EXHIBIT 3.19.2
LIMITED LIABILITY COMPANY OPERATING AGREEMENT
OF
CUSTIOM WOODWORK & PLASTICS, LLC
This LIMITED LIABILITY COMPANY OPERATING AGREEMENT (this "Agreement")
of Custom Woodwork & Plastics, LLC, a limited liability company organized under
the laws of Delaware (the "Company"), is made and entered into effective as of
July 1, 2000 by DeCrane Aircraft Holdings, Inc., a Delaware corporation (the
"Initial Member"). Capitalized words and phrases used in this Agreement and not
otherwise defined here are used as defined in Article 13 or in Section 14.21
(Tax Definitions).
RECITALS
WHEREAS, the Initial Member formed the Company pursuant to the
Delaware Limited Liability Company Act, 6 Del. C. Section 18-101, et seq., as
amended from time to time (the "Act"), by filing a Certificate of Formation of
the Company with the office of the Secretary of State of the State of Delaware.
WHEREAS, the Initial Member intends that the Company be treated as a
pass-through entity for federal income tax purposes.
NOW, THEREFORE, the Initial Member hereby provides as follows:
1. ORGANIZATION
1.1 NAME
The name of the Company will be "Custom Woodwork &
Plastics, LLC." The business of the Company may be conducted under that name
or, upon compliance with applicable laws, any other name that the Board of
Directors deems appropriate or advisable. Any Manager may file any fictitious
name certificates and similar filings, and any amendments thereto, that such
Manager considers appropriate or advisable.
1.2 PURPOSE AND LIMITATIONS
The purpose of the Company is to engage in any lawful activity
for which a limited liability company may be organized under the Act. The
Company shall have full power and authority to do every act and thing necessary
or convenient to carry out the purposes for which it was formed.
1.3 MANAGED BY MANAGERS AND BOARD OF DIRECTORS
The Company shall be managed by its Managers appointed
hereunder, subject to the supervision and powers of the Board of Directors as
set forth in this Agreement.
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1.4 PRINCIPAL OFFICE
The principal office of the Company shall be at 166 Pine
Barren Road, Savannah, Georgia 31322. The Board of Directors may change the
principal place of business of the Company to any place from time to time in
their discretion.
1.5 AGENT FOR SERVICE OF PROCESS
The initial agent for service of process on the Company
shall be CT Corporation System.
2. CAPITAL CONTRIBUTIONS
2.1 INITIAL MEMBER
DeCrane Aircraft Holdings, Inc. shall be the sole Initial
Member. The address, initial Capital Contribution and initial LLC Percentage of
the Initial Member are:
MEMBER, ADDRESS CAPITAL INITIAL LLC
CONTRIBUTION PERCENTAGE
- -------------------------------- ------------------------- -------------
DeCrane Aircraft Holdings, Inc. 100% of the capital 100%
2361 Rosecrans Avenue, stock of Custom
Suite 180 Woodwork & Plastics
El Segundo, California 90245 (f/k/a CWP Acquisition,
Inc.)
-------------
Totals: 100%
2.2 INITIAL CAPITAL CONTRIBUTION
The initial Capital Contribution shall be paid to the
Company concurrently with the signing of this Agreement. No Person shall be
treated as a Member for any purpose until the Company receives such Person's
initial Capital Contribution.
2.3 EXPERTISE
Each Member shall make available to the Manager his or its
expertise for the benefit of the Company and the Company's business.
2.4 GUARANTEES OF THE COMPANY'S DEBTS
If a Member guarantees a debt of the Company and that debt
is paid by the Member (or its successors in interest), then such payment shall
be considered a loan to the Company and not an additional Capital Contribution.
The amount of debt paid by the Member shall be repayable out of the Company's
cash and, unless otherwise agreed between the Company and the lending Member,
shall bear interest at an annual rate equal to one percentage point above the
prime lending rate of Bank of America, NA (or another similar financial
institution, if any, designated jointly by such Member and the Managers) in
effect at the time the debt is paid.
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2.5 ADDITIONAL CAPITAL CONTRIBUTIONS OR LOANS
No Member shall be required to contribute or lend any
additional funds to the Company.
2.6 LOANS
If any Member makes any loan to the Company or advances
money on its behalf, the amount of any such loan or advance shall not be treated
as a Capital Contribution but shall be a debt due from the Company. The amount
of any such loan or advance by a lending Member shall be repayable out of the
Company's cash and shall bear interest at an annual rate equal to one points
above the prime lending rate of Bank of America, NA (or a similar financial
institution acceptable to the lending Member and the Managers) then in effect.
2.7 INVESTMENT REPRESENTATION
Each Member represents and warrants to the Company as of
the date on which he or it becomes a Member that (a) he or it has a pre-existing
personal or business relationship with each other Member, and (b) his or its
acquisition of an Interest is made as principal for his or its own account and
not with a view to or for sale in connection with any distribution of such
Interest.
2.8 TITLE TO PROPERTY
All real and personal property owned by the Company
shall be owned by it as an entity and, insofar as permitted by applicable
law, no Member shall have any ownership interest in such property in his or
its individual name or right, and each Member's interest in the Company shall
be personal property for all purposes.
2.9 INTERESTS UNCERTIFICATED
Interests shall not be evidenced or represented by any
instrument or certificate, but rather, their ownership shall be determined by
reference to the terms of this Agreement as it may be amended from time to time.
3. DISTRIBUTIONS
3.1 DISTRIBUTIONS GENERALLY
The Managers shall cause the Company to make such
distributions to the Members in amounts (if any) as may be determined from time
to time by the Board of Directors. Any distributions that are made to Members
shall be made in the following order and priority:
(a) First, to the Members until their Adjusted
Capital Contributions are reduced to zero (pro
rata among them in proportion to their Adjusted
Capital Contributions); and
(b) Second, the balance, if any, to the Members in
proportion to their LLC Percentages at that time.
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3.2 ESTIMATED TAX PAYMENTS
If required by applicable law, or permitted by applicable
law and approved by the Board of Directors, the Managers may cause the Company
to make estimated payments of tax for any Member after consultation with such
Member.
3.3 AMOUNTS WITHHELD
All amounts withheld pursuant to applicable law with
respect to any payment or distribution to the Company or the Members shall be
treated as amounts distributed to such Members for all purposes under this
Agreement. The Managers shall allocate any such amounts among the Members in
accordance with applicable law.
3.4 RETURN OF CAPITAL
Except as otherwise provided in this Agreement, no Member
shall demand or receive a return of his or its Capital Contribution without the
approval of the Board of Directors. Under circumstances requiring a return of
any Capital Contribution, no Member shall have the right to receive property
other than cash except as may be specifically provided in this Agreement. No
Member shall have any personal liability for the repayment of the Capital
Contribution of any other Member.
4. FINANCE
4.1 LLC FUNDS
All property of the Company in the form of cash not
otherwise invested shall be deposited in one or more bank accounts maintained in
the name of the Company or the name of the Initial Member, in such financial
institutions as the Managers shall determine. The funds of the Company shall not
be commingled with the funds of any other Person. The Managers shall deposit
into such accounts all revenue and proceeds of or in connection with the
Company's business and all amounts received by the Managers from, for, or on
behalf of, the Company.
4.2 BOOKS AND RECORDS
The Managers shall maintain or cause to be maintained
accurate books and records of account of the business of the Company in
accordance with generally accepted accounting principles consistently applied,
setting forth a true and accurate account of all business transactions arising
out of and in connection with the conduct of the Company's business.
4.3 TAX INFORMATION
The Managers shall prepare or cause to be prepared, and
file, any applicable tax returns required to be filed by the Company consistent
with the terms of this Agreement. The Managers shall select an accounting firm
to prepare any such tax returns, subject to approval by the Board of Directors.
Within 90 days after the end of each taxable year (or such earlier deadlines as
may be imposed upon the Members by law), the Managers shall deliver to each
Member all tax information regarding the Company necessary for such Member to
make all required returns, together with a copy of any federal, state and local
income tax or information returns of the Company for the year, and a report
listing each material elective adjustment or calculation (if any) made by any
Manager with respect to such period pursuant to Article 14 hereof.
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4.4 ALLOCATIONS
The Profits, Losses and other items of the Company shall
be allocated as set forth in Article 14 (Additional Tax Provisions). The Members
agree to be bound by these allocations in reporting their shares of the
Company's income, loss and other items for income tax purposes.
5. ROLE OF THE MANAGERS
5.1 MANAGERS
The Initial Member of the Company has designated the
following persons to serve as the initial managers and officers of the Company
(herein, "Managers"), until changed pursuant to Sections 5.3 or 5.4:
R. Jack DeCrane Chief Executive Officer
Richard J. Kaplan Chief Financial Officer and Secretary
Joseph S. Wigley. President
Jeffrey A. Nerland Vice President and Authorized Representative
Stephen A. Silverman Assistant Secretary
5.2 AUTHORITY
Except to the extent otherwise provided in the Articles of
Organization or this Agreement (including the powers reserved to the Board of
Directors and the Members), the business and affairs of the Company shall be
managed and all corporate powers shall be exercised by the Managers, who shall
have all of the authority, rights and powers which may be possessed by managers
of a limited liability company under the Act, and may at their discretion,
delegate and assign their management duties. The Managers may act jointly or
severally in their role as Managers, and the act of any one Manager is the act
of all Managers.
5.3 QUALIFICATION AND ELECTION
The Managers of the Company shall be selected by the
Initial Member. The Initial Member may appoint additional Managers from time to
time in its discretion, with such title and such roles as the Initial Member may
specify.
5.4 REMOVAL AND RESIGNATION
(a) All Managers serve at the pleasure of the Initial
Member, and any Manager may be removed with or without cause by the Initial
Member, for any reason or no reason, by providing written notice thereof to such
Manager.
(b) Any Manager may resign at any time by giving
written notice to the Company. Any such resignation shall take effect at the
date of the receipt of such notice or at any later time specified therein; and,
unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective.
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5.5 DUTIES AND OBLIGATIONS OF THE MANAGERS
The Managers shall take all actions which may be necessary
or appropriate to operate and manage the Company's business, and otherwise
directed by the Board of Directors.
5.6 MATTERS REQUIRING UNANIMOUS CONSENT OF THE MEMBERS
Notwithstanding any other term of this Agreement, the
Managers shall not, without the unanimous written consent of the Members:
(a) Do any act in contravention of this Agreement;
(b) Do any act which would make it impossible to
carry on the ordinary business of the Company, except as otherwise provided in
this Agreement;
(c) Sell or otherwise dispose of at one time all or
substantially all of the property of the Company, except pursuant to Section
11.3(e) (Winding Up);
(d) Amend this Agreement or the Certificate of
Formation;
(e) Liquidate or dissolve the Company;
(f) Admit a new Member;
(g) Reduce, increase or alter the outstanding capital
of the Company, make any call on capital, issue or redeem Interests, options or
other securities of the Company or any subsidiary of the Company;
(h) Grant a power of attorney or other delegation of
the Members' powers; or
(i) Cause the Company to merge or consolidate with any
other business.
5.7 MATTERS REQUIRING THE APPROVAL OF THE BOARD OF DIRECTORS
Notwithstanding any other term of this Agreement, without
first obtaining the approval of a majority of the Board of Directors, at a
meeting duly held, or by a written act of such Directors in lieu of a meeting,
the Managers shall not:
(a) Appoint or remove an auditor;
(b) Obtain, incur or suffer an aggregate amount of
debt other than in the ordinary course of its business in excess of $50,000; or
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(c) Cause the Company to acquire shares of or any
interest in any corporation or other legal entity, or create any partnership,
joint venture or legal entity of which the Company is or will be a partner,
member or similar participant.
5.8 INDEMNIFICATION OF MANAGERS
5.8(a) MANDATORY
The Company, its receiver or its trustee, shall
indemnify, save harmless and pay all judgments and claims against the Managers
relating to any liability or damage incurred by reason of any act performed or
omitted to be performed by the Managers in connection with the business of the
Company, including attorneys' fees incurred by the Managers in connection with
the defense of any action based on any such act or omission, which attorneys'
fees may be paid as incurred, including all such liabilities under federal and
state securities laws (including the Securities Act of 1933, as amended) as
permitted by law.
5.8(b) IF MANAGER IS EXONERATED IN THE PROCEEDING
In the event of any action by a Member against
a Manager, including a derivative suit on behalf of the Company, the Company
shall indemnify, save harmless and pay all expenses of such Manager, including
attorneys' fees, incurred in the defense of such action, if such Manager is
successful in such action.
5.8(c) NO INDEMNIFICATION
Notwithstanding the foregoing provisions of
this Section 5.8, the Managers shall not be indemnified from any liability for
fraud, bad faith, willful misconduct or gross negligence.
5.8(d) LIMITATION
Any indemnification under this Section 5.8
shall be paid from and only to the extent of the Company's assets, and no Member
shall have personal liability for such indemnification.
6. ROLE OF THE BOARD OF DIRECTORS
6.1 NUMBER AND DESIGNATION OF DIRECTORS
The Company shall have a Board of Directors composed of two
directors. The Initial Member designates R. Jack DeCrane and Richard J. Kaplan
as the initial directors.
6.2 RIGHTS AND POWERS
The Board of Directors shall have the powers reserved to it
in this Agreement and, in addition, may take any action reserved to the Members
in this Agreement or in the Act.
6.3 TERM; REMOVAL
Each director serves at the pleasure of the Member who
designated him or her pursuant to Section 3.1; and each Member having the right
to designate one or
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more directors may remove and replace such designated directors at will, by
notice to the Managers and directors. In the event a Member sells, transfers or
loses all of its Interests in the Company, all directors designated by such
Member shall be removed from the Board of Directors and their seats shall be
declared vacant.
6.4 MEETINGS
The Board of Directors shall meet at such times as they may
elect from time to time, in each case at the dates and times agreed by the
directors; but the Board of Directors shall not be required to meet at any fixed
time. The rules set forth in Section 8.2(a), (d), (e), (f) and (g) for the
meetings of Members shall also apply to all meetings of the Board of Directors,
EXCEPT that there shall be no record date in connection with propositions to be
put to a vote at meetings of the Board. 60% of the then-seated directors shall
constitute a quorum for any transacting of business by the Board of Directors,
and the Board of Directors may not act in the absence of a quorum. Any action
approved by a majority of the directors present at a duly called meeting of the
Board of Directors at which a quorum is present, or by all of the directors
then-seated by written consent without meeting, shall be the action of the Board
of Directors. Any action that may be taken at any meeting of the Board of
Directors may be taken without a meeting if a consent in writing, setting forth
the action so taken, is signed and delivered to the Managers by directors 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 of the directors entitled to vote
thereon were present and voted.
6.5 LIMITED LIABILITY
The rights and powers of a member of the Board of
Directors, in his capacity as a director, shall not exceed the rights and powers
that a member of a manager-managed limited liability company could exercise
under the Act. Except to the extent (if any) otherwise required by the Act, no
director shall be liable for the debts, liabilities, contracts or any other
obligations of the Company.
7. ROLE OF MEMBERS
7.1 RIGHTS AND POWERS
The Members shall have the powers reserved to them in this
Agreement or in the Act.
7.2 LIMITED LIABILITY
Except to the extent (if any) otherwise required in the
Act, no Member shall be liable for the debts, liabilities, contracts or any
other obligations of the Company.
7.3 NO PARTITION
No Member or director shall, either directly or indirectly,
take any action to require partition of the Company or of any of its property or
to cause the sale of any of such property, nor shall any Manager do so without
the approval of the Board of Directors.
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8. MEETINGS OF MEMBERS
8.1 REQUIRED MEETINGS
The Member or Members shall hold meetings at such times as
it or they may unanimously agree in writing, but shall not be required to meet
at any fixed time. At any such meeting, Members holding a majority in Interest
shall constitute a quorum. No action can be taken by the Members at a meeting
after a quorum ceases to be present at the meeting. The failure of the Company
to observe any corporate formalities or requirements relating to the exercise of
its powers or management of its business or affairs under this Agreement or the
Act shall not be grounds for imposing personal liability on the Members for
liabilities of the Company.
8.2 PROCEDURE
8.2(a) LOCATION
Unless all of the Members agree otherwise in
writing, meetings of Members shall be held at the chief executive office of the
Initial Member in California (or at any other place in the County of Los
Angeles, State of California, selected by the Board of Directors and
specifically identified in the notice of the meeting), so long as the meeting
place has adequate facilities to permit participation by telephone conference
call.
8.2(b) CALL
A meeting of the Members may be called by any
Manager, or by any Member or Members representing more than 10% of the Interests
for the purpose of addressing any matters on which the Members may vote.
8.2(c) NOTICE
(1) Whenever Members are required or
permitted to take any action at a meeting, a written notice of the meeting shall
be given pursuant to Article 12 (Other Provisions) not less than 10 days nor
more than 60 days before the date of the meeting to each Member entitled to vote
at the meeting. The notice shall state 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.
(2) An affidavit of mailing of any notice
or report in accordance with the provisions of this paragraph, signed by a
Manager, shall be prima facie evidence of the giving of the notice or report.
(3) Upon written request to a Manager by
any person entitled to call a meeting of Members, the Manager shall immediately
cause notice to be given to the Members entitled to vote that a meeting will be
held at a time requested by the person calling the meeting, not less than 10
days nor more than 60 days after the receipt of the request. If the notice is
not given within 20 days after receipt of the request, the person entitled to
call the meeting may give the notice or, upon the application of that person,
the superior court of the county in California in which the principal office of
the Company is located shall summarily order the giving of the notice, after
notice to the Company affording it an opportunity to be heard. The court may
issue any order as may be appropriate, including an order designating the time
and place of the meeting, the record date for determination of members entitled
to vote, and the form of notice.
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8.2(d) ADJOURNED MEETINGS
When a meeting of Members is adjourned to
another time or place, unless the articles of organization or this Agreement
otherwise require and, except as provided in this paragraph, notice need not be
given of the adjourned meeting if the time and place thereof are announced at
the meeting at which the adjournment is taken. At the adjourned meeting, the
Company may transact any business that may have been transacted at the original
meeting. If the adjournment is for more than 45 days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each Member of record entitled to vote
at the meeting.
8.2(e) WAIVER OF NOTICE
The actions taken at any meeting of Members,
however called and noticed, and wherever held, have the same validity as if
taken at a meeting duly held after regular call and notice, if a quorum is
present either in person or by proxy, and if, either before or after the
meeting, each of the Members entitled to vote, not present in person or by
proxy, signs a written waiver of notice or consents to the holding of the
meeting or approves the minutes of the meeting. All waivers, consents, and
approvals shall be filed with the Company records or made a part of the minutes
of the meeting. Attendance of a person at a meeting shall constitute a waiver of
notice of the meeting, except when the person objects, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened. Attendance at a meeting is not a waiver of any right to
object to the consideration of matters required by this title to be included in
the notice but not so included, if the objection is expressly made at the
meeting. Neither the business to be transacted nor the purpose of any meeting of
Members need be specified in any written waiver of notice, unless otherwise
provided in the articles of organization or operating agreement, except as
provided in paragraph (g) below.
8.2(f) PARTICIPATION BY TELEPHONE CONFERENCE CALL
Members may participate in a meeting of
Members through the use of conference telephones or similar communications
equipment, as long as all Members participating in the meeting can hear one
another. Participation in a meeting pursuant to this provision constitutes
presence in person at that meeting.
8.2(g) NATURE OF PROPOSAL
Any action approved at a meeting, other than
by unanimous approval of those entitled to vote, shall be valid only if the
general nature of the proposal so approved was stated in the notice of meeting
(or at the previous meeting) or in any written waiver of notice.
8.2(h) QUORUM
A majority in Interest of the Members
represented in person or by proxy shall constitute a quorum at a meeting of
Members. In the absence of a quorum, any meeting of Members may be adjourned
from time to time by the vote of a majority of the Interest represented either
in person or by proxy, but no other business may be transacted.
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8.2(i) WRITTEN ACTION WITHOUT MEETING
Any action that may be taken at any meeting of
the Members may be taken without a meeting if a consent in writing, setting
forth the action so taken, is signed and delivered to the Managers within 60
days of the record date for that action 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 thereon were present and
voted.
(1) Unless the consents of all
Members entitled to vote have been solicited in writing, (A) notice of any
Member approval of an amendment to the articles of organization or this
Agreement, a dissolution of the Company, or a merger of the Company, without a
meeting by less than unanimous written consent shall be given at least 10 days
before the consummation of the action authorized by such approval, and (B)
prompt notice shall be given of the taking of any other action approved by
Members without a meeting by less than unanimous written consent, to those
Members entitled to vote who have not consented in writing.
(2) Any Member giving a written
consent, or the Member's proxyholder, may revoke the consent by a writing
received by the Company prior to the time that written consents of Members
having the minimum number of votes that would be required to authorize the
proposed action have been filed with the Company, but may not do so thereafter.
This revocation is effective upon its receipt at the principal office of the
Company in California.
8.2(j) PROXIES
The use of proxies in connection with this
section will be governed in the same manner as in the case of corporations
formed under the Delaware General Corporation Law.
8.2(k) RECORD DATE
In order that the Company may determine the
Members of record entitled to notices of any meeting or to vote, or entitled to
receive any distribution or to exercise any rights in respect of any other
lawful action, a Manager, or Members representing more than 10 percent of the
interests of Members, may fix, in advance, a record date, that is not more than
60 days nor less than 10 days prior to the date of the meeting and not more than
60 days prior to any other action. If no record date is fixed:
(1) The record date for determining
Members entitled to notice of or to vote at a meeting of Members shall be at the
close of business on the business day next preceding the day on which notice is
given or, if notice is waived, at the close of business on the business day next
preceding the day on which the meeting is held.
(2) The record date for determining Members
entitled to give consent to limited liability company action in writing without
a meeting shall be the day on which the first written consent is given.
(3) The record date for determining
Members for any other purpose shall be at the close of business on the day on
which the Managers adopt the
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resolution relating thereto, or the 60th day prior to the date of the other
action, whichever is later.
(4) The determination of Members of record
entitled to notice of or to vote at a meeting of Members shall apply to any
adjournment of the meeting unless a Manager or the Members who called the
meeting fix a new record date for the adjourned meeting, but the Manager or the
Members who called the meeting shall fix a new record date if the meeting is
adjourned for more than 45 days from the date set for the original meeting.
8.3 VOTING RIGHTS
The Members shall have the right to vote on the matters
explicitly set forth in this Agreement or in the Act. Each Member shall have a
vote on all matters on which all Members may vote equal to his or its LLC
Percentage. With respect to the Members, the term "majority in interest" means
more than 50% of the LLC Percentages of all Members.
8.4 RULES OF CONDUCT
At each meeting of Members they shall appoint a chair who
shall conduct the meeting and who shall appoint a secretary of the meeting to
keep minutes and file the minutes with the Company's permanent files.
9. RESTRICTIONS ON TRANSFER
9.1 RESTRICTION ON TRANSFERS
Except as otherwise permitted by this Agreement, no Member
shall Transfer all or any portion of any Interest.
9.2 PERMITTED TRANSFERS
The Initial Member may Transfer its Interest in connection
with a sale of substantially all assets of the Initial Member, to the purchaser
thereof. The Initial Member may Transfer its Interest for the purpose of
providing security for an obligation, by hypothecation, pledge,
collateralization or otherwise. Any Interest so held or Transferred shall remain
subject to all of the provisions of this Agreement and the Member, both
individually and as trustee of the trust, shall continue to be considered a
"Member" for purposes of this Agreement.
9.3 INVOLUNTARY TRANSFER
Any proposed Transfer of an Interest that is required by
law pursuant to any insolvency proceeding of a Member shall be subject to the
terms and conditions of this Agreement, including Section 9.7.
9.4 PROHIBITED TRANSFERS
Any purported Transfer of an Interest that is not permitted
by this Agreement shall be null and void and of no effect whatever; PROVIDED
that if the Company is required to recognize a Transfer that is not so
permitted, the Interest Transferred shall be strictly limited to the
transferor's rights to allocations and distributions under this
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Agreement with respect to the Transferred Interest, which allocations and
distributions may be applied (without limiting any other legal or equitable
rights of the Company) to satisfy any debts, obligations, or liabilities for
damages that the transferor or transferee of such Interest may have to the
Company.
In the case of a Transfer or attempted Transfer that is not
permitted by this Agreement, the parties engaging or attempting to engage in
such Transfer shall be liable to indemnify and hold harmless the Company and the
other Members from all costs, liabilities and damages that any of such
indemnified Persons may incur (including additional tax liability and lawyers'
fees and expenses) as a result of such Transfer or attempted Transfer and
efforts to enforce this Section 9.4, including such indemnity.
9.5 GENERAL TRANSFER PROVISIONS
(a) All Transfers shall be by instrument in form and
substance satisfactory to counsel for the Company and shall contain an
expression by the transferee of his or its intention to accept the Transfer and
to adopt and be bound by all of the provisions of this Agreement, and shall
provide for the payment by the transferor of all reasonable expenses incurred by
the Company in connection with such Transfer, including the necessary amendments
to this Agreement to reflect such Transfer. The transferor shall sign and
acknowledge all such instruments, in form and substance reasonably satisfactory
to the Company's counsel, as may be necessary or desirable to effect such
Transfer.
(b) The Company shall not dissolve or terminate upon
the admission of any new Member or upon any permitted Transfer. Each Member
hereby waives any right such Member may have to dissolve, liquidate or terminate
the Company in any such event.
(c) This Section 9.5 imposes additional restrictions
on the Transfer of Interests and does not permit any Transfer not otherwise
permitted by this Agreement.
9.6 COMPLIANCE
Notwithstanding anything to the contrary in this Agreement,
at law or in equity, no Member shall Transfer or otherwise deal with any
Interest in a way that would cause a default under any material agreement to
which the Company is a party or by which it is bound.
9.7 ADMISSION OF MEMBERS
No new Members shall be admitted without the approval
required by Section 5.6. A transferee of an Interest shall not be admitted as a
Member without the approval required by Section 5.6, PROVIDED that if the
transferee is already a Member at the time of the transfer and the transfer is
permitted by this Agreement, then the transferee shall have all rights of a
Member with respect to the transferred Interest.
9.8 RIGHTS OF UNADMITTED ASSIGNEES
Notwithstanding any other provision of this Agreement, a
Person who acquires an Interest but who is not admitted as a Member of the
Company pursuant to this Agreement shall be entitled only to receive, to the
extent assigned, the distributions and the allocations to which the assignor
would be entitled under this Agreement, but
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shall have no right to vote or to participate in the management and affairs of
the Company, or to exercise any of the rights of a Member.
10. [DELIBERATELY OMITTED.]
11. DISSOLUTION
11.1 LIQUIDATING EVENTS
The Company shall dissolve and commence winding up and
liquidating upon the first to occur of any of the following ("Liquidating
Events"):
(a) The decision of all of the Members to dissolve,
wind up and liquidate the Company;
(b) The sale or transfer by the Company of all or
substantially all of its assets;
(c) The occurrence of any other event that makes it
unlawful or impossible to carry on the business of the Company; or
(d) Entry of a decree of judicial dissolution pursuant to
the Act.
11.2 CONTINUING LIMITED LIABILITY COMPANY
Notwithstanding any provision of the Act, the Company shall
not dissolve prior to the occurrence of a Liquidating Event. The withdrawal,
resignation or retirement of any Member which the Company is required by proper
authority to recognize, or the death, expulsion, bankruptcy or dissolution of
any Member or the occurrence of any other event which terminates the continued
membership in the Company of any Member shall not be a liquidating event.
11.3 WINDING UP
Upon the occurrence of a Liquidating Event:
(a) The Company shall continue solely for the
purposes of winding up its affairs in an orderly manner, liquidating its assets,
and satisfying the claims of its creditors and Members;
(b) No Member shall take any action that is
inconsistent with, or not necessary to or appropriate for, the winding up of the
Company's business and affairs;
(c) A person, who may but need not be a Member, shall
be unanimously selected by the Members (or by arbitration pursuant to the terms
hereof if agreement cannot be reached) as the Company's liquidator, and shall be
responsible for overseeing the winding up and dissolution of the Company and
shall take full account of the Company's liabilities and assets;
(d) No Manager shall receive any additional
compensation for any services performed pursuant to this Section 11.3;
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(e) Unless all Members agree upon a sale among
themselves or a division in kind of assets, the assets of the Company shall be
sold in the usual course of business using reasonable business judgment; and
(f) If any property of the Company is to be
distributed in kind upon the liquidation of the Company, such property shall be
liquidated as promptly as is consistent with obtaining its fair value.
11.4 APPLICATION OF PROCEEDS
The liquidation proceeds shall be applied and distributed,
to the extent sufficient to do so, in the following order:
First, to the payment and discharge of all of the Company's
debts and liabilities to creditors other than the Members;
Second, to the payment and discharge of all of the
Company's debts and liabilities to the Members; and
The balance, if any, to the Members in accordance with
their Capital Accounts, after giving effect to all contributions, distributions
and allocations for all periods. Any in-kind distributions of property of the
Company shall be made among the Members pro rata in proportion with their
relative Capital Accounts.
11.5 NEGATIVE CAPITAL ACCOUNTS
If a Liquidation Event and a Tax Liquidation both occur,
then:
Distributions shall be made pursuant to this Article 11 to
the Members who have positive Capital Accounts; and
(a) If any Member has a deficit balance in his or its
Capital Account (after giving effect to all contributions, distributions and
allocations for all taxable years, including the year during which such
liquidation occurs), then such Member shall have no obligation to contribute to
the capital of the Company and the deficit shall not be considered a debt owed
to the Company or any other Person for any purpose whatsoever; and
(b) Section 14.19 (Negative Capital Accounts: Tax
Issues) shall apply.
11.6 DISCRETIONARY WITHHOLDING AND DISTRIBUTIONS
With the approval of the Board of Directors, a pro rata
portion of the distributions that would otherwise be made to the Members
pursuant to this Article 11 may be:
(a) Distributed to a trust established for the
benefit of the Members for the purposes of liquidating property of the Company,
collecting amounts owed to the Company, and paying any contingent or unforeseen
liabilities or obligations of the Company or of the Managers arising out of or
in connection with the Company, PROVIDED
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that assets of any such trust shall be distributed to the Members from time to
time, in the reasonable discretion of the liquidator appointed hereunder, in the
same proportions as the amount distributed to such trust by the Company would
otherwise have been distributed to the Members pursuant to this Agreement; or
(b) Withheld to provide a reasonable reserve for
liabilities (contingent or otherwise) of the Company and to reflect the
unrealized portion of any installment obligations owed to the Company, PROVIDED
that such withheld amounts shall be distributed to the Members as soon as
practicable.
11.7 RIGHTS OF MEMBERS
Except as otherwise provided in this Agreement, the Members
shall look solely to the assets of the Company for the return of their Capital
Contributions and no Member shall have any right or power to demand or receive
property other than cash from the Company. No Member shall have priority over
any other Member as to the return of his or its Capital Contribution,
distributions or allocations.
11.8 NOTICE OF DISSOLUTION
If a Liquidating Event occurs, the Company shall, within 60
days after the occurrence, provide written notice of the occurrence to each of
the Members and to all known creditors and claimants whose names appear on the
records of the Company.
11.9 CERTIFICATES OF DISSOLUTION
Upon the dissolution of the Company, the liquidator
appointed hereunder and, to the extent required, any other party hereto or
appointed hereunder, shall promptly sign and cause to be filed certificates of
dissolution in accordance with the Act and the laws of any other states or
jurisdictions in which the Company has filed its Articles of Organization or
qualified to transact intrastate business.
12. OTHER PROVISIONS
12.1 ENTIRE AGREEMENT
This Agreement, which includes material provisions on the
schedules hereto, each of which is incorporated in full herein, constitutes the
entire agreement pertaining to the organization of the Company and completely
supersedes all other agreements and all drafts, understandings, negotiations and
discussions, whether oral or written, among the parties pertaining to the
subject matter of this Agreement.
12.2 AMENDMENTS
No amendment or waiver of any provision of this Agreement
shall be effective unless and until an instrument reflecting the amendment or
waiver has received the approval of the Members.
The waiver by any party of a breach or default of any
provision of this Agreement shall not operate or be construed as a waiver of any
subsequent breach or default. A party's failure either to insist upon any other
party's strict performance of any provision of this Agreement or to exercise any
of the party's rights or remedies under this
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Agreement shall not constitute a waiver of any default by the other party or of
any right or remedy of the non-defaulting party.
12.3 GOVERNING LAW
Delaware law shall govern this Agreement, any agreement to
amend or adopt this Agreement, and all disputes arising hereunder.
12.4 SEVERABLE PROVISIONS
The provisions of this Agreement are severable, and if any
provision is determined to be illegal or otherwise unenforceable, in whole or in
part, then the remaining provisions, and any partially unenforceable provisions
to the extent enforceable, shall nevertheless be binding and enforceable and
shall be construed as closely as possible to their original meanings.
12.5 BINDING EFFECT
Except as otherwise provided in this Agreement, every
provision of this Agreement shall bind and benefit the Members and their
respective heirs, legatees, legal representatives, successors, transferees and
assigns.
12.6 PARTIES IN INTEREST; THIRD PARTIES
All references in this Agreement to "parties" refer to the
parties to this Agreement. Nothing in this Agreement, expressed or implied, is
intended to confer on any Person or entity other than a party any right or
remedy under or by reason of this Agreement. The provisions of this Agreement
are not intended to benefit any creditor or other Person (other than a Member in
his or its capacity as a Member) to whom any debts, liabilities or obligations
are owed or who otherwise has a claim against the Company or any Member; and no
such creditor or other Person shall obtain any right under this Agreement
against the Company or any Member by reason of any such debt, liability or
obligation, or otherwise.
13. DEFINITIONS
Capitalized words and phrases used in this Agreement have the
following meanings
13.1 "ADJUSTED CAPITAL CONTRIBUTIONS"
means, as of any day with respect to a Member, such
Member's Capital Contributions, adjusted as follows:
(a) Increased by the amount of any Company
liabilities which, in connection with distributions to such Member pursuant
to Section 3.1 (Distributions Generally) and 11.4 (Dissolution/Application of
Proceeds) are assumed by such Member or are secured by any property of the
Company distributed to such Member; and
(b) Reduced by the amount of cash and the Gross Asset
Value (as defined in Section 14.21) of any property of the Company distributed
to such Member pursuant to Sections 3.1 (Distributions Generally) and 11.4
(Dissolution/Application of
17
Proceeds) and the amount of any liabilities of such Member assumed by the
Company or which are secured by any property contributed by such Member to
the Company.
(c) If such Member Transfers all or any portion of
his Interest in accordance with the terms of this Agreement, his transferee
shall succeed to his or its Adjusted Capital Contributions to the extent it
relates to the Transferred Interest.
13.2 "AGREEMENT"
means this Operating Agreement, as amended from time to
time.
13.3 "BOARD OF DIRECTORS"
means the board established pursuant to Article 6 (Role of
the Board of Directors).
13.4 "BUSINESS DAY"
means a day that is not a Saturday, Sunday or public
holiday in the place to which the notice, consent or other communication is
sent.
13.5 "CAPITAL ACCOUNT"
means, with respect to any Member, the Capital Account
maintained for such Person in accordance with the following provisions and
Section 14.21:
(a) To each Person's Capital Account there shall be
credited such Person's Capital Contribution, such Person's distributive share of
Profits and any items in the nature of income or gain which are specially
allocated pursuant to Sections 14.4 (Minimum Gain Chargeback) through 14.12
(Order of Application), and the amount of any of the Company's liabilities
assumed by such Person or which are secured by any property of the Company
distributed to such Person.
(b) To each Person's Capital Account there shall be
debited the amount of money and the Gross Asset Value of any property
distributed to such Person pursuant to any provision of this Agreement, such
Person's distributive share of Losses and any items in the nature of expenses or
losses which are specially allocated pursuant to Sections 14.4 through 14.12 and
the amount of any liabilities of such Person assumed by the Company or which are
secured by any property contributed by such Person to the Company.
(c) If any Interest is Transferred in accordance
with this Agreement, the transferee shall succeed to the Capital Account of the
transferor to the extent it relates to the Transferred Interest.
13.6 "CAPITAL CONTRIBUTION"
means, with respect to any Member, the amount of money and
the gross fair market value of any property (other than money) contributed
pursuant to this Agreement to the controlled by such a person or entity.
13.7 "CODE"
means the Internal Revenue Code of 1986, as amended from
time to time.
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13.8 "COMPANY"
means the California limited liability company created and
pursuant to this Agreement and the limited liability company continuing the
business in the event of dissolution as provided in Section 11.2 (Dissolution).
13.9 "INITIAL MEMBER"
has the meaning set forth for such term in the introductory
paragraph of this Agreement.
13.10 "INTEREST"
means, with respect to any Member, the ownership rights of
the Member in the Company, including the right to receive distributions from the
Company. In the event any Interest is Transferred in accordance with the
provisions of this Agreement, the transferee of such interest shall succeed to
the Interest of his or its transferor to the extent it is Transferred.
13.11 "LIQUIDATING EVENT"
has the meaning set forth in Section 11.1.
13.12 "LLC PERCENTAGE"
means, with respect to any Member at any time, the
proportion (expressed as a percentage) of such Member's Interests at such time
to the aggregate number of all Interests then outstanding. If any Interest is
Transferred in accordance with the provisions of this Agreement, the transferee
of such Interest shall succeed to the portion of the transferor's LLC Percentage
represented by the Transferred Interest.
13.13 "MANAGERS"
means the Persons serving as managers of the Company within
the meaning of the Act and pursuant to the terms and conditions of this
Agreement.
13.14 "MEMBER"
means any Person who is (a) the Initial Member, as
designated in Section 2.1, or subsequently admitted as a Member pursuant to this
Agreement, AND (b) who owns an Interest. "Members" means all such Persons.
13.15 "PERSON"
means any individual, corporation, partnership, limited
liability company, joint venture, association, joint stock company, trust
(including any beneficiary of the trust), unincorporated organization, or
government or any agency or political subdivision.
13.16 "PROFITS" and "LOSSES"
means, for each fiscal year or other period, an amount
equal to the Company's taxable income or loss for such year or period,
determined in accordance with Section 14.21.
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13.17 "TRANSFER"
(a) means, as a noun, any voluntary or involuntary
assignment, transfer, sale, pledge, hypothecation or other disposition, and, as
a verb, voluntarily or involuntarily to assign, transfer, sell, pledge,
hypothecate or otherwise dispose of or to obtain a charging order against. A
"Transfer" includes a gift or transmutation of an Interest into another type of
property interest or into an Interest jointly owned with another Person,
including a gift or transmutation of a separate property Interest into a
community or other joint property Interest with a spouse or another Person, or
the partition of a community or other joint property Interest (whether
voluntarily, pursuant to a divorce proceeding or otherwise).
14. ADDITIONAL TAX PROVISIONS
14.1 TAX CLASSIFICATION
The Members intend that the Company shall be classified as
a partnership for federal income tax purposes under Code Section 7701(a)(2) and
the corresponding provisions, if any, of state and local law.
14.2 PROFITS
After giving effect to the special allocations in Sections
14.4 (Minimum Gain Chargeback) through 14.12 (Order of Application), Profits for
any fiscal year or other period shall be allocated to the Members in proportion
to their LLC Percentages.
14.3 LOSSES AND OTHER ITEMS
After giving effect to the special allocations in Sections
14.4 (Minimum Gain Chargeback) through 14.12 (Order of Application), Losses for
any fiscal year or other period shall be allocated in the following order and
priority:
(a) Except as provided in Section 14.3(b), Losses
shall be allocated to the Members in proportion to their LLC Percentages.
(b) The Losses allocated pursuant to Section 14.3(a)
shall not exceed the maximum amount of Losses that can be so allocated without
causing any Member to have an Adjusted Capital Account Deficit at the end of any
fiscal year. If some but not all of the Members would have Adjusted Capital
Account Deficits as a consequence of an allocation of Losses pursuant to Section
14.3(a), the limitation set forth in this Section 14.3(b) shall be applied on a
Member-by-Member basis so as to allocate the maximum permissible Losses to each
Member under Section 1.704-1(b)(2)(ii)(d) of the Regulations.
Except as otherwise provided in this Agreement, all items
of the Company income, gain, loss, deduction, credit and any other allocations
not otherwise provided for shall be divided among the Members in the same
proportions as they share Losses for the period.
14.4 MINIMUM GAIN CHARGEBACK
Except as provided in Section 1.704-2(f) of the
Regulations, notwithstanding any other provision of this Article 14, if there is
a net decrease in Minimum Gain during any fiscal year of the Company, each
Member shall be specially
20
allocated items of Company income and gain for such year (and, if necessary,
subsequent years) in an amount equal to the portion of such Member's share of
the net decrease in Minimum Gain, determined in accordance with Section
1.704-2(g) of the Regulations. Allocations pursuant to the previous sentence
shall be made in proportion to the respective amounts required to be allocated
to each Member pursuant to such Regulations. The items to be so allocated shall
be determined in accordance with Sections 1.704-2(f)(6) and 1.704-2(j)(2) of the
Regulations. This Section 14.4 is intended to comply with the minimum gain
chargeback requirement in Section 1.704-2(f) of the Regulations and shall be
interpreted consistently with it.
14.5 MEMBER NONRECOURSE DEBT MINIMUM GAIN
Except as provided in Section 1.704-2(i)(4) of the
Regulations, notwithstanding any other provision of this Article 14 except
Section 14.4, if there is a net decrease in Member Nonrecourse Debt Minimum Gain
attributable to a Member Nonrecourse Debt during any Company fiscal year, each
Member who has a share of the Member Nonrecourse Debt Minimum Gain attributable
to such Member Nonrecourse Debt, determined in accordance with Section
1.704-2(i)(5) of the Regulations, shall be specially allocated items of Company
income and gain for such year (and, if necessary, subsequent years) in an amount
equal to the portion of such Member's share of the net decrease in Member
Nonrecourse Debt Minimum Gain attributable to such Member Nonrecourse Debt,
determined in accordance with Section 1.704-2(i)(4) of the Regulations.
Allocations pursuant to the previous sentence shall be made in proportion to the
respective amounts required to be allocated to each Member pursuant to such
Regulations. The items to be so allocated shall be determined in accordance with
Sections 1.704-2(i)(4) and 1.704-2(j)(2) of the Regulations. This Section 14.5
is intended to comply with the minimum gain chargeback requirement in Section
1.704-2(i)(4) of the Regulations and shall be interpreted consistently with it.
14.6 QUALIFIED INCOME OFFSET
In the event any Member unexpectedly receives any
adjustments, allocations or distributions described in Section
1.704-1(b)(2)(ii)(d)(4), (5) or (6) of the Regulations, items of Company income
and gain shall be specially allocated to each such Member in an amount and
manner sufficient to eliminate, to the extent required by the Regulations, the
Adjusted Capital Account Deficit of such Member as quickly as possible, PROVIDED
that an allocation pursuant to this Section 14.6 shall be made only if and to
the extent that such Member would have an Adjusted Capital Account Deficit after
all other allocations provided for in this Section 14.6 have been tentatively
made as if this Section 14.6 were not in the Agreement.
14.7 GROSS INCOME ALLOCATION
In the event any Member has a deficit Capital Account at
the end of any Company fiscal year which is in excess of the sum of (1) the
amount such Member is obligated to restore pursuant to any provision of this
Agreement and (2) the amount such Member is deemed to be obligated to restore
pursuant to the penultimate sentences of Sections 1.704-2(g)(1) and
1.704-2(i)(5) of the Regulations, each such Member shall be specially allocated
items of Company income and gain in the amount of such excess as quickly as
possible, PROVIDED that an allocation pursuant to this Section 14.7 shall be
made only if and to the extent that such Member would have a deficit Capital
Account in
21
excess of such sum after all other allocations provided for in Sections 14.4
through 14.10 have been tentatively made as if this Section 14.7 were not in the
Agreement.
14.8 NONRECOURSE DEDUCTIONS
Nonrecourse Deductions for any fiscal year or other period
shall be specially allocated among the Members in proportion to their LLC
Percentages.
14.9 MEMBER NONRECOURSE DEDUCTIONS
Any Member Nonrecourse Deductions for any fiscal year or
other period shall be specially allocated to the Member who bears the economic
risk of loss with respect to the Member Nonrecourse Debt to which such Member
Nonrecourse Deductions are attributable in accordance with Section 1.704-2(i)(1)
of the Regulations.
14.10 CODE SECTION 754 ADJUSTMENTS
To the extent an adjustment to the adjusted tax basis of
any Company asset pursuant to Code Section 734(b) or 743(b) is required,
pursuant to Section 1.704-1(b)(2)(iv)(m)(2) or 1.704-1(b)(2)(iv)(m)(4) of the
Regulations, to be taken into account in determining Capital Accounts as the
result of a distribution to a Member in complete liquidation of his or its
interest in the Company, the amount of such adjustment to Capital Accounts shall
be treated as an item of gain (if the adjustment increases the basis of the
asset) or loss (if the adjustment decreases such basis) and such gain or loss
shall be specially allocated to the Members in accordance with their Interests
if such Section 1.704-1(b)(2)(iv)(m)(2) applies, or, if such Section
1.704-1(b)(2)(m)(4) applies, to the Member to whom such distribution was made.
14.11 CURATIVE ALLOCATIONS
The allocations in the last sentence of the first paragraph
of Section 14.3 (Losses and Other Items) and Sections 14.4 (Minimum Gain
Chargeback), 14.5 (Member Nonrecourse Debt Minimum Gain), 14.6 (Qualified Income
Offset), 14.7 (Gross Income Allocation), 14.8 (Nonrecourse Deductions), 14.9
(Member Nonrecourse Deductions) and 14.10 (Code Section 754 Adjustments) (the
"REGULATORY ALLOCATIONS") are intended to comply with certain requirements of
the Regulations. It is the intent of the Members that, to the extent possible,
all Regulatory Allocations shall be offset either with other Regulatory
Allocations or with special allocations of other items of Company income, gain,
loss or deduction pursuant to this Section 14.11. Therefore, notwithstanding any
other provision of this Article 14 (other than the Regulatory Allocations), the
Managers shall make such offsetting special allocations of Company income, gain,
loss or deduction in whatever manner they determine appropriate so that, after
such offsetting allocations are made, each Member's Capital Account balance 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 and all
Company items were allocated pursuant to Section 14.2. In exercising their
discretion under this Section 14.11, the Managers shall take into account future
Regulatory Allocations under Sections 14.4 and 14.5 that, although not yet made,
are likely to offset other Regulatory Allocations previously made under Sections
14.8 and 14.9.
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14.12 ORDER OF APPLICATION
Sections 14.4 through 14.11 shall be applied in the order
in which they are set forth in this Agreement.
14.13 ALLOCATION METHOD
For purposes of determining the Profits, Losses or any
other items allocable to any period, Profits, Losses and any such other items
shall be determined on a daily, monthly, or other basis, as determined by the
Managers using any permissible method under Code Section 706 and the Regulations
under it.
14.14 EXCESS NONRECOURSE LIABILITIES
Solely for purposes of determining a Member's proportionate
share of the "excess nonrecourse liabilities" of the Company within the meaning
of Section 1.752-3(a)(3) of the Regulations, the Members' interests in the
Company's Profits are in proportion to their LLC Percentages.
14.15 SOURCE OF DISTRIBUTIONS
To the extent permitted by Section 1.704-2(h)(3) of the
Regulations, the Managers shall endeavor to treat cash distributions to Members
as having been made from the proceeds of Nonrecourse Liabilities or Member
Nonrecourse Debt only to the extent that such distributions would cause or
increase an Adjusted Capital Account Deficit for any Member.
14.16 TAX ALLOCATIONS: CODE SECTION 704(c)
In accordance with Code Section 704(c), income, gain, loss
and deduction with respect to any property contributed to the capital of the
Company shall, solely for tax purposes, be allocated among the Members so as to
take account of any variation between the adjusted basis of such property to the
Company for federal income tax purposes and its initial Gross Asset Value
(computed in accordance with Section 14.22(d)(1)).
If the Gross Asset Value of any Company asset is adjusted
pursuant to Section 14.22(d)(3), subsequent allocations of income, gain, loss
and deduction with respect to such asset shall take account of any variation
between the adjusted basis of such asset for federal income tax purposes and its
Gross Asset Value in the same manner as under Code Section 704(c) and the
Regulations under it.
Any elections or other decisions relating to such
allocations shall be made by the Managers in any manner that reasonably reflects
the purpose and intention of this Agreement. Allocations pursuant to this
Section 14.16 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 Person's
Capital Account or share of Profits, Losses, other items or distributions
pursuant to any provision of this Agreement.
14.17 DISTRIBUTIONS AND ALLOCATIONS IN RESPECT TO TRANSFERRED
INTERESTS
If any Interest is Transferred during any accounting period
in compliance with Article 8 (Restrictions on Transfer), then Profits, Losses,
each item of Profit and Loss
23
and all other items attributable to the Transferred Interest for such period
shall be divided and allocated between the transferor and the transferee by
taking into account their varying Interests during the period in accordance with
Code Section 706(d), using any conventions permitted by law and selected by the
Managers.
All distributions on or before the date of such Transfer
shall be made to the transferor, and all distributions thereafter shall be made
to the transferee.
14.18 TAX CHARACTERIZATION OF PAYMENTS TO A SELLING PARTNER
The Managers shall, to the greatest extent allowed by law,
determine the tax classification of all payments by the Company or a Member to a
Selling Member. The parties intend that such payments shall, to the extent
possible, be deductible to the Company and ordinary income to the Selling
Member.
14.19 NEGATIVE CAPITAL ACCOUNTS: TAX ISSUES
When a Tax Liquidation occurs, any distributions required
by Section 11.5((a)) shall be made in compliance with Section
1.704-1(b)(2)(ii)(b)(2) of the Regulations.
14.20 TAX MATTERS PARTNER
The Initial Member shall be the Person designated to
receive all notices from the Internal Revenue Service and other tax authorities
that pertain to the tax affairs of the Company, and shall be the "tax matters
partner" for purposes of Code Sections 6221 through 6233. Each party agrees to
be bound by those Code Sections. The "tax matters partner" shall provide to each
other Member in a timely manner the notices required to be provided by Section
301.6223(g)-1T of the Regulations and the corresponding provisions of state tax
law. The "tax matters partner" shall be reimbursed by the Company for expenses
reasonably incurred in connection with his work as "tax matters partner." The
"tax matters partner" shall not be otherwise compensated for such work; and if
he or it resigns as "tax matters partner" or ceases to be a Member, then the
Members shall select another "tax matters partner."
14.21 TAX DEFINITIONS
14.21(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:
(1) Credit to such Capital Account any
amounts which such Member is obligated to restore pursuant to any provision of
this Agreement or is deemed to be obligated to restore pursuant to the
penultimate sentences of Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5);
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
Regulations.
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The foregoing definition of Adjusted
Capital Account Deficit is intended to comply with the provisions of Section
1.704-1(b)(2)(ii)(d) of the Regulations and shall be interpreted consistently
with it.
14.21(b) CAPITAL ACCOUNTS: TAX ISSUES
In determining the amount of any liability
for purposes of Sections 13.1(a), 13.1(b), 13.5(a) and 13.5(b) there shall be
taken into account Code Section 752(c) and any other applicable provisions of
the Code and Regulations.
The provisions of Section 13.5 (Capital
Account) and the other provisions of this Agreement relating to the maintenance
of Capital Accounts are intended to comply with Section 1.704-1(b) of the
Regulations, and shall be interpreted and applied in a manner consistent with
it.
If the Managers determine that to comply
with the Regulations it is prudent to modify the manner in which the Capital
Accounts, or any debits or credits to the Capital Accounts (including debits or
credits relating to liabilities which are secured by property contributed to or
distributed from the Company or which are assumed by the Company or Members),
are computed, they may make such modification, PROVIDED that it is not likely to
have a material effect on the amounts distributable to any Member pursuant to
Article 10 (Dissolution) upon the dissolution of the Company.
The Managers also shall (a) make any
adjustments that are necessary or appropriate to maintain equality between the
Capital Accounts of the Members and the amount of Company capital reflected on
the Company's balance sheet, as computed for book purposes, in accordance with
Section 1.704-1(b)(2)(iv)(g) of the Regulations, and (b) make any appropriate
modifications if unanticipated events might otherwise cause this Agreement not
to comply with Section 1.704-1(b) of the Regulations.
14.21(c) "DEPRECIATION"
means, for each fiscal year or other
period, an amount equal to the depreciation, amortization or other cost recovery
deduction allowable with respect to an asset for such year or other period,
except that if the Gross Asset Value of an asset differs from its adjusted basis
for federal income tax purposes at the beginning of such year or other period,
Depreciation shall be an amount which bears the same ratio to such beginning
Gross Asset Value as the federal income tax depreciation, amortization or other
cost recovery deduction for such year or other period bears to such beginning
adjusted tax basis; PROVIDED, HOWEVER, that if the federal income tax
depreciation, amortization or other cost recovery deduction for such year is
zero, Depreciation shall be determined with reference to such beginning Gross
Asset Value using any reasonable method selected by the Managers.
14.21(d) "GROSS ASSET VALUE"
means, with respect to any asset, the
asset's adjusted basis for federal income tax purposes, except as follows:
25
(1) The initial Gross Asset 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;
(2) The Gross Asset Value of any the
Company asset distributed to any Member shall be the asset's gross fair market
value on the date of distribution;
(3) The Gross Asset Values of all
the Company assets shall be adjusted to equal their respective gross fair market
values, as determined by the Managers, as of the following times: (a) the
acquisition of an additional Interest by any new or existing Member in exchange
for more than a DE MINIMIS Capital Contribution; (b) the distribution by the
Company to a Member of more than a DE MINIMIS amount of property as
consideration for an interest in the Company if such adjustment is necessary or
appropriate to reflect the relative economic interests of the Members in the
Company; and (c) the Tax Liquidation of the Company; PROVIDED, HOWEVER that
adjustments pursuant to clauses (a) and (b) above shall be made only if the
Managers reasonably determine that such adjustments are necessary or appropriate
to reflect the relative economic interests of the Members in the Company.
(4) The Gross Asset Values of the
property of the Company shall be increased (or decreased) to reflect any
adjustments to the adjusted basis of such assets pursuant to Code Section 734(b)
or Code Section 743(b), but only to the extent that such adjustments are taken
into account in determining Capital Accounts pursuant to Section
1.704-1(b)(2)(iv)(m) of the Regulations and Sections 14.10 (Code Section 754
Adjustments) and 14.22(j)(6) (Profits and Losses); PROVIDED, HOWEVER, that Gross
Asset Values shall not be adjusted pursuant to this Section 14.22(d)(4) to the
extent the Managers determine that an adjustment pursuant to Section 14.22(d) is
necessary or appropriate in connection with a transaction that would otherwise
result in an adjustment pursuant to this Section 14.22(d)(4).
(5) After the Gross Asset Value of an
asset has been determined or adjusted pursuant to Section 14.22(d)(1), (3) or
(4), such Gross Asset Value shall be adjusted by the Depreciation taken into
account with respect to such asset for purposes of computing Profits and Losses.
14.21(e) "MEMBER NONRECOURSE DEBT"
has the meaning set forth in Section
1.704-2(b)(4) of the Regulations.
14.21(f) "MEMBER NONRECOURSE DEBT MINIMUM GAIN"
means an amount, with respect to each
Member Nonrecourse Debt, equal to the Minimum Gain that would result if such
Member Nonrecourse Debt were treated as a Nonrecourse Liability, determined in
accordance with Section 1.704-2(i)(3) of the Regulations.
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14.21(g) "MEMBER NONRECOURSE DEDUCTIONS"
has the meaning set forth in Sections
1.704-2(i)(1) and 1.704-2(i)(2) of the Regulations.
14.21(h) "MINIMUM GAIN"
has the meaning set forth in Sections
1.704-2(b)(2) and 1.704-2(d) of the Regulations.
14.21(i) "NONRECOURSE DEDUCTIONS"
has the meaning set forth in Section
1.704-2(b)(1) of the Regulations.
14.21(j) "NONRECOURSE LIABILITY"
has the meaning set forth in Section
1.704-2(b)(3) of the Regulations.
14.21(k) "PROFITS" and "LOSSES"
under Section 13.16 shall be 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:
(1) Any income of the Company that
is exempt from federal income tax and not otherwise taken into account in
computing Profits or Losses pursuant to this Section 14.22(j) shall be added to
such taxable income or loss;
(2) Any expenditures of the Company
described in Code Section 705(a)(2)(B) or treated as Code Section 705(a)(2)(B)
expenditures pursuant to Section 1.704-1(b)(2)(iv)(i) of the Regulations, and
not otherwise taken into account in computing Profits or Losses pursuant to this
Section 14.22(j) shall be subtracted from such taxable income or loss;
(3) If the Gross Asset Value of any
Company asset is adjusted pursuant to Section 14.22(d)(3) or (4), 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;
(4) Gain or loss resulting from any
disposition of property of the Company with respect to which gain or loss is
recognized for federal income tax purposes shall be computed by reference to the
Gross Asset Value of such property disposed of, notwithstanding that the
adjusted tax basis of such property differs from its Gross Asset Value;
(5) 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 or other period, computed in accordance with Section 14.22(c)
(Depreciation);
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(6) To the extent an adjustment to
the adjusted tax basis of any Company asset pursuant to Code Section 734(b) or
743(b) is required by Section 1.704-1(b)(2)(iv)(m)(4) of the Regulations to be
taken into account in determining Capital Accounts as a result of a distribution
other than in liquidation of a Member's interest in the Company, the amount of
such adjustment shall be treated as an item of gain (if the adjustment increases
the basis of the asset) or loss (if the adjustment decreases the basis of the
asset) from the disposition of the asset and shall be taken into account for
purposes of computing Profits or Losses; and
(7) Notwithstanding any other
provision of this Section 14.22(j), any items which are specially allocated
pursuant to Sections 14.4 (Minimum Gain Chargeback) through 14.12 (Order of
Application) shall not be taken into account in computing Profits or Losses.
The amounts of the items of Company
income, gain, loss, or deduction available to be specifically allocated pursuant
to Sections 14.4 (Minimum Gain Chargeback) through 14.12 (Order of Application),
shall be determined by applying rules analogous to those set forth in this
Section 14.22(j).
14.21(l) "REGULATIONS"
means the Income Tax Regulations
promulgated under the Code, as such regulations may be amended from time to
time.
14.21(m) "TAX LIQUIDATION"
means the liquidation of the Company
within the meaning of Section 1.704-1(b)(2)(ii)(g) of the Regulations.
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THIS AGREEMENT AFFECTS IMPORTANT RIGHTS. EACH PARTY REPRESENTS TO EACH OTHER
PARTY THAT HE OR IT HAS READ THIS AGREEMENT AND HAS HAD THE OPPORTUNITY TO SEEK
INDEPENDENT TAX AND LEGAL ADVICE CONCERNING THIS AGREEMENT.
INITIAL MEMBER:
DeCRANE AIRCRAFT HOLDINGS, INC.
By:
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