EXHIBIT 3.2
OPERATING AGREEMENT
FOR
PERFORMANCE CAPITAL MANAGEMENT, LLC
A CALIFORNIA LIMITED LIABILITY COMPANY
THE SECURITIES REPRESENTED BY THIS AGREEMENT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 NOR REGISTERED OR QUALIFIED UNDER ANY STATE SECURITIES
LAWS. SUCH SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, DELIVERED AFTER SALE,
TRANSFERRED, PLEDGED, OR HYPOTHECATED UNLESS QUALIFIED AND REGISTERED UNDER
APPLICABLE STATE AND FEDERAL SECURITIES LAWS OR UNLESS, IN THE OPINION OF
COUNSEL SATISFACTORY TO THE COMPANY, SUCH QUALIFICATION AND REGISTRATION IS NOT
REQUIRED. ANY TRANSFER OF THE SECURITIES REPRESENTED BY THIS AGREEMENT IS
FURTHER SUBJECT TO OTHER RESTRICTIONS, TERMS AND CONDITIONS WHICH ARE SET FORTH
HEREIN.
OPERATING AGREEMENT
FOR
PERFORMANCE CAPITAL MANAGEMENT, LLC
A CALIFORNIA LIMITED LIABILITY COMPANY
THIS OPERATING AGREEMENT ("Agreement") is made as of July _ , 2001, by and
among PERFORMANCE ASSET MANAGEMENT FUND, LTD., a California limited
partnership, PERFORMANCE ASSET MANAGEMENT FUND II, LTD., a California limited
partnership, PERFORMANCE ASSET MANAGEMENT FUND III, LTD., a California limited
partnership, PERFORMANCE ASSET MANAGEMENT FUND IV, LTD., a California limited
partnership, and PERFORMANCE ASSET MANAGEMENT FUND V, LTD., a California limited
partnership, with reference to the following facts:
RECITALS
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A. On July__, 2001, Articles of Organization for Performance Capital
Management, LLC, a California limited liability company (the "Company"), were
filed with the California Secretary of State.
B. The Members (as hereinafter defined) desire to adopt and approve an
operating agreement for the Company to establish their rights and
responsibilities and to govern their relationships.
AGREEMENT
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NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Members hereby agree as
follows:
ARTICLE I
DEFINITIONS
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When used in this Agreement, the following terms shall have the meanings set
forth below (all terms used in this Agreement that are not defined in this
Article I shall have the meanings set forth elsewhere in this Agreement):
1.1 "Act" shall mean the Beverly-Killea Limited Liability Company Act,
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codified in the California Corporations Code, Section 17000 et seq., as the same
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may be amended from time to time.
1.2 "Adjusted Capital Account Deficit" shall mean, with respect to any
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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) decrease such deficit by (i) the amount, if any, that
such Member is obligated to contribute upon liquidation of such Member's
Membership Interest, and (ii) any amounts that such Member is deemed to be
obligated to restore pursuant to Regulation Section l.704-1(b)(2)(ii)(c) or the
penultimate sentence of each of Regulation Sections 1.704-2(i)(5) and
1.704-2(g)(l); and
(b) increase such deficit by such Member's share of the items
described in Regulation 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 the provisions of Regulation Section 1.704-l(b)(2)(ii)(d) and shall
be interpreted consistently therewith.
1.3 "Affiliate" shall mean any individual, partnership, corporation,
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trust or other entity or association, directly or indirectly, through one or
more intermediaries, controlling, controlled by, or under common control with, a
Member. The term "control," as used in the immediately preceding sentence,
means, with respect to a corporation or limited liability company, the right to
exercise, directly or indirectly, more than fifty percent (50%) of the voting
rights attributable to the controlled corporation or limited liability company
and, with respect to any individual, partnership, trust, other entity or
association, the possession, directly or indirectly, of the power to direct or
cause the direction of the management or policies of the controlled entity.
1.4 "Agreement" shall mean this Operating Agreement, as originally
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executed and as amended and/or restated from time to time.
1.5 "Applicable Law" shall mean, as to any Person, all provisions of
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laws, statutes, ordinances, rules, regulations, permits, certificates or orders
of any governmental authority applicable to such Person or any of its assets or
property and all judgments applicable to such Person.
1.6 "Approval of the Board of Directors" and "Approved by the Board
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of Directors" shall mean an affirmative vote by a majority of the number of
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Directors present at a meeting duly held at which a quorum is present or a
consent in writing by a number of Directors sufficient to approve such action at
a meeting at which all Directors are present.
1.7 "Articles" shall mean the Articles of Organization for the Company
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originally filed with the California Secretary of State on July _, 2001, as the
same shall be amended and/or restated from time to time.
1.8 "Bankruptcy" shall mean, with respect to any Person, when (a) such
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Person shall commence any case, proceeding or other action (i) under any
existing or future law of any jurisdiction, domestic or foreign, relating to
bankruptcy, insolvency, reorganization, conservatorship or relief of debtors
seeking to have an order for relief entered with respect to it, or seeking to
adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement,
adjustment, winding-up, liquidation, dissolution, composition or other relief
with respect to it or its debts, or (ii) seeking appointment of a receiver,
trustee, custodian, conservator or other similar official for it or for all or
any substantial part of its assets, or such Person shall make a general
assignment for the benefit of its creditors; (b) there shall be commenced
against such Person any case, proceeding or other action of a nature referred to
in clause (a) above that (i) results in the entry of an order for relief or any
such adjudication or appointment or (ii) remains undismissed or undischarged for
a period of sixty (60) days; or (c) there shall be commenced against such Person
any case, proceeding or other action seeking issuance of a warrant of
attachment, execution or similar process against all or any substantial part of
its assets that results in the entry of an order for any
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such relief that shall not have been vacated, discharged, or stayed or bonded
pending appeal within sixty (60) days from the entry thereof.
1.9 "Board of Directors" shall mean the Board of Directors of the
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Company created pursuant to Article V.
1.10 "Business Day" shall mean any day other than Saturday, Sunday, and
any other day on which banks in California are not open for business.
1.11 "Capital Account" shall mean with respect to any Member the
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capital account that the Company establishes and maintains for such Member
pursuant to Section 3.3.
1.12 "Capital Contribution" shall mean the total value of cash and fair
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market value (as determined by the Board of Directors) of property contributed
to the Company by a Member, with the initial Capital Contribution of each Member
set forth on Exhibit A.
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1.13 "Code" shall mean the Internal Revenue Code of 1986, as amended
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from time to time, the provisions of succeeding law and to the extent
applicable, the Regulations.
1.14 "Company" shall mean Performance Capital Management, LLC, a
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California limited liability company.
1.15 "Company Minimum Gain" shall have the meaning set forth in
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Regulation Sections 1.704-2(b)(2) and 1.704-2(d)(l) for the phrase "partnership
minimum gain."
1.16 "Corporations Code" shall mean the California Corporations Code,
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as amended from time to time, and the provisions of succeeding law.
1.17 "Economic Interest" shall mean an interest in the profits, losses
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and distributions of the Company pursuant to this Agreement and the Act, but
shall not include any other rights of a Member including, without limitation,
the right to vote or participate in the management or, except as provided in
Section 17106 of the Corporations Code, any right to information concerning the
business and affairs of Company.
1.18 "Economic Interest Owner" shall mean the owner of an Economic
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Interest who is not a Member.
1.19 "Effective Date" shall mean the date of this Agreement.
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1.20 "Effective Date Unreturned Capital" shall mean, with respect to
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each Member, the amount of each such Member's unreturned Capital Contributions
as of the Effective Date. The Effective Date Unreturned Capital of the Members
is set forth on Exhibit D. After the completion of the transfers contemplated by
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Section 6.5 below, the Effective Date Unreturned Capital of the Members shall be
as set forth on Exhibit D-1.
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1.21 "ERISA" shall mean the Employee Retirement Income Security Act of
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1974, as amended.
1.22 "Expenses" shall include, without limitation, attorneys' fees,
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disbursements and retainers, court costs, transcript costs, fees of accountants,
experts and witnesses, travel expenses, duplicating costs, printing and binding
costs', telephone charges, postage, delivery
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service fees, and all other expenses of the types customarily incurred in
connection with prosecuting, defending, preparing to prosecute or defend,
investigating, or being or preparing to be a witness or other participant in a
Proceeding.
1.23 "Family Member" shall include any child, grandchild, parent,
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spouse, former spouse, grandparent, sibling (in each case, including adoptive
or step relationships), trust in which any of the foregoing persons have more
than a 50% beneficial interest, and any other entity in which any of the
foregoing persons own a controlling person.
1.24 "Indebtedness" shall mean, with respect to any Person, (i) all
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indebtedness of such Person for borrowed money or for the deferred purchase
price of property or services with respect to which a Person is liable,
contingent or otherwise, as obligor or otherwise (other than obligations to
trade creditors incurred in the ordinary course of business which are not more
than 30 days past due), (ii) all obligations evidenced by notes, bonds,
debentures or similar instruments, (iii) all indebtedness created or arising
under any conditional sale or other title retention agreements with respect to
property acquired by such Person, (iv) any commitment by which a Person assures
a creditor against loss (including contingent reimbursement obligations with
respect to letters of credit), (v) any obligations under capitalized leases with
respect to which a Person is liable, contingently or otherwise, (vi) any
unsatisfied obligation for "withdrawal liability" to a "multi-employer plan" as
such terms are defined under ERISA or for other liabilities under Title IV of
ERISA, and (vii) any indebtedness of another described in (i) through (vi) above
guaranteed in any manner by such Person (including, without limitation,
guarantees in the form of an agreement to repurchase or reimburse) or which is
secured by a lien or encumbrance on such Person's assets to the extent of the
indebtedness guaranteed or the assets subject to such lien or encumbrance.
1.25 "Member" shall mean each Person who (a) is an initial signatory to
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this Agreement, has been admitted to the Company as a Member in accordance with
the Articles or this Agreement, or is an assignee who has become a Member in
accordance with Article VI, and (b) has not resigned, withdrawn, been expelled
or, if other than an individual, dissolved.
1.26 "Member Minimum Gain" shall mean minimum gain attributable to a
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Member Nonrecourse Debt determined in accordance with Regulation Section
1.704-2(1) with respect to "partner nonrecourse debt minimum gain."
1.27 "Member Nonrecourse Debt" shall have the meaning set forth in
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Regulation Section 1.704-2(b)(4) for the phrase "partner nonrecourse debt."
1.28 "Member Nonrecourse Deductions" shall have the meaning set forth
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in Regulation Section 1.704-2(i) for the phrase "partner nonrecourse
deductions."
1.29 "Membership Interest" shall mean a Member's entire interest in the
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Company including the Member's Economic Interest, the right to vote on or
participate in the management and the right to receive information concerning
the business and affairs of the Company.
1.30 "Net Profits" and "Net Losses" shall mean the net profits and net
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losses, respectively, of the Company, as determined for book purposes in
accordance with Section .
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1.704-1(b)(iv) of the Regulations (and for these purposes, Nonrecourse
Deductions shall be treated in the same manner as other deductions).
1.3 "Nonrecourse Deductions" shall mean deductions as described in
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Regulation Section 1.704-2(b)(1).
1.32 "Percentage Interest" shall mean, as of any date and with respect
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to each Member, that fraction, expressed as a percentage, having as its
numerator the number of LLC Units then held by such Member and having as its
denominator the number of LLC Units then held by all Members. The Percentage
Interest of each Member as of the date hereof is set forth on Exhibit C. The
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Company shall update Exhibit C from time to time.
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1.33 "Person" shall mean an individual, general partnership, limited
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partnership, limited liability company, corporation, trust, estate, real estate
investment trust association or any other entity.
1.34 "Plan of Reorganization" shall mean that certain Joint Plan of
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Reorganization for Performance Asset Management Fund, Ltd., a California limited
Partnership, Performance Asset Management Fund II, Ltd., a California limited
Partnership, Performance Asset Management Fund III, Ltd., a California limited
partnership, Performance Asset Management Fund IV, Ltd., a California limited
partnership, Performance Asset Management Fund V, Ltd., a California limited
partnership, and Performance Capital Management, Inc., a California corporation,
that was confirmed by the United States Bankruptcy Court on_________, 2001.
1.35 "Proceeding" shall mean any action, suit, arbitration, alternative
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dispute resolution mechanism, investigation, administrative hearing or other
proceeding, whether civil, criminal administrative or investigative in nature,
except a proceeding initiated by a Person pursuant to Section 9.4.2 of this
Agreement to enforce such Person's rights under this Agreement.
1.36 "Regulations" shall mean, unless the context clearly indicates
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otherwise, the regulations currently in force from time to time as final or
temporary that have been issued by the U.S. Department of Treasury pursuant to
its authority under the Code.
1.37 "Substantial Assets" shall mean assets valued in excess of
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$50,000.
1.38 "Transfer" shall mean, when used as a noun, any sale,
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hypothecation, pledge, assignment, attachment, disposal, loan, gift, levy or
other transfer, and, when used as a verb, to sell, hypothecate, pledge, assign,
attach, dispose, loan, gift, levy or otherwise transfer.
ARTICLE II
ORGANIZATIONAL MATTERS
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2.1 Formation. Pursuant to the Act, the Members have formed a
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California limited liability company under the laws of the State of California
by filing the Articles with the California Secretary of State and entering into
this Agreement. The rights and liabilities of the Members shall be determined
pursuant to the Act and this Agreement. To the extent that the rights or
liabilities of any Member are different by reason of any provision of this
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Agreement than they would be in the absence of such provision, this Agreement
shall, to the extent permitted by the Act, control.
2.2 Name. The name of the Company is "Performance Capital Management,
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LLC." The business of the Company may be conducted under that name or, upon
compliance with Applicable Law, any other name that the Company deems
appropriate or advisable.
2.3 Term. The term of the Company commenced on July__, 2001, and the
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Company will continue and have perpetual existence unless it is sooner dissolved
as provided in this Agreement.
2.4 Office and Agent. The Company shall continuously maintain an
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office and registered agent in the State of California as required by the Act.
The principal office of the Company shall be as Approved by the Board of
Directors. The Company also may have such offices, anywhere within and without
the State of California, as Approved by the Board of Directors. The
registered agent shall be as stated in the Articles or as otherwise
Approved by the Board of Directors.
2.5 Addresses of the Members. The respective addresses of the Members
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are set forth on Exhibit A.
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2.6 Purpose of Company. The purpose of the Company is to engage in any
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lawful activity for which a limited liability company may be organized under the
Act.
2.7 Management of the Company. The Company shall be governed and
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managed by the Board of Directors, the members of which shall constitute
managers of the Company for purposes of the Act.
2.8 Limited Liability. Except as required under the Act or as expressly
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set forth in this Agreement, no Member shall be personally liable for any debt,
obligation, or liability of the Company, regardless of whether that debt,
obligation, or liability arises in contract, tort or otherwise.
ARTICLE III
CAPITAL CONTRIBUTIONS
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3.1 Capital Contributions. The Members shall contribute capital to the
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Company, as follows:
3.1.1 Initial Capital Contributions. The Members shall contribute,
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or agree to contribute, to the Company the property and/or funds as provided on
Exhibit A upon the effective date set forth in the Plan of Reorganization.
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3.1.2 Additional Capital Contributions. The Members are not
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required to make any additional Capital Contributions to the Company. However,
the Members may make additional Capital Contributions to the Company at any time
upon the Approval of the Board of Directors. To the extent that a Member makes
additional Capital Contributions to the Company pursuant to this Section 3.1.2,
the Company shall revise Exhibit A of this Agreement. The provisions of this
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Agreement, including this Section 3.1.2, are intended to
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benefit the Members and, to the fullest extent permitted by law, shall not be
construed as conferring any benefit upon any creditor of the Company (and no
such creditor of the Company shall be a third-party beneficiary of this
Agreement) and the Members shall not have any duty or obligation to any creditor
of the Company to make any additional Capital Contributions to the Company.
3.2 Withdrawal of Capital. Except for distributions under Article VIII
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no Member may, without the Approval of the Board of Directors, withdraw any
capital.
3.3 Capital Accounts. The Company shall establish an individual Capital
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Account for each Member. The Company shall determine and maintain each Capital
Account in accordance with Section 1.704-1(b)(2)(iv) of the Regulations and any
successor provision. If a Member transfers all or a part of such Member's
Economic Interest in accordance with this Agreement, such Member's Capital
Account attributable to the transferred Economic Interest shall carry over to
the new owner of such Economic Interest pursuant to Regulation Section
1.704-l(b)(2)(iv)(l).
3.4 No Interest. No Member shall be entitled to receive any interest
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on such Member's Capital Contributions.
3.5 LLC Units. The Membership Interest of each of the Members in the
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Company shall consist of a number of "LLC Units." Except as expressly set forth
in this Agreement, each LLC Unit shall include (i) the right to cast one vote on
all issues that are submitted to a vote of the Members, (ii) the right to share
in the Net Fronts, Net Losses and/or similar items of the Company, to receive
distributions from the Company pursuant to Article VIII and to receive such
other distributions as may be appropriate pursuant to Article XI in light of the
Capital Account associated with such LLC Units, and (iii) the right to demand
information concerning the business and affairs of the Company, as provided in
this Agreement and under the Act.
The number of LLC Units to be held initially by each Member as of the date
hereof is set forth on Exhibit C. The Company shall update Exhibit C from time
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to time to reflect the issuance of additional LLC Units to Members and to new
Members admitted pursuant to Section 4.2, and the transfer of LLC Units pursuant
to Article VI. The Company shall not issue fractional LLC Units. The Company
shall have the authority to round the number of LLC Units to which any Member is
entitled to the nearest whole LLC Unit and to make adjustments (not exceeding
one LLC Unit in each case) in the number of LLC Units to the extent necessary to
avoid over issuance or under issuance of the total number of LLC Units involved
in any one transaction.
ARTICLE IV
MEMBERS
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4.1 Limited Liability. Except as required under the Act or as expressly
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set forth in this Agreement, no Member shall be personally liable for any debt,
obligation, or liability of the Company, whether that debt, obligation, or
liability arises in contract, tort, or otherwise.
4.2 Admission of Additional Members. The Board of Directors may admit
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to the Company additional Members, who shall obtain Membership Interests and
participate in the
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management, allocations, and distributions of the Company on such terms as are
Approved by the Board of Directors. Unless otherwise Approved by the Board of
Directors, any such issuance of new Membership Interests by the Company shall
dilute the Percentage Interest of all Members pro rata in accordance with their
Percentage Interests. Notwithstanding the foregoing, (i) no Person shall become
an additional Member until such Person has made such Person's required Capital
Contribution, if any, and has executed such instruments as the Board of
Directors may request, which may include an instrument pursuant to which such
Person agrees to be bound by the terms of this Agreement, and (ii) substitute
Members may he admitted only in accordance with the provisions of Article VI,
4.3 Members are Not Agents. Pursuant to Article V and the Articles, the
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management of the Company is vested in the Board of Directors. No Member, acting
solely in the capacity as a Member, is an agent of the Company and no Member,
acting solely in the capacity as a Member, is authorized to bind or execute any
instrument on behalf of the Company or render the Company liable for any
purpose.
4.4 Transactions with the Company. A Member or an Affiliate may lend
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money to and transact other business with the Company only in accordance with
this Agreement or with the prior approval of the disinterested members of the
Board of Directors after full disclosure of the involvement of the Member or the
Affiliate. Subject to Applicable Law, such Member or Affiliate has the same
rights and obligations with respect thereto as a Person who is not a Member or
an Affiliate.
4.5 No Withdrawal. Except as required by Applicable Law, no Member may
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resign or withdraw from the Company without the Approval of the Board of
Directors.
4.6 Certain Matters Reserved to the Members. No Member, acting solely
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in the capacity as a Member, shall have the right to take part in the management
of the Company or transact any business on its behalf. Notwithstanding the
foregoing, the Members shall have the right to vote upon the following matters:
(a) Admission of any successor Director,
(b) Amendment of the Articles;
(c) Dissolution of the Company as provided in subdivision (b)
of Section 17350 of the Corporations Code;
(d) Merger of the Company as provided in Section 17551 of the
Corporations Code; and
(e) Sale of all or substantially all of the assets of the
Company.
4.7 Meetings and Voting.
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4.7.1 Meetings of Members. The annual meeting of the Members shall
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be held on the first Business Day in November of each year at the hour of 10:00
a.m. Pacific Standard Time, at such place within the State of California as the
Board of Directors may fix from time to time, for the purposes of electing
directors and transacting such other business as properly may come before the
meeting. If the day fixed for the annual meeting is a legal
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holiday, that meeting shall be held on the next succeeding Business Day. A
different time for holding the annual meeting of the Members may be fixed from
time to time by the Board of Directors. Special meetings may be called by the
Board of Directors or by a Member or Members who in the aggregate hold
Percentage Interests equal to or greater than ten percent (10%). Special
meetings may be held at such date, time, and place within the State of
California as the Board may fix.
4.7.2 Notice of Meetings.
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(a) Written or printed notice stating the place, date, and
hour of the meeting of the Members, and in the case of a special meeting, the
purpose or purposes for which the meeting is called, shall be given to each
Member entitled to vote at the meeting not less than 10 days nor more than 60
days before the date of the meeting. Each such notice shall be given either
personally or by mail, by or at the direction of the Board of Directors in the
case of the annual meeting, and by or at the direction of the Board or the
person or persons calling the meeting in the case of a special meeting. If
mailed, notice shall be deemed to be given when deposited in the United States
mail addressed to the Member at its address as it appears on the records of the
Company, with postage thereon prepaid. If delivered (rather than mailed) to that
address, notice shall be deemed to be given when so delivered.
(b) When a meeting is adjourned to another time or place,
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, unless the
adjournment is for more than 30 days or a new record date is fixed for the
adjourned meeting.
4.7.3 Waiver of Notice. A waiver of notice of a meeting of the
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Members, in writing and signed by a Member entitled to notice, whether signed
before, at, or after the time of the meeting as stated therein, shall be
deemed to be equivalent to giving notice. Attendance of a Member in person or by
proxy at a meeting of the Members constitutes a waiver of notice of the meeting,
except when the Member or its proxy objects (i) at the beginning of the meeting
to the transaction of any business at the meeting; or (ii) when a matter is
presented that is not within the purpose or purposes described in the meeting
notice, to considering that matter.
4.7.4 Quorum and Vote Required for Action. Members present in
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person or by proxy whose aggregate Percentage Interests exceed one-half of the
aggregate Percentage Interests of all Members entitled to vote at a meeting of
the Members shall constitute a quorum at that meeting. If a quorum is present at
a meeting, the act of Members present whose aggregate Percentage Interests
constitute a majority of the aggregate Percentage Interests of all Members
present at that meeting shall be the act of the Members, unless a different
number of votes is required by Applicable Law or this Agreement. If a quorum is
not present at a meeting, then Members present whose aggregate Percentage
Interests constitute a majority of the aggregate Percentage Interests of all
Members present at that meeting may adjourn the meeting from time to time
without further notice. At an adjourned meeting at which a quorum is present,
any business may be transacted that might have been transacted at the original
meeting.
4.7.5 Proxies. Every Member entitled to vote at a meeting may
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authorize another person or persons to act by proxy with respect to his or her
Membership Interest.
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No proxy shall be valid after the expiration of 11 months from the date thereof
unless otherwise provided in the proxy. Every proxy continues in full force and
effect until revoked by the Member executing it prior to the vote pursuant
thereto, except as otherwise herein provided. Such revocation may be effected by
a writing delivered to the Company stating that the proxy is revoked or by a
subsequent proxy executed by the Member who executed the prior proxy and
presented to the meeting, or as to any meeting by attendance at such meeting and
voting in person by the person executing the proxy. The dates contained on the
forms of proxy presumptively determine the order of execution, regardless of the
postmark dates on the envelopes in which they are mailed. A proxy is not revoked
by the death or incapacity of the Member unless, before the vote is counted,
written notice of such death or incapacity is received by the Company. The
revocability of a proxy that states on its face that it is irrevocable shall be
governed by the provisions of Sections 703(e) and 705(f) of the Corporations
Code.
4.7.6 Action Without Meeting. Unless otherwise provided in this
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Agreement, any action required or permitted to be taken at a 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 Company by Members having no
less than the minimum number of votes that would be necessary to authorize or
take that action at a meeting at which all Members entitled to vote on that
action at a meeting were present and voted. Actions taken under this Section
4.7.6 shall be effective at the time specified in the consent, or if not so
specified, when the consent is signed by Members having the required Percentage
Interest. After having been signed, each consent shall be delivered to the
Company for filing with the Company records.
ARTICLE V
MANAGEMENT AND CONTROL OF THE COMPANY
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5.1 Management of the Company by Managers. Subject to the provisions
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of the Articles, this Agreement, and the Act:
(a) All the business, property, and affairs of the Company
shall be managed and all powers of the Company shall be exercised by or under
the direction of the Board of Directors, the members of which shall constitute
the managers of the Company for purposes of the Act; and
(b) No Director acting alone in his capacity as a director or
manager shall be an agent of the Company, and no Director acting alone in his
capacity as a director or manager is authorized to bind or execute any
instrument on behalf of the Company or render the Company liable for any
purpose.
5.2 Board of Directors.
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5.2.1 Authority. The Board of Directors shall, subject to the
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limitations set forth below, have the authority to exercise all such powers of
the Company and do all such lawful acts and things as may be done by the
managers of a limited liability company under the Act and as are not by statute,
by the Articles, or by this Agreement directed or required to be exercised or
done by or with the consent of the Members.
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5.2.2 Number. The number of Directors shall initially be, and shall
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remain at not less than, seven (7), which number may be changed from time to
time by a two-thirds vote of the Board of Directors.
5.2.3 Appointment of Initial Directors. By entering into this
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Agreement, the Members hereby elect the individuals set forth on Exhibit B as
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the initial Directors of the Company. The Company shall revise Exhibit B from
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time to time to reflect changes in the composition of the Board of Directors.
5.2.4 Term. Unless a Director resigns or is removed by the
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affirmative vote of Members who in the aggregate hold a majority of the
Percentage Interests at a meeting called expressly for that purpose, such
Director shall serve in such capacity for the coming year and shall serve until
his or her successor is duly elected at the next annual meeting of Members.
5.2.5 Compensation. Until changed by a two-thirds vote of the
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Board of Directors, the Company shall compensate Directors in the amount of
$___ per meeting for attending meetings of the Board of Directors. Except as
specified in this Agreement or upon the Approval of the Board of Directors, no
Director is entitled to any additional compensation for serving as a Director;
provided, however, that the Company shall reimburse Directors for actual
reasonable expenses incurred in connection with attendance at meetings of the
Board of Directors. The Company shall obtain directors' and officers' insurance
for its Directors and officers.
5.2.6 Duty of Care. Each Director's duty of care in the discharge
-------------
of his duties to the Company and the Members is limited to discharging his
duties pursuant to this Agreement in good faith, with the care a corporate
director of like position would exercise under similar circumstances, in
the manner he reasonably believes to be in the best interests of the
Company. In discharging his duties, no Director shall be liable to the
Company or to any Member for any mistake or error in judgment or for any
act or omission believed in good faith to be within the scope of authority
conferred by this Agreement or approved by the Members.
5.3 Meetings of, and Voting by, the Board of Directors.
---------------------------------------------------
5.3.1 Meetings. Meetings of the Board of Directors may be called
---------
by any Director of the Company. Ail meetings shall be held upon seven (7) days
notice by mail or twenty-four (24) hours notice delivered personally or by
telephone, telegraph or facsimile. Meetings of the Board of Directors may be
held at any place within the State of California that has been designated in the
notice of the meeting or at such place as may be Approved by the Board of
Directors. A notice need not specify the purpose of the meeting. Notice of a
meeting need not be given to any Director who signs a waiver of notice or a
consent to holding the meeting or an approval of the minutes thereof, whether
before or after the meeting, or who attends the meeting without protesting,
prior to its commencement, the lack of notice to such Director. All such
waivers, consents and approvals shall be filed with the Company records or made
a part of the minutes of proceedings of the Board of Directors. A majority of
the Directors present, whether or not a quorum is present, may adjourn any
meeting to another time and place. If the meeting is adjourned for more than
twenty-four (24) hours, notice of any adjournment shall be given prior to the
time of the adjourned meeting to the Directors who are not present at the time
of the adjournment.
11
5.3.2 Quorum and Vote Required for Action. A majority of the
------------------------------------
authorized number of Directors constitutes a quorum of the Board of Directors
for the transaction of business, and subject to the provisions of Section 4.4.
Section 5.2.2, Section 5.2.5, and Section 9.6(a), every act or decision done or
made with the approval of at least a majority of the number of Directors present
at a meeting duly held at which a quorum is present, is the act of the Board of
Directors.
5.3.3 Action Without Meeting. Unless otherwise restricted by the
-----------------------
Articles or this Agreement, any action required or permitted to be taken at any
meeting of the Board of Directors may be taken without a meeting if such action
is consented to in writing by the number of Directors sufficient to approve such
action at a meeting at which all Directors are present, the Company provides
notice of such action to all other Directors, and such written consent is filed
with the minutes of proceedings of the Board of Directors.
5.3.4 Attendance by Conference Telephone. Directors may
-----------------------------------
participate in any regular or special meeting of the Board of Directors by means
of conference telephone or teleconference, or any similar means of
communications through which all persons participating in the meeting can hear
each other, and such participation in a meeting shall constitute presence in
person at such meeting.
5.4 Officers.
---------
5.4.1 Appointment. The Board of Directors may appoint officers of
------------
the Company at any time and from time to time, including, without limitation, a
Chairman, Chief Operations Officer, Chief Information Officer, and Chief Officer
of Human Resources. The officers shall serve at the pleasure of the Board of
Directors, which may remove an officer with or without cause, subject to the
rights, if any, of an officer under any contract of employment. An officer may
resign at anytime, subject to the rights, if any, of the Company under any
contract of employment, and in such event the Board of Directors may appoint a
successor. The officers shall exercise such powers and perform such duties as
shall be determined from time to time by the Board of Directors as permitted or
authorized in this Agreement.
5.4.2 Authority. Subject to the provisions of the Articles, this
----------
Agreement, and the Act (including, without limitation, the provisions of Section
5.4.3 and those provisions relating to actions or decisions required to be taken
or made by, or with the approval of, the Board of Directors or the Members), the
officers are authorized as follows:
(a) The officers shall have the powers expressly delegated
to them by the Board of Directors and, subject to any restrictions imposed by
the Board of Directors, shall have all necessary powers to manage and carry out
the purposes, business, property, and affairs of the Company; and
(b) Any officer, acting alone, shall have the authority to
endorse checks, drafts, and other evidences of indebtedness made payable to the
order of the Company, but only for the purpose of deposit into the Company's
accounts. Any officer, acting alone, shall have the authority to sign any check,
draft, or instrument obligating the Company to pay money in an amount less than
$2,500, while any two individuals who are officers, acting together, shall have
the authority to sign any check, draft, or instrument obligating the Company to
pay money in an amount less than $25,000. Any two of the
12
Chief Operations Officer, the Chief Officer of Human Resources or the Chief
Information Officer, acting together, shall have the authority to sign any other
obligation, contract, agreement, certificate, or other document on behalf of the
Company.
5.4.3 Limitations on Authority. Notwithstanding anything to the
-------------------------
contrary expressed or implied in this Agreement, unless Approved by the Board of
Directors, no officer shall:
(a) Cause the Company to borrow, enter into credit
agreements, or incur other Indebtedness (other than ordinary course trade debt);
(b) Mortgage, pledge, or otherwise encumber the assets of the
Company;
(c) Make any material change in the nature of the Company's
business;
(d) Cease the Company's operations at any given location, or
initiate operations at a new location;
(e) Sell, exchange, or otherwise dispose of any Substantial
Assets of the Company outside of the ordinary course of business;
(f) Cause the Company to engage in any dissolution,
liquidation, merger, consolidation, or reorganization;
(g) Declare, pay, make or cause to be paid or made any
distributions or dividends to any Member,
(h) Take any act that would make it impossible to carry on
the ordinary business activities of the Company;
(i) Cause the Company to make a loan in excess of $25,000 to,
or guarantee a debt in excess of $25,000 of, any Person;
(j) Cause the Company to enter into any contract, agreement
or arrangement providing for payments by the Company in excess of $50,000 other
than in connection with ordinary course trade debt, which shall include the
purchase of debt portfolios;
(k) Compromise (i) an obligation of a Member to make a
Capital Contribution or return money or property paid or distributed in
violation of the Act, or (ii) an obligation of an officer under this Agreement
or otherwise, whether in his capacity as officer, Member, or otherwise;
(1) Cause the Company to take any action to initiate a
Bankruptcy of the Company;
(m) Cause the Company to confess any judgment;
13
(n) Cause the Company to issue any new Membership Interests,
or to alter the relative rights of existing Membership Interests; or
(o) Amend the Company's Articles or other governing
documents.
5.4.4 Compensation. No officer is entitled to compensation for
-------------
providing management or other services to the Company, except as Approved by the
Board of Directors or as provided in any employment contract between such person
and the Company.
5.4.5 Authority to Grant LLC Units to Officers. Except as
----------------------------------------
otherwise provided in this Section 5.4.5, the Board of Directors is authorized
and empowered to grant to an officer, as part of such officer's compensation
package with the Company, LLC Units upon such terms and conditions as are
determined by the Board of Directors in its sole and absolute discretion. The
LLC Units obtained by officers pursuant to this Section 5.4.5 shall include all
of the rights set forth in Section 3.5 above, including, without limitation, the
right to share in the Net Profits, Net Losses and/or similar items of the
Company, with the exception that such LLC Units shall not include the right to
share in the capital of the Company unless the holder of such LLC Units makes a
Capital Contribution, and then such LLC Units shall include the right to share
in the capital of the Company only to the extent of such holder's Capital
Contribution. In no event shall the aggregate amount of LLC Units granted to
officers pursuant to this Section 5.4.5 exceed ten percent (10%) of the
outstanding LLC Units of the Company. Any officer who acquires a Membership
Interest pursuant to a grant under this Section 5.4.5 shall be admitted to the
Company as a Member pursuant to the provisions of Section 4.2 above.
5.5 Limited Liability. No officer, Director or Member shall be
------------------
personally liable under any judgment of a court, or in any other manner, for any
debt, obligation, or liability of the Company, whether that debt, obligation, or
liability arises in contract, tort, or otherwise, solely by reason of
participating in the management of the Company or being a Member, Director or an
officer of the Company or both.
5.6 Devotion of Time. No Member or Director is obligated to devote all
-----------------
of his time or business efforts to the affairs of the Company, but shall devote
such time, effort, and skill as he or she deems appropriate for the operation of
the Company.
5.7 Competing Activities. Except as otherwise expressly provided
---------------------
herein or in an employment agreement, any Member or Director may engage or
invest in, independently or with others, any business activity of any type or
description, including, without limitation, those that might be the same as or
similar to the Company's business and that might be in direct or indirect
competition with the Company. Neither the Company nor any Member shall have any
right in or to such other ventures or activities or to the income or proceeds
derived therefrom. No Member or Director shall be obligated to present any
investment opportunity or prospective economic advantage to the Company, even if
the opportunity is of the character that, if presented to the Company, could be
taken by the Company. Any Member or Director shall have the right to hold any
investment opportunity or prospective economic advantage for such Member's or
Director's own account or to recommend such opportunity to Persons other than
the Company. Each Member acknowledges that the other Members and Directors might
own or manage other businesses, including businesses that may compete with the
Company for the time of the Member or Director. Each Member
14
hereby waives any and all rights and claims that he may otherwise have against
the other Members or Directors as a result of any such permitted activities.
ARTICLE VI
TRANSFER AND ASSIGNMENT OF INTERESTS
------------------------------------
6.1 Transfer of Interests. No Member shall be entitled to Transfer all
----------------------
or any part of its Membership Interest except with the prior Approval of the
Board of Directors, which approval may be given or withheld, conditioned or
delayed (as allowed by this Agreement or the Act), as the Board of Directors may
determine in its sole discretion; provided, however, that a Member may assign,
without the Approval of the Board of Directors (but subject to the satisfaction
of the requirements set forth in Section 6.2), all or any of such Member's
Membership Interest to such Member's Affiliates, Family Members, partners,
shareholders, or members of the transferring Member or entities controlled by
one of the foregoing. Notwithstanding anything in this Agreement to the
contrary, no Transfer of a Membership Interest in the Company shall be made if
such Transfer or the transferee's ownership of such Membership Interest in the
Company, as the case may be, would:
(a) result by itself, or in combination with any other
previous Transfers, in the termination of the Company as a partnership for
federal income tax purposes;
(b) result in the violation of the Securities Act of 1933, as
amended, or any other applicable federal or state laws;
(c) constitute a violation of or a default (or an event that,
with notice or the lapse of time or both, would constitute a default) under, or
result in an acceleration of any Indebtedness or payment under, any contract,
agreement, note, mortgage, loan agreement, instrument, or document to which the
Company is a party; or
(d) be a Transfer to an individual who is not legally
competent or who has not achieved his or her majority under the law of the state
(excluding trusts for the benefit of minors).
6.2 Effect of a Permitted Transfer of Membership Interest.
------------------------------------------------------
6.2.1 Substitution of Members. A transferee of a Membership
------------------------
Interest shall become a substitute Member only after each and all of the
following conditions are satisfied:
(a) a duly executed and acknowledged instrument of assignment
that is reasonably satisfactory in form and substance to the Board of Directors
is filed with the Company setting forth the intention of the transferor to
Transfer its interest in the Company;
(b) the transferor and transferee execute and acknowledge
such other instruments as the Board of Directors may request, which may include
an instrument pursuant to which the transferee agrees to be bound by the terms
of this Agreement; and
(c) the assignee pays to the Company the reasonable costs and
expenses of the Company incurred in connection with such assignment.
15
The admission of a substitute Member shall not result in the release of the
Member who assigned the Membership Interest from any liability that such Member
may have to the Company.
6.2.2 Effective Date of Permitted Transfer. The Transfer of all or
------------------------------------
any portion of a Membership Interest shall be effective as of the date upon
which the requirements of Sections 6.1 and 6.2.1 have been satisfied. Any
transferee of a Membership Interest shall take subject to the restrictions on
transfer imposed by this Agreement.
6.3 Transfer of Economic Interest. If a Member who is an individual
------------------------------
dies or is adjudged by a court of competent jurisdiction to be incompetent to
manage the Member's person or property, or if a Member that is corporation,
trust, or other entity dissolves or terminates, such Member's executor,
administrator, guardian, conservator, or other legal representative in the event
the Member is an individual, and such Member's legal representative or successor
in the event the Member is a corporation, trust, or other entity, shall have
only the rights of an Economic Interest Owner, which entitles the holder to
share in the income, gains, losses, deductions, credits, or similar items of,
and to receive distributions from, the Company, but does not provide any other
rights of a Member, including, without limitation, the right to vote or to
participate in management, or, except as provided in the Act, any right to
information concerning the business and affairs of the Company. An Economic
Interest Owner shall have no right to become a substitute Member without the
approval that is otherwise required pursuant to this Agreement.
6.4 Effect of Non-Compliance. An attempted Transfer that is in
-------------------------
violation of this Article VI shall be null and void ab initio.
-- ------
6.5 Transfers Pursuant to the Plan of Reorganization. Each Member
-------------------------------------------------
intends to transfer its entire Membership Interest in the Company to its
partners promptly after the effective date set forth in the Plan of
Reorganization. Notwithstanding anything to the contrary contained in this
Agreement, each Member may transfer its entire Membership Interest in the
Company to its partners without the Approval of the Board of Directors and
without complying with the requirements of Section 6.2, provided that such
transfers are effectuated pursuant to the Plan of Reorganization. After the
completion of such transfers, the Capital Contribution and Percentage Interest
of, and number of LLC units owned by, each Member shall be as set forth in
Exhibit C-1 attached hereto.
- -----------
ARTICLE VTI
ALLOCATIONS OF NET PROFITS AND NET LOSSES
-----------------------------------------
7.1 Allocation of Net Profits. For each fiscal year, the Net Profits of
-------------------------
the Company shall be allocated as follows:
(a) First, to the Members to the extent of, and in proportion
to, the amount by which the aggregate Net Losses allocated to the Members
pursuant to Section 7.2(b) exceeds the aggregate Net Profits previously
allocated to the Members pursuant to this Section 7.1(a);
(b) Second, to the Members to the extent of, and in
proportion to, the amount of their respective Effective Date Unreturned Capital
until the aggregate amount
16
of Net Profits allocated to each Member under this Section 7.1(b) for all fiscal
years equals the Effective Date Unreturned Capital for such Member; and
(c) Thereafter, to the Members in proportion to their
respective Percentage Interests.
7.2 Allocation of Net Losses. For each fiscal year, the Net Losses of
-------------------------
the Company shall be allocated as follows:
(a) First, to the Members to the extent of, and in
proportion to, the amount by which the aggregate Net Profits allocated to the
Members pursuant to Section 7.1(c) exceed the aggregate Net Losses previously
allocated to the Members pursuant to this Section 7.2(a); and
(b) Thereafter, to the Members in proportion to their
respective Percentage Interests.
7.3 Special Allocations. Notwithstanding the foregoing provisions of
--------------------
this Article VII:
7.3.1 Regulatory Allocations.
-----------------------
(a) If there is a net decrease in (1) Company Minimum Gain or
(2) Member Minimum Gain during any fiscal year, the Members shall be allocated
items of Company income and gain for such year (and, if necessary, for
subsequent years) in accordance with Regulation Section 1.704-2(f) or Section
1.704-2(i)(4), as applicable. It is intended that this Section 7.3.1 (a) qualify
and be construed as a "minimum gain chargeback" and a "chargeback of partner
nonrecourse debt minimum gain" within the meaning of the Regulations, which
shall be controlling in the event of a conflict between such regulations and
this Section 7.3.1 (a).
(b) Any Nonrecourse Deductions for any fiscal year shall be
specially allocated to the Members in accordance with their Percentage
Interests. Any Member Nonrecourse Deductions for any fiscal year shall be
specially allocated to the Members) who bears the economic risk of loss (within
the meaning of Regulation 1.704-2) with respect to the Member Nonrecourse Debt
to which such Member Nonrecourse Deductions are attributable, in accordance with
Regulation Section 1.704-2(1).
(c) If any Member unexpectedly receives an adjustment,
allocation or distribution described in Regulations Section
1.704-1(b)(2)(ii)(d)(4), (5) or (6), items of Company income and gain shall be
allocated, in accordance with Regulation Section 1.704-l(b)(2)(ii)(d), to the
Member in an amount and manner sufficient to eliminate, to the extent required
by such Regulation, the Adjusted Capital Account Deficit of the Member as
quickly as possible. It is intended that this Section 7.3.1 (c) qualify and be
construed as a "qualified income offset" within the meaning of Regulation
Section 1.704- l(b)(2)(ii)(d), which shall be controlling in the event of a
conflict between such Regulation and this Section 7.3.l(c).
(d) If, and only to the extent, any allocation of Net Losses
would cause or increase an Adjusted Capital Account Deficit as to any Member,
such allocation of
17
Net Losses shall be reallocated among the other Members in accordance with their
relative Percentage Interests.
(e) The allocations set forth in Sections 7.3.1 (a), (b),
(c), and (d) (the "Special Regulatory Allocations") are intended to comply with
certain regulatory requirements, including the requirements of Regulation
Sections 1.704-1 (b) and 1.704-2. Notwithstanding the provisions of Section 7.1
or Section 7.2, the Special Regulatory Allocations shall be taken into account
in allocating other items of income, gain, loss and deduction among the Members
so that, to the extent possible, the net amount of such allocations of other
items and the Special Regulatory Allocations to each Member shall be equal to
the net amount that would have been allocated to each such Member if the Special
Regulatory Allocations had not occurred.
(f) For any fiscal year during which any part of a
Membership Interest is transferred by a Member (or by a successor in interest to
a Member), the portion of the Net Profits and Net Losses of the Company that is
allocable in respect of such transferred interest shall be apportioned between
the assignor and the assignee of such interest under any method allowed pursuant
to Section 706 of the Code and the applicable Regulations as determined by the
Company.
(g) For purposes of determining a Member's proportional
share of the Company's "excess nonrecourse liabilities" within the meaning of
Regulation Section 1.752-3(a)(3), each Member's interest in the Company's
profits shall be such Member's Percentage Interest.
7.3.2 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 Code Section 743(b) is required, pursuant to Regulation Section
l.704-l(b)(2)(iv)(m), to be taken into account in determining Capital Accounts,
the amount of such adjustment to the 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 a manner consistent with the manner in which their
Capital Accounts are required to be adjusted pursuant to such section of the
Regulations.
7.3.3 Recourse Deductions. In the event any Member voluntarily
--------------------
agrees to make additional Capital Contributions or to become personally liable
for Company Indebtedness, allocations of losses to that Member may be made which
result in a deficit in its Capital Account and which will not be subject to the
qualified income offset provisions under Section 7.3. l(c); provided, however,
that no such allocation of losses shall be made to that Member unless a written
agreement is made by which that Member agrees voluntarily to such loss
allocation.
7.3.4 Curative Allocations. Notwithstanding any other provision of
---------------------
this Agreement, the Regulatory Allocations shall be taken into account in
allocating items of income, gain, loss and deduction among the Members so that,
to the extent possible, the net amount of such allocations of other items and
the Regulatory Allocations to each Member shall be equal to the net amount that
would have been allocated to each such Member if the Regulatory Allocations had
not occurred.
18
7.3.5 Contributed Property. Notwithstanding any other provision of
---------------------
this Agreement, the Members shall cause depreciation and or cost recovery
deductions and gain or loss attributable to property contributed by a Member or
revalued by the Company to be allocated among the Members for income tax
purposes in accordance with Section 704(c) of the Code and the Regulations
promulgated thereunder.
7.3.6 Recapture Income. The portion of each Member's distributive
-----------------
share of Net Profits that is characterized as ordinary income pursuant to
Section 1245 or 1250 of the Code shall be proportionate to the amount of Net
Profits or Net Losses that included the corresponding depreciation deductions
that were allocated to such Member as compared with the amount of depreciation
deductions allocated to all Members.
7.3.7 Allocation of Company Items. Except as otherwise provided
----------------------------
herein, whenever a proportionate part of Net Profits or Net Losses is allocated
to a Member, every item of income, gain, loss or deduction entering into the
computation of such Net Profits or Net Losses, and every item of credit or tax
preference related to such allocation and applicable to the period during which
such Net Profits or Net Losses was realized shall be allocated to the Member, in
the same proportion and consistent with the applicable provisions of this
Article VII.
ARTICLE VIII
DISTRIBUTIONS
-------------
8.1 Distributions by the Company. Subject to Applicable Law and any
-----------------------------
limitations contained elsewhere in this Agreement, the Board of Directors may
elect from time to time to make distributions, in cash or property, to the
Members in the following order of priority:
(a) First, to the Members to the extent of, and in proportion
to, their unreturned Capital Contributions; and
(b) Thereafter, to the Members in proportion to their
respective Percentage Interests.
8.2 Form of Distribution. In the event of a distribution, no right is
---------------------
given to any Member to demand and receive property in any form other than money.
The Board of Directors may determine, however, in its sole and absolute
discretion, to make a distribution in kind of Company assets to the Members.
Such assets shall be distributed in accordance with their fair market value at
the time of the distribution (as determined by the Board of Directors, in its
sole and absolute discretion, whose determination shall be final and binding on
all parties in the absence of manifest error).
8.3 Distributees: Liability for Distributions. All distributions made
------------------------------------------
pursuant to this Article VIII shall be made only to the Persons who, according
to the books and records of the Company, hold the Membership Interests in
respect of which such distributions are made on the actual date of distribution.
Neither the Company nor any Director shall incur any liability for making
distributions in accordance with this Article VIII.
8.4 Return of Distributions. Except for distributions made in
------------------------
violation of the Act or this Agreement, or as otherwise required or prohibited
by Applicable Law, no Member
19
shall be obligated to return any distribution to the Company or to pay the
amount of any distribution for the account of the Company or to any creditor of
the Company.
8.5 Right to Withhold. The Company may withhold from any distribution
------------------
such amounts as are required to be withheld by the Applicable Laws of any taxing
jurisdiction. Any amounts withheld shall be treated for all purposes of this
Agreement (i) as a distribution of cash to be charged against current
distributions to which such Member would otherwise have been entitled, or (ii)
if current distributions are insufficient, as a demand loan to such Member in
the amount of such insufficiency.
ARTICLE IX
INDEMNIFICATION AND INSURANCE
-----------------------------
9.1 Indemnification of Members, Directors and Officers. The Company
---------------------------------------------------
shall indemnify any Member, Director or officer of the Company who was or is a
party or is threatened to be made a party to, or otherwise becomes involved in,
any Proceeding (including a Proceeding by or in the right of the Company) by
reason of the fact that such Member, Director or officer is or was an agent of
the Company against all Expenses, amounts paid in settlement, judgments, fines,
penalties and ERISA excise taxes actually and reasonably incurred by or levied
against such Member, Director or officer in connection with such Proceeding if
such Member, Director or officer acted in good faith and in a manner such
Member, Director or officer reasonably believed to be in or not opposed to the
best interests of the Company and, with respect to any criminal Proceeding, had
no reasonable cause to believe such Member's, Director's or officer's conduct
was unlawful. The termination of any Proceeding, whether by judgment, order,
settlement or conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that a Member, Director or officer
did not act in good faith and in a manner that he reasonably believed to be in
or not opposed to the best interests of the Company or, with respect to any
criminal Proceeding, that a Member, Director or officer had reasonable cause to
believe that such Member's, Director's or officer's conduct was unlawful. To the
fullest extent permitted by Applicable Law, a Member, Director or officer shall
be conclusively presumed to have met the relevant standards of conduct, as
defined by the laws of the State of California or other applicable
jurisdictions, for indemnification pursuant to this Section 9.1, unless and
until a court of competent jurisdiction, after all appeals, finally determines
to the contrary, and the Company shall bear the burden of proof of establishing
by clear and convincing evidence that such Member, Director or officer failed to
meet such standards of conduct. In any event, the Member, Director or officer
shall be entitled to indemnification from the Company to the fullest extent
permitted by Applicable Law, including, without limitation, any amendments
thereto subsequent to the date of this Agreement that increase the protection of
Members, Directors and officers allowable under such laws.
9.2 Successful Defense. Notwithstanding any other provision of this
-------------------
Agreement, to the extent that a Member, Director or officer of the Company has
been successful on the merits or otherwise in defense of any Proceeding referred
to in Section 9.1, or in defense of any claim, issue or matter therein, such
Member, Director or officer shall be indemnified against Expenses actually and
reasonably incurred in connection therewith to the fullest extent permitted by
the laws of the State of California or other applicable jurisdictions,
including, without limitation, any amendments thereto subsequent to the date of
this Agreement that increase the protection of Members, Directors and officers
allowable under such laws.
20
9.3 Indemnification of Other Agents. The Company may, but shall not be
--------------------------------
obligated to, indemnify any Person (other than a Member, Director or officer of
the Company ) who was or is a party or is threatened to be made a party to, or
otherwise becomes involved in, any Proceeding {including any Proceeding by or in
the right of the Company) by reason of the fact that such Person is or was an
agent of the Company, against all Expenses, amounts paid in settlement,
judgments, fines, penalties and ERISA excise taxes actually and reasonably
incurred by such Person in connection with such Proceeding under the same
circumstances and to the same extent as is provided for or permitted in this
Article IX with respect to a Member, Director or officer of the Company, or with
respect to such circumstances and on such terms as are Approved by the Board of
Directors.
9.4 Right to Indemnification Upon Application.
------------------------------------------
9.4.1 Timing. Any indemnification or advance under Section 9.1
-------
shall be made promptly, and in no event later than sixty (60) days, after the
Company's receipt of the written request of a Member, Director or officer of the
Company therefor, unless, in the case of an indemnification, a determination
shall have been made as provided in Section 9.1 that such Member, Director or
officer has not met the relevant standard for indemnification set forth in that
Section.
9.4.2 Enforcement. The right of a Person to indemnification or an
------------
advance of Expenses as provided by this Article IX shall be enforceable in any
court of competent jurisdiction. The Company shall have the burden of proving by
clear and convincing evidence that indemnification or advances are not
appropriate. Neither the failure by the Board of Directors, Members of the
Company or its independent legal counsel to have made a determination that
indemnification or an advance is proper in the circumstances, nor any actual
determination by the Board of Directors, Members of the Company or its
independent legal counsel that indemnification or an advance is not proper,
shall be a defense to the action or create a presumption that the relevant
standard of conduct has not been met. In any such action, the Person seeking
indemnification or advancement of Expenses shall be entitled to recover from the
Company any and all expenses of the types described in the definition of
Expenses actually and reasonably incurred by such Person in such action, but
only if such Person prevails therein. A Person's Expenses incurred in connection
with any Proceeding concerning such Person's right to indemnification or
advances in whole or in part pursuant to this Agreement shall also be
indemnified by the Company regardless of the outcome of such Proceeding, unless
a court of competent jurisdiction finally determines that each of the material
assertions made by such Person in the Proceeding was not made in good faith or
was frivolous.
9.5 Payment of Expenses in Advance. Expenses incurred by a Member,
-------------------------------
Director or officer of the Company in connection with a Proceeding shall be paid
by the Company in advance of the final disposition of such Proceeding upon
receipt of a written undertaking by or on behalf of such Member, Director or
officer to repay such amount if it shall ultimately be determined that such
Member, Director or officer is not entitled to be indemnified by the Company as
authorized in this Article IX.
9.6 Limitations on Indemnification. No payments pursuant to this
-------------------------------
Agreement shall be made by the Company:
21
(a) To indemnify or advance funds to any Person with
respect to a Proceeding initiated or brought voluntarily by such Person and not
by way of defense, except as provided in Section 9.4.2 with respect to a
Proceeding brought to establish or enforce a right to indemnification under this
Agreement, otherwise than as required under California law, but indemnification
or advancement of Expenses may be provided by the Company in specific cases if a
determination is made that such indemnification or advancement is appropriate.
The determination as to whether any such indemnification or advancement of
Expenses is appropriate shall be made (i) by the Board of Directors by a
majority vote of a quorum consisting of Directors who were not parties to such
Proceeding, or (ii) if such quorum is not obtainable or, even if obtainable, a
quorum of such disinterested Directors so directs, by independent legal counsel
in a written opinion;
(b) To indemnify or advance funds to any Person for any
Expenses, judgments, amounts paid in settlement, fines, penalties or ERISA
excise taxes resulting from the such Person's conduct that is finally adjudged
to have been willful misconduct, knowingly fraudulent or deliberately dishonest;
or
(c) If a court of competent jurisdiction finally determines
that any indemnification or advance of Expenses hereunder is unlawful.
9.7 Other Terms of Indemnification.
-------------------------------
9.7.1 Partial Indemnification. If a Person is entitled under any
------------------------
provision of this Article IX to indemnification by the Company for a portion of
Expenses, amounts paid in settlement, judgments, fines, penalties or ERISA
excise taxes incurred by such Person in any Proceeding but not, however, for the
total amount thereof, the Company shall nevertheless indemnify such Person for
the portion of such Expenses, amounts paid in settlement, judgments, fines,
penalties or ERISA excise taxes to which such Person is entitled, except that no
indemnification shall be given for Expenses in connection with a Proceeding
brought by the Company if the Person is found liable on any portion of the
claims in such Proceeding.
9.7.2 Indemnity Not Exclusive. The indemnification and advancement
------------------------
of Expenses provided by, or granted pursuant to, the provisions of this Article
IX shall not be deemed exclusive of any rights to which any Person seeking
indemnification or advancement of Expenses may be entitled under any agreement,
Approval of the Board of Directors, or otherwise, both as to action in such
Person's capacity as an agent of the Company and as to action in another
capacity while serving as an agent.
9.7.3 Insurance. The Company shall have the power to purchase and
----------
maintain insurance or make other financial arrangements on behalf of any Person
who is or was an agent of the Company against any liability asserted against
such Person and incurred by such Person in any such capacity, or arising out of
such Person's status as an agent, whether or not the Company would have the
power to indemnify such Person against such liability under the provisions of
this Article IX or the Act. In the event a Person shall receive payment from any
insurance carrier or from the plaintiff in any action against such Person with
respect to indemnified amounts after payment on account of all or part of such
indemnified amounts having been made by the Company pursuant to this Article IX,
such Person shall reimburse the Company for the amount, if any, by which the sum
of such payment by such insurance carrier or such plaintiff and payments by the
Company to such
22
Person exceeds such indemnified amounts; provided, however, that such portions,
if any, of such insurance proceeds that are required to be reimbursed to the
insurance carrier under the terms of its insurance policy shall not be deemed to
be payments to such Person hereunder. In addition, upon payment of indemnified
amounts under the terms and conditions of this Agreement, the Company shall be
subrogated to such Person's rights against any insurance earner with respect to
such indemnified amounts (to the extent permitted under such insurance
policies). Such right of subrogation shall be terminated upon receipt by the
Company of the amount to be reimbursed by such Person pursuant to the second
sentence of this Section 9.7.3.
9.7.4 Heirs, Executors and Administrators. The indemnification and
------------------------------------
advancement of Expenses provided by, or granted pursuant to, this Article IX
shall, unless otherwise provided when authorized or ratified, continue as to a
Person who has ceased to be an agent of the Company and shall inure to the
benefit of such Person's heirs, executors and administrators.
ARTICLE X
ACCOUNTING, RECORDS, REPORTING BY MEMBERS
-----------------------------------------
10.1 Books and Records. The books and records of the Company shall be
------------------
kept, and the financial position and the results of its operations recorded, in
accordance with the accounting methods followed for federal income tax purposes.
The books and records of the Company shall reflect all the Company transactions
and shall be appropriate and adequate for the Company's business. The Company
shall maintain at its principal office in California all of the following:
(a) A current list of the full name and last known business
or residence address of each Member and Economic Interest Owner set forth in
alphabetical order, together with the Capital Contributions and Capital Account
of each Member and Economic Interest Owner;
(b) A copy of the Articles and any and all amendments
thereto together with executed copies of any powers of attorney pursuant to
which the Articles or any amendments thereto have been executed;
(c) A copy of the Company's federal, state, and local
income tax or information returns and reports, if any, for the six most recent
taxable years;
(d) A copy of this Agreement and any and all amendments
hereto together with executed copies of any powers of attorney pursuant to which
this Agreement or any amendments thereto have been executed;
(e) A copy of the financial statements of the Company, if
any, for the six most recent Fiscal Years; and
(f) The Company's books and records as they relate to the
internal affairs of the Company for at least the current and past four Fiscal
Years.
10.2 Access to Records. Each Member has the right, upon reasonable
------------------
request for purposes reasonably related to the interest of the Member to inspect
and copy, at its own
23
expense, during normal business hours any of the Company records described in
Section 10.1.
10.3 Financial and Other information. The Company shall provide such
-------------------------------
financial and other information relating to the Company as a Member may
reasonably request.
10.4 Filings. The Board of Directors shall cause the income tax
--------
returns for the Company to be prepared and timely filed with the appropriate
authorities. The Board of Directors, at Company expense, shall cause to be
prepared and timely filed, with appropriate federal and state regulatory and
administrative bodies, amendments to, or restatements of, the Articles and all
reports required to be filed by the Company with those entities under the Act or
other then current applicable laws, rules, and regulations.
10.5 Bank Accounts. The Board of Directors shall maintain the funds of
--------------
the Company in one or more separate bank accounts in the name of the Company,
and shall not permit the funds of the Company to be commingled in any fashion
with the funds of any other Person.
10.6 Tax Matters Member. The Members hereby appoint _________________to
-------------------
act as the "Tax Matters Partner" as that term is defined in Section 6231(a)(7)
of the Code. The Tax Matters Partner is authorized, at the Company's expense, to
represent the Company and the Members in connection with all examinations of the
Company affairs by tax authorities, including resulting administrative and
judicial proceedings, and to expend Company funds for professional services and
costs connected therewith; provided, however, that (a) each Member shall have
the option of having its officers and other representatives present at any
meeting between tax authorities and the Tax Matters Partner and (b) the Tax
Matters Partner may not enter into any settlement of any judicial or other
proceeding with respect to the tax affairs of the Company.
ARTICLE XI
DISSOLUTION AND WINDING UP
--------------------------
11.1 Mutual Agreement. Upon the approval of a majority of the
-----------------
Percentage Interests of the Members, or upon the occurrence of an event of
dissolution under Section 11.2, the Company shall be dissolved and the assets
liquidated. The Company shall engage in no further business thereafter other
than that necessary to wind up the business and distribute the assets. The
maintenance of offices shall not be deemed a continuation of the business for
purposes of this Section 11.1. The Members shall continue to divide Net Profits
and Net Losses during the winding-up period in the same ratio as prior to
dissolution.
11.2 Dissolution of the Company. The Company shall dissolve:
---------------------------
(a) Upon the happening of an event of dissolution specified
in the Articles;
(b) Upon the entry of a decree of judicial dissolution;
(c) Upon the expiration of the term of the Company; or
24
(d) Upon the sale or other disposition of all of the assets
of the Company.
11.3 Liquidation of Assets. Upon a dissolution and termination of the
---------------------
Company, the Board of Directors (or m case there is no Board of Directors, the
Members) shall take full account of the Company assets and liabilities, shall
liquidate the assets as promptly as is consisted with obtaining the fair
market value thereof, and shall apply and distribute the proceeds therefrom in
the following order:
(a) To the payment of creditors of the Company, including
Members who are creditors to the extent permitted by law, but excluding secured
creditors whose obligations will be assumed or otherwise transferred on the
liquidation of Company assets;
(b) To the setting up of any reserves as required by law
for any liabilities or obligations of the Company; provided, however, that said
reserves shall be deposited with a bank or trust company in escrow at interest
for the purpose of disbursing such reserves for the payment of any of the
aforementioned contingencies and, at the expiration of a reasonable period, for
the purpose of distributing the balance remaining in accordance with remaining
provisions of this Section 11.3; and
(c) To the Members in accordance with the provisions of
Section 8.1.
The Members acknowledge that the provisions of this Section 11.3 may not
comply with Code Section 704 and the Regulations promulgated thereunder. If upon
liquidation, the provisions of this Section 11.3 do not comply with Code Section
704 and the Regulations promulgated thereunder, the Board of Directors is
authorized and empowered to use its best efforts to allocate Net Profits and Net
Losses and make distributions, in cash or property, to the Members in such a
manner that does so comply with Code Section 704 and the Regulations promulgated
thereunder while giving effect to the intent of these provisions, which is to
provide for the allocation of Net Profits and distributions to the Members pro
rata based on unreturned Capital Contributions until all Members have received
back their respective Capital Contribution and thereafter to the Members in
accordance with their respective Percentage Interests.
11.4 Distributions Upon Dissolution. Each Member shall look solely to
-------------------------------
the assets of the Company for all distributions and its Capital Contributions,
and shall have no recourse therefor (upon dissolution or otherwise) against any
past or present Director or Member.
11.5 Liquidation of Member's Interest. In no event may a Member
---------------------------------
liquidate its interest in the Company without the prior Approval of the Board of
Directors, which approval may be given or withheld, conditioned or delayed (as
allowed by this Agreement or the Act), as the Board of Directors may determine
in its sole discretion.
11.6 Certificates of Dissolution and Cancellation. The Board of
---------------------------------------------
Directors or, if none, the Members shall file Certificates of Dissolution and
Cancellation in the office of, and on a form prescribed by, the California
Secretary of State.
25
ARTICLE XII
MISCELLANEOUS
-------------
12.1 Counterparts. This Agreement may be executed in several
-------------
counterparts, and all so executed shall constitute one Agreement, binding on all
of the parties hereto, notwithstanding that all of the parties are not signatory
to the original or the same counterpart.
12.2 Successors and Assigns. The terms and provisions of this Agreement
-----------------------
shall be binding upon and shall inure to the benefit of the successors and
assigns of the respective Members.
12.3 Severability. In the event any sentence or Section of this
-------------
Agreement is declared by a court of competent jurisdiction to be void, such
sentence or Section shall be deemed severed from the remainder of this Agreement
and the balance of this Agreement shall remain in full force and effect.
12.4 Notices. All notices under this Agreement shall be in writing and
--------
shall be given to the Member or Economic Interest Owner entitled thereto by the
United States mail, posted to the address maintained by the Company for such
person or at such other address as he or she may specify in writing. Notices
given in accordance with this Section 12.4 shall be deemed received three days
after deposit in the United States mail.
12.5 Governing Law. This Agreement shall be governed by and construed
--------------
in accordance with the laws of the State of California, without giving effect to
any conflict of laws provisions.
12.6 Captions. Section titles or captions contained in this Agreement
---------
are inserted only as a matter of convenience and reference. Such titles and
captions in no way define, limit, extend or describe the scope of this Agreement
nor the intent of any provisions hereof.
12.7 Gender. Whenever required by the context hereof, the singular
-------
shall include the plural, and vice versa, the masculine gender shall include the
feminine and neuter genders, and vice versa.
12.8 Time. Time is of the essence with respect to this Agreement.
-----
12.9 Additional Documents. Each Member, upon the request of the Board
---------------------
of Directors, shall perform any further acts and execute and deliver any
documents which may be reasonably necessary to carry out the provisions of this
Agreement, including, but not limited to, providing acknowledgment before a
Notary Public of any signature made by a Member.
12.10 Descriptions. All descriptions referred to in this Agreement are
-------------
expressly incorporated herein by reference as if set forth in full, whether or
not attached hereto.
12.11 Jurisdiction. Any and all disputes arising out of, related to, or
-------------
in connection with this Agreement shall be heard and determined before an
appropriate federal or state court located in Orange County, California. In any
action or proceeding arising out of, related to, or in connection with this
Agreement, the Members consent to be subject to the
26
exclusive jurisdiction and venue of the federal and state courts in Orange
County, California. Each of the Members consents to the service of process in
any action commenced hereunder by certified or registered mail, return receipt
requested, or by any other method or service acceptable under federal law or the
laws of the State of California.
12.12 Attorneys' Fees. In the event that any dispute between the
----------------
Company and the Members or among the Members should result in litigation or
arbitration, the prevailing party in such dispute shall be entitled to recover
from the other party all reasonable fees, costs and expenses of enforcing any
right of the prevailing party, including, without limitation, reasonable
attorneys' fees and expenses.
12.13 Partition. The Members agree that the assets of the Company are
----------
not and will not be suitable for partition. Accordingly, each of the Members
hereby irrevocably waives any and all rights that they may have, or may obtain,
to maintain any action for partition of any of the assets of the Company.
12.14 Integrated and Binding Agreement. This Agreement contains the
---------------------------------
entire understanding and agreement among the Members with respect to the subject
matter hereof, and there are no other agreements, understandings,
representations or warranties among the Members other than those set forth
herein. This Agreement may be amended only as provided in this Agreement.
12.15 Consistent Tax Reporting. All Members agree not to take any
-------------------------
position on their income tax returns that are inconsistent with the position
taken of the Company's tax returns and Form K-l's. The Members shall abide by
any good faith decision and/or requests of the Company regarding consistent
reporting of tax matters. In the event that any disagreement arises as a result
of any tax position, the parties hereby agree to work in good faith to resolve
any inconsistency or disagreement.
27
IN WITNESS WHEREOF, all of the Members of Performance Capital Management, LLC, a
California limited liability company, have executed this Agreement, effective as
of the date written above.
PERFORMANCE ASSET MANAGEMENT FUND, LTD.,
a California limited partnership
By:
-------------------------------------
Its:
-------------------------------
By:
-------------------------------------
Its:
-------------------------------
PERFORMANCE ASSET MANAGEMENT
FUND II, LTD., a California limited
partnership
By:
-------------------------------------
Its:
-------------------------------
By:
-------------------------------------
Its:
-------------------------------
PERFORMANCE ASSET MANAGEMENT
FUND III, LTD., a California limited
partnership
By:
-------------------------------------
Its:
-------------------------------
By:
-------------------------------------
Its:
-------------------------------
PERFORMANCE ASSET MANAGEMENT
FUND IV, LTD., a California limited
partnership
By:
-------------------------------------
Its:
-------------------------------
By:
-------------------------------------
Its:
-------------------------------
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PERFORMANCE ASSET MANAGEMENT
FUND V, LTD., a California limited
partnership
By:
-------------------------------------
Its:
-------------------------------
By:
-------------------------------------
Its:
-------------------------------
29