EXHIBIT 10.46
OPERATING AGREEMENT
FOR
FIRST-N-LAST L.L.C.,
A UTAH LIMITED LIABILITY COMPANY
Article I
Definitions
In this Operating Agreement, the following terms shall have
the meanings defined below, unless another meaning is stated in the
text of the Operating Agreement.
"Articles of Organization" are the Articles of Organization
for First-N-Last Limited Company filed with the Utah Division of
Corporations and Commercial Code of the Department of Commerce on
or about the 20th of April, 1995.
"Capital Account" at any time shall be the Capital
Contribution to the Company by a Member, as adjusted under Article
VIII.
"Capital Contribution" is any Member's contribution to Company
capital, in cash or property.
"Initial Capital Contribution" is any Member's contribution to
Company capital, in cash or property.
"Capital Interest" is the proportion (expressed as a
percentage) which a Member's positive Capital Account bears to the
aggregate of all positive Capital Accounts of all Members with
positive balances.
"Code" is the Internal Revenue Code of 1986, as amended.
"Act" or "Utah Act" is the Utah Limited Liability Company Act.
"Company" is First-N-Last L.L.C.
"Deficit Capital Account" is any deficit balance in a Member's
Capital Account as of the end of the taxable year, after giving
effect to the following adjustments:
1. credit to such Capital Account any amount which such
Member is obligated to restore under Sec. 1.704-1(b)(ii)(c) of the
Treasury Regulations, as well as any addition thereto pursuant to
the next to last sentence of Sections 1.704-2(g)(1) and (i)(5) of
such Regulations, after taking into account thereunder any changes
during such year in partnership minimum gain (as determined in
accordance with Section 1.704-2(d) of such Regulations) and in the
minimum gain attributable to any partner nonrecourse debt (as
determined under Section 1.704-2(i)(3) of such Regulations; and
2. debit to such Capital Account the items described in
Sections 1.704-1(b)(2)(ii)(d)(4), (5) and (6) of the Treasury
Regulations.
The foregoing Deficit Capital Account is intended to comply
with Treasury Regulation Section 1.704-1(b)(2)(ii)(d) and 1.704-2
and shall be interpreted in conformity therewith.
"Distributable Cash" is all cash, revenues and funds received
by the Company, less the sum of the following to the extent paid or
set aside by the Company: (i) all principal and interest payments
on Company debt, and all other sums paid to lenders; (ii) all cash
expenditures incurred in connection with regular Company business;
and (iii) such Reserves as the Manager deems prudent to proper
operation of the Company business.
"Economic Interest" is a Member's or Economic Interest Owner's
share of Company Net Profits or Net Losses or distributions of
assets, or any combination of such, pursuant to this Operating
Agreement and the Act, but shall not include any right to
participate in management of Company business or affairs, or the
right to vote on, consent to or otherwise participate in an
decision of Members.
"Economic Interest Owner" is the owner of an Economic
Interest, who is not also a Member.
"Entity" is any general of limited partnership, limited
liability company, corporation, joint venture, trust, business
trust, cooperative, or other form of domestic or foreign business
organization.
"Fiscal Year" is the Company's fiscal year, which shall be the
12 months ending May 31.
"Gifting Member" is a Member or Economic Interest Owner who
gifts or otherwise transfers without consideration (by operation of
law or otherwise, except with respect to bankruptcy) all or any
part of a Membership Interest or Economic Interest.
"Majority Interest" is the Interest(s) of Member(s) which
exceeds 50 percent of the aggregate of all Capital Interests.
"Member" is each party who executes this Operating Agreement
as a Member, and each of the parties who thereafter become Members.
To the extent the Operating Manager has purchased Membership
Interests in the Company, it shall have all rights of a Member with
respect to such Membership Interests. If a Person is a Member
immediately prior to acquisition by such Person of an Economic
Interest, such rights as a Member shall extend to the acquired
Interest.
"Net Profits" and "Net Losses" are Company income, gain, loss,
deductions and credits, determined in accordance with generally
accepted accounting principles under the accrual method of
accounting, determined as of the close of each fiscal year on the
Company informational tax return filed for federal income tax
purposes.
"Operating Manager" initially under this Agreement shall refer
to Canyon Homesteads, Inc. ("CHI"), a Utah corporation, or any
other person(s) who succeeds it in such capacity.
"Person" is an individual or Entity, and his or her heirs,
executors, or administrators, and his or her or its successors and
assigns.
"Reserves" are such amounts of funds, determined with respect
to an appropriate fiscal period, which have been set aside or
allocated during the period for Company working capital, taxes,
insurance, service of debt and other costs and expenses incident to
the business of the Company.
"Selling Member" is a Member or Economic Interest Owner who
sells, assigns or otherwise transfers for consideration all or a
portion of such Interest.
"Transferring Member" includes a Selling Member and a Gifting
Member.
"Treasury Regulations" include all proposed, temporary and
final regulations under the Code, whenever promulgated.
ARTICLE II
Formation
2.1 Formation. On or about April 20, 1995 the Company was
organized under Utah law.
2.2 Name. The name of the Company is First-N-Last L.L.C.
2.3 Principal Place of Business. The principal place of
Company business in Utah is in Ticaboo, Garfield County, Utah which
location (and the registered office of the Company) may be changed
by the Members from time to time.
2.4 Registered Office and Registered Agent. The Company's
initial registered office and registered agent are as stated in the
Articles of Organization.
2.5 Term. The term of Company existence shall be perpetual,
unless the Company is sooner dissolved under this Agreement or the
Act.
ARTICLE III
Business
3.1 Permitted Business. The business of the Company shall be
any lawful business, including but not limited to the holding and
development of a convenience store service station and boat storage
operation at Ticaboo.
ARTICLE IV
Members
The names and addresses of the initial two Members at
execution date of the original Operating Agreement are:
Canyon Homesteads, Inc. Arrowstar Investments Inc.
877 North 8th West 877 North 8th West
Riverton, Wyoming 82501 Riverton, Wyoming 82501
The Initial Capital contributions, are set forth in Article
VII.
ARTICLE V
Rights and Duties of Management Committee and the Operating Manager
5.1 Management Committee. The business and affairs of the
Company shall be managed overall by its Management Committee, which
shall have the ultimate authority to determine the goals,
objectives and polices for the Company; formulate the development
and overall business strategy for the Company; and establish the
annual budget for Company business (including a minimum 3 year
forecast). For so long as the initial Members have equal
Membership Interests (50 percent each) from the two initial
Members; if a representative cannot attend a meeting, an alternate
may serve. The special allocation to Arrowstar Investments Inc.
("Arrowstar") of 75 percent of profits and losses under Article
VIII shall be disregarded in determining the initial Members'
representation rights.
If a Member's Membership Interest becomes less than 40
percent, that Member shall be entitled to one representative on the
Management Committee; if the Membership Interest becomes less than
20 percent, that Member shall be entitled to no representative and
shall become an Economic Interest Owner. The preceding changes in
representation rights shall become effective immediately on change
in Membership Interest owned.
All decisions of the Management Committee shall be decided by
majority vote of the representatives.
The Management Committee shall hold regular meetings at least
quarterly in Riverton, Wyoming or other mutually agreed places, on
10 days notice of such regular meetings. Additionally, either
Member may call a special meeting on five days' notice to the other
Member(s). If an emergency situation, reasonable notice will be
sufficient for a special meeting. If only one Member's
representatives are present, the meeting shall be rescheduled, but
at a rescheduled meeting a quorum will exist if one Member is
represented.
Every notice of a meeting shall include an itemized agenda
prepared by the Operating Manager in case of a regular meeting, or
by the calling Member in case of a special meeting, but any matter
may be considered at any meeting if deliberation on such ex-agenda
matter is consented to by the Members.
Minutes of each meeting shall be prepared by the Operating
Manager, who shall distribute drafts within 10 days after each
meeting. The minutes, when signed by all Members, shall be the
official record of proceedings for that meeting and of decisions
made by the Management Committee, and shall be binding on the
Operating Manager. Reasonable meeting attendance costs for Member
representatives shall be paid by the Company.
If necessary under the circumstances, a telephone conference
wherein all representatives can participate may be held in lieu of
an actual meeting, provided all decisions are reduced to writing
and confirmed by all Members.
The authority of the Management Committee shall be delegated
to the Operating Manager. The Management Committee shall provide
overall direction and guidance to the Operating Manager, who will
be responsible for implementing approved courses of action and
budgets for the Company and its business, including without
limitation the specific duties set forth in Section 5.2. The
Operating Manager may be replaced by majority vote of the
Management Committee.
5.2 Operating Manager Duties and Powers. The Operating
Manager shall conduct all duties and activities on behalf of the
Company in good faith and in the best interests of the Company.
Subject to this Operating Agreement and the general oversight and
direction of the Management Committee, the Operating Manager shall
have the full authority to carry out the day-to-day management of
the Company and conduct all operations, including (without
limitation) the following powers and duties to:
(a) Supervise the preparation of all plans for
construction of improvements to the convenience store service
station and boat storage site at Ticaboo.
(b) Supervise the day-to-day activities of the
convenience store service station and boat storage operations at
Ticaboo.
(c) Prepare and submit all reports to Utah regulatory
agencies and other authorities, as required by State of Utah leases
and otherwise.
(d) Monitor all construction of improvements, to the
extent necessary to conform operations to budget and contracts with
general contractors, and to the extent possible keep all Company
assets free and clear of all liens and encumbrances, except those
existing when particular assets are acquired. The Operating
Manager shall release or discharge mechanic's or materialmen's
liens in a diligent manner.
(e) Obtain and maintain all insurance policies as
directed by the Management Committee and regulatory agencies.
(f) Purchase or otherwise acquire all inventories,
materials, supplies, equipment, utility and transportation services
required for Company operations in all phases, such purchases and
acquisitions to be made on the best terms available, taking into
account all circumstances.
(g) Make or arrange for all payments required by leases
(including the Special Use Lease and Base Lease), licenses,
permits, contracts and other agreements related to Company assets;
pay all taxes, assessments and like charges on operating activities
and assets (except taxes for which Members are sole responsible);
apply for all necessary permits, licenses and approvals; and comply
with applicable federal, state and local laws and regulations (and
notify the Management Committee of substantial alleged violations
thereof).
(h) If authorized by the Management Committee, contest
in the courts or other forums the validity or amount of any taxes,
assessments, charges or levied fines, if deemed by the Operating
Manager to be unlawful, unjust, unequal or excessive, or otherwise
take steps it deems reasonable to procure a cancellation,
reduction, or adjustment thereof. However, the Operating Manager
shall not permit or allow title to any Company assets to be lost as
a result of nonpayment of taxes, assessments or like charges.
(i) Sell or otherwise dispose of Company assets in the
ordinary course of business as approved by the Management
Committee, and pay all just bills for goods and services provided
to Company when due, but without prior authorization of the
Management Committee, all checks for more than $5,000.00 shall
require the signature of a representative of each Member.
(j) Keep and maintain all required accounting and
financial records pursuant to the Accounting Procedure attached to
this Operating Agreement, in accordance with customary accounting
methods used in the service industry.
(k) Keep the Management Committee advised of all
operations by submitting in writing to the Management Committee:
(1) monthly progress reports, including statements of expenditures
and comparisons of such expenditures to the budget for the period;
(2) periodic summaries of all data acquired in the course of
operations (results of marketing surveys and any other kind of
information potentially useful in measuring the success of any
operations or evaluating a business strategy); (3) copies of
routine reports concerning operations; (4) within 60 days after
completion of any budget or particular program, a detailed final
report with comparisons between actual and budget expenditures, and
comparisons between objectives and results of the programs; and (6)
any other reports reasonably requested by the Management Committee.
(l) Except as required otherwise by the above, conduct
all operations and incur all expenses and acquire all assets, only
pursuant to approved programs and budgets, to be prepared and
submitted by the Operating Manager in reasonable detail as to
scope, direction and nature (with fiscal basis) to the Management
Committee. The initial program and budget shall be submitted
within 60 days of formation of the Company; thereafter an annual
program and budget shall be submitted by July 30 of each year (the
Company fiscal year ends May 31), with the first annual budget to
be submitted by July 30, 1995.
The Management Committee will evaluate and decide whether
to adopt the proposed program and budget, or determine to amend the
proposal, within 30 days of submission. The Management Committee
shall determine the final Program and Budget, and notify all
Members of such. Each Member shall have the opportunity to
contribute to the Program and Budget capital requirements, in
proportion to their Membership Interest (disregarding the 90 and 75
percent special allocations to Arrowstar), or in a lesser amount,
or not at all, in which cases its Membership Interest shall be
recalculated as provided herein. However, if a Member fails to
notify the Management Committee of its election, such Member shall
be deemed to have elected to contribute in full proportion to is
Membership Interest as of the beginning of the period covered by
the program and budget.
In the event of a material departure from an adopted
program and budget, the Operating Manger shall notify the
Management Committee. If the capital expenditures in an approved
budget are exceeded by more than 20 percent, then the excess over
20 percent (unless directly caused by an emergency or unexpected
but warranted expenditure, or unless otherwise authorized by the
Management Committee and incorporated into an amended program and
budget) shall be borne by and for the sole account of the Operating
Manger. Budget overruns of 20 percent or less shall be borne by
Members according to their Membership Interests as of the date when
the overrun occurs.
(m) The Operating Manager shall undertake all other
activities reasonably necessary to fulfill the foregoing.
5.3 Resignation. Upon one month notice to the Management
Committee, the Operating Manager may resign, in which event the
other Member may elect to become the new Operating Manager. If
there are then more than two Members, then the nonresigning Members
shall decide amongst themselves who shall take the position,
according to majority vote by percentage Membership Interest. In
addition, if any of the following occur, the Operating Manager
shall be deemed to have offered to resign, which offer shall be
effective if accepted by the other Member(s) within 90 days of the
offer:
(a) The Operating Manger fails to perform a material
obligation imposed upon it under this Agreement, and fails to cure
same within 30 days after notice from the other Member(s) or the
Operating Committee.
(b) A receiver, liquidator or trustee for a substantial
part of the Operating Manager's assets is appointed and not made
ineffective or discharged within 60 days thereafter.
(c) The Operating Manager commences a voluntary case
under any applicable bankruptcy, insolvency or similar law, or
consents to the entry of an order for relief in an involuntary case
under any such law, or to the appointment of or taking possession
by a receiver or similar official of any substantial part of its
assets; or makes a general assignment for the benefit of creditors.
5.4 Liability for Certain Acts. The Operating Manager shall
perform its duties in good faith, in a manner reasonably believed
to be in the best interest of the Company, with such care as an
ordinarily prudent person would use in similar circumstances. The
Operating Manager shall not be liable to the Company or any Member
for loss or damage, unless due to fraud, deceit, gross negligence
or willful conduct, or breach of this Operating Agreement by the
Manger.
5.5 No Exclusive Responsibilities to Company; No
Profiteering. The Operating Manger is not required to devote full
time to Company business, and may engage in other business
interests, provided such do not compete with the Company directly
or indirectly. No Member is entitled to share in a Manager's or
another Member's business by virtue of this Operating Agreement,
provided, that the preceding shall not ever be construed to allow
the Operating Manager to make any profits for its or its
affiliates' accounts from doing any kind of business with the
Company or its assets, unless such profits are made with the prior
consent of all Members.
5.6 Indemnity. To the full extent allowed by the Act, the
Company shall indemnify the Operating Manager.
5.7 Manager Compensation. The Operating Manager shall be
compensated for its services and reimbursed for its costs hereunder
in accordance with the Accounting Procedure attached to and
incorporated by reference into their Operating Agreement.
ARTICLE VI
Rights and Obligations of Members
6.1 Limitation of Liability. The liability of each Member
shall be limited as set forth in this Operating Agreement and the
Act.
6.2 Company Debt Liability. A Member shall not be personally
liable for any debts or losses of the Company beyond or in addition
to its respective Capital Contributions, except under Section 6.7
or as otherwise required by law.
6.3 List of Members. The Manger shall provide any Member a
list of names, addresses and Membership and Economic Interests for
all Members, on written request.
6.4 Approval of Sale of All Assets. The Members have the
right, by affirmative vote of Members holding a majority of all
Membership Interests, to approve the sale, exchange or other
disposition of all, or substantially all, of the Company's assets
(other than in the ordinary course of business) which is to occur
as part of a single transaction or plan.
6.5 Company Books. In accordance with Section 11.10, the
Manager shall maintain and preserve, during the term of the Company
and for five years thereafter, all accounts, books, and other
documents of the Company. On reasonable request, each Member and
Economic Interest Owner shall have the right, during ordinary
business hours, to inspect and copy such Company documents at the
expense of the requestor. Further, each Member shall have the
right to inspect the books and records of each Member as they
relate to business conducted by each Member with the Company in any
manner.
6.6 Priority and Return of Capital. Except as may be
expressly provided in Article IX, no Member or Economic Interest
Owner shall have priority over any other Member or Economic
Interest Owner, either as to the return of Capital Contributions or
as to Net Profits, Net Losses or distributions; provided that this
Section shall not apply to loans (as distinguished from Capital
Contributions) which a Member or Economic Interest Owner has made
to the Company.
6.7 Liability of a Member to the Company.
(a) If a Member has received the return of any part of
its contribution without violation of this Agreement or the Act, it
is liable to the Company thereafter for the amount of the returned
contribution, plus interest, but only to the extent necessary to
discharge the Company's liability to creditors who extended credit
or whose claims arose before the return of the capital
contribution.
(b) A Member holds as trustee for the Company any money
or other property wrongfully paid or conveyed to the Member on
account of its capital contribution.
ARTICLE VII
Contributions to the Company and Capital Accounts
7.1 Members' Capital Contributions.
(a) Initial Capital Contributions. On formation of the
Company, the Members have each contributed the following: CHI
contributes its equity interest in the Ticaboo Service Station and
Boat Storage Operation and Arrowstar shall contribute cash or cash
equivalent of One Hundred Fifty Thousand Dollars ($150,000). For
purposes of this subparagraph only, the value of each such
contribution is agreed to be $150,000.00.
(b) Cash Working Capital.
(1) First $50,000.00. Member Arrowstar, if
necessary, shall contribute or arrange for the loan of up to
$50,000.00 to the Company (the loan may be secured with Company
assets), as determined by the Management Committee, to fund the
initial program and budget.
(2) Cash Calls. After amounts available under (1)
are spent, the Operating Manager shall submit (before the last day
of each month) a billing for estimated cash requirements for the
next month, based on the current adopted program and budget.
Within 10 days after receipt of each billing, each Member shall
advance its proportionate share of the estimated amount. Time is
of the essence for paying such billings. If the amount billed for
estimated cash requirements was less than the actual amounts spent
during that month, the Operating Manager may bill Members for the
difference (so long as less than allowed under the 20 percent
overrun test of Section 5.2(l), and Members shall pay their share
of the difference within 10 days of receipt of billing. All
advances, and all expenditures, shall be made from the one banking
account to be maintained by the Company, unless and until
additional banking accounts are authorized by the Operating
Committee.
(3) Failure to Meet Cash Calls. A Member that
fails to meet cash calls in the amount and at the times specified
by (2) above, shall be in default, and the amounts of the defaulted
cash call shall bear interest from the date due at an annual rate
equal to two percentage points over the Chaser Manhattan prime
rate. The non-defaulting Member shall have the rights, remedies
and elections specified under Article VIII.
7.2 Capital Accounts.
(a) A separate Capital Account will be maintained for
each Member, which will be increased by (1) the amount of money
contributed by such Member to the Company; (2) the fair market
value of property contributed by such Member to the Company (net of
liabilities secured by such contributed property that the Company
is considered to assume or take subject to under Code Section 752);
(3) allocations to such Member of Net Profits; and (4) allocations
to such Member of income described in Code Section 705(a)(1)(B).
Each Member's Capital Account will be decreased by (1) the amount
of money distributed to such Member by the Company; (2) the fair
market value of property distributed to such Member (net of
liabilities secured by such property, that such Member is
considered to assume or take subject to); (3) allocations to such
Member of expenditures described in Code Section 705(a)(2)(B); and
(4) allocations to the Member's account of Net Losses.
(b) In the event of a permitted sale or exchange of a
Membership Interest or an Economic Interest in the Company, the
Capital Account of the transferor shall become the Capital Account
of the transferee to the extent it relates to the transferred
Membership Interest or Economic Interest in accordance with
Treasury Regulations Section 1.704-1(b)(2)(iv).
(c) The Manner in which Capital Accounts are to be
maintained pursuant to this Section, is intended to comply with the
requirements of Code Section 704(b) and accompanying Treasury
Regulations. If the Company's accountants believe the manner in
which capital Accounts are to be maintained should be modified in
order to comply with the Code and Treasury Regulations, then the
Capital Accounts accounting shall be modified, provided that no
such change shall materially alter the economic agreement among the
Members.
(d) On liquidation of the Company (or any Member's
membership Interest or Economic Interest Owner's Economic
Interest), liquidating distributions will be made in accordance
with the positive Capital Account balances of the members and
Economic Interest Owners, as determined after taking into account
all Capital Account adjustments for the Company's taxable year
during which the liquidations occurs. Liquidations proceeds will
be paid within 60 days of the end of the taxable year (or if later,
within 120 days after the date of the liquidation). The Company
may offset damages for breach of the Operating Agreement by a
Member or Economic Interest Owner whose interest is liquidated,
against the amount otherwise distributable to such Member.
(e) Except as otherwise required in the Utah Act, and
subject to the provisions of this Agreement, no Member or Economic
Interest Owner shall have any liability to restore all or any
portion of a deficit balance in its Capital Account.
7.3 Withdrawal or Reduction of Contributions to Capital.
(a) A Member shall not receive out of the Company's
property any part of its Capital Contribution until all Company
liabilities, except liabilities to Members on account of Capital
Contributions, have been paid or sufficient property remains in the
Company to pay them.
(b) A Member, irrespective of the nature of its Capital
Contribution, only has the right to demand and receive cash in
return for its Capital Contribution.
7.4 Distributions. Except for liquidating distributions
under Section 7.2(d), all distributions of cash shall be made to
Members pro rata in proportion to their respective Membership
Interest. Distributable Cash shall be distributed by the Operating
Manager, provided, that with respect to determining Distributable
Cash available for distribution during the period that the special
allocation of operating profits to Arrowstar under Section 8.1 is
in effect, the Members agree that the Operating Manager shall only
hold back such funds for Reserves as can be demonstrated as needed
for Reserves, as defined under Article I of this Agreement.
7.5 Limitation on Distributions. No distribution shall be
paid unless, after the distribution, the assets of the Company
exceed all liabilities, except liabilities to Members on account of
their contributions.
ARTICLE VIII
Membership Interests
8.1 Initial Membership Interest; Allocation of Profits and
Losses from Operations. The Members shall have the following
Membership Interests, to which Company net profits and net losses
for each fiscal year will be allocated: Canyon Homesteads, Inc. 50
percent, Arrowstar Investments, Inc. 50 percent, subject to a
special allocation to Arrowstar of 90 percent of profits and losses
from Company operations until Arrowstar receives cash equal to the
amount of the First Cash Working Capital Arrowstar contributed and
accrued interest pursuant to Subparagraph 7.1(b)(1) and then 75
percent of profits and losses from Company operations until
Arrowstar receives cash equal to $215,000.00.
8.2 Special Allocations to Capital Accounts. Notwithstanding
Section 8.1:
(a) No allocations of loss, deduction and/or
expenditures described in Section 705(a)(2)(B) of the Code shall be
charged to the Capital Accounts of any Member is such allocation
would cause such Member to have a Deficit Capital Account. The
amount of such a loss, deduction and/or Code Section 705(a)(2)(b)
expenditure shall instead be allocated to any Members which would
not have a Deficit Capital Account as a result of the allocation,
in proportion to their respective Capital Contributions, or, if no
such Members exist, then to the Members in accordance with their
interests in Company profits pursuant to Section 8.1.
(b) In the event any Member unexpectedly receives any
adjustments, allocations, or distributions described in Sections
1.704-1(b)(2)(ii)(d)(4), (5) or (6) of the Treasury Regulations,
which create or increase a Deficit Capital Account of such Member,
then items of Company income and gain (consisting of a pro rata
portion of each item of Company income, including gross income, and
gain for such year, and if necessary, for subsequent years) shall
be specially allocated to such Member in an amount and manner
sufficient to eliminate, to the extent required by the Treasury
Regulations, the Deficit Capital Account so created as quickly as
possible. It is intended that this subsection be interpreted to
comply with the alternate test for economic effect in Section
1.704-1(b)(2)(ii)(d) of the Treasury Regulations.
(c) If a Member would have a Deficit Capital Account at
the end of any Company taxable year which is in excess of the sum
of any amount that such Member is obligated to restore to the
Company under Section 1.704-1(b)(2)(ii)(c) and such Member's share
of minimum gain as defined in Section 1.704-2(g)(1) (which is also
treated as an obligation to restore under 1.704-1(b)(2)(ii)(d)),
the Capital Account of such Member shall be specially credited with
items of Membership income (including gross income) and gain in the
amount of such excess as quickly as possible.
(d) Notwithstanding any other provision of this Section
8.2, if there is a net decrease in the Company's minimum gain per
Section 1.704-2(d) of the Treasury Regulations in a taxable year,
then the Capital Accounts of each Member shall be allocated items
of income (including gross income) and gain for such year (and if
necessary for subsequent years) equal to that Member's share of the
net decrease in Company minimum gain. This subsection is intended
to comply with the minimum gain chargeback requirement of Section
1.704-2 and shall be interpreted consistently therewith. If in any
taxable year that the Company has a net decrease in the Company's
minimum gain, if the minimum gain chargeback requirement would
cause a distortion in the economic arrangement among the Members
and it is not expected that the Company will have sufficient other
income to correct that distortion, the Operating Manager may (and
shall if directed by the Management Committee) seek to have the
Internal Revenue Service waive the minimum gain chargeback
requirement in accordance with Section 1.704-2(f)(4).
8.3 Changes to Membership Interests. A Member's Membership
Interest shall be changed as follows:
(a) On a Member's election under Article VII to
contribute less to an adopted program and budget than the
percentage reflected by its Membership Interest, as follows: The
Membership Interest shall be recalculated at the time of such
election, by dividing (1) the sum of (a) the value of the Initial
Capital Contribution, plus (b) the total of all further Capital
Contributions, plus (c) the amount (if any) the Member elects to
contribute to the current adopted program budget; by (2) the sum of
(a), (b) and (c) for all Members; then multiplying the result by
100. The Membership Interests of the other Members then becomes
the difference between 100 percent and the recalculated Membership
Interest of the subject Member.
(b) On a Member's default in making its agreed-upon
contribution to an adopted program and budget, followed by an
election by the other Member, as follows: If a Member defaults in
paying a contribution or cash call required by an approved program
and budget, or otherwise, the Member shall be in default. If the
default is not cured within 10 days of receipt of a default notice
from the non-defaulting member, the non-defaulting Member may elect
from the following remedies:
(1) The non-defaulting Member may advance the
defaulted contribution on behalf of the defaulting Member, and
treat the same as a demand loan with interest at two points over
prime at Chase Manhattan Bank, secured by a lien on the defaulting
Member's Membership Interest for the amount of the loan with
interest (plus reasonable attorney's fees and other costs of
collection). The defaulting Member shall execute such document
loan will be due on or before the thirtieth day after demand is
made.
(2) The non-defaulting Member may elect by giving
notice to the defaulting Member, to have the defaulting Member's
Membership Interest reduced, by dividing (a) all the Member's
Capital Contributions, by (b) Capital Contributions by all Members,
including any amount contributed by the non-defaulting Member's
Membership Interest by 50 percent (or such other number as
represents the Membership Interest if it has been, prior to the
current default, recalculated due to defaults). The Membership
Interest of the non-defaulting Member shall thereupon become the
difference between 100 percent and the defaulting Member's
recalculated Membership Interest. Provided, that the defaulting
Member can cure the default by paying the full amount, plus annual
interest at two points above Chase Manhattan Bank prime, plus
attorney's fees and other reasonable costs, in 30 days after
default notice is given, without recalculation of its Membership
Interest. If cure is between 30 and 60 days after notice, the
curing defaulting Member's Membership Interest shall be 90 percent
of the pre-default amount; if cure is between 61 and 90 days, such
Interest shall be 75 percent of the pre-default amount; and if cure
is between 91 and 120 days, such Interest shall be 60 percent of
the pre-default amount. All other rights at law or equity of the
non-defaulting Member shall be unaffected by proceedings under this
subsection (2).
(3) If a Member defaults by failure to perform an
obligation other than involving the payment of money (a "non-
monetary default"), and the defaulting Member fails to cure or
being and finish curative actions within 30 days after notice from
the non-defaulting Member, the non-defaulting Member may: (a)
terminate this Agreement; (b) purchase the defaulting Member's
Membership for 75 percent of fair market value determined by an
independent appraiser selected by the Management Committee,
notwithstanding any thing to the contrary in this Operating
Agreement, in the case of Arrowstar in no event shall 75 percent of
the fair market value be less than Arrowstar's initial Capital
Account until such time as Arrowstar has received $215,000.00 in
profits; or (c) cure the default and charge the cure cost to the
defaulting Member's Capital Account and credit such cost to the
non-defaulting Member's Capital Account, in which event the
defaulting Member's Membership Interest shall be recalculated in
the same manner as under Section 8.3(a). Any exercise of the
preceding rights shall not limit or affect the non-defaulting
Member's rights at law and equity. All remedies shall be
cumulative. Election of one or more remedies shall not cause
waiver of any other remedies available.
(4) Transfer of less than all a Member's Membership
Interest.
ARTICLE IX
Dissolution and Termination
9.1 Dissolution. The Company shall be dissolved upon
occurrence of any of the following events:
(a) By unanimous written consent of Members;
(b) At such time that more than 79 percent of the
Capital Interests and interests in Company profits are owned by
Economic Interest Owners; or
(c) Upon the death, retirement, resignation, expulsion,
bankruptcy or dissolution of a Member or occurrence of any other
event which terminates the continued membership of a Member in the
Company (a "Withdrawal Event"), unless the business of the Company
is continued by consent of all the remaining Members within 90 days
after the Withdrawal Event, and there are at that time, at least
two other Members.
Notwithstanding anything to the contrary in this
Operating Agreement, if a Member or Members owning Capital
Interests in the aggregate constituting not less than two-thirds of
such Interest vote to dissolve the Company at a meeting of the
Management Committee, then all the Members shall agree in writing
to dissolve the Company as soon as possible thereafter. Upon
dissolution according to any of the preceding subparagraphs, and
upon filing of necessary documents of intent to dissolve the
Company with the Utah Secretary of State, the Company shall cease
to carry on its business except as necessary to wind it up, but its
separate existence shall continue until formal dissolution is
effected by issue of certificate therefor by the Secretary of State
or by court order.
9.2 Winding up, Liquidation and Distribution of Assets.
(a) Upon dissolution, an accounting shall be made by the
Company's independent accountants of the Company accounts, assets,
liabilities and operations, from the date of the last accounting
until dissolution date. The Operating Manger shall immediately
proceed to wind up the Company's affairs.
(b) If the Company is dissolved and its affairs are to
be would up, the Operating Manager shall:
(1) Sell or otherwise liquidate all Company assets
as promptly as practicable (unless assets should be distributed in
kind to Members);
(2) Allocate any profit or loss resulting from
sales to Capital Accounts of Members and Economic Interest Owners;
(3) Discharge all Company liabilities, including
liabilities to Members and Economic Interest Owners who are
creditors, to the extent otherwise permitted by law, other than
liabilities to Members and Economic Interest Owners for
distributions, and establish such Reserves as may be reasonably
necessary to provide for contingent or fixed liabilities of the
Company and such Reserves shall be deemed Company expenses, for
purposes of Capital Accounts calculations); and
(4) Distribute the remaining assets in the
following order:
(i) If any assets are to be distributed in
kind, the net fair market value shall be determined by independent
appraisal or by Members' agreement. Such assets shall be deemed to
have been sold as of the date of dissolution for fair market value,
and the Capital Accounts shall be adjusted to reflect a deemed
sale, so as to comply with the deemed sale and related provisions
of the Code.
(ii) The positive balance (if any) of each
Member's and Economic Interest Owner's Capital Account (after
taking into account all Capital Account adjustments for the taxable
year when the liquidation occurs) shall be distributed to Members,
in cash or in kind, with in kind assets being valued at fair market
value. Such distributions to Members in respect of Capital
Accounts, shall be made in accordance with the time requirements
stated by the Treasury Regulations.
(c) Notwithstanding anything to the contrary in this
Operating Agreement, upon a liquidation within the meaning of
Treasury Regulation Section 1.704-1(b)(2)(ii)(g), if any Member has
a Deficit Capital Account (after giving effect to all
contributions, distributions, allocations and other Capital Account
adjustments for all taxable years, including the year when the
liquidation occurs), such Member shall have no obligation to make
any Capital Contribution, and the negative balance of such Member's
Capital Account shall not be considered a debt owed by such Member
to the Company or any other Person whatsoever.
(d) Upon completion of the winding up, liquidation and
distribution of the assets, the Company shall be deemed terminated,
and thereafter necessary documents shall be prepared and filed with
the Utah Secretary of State to cause the Company to cease to exist.
ARTICLE X
Additional Members and Transfers
10.1 Additional Members. So long as the Membership Interests
of the initial two Members are both 50 percent, no additional
Members shall be admitted without the consent of both Members, and
otherwise new Members may be admitted upon vote of the Management
Committee.
10.2 Transferability. Except as specifically provided
herein, neither a Member nor an Economic Interest owner shall have
the right to (i) sell, assign, pledge, hypothecate, transfer,
exchange or otherwise transfer for consideration (hereafter,
"sell"), or (ii) gift or otherwise transfer for no consideration
(whether or not by operation of law, except in the case of
bankruptcy), all or any part of its Membership Interest or Economic
Interest:
(a) Right of First Refusal. A Member which desires to
sell all or any part of its Membership Interest or Economic
Interest to a third party purchaser, shall give 30 days prior
written notice to the nontransferring Member(s) of its (their)
right of first refusal to purchase such Interest for the same
consideration and on the same terms as offered a third party, and
describe the amount of Interest to be sold and the identify the
proposed transferee (including financial ability to meet the
responsibilities of ownership). Exercise of the right of first
refusal shall be first by the nontransferring members giving
response notice of intent to exercise the right to the member
giving original notice, on or before the close of business on the
thirtieth day after original notice is received. The Interest must
be purchased on or before the close of business on the thirtieth
day after original notice is received. If either the response
notice of intent to exercise is not given, or is given but the
Interest is not purchased within the time provided, there shall be
no right of first refusal for the nontransferring party to purchase
the Interest (however, all subsequent transfers of such, and other,
Interest shall be subject to such right of first refusal).
Transfers of Interests to Member affiliates shall not be subject to
this subparagraph.
(b) CHI's right to purchase Arrowstar's Membership
Interest. Notwithstanding any other provision of the Operating
Agreement, if CHI needs to purchase Arrowstar's Membership Interest
for any reason, Arrowstar agrees to sell its Membership Interest
for the fair market value. For purposes of this Agreement fair
market value shall be determined by an appraiser acceptable to
Arrowstar and said appraisal shall be paid for by CHI. In no event
shall the fair market value be less than Arrowstar's initial
Capital Account until such time as Arrowstar has received
$215,000.00 in profits.
(c) No Transferee a Member Without Unanimous Consent.
Notwithstanding any other provision of the Operating Agreement, if
all remaining Members do not approve by unanimous written consent
of the proposed sale of gift of a transferring Member's Membership
Interest or Economic Interest to a transferee or donee which is not
a Member immediately prior to proposed date of sale or gift, then
the transferee or donee shall have no right to participate in
management of the Company or to become a Member. Instead, such
transferee or donee shall be an Economic Interest Owner.
ARTICLE XI
Miscellaneous
11.1 Binding Agreement. This Operating Agreement shall be
binding upon and shall inure to the benefit of the heirs, legal
representative, successors and assigns, as applicable, of the
respective Parties hereto, and any entities resulting from the
reorganization, consolidation or merger of any Party hereto.
11.2 Headings. The headings used in this Operating Agreement
are inserted for reference purposes only and shall not be deemed to
limit or affect in any way the meaning or interpretation of any of
the terms or provisions of the Operating Agreement.
11.3 Severability. The provisions of this Operating Agreement
are severable, and should any provision hereof be found to be void,
voidable or unenforceable, such void, voidable or unenforceable
provision shall not affect any other portion or provision of this
Operating Agreement.
11.4 Waiver. Any waiver by any Party hereto of any breach of
any kind or character whatsoever by any other party, whether such
waiver be direct or implied, shall not be construed as a continuing
waiver or consent to any subsequent breach of this Operating
Agreement on the part of the other party.
11.5 Amendments. This Operating Agreement only can be
amended in writing signed by all Members.
11.6 Governing Law. This Operating Agreement shall be
interpreted, construed and enforced according to the laws of the
State of Utah.
11.7 Attorney's Fees. In the event any action or proceeding
is brought by either Party against the other under this Operating
Agreement, the prevailing Party shall be entitled to recover
attorney's fees and costs in such amount as the court may adjudge
reasonable, whether incurred before, during or after such
proceeding is commenced and conducted. Notwithstanding the
preceding, the collecting attorney must be able to swim the mighty
Colorado, across the widest and deepest point, with cement line
boots and hands tied behind his or her back or in the alternative
the attorneys must get the Parties to work together to resolve
their differences.
11.8 Counterparts. This Operating Agreement may be executed
in any number of counterparts, each of which, when executed and
delivered, shall be deemed an original, but all of which shall
together constitute one and the same instrument.
11.9 Notices. Any notice, consent, request, objection or
communication to be given by either Party to this Operating
Agreement shall be in writing and shall be either delivered
personally, by certified mail or by Airborne, Federal Express or
other commercial overnight delivery service to the address of the
Members as appearing on the books of the Company.
11.10 Books and Records. Accounting records shall be kept in
accordance with the Accounting Procedure attached to this Operating
Agreement. Books and records required by Utah Act Section 48-2b-
119 shall be kept by the Operating Manger.
IN WITNESS WHEREOF, this Operating Agreement is executed in
Riverton, Wyoming on April 20, 1995. Counterpart execution is
permitted.
CANYON HOMESTEADS INC.
s/ A. E. Dearth
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A. E. DEARTH, President
ARROWSTAR INVESTMENTS, INC.
s/ Mark J. Larsen
- ----------------------------------
MARK J. LARSEN, President
Company