonably withheld; provided that PCRS Management may assign
portions of its Percentage Interest to other persons without complying with this provision;
(vii) If the assigning Member is a Nonmanaging Member, the identity of the assignee
has been consented to in writing by the Manager, which consent shall not be unreasonably withheld; and
(viii) The assignor agrees in writing that such assignor shall remain liable to the
Company to make any remaining Capital Contributions pursuant to Section 2.03(b), and the assignee agrees in writing
to be subject to the default provisions of Section 2.03(c) if there is a default with respect to such Interest, regardless
of which of the assignor or the assignee is liable for the default.
Upon satisfaction of such conditions, a permitted assignee under this Article 7 shall become entitled to receive the
assigning Member's share of Profits, Losses and other items pursuant to Article 3 and such Member's share of
distributions pursuant to Article 4. A permitted assignee under this Article 7 shall not be a Member, and shall not be
entitled to vote or to the other rights of a Member, other than the right to receive allocations of Profits, Losses and
other items, and distributions, and the assigning Member shall not be relieved of any of its obligations hereunder, in
each case, unless the assignee is admitted to the Company as a substituted Member as provided in Section 7.01(c).
Notwithstanding the foregoing, the consent required by Section 7.01(a)(vi) or Section 7.01(c)(iii) shall not be required
if the assignee is a Member of the Company immediately prior to, and at the time of, the assignment.
(b) Family Transfers. Subject to Section 7.01(c), the Interest of a Member may be assigned
without the consent of any other Member:
(i) To a trust for the benefit of such Member;
(ii) To any spouse, lineal or adopted descendant of such Member or spouse of such
descendant; or
(iii) To any one or more of them by declaration of trust, inter vivos gift, or
testamentary disposition.
(c) Substituted Members. Except as provided in the last sentence of Section 7.01(a), a
permitted assignee of an Interest pursuant to Section 7.01(a), Section 7.01(b) or Section 7.03 may not become a
substituted Member unless each of the following conditions is satisfied:
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(i) Each of the conditions set forth in Sections 7.01(a)(i) through (iv) and (viii) are
satisfied (as if such conditions applied to the substitution);
(ii) The transferee executes an appropriate agreement to be bound by the terms and
conditions of this Agreement; and
(iii) Such substitution has been consented to in writing (A) if the assigning Member
is a Nonmanaging Member, by the Manager, which consent is in the sole and absolute discretion of the Manager;
and (B) subject to Section 7.01(a)(vi) hereof, if the assigning Member is the Manager, by Nonmanaging Members
holding at least a Majority in Capital, which consent is in the sole and absolute discretion of such Members.
(d) Corresponding Changes to Agreements . If, pursuant to the provisions of this Article 7, a
Member assigns or transfers, in whole or in part, any of its Interest in a permitted manner, then the Members and the
transferee shall, at the request of any Member, amend this Agreement to reflect such event.
(e) Prohibited Assignments and Transfers . Any purported assignment or transfer of all or
any portion of an Interest which is not in accordance with this Article 7 shall be null and void and of no effect
whatsoever.
(f) Withdrawal by a Member. Except as expressly provided in this Agreement, no Member
may withdraw from the Company as a Member.
7.02 Options to Purchase.
(a) Option Event and Option Period. An option ("Option") to purchase all but not less than
all of a Member's Interest in the Company ("Transferring Member") shall arise in favor of the Company and the other
Members on the occurrence of any of the following events and must be exercised, if at all, within 180 days after
receipt by all other Members of actual knowledge of the occurrence of the event (180 days aft er the Default Date in
the case of an Option arising under Section 7.02(a)(v)) ("Option Period"):
(i) The Bankruptcy of the Member.
(ii) Sale or other transfer (or purported sale or transfer) by the Member of its Interest
in the Company, or withdrawal by the Member from the Company, except as provided by and in full compliance with
the terms of this Agreement.
(iii) Levy upon the Member's Interest under a writ of execution, or sale of such
Interest under any legal process.
(iv) Marital dissolution of a Member or similar proceedings if the terms of such event
would cause a change in the ownership or control of the Transferring Partner's Interest or portion thereof.
(v) Default by a Member pursuant to Section 2.03(c) which has not been cured by
the Default Date.
(vi) Death or Incapacity of a Member; provided that a surviving spouse of a
deceased Member will not be subject to this provision if his or her ownership interest arises from applicable
community property laws which status shall be determined in any man ner deemed reasonable by the Manager.
To the extent such option is exercised, the Transferring Member shall be obligated to transfer all or a portion of its
Interest as contemplated herein.
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(b) Exercise of Options.
(i) An Option arising under Section 7.02(a) may be exercised as to all or part of the
Interest of the Transferring Member and shall be exercised by delivery no later than the last day of the Option Period
to the Transferring Member of a written notice of the election to exercise an Option. The exercise of an Option by the
Company shall have priority over exercise by any Member, and the determination of whether the Company will
exercise such Option shall be made by the Board.
(ii) If the aggregate Interests, or portions thereof, specified in such notices of
election are less than the entire Interest of the Transferring Member, any and all of such elections shall be ineffective,
and the Option shall lapse.
(iii) If the aggregate Interests, or portions thereof, specified in such notices of
election are equal to the entire Interest of the Transferring Member, the Company and/or the non -Transferring
Members which have exercised the Option shall, subject to Section 7.02(f), purchase the respective portions of t he
Transferring Member's Interest specified by them in such notices.
(iv) If the aggregate portions of the Transferring Member's Interest specified in such
notices of election exceed the Transferring Member's Interest, the non -Transferring Members who have given
notices of election shall purchase that portion of the Transferring Member's Interest not being purchased by the
Company pro rata based on the aggregate of the portions of the Transferring Member's Interest specified by the non -
Transferring Members in such notices.
(c) Value of Interest and Option Price.
(i) Value. Except with respect to an Option arising under Section 7.02(a)(v), the
value of an Interest subject to an Option shall be as agreed by (A) the Transferring Member and (B) the Company
and/or the Members, as the case may be, (collectively, the "Purchasing Party" or individually, a "Purchasing Party")
that exercises the Option; or if the Transferring Member and the Purchasing Party cannot agree, then as determined
as of the date of the event giving rise to the Option, as set forth below. Valuation Counselors Group, Inc. or such
other firm as mutually agreed by the Transferring Member and the Purchasing Party within ten (10) days after the end
of the Option Period shall be retained to furnish a written appraisal setting forth the gross fair market value of the
Company assets as of the date the Option arose. The determination of the party so selected shall be in writing and
shall be final and binding on the Transferring Member and the Purchasing Party. As used in this Section 7.02(c), the
term "gross fair market value" shall mean the cash price which a sophisticated purchaser would pay for the Company
assets on the date of the event giving rise to the Option. Any decision to be made by the Purchasing Party for
purposes of this Section 7.02(c)(i) shall be made by the Company if the Company has exercised its Option, or if the
Company has not exercised the Option, by the non-Transferring Members who have exercised the Option, pro rata
based on the aggregate of the portions of the Transferring Member's Interest being acquired by such non -
transferring Members.
(ii) Price of Interest. The purchase price of the Transferring Member's Interest
("Option Price") shall be determined as follows:
(A) Except with respect to an Option arising under Section 7.02(a)(v), the
Option Price shall be the amount set forth in Section 7.02(c)(i).
(B) With respect to an Option arising under Section 7.02(a)(v), the Option
Price shall be 50% of the Transferring Member’s (in this case, the Delinquent Member’s) Capital Contributions which
have not been returned to the Transferring Member pursuan t to Section 4.01(d) as of the date the Option is exercised.
(iii) Costs; Binding Effect. The Purchasing Party (pro rata among them based on the
aggregate of the portions of the Transferring Member's Interes t being acquired by each Purchasing Party) and the
Transferring Member shall share equally in the costs of the appraisers and the CPA. Each Member hereby agrees
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that a determination of the value and the Option Price set forth in Sections 7.02(c)(i) and Section 7.02(c)(ii) shall be a
valid, fair and fully acceptable valuation of its Interest in the Company and waives, to the full extent permitted by law,
any right to the provision of a bond or other security for the amount payable to it in accordance with t his
Section 7.02, as such amount may be reduced in accordance with applicable law.
(d) Method of Payment. Each Purchasing Party shall purchase the portion of the Transferring
Member's Interest being acquired by such Purchasing Party for such Purchasing Party's pro rata share of the Option
Price, at the election of such Purchasing Party, entirely in cash, or by promissory note of such Purchasing Party, or
partly in cash and partly by note; provided that, with respect to an Option arising under Section 7.02(a)(v), the
payment shall be entirely in cash. Any such note shall have a term no longer than 5 years, provide for payment of
interest at a rate no lower than the applicable federal rate under Code section 1274(d) in effect on the date of the
closing of the purchase and contain such other reasonable terms as determined by the Purchasing Party. The closing
of such purchase shall occur within thirty (30) days after the date the Option Price has been finally determine d
pursuant to Section 7.02(c)(ii).
(e) Default. If any Purchasing Party has exercised an Option as set forth in this Section 7.02
but fails to complete closing of the purchase of the Transferring Member's Interest for any reason, the Transferring
Member shall be entitled to reimbursement for a pro rata portion of the cost of the appraisals attributable to such
Purchasing Party and paid for by such Transferring Member, and upon such reimbursement the Purchasing Party
shall have no further liability to the Transferring Member as a result of a failure to complete such closing.
(f) Failure to Exercise. If the Company and/or the non-Transferring Members do not exercise
their Option within the Option Period to purchase the entire Interest of the Transferring Member, holders of 75% of
the Capital of the non-Transferring Members may in their sole discretion elect to institute such proceedings as may
be appropriate to secure an accounting and to dissolve, wind up and terminate the Company.
7.03 Right of First Refusal.
(a) Offer and Right to Sell. Subject to the conditions set forth in Section 7.03(d), a Member
("Selling Member") shall have the right to sell all or a portion of such Member's Interest (the "Offered Interest")
pursuant to a bona fide offer ("Offer") by a third party purchaser [including another Member]; provided that (i) the
Selling Member first gives the Company and the other Members a right of first refusal to purchase all but not less
than all of such Offered Interest in accordance with the terms of this Section 7.03. Neither a transfer described in
Section 7.01(b) nor a transfer to another Member shall be subject to this Section 7.03.
(b) Notice. The Selling Member shall give written notice ("Offer Notice") to the Company and
the other Members, which notice shall include:
(i) a copy of the third party's Offer; and
(ii) the identity of the offeror ("Offeror").
(c) Election to Purchase. Within 45 days after the date of the Offer Notice ("Election Period"),
the Company and the other Members may exercise their right to purchase all of the Offered Interest at the purchase
price of the Selling Member's Interest set forth in the Offer Notice. The exercise of a right of first refusal pursuant to
this Section 7.03 by the Company shall have priority over exercise o f such right by any Member. The non-Selling
Members may elect to participate in the purchase of the Offered Interest not purchased by the Company among them
as they agree or if they cannot agree, pro rata based on the aggregate of the Percentage Interests of the non-Selling
Members wishing to participate. If the Company and/or the non -Selling Members have not elected to exercise their
right of first refusal pursuant to this Section 7.03 with respect to the entire Offered Interest within the Election Perio d,
the Company and the non-Selling Members shall be deemed to have not exercised such right. The Company and
Members which exercise the right of first refusal pursuant to this Section 7.03 shall have 90 days after expiration of
the Election Period to cons ummate the purchase in accordance with the payment terms set forth in Section 7.02(d);
provided that, the Company and such Members may elect in their sole discretion to make payment in accordance with
15
the payment terms and conditions specified in the Offer; and provided further that if the Offer Notice provides for the
payment of non-cash consideration, the Company and such Members may elect to pay the consideration in cash
equal to the good faith estimate of the fair market value of the non -cash consideration specified in the Offer Notice,
as such fair market value is determined by the Manager.
(d) Sale to Third Party. Subject to satisfaction of the conditions set forth in Section 7.01(a),
the Selling Member may, within a period of 30 days after the refusal or deemed refusal by the Company and the non -
Selling Members to purchase the Offered Interest, accept the Offer and sell the Offered Interest to the Offeror, but
only for the same price and only on the same terms and conditions as were contained in the Offer Notice; provided
however, any such Offeror shall become entitled to receive the Selling Member's share of Profits, Losses and other
items pursuant to Article 3 and such Selling Member's share of distributions pursuant to Article 4. Any such Offeror
shall not be a Member, and shall not be entitled to vote or to the other rights of a Member, other than the right to
receive allocations of Profits, Losses and other items, and distributions, and the Selling Membe r shall not be relieved
of any of its obligations hereunder, in each case, unless the Offeror is admitted to the Company as a substituted
Member as provided in Section 7.01(c).
(e) Lapse of Right to Sell. If the sale by the Selling Member to the third party is not
consummated within such 30 day period, the right to sell pursuant to this Section 7.03 shall lapse and the Selling
Member shall not thereafter make any sale, transfer, pledge or other disposal or enc umbrance without again
complying strictly with the provisions of this Section 7.03.
7.04 Admission of Additional Members; Dilution. Except as expressly provided in this Section 7.04, an
additional member may not be admitted to the Company without the prior written consent of all Members.
(a) Additional Funds Required. If the Manager determines in his reasonable discretion that
additional funds are required in order to support the operations or expansion of the Company, subject to Section
6.02(a)(iv) and the terms and conditions of this Section 7.04(a), the Manager may admit additional members to the
Company ("Additional Member") for additional contributions of capital to the Company.
(i) Price for Additional Interest. The amount which any Additional Cash Investor
shall be required to contribute for an Interest in the Company ("Additiona l Interest") shall be the fair market value of
such Additional Interest as determined by the Manager in his reasonable discretion.
(ii) Right of First Offer. Prior to offering any Additional Interest to Pers ons who are
not Members ("Third Parties"), the Manager shall offer, for a period of not less than 30 days, the total available
Additional Interests to the then existing Members ("Existing Members") on the same terms which such Additional
Interests will be offered to Third Parties. During such 30 day period, the Existing Members may elect to acquire some
or all of the Additional Interests as they agree, or if they cannot agree, pro rata based on the aggregate Percentage
Interests of the Existing Members des iring to acquire some or all of the Additional Interests. Any Additional
Interests which are not acquired by the Existing Members during such 30 day period, may be offered to Third Parties
during the 90 day period following expiration of such 30 day perio d on the same terms and conditions as offered to
the Existing Members.
(iii) Admission of Additional Members; Dilution of Existing Members’ Percentage
Interests. Any Third Parties which acquire Additional Interests pursuant to this Section 7.04(a) shall be admitted to
the Company as Additional Members, and effective as the date of such admission ("Adjustment Date"), the
Percentage Interests of Existing Members shall adjusted as follows:
(A) The Percentage Interest of the Existing Members as a group shall be
adjusted as of the Adjustment Date to equal the excess of (I) the Percentage Interest of the Existing Members as a
group immediately prior to the admission of the Additional Members, over (II) the Percentage Interest of the
Additional Cash Members as a group immediately following their admission to the Company.
16
(B) The Book Values of the assets of the Company shall be adjusted
pursuant to clause (b)(ii) of the definition of Book Value (assuming for this purpose that the gross fair market value of
the Company's assets is the gross valuation of the Company used in connection with pricing the Additional
Interests).
(C) The Percentage Interests of the Existing Members shall be adjusted as
of the Adjustment Date so that each Existing Member’s Percentage Interest immediately following such adjustment
shall be the sum of (I) the product of the Percentage Interest of the Existing Members as a group dete rmined under
clause (A) above and the fraction: (x) whose numerator is the aggregate of such Existing Member’s cash Capital
Contributions pursuant to Sections 2.02 and 2.03 (and if applicable, Section 7.04(b)) immediately prior to the
Adjustment Date and (y) whose denominator is the aggregate of all Existing Members’ cash Capital Contributions
pursuant to Sections 2.02 and 2.03 (and if applicable, Section 7.04(b)) immediately prior to the Adjustment Date, and
(II) the Percentage Interest acquired by such Existing Member, if any, in connection with the current offer of
Additional Interests.
(iv) Amendment of this Agreement. This Agreement and Schedule 1 shall be
amended to reflect the admission of the Additional Members, the adjustment of the Percentage Interests of Existing
Member pursuant to this Section 7.04(a), and their required capital contributions, and the consent of no Existing
Member shall be required to effect such an amendment.
(v) Acknowledgment of Dilution and Dilution Method. Each Existing Member
hereby acknowledges that (A) the admission of Additional Members pursuant to this Section 7.04(a) will result in a
dilution of such Existing Member's Percentage Interest, which dilution is not subject to any limit under this
Agreement, (B) the dilution formula with respect to the Existing Members' Percentage Interests provided in this
Section 7.04(a) is generally based on the Percentage Interest issued to the Additional Members as a group and the
valuation of the Company used to price the Additional Interests (as determined by the Manager and the Additional
Members) rather than on the total Capital Contributions of all Existing Members and Additional Members, and (C)
such dilution formula is fair and reasonable.
ARTICLE 8
DISSOLUTION AND TERMINATION
8.01 No Termination. Except as expressly provided in this Agreement, no Member shall have the right,
and each Member hereby agrees not, to dissolve, terminate or liquidate the Company. No Member shall have the
right, and each Member hereby agrees not, to petition a court for the dissolution, termination or liquidation of the
Company except as such rights are provided in this Agreement or are available under applicable law notwithstanding
any agreement herein to the contrary. Any Member who dissolves the Company in violation of this Section 8.01
shall be liable to the other Members for damages for breach of this Agreement.
8.02 Events of Dissolution. The Company shall be dissolved upon the first to occur of the following:
(a) Expiration of the term of the Company set forth in Section 1.06;
(b) The affirmative vote of all Members to dissolve the Company, but only on the effective
date of dissolution specified by the Members at the time of such approval;
(c) Sale, condemnation or involuntary transfer of all or substantially all of the assets of the
Company;
(d) The affirmative vote of the Members to dissolve the Company pursuant to Section 7.02(f);
17
(e) A Dissolution Event with respect to the Manager, unless within ninety (90) days after the
occurrence of any such event, Members holding at least a Majority in Interest and a Majority in Capital agree in
writing to continue the business of the Company; or a Dissolution Event with respect to any Nonmanaging Member
but only if dissolution upon such occurrence is not waivable under t he Act, unless within ninety (90) days after the
occurrence of any such event, the Manager agrees in writing to continue the business of the Company; or
(f) Entry of a decree of judicial dissolution under Section 18-802 of the Act.
No other act with respect to any Member shall cause the dissolution of the Company. Dissolution of the Company
shall be effective on the day on which the event occurs giving rise to the dissolution, but the Company shall not
terminate until the Company's certificate of formation has been canceled and the assets of the Company have been
distributed as provided herein. Notwithstanding the dissolution of the Company, prior to the termination of the
Company, as aforesaid, the business of the Company and the affairs of the Members, a s such, shall continue to be
governed by this Agreement.
8.03 Procedures Upon Dissolution.
(a) General. In the event the Company dissolves, it shall commence winding up p ursuant to
the appropriate provisions of the Act and the procedures set forth in this Section 8.03.
(b) Control of Winding Up. The winding up of the Company shall be conducted under the
direction of the Manager (or if the dissolution is caused by a Dissolution Event with respect to the Manager, the
Person selected by Nonmanaging Members holding at least a Majority in Capital) (the Manager or any such Person,
the "Liquidator").
(c) Manner of Winding Up. The Company shall engage in no further business following
dissolution other than that necessary for the orderly winding up of the business and distribution of assets. The
maintenance of offices shall not be deemed a continuation of the business for purposes of this Section 8.03(c).
Upon dissolution of the Company, the Liquidator shall determine the time, manner and terms of any sale or sales of
Company property pursuant to such winding up; provided however, liquidation of the Company assets shall be
carried out as promptly as is consistent with obtaining fair value therefor.
(d) Profits and Losses. Each Member shall continue to share Profits, Losses and other items
after the dissolution of the Company and during the period of winding up of the Company's business in the same
manner as provided in Article 3.
(e) Application of Assets. In the case of a dissolution of the Company, the Company's
assets shall be applied, subject to Section 8.04, as follows:
(i) Creditors. First, to payment of the liabilities of the Company owing to third
parties who are not Members or Affiliates, and next to payment of liabilities of the Company owing to Members or
Affiliates. After payment of any such known liabilities, the Liquidator shall set up such reserves as it deems
reasonably necessary for any contingent or unforeseen liabilities or obligations of the Company. Such reserves may
be paid over by the Liquidator to an escrow holder or trustee, to be held in escrow or trust for the purpose of paying
any such contingent or unforeseen liabilities or obligations, and, at the expiration of such period as the Liquidator
may deem advisable, such reserves shall be distributed to the Members or their assigns in the manner set forth in
Section 8.03(e)(ii).
(ii) Members. Second, to the Members in accordance with the positive balances in
their Capital Accounts after adjustment for all allocations of Profits or Losses and other items.
8.04 Right to Possess Assets . In the event a Member dissolves the Company in violation of Section
8.02 or dissolution occurs under section 8.02(c), the other Members shall have the right to a distribution in kind of the
18
property of the Company, provided that they pay such Member the amount which such Member would have
received under Section 8.03(e)(ii).
8.05 No Recourse. If distributions pursuant to Section 8.03(e)(ii) are insufficient to return to any
Member the full amount of such Member's Capital Account, such Member shall have no recourse against any other
Member. No Member shall have any obligation to restore a deficit in such Member's Capital Account either on
liquidation of the Company or liquidation of such Member's Interest in the Company.
8.06 Termination of Company. Upon the completion of the liquidation of the Company and the
distribution of all Company assets, the Company's affairs shall terminate and the Liquidator shall cause to be
executed and filed a certificate of cancellation of the Company's certificate of formation, as well as any and all other
documents required to effectuate the termination of the Company, under the Act.
ARTICLE 9
INVESTMENT REPRESENTATIONS
Each Member hereby represents and warrants to, and agrees with, the Manager, the other Members, and the
Company as follows:
9.01 Preexisting Relationship or Experience. (a) He or she has a preexisting personal or business
relationship with the Company or one or more of its officers, Managers or control persons or (b) by reason of his or
her business or financial experience, or by reason of the business or financial experience of his or her financial
advisor who is unaffiliated with and who is not compensated, directly or indirectly, by the Company or any affiliate or
selling agent of the Company, he or she is capable of evaluating the risks and merits of an investment in the Interest
and of protecting his or her own interests in connection with this investment.
9.02 No Advertising. He or she has not seen, received, been presented with, or been solicited by any
leaflet, public promotional meeting, newspaper or magazine article or advertisement, radio or television advertisement,
or any other form of advertising or general solicitation with respect to the sale of the Interest.
9.03 Investment Intent. He or she is acquiring the Interest for investment purposes for his or her own
account only and not with a view to or for sale in connection with any distribution of all or any part of the Interest.
No other person will have any direct or indirect beneficial interest in or right to the Interest.
9.04 Purpose of Entity. If the Member is a corporation, partnership, limited liability company, trust, or
other entity, it was not organized for the specific purpose of acquiring the Membership Interest.
9.05 Residency. He or she is a resident of the state set forth in his address on Schedule 1 hereto.
9.06 Economic Risk. He or she is financially able to bear the economic risk of an investment in the
Interest, including the total loss thereof.
9.07 No Registration of Interest. He or she acknowledges that the Interest has not been registered
under the Securities Act of 1933, as amended (the "Securities Act"), or qualified under the California Corporate
Securities Law of 1968, as amended, or any other applicable blue sky laws in reliance, in part, on his or her
representations, warranties, and agreements herein.
9.08 Interest in Restricted Securities . He or she understands that the Interest is a "restricted security"
under the Securities Act in that the Interest will be acquired from the Company in a transaction not involving a public
offering, and that the Interest may be resold without registration under the Securities Act only in certain limited
circumstances and that otherwise the Interest must be held indefinitely. In this regard, he or she understands the
resale limitations imposed by the Securities Act and is familiar with SEC Rule 144, as presently in effect, and the
19
conditions which must be met in order for that Rule to be available for resale of "restricted securities," including the
requirement that the securities must be held for at least two years after purchase there of from the Company prior to
resale (three years in the absence of publicly available information about the Company) and the condition that there
be available to the public current information about the Company under certain circumstances. He or she
understands that the Company has not made such information available to the public and has no present plans to do
so.
9.09 No Obligation to Register. He or she represents, warrants, and agrees that the Company and the
Manager are under no obligation to register or qualify the interest under the Securities Act or under any state
securities law, or to assist him or her in complying with any exemption from registration and qualification.
9.10 No Disposition in Violation of Law. Without limiting the representations set forth above, and
without limiting Article 7 of this Agreement, he or she will not make any disposition of all or any part of the Interest
which will result in the violation by him or her or by the Company of the Securities Act, the California Corporate
Securities Law of 1968, or any other applicable securities laws, such as an unregistered sale of an interest in the
Company to a large number of investors.
9.11 Legends. He or she understands that the certificates (if any) evidencing the membership Interest
may bear one or all of the following legends:
(a) "THE SECURITIES REPRESENTED BY THIS AGREEMENT HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 NOR REGISTERED NOR QUALIFIED UNDER ANY STATE
SECURITIES LAWS. SUCH SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, DELIVERED AFTER SALE,
TRANSFERRED, PLEDGED, OR HYPOTHECATED UNLESS QUALIFIED AND REGISTERED UNDER APPLICABLE
STATE AND FEDERAL SECURITIES LAWS OR UNLESS, IN THE OPINION OF COUNSEL SATISFACTORY TO
THE COMPANY, SUCH QUALIFICATION AND REGISTRATION IS NOT REQUIRED. ANY TRANSFER OF THE
SECURITIES REPRESENTED BY THIS AGREEMENT IS FURTHER SUBJECT TO OTHER RESTRICTIONS, TERMS,
AND CONDITIONS WHICH ARE SET FORTH HEREIN."
(b) Any legend required by applicable state securities laws.
9.12 Investment Risk. He or she acknowledges that the Interest is a speculative invest ment which
involves a substantial degree of risk of loss by him or her of his or her entire investment in the Company, that he or
she understands and takes full cognizance of the risk factors related to the purchase of the Interest, and that the
Company is newly organized and has no financial or operating history.
9.13 Investment Experience. He or she is an experienced investor certifies that he or she has read and
understands this Agreement and has had an opp ortunity to ask and have answered any questions regarding this
Agreement.
9.14 Restrictions on Transferability. He or she acknowledges that there are substantial restrictions on
the transferability of the Interest pursuant to this Agreement, that there is no public market for the Interest and none
is expected to develop, and that, accordingly, it may not be possible for him or her to liquidate his or her investment
in the Company.
9.15 Potential Dilution. He or she acknowledges that the Percentage Interest he or she is acquiring is
subject to potentially unlimited dilution pursuant to the terms of Section 7.04.
9.16 Information Reviewed. He or she has received and reviewed all information he or she considers
necessary or appropriate for deciding whether to purchase the Interest. He or she has had an opportunity to ask
questions and receive answers from the Company and its officers, Manager and employees regarding the terms and
conditions of purchase of the Interest and regarding the business, financial affairs, and other aspects of the
Company and has further had the opportunity to obtain all information (to the extent the Company possesses or can
20
acquire such information without unreasonable effort or expense) which he or she deems necessary to evaluate the
investment and to verify the accuracy of information otherwise provided to him or her.
9.17 No Representations by Company. Neither any Manager, any agent or employee of the Company or
of any Manager, or any other Person has at any time expressly or implicitly represented, guaranteed, or warranted to
him or her that he or she may freely transfer the Interest, that a percentage of profit and/or amount or type of
consideration will be realized as a result of an investment in the Interest, that past performance or experience on the
part of the Manager or Affiliates or any other person in any way indicates the predictable results of the ownership of
the Interest or of the overall Company business, that any cash distributions from Company operations or otherwise
will be made to the Members by any specific date or will be made at all, or that any specific tax benefits will accrue as
a result of an investment in the Company.
9.18 Consultation with Attorney. He or she has been advised to consult with his or her own attorney
regarding all legal matters concerning an investment in the Company and the tax consequences of participating in the
Company, and has done so, to the extent he or she considers necessary.
9.19 Tax Consequences. He or she acknowledges that the tax consequences to his or her of investing
in the Company will depend on his or her particular circumstances, and neither the Company, the Manager, the
Members, nor the partners, shareholders, members, managers, agents, officers, directors, employees, Affiliates, or
consultants of any of them will be responsible or liable for the tax consequences to him or her of an investment in the
Company. He or she will look solely to, and rely upon, his or her own advisers with respect to the tax consequences
of this investment.
9.20 No Assurance of Tax Benefits . He or she acknowledges that there can be no assurance that the
Code or the Regulations will not be amended or interpreted in the future in such a manner so as to deprive the
Company and the Members of some or all of the tax benefits they might now receive, nor that some of the deductions
claimed by the company or the allocations of items of income, gain, loss, deduct ion, or credit among the Members
may not be challenged by the Internal Revenue Service.
9.21 Indemnity. He or she shall indemnify and hold harmless the Company, each and every Manager,
each and every other Member, and any officers, directors, shareholders, managers, Members, employees, partners,
agents, attorneys, registered representatives, and control persons of any such entity who was or is a party or is
threatened to be made a Party to any threatened, pending, or comp leted action, suit, or proceeding, whether civil,
criminal, administrative, or investigative, by reason of or arising from any misrepresentation or misstatement of facts
or omission to represent or state facts made by him or her including, without limitation, the information in this
Agreement, against losses, liabilities, and expenses of the Company, each and every Manager, each and every other
Member, and any officers, directors, shareholders, managers, members, employees, partners, attorneys, accountants,
agents, registered representatives, and control persons of any such Person (including attorneys' fees, judgments,
fines, and amounts paid in settlement, payable as incurred) incurred by such Person in connection with such action,
suit, proceeding, or the like.
ARTICLE 10
MISCELLANEOUS PROVISIONS
10.01 Disclaimer of Agency. Except as expressly provided herein, this Agreement shall not cause any
Member to be the legal representative or agent of any other Member, nor shall any Member have the right or
authority to assume, create or incur any liability or obligation, express or implied, against, in the name or, or on behalf
of any other Member.
10.02 Power of Attorney. Each Member, including any additional or substituted Member, by the
execution of this Agreement, irrevocably constitutes and appoints the Manager or the Manager's designee, with full
21
power of substitution, as such Member's true and lawful attorney, in such Member's name, place and stead, to make,
execute, acknowledge, deliver file and record the following:
(a) Any instrument which may be required to be filed or may properly be filed in connection
with the formation or continued operation of the Company under the law of the State of California or any other
jurisdiction in which the Company does business;
(b) Any fictitious business name statement or similar statement as may be required for the
Company;
(c) Any and all amendments or modifications of the instrument herein above described in
Sections 10.02(a) or 10.02(b) above; and
(d) All documents, amendments and instruments which may be necessary or appropriate to
effectuate the admission of a substituted or additional Member, as provided herein, or the dissolution and
termination of the Company pursuant to the terms of this Agreement.
It is expressly understood and agreed by each Member that the foregoing power of attorney is coupled with an
interest, that such appointment is irrevocable, and that such power of attorney will survive the death, incapacity or
dissolution of the Member and the transfer by such Member of the whole or any portion of the Member's interest.
10.03 Amendment. This Agreement may be amended only with the prior written consent of a Members
holding at least 66-2/3% in Percentage Interest; provided that, the consent of Members holding at least 90% in
Percentage Interest shall be required to amend Section 7.01 or Section 8.03(e); the consent of no Member shall be
required to amend this Agreement to: (i) reflect the admission of a Member in accordance with the terms of this
Agreement, (ii) add to the representations, duties or obligations of the Manager or its Affiliates or to surrender any
right or power granted to the Manager or its Affiliates herein for the benefit of the Members, (iii) cure any ambiguity,
to correct or supplement any provision herein, which may be inconsistent with any other provision herein, or to add
any other provisions with respect to matters or questions arising under this Agreement, which will not be
inconsistent with the provisions or purposes of this Agreement or (iv) delete or add any provision from or to this
Agreement requested to be so deleted or added by any state or federal regulatory agency, the deletion or addition of
which is deemed by such regulatory agency to be for the benefit or protection of the Members; and the consent of
any Member whose right to Profits, Losses, other items or distrib utions will be materially and adversely affected by
an amendment shall be required.
10.04 Notices. Any written notice or communication to the Manager, any of the Members or the Board
required or permitted under this Agreement shall be deemed to have been duly given and received (a) on the date of
service, if served personally or sent by telex or facsimile transmission (with appropriate confirmation of receipt) to the
party to whom notice is to be given, or (b) on the fourth business day after mailing, if mailed by first class registered
or certified mail, postage prepaid, and addressed to the party to whom notice is to be given at the address stated
under his name on the signature page hereof or at the most recent address s pecified by written notice given to the
Manager or (c) on the next day if sent by a nationally recognized courier for next day service and so addressed and if
there is evidence of acceptance by receipt. Notices to the Company shall be similarly given, and addressed to it at its
principal place of business.
10.05 Successors and Assigns . Subject to the restrictions on transfer set forth herein, this Agreement
shall be binding upon and shall inure to the benefit of the Members and their respective successors and assigns.
10.06 Entire Agreement. This Agreement constitutes the complete agreement of the parties hereto with
respect to the subject matter hereof and supersedes all prior communications between the parties.
10.07 Counterparts/Facsimile Signatures . This Agreement may be executed in any number of
counterparts, all of which together shall for all purpos es constitute one agreement. The Manager is authorized to
accept from a Member a signature sent by telecopier for any purpose, including the original execution of this
22
Agreement, and such facsimile signature shall be as binding on a Member as if such Memb er's original signature
were used on this Agreement or any other document a Member is required to sign. The Manager shall use
reasonable efforts to obtain original signatures for the Company's files from Members electing to sign documents
with a telecopied signature but failure to obtain such original signatures shall in no way invalidate a Member's
signature received by telecopier.
10.08 Severability. If any provision of this Agreement is held invalid for any reason , the same shall be
deemed severed from the remainder hereof and shall in no way affect or impair the validity of this Agreement or any
other portion hereof, and this Agreement shall otherwise remain in full force and effect.
10.09 Applicable Law. This Agreement shall be governed by and construed in accordance with the laws
of the State of California.
10.10 Submission to Arbitration. Any dispute, controversy or claim arising out of or relating to this
Agreement, the alleged breach, termination, or invalidity thereof, or any alleged fraud in its inducement, shall be
finally settled by arbitration pursuant to California Code of Civil Procedure Section 1280, et seq. Such arbitration,
including any cross-claims by the responding party, shall take place in Los Angeles, California, to which exclusive
jurisdiction the parties hereby consent. Judgment upon the award rendered may be entered in any court having
jurisdiction or application may be made to such court for a judicial acceptance of the award and an order of
enforcement, as the case may be. The foregoing shall not limit the right of either party to seek provisional or
equitable relief in any court of competent jurisdiction. This provision shall survive the termination of this Agreement.
10.11 Counsel to the Company. Counsel to the Company ("Company Counsel") may also be counsel to
any Manager or any Affiliate of a Manager or a Member. The Manager may execute on behalf of the Company and
the Members any consent to the representation of the Company that counsel may request pursuant to the California
Rules of Professional Conduct or similar rules in any other jurisdiction ("Rules"). Each Member acknowledges that
any Company Counsel does not represent any Member in the absence of a clear and explicit agreement to such effect
between the Member and Company Counsel, and that in the absence of any such agreement, Company Counsel shall
owe no duties directly to a Member. In the event any dispute or controversy arises between any Members and the
Company, or between any Members or the Company, on the one hand, and a Manager (or Affiliate of a Manager)
that Company Counsel represents, on the other hand, then each Member agrees that Company Counsel may
represent either the Company or such Manager (or his or her Affiliate), or both, in any such dispute or controversy to
the extent permitted by the Rules, and each Member hereby consents to such representation. Each Member further
acknowledges that neither George Chuang & Associates, APC nor any attorneys therein are counsel to the Company
and that neither they nor Company Counsel have represented the interests of any Member.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first hereinabove set
forth.
[See attached signature pages]
23
LIMITED LIABILITY COMPANY AGREEMENT SIGNATURE PAGE
FOR
PCRS CAPITAL PARTNERS
a Delaware limited liability company
The undersigned agrees to all the terms and conditions of the attached Limited Liability Company
Agreement of PCRS CAPITAL PARTNERS, a Delaware limited liability company, and agrees to bec ome a Member
pursuant to the terms thereof.
Dated: , 2000
Name of Entity, if any
Signature
Print Name
By
Thereunto Authorized
Signature
Print Name and Title
Print Name
Check any applicable boxes
Husband and wife as community property
Joint tenants
Tenants-in-Common
As trustee for
As trustee for
under the Uniform Gifts/Transfers to Minors
Act
Other (specify)
The Agreement allows for transfer between family members and related trusts, therefore, the name in which the
Interest is held may be changed from time to time pursuant to Section 7.01(b).
24
SCHEDULE 1
NAME AMOUNT Percent Share
Chiu, Yuan Ye (Jenny W. Chiu) 50,000.00 2.0000%
Bae, Bobby H. 50,000.00 2.0000%
Chen, Yi-Shun 300,000.00 12.0000%
Clyde Tamanaha 50,000.00 2.0000%
Cox, Marty aka Marshall Paul Cox 50,000.00 2.0000%
Far East National Bank 100,000.00 4.0000%
Hsieh, Theodore Anatole 93,000.00 3.7200%
Hu, Victor Weedo 50,000.00 2.0000%
Huang, Nick S.C. 50,000.00 2.0000%
Koh, Peter 75,000.00 3.0000%
Lai, Chia-Chi George and Fen Hong 50,000.00 2.0000%
Lee, Kuei-Mei 50,000.00 2.0000%
Lu, Josephine and Robert L. (JTWROS) 50,000.00 2.0000%
Okajima, Kenneth 50,000.00 2.0000%
Sanchez Jr., Amador 50,000.00 2.0000%
Shu, Yeon-Nan 50,000.00 2.0000%
Taiw anese American Elders Corp. 600,000.00 24.0000%
Wang, Chao-Tsung 400,000.00 16.0000%
Woodw ard, Daniel 50,000.00 2.0000%
Venquest Hotel 50,000.00 2.0000%
Wang, Pi-Yueh 57,000.00 2.2800%
Kenjohn Wang 125,000.00 5.0000%
Cico, Inc. 50,000 2.0000%
2,500,000 100.0000%
25
APPENDIX A
Except as otherwise provided in the Agreement, the capitalized terms defined in Appendix A shall have the
meanings specified below. For purposes of this Agreement, the singular shall include the plural and the neuter shall
include the feminine and masculine gender, and vice versa, as the context requires.
"Act" means the Delaware Limited Liability Company Act, as amended from time to time.
“Additional Capital Call” has the meaning given in Section 2.03(a).
"Additional Capital Contribution" has the meaning given in Section 2.03.
"Additional Member" has the meaning given in Section 7.04(a).
"Additional Interest" has the meaning given in Section 7.04(a).
"Adjusted Capital Account Deficit" means, with respect to any Member, the deficit balance, if any, in such
Member's Capital Account as of the end of the relevant Fiscal Year, after giving effect to the following adjustments:
(a) Such Capital Account shall be deemed to be increased by any amounts which such
Member is obligated to restore to the Membership pursuant to this Agreement or otherwise, or is deemed to be
obligated to restore pursuant to the second to last sentences of Treasury Regulation sections 1.704-2(g)(1) and 1.704-
2(i)(5); and
(b) Such Capital Account shall be deemed to be decreased by the items described in Treasury
Regulation sections 1.704-1(b)(2)(ii)(d)(4), (5) and (6).
The foregoing definition of Adjusted Capital Account Deficit is intended to comply with the provisions of
Treasury Regulation section 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith.
"Adjustment Date" has the meaning given in Section 7.04(a).
"Affiliate" means any Person that directly or indirectly controls, is controlled by, or is under common
control with, such Person. For purposes of this definition, "contro l" means the ability, directly or indirectly, to direct
the management and policies of the respective Person whether through the ownership of voting securities or
interests, through a contract that provides for the delegation of that Person's managerial rights and duties, or
otherwise.
"Agreement" means the Limited Liability Company Agreement of PCRS CAPITAL PARTNERS to which this
Appendix A is attached, as amended from time to time.
"Article" means an article of this Agreement, unless the context requires otherwise.
"Bankruptcy" means a situation in which (a) a Member shall file a voluntary petition in bankruptcy or shall
be adjudicated as bankrupt or insolvent, or shall file any petition or answer seeking any reorganization, arrangement,
composition, readjustment, liquidation, dissolution or similar relief for itself under the present or future applicable
federal, state or other statute or law relating to bankruptcy, insolvency, or other relief for debtors, or shall seek or
consent to or acquiesce in the appointment of any trustee, receiver, conservator or liquidator of said Member or of all
or any substantial part of its properties or its interest in the Company (the term "acquiesce," as used in this
definition, includes the failure to file a petition or motion to vacate or discharge any order, judgment or decree within
ten (10) days after entry of such order, judgment or decree); (b) a court of competent jurisdiction shall enter an order,
judgment or decree approving a petition filed against any Member seeking a reorganization, arrangement,
composition, readjustment, liquidation, dissolution or similar relief under the present or any future federal bankruptcy
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act, or any other present or future applicable federal, state or other statute or law relating to ba nkruptcy, insolvency,
or other relief for debtors, and such Member shall acquiesce in the entry of such order, judgment or decree or such
order, judgment or decree shall remain unvacated and unstayed for an aggregate of sixty (60) days (whether or not
consecutive) from the date of entry thereof, or any trustee, receiver, conservator or liquidator of such Member or of
all or any substantial part of its property or its interest in the Company shall be appointed without the consent or
acquiescence of such Member and such appointment shall remain unvacated and unstayed for an aggregate of sixty
(60) days (whether or not consecutive); (c) a Member shall admit in writing its inability to pay its debts as they
mature; (d) a Member shall give notice to any governmen tal body of insolvency or pending insolvency, or
suspension or pending suspension of operations; or (e) a Member shall make an assignment for the benefit of
creditors or take any other similar action for the protection or benefit of creditors.
"Board Member" has the meaning given in Section 6.02(b).
"Board" has the meaning given in Section 6.02.
"Book Value" means, with respect to any asset of the Company, the asset's adjusted basis for federal
income tax purposes, except as follows:
(a) The initial Book Value of any asset contributed by a Member to the Company shall be the
gross fair market value of such asset, as determined by the contributing Member and the Company;
(b) The Book Values of all Company assets (including intangible assets such as good will)
shall, subject to clause (i) below, be adjusted to equal their respective gross fair market values, as determined by
accountants, appraisers or valuation consultants designated by the Manager, as of the following times:
(i) the acquisition of an additional Interest in the Company by any new or existing
Member in exchange for more than a de minimis Capital Contribution (provided that, upon the acquisition of an
additional Interest by a Nondelinquent Member pursuant to Section 2.03(c), the Book Values of the assets of the
Company shall be adjusted in the sole discretion of the Manager);
(ii) the distribution by the Company to a Member of more than a de minimis amount
of Company property other than money, whether in liquidation of the Company or otherwise, prov ided that, in
connection with a distribution other than in liquidation of the Company, only the Book Value of the distributed asset
shall be adjusted, if the Manager determines that such adjustment will be sufficient to reflect the relative economic
interests of the Members; and
(iii) the termination of the Company for federal income tax purposes pursuant to
Code section 708(b); and
(c) The Book Value of any Company asset distributed to any Member shall be the gross fair
market value of such asset, determined as described in (b) above, on the date of distribution; and
(d) If the Book Value of an asset has been determined or adjusted pursuant to (a) or (b)
above, such Book Value shall thereafter be adjusted by the Depreciation taken into account with respect to such
asset for purposes of computing Profits and Losses, and other items under Section 3.03.
"Capital Account" means the account maintained for each Member as provided in Section 2.01.
"Capital Contribution" means any Initial Capital Contribution or any Additional Capital Contribution
pursuant to Article 2, or any capital contribution pursuant to Section 7.04.
"Cash Investor" means any Member, including PCRS Management, listed on Schedule 1 attached hereto.
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"Cause" means self-dealing to the economic detriment of the Company, fraud on the other Members, refusal
to undergo rehabilitation for documented substance abuse, or conviction of a felony involving moral turpitude,
including larceny or embezzlement, securities law violations or the possession of or t rafficking in, banned or
controlled substances on the part of the manager and/or its officers, directors or shareholders.
"Code" means the Internal Revenue Code of 1986, as amended from time to time.
"Company Counsel" has the meaning given in Section 10.11.
"Contribution Notice" has the meaning given in Section 2.03(b).
"CPA" means the firm of certified public accountants selected by the Members. The Members hereby
acknowledge and agree that different firms may be selected to handle financial and income ta x reporting matters of
the Company.
"Default Date" has the meaning given in Section 2.03(b).
"Delinquent Member" has the meaning given in Section 2.03(b).
"Delinquent Portion" has the meaning given in Section 2.03(b).
"Dissolution Event" means with respect to any Member death, Bankruptcy or dissolution of such Member,
or the occurrence of any other event with respect to such Member set forth in Section 18-801(4) of the Act (or
successor provision thereto) but only to the extent that dissolution upon the occ urrence of such other event is not
waivable under the Act.
"Distributable Income" means, with respect to any fiscal period, all gross receipts of the Company from
operations, distributions of stock and all sales of any interest in Company property, less t he sum of (a) operating
expenses of the Company (including depreciation and amortization except for amortization with respect to intangibles
which were included in the PCRS CAPITAL PARTNERS Assets), including without limitation, the reimbursable
expenses and compensation of Members or Affiliates as provided in Section 6.04, (b) payments of interest and
repayments of principal on all indebtedness of the Company, including any indebtedness to Members or Affiliates
entered into pursuant to or authorized by this Agreement, (c) costs and expenses of any sale, disposition or
refinancing of Company property, (d) capital expenditures made or to be made out of such receipts, and
(e) reasonable reserves, as determined by the Manager, for working capital, contingencies and replacements.
"Effective Date" has the meaning given in Section 1.01.
"Election Period" has the meaning given in Section 7.03(c).
"Existing Cash Investor" has the meaning given in Section 7.04(a).
"Fiscal Year" has the meaning given in Section 5.01.
"Incapacity" when used with respect to a Member in the context of Section 7.02(a)(vi) means the inability of
a Member who is an individual to competently manage his or her business and financial affairs either permanently or
for a period likely to exceed one year, and such inability shall be determined by the Manager based on only one or
more of the following: (a) a writing addressed to the Manager and signed by such Member's personal physician
certifying to such Member's inability to manage his or her business and financial affairs; or (b) a writing addressed to
the Manager and signed by such Member's judicially appointed conservator certifying to such Member's inability to
manage his or her business and financial affairs; or (c) a writing addressed to the Manager and signed by a person
holding a durable power of attorney from such Member certifying to such Member's inability to manage his or her
business and financial affairs. When used with respect to the Manager in Section 6.01, "Incapacity" shall mean t he
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inability of the Manager to competently manage the affairs of the Company either permanently or for a period likely to
exceed 90 consecutive days, and based on the same type of evidence as for Members above.
"Indemnitee" has the meaning given in Section 6.06.
"Initial Capital Contributions " has the meaning given in Section 2.02.
"Interest" means, in the context of "a Member's Interest," the entire legal and equitable ownership interest
of a Member in the Company at any particular time, as compared to the ownership interests of all other Members.
Reference as of any date to Members holding a Majority, or specified percentage, in Interest means Members whose
combined Percentage Interests as of such date represent over 50%, or such specified percentage, res pectively, of the
sum of the Percentage Interests of all Members as of such date. Reference as of any date to Members holding a
Majority, or specified percentage, in Capital means Members whose combined cash Capital Contributions as of such
date represent over 50%, or such specified percentage, respectively, of the sum of the cash Capital Contributions of
all Members as of such date.
"Liquidator" has the meaning given in Section 8.03(b).
"Majority in Capital" has the meaning given in the definition of Interest.
"Majority in Interest" has the meaning given in the definition of Interest.
“Management Team Compensation” has the meaning set forth in Section 4.02(a)(iii) above.
"Manager" has the meaning given in Section 6.01.
"Member" means any Person who, at the time of the reference thereto, has been admitted to the Company as
a successor to the duties or interest, as the case may be, of any such party or as a replacement or additional member,
as provided herein, in any such party's capacity as a Member, in any case, so long as such Person has not ceased to
be a Member hereunder.
"Nondelinquent Member" has the meaning given in Section 2.03(c).
"Nonmanaging Member" has the meaning given in Section 7.01(a).
"Offer" has the meaning given in Section 7.03(a).
"Offered Interest" has the meaning given in Section 7.03(b).
"Offeror" has the meaning given in Section 7.03(b).
"Option Period" has the meaning given in Section 7.02(a).
"Option Price" has the meaning given in Section 7.02(c).
"Option" has the meaning given in Section 7.02(a).
"Original Cash Investor" has the meaning given in Section 7.04(b).
“Payment Date” has the meaning given in Section 2.03(a).
"PCRS" means PCRS Capital Partners, LLC (or its successor).
“PCRS Management” means Taiwanese American Elders Corp. dba PCRS Capital Management Company.
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"Percentage Interest" of a Member as of any date means the percentage interest, as amended from time to
time pursuant to this Agreement as reflected in Schedule 1. The Percentage Interest of any Member, as amended
from time to time pursuant to this Agreement, shall be determined by dividing the capital contrbutions of that
Member pursuant to Sections 2.02 and 2.03 by the aggregate capital contributions of all Members pursuant to
Sections 2.02 and 2.03.
"Person" means an individual, partnership, trust, estate, association, corporation or other entity.
"Profits" and "Losses" means, for each fiscal year or part thereof, the Company's taxable income or loss for
such year determined in accordance with Code section 703(a) (for this purpose, all items of income, gain, loss or
deduction required to be stated separately pursuant to Code section 703(a)(1) shall be included in taxable income or
loss) with the following adjustments:
(a) Any income of the Company that is exempt from federal income tax shall be added to such
taxable income or loss;
(b) Any expenditures of the Company described in Code section 705(a)(2)(B) (or treated as
such pursuant to Treasury Regulation section 1.704-1((b)(2)(iv)(i)) shall be subtracted from such taxable income or
loss;
(c) If the Book Value of any Company asset is adjusted pursuant to clause (a) or clause (b) of
the definition of Book Value, 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;
(d) 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
(e) Such taxable income or loss shall not be deemed to include any income, gain, loss or
deduction allocated pursuant to Section 3.03.
"Purchasing Party" has the meaning given in Section 7.02(c).
"Regulatory Allocations" has the meaning given in Section 3.03(c).
"Removal Notice" has the meaning given in Section 6.05.
"Rules" has the meaning given in Section 10.11.
"Section" means any section of the Agreement.
"Selling Member" has the meaning given in Section 7.03(a).
"Tax Matters Partner" has the meaning given in Section 5.05(c).
"Third Parties" has the meaning given in Section 7.04(a).
"Transferring Member" has the meaning given in Section 7.02(a).
"Treasury Regulations" mean the regulations issued by the Internal Revenue Service pursuant to the Code.
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