AMENDED AND RESTATED LIMITED LIABILITY COMPANY OPERATING
AGREEMENT (the "Agreement") of KEY COMPONENTS, LLC, a
Delaware limited liability company (the "Company"), dated
as of September 1, 1999, by and among the Company and the
persons or entities who have executed the signature pages
hereto as members and who from time to time hereafter
execute this Agreement as members (collectively, the
"Members").
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The Company was formed on April 17, 1998.
The Company and Key Components, Inc., a New York corporation
("KCI"), are parties to an Operating Agreement dated April 17, 1998.
Pursuant to a Share Purchase Agreement dated August 12, 1999 (the
"Purchase Agreement"), among the Company, KCI, SGC Partners II LLC, a Delaware
limited liability company ("SG"), and Keyhold, Inc., a Delaware corporation and
a wholly-owned subsidiary of SG ("Sub") the Company has agreed to sell shares in
the Company ("Shares") in exchange for a capital contribution to the Company,
and to admit Sub as a member of the Company.
It is a condition to the purchase and sale of the Shares under the
Purchase Agreement that the Company, KCI and Sub enter into this amended and
restated operating agreement and that the Company, KCI, certain stockholders of
KCI, SG and Sub enter into the Shareholders Agreement, dated the date hereof,
governing the operation of the Company, KCI and their subsidiaries and certain
rights and obligations of the Members and stockholders of KCI (the "Shareholders
Agreement").
The parties agree as follows:
1. Formation. The Company was formed as a limited liability company
pursuant to the Delaware Limited Liability Company Act (the "Act") by the
execution and filing of a Certificate of Formation (the "Certificate of
Formation") with the Delaware Secretary of State ("Secretary of State") on April
17, 1998. The Company was qualified to do business in the State of New York by
the execution and filing of an Application for Authority with the New York
Department of State on May 18, 1998. The Members shall execute such further
documents and take such further actions as shall be necessary or appropriate to
comply with the requirements of law for the operation of a limited liability
company in any other jurisdiction in which the Company elects to conduct its
business.
2. Name. The name of the Company is Key Components, LLC.
3. Purpose. The purpose of the Company is to engage in any lawful
act or activity for which limited liability companies may be formed under the
Act and to engage in any and all activities necessary or incidental thereto.
4. Principal Office. The Company's principal place of business shall
be located at ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇. The
Company may have such other business offices within or without the State of
Delaware as determined from time to time.
5. Term. The term of the Company began on the date of the filing of
the Certificate of Formation with the Secretary of State and shall continue
until dissolved in accordance with this Agreement.
6. Incorporation by Reference of the Shareholders Agreement. Certain
rights and obligations of the Members are set forth in the Shareholders
Agreement. The relevant terms of the Shareholders Agreement are hereby
incorporated into this Agreement by reference and made a part hereof, and shall
be deemed to be terms of this Agreement for the purpose of any interpretation
and enforcement of this Agreement under Section 18-111 of the Act. All reference
to "this Agreement" shall mean this Agreement and the Shareholders Agreement, to
the extent applicable.
7. Members; Shares; Percentage Interests; Classes. (a) The name,
present mailing address, facsimile number, taxpayer identification number,
percentage interest in the Company's outstanding equity (the "Percentage
Interest"), class of Shares held (the "Class") and amount of the capital
contributions of each Member, as of the date hereof, are set forth on Schedule
I.
(b) Each Member shall, upon becoming a Member, acquire an equity
interest in the Company. Members shall be allocated a specified number of Shares
in respect of their equity interests. The total number of Shares allocated to a
Member at any time is used to determine such Member's Percentage Interest. The
numbers of Shares allocated to Members in respect of their respective equity
interests in the Company at any time are set forth on Schedule I, as amended
from time to time.
(c) The maximum number of Shares that the Company is authorized to
have allocated to Members at any one time is 5,000,000 Shares.
(d) The Percentage Interest of each Member at any time is calculated
by dividing (x) the total number of Shares allocated to such Member at such time
by (y) the total number of Shares allocated to all Members at such time and
expressing the result as a percentage. The sum of the Percentage Interests of
all Members at any time shall be 100%.
(e) Whenever a new Member is admitted, Schedule I shall be amended
to give effect to any changes in the number of Shares allocated to, and the
Percentage Interests of, all Members for succeeding periods determined on the
basis of the terms upon which the new Member is admitted.
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(f) Whenever a Member withdraws, Schedule I shall be amended to give
effect to the changes in the number of Shares allocated to, and the Percentage
Interests of, all Members for succeeding periods resulting from the withdrawal.
(g) The Members are hereby classified into two Classes: Class A
Members and Class B Members. With respect to the Shares issued to each Member on
or before the date hereof, such Member shall be entitled to the rights and
subject to the restrictions which this Agreement provides or imposes on the
Class to which the Member belongs. Class A includes all Members identified as
Class A Members on Schedule I and all Members subsequently designated as Class A
Members in accordance with this Agreement. Class B includes all Members
identified as Class B Members on Schedule I and all Members subsequently
designated as Class B Members in accordance with this Agreement. In connection
with the issuance of additional Shares, whether to existing Members or to new
Members, the Members may create or designate additional Classes, having such
relative rights, powers, duties, preferences and limitations as the Members
shall determine, subject to the limitations set forth in this Agreement and
prescribed by law. Initially, KCI shall be the Class A Member and Sub shall be
the Class B Member.
8. Capital Contributions; Capital Accounts.
(a) Capital Contributions. Each Member has contributed, or shall
contribute, to the Company, as such Member's initial capital contribution, cash
or property in the amount set forth on Schedule I. Except as set forth below or
as otherwise provided by applicable law, no Member shall be required to make
additional capital contributions without such Member's consent or restore any
deficit to such Member's Capital Account. Except with the consent of the Board
of Directors (as defined below), no Member shall be entitled to make any
additional capital contribution or to make any capital contribution in property
other than cash.
(b) Capital Accounts. There shall be established and maintained for
each Member a separate capital account ("Capital Account"). There shall be added
to the Capital Account of each Member (i) the amount of any money, and the fair
market value of any other property, contributed by the Member to the Company as
capital, (ii) income and gain allocated to the Member by the Company in
accordance with Section 9 and (iii) all other items properly allocated to the
Capital Account of such Member as required by the regulations promulgated under
Section 704(b) and Section 704(c) (the "Section 704 Regulations") of the
Internal Revenue Code of 1986, as amended (such Code, as amended from time to
time or any successor federal income tax legislation, the "Code") herein, and
there shall be subtracted from such Capital Account (x) the amount of any money,
and the fair market value of any other property, distributed to the Member, (y)
losses and expenses allocated to the Member by the Company in accordance with
Section 9 herein, and (z) all other items properly charged to the Capital
Account of such Member as required by the Section 704 Regulations. If property
other than cash is distributed to the Members (whether in liquidation of the
Company or otherwise), for purposes of computing Capital Accounts the property
will be deemed to have been sold and distributed by the Company for its fair
market value and the income, gain, loss or expense from the deemed sale will be
allocated in accordance with Section 9 herein. All capital,
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whenever contributed, shall be subject in all respects to the risks of the
business and subordinate in right of payment to the claims of present or future
creditors of the Company and of any successor firm in accordance with this
Agreement.
(c) Interest. No interest shall be paid to any Member or accrue by
reason of the amount of such Member's capital contribution or Capital Account.
(d) Adjustments. The Members intend to comply with the Section 704
Regulations in all respects, and to agree to adjust their Capital Accounts to
the full extent that the Section 704 Regulations may apply (including, without
limitation, applying the concepts of the minimum gain chargebacks and qualified
income offsets). To this end, each Member agrees to make any Capital Account
adjustment that, in the opinion of tax counsel selected by the Board of
Directors, is necessary or appropriate to maintain equality between the
aggregate Capital Accounts of the Members and the amount of capital of the
Company reflected on its balance sheet (as computed for book purposes), as long
as such adjustments are consistent with the underlying economic arrangement of
the Members and are based on, wherever practicable, and consistent with federal
tax accounting principles. Except as described in this Section 8, no adjustment
shall be made to a Member's Capital Account without the prior unanimous written
consent of the Members.
(e) Market Value Adjustments. Each Member agrees to make appropriate
adjustments to the Capital Account of such Member upon any transfer of Shares,
including those that apply upon any of the events set forth in Section
1.704-(b)(2)(iv)(f)(5) of the Regulations and in the manner described in
Sections 1.704-1(b)(2)(iv)(f) and (g) of the Regulations.
(f) Transfer. Each Member agrees that, if all or any part of its
Shares are transferred in accordance with this Agreement, except to the extent
otherwise provided in the Section 704 Regulations, upon admission of the
transferee as a Member, the Capital Account, and Percentage Interest of the
transferor that is attributable to the transferred Shares will carry over to the
transferee.
(g) Withdrawal of Capital. Except as specifically provided in this
Agreement, no Member will be entitled to withdraw all, or any part of, such
Member's capital contribution or capital account from the Company prior to the
Company's dissolution and liquidation. When such withdrawal is permitted, no
Member will be entitled to demand a distribution of property other than money.
9. Allocations.
(a) In General. Except as provided in Sections 9(c) and 9(d) below,
each item of income, gain, loss or expense of the Company for any Allocation
Period (as defined below) shall be allocated in accordance with the Percentage
Interests of the Class A and Class B Members as set forth on Schedule I. Income,
gain, loss and expense shall be referred to for this purpose as "Net Profits" or
"Net Losses," as applicable, and shall be determined in the same manner used in
determining the Company's taxable income or loss for federal income tax
purposes, except that:
(i) there shall be added any income exempt from federal income tax;
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(ii) there shall be subtracted any expenditures that are neither
deductible nor chargeable to the Capital Accounts;
(iii) in the case of any property contributed as capital, fair
market value (as of the most recent such valuation and adjusted pursuant
to this clause (iii)) rather than adjusted tax basis shall be used to
compute gain or loss resulting from any disposition of the property and
depreciation, amortization and other cost recovery deductions and similar
items of income or deduction in respect of such property shall be
calculated as if the unadjusted tax basis of the asset were such fair
market value;
(iv) unrealized gain or loss attributable to any property
distributed to Members shall be deemed realized immediately prior to the
distribution; and
(v) appropriate adjustments shall be made to reflect any deemed sale
or purchase of assets and deemed realization of items of income, gain,
loss or expense as a result of a revaluation of assets upon the admission,
withdrawal or expulsion of a Member as provided for herein.
(b) Allocation Periods. Allocations under paragraph (a) of this
Section 9 shall be made for each period (an "Allocation Period") commencing with
the day after an Allocation Event (or, in the case of the first Allocation
Period, commencing with the date of the filing of the Certificate of Formation
with the Secretary of State) and ending on the date of the next succeeding
Allocation Event. An "Allocation Event" shall mean any one of the following:
(i) the end of a calendar year;
(ii) the admission or withdrawal of a Member;
(iii) the termination of the Company for federal income tax
purposes;
(iv) the dissolution of the Company; and
(v) any other event which the Board of Directors, in its discretion,
designates as an "Allocation Event."
(c) Deficit Capital Account and Nonrecourse Debt Rules.
Notwithstanding the general allocation rules set forth in Section 9(a), the
following special allocation rules shall apply under the circumstances
described.
(i) Limitation on Loss Allocations. Items of loss, deduction or
expense shall be allocated to the Capital Account of any Member only until
such allocation would reduce such Member's Adjusted Capital Account to
zero, and any excess amounts shall be specially allocated pro rata to any
other Member or Members to the extent that such special allocation would
not also create a negative balance in such other Member's or Members'
Capital Accounts (such special allocation shall be referred to herein as a
"Special Loss Allocation"). In the event of any Special Loss Allocations
to a Member or Members, all
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future allocations of income shall first be made pro rata to the Member or
Members who have received such Special Loss Allocations to the extent of
such Member's or Members' "Special Loss Balance." The term "Special Loss
Balance" means, as of any date with respect to any Member, the amount by
which the aggregate Special Loss Allocations made to such Member's Capital
Account exceeds the sum of special income allocations made to such
Member's Capital Account.
(ii) (A) Qualified Income Offset. If in any Fiscal Year a Member
unexpectedly receives an adjustment, allocation or distribution described
in Sections 1.704-1(b)(2)(ii)(d)(4), (5) or (6) of the Regulations, items
of income and gain shall be specifically allocated to such Member in an
amount and manner sufficient to eliminate any deficit in the Adjusted
Capital Account of such Member as quickly as possible; provided that an
allocation pursuant to this Section 9(c)(ii)(A) shall be made only if and
to the extent that a deficit would exist in such Member's Adjusted Capital
Account after all other allocations provided for in this Section 9 have
been tentatively made and as if this Section 9(c)(ii)(A) were not in this
Agreement.
(B) Gross Income Allocation. If any Member has a deficit Adjusted
Capital Account at the end of any Fiscal Year, such Member shall be
specially allocated items of income and gain in the amount of such excess
as quickly as possible; provided that an allocation pursuant to this
Section 9(c)(ii)(B) shall be made only if and to the extent that a deficit
would exist in such Member's Adjusted Capital Account after all other
allocations provided for in this Section 9 have been tentatively made and
as if Sections 9(c)(ii)(A) and 9(c)(ii)(B) herein were not in this
Agreement.
(iii) Company Minimum Gain Chargeback. If there is a net decrease in
Company Minimum Gain during any Fiscal Year, each Member shall be
specially allocated items of income and gain for such Fiscal Year (and, if
necessary, for subsequent Fiscal Years) in proportion to, and to the
extent of, an amount equal to such Member's share of the net decrease in
Company Minimum Gain during such Fiscal Year, subject to the exceptions
set forth in Section 1.704-2(f)(2), (3) and (5) of the Regulations;
provided that, if the Company has any discretion as to an exception set
forth in Section 1.704-2(f)(5), the Tax Matters Partner (as defined in
Section 21 of this Agreement) with the consent of the other Members shall
exercise such discretion on behalf of the Company. The Tax Matters Partner
shall upon the direction of the Board of Directors, if the application of
this Section 9(c)(iii) hereof would cause a distortion in the economic
arrangement among the Members, ask the Commissioner of the Internal
Revenue Service to waive the Company Minimum Gain chargeback requirements
pursuant to Section 1.704-2(f)(4) of the Regulations. To the extent that
this Section is inconsistent with Section 1.704-2(f) or Section 1.704-2(k)
of the Regulations or incomplete with respect to such Sections of the
Regulations, the Company Minimum Gain chargeback provided for herein shall
be applied and interpreted in accordance with such Sections of the
Regulations.
(iv) Member Minimum Gain Chargeback. If there is a net decrease in
Member Minimum Gain during any Fiscal Year, each Member who has a share of
the
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Member Minimum Gain attributable to Member Nonrecourse Debt shall be
allocated items of income and gain for such Fiscal Year (and, if
necessary, for subsequent Fiscal Years) in proportion to, and to the
extent of, an amount equal to such Member's share of the net decrease in
Member Minimum Gain during such Fiscal Year, subject to the exceptions set
forth in Sections 1.704-2(f)(2), (3), and (5) of the Regulations as
referenced by Section 1.704-2(i)(4) of the Regulations. The Tax Matters
Partner shall upon the direction of the Board of Directors, if the
application of this Section 9(c)(iv) hereof would cause a distortion in
the economic arrangement among the Members, ask the Commissioner of the
Internal Revenue Service to waive the Member Minimum Gain Chargeback
requirement pursuant to Section 1.704-2(i)(4) of the Regulations. To the
extent that this Section 9(c)(iv) hereof is inconsistent with Sections
1.704-2(i)(4) or 1.704-2(k) of the Regulations or incomplete with respect
to such Sections of the Regulations, the Member Minimum Gain Chargeback
provided for herein shall be applied and interpreted in accordance with
such Sections of the Regulations.
(v) Member Nonrecourse Deductions. Member Nonrecourse Deductions
shall be allocated among the Members in accordance with the ratios in
which the Members share the economic risk of loss for the Member
Nonrecourse Debt that gave rise to those deductions as determined under
Section 1.752-2 of the Regulations. This allocation is intended to comply
with the requirements of Section 1.704-2(i) of the Regulations and shall
be interpreted and applied consistent therewith.
(vi) Limited Effect and Interpretation. The special rules set forth
in Sections 9(c)(i), (ii), (iii), (iv) and (v) hereof (the "Regulatory
Allocations") shall be applied only to the extent required by applicable
Regulations for the resulting allocations provided for in this Section
9(c), taking into account such Regulatory Allocations, to be respected for
federal income tax purposes. The Regulatory Allocations are intended to
comply with the requirements of Sections 1.704-1(b), 1.704-2 and 1.752-1
through 1.752-5 of the Regulations and shall be interpreted and applied
consistently therewith.
(vii) Curative Allocations. The Regulatory Allocations may not be
consistent with the manner in which the Members intend to divide the Net
Profits, Net Losses and similar items. Accordingly, Net Profits, Net
Losses and other items will be reallocated among the Members in a manner
consistent with Sections 1.704-1(b) and 1.704-2 of the Regulations so as
to negate as rapidly as possible any deviation from the manner in which
Net Profits, Net Losses and other items are intended to be allocated among
the Members pursuant to Section 9(a) that is caused by the Regulatory
Allocations.
(viii) Change in Regulations. If the Regulations incorporating the
Regulatory Allocations are hereafter changed or if new Regulations are
hereafter adopted, and such changed or new Regulations, in the opinion of
independent tax counsel for the Company, make it necessary to revise the
Regulatory Allocations or provide further special allocation rules in
order to avoid a significant risk that a material portion of any
allocation set forth in this Section 9 would not be respected for federal
income tax purposes, the Members shall make such reasonable amendments to
this Agreement as, in the opinion of such counsel, are necessary or
desirable, taking into account the interests of the Members as
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a whole and all other relevant factors, to avoid or reduce significantly
such risk to the extent possible without materially changing the amounts
allocable to any Member pursuant to this Agreement and without changing
the amounts distributable hereunder.
(d) Special Allocation to Account for Additional Investment.
Notwithstanding the general allocation rules set forth in Section 9(a), in the
event that any additional Shares in the Company are issued to Sub pursuant to
Section 1.1 (b) of the Purchase Agreement: (1) Sub's Capital Account shall be
increased by the amount of cash paid for such additional Shares; (2) the
Percentage Interests of the Class A and Class B Members shall be recalculated
pursuant to Sections 7(b) and 7(d) of this Agreement; and (3) the amount of any
Net Profits or Net Losses of the Company for any current or future Allocation
Period shall be allocated 100% to either the Class A Members (in accordance with
their Percentage Interests) or to the Class B Members (in accordance with their
Percentage Interests), as appropriate, until the aggregate Capital Account
balance of the Class B Members as a percentage of the aggregate Capital Account
balances of all Members is equal to the aggregate Percentage Interest held by
the Class B Members.
(e) Admissions and Withdrawals. In the discretion of the Board of
Directors, in case any person shall be admitted as a new Member to the Company,
or any Member shall withdraw from the Company or shall die, the Company shall be
deemed to have sold its assets for their respective fair market values, as
determined in good faith by the Board of Directors, and concurrently repurchased
such assets, on the date of such event for the same consideration.
(f) Tax Allocations.
(i) Except as otherwise provided in this subsection (i), as of
the end of each Fiscal Year of the Company, the Company's income and expense and
capital gain or loss, all as determined for federal income tax purposes, shall
be allocated for tax purposes among the Members in a manner consistent with the
economic allocations of Sections 9(a), 9(b), 9(c) and 9(d) above and giving
effect to Section 704(b) and (c) of the Code and the Section 704 Regulations and
Section 706(c)(i) of the Code as determined by the Board of Directors; provided,
that without the consent of the Class A Members the Company shall not use any
method other than the traditional method, as described in Treas. Reg. Section
1.704-3(b)(1), for making allocations under Section 704(c) of the Code.
(ii) If a Member shall make additional capital contributions
to the Company as of a date other than the first day of a Fiscal Year, withdraw
from the Company or make a withdrawal from such Member's Capital Account as of a
date other than the last day of a fiscal year, the Board of Directors shall make
such adjustments in the determination and allocation among the Members of
income, gain, loss, deduction or credit for tax purposes as the Board of
Directors shall deem necessary in their reasonable judgment to equitably take
into account such interim event and applicable provisions of law.
(iii) In determining a Member's allocable share of the
Company's taxable income, the Member's allocable share of each item of Net
Profits and Net Losses shall be properly adjusted to reflect the difference
between such Member's share of the adjusted tax basis and the book value of the
Company's assets used in determining such item. With respect to depreciation, in
determining the taxable income allocable to such Member, Net Profits and Net
Losses allocable to
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such Member shall be adjusted by eliminating depreciation allocable to such
Member and substituting therefor tax depreciation allocable to such Member
determined by reference to such Member's share of the tax basis of the Company's
assets. This provision is intended to comply with the requirements of Section
704(c) of the Code and Section 1.704-1(b)(2)(iv)(f) of the Regulations and shall
be interpreted and applied consistently therewith.
(iv) Any gain recognized from any disposition of a Company
asset that is treated as ordinary income because it is attributable to the
recapture of any depreciation or amortization shall be allocated among the
Members in the same ratio as the prior allocations of Net Profits, Net Losses or
other items that included such depreciation or amortization, but not in excess
of the gain otherwise allocable to each Member.
(v) All tax credits shall be allocated among the Members in
accordance with applicable law.
(g) Section 754 Election. The Tax Matters Partner shall, subject to
the direction of the Board of Directors, make an election to adjust the basis of
the Company's assets pursuant to Section 754 of the Code and the Treasury
Regulations promulgated thereunder.
(h) Conformity of Reporting. The Members are aware of the income tax
consequences of the allocations made by this Section 9 and hereby agree to be
bound by the provisions of this Section 9 in reporting their shares of the
Company's profits, gains, income, losses, deductions, credits and other items
for income tax purposes.
(i) Certain Defined Terms. The following terms shall have the
meaning assigned below:
"Adjusted Capital Account" means with respect to any Member, the
balance in such Member's Capital Account as of the end of the relevant
Fiscal Year, after giving effect to the following adjustments: (i) such
Capital Account shall be deemed to be increased by any amounts that such
Member is obligated to restore to the Company (pursuant to this Agreement
or otherwise) or is deemed to be obligated to restore pursuant to (A) the
penultimate sentence of Section 1.704-2(g)(1) of the Regulations, or (B)
the penultimate sentence of Section 1.704-2(i)(5) of the Regulations or
(C) Section 1.704-1(b)(2)(ii)(c) of the Regulations; and (ii) such Capital
Account shall be deemed to be decreased by the items described in Sections
1.704-1(b)(2)(ii)(d)(4), (5) and (6) of the Regulations. The foregoing
definition of Adjusted Capital Account is intended to comply with the
provisions of Section 1.704-1(b)(2)(ii)(d) of the Regulations and shall be
interpreted and applied consistently therewith.
"Company Minimum Gain" means the aggregate amount of gain (of
whatever character), determined for each Nonrecourse Liability of the
Company, that would be realized by the Company if it disposed of the
Company property subject to such liability in a taxable transaction in
full satisfaction thereof (and for no other consideration) and by
aggregating the amounts so computed, determined in accordance with
Sections 1.704-2(d) and (k) of the Regulations.
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"Fiscal Year" means the fiscal and taxable year of the Company which shall
be the year ending December 31.
"Member Minimum Gain" means the aggregate amount of gain (of whatever
character), determined for each Member Nonrecourse Debt, that would be realized
by the Company if it disposed of the Company property subject to such Member
Nonrecourse Debt in a taxable transaction in full satisfaction thereof (and for
no other consideration), determined in accordance with the provisions of
Sections 1.704-2(i)(3) and (k) of the Regulations for determining a Member's
share of minimum gain attributable to a Member Nonrecourse Debt.
"Member Nonrecourse Debt" has the meaning ascribed to the term "partner
non-recourse debt" specified in Section 1.704-2(b)(4) of the Regulations.
"Member Nonrecourse Deductions" has the meaning ascribed to the term
"partner nonrecourse deductions" specified in Section 1.704-2(i)(2) of the
Regulations.
"Nonrecourse Liability" means any Company liability (or portion thereof)
for which no Member bears the economic risk of loss for such liability under
Section 1.752-2 of the Regulations.
10. Distributions.
(a) Income Tax Distributions.
(i) Pro Rata Distributions. The Board of Directors shall, at least
five days prior to the date (the "Tax Distribution Date") on which any
Member (or any stockholder of KCI) is required to make any estimated tax
payments with respect to an Estimation Period, cause the Company to make a
pro rata cash distribution to each Member equal to the greater of (x) the
product of (1) such Member's Percentage Interest and (2) the Quarterly Pro
Rata Tax Liability of the Company, or (y) the Grossed-Up Minimum Amount.
An "Estimation Period" shall mean the period for which any Member (or any
stockholder of KCI) is required to estimate for Federal income tax
purposes his allocation of taxable income from the Company during a
calendar year in connection with determining his estimated Federal income
tax liability for such period. The "Quarterly Pro Rata Tax Liability of
the Company" shall equal (A) the product of (x) the taxable income of the
Company for any Estimation Period that is allocated to the Members'
Capital Accounts as a result of allocations pursuant only to Section 9(a)
of this Agreement and (y) the Tax Percentage, reduced by (B) to the extent
not previously taken into account, any income tax benefit attributable to
the tax items of the Company and its subsidiaries which could be legally
realized (without regard to actual realization) by the Members with
respect to tax items of the Company and its subsidiaries in the current or
any prior taxable year, or portion thereof, computed at the applicable Tax
Percentage for the year that such benefit is taken into account for
purposes of this computation. "Tax Percentage" means, for a particular
taxable year, the highest effective marginal combined rate of Federal,
state and local income tax, imposed (1) for any period when KCI is a
pass-through entity for Federal income tax
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purposes, on any stockholder of KCI and (2) for any period when KCI is not
a pass-through entity for Federal income tax purposes, on a Delaware
corporation that owns Shares in the Company. The "Grossed-Up Minimum
Amount" is the minimum amount, based on the prior tax year's tax liability
of Sub or any stockholder of KCI (taking into account only tax items
attributable to the Company (including tax items specially allocated under
clause (ii), below)) the pro rata distribution of which is required to
avoid any underpayment penalties or interest by Sub and any stockholder of
KCI (taking into account only tax items attributable to the Company
(including tax items specially allocated under clause (ii) below)).
(ii) Distributions For Special Allocations. If for any Estimation
Period a Member receives a special allocation ("Special Allocation") of
taxable income as a result of allocations other than pursuant to Section
9(a), then at least five days prior to the Tax Distribution Date for the
Estimation Period the Board of Directors shall cause the Company to make a
cash distribution to such Member equal to (A) the product of (1) the
amount of taxable income Specially Allocated to such Member for the
Estimation Period and (2) such Member's Tax Rate, reduced by (B) to the
extent not previously taken into account (including with respect to pro
rata distributions under Section 10(a)(i)) such Member's allocable share
of any income tax benefit attributable to the tax items of the Company and
its subsidiaries which could be legally realized (without regard to actual
realization) by that Member with respect to tax items of the Company and
its subsidiaries in the current or any prior taxable year, or portion
thereof, computed at the Member's Tax Rate for the year that such benefit
is taken into account for purposes of this computation. A Member's "Tax
Rate" shall mean (A) in the case of the Class A Member when it is a
pass-through entity for Federal income tax purposes, the highest effective
combined rate of Federal, state and local income tax imposed on any
stockholder of KCI (taking into account any taxes imposed directly on KCI
pursuant to Section 1374 of the Code), and (B) in the case of the Class A
Member when it is not a pass-through entity for Federal income tax
purposes or the Class B Member, the highest effective combined rate of
Federal, state and local income tax imposed on a Delaware corporation that
owns Shares in the Company.
(b) Deemed Tax Distributions. To the extent the Company is required
by law to make tax payments on behalf of a Member (e.g. backup withholding or
withholding with respect to Members who are neither citizens nor residents of
the United States), such payments shall be treated as distributions to the
Member on whose behalf the payment is made.
(c) Other Distributions. Except as otherwise provided in paragraphs
(a) and (b) of this Section 10 or as otherwise required by the Act,
distributions to Members shall be made at such time and in such form and amounts
as the Board of Directors shall from time to time determine pro rata in
accordance with the respective Percentage Interest of each Member.
(d) Capital Return. Any Member who has received the return of all or
any part of such Member's capital contribution pursuant to any distribution that
has been wrongfully or erroneously made to such Person in violation of the Act,
the Certificate of Formation or this Agreement will be required to return such
distribution to the Company if notice of an obligation to
11
return such amount is given to such Member (or former Member) within three years
of the date of such return or distribution.
11. Management.
(a) Board of Directors; Unlimited Term of Office. Except as
otherwise provided herein or in the Act, the Company shall be governed by a
board of directors (the "Board of Directors"). The Board of Directors shall be
comprised of the seven members who shall be the members of the Board of
Directors of KCI. The term of office of each Director shall be unlimited. All of
the provisions of the Shareholders Agreement relating to the operation of the
Board of Directors of KCI, including Section 5(c), shall be equally applicable
to the Board of Directors of the Company.
(b) Management by Board of Directors. The property, business and
affairs of the Company shall be managed by its Board of Directors and in
accordance with the terms of this Agreement. Except where the Members' approval
is expressly required by this Agreement or by the Act, the Board of Directors
shall have full authority, power and discretion to make all decisions with
respect to the Company's business and to perform such other services and
activities as set forth in this Agreement. Each Director shall be an agent of
the Company for its business purposes and may bind the Company in the ordinary
course.
(c) No Management by Members. Except as otherwise expressly provided
in this Agreement or the Act, the Members shall have no right to control or
manage, and shall not take part in the control or management of, the property,
business or affairs of the Company.
(d) Execution and Delivery of Instruments. Each Director shall have
the full power to execute and deliver, for and on behalf of the Company, any and
all documents and instruments which may be necessary or desirable to carry on
the business of the Company, including any and all deeds, contracts, leases,
mortgages, deeds of trust, promissory notes, security agreements and financing
statements pertaining to the Company's assets or obligations, and to authorize
the confession of judgment against the Company, and no other signature shall be
required for any such instrument or document to bind the Company; provided that
the execution or delivery of the document or instrument is an authorized act of
the Board of Directors taken in accordance with this Agreement.
(e) No Salaries, Fees or Bonuses; Reimbursement of Expenses. (i)
Except as otherwise provided in this Agreement or as approved by the Board of
Directors, neither the Directors nor the Members shall receive any salaries,
fees, bonuses, remunerations, benefits or other compensation from the Company
for their services to the Company as Directors or otherwise.
(f) Liability for Certain Acts. A director of the Company shall
perform his or her duties in good faith and in a manner he or she reasonably
believes to be in the best interests
12
of the Company. A director who so performs such duties shall not have any
liability by reason of being or having been a director. Without limiting the
generality of the preceding sentence, a director does not in any way guaranty
the return of any capital contribution to a Member or a profit for the Members
from the operations of the Company.
(g) No Exclusive Duty to Company. The directors shall not be
required to manage the Company as their sole and exclusive functions and they
may have other business interests and may engage in other activities in addition
to those relating to the Company. Neither the Company nor any Member shall have
any right pursuant to this Agreement to share or participate in such other
business interests or activities of the directors or to the income or proceeds
derived therefrom. The directors shall incur no liability to the Company or any
Member as a result of engaging in any other business interests or activities.
(h) Appointment of Officers, etc. The officers of the Company shall
be the same individuals and shall hold the same offices as the officers of KCI.
12. Voting Rights of Members; Meetings of Members.
(a) Voting Rights of Members: In General. Except as specifically
provided by this Agreement, or as required by the Act, Members shall not be
entitled to vote on any matter.
(b) Meetings of Members. A meeting of the Members may be called
annually by the Board of Directors. Meetings of the Members shall be held at the
Company's principal place of business or at any other place agreed to by the
Board of Directors.
(c) Act of Members. Except as specifically provided by this
Agreement, or as required by the Act, the affirmative vote of Members holding a
majority of the Percentage Interests shall be the act of the Members.
(d) Written Consent. In lieu of holding a meeting, the Members may
vote or otherwise take action by a written instrument indicating the consent of
Members holding such Percentage Interests as would be required for Members to
take action under this Agreement. If such consent is not unanimous, notice shall
be given to those Members who have not consented in writing.
13. Admission of Additional Members. (a) One or more additional
Members of the Company may be admitted to the Company at any time or from time
to time in accordance with the terms of this Agreement. Each new Member shall be
required to become a party to and be bound by this Agreement.
(b) The Company may issue Membership Interests (including warrants,
options, rights or convertible instruments), from time to time in one or more
classes, or one or more series of such classes, which classes or series shall
have, subject to the provisions of applicable law, such designations,
preferences and relative, participating, optional or other
13
special rights as shall be fixed by the unanimous decision of the Board,
including with respect to (a) the allocation of income, gain, loss or expense to
each such class or series; (b) the right of each such class or series to share
in distributions; (c) the rights of each such class or series upon dissolution
and liquidation of the Company; (d) the price at which, and the terms and
conditions upon which, each such class or series of Membership Interests may be
redeemed by the Company, if any such class or series is so redeemable; (e) the
rate at which, and the terms and conditions upon which, each such class or
series may be converted into another class or series of Membership Interests;
and (f) the right of each such class or series to vote on, or take action with
respect to, Company matters, including matters relating to the relative rights,
preferences and privileges of such class or series, to the extent permitted by
applicable law, if any such class or series is granted such voting rights.
14. Dissolution. Subject to the provisions of Section 15 of this
Agreement, the Company shall be dissolved and its affairs wound up and
terminated upon the first to occur of the following:
(a) December 31, 2048;
(b) The determination of all of the Members to dissolve the Company;
or
(c) The occurrence of an event of withdrawal of a Member or any
other event causing a dissolution of the Company under Section 18-801 of the
Act.
15. Continuation of the Company. Notwithstanding the provisions of
Section 14(c) hereof, the occurrence of an event of withdrawal of a Member shall
not dissolve the Company if within ninety days after the occurrence of such
event of withdrawal, the business of the Company is continued by the agreement
of all of the remaining Members.
16. Limitation on Liability. The debts, obligations and liabilities
of the Company, whether arising in contract, tort or otherwise, shall be solely
debts, obligations and liabilities of the Company, and no Member of the Company
shall be obligated personally for any such debt, obligation or liability of the
Company solely by reason of being a Member of the Company.
17. Further Assurances. Each of the Members shall hereafter execute
and deliver such further instruments and documents and do such further acts and
things as may be required or useful to carry out the intent and purpose of this
Agreement, including, without limitation, executing and delivering any amended,
modified or restated limited liability company agreements.
18. Indemnification. To the fullest extent permitted by law, the
Company shall indemnify and hold harmless the Board of Directors and Members and
their respective affiliates, directors, members, shareholders, partners,
officers, employees and agents (collectively, the "Indemnitees") from and
against any and all liabilities, judgments, claims,
14
settlements, losses, damages, fees, liens, taxes, penalties, obligations and
expenses, including reasonable attorneys' fees (collectively, "Losses") paid or
incurred by any such Indemnitee in connection with the conduct of the Company's
business in accordance with this Agreement and the Act, except that no
Indemnitee shall be entitled to indemnification in respect of any Loss incurred
by the Indemnitee by reason of the Indemnitee's gross negligence, willful
misconduct, bad faith or a knowing violation of law. Any indemnity under this
Section shall be provided out of and to the extent of Company assets only and no
Member shall have any personal liability on account thereof. All rights of an
Indemnitee under this Section shall survive the dissolution of the Company and
the withdrawal of the Indemnitee from membership in the Company.
19. Withdrawal. Except as otherwise provided in this Agreement, no
Member shall have the right to withdraw from the Company except with the consent
of the other Member and upon such terms and conditions as may be specifically
agreed upon between such other Member and the withdrawing Member. The provisions
of this Agreement with respect to distributions upon withdrawal are exclusive
and no Member shall be entitled to claim any further or different distribution
upon withdrawal under Section 18-604 of the Delaware Act or otherwise.
20. Liquidation.
(a) In General. Upon dissolution of the Company, the Board of
Directors or other persons selected by the Board of Directors shall be the
liquidators of the Company (collectively, the "Liquidators"). The Liquidators
shall liquidate the assets of the Company and apply and distribute the proceeds
of such liquidation in the following order of priority, unless otherwise
required by mandatory provisions of applicable law:
(i) to creditors of the Company (including Members); and
(ii) to the Members, to the extent of and in proportion to the
balances in their respective Capital Accounts, after adjustment to reflect
any income, gain, loss or expense for the fiscal year in which such
liquidation occurs.
(b) Reserve for Contingent Liabilities. Notwithstanding paragraph
(a) of this Section, the Liquidators may place in escrow a reserve of cash or
other assets of the Company for contingent liabilities in an amount determined
by the Liquidators to be appropriate for such purposes.
21. Tax Matters. The Members and the Company intend that the Company
will be treated as a partnership for United States federal income tax purposes
and will file such forms as may be necessary or appropriate in furtherance
thereof. The Members and former Members shall, on each such person's tax return,
treat each item of income, gain, loss or expense in a manner consistent with the
treatment of such item on the Company's tax returns and reports. KCI shall act
as the tax matters partner for the Company (the "Tax Matters Partner") and shall
be
15
generally authorized to prepare, execute and file tax returns on behalf of the
Company and to represent the Company before the Internal Revenue Service and any
state or local taxing authority.
22. Amendments.
(a) In General. Except as otherwise provided by this Agreement or
the Act, this Agreement may be amended by the unanimous vote of the Members and
only if set forth in a written instrument signed by each Member.
(b) Amendments by Board of Directors. Notwithstanding anything to
the contrary contained in this Section, the Board of Directors may modify the
provisions of this Agreement without the consent of the Members if, upon advice
of counsel to the Company, the modification is necessary to cause the Company to
be or to continue to be classified as a partnership for federal income tax
purposes.
(c) Consent in Certain Cases. Notwithstanding anything to the
contrary contained in this Section, without the consent of the affected Member,
no amendment to this Agreement may (i) increase the liability of such Member
beyond the liability of such Member expressly set forth in this Agreement or
under applicable law, or modify or affect the limited liability of such Member,
(ii) except as provided in this Agreement, reduce the Percentage Interest or
right to distributions from the Company of such Member, (iii) except as provided
in this Agreement, change the method of calculating the amount of allocations
made to such Member or (iv) otherwise adversely affect the rights of such
Member.
23. Counterparts. This Agreement may be executed in any number of
counterparts and each such counterpart hereof shall together be deemed to be an
original instrument, but all such counterparts together shall constitute but one
agreement.
16
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date set forth above.
COMPANY:
KEY COMPONENTS, LLC
By: /s/ [ILLEGIBLE]
-------------------------------------
Name:
Title:
MEMBERS:
KEY COMPONENTS, INC.
By: /s/ [ILLEGIBLE]
-------------------------------------
Name:
Title:
KEYHOLD, INC.
By:
-------------------------------------
Name:
Title:
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date set forth above.
COMPANY:
KEY COMPONENTS, LLC
By:
-------------------------------------
Name:
Title:
MEMBERS:
KEY COMPONENTS, INC.
By:
-------------------------------------
Name:
Title:
KEYHOLD, INC.
By: /s/ [ILLEGIBLE]
-------------------------------------
Name:
Title:
Schedule I
to
Limited Liability Company Operating Agreement
of
KEY COMPONENTS, LLC
Percentage
Name of Member Class of Shares Address and Facsimile Number Capital Account Interest Shares
-------------- --------------- ---------------------------- --------------- -------- ------
1. Key Components, Inc. Class A (100%) $80,744,101 88.98% 1,113,117
2. Keyhold, Inc. Class B (100%) $10,000,000 11.02% 137, 931