Common use of Section 704(c) Method Clause in Contracts

Section 704(c) Method. With respect to the Contributed Assets, the Company will use, and will cause any entity (classified as a partnership for Federal income tax purposes) in which the Company holds a direct or indirect interest to use, the “traditional method with curative allocations” with the curative allocation limited to the gain on a Disposition of a Contributed Asset to the extent permitted under Treasury Regulation Section 1.704-3(c). The Company will cause any entity that is treated as a partnership for federal income tax purposes to which any of the Contributed Assets are transferred in a transaction that is wholly or partially nontaxable (i) to use such “traditional method with curative allocations” with the curative allocation limited to the gain on a Disposition of a Contributed Asset to the extent permitted under Treasury Regulation Section 1.704-3(c), and (ii) to agree, for the benefit of the Protected Parties, to be bound by the provisions of this Section 2 as though such entity were the Company. The parties agree that (i) Section 704(c) of the Code and the principles thereunder will apply to any Disposition of Contributed Assets, (ii) Section 704(c) of the Code and the principles thereunder will not apply to allocations from the Company of items of depreciation from property that has an adjusted tax basis equal to its basis under Section 704(b) of the Code, and (iii) the BCR Interests will not be treated as property subject to the allowance for depreciation or amortization under either Section 704(b) or (c) of the Code. To the extent (x) any of the above methods is determined by a court to be a method that is not permitted under Section 704(c) of the Code or the Treasury Regulations promulgated thereunder, or (y) there is a settlement of an examination of the Company’s federal income tax return to the effect that any of the above methods are not permitted under Section 704(c) of the Code or the Treasury Regulations promulgated thereunder, the Managing Member shall adopt a substitute method that varies from the original method to the least extent permitted under the Code and Treasury Regulations which is as neutral to FCEI as possible, and the method so determined shall be used and shall be deemed to be a method specified in this Section 2. If the Managing Member in consultation with its tax advisor does not believe that the method selected by the Protected Party is supported by Substantial Authority, the Protected Party Representative will select an alternative method, subject again to the Managing Members’ consent.