Member-Managed
Operating Agreement of
NAP Property Managers, LLC, a California Limited Liability Company
This Operating Agreement ("Agreement") is entered into this 9th day of
October, 1996 by and among the signatories to this Agreement.
Explanatory Statement
NAP Property Managers, a California general partnership, and the individual
general partners thereof, desire to convert and transform that general
partnership into, and to become, a limited liability company under the laws of
the State of California. Accordingly, the parties have agreed to conduct their
activities as previously conducted under and as a general partnership, as a
limited liability company in accordance with the terms and subject to the
conditions set forth in this Agreement. It is further their intention that the
limited liability company be taxed as a partnership for federal income tax
purposes.
NOW, THEREFORE, the parties agree as follows:
Article I
Defined Terms
The following capitalized terms shall have the respective meanings
specified in this Article I. Capitalized terms not defined in this Agreement
shall have the meanings specified in the Act.
"Act" means the ▇▇▇▇▇▇▇-▇▇▇▇▇▇ Limited Liability Company Act (California
Corporation Code Section 17000 et seq), as amended from time to time.
"Adjusted Capital Account Deficit" means, with respect to any Interest
Holder, the deficit balance, if any, in the Interest Holder's Capital Account as
of the end of the relevant taxable year, after giving effect to the following
adjustments:
(I) the deficit shall be decreased by the amounts which the Interest Holder
is obligated to restore pursuant to Section 4.4.2 or is deemed obligated to
restore pursuant to Regulation Sections 1.704-1(b)(2)(ii)(c)) l.704-2(g), and
1.704-2(I)(5); and
(ii) the deficit shall be increased by the items described in Regulation
Sections 1.704-l(b)(2)(ii)(d)(4), (5), and (6).
"Adjusted Capital Balance" means, as of any day, an Interest Holder's total
Contributions less all amounts actually distributed to the Interest Holder
pursuant to Section 4.2.3.4.1 and 4.4
-1-
hereof. If any Interest is transferred in accordance with the terms of this
Agreement, the Transferee shall succeed to the Adjusted Capital Balance of the
transferor to the extent the Adjusted Capital Balance relates to the Interest
transferred.
"Affiliate" means (a) a Person directly or indirectly controlling,
controlled by, or under common control with another Person; (b) a Person owning
or controlling 10 percent or more of the outstanding voting securities or
beneficial interests of another Person; (c) an officer, director, partner, or
member of the immediate family of an officer, director or partner, of another
Person; and/or (d) any affiliate of any such Person.
"Agreement" means this Operating Agreement, as amended from time to time
including each exhibit hereto.
"Assignee" means the Person who has acquired an Economic Interest in the
Company but is not a Member.
"Capital Account" means the account to be maintained by the Company for
each Interest Holder in accordance with the following provisions:
(I) an Interest Holder's Capital Account shall be credited with the amount
of money and the fair market value of any property contributed to the Company
(net of liabilities secured by such property that the Company either assumes or
to which such property is subject), the amount of any Company unsecured
liabilities assumed by the Interest Holder, and the Interest Holder's
distributive share of Profit and any item in the nature of income or gain
specially allocated to the Interest Holder pursuant to the provisions of Section
4.3 (other than Section 4.3.3); and
(ii) an Interest Holder's Capital Account shall be debited with the amount
of money and the fair market value of any Company property distributed to the
Interest Holder (net of liabilities secured by such distributed property that
the Interest Holder either assumes or to which such property is subject), the
amount of any unsecured liabilities of the Interest Holder assumed by the
Company, and the Interest Holder's distributive share of Loss and any item in
the nature of expenses or losses specially allocated to the Interest Holder
pursuant to the provisions of Section 4.3 (other than Section 4.3.3).
If any Interest is transferred pursuant to the terms of this Agreement, the
transferee shall succeed to the Capital Account of the transferor to the extent
the Capital Account is attributable to the transferred Interest. If the book
value of Company property is adjusted pursuant to Section 4.3.3, the Capital
Account of each Interest Holder shall be adjusted to reflect the aggregate
adjustment in the same manner as if the Company had recognized gain or loss
equal to the amount of such aggregate adjustment. It is intended that the
Capital Accounts of all Interest Holders shall be maintained in compliance with
the provisions of Regulation Section 1.704-l(b), and all provisions of this
Agreement relating to the maintenance of Capital Accounts shall be interpreted
and applied in a manner consistent with that Regulation.
-2-
"Capital Proceeds" means the gross receipts received by the Company from a
Capital Transaction.
"Capital Transaction" means any transaction not in the ordinary course of
business which results in the Company's receipt of cash or other consideration
other than Contributions, including, without limitation, proceeds of sales,
exchanges, or other dispositions of property not in the ordinary course of
business, financings, refinancings, condemnations, recoveries of damage awards,
and insurance proceeds.
"Cash Flow" means all cash derived from operations of the Company
(including interest received on reserves), without reduction for any non-cash
charges, but less cash used to pay current operating expenses and to pay or
establish reasonable reserves for future expenses, debt payments, capital
improvements, and replacements as determined by the Members. Cash Flow shall not
include Capital Proceeds but shall be increased by the reduction of any reserve
previously established.
"Code" means the Internal Revenue Code of 1986, as amended, or any
corresponding provision of any succeeding revenue law.
"Company" means the limited liability company formed in accordance with
this Agreement.
"Contribution" means any money, property, or services rendered, or a
promissory note or other binding obligation to contribute money or property, or
to render services as permitted in this title, which a Member contributes to a
Limited Liability Company as capital in that Member's capacity as a Member
pursuant to an agreement between the Members, including an agreement as to
value.
"Economic Interest" means a person's right to share in the income, gains,
losses, deductions, credit, or similar items of, and to receive Distributions
from, the Company, but does not include any other rights of a Member including,
without limitation, the right to Vote or to participate in management, or any
right to information concerning the business and affairs of the Company.
"Interest Holder" means any Person who holds an Economic Interest, whether
as a Member or as an Assignee of a Member.
"Involuntary Withdrawal" means, with respect to any Member, the occurrence
of any of the events described in paragraph 6.1 other than 6.4.1.
"Member" means any person who executes a counterpart of this Agreement as a
Member and any Person who subsequently is admitted as a Member of the Company.
-3-
"Member Loan Nonrecourse Deductions" means any Company deductions that
would be Nonrecourse Deductions if they were not attributable to a loan made or
guaranteed by a Member within the meaning of Regulation Section 1.704-2(I).
"Member Nonrecourse Debt Minimum Gain" has the meaning set forth in
Regulation Section 1.704-2(I)(2) (determined by substituting "Member" or
"Interest Holder" for "partner").
"Membership Interest" means a Member's rights in the Company, collectively,
including the Member's Economic Interest, any right to vote or participate in
management, and any right to information concerning the business and affairs of
the Company.
"Minimum Gain" has the meaning set forth in Regulation Section 1.704-2(d).
Minimum Gain shall be computed separately for each Interest Holder in a manner
consistent with the Regulations under IRC Section 704(b).
"Negative Capital Account" means a Capital Account with a balance of less
than zero.
"Nonrecourse Deductions" has the meaning set forth in Regulation Section
1.704-2(b)(l). The amount of Nonrecourse Deductions for a taxable year of the
Company equals the net increase, if any, in the amount of Minimum Gain during
that taxable year, determined according to the provisions of Regulation Section
l.704-2(c).
"Nonrecourse Liability" has the meaning set forth in Regulation Section
1.704-2(b)(3).
"Percentage" means, as to a Member, the percentage set forth after the
Member's name on Exhibit A, as amended from time to time, and as to an Interest
Holder who is not a Member, the Percentage or part of the Percentage that
corresponds to the portion of a Member's Economic Interest that the Interest
Holder has Acquired, to the extent the Interest Holder has succeeded to that
Member's interest.
"Person" means and includes an individual, corporation, partnership,
association, limited liability company, limited liability membership, trust,
estate, or other entity.
"Positive Capital Account" means a Capital Account with a balance greater
than zero.
"Profit" and "Loss" means, for each taxable year of the Company (or other
period for which Profit or Loss must be computed), the Company's taxable income
or loss determined in accordance with IRC Section 703(a), with the following
adjustments:
(I) all items of income, gain, loss, deduction, or credit required to be
stated separately pursuant to IRC Section 703(a)(l) shall be included in
computing Profit and Loss;
(ii) any tax-exempt income of the Company, not otherwise taken into account
in
-4-
computing the Company's taxable income or loss, shall be included in computing
Profit and Loss;
(iii) any expenditures of the Company described in IRC Section 705(a)(2)(B)
(or treated as such pursuant to Regulation Section l.704-l(b)(2)(iv)(I)) and not
otherwise taken into account in computing the Company's taxable income or loss,
shall be subtracted from Profit or Loss, as appropriate;
(iv) gain or loss resulting from any taxable disposition of Company
property shall be computed by reference to the book value as adjusted under
Regulation Section 1.704-1(b) ("adjusted book value") of the property disposed
of, notwithstanding the fact that the adjusted book value differs from the
adjusted basis of the property for federal income tax purposes;
(v) in lieu of the depreciation, amortization, or cost recovery deductions
allowable in computing taxable income or loss, there shall be taken into account
the depreciation computed based upon the adjusted book value of the asset; and
(vi) notwithstanding any other provision of this definition, any items
which are specially allocated pursuant to Section 4.3 shall not be taken into
account in computing Profit or Loss.
"Regulation" means the income tax regulations, including any temporary
regulations, from time to time promulgated under the Code.
"Secretary of State" means the Secretary of State of the State of
California.
"Transfer" means, when used as a noun, any sale, hypothecation, pledge,
assignment, attachment, or other transfer, and, when used as a verb, to sell
hypothecate, pledge, assign, or otherwise transfer.
Article II
Formation and Name; Office; Purpose; Term
2.1. Organization. The parties hereby organize a limited liability company
pursuant to the Act and the provisions of this Agreement. The Company shall
cause Articles of Organization to be prepared, executed, and filed with the
Secretary of State.
2.2. Name of the Company. The name of the Company is NAP Property Managers,
LLC, a California limited liability company.
2.3. Purpose. The Company is organized solely for the purpose of acting as
the general member of NAP PROPERTIES, LTD., a California limited membership and
to do all things necessary, convenient, or incidental to that purpose and to
carry on any other business permitted by applicable law.
2.4. Term. The Company shall continue in existence until December 31, 2016,
unless
-5-
sooner dissolved as provided by this Agreement or the Act.
2.5. Principal Place of Business. The Company's Principal Place of Business
shall be located at ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ or at any
other place within the State of California which the Members select.
2.6. Resident Agent. The name and address of the Company's resident agent
in the State of California is ▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇,
▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇.
2.7. Members. The name, present mailing address, taxpayer identification
number, and Percentage of each Member are set forth on Exhibit A.
Article III
Members; Capital; Capital Accounts
3.1. Initial Contributions. Upon the execution of this Agreement, the
Members shall contribute to the Company capital as described in Exhibit A,
namely, their respective general partnership interests in NAP Property Managers,
a California general partnership which general partnership is converted into a
California limited liability company by this operating agreement.
3.2. No Additional Contributions. No Member shall be required to contribute
any additional capital to the Company, and no Member shall have personal
liability for any obligation of the Company except as expressly provided by law.
3.3. No Interest on Contributions. Neither Members nor Interest Holders
shall be paid interest with respect to Contributions.
3.4. Return of Contributions. Except as otherwise provided in this
Agreement, no Member nor Interest Holder shall have the right to receive the
return of any Contribution or withdraw from the Company, except upon the
dissolution of the Company.
3.5. Form of Return of Capital. If a Member or an Interest Holder is
entitled to receive the return of a Contribution, the Company may distribute in
lieu of money, notes, or other, property having a value equal to the amount of
money distributable to such Person.
3.6. Capital Accounts. A separate Capital Account shall be maintained for
each Member and Interest Holder.
3.7. Loans and Other Business Transactions. Any Member may, at any time,
make or cause a loan to be made to the Company in any amount and on those terms
upon which the Company and the Member agree. Members may also transact other
business with the Company and, in doing so, they shall have the same rights and
be subject to the same obligations arising out
-6-
of any such business transaction as would be enjoyed by and imposed upon any
Person, not a Member, engaged in a similar business transaction with the
Company.
Article IV
Profit, Loss, and Distribution
4.1. Allocations of Profit or Loss and Distributions of Cash Other Than
from Capital Transactions.
4.1.1. Profit or Loss Other Than from a Capital Transaction. After
giving effect to the special allocations set forth in Section 4.3, for any
taxable year of the Company, Profit or Loss (other than Profit or Loss resulting
from a Capital Transaction, which Profit or Loss shall be allocated in
accordance with the provisions of Sections 4.2.1 and 4.2.2) shall be allocated
to the Interest Holders in proportion to their Percentages.
4.1.2. Cash Flow. Cash Flow for each taxable year of the Company shall
be distributed to the Interest Holders in proportion to their Percentages not
later than June 30 of the year following the taxable year.
4.2. Allocation of Profit or Loss from a Capital Transaction. After giving
effect to the special allocations set forth in Section 4.3, Profit and Loss from
a Capital Transaction shall be allocated as follows. For purposes of this
Section 4.2, (a) Profit and Loss shall be allocated prior to reducing Capital
Accounts by the distribution of the Proceeds from the Capital Transaction and
(b) an Interest Holder's Capital Account shall be determined by crediting to
each Interest Holder's Capital Account such Interest Holder's share of Minimum
Gain and Member Nonrecourse Debt Minimum Gain remaining after such Capital
Transaction.
4.2.1. Profit. Profit from a Capital Transaction shall be allocated
among the Interest Holders in the following order of priority:
4.2.1.1. First, if one or more Interest Holders has a Negative
Capital Account, to those Interest Holders, in proportion to their Negative
Capital Accounts, until all of those Negative Capital Accounts have been reduced
to zero.
4.2.1.2. Second, to the Interest Holders as necessary to cause
each Interest Holder's Capital Account (after applying Section 4.2.1.1) to equal
its respective Adjusted Capital Balance.
4.2.1.3. Third, any Profit in excess of the foregoing allocations
shall be allocated to the Interest Holders in proportion to their Percentages.
4.2.2. Loss. Loss from a Capital Transaction shall be allocated among
the Interest Holders in the following order of priority:
-7-
4.2.2.1. First, to the Interest Holders, as necessary to cause
the portion of their Capital Accounts, if any, exceeding their Adjusted Capital
Balances, to be in the ratio of their Percentages.
4.2.2.2. Second, to the Interest Holders in proportion to their
Percentages as necessary to eliminate the excess of their respective Capital
Accounts (after applying Section 4.2.2.1) over their respective Adjusted Capital
Balances.
4.2.2.3. Third, to the Interest Holders in proportion to their
Adjusted Capital Balances until all Positive Capital Accounts (after applying
Sections 4.2.2.1 and 4.2.2.2) have been reduced to zero.
4.2.2.4. Fourth, any Loss remaining shall be allocated to the
Interest Holders in proportion to their Percentages.
4.2.3. Capital Proceeds. Except as provided in Section 4.4 with
respect to the Distribution of Capital Proceeds derived in connection with
liquidation of the Company, Capital Proceeds shall be distributed and applied by
the Company in the following order and priority:
4.2.3.1. to the payment of all expenses of the Company incident
to the Capital Transaction; then
4.2.3.2. to the payment of debts and liabilities of the Company
then due and outstanding (including all debts due to any Interest Holder); then
4.2.3.3. to the establishment of any reserves which the Members
deem necessary for liabilities or obligations of the Company; then
4.2.3.4. the balance shall be distributed as follows:
4.2.3.4.1. to the Interest Holders in proportion to their
Adjusted Capital Balances, until their remaining Adjusted Capital Balances have
been paid in full;
4.2.3.4.2. the balance, to the Interest Holders in
proportion to their Percentages.
4.2.4. If there is insufficient Profit or Loss from a Capital
Transaction to allocate to the Interest Holders pursuant to any subsection of
Section 4.2 to cause every Interest Holder's Capital Account balance to equal
the entire Capital Account balance described in such subsection with respect to
such Interest Holder, Profit or Loss from a Capital Transaction available to be
allocated among the Interest Holders pursuant to said subsection shall be
allocated in proportion to the amounts thereof that would have been allocated to
each Interest Holder pursuant to such subsection if there had been sufficient
amounts thereof to fully satisfy the requirements of such
-8-
subsection with respect to every Interest Holder.
4.3. Regulatory Allocations.
4.3.1. Impermissible Deficit and Qualified Income Offset. No
Interest Holder shall be allocated Losses or deductions if the allocation causes
the Interest Holder to have an Adjusted Capital Account Deficit; instead, such
items shall be allocated to the other Interest Holders. If an Interest Holder
for any reason (whether or not expected) receives (1) an allocation of Loss or
deduction (or item thereof) or (2) any Distribution, which causes the Interest
Holder to have an Adjusted Capital Account Deficit at the end of any taxable
year, then all items of income and gain of the Company (consisting of a pro rata
portion of each item of Company income, including gross income and gain) for
that taxable year shall be allocated to that Interest Holder, before any other
allocation is made of Company items for that taxable year (other than an
allocation under Section 4.3.2), in the amount and in proportions required to
eliminate the excess as quickly as possible. This Section 4.3.1 is intended to
comply with, and shall be interpreted consistently with, the "alternate test for
economic effect" and "qualified income offset" provisions of the Regulations
promulgated under IRC Section 704(b).
4.3.2. Minimum Gain Chargebacks. In order to comply with the "minimum
gain chargeback" requirements of Regulation Sections 1.704-2(f)(l) and
1.704-2(I)(4), and notwithstanding any other provision of this Agreement to the
contrary, in the event there is a net decrease in an Interest Holder's share of
Minimum Gain and/or Member Nonrecourse Debt Minimum Gain during a Company's
taxable year, such Interest Holder shall be allocated items of income and gain
for that year (and if necessary, other years) as required by and in accordance
with Regulation Sections 1.704-2(f)(l) and 1.704-2(I)(4) before any other
allocation is made. It is the intent of the parties hereto that any allocation
pursuant to this Section 4.3.2 shall constitute a "minimum gain chargeback"
under Regulation Section 1.704-2(f) and 1.704-2(I)(4).
4.3.3. Contributed Property and Book-Ups. In accordance with IRC
Section 704(C) and the Regulations thereunder, including Regulation Section
l.704-l(b)(2)(iv)(d)(3), income, gain, loss, and deduction with respect to any
property contributed (or deemed contributed) to the Company shall, solely for
tax purposes, be allocated among the Interest Holders so as to take account of
any variation between the adjusted basis of the property to the Company for
federal income tax purposes and its fair market value at the date of
Contribution (or deemed Contribution). If the adjusted book value of any Company
asset is adjusted under Regulation Section 1.704-l(b)(2)(iv)(f), subsequent
allocations of income, gain, loss, and deduction with respect to the asset shall
take account any variation between the adjusted basis of the asset for federal
income tax purposes and its adjusted book value in the manner required under IRC
Section 704(C) and the Regulations thereunder. The parties hereto agree to use
the traditional method with curative allocations, as described in Regulation
Section 1.704-3(c), for making IRC Section 704(C) allocations.
4.3.4. IRC Section 754 Adjustment. To the extent an adjustment to the
tax basis
-9-
of any Company asset pursuant to IRC Section 734(b) or IRC Section 743(b) is
required, pursuant to Regulation Section 1.704-1(b)(2)(iv)(m), to be taken into
account in determining Capital Accounts, the amount of the 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 basis),
and the gain or loss shall be specially allocated to the Interest Holders in a
manner consistent with the manner in which their Capital Accounts are required
to be adjusted pursuant to that Section of the Regulations.
4.3.5. Nonrecourse Deductions. Nonrecourse Deductions for a taxable
year or other period shall be specially allocated among the Interest Holders in
proportion to their Percentages.
4.3.6. Member Loan Nonrecourse Deductions. Any Member Loan Nonrecourse
Deduction for any taxable year or other period shall be specially allocated to
the Interest Holder who bears the risk of loss with respect to the loan to which
the Member Loan Nonrecourse Deduction is attributable in accordance with
Regulation Section 1.704-2(I),
4.3.7. Guaranteed Payments. To the extent any compensation paid to any
Interest Holder by the Company, including any fees payable to any Interest
Holder pursuant to Section 5.3 hereof, is determined by the Internal Revenue
Service not to be a guaranteed payment under IRC Section 707(C) or is not paid
to the Interest Holder other than in the Person's capacity as a member (Interest
Holder) within the meaning of IRC Section 707(a), the Interest Holder shall be
specially allocated gross income of the Company in an amount equal to the amount
of that compensation, and the Interest Holder's Capital Account shall be
adjusted to reflect the payment of that compensation.
4.3.8. Unrealized Receivables. If an Interest Holder's Economic
Interest is reduced (provided the reduction does not result in a complete
termination of the Interest Holder's Interest), the Interest Holder's share of
the Company's "unrealized receivables" and "substantially appreciated inventory"
(within the meaning of IRC Section 751) shall not be reduced, so that,
notwithstanding any other provision of this Agreement to the contrary, that
portion of the Profit otherwise allocable upon a liquidation or dissolution of
the Company pursuant to Section 4.4 hereof which is taxable as ordinary income
(recaptured) for federal income tax purposes shall, to the extent possible
without increasing the total gain to the Company or to any Interest Holder, be
specially allocated among the Interest Holders in proportion to the deductions
(or basis reductions treated as deductions) giving rise to such recapture.
4.3.9. Withholding. All amounts required to be withheld pursuant to
IRC Section 1446 or any other provision of federal, state, or local tax law
shall be treated as amounts actually distributed to the affected Interest
Holders for all purposes under this Agreement.
4.3.10. Nonrecourse Liabilities. Solely for purposes of determining an
Interest Holder's proportionate share of "excess nonrecourse liabilities" of the
Company within the
-10-
meaning of Regulation Section 1.752-3(a)(3), the Interest Holders' interest in
Company profits shall be based on their respective Percentages.
4.3.11. Intent of Allocations. The tax allocation provisions of this
Agreement are intended to produce final Capital Account Balances of the Interest
Holders that will permit liquidating distributions that are made in accordance
with such final Capital Account Balances under Section 4.4.1 to be equal to the
Distributions that would occur under Section 4.2.3.4 (in the same order and
priority) if such liquidating proceeds were distributed pursuant to Section
4.2.3.4. To the extent that the tax allocation provisions of this Agreement
would not produce such final Capital Account Balances, (1) such provisions shall
be amended by the Members if and to the extent necessary to produce such result
and (2) taxable income or taxable loss of the Company for prior open years (or
items of gross income and deduction of the Company) shall be reallocated among
the Interest Holders to the extent it is not possible to achieve such result
with allocations of income (including gross income) and deduction for the
current year and future years. This Section 4.3.11 shall control notwithstanding
any reallocation or adjustment of taxable income, taxable loss, or items thereof
by the Internal Revenue Service or any other taxing authority.
4.3.12. Income Tax Provisions. The Interest Holders are aware of the
income tax consequences of this Article IV and agree to be bound by these
provisions in reporting their shares of Profit, Losses, and other items for
federal and state income tax purposes.
4.4. Liquidation and Dissolution.
4.4.1. Upon liquidation of the Company, the assets of the Company
shall be distributed to the Interest Holders in accordance with the positive
balances in their respective Capital Accounts, after giving effect to all
Contributions, Distributions, and allocations for all periods. Distributions to
the Interest Holders pursuant to this Section 4.4.1 shall be made in accordance
with Regulation Section 1.704-l(b)(2)(ii)(b)(2).
4.4.2. No Interest Holder shall be obligated to restore a Negative
Capital Account.
4.5. General.
4.5.1. Except as otherwise provided in this Agreement, the timing and
amount of all Distributions shall be determined by the Members.
4.5.2. If any assets of the Company are distributed in kind to the
Interest Holders, those assets shall be valued on the basis of their fair market
value, and any Interest Holder entitled to any interest in those assets shall
receive that interest as a tenant-in-common with all other Interest Holders so
entitled. Unless the Members otherwise agree, the fair market value of the
assets shall be determined by an independent appraiser who shall be selected by
the Members. The Profit or Loss for each unsold asset shall be determined as if
the asset had been sold at its fair
-11-
market value, and the Profit or Loss shall be allocated as provided in Section
4.2 and shall be properly credited or charged to the Capital Accounts of the
Interest Holders prior to the Distribution of the assets in liquidation pursuant
to Section 4.4.
4.5.3. All Profit and Loss shall be allocated and all distributions
shall be made to the Persons shown on the records of the Company to have been
Interest Holders as of the last day of the taxable year for which the allocation
or Distribution is to be made. Notwithstanding the foregoing, unless the
Company's taxable year is separated into segments, if there is a Transfer or an
Involuntary Withdrawal during the taxable year, the Profit and Loss shall be
allocated between the original Interest Holder and the successor on the basis of
the number of days each was an Interest Holder during the taxable year;
provided, however, the Company's taxable year shall be segregated into two or
more segments in order to account for Profit, Loss, or proceeds attributable to
a Capital Transaction or to any other extraordinary non-recurring items of the
Company.
4.5.4. The Members are hereby authorized, upon the advice of the
Company's tax counsel, to amend this Article IV to comply with the Code and the
Regulations promulgated under IRC Section 704(b); provided, however, that no
amendment shall materially affect Distributions to an Interest Holder without
the Interest Holder's prior written consent.
Article V
Management: Rights, Powers, and Duties
5.1 Management.
5.1.1. Member Managed. The Company shall be managed by its members.
5.1.2. General Powers. The Members shall have full, exclusive, and
complete discretion, power, and authority, subject in all cases to the other
provisions of this Agreement and the requirements of applicable law, to manage,
control, administer, and operate the business and affairs of the Company for the
purposes herein stated, and to make all decisions affecting such business and
affairs, including, without limitation, the power to:
5.1.2.1. acquire by purchase, lease, or otherwise, any real or
personal property, tangible or intangible;
5.1.2.2. construct, operate, maintain, finance, and improve, and
to own, sell, convey, assign, mortgage, or lease any real estate and any
personal property;
5.1.2.3. sell, dispose, trade, or exchange Company assets in the
ordinary course of the Company's business;
5.1.2.4. enter into agreements and contracts and to give
receipts, releases, and discharges;
-12-
5.1.2.5. purchase liability and other insurance to protect the
Company's properties and business;
5.1.2.6. borrow money for and on behalf of the Company, and, in
connection therewith, execute and deliver instruments authorizing the confession
of judgment against the Company;
5.1.2.7. execute or modify leases with respect to any part or all
of the assets of the Company;
5.1.2.8. prepay, in whole or in part, refinance, amend, modify,
or extend any mortgages or deeds of trust which may affect any asset of the
Company and in connection therewith to execute for and on behalf of the Company
any extensions, renewals, or modifications of such mortgages or deeds of trust;
5.1.2.9. execute any and all other instruments and documents
which may be necessary or in the opinion of the Members desirable to carry out
the intent and purpose of this Agreement, including, but not limited to,
documents whose operation and effect extend beyond the term of the Company;
5.1.2.10. make any and all expenditures which the Members, deem
necessary or appropriate in connection with the management of the affairs of the
Company and the carrying out of its obligations and responsibilities under this
Agreement, including, without limitation, expenditures for legal, accounting,
and other related expenses incurred in connection with the organization,
financing, and operation of the Company;
5.1.2.11. enter into any kind of activity necessary to, in
connection with, or incidental to, the accomplishment of the purposes of the
Company; and
5.1.2.12. invest and reinvest Company reserves in short-term
instruments or money market funds;
5.1.4. Limitation on Authority of Members.
5.1.4.1. No Member is an agent of the Company solely by virtue of
being a Member, and no Member has authority to act for the Company solely by
virtue of being a Member.
5.1.4.2. This Section 5.1 supersedes any authority granted to the
Members pursuant to Section 17157 of the Act. Any Member who takes any action or
binds the Company in violation of this Section 5.1 shall be solely responsible
for any loss and expense incurred by the Company as a result of the unauthorized
action and shall indemnify and hold the Company harmless with respect to the
loss or expense.
-13-
5.2. Meetings of and Voting by Members.
5.2.1. A meeting of the Members may be called at any time by those
Members holding at least a Majority in Interest of the Members. Meetings of
Members shall be held at the Company's principal place of business or at any
other place in California, designated by the Person or Persons calling the
meeting. Not less than ten (10) nor more than sixty (60) days before each
meeting, the Person or Persons calling the meeting shall give written notice of
the meeting to each Member entitled to Vote at the meeting. The notice shall
state the time, place, and purpose of the meeting. Notwithstanding the foregoing
provisions, each Member who is entitled to notice may waive notice, either
before or after the meeting, by executing a waiver of such notice, or by
appearing at and participating, in person or by proxy in the meeting. Unless
this Agreement provides otherwise, at a meeting of Members, the presence in
person or by Proxy of Members holding Percentages which aggregate to not less
than the greater of fifty-one percent (51%) or the minimum percentage required
by law, constitutes a quorum. A Member may Vote either in person or by written
Proxy signed by the Member or by the Member's duly authorized attorney in fact;
but no Member may designate another as his Proxy except another Member, except
for any Member that is a trust, may designate a trustee of the trust as its
Proxy, any Corporate Member may designate an officer of that Corporate Member,
and any membership, limited liability company, limited liability membership or
association may designate a Member or Member (as appropriate) as its Proxy.
5.2.2. Except as otherwise provided in this Agreement, the affirmative
Vote of Members holding a majority of the aggregate Percentages present at the
meeting in person and by proxy shall be required to approve any matter coming
before the Members.
5.2.3. In lieu of holding a meeting, the Members may take action by
written consents specifying the action to be taken, which consents must be
executed and delivered to the Company by Members whose combined Voting Power
constitutes not less than the greater of 50% of the total Voting Power of all
Members or the minimum percentage required by applicable law. Any such approved
action shall be effective immediately. The Company shall give prompt notice to
all Members of any action approved by Members by less than unanimous consent.
5.2.4. Notwithstanding any other provision of this Agreement to the
contrary, the following matters shall require the Vote or consent of the
percentage interest of Members indicated after each such item for such action to
be approved by the Members:
(a) A decision to continue the business of the Company after
dissolution of the Company (100%);
(b) Approval of the transfer of a Membership Interest and
admission of an Assignee as a Member (100%);
(c) An amendment to the Articles of Organization or this
Agreement
-14-
(100 %);
5.3. Personal Service.
5.3.1. No Member shall be required to perform services for the Company
solely by virtue of being a Member. Unless approved by the Members, no Member
shall perform services for the Company or be entitled to compensation for
services performed for the Company.
5.3.2. The Members shall be entitled to reimbursement for expenses
reasonably incurred, and advances reasonably made, in furtherance of the
business of the Company upon substantiation of the amount and purpose therefor.
5.4. Duties of Parties.
5.4.1. The Members shall only devote such time to the business and
affairs of the Company as is necessary to carry on the business of the Company
set forth in this Agreement.
5.4.2. Except as otherwise expressly provided in Section 5.4.3,
nothing in this Agreement shall be deemed to restrict in any way the rights of
any Member, or of any Affiliate of any Member, to conduct any other business or
activity whatsoever, and no Member shall be accountable to the Company or to any
other Member with respect to that business or activity even if the business or
activity competes with the Company's business. The organization of the Company
shall be without prejudice to the Members' respective rights (or the rights of
their respective Affiliates) to maintain, expand, or diversify such other
interests and activities and to receive and enjoy profits or compensation
therefrom. Each Member waives any rights the Member might otherwise have to
share or participate in such other interests or activities of any other Member
or the Member's Affiliates.
5.4.3. The only fiduciary duties a Member owes to the Company and the
other Members are the duty of loyalty and the duty of care set forth in
subdivisions (a) and (b):
(a) A Member's duty of loyalty to the Company and the other
Members is limited to the following:
(1) To account to the Company and hold as trustee for it any
property, profit, or benefit derived by the Member in the conduct or winding up
of the Company's business or derived from a use by a Member of Company property,
including the appropriation of a Company opportunity, without the consent of the
other Members;
(2) To refrain from dealing with the Company in the conduct
or winding up of the Company business as or on behalf of a party having an
interest adverse to the Company without the prior, written consent of all other
Members; and
-15-
(b) A Member's duty of care to the Company and the other Members
in the conduct and winding up of the Company business is limited to refraining
from engaging in grossly negligent or reckless conduct, intentional misconduct,
or a knowing violation of law.
5.5. Indemnification of Each Member.
5.5.1. No member shall be liable, responsible, or accountable, in
damages or otherwise, to any other Member or to the Company for any act
performed by such Member within the scope of the authority conferred by this
Agreement or by the other Members, and within the standard of care specified in
Section 5.5.2.
5.5.2. The Company shall indemnify each Member for any act performed
by the Member within the scope of the authority conferred on the Member by this
Agreement or by the other Members, unless such act constitutes grossly negligent
or reckless conduct, intentional misconduct, or a knowing violation of law.
5.6. Power of Attorney.
5.6.1. Grant of Power. Each Member constitutes and appoints ▇▇▇▇▇ ▇.
▇▇▇▇▇▇ as the Member's true and lawful attorney-in-fact ("Attorney-in-Fact"),
and in the Member's name, place, and stead, to make, execute, sign, acknowledge,
and file:
5.6.1.1. one or more Articles of Organization;
5.6.1.2. all documents (including amendments to Articles of
Organization) which the Attorney-in-Fact deems appropriate to reflect any
amendment, change, or modification of this Agreement;
5.6.1.3. any and all other certificates or other instruments
required to be filed by the Company under the laws of the State of California or
of any other state or jurisdiction, including, without limitation, any
certificate or other instruments necessary in order for the Company to continue
to qualify as a limited liability company under the laws of the State of
California;
5.6.1.4. one or more fictitious trade name certificates; and
5.6.1.5. all documents which may be required to dissolve and
terminate the Company and to cancel its Articles of Organization.
5.6.2. Irrevocability. The foregoing power of attorney is irrevocable
and is coupled with an interest, and, to the extent permitted by applicable law,
shall survive the death or disability of a Member. It also shall survive
the Transfer of a Membership Interest, except that
-16-
if the Assignee is admitted as a Member, this power of attorney shall survive
the delivery of the assignment for the sole purpose of enabling the
Attorney-in-Fact to execute, acknowledge, and file any documents needed to
effectuate the substitution. Each Member shall be bound by any representations
made by the Attorney-in-Fact acting in good faith pursuant to this power of
attorney, and each Member hereby waives any and all defenses which may be
available to contest, negate, or disaffirm the action of the Attorney-in-Fact
taken in good faith under this power of attorney.
Article VI
Transfer of Interests and Withdrawals of Members
6.0. Investment Representation. Each Member agrees that the interest being
acquired is being acquired for investment and not for the purpose of, or with a
view to the distribution or sale thereof. Except as provided herein, no Member
may Transfer all, or any portion of, or any interest or rights in, the
Membership Interest owned by the Member. Each Member hereby acknowledges the
reasonableness of this prohibition in view of the purposes of the Company and
the relationship of the Members. The attempted Transfer of any portion or all of
a Membership Interest in violation of the prohibition contained in this Section
6.1 shall be deemed invalid, null and void, and of no force or effect, except
any Transfer mandated by operation of law and then only to the extent necessary
to give effect to such Transfer by operation of law.
6.0.1. Conditions to Transfer. A Member may Transfer all or any
portion of or any interest or rights in the Member's Economic Interest if each
of the following conditions ("Conditions of Transfer") is satisfied:
6.0.1.1. the Transfer may be accomplished without registration,
or similar process, under federal and state securities laws;
6.0.1.2. the transferee delivers to the Company a written
agreement to be bound by the terms of Article VI of this Agreement;
6.0.1.3. the Transfer will not result in the termination of the
Company pursuant to IRC Section 708;
6.0.1.4. the Transfer will not result in the Company being
subject to the Investment Company Act of 1940, as amended;
6.0.1.5. the transferor or the transferee delivers the following
information to the Company: (I) the transferee's taxpayer identification number;
and (ii) the transferee's initial tax basis in the transferred Membership
Interest; and
6.0.1.6. the transferor complies with the provisions set forth in
this Article VI.
-17-
If the Conditions of Transfer are satisfied, the Member may
Transfer all or any portion of the Member's Economic Interest. The Transfer of
an Economic Interest pursuant to this Section 6.0 shall not result in the
Transfer of any of the transferor's other Membership rights. The transferee of
the Economic Interest shall have no right to: (I) become a Member; (ii) exercise
any Membership rights other than those specifically pertaining to the ownership
of an Economic Interest; or (iii) act as an agent of the Company.
6.1 Additional Members.
6.1.1 Admission. A new Member may be admitted to the Membership by the
written consent of all of the Members. Each new Member shall be admitted only
upon executing this Agreement by an appropriate supplement to it containing the
aforementioned consent of the Members, and agreeing to be bound by the terms and
provisions of the Agreement as they may be modified by that supplement or other
fully executed supplements or amendments. Admission of a new Member shall not
cause dissolution or termination of the Company.
6.1.2 Interest of New Member. A newly admitted Member's capital
contribution, Percentage Interest and share of the Company's profits or losses
shall be set forth in the executed amendment or supplement to this Agreement
which contains the consent of the other Members to the admission of the new
Member.
6.1.3 Tax Election. The Members may, at their sole discretion, make an
election under Section 754 of the Code to adjust the basis of the Company's
assets, to reflect the purchase price by an assignee.
6.2 Transfer Restrictions of Membership Interest.
6.2.1 General Restriction. Except for the special provision concerning
▇▇▇▇▇▇▇' Membership interest, no Membership interest shall be transferred,
encumbered, or in any way alienated or disposed of except under the terms of
this Agreement.
6.2.2 Nonrecognition of Certain Transfers.
(a) The Company and its Members will not, nor be compelled to,
recognize any transfer of a Membership interest to any person who has not
delivered to the Company an executed supplement to this Agreement agreeing to be
bound by its terms and conditions.
(b) The Company and its Members will not, nor be compelled to,
recognize any transfer made other than in accordance with the terms of the
Agreement.
-18-
6.3 Permitted Transfers of Membership Interest. A Member may transfer his
Economic Interest to a grantor's inter vivos trust established exclusively for
the benefit of the Member and his spouse or issue. Such permitted transferees
shall hold the Economic Interest subject to all the provisions of this Agreement
as if they were original Membership; provided, should any of the Buy-Out Events
set forth below occur with respect to a transferor Member (e.g., death,
disability, etc.), then the buy-out rights and obligations contained in this
Agreement shall be fully applicable and a permitted transferee bound by them.
6.4 Buy-Out Events. Each of the following events shall constitute a
"Buy-Out Event" affecting Membership Interests:
6.4.1 Voluntary Sale. Except for ▇▇▇▇▇▇▇, the intention of a Member to
sell all or a portion of his Membership interest for a reason other than
specified in the Buy-Out Events set forth below. In such event, the Effective
Date shall be the date the Member gives written intention to voluntarily sell
his interest.
6.4.2 Resignation. Except for ▇▇▇▇▇▇▇, the resignation by a Member as
an officer, director or employee or, in the case of ▇▇▇▇▇▇ as legal counsel and
a member of the Executive Committee of, Safariland Ltd, Inc.("Safariland"). In
such event, the Effective Date shall be the date of such resignation.
6.4.3 Retirement. Except for ▇▇▇▇▇▇▇, the retirement of a Shareholder
as an officer, director or employee or, in the case of ▇▇▇▇▇▇ as legal counsel
and a member of the Executive Committee of, Safariland. In such event, the
Effective Date shall be the date of such retirement.
6.4.4 Termination of Employment. Except for ▇▇▇▇▇▇▇, termination by
the Board of Directors of a Member as an officer, director, or employee or, in
the case of ▇▇▇▇▇▇ as legal counsel and a member of the Executive Committee, of
Safariland. In such event, the Effective Date shall be the date of such
termination.
6.4.5 Death. The death of a Member. If the death is that of ▇▇▇▇▇▇▇,
his entire interest shall held and distributed by his estate. In the event of
death, the Effective Date shall be the date of death of the Member.
6.4.6 Disability. Except for ▇▇▇▇▇▇▇, the disability of a Member for a
continuous period of twenty-four (24) months. The term "disability" shall mean
the Member is not able to perform the substantial and material duties of his
regular occupation with and is not working in or for Safariland. In such event,
the Effective Date shall be the first day following the expiration of the
24-month period.
6.4.7 Voluntary Bankruptcy. The filing by any Member of a voluntary
petition in bankruptcy or the making of an assignment for the benefit of
creditors. In such event, the
-19-
Effective Date shall be the date of the filing of the petition or assignment,
whichever is applicable.
6.4.8 Involuntary Bankruptcy. The filing against any Member of an
involuntary petition in bankruptcy and such petition is not dismissed within
ninety (90) days of the filing. In such event, the Effective Date shall be the
first day after the expiration of the 90-day period.
6.4.9 Dissolution of Marriage. The transfer or award of part or all of
the Membership interest of a Member ("Divorced Member") to his spouse under a
decree of divorce or judgment of dissolution of marriage or separate
maintenance, or under a property settlement or separation agreement; provided,
only that portion of the interest subject to the transfer or award will be
subject to the buy-out provision of this Agreement. In such event, the Effective
Date shall be the date of the transfer or award, as the case may be.
6.5 Effect of Buy-Out Event.
6.5.1 Purchase of Membership Interest. The occurrence of a Buy-Out
Event shall constitute the offer by separated, deceased, disabled, bankrupt or
divorced Member and/or, as the case may be, his spouse, personal representative,
executor, or administrator, or the then-trustee of any trust which holds a
deceased Member's Membership interest or is a party hereto (for convenience, all
referred to as "Selling Member"), to sell his Membership interest to the other
Members ("Remaining Members").
6.5.2 Company Continues. The Company shall not dissolve or terminate
on the occurrence of any Buy-Out Event, but its business shall continue without
interruption and without any break in continuity. On the occurrence of a Buy-Out
Event, the Remaining Members shall not liquidate or wind up the affairs of the
Company.
6.5.3 Definition of "Available Interest". The term "Available
Interest" shall refer to that Membership interest which is subject to the effect
of a Buy-Out Event, it being expressly noted that ▇▇▇▇▇▇▇' interest is not
subject to specified Buy-Out Events.
6.6 Procedure for Sale and Purchase. The sale and purchase of an Available
Interest shall be implemented as provided below.
6.6.1 Remaining Members' Option to Purchase. For a period of 45
business days following the Effective Date of a Buy-Out Event, the Remaining
Members shall have the option to purchase the Available Interest (by written
Election to the Selling Member) in the manner specified immediately below and in
Sections 6.7 and 6.9 of this Agreement; provided, if the Buy-Out Event is a
Dissolution of Marriage, the Divorced Member shall have the first right to
purchase that portion of the Available Interest awarded to his spouse ("Awarded
Interest") if practical or legally permissible; otherwise, the Divorced Member
shall have the right to purchase any Awarded Interest acquired by the Remaining
Members under this Agreement on the same
-20-
terms and conditions as such Awarded Interest were acquired so long as the
Divorced Member exercises his right by written notice to the Remaining Members
within 20 days after they were acquired from the Divorced Member's spouse (or
her heirs, legal representatives, successors or assigns).
(a) If the requests specified in all the Elections exceed the
Available Interest, then each Remaining Member shall have the right, up to the
request each specified in his Election, to purchase such proportion of the
Available Interest as his Membership interest bears to the Membership interests
held by all the Members electing to purchase.
(b) On or before the end of the 45-day period, the Remaining
Members together shall determine what portion of the Available Interest was
effective as to each Remaining Member's Election and each Remaining Member shall
meet the terms and conditions of the purchase within 10 days thereafter
according to Sections 6.7 (Purchase Price), 6.9 (Payment For and Transfer of
Available Interest) and 6.10 (Notes and Security).
6.6.2 Failure to Purchase All Available Interest. If all the Remaining
Members do not or are unable to purchase all the Available Interest, then all
the Available Interest may be sold or transferred at any time to any third party
within 90 days from the last date of the option periods provided in this
Agreement. The transferee will hold the Available Interest subject to the
provisions of this Agreement. No transfer of the Available Interest shall be
made after the end of the 90 day period, nor shall any change in the terms of
transfer be permitted, without a written Notice of Intention To Transfer first
being given to the Remaining Members in which case all the provisions of Section
6 shall be applicable.
6.7 Purchase Price. The Purchase Price for an Available Interest shall be
determined by appraisal as follows:
6.7.1 Within 45 days after a Buy-Out Event, the Selling Member and the
Remaining Members (as a group) either (1) shall jointly appoint an appraiser for
this purpose, or (2) failing this joint action, shall each separately designate
an appraiser and, within 5 days after their appointment, the two designated
appraisers shall jointly designate a third appraiser. The failure of either the
Selling Member or the Remaining Members to appoint an appraiser within the time
allowed shall be deemed equivalent to appointment of the appraiser appointed by
the other party or parties. No person shall be appointed or designated an
appraiser unless that person is then a member of the American Institute of Real
Estate Appraisers or the American Society of Appraisers.
6.7.2 If, within 10 days after the appointment of all appraisers, a
majority of the appraisers concur on the value of the interest being appraised,
that appraisal shall be binding and conclusive. If the majority of the
appraisers do not concur within that period, the determination of the appraiser
whose appraisal is neither highest nor lowest shall be binding and conclusive.
The Company and the Member whose interest is to be appraised, or that Member's
estate or
-21-
successors, shall share the appraisal expenses equally.
6.7.3 A Member's interest in the Company so appraised shall be based
on that Member's proportional interest in the Company's profits. Real Estate
shall be appraised at fair market value.
6.8 Insurance Policies
6.8.1 Identification of Policies. In the event the parties hereto
elect to obtain life insurance policies or disability buy-out insurance
policies, or both, for the purpose of purchasing a deceased or disabled Member's
interest in the Company, then the parties shall execute an appropriate amendment
identifying those life insurance policies and/or disability insurance policies
and the manner in which the proceeds of such policies are to be used for any
such purpose.
6.8.2. Unneeded Life Insurance Policies. In the event life insurance
has been purchased by the Members on the lives of one another to fund the
Buy-Out provisions of this Agreement, then on the death of any Member each of
the Remaining Members shall have the option for 60 days to purchase the policy
of life insurance on the Member's life owned by the Decedent. Each Member shall
also have the right to purchase the policies on his life within 60 days after
the sale or transfer of all of his Membership interest, or after termination of
this Agreement. This option shall be exercised by delivering written notice of
exercise to the Decedent's personal representative or to the owner of the policy
and paying the purchase price in cash. The purchase price shall be equal to the
cash surrender value of the policy, reduced by any unpaid loans made against the
policy. If the option is not exercised within that period, the policy owner may
surrender the policy for its cash value or dispose of it in any other way he
sees fit. The parties agree to execute such releases and assignments as may be
necessary to effectuate the provisions of this paragraph.
6.9 Payment and Transfer of Available Interest.
6.9.1 General Provisions. On the occurrence of any event that leads to
the purchase of an Available Interest under this Agreement, the consideration to
be paid for the Interest or portion thereof shall be paid to the Selling Member,
his estate, or his former spouse, as the case may be. If the event that leads to
the purchase is death of any Member, the Remaining Members shall file the
necessary proofs of death and collect the proceeds of any policies of insurance
covered by this Agreement and outstanding on the life of the deceased Member.
The decedent's personal representative shall apply for and obtain any necessary
Court approval or confirmation of the sale of the decedent's Interest under this
Agreement. Likewise, the parties will perform all necessary acts to collect
under any disability pay-out policies in the event of a Member's disability.
6.9.2 Payment by Remaining Members. The Remaining Members shall pay
the purchase price, or balance of the purchase price if insurance proceeds were
first applied, in cash
-22-
or, at their option, shall pay a cash payment of at least 10% of the purchase
price or balance of the purchase price, as the case may be, with the remaining
balance paid under a Promissory Note as more fully provided in Section 6.10
below.
6.9.3 Prompt Payment and Transfer of Available Interest. In all
events, consideration for the Available Interest shall be delivered as soon as
practicable to the person entitled to it, and the Remaining Members shall cause
the transfer of the Available Interest to be reflected in the Membership books
and records.
6.10 Notes and Security.
6.10.1 Form of Note. The deferred portion of the Purchase Price for
any Available Interest purchased under this Agreement shall be represented by a
Promissory Note executed by each of the purchasing Members. The Note shall
provide for payment of principal in 12 equal quarterly installments plus accrued
interest on the unpaid balance at the maximum legal rate permitted by law but
not to exceed the rate of 12% per annum, with full privilege of prepayment of
all or any part of the principal at any time without penalty or bonus. Any
prepaid sums shall be applied against the installments thereafter falling due in
inverse order of their maturity, or against all the remaining installments
equally, at the option of the payers. The Note shall provide that, in case of
default, at the election of the holder the entire sum of principal and interest
will immediately be due and payable, and that the makers shall pay reasonable
attorney's fees to the holder in the event suit is commenced because of default.
6.10.2 Pledge of Membership Interest. The Note shall be secured by a
pledge of the Available Interest being purchased in the transaction to which the
Note relates. The pledgeholder shall be either the Company's general counsel or,
if such general counsel is unwilling or unable to act, such other third party as
shall be agreed upon by the seller and purchaser, or purchasers, of the
Available Interest. The Pledge Agreement shall contain such other terms and
provisions as may be customary and reasonable. As long as no default occurs in
payments on the Note, the purchasers shall be entitled to all Membership rights
attached to the pledged Membership interest; provided, however, any cash
distributions shall be paid to the holder of the Note as a prepayment of
principal. The purchasers shall expressly waive demand, notice of default, and
notice of sale, and shall consent to public or private sale of the pledged
Membership Interest in the event of default; in mass or in lots at the option of
the pledgeholder, and the seller shall have the right to purchase at the sale.
Article VII
Dissolution, Liquidation, and Termination of the Company
7.1. Events of Dissolution. The Company shall be dissolved upon the
happening of the first to occur of an event specified in Section 17350 of the
Act or the date fixed for its termination in Section 2.4; provided, however,
that the Members (other than the Member whose death, incapacity, bankruptcy,
withdrawal or dissolution caused the dissolution to occur, if applicable)
-23-
may be unanimous vote within 90 days of the happening of the event vote to
continue the business of the Company, in which case, the Company shall not
dissolve. If the remaining members fail to so vote, the remaining Members shall
wind up the Company.
7.2. Procedure for Winding Up and Dissolution. If the Company is dissolved,
the Members shall wind up its affairs. On winding up of the Company, the assets
of the Company shall be distributed, first to creditors of the Company,
including Interest Holders who are creditors, in satisfaction of the liabilities
of the Company, and then, to the Interest Holders in accordance with Section 4.4
of this Agreement.
7.3. Filing of Certificate of Cancellation. Upon completion of the affairs
of the Company, the remaining Members shall promptly file the Certificate of
Cancellation of Articles of Organization with the Secretary of State. If there
are no remaining Members, the Certificate shall be filed by the last Person to
be a Member; if there is neither remaining Members, nor a Person who last was a
Member, the Certificate shall be filed by the legal or personal representatives
of the Person who last was a Member.
Article VIII
Books, Records, Accounting, and Tax Elections
8.1. Bank Accounts. All funds of the Company shall be deposited in a bank
account or accounts opened in the Company's name. The Members shall determine
the financial institution or institutions at which the accounts will be opened
and maintained, the types of accounts, and the Persons who will have authority
with respect to the accounts and the funds therein.
8.2. Books and Records.
8.2.1. The Members shall keep or cause to be kept complete and
accurate books, records, and financial statements of the Company and supporting
documentation of transactions with respect to the conduct of the Company's
business. The books, records, and financial statements of the Company shall be
maintained on the cash basis of accounting or such other method as the Members
may elect. Such books, records, financial statements, and documents shall
include, but not be limited to, the following:
(1) a current list of the full name and last known business or
residence address of each Member and Interest Holder, in alphabetical order,
with the Contribution and the share in profits and losses of each Member and
Interest Holder specified in such list;
(2) the Articles of Organization, including all amendments; and any
powers of attorney under which the Articles of Organization or amendments were
executed;
(3) federal, state, and local income tax or information returns and
reports, if any, for the six most recent taxable years;
-24-
(4) this Agreement and any amendments thereto; and any
Powers-of-Attorney under which this Agreement or amendments were executed;
(5) financial statements for the six most recent years;
(6) internal books and records for the current and three most recent
years; and
(7) a true copy of relevant records indicating the amount, cost, and
value of all property which the Company owns, claims, possesses, or controls.
8.2.2. Such books, records, and financial statements of the Company
and supporting documentation shall be kept, maintained, and available at the
Company's office within the State of California.
8.3. Right to Inspect Books and Records; Receive Information.
8.3.1. Upon the reasonable request of a Member for a purpose
reasonably related to the interest of that Member of the Company, a copy of this
Agreement, as well as the information required to be maintained by the Company
under subparagraphs (1), (2), and (4) of Section 8.2.1. shall be promptly
delivered to the requesting Member at the expense of the Member.
8.3.2. Each Member has the right upon reasonable request, and for
purposes reasonably related to the interest of that Member of the Company, to do
the following:
(1) to inspect and copy during normal business hours any of the
records required to be maintained by the Company under Section 8.2.1 of this
Agreement; and
(2) to obtain from the Company promptly after becoming available,
a copy of the Company's federal, state, and local income tax or information
returns for each year.
8.3.3. The Company shall send or shall cause to be sent to each Member
or Interest Holder within 90 days after the end of each fiscal year of the
Company: (I) such information as is necessary to complete federal and state
income tax or information returns, and (ii) if the Company has 35 or fewer
Members, a copy of the Company's federal, state, and local income tax or
information returns for the fiscal year.
8.3.4. Unless otherwise expressly provided in this Agreement, the
inspecting or requesting Member as the case may be, shall reimburse the Company
for all reasonable costs and expenses incurred by the Company in connection with
such inspection and copying of the Company's books and records and the
production and delivery of any other books or records.
8.4. Annual Accounting Period. The annual accounting period of the Company
shall be
-25-
its taxable year. The Company's taxable year shall be selected by the Members,
subject to the requirements and limitations of the Code.
8.5. Tax Matters Partner. ▇▇▇▇▇ ▇. ▇▇▇▇▇▇ shall be the Tax Matters Partner
for purposes of IRC Section 6231(a)(7), and shall have all the authority granted
by the Code to the Tax Matters Partner, provided that he shall not have the
authority without first obtaining the consent of the Members to do any of the
following:
1. Enter into a settlement agreement with the Internal Revenue Service
that purports to bind the other Members.
2. File a petition as contemplated in IRC Section 6226(a) or IRC
Section 6228.
3. Intervene in any action as contemplated in IRC Section 6226(b)(5).
4. File any request contemplated in IRC Section 6227(b).
5. Enter into an agreement extending the period of limitations as
contemplated in IRC Section 6229(b)(1)(B).
8.6. Tax Elections. The Tax Matters Partner shall have the authority to
make all Company elections permitted under the Code, including, without
limitation, elections of methods of depreciation and elections under IRC Section
754. The decision to make or not make an election shall be at the Tax Matters
Partner's sole and absolute discretion.
8.7. Title to Company Property. All real and personal property acquired by
the Company shall be acquired and held by the Company in the Company's name.
Article IX
General Provisions
9.1. Assurances. Each Member shall execute all certificates and other
documents and shall do all such filing, recording, publishing, and other acts
shall be appropriate to comply with the requirements of law for the formation
and operation of the Company and to comply with any laws, rules, and regulations
relating to the acquisition, operation, or holding of the property of the
Company.
9.2. Notifications. Any notice, demand, consent, election, offer, approval,
request, or other communication (collectively a "notice") required or permitted
under this Agreement must be in writing and either delivered personally or sent
by certified or registered mail, postage prepaid, return receipt requested. A
notice must be addressed to an Interest Holder at the Interest Holder's last
known address on the records of the Company. A notice to the Company must be
addressed to the Company's principal office. A notice delivered personally will
be deemed given
-26-
only when acknowledged in writing by the Person to whom it is delivered. A
notice that is sent by Mail will be deemed given three (3) business days after
it is Mailed from the United States. Any party may designate, by notice to all
of the others, substitute addresses or addressees for notices; and, thereafter,
notices are to be directed to those substitute addresses or addressees.
9.3. Specific Performance. The parties recognize that irreparable injury
will result from a breach of any provision of this Agreement and that money
damages will be inadequate to fully remedy the injury. Accordingly, in the event
of a breach or threatened breach of one or more of the provisions of this
Agreement, any party who may be injured (in addition to any other remedies which
may be available to that party) shall be entitled, without a requirement for the
filing of a bond or other security, to one or more preliminary or permanent
orders (I) restraining and enjoining any act which would constitute a breach or
(ii) compelling the performance of any obligation which, if not performed, would
constitute a breach.
9.4. Complete Agreement. This Agreement constitutes the complete and
exclusive statement of the agreement among the Members. It supersedes all prior
written and oral statements, including any prior representation, statement,
condition, or warranty. Except as expressly provided otherwise herein, this
Agreement may not be amended without the written consent of all of the Members.
9.5. Applicable Law. All questions concerning the construction, validity,
and interpretation of this Agreement and the performance of the obligations
imposed by this Agreement shall be governed by the internal law, not the law of
conflicts, of the State of California.
9.6. Article and Section Titles. The headings herein are inserted as a
matter of convenience only and do not define, limit, or describe the scope of
this Agreement or the intent of the provisions hereof.
9.7. Binding Provisions. This Agreement is binding upon, and to the limited
extent specifically provided herein, inures to the benefit of, the parties
hereto and their respective heirs, executors, administrators, personal and legal
representatives, successors, and assigns.
9.8. Jurisdiction and Venue. Any suit involving any dispute or matter
arising under this Agreement may only be brought in the appropriate United
States District Court in California or any California State Court having
jurisdiction over the subject matter of the dispute or matter. All Members
hereby consent to the exercise of personal jurisdiction by any such court with
respect to any such proceeding.
9.9. Terms. Common nouns and pronouns shall be deemed to refer to the
masculine, feminine, neuter, singular, and plural, as the identity of the Person
may in the context require.
9.10. Separability of Provisions. Each provision of this Agreement shall be
considered
-27-
separable; and if, for any reason, any provision or provisions herein are
determined to be invalid and contrary to any existing or future law, such
invalidity shall not impair the operation of or affect those portions of this
Agreement which are valid.
9.11. Counterparts. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original and all of which,
when taken together, constitute one and the same document. The signature of any
party to any counterpart shall be deemed a signature to, and may be appended to,
any other counterpart.
9.12. Estoppel Certificate. Each Member shall, within ten (10) days after
written request therefor by another Member, deliver to the requesting Person a
certificate stating, to the Member's knowledge, that: (a) this Agreement is in
full force and effect; (b) this Agreement has not been modified except by any
instrument or instruments identified in the certificate; and (c) there is no
default hereunder by the requesting Person, or if there is a default, the nature
and extent thereof.
IN WITNESS WHEREOF, the parties have executed, or caused this Agreement to
be executed, under seal, as of the date set forth hereinabove.
MEMBERS:
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Safariland Ltd., Inc. --------------------------
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
###-##-####
Social Security Number
▇▇▇▇▇ ▇. ▇'▇▇▇▇▇ /s/ ▇▇▇▇▇ ▇. ▇'▇▇▇▇▇
Safariland Ltd., Inc. --------------------------
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
###-##-####
Social Security Number
▇▇▇▇▇ ▇. ▇▇▇▇▇▇ /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
27281 Las Ramblas --------------------------
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
###-##-####
Social Security Number
-28-
▇▇▇▇ ▇. ▇▇▇▇▇▇ /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇
Safariland Ltd., Inc. --------------------------
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
###-##-####
Social Security Number
-29-
NAP PROPERTY MANAGERS, LLC, LIMITED LIABILITY COMPANY
OPERATING AGREEMENT
EXHIBIT A
Name, Address Percentages
Taxpayer I.D. Number Capital of Initial Date
of Initial Members Contribution Capital Admitted
-------------------- ------------------------ ----------- ----------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ His interest as a
general partner in NAP
Property Managers, a
California general
partnership 92.1% October 9, 1996
▇▇▇▇▇ ▇. ▇'▇▇▇▇▇ His general partnership
in NAP Property Managers
a California general
partnership 3.8% October 9, 1996
▇▇▇▇▇ ▇. ▇▇▇▇▇▇ His general partnership
in NAP Property Managers
a California general
partnership 3.8% October 9, 1996
▇▇▇▇ ▇. ▇▇▇▇▇▇ His general partnership
in NAP Property Managers
a California general
partnership 0.3% October 9, 1996
-30-
FIRST AMENDMENT
TO
MEMBER-MANAGED OPERATING AGREEMENT OF
NAP PROPERTY MANAGERS, LLC,
a California limited liability company
THIS FIRST AMENDMENT to the Member-Managed Operating Agreement of NAP
Property Managers, LLC, a California limited liability company, executed on
October 9, 1996, is made by and among the parties listed on the signature page
hereof (collectively referred to as the "Members" or individually as "Member").
IT IS AGREED:
1. Pursuant to Article VI, Section 6.0.1 of the Agreement, effective this
date the Membership Interest in the Company held by ▇▇▇▇▇ ▇. ▇'▇▇▇▇▇ (3.8%) and
▇▇▇▇▇ ▇. ▇▇▇▇▇▇ (3.8%), are transferred and assigned to ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇,
Trustee of The ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ Trust established 3/13/90. Further, effective
January 1, 1998 ▇▇▇▇ ▇. ▇▇▇▇▇▇ assigned his Membership Interest in the Company
to ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇. (See attached Assignments Of Membership Interest.)
2. The Members hereby consent to the transfer and assignment of the
foregoing Membership Interest.
3. Pursuant to Article VI, Section 6.1.1 of the Agreement, ▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇, Trustee of the ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ Trust established 3/13/90 hereby
transfers 1.0000% to ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇. (See attached Assignment Of Membership
Interest.)
4. The Members hereby consent to the transfer and assignment of the
foregoing Membership Interest and, by her signature on this First Amendment,
▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ agrees to be bound by all the terms and conditions of the
Agreement.
5. Exhibit A is amended as set forth below to reflect the transfer and
assignments of Membership Interests:
---------------------------------------------------------------------------------
Percentage
"Member Capital Contribution Interest
---------------------------------------------------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Trustee His interest as a general partner in NAP 99.0000%
of The ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ Property Managers, a California general
Trust dated 3/13/90 partnership
---------------------------------------------------------------------------------
▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ Assignment of Membership Interest by 1.0000%
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Trustee of The ▇▇▇▇▇
▇. ▇▇▇▇▇▇▇ Trust established 3/13/90.
---------------------------------------------------------------------------------
TOTAL 100.0000%"
---------------------------------------------------------------------------------
5. Except as added to, deleted, modified, or otherwise changed by this
First Amendment, the terms and provisions of the Agreement shall remain in full
force and effect.
IN WITNESS WHEREOF, the undersigned Members have executed this First
Amendment to be effective as of May 6, 1999.
MEMBERS:
The ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ Trust dated 3/13/90
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
---------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Trustee
/s/ ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
---------------------------------------
▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
SECOND AMENDMENT
TO
MEMBER-MANAGED OPERATING AGREEMENT OF
NAP PROPERTY MANAGERS, LLC,
a California Limited Liability Company
(Effective as of May20, 2000)
THIS SECOND AMENDMENT to the Member-Managed Operating Agreement (this
"Agreement") of NAP PROPERTY MANAGERS, LLC, a California limited liability
company (the "Company") is made by ARMOR HOLDINGS PROPERTIES, INC., a Delaware
corporation and the sole Member of the Company.
1. This Agreement is amended to reflect that the sole Member of the
Company is ARMOR HOLDINGS PROPERTIES, INC., a Delaware corporation,
having acquired all of the Membership Interests of ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
and The ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ Trust dated March 13, 1990, pursuant to the
assignments of interests annexed hereto.
2. ARMOR HOLDINGS PROPERTIES, INC. shall act as the sole Managing Member
of the Company.
ARMOR HOLDINGS PROPERTIES,
INC., Managing Member
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
-------------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Title: Vice President
