1
EXHIBIT 10.22
[FORM OF OPERATING AGREEMENT UNDER
THE E.KB EQUITY INCENTIVE PROGRAM]
OPERATING AGREEMENT
OF
_____________, LLC
MEMBERSHIP INTERESTS IN _____________, LLC, A DELAWARE LIMITED LIABILITY
COMPANY, HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS AND ARE BEING OFFERED AND
SOLD IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND SUCH LAWS. THE INTERESTS MAY NOT BE TRANSFERRED OR RESOLD
WITHOUT (A) REGISTRATION UNDER THE SECURITIES ACT AND APPLICABLE STATE
SECURITIES LAWS, UNLESS AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT
AND SUCH LAWS IS THEN AVAILABLE, AND (B) COMPLIANCE WITH ALL OTHER RESTRICTIONS
ON TRANSFER CONTAINED IN THIS OPERATING AGREEMENT. PROSPECTIVE MEMBERS SHOULD BE
AWARE THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT
FOR AN INDEFINITE PERIOD OF TIME. IN MAKING AN INVESTMENT DECISION, PROSPECTIVE
MEMBERS MUST RELY ON THEIR OWN EXAMINATION OF THE ISSUER AND THE TERMS OF THE
OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED.
THE INTERESTS HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, ANY STATE SECURITIES COMMISSION OR OTHER REGULATORY
AUTHORITY, NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON OR ENDORSED THE
MERITS OF THIS OFFERING OR THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED
IN THE OPERATING AGREEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
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TABLE OF CONTENTS
PAGE
ARTICLE 1 DEFINITIONS...............................................................1
ARTICLE 2 ORGANIZATIONAL MATTERS....................................................9
2.1 Formation....................................................................9
2.2 Name........................................................................10
2.3 Principal Place of Business; Other Places of Business.......................10
2.4 Business Purpose............................................................10
2.5 Certificate of Formation; Filing............................................10
2.6 Designated Agent for Service of Process.....................................10
2.7 Term........................................................................10
ARTICLE 3 CAPITAL CONTRIBUTIONS; ADDITIONAL INTERESTS; CAPITAL ACCOUNTS............10
3.1 Capital Contributions.......................................................10
3.2 Additional Interests........................................................11
3.3 Capital Accounts............................................................11
3.4 Member Capital..............................................................11
3.5 Member Loans................................................................11
3.6 Loans by Third Parties......................................................11
3.7 Limited Liability of the Members............................................11
ARTICLE 4 DISTRIBUTIONS............................................................11
4.1 Distributions Generally.....................................................11
4.2 Withholding.................................................................12
4.3 Minimum Distribution........................................................12
4.4 Distributions In Kind.......................................................13
ARTICLE 5 ALLOCATIONS OF NET INCOME AND NET LOSSES.................................13
5.1 Net Losses..................................................................13
5.1.1 General..............................................................13
5.1.2 Loss Limitation......................................................13
5.2 Net Income..................................................................13
5.3 Special Allocations.........................................................13
5.3.1 Minimum Gain Chargeback..............................................13
5.3.2 Member Minimum Gain Chargeback.......................................14
5.3.3 Qualified Income Offset..............................................14
5.3.4 Gross Income Allocation..............................................14
5.3.5 Section 754 Adjustment...............................................14
5.3.6 Nonrecourse Deductions and Member Nonrecourse Deductions.............15
5.3.7 Curative Allocations.................................................15
5.4 Tax Allocations.............................................................15
5.5 Other Provisions............................................................16
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TABLE OF CONTENTS
(CONTINUED)
PAGE
ARTICLE 6 VOTING AND MANAGEMENT....................................................16
6.1 Manager Powers..............................................................16
6.2 Officers; Delegation of Authority...........................................18
6.3 Duties and Obligations; Liability...........................................18
6.3.1 Continuation of Existence............................................18
6.3.2 Limitation of Liability..............................................18
6.4 Reimbursements..............................................................19
6.5 Indemnification.............................................................19
6.5.1 Indemnification - Actions other than by the Company..................19
6.5.2 Indemnification - Actions by the Company.............................19
6.5.3 Expenses Payable in Advance..........................................20
6.5.4 Nonexclusivity of Indemnification and Advancement of Expenses........20
6.5.5 Insurance............................................................20
6.5.6 Survival of Indemnification and Advancement of Expenses..............20
6.5.7 Indemnification of Officers, Employees and Agents....................20
6.6 Lack of Authority...........................................................20
6.7 Member Voting...............................................................21
ARTICLE 7 BOOKS AND RECORDS; ACCOUNTING; TAX ELECTIONS.............................21
7.1 Books and Records...........................................................21
7.2 Delivery of Records.........................................................21
7.3 Inspection..................................................................22
7.4 Reports to the Members......................................................22
7.5 Company Tax Elections, Tax Controversies....................................22
7.6 Confidentiality of Information..............................................22
ARTICLE 8 TRANSFERS OF INTERESTS...................................................22
8.1 Member Transfers............................................................22
8.2 Further Restrictions........................................................23
8.3 Effect of Transfer..........................................................24
8.4 Admissions, Withdrawals and Removals........................................24
8.5 Admission of Transferee as Substitute Member................................24
8.6 Vesting of Interests........................................................25
8.6.1 Vesting Schedule.....................................................25
8.6.2 Accelerated Vesting..................................................25
8.7 Repurchase Rights...........................................................25
8.7.1 Right to Repurchase..................................................25
8.7.2 Repurchase Price.....................................................25
8.7.3 Repurchase by the K&B Member.........................................25
8.7.4 Repurchase by the Company............................................25
8.7.5 Notice to the Holder of the Member's Interest........................25
8.7.6 Repurchase Closing...................................................26
8.7.7 Certain Restrictions.................................................26
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TABLE OF CONTENTS
(CONTINUED)
PAGE
ARTICLE 9 DISSOLUTION AND TERMINATION OF THE COMPANY...............................27
9.1 Limitations.................................................................27
9.2 Exclusive Causes............................................................27
9.3 Effect of Dissolution.......................................................28
9.4 Liquidation and Final Distribution Proceeds.................................28
9.5 Restoration of Deficit Capital Account Balances.............................28
ARTICLE 10 REPRESENTATIONS AND WARRANTIES...........................................29
10.1 Representations and Warranties of the Members...............................29
ARTICLE 11 MISCELLANEOUS............................................................30
11.1 Appointment of Company as Attorney-in-Fact..................................30
11.2 Amendments..................................................................31
11.3 Entire Agreement............................................................31
11.4 Further Assurances..........................................................31
11.5 Notices.....................................................................31
11.6 Governing Law...............................................................32
11.7 Binding Effect..............................................................32
11.8 Severability................................................................32
11.9 Confidentiality.............................................................32
11.10 Counterparts................................................................32
11.11 Waivers.....................................................................32
11.12 Preservation of Intent......................................................33
11.13 Certain Rules of Construction...............................................33
11.14 Company Advisers............................................................33
11.15 Arbitration.................................................................33
11.16 Determinations by the Manager...............................................34
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OPERATING AGREEMENT
OF
_____________, LLC
THIS OPERATING AGREEMENT (this "Agreement") of _____________, LLC (the
"Company"), is entered into by and among the Persons (each a "Member") listed in
Exhibit A hereto as of _________ __, 20__.
RECITALS
WHEREAS, the Members have caused the Company to be formed as a limited
liability company in accordance with the Delaware Limited Liability Company Act,
6 Del. C. Section 18-101, et seq.;
WHEREAS, the Members wish to adopt an operating agreement for the Company
to provide for (i) management of the Company by the Manager and (ii) various
other matters, all as more particularly described herein;
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
As used herein, the following terms have the meaning set forth below:
AAA Rules -- has the meaning specified in Section 11.15.
Acceleration Event -- means a Change in Control, a liquidation of the
Company pursuant to Section 9.2, sale of substantially all of the assets of the
Company for cash or, with respect to a particular Member, such Member's death or
Disability. In the event that the Company sells some but less than substantially
all of its assets for cash, an Acceleration Event shall be deemed to have
occurred with respect to a proportionate amount of a given Member's Interests.
For example, if the Company sells 50% of its assets for cash, 50% of each
Member's unvested Interest shall vest.
Act -- means the Delaware Limited Liability Company Act, 6 Del. C.
Section 18-101, et seq., in effect on the date hereof and as it may be amended
hereafter from time to time, and any successor statute thereto.
Additional Member -- means any Person admitted to the Company as a Member
pursuant to Section 3.2.
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Adjusted Capital Account Deficit -- means, with respect to any Member,
the deficit balance, if any, in such Member's Capital Account as of the end of
the relevant Fiscal Year, after giving effect to the following adjustments:
(a) decrease such deficit by any amounts which such Member is
obligated to restore pursuant to this Agreement or is deemed to be
obligated to restore pursuant to Regulation Section 1.704-1(b)(2)(ii)(c)
or the penultimate sentence of each of Regulation Sections 1.704-2(i)(5)
and 1.704-2(g)(1); and
(b) increase such deficit by the items described in Regulation
Section 1.704-1(b)(2)(ii)(d)(4), (5) and (6).
The foregoing definition of Adjusted Capital Account Deficit is intended to
comply with the provisions of Regulation Section 1.704-1(b)(2)(ii)(d) and shall
be interpreted consistently therewith.
Affiliate -- means, with respect to a specified Person, (a) any Person
that, directly or indirectly, through one or more intermediaries, controls, is
controlled by, or is under common control with, such specified Person, (b) any
Person that is an executive officer, general partner, manager or trustee of, or
serves in a similar capacity with respect to, such specified Person, or for
which such specified Person is an executive officer, general partner, manager or
trustee, or serves in a similar capacity, or (c) any member of the immediate
family of such specified Person.
Agreement -- has the meaning specified in the preamble hereto.
Available Securities -- has the meaning specified in Section 8.7.4.
Bankruptcy -- means the occurrence of any event specified in Section
18-304 of the Act.
Business Day -- means any weekday excluding any legal holiday observed
pursuant to federal or California state law or regulation.
Capital Account -- means the Capital Account maintained for each Member
on the Company's books and records as reasonably determined by the Manager
consistent with the following provisions:
(a) To each Member's Capital Account there shall be added (i) such
Member's Capital Contributions, (ii) such Member's allocable share of Net
Income and any items in the nature of income or gain that are specially
allocated to such Member pursuant to Article 5 or other provisions of
this Agreement, and (iii) the amount of any Company liabilities assumed
by such Member or which are secured by any property distributed to such
Member.
(b) From each Member's Capital Account there shall be subtracted
(i) the amount of (A) cash and (B) the Gross Asset Value of any Company
Assets (other than cash) distributed to such Member (other than any
payment of principal and/or interest to such Member pursuant to the terms
of a loan made by the Member to the Company) pursuant to any provision of
this Agreement, (ii) such Member's allocable share of Net
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Losses and any other items in the nature of expenses or losses that are
specially allocated to such Member pursuant to Article 5 or other
provisions of this Agreement, and (iii) liabilities of such Member
assumed by the Company or which are secured by any property contributed
by such Member to the Company.
(c) In the event any Interest is Transferred in accordance with
the terms of this Agreement, the transferee shall succeed to the Capital
Account of the transferor to the extent it relates to the Transferred
Interest.
(d) In determining the amount of any liability for purposes of
clauses (a) and (b) above, there shall be taken into account Code Section
752(c) and any other applicable provisions of the Code and Regulations.
(e) The foregoing provisions and the other provisions of this
Agreement relating to the maintenance of Capital Accounts are intended to
comply with Regulations Sections 1.704-1(b) and 1.704-2 and shall be
interpreted and applied in a manner consistent with such Regulations. In
the event that the Manager shall reasonably determine that it is prudent
to modify the manner in which the Capital Accounts, or any additions or
subtractions thereto, are computed in order to comply with such
Regulations, the Manager may cause the Company to make such modification.
The Manager shall also cause the Company to make (i) any adjustments that
are necessary or appropriate to maintain equality between the Capital
Accounts of the Members and the amount of Company capital reflected on
the Company's balance sheet, as computed for book purposes, in accordance
with Regulations Section 1.704-1(b)(2)(iv)(q), and (ii) any appropriate
modifications in the event that unanticipated events might otherwise
cause this Agreement not to comply with Regulations Sections 1.704-1(b)
and 1.704-2.
Capital Contribution -- means, with respect to any Member at any time,
the aggregate amount of cash and the initial Gross Asset Value of any property
(other than cash) contributed to the Company by such Member as of such time.
Cash Available for Distribution -- means cash of the Company available
for distribution to Members as determined in the sole and absolute discretion of
the Manager.
Certificate -- means the certificate of formation filed with the
Secretary of State of the State of Delaware pursuant to the Act to form the
Company, as originally executed and amended, modified, supplemented or restated
from time to time, as the context requires.
Certificate of Cancellation -- means a certificate filed in accordance
with 6 Del. C. Section 18-203.
Change in Control -- means either (1) individuals who, as of the
effective date of this Agreement, constitute the Board of Directors of Parent
(the "Board of Directors" generally and as of the date hereof the "Incumbent
Board") cease for any reason to constitute at least a majority of the directors
constituting the Board of Directors, provided that any person becoming a
director subsequent to the effective date of this Agreement whose election, or
nomination for election by Parent's shareholders, was approved by a vote of at
least three-quarters (3/4) of the then directors who are members of the
Incumbent Board (other than an election or nomination of an individual
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whose initial assumption of office is (i) in connection with the acquisition by
a third person, including a "group" as such term is used in Section 13(d)(3) of
the Securities Exchange Act of 1934, as amended (the "Securities Exchange Act"),
of beneficial ownership, directly or indirectly, of 20% or more of the combined
voting securities ordinarily having the right to vote for the election of
directors of Parent (unless such acquisition of beneficial ownership was
approved by a majority of the Board of Directors who are members of the
Incumbent Board), or (ii) in connection with an actual or threatened election
contest relating to the election of the directors of Parent, as such terms are
used in Rule 14a-11 of Regulation 14A promulgated under the Securities Exchange
Act) shall be, for purposes of this Agreement, considered as though such person
were a member of the Incumbent Board, or (2) the Board of Directors (a majority
of which shall consist of directors who are members of the Incumbent Board) has
determined that a Change in Control has occurred for purposes of this Agreement.
Code -- means the Internal Revenue Code of 1986, as previously or
hereafter amended.
Company Assets -- means all direct and indirect interests in real and
personal property owned by the Company from time to time, and shall include both
tangible and intangible property (including cash).
Company Minimum Gain -- has the same meaning as the term "Partnership
minimum gain" in Regulation Section 1.704-2(b)(2), and the amount of Company
Minimum Gain, as well as any net increase or decrease in Company Minimum Gain,
for a Fiscal Year shall be determined in accordance with the rules of Regulation
Section 1.704-2(d).
Depreciation -- means, for each Fiscal Year, an amount equal to the
depreciation, amortization, or other cost recovery deduction allowable with
respect to an asset for such Fiscal Year, except that if the Gross Asset Value
of an asset differs from its adjusted basis for federal income tax purposes at
the beginning of such Fiscal Year, Depreciation shall be an amount which bears
the same ratio to such beginning Gross Asset Value as the federal income tax
depreciation, amortization, or other cost recovery deduction for such Fiscal
Year bears to such beginning adjusted tax basis; provided, however, that if the
adjusted basis for federal income tax purposes of an asset at the beginning of
such Fiscal Year is zero, Depreciation shall be determined with reference to
such beginning Gross Asset Value using any reasonable method selected by the
Manager.
Disability -- means, in the case of a Member who has an employment
agreement with the Company or the K&B Group that includes a definition of
"Disability," the definition therein. Otherwise, Disability means, with respect
to an individual, any mental or physical illness or disability that renders such
individual unable to hold full-time employment for a period of 180 consecutive
days.
e.kb, inc. -- means e.kb, inc., a Delaware corporation.
Effective Date -- means the date first set forth hereof.
Encumbrance -- means a pledge, alienation, mortgage, hypothecation,
encumbrance or similar collateral assignment by any other means, whether for
value or no value and whether
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voluntary or involuntary (including, without limitation, by operation of law or
by judgment, levy, attachment, garnishment, bankruptcy or other legal or
equitable proceedings).
ERISA -- means Title I of the Employee Retirement Income Security Act of
1974, as previously or hereafter amended.
Fair Market Value --
(f) With respect to a specific Company asset, means the amount
that the Manager determines the Company would receive in an all-cash sale
of such asset in an arms-length transaction with an unaffiliated third
party consummated on the day immediately preceding the date on which the
event occurred which necessitated the determination of the Fair Market
Value (and after giving effect to any transfer taxes payable in
connection with such sale).
(g) With respect to the Company, means the amount that the Manager
determines the Company would receive in an all-cash sale of all of its
assets and businesses as a going concern in an arms-length transaction
with an unaffiliated third party consummated on the day immediately
preceding the date on which the event occurred which necessitated the
determination of the Fair Market Value.
(h) After the Manager determines the Fair Market Value of the
Company as provided above, the Manager will determine the Fair Market
Value of an Interest by making a calculation reflecting the cash
distributions which would be made to the Members in accordance with this
Agreement if the Company were deemed to have received such Fair Market
Value in cash and then distributed the same to the Members in accordance
with the terms of this Agreement incident to the liquidation of the
Company after payment to all of the Company's creditors from such cash
receipts.
(d) Notwithstanding paragraph (c) above, unless substantially all
of the Company's assets are marketable securities, a Manager's
determination of Fair Market Value of an Interest in connection with a
repurchase of such Interest pursuant to Section 8.7 shall be made in good
faith based on a valuation of such Interest by ▇▇▇▇▇▇▇ ▇▇▇▇▇ or a
comparable firm (a "Valuation Firm") in accordance with this paragraph
(d). In performing its valuation, the Valuation Firm shall first
determine the amount the Company would receive in an all-cash sale of all
of its assets and businesses as a going concern in an arms-length
transaction with an unaffiliated third party consummated on the day
immediately preceding the date on which the event occurred which
necessitated the determination of the Fair Market Value. The Valuation
Firm shall then determine the Fair Market Value of an Interest by making
a calculation reflecting the cash distributions which would be made to
the Member that holds the Interest being valued in accordance with this
Agreement if the Company were deemed to have received such Fair Market
Value in cash and then distributed the same to the Members in accordance
with the terms of this Agreement incident to the liquidation of the
Company after payment to all of the Company's creditors from such cash
receipts. If substantially all of the Company's assets are marketable
securities, a Manager's determination of Fair Market Value of an Interest
in connection with a repurchase of such Interest pursuant to Section 8.7
shall be made in
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good faith based on the average of the closing prices of the sales of
such securities on all securities exchanges that such securities are
listed over the twenty business days preceding the date on which the
event occurred which necessitated the determination of the Fair Market
Value.
Fiscal Quarter -- means each calendar quarter ending February 28
(February 29 in the case of a leap year), May 31, August 31 and November 30.
Fiscal Year -- means (i) the period commencing on the Effective Date and
ending on November 30, 2000, (ii) any subsequent twelve-month period commencing
on December 1 and ending on November 30, and (iii) the period commencing on the
immediately preceding December 1 and ending on the date on which all Company
Assets are distributed to the Members pursuant to Article 9 hereof.
Gross Asset Value -- means, with respect to any asset, the asset's
adjusted basis for federal income tax purposes, except as follows:
(i) The initial Gross Asset Value of any asset contributed by a
Member to the Company shall be the gross fair market value of such asset,
as determined by the Manager and the contributing Member.
(j) The Gross Asset Values of all Company Assets immediately prior
to the occurrence of any event described in subsections (i) through (iv)
hereof shall be adjusted to equal their respective gross fair market
values, as determined by the Manager using such method of valuation as it
may adopt in its reasonable discretion as of the following times:
(i) the acquisition of an interest in the Company by a new
or existing Member, if the Manager determines that such adjustment
is necessary or appropriate to reflect the relative economic
interests of the Members in the Company;
(ii) the distribution by the Company to a Member of more
than a de minimis amount of Company Assets as consideration for an
interest in the Company, if the Manager determines that such
adjustment is necessary or appropriate to reflect the relative
economic interests of the Members in the Company;
(iii) the liquidation of the Company within the meaning of
Regulation Section 1.704-1(b)(2)(ii)(g); and
(iv) at such other times as the Manager shall determine
necessary or advisable in order to comply with Regulation Sections
1.704-1(b) and 1.704-2, or otherwise.
(k) The Gross Asset Value of any Company Asset distributed to a
Member shall be the gross fair market value of such asset on the date of
distribution as determined by the Manager.
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(l) The Gross Asset Values of Company Assets shall be increased
(or decreased) to reflect any adjustments to the adjusted basis of such
assets pursuant to Code Section 734(b) or Code Section 743(b), but only
to the extent that such adjustments are taken into account in determining
Capital Accounts pursuant to Regulation Section 1.704-1(b)(2)(iv)(m);
provided, however, that Gross Asset Values shall not be adjusted pursuant
to this subparagraph (d) to the extent that the Manager determines that
an adjustment pursuant to subparagraph (b) is necessary or appropriate in
connection with a transaction that would otherwise result in an
adjustment pursuant to this subparagraph (d).
If the Gross Asset Value of an asset has been determined or adjusted
pursuant to subparagraph (b) or (d), such Gross Asset Value shall thereafter be
adjusted by the Depreciation taken into account with respect to such asset, for
purposes of computing Net Income and Net Losses.
Incapacity -- means the entry of an order of incompetence or of insanity,
or the death, dissolution, Bankruptcy or termination (other than by merger or
consolidation) of any Person.
Investment Advisers Act -- means the Investment Advisers Act of 1940, as
previously or hereafter amended.
Investment Company Act -- means the Investment Company Act of 1940, as
previously or hereafter amended.
K&B Group -- means Parent and its Affiliates.
K&B Member -- means __________
K&B Member Election -- has the meaning specified in Section 8.7.3.
Majority in Interest -- means, at any time, Members whose combined
Percentage Interest is greater than fifty percent (50%) or, in the case of a
particular class of Members, Members of such class whose combined Percentage
Interest is greater than fifty percent (50%) of the Percentage Interests held by
all Members of such class.
Manager -- means e.kb, inc. or any successor Manager selected in
accordance with this Agreement.
Member -- has the meaning specified in the preamble hereto.
Member Nonrecourse Debt -- has the same meaning as the term "Partner
nonrecourse debt" in Section 1.704-2(b)(4) of the Regulations.
Member Nonrecourse Debt Minimum Gain -- means an amount, with respect to
each Member Nonrecourse Debt, equal to the Company Minimum Gain that would
result if such Member Nonrecourse Debt were treated as a Nonrecourse Liability,
determined in accordance with Section 1.704-2(i)(3) of the Regulations.
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Member Nonrecourse Deductions -- has the same meaning as the term
"Partner nonrecourse deductions" in Sections 1.704-2(i)(1) and 1.704-2(i)(2) of
the Regulations.
Membership Interest or Interest -- means the entire ownership interest of
a Member in the Company at any particular time, including without limitation,
such Member's right to share in Net Income, Net Loss, or similar items of, and
to receive distributions from, the Company, any and all rights to vote, and the
rights to any and all benefits to which such Member is entitled as provided in
this Agreement, together with the obligations of such Member to comply with all
of the terms and provisions of this Agreement.
Net Income or Net Loss -- means, for each Fiscal Year or other period, an
amount equal to the Company's taxable income or loss for such Fiscal Year,
determined in accordance with Code Section 703(a) (for this purpose, all items
of income, gain, loss or deduction required to be stated separately pursuant to
Code Section 703(a)(1) shall be included in taxable income or loss), with the
following adjustments:
(m) Any income of the Company that is exempt from federal income
tax and not otherwise taken into account in computing Net Income or Net
Loss pursuant to this definition of Net Income or Net Loss shall be added
to such taxable income or loss;
(n) Any expenditures of the Company described in Code Section
705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures
pursuant to Regulation Section 1.704-1(b)(2)(iv)(i), and not otherwise
taken into account in computing Net Income or Net Loss pursuant to this
definition of Net Income or Net Loss shall be subtracted from such
taxable income or loss;
(o) In the event the Gross Asset Value of any Company Asset is
adjusted pursuant to the definition of Gross Asset Value, the amount of
such adjustment shall be taken into account as gain or loss from the
disposition of such asset for purposes of computing Net Income or Net
Loss;
(p) Gain or loss resulting from any disposition of property with
respect to which gain or loss is recognized for federal income tax
purposes shall be computed by reference to the Gross Asset Value of the
property disposed of, notwithstanding that the adjusted tax basis of such
property differs from its Gross Asset Value;
(q) In lieu of the depreciation, amortization, and other cost
recovery deductions taken into account in computing such taxable income
or loss, there shall be taken into account Depreciation for such Fiscal
Year, computed in accordance with the definition of Depreciation;
(r) To the extent an adjustment to the adjusted tax basis of any
Company Asset pursuant to Code Section 734(b) or Code Section 743(b) is
required pursuant to Regulation Section 1.704-1(b)(2)(iv)(m)(4) to be
taken into account in determining Capital Accounts as a result of a
distribution other than in liquidation of a Member's interest in the
Company, the amount of such adjustment shall be treated as an item of
gain (if the adjustment increases the basis of the asset) or loss (if the
adjustment
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decreases the basis of the asset) from the disposition of the asset and
shall be taken into account for purposes of computing Net Income or Net
Loss; and
(s) Notwithstanding any other provision of this definition of Net
Income or Net Loss, any items which are specially allocated pursuant to
Section 5.3 hereof shall not be taken into account in computing Net
Income or Net Loss. The amounts of the items of Company income, gain,
loss or deduction available to be specially allocated pursuant to Section
5.3 hereof shall be determined by applying rules analogous to those set
forth in this definition of Net Income or Net Loss.
Nonrecourse Deductions -- has the meaning set forth in Regulation
Sections 1.704-2(b)(1) and 1.704-2(c).
Nonrecourse Liability -- has the meaning set forth in Regulation Sections
1.704-2(b)(3) and 1.752-1(a)(2).
Parent -- means KB HOME, a Delaware corporation.
Percentage Interest -- means, with respect to any Member, the Percentage
Interest listed for such Member on Exhibit A hereto, as such Percentage Interest
may be adjusted from time to time pursuant to this Agreement. The aggregate
Percentage Interests of the Members shall at all times total to one hundred
percent (100%).
Person -- means and includes an individual, a partnership, a limited
liability company, a joint venture, a corporation, a trust, an unincorporated
organization, a government or any department or agency thereof or any entity
similar to any of the foregoing.
Prime Rate -- means the prime rate listed from time to time in The Wall
Street Journal (which listing appears as of the date hereof under the caption
"Money Rates") or, if such listing is no longer published, then the reference
rate offered at such time by Bankers Trust New York Corporation.
Records -- has the meaning specified in Section 7.1.
Regulations -- means temporary and final regulations promulgated under
the Code, as such regulations may be amended from time to time (including
corresponding provisions of succeeding regulations).
Regulatory Allocations -- has the meaning specified in Section 5.3.7.
Repurchase Closing -- has the meaning specified in Section 8.7.5.
Repurchase Notice -- has the meaning specified in Section 8.7.5.
Repurchase Option -- has the meaning specified in Section 8.7.1.
Securities Act -- has the meaning specified in Section 10.1(c).
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14
Subordinated Note -- has the meaning specified in Section 8.7.7.
Substitute Member -- means any Person (a) to whom a Member (or Transferee
thereof) Transfers all or any part of its Interest, and (b) which has been
admitted to the Company as a Substitute Member pursuant to Section 8.5 of this
Agreement.
Transfer -- means, with respect to any Interest in the Company, a sale,
transfer, assignment, gift, bequest or disposition by any other means (other
than an Encumbrance), whether for value or no value and whether voluntary or
involuntary (including, without limitation, by realization upon any Encumbrance
or by operation of law or by judgment, levy, attachment, garnishment, bankruptcy
or other legal or equitable proceedings), whether accomplished directly or in a
series of steps designed to achieve such result indirectly.
Transferee -- means a recipient of an Interest in the Company by way of
Transfer.
Unreturned Capital -- means, with respect to a Member, an amount equal to
the excess, if any, of (a) the aggregate amount of Capital Contributions made by
or for such Member, over (b) the aggregate amount of prior distributions made by
the Company to such Member that constitute a return of such Capital
Contributions pursuant to Section 4.1(a), Section 4.3 or Section 9.4(b).
ARTICLE 2
ORGANIZATIONAL MATTERS
2.1 Formation. The Members have formed the Company as a limited liability
company under the Act and for the purposes and upon the terms and conditions
hereinafter set forth. The rights and liabilities of the Members shall be as
provided in the Act, except as otherwise expressly provided herein. In the event
of any inconsistency between any terms and conditions contained in this
Agreement and any nonmandatory provisions of the Act, the terms and conditions
contained in this Agreement shall govern.
2.2 Name. The name of the Company is _____________, LLC. The Company may
also conduct business at the same time under one or more fictitious names if the
Manager determines that it is in the best interests of the Company to do so. The
Manager may change the name of the Company from time to time, in accordance with
applicable law.
2.3 Principal Place of Business; Other Places of Business. The principal
place of business of the Company is located at
___________________________________________, or such other place within or
outside the State of Delaware as the Manager may from time to time designate.
The Company may maintain offices and places of business at such other place or
places within or outside the State of Delaware as the Manager deems advisable.
2.4 Business Purpose. The Company is being formed for the purpose of
engaging in any lawful business determined by the Manager and permitted by the
Act.
2.5 Certificate of Formation; Filing. The Members have caused the
Certificate to be filed in the Office of the Secretary of State of the State of
Delaware as required by the Act. The Manager may approve and cause to be
executed and filed any duly authorized amendments to the
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Certificate from time to time in a form prescribed by the Act. The Manager shall
also cause to be made, on behalf of the Company, such additional filings and
recordings as the Manager shall deem necessary or advisable.
2.6 Designated Agent for Service of Process. So long as is required by
the Act, the Company shall continuously maintain a registered office and a
designated and duly qualified agent for service of process on the Company in the
State of Delaware. As of the date of this Agreement, the name and address of the
Company's designated agent and registered office in the State of Delaware is
[Corporation Service Company, ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇.]
2.7 Term. The Company commenced on the date that the Certificate was
filed with the Office of the Secretary of State of the State of Delaware, and
shall continue until the first to occur of any of the events enumerated in
Section 9.2.
ARTICLE 3
CAPITAL CONTRIBUTIONS; ADDITIONAL INTERESTS; CAPITAL ACCOUNTS
3.1 Capital Contributions. The Capital Contributions of the Members and
the Percentage Interests of the Members are set forth on Exhibit A hereto, and
shall be reflected in a register maintained by the Company. The Company shall
update such register to reflect the admission of Additional Members pursuant to
Section 3.2, and Substitute Members pursuant to Section 8.5, as well as to
reflect the issuance of other Interests or any changes in the Members'
respective Interests pursuant to the terms of this Agreement. Any reduction in a
Member's Interest initially issued in a compensatory transaction, whether
pursuant to a redemption, withdrawal or otherwise, shall increase the Interest
of the Member or Members initially diluted by the issuance of such Interest, as
determined by the Manager. Except as otherwise required by law or pursuant to
Section 3.1, no Member shall be required or, except as determined by the Manager
in its sole and absolute discretion, be permitted, to make any additional
Capital Contributions to the Company.
3.2 Additional Interests. Except as otherwise provided in this Agreement
(and subject to Section 11.2 relating to amendments of this Agreement), the
Company may issue additional Interests with such characteristics, at such times,
on such terms, and to such Persons as the Manager determines to be in the best
interests of the Company without obtaining the consent of any other Member, and
any such additional issuance will dilute only the K&B Member. The Company shall
admit the recipient(s) of any such additional Interests as additional Members
("Additional Members") of the Company.
3.3 Capital Accounts. A single Capital Account shall be established and
maintained for each Member in accordance with the terms of this Agreement.
3.4 Member Capital. Except as otherwise provided in this Agreement: (a)
no Member shall demand or be entitled to receive a return of or interest on its
Capital Contributions or Capital Account and (b) no Member shall withdraw any
portion of its Capital Contributions or be entitled to receive any distributions
from the Company as a return of capital on account of such Capital
Contributions.
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16
3.5 Member Loans. No Member shall be required or, except with the consent
of the Manager, be permitted to make any loans or otherwise lend any funds to
the Company. Notwithstanding the foregoing, any Member shall be permitted (but
not required) to make loans to, act as surety or endorser for, assume one or
more specific obligations of, provide collateral for, or enter into other
similar credit, guarantee, financing or refinancing arrangements with, the
Company for any purpose, to the extent the Manager reasonably determines that
such loans are necessary or advisable for the business of the Company, provided
that any loans made to the Company by a Member shall be on terms no less
favorable to the Company than can be received from third parties under similar
circumstances. No loans made by any Member to the Company shall have any effect
on such Member's Percentage Interest, such loans representing a debt of the
Company payable or collectible solely from the assets of the Company in
accordance with the terms and conditions upon which such loans were made.
3.6 Loans by Third Parties. Without limiting Article 6, the Company, and
the Manager on behalf of the Company, may borrow funds or enter into other
similar credit, guarantee, financing or refinancing arrangements for any
purpose.
3.7 Limited Liability of the Members. Notwithstanding anything to the
contrary contained in this Agreement and except as otherwise required by law
(including, without limitation, Section 18-607 of the Act), the liability of a
Member for any losses of the Company in no event shall exceed, in the aggregate:
(i) the amount of its Capital Contribution and (ii) its share of undistributed
assets and profits of the Company.
ARTICLE 4
DISTRIBUTIONS
4.1 Distributions Generally. Subject to Section 4.3, the timing and
amount of any distribution shall be in the sole and absolute discretion of the
Manager. Except as otherwise provided in Article 9 hereof relating to
liquidating distributions, any such distribution shall be distributed to the
Members in the following order of priority:
(a) First, to the Members pro rata in proportion to their
Unreturned Capital until the Unreturned Capital of each Member has been
reduced to zero;
(b) Second, the balance, if any, to the Members in accordance with
their Percentage Interests.
4.2 Withholding. The Company may withhold distributions or portions
thereof if it is required to do so by any applicable rule, regulation, or law.
Each Member hereby authorizes the Company to withhold from or pay on behalf of
or with respect to such Member any amount of federal, state, local or foreign
taxes that the Manager determines that the Company is required to withhold or
pay with respect to any amount distributable to such Member pursuant to this
Agreement, or upon the exercise of any option issued by the Company with respect
to Membership Interests. Any amounts so withheld or paid on behalf of or with
respect to a Member pursuant to this Section 4.2 shall be deemed to have been
distributed to such Member. To the extent that the cumulative amount of such
withholding for any period exceeds the distributions to which such Member is
entitled for such period, the amount of such excess shall
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17
be considered a loan from the Company to such Member, with interest at the Prime
Rate, until discharged by such Member by repayment, which may, at the option of
the Manager, be satisfied (i) out of distributions to which such Member would
otherwise be subsequently entitled, or (ii) by the immediate payment in cash to
the Company of such excess amount. The Manager, on behalf of the Company, shall
be entitled to take any other action it determines to be necessary or
appropriate in connection with any obligation or possible obligation to impose
withholding pursuant to any tax law or to pay any tax with respect to a Member.
Each Member hereby unconditionally and irrevocably grants to the Company a
security interest in such Member's Interest to secure such Member's obligation
to pay to the Company any amounts required to be paid pursuant to this Section
4.2. Each Member shall take such actions as the Company shall request in order
to perfect or enforce the security interest created hereunder. Each Member's
obligations hereunder shall survive the dissolution, liquidation or winding up
of the Company.
4.3 Minimum Distribution. To the extent of Cash Available for
Distribution, the Company shall distribute to each Member, within ninety (90)
days after the close of each Fiscal Year, pursuant to Section 4.1 and/or this
Section 4.3, at least an amount equal to forty percent (40%) of the excess, if
any, of the federal taxable income and gain allocated to such Member for such
Fiscal Year over the losses and deductions allocated to such Member for such
Fiscal Year, in each case pursuant to Article 5; provided, however, that the
minimum distribution required to be made to a Member pursuant to this Section
4.3 shall not exceed on a cumulative basis, forty percent (40%) of the excess,
if any, of the federal taxable income and gain allocated to such Member for such
Fiscal Year and all prior Fiscal Years, over the losses and deductions allocated
to such Member for such Fiscal Year and all prior Fiscal Years, in each case
pursuant to Article 5; provided, further, that the Manager may increase or
decrease the forty percent (40%) rate applied for purposes of this Section 4.3,
to the extent that it reasonably determines that an increased or decreased rate
is appropriate, including without limitation as a result of any change in
prevailing federal income tax rates.
4.4 Distributions In Kind. In the event that the Manager determines in
its sole and absolute discretion to distribute property in kind, such property
shall be deemed to be an amount of cash in an amount equal to the Fair Market
Value of such property and shall be distributed in accordance with Section 4.1.
ARTICLE 5
ALLOCATIONS OF NET INCOME AND NET LOSSES
It is the overriding intent of this Article 5 that Net Profits, Net
Losses and other items of Company income, gain, loss and deduction shall be
allocated to the Members' Capital Accounts in such a manner that all cash or
other assets distributed by the Company to the Members, including without
limitation any cash or other assets distributable to the Members upon the
liquidation of the Company in accordance with the Members' positive Capital
Account balances, shall be distributed in accordance with the priority for cash
distributions described in Section 4.1 of this Agreement. All provisions of this
Article 5 shall be interpreted, and if necessary shall be modified by the
Manager, to achieve this result.
5.1 Net Losses.
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5.1.1 General. After giving effect to the special allocations set
forth in Section 5.3, and subject to the loss limitation set forth in
Section 5.1.2, Net Losses for any Fiscal Year shall be allocated to the
Members pro rata in accordance with their Percentage Interests.
5.1.2 Loss Limitation. Notwithstanding Sections 5.1.1 and 5.3.7
hereof, no Net Losses or items of loss or deduction shall be allocated to
a Member to the extent that such allocation would create or increase an
Adjusted Capital Account Deficit with respect to such Member, and such
Net Losses or items of loss or deduction shall instead be allocated to
the other Members pro rata in proportion to their Percentage Interests,
subject to the limitations of this Section 5.1.2.
5.2 Net Income. After giving effect to the special allocations set forth
in Section 5.3, Net Income for any Fiscal Year shall be allocated as follows:
(a) First, to each Member until the aggregate Net Income allocated
to the Member pursuant to this Section 5.2(a) for such Fiscal Year and
all prior Fiscal Years is equal to the aggregate Net Losses allocated to
the Member pursuant to Section 5.1.2 for all prior Fiscal Years; and
(b) The balance, if any, to the Members pro rata in accordance
with their Percentage Interests.
5.3 Special Allocations. Notwithstanding the foregoing provisions of this
Article 5, the following special allocations shall be made in the following
order of priority:
5.3.1 Minimum Gain Chargeback. If there is a net decrease in
Company Minimum Gain during a Fiscal Year, then each Member shall be
allocated items of Company income and gain for such Fiscal Year (and, if
necessary, for subsequent years) in an amount equal to such Member's
share of the net decrease in Company Minimum Gain, determined in
accordance with Regulations Section 1.704-2(g)(2). This Section 5.3.1 is
intended to comply with the minimum gain chargeback requirement of
Regulations Section 1.704-2(f) and shall be interpreted consistently
therewith.
5.3.2 Member Minimum Gain Chargeback. If there is a net decrease
in Member Minimum Gain attributable to a Member Nonrecourse Debt during
any Fiscal Year, each Member who has a share of the Member Minimum Gain
attributable to such Member Nonrecourse Debt, determined in accordance
with Regulations Section 1.704-2(i)(5), shall be specially allocated
items of Company income and gain for such Fiscal Year (and, if necessary,
subsequent years) in an amount equal to such Member's share of the net
decrease in Member Minimum Gain attributable to such Member Nonrecourse
Debt, determined in a manner consistent with the provisions of
Regulations Section 1.704-2(g)(2). This Section 5.3.2 is intended to
comply with the partner nonrecourse debt minimum gain chargeback
requirement of Regulations Section 1.704-2(i)(4) and shall be interpreted
consistently therewith.
5.3.3 Qualified Income Offset. If any Member unexpectedly receives
an adjustment, allocation, or distribution of the type contemplated by
Regulations Section
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1.704-1(b)(2)(ii)(d)(4), (5) or (6), items of income and gain shall be
allocated to all such Members (in proportion to the amounts of their
respective Adjusted Capital Account Deficits) in an amount and manner
sufficient to eliminate the Adjusted Capital Account Deficit of such
Member as quickly as possible. It is intended that this Section 5.3.3
qualify and be construed as a "qualified income offset" within the
meaning of Regulations Section 1.704-1(b)(2)(ii)(d).
5.3.4 Gross Income Allocation. In the event any Member has a
deficit Capital Account at the end of any Allocation Year which is in
excess of the sum of (i) the amount such Member is obligated to restore
pursuant to the penultimate sentences of Regulations Sections
1.704-2(g)(1) and 1.704-2(i)(5), each such Member shall be specially
allocated items of Company income and gain in the amount of such excess
as quickly as possible, provided that an allocation pursuant to this
Section 5.3.4 shall be made only if and to the extent that such Member
would have a deficit Capital Account in excess of such sum after all
other allocations provided for in this Article 5 have been made as if
Section 5.3.3 and this Section 5.3.4 were not in the Agreement.
5.3.5 Section 754 Adjustment. To the extent that an adjustment to
the adjusted tax basis of any Company Asset pursuant to Code Section
734(b) or Code Section 743(b) is required, pursuant to Regulations
Section 1.704-1(b)(2)(iv)(m)(2) or Regulations Section
1.704-1(b)(2)(iv)(m)(4), to be taken into account in determining Capital
Accounts as the result of a distribution to a Member in complete
liquidation of its Interest in the Company, the amount of such adjustment
to the Capital Accounts shall be treated as an item of gain (if the
adjustment increases the basis of the asset) or loss (if the adjustment
decreases such basis), and such gain or loss shall be specially allocated
to the Members in accordance with their interests in the Company in the
event that Regulations Section 1.704-1(b)(2)(iv)(m)(2) applies, or to the
Members to whom such distribution was made in the event that Regulations
Section 1.704-1(b)(2)(iv)(m)(4) applies.
5.3.6 Nonrecourse Deductions and Member Nonrecourse Deductions.
The Nonrecourse Deductions for each Fiscal Year shall be allocated to the
Members pro rata in proportion to their Percentage Interests. The Member
Nonrecourse Deductions for each Fiscal Year shall be allocated to the
Member that bears the economic risk of loss (within the meaning of
Regulations Section 1.752-2) for the Member Nonrecourse Debt to which
such Member Nonrecourse Deductions are attributable.
5.3.7 Curative Allocations. The allocations set forth in Sections
5.3.1, 5.3.2, 5.3.3, 5.3.4, 5.3.5 and 5.3.6 (the "Regulatory
Allocations") are intended to comply with certain requirements of the
Regulations. It is the intent of the Members that, to the extent
possible, all Regulatory Allocations shall be offset either with other
Regulatory Allocations or with special allocations of other items of
Company income, gain, loss or deduction pursuant to this Section 5.3.7.
Therefore, notwithstanding any other provision of this Article 5 (other
than the Regulatory Allocations), the Manager shall make such offsetting
special allocations of Company income, gain, loss or deduction in
whatever manner it determines appropriate so that, after such offsetting
allocations are made, each Member's Capital Account balance is, to the
extent possible, equal to the Capital Account balance such Member would
have had if the Regulatory Allocations were not
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part of the Agreement. In making its determination of the appropriate
offsetting allocations, the Manager shall take into account future
Regulatory Allocations under Sections 5.3.1 and 5.3.2 that, although not
yet made, are likely to offset other Regulatory Allocations previously
made under Section 5.3.6.
5.4 Tax Allocations.
5.4.1 Except as provided in Section 5.4.2 hereof, for federal,
state and local income tax purposes, each Company item of income, gain,
loss and deduction shall be allocated among the Members as its
correlative item of "book" income, gain, loss or deduction is allocated
pursuant to this Article 5.
5.4.2 Tax items with respect to Company Assets that are
contributed to the Company with a Gross Asset Value that varies from its
basis in the hands of the contributing Member immediately preceding the
date of contribution shall be allocated between the Members for income
tax purposes pursuant to Regulations promulgated under Code Section
704(c) so as to take into account such variation. The Company shall
account for such variation under any method approved under Code Section
704(c) and the applicable Regulations as chosen by the Manager,
including, without limitation, the "traditional method" as described in
Regulations Section 1.704-3(b). If the Gross Asset Value of any Company
Asset is adjusted pursuant to the definition of "Gross Asset Value,"
subsequent allocations of income, gain, loss and deduction with respect
to such Company Asset shall take account of any variation between the
adjusted basis of such Company Asset for federal income tax purposes and
its Gross Asset Value in the same manner as under Code Section 704(c) and
the Regulations promulgated thereunder under any method approved under
Code Section 704(c) and the applicable Regulations as chosen by the
Manager. Allocations pursuant to this Section 5.4.2 are solely for
purposes of federal, state and local taxes and shall not affect, or in
any way be taken into account in computing, any Member's Capital Account
or share of Net Income, Net Losses and any other items or distributions
pursuant to any provision of this Agreement.
5.5 Other Provisions.
5.5.1 For any Fiscal Year during which a Membership Interest (or
any part thereof) is Transferred between the Members or to another
Person, the portion of the Net Income, Net Losses and other items of
income, gain, loss, deduction and credit that are allocable with respect
to such Membership Interest (or part thereof) shall be apportioned
between the transferor and the transferee under any method allowed
pursuant to Section 706 of the Code and the applicable Regulations as
determined by the Manager.
5.5.2 In the event the Manager determines that the Code or any
Regulations require allocations of items of income, gain, loss, deduction
or credit different from those set forth in this Article 5, the Manager
is hereby authorized to make new allocations in reliance on the Code and
such Regulations (provided that such allocations shall require the
consent of any Member whose right to receive distributions pursuant to
Article 4 is likely to be materially and adversely affected), and no such
new allocation shall give rise to any claim or cause of action by any
Member.
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5.5.3 The Company's "excess nonrecourse liabilities" within the
meaning of Regulations Section 1.752-3(a)(3) shall be allocated to the
Members pro rata in proportion to their Percentage Interests.
5.5.4 The Members acknowledge and are aware of the income tax
consequences of the allocations made by this Article 5 and hereby agree
to be bound by the provisions of this Article 5 in reporting their shares
of Net Income, Net Losses, and other items of income, gain, loss,
deduction, and credit for federal, state, and local income tax purposes.
ARTICLE 6
VOTING AND MANAGEMENT
6.1 Manager Powers. Except as otherwise expressly provided in this
Agreement, all powers to control and manage the business and affairs of the
Company shall be exclusively vested in the Manager and the Manager may exercise
all powers of the Company and do all such lawful acts as are not by statute, the
Certificate or this Agreement directed or required to be exercised or done by
the Members and in so doing shall have the right and authority to take all
actions which the Manager deems necessary, useful or appropriate for the
management and conduct of the Company's business, including, without limitation,
the following specific rights and powers:
(a) Conduct its business, carry on its operations and have and
exercise the powers granted by the Act in any state, territory, district
or possession of the United States, or in any foreign country which may
be necessary or convenient to effect any or all of the purposes for which
it is organized;
(b) Acquire by purchase, lease, or otherwise any real or personal
property which may be necessary, convenient, or incidental to the
accomplishment of the purposes of the Company;
(c) Operate, maintain, finance, improve, construct, own, grant
operations with respect to, sell, convey, assign, mortgage, and lease any
real estate and any personal property necessary, convenient, or
incidental to the accomplishment of the purposes of the Company;
(d) Execute any and all agreements, contracts, documents,
certifications, and instruments necessary or convenient in connection
with the management, maintenance, and operation of the Company's
business, or in connection with managing the affairs of the Company,
including, executing amendments to this Agreement and the Certificate in
accordance with the terms of this Agreement, both as the Manager and, if
required, as attorney-in-fact for the Members pursuant to any power of
attorney granted by the Members to the Manager;
(e) Borrow money and issue evidences of indebtedness necessary,
convenient, or incidental to the accomplishment of the purposes of the
Company, and secure the same by mortgage, pledge, or other lien on any
Company Assets;
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(f) Execute, in furtherance of any or all of the purposes of the
Company, any deed, lease, mortgage, deed of trust, mortgage note,
promissory note, ▇▇▇▇ of sale, contract, or other instrument purporting
to convey or encumber any or all of the Company Assets;
(g) Prepay in whole or in part, refinance, recast, increase,
modify, or extend any liabilities affecting the assets of the Company and
in connection therewith execute any extensions or renewals of
encumbrances on any or all of such assets;
(h) Care for and distribute funds to the Members by way of cash
income, return of capital, or otherwise, all in accordance with the
provisions of this Agreement, and perform all matters in furtherance of
the objectives of the Company or this Agreement;
(i) Contract on behalf of the Company for the employment and
services or employees and/or independent contractors, such as lawyers and
accountants, and delegate to such Persons the duty to manage or supervise
any of the assets or operations of the Company;
(j) Engage in any kind of activity and perform and carry out
contracts of any kind (including contracts of insurance covering risks to
Company Assets and liability of the Manager) necessary or incidental to,
or in connection with, the accomplishment of the purposes of the Company,
as may be lawfully carried on or performed by a limited liability company
under the laws of each state in which the Company is then formed or
qualified;
(k) Take, or refrain from taking, all actions, not expressly
proscribed or limited by this Agreement, as may be necessary or
appropriate to accomplish the purposes of the Company;
(l) Institute, prosecute, defend, settle, compromise, and dismiss
lawsuits or other judicial or administrative proceedings brought on or in
behalf of, or against, the Company, the Members or the Manager in
connection with activities arising out of, connected with, or incidental
to this Agreement, and to engage counsel or others in connection
therewith;
(m) Adopt appropriate management incentive plans and employee
benefit plans.
(n) Purchase, take, receive, subscribe for or otherwise acquire,
own, hold, vote, use, employ, sell, mortgage, lend, pledge, or otherwise
dispose of, and otherwise use and deal in and with, shares or other
interests in or obligations of domestic or foreign corporations,
associations, general or limited companies, other limited liability
companies, or individuals or direct or indirect obligations of the United
States or of any government, state, territory, government district or
municipality or of any instrumentality of any of them.
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6.2 Officers; Delegation of Authority. The Manager shall be entitled to
appoint the officers of the Company. The Manager shall have the power to
delegate authority to such officers, employees, agents and representatives of
the Company as it may from time to time deem appropriate. Any delegation of
authority to take any action must be approved in the same manner as would be
required for the Manager to approve such action directly.
6.3 Duties and Obligations; Liability.
6.3.1 Continuation of Existence. The Manager shall take all
actions which may be necessary or appropriate (i) for the continuation of
the Company's valid existence as a limited liability company under the
laws of the State of Delaware and of each other jurisdiction in which
such existence is necessary to protect the limited liability of the
Members or to enable the Company to conduct the business in which it is
engaged and (ii) for the accomplishment of the Company's purposes,
including the acquisition, development, maintenance, preservation, and
operation of the Company Assets in accordance with the provisions of this
Agreement and applicable laws and regulations.
6.3.2 Limitation of Liability. No Member or Manager shall be
liable under a judgment, decree or order of court, or in any other
manner, for a debt, obligation or liability of the Company. No Member or
Manager or officer of the Company shall be personally liable to the
Company or to any Member for monetary damages for breach of fiduciary
duty as a Member or Manager or officer of the Company; provided, however,
that this section shall not eliminate or limit the liability of the
Manager (i) for any breach of the Manager's duty of loyalty to the
Company or its Members; (ii) for acts or omissions not in good faith or
which involve intentional misconduct or knowing violation of law; or
(iii) for any transaction from which the Manager derived an improper
personal benefit.
6.4 Reimbursements. The Company shall reimburse the Members and the
Manager for all expenses incurred and paid by any of them in the organization of
the Company and as authorized by the Company, in the conduct of the Company's
business, including, but not limited to, expenses of maintaining an office,
telephones, travel, office equipment and secretarial and other personnel as may
reasonably be attributable to the Company. Such expenses shall not include any
expenses incurred in connection with a Member's exercise of its rights as a
Member apart from the authorized conduct of the Company's business. Such
reimbursement shall be treated as expenses of the Company and shall not be
deemed to constitute distributions to any Member of profit, loss or capital of
the Company.
6.5 Indemnification.
6.5.1 Indemnification - Actions other than by the Company. The
Company shall indemnify any person who was or is a party or is threatened
to be made a party to any threatened, pending or completed action, suit
or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the Company) by reason of the
fact that the person is or was the Manager or a Member of the Company, or
is or was the Manager or a Member of the Company serving at the request
of the Company as a director, officer, manager, employee or agent of
another corporation,
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partnership, joint venture, limited liability company or other
enterprise, against expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by
the person in connection with such action, suit or proceeding if the
person acted in good faith and in a manner the person reasonably believed
to be in or not opposed to the best interests of the Company and, with
respect to any criminal action or proceeding, had no reasonable cause to
believe the person's conduct was unlawful. The termination of any action,
suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner
which the person reasonably believed to be in or not opposed to the best
interests of the Company and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was
unlawful.
6.5.2 Indemnification - Actions by the Company. The Company shall
indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action or suit by or in the
right of the Company to procure a judgment in its favor by reason of the
fact that the person is or was the Manager or a Member of the Company, or
is or was serving at the request of the Company as a director, officer,
manager, employee or agent of another corporation, partnership, joint
venture, limited liability company or other enterprise against expenses
(including attorneys' fees) actually and reasonably incurred by the
person in connection with the defense or settlement of such action or
suit if the person acted in good faith and in a manner the person
reasonably believed to be in or not opposed to the best interests of the
Company, except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged
to be liable to the Company unless and only to the extent that the Court
of Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability
but in view of all the circumstances of the case, such person is fairly
and reasonably entitled to indemnity for such expenses which the Court of
Chancery or such other court shall deem proper.
6.5.3 Expenses Payable in Advance. Expenses incurred by the
Manager or a Member in defending or investigating a threatened or pending
action, suit or proceeding shall be paid by the Company in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of the Manager or such Member to repay such
amount if it shall ultimately be determined that he is not entitled to be
indemnified by the Company pursuant to this Section 6.5.
6.5.4 Nonexclusivity of Indemnification and Advancement of
Expenses. The indemnification and advancement of expenses provided by or
granted pursuant to this Section 6.5 shall not be deemed exclusive of any
other rights to which those seeking indemnification or advancement of
expenses may be entitled under any agreement, contract, action of the
Manager or pursuant to the direction (howsoever embodied) of any court of
competent jurisdiction or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such office.
The provisions of this Section 6.5 shall not be deemed to preclude the
indemnification of any person who is not
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specified in Section 6.5.1 but whom the Company has the power or
obligation to indemnify under the provisions of the Act or otherwise.
6.5.5 Insurance. The Company may purchase and maintain insurance
on behalf of any person who is or was a Member of the Company, or is or
was serving as Manager of the Company or at the request of the Company as
a director, officer, manager, employee or agent of another corporation,
partnership, limited liability company, joint venture or other enterprise
against any liability asserted against him and incurred by him in any
such capacity, or arising out of his status as such, whether or not the
Company would have the power or the obligation to indemnify him against
such liability under the provisions of this Section 6.5.
6.5.6 Survival of Indemnification and Advancement of Expenses. The
indemnification and advancement of expenses provided by, or granted
pursuant to, this Section 6.5 shall continue as to a person who has
ceased to be the Manager or a Member and shall inure to the benefit of
the heirs, executors and administrators of such a person.
6.5.7 Indemnification of Officers, Employees and Agents. The
Company may, to the extent authorized from time to time by the Manager,
provide rights to indemnification and to the advancement of expenses to
officers, employees and agents of the Company similar to those conferred
in this Section 6.5 to the Manager and Members of the Company.
6.6 Lack of Authority. Except as otherwise provided herein, no Member
(other than the Member that is the Manager), in its capacity as such, shall (i)
participate in the management of the Company or have any control over the
Company business or (ii) have any right or authority to act for or to bind the
Company or to vote on or consent to any other matter, act, decision or document
involving the Company or its business.
6.7 Member Voting. For situations for which the approval of the Members
is required by applicable law or under this Agreement, the Members shall act
through meetings and written consents as described in this Section 6.7, and each
Member shall be entitled to vote based on such Member's Percentage Interest. The
actions by the Members permitted hereunder may be taken at a meeting called by
the Manager on at least five (5) days' prior written notice to the other
Members, which notice shall state the purpose or purposes for which such meeting
is being called. Alternatively, the actions by the Members permitted hereunder
may be taken by written consent (without a meeting and without a vote) so long
as such consent is signed by the Members representing a sufficient amount of
Percentage Interests that would be necessary to authorize or take such action at
a meeting at which all Members entitled to vote thereon were present and voted.
Prompt notice of the action so taken without a meeting shall be given to those
Members entitled to vote or consent who have not consented in writing. Any
action taken pursuant to such written consent of the Members shall have the same
force and effect as if taken by the Members at a meeting thereof.
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ARTICLE 7
BOOKS AND RECORDS; ACCOUNTING; TAX ELECTIONS
7.1 Books and Records. The Company shall keep, at its principal place of
business, or at such other location as the Manager shall deem appropriate,
ledgers, other books of account, and financial records of receipts and
disbursements, other financial activities, and the internal affairs of the
Company for at least the current and past four Fiscal Years (collectively, the
"Records"). Except as otherwise expressly set forth herein, all decisions as to
accounting matters shall be made by the Manager in its sole judgment and
discretion.
7.2 Delivery of Records. Upon the written request of a Member for any
purpose reasonably related to the Member's Membership Interest, the Company,
subject to such reasonable standards as may be established from time to time by
the Manager, shall deliver to such requesting Member (or, to the extent so
directed, to its agent or attorney), at such requesting Member's cost and
expense, a copy of the following information, to the extent requested:
(a) a copy of the Company's federal, state and local income tax or
information returns for each Fiscal Year;
(b) a copy of this Agreement, as amended, and any Certificates,
together with executed copies of any written powers of attorney pursuant
to which this Agreement, as amended, and any Certificate have been
executed;
(c) such other information as the Company shall be required to
provide to the Members pursuant to applicable law (including, without
limitation, the Act);
(d) such additional information as a Member may reasonably request
in order to comply with the requirements of any applicable laws, rules or
regulations; and
(e) a list of the names and addresses of all then-current Members.
7.3 Inspection. Members (personally or through an authorized
representative) may, for purposes reasonably related to their Interests, examine
and copy (at their own cost and expense) the Records of the Company at all
reasonable business hours upon ten (10) days prior written notice to the
Company. Such inspection shall not occur more than once in any twelve (12) month
period without the consent of the Manager.
7.4 Reports to the Members.
(a) Within ninety (90) days after the end of each Fiscal Year or
as soon as practicable thereafter, the Company shall send to each Person
who was a Member at any time during such year financial statements of the
Company for such year prepared in accordance with generally accepted
accounting principles. The Manager may, but shall not be required to,
cause such annual financial statements to be audited by and reported upon
by independent public accountants.
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(b) Within ninety (90) days after the end of each Fiscal Year or
as soon as practicable thereafter, the Company shall send to each Member
the calculation of any allocations under Article 5 (to the extent not set
forth in the annual financial statements).
(c) Within ninety (90) days following the end of each Fiscal Year
of the Company or as soon as practicable thereafter, the Company shall
send to each Member a report that shall include all necessary information
required by the Members for preparation of their federal, state and local
income or franchise tax or information returns, including each Member's
pro rata share of Net Income, Net Loss and any other items of income,
gain, loss and deduction for such Fiscal Year.
7.5 Company Tax Elections, Tax Controversies. The Manager shall have the
right in its sole and absolute discretion to make all elections for the Company
provided for in the Code, the Regulations or otherwise, including, but not
limited to, the elections provided for in Section 754 of the Code. The K&B
Member, or such other Member as may be designated by the Manager from time to
time, is hereby designated as the "Tax Matters Partner" pursuant to the
requirements of Section 6231(a)(7) of the Code and in such capacity shall
represent the Company in any disputes, controversies or proceedings with the
Internal Revenue Service or any other taxing authority. Except to the extent
prohibited by law, each Member hereby waives the right to participate in any
administrative or similar proceedings relating to the determination of
partnership tax items at the Company level.
7.6 Confidentiality of Information. Except as permitted by the Manager or
required by applicable law, each Member shall keep confidential from all Persons
(except other Members or the Member's representatives on a need-to-know basis,
which Persons shall be bound by this Section 7.6 as if they were Members) all of
the information, documents or reports described in this Article 7.
ARTICLE 8
TRANSFERS OF INTERESTS
8.1 Member Transfers. No Member shall Transfer any Interest without first
obtaining the prior written consent of the Manager, which consent may be
withheld in the Manager's sole and absolute discretion. Prior to Transferring
any Interest to any Person, a Transferor shall (i) cause the prospective
Transferee to execute a counterpart to this Agreement pursuant to which such
Transferee shall agree to be bound by the provisions of this Agreement and (ii)
deliver an opinion of counsel which (to the Company's reasonable satisfaction)
is knowledgeable in securities law matters to the effect that such Transfer of
such Interest may be effected without registration of such Interest under the
Securities Act, and is otherwise in compliance with all state and federal laws.
8.2 Further Restrictions. Notwithstanding any contrary provision in this
Agreement, unless expressly waived in writing by the Company, which waiver may
be given or withheld in the Manager's sole and absolute discretion, any
otherwise permitted Transfer shall be null and void if:
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(a) such Transfer would cause a termination of the Company for
federal or state, if applicable, income tax purposes;
(b) such Transfer would, in the opinion of counsel to the Company,
cause the Company to cease to be classified as a partnership for federal
or state income tax purposes;
(c) such Transfer requires the registration of such Transferred
Interest pursuant to any applicable federal or state securities laws;
(d) such Transfer would cause the Company to become a "Publicly
Traded Partnership," as such term is defined in Sections 469(k)(2) or
7704(b) of the Code;
(e) such Transfer would cause the Company to have more than one
hundred (100) members (for purposes of this Section 8.2(e), the term
"members" includes those Persons indirectly owning an Interest through a
partnership, limited liability company, "S" corporation or grantor trust
(each such entity, a "flow-through entity"), but only if substantially
all of the value of such Person's interest in the flow-through entity is
attributable to the flow-through entity's Interest (direct or indirect)
in the Company);
(f) such Transfer involves Interests being traded on an
"established securities market" or a "secondary market or the substantial
equivalent thereof" as those terms are defined in Regulation Section
1.7704-1 (in addition, such Transfers shall not be "recognized" (as that
term is defined in Regulation Section 1.7704-1(d)(2)) by the Company);
(g) such Transfer subjects the Company to regulation under the
Investment Company Act, the Investment Advisers Act or ERISA, each as
amended;
(h) such Transfer results in a violation of applicable laws;
(i) such Transfer is made to any Person who lacks the legal right,
power or capacity to own such Interest; or
(j) the Company does not receive written instruments (including,
without limitation, copies of any instruments of Transfer accompanied by
representations and warranties of the Transferee substantially identical
to those contained in Article 10 and such Transferee's consent to be
bound by this Agreement) that are in a form satisfactory to the Company
(as determined in the Manager's sole and absolute discretion).
8.3 Effect of Transfer.
8.3.1 Any Member who shall transfer any Interest in the Company
shall cease to be a Member of the Company with respect to such Interest
and shall no longer have any rights or privileges of a Member with
respect to such Interest.
8.3.2 Any Person who acquires in any manner whatsoever any
Interest in the Company, irrespective of whether such Person has executed
a counterpart to this
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Agreement, shall be deemed by the acceptance of the benefits of the
acquisition thereof to have agreed to be subject to and bound by all of
the terms and conditions of this Agreement that any predecessor in such
Interest in the Company was subject to or by which such predecessor was
bound.
8.4 Admissions, Withdrawals and Removals. No Person shall be admitted to
the Company as a Member, except in accordance with Section 3.2 (with respect to
Persons receiving Interests directly from the Company) and Section 8.5 (with
respect to Persons receiving Interests from a Member). No Member shall be
entitled to withdraw from being a Member of the Company except with the written
consent of the Manager. Except as otherwise provided in Section 9.2(c), no
admission, withdrawal or removal of a Member shall cause the dissolution of the
Company. Any purported admission, withdrawal or removal which is not in
accordance with this Agreement shall be null and void.
8.5 Admission of Transferee as Substitute Member. Upon the Transfer by a
Member of a Membership Interest to a Transferee, such Transferee shall be
admitted as a Member (a "Substitute Member") only if and when each of the
following conditions in clauses (a) through (d) below are satisfied.
(a) the Company consents in writing to such admission, which
consent may be given or withheld, or made subject to such conditions as
are determined by the Manager, in the Manager's sole and absolute
discretion;
(b) the Company receives written instruments (including, without
limitation, copies of any instruments of Transfer and such Transferee's
consent to be bound by this Agreement as a Substitute Member) that are in
a form satisfactory to the Manager (as determined in its sole and
absolute discretion);
(c) the Company receives an opinion of counsel, which opinion and
counsel shall be reasonably acceptable to the Manager, to the effect that
such Transfer is in compliance with this Agreement and all applicable
laws; and
(d) the parties to the Transfer, or any one of them, pays all of
the Company's reasonable expenses connected with such Transfer
(including, but not limited to, the reasonable legal and accounting fees
of the Company).
8.6 Vesting of Interests.
8.6.1 Vesting Schedule. Except as otherwise determined by the
Manager, the Interests of each Member other than the Interests held by
the K&B Member shall vest 100% on the date of the third anniversary of
the admission of the Member holding such interest. Until such date, all
the Member's Interest shall be unvested. Upon a Member's ceasing to
provide services to a member of the K&B Group, such Member's unvested
Interests (whether held by the Member or one or more of the Member's
transferees) and any payments due thereon shall be automatically
forfeited.
8.6.2 Accelerated Vesting. Upon an Acceleration Event, any
unvested Interests of a Member shall be deemed to have vested in full
immediately prior to such
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Acceleration Event. The Manager may elect in it sole discretion to
accelerate the vesting of an Interest.
8.7 Repurchase Rights.
8.7.1 Right to Repurchase. Upon a Member's death or Disability or
ceasing to provide services to a member of the KB Group, that Member's
vested Interest (whether held by the Member or one or more of the
Member's transferees) shall be subject to repurchase first by the KB
Member and second by the Company pursuant to the terms and conditions set
forth in this Section 8.7 (the "Repurchase Option"). The Repurchase
Option will continue until the liquidation of the Company pursuant to
Section 9.2.
8.7.2 Repurchase Price. With regard to vested Interests, the
Repurchase Price shall be the Fair Market Value of such Interest on the
date of the Repurchase Notice (defined below).
8.7.3 Repurchase by the K&B Member. The KB Member may elect to
purchase all or any portion of the Interest subject to repurchase by
delivering written notice (the "KB Member Election") to the Company. The
KB Member Election shall set forth the amount of the Interest (measured
by Percentage Interest) to be acquired from the Member.
8.7.4 Repurchase by the Company. If for any reason the KB Member
does not elect to purchase all of the Interest pursuant to the Repurchase
Option, the Company shall be entitled to exercise the Repurchase Option
for all or a portion of the Interest the KB Member has not elected to
purchase (the "Available Securities").
8.7.5 Notice to the Holder of the Member's Interest. The Company
shall notify each holder of Member's Interest as to the amount of the
Interest being purchased from such holder by the KB Member and/or the
Company (the "Repurchase Notice"). The Repurchase Notice shall set forth
the amount of the Interest (measured by Percentage Interest) to be
acquired from the Member, the aggregate consideration to be paid for such
Interest, and the time and place for the closing of the transaction (the
"Repurchase Closing"). Upon delivery of the Repurchase Notice, the
Member's Interest to be repurchased shall automatically represent solely
the right to receive the applicable repurchase price and such Member's
Interest shall no longer be deemed to be outstanding.
8.7.6 Repurchase Closing. Subject to Section 8.7.7, the closing of
the purchase of the Member's Interest pursuant to the Repurchase Option
shall take place on the date designated in the Repurchase Notice. Subject
to Section 8.7.7, the K&B Member and/or the Company shall pay for the
Member's Interest to be purchased pursuant to the Repurchase Option by
delivery of a check or wire transfer of funds (except that the K&B Member
and the Company shall be permitted to reduce the payments to the Member
hereunder by the aggregate of all bona fide debts to the K&B Member
and/or the Company, respectively, by the Member). The purchasers of the
Member's Interest hereunder shall be entitled to receive customary
representations and warranties from the
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31
sellers regarding such sale of securities (including representations and
warranties regarding good title to such securities, free and clear of any
liens or encumbrances) and to require that signatures be guaranteed by a
national bank or reputable securities broker.
8.7.7 Certain Restrictions. Notwithstanding anything to the
contrary contained in this Agreement, all repurchases of a Member's
Interest by the KB Member and/or the Company shall be subject to
applicable restrictions contained in the Act. If any such restrictions
prohibit the repurchase of Member's Interest hereunder which the KB
Member and/or the Company is otherwise entitled or required to make, the
time periods provided in this Section 8.7 shall be suspended, and the KB
Member and/or the Company may make such repurchases as soon as it is
permitted to do so under such restrictions. In addition, if any such
restrictions prohibit the repurchase of Member's Interest hereunder with
a check or wire transfer of funds or if the K&B Member and/or the Company
otherwise do not have sufficient available cash, then the KB Member
and/or the Company may make such repurchases with a five-year subordinate
note bearing interest (payable at maturity) at a rate per annum equal to
the Prime Rate (a "Subordinated Note"). Any notes issued by the Company
pursuant to this Section 8.7.7 shall be subject to any restrictive
covenants to which the Company is subject at the time of such purchase
and any subordination provisions required by the Company's lenders.
ARTICLE 9
DISSOLUTION AND TERMINATION OF THE COMPANY
9.1 Limitations. The Company may be dissolved, liquidated, and terminated
and have its affairs wound up only pursuant to the provisions of this Article 9,
and the Members hereto do hereby irrevocably waive any and all other rights they
may have to cause a dissolution of the Company or a sale or partition of any or
all of the Company Assets.
9.2 Exclusive Causes. The following and only the following events shall
cause the Company to be dissolved, liquidated, and terminated:
(a) A determination be the Manager to dissolve the Company;
(b) The Incapacity of the sole remaining Member; or
(c) A judicial dissolution.
Any dissolution of the Company other than as provided in this Section 9.2 shall
be a dissolution in contravention of this Agreement.
9.3 Effect of Dissolution. The dissolution of the Company shall be
effective on the day on which the event occurs giving rise to the dissolution,
but the Company shall not terminate until it has been wound up, its assets have
been distributed as provided in Section 9.4 and its Certificate of Cancellation
has been filed in accordance with the Act. Notwithstanding the dissolution of
the Company, prior to the termination of the Company, the business of the
Company and the affairs of the Members, as such, shall continue to be governed
by this Agreement. Nothing in this section is intended to limit the survival of
provisions of this Agreement that expressly survive the dissolution and
termination of the Company.
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9.4 Liquidation and Final Distribution Proceeds. Upon the dissolution of
the Company pursuant to Section 9.2, the Company shall thereafter engage in no
further business other than that which is necessary to wind up the business and
the Manager, after the establishment of appropriate reserves, shall liquidate
all Company Assets and distribute the cash proceeds therefrom. The cash proceeds
from the liquidation of the Company Assets shall be applied or distributed by
the Company in the following order:
(a) First, to the payment and discharge of all of the Company's
debts and other liabilities to creditors (including Members that are
creditors); and
(b) The balance, if any, to the Members in proportion to their
positive Capital Account balances, after giving effect to all
contributions, distributions and allocations for all periods.
Notwithstanding the foregoing, in the event that the Manager determines that an
immediate sale of all or any portion of the Company Assets would cause undue
loss to the Members, the Manager, in order to avoid such loss, may, to the
extent not then prohibited by the Act, either defer liquidation of and withhold
from distribution for a reasonable time any Company Assets except those
necessary to satisfy the Company's debts and obligations, or distribute such
Company Assets to the Members in kind, provided that, with respect to
distributions in kind of Company Assets other than marketable securities, the
Manager shall give advance written notice of any such in-kind distribution and,
if after receiving such notice a Member shall determine that there is a
reasonable likelihood that any such distribution in kind would cause such Member
to be in violation of any applicable law, regulation or order, such Member shall
give written notice thereof to the Manager within five (5) Business Days
following its receipt of the notice of distribution, and the Member and the
Manager shall each use its best efforts to make alternative arrangements.
9.5 Restoration of Deficit Capital Account Balances. If any Member has a
deficit balance in its Capital Account (after giving effect to all
contributions, distributions and allocations for all Fiscal Years, including the
year during which the liquidation occurs), then such Member shall have no
obligation to make any Capital Contribution with respect to such deficit, and
such deficit shall not be considered a debt owed to the Company or to any other
Person for any purpose whatsoever.
ARTICLE 10
REPRESENTATIONS AND WARRANTIES
10.1 Representations and Warranties of the Members. Each Member hereby
makes the following representations and warranties to the Company and each other
Member:
(a) This Agreement constitutes a valid and binding obligation of
such Member, and is enforceable against such Member in accordance with
its terms.
(b) The execution and delivery of this Agreement and the
consummation of the transactions contemplated herein will not conflict
with or result in any violation of or default under any material
agreement or other instrument to which such Member is a party or by which
such Member, or any of its property is bound, or any permit, franchise,
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judgment, decree, statute, order, writ, rule or regulation applicable to
such Member or its business or property.
(c) Such Member is acquiring its Membership Interest solely for
investment, for its account and not with a view to, or for resale in
connection with, the distribution or other disposition thereof, except
for such distributions and dispositions which are (A) explicitly
permitted or contemplated under the terms of this Agreement as well as
(B) effected in compliance with the Securities Act of 1933, as amended
(the "Securities Act"), the rules and regulations of the Securities and
Exchange Commission promulgated thereunder and all applicable state
securities and "blue sky" laws.
(d) Such Member understands that the purchase of Membership
Interests is a speculative investment which involves a high degree of
risk of loss of its investment therein, there are substantial
restrictions on the transferability of the Membership Interests under the
provisions of this Agreement and the Securities Act, and there will never
be a public market for the Membership Interests and, accordingly, it may
not be possible to liquidate its investment in the Company prior to the
dissolution and liquidation of the Company.
(e) Such Member's financial situation is such that it can afford
to bear the economic risk of holding the Membership Interests for an
indefinite period of time and can afford to suffer a complete loss of its
investment in the Company.
(f) Such Member's knowledge and experience in financial and
business matters are such that it is capable of evaluating the merits and
risks of its acquisition of its Membership Interests.
(g) No representations or warranties have been made to such Member
or its representatives concerning the Membership Interests or the
Company, their prospects or other matters except as set forth in this
Agreement.
(h) Such Member is an "accredited investor" as defined in Rule
501(a) of Regulation D promulgated under the Securities Act.
The foregoing representations and warranties shall survive the
expiration or termination of this Agreement. Each Member agrees to
indemnify, defend, protect, and hold harmless the Company against any and
all loss, liability, claim, damage and expense whatsoever (including, but
not limited to, any and all expenses whatsoever reasonably incurred in
investigating, preparing or defending against any litigation commenced or
threatened or any claim whatsoever) arising out of or based upon any
false representation or warranty made by the Member herein.
ARTICLE 11
MISCELLANEOUS
11.1 Appointment of Company as Attorney-in-Fact.
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11.1.1 Each Member, including each Additional Member, by its
execution of this Agreement, irrevocably constitutes and appoints the
Company as its true and lawful attorney-in-fact with full power and
authority in its name, place and stead to execute, acknowledge, deliver,
swear to, file and record at the appropriate public offices such
documents as may be necessary or appropriate to carry out the provisions
of this Agreement, including but not limited to:
(a) All Certificates and other instruments (including
counterparts of this Agreement), and all amendments thereto, which
the Manager deems appropriate to form, qualify, continue or
otherwise operate the Company as a limited liability company (or
other entity in which the Members will have limited liability
comparable to that provided in the Act) in accordance with this
Agreement, in the State of Delaware and the jurisdictions in which
the Company may conduct business or in which such formation,
qualification or continuation is, in the opinion of the Manager,
necessary or desirable to protect the limited liability of the
Members.
(b) All amendments to this Agreement adopted in accordance
with the terms hereof, and all instruments which the Manager deems
appropriate to reflect a change or modification of the Company in
accordance with the terms of this Agreement.
(c) All conveyances of Company Assets, and other
instruments which the Manager reasonably and in good ▇▇▇▇▇ ▇▇▇▇▇
necessary for the orderly conduct of the Company's business.
11.1.2 The appointment by all Members of the Company as
attorney-in-fact shall be deemed to be a power coupled with an interest,
in recognition of the fact that each of the Members under this Agreement
will be relying upon the power of the Company to act as contemplated by
this Agreement in any filing and other action by it and shall survive the
disability or Incapacity of any Person hereby giving such power, and the
transfer or assignment of all or any portion of the Interest of such
Person in the Company.
11.2 Amendments.
11.2.1 Amendments to this Agreement may be made from time to time
as determined by the Manager, provided, however, except as otherwise
contemplated by other provisions of this Agreement, no amendment may be
made that diminishes the rights or increases the obligations of a Member
without the consent of such Member. If any Member withholds consent to an
amendment that diminishes the rights or increases the obligations of such
Member, the amendment may nonetheless be made upon a vote of a majority
of the Members in accordance with Section 6.7, except that each Member
shall have one vote without regard to Percentage Interest.
11.2.2 In addition to other amendments authorized herein,
amendments may be made to this Agreement from time to time by the
Company, at the direction of the Manager, without the consent of any
Member: (a) to cure any ambiguity, to correct or
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supplement any provision herein which may be inconsistent with any other
provision herein, or to make any other provisions with respect to matters
or questions arising under this Agreement that are not inconsistent with
the provisions of this Agreement; (b) to delete or add any provision of
this Agreement required to be so deleted or added by any federal or state
official, which addition or deletion is deemed by such official to be for
the benefit or protection of all of the Members; (c) to take such actions
as may be necessary (if any) to ensure that the Company will be treated
as a partnership for federal income tax purposes; and (d) to amend this
Agreement, pursuant to the power of attorney granted to the Company, to
reflect the admission of any Additional Member or the issuance of
additional Interests. The Company shall provide prompt written notice of
any such amendments to the Members.
11.2.3 In making any amendments, there shall be prepared and filed
by, or for, the Company, such documents and certificates as may be
required under the Act and under the laws of any other jurisdiction
applicable to the Company.
11.3 Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto pertaining to the subject matter hereof and fully
supersedes any and all prior or contemporaneous agreements or understandings
between the parties hereto pertaining to the subject matter hereof.
11.4 Further Assurances. Each of the parties hereto does hereby covenant
and agree on behalf of itself, its successors, and its assigns, without further
consideration, to prepare, execute, acknowledge, file, record, publish, and
deliver such other instruments, documents and statements, and to take such other
action as may be required by law or reasonably necessary to effectively carry
out the purposes of this Agreement.
11.5 Notices. Any notice, consent, payment, demand, or communication
required or permitted to be given by any provision of this Agreement shall be in
writing and shall be (a) delivered personally to the Person or to an officer of
the Person (as designated by such Person to receive any such notice or, in the
absence of such designation, any officer of such Person) to whom the same is
directed, or (b) sent by facsimile, recognized overnight courier service or
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows: if to the Company, to the Company at the address set forth
in Section 2.3 hereof, or to such other address as the Company may from time to
time specify by notice to the Members; if to a Member, to such Member at the
address set forth in Exhibit A, or to such other address as such Member may from
time to time specify by notice to the Company. Any such notice shall be deemed
to be delivered, given and received for all purposes as of: (i) the date so
delivered, if delivered personally, (ii) upon receipt, if sent by facsimile or
courier service, or (iii) on the date of receipt or refusal indicated on the
return receipt, if sent by registered or certified mail, return receipt
requested, postage and charges prepaid and properly addressed.
11.6 Governing Law. This Agreement, including its existence, validity,
construction, and operating effect, and the rights of each of the parties
hereto, shall be governed by and construed in accordance with the laws of the
State of Delaware without regard to otherwise governing principles of conflicts
of law.
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11.7 Binding Effect. Except as otherwise expressly provided herein, this
Agreement shall be binding on and inure to the benefit of the parties hereto,
their heirs, executors, administrators, successors and all other Persons
hereafter holding, having or receiving an interest in the Company, whether as
assignees, Transferees, Substitute Members or otherwise.
11.8 Severability. In the event that any provision of this Agreement as
applied to any party or to any circumstance, shall be adjudged by a court to be
void, unenforceable or inoperative as a matter of law, then the same shall in no
way affect any other provision in this Agreement, the application of such
provision in any other circumstance or with respect to any other party, or the
validity or enforceability of the Agreement as a whole.
11.9 Confidentiality. Without limiting the provisions of Section 7.6,
each party hereto agrees that the provisions of this Agreement, all
understandings, agreements and other arrangements between and among the parties,
and all other non-public information received from, or otherwise relating to,
the Company or any Member, shall be confidential, and that such parties shall
not disclose or otherwise release to any other Person (other than another party
hereto) such matters, without the written consent of the Company, as determined
by the Manager. The obligations of the parties hereunder shall not apply: (a) to
information already known to the general public other than as a result of a
breach of this covenant, or (b) to any party to the extent that the disclosure
by such party of such confidential information is required by applicable law or
by any federal, state or local regulatory body with jurisdiction over such
party, but only that portion of such confidential information which, in the
written opinion of counsel for such Member, is required or would be required to
be furnished to avoid liability for contempt or the suffering of other material
judicial or governmental penalty or censure, provided that, prior to disclosing
such confidential information, a party shall, to the extent practicable, notify
the Company thereof, which notice shall include the basis upon which such party
believes the information is required to be disclosed.
11.10 Counterparts. This Agreement may be executed in any number of
multiple counterparts, each of which shall be deemed to be an original copy and
all of which shall constitute one agreement, binding on all parties hereto.
11.11 Waivers. No waiver by any Member of any default with respect to any
provision, condition or requirement hereof shall be deemed to be a waiver of any
other provision, condition or requirement hereof, nor shall any delay or
omission of any Member to exercise any right hereunder in any manner impair the
exercise of any such right accruing to it thereafter.
11.12 Preservation of Intent. If any provision of this Agreement is
determined by an arbitrator or any court having jurisdiction to be illegal or in
conflict with any laws of any state or jurisdiction, then the Members agree that
such provision shall be modified to the extent legally possible so that the
intent of this Agreement may be legally carried out. If any one or more of the
provisions contained herein, or the application thereof in any circumstances, is
held invalid, illegal or unenforceable in any respect or for any reason, then
the validity, legality and enforceability of any such provision in every other
respect and of the remaining provisions hereof shall not be in any way impaired
or affected, it being intended that all of the Members' rights and privileges
shall be enforceable to the fullest extent permitted by law.
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11.13 Certain Rules of Construction. Any ambiguities shall be resolved
without reference to which party may have drafted this Agreement. All Article or
Section titles or other captions in this Agreement are for convenience only, and
they shall not be deemed part of this Agreement and in no way define, limit,
extend or describe the scope or intent of any provisions hereof. Unless the
context otherwise requires: (a) a term has the meaning assigned to it; (b) an
accounting term not otherwise defined has the meaning assigned to it in
accordance with generally accepted accounting principles; (c) "or" is not
exclusive; (d) words in the singular include the plural, and words in the plural
include the singular; (e) provisions apply to successive events and
transactions; (f) "herein," "hereof" and other words of similar import refer to
this Agreement as a whole and not to any particular Article, Section or other
subdivision; (g) all references to "clauses," "Sections" or "Articles" refer to
clauses, Sections or Articles of this Agreement; and (h) any pronoun used in
this Agreement shall include the corresponding masculine, feminine or neuter
forms.
11.14 Company Advisers. THE COMPANY AND THE MANAGER ARE NOT REPRESENTED
BY SEPARATE COUNSEL. THE ATTORNEYS WHO PERFORM SERVICES FOR THE COMPANY ALSO
PERFORM SERVICES FOR THE MANAGER. IT IS CONTEMPLATED THAT SUCH DUAL
REPRESENTATION WILL CONTINUE. TO THE EXTENT THAT THE FOREGOING REPRESENTATION
CONSTITUTES A CONFLICT OF INTEREST, THE COMPANY, THE MANAGER AND THE MEMBERS
HEREBY EXPRESSLY WAIVE ANY SUCH CONFLICT OF INTEREST. THE MEMBERS ACKNOWLEDGE
THAT (i) COUNSEL FOR THE COMPANY AND THE MANAGER ARE NOT REPRESENTING THE
MEMBERS (OTHER THAN THE KB MEMBER) IN CONNECTION WITH THE COMPANY OR THIS
AGREEMENT AND (ii) THE CONTINUED REPRESENTATION OF THE COMPANY AND THE MANAGER
BY SUCH COUNSEL WILL NOT BE DEEMED TO BE THE REPRESENTATION BY SUCH COUNSEL OF
ANY MEMBER (OTHER THAN THE KB MEMBER).
11.15 Arbitration. All claims, disputes and other matters in question
arising out of, or relating to this Agreement or the performance thereof,
including without limitation questions as to whether a matter is governed by
this arbitration clause, shall be subject to arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association (the "AAA
Rules") then pertaining, insofar as the AAA Rules are not inconsistent with the
provisions expressly set forth in this Agreement, unless the parties mutually
agree otherwise, and pursuant to the following procedures: (i) the arbitration
shall take place in Los Angeles, California; (ii) each party shall select an
arbitrator to agree on a single neutral arbitrator having at least ten (10)
years experience in complex commercial arbitration involving corporate,
partnership or limited liability company issues; (iii) each party will, upon the
written request of the other party, provide the other with copies of documents
relevant to the issues raised by any claim or counterclaim; (iv) each party
shall have the right to take the deposition of one individual and any expert
witness(es) designated by the other party; (v) other discovery may be ordered by
the arbitrator to the extent the arbitrator deems additional discovery
appropriate, and any dispute regarding discovery, including disputes as to the
need therefor or the relevance or the scope thereof, shall be determined by the
arbitrator, which determination shall be conclusive; (vi) the arbitrator shall
have sixty (60) days following their appointment in which to resolve the
question at issue, unless the parties agree in writing to extend such period;
(vii) the award rendered by the arbitrator may grant any remedy or relief that
the arbitrator deems just and equitable within the scope of this
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Agreement, including without limitation damages, specific performance or
injunctive relief, but may not include punitive damages or any remedy or relief
that a court having jurisdiction thereof would not have the power to grant;
(viii) judgment on the award rendered by the arbitrator may be entered in any
court having jurisdiction thereof; (ix) all reasonable out of pocket costs and
reasonable legal fees incurred by the prevailing party shall be paid by the
nonprevailing party, except in the event that a non-arbitrated settlement is
reached, in which case each party shall pay its own respective costs and fees
incurred thereby; (x) subject to Section 11.15(ix), each party shall pay
one-half of the costs and fees charged by the arbitrator with regard to the
submitted dispute; and (xi) the parties shall be entitled to seek preliminary
injunctive relief or other extraordinary remedies in any court having
jurisdiction thereof, to preserve the status quo pending the outcome of
arbitration.
11.16 Determinations by the Manager. Unless otherwise expressly specified
in the Agreement, any determinations, decisions, consent, vote or judgment of,
or exercise of discretion by, or action taken or omitted to be taken by the
Manager under this Agreement shall be made, given, exercised, taken or omitted
as the Manager shall determine in its sole and absolute discretion. In
connection with the foregoing, the Manager shall be entitled to consider such
interests and factors as the Manager deems appropriate, including its own
interests and/or the interests of the KB Group to the exclusion of all other
considerations.
THE SIGNATURES OF THE MEMBERS ARE SET FORTH ON THE ATTACHED COUNTERPART
SIGNATURE PAGES.
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OPERATING AGREEMENT
OF
_____________, LLC
IN WITNESS WHEREOF, the undersigned Member has caused this counterpart
signature page to the Operating Agreement of _____________, LLC, to be duly
executed on the date set forth below, to be effective as of the date first above
written.
Date: By:
-------------------- --------------------------------
Name:
------------------------------
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EXHIBIT A
SCHEDULE OF MEMBERS
Capital Percentage
Name Address Contribution Interest
-------------------------------------------------------------------------------------------------
A-1