OPERATING AGREEMENT
OF
ISO ALLIANCE, LLC
OPERATING AGREEMENT OF ISO ALLIANCE, LLC entered into as of March 6, 1997
(the "Effective Date"), by and between Perot Systems Corporation, a Delaware
corporation ("Member Number I"), and ABB Power T&D Company Inc., a Delaware
corporation ("Member Number 2"), as Members, together with any Person who
becomes a Member as provided in this Agreement.
Certain terms used in this Agreement are defined in Article II.
ARTICLE I
ORGANIZATIONAL MATTERS
1.1 Formation. Subject to the provisions of this Agreement, the Members
hereby form the Company as a limited liability company pursuant to the
provisions of the Delaware Act.
The Members enter into this Agreement in order to set forth the rights and
obligations of the Members and certain matters related to such rights and
obligations. Except as expressly provided and permitted in this Agreement to the
contrary, the rights and obligations of the Members and the administration and
termination of the Company will be governed by the Delaware Act.
1.2 Name. The name of the Company will be ISO Alliance, LLC.
1.3 Registered Office and Principal Office of Company: Addresses of
Members.
(a) The registered office of the Company in the State of Delaware will
be The Corporation Trust Company, and its registered agent for service of
process at such registered office will be Corporation Trust Center, 1209 Orange
Street, Wilmington, Delaware 19805, or such other registered office or
registered agent as the Manager may from time to time designate. The principal
office of the Company will be c/o PSC Energy Corporation, 633 West Fifth Street,
Suite 3829, Los Angeles, California 90071, or such other place as the Manager
may from time to time designate. The Company may maintain offices at such other
place or places as the Board deem advisable.
(b) The addresses of the Members as of the Effective Date are set
forth in Section 14.1. The address of a Member may be changed in accordance with
the requirements set forth in Section 14.1.
1.4 Term. The Company commenced on the Effective Date and will continue in
existence until the first to occur of the following:
(a) December 31,2007;
(b) The sale or other disposition by the Company of all of its
property and assets, and the collection by the Company and distribution to the
Members of all proceeds from such sale (whether such proceeds be cash, notes, or
other property) pursuant to this Agreement; and
(c) The dissolution of the Company pursuant to the provisions of
Article XII (other than a dissolution that is followed by the reconstitution of
the Company pursuant to Section 12.2), or by agreement of all Members.
1.5 Ownership. The interest of each Member in the Company will be personal
property for all purposes. All property and interests in property, real or
personal, owned by the Company will be deemed owned by the Company as an entity,
and no Member, individually, will have any ownership of such property or
interest except by having an ownership interest in the Company as a Member.
1.6 Limits of Company. The relationship between the parties to this
Agreement will be limited to the carrying on of the business of the Company in
accordance with the terms of this Agreement. Such relationship will be construed
and deemed to be a limited liability company for the sole and limited purpose of
carrying on such business. Except as otherwise provided for or contemplated in
this Agreement, nothing herein will be construed to create a partnership between
the Members or to authorize any Member to act as general agent for the other
Member.
1.7 No Individual Authority. No Member, acting alone, will have any
authority to act for, or to undertake or assume, any obligation, debt, duty, or
responsibility on behalf of any other Member or the Company, except as expressly
otherwise provided in this Agreement.
ARTICLE II
DEFINITIONS
The following definitions will for all purposes, unless clearly indicated
to the contrary, apply to the terms used in this Agreement.
"Adjusted Capital Account Deficit" means, with respect to any Member, the
deficit balance, if any, in such Member's Capital Account as of the end of the
relevant Fiscal Year, after giving effect to the following adjustments:
(a) Credit to such Capital Account any amounts that such Member is
obligated to restore pursuant to any provision of this Agreement or is deemed to
be obligated to restore pursuant to Tax Regulations Section
1.704-l(b)(2)(ii)(c), the penultimate sentence of Tax Regulations Section
1.704-2(g)(l), or the penultimate sentence of Tax Regulations Section
1.704-2(i)(5);and
(b) Debit to such Capital Account the items described in Tax
Regulations Sections 1.704-l(b)(2)(ii)(d)(4), (5), and (6).
The foregoing definition of Adjusted Capital Account Deficit is intended to
comply with Tax Regulations Section 1.704-l(b)(2)(ii)(d) and will be interpreted
consistently therewith.
"Affiliate" of any Person means any Person that directly or indirectly,
through one or more intermediaries, controls, is controlled by, or is under
common control with, the Person in question. As used in the definition of
"Affiliate," the term "control" means the possession, directly or indirectly, of
the power to direct or cause the direction of the management or policies of a
Person, whether through ownership of voting securities, by contract, or
otherwise.
"Agreement" means this Operating Agreement, as it may be amended,
supplemented, or restated from time to time.
"Available Cash" as of any date means all cash funds of the Company on hand
from time to time after: (i) payment of all Company Costs and Expenses that are
due and payable as of such date; and (ii) provision for payment of all Company
Costs and Expenses that are anticipated to become due and payable within 30 days
following the date on which Available Cash is being determined.
"Certificate of Formation" means the Certificate of Formation filed with
the Secretary of State of Delaware pursuant to Section 7.4, as it may be amended
or restated from time to time.
"Board" has the meaning set forth in Section 7.2.
"Book Value" has the meaning set forth in Section 4.3fc).
"Capital Account" means the capital account maintained for a Member
pursuant to Section 4.3.
"Capital Contribution" means, with respect to any Member, the amount of
money and the initial Book Value of any property (other than money) contributed
to the Company with respect to the Member Interest held by such Member, reduced
by the amount of any liabilities of the Member assumed by the Company or for the
satisfaction of which recourse may be made to any property contributed by such
Member to the Company.
"Code" means the Internal Revenue Code of 1986, as amended and in effect
from time to time. All references to Code will include any corresponding
provision or provisions of succeeding law.
"Company" means the limited liability company established by the filing
of the Certificate of Formation with the Secretary of State of Delaware pursuant
to this Agreement.
"Company Costs and Expenses" mean all of the expenditures of any kind
made or to be made with respect to operations of the Company that are consistent
with the purpose of the Company as described in Section 3.1. including without
limitation, payroll expenses, principal, interest, and other amounts payable on
indebtedness of the Company, ad valorem taxes, sales taxes, insurance premiums,
advertising expenses, attorneys fees, accounting fees, utilities costs, costs
related to inventory and supplies, equipment costs, and other similar types of
costs, expenses, charges, liabilities, and obligations of the Company.
"Contracts" means the Prime Contract, the ISO Subcontracts and any other
agreements, contracts or similar arrangements entered into by the Company.
"Defaulting Purchaser" has the meaning set forth in Section 11.2ff).
"Delaware Act" means the Delaware Limited Liability Company Act, as it may
be amended from time to time, and any successor to such Delaware Act.
"Excess Purchase Amount" has the meaning set forth in Section 11.2(c).
"Excess Share" has the meaning set forth in Section 11.2(c).
"Fiscal Year" means the 12-month period ending December 31 of each year;
provided that the initial Fiscal Year will be the period beginning on the
Effective Date and ending December 31, 1997, and the last Fiscal Year will be
the period beginning on January 1 of the calendar year in which the final
liquidation and termination of the Company is completed and ending on the date
such final liquidation and termination is completed (to the extent any
computation or other provision of this Agreement provides for an action to be
taken on a Fiscal Year basis, an appropriate proration or other adjustment will
be made in respect of the initial and final Fiscal Years to reflect that such
periods are less than 365 days).
"Indemnitee" has the meaning set forth in Section 7.9.
"ISO Subcontract" means a written agreement between the Company and a
Member relating to the development and construction by such Member of a portion
of the ISO System, as such agreement is amended from time to time.
"ISO System" means the integrated computer system to be constructed
pursuant to the Prime Contract.
"Liquidator" has the meaning set forth in Section 12.3.
"Losses" has the meaning set forth in Section 4.3(b).
"Major Decisions" has the meaning set forth in Section 7.3.
"Manager" means Member Number 1 or any other Person who has been admitted
as a manager in the Company in accordance with this Agreement and whose
admission has been reflected on the books and records of the Company.
"Maximum Purchase Interest" has the meaning set forth in Section 11.2(b).
"Member Interest" means the interest of a Member in the Company,
including, without limitation, such Member's right: (a) to a distributive share
of the Profits, Losses, and other items of income, gain, loss, deduction, and
credit of the Company; (b) to a distributive share of the assets of the Company;
(c) if a Member, to vote on those matters described in the Agreement; and (d) if
a Manager, to participate in the management and operation of the Company as
provided in this Agreement.
"Member Nonrecourse Deduction" has the meaning set forth in Section
1.704-2(i)(l) and (2) of the Tax Regulations.
"Members" means Member Number 1, Member Number 2, and any other Person
that has been admitted as a Member in the Company in accordance with this
Agreement and the admission of which has been reflected on the books and records
of the Company.
"Nonrecourse Deductions" has the meaning set forth in Section
1.704-2(b)(l) of the Tax Regulations.
"Notice of Sale" has the meaning set forth in Section 11.2(a).
"Partner Minimum Gain" means partner nonrecourse debt minimum gain as
determined under the rules of Section 1.704-2(i) of the Tax Regulations.
"Partnership Minimum Gain" has the meaning set forth in Section
1.702-2(b)(2) of the Tax Regulations.
"Percentage Interest" means the percentage interest of a Member, from
time to time, in certain allocations of Profits, Losses, and other items of
income, gain, loss, deduction or credit. The initial Percentage Interest of each
Member is set forth below:
Member
Member Number 1
Member Number 2
Percentage
Interest
50%
50%
"Person" means an individual, corporation, partnership, trust, estate,
unincorporated organization, association, or other entity, public or private.
"Prime Contract" means the written agreement effective on or about March
7, 1997, between the Company and Independent System Operator Restructuring Trust
("ISO") relating to the development and construction of the ISO System (as such
term is defined in the Prime Contract), as such agreement is amended from time
to time.
"Prime Rate" means the rate of interest announced from time to time by
Bank of America, NT&SA, San Francisco, California as its prime, reference, or
other similar rate.
"Profits" has the meaning set forth in Section 4.3(b).
"Proportionate Share" has the meaning set forth in Section 11.2(c).
"Purchasing Members" has the meaning set forth in Section 11.2.
"Tax Regulations" means the Income Tax Regulations promulgated under the
Code, as amended and in effect (including corresponding provisions of any
succeeding Tax Regulations).
"Tax Regulatory Allocations" has the meaning set forth in Sections. 3.
"Selling Member" has the meaning set forth in Section 11.2.
"Settlement Notice" has the meaning set forth in Section 7.9(c).
"Subject Interest" has the meaning set forth in Section 11.2.
ARTICLE III
PURPOSE
3.1 Purposes and Scope. Subject to the provisions of this Agreement, the
purposes of the Company are to: (a) enter into, perform, cause to be performed,
assert and secure rights and obligations under, each of the Contracts, and (b)
do any other acts or things which may be incidental or necessary to carry on the
business of the Company as contemplated by this Agreement.
ARTICLE IV
CAPITAL CONTRIBUTIONS
4.1 Initial Capital Contributions. As soon as practicable after the
Effective Date, each Member shall contribute to the Company, in cash, the amount
of $50,000.
4.2 Additional Capital Contributions. No Member will have any obligation
to make any additional Capital Contributions to the Company in excess of those
Capital Contributions described in Section 4.1. unless the Board unanimously
approves such additional Capital Contributions and each of the Member(s) to be
obligated approves such additional Capital Contributions.
4.3 Capital Accounts.
(a) Maintenance Rules. The Company will maintain for each Member a
separate capital account (the "Capital Account") in accordance with this Section
4.3. which will control the division of assets upon liquidation of the Company
as provided in Section 12.3(d)(ii). Each Capital Account will be maintained in
accordance with the following provisions:
(i) Such Capital Account will be increased by the cash amount or
Book Value of any property contributed by such Member to the Company pursuant to
this Agreement, such Member's allocable share of Profits and any items in the
nature of income or gain that are specially allocated to such Member pursuant to
Sections 5.2 and 5.3, and the amount of any Company liabilities assumed by such
Member or that are secured by any property distributed to such Member.
(ii) Such Capital Account will be decreased by the cash amount or
Book Value of any property distributed to such Member pursuant to this
Agreement, such Member's allocable share of Losses and any items in the nature
of deductions or losses that are specially allocated to such Member pursuant to
Sections 5.2 and 5.3, and the amount of any liabilities of the Member assumed by
the Company or for the satisfaction of which recourse may be made to any
property contributed by such Member to the Company.
(iii) In the event all or a portion of an interest in the Company
is transferred in accordance with the terms of this Agreement, the transferee
will succeed to the Capital Account of the transferor to the extent it relates
to the transferred interest; provided, however, that if the transfer causes a
termination of the Company under Section 708(b)(l)(B) of the Code, the assets of
the Company will be deemed to have been distributed in liquidation of the
Company to the Members (including the transferee of the Member Interest)
pursuant to Sections 12.3 and 12.5 and recontributed by such Members and
transferees in reconstitution of the Company. Such deemed liquidation and
reconstitution will not cause the Company to be dissolved or reconstituted for
purposes other than maintenance of the Capital Accounts and federal income tax,
unless otherwise provided in Article XII.
The foregoing provisions and the other provisions of this Agreement
relating to the maintenance of Capital Accounts are generally intended to comply
with Section 1.704-l(b) of the Tax Regulations and will be interpreted and
applied in a manner consistent with such Tax Regulations. If the Board
determines that it is prudent to modify the manner in which the Capital
Accounts, or any increases or decreases to the Capital Accounts, are computed in
order to comply with such Tax Regulations, the Board may authorize such
modifications, provided that it is not likely to have a material effect on the
amounts distributable to any Person pursuant to Section 12.3 upon the
dissolution of the Company, nor a material effect on the amounts of taxable
income, gain, deduction, or loss allocable to the Members.
(b) Definition of Profits and Losses. "Profits" and "Losses" mean,
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 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)(l) will be
included in taxable income or loss), with the following adjustments:
(i) Income of the Company that is exempt from federal income
tax and not otherwise taken into account in computing Profits and Losses
pursuant to this Section 4.3(b) will be added to such taxable income or loss.
(ii) 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 Tax Regulations Section 1.704-l(b)(2)(iv)(i), and not otherwise
taken into account in computing Profits and Losses pursuant to this Section
4.3(b) will be subtracted from such taxable income or loss.
(iii) If the Book Value of any Company asset is adjusted
pursuant to Sections 4.3(c)(ii) or 4.3(c')(iii), the amount of such adjustment
will be taken into account as gain or loss from the disposition of such asset
for purposes of computing Profits and Losses.
(iv) Gain or loss resulting from any disposition of property
with respect to which gain or loss is recognized for federal income tax purposes
will be computed by reference to the Book Value of the property disposed of,
notwithstanding that the adjusted tax basis of such property differs from its
Book Value.
(v) Notwithstanding any other provision of this Section 4,3
(b), any items that are specially allocated pursuant to Sections 5.2 or 5.3 will
not be taken into account in computing Profits and Losses.
(c) Definition of Book Value. "Book Value" means for any asset the
asset's adjusted basis for federal income tax purposes, except as follows:
(i) The initial Book Value of any asset contributed by a
Member to the Company will be the gross fair market value of such asset, as
reasonably determined by the Board.
(ii) The Book Values of all Company assets will be adjusted
to equal their respective gross fair market values, as determined by the Board,
as of the following times: (A) the acquisition of an additional interest in the
Company by any new or existing Member in exchange for more than a de minimis
capital contribution if the Board reasonably determines that such adjustment is
necessary or appropriate to reflect the relative economic interests of the
Members in the Company; (B) the distribution by the Company to a Member of more
than a de minimis amount of Company property as consideration for an interest in
the Company if the Board reasonably determines that such adjustment is necessary
or appropriate to reflect the relative economic interests of the Members in the
Company; and (C) the liquidation of the Company within the meaning of Tax
Regulations Section 1.704-1 (b)(2)(ii)(g).
(iii) The Book Value of any Company asset distributed to any
Member will be the gross fair market value of such asset on the date of
distribution.
(iv) The Book Value of Company assets will be increased (or
decreased) to reflect any adjustment 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 Tax Regulations Section 1.704-l(b)(2)(iv)(m) and Section 5.2(d}:
provided, however, that Book Value will not be adjusted pursuant to this Section
4.3(c')(iv) to the extent the Manager determines that an adjustment pursuant to
Section 4.3(c)(ii') is necessary or appropriate in connection with a transaction
that would otherwise result in an adjustment pursuant to this Section
4.3(c)(iv).
4.4 Interest. No interest will be paid by the Company on Capital
Contributions or on balances in Capital Accounts.
4.5 No Withdrawal. No Member will be entitled to withdraw any part of its
Capital Contribution or its Capital Account or to receive any distribution from
the Company except as provided in Articles VI and XII.
4.6 Limitation on Capital Contributions and Loans. Except as specifically
provided m this Article IV. no Member may contribute capital or other assets to
the Company. Loans by a Member to the Company will not be considered Capital
Contributions and will not increase the Capital Account of the lending Member.
Except as otherwise provided in the Agreement, no Member may make a loan to the
Company unless such loan is unanimously approved by the Board.
ARTICLE V
ALLOCATIONS
5.1 Allocation of Profits and Losses.
(a) Allocation of Profits and Losses Generally. After giving
effect to the allocations set forth in Sections 5.2 and 5.3, but prior to giving
effect to all distributions of cash or property. Profits and Losses for any
Fiscal Year (or other period) will be allocated to the Members pro rata in
accordance with their Percentage Interests.
(b) Limitation on Loss Allocations. The Losses allocated pursuant
to Section 5.1 (a) to any Member for any Fiscal Year will not exceed the maximum
amount of Losses that may be allocated to such Member without causing such
Member to have an Adjusted Capital Account Deficit at the end of such Fiscal
Year. All Losses in excess of the limitation in this Section 5. Kb) will be
allocated solely to the other Members pursuant to Section 5.1 (a). If no other
Member may receive an additional allocation of Loss pursuant to the preceding
sentence of this Section 5. Kb), such additional Losses not allocated pursuant
to Section 5.1(a) or the preceding sentence will be allocated to the Members in
accordance with their Percentage Interests.
5.2 Special Allocations.
(a) Minimum Gain Chargeback -- Company Nonrecourse Liabilities. If
there is a net decrease in Partnership Minimum Gain during any Fiscal Year,
certain items of income and gain will be allocated (on a gross basis) to the
Members in accordance with the rules described in Tax Regulations Section
1.704-2(f) and (j)(2)(i) and (iii), subject to the exemptions set forth in Tax
Regulations Section 1.704-2(f)(2), (3), (4) and (5). This Section 5.2fa) is
intended to comply with the minimum gain chargeback requirement (set forth in
Tax Regulations Section 1.704-2(f)) relating to Company nonrecourse liabilities
(as defined in Tax Regulations Section 1.704-2(b)(3)) and will be so
interpreted.
(b) Minimum Gain Chargeback -- Member Nonrecourse Debt. If there
is a net decrease in Partnership Minimum Gain during any Fiscal Year, certain
items of income and gain will be allocated (on a gross basis) as quickly as
possible to those Members who had a share of the Partnership Minimum Gain
(determined pursuant to Section 1.704-2(i)(5) of the Tax Regulations) in
accordance with the rules described in Section 1.704-2(i)(4), (j)(2)(ii) and
(iii) of the Tax Regulations. This Section 5.2fb) is intended to comply with the
minimum gain chargeback requirement (set forth in Section 1.704-2(i)(4) of the
Tax Regulations) relating to partner nonrecourse debt (as defined in Section
1.704-2(b)(4) of the Tax Regulations) and will be so interpreted.
(c) Qualified Income Offset. If, after applying Section 5.2(a) and
Section 5.2(b), any Member has an Adjusted Capital Account Deficit, items of
Company income and gain will be specially allocated (on a gross basis) to each
such Member in an amount and manner
10
sufficient to eliminate, to the extent required by the Tax Regulations, the
Adjusted Capital Account Deficit of such Member as quickly as possible. This
Section 5.2fc) is intended to comply with the "qualified income offset"
requirement set forth in Tax Regulations Section 1.704-1 (b)(2)(ii)(b) and will
be so interpreted.
(d) Optional Basis Adjustments. To the extent an adjustment to the
adjusted tax basis of any Company asset pursuant to Code Sections 734(b) or
743(b) is required, pursuant to Tax Regulations Section 1.704-l(b)(2)(iv)(m), to
be taken into account in determining Capital Accounts, the amount of such
adjustment to the Capital Accounts will 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 will be specially allocated to the
Members in a manner consistent with the manner in which their Capital Accounts
are required to be adjusted pursuant to such Section of the Tax Regulations.
(e) Nonrecourse Deductions. Nonrecourse Deductions for any Fiscal
Year will be specially allocated among the Members in proportion to their
Percentage Interests.
(f) Member Nonrecourse Deductions. Member Nonrecourse Deductions
will be allocated pursuant to Tax Regulations Section 1.704-2(b)(4) and (i)(l)
to the Member who bears the economic risk of loss with respect to the
deductions.
5.3 Curative Allocations. The allocations set forth in Sections 5. Kb)
and 5.2 (the "Tax Regulatory Allocations") are intended to comply with certain
requirements of the Tax Regulations. It is the intent of the Members that, to
the extent possible, all Tax Regulatory Allocations will be offset either with
other Tax Regulatory Allocations or with special allocations of other items of
Company income, gain, loss, or deduction pursuant to this Section 5.3.
Therefore, notwithstanding any other provisions of this Article V (other than
the Tax Regulatory Allocations), the Manager, with the consent, which will not
be unreasonably withheld, of all Members, will make such offsetting special
allocations of Company income, gain, loss, or deduction in whatever manner it
determines 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 Tax Regulatory
Allocations were not part of the Agreement and all Company items were allocated
pursuant to Section 5.1 (a). In exercising its discretion under this Section
5.3. the Manager will take into account future Tax Regulatory Allocation under
Sections 5.2(a) and 5.2(b) that, although not yet made, are likely to offset
other Tax Regulatory Allocations previously made under Sections 5.2(e) and
5.2(f).
5.4 Tax Allocations: Code Section 704(c).
(a) In accordance with Code Section 704(c) and the Tax Regulations
thereunder, income, gain, loss, and deduction with respect to any property
contributed to the capital of the Company will, 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
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federal income tax purposes and its initial Book Value (computed in accordance
with Section 4.3(0(0).
(b) If the Book Value of any Company asset is adjusted pursuant to
Section 4.3(c)(ii), subsequent allocations of income, gain, loss, and deduction
with respect to such asset will take account of any variation between the
adjusted basis of such asset for federal income tax purposes and its Book Value
in the same manner as under Code Section 704(c) and the Tax Regulations
thereunder.
(c) Any elections or other decisions relating to allocations made
pursuant to this Section 5.4 will be made by the Manager, with the consent,
which will not be unreasonably withheld, of all Members, in any manner that
reasonably reflects the purpose and intention of the Agreement. Allocations
pursuant to this Section 5.4 are solely for purposes of federal, state, and
local taxes and will not affect, or in any way be taken into account in
computing, any Person's Capital Account or share of Profits, Losses, and other
items or distributions pursuant to any provision of this Agreement.
5.5 Other Allocation Rules.
(a) For purposes of determining the Profits, Losses, or any other
item allocable to any period. Profits, Losses, and any such other item will be
determined on a daily, monthly, or other basis, as determined by the Manager,
with the consent, which will not be unreasonably withheld, of all Members, using
any permissible method under Code Section 706 and the Tax Regulations
thereunder.
(b) For federal income tax purposes, every item of income, gain,
loss, and deduction will be allocated among the Members in accordance with the
allocations under Sections 5.1. 5.2. 5.3. and 5.4.
(c) The Members are aware of the income tax consequences of the
allocations made by this Article V and hereby agree to be bound by the
provisions of this Article V in reporting their shares of company income and
loss for income tax purposes.
(d) It is intended that the allocations in Sections 5.1. 5.2. 5.3.
and 5.4 effect an allocation for federal income tax purposes consistent with
Section 704 of the Code and comply with any limitations or restrictions therein.
The Manager may alter the allocations pursuant to this Article V in any manner
consistent with Section 704 of the Code and to amend the provisions of this
Agreement as appropriate to comply with the Tax Regulations promulgated under
Section 704 of the Code, if, in the opinion of counsel, such an amendment is
advisable to reflect allocations among the Members consistent with those Tax
Regulations, and any such allocation will not have a material effect on the
distributions which would otherwise be made pursuant to Sections 6.1,12.3. or
12.5 herein.
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(e) The Members agree that their Percentage Interests represent
their respective interests in Company Profits for purposes of allocating excess
nonrecourse liabilities (as defined in Tax Regulations Section 1.752-3(a)(3))
pursuant to Section 1.752-3(a)(3) of the Tax Regulations.
ARTICLE VI
DISTRIBUTIONS
6.1 Distributions of Available Cash. The Manager will review the
Company's accounts within 90 days of the end of each Fiscal Year to determine if
there is any Available Cash and report its determination to the Board. The
Manager may not distribute Company property (other than cash) to the Members
except as otherwise provided in Section 12.5. If the Manager determines that the
Company has Available Cash, the Company will, upon direction by the Board,
distribute such Available Cash to the Members pro rata in accordance with their
Percentage Interests.
Notwithstanding anything to the contrary above, if Available Cash is derived
from a transaction that occurs in connection with the dissolution, termination,
and liquidation of the Company, any Available Cash that is derived from or
attributable to such a transaction will be distributed to the Members in
accordance with Section 12.3.
6.2 Amounts Withheld. Notwithstanding any other provision of this
Agreement to the contrary, each Member hereby authorizes the Company to withhold
and to pay over, or otherwise pay, any withholding or other taxes payable by the
Company with respect to such Member as a result of such Member's participation
in the Company. If the Company is required to withhold or pay any such taxes,
such Member will be deemed for all purposes of this Agreement to have received a
payment from the Company as of the time such withholding or tax is paid, which
payment will be deemed to be a distribution with respect to such Member's Member
Interest to the extent that the Member (or any successor to such Member's Member
Interest) is entitled to receive a distribution. Any withholding authorized by
this Section 6.2 will be made at the maximum applicable statutory rate under the
applicable tax law unless the Manager will have received an opinion of counsel
or other evidence satisfactory to the Manager to the effect that a lower rate is
applicable, or that no withholding is applicable.
6.3 Excess Distributions. To the extent that the aggregate of
distributions to a Member under this Article VI for any period exceeds the
amount of distributions to which such Member is entitled for such period as a
result of any withholding under Section 6.2. the amount of such excess will be
considered a loan from the Company to such Member. Such loan will bear interest
(which interest will be treated as an item of income to the Company) at the
lesser of the maximum rate permitted by law or the Prime Rate, until discharged
by such Member by repayment, which may be made in the sole discretion of the
Manager out of distributions to which such Member would otherwise be
subsequently entitled.
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ARTICLE VII
MANAGEMENT OF THE COMPANY
7.1 Rights and Obligations of Manager.
(a) The Members hereby designate Member Number 1 as the Manager of
the Company. Member Number 1 will continue to serve as the Manager of the
Company until such time as: (i) the Members unanimously agree that Member Number
1 will cease to serve as the Manager; (ii) Member Number 1 is no longer a Member
of the Company; or (iii) the Company is dissolved and wound up in accordance
with the provisions of Article XII.
(b) Subject to Sections 3.1. 7.1(c), 7.2. and 7.3. the Manager
will conduct, direct, and exercise control over all day-to-day activities of the
Company. Subject to Sections 3.1, 7.1(c), 7.2, and 7.3. all management powers
over the business and affairs of the Company will be exclusively vested in the
Manager. In addition to the powers now or hereafter granted to a manager of a
limited liability company under applicable law or that are granted to the
Manager under any provision of this Agreement, but subject to Sections 3.1,
7.1(c). 7.2. and 7.3. the Manager will have full power and authority to do all
things reasonably deemed necessary or desirable by it to conduct the business of
the Company.
(c) The Manager (if other than Member Number 1 or any Affiliate of
Member Number 1) may be removed, with or without cause, by Members holding in
the aggregate 100% of the Percentage Interests. Upon the removal of the Manager,
the Members will, by unanimous vote, designate another Person to become the
Manager. If the Members cannot agree upon a successor Manager within 90 days
after the removal of such Manager, then the Company will dissolve and terminate
pursuant to Article XII.
(d) If the Manager is removed pursuant to Section 7.1(c). then any
other Person that the Members designate as a successor Manager will be subject
to the provisions of Section 7. l(c).
7.2 The Board.
(a) The Company hereby establishes a board (the "Board"), which
will meet periodically as necessary (but no less frequently than quarterly) to:
(i) consult from time to time concerning the management of the Company; (ii)
establish the operating policies of the Company, including but not limited to
approving the specific employee or employees of Manager who will perform the
Manager's functions under this Agreement; and (iii) review the status of the
Company's activities.
(b) Quarterly meetings of the Board will be held within thirty
(30) days after the close of each fiscal quarter in Los Angeles, California, or
at such other location as
14
will be approved by the Board. The Manager will cause minutes of each meeting to
be prepared, which will be promptly delivered to the Members for their approval.
(c) The Board will consist initially of four members, two of
which will be appointed by each of Member Number 1 and Member Number 2. Each
member of the Board will have one vote.
(d) Each Member will be entitled to rely on the authority of
each Board member that was appointed by another Member to act on such other
Member's behalf unless the first Member has received written notice to the
contrary.
(e) Members of the Board will serve until their resignation,
death, or removal (except as otherwise provided below) by the Member appointing
such member of the Board.
(f) Notwithstanding any provision of this Section 7.2. the
Board may take any action without the necessity of a formal meeting, including
holding a meeting by means of telephone or other means of communication or by
unanimous written consent.
(g) Until further notice, the members of the Board will be
the individuals appointed by the Member indicated below:
Appointing Member Board Member
Member Number 1 Ed Smith and Andy Goletz
Member Number 2 John Reckleff and Ralph Masiello
A Member may designate replacement members for members appointed by such Member
by written notice of such designation to the other Members. If at any time a
Member notifies the other Members that one of its current Board members is no
longer to serve in such capacity, such Board member will have no authority,
power, or capacity to bind the Member with respect to any matter whatsoever from
and after receipt of such notice by the other Members.
7.3 Decisions.
(a) The Manager will not have the authority to cause the Company
to act on any matter constituting a Major Decision until the Manager obtains the
unanimous approval of the Members. The term "Major Decision." as used in this
Agreement, means any decision with respect to the following matters:
(i) amendment to, or waiver of rights under, or failure to
enforce any provision of the Prime Contract that affects adversely the interests
of any Member;
15
(ii) approval of, amendment to, or waiver of rights under,
any contract, including any ISO Subcontract, between the Company and a Member,
between the Company and an Affiliate of a Member, or between the Company and an
Affiliate of the Company, except that the Manager need not obtain the unanimous
approval of the Members with respect to the amendment to, or waiver of rights
under, any ISO Subcontract for which a substantially similar amendment to, or
waiver of rights under, the Prime Contract is made contemporaneously;
(iii) approval of the sale of all or a material portion of
the Company's assets;
(iv) approval of the borrowing of any money by the Company;
(v) doing any act in contravention of this Agreement
(including any act which requires approval of other Members) or failing to do
any act required by this Agreement;
(vi) doing any act which would make it impossible to carry
on the ordinary business of the Company;
(vii) confessing a judgment against the Company in
connection with any threatened or pending legal action;
(viii) approving any Capital Contributions in addition to
those Capital Contributions required under Section 4.1:
(ix) approving any cash expenditures reasonably expected by
the Manager to exceed $50,000 or any commitments reasonably expected by the
Manager to exceed $50,000;
(x) approving any transfer of a Member's Member Interest
pursuant to Article XI and, except as otherwise provided in Section 11.5(a),
approving any Person's admission as a Member in the Company;
Company; or
Person.
(xi) approving the admission of any additional Members to the
(xii) approving a merger or other business combination with another
7.4 Certificate of Formation. The Manager will cause to be filed
Certificate of Formation with the Secretary of State of Delaware at the
Company's expense. The Manager also will cause to be filed at the Company's
expense such other certificates or documents (including, without limitation,
copies, renewals, amendments, or restatements of this Agreement) as may be
determined by the Manager to be reasonable and necessary or appropriate for the
formation or
16
qualification and operation of a limited liability company in the State of
Delaware and in any other state in which the Company may elect to do business.
7.5 Reliance by Third Parties. Notwithstanding any other provision of
this Agreement to the contrary, no other party to a Contract, lender, purchaser,
or other Person, including any purchaser of property from the Company or any
other Person dealing with the Company, will be required to verify any
representation made by the Manager as to its authority to encumber, sell, or
otherwise use any assets or properties of the Company, and any such other party,
lender, purchaser, or other Person will be entitled to rely exclusively on such
representations and will be entitled to deal with the Manager as if it were the
sole party in interest, both legally and beneficially.
7.6 Compensation and Reimbursement of Manager. The Manager will not be
compensated for services rendered to the Company as a Manager. The Manager will
be reimbursed from time to time by the Company for all costs and expenses that
the Manager reasonably incurs on behalf of the Company in the management and
operation of the Company's business, provided that the Manager will first submit
to the Members a reasonably itemized statement of such costs and expenses.
7.7 Company Funds. The funds of the Company will be deposited in such
account or accounts in the name of the Company as are designated by the Manager.
The Manager will not commingle its own funds with the funds of the Company, and
the Company's bank accounts will be kept and maintained separately from the
Manager's bank accounts. All withdrawals from or charges against such accounts
will be made by the Manager or by its representatives. Funds of the Company may
be invested as determined by the Manager in accordance with the terms and
provisions of this Agreement.
7.8 Duties. The Manager will manage the Company and its business and
affairs with respect to its participation in the Company in accordance with the
terms of this Agreement to the best of its ability, and will use its good faith
efforts to carry out the business of the Company. The Manager will act in good
faith and in a manner that the Manager believes to be consistent with the best
interests of the Company.
7.9 Indemnification of Members. The Company will indemnify and hold
harmless the Manager, the Members, the directors, officers, and employees of the
Manager or the Members, and the members of the Board (individually, an
"Indemnitee"), as follows:
(a) In any threatened, pending or completed action, suit or
proceeding, whether civil, administrative, arbitrative, or investigative, to
which an Indemnitee was or is a party or is threatened to be made a party by
reason of any act performed or omitted to be performed in the name of or on
behalf of the Company in connection with the Company's business, the Company
will indemnify such Indemnitee against attorneys' fees, judgments, fines,
penalties, including excise and similar taxes, settlements, and reasonable
expenses actually incurred by such Indemnitee in connection with the defense or
settlement of such action, suit, or
17
proceeding, if such Indemnitee acted in all cases in good faith, within such
Indemnitee's scope of authority, without gross negligence or willful misconduct,
and in a manner reasonably believed by such Indemnitee to be in the best
interests of the Company, and in the case of the exercise of authority by the
Indemnitee under the Delaware Act or this Agreement, in a manner reasonably
believed by such Indemnitee to be in the best interests of the Company. In no
event, however, will indemnification ever be made in relation to a proceeding
between the Members, to the extent that the Indemnitee has been found liable for
fraud or a criminal act or for grossly negligent, willful, or intentional
misconduct in the Indemnitee's performance of its duty to the Company or to the
extent that the Indemnitee has committed a material violation of the terms and
provisions of this Agreement.
(b) If a claim or assertion of liability is made or asserted by a
third party against an Indemnitee, which, if prevailed upon by any such third
party, would result in such Indemnitee being entitled to indemnification
pursuant to this Section 7.9. the Indemnitee will forthwith give to the Company
written notice of the claims or assertion of liability and request the Company
to defend the same. Failure to so notify the Company will not relieve the
Company of any liability which the Company might have to the Indemnitee except
to the extent that such failure actually prejudices the Company's position. The
Company will have the right and the obligation to defend against such claim or
assertion (only if the Indemnitee is entitled to indemnification pursuant to
this Section 7.9). and the Company will give written notice to the Indemnitee of
acceptance of the defense of such claim and the name of the counsel selected by
the Company to defend such claim. The Indemnitee will be entitled to participate
with the Company in such defense and also will be entitled at its option (and at
its own expense) to employ separate counsel for such defense.
(c) No Indemnitee will be entitled to indemnification under this
Section 7.9 if it has entered into any settlement or compromise of any claim
giving rise to any indemnifiable loss without the written consent of the
Company. If a bona fide settlement offer is made with respect to a claim and the
Company desires to accept and agree to such offer, the Company will give notice
to the Indemnitee to that effect (the "Settlement Notice"). If the Indemnitee
fails to consent to the settlement offer within ten (10) calendar days after
receipt of the Settlement Notice, then the Indemnitee will be deemed to have
rejected such settlement offer and will be responsible for continuing the
defense of such claim and, in such event, the maximum liability of the Company
as to such claim will not exceed the amount of such settlement offer plus any
and all reasonable costs and expenses paid or incurred by the Indemnitee up to
the date of the Settlement Notice and which are otherwise the responsibility of
the Company pursuant to this Section 7.9.
(d) Any indemnification permitted under this Section 7.9 will be
made only out of the assets of the Company and no Member will be obligated to
contribute to the capital of, or loan funds to, the Company to enable the
Company to provide such indemnification.
(e) The indemnification provided by this Section 7.9 will be in
addition to any other rights to which each Indemnitee may be entitled under any
agreement or vote of the
18
Members, as a matter of law or otherwise, as to action in the Indemnitee's
capacity as the Manager, Member, as a director, officer, or employee of the
Manager or the Members, or as a member of the Board, and will continue as to an
Indemnitee who has ceased to serve in such capacity and will inure to the
benefit of the heirs, successors, assigns, administrators and personal
representatives of the Indemnitee.
(f) The Company may purchase and maintain insurance on behalf of
any one or more Indemnitees if the purchase of such insurance has been
unanimously approved by the Members.
(g) In no event may an Indemnitee subject a Member to personal
liability by reason of the indemnification provisions of this Agreement. In
addition, the Members acknowledge and agree that the Members, and the officers,
directors, and employees of the Members, are listed as Indemnitees pursuant to
this Section 7.9 because of the possibility that such Persons, in their capacity
as Members (or officers, directors, or employees thereof), may be named as a
defendant in any suit involving the Company or its activities.
(h) The provisions of this Section 7.9 are for the benefit of the
Indemnitees and the heirs, successors, assigns, administrators, and personal
representatives of the Indemnitees and will not be deemed to create any rights
for the benefit of any other Persons.
7.10 Liability of the Manager.
(a) Neither the Manager nor the respective stockholders,
directors, officers, employees, or agents of the Manager will be liable to the
Company or to the Members for errors in judgment or for any acts or omissions
that do not constitute: (i) gross negligence; (ii) fraud; (iii) willful or
wanton misconduct; or (iv) material violations of this Agreement.
(b) The Manager may exercise any of the powers granted to it by
this Agreement and perform any of the duties imposed upon it under this
Agreement either directly or by or through its directors, officers, employees,
agents, or representatives.
ARTICLE VIII
RIGHTS AND OBLIGATIONS OF MEMBERS
8.1 Limitation of Liability. The Members will have no liability under
this Agreement except as provided in Article IV (and with respect to the
Manager, Section 7.10) of this Agreement.
8.2 Management of Business. No Member (other than the Manager) will take
part in the control of the Company's business, transact any business in the
Company's name or have the power to sign documents for or otherwise bind the
Company other than as specifically set forth in this Agreement.
19
8.3 Return of Capital. No Member will be entitled to the withdrawal or
return of its Capital Contribution, except to the extent, if any, that
distributions made pursuant to this Agreement or upon termination of the Company
may be considered as such by law and then only to the extent provided for in
this Agreement.
ARTICLE IX
BOOKS. RECORDS. ACCOUNTING AND REPORTS
9.1 Records and Accounting. The Manager will keep or cause to be kept
appropriate books and records with respect to the Company's business, which will
at all times be kept at the principal office of the Company. Each Member will
have access to such books and records at all reasonable times. The books of the
Company will' be maintained for financial reporting purposes on the accrual
basis in accordance with generally accepted accounting principles.
9.2 Reports.
(a) The Manager will deliver to each Member, at the Company's
expense, not later than 60 days following the end of each Fiscal Year, a balance
sheet, an income statement, and an annual statement of source and application of
funds of the Company for such Fiscal Year.
(b) No later than 15 days after the last day of each fiscal month
during the term of this Agreement, other than the last month of the Fiscal Year
in question, the Manager will prepare, or cause to be prepared, at the Company's
expense, and delivered to each Member a balance sheet together with a profit and
loss statement for such fiscal month together with a cumulative profit and loss
statement to date and with comparative statements for like periods immediately
preceding.
(c) At the request of a Member and at the Company's expense, the
Manager will additionally cause to be provided to the Members: (i) an annual
analysis detailing the components, and changes therein, of each Member's Capital
Accounts; and (ii) an annual analysis detailing all allocations of Profit, Loss,
and other items of income, gain, loss, and deduction.
ARTICLE X
TAX MATTERS
10.1 Preparation of Tax Returns. The Manager will arrange for the
preparation and timely filing of all returns of Company income, gains,
deductions, losses, and other items necessary for federal, state, and local
income tax purposes. A copy of the Company's federal income tax return will be
furnished to all Members. The classification, realization, and
20
recognition of income, gains, losses, deductions, and other items will be based
on the method of accounting for federal income tax purposes, as determined by
the Members.
10.2 Tax Elections. The Manager after consultation with all Members
will determine whether to make any election available to the Company under the
Code.
10.3 Tax Controversies.
(a) Subject to the provisions of this Agreement (including Section
10.3(b)), Member Number 1 is designated as the "Tax Matters Partner" (as defined
in Section 6231 of the Code), and is authorized and required to represent the
Company, at the Company's expense, in connection with all examinations of the
Company's affairs by tax authorities, including resulting administrative and
judicial proceedings, and to expend Company funds for professional services and
costs associated therewith. Each Member agrees to cooperate with the Tax Matters
Partner in connection with such proceedings.
(b) Notwithstanding anything to the contrary in this Agreement,
the Tax Matters Partner will have no authority to take any of the following
actions without first obtaining the approval of each of the Members:
(i) enter into a settlement agreement with the Internal
Revenue Service that purports to bind Members other than the Tax Matters
Partner;
Code;
the Code;
(ii) file a petition as contemplated in Section 6226(a) or 6228 of the
(iii) intervene in any action as contemplated in Section 6226(b)(5) of
(iv) file any request contemplated in Section 6227(b) of the Code; and
(v) enter into an agreement extending the period of
limitations as contemplated in Section 6229(b)(l)(B) of the Code.
Notwithstanding the withdrawal of a Member from the Company or the dissolution
of the Company, the provisions of this Section 10.3 will survive and remain
binding upon each Member until the statute of limitations has run for the
assessment of federal, state and local taxes with respect to last taxable year
in which such Member held an interest in the Company.
10.4 Organizational Expenses. The Company will elect to deduct expenses
incurred in organizing the Company ratably over a 60-month period as provided in
Section 709 of the Code.
10.5 Taxation as a Partnership. No election will be made by the Company
or any Member for the Company to be excluded from the application of any of the
provisions of
21
Subchapter K, Chapter 1 of Subtitle A of the Code or from any similar provisions
of any state tax laws. The Manager shall take all appropriate action to preserve
the Company's qualification to be treated as a partnership for tax purposes.
ARTICLE XI
TRANSFERS OF MEMBER INTERESTS
11-1 Transfer Restrictions.
(a) No Member Interest will be transferred, in whole or in part,
unless the terms and conditions set forth in this Article XI have been
satisfied. Any transfer or purported transfer of any Member Interest not made in
accordance with this Article XI will be null and void. An alleged transferee
will have no right to require any information or account of the Company's
transactions or to inspect the Company's books. The Company will be entitled to
treat the alleged transferor of a Member Interest as the absolute owner thereof
in all respects, and will incur no liability to any alleged transferee for
distributions to the Member owning such Member Interest of record or for
allocations of Profits, Losses, and other items of income, gains, losses,
deductions, or credits or for transmittal of reports and notices required to be
given to holders of Member Interests.
(b) For purposes of this Article XI and except as provided below,
the term "transfer", when used with respect to a Member Interest, includes a
sale, assignment, gift, pledge, encumbrance given or permitted, hypothecation,
mortgage, exchange, or any other disposition of any interest (including any
disposition that occurs by way of merger, reorganization, consolidation,
contribution, or similar business combination) that is made voluntarily or
involuntarily, by operation of law, or otherwise.
11.2 Transfers of Interests of Members. A Member may transfer all or any
portion of its Member Interest to an Affiliate that is wholly owned by the
Member or by an entity which also wholly owns the Member without the prior
approval of the Members. A Member may not transfer all or any portion of its
Member Interest to a non-Affiliate (the Member Interest, or any part thereof,
intended to be transferred being the "Subject Interest") unless such Member (the
"Selling Member") has first (X) obtained the prior unanimous written approval of
the Members, which approval may be withheld in a Member's sole discretion, or
(Y) offered to sell the Subject Interest to the other Members at a price not
greater, and on terms and conditions not less favorable than those specified in
a bona fide written offer from a third party purchaser received by the Selling
Member and as further described in this Section 11.2: provided, however, that
any elections or purchases made pursuant to this Section 11.2 will be null and
void and of no legal force or effect if the other Members, in the aggregate, do
not purchase all of the Subject Interest.
(a) If the Selling Member desires to transfer the Subject Interest
to any party without first obtaining the prior written approval of the Members
pursuant to Section 11.2(X) and has obtained a bona fide offer from a third
party purchaser for the purchase of the Subject
22
Interest, the Selling Member will give written notice of the proposed sale (the
"Notice of Sale") to the other Members (the "Purchasing Members"). The Notice of
Sale will state the Subject Interest proposed to be sold; the price per
Percentage Interest and terms and conditions of the proposed sale; and the name
and address of the third party offering to purchase the Subject Interest.
(b) Within 45 days after receipt of the Notice of Sale, each of the
Purchasing Members may elect to purchase all or any portion of the Subject
Interest for the price and upon the terms and conditions set forth in the Notice
of Sale. Each Purchasing Member will send a written notice to the Manager within
the 45-day period specifying that portion of the Subject Interest it desires to
purchase (its "Maximum Purchase Interest"), or it will be deemed conclusively
not to have exercised its option under this Section 11.2(b).
(c) In the event that the Purchasing Members elect, in the aggregate, to
purchase more Percentage Interests than are contained in the Subject Interest,
the Subject Interest will be allocated among the electing Purchasing Members in
accordance with the following provisions:
(i) First, to each Purchasing Member until it has been allocated its
"Proportionate Share", as defined below. For purposes of this Agreement, a
Purchasing Member's Proportionate Share will be equal to the lesser of (A) its
Maximum Purchase Interest, or (B) the product of the Subject Interest and a
fraction equal to (1) the Percentage Interest owned by such Purchasing Member as
of the date of the Notice of Sale divided by (2) the aggregate Percentage
Interests owned on such date by all Purchasing Members who have elected pursuant
to Section 11.2(b) to purchase all or any part of the Subject Interest.
(ii) Then, to the Purchasing Members who have elected to purchase more
than their Proportionate Share until each such Purchasing Member has been
allocated its "Excess Share", as defined below. For purposes of this Agreement,
a Purchasing Member's Excess Share will be equal to the lesser of (A) the excess
of its Maximum Purchase Interest over its Proportionate Share (its "Excess
Purchase Amount"), and (B) the product of the Subject Interest remaining to be
purchased after giving effect to any allocations made pursuant to Section
11.2(c)(i) and a fraction equal to (1) the Purchasing Member's Excess Purchase
Amount, divided by (2) the aggregate Excess Purchase Amounts of all Purchasing
Members.
(d) Based upon the written notices returned to the Manager within the
45-day period specified in Section 11.2(b) above, the Manager will, on behalf of
the Selling Member, determine that portion of the Subject Interest entitled to
be purchased by each of the Purchasing Members. The Manager will, within 50 days
after receipt of the Notice of Sale, notify the Selling Member and the
Purchasing Members if the Purchasing Members have elected, in the aggregate, to
purchase all, and not less than all, of the Subject Interest, and, if so, by
whom such purchases will be made.
23
(e) The closing of the purchase of the Subject Interest will take place on
the 60th day after the Notice of Sale; provided, however, that if such 60th day
will be a Saturday, Sunday, or other holiday, the closing will take place on the
next succeeding regular business day. The closing will occur at the principal
office of the Company, or at such other time or place as may be mutually agreed
to in writing. At the closing, the Selling Member will deliver all necessary
assignment or transfer documents and the purchaser or purchasers will tender the
proper consideration therefor, in cash. Each purchase of the Subject Interest
pursuant to the provisions of this Agreement will be a separate transaction and
not related to other purchases by the other Members.
(f) If a Purchasing Member (the "Defaulting Purchaser") fails to perform
its obligations under this Agreement at the closing, the non-defaulting
purchasers may (but are under no obligation to) elect to purchase the Subject
Interest allocated to such Defaulting Purchaser. In such event, the
non-defaulting purchasers must tender the proper consideration for such Subject
Interest at the closing or at such other time and on such other conditions as
may be mutually agreed to by the Selling Member and the non-defaulting
purchasers. Failure of the non-defaulting purchasers to purchase the Defaulting
Purchaser's allocable Subject Interest will in no way constitute a breach of
this Agreement, and the non-defaulting purchasers will have no liability if the
closing does not occur by reason of Section 11.2(g) of this Agreement.
(g) If the Purchasing Members fail to exercise their options to purchase in
the aggregate all of the Subject Interest, or fail to purchase in the aggregate
all of the Subject Interest, any election or purchase made pursuant to this
Section 11.2 will be null and void and of no legal force or effect. In such
circumstances, the Selling Member may, at any time within 90 days after the
Notice of Sale, sell all, but not less than all, of the Subject Interest to the
third party purchaser specified in the Notice of Sale for the consideration and
upon the terms and conditions stated therein and not otherwise. Upon such sale,
the purchaser will be an assignee of such Member Interest unless and until such
transferee is admitted as a Substitute Member pursuant to the provisions of
Section 11.5(a). If no sale is made within such 90-day period, a new Notice of
Sale will be required in the manner provided in Section 11.2 as if no prior
notice had been given.
(h) If any interest in the Company is transferred pursuant to this Section
11.2. the rights of first refusal granted pursuant to this Section 11.2 with
respect to such interest will continue for any subsequent transfer.
11.3 Additional Limitations on Transfers of Member Interests. The Manager
may require, as a condition to any transfer of a Member Interest of a Member
described in Section 11.2. that, in the Manager's reasonable determination: (a)
the transfer will not jeopardize the treatment of the Company as a partnership
for federal income tax purposes; (b) the transfer will not violate the
registration requirements of applicable securities laws or cause any prior offer
and sale of Member Interests to violate such requirements; (c) the transferee is
not subject to withholding under Section 1445 and Section 1446 of the Code; and
(d) the transfer will not result in or cause the termination of the Company for
federal income tax purposes. In addition, the Manager may require an opinion of
counsel reasonably acceptable to the Manager to the effect
24
that each of the conditions set forth above will be satisfied in connection with
the proposed transfer. The Manager may also require the proposed transferee to
deliver to the Company acceptable representations and warranties respecting its
status under applicable securities laws and its investment intent with respect
to the Member Interest, and may require the transferor and transferee to supply
such other documentation as the Manager may deem advisable in its sole
discretion.
11-4 Rights of Assignee.
(a) Except as provided in this Article XI. and as required by
operation of law, the Company will not be obligated for any purpose whatsoever
to recognize the transfer by any Member of a Member Interest unless such
transfer is made in accordance with the terms of this Agreement. A transferee or
assignee of a Member's Member Interest or a Person acquiring a Member Interest
pursuant to any foreclosure made upon any permitted pledge or hypothecation of
such Member Interest, will be entitled only to receive the distributive share of
the Company's Profits, Losses, and other items of income, gain, losses,
deductions, and credit and the distributions of cash or property attributable to
such transferred Member Interest.
(b) Any transfer of a Member Interest must be in writing, may not
contravene any of the provisions of this Agreement, and must be executed by the
transferor and delivered to the Company and recorded on the books of the
Company. Any transfer which contravenes any of the provisions of this Agreement
will be of no force and effect and will not be recognized by the Company.
(c) A transferee of Member Interests who is not admitted as a Member
pursuant to Section 11.5 will have no right to require any information or
account of the Company's transactions or to inspect the Company books or to
vote, but will only be entitled to receive the allocations and distributions to
which its transferor would otherwise be entitled under this Agreement.
(d) Any transferee who does not become a Member and desires to make a
further transfer of such Member Interest will be subject to all of the
provisions of this Article XI to the same extent and in the same manner as any
Member desiring to transfer its Member Interest.
11.5 Admission as a Member.
(a) Admission of Successor Member. Subject to the other provisions of
this Article XI. a transferee of a Member Interest will be admitted as a Member
only after the satisfactory completion of items (i) through (iv) below, and if
applicable, item (v) or item (vi):
(i) Such transferee is acceptable to each Member. The consent of
each Member to the admission of the transferee as a Successor Member may be
unreasonably withheld in such Member's sole and absolute discretion;
25
(ii) The transferee accepts and agrees to be bound by the terms
and provisions of this Agreement as a Member with respect to the Member Interest
so transferred;
(iii) A counterpart of this Agreement and such other documents or
instruments as the Manager may reasonably require is executed by the transferee
to evidence such acceptance and agreement;
(iv) The transferee pays or reimburses the Company for all
reasonable legal fees, filing and publication costs incurred by the Company in
connection with the admission of the transferee as a Member with respect to the
Member Interest so transferred;
(v) If the transferee is not an individual, the transferee
provides the Company with evidence satisfactory to counsel for the Company of
the authority of such transferee to become a Member under the terms and
provisions of this Agreement; and
(vi) The transferee has satisfied any other terms on which the
Member's approval may have been conditioned.
(b) Filings. The Manager will make all official filings and publications as
promptly as practicable after the satisfaction by the transferee of the
conditions contained in this Article XI to the admission of such transferee as a
Member.
11.6 Distributions and Allocations in Respect of Transferred Member
Interests. If any Member Interest is sold, assigned, or transferred during any
Fiscal Year in compliance with the provisions of this Article XI. Profits,
Losses, and all other items attributable to the transferred (or adjusted)
interest for such period will be divided and allocated between the affected
Persons 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 Manager. All distributions on or before the date of such
transfer will be made to the transferor. Solely for purposes of making such
allocations and distributions in the case of a transfer, the Company will
recognize such transfer not later than the end of the calendar month during
which it is given notice of such transfer. Neither the Company nor the Manager
will incur any liability for making allocations and distributions in accordance
with the provisions of this Section 11.6. whether or not the Manager or the
Company has knowledge of any transfer of ownership of any interest.
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ARTICLE XII
DISSOLUTION AND LIQUIDATION
12.1 Dissolution.
(a) Except as set forth in this Agreement, no Member will have the right to
terminate this Agreement or dissolve the Company by its express will or by
withdrawal without the prior written approval of the other Members.
following:
(b) The Company will be dissolved upon the first to occur of any of the
(i) the expiration of its term as provided in Section 1.4:
(ii) the bankruptcy, dissolution, liquidation, resignation, retirement
or expulsion of a Member or any other event that results in its ceasing to be a
Member;
(iii) an election to dissolve the Company is unanimously approved in
writing by all Members; or
(iv) any other event that, under the Delaware Act, would cause the
Company's dissolution, except as provided in Section 12.2.
12.2 Continuation of the Company. Except as otherwise provided in this
Agreement, upon the occurrence of an event described in Section 12.1(b)(ii) or
fiv). the Company will be deemed to be dissolved and reconstituted only if the
remaining Members unanimously elect to continue the Company within 90 days of
such event. If no election to continue the Company is made within 90 days of
such event, the Company will conduct only those activities necessary to wind up
its affairs. If an election to continue the Company is made upon the occurrence
of an event described in Section 12. Kb), then:
(a) if there is no remaining Manager, then within such 90-day period a
successor Manager will be selected by Members holding 100% of the remaining
Percentage Interests (if such Members cannot agree on the election of a
successor Manager, the Company will be dissolved and liquidated);
(b) the Company will be deemed to be reconstituted and will continue until
the end of the term for which it is formed unless earlier dissolved in
accordance with this Article XII; and
(c) all necessary steps will be taken to amend or restate this Agreement
and, if a Certificate of Dissolution has been filed in accordance with Section
12.7. then a Certificate of Continuation will be filed in accordance with the
Delaware Act.
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12.3 Liquidation.
(a) Upon dissolution of the Company, unless an election to continue the
Company is made pursuant to Section 12.2, the Manager will be the liquidator
(the "Liquidator") of the Company, unless such Manager has been liquidated and
dissolved, in which event a Liquidator will be selected by Members holding 51%
of the Percentage Interests.
(b) A Liquidator will agree not to resign at any time without 15 days prior
written notice. A Liquidator may be removed at any time, with or without cause,
by notice of removal approved by Members holding 51% of the Percentage
Interests. Upon dissolution, removal or resignation of a Liquidator, a successor
and substitute Liquidator (who will succeed to all rights, powers, and duties of
the original Liquidator) will within 30 days thereafter be approved by the
Members holding 51% of the Percentage Interests. The right to appoint a
successor or substitute Liquidator in the manner provided herein will be
recurring and continuing for so long as the functions and services of the
Liquidator are authorized to continue under the provisions of this Agreement,
and every reference herein to a Liquidator will be deemed to refer also to any
such successor or substitute Liquidator appointed in the manner herein provided.
(c) Except as expressly provided in this Article XII, the Liquidator
appointed in the manner provided herein will have and may exercise, without
further authorization or consent of any of the Members, all of the powers
conferred upon the Manager under the terms of this Agreement to the extent
necessary or desirable in the good faith judgment of the Liquidator to carry out
the duties and functions of the Liquidator under this Agreement for and during
such period of time as will be reasonably required in the good faith judgment of
the Liquidator to complete the winding up and liquidation of the Company as
provided for herein.
(d) Except as provided in Section 12.5 below, the Liquidator will liquidate
the assets of the Company, and, after making all allocations and distributions
otherwise required by this Agreement (including but not limited to all tax
allocations required by Article V). will apply and distribute the proceeds of
such liquidation in the following order of priority, unless otherwise required
by mandatory provisions of applicable law:
(i) First, to creditors of the Company (including Members) in the
order of priority provided by law; and
(ii) Second, to the Members in proportion to, and to the extent of,
the positive balances in their respective Capital Accounts; provided, however,
that the Liquidator may place in escrow a reserve of cash or other assets of the
Company for contingent liabilities in an amount determined by the Liquidator to
be appropriate for such purposes.
12-4 Reserves. After all the assets of the Company have been distributed,
the Company will terminate; provided, however, if at any time thereafter any
funds in any cash reserve fund referred to in Section 12.3(d)(ii) are released
because the need for such cash reserve
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fund has ended, such funds will be distributed to the Members in the same manner
as if such distribution had been made pursuant to Section 12.3(d)(ii).
12.5 Distribution in Kind. Notwithstanding the provisions of Section 12.3
that require liquidation of the Company's assets, but subject to the order of
priorities set forth therein, if on dissolution of the Company the Liquidator
determines that an immediate sale of part or all of the Company's assets would
be impractical or would cause undue loss to the Members, the Liquidator may
defer for a reasonable time the liquidation of any assets except those necessary
to satisfy liabilities of the Company (other than those to Members). The
Liquidator may distribute to the Members, in lieu of cash, such Company assets
as the Liquidator deems not suitable for liquidation. Any distributions in kind
will be subject to such conditions relating to the disposition and management
thereof as the Liquidator deems reasonable and equitable. The Liquidator will
value any property distributed in kind based upon such property's fair market
value as determined using such reasonable method of valuation as it may adopt.
The fair market value of such property will be the gross fair market value of
such property for purposes of making the adjustments required by Section
4.3(c)(ii) and Section 4.3(b)(iii) herein.
12.6 Negative Capital Accounts. If, after the allocations of Profit,
Loss, and other items of income, gain, loss, deduction, or credit under Article
V, any Member will ever have a negative balance in such Member's Capital
Account, no Member will have any obligation to restore such negative balance, or
to makeany contribution to the capital of the Company by reason thereof, and
such negative balance will under no circumstances be considered a liability of
the Company or of any Member.
12.7 Filing of Certificate of Dissolution. Upon the completion of the
distribution of Company property as provided in Sections 12.3.12.4. and 12.5,
the Company will be terminated, and the Liquidator (or the Manager and Members
if necessary) will cause a Certificate of Dissolution to be filed with the
Secretary of State of the State of Delaware and will take such other actions as
may be necessary to terminate the Company, including filing any necessary
certificate of cancellation of the Certificate of Formation.
12.8 Return of Capital. The Manager will not be personally liable for the
return of the Capital Contributions of the Members, or any portion thereof, it
being expressly understood that any such return will be made solely from Company
assets.
ARTICLE XIII
AMENDMENT OF AGREEMENT
13.1 Amendment Procedures. An amendment to this Agreement may be adopted
only if unanimously approved, in writing, by all Members.
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ARTICLE XIV
GENERAL PROVISIONS
14.1 Addresses and Notices. Any notice or other communication required or
permitted under this Agreement will be in writing and will be delivered
personally or by a recognized courier service, telegraphed, telexed, sent by
facsimile transmission, or sent by certified or registered mail, postage
prepaid. Any such notice will be deemed given and received (whether actually
received or not) on the day it is delivered personally or delivered by a
recognized courier service as aforesaid, or telegraphed, telexed, or sent by
facsimile transmission or, if mailed, three (3) days after the date of deposit
in the United States mails, as follows:
If to Member Number 1
Perot Systems Corporation
Attn: Ed Smith
12377 Merit Drive, Suite 1100
Dallas, Texas 75251
with a copy to:
Perot Systems Corporation
Attn: General Counsel
12377 Merit Drive, Suite 1100
Dallas, Texas 75251
If to Member Number 2:
with a copy to:
If to the Manager:
with a copy to:
ABB T&D Power Company Inc.
ABB Systems Control Division
Attn: Ralph Masiello
2550 Walsh Avenue
Santa Clara, California 95051
Manta & Welge
Attn: John Attanasio
2005 Market Street
Philadelphia, Pennyslvania 19103
Perot Systems Corporation
Attn: Ed Smith
12377 Merit Drive, Suite 1100
Dallas, Texas 75251
Perot Systems Corporation
Attn: General Counsel
12377 Merit Drive, Suite 1100
Dallas, Texas 75251
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Any party may by notice given in accordance with this Section to the other
parties designate another address or person for receipt of notices under this
Agreement.
14.2 Titles and Captions: References. All article and section titles and
captions in this Agreement are for convenience only, will not be deemed part of
this Agreement, and in no way define, limit, extend, or describe the scope or
intent of any provisions of this Agreement. Except as specifically provided
otherwise, references to "Articles" and "Sections" are to Articles and Sections
of this Agreement.
14.3 Pronouns and Plurals. Whenever the context may require, any pronoun
used in this Agreement will include the corresponding masculine, feminine, or
neuter forms, and the singular form of nouns, pronouns, and verbs will include
the plural and vice versa.
14.4 Further Action. The parties will execute all documents, provide all
information, and take or refrain from taking action as may be necessary or
appropriate to achieve the purposes of this Agreement.
14.5 Binding Effect. This Agreement will be binding upon and inure to the
benefit of the parties hereto and their successors, legal representatives, and
permitted assigns.
14.6 Integration. This Agreement constitutes the entire agreement among
the parties hereto pertaining to the subject matter of this Agreement and
supersedes all prior agreements and understandings pertaining thereto.
14.7 No Third Party Beneficiary. This Agreement is made solely and
specifically between and for the benefit of the parties hereto, and their
respective successors and assigns subject to the express provisions of this
Agreement relating to successors and assigns, and no other Person whatsoever
will have any rights, interest, or claims under this Agreement or be entitled to
any benefits under or on account of this Agreement as a third party beneficiary
or otherwise.
14.8 Waiver. No failure by any party to insist upon the strict
performance of any covenant, duty, agreement, or condition of this Agreement or
to exercise any right or remedy consequent upon a breach thereof will constitute
waiver of any such breach or any other covenant, duty, agreement, or condition.
14.9 Counterparts. This Agreement may be executed in counterparts, all of
which together will constitute one agreement binding on all the parties hereto,
notwithstanding that all such parties are not signatories to the original or the
same counterpart. Each party will become bound by this Agreement immediately
upon affixing its signature hereto or, in the case of a transferee, upon
executing and delivering such documents as required by the Manager.
14.10 Applicable Law. This Agreement will be construed in accordance with
and governed by the laws of the State of Delaware, without regard to principles
of conflicts of law.
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14.11 Invalidity of Provisions. If any provision of this Agreement is
declared or found to be illegal, unenforceable, or void, in whole or in part,
then the parties will be relieved of all obligations arising under such
provision, but only to the extent that it is illegal, unenforceable, or void, it
being the intent and agreement of the parties that this Agreement will be deemed
amended by modifying such provision to the extent necessary to make it legal and
enforceable while preserving its intent or, if that is not possible, by
substituting therefor another provision that is legal and enforceable and
achieves the same objectives.
14.12 Independent Activities. Each Member and each Affiliate thereof and
any director, officer, partner, or employee of a Member or any Affiliate thereof
will be entitled to and may have business interests and engage in business
activities in addition to those relating to the Company, and no other provision
of this Agreement will be deemed to prohibit a Member or any such person from
conducting such other businesses and activities. The Members acknowledge and
agree such other activities and business interests may be competitive with the
Company and its Affiliates. Each Member, Affiliates thereof, and any director,
officer, partner, or employee of a Member or any Affiliate thereof may pursue
such competing or similar business opportunities. Neither the Company nor any of
the Members will have any rights by virtue of this Agreement or the relationship
created hereby in any business ventures of a Member or any Affiliate thereof or
any director, officer, partner, or employee of a Member or any Affiliate
thereof, and as a material part of the consideration for the execution of this
Agreement by each Member, each Member hereby waives, relinquishes, and renounces
any such right or claim of participation.
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IN WITNESS WHEREOF, the parties hereto, intending to be legally bound,
have executed this Agreement as of the day and year first above written.
MEMBER NUMBER 1
Perot Systems Corporation
By: /s/
Name:
Title:
MEMBER NUMBER 2 ABB
Power T&D Company Inc.
By: /s/
Name:
Title:
MANAGER
Perot Systems Corporation
Title:
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