EXHIBIT 3.1
SECOND AMENDED AND RESTATED
OPERATING AGREEMENT
OF
CHEROKEE INTERNATIONAL, LLC,
A CALIFORNIA LIMITED LIABILITY COMPANY
DATED AS OF APRIL 30, 1999
THE INTERESTS REPRESENTED BY THIS OPERATING AGREEMENT HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), NOR
QUALIFIED UNDER APPLICABLE STATE SECURITIES LAWS IN RELIANCE ON EXEMPTIONS
THEREFROM. THESE INTERESTS HAVE BEEN ACQUIRED FOR INVESTMENT PURPOSES ONLY AND
NOT WITH A VIEW TO DISTRIBUTION OR RESALE AND MAY NOT BE SOLD, MORTGAGED,
PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT FOR SUCH INTERESTS UNDER THE SECURITIES ACT AND THE REGULATIONS
PROMULGATED PURSUANT THERETO (UNLESS EXEMPT THEREFROM) AND COMPLIANCE WITH ANY
APPLICABLE STATE SECURITIES LAWS AND REGULATIONS.
TABLE OF CONTENTS
PAGE
ARTICLE I DEFINITIONS; CONSTRUCTION......................................1
1.1 Definitions....................................................1
1.2 Directly or Indirectly.........................................6
1.3 Captions.......................................................6
1.4 Interpretation.................................................6
1.5 References to this Agreement...................................6
ARTICLE II ORGANIZATION...................................................6
2.1 General........................................................6
2.2 Business Purpose...............................................6
2.3 Name and Address of the Company................................6
2.4 Term...........................................................6
2.5 Required Filings...............................................7
2.6 Registered Agent...............................................7
ARTICLE III MEMBERS AND MEMBERSHIP INTERESTS...............................7
3.1 Initial Members; Additional Members............................7
3.2 Options........................................................7
3.3 Representations and Warranties.................................8
3.4 Voting Rights; Approval Required...............................8
3.5 Meetings of Members............................................9
3.6 Disposition of Interests......................................10
3.7 Amendment of Agreement to Reflect New Members.................10
3.8 Interest in Member............................................11
3.9 No Resignation or Removal.....................................11
3.10 No Liability to Third Parties.................................11
3.11 Rights of Transferees.........................................11
3.12 Competing Activities..........................................11
3.13 Transactions with the Company.................................12
3.14 Members are not Agents........................................12
ARTICLE IV CAPITAL CONTRIBUTIONS AND CAPITAL ACCOUNTS....................12
4.1 Capital Contributions.........................................12
4.2 No Return of Capital Contribution; No Interest................13
4.3 Capital Accounts..............................................13
4.4 No Obligation to Restore Deficits.............................14
ARTICLE V ALLOCATIONS AND DISTRIBUTIONS.................................14
5.1 Allocation of Net Profits and Net Losses; Capital Accounts....14
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5.2 Other Allocation Provisions...................................14
5.3 Allocations for Income Tax Purposes...........................17
5.4 Distributions.................................................17
5.5 Form of Distributions.........................................18
5.6 No Limitations On Distributions...............................18
ARTICLE VI TRANSFER PROVISION............................................18
6.2 Right of First Offer..........................................18
6.3 Tag-Along Rights..............................................20
6.4 Drag-Along Rights.............................................22
6.5 Buy-Sell Arrangements.........................................23
6.6 Purchase Option...............................................24
6.7 Termination...................................................24
6.8 Legends on Unit Certificates..................................24
ARTICLE VII MANAGEMENT AND OPERATION......................................25
7.1 Management....................................................25
7.2 Managers; Management Committee................................25
7.3 Officers......................................................27
7.4 Acts of Officers as Conclusive Evidence of Authority..........28
7.5 Payments to Members...........................................28
7.6 Nature of Relationship........................................28
ARTICLE VIII CONVERSION TO CORPORATION.....................................29
8.1 Authority.....................................................29
8.2 Cooperation by Members........................................29
8.3 Stockholders Agreement........................................29
ARTICLE IX TAX MATTERS...................................................29
9.1 Tax Returns...................................................29
9.2 Tax Matters Member............................................30
9.3 Tax Elections.................................................30
9.4 Withholding...................................................30
ARTICLE X BOOKS, RECORDS, REPORTS, AND BANK ACCOUNTS....................31
10.1 Maintenance of Books..........................................31
10.2 Financial Information; Access.................................32
10.3 Confidentiality...............................................32
10.4 Publicity.....................................................32
ARTICLE XI DISSOLUTION AND WINDING UP....................................32
11.1 Conditions of Dissolution.....................................32
11.2 Liquidation and Termination...................................33
11.3 Cancellation of Filings.......................................34
11.4 No Capital Contribution Upon Dissolution......................34
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ARTICLE XII EXCULPATION AND INDEMNIFICATION...............................34
12.1 ..............................................................34
ARTICLE XIII GENERAL PROVISIONS...............................35
13.1 Notices.......................................................35
13.2 Entire Agreement; Waivers and Modifications...................36
13.3 Binding Effect; No Third-Party Beneficiaries..................36
13.4 Governing Law.................................................37
13.5 Further Assurances............................................37
13.6 Waiver of Certain Rights......................................37
13.7 Multiple Counterparts; Facsimile Transmission.................37
13.8 Arbitration...................................................37
13.9 Attorneys' Fees...............................................38
13.10 Submission to Jurisdiction....................................38
APPENDIX A.................................................................A-1
APPENDIX B - Management Committee..........................................B-1
APPENDIX C - Officers......................................................C-1
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SECOND AMENDED AND RESTATED
OPERATING AGREEMENT OF
CHEROKEE INTERNATIONAL, LLC
(a California Limited Liability Company)
THIS SECOND AMENDED AND RESTATED OPERATING AGREEMENT (this "AGREEMENT")
is made and entered into as of April 30, 1999 by and among the parties listed on
the signature pages hereof, as Members (as hereinafter defined).
WHEREAS, on February 21, 1996, Articles of Organization for Cherokee
International, LLC (the "COMPANY"), a limited liability company organized under
the laws of the State of California, were filed with the California Secretary of
State;
WHEREAS, an Amended and Restated Operating Agreement for the Company
was entered into on March 28, 1996, which superseded and replaced an interim
operating agreement entered into by the initial members of the Company (as
amended, the "EXISTING OPERATING AGREEMENT");
WHEREAS, pursuant to the Unit Purchase Agreement, dated as of March 31,
1999 (the "PURCHASE AGREEMENT"), Cherokee Investor Partners, LLC (together with
their Permitted Transferees (as defined herein) "CHEROKEE INVESTORS"), a
Delaware limited liability company, acquired 60% of the aggregate outstanding
membership interests in the Company from the other Members (the "EXISTING
MEMBERS");
WHEREAS, the Members desire, on the terms and provisions set forth in
this Agreement, to amend and restate the Existing Operating Agreement and to
provide for, among other things, the admission of Cherokee Investors as a
Member.
NOW, THEREFORE, in consideration of the mutual covenants, rights, and
obligations set forth herein, the benefits to be derived therefrom, and other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto, intending to be legally bound hereby, agree as
follows:
ARTICLE I
DEFINITIONS; CONSTRUCTION
1.1 DEFINITIONS. When used herein, the following capitalized terms
shall have the meanings indicated:
"ACT" means the Beverly-Killea Limited Liability Company Act, codified
in the California Corporations Code, Section 17000 ET SEQ., as the same may be
amended from time to time.
"ADJUSTED CAPITAL ACCOUNTS" has the meaning set forth in Section 5.2.2
hereof.
"AFFILIATE" means as to any Person any other Person who, directly or
indirectly, through one or more intermediaries, Controls or is Controlled by or
under common Control with that Person (except that the Company shall not be
considered an Affiliate of any Member or of any equity holder of any Member).
"APPRAISED VALUE" means, with respect to the Company and as of any
applicable valuation date, the equity valuation (computed on a fully diluted
basis) of the Company valued as a going concern and without minority or
liquidity discount, as determined by an Independent Financial Expert. The
Company shall cooperate with and shall make available to the Independent
Financial Expert all information reasonably requested by it to determine
Appraised Value, which determination shall be conclusive and binding upon the
Company, all other interested parties and the respective Affiliates of the
foregoing for all purposes of this Agreement. Notwithstanding the foregoing, the
Company and the beneficiary of any payment to be based upon Appraised Value may
determine the Appraised Value by mutual agreement.
"ARTICLES" means the Articles of Organization of the Company originally
filed with the California Secretary of State and as amended from time to time.
"CAPITAL ACCOUNT" means the capital account established and maintained
for a Member pursuant to Section 4.3 hereof. The initial Capital Accounts of the
Members are as reflected on APPENDIX A attached hereto.
"CAPITAL CONTRIBUTION" means the cumulative sum of money, if any, and
the fair market value (net of liabilities secured by such contributed property
that the Company is considered to assume or take subject to) of any other
property contributed or deemed contributed by a Member to the capital of the
Company as provided herein.
"CHEROKEE INVESTORS" has the meaning set forth in the recital hereto.
"CLASS A UNITS" means the Class A voting units of the Company.
"CLASS B UNITS" means Class B non-voting units of the Company.
"CODE" means the Internal Revenue Code of 1986, as amended, and any
successor statute.
"COMPANY" has the meaning set forth in the recitals hereto.
"COMPANY MINIMUM GAIN" has the meaning set forth in Treas. Reg. ss.
1.704-2(b)(2) and ss. 1.704-2(d) for the phrase "partnership minimum gain."
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"CONTROL," or "CONTROLS," or "CONTROLLED" (and derivations thereof)
means as to a corporation the right to exercise, directly or indirectly, more
than fifty percent (50%) of the voting rights in the corporation, and as to any
other Entity the possession, directly or indirectly, of the power to direct or
cause the direction of the management or policies of the same.
"DISPOSE" or "DISPOSING" means a sale, assignment, transfer, exchange,
mortgage, pledge, grant of a security interest, gift or other disposition or
encumbrance (including, without limitation, by operation of law), or an
agreement to do any of the foregoing. The term "DISPOSITION" means to Dispose of
or the act of Disposing.
"DISTRIBUTABLE CASH" means the amount of money on hand of the Company
and available for distribution to the Members, taking into account all accrued
debts, liabilities, and obligations of the Company and any amounts necessary or
advisable to reserve, designate, or set aside for actual or anticipated costs,
payments, liabilities, obligations, and claims with respect to the Company's
business, all as determined by the Management Committee.
"ENTITY" means any association, corporation, estate, limited liability
company, limited partnership, partnership, venture, or other entity.
"EXISTING MEMBER" has the meaning set forth in the recitals hereto.
"EXISTING OPERATING AGREEMENT" has the meaning set forth in the
recitals hereto.
"INDEMNIFIED PERSON" has the meaning set forth in Section 12.2 hereof.
"INDEPENDENT FINANCIAL EXPERT" means PricewaterhouseCoopers, LLP or, if
such firm no longer performs valuation services, any other reputable national
investment bank, accounting firm, or appraiser selected by a Supermajority Vote
of the Management Committee that (i) is experienced in making determinations
such as the Appraised Value, (ii) does not (and whose directors, officers,
employees, Affiliates and shareholders do not) have a material direct or
indirect financial interest in any of the Members or members of the Management
Committee or any of their respective Affiliates or partners, and (iii) has not
been, and at the time it is called upon to give independent financial advice or
determine valuation pursuant to this Agreement, is not (and none of whose
directors, officers, employees, Affiliates and shareholders is) a promoter,
director, or officer of any of the Members, members of the Management Committee
or any of their respective Affiliates or partners, or an equity investor in any
Member.
"MANAGEMENT COMMITTEE" has the meaning set forth in Article VII hereof.
"MAJORITY IN INTEREST" of the Members means a Member or Members who
own, in the aggregate, in excess of fifty percent (50%) of the total outstanding
Class A Units.
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"MEMBER NONRECOURSE DEBT" has the meaning set forth in Treas. Reg. ss.
1.704-2(b)(4) for the phrase "partner nonrecourse debt."
"MEMBER NONRECOURSE DEBT MINIMUM GAIN" means an amount, with respect to
each Member Nonrecourse Debt, equal to the Company Minimum Gain that would
result if such member Nonrecourse Debt were treated as a Nonrecourse Liability,
determined in accordance with Treas. Reg. ss. 1.704-2(i)(3) with respect to
"partner minimum gain."
"MEMBER NONRECOURSE DEDUCTIONS" has the meaning set forth in Treas.
Reg. ss. 1.704-2(i)(2) for the phrase "partner nonrecourse deductions."
"MEMBERS" means the initial Members as provided in Section 3.1 hereof
and all other Persons subsequently admitted as additional Members in accordance
with the Articles of this Agreement and the Act, but shall not include any
Person who has ceased to be a Member pursuant to the terms of this Agreement.
References to a "Member" means any of the Members.
"MEMBERSHIP INTEREST" means a Member's allocable share of the Company's
Net Profits and Net Losses, the Member's allocable share of other items of
income and deductions and voting and management participation rights as
described herein and the Member's rights to receive distributions from the
Company, together with all obligations of such Member to comply with the
provisions of this Agreement. Membership Interests shall be represented by
Units.
"NET PROFITS" and "NET LOSSES" means the book income, gain, loss,
deductions, and credits of the Company in the aggregate or separately stated, as
appropriate, for any relevant period (excluding special allocations in
accordance with Section 5.2 hereof).
"NONRECOURSE DEDUCTIONS" has the meaning set forth in Treas. Reg. ss.
1.704-2(b)(1).
"NONRECOURSE LIABILITIES" has the meaning set forth in Treas. Reg. ss.
1.704-2(b)(3) and 1.752- 1(a)(2).
"OPTION" means each of (i) the options granted pursuant to the Employee
Option Plan (as defined in Section 3.2.1) and (ii) any other equity incentive
plan or option duly adopted or approved by the Management Committee of the
Company and approved by the Members that provides for the issuance of options to
acquire Membership Interests.
"PERCENTAGE INTEREST" means the quotient of (i) the number of Units
held by a Member DIVIDED BY (ii) the total number of issued and outstanding
Units. The Percentage Interest of each Member is set forth opposite such
Member's name on APPENDIX A attached hereto, as amended from time to time. At
all times, the aggregate Percentage Interests of all of the Members shall be
equal to one hundred percent (100%).
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"PERMITTED DISPOSITION" shall mean a Disposition by a Member (i) in the
case of a Member that is a natural person, by gift to his or her spouse or to
the siblings, lineal descendants, or parents of such Member or his or her spouse
or to any trust, partnership, limited liability company or other entity of which
such person or persons are the sole beneficiaries, provided, that with respect
to all such Dispositions by an Existing Member, voting power of such Units, if
any, is retained by one or more of the persons enumerated in this clause (i);
(ii) in the case of any Member that is a trust, to a successor trustee or
trustees of any trust established for one or more of the persons specified in
clause (i) above; (iii) upon death of a Member who is a natural person to such
Member's heirs, executors, administrators, testamentary trustees, legatees or
beneficiaries; (iv) upon termination of employment or pursuant to agreements
approved by the Management Committee permitting the Company to repurchase Units,
to the Company or any designee or assignee thereof selected by the Management
Committee; (v) with respect to any Disposition by Cherokee Investors, to any
Affiliate of Cherokee Investors approved by a Supermajority Vote of the
Management Committee, or to any Person who directly or indirectly owns an
interest in Cherokee Investors; or (vi) to secure an obligation of the Company,
including but not limited to, a pledge of such Member's Units in favor of one or
more lenders providing loans and/or other advances of credit to the Company, and
any subsequent Disposition of such Units upon a foreclosure sale or other
exercise of rights and remedies by such lender or lenders, or by an agent or
representative acting on behalf of such lender or lenders.
"PERMITTED TRANSFEREE" means the transferee of a Permitted Disposition.
"PERSON" means any individual or Entity.
"PURCHASE AGREEMENT" has the meaning set forth in the recitals hereto.
"QUALIFIED PUBLIC OFFERING" means an underwritten public offering of
Company equity securities pursuant to an effective registration statement under
the Securities Act wherein the aggregate offering proceeds are not less than
fifty million dollars.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated by the Securities and Exchange Commission
thereunder.
"SUPERMAJORITY VOTE" means the affirmative vote of at least 70% of the
representatives of the Management Committee (rounded up to the nearest whole
number).
"TAX MATTERS MEMBER" has the meaning set forth in Section 9.2 hereof.
"UNITS" means the Class A Units and the Class B Units, collectively.
"VOTING PERCENTAGE INTEREST" means the quotient of (i) the number of
voting Units held by a Member DIVIDED BY (ii) the total number of issued and
outstanding voting Units. At all times, the aggregate Voting Percentage
Interests of all of the Members shall be equal to one hundred percent (100%).
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1.2 DIRECTLY OR INDIRECTLY. Any provision of this Agreement which
refers to an action which may be taken by any Person, or which a Person is
prohibited from taking, shall include any such action taken directly or
indirectly by or on behalf of such Person, including by or on behalf of any
Affiliate, partner or agent of such Person.
1.3 CAPTIONS. All captions in this Agreement are inserted for
reference only and are not to be considered in the construction or
interpretation of any provision hereof.
1.4 INTERPRETATION. In the event any claim is made by any Person
relating to any conflict, omission or ambiguity in this Agreement, no
presumption or burden of proof or persuasion shall be implied by virtue of the
fact that this Agreement was prepared by or at the request of a particular
Person or its counsel.
1.5 REFERENCES TO THIS AGREEMENT. References to numbered or
lettered articles, sections, and subsections refer to articles, sections, and
subsections, respectively, of this Agreement unless otherwise expressly stated.
All references to this Agreement include, whether or not expressly referenced,
the Appendices attached hereto.
ARTICLE II
ORGANIZATION
2.1 GENERAL. The Company was formed as a California Limited
Liability Company by the execution and filing of the Articles with the
California Secretary of State in accordance with the Act, together with the
execution of an interim operating agreement, which was superseded by the
Existing Operating Agreement.
2.2 BUSINESS PURPOSE. The business of the Company is to engage in
any lawful business activity in which a California limited liability company may
engage, as determined from time to time by the Management Committee, except that
the Company shall not engage in the trust company business or in the businesses
of banking or insurance.
2.3 NAME AND ADDRESS OF THE COMPANY. The business of the Company
shall be conducted under the name "Cherokee International, LLC," and its
principal executive office shall be located at the following address: 2841 Dow
Avenue, Tustin, California 92680. The Management Committee shall file any
fictitious name certificates and similar filings, and any amendments thereto,
that the Management Committee considers appropriate or advisable.
2.4 TERM. The term of this Agreement shall be coterminous with the
period of duration of the Company as provided in the Articles, which is from the
date of the filing of the Articles until the Company is dissolved in accordance
with Article XI hereof.
6
2.5 REQUIRED FILINGS. The Management Committee shall cause to be
executed, filed, recorded and/or published such certificates and documents as
may be required by this Agreement or by law in connection with the formation and
operation of the Company.
2.6 REGISTERED AGENT. The Company's initial registered agent shall
be as provided in the Articles. The registered agent may be changed from time to
time by the Management Committee by causing the filing of the name of the new
registered agent in accordance with the Act.
ARTICLE III
MEMBERS AND MEMBERSHIP INTERESTS
3.1 INITIAL MEMBERS; ADDITIONAL MEMBERS. The initial Members of
the Company are as set forth on APPENDIX A attached hereto. The Management
Committee by Supermajority Vote, may in its sole discretion admit additional
Members to the Company and cause the Company to issue Units of any class to any
such additional Member or any current Member. The Management Committee by
Supermajority Vote may provide for the creation of new classes of Units which
may have terms and preferences different from the Units issued on the date of
this Agreement, provided that an amendment to this Agreement that sets forth the
terms and preferences of such new class of Units is approved as an amendment to
this Agreement in accordance with Section 13.2. The Members acknowledge that the
admission of such new Members or the issuance of additional Membership Interests
to pre-existing Members may dilute the Percentage Interests of the Members and
the Percentage Interests represented by Membership Interests that may be
acquired upon exercise of rights granted pursuant to an Option.
3.2 OPTIONS.
3.2.1 The Management Committee by Supermajority Vote may in
its sole discretion establish an employee membership interest plan (the
"Employee Plan") whereby the Company will grant certain employees of the Company
specified by class of employee in the Employee Plan the option to purchase after
the execution of this Agreement Class B Units on terms and conditions set forth
in the Employee Plan as determined in the sole discretion of the Management
Committee by Supermajority Vote.
3.2.2 The Members hereby consent to, and no separate approval
of the Management Committee shall be required in connection with, the future
admission of any Person satisfying the terms of each Option as a Member of the
Company upon valid exercise of Options granted pursuant to any Employee Plan
subject to the other provisions of this Agreement. Each of the Members
acknowledges that the Options granted pursuant to any Employee Plan provide each
of the Option holders with the right to exercise its Option and upon the
exercise thereof to obtain Units of the Company (in the amount provided for in
the Option, subject to dilution in the event the Company issues additional Units
after the date of issuance of such Options). Upon the exercise of any such
Option, the exercising Member's Capital Account shall be credited with the
exercise price paid upon
7
the exercise of the Option, and each other Member's Capital Account shall be
restated in accordance with Treas. Reg. ss. 1.704-(1)(b)(2)(iv)(f).
3.3 REPRESENTATIONS AND WARRANTIES. Each Member represents and
warrants to the Company and to the other Members that (i) it is acquiring its
Membership Interest for investment purposes for its own account and not with a
view to or for resale in connection with any distribution of all or any part of
the Membership Interests in violation of the Securities Act; (ii) with respect
to Members residing or with a legal presence in the United States, it (or each
of its equity owners) is either (A) an "accredited investor" as defined in Rule
501(c) promulgated under the Securities Act, and as such has the financial
ability to bear the economic risk of its investment in the Company, has adequate
means of providing for its current needs and contingencies, and has no need for
liquidity with respect to its investment in the Company or (B) an employee of
the Company eligible to participate in the Company's Employee Plan and to
acquire the Membership Interest pursuant to Rule 701 of the Securities Act;
(iii) it has such knowledge and experience in financial and business matters as
to be capable of evaluating the merits and risks of an investment in the Company
and has obtained, in its judgement, sufficient information regarding the
Company's business and prospects to evaluate the merits and risks of its
investment; (iv) in making its decision to purchase its Membership Interest, it
has been advised by its business, tax, and legal advisers and is not relying on
the Company or the other Members with respect to the business, tax or legal
considerations involved in its investment; (v) it understands and agrees that it
must bear the economic risk of its investment for an indefinite period of time
because, among other reasons, Membership Interests have not been registered
under the Securities Act or under the securities laws of certain states and,
therefore, cannot be resold, assigned, or otherwise Disposed of unless it is
registered under the Securities Act and qualified under applicable securities
laws of such states or an exemption from such registration and qualification is
available; (vi) if an Entity (a) it is duly formed, validly existing, and in
good standing under the laws of its jurisdiction of organization and is duly
qualified and in good standing in each other jurisdiction where the nature of
its business requires such qualification, except where the failure to do so
would not have a material adverse effect on it or the Company; (b) it has full
power and authority to enter into this Agreement and to perform its obligations
hereunder and all corporate (if applicable) and other actions necessary for its
due authorization, execution, delivery, and performance of this Agreement have
been duly taken; (c) the authorization, execution, delivery, and performance of
this Agreement by it do not and will not conflict with any other agreement or
arrangements to which it is a party or by which it is bound; and (vii) this
Agreement constitutes a valid and binding agreement of such Member, enforceable
against it in accordance with its terms.
3.4 VOTING RIGHTS; APPROVAL REQUIRED. The Members shall not be
entitled to vote on or consent to any matter affecting the Company except as
specifically provided in this Agreement or in the Act. Except as otherwise
specifically provided in this Agreement or in the Act, the vote, consent or
approval of a Majority in Interest of the Members shall be required as to all
matters as to which the vote, consent or approval of the Members is required or
permitted under this Agreement or in the Act.
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3.5 MEETINGS OF MEMBERS.
3.5.1 No annual or regular meeting of the Members as such
shall be required; if convened, however, meetings of the Members may be held at
such date, time, and place as the Management Committee or as the Member or
Members who properly noticed such meeting, as the case may be, may fix from time
to time. At any meeting of the Members, the Chairperson of the Management
Committee shall preside at the meeting and shall appoint another Person to act
as secretary of the meeting. The secretary of the meeting shall prepare written
minutes of the meeting, which shall be maintained in the books and records of
the Company.
3.5.2 A meeting of the Members may be called at any time by
the Management Committee, or by any Member or Members who own a number of Class
A Units equal to at least twenty percent (20%) of the total outstanding Class A
Units, for the purpose of addressing any matter on which the vote, consent, or
approval of the Members is required or permitted under this Agreement.
3.5.3 Notice of any meeting of the Members shall be sent or
otherwise given by the Management Committee to the Members in accordance with
this Agreement not less than ten (10) nor more than sixty (60) days before the
date of the meeting. The notice shall specify the place, date and hour of the
meeting and the general nature of the business to be transacted. Except as the
Members may otherwise agree (or may be deemed to have agreed under Section 3.5.4
hereof), no business other than that described in the notice may be transacted
at the meeting.
3.5.4 Attendance in person of a Member at a meeting shall
constitute a waiver of notice of that meeting, except when the Member objects,
at the beginning of the meeting, to the transaction of any business because the
meeting is not duly called or convened and except that attendance at a meeting
is not a waiver of any right to object to the consideration of matters not
included in the notice of the meeting if that objection is expressly made at the
meeting; failure to expressly object prior to the end of a meeting shall
constitute the deemed agreement of the Members attending that the business
transacted at the meeting was valid despite the absence of a description of such
business in a notice of meeting. Neither the business to be transacted nor the
purpose of any meeting of Members need be specified in any written waiver of
notice. The Members may participate in any meeting of the Members by means of
conference telephone or similar means as long as all Members participating can
hear one another. A Member so participating shall be deemed to be present in
person at the meeting.
3.5.5 Any action that can be taken at a meeting (whether or
not properly noticed) 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 within sixty (60) days of the record date for that action by Members
representing not less than the minimum Percentage Interest necessary under this
Agreement to approve the action at a duly noticed and convened meeting. The
Management Committee shall notify Members of all actions taken by such consents,
and all such consents shall be maintained in the books and records of the
Company.
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3.6 DISPOSITION OF INTERESTS.
3.6.1 No Member shall, voluntarily or involuntarily, Dispose
of all or any part of its Membership Interest in violation of the provisions of
this Agreement. Any attempted Disposition of a Membership Interest, or any part
thereof, in violation of this Section 3.6.1 or Article VI shall be, and hereby
is declared, null and void AB INITIO. The Company or the Member as appropriate,
shall have, in addition to any other legal or equitable remedies which they may
have, the right to enforce the provisions of this Agreement by actions for
specific performance (to the extent permitted by law). No Disposition of a
Member's Membership Interest, whether consented to or otherwise, shall result in
the dissolution of the Company on account of the Disposing Member ceasing to be
a Member of the Company.
3.6.2 Provided that the requirements of this Agreement are
complied with in connection with a proposed Disposition of Units by a Member,
and provided that the Disposing Member purports to grant the Person to which the
Units are Disposed the right to be admitted as a Member, such Person shall have
the right to be so admitted (and each of the other Members hereby consents to
such admission) and shall succeed to all rights of its transferor (in the case
of any transferor who is an Existing Member or part of Cherokee Investors, the
transferee shall be deemed to be part of the Existing Members or Cherokee
Investors, as the case may be) hereunder, provided further that, except in the
case of a Permitted Disposition described in clause (vi) of the definition
thereof, the Management Committee receive a document (i) executed by both the
Member effecting such Disposition and the Person to which such Units are being
Disposed, (ii) including the notice and payment address and facsimile number of
the Person to be admitted to the Company as a Member and the written acceptance
by such Person of all the terms and provisions of this Agreement and an
agreement by such Person to perform and discharge timely all of the obligations
and liabilities in respect of the Units being acquired, (iii) setting forth the
number and class of Units being Disposed of and the number and class of Units
being retained and the Person to which the Units are being Disposed, which
together shall equal the total number of Units held by the Member effecting such
Disposition prior thereto, (iv) containing a representation and warranty by the
Member effecting the Disposition and the Person to which such Units are being
Disposed to the effect that such Disposition was made in accordance with all
laws and regulations, including the Securities Act and any applicable state
securities and blue sky laws, applicable to such Member or such Person, as
appropriate, (v) containing representations and warranties by the Person to
which such Units are being Disposed that are substantially equivalent to those
contained in Section 3.3 hereof, and such other representa tions and warranties
as the Management Committee may reasonably determine are necessary or
appropriate in connection with such Disposition, and (vi) setting forth the
effective date of the Disposition.
3.7 AMENDMENT OF AGREEMENT TO REFLECT NEW MEMBERS. If a Person is
to be admitted to the Company as an additional Member as provided in this
Agreement, APPENDIX A attached hereto shall be amended to set forth such
Person's name, address, amount in such Person's Capital
10
Account, the number and class of Units held by such Person and the Percentage
Interest held by such Person and each other Member.
3.8 INTEREST IN MEMBER. Without the prior approval of all of the
other Members, no Member shall Dispose of all or any part of its Membership
Interest, or cause or permit an interest, direct or indirect, in itself to be
Disposed of, in such a manner, in either case, that after the Disposition the
Company would be considered to be a publicly traded partnership within the
meaning of Section 7704 of the Code.
3.9 NO RESIGNATION OR REMOVAL. Except as otherwise specifically
provided in this Agreement and other than with respect to a Disposition of Units
permitted hereby, a Member does not have the right or power to resign or
withdraw from the Company as a Member and shall be entitled to do so only with
the approval of the Management Committee. A Member also may not be removed or
expelled as a Member, except upon the Disposition of the Member's entire
Membership Interest in a manner not prohibited by this Agreement.
3.10 NO LIABILITY TO THIRD PARTIES. Except as expressly set forth
in this Agreement or required by the Act, no Member shall have any personal
obligation for any liabilities of the Company, whether such liabilities arise in
contract, tort or otherwise. No Member nor any of its representatives on the
Management Committee shall be liable to the other Members, their respective
representatives on the Management Committee or the Company for errors in
judgment or for any actions taken in connection with or relating to the Company,
including for its own simple, full, partial or concurrent negligence, unless
constituting gross negligence, bad faith, fraud, willful misconduct or material
breach of the provisions of this Agreement.
3.11 RIGHTS OF TRANSFEREES. In the event the Company is required to
recognize the validity of a Disposition notwithstanding the provisions of this
Article III to the contrary, the transferee of a Membership Interest who has not
been admitted as a Member of the Company in accordance with this Article III
shall be entitled only to allocations and distributions with respect to such
Membership Interest as provided in this Agreement, but shall have no right to
any information or accounting of the affairs of the Company, or to inspect the
books or records of the Company, and shall not have any rights of a Member under
the Act or this Agreement. Notwithstanding anything herein to the contrary, the
Permitted Transferee of a Permitted Disposition under clause (vi) of the
definition thereof shall be entitled to all the rights of a Member hereunder and
under the Act.
3.12 COMPETING ACTIVITIES. Subject to the terms of any written
agreement to the contrary, the Members and their officers, directors,
shareholders, partners, members, managers, agents and employees, who are not
employees of, or Affiliates of the Company ("Non-employee Members"), and each of
their Affiliates, 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. The Non-employee Members shall
not
11
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. The Non-employee
Members shall have the right to hold any investment opportunity or prospective
economic advantage for their own account or to recommend such opportunity to
Persons other than the Company. Each Non-employee Member acknowledges that the
other Non-employee Members and their officers, directors, shareholders,
partners, members, managers, agents and employees and each of their Affiliates
own and/or manage other businesses, including businesses that may compete with
the Company and for the Non-employee Members' time. Each Member hereby waives
any and all rights and claims which they may otherwise have against the
Non-employee Members and their officers, directors, shareholders, partners,
members, managers, agents and employees, and each of their Affiliates, as a
result of any of such activities.
3.13 TRANSACTIONS WITH THE COMPANY. Subject to any limitations set
forth in this Agreement and with the prior approval of the Management Committee
by Supermajority Vote, a Member may lend money to and transact other business
with the Company. Subject to other applicable law, such Member has the same
rights and obligations with respect thereto as a Person who is not a Member.
3.14 MEMBERS ARE NOT AGENTS. Pursuant to Article VII and the
Articles, the management of the Company is vested in the Management Committee.
No Member, acting solely in the capacity of a Member, is an agent of the Company
nor can any Member in such capacity bind or execute any instrument on behalf of
the Company.
ARTICLE IV
CAPITAL CONTRIBUTIONS AND CAPITAL ACCOUNTS
4.1 CAPITAL CONTRIBUTIONS.
4.1.1 Concurrently with the execution of this Agreement, (i)
each Member's Capital Account shall be in the amount shown opposite such
Member's name on APPENDIX A attached hereto, (ii) each Existing Member shall
surrender to the Company for cancellation certificates representing the Units of
each class held by such Member and (iii) the Company shall issue each Member the
number and class of Units set forth opposite such Member's name on APPENDIX A
attached hereto. Such issuance by the Company shall be reflected by an
appropriate entry on the Company's books and records. The Company shall issue a
total of 4,000 Class A Units and 396,000 Class B Units upon the execution of
this Agreement. All Capital Contributions by the Members made after the date
hereof shall be paid in cash, by certified check or wire transfer of immediately
available funds to a bank or custodial account established for the Company by
the Management Committee, or, if approved by the Management Committee, in other
property with a net fair market value established by the Management Committee,
and shall be reflected by an appropriate entry on the Company's books and
records and on APPENDIX A attached hereto. Notwithstanding the
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foregoing, all Capital Contributions made as a result of the exercise of an
Option shall be in accordance with the terms of the applicable Employee Plan.
4.1.2 No Member shall be required to make any additional
Capital Contributions. To the extent approved by the Management Committee by
Supermajority Vote, from time to time, the Members may be permitted to make
additional Capital Contributions if and to the extent they so desire, and if the
Management Committee by Supermajority Vote determines that such additional
Capital Contributions are necessary or appropriate for the conduct of the
Company's business. In that event, the Members shall have the opportunity, but
not the obligation, to participate in such additional Capital Contributions on a
pro rata basis in accordance with their Percentage Interests. Each Member shall
receive a credit to his or her Capital Account in the amount of any additional
capital contributed in cash (or the fair market value of any non-cash
contribution) which he or she contributes to the Company. Immediately following
such Capital Contributions, the Percentage Interests shall be adjusted by the
Management Committee through issuances of additional Units (which shall be
voting Units unless the Member to receive such Units requests non-voting Units)
as may be necessary to reflect the new relative proportions of the Capital
Accounts of the Members, taking into consideration any adjustments to the
Capital Accounts made in accordance with the provisions of Tres. Reg. ss.
1.704-1(b)(2)(iv)(f). The fair market value of any non-cash contribution shall
be determined in good faith by Supermajority Vote of the Management Committee
representatives.
4.2 NO RETURN OF CAPITAL CONTRIBUTION; NO INTEREST. Except as
otherwise specifically provided in this Agreement, a Member shall not be
entitled to demand or receive the return of all or any portion of the Member's
Capital Contribution or to be paid interest in respect of either its Capital
Account or Capital Contribution. Under circumstances permitting or requiring a
return of a Member's Capital Contribution, the Member shall have no right to
receive property other than cash. No Member shall be required to contribute or
to lend any money or property to the Company to enable the Company to return any
other Member's Capital Contribution.
4.3 CAPITAL ACCOUNTS. The Company shall establish on its books and
maintain for each Member a separate Capital Account. The initial Capital
Accounts of the Members as of the date of this Agreement are as set forth on
APPENDIX A attached hereto. Each Member's Capital Account (a) shall be increased
by (i) the amount of any additional Capital Contributions made by such Member
pursuant to Section 4.1.2 hereof and (ii) allocations to that Member of Net
Profit or other items of Company book income and gain, including income and gain
exempt from tax and income and gain described in Treas. Reg. ss.
1.704-1(b)(2)(iv)(g) and (b) shall be decreased by (i) the amount of money
distributed to that Member by the Company, (ii) the fair market value of
property distributed to that Member by the Company (net of liabilities secured
by the distributed property that such Member is deemed to assume under section
752 of the Code), (iii) allocations to that Member of expenditures of the
Company described in section 705(a)(2)(B) of the Code, and (iv) allocations of
Net Loss and other items of Company book loss and deduction, including loss and
deduction described in Treas. Reg. ss. 1.704-1(b)(2)(iv)(g), but excluding items
described in clause (b)(iii) of this sentence. The Capital Accounts shall also
be maintained and adjusted as permitted by the
13
provisions of Treas. Reg. ss. 1.704-1(b)(2)(iv)(f) and as required by the other
provisions of Treas. Reg. ss. 1.704-1(b)(2)(iv) and 1.704-1(b)(4). On the
transfer of all or part of a Membership Interest, the Capital Account of the
transferor that is attributable to the transferred Membership Interest or part
thereof shall carry over to the transferee in accordance with the provisions of
Treas. Reg. ss. 1.704-1(b)(2)(iv)(1).
4.4 NO OBLIGATION TO RESTORE DEFICITS. No Member shall have any
liability or obligation to the Company, the other Members or any creditor of the
Company to restore at any time any deficit balance in such Member's Capital
Account.
ARTICLE V
ALLOCATIONS AND DISTRIBUTIONS
5.1 ALLOCATION OF NET PROFITS AND NET LOSSES; CAPITAL ACCOUNTS.
The Members agree to treat the Company as a partnership for Federal, state, and
local income tax purposes and shall file all tax returns in a manner consistent
with such treatment. Subject to Section 5.2 hereof, the Company's Net Profits
and Net Losses with respect to any fiscal year shall be allocated as follows:
(a) Net Profits shall be allocated as follows:
(i) An amount of Net Profits up to the excess of
(x) all Net Losses previously allocated to the Members pursuant to Section
5.1(b) hereof over (y) all Net Profits previously allocated to the Members
pursuant to this Section 5.1(a)(i) shall be allocated to each Member in
proportion to its share of such excess of (x) over (y); and
(ii) Any remaining Net Profits shall be
allocated to the Members in proportion to their Percentage Interests.
(b) Net Losses shall be allocated to the Members in proportion
to their Percentage Interests.
5.2 OTHER ALLOCATION PROVISIONS.
5.2.1 If there is a net decrease in Company Minimum Gain for a
fiscal year, then there shall be allocated to each Member items of income and
gain for that year equal to that Member's share of the net decrease in Company
Minimum Gain (within the meaning of Regulation ss. 1.704-2(g)(2)), subject to
the exceptions set forth in Regulation ss. 1.704-2(f)(2), (3), and (5);
provided, that if the Company has any discretion as to an exception set forth
pursuant to Regulation ss. 1.704-2(f)(5), the Tax Matters Member may exercise
such discretion on behalf of the Company. In the event that the application of
the minimum gain chargeback requirement would cause a distortion in the economic
arrangement among the Members, the Tax Matters Member may request that the
Commissioner of the Internal Revenue Service waive the minimum gain chargeback
requirement pursuant to Regulation ss. 1.704-2(f)(4). The foregoing is intended
to be a "minimum
14
gain chargeback" provision as described in Regulation ss. 1.704-2(f) and shall
be interpreted and applied in all respects in accordance with that regulation.
If during a fiscal year there is a net decrease in Member
Nonrecourse Debt Minimum Gain, then, in addition to the amounts, if any,
allocated pursuant to the preceding paragraph, any Member with a share of that
Member Nonrecourse Debt Minimum Gain (determined in accordance with Regulation
ss. 1.704-2(i)(5)) as of the beginning of the fiscal year shall, subject to
exceptions in Regulation ss. 1.704-2(i)(4) (provided, that if a limited
liability company has any discretion as to an exception set forth pursuant to
Regulation ss. 1.704-2(i)(4), the Tax Matters Member may exercise such
discretion on behalf of the Company), be allocated items of income and gain for
the year (and, if necessary, for succeeding years) equal to that Member's share
of the net decrease in the Member Nonrecourse Debt Minimum Gain. In the event
that the application of the Member Nonrecourse Debt Minimum Gain chargeback
requirement would cause a distortion in the economic arrangement among the
Members, the Tax Matters Member may request that the Commissioner of the
Internal Revenue Service waive the minimum gain chargeback requirement pursuant
to Regulation ss.ss. 1.704-2(f)(4) and 1.704-2(i)(4). The foregoing is intended
to be the "chargeback of partner nonrecourse debt minimum gain" required by
Regulation ss. 1.704-2(i)(4) and shall be interpreted and applied in all
respects in accordance with that Regulation.
5.2.2 If during any fiscal year a Member unexpectedly receives
an adjustment, allocation or distribution described in Regulation ss.
1.704-1(b)(2)(ii)(d)(4), (5) or (6), which causes or increases a deficit balance
in the Member's Adjusted Capital Account, there shall be allocated to the Member
items of income and gain (consisting of a pro rata portion of each item of
Company income, including gross income, and gain for such year) in an amount and
manner sufficient to eliminate such deficit. The foregoing is intended to be a
"qualified income offset" provision as described in Regulation ss.
1.704-1(b)(2)(ii)(d) and shall be interpreted and applied in all respects in
accordance with that Regulation. A Member's "Adjusted Capital Account," at any
time, shall equal the Member's Capital Account at such time (x) increased by the
sum of (A) the amount of the Member's share of Company Minimum Gain (as defined
in Regulation ss. 1.704-2(g)(1) and (3)) and (B) the amount of the Member's
share of Member Nonrecourse Debt Minimum Gain (as defined in Regulation ss.
1.704-2(i)(5)), and (y) decreased by reasonably expected adjustments,
allocations and distributions described in Regulation ss.ss.
1.704-1(b)(2)(ii)(d)(4), (5) and (6).
5.2.3 If any Member has a deficit in its Adjusted Capital
Account, such Member shall be specially allocated items of Company income and
gain in the amount of such deficit as rapidly as possible, provided that an
allocation pursuant to this Section 5.2.3 shall be made if and only to the
extent that such Member would have a deficit to its Capital Account after all
other allocations provided for in this Agreement have been tentatively made as
if this Section 5.2.3 were not in this Agreement.
5.2.4 Notwithstanding anything to the contrary in this Article
V, Company losses, deductions, or section 705(a)(2)(B) expenditures that are
attributable to a particular Member
15
Nonrecourse Debt shall be allocated to the Member(s) that bears the economic
risk of loss for the liability in accordance with Regulation ss. 1.704-2(i).
5.2.5 Notwithstanding any provision of Section 5.1 above, no
allocation of Net Losses shall be made to a Member if it would cause the Member
to have a negative balance in its Adjusted Capital Account (except pursuant to
the last sentence of this Section 5.2.5). Allocations of Net Losses that would
be made to a Member but for this Section 5.2.5 shall instead be made to other
Members pursuant to Section 5.1 above, as applicable, to the extent not
inconsistent with this Section 5.2.5. To the extent allocations of Net Losses
cannot be made to any Member because of this Section 5.2.5, such allocations
shall be made to the Members in accordance with Section 5.1 above, as
applicable.
5.2.6 To the extent that any item of income, gain, loss or
deduction has been specially allocated pursuant to Sections 5.2.2 or 5.2.5 above
and such allocation is inconsistent with the way in which the same amount
otherwise would have been allocated under Section 5.1 above, as applicable,
subsequent allocations under Section 5.1 above, as applicable, shall be made, to
the extent possible and without duplication, in a manner consistent with
Sections 5.2.1, 5.2.2, 5.2.3, 5.2.4 and 5.2.5 above which reverse the effect of
all such inconsistent allocations under Sections 5.2.2 or 5.2.5 above.
5.2.7 Solely for the purpose of adjusting the Capital Accounts
of the Members, and not for tax purposes, if any property is distributed in kind
to any Members, the difference between its fair market value as determined by
the Management Committee in good faith and its book value at the time of
distribution shall be treated as gain or loss recognized by the Company and
allocated pursuant to the provisions of Section 5.1 above.
5.2.8 Except to the extent otherwise required by the Code and
Regulations, if a Membership Interest or part thereof is transferred in any
fiscal year, the items of income, gain, loss, deduction and credit allocable to
such Membership Interest for such fiscal year shall be apportioned between the
transferor and the transferee in proportion to the number of days in such fiscal
year such Membership Interest is held by each of them, except that, if the
transferor and transferee agree between themselves and so notify the Management
Committee within thirty (30) days after the transfer, then, at their option and
expense, (i) all items or (ii) extraordinary items, including capital gains and
losses, may be allocated to the Person who held such Membership Interest on the
date such items were realized or incurred by the Company.
5.2.9 Any allocations made pursuant to this Article V shall be
made in the following order:
(i) Section 5.2.1;
(ii) Section 5.2.2;
(iii) Section 5.2.3;
(iv) Section 5.2.4;
16
(v) Section 5.2.6; and
(vi) Section 5.1
The provisions of this Section 5.2.9 shall be applied as if all distributions
and allocations were made at the end of the fiscal year. If any provision is
dependent on the Capital Account of any Member, that Capital Account shall be
determined after the operation of all preceding provisions for the fiscal year.
These allocations shall be made consistently with the requirements of Regulation
ss. 1.704-2(j).
5.3 ALLOCATIONS FOR INCOME TAX PURPOSES. The income, gains,
losses, deductions and credits of the Company for Federal, state and local
income tax purposes shall be allocated in the same manner as the corresponding
items (including all items entering into the computation of Net Profits and Net
Losses) were allocated pursuant to Sections 5.1 and 5.2 above and Article IX
hereof; provided, that solely for Federal, local and state income and franchise
tax purposes and not for book or Capital Account purposes, income, gain, loss
and deduction with respect to property properly carried on the Company's books
at a value other than its tax basis shall be allocated in accordance with the
requirements of Code Section 704(c) and Regulation ss.1.704-3.
5.4 DISTRIBUTIONS.
5.4.1 Subject to Section 11.2 below, the Company may
periodically distribute Distributable Cash to the Members with the amount and
timing of such distributions to be determined by the Management Committee.
Except as provided in Article XI hereof, all distributions of cash shall be made
to the Members in proportion to their respective Percentage Interests.
5.4.2 Subject to compliance with the Company's contractual
obligations, (i) not later than March 31, May 31, August 31 and December 31 of
each of the Company's fiscal years, the Management Committee shall distribute
cash to the Members, in proportion to their Percentage Interests, in an amount
equal to one fourth of the income tax liability of the Members on the estimated
taxable income of the Company for the fiscal year in which such date falls (less
cash distributed to the Members (a) pursuant to Section 5.4.1 during such fiscal
year and (b) pursuant to clause (ii) below) and (ii) not later than 30 days
after a material sale of the Company's assets outside the ordinary course of
business, the Management Committee shall distribute cash to the Members, in
proportion to their Percentage Interests, in an amount equal to the income tax
liability of the Members with respect to income allocated to the Members as a
result of such sale. In addition, subject to compliance with the Company's
contractual obligations, not later than 90 days following the close of each of
the Company's fiscal years, the Management Committee shall distribute cash to
the Members, in proportion to their Percentage Interests, in an amount, if any,
by which the income tax liability of the Members on the actual taxable income of
the Company for such fiscal year exceeds the distributions made to the Members
pursuant to the preceding sentence. For purposes hereof, income tax liability of
the Members shall be equal to the estimated or actual taxable income (as the
case may be) of the Company multiplied by an income tax rate equal to the sum of
the highest marginal individual Federal and California income tax rates;
provided, however, that the
17
highest marginal individual California income tax rate shall be appropriately
reduced to reflect the deductibility of such taxes from Federal taxable income.
5.5 FORM OF DISTRIBUTIONS. A Member has no right to demand or
receive any distribution from the Company in any form other than cash. Likewise,
except in connection with the dissolution of the Company and as provided in
Section 11.2.1 hereof, no Member shall be compelled to accept from the Company a
distribution of any asset in kind.
5.6 NO LIMITATIONS ON DISTRIBUTIONS. No distribution provided for
herein shall be limited by the Act.
ARTICLE VI
TRANSFER PROVISION
6.1 EXISTING MEMBER LOCK-UP. From the date hereof until the second
anniversary of the date of this Agreement (the "LOCK-UP PERIOD"), the Existing
Members shall not Dispose of their Units to any person other than (i) the
Company or (ii) Cherokee Investors, its assignee(s) or its designee(s).
Notwithstanding the foregoing, the Existing Members may Dispose of all or part
of their Membership Interests to a Permitted Transferee, provided that the
Existing Member and the Permitted Transferee each comply with the requirements
of Section 3.6.2. A Permitted Transferee of an Existing Member shall be
considered an "Existing Member" following completion of a Permitted Disposition
in accordance with the requirements herein, provided that Cherokee Investors
shall not be considered an Existing Member by virtue of its acquisition of Units
from an Existing Member, and no Existing Member shall acquire the rights
reserved for Cherokee Investors hereunder by virtue of its acquisition of Units
from Cherokee Investors.
6.2 RIGHT OF FIRST OFFER. Except for Permitted Dispositions, and
subject to Section 6.1 hereof, in the event that, following the Lock-Up Period,
any of the Existing Members, proposes to Dispose of all or any portion of the
Membership Interests held by such Existing Member either directly or indirectly
by Disposing of any Entity which directly or indirectly holds Membership
Interests (an offer pursuant to which a Disposition is to take place is
hereinafter called the "TRANSACTION OFFER") to any Person, such Existing Member
may, subject to the provisions of Section 6.3 hereof, Dispose of such Membership
Interests only pursuant to and in accordance with the following provisions of
this Section 6.2. No such Disposition may be made unless such Disposition is
proposed to be made to a bona fide, third party approved by Cherokee Investors,
which approval shall not be unreasonably withheld, for cash, cash equivalents,
promissory notes, or to the extent approved by Cherokee Investors, securities
traded on a national securities exchange or national automated quotation system,
provided that such securities, in the determination of Cherokee Investors, have
a liquid trading market sufficient to provide a readily determinable fair market
value. Each of the Members and the Company shall reasonably cooperate to
structure any exercise of the right of first offer described herein to achieve
the most efficient tax and ownership structure that is practicable under the
circumstances.
18
6.2.1 TRANSFER NOTICE. Prior to Disposing of all or any
portion of its Membership Interests, the Existing Member shall offer to
negotiate with Cherokee Investors with respect to the possible Disposition of
the Existing Members' Membership Interests by giving written notice
("TRANSFER NOTICE") thereof to Cherokee Investors stating the amount of
Membership Interests proposed to be Disposed by the Existing Member (the
"OFFERED MEMBERSHIP INTERESTS"), the names and addresses of all potential
transferees, if any, and, to the extent known by the Existing Member, a
description of the direct and indirect ownership of any potential transferee
entities, and the names and addresses of the partners, officers, members and/or
shareholders holding more than five percent (5%) of the voting equity interests
of any such entities.
6.2.2 INTENTION TO EXERCISE RIGHT OF NEGOTIATION. Within
twenty (20) days of receipt of any Transfer Notice, Cherokee Investors shall
notify the Existing Member in writing if it desires to negotiate with the
Existing Member with respect to such possible Disposition of the Offered
Membership Interests on the terms set forth in this Section 6.2.
6.2.3 GOOD FAITH NEGOTIATIONS. If Cherokee Investors elects,
pursuant to Section 6.2.2, to negotiate, for a period of forty-five (45) days
after receipt by the Existing Member of notice of such election, the Existing
Member shall negotiate in good faith with Cherokee Investors concerning the
Disposition of the Offered Membership Interests.
6.2.4 BIDS. At any time or from time to time during the period
in which Cherokee Investors is negotiating with the Existing Member for the
purchase of the Offered Membership Interests pursuant to Section 6.2.3, Cherokee
Investors may notify the Existing Member in writing of the total economic
consideration for which Cherokee Investors is willing to purchase all of the
Offered Membership Interests (each such written offer, a "BID"). The fair market
value of any property (other than cash or cash equivalents) constituting all or
any portion of any Bid shall be determined in good faith by mutual agreement of
Cherokee Investors and the applicable Existing Member; provided, that in the
event the parties are unable to reach an agreement, such value shall be
determined by an Independent Financial Advisor, which determination shall be
conclusive and binding and shall be made within 30 days after the request for
such determination.
6.2.5 DISPOSITION. If (a) the Existing Member complies with
Sections 6.2.1 and 6.2.3 above, and (b) either (i) Cherokee Investors fails to
exercise its right of negotiation pursuant to Section 6.2.2, or (ii) the
Existing Member shall not have reached an agreement with Cherokee Investors
concerning the Disposition of all or some portion of the Offered Membership
Interests prior to the expiration of the exclusive negotiation period set forth
in Section 6.2.3 above, then the Existing Member shall be deemed to have
complied with this Section 6.2 with respect to any Disposition of the Offered
Membership Interests described in the Transfer Notice as to which no agreement
has been reached (the "Unwanted Membership Interests"). Thereafter, subject to
the provisions of Section 6.3 hereof, the Existing Member shall be permitted to
Dispose the Unwanted Membership Interests to one or more Persons without any
further obligation to negotiate with Cherokee Investors pursuant to this Section
6.2 and without Disposing any of the Unwanted Membership Interests to Cherokee
Investors, if the following conditions are met: (1) the Disposition
19
is consummated within ninety (90) days (x) following expiration of such
exclusive negotiation period or such later date, not to exceed an additional 60
days, as may be necessary to comply with applicable law, or (y) if Cherokee
Investors fails to exercise its right of negotiation pursuant to Section 6.2.2,
following expiration of the 20-day period set forth in Section 6.2.2 above; and
(2) if any Bids were made, the total consideration to be paid in connection with
the Disposition is (A) in a form permitted under the first paragraph of this
Section 6.2 and (B) no less than the price per Unit offered in the last Bid that
was not revoked during the applicable exclusive negotiation period). Any
Membership Interests not so disposed of within such 90-day period or such later
date, not to exceed an additional 60 days, as may be necessary to comply with
applicable law, shall remain subject to all of the provisions of this Agreement.
6.2.6 CLOSING. The closing of any Disposition of Membership
Interests that are being Disposed under this Section 6.2 to Cherokee Investors
shall take place at the Company's principal executive offices (or such other
place as the Existing Member and Cherokee Investors shall agree) on the tenth
(10th) day following the expiration of the negotiation period set forth in
Section 6.2.3 above (or if such date is a Saturday, Sunday or legal holiday in
the state where such offices are located, the first day thereafter that is not a
Saturday, Sunday or legal holiday) at 10:00 a.m., local time, or such later
date, not to exceed an additional 60 days, as may be necessary to comply with
applicable law. At the closing, the parties shall take all action necessary
(including cooperation in obtaining any required governmental approvals) to
convey such Membership Interests to be transferred in accordance with this
Agreement, free of all liens and encumbrances.
6.3 TAG-ALONG RIGHTS. Except for Permitted Dispositions, if (i)
any Member or group of Members holding at least 51% of the aggregate Percentage
Interests (collectively, the "Selling Member") negotiates or receives and elects
to accept one or more bona fide offers to purchase or otherwise acquire for
value a number of Units held by the Selling Member constituting not less than
51% of the aggregate Percentage Interests (a "PURCHASE OFFER") and (ii) such
Selling Member determines not to exercise its rights under Section 6.4 hereof,
then such Selling Member shall notify in writing the other Members (the
"PARTICIPATING MEMBERS") and the Company of the terms and conditions of such
Purchase Offer and the number and class of Units proposed for Disposition
pursuant to the Purchase Offer. Such notice shall be delivered by the Selling
Member, (i) if the Selling Member does not include Cherokee Investors, promptly
following (a) the expiration of the exclusive negotiation period provided in
Section 6.2 above, if applicable, or (b) if Cherokee Investors did not exercise
its right of negotiation, the expiration of the 20-day period set forth in
Section 6.2.2 above, if applicable, and (ii) if the Selling Member includes
Cherokee Investors, promptly following the date that the Selling Member elects
to accept the Purchase Offer (the "TAG-ALONG RIGHTS NOTICE") and must include
therewith a copy of drafts of all materials, if any, relating to the Purchase
Offer.
6.3.1 THE RIGHTS. The Participating Members shall have the
right, exercisable upon written notice to the Selling Member within twenty (20)
days after the date of receipt of the Tag- Along Rights Notice, to participate
in accordance with the terms and conditions set forth below in the Selling
Member's Disposition of Units pursuant to the specified terms and conditions of
such
20
Purchase Offer. To the extent any of the Participating Members exercise such
right of participation, the number of Units that the Selling Member may sell
pursuant to such Purchase Offer shall be correspondingly reduced. Each
Participating Member may sell all or any part of that number of Units owned by
such Participating Member (the "MAXIMUM NUMBER") that is not in excess of the
product obtained by multiplying (i) the number of Units covered by the Purchase
Offer that the Selling Member may sell by (ii) such Participating Member's
Percentage Interest. If the Selling Member proposed to Dispose of voting Units,
the Participating Members must, to the fullest extent possible, first dispose of
a proportionate number of voting Units and then they may Dispose of that number
of non-voting Units such that the total number of Units Disposed of by any
Participating Member does not exceed such Participating Member's Maximum Number;
PROVIDED, HOWEVER, that to the extent that any such Disposition of non-voting
Units shall cause the total number of voting Units to be Disposed of pursuant to
the Purchase Offer to constitute less than 51% of the total issued and
outstanding number of voting Units of the Company, the Selling Member shall be
entitled to Dispose of an additional number of voting Units on terms and
conditions no more favorable to the Selling Member than those set forth in the
Purchase Offer to cause the total number of voting Units to be Disposed of
pursuant to the Purchase Offer to constitute at least 51% of the total issued
and outstanding number of voting Units of the Company.
6.3.2 PROCEDURES.
(a) Each Participating Member may effect his, her or
its participation in the Disposition by delivering to the Selling Member, with a
copy to the Company, within the twenty- day period specified under Section
6.3(a) above, for transfer to the maker(s) of the Purchase Offer, one or more
Unit certificates or other instruments, properly endorsed for transfer, which
shall be accompanied by a written election to participate in the Disposition
with respect to the number and class of Units to be included therein (the
"ELECTION NUMBER").
(b) The Units certificates and other instruments that
the Participating Member delivers pursuant to Section 6.3.2.1 above shall be
transferred by the Company to the maker(s) of the Purchase Offer in consummation
of the Disposition of the Units pursuant to the terms and conditions specified
in the Tag-Along Rights Notice to the Participating Member and definitive
documentation consistent therewith, and the Company shall promptly thereafter
remit to such Participating Member that portion of the Disposition proceeds to
which such person is entitled by reason of his participation in such Disposition
and any Unit certificates representing any remaining securities not Disposed of
in such Disposition; PROVIDED HOWEVER, that if there is any material adverse
change in the terms and conditions of the transaction described in the Tag-along
Rights Notice (including, without limitation, any decrease in the purchase
price) after a Participating Member makes the election set forth above, then
such Participating Member has the right to withdraw from participation in such
transaction any or all of its Units prior to the closing.
6.3.3 FUTURE RIGHTS. The exercise or non-exercise of the
rights of the Participating Members to participate in one or more Dispositions
of Units made by a Selling Member shall not
21
adversely affect the rights of the Participating Members to participate in
subsequent Dispositions by a Selling Member pursuant to this Section 6.3.
6.4 DRAG-ALONG RIGHTS.
6.4.1 If a Selling Member receives and elects to accept a
Purchase Offer, such Selling Member may elect to exercise its rights under this
Section 6.4 (the "DRAG ALONG RIGHTS"). The Selling Member shall send a notice to
the other Members and the Company no less then 20 days before the consummation
of the Disposition contemplated by the Purchase Offer (the "Change of Control
Transaction") informing the Members of its determination to exercise its rights
hereunder. Subject to the provisions of this Section 6.4, all Members shall
cooperate in, and shall take all actions which the Selling Member and the
Company deem reasonably necessary or desirable to consummate the Change of
Control Transaction, including, without limitation, (x) entering into agreements
with third parties on terms substantially identical to or more favorable to the
Members than those applicable to the Selling Member (which agreements may,
subject to the provisions of this Section 6.4, require a Member to sell all its
Units and may require, subject to the provisions of this Section 6.4,
representations, indemnities, holdbacks and escrows), and (y) obtaining all
governmental consents and approvals reasonably necessary or desirable to
consummate such Change of Control Transaction (to the extent such consents and
approvals may be obtained without any significant effort or unreimbursed expense
by such Members).
6.4.2 The obligations of the Members pursuant to this Section
6.4 are subject to the satisfaction of the following conditions, unless such
conditions are waived in writing by a particular Member only with respect to
such Member:
(a) Upon the consummation of the Change of Control
Transaction, all of the holders of each class of Units will receive the same
form and amount of consideration per Unit, or if any Members are given an option
as to the form and amount of consideration to be received, all Members will be
given the same option.
(b) No Member shall be obligated to pay more than his,
her or its pro-rata share of reasonable expenses incurred in connection with a
consummated Change of Control Transaction to the extent such costs are incurred
for the benefit of all Members and are not otherwise paid by the Company or the
acquiring party. Costs incurred by or on behalf of a Member for his, her or its
sole benefit will not be considered costs of the transaction hereunder.
(c) Subject to the provisions hereof, the Members must
sell that number of Units owned by such Member equal to the product obtained by
multiplying (i) the aggregate number of Units subject to the Change of Control
Transaction by (ii) such Member's Percentage Interest in connection with a
Change of Control Transaction. In order to implement the provisions of this
Section 6.4, each of the Members by executing this Agreement hereby agrees to
vote or to execute and deliver written consents in respect of all Units now
owned or hereafter registered in its name in connection with the approval of
such a Change of Control Transaction (provided that the
22
conditions of Section 6.4 are satisfied). Each of the Members affirms that its
agreement to vote for the approval of a Change of Control Transaction is given
as a condition of this Agreement and as such is coupled with an interest and is
irrevocable. This voting agreement shall remain in full force and effect and be
enforceable against any donee, transferee or assignee of the Units that is
required to become a party to this Agreement. This voting agreement shall remain
in full force and effect throughout the time that Section 6.4 of this Agreement
is in effect. It is understood that this voting agreement relates solely to such
a Change of Control Transaction and does not constitute the agreement to vote or
consent as to any other matters.
(d) Indemnities for breaches of representations,
warranties, covenants and obligations solely with respect to any Member (and not
the Company or its business) shall be several and not joint.
6.5 BUY-SELL ARRANGEMENTS.
6.5.1 The buy-sell provisions of this Section 6.5 may be
initiated by either Cherokee Investors or the Existing Members holding a
majority of the Units held by all Existing Members at any time after the first
anniversary of this Agreement on the terms set forth below.
6.5.2 The Member or Members electing to initiate such
provisions (for purposes of this Section 6.5 such group shall be referred to
collectively as the "INITIATING MEMBER") shall give written notice of such
election (the "BUY/SELL NOTICE") to the other Members, which, for purposes of
this Section 6.5, shall not include any employee of the Company (other than the
Existing Members) that has become a Member through exercise of an Option or
otherwise (the "OTHER MEMBERS"), which Buy/Sell Notice shall (i) constitute the
irrevocable offer to purchase all of the Other Members' Units at the Purchase
Price as determined pursuant to Section 6.5.4 below, if the Other Members so
elect as set forth below, and (ii) constitute the irrevocable offer to sell all
of the Initiating Member's Units to the Other Members at the Purchase Price, if
the Other Members so elect as set forth below.
6.5.3 The Other Members shall then have the option,
exercisable within thirty (30) days after the date that the Purchase Price is
determined in accordance with the procedures set forth below, to give written
notice (the "EXERCISE NOTICE") to the Initiating Member as to whether the Other
Members elect to (i) purchase all of the Units of the Initiating Member and each
of its Affiliates that desire to sell Units or (ii) have the Initiating Member
purchase all of the Units of the Other Members and their respective Affiliates,
in each case for the Purchase Price. If an Exercise Notice is not duly given by
the Other Members prior to the end of the 30 day period referred to above, then
as of the end of such 30th day, the Other Members shall be deemed to have duly
given an Exercise Notice electing to have the Initiating Member purchase their
entire interest and the entire interest of their respective Affiliates.
Following the election or deemed election of the Other Members, the purchasing
party (the "PURCHASING PARTY") shall deliver the Purchase Price to each of the
selling parties (the "SELLING PARTY") in cash at a closing on a date mutually
agreed upon by the parties and, in any event, within 60 days of the date that
the Exercise Notice is duly given or deemed
23
to have been duly given (or such later date, not to exceed an additional 60
days, as may be necessary to comply with applicable law). The Members agree
that, in the discretion of the Purchasing Party, the transactions contemplated
by this Section 6.5 may be structured as a redemption of the Selling Party's
Membership Interests in the Company or as otherwise reasonably directed by the
Purchasing Party, so long as the tax effects to the Selling Party are not
materially different from a sale of the Selling Party's Membership Interest by
the Selling Party to the Purchasing Party.
6.5.4 The price per Unit (the "PURCHASE PRICE") at which the
Initiating Member will either (a) purchase all of the Units of the Other Members
and each of its Affiliates that desire to sell Units or (b) sell all of its and
its Affiliates' Units to the Other Members shall be determined by mutual
agreement of the Initiating Member and Other Members holding a majority of the
Units held by the Other Members promptly after receipt by the Other Members of
the Buy-Sell Notice (and in any event no later than 30 days thereafter) or, if
such parties are unable to agree by such time, by the Independent Financial
Expert, which determination shall be final and binding on all the Members.
6.5.5 For purposes of this Section 6.5, references made to any
action by Cherokee Investors, the Existing Members, the Initiating Member, the
Other Members, the Selling Party or the Purchasing Party shall mean the action
of the holders of a majority of the Units held by such constituency.
6.6 PURCHASE OPTION. In the event of the death or disability of a
Member that is a natural person, the Company shall have the option, in the sole
discretion of the Management Committee, to give notice of an election to
purchase (the "PURCHASE OPTION"), at any time during the ninety (90) days
following the later of the occurrence of the death of such Member or notice of
such event being provided to the Management Committee, all of the Membership
Interests then owned by such Member, including any legal representative, estate,
executor, administrator or trustee of such Member, or any other Person who
acquired such Membership Interests during such 90-day period pursuant to a
Permitted Disposition (the "REPRESENTATIVE"). The price to exercise the Purchase
Option shall be determined as the applicable percentage of the Appraised Value
of all of the equity interests in the Company (calculated on a fully diluted
basis). The exercise of such Purchase Option shall be by means of a written
notice of exercise (the "PURCHASE NOTICE") delivered by the Company to the
Representative. Payment for such Membership Interests shall be made in cash on
the closing date of the exercise of the Purchase Option, which date shall be no
later than thirty (30) days following the Purchase Notice or such longer period
as may be reasonably necessary to determine the Appraised Value.
6.7 TERMINATION. The rights and obligations of the Members under
this Article VI shall terminate immediately prior to the effectiveness of a
Qualified Public Offering but such termination shall be expressly conditioned on
the consummation of the Qualified Public Offering.
6.8 LEGENDS ON UNIT CERTIFICATES. All Membership Interests in the
Company shall be held through Units evidenced by certificates. All Units shall
be securities governed by Article 8 of the
24
Uniform Commercial Code as in effect in the State of California as provided
pursuant to Section 8-103 thereof. Each certificate representing Units shall
bear legends substantially as follows:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), NOR QUALIFIED UNDER APPLICABLE STATE
SECURITIES LAWS IN RELIANCE ON EXEMPTIONS THEREFROM. THESE
SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT PURPOSES ONLY
AND NOT WITH A VIEW TO DISTRIBUTION OR RESALE AND MAY NOT BE SOLD,
MORTGAGED, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER THE
SECURITIES ACT AND THE REGULATIONS PROMULGATED PURSUANT THERETO (UNLESS
EXEMPT THEREFROM) AND COMPLIANCE WITH ANY APPLICABLE STATE SECURITIES
LAWS AND REGULATIONS.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO FURTHER
RESTRICTIONS ON TRANSFER, ALL AS SET FORTH IN THE SECOND AMENDED AND
RESTATED OPERATING AGREEMENT OF THE COMPANY, A COPY OF WHICH IS ON FILE
AT THE PRINCIPAL OFFICE OF THE COMPANY.
ARTICLE VII
MANAGEMENT AND OPERATION
7.1 MANAGEMENT. Except for matters as to which this Agreement
specifically reserves to the Members the authority to act, or to grant or
withhold their consent or approval of an action, the Management Committee shall
have full, complete, and exclusive authority to manage and control the business,
affairs, and properties of the Company, to make all decisions regarding the same
and to perform any and all other acts or activities customary or incident to the
management of the Company's business.
7.2 MANAGERS; MANAGEMENT COMMITTEE.
7.2.1 The Members hereby appoint a Management Committee of the
Company whose responsibilities shall consist of the matters specifically
described in this Agreement as requiring the consent or approval of the
Management Committee. The Management Committee shall at all times consist of
eight (8) individuals, and unless otherwise provided herein, all actions to be
taken by the Management Committee will require the affirmative vote of a
majority of the members of the Management Committee then in office. The initial
individuals serving on the Management Committee are set forth in APPENDIX B
attached hereto. Any individual on the
25
Management Committee may resign for any reason. Such resignation shall be made
in writing and shall take effect at the time specified therein, or if no time is
specified, at the time of its receipt by the Company. The acceptance of a
resignation shall not be necessary to make it effective. An individual on the
Management Committee may be removed only by the Members that appointed such
individual. If a vacancy should occur in a representative position (through
death, removal, resignation or otherwise), then such vacancy shall be filled by
the Members that appointed the position vacated. The Management Committee shall
determine in its sole discretion the amount of compensation, if any, to be
received by any Management Committee representative who is unaffiliated with and
otherwise has no financial interest in any Member. All other Management
Committee representatives shall not be compensated by the Company for their
services on the Management Committee.
7.2.2 At every meeting of the Management Committee, the
presence of a majority of the Management Committee shall constitute a quorum for
the transaction of business at the meeting, and the affirmative vote of a
majority of the representatives then in office shall be necessary for the
adoption of any resolution, the making of any decision, the delegation of any
authority or the taking of any action by the Management Committee, provided that
the following transactions must be approved by a Supermajority Vote: (a) any
transaction between the Company and Cherokee Investors (or its Affiliates); (b)
any acquisition of another company or business; and (c) the incurrence of
indebtedness in excess of $5.0 million.
7.2.3 Immediately following the date hereof, Cherokee
Investors and its Permitted Transferees (other than the Existing Members and
their Permitted Transferees), collectively, shall have the right to appoint five
representatives to the Management Committee; and holders of a majority of the
Class A Units held by the Existing Members and their Permitted Transferees
(other than Cherokee Investors and its Permitted Transferees) shall have the
right to appoint three representatives to the Management Committee.
7.2.4 After the initial appointment of the Management
Committee, as provided above, Cherokee Investors, on the one hand, and the
Existing Members, on the other hand, shall have the right to appoint, by a
majority vote of the Class A Units held by them, a number of representatives to
the Management Committee which approximates their respective Voting Percentage
Interests, rounded to the nearest whole number. Such number shall be
recalculated following any Disposition which results in a change in the relative
Voting Percentage Interests held by Cherokee Investors, on the one hand, and the
Existing Members, on the other hand. Following any recalculation which results
in a change in the number of representatives a party may appoint, the party
losing representatives shall cause the requisite number of representatives to
resign, and the party gaining representatives shall appoint the requisite number
of representatives.
7.2.5 Meetings of the Management Committee may be held at such
place or places and at such times as shall be determined from time to time by
resolution of the Management Committee. Notice of regular meetings established
by resolution of the Management Committee shall not be required. Special
meetings of the Management Committee may be called by any
26
member of the Management Committee on at least ten (10) days prior notice to the
other representatives serving on the Management Committee. Such notice need not
state the purpose or purposes of, nor the business to be transacted at such
meeting. At all meetings of the Management Committee, business shall be
transacted in such order as shall from time to time be determined by the
Chairperson. Attendance in person or by proxy of a Management Committee
representative at a meeting shall constitute a waiver of notice of such meeting,
except where a representative attends a meeting for the express purpose of
objecting, at the beginning of such meeting, to the transaction of any business
on the ground that the meeting is not lawfully called or convened. Minutes of
all meetings of the Management Committee shall be kept and retained in the
records of the Company.
7.2.6 The Management Committee shall designate a Chairperson.
The Chairperson shall preside over all meetings of the Management Committee and
shall have such other power, authority and responsibility as the Management
Committee may, from time to time, delegate to such Chairperson. The initial
Chairperson shall be Mr. Pat Patel. Mr. Patel shall serve as Chairperson for an
initial term of two years or until his Percentage Interest (together with the
Percentage Interests of the Patel Trusts) falls below 20%, whichever comes
sooner.
7.2.7 Any consent or approval reserved by this Agreement to
the Management Committee may be taken without a meeting if a consent in writing,
setting forth the action to be taken, is signed by at least the same number of
Management Committee representatives necessary to approve such action at a
meeting of the Management Committee. Such consent shall have the same force and
effect as the requisite affirmative vote at a duly convened meeting of the
Management Committee, and the execution of such consent shall constitute
attendance or presence in person at a meeting of the Management Committee.
Subject to the requirements of this Agreement for notices of special meetings,
Management Committee representatives may participate in and hold a meeting of
the Management Committee by means of a conference telephone or similar
communications equipment by means of which all representatives participating in
the meeting can hear each other, and participation in such meeting shall
constitute attendance and presence in person at such meeting, except where a
representative participates in the meeting for the express purpose of objecting,
at the beginning of such meeting, to the transaction of any business on the
ground that the meeting is not properly called or convened.
7.3 OFFICERS.
7.3.1 TERM OF OFFICE. The Management Committee may appoint
officers to serve for any period of time that they deem appropriate. Each
officer shall hold office and perform such duties as may be determined from time
to time by the Management Committee until he or she shall resign or shall be
removed or otherwise be disqualified to serve, or until a successor to such
office is appointed upon the expiration of his or her term if a term is
specified.
7.3.2 REMOVAL AND RESIGNATION. Any officer may be removed,
either with or without cause, by the Management Committee, at any regular or
special meeting thereof, or by any officer upon whom such power of removal may
be conferred by the Management Committee
27
(subject, in each case, to the rights, if any, of an officer under any contract
of employment). Any officer may resign at any time by giving written notice to
the Management Committee or to the Chief Executive Officer or the President or
Secretary of the Company, without prejudice, however, to the rights, if any, of
the Company under any contract to which such officer is a party. Any such
resignation shall take effect at the date of the receipt of such notice or at
any time specified therein; and, unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
7.3.3 VACANCIES. A vacancy in any office because of death,
resignation, removal, disqualification or any other cause shall be filled in the
manner prescribed in this Agreement for regular appointments to such office.
7.4 ACTS OF OFFICERS AS CONCLUSIVE EVIDENCE OF AUTHORITY. Any
note, mortgage, evidence of indebtedness, contract, agreement, certificate
(including, without limitation, the Articles), statement, conveyance, or other
instrument in writing, and any assignment or endorsement thereof, executed or
entered into between the Company and any other Person, when signed by any
Officer, shall not be rendered invalid as to the Company solely by any lack of
authority unless the other Person had actual knowledge that the Officer had no
authority to execute the same. In this respect, each Officer shall be an
"authorized person" within the meaning of the Act.
7.5 PAYMENTS TO MEMBERS. Except as authorized by the Management
Committee, no Member is entitled to remuneration for services rendered to the
Company.
7.6 NATURE OF RELATIONSHIP.
7.6.1 The Management Committee and each Officer shall conduct
the affairs of the Company in the best interests of the Company and the mutual
best interests of the Members, including, without limitation, the safekeeping
and use of all Company funds and assets and the use thereof for the benefit of
the Company. Each member of the Management Committee and each Officer at all
times shall act with integrity and in good faith and utilize all reasonable
efforts in all activities relating to the conduct of the business of the Company
and in resolving conflicts of interest arising in connection therewith.
7.6.2 Notwithstanding anything to the contrary in this
Agreement, nothing in this Agreement shall be construed as an agreement by the
Company, express or implied, to employ a Member or contract for the services of
a Member, to restrict the right of the Company to discharge a Member or cease
contracting for the services of a Member or to modify, extend or otherwise
affect in any manner whatsoever, the terms of any employment agreement or
contract for services which may exist between the Company and a Member.
7.7 CHEROKEE INVESTORS' RIGHT OF INVESTMENT. In the event that the
Management Committee determines to raise capital through the issuance of debt or
equity of the Company, the Company shall first offer Cherokee Investors the
right to make such investment. Cherokee Investors
28
shall make such investment, if at all, at fair market value (as determined by a
Supermajority Vote of the Management Committee) and with such other terms as are
approved by a Supermajority Vote the Management Committee. If Cherokee Investors
elects to make such investment, each Existing Member shall have the right, but
not the obligation, to make such investment in proportion to their respective
Percentage Interests on the same terms as Cherokee Investors. If Cherokee
Investors and the Management Committee are unable to agree as to the terms of
any such investment following twenty (20) days of negotiation, the Management
Committee shall be free to offer such investment opportunity to bona fide third
parties (including any other Members) on terms no less favorable to the Company
than the last bid, if any, made by Cherokee Investors.
ARTICLE VIII
CONVERSION TO CORPORATION
8.1 AUTHORITY. The Management Committee may, upon the affirmative
vote of a Majority in Interest, either (i) cause the Company to contribute all
or substantially all of its assets to a corporation in a transaction qualified
under Section 351 of the Code, and thereupon liquidate and dissolve the Company,
(ii) elect to have all Members contribute their Units to a corporation, in a
transaction qualifying under Section 351 of the Code, as long as the value of
the shares of the corporation received by all Members has a value equal to the
value of the Units transferred and all shares received by all Members are of the
same class, or (iii) otherwise cause the Company to convert into a corporation,
by way of merger, consolidation or otherwise, so long as such conversion does
not result in any material liability of any of the Members without their consent
and provided that the value of the shares of the corporation received by each
Member has a value equal to the value of the Units transferred and all shares
received by all Members are of the same class. Subject to the foregoing, the
conversion of the Company or its business into a corporation shall be
accomplished pursuant to such terms and in such manner as the Management
Committee shall deem appropriate.
8.2 COOPERATION BY MEMBERS. Each Member, as a condition to
becoming a Member, hereby agrees to cooperate in whatever way required by the
Management Committee to facilitate the conversion of the Company into a
corporation as provided in Section 8.1 above.
8.3 STOCKHOLDERS AGREEMENT. If the Company shall elect to convert
into a corporation as provided in Section 8.1 above prior to a Qualified Public
Offering (other than in connection with a Qualified Public Offering), the
Members shall use all reasonable efforts to negotiate and enter into an
agreement containing substantially identical terms and provisions to those set
forth herein as such terms and provisions relate to the operation and governance
of a closely held non-public corporation.
29
ARTICLE IX
TAX MATTERS
9.1 TAX RETURNS. The Company shall prepare or cause to be prepared
and filed all necessary Federal, state and local income tax returns for the
Company. The Company shall furnish to each Member copies of all returns that are
actually filed and shall keep them informed of any and all pending or threatened
tax proceedings regarding the Company.
9.2 TAX MATTERS MEMBER. Cherokee Investors shall be the "tax
matters partner" of the Company pursuant to section 6231(a)(7) of the Code (the
"TAX MATTERS MEMBER"). Cherokee Investors shall take such commercially
reasonable actions as may be necessary to cause each other Member to become a
"notice partner" within the meaning of section 6231(a)(8) of the Code, shall
inform each other Member of all significant matters that may come to its
attention in its capacity as the Tax Matters Member, and shall forward to each
Member copies of all significant written communications it may receive in such
capacity. Cherokee Investors shall not take any action contemplated by sections
6222 through 6231 of the Code without the consent of the other Members.
9.3 TAX ELECTIONS. The Company shall make the following elections
on the appropriate tax returns:
9.3.1 to adopt the calendar year as the Company's fiscal
year;
9.3.2 to adopt an appropriate method of accounting and to
keep the Company's books and records on that method;
9.3.3 if (i) a distribution of Company property as described
in Section 734 of the Code occurs or (ii) a transfer of a Membership Interest as
described in Section 743 of the Code occurs, an election, in the discretion of
the Management Committee, pursuant to Section 754 of the Code, to adjust the
basis of the Company properties; and
9.3.4 any other election the Management Committee deems
appropriate and in the best interests of the Company and the Members. It is the
intent of the Members that the Company be treated as a partnership for Federal
income tax purposes and, to the extent permitted by applicable law, for state
and local franchise and income tax purposes. Neither the Company nor any Member
may make an election for the Company to be excluded from the application of the
provisions of subchapter K of chapter 1 of subtitle A of the Code or any similar
provisions of applicable state or local law, and no provision in this Agreement
shall be construed to sanction or approve such an election.
9.4 WITHHOLDING. With respect to any Member, any tax required to
be withheld under Section 1446 or other provisions of the Code, or under state
law, shall be treated as a distribution of such cash to such Member or, in the
discretion of the Management Committee, as a demand loan to such Member for all
purposes of this Agreement.
30
ARTICLE X
BOOKS, RECORDS, REPORTS, AND BANK ACCOUNTS
10.1 MAINTENANCE OF BOOKS. The books of account for the Company
shall be maintained on an accrual basis in accordance with the terms of this
agreement, except that Capital Accounts shall be maintained in accordance with
Article IV hereof. The calendar year shall be the accounting year of the
Company, unless the Management Committee selects a different accounting year.
10.2 FINANCIAL INFORMATION; ACCESS.
10.2.1 The Company shall maintain a comparative system of
accounts in accordance with generally accepted accounting principles, keep full
and complete financial records and shall: (a) furnish to the Members within
ninety (90) days after the end of each fiscal year, a copy of the consolidated
balance sheet of the Company as at the end of such year, together with a
consolidated statement of income and retained earnings (net loss) of the Company
for such year, audited and certified by independent public accountants of
recognized national standing selected by the Management Committee, prepared in
accordance with generally accepted accounting principles and practices
consistently applied; and (b) furnish to the Members within forty-five (45) days
after the end of each of the first three quarters of each year commencing with
the quarter ending June 30, 1999 a consolidated unaudited balance sheet of the
Company as at the end of such quarter and a consolidated unaudited statement of
income and retained earnings (net loss) for the Company for such quarter and for
the year to date prepared in accordance with generally accepted accounting
principles (except for normal year end adjustments) and practices consistently
applied. The Company shall also prepare such other reports as the Management
Committee may reasonably request.
10.2.2 The Company shall permit, upon reasonable request and
notice and during normal business hours and without undue disruption to the
Company's business, each Member or any employees, agents or representatives
thereof, access to such information and records as set forth in and in
accordance with Section 17106 of the Act and to examine and make copies of and
extracts from the records and books of account of, and visit and inspect the
properties of the Company, and to discuss the affairs, finances and accounts of
the Company with any of its Officers, key employees, attorneys and independent
accountants; provided, however, each Member, employee, agent or representative
thereof, as the case may be, agrees to hold all information so received in
accordance with Section 10.3 hereof.
10.3 CONFIDENTIALITY. Unless the Management Committee agree
otherwise, each Member shall hold in strict confidence any Proprietary
Information (as hereinafter defined) it receives regarding the Company, or any
Proprietary Information regarding the business or affairs of any other Member in
respect of the Company, whether such information is received from the Company,
another Member or Affiliate or partner of a Member or another Person for the
period commencing
31
on the date of this Agreement and ending on the second anniversary of the date
such Member shall no longer be a Member of the Company. "PROPRIETARY
INFORMATION" means any information that derives independent economic value,
actual or potential, from not being generally known to the public or to other
Persons who can obtain economic value from its disclosure or use, and includes
information of the Company, any Member, and any Person with whom the Company or
any Member does business; provided, however, that Proprietary Information shall
not include (a) information that is or becomes available to the public generally
without breach of this Section 10.3; (b) disclosures required to be made by
applicable laws and regulations or stock exchange requirements or requirements
of the National Association of Securities Dealers, Inc.; (c) disclosures
required to be made pursuant to an order, subpoena or legal process; (d)
disclosures to members, partners, officers, fiduciaries, directors or Affiliates
of such Member (and the members, partners, officers, fiduciaries or directors of
such Affiliates), and to auditors, counsel, and other professional advisors to
such Persons or the Company (provided, however, that such Persons have been
informed of the confidential nature of the information, and, in any event, the
Member disclosing such information shall be liable for any failure by such
Persons to abide by the provisions of this Section 10.3), or (e) disclosures in
connection with any litigation or dispute among the Members and the Company; and
provided further than any disclosure pursuant to clause (b), (c), (d) or (e) of
this sentence shall be made only subject to such procedures the Member making
such disclosure determines in good faith are reasonable and appropriate in the
circumstances, taking into account the need to maintain the confidentiality of
such information and the availability, if any, of procedures under laws,
regulations, subpoenas, or other legal process. Each Member acknowledges that
disclosure of information in violation of the provisions of this Section 10.3
may cause irreparable injury to the Company and the Members for which monetary
damages are inadequate, difficult to compute, or both. Accordingly, each Member
agrees that its obligations under this Section 10.3 may be enforced by specific
performance and that breaches or prospective breaches of this Section 10.3 may
be enjoined. The provisions of this Section 10.3 shall survive and remain
enforceable against each Member for a period of two years following the date
such Member ceases to be a Member of the Company, whether through a Disposition
of all of such Member's Units or otherwise.
10.4 PUBLICITY. Any public announcement or disclosure relating to
the transactions contemplated by this Agreement, by the Company or subsequent
transactions of the Company, will be made by the Officers only with the approval
of the Management Committee, except to the extent such disclosure is, in the
opinion of counsel to the Company, required by law.
ARTICLE XI
DISSOLUTION AND WINDING UP
11.1 CONDITIONS OF DISSOLUTION. The following and only the
following shall cause the Company to be dissolved, liquidated and terminated:
32
(a) the vote, consent or approval of the Member or
Members who own at least sixty-six and two-third percent (66.67%) of the
outstanding Class A Units to dissolve the Company;
(b) the entry of a decree of judicial dissolution
under the Act; or
(c) the Disposition of all or substantially all of the
assets of the Company in one transaction or a series of related transactions;
provided, however, that in no event shall a merger or consolidation of the
Company, regardless of whether the Company is the surviving or resulting entity
in the merger or consolidation, be deemed to be a dissolution under this Section
11.1 unless otherwise required by law.
11.2 LIQUIDATION AND TERMINATION.
11.2.1 Upon the dissolution of the Company as provided in
Section 11.1 above, the Company shall continue solely for the purpose of winding
up its affairs in an orderly manner, liquidating its assets, and satisfying the
claims of its creditors. The Management Committee shall act as liquidator. The
liquidator shall oversee the winding up and liquidation of the Company, take
full account of the liabilities of the Company and assets, either cause the
Company's assets to be sold as promptly as is consistent with obtaining fair
market value therefor or, with a Supermajority Vote, distributed to the Members
and, if sold, shall cause the proceeds therefrom, to the extent sufficient
therefor, to be applied and distributed as provided in paragraph (c) below.
Until final distribution, the liquidator shall manage the Company's business and
other property and assets with all of the power and authority of the Members.
The steps to be accomplished by the liquidator are as follows:
(a) as promptly as possible after dissolution and
again after final liquidation, the liquidator shall cause a proper accounting to
be made by a recognized firm of certified public accountants of the Company's
assets, liabilities, and operations through the last day of the calendar month
in which the dissolution shall occur or the final liquidation shall be
completed, as applicable;
(b) during the period commencing on the first day of
dissolution pursuant to Section 11.1 above and ending on the date on which all
of the assets of the Company have been distributed to the Members in accordance
with this Section 11.2, the Members shall continue to share Net Profits, Net
Losses, and other items of Company income, gain, loss or deduction in the manner
provided in Article V hereof, provided that no distributions shall be made
pursuant to Section 5.4 above;
(c) the liquidator shall pay or discharge from Company
funds all of the debts, liabilities and obligations of the Company (including,
without limitation, the establishment of a cash escrow fund for contingent
liabilities in such amount and for such terms as the liquidator
33
may reasonably determine, or the distribution of property to the Members in kind
subject to debts, liabilities or other obligations); and
(d) all remaining assets of the Company shall be
distributed to the Members as follows:
(i) the liquidator may sell any or all Company
property, including to Members, and any resulting gain or loss from each sale
shall be computed and allocated to the Members in accordance with Section 5.1
above;
(ii) with respect to any Company property
that has not been sold, the fair market value of such property shall be
determined and the Members' Capital Accounts shall be adjusted to reflect the
manner in which the unrealized gain and unrealized income, gain, loss, and
deduction inherent in that property (and that has not been reflected in the
Capital Accounts previously) would be allocated among the Members if there were
a taxable disposition of that property for the fair market value of that
property on the date of distribution; and
(iii) all liquidation proceeds, as well as any
Company property that is to be distributed to the Members, shall be distributed
in accordance with Section 5.4 above; PROVIDED, HOWEVER, that all liquidating
distributions shall be made in accordance with the Members positive Capital
Account balances within the meaning of Treas. Reg. ss. 1.704-1(b)(2)(ii)(b)(2).
11.3 CANCELLATION OF FILINGS. Upon completion of the distribution of
Company assets as provided herein, the Company is terminated, and the liquidator
shall file a certificate of cancellation with the California Secretary of State
and take such other actions as may be necessary to terminate the Company.
11.4 NO CAPITAL CONTRIBUTION UPON DISSOLUTION. Each Member shall
look solely to the assets of the Company for all distributions with respect to
the Company, its Capital Contribution thereto, its Capital Account, its share of
Net Profits or Net Losses or other items and shall have no recourse therefor
(upon dissolution or otherwise) against any Member. No Member shall be obligated
to restore to the Company any negative balance that may exist or continue in
such Member's Capital Account.
ARTICLE XII
EXCULPATION AND INDEMNIFICATION
12.1 No Indemnified Person shall be liable, including under any
legal or equitable theory of fiduciary duty or other theory of liability, to the
Company or to any other Indemnified Person for any losses, claims, damages or
liabilities incurred by reason of any act or omission performed or omitted by
such Indemnified Person in good faith on behalf of the Company. Whenever in this
Agreement an Indemnified Person is permitted or required to make decisions in
good faith, the
34
Indemnified Person shall act under such standard and shall not be subject to any
other or different standard (including any legal or equitable standard of
fiduciary or other duty) imposed by this Agreement or any relevant provisions of
law or in equity or otherwise.
12.2 The Company shall indemnify and defend each Member, each
Management Committee representative, each Officer or other agent of the Company
and the Affiliates and partners of each of the foregoing (each, an "INDEMNIFIED
PERSON") who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding (a "PROCEEDING") by
reason of the fact that such Indemnified Person is or was a Member, Management
Committee representative, Officer or other agent of the Company or that, being
or having been such a Member, Management Committee representative, Officer or
other agent, it is or was serving at the request of the Company as director,
officer, employee or other agent of another Person, to the fullest extent
permitted by applicable law in effect on the date hereof and to such greater
extent as applicable law may hereafter from time to time permit; provided,
however, that no Indemnified Person shall be entitled to indemnification
hereunder for any act or omission constituting gross negligence, willful
misconduct or material breach of this Agreement. Furthermore, the Company may,
but shall not be obligated to, upon the approval of the Management Committee,
indemnify any other Person who was or is a party or is threatened to be made a
party to, or otherwise becomes involved in, a Proceeding by reason of the fact
that such person is or was an agent to the same extent as is provided for in the
preceding sentence with respect to an Indemnified Person. The indemnification
provided by, or granted pursuant to, the provisions of this Article XII shall
not be deemed exclusive of any other rights to which any Person seeking
indemnification may be entitled under any agreement, vote of the Management
Committee or the Members, 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 such an agent. All rights to indemnification under this Article XII
shall be deemed to be provided by a contract between the Company and each
Indemnified Person who serves in such capacity at any time while this Agreement
and relevant provisions of the Act and other applicable law, if any, are in
effect. Any repeal or modification hereof or thereof shall not affect any such
rights then existing.
ARTICLE XIII
GENERAL PROVISIONS
13.1 NOTICES. All notices and other communications provided for or
permitted to be given under this Agreement shall be in writing and shall be
given by depositing the notice in the United States mail, addressed to the
Person to be notified, postage paid, and registered or certified with return
receipt requested, or by such notice being delivered in person or by facsimile
communication to such party. Notices given or served pursuant hereto shall be
effective upon receipt by the Person to be notified. All notices to be sent to a
Member shall be sent to or made at, and all payments hereunder shall be made at,
the address given for that member on APPENDIX A attached hereto or such other
address as that Member may specify by notice to the Company and the other
Members. Any notice to the Company or the Management Committee also shall be
given to the Management
35
Committee representatives. The address of a Management Committee representative
shall, unless notice to the contrary is given by the Management Committee
representative to the Company and the Members, be the same as the address of the
Member that designated such Management Committee representative, except that
notices to such Management Committee representative shall specify that they are
directed to the attention of such Management Committee representative.
13.2 ENTIRE AGREEMENT; WAIVERS AND MODIFICATIONS.
13.2.1 The Articles and this Agreement constitute the entire
agreement of the Members and their respective Affiliates and partners relating
to the Company and supersedes any and all prior contracts, understandings,
negotiations, and agreements with respect to the Company and the subject matter
hereof, whether oral or written.
13.2.2 Subject to Section 13.2.3 hereof and except as
otherwise provided herein, the Articles and this Agreement may be amended or
modified from time to time only by a Supermajority Vote of the Management
Committee together with a written instrument executed by Members having at least
a Majority in Interest; provided, however, that if any such amendment or
modification would have a material adverse impact on the Membership Interest of
any Member or any class of Units that is different in character from the impact
on any other Member or any class of Units (for the avoidance of doubt, excluding
dilution in Membership Interests as a result of admission of new Members, the
issuance of new Units with terms that are preferential to the Units, or other
transactions contemplated by this Agreement), then the approval of each Member
(or of members owning a majority of each such class of Units, as the case may
be) so adversely affected shall also be required.
13.2.3 In the event of an inconsistency or conflict between
the provisions of this Agreement and any resolution adopted by the Members, such
resolution shall be deemed an amendment to this Agreement and a waiver by the
Members of the inconsistent or conflicting provision of this Agreement (except
that provisions herein requiring a Supermajority Vote will be deemed amended
only by a resolution adopted by a Supermajority Vote). Any waiver or consent,
express, implied or deemed to or of any breach or default by any Person in the
performance by that Person of its obligations with respect to the Company or any
action inconsistent with this Agreement is not a consent or waiver to or of any
other breach or default in the performance by that Person of the same or any
other obligations of that Person with respect to the Company or any other such
action. Failure on the part of a Person to complain of any act of any Person or
to declare any Person in default with respect to the Company, irrespective of
how long that failure continues, does not constitute a waiver by that Person of
its rights with respect to that default until the applicable
statute-of-limitations period has run. Except with respect to the matters
described in the first sentence of this Section 13.2.3, all waivers and consents
hereunder shall be in writing and shall be delivered to the Company and the
Members in the manner set forth in Section 13.1 above. A Member may grant or
withhold any waiver or consent in its absolute sole discretion.
36
13.3 BINDING EFFECT; NO THIRD-PARTY BENEFICIARIES. Subject to the
restrictions on Dispositions set forth herein, this Agreement is binding on and
inures to the benefit of the Members and each Indemnified Person and their
respective heirs, legal representatives, successors and assigns. Except as
provided in Article XII hereof, nothing in this Agreement shall provide any
benefit to any third party or entitle any third party to any claim, cause of
action, remedy or right of any kind, it being the intent of the parties that
this Agreement shall not be construed as a thirty-party beneficiary contract.
13.4 GOVERNING LAW. This Agreement is governed by and shall be
construed in accordance with the law of the State of California, excluding any
conflict-of-laws rule or principle that might refer the governance or
construction of this Agreement to the law of another jurisdiction. If any
provision of this Agreement or the application thereof to any Person or
circumstance is held invalid or unenforceable to any extent, the remainder of
this Agreement and the application of that provision to other Persons or
circumstances is not affected thereby, and that provision shall be enforced to
the greatest extent permitted by law.
13.5 FURTHER ASSURANCES. In connection with this Agreement and the
transactions contemplated hereby, each Member shall execute and deliver any
additional documents and instruments and perform any additional acts that may be
necessary or appropriate to effectuate and perform the provisions of this
Agreement and those transactions.
13.6 WAIVER OF CERTAIN RIGHTS. Each Member irrevocably waives any
right it might have to maintain any action for partition of the property of the
Company.
13.7 MULTIPLE COUNTERPARTS; FACSIMILE TRANSMISSION. This Agreement
may be executed in multiple counterparts with the same effect as if the signing
parties had signed the same document. All counterparts shall be construed
together and constitute the same instrument. Delivery of an executed counterpart
of this Agreement by facsimile shall be equally as effective as delivery of a
manually executed counterpart of this Agreement. Upon the request of any party,
any party who shall have delivered an executed counterpart of this Agreement by
facsimile shall deliver a manually executed counterpart as well, but the failure
to so deliver a manually executed counterpart shall not affect the validity,
enforceability and binding effect of this Agreement.
13.8 ARBITRATION. Except in the case where the remedy sought is
specific performance or other equitable relief, the parties to this Agreement
agree that any and all legal disputes, controversies or claims arising out of or
relating to this Agreement shall be resolved by binding arbitration at the local
Orange County, California offices of the Judicial Arbitration & Mediation
Services, Inc. ("J.A.M.S."). Judgment upon any determination or award may be
entered in any court of competent jurisdiction. The parties may agree on a
jurist from the J.A.M.S. panel. If they are unable to agree, J.A.M.S. will
provide a list of three available panel members and each party may strike one.
The remaining panel member will serve as the arbitrator. The aggrieved party may
initiate arbitration by: (i) sending thirty (30) days written notice of an
intention to arbitrate by registered or certified mail to all parties and to
J.A.M.S.; and (ii) depositing with J.A.M.S. the
37
advanced fees required by J.A.M.S. to initiate the arbitration process for the
parties. The notice must contain a description of the dispute, the amount
involved and the remedies sought. Upon notice of demand for arbitration, the
parties agree to execute a submission agreement, provided by J.A.M.S., which
agreement shall provided for discovery in accordance with the Federal Rules of
Civil Procedure and for the Commercial Arbitration rules and procedures
established by the American Arbitration Association. The prevailing party in any
arbitration proceeding under this Section 13.8 shall be entitled to recover from
the other reasonable attorneys' fees, costs and expenses in connection with such
arbitration proceeding.
13.9 ATTORNEYS' FEES. Subject to Section 13.8 above, in the event
of any arbitration, litigation, or other legal proceeding involving the
interpretation of this Agreement or enforcement of the rights or obligations of
the parties hereto, the prevailing party or parties shall be entitled to recover
reasonable attorneys' fees and costs as determined by the arbitrator or other
adjudicator.
13.10 SUBMISSION TO JURISDICTION. Each of the Members hereby
consents to the jurisdiction of any state or federal court located within the
State of California, and, subject to the provisions of Section 13.8 above,
irrevocably agrees that all actions or proceedings relating to this Agreement
shall be instituted and heard by the courts of the State of California. Each
Member hereby waives any objection that it may have based on improper venue or
forum non conveniens to the conduct of any proceeding in any such courts and
personal service of any and all proceedings upon it, and consents to any such
service of process made in the manner provided herein for the giving of notices
under this Agreement.
38
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
MEMBER:
CHEROKEE INVESTOR PARTNERS, LLC
By: /s/ IAN SHAPIRO
--------------------------------------
Its: President
--------------------------------------
MEMBER:
By: /s/ GANPAT PATEL
--------------------------------------
GANPAT PATEL, AS TRUSTEE OF THE
PATEL FAMILY TRUST, DATED JULY 17,
1987
MEMBER:
By: /s/ MANJU PATEL
--------------------------------------
MANJU PATEL, AS TRUSTEE OF THE
PATEL FAMILY TRUST, DATED JULY 17,
1987
MEMBER:
By: /s/ RITA PATEL
--------------------------------------
RITA PATEL, AS TRUSTEE OF THE
GANPAT PATEL 1997 IRREVOCABLE
TRUST I, DATED NOVEMBER 3, 1997
MEMBER:
By: /s/ RITA PATEL
--------------------------------------
RITA PATEL, AS TRUSTEE OF THE
GANPAT PATEL 1997 IRREVOCABLE
TRUST II, DATED NOVEMBER 3, 1997
MEMBER:
By: /s/ RITA PATEL
--------------------------------------
RITA PATEL, AS TRUSTEE OF THE
GANPAT PATEL 1997 IRREVOCABLE
TRUST III, DATED NOVEMBER 3, 1997
MEMBER:
By: /s/ RITA PATEL
--------------------------------------
RITA PATEL, AS TRUSTEE OF THE
MANJU PATEL 1997 IRREVOCABLE
TRUST I, DATED NOVEMBER 3, 1997
MEMBER:
By: /s/ RITA PATEL
--------------------------------------
RITA PATEL, AS TRUSTEE OF THE
MANJU PATEL 1997 IRREVOCABLE
TRUST II, DATED NOVEMBER 3, 1997
MEMBER:
By: /s/ RITA PATEL
--------------------------------------
RITA PATEL, AS TRUSTEE OF THE
MANJU PATEL 1997 IRREVOCABLE
TRUST III, DATED NOVEMBER 3, 1997
MEMBER:
BIKOR CORPORATION
By: /s/ BAHECHAR S. PATEL
----------------------------------
Its: President
----------------------------------
APPENDIX A
----------
Member Name Class A Class B Percentage Capital Capital
and Address Units Units Interest Contribution Account**
Cherokee Investor Partners, 2,400 237,600 60.00% --
LLC
c/o GFI Energy Ventures LLC
12121 Wilshire Blvd.
Ste. 1375
Los Angeles, CA 90025
Ganpat I. Patel and Manju G. 1,200 28,800 7.50% --
Patel, Trustees of the Patel
Family Trust dated July 17,
1987*
Rita Patel, Trustee of the 0 15,000 3.75% --
Ganpat Patel 1997 Irrevocable
Trust I dated November 3,
1997*
Rita Patel, Trustee of the 0 15,000 3.75% --
Ganpat Patel 1997 Irrevocable
Trust II dated November 3,
1997*
Rita Patel, Trustee of the 0 15,000 3.75% --
Ganpat Patel 1997 Irrevocable
Trust III dated November 3,
1997*
Rita Patel, Trustee of the 0 15,000 3.75% --
Manju Patel 1997 Irrevocable
Trust I dated November 3,
1997*
Rita Patel, Trustee of the 0 15,000 3.75% --
Manju Patel 1997 Irrevocable
Trust II dated November 3,
1997*
Rita Patel, Trustee of the 0 15,000 3.75% --
Manju Patel 1997 Irrevocable
Trust III dated November 3,
1997*
Bikor Corporation* 400 39,600 10.00% --
--- ------ ------
Totals: 4,000 396,000 100%
- --------------------
* c/o Cherokee International, LLC, 2841Dow Avenue, Tustin, CA 92780
** Capital Accounts to be determined.
A-1
APPENDIX B
----------
MANAGEMENT COMMITTEE
Tony Bloom
Christopher S. Brothers
Stephen Kaplan
Kenneth King
Raymond Meyer
Bahechar S. Patel
Ganpat I. Patel
Ian A. Schapiro
B-1