OPERATING AGREEMENT
OF
EMMCO, LLC
A SOUTH CAROLINA LIMITED LIABILITY COMPANY
EFFECTIVE AS OF DECEMBER 31, 2002
THIS Operating Agreement is made and entered into by and between the
Members whose signatures appear on the signature page hereof.
RECITALS:
A. Filed articles of organization for EMMCO, LLC with the Secretary of
State of South Carolina on December 31, 2002.
B. EMMCO, LLC acquired on December 31, 2002 certain assets of the
retail mortgage origination division of HomeGold, Inc. pursuant to the terms of
the Asset Purchase Agreement.
C. The parties agree as follows:
ARTICLE I
DEFINITIONS
The following terms used in this Operating Agreement shall have the
following meanings (unless otherwise expressly provided herein);
(a) the "Act" shall mean the South Carolina Limited Liability Company
Act of 1996.
(b) "Articles of Organization" shall mean the Articles of Organization
of EMMCO, LLC as filed with the Secretary of State of South Carolina as the same
may be amended from time to time.
(c) "Asset Purchase Agreement" shall mean that certain amended and
restated asset purchase agreement dated December 31, 2002 between the Company
and HomeGold, Inc.
(d) "Capital Contribution" shall mean any contribution to the capital
of the Company in cash or property by a Member whenever made.
(e) "Code" shall mean the Internal Revenue Code of 1986 or
corresponding provisions of subsequent superseding federal revenue laws.
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(f) "Common Voting Units" shall mean those Units initially held by
Messrs. ▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇▇▇ which have the rights described in Section 4.4(a)
of this Agreement.
(g) "Company" shall refer to EMMCO, LLC.
(h) "Distributable Cash" means all cash, revenues and funds received by
the Company, less the sum of the following to the extent paid or set aside by
the Company: (i) all principal and interest payments on indebtedness of the
Company and all other sums paid to lenders; (ii) all cash expenditures incurred
incident to the normal operation of the Company's business; (iii) such Reserves
as the Managers deem reasonably necessary to the proper operation of the
Company's business. Distributable Cash shall not be reduced by accrued but
unpaid dividends on Preferred Capital Units.
(i) "Entity" shall mean any general partnership, limited partnership,
limited liability company, corporation, joint venture, trust, business trust,
cooperative or association or any foreign trust or foreign business
organization.
(j) "Fiscal Year" shall mean the Company's fiscal year, which shall be
the calendar year.
(k) "Majority in Interest of the Members" shall mean those Members
holding more than 50% of the issued and outstanding Units having a right to vote
their Units on all matters affecting the Company.
(l) "Manager" shall mean one or more managers. References to the
Manager in the singular or as him, her, it, itself, or other like references
shall also, where the context so requires, be deemed to include the plural or
the masculine or feminine reference, as the case may be.
(m) "Member" shall mean each of the parties who executes a counterpart
of this Operating Agreement as a Member and each of the parties who may
hereafter become Members. To the extent a Manager has purchased Membership
Interests in the Company, he will have all the rights of a Member with respect
to such Membership Interests, and the term "Member" as used herein shall include
a Manager to the extent he has purchased such Membership Interests in the
Company. If a Person is a Member immediately prior to the purchase or other
acquisition by such Person of Non-Voting Units of Economic Interest, such Person
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shall have all the rights of a Member with respect to such purchased or
otherwise acquired Membership Interest or Non-Voting Units of Economic Interest,
as the case may be.
(n) "Membership Interest" shall mean a Member's entire interest in the
Company including such Member's Common Voting Units, Non-Voting Units of
Economic Interest, Preferred Capital Units and such other rights and privileges
that the Member may enjoy by being a Member.
(o) "Non-Voting Units of Economic Interest" shall mean those Units of
Economic Interest initially held by HomeGold, Inc. which have the rights
described in Section 4.4(b) of this Agreement.
(p "Operating Agreement" shall mean this Operating Agreement as
originally executed and as amended from time to time.
(q) "Person" shall mean any individual or Entity, and the heirs,
executors, administrators, legal representatives, successors, and assigns of
such "Person" where the context so permits.
(r) "Preferred Capital Units" shall mean those Units initially held by
HomeGold, Inc. which have the rights described in Section 4.4(c) of this
Agreement.
(s) "Reserves" shall mean, with respect to any fiscal period, funds set
aside or amounts allocated during such period to reserves which shall be
maintained in amounts reasonably deemed sufficient by the Managers for working
capital and to pay taxes, insurance, debt service or other costs or expenses
incident to the ownership or operation of the Company's business.
(t) "Treasury Regulations" shall include proposed, temporary and final
regulations promulgated under the Code in effect as of the date of filing the
Articles of Organization and the corresponding sections of any regulations
subsequently issued that amend or supersede such regulations.
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(u) "Unit" or "Membership Unit" shall mean an economic interest in the
capital, distributions, profits and losses of the Company as set further in
Articles IV, VIII and IX.
ARTICLE II
FORMATION OF COMPANY
2.1 Formation. On December 31, 2002 the Company was organized as a
South Carolina Limited Liability Company by executing and delivering articles of
organization to the South Carolina Secretary of State in accordance with and
pursuant to the Act.
2.2 Name. The name of the Company is EMMCO, LLC.
2.3 Principal Place of Business. The principal place of business of the
company within the State of South Carolina shall be ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇,
▇.▇. ▇▇▇▇▇. The Company may locate its places of business and registered office
at any other place or places as the Manager or Managers may from time to time
deem advisable.
2.4 Registered Office and Registered Agent. The Company's initial
registered office shall be at the office of its registered agent at CT
Corporation System, ▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ and the name of its
initial registered agent shall be CT Corporation System. The registered office
and registered agent may be changed from time to time by filing the address of
the new registered office and/or the name of the new registered agent with the
South Carolina Secretary of State pursuant to the Act.
2.5 Term. The term of the Company shall be until December 31, 2050
unless terminated sooner in accordance with the provisions of the Agreement.
ARTICLE III
BUSINESS OF COMPANY
3.1 Permitted Businesses. The business of the Company shall be:
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(a) To acquire, own and operate certain assets of the retail mortgage
origination business of HomeGold, Inc. and to engage in any other lawful
business whatsoever which shall at any time appear conducive to or expedient for
the protection or benefit of the Company and its assets.
(b) To exercise all other powers necessary to or reasonably connected
with the Company's business that may be legally exercised by limited liability
companies under the Act.
(c) To engage in all activities necessary, customary, convenient, or
incident to any of the foregoing.
ARTICLE IV
NAMES AND ADDRESSES OF MEMBERS;
OWNERSHIP INTERESTS
4.1 Name and Address. The name and address of the Members are as
follows:
NAME ADDRESS
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
HomeGold, Inc. ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
4.2 Units. The Company shall be authorized to issue 10,000 Common
Voting Units of ownership interest ("Common Voting Units"), 10,000 Non-Voting
Units of Economic Interest and 35,000,000 8% Cumulative Preferred Capital Units,
$1.00 per Unit, ("Preferred Capital Units"). The Company shall not be authorized
to issue additional Units without the consent of all Members.
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4.3 Ownership of Units. Units of ownership interest are owned as
follows:
NAME NUMBER OF UNITS AND NATURE OF
---- -----------------------------
ECONOMIC INTRESTS
-----------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ 9,000 Common Voting Units
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ 1,000 Common Voting Units
HomeGold, Inc. 10,000 Non-Voting Units of Economic
Interest
HomeGold, Inc. 35,000,000 Preferred Capital Units
4.4 Description of Units. The Units shall have the following rights
and preferences.
(a) Common Voting Units shall have the sole right to vote on all
matters requiring the approval, action or consent of the Members of the Company
except as to those matters set forth in subparagraphs (b) and(c) of this section
4.4. Holders of Common Voting Units shall be entitled to receive distributions
as set forth in Article IX.
(b) Non-Voting Units of Economic Interest shall be entitled to
distributions as set forth in Article IX. Within forty-five (45) days after
March 31, 2003, and each calendar quarter thereafter, the Company will submit to
the holders of Non-Voting Units of Economic Interest a profit and loss statement
of the Company and a calculation of the distribution to Unit holders for the
previous quarter prepared by the Company's independent certified public
accounting firm. At such time the Company shall make payment of the
distribution in the form of wire transfer of immediately available funds as
shown on such calculation. The quarterly distributions calculated as provided in
this subparagraph (b) to section 4.4 shall continue until the aggregate of such
payments to the holders of Non-Voting Units of Economic Interest shall equal
$170 million or until there is a sale of the Company or its assets. In the event
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of a sale of substantially all the assets the Company, 50% of the proceeds of
such sale after redemption of the Preferred Capital Units shall be distributed
to the holders of Non-Voting Units of Economic Interest or paid by the buyer
directly to such holders; provided, however, that the sum of the aggregate
quarterly distributions and the payment of sales proceeds to such holders shall
not exceed $170 million.
The Company will permit an annual audit to be performed by an
independent auditor engaged by the holders of Non-Voting Units of Economic
Interest to verify the profit and loss of the Company for the preceding calendar
year and the calculation of Distributable Cash for the preceding calendar year.
Representatives of such holders may review all work papers of the Company and of
accountants of the Company prepared in connection with the determination of
profit and loss and Distributable Cash for the preceding calendar year. If
Seller disputes Purchaser's determination of profit and loss or the calculation
of Distributable Cash for the preceding calendar year, Seller shall so notify
Purchaser in writing not more than 45 days after the date on which
representatives of such holders complete their review of such work papers of the
Company and the Company's accountants, and in such notice such holders shall
state any points of disagreement. Failure of such holders to deliver the notice
within such 45-day period shall mean conclusively that the Company's
determination of profit and loss and calculation of Distributable Cash has been
accepted by such holders.
Upon receipt by the Company of a notice referred to hereinabove, the
Company shall promptly consult with such holders with respect to any points of
disagreement in an effort to resolve the dispute and reach agreement in writing
as to profit and loss and Distributable Cash for the preceding calendar year. If
such dispute is not resolved by the Company and such holders within 15 days
after the Company receives such notice, it will be resolved by arbitration in
Greenville, South Carolina before a single arbitrator under the Commercial Rules
of Arbitration of the American Arbitration Association. The fees and expenses of
arbitration shall be allocated between the Company and such holders by the
arbitrator in proportion based on the extent that either party does not prevail
on items in dispute. The decision of the arbitrator shall be final, conclusive
and binding with respect to the determination of profit and loss and the
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calculation of Distributable Cash for the preceding calendar year and the
allocation of fees and expenses, and the decision of the arbitrator shall be
enforceable as an arbitration award by a court of competent jurisdiction.
4.4(c) After distributions to the holders of Non-Voting Units of
Economic Interest shall be equal to $170 million, the distributions formerly
applicable to the Non-Voting Units of Economic Interest shall apply to Preferred
Capital Units until the holders of Preferred Capital Units shall have received
$35 million together with accrued dividends thereon. The Preferred Capital Units
shall with respect to distributions upon liquidation rank senior to all Units of
the Company. The Preferred Capital Units shall accrue dividends, compounded
annually at the rate per annum of eight percent (8%) of the $1.00 stated value
of such Preferred Capital Units. Such dividends shall be cumulative from the
date that the Preferred Capital Units are first issued by the Company (the
"Issue Date"). The holders of the issued and outstanding Preferred Capital Units
shall be entitled to receive for each Preferred Capital Unit, before any
liquidating distribution of the assets of the Company shall be made to the
holders of any other Units, an amount equal to the stated value of $1.00 for
each such Preferred Capital Unit plus an amount equal to all accrued and unpaid
dividends attributable thereto from the Issue Date to the date of liquidation.
If, upon such liquidation, dissolution, or winding-up, the assets of the Company
that are distributable, as aforesaid, among the holders of Preferred Capital
Units shall be insufficient to permit the payment to them of said amount, the
entire assets shall be distributed ratably among the holders of the Preferred
Capital Units. A consolidation or merger of the Company, a sale, lease,
exchange, or transfer of all or substantially all of the Company's assets as an
entirety, or any purchase or redemption of Common Units of the Company of any
class, shall be regarded as a "liquidation, dissolution, or winding-up of the
affairs of the Company." The Company may redeem the Preferred Capital Units at
any time by payment of $1.00 for each Preferred Capital Unit plus all accrued
and unpaid dividends attributable thereto from the Issue Date to the date of
redemption.
The holders of Preferred Capital Units, except as otherwise set forth
in this section, shall not be entitled or permitted to vote on any matter
required or permitted to be voted upon by the Members. Notwithstanding the
foregoing, the approval of a majority of the holders of Preferred Capital Units,
voting as a class, shall be required with respect to the following:
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(i) The creation or issuance of Units with rights equal
to or superior to the Preferred Capital Units;
(ii) Any action that could (1) materially alter or change
the rights, preferences or privileges of the Preferred Capital Units;
or (2) increase the authorized number of shares of Preferred Capital
Units; and
(iii) A consolidation or merger of the Company or a sale,
lease, exchange, or transfer of all or substantially all of the
Company's.
ARTICLE V
RIGHTS AND DUTIES OF MANAGERS; OFFICERS
5.1 Management. The business and affairs of the Company shall be
managed by its Manager. The Manager shall direct, manage and control the
business of the Company to the best of his ability. Except for situations in
which the approval of the members is expressly required by this Operating
Agreement or by non-waivable provisions of applicable law, the Manager shall
have full and complete authority, power and discretion to manage and control the
business, affairs and properties of the Company, to make all decisions regarding
those matters and to perform any and all other acts or activities customary or
incident to the management of the Company's business subject to the limitations
set forth in 5.3 below.
5.2 Number, Tenure and Qualifications. The Company shall initially have
one Manager, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇. The number of Managers of the Company shall be
fixed from time to time by a majority in interest of the Members but in no
instance shall there be less than one Manager. Each Manager shall hold office
until his successor shall have been elected and qualified. A Manager may be
removed and replaced at any time by a majority in interest of the Members.
Managers shall be elected by a majority in interest of the Members. Managers
need not be residents of the State of South Carolina or Members of the Company.
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5.3 Certain Limitations on the Authority of the Manager.
(a) Notwithstanding anything else in this Agreement, the authority of
the Manager(s) to act on behalf of the Company shall be subject to the following
limitations:
(i) The Manager(s) shall have no authority to sell or dispose
of substantially all of the assets of the Company without the
consent of a majority in interest of the holders of Common
Voting Units and Preferred Capital Units voting as separate
classes; provided that after December 31, 2017, Common Voting
Units and Preferred Capital Units shall vote as a single
class;
(ii) The Manager(s) shall have no authority to take any
action which would make it impossible to carry on the ordinary
business of the Company without the consent of the Members.
(b) Unless authorized to do so by this Operating Agreement or by the
Managers of the Company, no attorney-in-fact, employee or other agent of the
Company shall have any power or authority to bind the Company in any way, to
pledge its credit or to render it liable pecuniarily for any purpose. No Member
shall have any power or authority to bind the Company unless the Member has been
authorized by the Managers to act as an agent of the Company in accordance with
the previous sentence.
5.4 Liability for Certain Acts. Each Manager shall perform his duties
as Manager in good faith, in a manner he reasonably believes to be in the best
interests of the Company, and with such care as an ordinarily prudent person in
a like position would use under similar circumstances. A Manager who so performs
the duties as Manager shall not have any liability by reason of being or having
been a Manager of the Company. The Manager does not, in any way, guarantee the
return of the Members' Capital Contributions or a profit for the Members from
the operations of the Company. The Manager shall not be liable to the Company or
to any Member for any loss or damage sustained by the Company or any Member,
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unless the loss or damage shall have been the result of fraud, deceit, gross
negligence, willful misconduct, breach of this Agreement or a wrongful taking by
the Manager.
5.5 Managers and Members Have No Exclusive Duty to Company. Subject to
Section 6.8 below, a Manager shall not be required to manage the Company as his
sole and exclusive function and he (and any Manager and/or Member) may have
other business interests and may engage in other activities in addition to those
relating to the Company; provided that a Manager may not have a managerial
position in another business and the operation of the Company shall be the
principal business activity of a Manager. Subject to Section 6.8, neither the
Company nor any Member shall have any right, by virtue of this Operating
Agreement, to share or participate in such other investments or activities of
the Manager and/or Member or to the income or proceeds derived therefrom.
Neither the Manager nor any Member shall incur any liability to the Company or
to any of the Members as a result of engaging in any other business or venture.
5.6 Bank Accounts. The Managers may from time to time open bank
accounts in the name of the Company, and the Managers shall be the sole
signatory thereon, unless the Managers determine otherwise.
5.7 Indemnity of the Managers, Employees and Other Agents. The Company
shall indemnify the Managers and make advances for expenses to the maximum
extent permitted under the Act. The Company shall indemnify its employees and
other agents who are not managers to the fullest extent permitted by law,
provided that such indemnification in any given situation is approved by a
majority in interest of the Members.
5.8 Resignation. Any Manager of the Company may resign at any time by
giving written notice to a majority in interest of the Members of the Company.
The resignation of any Manager shall take effect upon receipt of notice thereof
or at such later time as shall be specified in such notice; and, unless
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective. The resignation of a Manager who is also a
Member shall not affect the Manager's rights as a Member and shall not
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constitute a withdrawal of a Member. Notwithstanding the foregoing, the
Operating Manager shall be obligated to continue to serve for the term set forth
in his Employment Agreement.
5.9 Removal. At a meeting called expressly for that purpose, all or any
lesser number of Managers may be removed at any time, with or without cause, by
a majority in interest of the Members. The removal of a Manager who is also a
Member shall not affect the Manager's rights as a Member and shall not
constitute a withdrawal of a Member.
5.10 Vacancies. Any vacancy occurring for any reason in the number of
Managers of the Company may be filled by a majority in interest of the Members.
Any Manager's position to be filled by reason of an increase in the number of
Managers shall be filled by a majority in interest of the Members.
5.11 Compensation. The compensation of the Managers shall be fixed from
time to time by an affirmative vote of a majority in interest of the Members,
and no Manager shall be prevented from receiving such salary by reason of the
fact that he is also a Member of the Company.
5.12 Officers. The Managers shall have the authority to appoint
officers of the Company who shall have such duties and authority as the Managers
shall delegate from their own authority. ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ shall be the
Chairman and Chief Executive Officer of the Company. ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ shall be the
President of the Company. The officers shall serve at the pleasure of the
Managers.
ARTICLE VI
RIGHTS AND OBLIGATIONS OF MEMBERS
6.1 Limitation of Liability. Each Member's liability shall be limited
as set forth in this Operating Agreement, the Act and other applicable law.
6.2 Company Debt Liability. A Member will not be personally liable
for any debts or losses of the Company beyond any obligation of the Member under
Section 8.1 to make Capital Contributions.
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6.3 List of Members. Upon written request of any Member, the Manager
shall provide a list showing the names, addresses and Membership Interests and
Units of all Members and Unit Holders.
6.4 Approval of Sale of All Assets. A majority in interest of the
holders of Common Voting Units and the holders of Preferred Capital Units voting
as separate classes shall have the right to approve the sale, exchange or other
disposition of all, or substantially all, of the Company's assets (other than in
the ordinary course of the Company's business) which is to occur as part of a
single transaction or plan.
6.5 Company Books. In accordance with Section 9.7 herein, the Managers
shall maintain and preserve, during the term of the Company, and for a
reasonable time thereafter, all accounts, books, and other relevant Company
documents. Upon reasonable request no more than once each calendar quarter, each
Member and Unit Holder shall have the right, during ordinary business hours, to
inspect and copy such Company documents at the requesting Member's and Unit
Holder's expense.
6.6 Priority and Return of Capital. Except as may be expressly provided
in Articled IV, VIII and IX, no Member or Unit Holder shall have priority over
any other Member or Unit Holder, either as to the return of Capital
Contributions or as to Net Profits, Net Losses or distributions; provided that
this Section shall not apply to loans (as distinguished from Capital
Contributions) which a Member has made to the Company.
6.7 Amendment of Operating Agreement. Except as otherwise provided in
Article IV, this Operating Agreement may only be amended by a majority in
interest of the Members, provided that no amendment shall affect adversely a
Member's economic rights as an equity owner or reduce a Member's percentage
ownership without such Member's consent.
6.8 Non-Competition and Confidentiality Covenants. ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
agrees that so long as he is a Member of the Company, and for a period of
twenty-four months after he ceases to have an ownership interest in the Company,
he will not, nor will any affiliate of such Member, compete with the Company, or
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solicit the Company's customers or employees, or disclose or divulge any
confidential information about the Company. For the purposes of this Section:
(i) the term "compete" means engaging in the business of
originating real estate mortgage loans in any manner
whatsoever (other than as a passive investor), including,
without limitation, as a proprietor, partner, investor,
member, director, officer, employee, consultant, independent
contractor, or otherwise, within the United States;
(ii) the term "affiliate" means any legal entity that directly
or indirectly through one or more intermediaries controls, is
controlled by, or is under common control with the Member;
(iii) the term "customers" means all persons to whom the
Company or any of its affiliates has made loans, during the
period such Member was a Member of the Company; and
(iv) the term "confidential information" means flow charts,
file layouts, source code listings, computer programs,
customer information, financial information, product
information and all other know-how and trade secrets developed
by and belonging to the Company or any of its affiliates which
gives the Company a competitive advantage over other
businesses in the same fields of endeavor; and
(v) Upon breach of any of these covenants, the Company and/or
any Member shall have the right to seek monetary damages for
any past breach and equitable relief, including specific
performance by means of an injunction to prevent any further
breach.
6.9 Waiver of Enforcement. The holders of a majority in interest of
Preferred Capital Units may waive enforcement of or release a Member from all or
any portion of the restrictions contained in this Article VI.
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ARTICLE VII
MEETINGS OF MEMBERS
7.1 Annual Meeting. The annual meeting of the Members shall be held at
the discretion of the Managers for the purpose of the transaction of such
business as may come before the meeting. All members shall be entitled to notice
of, and the privilege of attending, the annual meeting. Except as provided in
Article IV only holders of Common Voting Units shall be entitled to vote at
annual meetings.
7.2 Special Meetings. Special meetings of the Members, for any purpose
or purposes, unless otherwise prescribed by statute, may be called by any
Manager or by Members holding at least 20% of the Common Voting Units. All
members shall be entitled to notice of, and the privilege of attending, the
special meetings. Except as provided in Article IV only holders of Common Voting
Units shall be entitled to vote at annual meetings.
7.3 Place of Meetings. A majority in interest of the Members may
designate any place, either within or outside the State of South Carolina as the
place of meeting for any meeting of the Members. If no designation is made, or
if a special meeting be otherwise called, the place of meeting shall be the
principal executive office of the Company in the State of South Carolina.
7.4 Notice of Meetings. Except as provided in Section 7.5, written
notice stating the place, day and hour of the meeting and the purpose or
purposes for which the meeting is called shall be delivered not less than ten
nor more than fifty days before the date of the meeting, either personally or by
mail, by or at the direction of the Managers or person calling the meeting, to
each Member of the Company. If mailed, such notice shall be deemed to be
delivered two calendar days after being deposited in the United States mail,
addressed to the Member at its address as it appears on the books of the
Company, with postage thereon prepaid.
7.5 Manner of Acting. The affirmative vote of Members holding a
majority of Common Units shall be the act of the Members, unless the vote of a
greater or lesser proportion or number, or the vote of the holders of other
Units, is otherwise required by the Act, by the Articles of Organization, or by
this Operating Agreement. Unless otherwise expressly provided herein or required
under applicable law, Members who have an interest (economic or otherwise) in
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the outcome of any particular matter upon which the Members vote or consent, may
vote or consent upon any such matter and their Capital Interest, vote or
consent, as the case may be, shall be counted in the determination of whether
the requisite matter was approved by the Members.
7.6 Proxies. At all meetings of Members a Member may vote in person or
by proxy executed in writing by the Member or by a duly authorized
attorney-in-fact. Such proxy shall be filed with the Managers of the Company
before or at the time of the meeting. No proxy shall be valid after eleven
months from the date of its execution, unless otherwise provided in the proxy.
7.7 Action by Members Without a Meeting. Action required or permitted
to be taken at a meeting of Members may be taken without a meeting if the action
is evidenced by one or more written consents describing the action taken, signed
by the necessary Members required to approve such action and delivered to the
Managers of the Company for inclusion in the minutes or for filing with the
Company records. Action taken under this Section is effective when the Members
required to approve such action have signed the consent, unless the consent
specifies a different effective date. The record date for determining Members
entitled to take action without a meeting shall be the date the first Member
signs a written consent.
7.8 Waiver of Notice. When any notice is required to be given to any
Member, a waiver thereof in writing signed by the person entitled to such
notice, whether before, at, or after the time stated therein, shall be
equivalent to the giving of such notice.
ARTICLE VIII
CONTRIBUTIONS TO THE COMPANY
8.1 Members' Capital Contributions. Each Member shall contribute
such amount as is set forth in Exhibit A hereto as its Capital Contribution. No
Member shall have any further obligation to contribute capital to the Company.
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8.2 Withdrawal or Reduction of Members' Contributions to Capital.
(a) A Member shall not receive out of the Company's property any part
of its Capital Contribution until all liabilities of the Company, except
liabilities to Members on account of their Capital Contributions, have been paid
or there remains property of the Company sufficient to pay them.
(b) A Member, irrespective of the nature of its Capital Contribution,
has only the right to demand and receive cash in return for its Capital
Contribution.
ARTICLE IX
ALLOCATIONS, INCOME TAX, DISTRIBUTIONS, ELECTIONS AND REPORTS
9.1 Allocations. All net profits, net losses, credits, deductions and
other items for income tax purposes shall be allocated among Common Unit Holders
in proportion to their ownership of Units; provided, however, net profits shall
be allocated to the Holders of Non-Voting Economic Interest Units to the extent
of cash distributions thereto. No such allocations shall be made with respect to
the holders of Preferred Capital Units, and no further allocations shall be made
with respect to the Holders of Non-Voting Economic Interest Units once such
Holders have received distributions equal to $170 million.
9.2 Distributions. The holders of Common Units shall be entitled to
receive quarterly distributions, out of Distributable Cash as follows:
(a) first, to the holders of Non-Voting Units of Economic Interest, in
proportion to their ownership of such Units, the amount, if any, by which the
total annual compensation paid by the Company to ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ in such
calendar year exceeds one million ninety-four thousand dollars ($1,094,000.00)
subject to an annual increase after 2003 of up to 5 percent in each calendar
year;
17
(b) second, to the holders of Common Voting Units and Non-Voting Units
of Economic Interest, in proportion to their ownership of such Units; provided
after distributions to the holders of Non-Voting Units of Economic Interest
shall be equal to $170 million, the distributions formerly applicable to the
Non-Voting Units of Economic Interest shall apply to Preferred Capital Units
until the holders of Preferred Capital Units shall have received $35 million
together with accrued interest thereon.
The holders of Non-Voting Units of Economic Interest acknowledge that
their interest in Distributable Cash shall be charged with, and the Company may
withhold from, their quarterly distributions, an amount equal to Two Hundred
Thirty-four Thousand Eight Hundred Forty-nine Dollars and Sixty-six cents
($234,849.66) each quarter on a cumulative basis, and distributed to ▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇; said amount represents the amortization of debt of R-DOC, LLC, an
affiliate of the Company, to HomeGold, Inc. in the original principal amount of
$8,444,679.71.
9.3 Accounting Principles. The profits and losses of the Company shall
be determined in accordance with generally accepted accounting principles
applied on a consistent basis using the accrual method of accounting.
9.4 Interest On and Return of Capital Contributions. No Member or Unit
Holder shall be entitled to interest on its Capital Contribution or to return of
its Capital Contribution, except as otherwise specifically provided for herein.
9.5 Loans to Company. Nothing in this Operating Agreement shall prevent
any Member from making secured or unsecured loans to the Company by agreement
with the Company.
9.6 Accounting Period. The Company's accounting period shall be the
calendar year.
9.7 Records, Audits and Reports. At the expense of the Company, the
Manager shall maintain records and accounts of all operations and expenditures
of the Company. At a minimum the Company shall keep at its principal place of
business the following records:
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(a) A current list of the full name and last known business, residence,
or mailing address of each Member, Unit Holder and Manager, both past and
present;
(b) A copy of the Articles of Organization of the Company and all
amendments thereto, together with executed copies of any powers of attorney
pursuant to which any amendment has been executed;
(c) Copies of the Company's federal, state, and local income tax
returns and reports, if any, for the four most recent years;
(d) Copies of the Company's currently effective written Operating
Agreement, copies of any writings permitted or required with respect to a
Member's obligation to contribute cash, property or services, and copies of any
financial statements of the Company for the three most recent years;
(e) Minutes of every annual, special meeting and court-ordered meeting;
(f) Any written consents obtained from Members for actions taken by
Members without a meeting.
9.8 Returns and other Elections.
(a) The Manager shall cause the preparation and timely filing of all
tax returns required to be filed by the Company pursuant to the Code and all
other tax returns deemed necessary and required in each jurisdiction in which
the Company does business. Copies of such returns, or pertinent information
therefrom, shall be furnished to the Members within a reasonable time after the
end of the Company's fiscal year. The Manager shall also provide the holders of
Common Non-Voting Units the quarterly reports required by section 4.4(b).
(b) In accordance with the provisions of Code Section 704(c), income,
gain, loss and deductions with respect to any property contributed to the
capital of the Company shall, solely for tax purposes, be allocated to the
Members so as to take account of any variation between the adjusted basis of
such property and the fair market value at the time of contribution. Any
elections or other decisions relating to such allocations shall be made by the
Manager in any manner that reasonably reflects the purpose and intention of this
19
Agreement. Allocations pursuant to this Section are solely for purposes of
income taxes and shall not affect distributions to Unit holders.
9.9 Confidentiality. Each Member shall treat all information concerning
the Company's finances, customers, Members, property and all other information
concerning the Company's business as confidential and shall not divulge any such
information to any third party without the consent of the Managers.
ARTICLE X
TRANSFERABILITY
10.1 General. Without the prior written consent of a majority in
interest of the Members, no Member or Non-member Unit Holder shall have the
right to:
(a) sell, assign, transfer, exchange or otherwise transfer for
consideration, (collectively, "sell" or "sale"),
(b) gift, bequeath or otherwise transfer for no consideration whether
or not by operation of law, (collectively "gift")all or any part of its Units.
Each Member and Unit Holder hereby acknowledges the reasonableness of the
restrictions on sale and gift of Membership Interests and Units imposed by this
Operating Agreement in view of the Company purposes and the relationship of the
Members and Unit Holders. Accordingly, the restrictions on sale and gift
contained herein shall be specifically enforceable. No Member or Unit Holder
shall pledge or otherwise encumber any of its Membership Interest or Units as
security for repayment of a liability without the prior written consent of the
Managers.
10.2 Right of First Refusal. In the event that a Member desires to
sell, encumber or transfer any of his Units during such Member's lifetime, such
Member shall give written notice thereof to the Company specifying the identity
of the proposed transferee and the terms and purchase price of such proposed
transfer, and the Company shall have the option to purchase such Units for a
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period of 60 days from its receipt of such notice for the purchase price
specified in such notice.
If the Company does not exercise its option to purchase such Units,
then the Member desiring to sell shall offer it on the same price and terms to
the remaining Members, each of whom shall have the option to purchase such Units
for a period of 30 days from their receipt of such notice. (In the event that
more than one of the remaining Members wish to purchase such Units, they shall
participate in such option in proportion to their ownership of Units.)
If neither the Company nor any of the remaining Members exercises their
option to purchase such Units, then the Member who desires to sell his Units may
sell all, but not less than all such Units to a third party on the same terms
and for the same price as were specified in a majority in interest of the notice
of the Company pursuant to this item, provided that if such sale does not take
place within 120 days of such Member's delivery of a majority in interest of the
notice to the Company, as set forth above, then all such Units shall once again
be subject to the requirements of this Section 10.2.
10.3 Transfer by HomeGold, Inc.
Notwithstanding any other provision of this Agreement, the Manager and
all Members hereby consent to the assignment by HomeGold, Inc. of any or all of
its Units of ownership interest to any of its affiliates and all Members agree
that, upon such assignment and undertaking to be bound by the terms of this
Agreement, such affiliate shall become a Member of the Company.
ARTICLE XI
DEATH OR INCOMPETENCY OF A MEMBER
If a Member who is an individual dies or a court of competent
jurisdiction adjudges him to be incompetent to manage his person or his
property, the Member's executor, administrator, guardian, conservator, or other
legal representative may exercise all of the Member's rights for the purpose of
settling his estate or administering his property.
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ARTICLE XII
DISSOLUTION AND TERMINATION
12.1 Dissolution.
The Company shall be dissolved upon the occurrence of any of the
following events:
(i) when the period fixed for the duration of the Company
shall expire pursuant to Section 2.5 hereof; or
(ii) upon the sale of all or substantially all of the assets
of the Company as an entirety;
(ii) by the written agreement of the holders of a majority in
interest of each class of Units, voting as separate classes.
Neither the death, retirement, resignation, expulsion, bankruptcy or
dissolution of a Member nor occurrence of any other event which terminates the
continued membership of a Member in the Company shall cause a dissolution or
termination of the Company.
12.2 Winding Up, Liquidation and Distribution of Assets.
(a) Upon dissolution, an accounting shall be made by the Company's
independent accountants of the accounts of the Company and of the Company's
assets, liabilities and operations, from the date of the last previous
accounting until the date of dissolution. The Manager(s) shall immediately
proceed to wind up the affairs of the Company.
(b) If the Company is dissolved and its affairs are to be wound up, the
Manager shall:
(i) Sell or otherwise liquidate all of the Company's assets as
promptly as practicable (except to the extent the Manager(s)
may determine to distribute any assets to the Members in
kind),
22
(ii) Discharge all liabilities of the Company, including
liabilities to Members and Unit Holders who are also
creditors, to the extent otherwise permitted by law, other
than liabilities to Members and Unit Holders for distributions
and the return of capital, and establish such Reserves as may
be reasonably necessary to provide for contingent liabilities
of the Company (for purposes of determining the Capital
Accounts of the Members and Unit Holders, the amounts of such
Reserves shall be deemed to be an expense of the Company),
(iii) Distribute to the holders of Preferred Capital Units
assets sufficient to comply with section 4.4(c)
(iv) Distribute the remaining assets in the same manner as set
forth in section 9.2 with respect to Distributable Cash.
(c) Notwithstanding anything to the contrary in this Operating
Agreement, upon a liquidation within the meaning of Section 1.704-1(b)(2)(ii)(g)
of the Treasury Regulations, if any Member has a deficit capital account (after
giving effect to all contributions, distributions, allocations and other capital
account adjustments for all taxable years, including the year during which such
liquidation occurs), such Member shall have no obligation to make any Capital
Contribution, and the negative balance of such Member's capital account shall
not be considered a debt owed by such Member to the Company or to any other
Person for any purpose whatsoever.
(d) Upon completion of the winding up, liquidation and distribution of
the assets, the Company shall be deemed terminated.
(e) The Manager(s) shall comply with any applicable requirements of
applicable law pertaining to the winding up of the affairs of the Company and
the final distribution of its assets.
12.3 Articles of Termination. When all debts, liabilities and
obligations have been paid and discharged or adequate provisions have been made
therefor and all of the remaining property and assets have been distributed to
the Members, articles of dissolution shall be executed in duplicate and verified
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by the person signing the articles, which articles shall set forth the
information required by the Act.
12.4 Return of Contribution Nonrecourse to other Members. Except as
provided by law or as expressly provided in this Operating Agreement, upon
dissolution, each Member shall look solely to the assets of the Company for the
return of its Capital Contribution. If the Company property remaining after the
payment or discharge of the debts and liabilities of the Company is insufficient
to return the cash contribution of one or more Members, such Member or Members
shall have no recourse against any other Member.
ARTICLE XIII
MISCELLANEOUS PROVISIONS
13.1 Additional Rights and Obligations of the Parties. In addition to
the rights and obligations of the parties set forth in this Agreement, the
parties shall also have the rights and obligations and the benefit of the
covenants set forth in the Asset Purchase Agreement as if those provisions were
set forth herein.
13.2 Notices. Any notice, demand, or communication required or
permitted to be given by any provision of this Operating Agreement shall be
deemed to have been sufficiently given or served for all purposes if delivered
personally to the party or to an executive officer of the party to whom the same
is directed or, if sent by registered or certified mail, postage and charges
prepaid, addressed to the Member's and/or Company's address, as appropriate,
which is set forth in this Operating Agreement. Except as otherwise provided
herein, any such notice shall be deemed to be given three business days after
the date on which the same was deposited in a regularly maintained receptacle
for the deposit of United States mail, addressed and sent as aforesaid.
13.3 Books of Account and Records. Proper and complete records and
books of account shall be kept or shall be caused to be kept by the Managers in
which shall be entered fully and accurately all transactions and other matters
relating to the Company's business in such detail and completeness as is
customary and usual for businesses of the type engaged in by the Company. The
books and records shall be at all times be maintained as determined by the
24
Managers and shall be open to the reasonable inspection and examination of the
Members or their duly authorized representatives during reasonable business
hours.
13.4 Application of South Carolina Law. This operating Agreement, and
the application of interpretation hereof, shall be governed exclusively by its
terms and by the laws of the State of South Carolina, and specifically the Act.
13.5 Waiver of Action for Partition. Each Member and Unit Holder
irrevocably waives during the term of the Company any right that it may have to
maintain any action for partition with respect to the property of the Company.
13.6 Execution of Additional Instruments. Each Member hereby agrees to
execute such other and further statements of interest and holdings,
designations, powers of attorney and other instruments necessary to comply with
any laws, rules or regulations.
13.7 Construction. Whenever the singular number is used in this
Operating Agreement and when required by the context, the same shall include the
plural and vice versa, and the masculine gender shall include the feminine and
neuter genders and vice versa.
13.8 Headings and Pronouns. The headings in this Operating Agreement
are inserted for convenience only and are in no way intended to describe,
interpret, define, or limit the scope, extent or intent of this Operating
Agreement or any provision hereof. All pronouns and only variations thereof
shall be deemed to refer to masculine, feminine, or neuter, singular or plural
as the identity of the Person or Persons may require.
13.9 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
Operating Agreement shall not prevent a subsequent act, which would have
originally constituted a violation, from having the effect of an original
violation.
13.10 Rights and Remedies Cumulative. The rights and remedies provided
by this Operating Agreement are cumulative and the use of any one right or
remedy by any party shall not preclude or waive the right to use any or all
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other remedies. Said rights and remedies are given in addition to any other
rights the parties may have by law, statute, ordinance or otherwise.
13.11 Severability. If any provision of this Operating Agreement or the
application thereof to any person or circumstance shall be invalid, illegal or
unenforceable to any extent, the remainder of this Operating Agreement and the
application there of shall not be affected and shall be enforceable to the
fullest extent permitted by law.
13.12 Heirs, Successors and Assigns. Each and all of the covenants,
terms, provisions and agreements herein contained shall be binding upon and
inure to the benefit of the parties hereto and, to the extent permitted by this
Operating Agreement, their respective heirs, legal representatives, successors
and assigns.
13.13 Creditors. None of the provisions of this Operating Agreement
shall be for the benefit of or enforceable by any creditors of the Company.
13.14 Counterparts. This Operating Agreement may be executed in
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same instrument.
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CERTIFICATE
The undersigned hereby agree, acknowledge and certify that the
foregoing Operating Agreement constitutes the Operating Agreement of the Company
adopted by the Members of the Company as of December 31, 2002.
MEMBERS:
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
/s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇
------------------------------------
▇▇▇▇ ▇▇▇▇▇▇▇▇▇
HomeGold, Inc.
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
--------------------------------
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EXHIBIT A
Number of Capital
Members Units Contributions
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ 9,000 Common Voting $9,000
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ 1,000 Common Voting $1,000
HomeGold, Inc. 10,000 Non-Voting in kind
Economic Interest*
HomeGold, Inc. 35,000,000 Preferred Capital* in kind
* as set forth in the Asset Purchase Agreement
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