EXHIBIT 3
OPERATING AGREEMENT
OF
ADVANCED - DYNAMIC, LLC
<PAGE 112>
i
TABLE OF CONTENTS
TO
OPERATING AGREEMENT
OF
ADVANCED-DYNAMIC, LLC
ARTICLE I DEFINITIONS 1
1.1 Definitions of Certain Terms 1
1.2 Other Definitions 7
ARTICLE II FORMATION 7
2.1 Formation 7
2.2 Name 7
2.3 Articles of Organization 8
2.4 Principal Executive & Registered Office 8
2.5 Perpetual Existence 8
2.6 Nature of Member's Interest 8
2.7 No Certificates Evidencing Interests in Company 8
2.8 Registered Agent 8
2.9 Filings 8
2.10 Status of Company for Tax Purposes 8
ARTICLE III PURPOSE & POWERS 9
3.1 Purpose 9
3.2 Powers 9
ARTICLE IV CAPITAL 9
4.1 Units 9
4.2 Capital Contributions 9
4.3 Membership Interests 10
4.4 No Interest On or Right to Withdraw Capital 10
4.5 Capital Accounts 10
ARTICLE V PROFITS, LOSSES & CASH FLOW 10
5.1 Allocation of Profits 10
5.2 Allocation of Losses 10
5.3 Special Allocations 11
5.4 Curative Allocations 13
5.5 Other Allocation Rules 14
5.6 Tax Allocations: Code Section 704(c) 14
5.7 Allocations with Respect to Transferred Interests14
5.9 Distributions 16
5.10 Assignment 17
ARTICLE VI MANAGEMENT 18
6.1 Management of Company 18
6.2 Administration of the Company by the Managers 18
6.3 Duties and Powers of the Chief Manager 18
6.4 Day to Day Management 18
6.4.1 Standard of Management Services 18
6.4.2 Consideration 19
<PAGE 113>
ii
6.4.3 Key Management Decisions 19
6.4.4 Coordination of Management and
Operational Activities 19
6.4.5 Agency 19
6.4.6 Indemnification 19
6.4.7 Advanced Subsidiaries Operations 20
6.5 Duties and Powers of the Vice Manager 20
6.6 Duties and Powers of the Secretary 20
6.7 Duties and Powers of the Treasurer 20
6.8 Direction and Approval by Members 20
6.9 Election, Withdrawal and Removal of Managers 20
6.10 Compensation of Managers 21
6.11 Standard of Conduct 21
6.12 Action of Members 21
6.13 Liability of Managers and Employees 22
6.14 Consent of Members to Certain Actions 22
6.15 Additional Duties and Obligations of the Managers23
6.16 Limitations on Distributions 23
ARTICLE VII MEMBER MEETINGS, VOTING RIGHTS & OTHER ACTIVITIES24
7.1 Annual Meeting 24
7.2 Calling Meetings and Notice 24
7.3 Quorum Requirements for Meetings 25
7.4 Voting 25
7.5 Action Without a Meeting 25
ARTICLE VIII INDEMNIFICATION AND ELIMINATION OF LIABILITY 26
8.1 Indemnification of Managers, Employees and Agents26
8.2 Elimination of Liability 27
ARTICLE IX FISCAL MATTERS 27
9.1 Books and Records 27
9.2 Fiscal Year 27
9.3 Financial Statements 27
9.4 Income Tax Reports 27
9.5 Bank Accounts 27
9.6 Tax Matters Partner 27
9.7 Tax Election Under Code Section 754 28
ARTICLE X TERMINATION & ADMISSION OF MEMBERS 28
10.1 No Right to Withdraw 28
10.2 Expulsion 28
10.3 Termination of Membership Interest 28
10.4 Admission of New Members Upon Issuance
of Additional Units 29
10.5 No Preemptive Rights 29
ARTICLE XI TRANSFERS OF INTERESTS IN THE COMPANY 29
11.1 Required Consent to Transfer 29
11.2 Certain Permitted Transfers of Financial Rights 30
11.3 Right of First Refusal 30
11.4 No Termination of Company for Tax Purposes 30
ARTICLE XII DISSOLUTION, TERMINATION & WINDING UP 31
<PAGE 114>
iii
12.1 Dissolution of Company 31
12.2 Winding Up Affairs on Dissolution 31
12.3 Distribution Upon Pre-Merger Dissolution 31
12.4 Distribution Upon Post-Merger Dissolution 32
12.5 Waiver of Right to Partition and Decree
of Dissolution 32
ARTICLE XIII GENERAL PROVISIONS 33
13.1 Notices 33
13.2 Integration 33
13.3 Governing Law 33
13.4 Severability 33
13.5 Binding Effect 33
13.6 Terminology 33
13.7 Amendment 34
13.8 Waivers 34
13.9 Confidentiality 34
13.10 No Third Party Beneficiaries 34
<PAGE 115>
1
OPERATING AGREEMENT
OF
ADVANCED - DYNAMIC, LLC
_______________________________________________________________
BY THIS OPERATING AGREEMENT made and entered into as of this
30th day of March, 1999 by and between Dynamic Associates, Inc.
("Dynamic") and ACS2, Inc. ("ACS2") (together, the "Members"),
being all of the current members of Advanced-Dynamic, LLC (the
"Company"), the Members represent and agree as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions of Certain Terms. As used in this Agreement,
the following terms shall have the indicated meanings.
1.1.1 "Act" shall mean Chapter 86 of the Nevada
Revised Statutes in effect on the date hereof and as it may be
amended hereafter.
1.1.2 [Omitted].
1.1.3 "Advanced Subsidiaries" means Pain Care, Inc.,
Pain Care of Florida, Inc., Pain Care of Kentucky, Inc., Pain Care
of Georgia, Inc., Pain Care of Tennessee, Pain Care of Texas,
Inc., New Day, Inc., NDA of Alabama, Inc., NDA of Texas, Inc., and
ACS/Managed Care Systems, Inc.
1.1.4 "Agreement" means this Operating Agreement of
Advanced-Dynamic, LLC, as it may be hereafter amended, modified or
restated.
1.1.5 "Articles" means the Articles of Organization
of Advanced-Dynamic, LLC, filed with the Nevada Secretary of State
on March 22, 1999.
1.1.6 "Capital Account" means, with respect to each
holder of Financial Rights, the Capital Account maintained for
such person in accordance with the following provisions:
1.1.6.1 To the Capital Account of each holder of
Financial Rights there shall be credited such person's Capital
Contributions and distributive share of Profits and any items in
the nature of income or gain that are specially allocated to such
person pursuant to section 5.3 or
<PAGE 116>
2
5.4 hereof, and the amount of any Company liabilities assumed by
such person or that are secured by any Company property
distributed to such person.
1.1.6.2 To the Capital Account of each holder of
Financial Rights there shall be debited the amount of cash and the
Gross Asset Value of any Company property distributed to such
person pursuant to any provision of this Agreement, such person's
distributive share of Losses and any items in the nature of
deductions or losses that are specially allocated to such person
pursuant to section 5.3 or 5.4 hereof, and the amount of any
liabilities of such person assumed by the Company or that are
secured by any property contributed by such person to the Company.
1.1.6.3 In the event of an assignment of a
Membership Interest or Financial Rights that is permitted by this
Agreement, the assignee shall succeed to the Capital Account of
The transferor in accordance with Regulations section 1.704-
1(b)(2)(iv) to the extent such Capital Account relates to the transferred
Membership Interest or Financial Rights; provided, however, no
such assignment shall, in and of itself, relieve the transferor of any
obligation to the Company, including, but not limited to, any
obligation of such transferor to contribute to the capital of the
Company.
1.1.6.4 In determining the amount of any
liability for purposes of sections 1.1.6.1 and 1.1.6.2 hereof,
there shall be taken into account Code section 752(c) and any
other applicable provisions of the Code and Regulations.
The foregoing provisions of section 1.1.6 and the other
provisions of this Agreement relating to the maintenance of
Capital Accounts are intended to comply with Regulations section 1.704-
1(b) and shall be interpreted and applied in a manner consistent with
such Regulations. In the event the Members determine that it is
prudent to modify the manner in which Capital Accounts, or any
debits or credits thereto (including, without limitation, debits
or credits relating to liabilities that are secured by contributed or
distributed property, or that are assumed by the Company or
holders of Financial Rights), are computed in order to comply with such
Regulations, the Members may make such modification, provided it
is not likely to have a material effect on the amounts distributable
to any holder of Financial Rights pursuant to section 5.9, upon
the dissolution of the Company, or upon the termination of such
person's interest in the Company. The Members also shall make any
adjustments that are necessary or appropriate to maintain equality
between the Capital Accounts of the holders of Financial Rights
and the amount of Company capital reflected on the Company's balance
sheet, as computed for book purposes, in accordance with
Regulations
<PAGE 117>
3
section 1.704-1(b)(2)(iv)(q), and any appropriate modifications
in the event unanticipated events might otherwise cause this
Agreement not to comply with Regulations section 1.704-1(b).
1.1.7 "Capital Contribution" means, with respect to
any holder of Financial Rights, the amount of money and the
initial Gross Asset Value of any property (other than money) contributed
at any time to the Company with respect to such person's interest in
the Company.
1.1.8 "Cash Flow" means the Company's taxable
income for Federal income tax purposes, increased by (i)
amortization, depreciation and other non-cash charges taken into
account in computing taxable income, (ii) any nontaxable income or
proceeds from any refinancing of the Company's indebtedness (other
than Capital Contributions), and (iii) the net proceeds from the
sale of any of the Company's assets, and decreased by (iv)
principal payments on Company debts, (v) any other cash
expenditures that have not been deducted in determining the
Company's taxable income, and (vi) any amount the Members
determine to be reasonably required to maintain sufficient working capital
and reasonable reserves for operating expenses and capital
expenditures. Cash Flow shall be determined separately for each
fiscal year and not cumulatively.
1.1.9 "Code" means the Internal Revenue Code of
1986, as hereafter amended from time to time. All references
herein to sections of the Code shall include references to any
corresponding successor provision or provisions.
1.1.10 "Company" means Advanced-Dynamic, LLC, the
Nevada limited liability company to which this Agreement relates.
1.1.11 "Contribution Agreement" means that certain
Capital Contribution Agreement dated as of March 30, 1999 among
Dynamic, ACS2, Advanced Clinical Systems, Inc. and the Company.
1.1.12 "Depreciation" means, for each fiscal year or
other shorter period of the Company, an amount equal to the
depreciation, amortization, or other cost recovery deduction
allowable with respect to an asset for such year or other period,
except that if the Gross Asset Value of an asset differs from its
adjusted basis for Federal income tax purposes at the beginning of
such year or other period, Depreciation shall be an amount that
bears the same ratio to such beginning Gross Asset Value as the
Federal income tax depreciation, amortization or other cost
recovery deduction for such fiscal year or other period bears to
such beginning adjusted tax basis; provided, however, if the
Federal income tax deduction, amortization, or other cost recovery
deduction for such year is zero, Depreciation shall be determined
with reference to such beginning Gross Asset Value using any
reasonable method selected by the Members.
<PAGE 118>
4
1.1.13 "Dynamic Subsidiaries" means Genesis Health
Care Management Corporation and Geriatric Care Centers of
American, Inc.
1.1.14 "Financial Rights" means the rights of each
Member (or assignee thereof) to share in profits, losses and
distributions of the Company, to receive interim and liquidating
distributions of the Company, and to assign such rights in
accordance with the terms of this Agreement.
1.1.15 "Governance Rights" means the rights of each
Member to vote on one or more matters as herein specified or
otherwise required under the Act and all of each Member's rights
as a member in the Company other than Financial Rights and the right
to assign Financial Rights.
1.1.16 "Gross Asset Value" means, with respect to
any asset of the Company, the asset's adjusted basis for Federal
income tax purposes, except as follows:
1.1.16.1 The initial Gross Asset Value of any
asset contributed to the Company by a Member or holder of
Financial Rights shall be the gross fair market value of such asset,
as agreed upon by the person making such contribution and the
Company;
1.1.16.2 The Gross Asset Values of all Company
assets shall be adjusted to equal their respective gross fair
market values, as determined by the Members, as of the following
times:
1.1.16.2.1 The acquisition of an
additional interest in the Company by any person in exchange
for more than a de minimis Capital Contribution to the Company
if the Members reasonably determine that such an adjustment is
necessary or appropriate to reflect the relative economic
interests of the holders of Financial Rights;
1.1.16.2.2 The distribution by the Company
to a holder of Financial Rights of more than a de minimis
amount of property as consideration for an interest in the
Company if the Members reasonably determine that such an
adjustment is necessary or appropriate to reflect the relative
economic interests of the holders of Financial Rights; and
1.1.16.2.3 The liquidation of the Company
within the meaning of Regulations section 1.704-1(b) (2) (ii)
(g).
1.1.16.3 The Gross Asset Value of any Company
asset distributed to any holder of Financial Rights shall be the
gross fair market value of such asset on the date of distribution,
as agreed upon by the person to whom the asset is distributed and
the Company; and
<PAGE 119>
5
1.1.16.4 The Gross Asset Values of Company assets
shall be increased (or decreased) to reflect any adjustments to
the adjusted basis of such assets pursuant to Code section 734(b) or
743(b), but only to the extent that such adjustments are taken
into account in determining Capital Accounts pursuant to Regulations
section 1.704-1(b) (2) (iv) (m) and section 5.3.7 hereof;
provided, however, that Gross Asset Values shall not be adjusted pursuant to
this section 1.1.16.4 to the extent the Members determine that an
adjustment pursuant to section 1.1.16.2 above is necessary or
appropriate in connection with a transaction that would otherwise
result in an adjustment pursuant to this section 1.1.16.4.
If the Gross Asset Value of an asset has been determined
or adjusted pursuant to sections 1.1.16.1, 1.1.16.2 or 1.1.16.4
above, such Gross Asset Value shall thereafter be adjusted by the
Depreciation taken into account with respect to such asset for
purposes of computing Profits or Losses.
1.1.17 "Managers" means, collectively, and "Manager"
means, individually, Kevin Lee, Andrew Miller, Jan Wallace, and
Clay Deardorf, and those additional and substitute persons who may
be elected from time to time by the Members to manager the
administrative affairs of the Company pursuant to the provisions
of this Agreement.
1.1.18 "Members" means those persons identified on
Exhibit A attached hereto, together with any additional persons
admitted as Members pursuant to the provisions of this Agreement.
No person shall be a Member unless he or she possesses some
Governance Rights. The term "Member" means any one of such
persons.
1.1.19 "Membership Interest" means each Member's
interest in the Company, consisting of (i) Financial Rights, (ii)
Governance Rights, and (iii) rights to assign either Financial
Rights and Governance Rights or both. If a Member has assigned
some or all of such Member's Financial Rights, then "Membership
Interest" means, with respect to such Member, (i) such Member's
Governance Rights, (ii) such Member's right to assign such
Governance Rights, (iii) any remaining Financial Rights of such
Member, and (iv) such Member's right to assign any such remaining
Financial Rights.
1.1.20 "Merger Agreement" means that certain
Agreement and Plan of Merger entered into among Dynamic, ACS2,
Advanced Clinical Systems, Inc., Dynamic Acquisition Corporation
("DAC"), and the Company contemporaneously with the Contribution
Agreement.
1.1.21 "Percentage Financial Interest" means the
interest of each Member or holder of Financial Rights obtained by
converting to a percentage the fraction having as its numerator
<PAGE 120>
6
the number of Units, for Financial Rights purposes, held by such
Member or holder of Financial Rights and having as its denominator
the aggregate number of Units, for Financial Rights purposes, held
by all Members and holders of Financial Rights at the time. The
initial Percentage Financial Interest of each Member is set forth
opposite such Member's name on Exhibit A attached hereto.
1.1.22 [Omitted].
1.1.23 "Profits or Losses" shall mean, for each
fiscal year or other shorter period of the Company, an amount
equal to the Company's Federal taxable income or loss for such year or
period, determined in accordance with Code section 703(a) (for
this purpose, all items of income, gain, loss or deduction required to
be stated separately pursuant to Code section 703(a)(1) shall be
included in taxable income or loss), with the following
adjustments:
1.1.23.1 Any income of the Company that is exempt
from Federal income taxation and not otherwise taken into account
in computing Profits or Losses pursuant to this section 1.1.23
shall be added to such taxable income or loss;
1.1.23.2 Any expenditures of the Company described
in Code section 705(a)(2)(B) or treated as Code section
705(a)(2)(B) expenditures pursuant to Regulations section
1.704-1(b)(2)(iv)(i) and not otherwise taken into account in
computing Profits or Losses pursuant to this section 1.1.23 shall
be subtracted from such taxable income or loss;
1.1.23.3 In the event the Gross Asset Value of any
Company asset is adjusted pursuant to section 1.1.16.3 or 1.1.16.4
hereof, the amount of such adjustment shall be taken into account
as gain or loss from the disposition of such asset for purposes of
computing Profits or Losses;
1.1.23.4 Gain or loss resulting from any
disposition of Company property with respect to which gain or loss
is recognized for Federal income tax purposes shall be computed by
reference to the Gross Asset Value of the property disposed of,
notwithstanding that the adjusted tax basis of such property
differs from its Gross Asset Value;
1.1.23.5 In lieu of the depreciation,
amortization, and other cost recovery deductions taken into
account in computing such taxable income or loss, there shall be taken
into account Depreciation for such fiscal year or other shorter period,
computed in accordance with section 1.1.12 hereof; and
1.1.23.6 To the extent an adjustment to the
adjusted tax basis of any Company asset pursuant to Code section
734(b) or 743(b) is required pursuant to Regulations section
1.704-1(b)(2)(iv)(m)(4) to be taken into account in determining Capital
Accounts as a result of a
<PAGE 121>
7
distribution other than in liquidation
of a holder of Financial Rights' interest, the amount of such
adjustment shall be treated as an item of gain (if the adjustment
increases the basis of the asset) or loss (if the adjustment
decreases the basis of the asset) from the disposition of the
asset and shall be taken into account for purposes of computing Profits
or Losses; and
1.1.23.7 Notwithstanding any other provision of
this section 1.1.23, any items that are specially allocated
pursuant to section 5.3 or 5.4 hereof shall not be taken into
account in computing Profits or Losses.
1.1.24 "Regulations" means the regulations
promulgated by the United States Department of the Treasury
pursuant to and in respect of the Code. All references herein to
sections of the Regulations shall include any corresponding
provision or provisions of succeeding, substitute, proposed or
final Regulations.
1.2 Other Definitions. Capitalized terms used in this
Agreement not otherwise defined in this Article I shall have the
meanings given to them elsewhere herein. Certain definitions
relating to the allocation of Profits or Losses are found in
section 5.8.
ARTICLE II
FORMATION
2.1 Formation. The Members hereby acknowledge the formation
of Advanced-Dynamic, LLC, as a Nevada limited liability company
effective upon the filing of the Company's Articles with the
Secretary of State of Nevada on March 22, 1999. The Members shall
immediately, and from time to time hereafter, execute all
documents and do all filing, recording, and other acts as may be
required to comply with the operation of the Company under the Act.
2.2 Name. The name of the Company is Advanced-Dynamic LLC.
The Company shall conduct its business under said name or may
adopt and conduct its business under such other name or assumed or
trade name permitted under the Act as the Members may designate
from time to time. The Company shall execute and cause to be
filed any and all documents, including assumed or fictitious name
certificates, as may be required to conduct business in Nevada and
other states or jurisdictions in which the Company does business
to enable the Company to lawfully transact business in such
jurisdiction under such name.
<PAGE 122>
8
2.3 Articles of Organization. The Articles, as in effect on
the date of this Agreement, are hereby adopted and ratified by the
Members. In the event of a conflict between the terms of this
Agreement and those of the Articles, the terms of the Articles
shall prevail.
2.4 Principal Executive & Registered Office. The principal
executive office of the Company shall be located at 49 Music
Square, West, Suite 502, Nashville, Tennessee 37203-3272 or at
such other place as the Members shall mutually determine in their sole
discretion.
2.5 Perpetual Existence. The Company shall be deemed to have
commenced upon the filing of the Articles and shall continue in
perpetuity until the Company's existence is terminated in
accordance with this Agreement or the Act.
2.6 Nature of Member's Interest. The interest in the
Company of each Member (and all assignees thereof) shall be personal
property. All real and personal property owned by the Company
shall be owned by the Company as an entity in the Company's name.
No Member or holder of Financial Rights, as such, shall own any
interest in specific Company property.
2.7 No Certificates Evidencing Interests in Company. The
Company shall have no authority to issue certificates evidencing
Membership Interests, Governance Rights or Financial Rights in the
Company. The Company shall, at the request of any Member, provide
the written statement describing the interest of such Member to
which such Member is entitled.
2.8 Registered Agent. The name and business address of the
agent for service of process for the Company is Michael A. Cane,
101 Convention Center Drive., Las Vegas, Nevada 89109, or such
other person as the Members shall mutually appoint from time to
time.
2.9 Filings. The Company shall execute and cause to be filed
such certificates and documents required by Nevada and any state
or other jurisdiction in which the Company engages in business. The
Company shall take any and all other actions reasonably necessary
to perfect and maintain the status of the Company as a limited
liability company under the laws of Nevada and in any state or
other jurisdiction in which the Company engages in business, and
the Company shall execute and file for public record the Articles,
and any and all amendments thereto, and other filings in all
places and at such times as required by the Act or other applicable law
necessary for the continuation of, or the transaction of any,
business by the Company.
2.10 Status of Company for Tax Purposes. The Members
intend that the Company be classified as a partnership for Federal
income tax purposes. The Members shall be under a continuing
obligation to perform their duties and responsibilities under this
Agreement in light of such intention, and the Company shall do any
and all things and acts necessary or appropriate to
<PAGE 123>
9
maintain such classification. The Members also intend that the Company
not be classified as a partnership for purposes of Section 3030 of the
Federal Bankruptcy Code. No Member shall take any action
inconsistent with this express intent of the Members.
ARTICLE III
PURPOSE & POWERS
3.1 Purpose. The Company has been formed to engage in
the business of health care management and any other lawful
activity incident to such purpose, and, upon the unanimous
affirmative vote of the Members, to engage in any other lawful
business, act or activity in which a limited liability company may
engage under the Act.
3.2 Powers. In furtherance of its purpose, the Company
shall have full power and authority to do all things necessary or
desirable to accomplish its purpose and carry on its business as
permitted by applicable law and shall have all powers and
authority granted to limited liability companies under the Act.
ARTICLE IV
CAPITAL
4.1 Units. Membership Interests in the Company shall be
denominated in "Units," or fractions thereof. For Governance
Rights purposes, each full Unit entitles the Member holding such
Unit to one (1) vote on all matters to which such Member is
entitled to vote and each fractional Unit entitles the Member
holding such fractional Unit to an equivalent fractional vote.
For purposes of assigning Financial Rights and/or Governance Rights,
each Unit may be severed and/or divided into fractional portions
as applicable.
4.2 Capital Contributions. At the closing of the
Contribution Agreement and as contemplated therein, the Members
shall contribute the Advanced Subsidiaries and Dynamic
Subsidiaries, respectively, to the capital of the Company in
consideration of the Units set forth in section 4.3. Additional
Units may be issued at such time, for such Capital Contributions,
and upon such other terms and conditions as the Members shall, in
their discretion, determine by the unanimous vote of the members.
Additional Capital Contributions will not be required of the
Members.
<PAGE 124>
10
Each Member will execute all assignments and documents of
transfer as required to give effect to the Capital Contributions
required by this Agreement.
4.3 Membership Interests. There shall be Two Hundred (200)
Units authorized for distribution from the Company. As of the
date of this Agreement, each of Dynamic and ACS2 have been issued one
(1) Unit. Upon completion of the Capital Contributions of each of
ACS2 and Dynamic as set forth in Section 4.2 of this Agreement,
each of Dynamic and ACS2 will be issued an additional ninety-nine
(99) Units, such that the aggregate outstanding Units for both
governance and financial rights purposes will be owned as follows:
Dynamic 100 Units
ACS2 100 Units
4.4 No Interest On or Right to Withdraw Capital. No holder
of Financial Rights shall have the right to demand the return of,
or otherwise withdraw, the Capital Contribution associated with
such person's Financial Rights, or to receive any specific
property of the Company, except as specifically provided in this Agreement.
Except as expressly provided for in Section 12.3 of this
Agreement, no holder of Financial Rights shall have the right to demand and
receive property other than cash in return for the Capital
Contributions associated with such Financial Rights. No holder of
Financial Rights shall have the right to any interest on Capital
Contributions.
4.5 Capital Accounts. The Company shall maintain for each
holder of Financial Rights a Capital Account in accordance with
section 1.1.5 of this Agreement.
ARTICLE V
PROFITS, LOSSES & CASH FLOW
5.1 Allocation of Profits. After giving effect to the
special allocations set forth in sections 5.3 and 5.4 hereof,
Profits for any fiscal year or other shorter period shall be
allocated among holders of Financial Rights in accordance with
their respective Percentage Financial Interests.
5.2 Allocation of Losses. After giving effect to the special
allocations set forth in sections 5.3 and 5.4 hereof, Losses for
any fiscal year or other shorter period shall be allocated among
holders of Financial Rights in accordance with their respective
Percentage Financial Interests.
<PAGE 125>
11
5.2.1 Losses allocated pursuant to section 5.2
hereof shall not exceed the maximum amount of Losses that can be
so allocated without causing any person to have an Adjusted Capital
Account Deficit at the end of any fiscal year. In the event some
but not all of the holders of Financial Rights would have Adjusted
Capital Account Deficits as a consequence of an allocation of
Losses pursuant to section 5.2, the limitation set forth in this
subsection 5.2.1 shall be applied on a person by person basis so
as to allocate the maximum permissible Loss to each holder of
Financial Rights under section 1.704-1(b)(2)(ii)(d) of the
Regulations.
5.3 Special Allocations. The following special allocations
shall be made in the following order:
5.3.1 Minimum Gain Chargeback. Except as otherwise
provided in section 1.704-2(f) of the Regulations, notwithstanding
any other provision of this Article V, if there is a net decrease
in Company Minimum Gain during any Company fiscal year or other
shorter period, each holder of Financial Rights shall be specially
allocated items of Company income and gain for such year or other
shorter period (and, if necessary, subsequent years) in an amount
equal to such person's share of the net decrease in Company
Minimum Gain, determined in accordance with Regulations section 1.704-
2(g). Allocations pursuant to the previous sentence shall be made in
proportion to the respective amounts required to be allocated to
each holder of Financial Rights pursuant thereto. The items to be
so allocated shall be determined in accordance with sections
1.704-(f)(6) and 1.704-2(j)(2) of the Regulations. This section 5.3.1
is intended to comply with the minimum gain chargeback requirement in
section 1.704-2(f) of the Regulations and shall be interpreted
consistently therewith.
5.3.2 Partner Minimum Gain Chargeback. Except as
otherwise provided in section 1.704-2(i)(4) of the Regulations,
notwithstanding any other provision of this Article V except
section 5.3.1, if there is a net decrease in Partner Nonrecourse
Debt Minimum Gain attributable to a Partner Nonrecourse Debt
during any Company fiscal year or other shorter period, each holder of
Financial Rights who has a share of the Partner Nonrecourse Debt
Minimum Gain attributable to such Partner Nonrecourse Debt,
determined in accordance with section 1.704-2(i)(5) of the
Regulations, shall be specially allocated items of Company income
and gain for such year or other shorter period (and, if necessary,
subsequent years) in an amount equal to such person's share of the
net decrease in Partner Nonrecourse Debt Minimum Gain attributable
to such Partner Nonrecourse Debt, determined in accordance with
Regulations section 1.704-2(i)(4). Allocations pursuant to the
previous sentence shall be made in proportion to the respective
amounts required to be allocated to each holder of
<PAGE 126>
12
Financial Rights pursuant thereto. The items to be so allocated shall be
determined in accordance with sections 1.704-2(i)(4) and 1.704-2(j)(2) of the
Regulations. This section 5.3.2 is intended to comply with the
minimum gain chargeback requirement in section 1.704-2(i)(4) of
the Regulations and shall be interpreted consistently therewith.
5.3.3 Qualified Income Offset. In the event any
holder of Financial Rights unexpectedly receives any adjustments,
allocations, or distributions described in Regulations section
1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), or 1.704-
1(b)(2)(ii)(d)(6), items of income and gain shall be specially
allocated to each such person in an amount and manner sufficient
to eliminate, to the extent required by the Regulations, the Adjusted
Capital Account Deficit of such person as quickly as possible,
provided that an allocation pursuant to this section 5.3.3 shall
be made if and only to the extent that such person would have an
Adjusted Capital Account Deficit after all other allocations
provided for in this Article V have been tentatively made as if
this section 5.3.3 were not in the Agreement.
5.3.4 Gross Income Allocation. In the event any
holder of Financial Rights has a deficit Capital Account at the
end of any Company fiscal year or other shorter period that is in
excess of the sum of (i) the amount, if any, such person is
obligated to restore, and (ii) the amount such person is deemed to
be obligated to restore pursuant to the penultimate sentences of
Regulations sections 1.704-2(g)(1) and 1.704-2(i)(5), each such
person shall be specially allocated items of Company income and
gain in the amount of such excess as quickly as possible, provided
that an allocation pursuant to this section 5.3.4 shall be made if
and only to the extent that such person would have a deficit
Capital Account in excess of such sum after all other allocations
provided for in this Article V have been tentatively made as if
section 5.3.3 hereof and this section 5.3.4 were not in the
Agreement.
5.3.5 Nonrecourse Deductions. Nonrecourse
Deductions for any fiscal year or other shorter period shall be
specially allocated among the holders of Financial Rights in
accordance with their respective Percentage Financial Interests.
5.3.6 Partner Nonrecourse Deductions. Any Partner
Nonrecourse Deductions for any fiscal year or other shorter period
shall be specially allocated to the holder of Financial Rights who
bears the economic risk of loss with respect to the Partner
Nonrecourse Debt to which such Partner Nonrecourse Deductions are
attributable in accordance with Regulations section 1.704-2(i)(1).
<PAGE 127>
13
5.3.7 Code Section 754 Adjustments. To the extent
an adjustment to the adjusted tax basis of any Company asset
pursuant to Code section 734(b) or 743(b) is required, pursuant to
Regulations section 1.704-1(b)(2)(iv)(m)(2) or 1.704-
1(b)(2)(iv)(m)(4), to be taken into account in determining Capital
Accounts as the result of a distribution to a holder of Financial
Rights in complete liquidation of such Financial Rights, the
amount of such adjustment to the Capital Accounts shall be treated as an
item of gain (if the adjustment increases the basis of the asset)
or loss (if the adjustment decreases such basis), and such gain or
loss shall be specially allocated to the holders of Financial
Rights in accordance with their interests in the Company in the
event that Regulations section 1.704-1(b)(2)(iv)(m)(2) applies, or
to the persons to whom such distribution was made in the event
that Regulations section 1.704-1(b)(2)(iv)(m)(4) applies.
5.3.8 Imputed Interest. To the extent the Company
has Federal taxable interest income with respect to any promissory
note pursuant to section 483 or sections 1271 through 1288 of the
Code:
5.3.8.1 Such interest income shall be specially
allocated to the holder of Financial Rights to whom such
promissory note relates; and
5.3.8.2 The amount of such interest income shall
be excluded from the Capital Contributions credited to the Capital
Account of such holder of Financial Rights in connection with
payments of principal with respect to such promissory note.
5.4 Curative Allocations. The allocations set forth in
sections 5.2.1, 5.3.1, 5.3.2, 5.3.3, 5.3.4, 5.3.5, 5.3.6 and 5.3.7
hereof (the "Regulatory Allocations") are intended to comply with
certain requirements of the Regulations. It is the intent of the
Members that, to the extent possible, all Regulatory Allocations
shall be offset either with other Regulatory Allocations or with
special allocations of other items of Company income, gain, loss,
or deduction pursuant to this section 5.4. Therefore,
notwithstanding any other provision of this Article V (other than
the Regulatory Allocations), the Members shall make such
offsetting special allocations of Company income, gain, loss, or deduction in
whatever manner it determines appropriate so that, after such
offsetting allocations are made, the Capital Account balance of
each holder of Financial Rights is, to the extent possible, equal
to the Capital Account balance such person would have had if the
Regulatory Allocations were not part of this Agreement and all
Company items were allocated pursuant to sections 5.1, 5.2, 5.3.8,
and 5.5. In exercising its discretion under this section 5.4, the
Members shall take into account future Regulatory Allocations
under sections 5.3.1 and 5.3.2 that, although not yet
<PAGE 128>
14
made, are likely to offset other Regulatory Allocations previously made under
sections 5.3.5 and 5.3.6.
5.5 Other Allocation Rules.
5.5.1 Basis for Determining Profits or Losses. For
purposes of determining the Profits, Losses, or any other items
allocable to any period, Profits, Losses, and any such other items
shall be determined on a daily, monthly, or other basis, as
determined by the Members on a consistent basis using any
permissible method under Code section 706 and the Regulations
thereunder.
5.5.2 Distributions of Cash Treated as Proceeds
from Nonrecourse Liability or Partner Nonrecourse Debt. To the
extent permitted by section 1.704-2(h)(3) of the Regulations, the
Members shall endeavor to treat distributions of cash as having
been made from the proceeds of a Nonrecourse Liability or a
Partner Nonrecourse Debt only to the extent that such distributions would
cause or increase an Adjusted Capital Account Deficit for any
holder of Financial Rights.
5.5.3 Allocations of Items Not Otherwise Allocated.
Except as otherwise provided in this Agreement, all items of
Company income, gain, credit, loss, deduction, and any other
allocations not otherwise provided for shall be divided among the
holders of Financial Rights in the same proportions as they share
Profits or Losses, as the case may be, for such fiscal year or
other shorter period.
5.5.4 Allocations Binding. The Members and holders
of Financial Rights are aware of the income tax consequences of
the allocations made by this Article V and hereby agree to be bound by
the provisions of this Article V in reporting their respective
shares of Company income and loss for income tax purposes. The
Members and holders of Financial Rights further intend that,
pursuant to Regulations section 1.704-1(b)(3), the respective
interests in the Company of the holders of Financial Rights are
equal to the respective Percentage Financial Interests of such
person for purposes of complying with section 704(b) of the Code.
5.6 Tax Allocations: Code Section 704(c). In accordance with
Code section 704(c) and the Regulations thereunder, income, gain,
loss, and deduction with respect to any property contributed to
the capital of the Company shall, solely for tax purposes, be
allocated among the holders of Financial Rights so as to take account
of any variation between the adjusted basis of such property to the
Company for Federal income tax purposes and its initial Gross
Asset Value.
<PAGE 129>
15
5.7 Allocations with Respect to Transferred Interests.
5.7.1 General Rule. If a Membership Interest or
Financial Rights are transferred or increased or decreased by
reason of the admission of a new Member or otherwise, during any
fiscal year or other shorter period of the Company, Profits or
Losses and any other item of income, gain, loss, deduction or
credit of the Company for such fiscal year or other shorter period
shall be allocated among the holders of Financial Rights in
accordance with their varying respective Percentage Financial
Interests that they had from time to time during such fiscal year
or other shorter period in accordance with Code section 706(d).
5.7.2 Accounting Convention. For convenience in
accounting, the Company may, to the extent permitted by law, treat
a transfer of a Membership Interest or Financial Rights, or an
increase or decrease of a holder of Financial Rights' Percentage
Financial Interest, that occurs at any time during a month
(commencing with the month including the date of this Agreement)
as having been consummated on the first day of that month, regardless
of when during that month the transfer, increase or decrease
actually occurs, or adopt such other convention as the Members may
lawfully select.
5.7.3 Sale or Other Disposition of All Assets.
Notwithstanding anything in section 5.7 to the contrary, gain or
loss of the Company realized in connection with the sale or other
disposition of all or substantially all the Company's assets
(other than in the usual or regular course of the Company's business)
and/or the liquidation of the Company shall be allocated only to
holders of Financial Rights who own interests on the date such
transaction occurs.
5.8 Allocation Definitions. As used in this Agreement, the
following terms shall have the indicated meanings.
5.8.1 "Adjusted Capital Account Deficit" means,
with respect to any holder of Financial Rights, the deficit
balance, if any, in such person's Capital Account as of the end of
the relevant fiscal year or other shorter period, after giving
effect to the following adjustments:
5V.8.1.1 Credit to such Capital Account any
amounts that such holder of Financial Rights is obligated to
restore or is deemed to be obligated to restore pursuant to the
penultimate sentences of Regulations sections 1.704-2(g)(1) and
1.704-2(i)(5); and
5.8.1.2 Debit to such Capital Account the items
described in Regulations sections 1.704-1(b)(2)(ii)(d)(4), (5) and
(6).
<PAGE 130>
16
The foregoing definition of Adjusted Capital Account
Deficit is intended to comply with the provisions of section
1.704-1(b)(2)(ii)(d) of the Regulations and shall be interpreted
consistently therewith.
5.8.2 "Company Minimum Gain" has the meaning set
forth in Regulations sections 1.704-2(b)(2) and 1.704-2(d) for
"Partnership Minimum Gain" after substituting therein the word
"Company" in place of the word "Partnership."
5.8.3 "Nonrecourse Deductions" has the meaning set
forth in section 1.704-2(b)(1) of the Regulations.
5.8.4 "Nonrecourse Liability" has the meaning set
forth in section 1.704-2(b)(3) of the Regulations.
5.8.5 "Partner Nonrecourse Debt" has the meaning
set forth in section 1.704-2(b)(4) of the Regulations.
5.8.6 "Partner Nonrecourse Debt Minimum Gain" means
an amount, with respect to each Partner Nonrecourse Debt, equal to
the Company Minimum Gain that would result if such Partner
Nonrecourse Debt were treated as a Nonrecourse Liability,
determined in accordance with section 1.704-2(i)(3) of the
Regulations.
5.8.7 "Partner Nonrecourse Deductions" has the
meaning set forth in sections 1.704-2(i)(1) and 1.704-2(i)(2) of
the Regulations.
5.9 Distributions.
5.9.1 Distributions. Subject to Section 5.9.4, the
Members are authorized to make distributions of cash or other
property, in such amounts and at such times as the Members shall
determine in its discretion, to holders of Financial Rights,
allocated among them in accordance with their respective
Percentage Financial Interests; provided, however, the Company shall, to
the extent of Cash Flow, distribute to each holder of Financial Rights
an amount estimated by the Members to be sufficient to allow such
holder of Financial Rights to pay income taxes resulting from all
of the various allocations (whether regular or special) of the
Company's income, gain, loss and deduction among the holders of
Financial Rights pursuant to this Article V for such fiscal year
or other shorter period utilizing for this purpose the then highest
marginal individual Federal income tax rate in effect during such
fiscal year or shorter period. Such annual minimum distributions
shall be made by the fifth (5th) day preceding the earliest date
(without regard to extensions) by which any holder of Financial
Rights must file his or her Federal income tax return reporting
such person's distributive share of the Company's taxable income
and may be made, at the Members' discretion, in installments
<PAGE 131>
17
over the twelve (12) months preceding such due date to coincide with
Federal income tax estimated payments. Notwithstanding anything
in this Agreement to the contrary, the Company shall not make any
distributions that would render it insolvent.
5.9.2 Amounts Withheld. All amounts withheld
pursuant to the Code or any provision of state or local tax law
with respect to any payment of taxes of holders of Financial
Rights or distribution to the holders of Financial Rights shall be
treated as amounts distributed to them pursuant to this section 5.9 for
all purposes under this Agreement.
5.9.3 Distributions in Kind. Except as expressly
provided for in Section 12.3 of this Agreement, no holder of
Financial Rights shall have the right to demand or receive
distributions of property other than cash. Distributions in kind
of Company property, in liquidation or otherwise, shall be made
only with the consent of the Members and only at a value agreed to
by the Members. Prior to any such distribution in kind, the
difference between such agreed value and the book value of such
property shall be credited or charged, as the case may be, to the
holders of Financial Rights' Capital Accounts in proportion to
their Percentage Financial Interests, except as may otherwise be
required under Code section 704(c). Upon the distribution of such
property, such agreed value shall be charged to the Capital
Accounts of the holders of Financial Rights receiving such
distribution.
5.9.4 Distributions Pending Merger. During the
period from the date of this Agreement to the date of consummation
of the Merger, the Members will not make any distributions of
cash, assets, or other properties of the company except as provided for
in this Agreement.
5.10 Assignment. In the event of an assignment of a
Membership Interest or Financial Rights in the Company that is
permitted under this Agreement, Profits or Losses and other tax
attributes shall be allocated and Cash Flow distributions shall be
made to the assignee rather than to the assignor to the extent of
the Financial Rights assigned. Except as otherwise provided in
section 5.7.3, Profits or Losses and other tax attributes
allocable to any Member or holder of Financial Rights whose Membership
Interest or Financial Rights has been assigned, in whole or in
part, during a fiscal year shall be allocated among the persons
who were the holders of such Membership Interest or Financial Rights
during such fiscal year in proportion to their respective holding
periods, without separate determination of the results of Company
operations during such periods in accordance with Code section
706. The Secretary of the Company shall revise Exhibit A attached
hereto to reflect any such assignment and the revised Membership
Interests, Governance Rights and/or Financial Rights as a result
thereof.
<PAGE 132>
18
ARTICLE VI
MANAGEMENT
6.1 Management of Company. The management of the business
and affairs of the Company shall be vested in the Members. Except
where expressly provided herein to the contrary, all decisions
with respect to the management of the Company shall be made by the
Members and will be binding upon the Company and all Members.
6.2 Administration of the Company by the Managers. The
administration of the day-to-day business and affairs of the
Company is hereby delegated by the Members to at least four (4)
Managers: a Chief Manager, a Vice Manager, an Advanced Operations
Manager, and a Dynamic Operations Manager,. The Members may also
appoint such other managers, including secretaries, vice managers
and treasurers, as they may deem appropriate. Except where
expressly provided herein to the contrary, such decisions with
respect to the administration of the Company shall be made by the
Managers and shall be binding upon the Company. The Managers may
delegate any or all of their responsibilities and appoint agents
or attorneys in fact to act in their behalf.
6.3 Duties and Powers of the Chief Manager. Except as
provided in Section 6.4, the Chief Manager shall carry out the
day-to-day management and operations of the Company in accordance with
the directions, and subject to the review, of the Members and
shall have such other duties and responsibilities as prescribed by the
Act. Notwithstanding the foregoing and except as provided in
Section 6.4, the Chief Manager shall have the authority, power and
discretion to make decisions and to take actions in the ordinary
course of business of the Company that the Chief Manager deems
reasonably necessary in light of the Company's business and
objectives, consistent with the Articles, this Agreement and the
actions and/or resolutions of the Members.
6.4 Day to Day Management. The day to day management and
operation of the geriatric psychiatric health care businesses
carried on by the Dynamic Subsidiaries will be carried out by
Advanced pursuant to this Section 6.4.
6.4.1 Standard of Management Services. Advanced
will supervise all day to day management and operations
activities, with the assistance of the staff of the Dynamic Subsidiaries, to
ensure that the geriatric psychiatric health care businesses are
carried on by the Dynamic Subsidiaries in the ordinary course of
the businesses of the Dynamic Subsidiaries in a manner consistent
with prior practices.
<PAGE 133>
19
6.4.2 Consideration. In consideration of Advanced
providing the management and operation services as contemplated in
this Section 6.4, the Dynamic Subsidiaries will pay to Advanced a
fee equal to $7,000 per month, payable in advance, provided that
the fee will be pro-rated for any portion of a month in which the
services are provided. In addition, the Dynamic Subsidiaries will
reimburse Advanced for the reasonable expenses incurred by
Advanced and paid to arms-length parties in providing the management and
operations services, provided that the reimbursable expenses will
be limited to a maximum of $6,000 per month and provided further
Advanced shall not be obligated to incur such expense, it being
agreed that the Advanced Subsidiaries shall bear their own
operating expenses. The Dynamic Subsidiaries may, in their sole
discretion, defer such monthly payments until June 30, 1999, upon
which date all accrued sums shall be immediately payable and all
subsequent monthly payments shall be made in advance; provided,
however, that such obligation shall be forgiven if the Merger is
completed on or before June 30, 1999. Notwithstanding anything
else contained herein, the $30,000 in management fees and up to
$24,000 of reimbursable expenses due to Advanced under that
certain Interim Management Contract dated December 7, 1998 shall be paid
in full on or before April 1, 1999.
6.4.3 Key Management Decisions. Dynamic, through
the Dynamic Operations Manager, will retain control over and will
continue to assume all responsibility for all key management
decisions of the Dynamic Subsidiaries. Advanced will make
recommendations to Dynamic and the Dynamic Operations Manager for
all key management decisions, provided that Dynamic and the
Dynamic Operations Manager will not be bound to carry out any
recommendation of Advanced. Advanced will carry out all
management directions made by Dynamic, provided they are within the scope of
this Section 6.4.
6.4.4 Coordination of Management and Operational
Activities. Advanced will coordinate all management and
operational activities through the Dynamic Operations Manager.
Advanced will keep Dynamic and the Dynamic Operations Manager
fully apprised of all management and operation activities conducted by
Advanced.
6.4.5 Agency. Advanced will not be the agent of
Dynamic or the Dynamic Subsidiaries and will have no authority to
bind or to enter into agreements on behalf of Dynamic or the
Dynamic Subsidiaries without prior written approval of the Dynamic
Operations Manager. Advanced will at all times be an independent,
arms-length contractor of Dynamic.
6.4.6 Indemnification. Dynamic will indemnify
Advanced and its subsidiaries, employees, officers, directors and
representatives for any loss, claim or expense incurred by
<PAGE 134>
20
Advanced or any of its subsidiaries, employees, officers, directors and
representatives as a result of a claim against Advanced or its
subsidiaries, employees, officers, directors and representatives
as a result of providing the management and operational services,
provided that Advanced has acted in good faith and in accordance
with its obligations pursuant to this Section 6.4.
6.4.7 Advanced Subsidiaries Operations. The
Advanced Operations Manager will retain control over the business
of the Advanced Subsidiaries and will carry out the day to day
management and operations of the Advanced Subsidiaries subject to
the terms and conditions of this Agreement.
6.5 Duties and Powers of the Vice Manager. If appointed, the
Vice Manager shall perform those duties requested by the Chief
Manager. In the case of the death or absence of the Chief
Manager, or of his inability for whatever reason to perform his duties as
Chief Manager, the Vice Manager shall assume such duties on a
temporary basis.
6.6 Duties and Powers of the Secretary. If appointed, the
Secretary shall have the following duties and powers: (a)
maintain accurate membership records for the Company including all records
required by the Act; (b) maintain records and minutes of all
meetings of the Members; (c) receive and maintain all notices sent
to the Company; and (d) execute all contracts, documents,
certificates and other instruments on behalf of the Company where
two signatures are required, or by himself where the Chief Manager
or Vice Manager is unavailable. Except as otherwise expressly
directed by the Members or the Act, the Secretary shall have no
other duties or powers.
6.7 Duties and Powers of the Treasurer. If appointed, the
Treasurer shall keep an account of all monies received and
expended by the Company, shall make distributions to Members pursuant to
the terms hereof, shall oversee audits of the Company's financial
records and perform those duties requested by the Chief Manager
and Members.
6.8 Direction and Approval by Members. Notwithstanding the
provisions of Sections 6.1 through 6.7, the Members may, at any
time, direct the Managers to undertake and perform any lawful act
that is consistent with the terms of this Agreement and the
provisions of the Act; provided, however, that prior to the
consummation of the Merger of ACS2 as completed by the execution
of the Merger Agreement, the Members can only exercise such powers
upon unanimous consent. The Members shall have no right or
authority to cancel, set aside, reduce or diminish any lawful
contract, agreement or obligation previously made or undertaken by
the Managers on behalf of the Company.
6.9 Election, Withdrawal and Removal of Managers. Prior to
the consummation of the merger of ACS2 into DAC as contemplated
under the Merger Agreement (the "Merger"), ACS2
<PAGE 135>
21
shall have the sole responsibility of appointing, removing or
replacing the Advanced Operations Manager, Dynamic shall have
the sole responsibility of appointing, removing or replacing
the Dynamic Operations Manager and the Members shall mutually
appoint, remove or replace the Chief Manager, Vice Manager and
any other secretary, treasurer or other Manager. ACS2 initially
appoints Andrew Miller as Advanced Operations Manager, Dynamic
initially appoints Clay Deardorf as Dynamic Operations Manager,
and the Members initially appoint Kevin Lee as Chief Manager and
Jan Wallace as Vice Manager. After the consummation of the
Merger, the Members may, by unanimous consent, at any time
appoint additional or substitute Managers. The Members may,
at any time and without cause, remove and replace any one or
more of the Managers; provided; however, that a Manager may be
removed only upon the affirmative vote of the Members holding a
majority of the Governance Rights at the time such removal is
proposed. The Members may eliminate any Manager position other
than that of the Chief Manager, Advanced Operations Manager, and
Dynamic Operations Manager. Any Manager may, at any time and upon
thirty (30) days prior written notice to the Members, resign as a
Manager, but such resignation shall not affect his status, if any,
as a Member.
6.10 Compensation of Managers. Except as may be
expressly provided for herein or hereafter approved by the
Members, no payment will be made by the Company to any Manager for the
services of such Manager or any affiliate, partner or employee of
the Manager.
6.11 Standard of Conduct. Each Manager shall discharge
and perform his duties and responsibilities under this Agreement
in accordance with the general standards of conduct prescribed by the
Act. No Manager shall be required to perform in accordance with
or adhere to any standard other than that prescribed by the Act.
6.12 Action of Members. Except as expressly provided in
this Agreement, any vote, determination, consent, approval or action by the
Members required or allowed under the terms of this
Agreement shall be undertaken only upon the affirmative unanimous
vote of Members holding a majority of the Governance Rights of the
Members. Any such vote, determination, consent, approval or
action may be taken and evidenced by written consent. Each Member that
is not a natural person shall, from time to time, appoint in writing
one representative who shall have the full power and authority to
act on behalf of such Member with respect to the making or giving
of any vote, determination, consent, approval or other action by
such Member required or allowed under the terms of this Agreement.
Each such written appointment shall be delivered to the Chief
Manager
<PAGE 136>
22
and shall not be effective until the time of actual
delivery. Any Member may at any time change any such appointment
by delivering a new written instrument to the Chief Manager.
Notwithstanding anything contained herein to the contrary, any
vote, determination, consent, approval or action by the Members
required or allowed under the terms of this Agreement, other than
the appointment of Managers pursuant to Section 6.8, prior to the
consummation of the Merger, shall be undertaken only upon the
unanimous approval of all of the Members.
6.13 Liability of Managers and Employees. No Manager,
employee or agent of the Company shall have any personal liability
or obligation for the acts, debts, liabilities or obligations of
the Company, whether such arise in contract, tort or otherwise, by
virtue of his status as a Manager, employee or agent of the
Company.
6.14 Consent of Members to Certain Actions.
Notwithstanding anything in this Agreement to the contrary,
following consummation of the Merger, the Company shall not take
any of the following actions without the affirmative vote of
Members holding at least two-thirds (2/3) of the total Governance
Rights in the Company:
6.14.1 Sell all or substantially all of the property
owned by the Company in a single transaction or in a series of
related transactions not in the ordinary and usual course of the
Company's business;
6.14.2 Merge with or into one or more entities not
wholly-owned by the Company, excluding the Merger;
6.14.3 Dissolve the Company, except as anticipated
under the Contribution Agreement or Merger Agreement if the Merger
is not timely consummated;
6.14.4 Acquire or dispose of property, including
real property, securities, instruments, notes and other
investments, from or to any person outside of the ordinary course
of business in an amount greater than $50,000;
6.14.5 Borrow any money in an amount greater than
$50,000 for the Company or its subsidiaries from banks or other
lending institutions outside of the ordinary course of business as
presently conducted or the granting of any security interests in
the assets of the Company to secure repayment of any borrowed
sums;
6.14.6 Enter into of any contract in an amount
payable greater than $50,000 on behalf of the Company or its
subsidiaries which is outside of the ordinary course of the
business as carried on as of the date of this Agreement;
<PAGE 137>
23
6.14.7 Make any assignment for the benefit of
creditors of the Company, file a voluntary petition in bankruptcy,
or appoint a receiver for the Company;
6.14.8 Commence, settle, dismiss or defend any
lawsuit or other judicial or administrative proceeding brought by
or on behalf of or against the Company or its subsidiaries; or
6.14.9 Terminate, amend, or enter into any contract
on behalf of the Company or its subsidiaries where the term of the
contract is greater than three months or where the amount payable
to the Company pursuant to the contract is greater than $50,000.
As noted in Section 6.11, prior to consummation of the
Merger, the Company shall only take any of the foregoing actions
with the unanimous consent of all Members.
6.15 Additional Duties and Obligations of the Managers.
The Managers shall cause the Company to conduct its business and
operations such that the Dynamic Subsidiaries and the Advanced
Subsidiaries will be kept separate and apart from each other,
unless and until all shares have been released from escrow
pursuant to that certain Escrow Agreement referenced in the Merger
Agreement including, without limitation, (i) segregating the funds,
business operations, and assets of each of the Dynamic Subsidiaries
and the Advanced Subsidiaries and not allowing business operations,
funds, or other assets of the Dynamic Subsidiaries and the Advanced
Subsidiaries to be commingled with the business operations, funds,
or other assets of, held by, or registered in the name of, the
other, (ii) maintaining books and financial records of the Dynamic
Subsidiaries and the Advanced Subsidiaries separate from the books
and financial records of the other and, in each case, in a manner
consistent with past practice for such operations and in
accordance with generally accepted accounting principles as established
in the United States, and observing all corporate procedures and
formalities for each of the Dynamic Subsidiaries and the Advanced
Subsidiaries, including, without limitation, maintaining company
minutes and acting only pursuant to due authorization of the
respective shareholders, (iii) causing the Dynamic Subsidiaries
and the Advanced Subsidiaries to segregate their respective
liabilities and to pay such liabilities from their respective assets, (iv)
causing the Dynamic Subsidiaries and the Advanced Subsidiaries to
conduct their dealings with third parties in their own names and
as separate and independent entities, and (v) causing the Dynamic
Subsidiaries and the Advanced Subsidiaries to maintain their
separate corporate existences without amendment to the Articles,
Bylaws, or other charter documents of any subsidiaries.
6.16 Limitations on Distributions. The Members will
ensure that neither of the Dynamic Subsidiaries nor any of the
Advanced Subsidiaries will make any distribution of the funds,
assets,
<PAGE 138>
24
or property of the Dynamic Subsidiaries or the Advanced
Subsidiaries by way of dividend or other distribution during the
period from the date of this Agreement to the date of consummation
of the Merger unless authorized by unanimous consent of the
Members; provided, however, that if the Merger has not been
consummated on or before June 30, 1999, The Dynamic Subsidiaries
shall be authorized to pay from their funds directly to Dynamic
the amount necessary to make the minimum payment currently due under
the Dynamic 7.5% Convertible Notes. Dynamic hereby indemnifies
and will hold ACS2, Inc. harmless from any tax liabilities or
obligations arising from such payments. Any funds required by the
Company for its operations will be advanced equally by the Dynamic
Subsidiaries and the Advanced Subsidiaries to the Company as a
loan during the period from the date of this Agreement to the date of
consummation of the Merger. Any such loans shall be adequately
documented. In the event of dissolution of the Company as a
result of the failure of consummation of the Merger, the loans by each of
the Dynamic Subsidiaries and the Advanced Subsidiaries to the
Company to fund the operational expenses of the Company will be
forgiven.
ARTICLE VII
MEMBER MEETINGS, VOTING RIGHTS & OTHER ACTIVITIES
7.1 Annual Meeting. An annual meeting of the Members
shall be held at such time and place, either within or without the
State of Nevada, as designated by the Members. At such annual
meeting, the Managers shall be elected and any other proper
business may be conducted. Members do not have the right to
cumulate their votes for Managers.
7.2 Calling Meetings and Notice. A meeting of the
Members of the Company may be called by any two (2) Managers, the
Chief Manager, or Members holding Governance Rights having at
least fifteen percent (15%) of the total Governance Rights voting power
of all Members. The person or persons having authority to call a
meeting of the Members may call the meeting by giving written
notice of demand for such meeting to every Member entitled to vote
on the matters to be considered at such meeting or by giving
written notice of demand to the Secretary, who shall in turn give
such notice to every Member entitled to vote on the matters to be
considered, with such notice being at the expense of the Company
and the same being given within seven (7) days after receipt of
the notice of demand. Regardless of who calls the meeting, the notice
must be given no fewer than ten (10) days nor more than sixty (60)
days before the meeting date. The notice must contain the date,
time and place of the meeting, and it must contain a statement of
the purposes of the
<PAGE 139>
25
meeting (unless it is a notice of an annual
meeting, in which event the notice need not contain a statement of
the purposes of the meeting). Unless all Members entitled to vote
on the matters to be considered and all Members entitled to
receive notice of a particular meeting agree to the holding of a meeting
at another place, all meetings of the Members shall be held in the
county in which the principal executive office is located or, if
there is no such principal executive office, in the county in
which the registered office is located. Notwithstanding the foregoing,
all Members, parties to contribution agreements and parties to
contribution allowance agreements shall be entitled to receive
notices of the annual meetings of the Members and notices of all
meetings of the Company called for the purpose of considering any
of the actions enumerated in section 6.13 hereof. A conference
among Members by any means of communication through which the
participants may simultaneously hear each other during the
conference constitutes attendance at the meeting in person or by
proxy if all the other requirements for a meeting are met.
7.3 Quorum Requirements for Meetings. Except as
otherwise provided in the Act, Members holding, for Governance
Rights purposes, a majority of the Units entitled to vote at a
meeting shall constitute a quorum for the transaction of business.
Once a Membership Interest is represented at a meeting for any
purpose, it is deemed to be present for quorum purposes for the
remainder of that meeting and for any adjournment thereof unless a
new record date is or must be set for that adjourned meeting. A
meeting may be adjourned, and notice of any adjourned meeting is
not necessary if the time and place to which the meeting is
adjourned are announced at the meeting at which the adjournment is
taken.
7.4 Voting. For Governance Rights purposes, each full
Unit shall entitle the Member holding such Unit to one (1) vote
and each fractional Unit shall entitle the Member holding such
fractional Unit to an equivalent fractional vote. Except where
this Agreement, the Act, or the Articles require a larger
proportion, the Members entitled to vote shall take action on an
item of business by the affirmative vote of the Members holding a
majority of the voting power present and entitled to vote on that
item of business at a meeting at which a quorum is present.
7.5 Action Without a Meeting. Action required or
permitted to be taken at a meeting of the Members may be taken on
written consent without a meeting. To do so, a written waiver of
acting at a meeting entered into following consummation of the
Merger must be signed by Members holding at least three-fourths
(3/4) of the voting power, for Governance Rights purposes, of all
Members entitled to vote on the particular matter that is the
subject of the action, and a written consent must be signed by
Members with voting power at least equal to the percentage that
Would
<PAGE 140>
26
be required to take the same action at a meeting of the
Members at which all Members are present. Prior to consummation
of the Merger, all Members must sign the above-described waiver.
The written waivers and written consents may be evidenced by one
(1) or more instruments evidencing the same, which may be executed
in counterparts, all of which shall be delivered to the Secretary
for inclusion in the records of the Company.
ARTICLE VIII
INDEMNIFICATION AND ELIMINATION OF LIABILITY
8.1 Indemnification of Managers, Employees and Agents.
8.1.1 The Company agrees to indemnify each Manager
and each Manager's members, partners, employees and affiliates
(each, an "Indemnitee") to the fullest extent permitted by law and
to save and hold them harmless from and in respect of all (a)
reasonable fees, costs, and expenses paid in connection with or
resulting from any claim, action, or demand against an Indemnitee
that arises out of or in any way relates to the Company, its
properties, business, or affairs and (b) such claims, actions, and
demands and any losses or damages resulting form such claims,
actions, and demands, including amounts paid in settlement or
compromise (if recommended by attorneys for the Company) of any
such claim, action or demand; provided, however, that this
indemnity shall not extend to (i) conduct not undertaken in good
faith to promote the interests of the Company or (ii) conduct
which is reckless, intentionally wrongful or grossly negligent. In
addition to the indemnification conferred in this section 8.1, the
Indemnitee shall also be entitled to have paid directly by the
Company the expenses reasonably incurred in defending any such
proceeding against such Indemnitee in advance of its final
disposition, to the fullest extent not prohibited by the Act, as
the same exists or may hereafter be amended. The right to
indemnification conferred in this section 8.1 shall be a contract
right.
8.1.2 The Company may, by action of the Managers,
provide indemnification to such of the officers, employees and
agents of the Company to such extent and to such effect as the
Managers shall determine to be appropriate and authorized under
the Act, as the same exists or may hereafter be amended.
8.1.3 The rights and authority conferred in this
section 8.1 shall not be exclusive of any other right which any
person may have or hereafter acquire under any statute, agreement,
or otherwise.
<PAGE 141>
27
8.1.4 The Company may purchase and maintain
insurance on behalf of one or more Indemnitees and other persons
against any liability which may be asserted against, or expense
which may be incurred by, any such person in connection with the
Company's activities, whether or not the Company would have the
power to indemnify such person against such liability under the
provisions of this Agreement.
8.2 Elimination of Liability. A Manager's personal
liability to the Company and its Members for breach of fiduciary
duty is hereby eliminated to the fullest extent permitted by the
Act, as the same exists or may hereafter be amended.
ARTICLE IX
FISCAL MATTERS
9.1 Books and Records. Full and accurate books and records
of the Company (including, without limitation, all information
and records required by the Act) shall be maintained at its
principal executive office or at such other place or places
within the United States designated by the Members.
9.2 Fiscal Year. The fiscal year of the Company shall end on
June 30 of each year or as otherwise required by the Code.
9.3 Financial Statements. The Company shall annually prepare
or have prepared financial statements, which shall include a
balance sheet and an income statement
9.4 Income Tax Reports. Within seventy-five (75) days after
the end of each fiscal year, the Company shall prepare and deliver
to each holder of Financial Rights all information necessary for
the preparation of the such person's Federal, state and local
income tax returns.
9.5 Bank Accounts. All funds of the Company shall be
deposited in its name at banks or other financial institutions
approved by the Members, in such checking and savings accounts or
time deposits or certificates of deposit as shall be approved by
the Members.
9.6 Tax Matters Partner. The Members shall designate one
Member to serve as the Tax Matters Partner ("TMP") as such is
defined in Code section 6231(a)(7). The Members initially appoint
ACS2. Upon the failure of the Members to so designate the TMP,
the Chief Manager, provided he or she is then a Member, shall serve as
the TMP. The TMP shall perform all duties and responsibilities
imposed upon him or her, and shall have all powers granted, by the
Code and Regulations.
<PAGE 142>
28
9.7 Tax Election Under Code Section 754. Upon the transfer
of a Membership Interest or Financial Rights in the Company or the
distribution of property to a holder of Financial Rights, the
Members, at their discretion, may, but are not required to, file
an election pursuant to section 754 of the Code to adjust the basis
of Company property under Code section 734(b) and 743(b).
ARTICLE X
TERMINATION & ADMISSION OF MEMBERS
10.1 No Right to Withdraw. No Member or holder of Financial
Rights shall have the right to withdraw as a Member of the Company
or otherwise have his or her Membership Interest or Financial
Rights in the Company redeemed by the Company except upon the
affirmative vote of Members holding two-thirds (_) of the
Governance Rights; provided, however, that prior to consummation
of the Merger, no Member or holder of Financial Rights may withdraw
as a Member or assign or otherwise transfer (by operation of law or
otherwise) any Governance or Financial Rights except pursuant to
the Merger or with the unanimous consent of Members. Upon the
approval by the Members of the withdrawal of a Member or holder of
Financial Rights and the redemption of his or her Membership
Interest or Financial Rights, the interest of such person in the
Company shall terminate and the Company shall pay to said Member
or holder of Financial Rights in exchange for said person's entire
interest in the Company an amount equal to said person's Capital
Account after all Capital Accounts have been adjusted to reflect a
revaluation of the Company's property then on the financial books
of the Company in accordance with Regulation section 1.704-
1(b)(2)(iv) or such other amount as may be agreed upon by the
Members and said person, which amount shall be paid upon such
terms and conditions as agreed upon by the Members and the withdrawing
Member or holder of Financial Rights; provided, however, if no
such agreement can be reached, said amount shall be paid in equal
annual installments over a period of ten (10) years with interest,
compounded annually, accruing on the unpaid balance at an annual
rate equal to the prime rate published in the Wall Street Journal
on the date the unsecured promissory note evidencing such
indebtedness is executed, which interest shall be due and payable
annually.
10.2 Expulsion. The Company shall not have the power to expel
a Member.
10.3 Termination of Membership Interest. A Member's continued
membership in the Company shall terminate upon (i) the Member's
death, (ii) the Member's withdrawal from the Company, (iii) the
assignment or other disposition of all of the Member's Governance
Rights, (iv)
<PAGE 143>
29
the Member's filing of a voluntary petition in
bankruptcy, (v) the Member's adjudication of bankruptcy, (vi) the
Member's dissolution, liquidation, termination or other cessation
of existence, (vii) the transfer, encumbrance or other
disposition, or the attempted transfer, encumbrance or other disposition, of
any part of his or her Membership Interest or Financial Rights in
breach of this Agreement, or (viii) the occurrence of any other
event that terminates the continued membership of the Member in
the Company under this Agreement or at law. Upon the termination of a
Member's membership in the Company, such Member shall cease to
have any Governance Rights in the Company and shall be treated as an
assignee of the Financial Rights, if any, owned by such Member
immediately prior to the termination of such membership.
Notwithstanding anything in the Act to the contrary, no Member
whose membership interest is terminated shall be entitled to
receive any amount in exchange for his or her interest in the
Company except as otherwise provided in this Agreement.
10.4 Admission of New Members Upon Issuance of Additional
Units. After the admission of the initial Members, additional
Units may be issued at such time, for such Capital Contributions,
and upon such other terms and conditions as the Members shall, in
their discretion, determine. The Secretary of the Company shall
revise Exhibit B attached hereto to reflect the issuance of
additional Units, the admission of new Members and the revised
Membership Interests, Governance Rights and/or Financial Rights as
a result thereof.
10.5 No Preemptive Rights. Notwithstanding anything in this
Agreement or the Articles to the contrary, the Members shall have
no preemptive rights.
ARTICLE XI
TRANSFERS OF INTERESTS IN THE COMPANY
11.1 Required Consent to Transfer. Except as otherwise
provided in section 10.1, 11.2 or 11.3, no Member or holder of
Financial Rights shall have the right to voluntarily sell, assign,
transfer, alienate, mortgage, pledge or otherwise dispose of or
encumber all or any part of his or her Membership Interest,
Governance Rights, or Financial Rights to any person or entity
without the affirmative vote of Members holding at least two-
thirds (2/3) of the Governance Rights; provided, however, that prior
to the consummation of the Merger no Member or holder of Financial
Rights may assign or otherwise transfer, deposit or encumber (by
operation of law or otherwise) any of its Membership Interest,
Governance Rights or Financial Rights except pursuant to the Merger
or with
<PAGE 144>
30
the unanimous consent of Members. Following any transfer permitted
by this Article XI, the Secretary of the Company shall revise
Exhibit A attached hereto to reflect the admission of new Members
and/or the revised Membership Interests, Governance Rights and/or
Financial Rights as a result thereof.
11.2 Certain Permitted Transfers of Financial Rights. Without
the necessity of the consent of any Member, but subject to the
provisions of section 11.4, a Member or holder of Financial Rights
may transfer all or any portion of his or her Financial Rights to
any person, upon written notice to the Company specifying the
Financial Rights transferred and the name and address of the
transferee.
11.3 Right of First Refusal. No Member shall have the right
to voluntarily sell, assign, transfer, alienate, mortgage, pledge
or otherwise dispose of or encumber all or any part of his or her
Membership Interest or Governance Rights (other than Financial
Rights pursuant to Section 11.2) to any person or entity (other
than to the Company pursuant to Section 10.1) without said Member
(the "Transferor") first offering to sell such interest (the
"Offered Interest") to the Company as follows:
11.3.1 The Transferor shall deliver written notice
("Notice of Proffered Sale") to the Company, which notice shall
include the name of the prospective transferee and the price and
terms upon which such assignment or other disposition is to be
made.
11.3.2 The Company shall have an option to purchase
the Offered Interest at the price and on the terms set forth in
the Notice of Proferred Sale, which option shall be exercisable within
thirty (30) days following the receipt of said Notice by giving
written notice of acceptance of such offer ("Notice of
Acceptance") to the Transferor.
11.3.3 The Members shall determine whether or not
the Company shall decline to exercise its option or accept
exercise its option and provide the Notice of Acceptance.
11.3.4 If the Company declines to accept the Notice
of Proffered Sale within said thirty (30) day period, the
Transferor may consummate the proposed assignment or other
disposition of the Offered Interest to the prospective transferee
upon the terms and conditions stated in the Notice of Proffered
Sale; provided, however, if the proposed assignment or other
disposition is not consummated within ninety (90) days after the
close of the thirty (30) day period referenced in section 11.3.2,
the Transferor shall have no right to transfer the Offered
Interest without again offering to the Company the option to purchase said
Offered Interest as provided in this section 11.3.
11.4 No Termination of Company for Tax Purposes.
Notwithstanding anything in this Article XI to the contrary, in
no event may a Member or holder of Financial Rights transfer or
<PAGE 145>
31
assign all or any part of such person's Membership Interest or Financial
Rights in the Company, be admitted to the Company, or withdraw
from the Company if such action would result in a sale or exchange of
fifty percent (50%) or more of the total interest in the capital
and profits of the Company within a twelve (12) month period such
that the Company would be considered as terminated under section
Code 708 without the prior affirmative vote of Members holding
three-fourths (3/4) of the Governance Rights.
ARTICLE XII
DISSOLUTION, TERMINATION & WINDING UP
12.1 Dissolution of Company. The Company shall be
dissolved and its affairs wound up upon the unanimous vote of the
Members, or as may be otherwise required by law. Notwithstanding
any provision to the contrary, the Company shall be dissolved
without notice to or action by any member in the event that the
closing of the Contribution Agreement is not consummated by March
31, 1999 or the Merger is not consummated by December 15, 1999
provided that such dates may be extended by the unanimous written
consent of the members. The Company shall be terminated when the
winding up of Company affairs has been completed following
dissolution.
12.2 Winding Up Affairs on Dissolution. Upon
dissolution of the Company, the Members or the other persons
required or permitted by law to carry out the winding up of the
affairs of the Company shall promptly notify all Members of such
dissolution; shall wind up the affairs of the Company; shall
prepare and file all instruments or documents required by law to
be filed to reflect the dissolution of the Company; and, after paying
or providing for the payment of all liabilities and obligations of
the Company, shall distribute the assets of the Company as
provided by the terms of this Agreement.
12.3 Distribution Upon Pre-Merger Dissolution. Upon
dissolution of the Company prior to consummation of the Merger,
the Company shall:
12.3.1 First, pay all outstanding liabilities and
expenses of the Company;
12.3.2 Transfer the legal and beneficial ownership
of the Dynamic Subsidiaries to Dynamic and the Advanced
Subsidiaries to ACS2; and
12.3.3 Distribute any remaining assets of the
Company to the Members in accordance with their proportional
financial rights.
<PAGE 146>
32
12.4 Distribution Upon Post-Merger Dissolution. Upon
dissolution of the Company and the sale of its assets at any time
after consummation of the Merger, the proceeds of such sale of the
assets of the Company shall be allocated as set forth below:
12.4.1 First, to pay all outstanding liabilities and
expenses of the Company;
12.4.2 Second, to establish such reserves for
unknown or contingent liabilities as the Members may determine;
and
12.4.3 The balance, if any, to the holders of
Financial Rights, in accordance with their Capital Accounts, after
giving effect to all contributions, distributions and allocations
for all periods.
12.5 Waiver of Right to Partition and Decree of
Dissolution. As a material inducement to each Member to execute
this Agreement and except as expressly provided in this Agreement,
each Member covenants and represents to each other Member that
during the existence of the Company, no Member, nor such Member's
heirs, personal representatives, administrators, successors,
transferees or assigns, will attempt to make any partition of any
Company assets whether now owned or hereafter acquired, and each
Member waives all rights of partition provided by statute or
principles of law or equity, including partition in kind or
partition by sale. The Members agree that irreparable damage
would be done to the goodwill and reputation of the Company if any
Member should bring an action in a court to dissolve the Company. The
Members agree that there are fair and just provisions for payment
and liquidation of the interest of any Member, and fair and just
provisions to prevent a Member from selling or otherwise
alienating such Member's Membership Interest in the Company. Accordingly,
each Member hereby waives and renounces such Member's right to such a
court decree of dissolution or to seek the appointment by court of
a liquidator or receiver for the Company.
12.6 Non-Competition. In the event of the dissolution of the
Company pursuant to 12.1 as a result of the failure of the parties
to consummate the Merger by December 15, 1999, unless such date is
extended by mutual agreement of the parties, each of Dynamic and
ACS2 will not directly or indirectly alone or in conjunction with
any other individual, firm or corporation, association or other
entity, whether they are acting as principal agent, director,
officer, employee , shareholder or in any other capacity
whatsoever, for a period of one (1) year from the date of
dissolution of the Company, solicit any customer, client, or other
individual or entity with whom the other party serves or
contracts on the date of dissolution of the Company in a manner which could
adversely affect the other party.
<PAGE 147>
33
ARTICLE XIII
GENERAL PROVISIONS
13.1 Notices. All notices or other communications
provided for under this Agreement or the Act shall be in writing,
signed by the party giving the same, and shall be deemed properly
given when personally delivered or on the earlier of actual
receipt or the fifth (5th) business day after mailing if mailed by
registered or certified United States mail, postage prepaid, or
deposited with any other generally recognized delivery service
with receipt returned and charges prepaid or billed to sender,
addressed:
13.1.1 In the case of the Company, to its principal
executive office; or
13.1.2 In the case of any Member or holder of
Financial Rights, to the address set forth on Exhibit A or to such
other address as such person may specify by notice to the Company.
13.2 Integration. This Agreement embodies the entire
agreement and understanding among the Members with respect to the
subject matter hereof, and supersedes all prior agreements and
understandings, if any, among and between the Members relating to
the subject matter of this Agreement.
13.3 Governing Law. This Agreement and the rights of
Members and holders of Financial Rights shall be governed by and
construed and enforced in accordance with the laws of the State of
Nevada. The parties hereto consent to the exclusive jurisdiction
and venue of the federal and state courts in Davidson County,
Tennessee, with respect to any controversy arising out of this
Agreement or the transaction contemplated hereby.
13.4 Severability. In case any one or more of the
provisions contained in this Agreement or any application thereof
shall be invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions
herein contained and any other application thereof shall not in
any way be affected or impaired.
13.5 Binding Effect. Except as otherwise provided herein
to the contrary, this Agreement shall be binding upon, and inure
to the benefit of, the Members and their respective heirs, personal
representatives, administrators, successors, transferees and
assigns.
13.6 Terminology. All personal pronouns used in this
Agreement, whether used in the masculine, feminine, or neuter
gender, shall include all other genders; and the singular shall
include the plural, and vice versa. Titles of Articles and
sections are for convenience only and shall not
<PAGE 148>
34
control or affect the meaning or construction of any terms or
provisions of this Agreement. All references herein to Articles
and sections are references to Articles and sections hereof
except where such references are made to the Act, the Code or
to some other specified law, regulation or instrument.
13.7 Amendment. This Agreement may be amended, modified,
or supplemented only by a writing executed by each of the Members;
provided, however, that the Secretary is hereby authorized and
directed to amend Exhibit A to reflect changes thereto when
applicable.
13.8 Waivers. The failure of any party to seek redress
for violation of or to insist upon the strict performance of any
covenant or condition of this Agreement shall not prevent a
subsequent act, which would have originally constituted a
violation, from having the effect of an original violation. No
waiver of any provision of this Agreement will be valid unless it
is in writing and signed by the party against which it is sought
to be enforced.
13.9 Confidentiality. All Members acknowledge that from
time to time, any Member and its employees and agents may come
into possession of certain information relating to the any other
Member's business operations or otherwise, which information the
latter deems to be confidential and proprietary. Accordingly, the
Members, for themselves and their employees and agents, hereby
agree to maintain the confidentiality of all such information and
to not use any such information for any purpose unless such
information becomes a part of the public domain through no fault
or breach by the Members, its agents or employees. In addition, each
Member hereby agrees, except as required in the conduct of the
business or in the discharge of the respective Member's duties and
responsibilities hereunder, neither to publish or disclose, nor to
authorize the publication or disclosure of, nor to permit any
other person, firm, corporation or other entity within its control to
public or to disclose, during or after the term of this Agreement,
any private or proprietary knowledge or information concerning the
Company.
13.10 No Third Party Beneficiaries. None of the
provisions of this Agreement is intended by the parties, nor shall
they be deemed, to confer any benefit on any person not a party to
this Agreement.
<PAGE 149>
35
IN WITNESS WHEREOF, the parties hereto have executed this
Operating Agreement as of the date first set forth above.
DYNAMIC ASSOCIATES, INC.
By: /s/Jan Wallace
Title: President CEO
ACS2, INC.
By: /s/ Kevin D. Lee
Title: President
<PAGE 150>