EXHIBIT 1.5
OPERATING AGREEMENT
OF
STERLING MANAGEMENT, LLC
a Colorado limited liability company
TABLE OF CONTENTS
SECTION HEADING PAGE
ARTICLE 1 ORGANIZATION 1
SECTION 1.1. NAME 1
SECTION 1.2. PRINCIPAL PLACE OF BUSINESS 1
SECTION 1.3. REGISTERED OFFICE AND REGISTERED AGENT 1
SECTION 1.4. PURPOSES 1
SECTION 1.5. EXISTENCE 1
SECTION 1.6. PROPERTY 1
SECTION 1.7. NO THIRD-PARTY BENEFICIARIES 2
SECTION 1.8. PARTNERSHIP CLASSIFICATION 2
SECTION 1.9. CERTAIN DEFINITIONS 2
ARTICLE 2 CAPITAL 4
SECTION 2.1. CAPITAL CONTRIBUTIONS 4
SECTION 2.2. ADDITIONAL CAPITAL 4
SECTION 2.3. DELINQUENT CONTRIBUTIONS 5
ARTICLE 3 BUSINESS OF THE COMPANY 5
SECTION 3.1. AUTHORIZATION BY MEMBERS 5
SECTION 3.2. MANAGEMENT OF BUSINESS 5
ARTICLE 4 INCOME AND DISTRIBUTIONS 5
SECTION 4.1. PROFITS AND LOSSES 5
SECTION 4.2. DISTRIBUTIONS 6
ARTICLE 5 MEMBERS AND MANAGEMENT 7
SECTION 5.1. MEMBERS 7
SECTION 5.2. CONTROL OF BUSINESS 7
SECTION 5.3. ADMINISTRATIVE AGENT 7
SECTION 5.4. ACTION REQUIRING CONSENT OF MEMBERS 7
SECTION 5.5. COMPENSATION AND REIMBURSEMENT 8
SECTION 5.6. NO ANNUAL MEETING REQUIRED 8
SECTION 5.7. MEETINGS 8
SECTION 5.8. PLACE OF MEETING 8
SECTION 5.9. NOTICE OF MEETING 8
SECTION 5.10. ATTENDANCE WAIVES NOTICE 8
SECTION 5.11. QUORUM AND ACTION OF MEMBERS 8
SECTION 5.12. PROXIES 9
SECTION 5.13. NO REQUIREMENTS OF RECORDS OF MEETINGS 9
SECTION 5.14. ACTION BY MEMBERS WITHOUT A MEETING 9
SECTION 5.15. INDEMNIFICATION OF MEMBERS 9
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SECTION 5.16. REPRESENTATIONS OF MEMBERS 9
SECTION 5.17. TIME AND EFFORT; CONFLICTS OF INTEREST; DUTY OF CARE 10
SECTION 5.18. LIMITED LIABILITY 10
ARTICLE 6 ACCOUNTING AND REPORTING 11
SECTION 6.1. COMPANY'S BOOKS 11
SECTION 6.2. CAPITAL ACCOUNTS 11
SECTION 6.3. QUARTERLY REPORTS TO MEMBERS 11
SECTION 6.4. ANNUAL REPORTS TO MEMBERS 11
SECTION 6.5. TAX MATTERS PARTNER 11
SECTION 6.6. BANK ACCOUNTS 12
ARTICLE 7 CORPORATE FILINGS 12
SECTION 7.1. APPROVAL OF PREVIOUS FILINGS WITH THE SECRETARY OF
STATE AND RELEASE OF ORGANIZER 12
ARTICLE 8 CHANGES IN MEMBERSHIP 12
SECTION 8.1. TRANSFERS OF OWNERSHIP INTERESTS; ADMISSION OF
SUBSTITUTE MEMBERS 12
SECTION 8.2. NEW MEMBERS AND SUBSTITUTE MEMBERS 13
SECTION 8.3. CONVERSION OF OWNERSHIP INTERESTS UPON DISSOCIATION
OF A MEMBER 13
ARTICLE 9 DISSOLUTION 14
SECTION 9.1. DISSOLUTION 14
SECTION 9.2. FINAL ACCOUNTING 15
SECTION 9.3. LIQUIDATION 15
SECTION 9.4. NO OBLIGATION TO RESTORE CAPITAL ACCOUNT DEFICIT 15
SECTION 9.5. SPECIAL ALLOCATIONS 15
ARTICLE 10 MISCELLANEOUS 16
SECTION 10.1. INDEMNIFICATION 16
SECTION 10.2. ENTIRE AGREEMENT; MODIFICATIONS; WAIVER 16
SECTION 10.3. RECOVERY OF LITIGATION COSTS 17
SECTION 10.4. ARBITRATION 17
SECTION 10.5. NOTICES 17
SECTION 10.6. GOVERNING LAW 17
SECTION 10.7. SUCCESSORS 17
SECTION 10.8. HEADINGS 17
SECTION 10.9. PARTIES IN INTEREST 18
SECTION 10.10. WAIVER OF ACTION OF PARTITION 18
SECTION 10.11. PERSON SIGNING AGREEMENT 18
SECTION 10.12. SEVERABILITY 18
SECTION 10.13. STANDARD OF ACTION 18
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SECTION 10.14. COUNTERPARTS 18
SECTION 10.15. PRONOUNS AND PLURALS 18
SECTION 10.16. EFFECTIVE DATE 18
SECTION 10.17. CREDITORS' RIGHTS 19
SIGNATURES 20
EXHIBIT A - Schedule of Members
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OPERATING AGREEMENT
OF
STERLING MANAGEMENT, LLC
A COLORADO LIMITED LIABILITY COMPANY
THIS OPERATING AGREEMENT is executed as of July 13, 2005 by and among
Sterling Management, LLC, a Colorado limited liability company (the "Company"),
and the Members of the Company that have signed this Operating Agreement.
NOW, THEREFORE, pursuant to the Colorado Limited Liability Company Act, the
following shall constitute the Operating Agreement, as amended from time to
time, of the Company.
ARTICLE 1
ORGANIZATION
Section 1.1. Name. The name of the Company shall be "Sterling Management,
LLC."
Section 1.2. Principal Place of Business. The Company's principal place of
business shall be located at ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇ - ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇ ▇▇▇▇▇. The Company may locate its places of business at any other
place or places as the Administrative Agent may from time to time deem
advisable.
Section 1.3. Registered Office and Registered Agent. The Company's
registered office shall be located at the office of its registered agent
at ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇ - ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, and the
name of its initial registered agent at such address shall be G. ▇▇▇▇▇ ▇▇▇▇▇▇.
The Company may change its registered office and its registered agent as the
Administrative Agent may from time to time deem advisable.
Section 1.4. Purposes. The Company is formed to (a) transact any lawful
business and participate in any lawful investment pursuant to applicable laws;
and (b) engage in all activities necessary, customary, convenient, or incident
to any of the foregoing. This Section 1.4 may not be amended without the
consent of a Majority of the Members.
Section 1.5. Existence. The existence of the Company shall be perpetual,
unless the Company is dissolved in accordance with either the provisions of this
Operating Agreement or the Colorado Limited Liability Company Act.
Notwithstanding the foregoing, a Majority of the Members may agree to dissolve
the Company upon the completion of its purposes as set forth in Section 1.4
above.
Section 1.6. Property. All property, real and personal, of the Company shall
be owned by and legal title held in the name of the Company, and any conveyance
from or to the Company
shall be in the Company's name. Each Member's Ownership Interest in the Company
shall be personal property.
Section 1.7. No Third-Party Beneficiaries. None of the terms, covenants,
obligations or rights contained in this Operating Agreement is or shall be
deemed to be for the benefit of any person or entity other than the Members and
the Company, and no such third person or entity (including any creditor of the
Company or of a Member) shall under any circumstances have any right to compel
any actions or payments by or to the Members.
Section 1.8. Partnership Classification. (a) It is the intention of the
parties hereto that the Company be treated as a partnership for federal income
tax purposes in accordance with the Treasury Regulations promulgated under
Section 7701 of the Internal Revenue Code of 1986, as amended (the "Code") at
such times as the Company has two or more Members.
(b) However, at such times as the Company has only one Member, it is the
intention of the parties hereto that the Company be disregarded as an entity
separate from its Member for federal income tax purposes only in accordance with
the Treasury Regulations promulgated under Section 7701 of the Code.
Notwithstanding the foregoing, the Company shall be considered a limited
liability company under the Colorado Limited Liability Company Act, and the
liability of the Member shall be limited to the fullest extent provided in the
Colorado Limited Liability Company Act and this Operating Agreement.
Section 1.9. Certain Definitions. The following terms shall have the
following definitions.
(a) "Administrative Agent" shall have the meaning set forth in
Section 5.3.
(b) "Articles of Organization" means the Articles of Organization of
the Company filed on July 13, 2005 as the same may hereafter be amended.
(c) "Bankruptcy of a Member" means (1) the Member files a voluntary
petition in bankruptcy; (2) the Member is adjudicated a bankrupt or
insolvent; (3) the Member files a petition or answer seeking for himself or
herself any reorganization, arrangement, composition, readjustment,
liquidation, dissolution, or similar relief under any statute, law, or
regulation; (4) the Member seeks, consents to, or acquiesces in the
appointment of a trustee, receiver, or liquidator of the Member or of all
or any substantial part of the Member's properties; (5) the Member consents
to or suffers a charging order against such Member's Ownership Interest
that is not released or satisfied within 30 days; (6) if 120 days after the
commencement of any proceeding against the Member seeking reorganization,
arrangement, composition, readjustment, liquidation, dissolution, or
similar relief under any statute, law, or regulation, the proceeding has
not been dismissed; or (7) if within 90 days after the appointment without
the Member's consent or acquiescence of a trustee, receiver, or liquidator
of the Member or of all or any substantial part of the Member's properties,
the appointment is not vacated or stayed; or if, within 90 days after the
expiration of any such stay, the appointment is not vacated.
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(d) "Deficit Capital Account" shall mean with respect to any Member,
the deficit balance, if any, in such Member's capital account as of the end
of the taxable year, after giving effect to the following adjustments:
(1) Credit to such capital account (i) any amount which such
Member is obligated to restore, under Section 1.704-1(b)(2)(ii)(c) of
the Treasury Regulations, including, but not limited to, the unpaid
principal balance of any promissory note (of which the Member is the
maker) contributed to the Company by the Member, (ii) the amount of
such Member's share of Company minimum gain (as determined in
accordance with Section 1.704-2(g)(1) and (g)(3) of the Treasury
Regulations), and (iii) the amount of such Member's share of Member
nonrecourse debt minimum gain (as determined under
Section 1.704-2(i)(5) of the Treasury Regulations); and
(2) Debit to such capital account the items described in
Sections 1.704-1(b)(2)(ii)(d)(4), (5) and (6) of the Treasury
Regulations.
(e) "Distributable Cash" shall mean, for any period, all cash funds
of the Company on hand from time to time less all cash expenditures
incurred incident to the normal operation of the Company's business but not
yet paid.
(f) "Economic Interest," the holder of an "Economic Interest" shall
only be entitled to receive the share of distributions and allocations and
the return of capital contributions to which the transferring Member would
otherwise have been entitled with respect to or by virtue of the
transferred Ownership Interest, and shall not be entitled (1) to
participate in the management of the business and affairs of the Company,
(2) to vote on any matter as a Member, or (3) to otherwise exercise or
enjoy the powers or privileges of a Member under this Operating Agreement,
the Articles of Organization, or the Colorado Limited Liability Company
Act.
(g) "Majority" or "Majority of the Members," whenever any matter is
required or allowed to be approved by a Majority of the Members under this
Operating Agreement, such matters shall be considered approved or consented
to upon the receipt of the affirmative approval or consent, either in
writing or at a meeting of the Members, of Members having Ownership
Interests in excess of 50% of the Ownership Interests of all the Members
entitled to vote on a particular matter.
(h) "Members" means those persons and entities listed on Exhibit A
attached hereto and those persons and entities that may become new and
substitute Members after the date of this Operating Agreement in accordance
with the terms of this Operating Agreement.
(i) "Net Losses" means the losses and deductions of the Company
determined in accordance with accounting principles consistently applied
from year to year employed under the method of accounting adopted by the
Company and as reported
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separately or in the aggregate, as appropriate, of the tax return of the
Company filed for federal income tax purposes.
(j) "Net Profits" means the income and gains of the Company
determined in accordance with accounting principles consistently applied
from year to year employed under the method of accounting and adopted by
the Company and as reported separately or in the aggregate, as appropriate,
on the tax return of the Company filed for federal income tax purposes.
(k) "Ownership Interest" shall mean the entire ownership interest of
a person or entity in income, gains, losses, deductions, tax credits,
distributions and Company assets, and all other rights and obligations of
such person or entity under the terms and provisions of this Operating
Agreement, the Articles of Organization, and the Colorado Limited Liability
Company Act, as amended from time to time. Each Member's respective
Ownership Interest, expressed as a percentage, is set forth on Exhibit A
attached hereto.
(l) "Transfer" means with respect to an Ownership Interest, the
offer, sale, assignment, transfer, gift or other disposition of, whether
voluntarily or by operation of law, except that in the case of a bona fide
pledge or other hypothecation, no Transfer shall be deemed to have occurred
unless and until the secured party has exercised its right of foreclosure
with respect thereto.
ARTICLE 2
CAPITAL
Section 2.1. Capital Contributions. Each Member shall contribute to the
capital of the Company the amount set forth on Exhibit A. No Member shall be
entitled to interest on its capital contribution, and no Member shall have the
right to retire or resign as a Member or to withdraw or receive any return of
such Member's capital contribution, except as may be specifically provided in
this Operating Agreement.
Section 2.2. Additional Capital. Each Member shall make additional capital
contributions in accordance with its respective Ownership Interest for each of
the following:
(a) To cover Company capital needs as determined by a Majority of the
Members, but only up to ten percent (10%) of the amount of each Member's
capital contributions on the date of such request as set forth on Exhibit A
attached hereto;
(b) To cover the failure of any Member to contribute capital as
required by this Section 2.2; and
(c) Upon the unanimous written consent of the Members.
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Section 2.3. Delinquent Contributions. In the event that a Member fails
to make a capital contribution for which such Member is liable under Section 2.2
in a timely manner, then the Administrative Agent shall notify all Members of
such nonpayment. The notice of nonpayment shall be deemed a capital call to the
paying Members pursuant to Section 2.2(b). In addition:
(a) The nonpaying Member's capital account shall be reduced by
subtracting an amount equal to five (5) times such nonpaying Member's
unpaid capital contribution; provided, however, the result of that
reduction does not reduce the nonpaying Member's capital account below zero
or increase a negative capital account. The capital accounts of the paying
Members shall be increased by (1) the amount actually contributed by such
paying Members pursuant to Section 2.2(b), and (2) the same amount that the
nonpaying Member's capital account was reduced, in proportion to the
amounts of cash the paying Members actually contribute pursuant to
Section 2.2(b).
(b) After giving effect to the foregoing reductions and additions,
the respective Ownership Interests of the Members shall be automatically
reallocated in proportion to the ratio each Member's new capital account
balance bears to the sum of all Members' capital account balances. The
Company shall promptly inform the Members of the new Ownership Interests of
all the Members, and shall make all future distributions in accordance with
such new Ownership Interests. If the Ownership Interest of a Member is
reduced to zero, then the membership of such Member shall be deemed
terminated and the Company may be dissolved in accordance with
Section 9.1(a).
ARTICLE 3
BUSINESS OF THE COMPANY
Section 3.1. Authorization by Members. The Members hereby unanimously
authorize the Company to engage in the business purposes set forth and described
in Section 1.4.
Section 3.2. Management of Business. The Administrative Agent, on behalf of
the Company, is hereby authorized to do all acts and things to facilitate the
operation and management of the Company in its normal course of business. The
Administrative Agent is specifically authorized to execute documents on behalf
of the Company which are necessary or appropriate to carry on the ordinary
day-to-day business of the Company.
ARTICLE 4
INCOME AND DISTRIBUTIONS
Section 4.1. Profits and Losses. After giving effect to the special
allocations set forth in Section 9.5, the Net Profits and Net Losses of the
Company for any taxable year of the Company or portion thereof shall be
allocated as follows:
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(a) Net Profits:
(1) First, to those Members in proportion to and to the extent
of the excess, if any, of (i) the cumulative Net Losses allocated to
such Members pursuant to Section 4.1(b)(2) for all prior taxable
years, over (ii) the cumulative Net Profits allocated to such Members
pursuant to this Section 4.1(a)(1) for all prior taxable years; and
(2) The balance, if any, to the Members in proportion to their
respective Ownership Interests.
(b) Net Losses:
(1) First, to the Members in proportion to their respective
Ownership Interests; provided, however, that Net Losses shall not be
allocated pursuant to this Section 4.1(b)(1) to the extent such
allocation would cause any Member to have or to increase a Deficit
Capital Account at the end of such taxable year; and
(2) The balance, if any, to those Members without Deficit
Capital Accounts at the end of such taxable year, pro rata in
accordance with their positive capital account balances, or if no such
Members exist, then to the Members in accordance with their respective
Ownership Interests in the Company.
Section 4.2. Distributions. Except upon dissolution and liquidation and
subject to Section 4.3, within five (5) business days after the Administrative
Agent determines that the Company has Distributable Cash to distribute, the
Administrative Agent or other authorized person or entity shall distribute the
Distributable Cash of the Company to the Members in the following order of
priority:
(a) First, to the extent there is Distributable Cash arising out of
items which would be allocable as Net Profits to the Members pursuant to
Section 4.1(a), such amount shall be distributed to the Members in the
proportion that such Net Profits would be allocable to such Members;
(b) Second, to the Members in proportion to their respective capital
contributions until the Members receive the amount which, when aggregated
with all previous distributions pursuant to this Section 4.2(b), is equal
to their capital contributions; and
(c) Finally, the balance, if any, shall be distributed to the Members
in proportion to their respective Ownership Interests.
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ARTICLE 5
MEMBERS AND MANAGEMENT
Section 5.1. Members. The names, addresses, capital contributions, and
percentages of Ownership Interests of the Members are set forth on Exhibit A
attached hereto, which Exhibit A shall be amended by the Administrative Agent
upon the admission or withdrawal of any Member and upon the change in the
address, capital contribution, or percentage of Ownership Interests of any
Member.
Section 5.2. Control of Business. Management of the Company shall be
vested in the Members. The Members shall have the full authority to control,
manage, and direct all aspects and matters of the business of the Company.
Section 5.3. Administrative Agent. (a) The Members by their unanimous vote
shall select one or more persons who shall at all times be an officer or
director of Sterling Resources, Inc. (the sole Member of the Company at the time
of its formation) to serve as the Administrative Agent of the Company
(hereinafter individually and collectively referred to as the "Administrative
Agent"). The Administrative Agent shall be responsible for the administrative
duties associated with the day-to-day business of the Company and for carrying
out the decisions of the Members. Subject to the limitations and restrictions
set forth in this Operating Agreement (including, without limitation, those set
forth in Section 5.4 below), the Administrative Agent shall have the full power
and authority to execute all instruments or documents necessary or appropriate
to the conduct of the business of the Company in accordance with the terms of
this Operating Agreement. The Administrative Agent also shall have the
authority to request one or more persons or entities to assist it in the
performance of any of its duties as Administrative Agent, provided there is no
additional cost to the Company. ▇▇▇▇▇ ▇▇▇▇▇▇ and ▇▇▇▇ ▇▇▇▇▇▇ shall serve as the
initial Administrative Agent.
(b) The Administrative Agent may resign as such at any time, after giving
not less than thirty (30) days' notice to the other Members. Upon such
resignation as Administrative Agent, such former Administrative Agent and the
other Members by their unanimous vote shall select a successor Administrative
Agent.
(c) The Administrative Agent may be removed as such at any time by a
Majority of the Members. Upon such removal as Administrative Agent, the Members
(including the Member that was removed as Administrative Agent) by their
unanimous vote shall select a successor Administrative Agent.
Section 5.4. Action Requiring Consent of Members. Notwithstanding the
foregoing and without limiting the other restrictions set forth in this
Operating Agreement, the following actions shall require the consent and joinder
of a Majority of the Members as follows:
(a) Dissolve, liquidate or terminate the Company;
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(b) Amend this Operating Agreement (except the Administrative Agent
shall have the authority to amend Exhibit A as provided in Section 5.1
without the consent of the Members);
(c) Borrow funds on behalf of the Company; or
(d) File a petition in Bankruptcy on behalf of the Company.
Section 5.5. Compensation and Reimbursement. The Members shall not be
entitled to any compensation for their services to the Company hereunder.
However, each Member shall be entitled to reimbursement from the Company for
all expenses of the Company reasonably incurred and actually paid by the Member
on behalf of the Company.
Section 5.6. No Annual Meeting Required. Annual meetings of the Members
shall not be required.
Section 5.7. Meetings. Meetings of the Members may be called by or at the
request of any Member. Members may participate in meetings by conference
telephone or by any other method that permits all Members to hear each other.
Section 5.8. Place of Meeting. A notice of meeting or a waiver of notice
signed by all Members entitled to vote at a meeting may designate the place of
any meeting. If no designation is made, the place of meeting shall be the
principal place of business of the Company in Colorado.
Section 5.9. Notice of Meeting. Written or printed notice stating the place,
day and hour of the meeting, and the purposes for which the meeting is called,
shall be delivered not less than five (5) nor more than fifty (50) days before
the date of the meeting, either personally, by telecopier or by mail, by the
persons calling the meeting, to each Member of the Company.
Section 5.10. Attendance Waives Notice. By attending a meeting, a Member
waives objection to the lack of notice or defective notice unless the Member, at
the beginning of the meeting, objects to the holding of the meeting or the
transacting of business at the meeting. A Member who attends a meeting also
waives objection to consideration at such meeting of a particular matter not
within the purpose described in the notice unless the Member objects to
considering the matter when it is presented.
Section 5.11. Quorum and Action of Members. Members holding a majority of the
Ownership Interests of the Company, represented in person or by proxy, shall
constitute a quorum at a meeting of the Members. If a quorum is not present,
Members holding a majority of the Ownership Interests present at the meeting may
adjourn the meeting from time to time without further notice. At the reassembly
of any such adjourned meeting at which a quorum is then present or represented,
any business may be transacted which might have been transacted at the meeting
as originally notified. The Members present at a duly organized and constituted
meeting may continue to transact business until adjournment, notwithstanding the
withdrawal of enough Members to leave less than a quorum. If a quorum is
present, and unless otherwise
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provided for in this Operating Agreement, the affirmative vote of a Majority of
the Members shall be sufficient to be the act of the Members, unless a greater
percentage of votes is required by this Operating Agreement.
Section 5.12. Proxies. A Member may vote in person or by proxy. The proxy
appointment form, executed in writing by the Member or by a duly authorized
attorney-in-fact, shall be filed with the Company before or at the time of the
meeting. No appointment of a proxy shall be valid after eleven months from the
date of its execution, unless otherwise provided in the proxy appointment form.
A facsimile or photocopy of such proxy appointment form or attorney-in-fact
designation shall have the same force and effect as the original.
Section 5.13. No Requirements of Records of Meetings. Neither this Operating
Agreement nor the Colorado Limited Liability Company Act requires any Member to
take or maintain minutes or other records of any meetings of the Members.
Section 5.14. Action by Members Without a Meeting. Any action required or
permitted to be taken at a meeting of the Members may be taken without a
meeting. Any Member calling a meeting of the Members may elect, in lieu of
holding a meeting under the provisions of Section 5.7 hereof, to prepare a
written memorandum describing the issue(s) to be decided and deliver such
memorandum to all the other Members by telecopier, if available, or otherwise to
the registered address of each Member. The memorandum shall provide each Member
the opportunity to consent in writing on the issue(s) presented by delivering
such written consent to the Company, at its principal place of business, by
telecopier, mail, or other delivery service. The written consent shall be
deemed effective at such time as the Company receives the affirmative written
consent of a Majority of the Members or at such other time as provided in the
written consent and shall constitute the act of the Members; provided, however,
if a greater percentage of votes is required by this Operating Agreement, the
written consent of such greater percentage shall be required to constitute the
act of the Members.
Section 5.15. Indemnification of Members. The Company hereby agrees to
indemnify, defend and hold harmless the Members (each such person or entity an
"Indemnitee"), from and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses and/or
disbursements of any kind which may be imposed on, asserted against, or incurred
by the Indemnitee in any way with respect to this Operating Agreement (except
for capital calls hereunder), to the fullest extent permitted by the Colorado
Limited Liability Company Act and the laws of the State of Colorado, except to
the extent such liability arises due to such Indemnitee's gross negligence or
intentional wrongdoing.
Section 5.16. Representations of Members. Each Member represents that it is
sophisticated in financial matters, is aware of the risks involved in the
business conducted by the Company, and has the financial wherewithal to absorb a
complete loss of such Member's capital contribution to the Company. Each Member
represents that it (a) has received copies of documents relating to the
organization and business of the Company; (b) has had the opportunity to inspect
the Company's complete records and files; and (c) approves, ratifies and accepts
all of the foregoing.
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Section 5.17. Time and Effort; Conflicts of Interest; Duty of Care.
(a) Time and Effort. Each Member shall devote such time and effort to the
business of the Company as such Member determines to be necessary to conduct the
business of the Company.
(b) Conflicts of Interest.
(1) General. A Member does not violate a duty or obligation to the
Company merely because the Member's conduct furthers the Member's own
interest.
(2) Business Opportunities. A Member may engage and invest in other
business ventures or properties of any nature, whether or not competitive
with the business of the Company. It is expressly understood that a Member
may enter into transactions that are similar to the transactions into which
the Company may enter, and the Company shall not by virtue of this
Operating Agreement have any right or interest in such other transactions
or the income or profits therefrom.
(3) Dealings with Company. The Administrative Agent, acting on
behalf of the Company, shall not be prohibited from or otherwise limited in
employing, borrowing money from, contracting with, or otherwise dealing
with, any person or entity by reason of the fact that such person or entity
is a Member or an affiliate of a Member, or is an entity in which a Member
has an interest, whether such relationship, affiliation, or interest is
direct or indirect, provided that the terms and conditions of such
employment, loan, contract or other dealing are fair to the Company.
(c) Duty of Care. A Member's duty of care in the discharge of a Member's
duties to the Company is limited to refraining from engaging in gross
negligence, intentional wrongdoing, or a knowing violation of the law. In
discharging a Member's duties, a Member shall be fully protected in relying in
good faith upon the records of the Company and upon such information, opinions,
reports, or statements by any of its agents, or by any other person, as to
matters the Member reasonably believes are within such other person's
professional or expert competence and who has been selected with reasonable care
by or on behalf of the Company.
Section 5.18. Limited Liability. No Member shall incur any liability other
than sharing of expenses and other matters specifically set forth herein to any
other Member, and no Member shall owe fiduciary duties to any other Member by
virtue of this Operating Agreement or its membership in the Company. No Member
shall be liable under a judgment, decree or order of any court, or in any other
manner, for a debt, obligation or liability of the Company, except as provided
by law and pursuant to this Operating Agreement.
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ARTICLE 6
ACCOUNTING AND REPORTING
Section 6.1. Company's Books. All accounts, books, and records of the
Company's business shall be kept at the Company's principal place of business or
at such other location as the Members shall determine, and shall be open to
inspection by any of the Members or their accredited representatives at any
reasonable time during business hours. The accounting records of the Company
shall be maintained in accordance with generally accepted accounting principles
for the type of business carried on by the Company. The fiscal year of the
Company shall be the calendar year.
Section 6.2. Capital Accounts. A separate capital account shall be
established and maintained on behalf of each Member. The capital accounts shall
be maintained in accordance with the Code, including Section 704(b) of the Code,
the Treasury Regulations promulgated thereunder (including the capital
accounting rules in Section 1.704-1(b)(2)(iv) of the Treasury Regulations), and
other applicable authority. In the event of a permitted sale or exchange of an
Ownership Interest, the capital account of the transferor shall become the
capital account of the transferee to the extent it relates to the transferred
Ownership Interest. Because the Members intend that capital accounts be
maintained in accordance with the Code, the Treasury Regulations and applicable
law, to accomplish that purpose, the Administrative Agent is authorized to
modify the manner in which the capital accounts are maintained and adjustments
thereto are computed, and to make any appropriate adjustments thereto, to assure
such compliance; provided, however, that such modifications and adjustments
shall not materially alter the economic agreement between or among the Members.
Section 6.3. Quarterly Reports to Members. Within ten (10) days after the
end of each calendar quarter of the Company, the Company shall furnish to each
Member a report setting forth the receipts and disbursements made by the
Company.
Section 6.4. Annual Reports to Members. Within ninety (90) days after the
end of each fiscal year of the Company, or at such time that circumstances may
require, the Company shall furnish to each Member an annual report. This report
shall consist of at least: (a) an annual financial statement, including balance
sheet, income statement, and statements of cash flow; (b) individual investor
summaries related to capital contributions and earning of each Member; (c) a
copy of the Company's federal income tax return with supporting schedules and
state income tax return with supporting schedules; (d) a statement regarding the
financial and business condition of the Company; and (e) any additional
information that the Members may require for the preparation of their individual
federal and state income tax returns.
Section 6.5. Tax Matters Partner. The Administrative Agent hereby is
designated to be the tax matters partner (as defined in the Code) on behalf of
the Company. Any reasonable costs incurred by the tax matters partner in
connection with performing its duties as tax matters partner, including
retaining accountants and attorneys, shall be as expenses of the Company.
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Section 6.6. Bank Accounts. The funds of the Company shall not be
commingled with the funds of any other person or entity, and the Members shall
not employ, or permit any other person to employ, such funds in any manner
except for the benefit of the Company. The Administrative Agent, or a person or
entity authorized by the Administrative Agent, shall establish one or more bank
accounts on behalf of the Company, and the authorized signatories shall be the
Administrative Agent.
ARTICLE 7
CORPORATE FILINGS
Section 7.1. Approval of Previous Filings with the Secretary of State and
Release of Organizer. The Members hereby approve all the documents previously
filed with the Secretary of State of the State of Colorado, including the
Company's Articles of Organization. In the event that any such documents name
an "organizer" of the Company, then such person or entity shall be and is hereby
automatically and immediately released from that position and shall have no
liability whatsoever as a result of being an organizer of this Company. In
addition, the Members hereby authorize the Company to indemnify and hold
harmless the organizer from any cost or claim of any nature arising from such
person's activities in forming the Company.
ARTICLE 8
CHANGES IN MEMBERSHIP
Section 8.1. Transfers of Ownership Interests; Admission of Substitute
Members.
(a) General. A Member may transfer all or any part of its Ownership
Interest only if (1) the transferring Member and the transferee comply with
Section 8.1(b) below and (2) a Majority of the Members consent to such transfer.
Upon compliance with Section 8.1(b) and the consent of a Majority of the
Members, the transferee shall have the right with respect to or by virtue of the
transferred Ownership Interest to participate in the business and affairs of the
Company and to be admitted as a substitute Member with all the rights and
obligations of a Member, unless a Majority of the Members approve the transfer
of only an Economic Interest.
(b) Additional Requirements. As a condition to recognizing the
effectiveness and binding nature of any Transfer of an Ownership Interest, the
transferring Member and the proposed transferee shall execute, acknowledge and
deliver to the Company such instruments of transfer, assignment and assumption
and such other certificates, representations and documents, and to perform all
such other acts that the Administrative Agent deems necessary or desirable to
(1) constitute such transferee as such; (2) confirm that the transferee desiring
to acquire an Ownership Interest in the Company has accepted, assumed and agreed
to be subject and bound by all the terms, obligations and conditions of the
Operating Agreement, as the same may have been further amended; (3) preserve the
Company after the completion of such Transfer under the laws of each
jurisdiction in which the Company is qualified, organized or does business;
(4) maintain the status of the Company as an organization not taxable as a
corporation under the
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then applicable provisions of the Code; (5) not cause, either alone or when
combined with other transactions, a termination of the Company within the
meaning of Code Section 708 (unless otherwise determined by the Administrative
Agent); and (6) assure compliance with the applicable securities acts and
regulations.
(c) Transfers Without Approval. Notwithstanding Section 8.1(a), a Member
may transfer, without the prior approval of a Majority of the Members, such
Member's Economic Interest. However, if a Member makes a Transfer pursuant to
this Section 8.1(c) without the prior approval of a Majority of the Members,
(1) the transferring Member shall forfeit its management and voting rights under
this Operating Agreement, (2) the transferring Member shall continue to be
liable for its obligations under this Operating Agreement, and (3) the
transferee shall have only an Economic Interest and thus shall not be admitted
as a substitute Member with all the voting and management rights of a Member.
Section 8.2. New Members and Substitute Members. From the date of the
formation of the Company, a person or entity may be admitted as a Member to the
Company only (a) upon the consent of a Majority of the Members or (b) as a
substitute Member approved by a Majority of the Members in accordance with
Section 8.1(a), subject to the terms and conditions of this Operating Agreement.
Section 8.3. Conversion of Ownership Interests upon Dissociation of a Member.
(a) Dissociation Defined. Dissociation shall mean that a Member shall cease
to be a Member, and, subject to Section 8.3(c) below, the Ownership Interest of
the Member shall be converted to an Economic Interest as set forth in
Section 8.3(b) below, upon the happening of any of the following events:
(1) the Bankruptcy of a Member;
(2) in the case of a Member who is a natural person, the death of the
Member or the entry of an order by a court of competent jurisdiction
adjudicating the Member incompetent to manage the Member's person or
property;
(3) in the case of a Member that is not a natural person, the
dissolution and commencement of a winding up of the Member; and
(4) any other event that terminates the continued membership of a
Member in a limited liability company under the Colorado Limited Liability
Company Act.
(b) Conversion of Ownership Interest. Except as set forth below in
Section 8.3(c), upon the Dissociation of a Member, the Ownership Interest of
such Member shall immediately and automatically convert to an Economic Interest.
If a Member who is a natural person dies or a court of competent jurisdiction
adjudges the Member to be incompetent to manage his or her person or his or her
property, the Member's executor, administrator, guardian, conservator or other
legal representative may exercise the Member's rights under the converted
Economic Interest. If a Member is not a natural person, and is dissolved or
terminated, the powers with
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respect to the Economic Interest of such Member may be exercised by such
Member's legal representative or successor. Any capital contribution for which
such Member would have been liable before Dissociation, even if the capital
contribution has not then been declared by the Company, shall become a debt owed
to the Company by the holder of the Economic Interest, and that debt shall
become payable to the Company on the same date that it would have become due if
the Dissociation had not occurred. If such debt is not paid in a timely manner,
the Company's records shall be automatically adjusted in accordance with
Section 2.3 hereof and future distributions to the Members, including the holder
of the Economic Interest, shall be made in accordance with such adjusted
records.
(c) Exception to Conversion. Notwithstanding Section 8.3(b) above, the
Ownership Interest of a Member shall not immediately and automatically convert
to an Economic Interest upon the Dissociation of such Member if: (1) another
person or entity succeeds to the interest of such Member; (2) a Majority of the
Members agree to admit such person or entity as a substitute Member; and
(3) such person or entity agrees to satisfy the requirements of Section 8.1(b).
ARTICLE 9
DISSOLUTION
Section 9.1. Dissolution. (a) The Company shall be dissolved only upon the
occurrence of any of the following events:
(1) When the period fixed for the duration of the Company expires, if
any;
(2) By the consent of a Majority of the Members upon the completion
of the purposes of the Company as set forth in Section 1.4; or
(3) Otherwise, by the written agreement of a Majority of the Members
of the Company.
(b) in the event of the dissolution of the Company, the Company shall file a
statement of intent to dissolve with the Secretary of State for the State of
Colorado, and upon the filing of same, the Company will cease all business
except as is necessary to wind up the affairs of the Company. After all
obligations of the Company have been satisfied, adequately provided for, or
discharged, the Company shall file articles of dissolution with the Secretary of
State for the State of Colorado, executed in duplicate.
(c) Except as provided by law, upon dissolution, each Member shall look
solely to the assets of the Company for the return of the Member's capital
contribution. If the Company property remaining after the payment or discharge
of the debts and liabilities of the Company is insufficient to return the cash
contribution of one or more Members, such Member shall have no recourse against
any other Member.
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Section 9.2. Final Accounting. In case of the dissolution of the
Company, a proper accounting shall be made from the date of the most recent
accounting to the date of dissolution.
Section 9.3. Liquidation. Upon the dissolution of the Company, the
Administrative Agent shall act as liquidator to wind up the Company. As
liquidator, the Administrative Agent shall have the full power and authority to
sell, assign, and encumber any or all of the Company's assets and to wind up and
liquidate the affairs of the Company in an orderly and businesslike manner. All
Proceeds from liquidation shall be distributed in the following order of
priority:
(a) To the payment of debts and liabilities of the Company, including
debts and liabilities to Members who are creditors of the Company (except
for the return of capital contributions), and the expenses of liquidation;
(b) To the setting up of such reserves as the liquidator shall deem
reasonably necessary for any contingent liabilities of the Company; and
(c) The balance, if any, to the Members, in proportion to the
Members' respective positive balances in their capital accounts, after
giving effect to all contributions, distributions, allocations and
adjustments for the Company's taxable year during which the liquidation
occurs. Any such distribution in respect to their capital accounts shall
be made in accordance with the time requirements set forth in
Section 1.704-1(b)(2)(ii)(b)(2) of the Treasury Regulations.
Section 9.4. No Obligation to Restore Capital Account Deficit.
Notwithstanding anything to the contrary in this Operating Agreement, in the
event the Company is "liquidated" within the meaning of Treasury Regulations
Section 1.704-1(b)(2)(ii)(g), (1) distributions shall be made to the Members in
accordance with their positive capital account balances in compliance with
Treasury Regulations Section 1.704-1(b)(2)(ii)(b)(2), and (2) if any Member has
a capital account with a negative balance (after giving effect to all
contributions, distributions, allocations and other capital account adjustments
for all taxable years, including the year during which such liquidation occurs),
such Member shall have no obligation to make any contribution to the capital of
the Company, and the negative balance of such Member's capital account shall not
be considered a debt owed by such Member to the Company or to any other person
or entity for any purpose whatsoever.
Section 9.5. Special Allocations. Notwithstanding Section 4.1, the following
provisions shall govern allocations:
(a) Qualified Income Offset. In the event any Member unexpectedly
receives any adjustments, allocations, or distributions described in
Sections 1.704-1(b)(2)(ii)(d)(4), (5), or (6) of the Treasury Regulations,
which create or increase a Deficit Capital Account of such Member, then
items of Company income and gain (consisting of a pro rata portion of each
item of Company income, including gross income, and gain for such year and,
if necessary, for subsequent years) shall be specially allocated and
credited to the capital account of such Member in an amount and manner
sufficient to eliminate, to the extent required by the Treasury
Regulations, the Deficit
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Capital Account as quickly as possible. It is the intent that this
Section 9.5(a) be interpreted to comply with the alternate test for
economic effect set forth in Section 1.704-1(b)(2)(ii)(d) of the Treasury
Regulations.
(b) Gross Income Allocation. In the event any Member would have a
Deficit Capital Account at the end of any Company taxable year which is in
excess of the sum of any amount that such Member is obligated or deemed
obligated to restore to the Company pursuant to this Operating Agreement,
then the capital account of such Member shall be specially allocated and
credited with items of Company income (including gross income) and gain in
the amount of such excess as quickly as possible.
(c) Intention of Allocations. Any credit or charge to the capital
accounts of the Members pursuant to the foregoing provisions of this
Section 9.5 shall be taken into account in computing subsequent allocations
of Net Profits and Net Losses pursuant to Section 4.1, so that the net
amount of any items charged or credited to capital accounts pursuant to
Section 4.1 shall to the extent possible, be equal to the net amount that
would have been allocated to the capital account of each Member pursuant to
the provisions of Section 4.1 if the special allocations required by the
foregoing provisions of this Section 9.5 had not occurred.
(d) Other Allocations. (1) For purposes of determining the Net
Profits and Net Losses or other items allocable to any period, Net Profits,
Net Losses and any other items shall be determined on a daily, monthly, or
other basis, as determined by the Administrative Agent using any
permissible method under Code Section 706 and the Treasury Regulations
thereunder.
(2) The Members are aware of the income tax consequences of the
allocations made hereunder and hereby agree to be bound by the provisions
of this Operating Agreement in reporting their shares of Company income and
loss for income tax purposes.
ARTICLE 10
MISCELLANEOUS
Section 10.1. Indemnification. Each Member shall indemnify and hold harmless
the Company and the other Members from any and all expense and liability
resulting from or arising out of such Member's (a) breach of any terms of this
Operating Agreement; (b) violation of any provisions of the Colorado Limited
Liability Company Act; or (c) gross negligence or intentional wrongdoing, to the
extent that the amount exceeds the applicable insurance carried by the Company.
Section 10.2. Entire Agreement; Modifications; Waiver. This Operating
Agreement constitutes the entire agreement between and among the Members
pertaining to the subject matter contained in it and supersedes all prior
agreements, representations and understandings of
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the Members. No supplement, modification or amendment of this Operating
Agreement shall be binding unless executed in writing by all the Members. No
waiver of any of the provisions of this Operating Agreement shall be deemed or
shall constitute a waiver of any other provision, whether or not similar, nor
shall any waiver constitute a continuing waiver. No waiver shall be binding
unless executed in writing the Member making the waiver.
Section 10.3. Recovery of Litigation Costs. If any legal action or any
arbitration or other proceedings are brought for the enforcement of this
Operating Agreement, or because of a dispute, alleged breach, default, or
misrepresentation in connection with any of the provisions of this Operating
Agreement, the successful or prevailing Member(s) shall be entitled to recover
reasonable attorneys' fees and other costs incurred in that action or
proceeding, in addition to any other relief to which such Member(s) may be
entitled.
Section 10.4. Arbitration. The Members and the Company hereby agree to submit
any disputes between the Members or between the Members and the Company
(including, but not limited to disputes relating to any state or federal
securities laws or regulations) to binding arbitration in accordance with the
rules of the American Arbitration Association. Any such arbitration proceeding
shall be conducted by the Judicial Arbiter Group in Denver, Colorado, or by such
other arbitrator mutually acceptable to the parties to such dispute. The
Members and the Company hereby expressly waive any right to recover punitive
damages against any party in such arbitration.
Section 10.5. Notices. All notices, requests, demands and other
communications under this Operating Agreement shall be in writing and shall
be deemed to have been duly given on the date of delivery if delivered by
courier to the Member to whom notice is to be given, upon facsimile
transmission if sent by facsimile to the Member to whom notice is to be
given, or on the third day after mailing if mailed to the Member to whom
notice is to be given, by first class mail, postage prepaid, and properly
addressed as shown on the books of the Company; provided, however, that any
written communication containing such information sent to any Member
actually received by such Member shall constitute Notice for all purposes
of this Operating Agreement. Any Member may change its address for purposes
of this section entitled "Notices" by giving the other Members written notice
of the new address in the manner set forth above.
Section 10.6. Governing Law. This Operating Agreement shall be construed in
accordance with, and governed by, the laws of the State of Colorado. The venue
for all actions arising from this Operating Agreement or the business of the
Company shall be the District Court for El Paso County, Colorado.
Section 10.7. Successors. This Operating Agreement shall be binding on and
inure to the benefit of the respective successors, assigns and personal
representatives of the Members, except to the extent of any contrary provision
in this Operating Agreement.
Section 10.8. Headings. The subject headings of the articles and sections of
Operating Agreement are included for purposes of convenience only and shall not
affect the construction or interpretation of any of its provisions.
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Section 10.9. Parties in Interest. Nothing in this Operating Agreement,
whether express or implied, is intended to confer any rights or remedies under
or by reason of this Operating Agreement on any persons other than the parties
to it, nor is anything in this Operating Agreement intended to relieve the
obligation or liability of any third persons to any party to this Operating
Agreement or to the Company, nor shall any provision give any third persons any
right of subrogation or action over or against any party to this Operating
Agreement.
Section 10.10. Waiver of Action of Partition. Each Member irrevocably waives
during the term of the Company any right that it may have to maintain any action
for partition with respect to the property of the Company.
Section 10.11. Reliance on Authority of Person Signing Agreement. In the
event that a Member is not a natural person, neither the Company nor any Member
shall (a) be required to determine the authority of the individual signing this
Operating Agreement to make any commitment or undertaking on behalf of such
entity or to determine any fact or circumstance bearing upon the existence of
the authority of such individual or (b) be required to see to the application or
distribution of proceeds paid or credited to individuals signing this Operating
Agreement on behalf of such entity.
Section 10.12. Severability. If any term, provision, covenant or condition of
this Operating Agreement is held by a court of competent jurisdiction to be
invalid, void or unenforceable, the rest of the Operating Agreement shall remain
in full force and effect and shall in no way be affected, impaired or
invalidated.
Section 10.13. Standard of Action. The Members each hereby agree that each of
them will perform all actions provided for under this Operating Agreement in a
commercially reasonable manner.
Section 10.14. Counterparts. This Operating Agreement may be executed in any
number of counterpart signature pages, which pages may be transmitted after
execution by telecopier to the Company, at its principal place of business (with
the original signature page(s) mailed or otherwise delivered in a timely manner
to the Company), each of which pages shall be effective upon receipt by the
Company and thereafter shall be deemed an original, and all of which shall be
taken to be one and the same instrument, for the same effect as if all parties
hereto had signed the same signature page. Any signature page of this Operating
Agreement may be detached from any counterpart of this Operating Agreement
without impairing the legal effect of any signatures thereon and may be attached
to another counterpart of this Operating Agreement identical in form hereto but
having attached to it one or more additional signature pages.
Section 10.15. Pronouns and Plurals. All pronouns used herein shall be deemed
to refer to the masculine, feminine, neuter, singular or plural as the identity
of the person or persons may require in the context, and the singular form of
nouns, pronouns and verbs shall include the plural, and vice versa, whichever
the context may require.
Section 10.16. Effective Date. This Operating Agreement shall become
effective as of the date written above.
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Section 10.17. Creditors' Rights. If a court of competent jurisdiction
charges the Ownership Interest of any Member with payment of the unsatisfied
amount of any judgment or claim, to the extent so charged, the judgment
creditors shall have only the rights of an assignee of the Ownership Interest,
and the Company shall not be dissolved, unless otherwise dissolved pursuant to
the provisions of this Operating Agreement or the Colorado Limited Liability
Company Act. Such judgment creditor shall have only an Economic Interest and
shall not have the right to be admitted as a Member nor to exercise any rights
of a Member.
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OPERATING AGREEMENT
OF
STERLING MANAGEMENT, LLC
A COLORADO LIMITED LIABILITY COMPANY
SIGNATURE PAGE
IN WITNESS WHEREOF, the undersigned Member has duly executed this Operating
Agreement.
DATED as of ___________, 2005.
(if natural person) MEMBER: (if other than natural person):
________________________________ BY:_______________________________________
Signature Authorized Officer/Representative
________________________________
Typed or Printed Name
Address: 18925 Base ▇▇▇▇ ▇▇▇▇ - ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
Telephone: _____________________
Telecopier: ____________________
Social Security
or Tax
Identification
Number: ______________________
NOTE - Each Member should indicate its approval of the capital contribution and
the percentage of Ownership Interests as set forth on Exhibit A by initialing
Exhibit A where indicated.
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OPERATING AGREEMENT
OF
STERLING MANAGEMENT, LLC
A COLORADO LIMITED LIABILITY COMPANY
EXHIBIT A
SCHEDULE OF MEMBERS
Each Member of the Company shall contribute the following funds to the
Company and shall receive the following percentage of Ownership Interests:
% OF
NAME AND ADDRESS OF CAPITAL OWNERSHIP MEMBER
MEMBER CONTRIBUTION INTERESTS INITIALS
Sterling Resources, Inc. 100%
▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇ - ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
