LIMITED LIABILITY COMPANY OPERATING AGREEMENT

of

XXXXXXX, LLC

A Colorado limited liability company

 

LIMITED LIABILITY COMPANY OPERATING AGREEMENT
OF
XXXXXXX, LLC

 

THIS LIMITED LIABILITY COMPANY OPERATING AGREEMENT (this “Agreement”) of XXXXXXX, LLC, a Colorado limited liability company (the “Company”), is entered into effective as of October 1, 2006, by and among those Persons executing a signature page attached hereto and listed on attached Schedule A (collectively, the “Members”).

WHEREAS, the Members desire to operate the Company as a limited liability company under the Act for the purposes set forth herein; and

WHEREAS, the Members are entering into this Agreement to govern the Company.

NOW THEREFORE, in consideration of the agreements and obligations set forth herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Members hereby agree as follows:

ARTICLE 1.
DEFINED TERMS

Section 1.1            Definitions.

Unless the context otherwise requires, the terms defined in this Article 1, for the purposes of this Agreement, shall have the meanings herein specified.

“Act” means the Colorado Limited Liability Company Act, as amended from time to time.

“Additional Member” shall have the meaning set forth in Section 5.4(a).

“Adjusted Capital Account Deficit” means the Member has a deficit balance in its “Capital Account” after giving effect to any amounts the Member is obligated to contribute or restore to the Company pursuant to the penultimate sentences of Treasury Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5).

“Affiliate” means with respect to a Person, any other Person that, directly or indirectly, controls, is controlled by, or is under common control with, the specified Person.  As used in this definition, the term “control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of an entity, whether through ownership of voting securities, by contract or otherwise.  Ownership of more than fifty percent (50%) of the beneficial interests of an entity shall be conclusive evidence that control exists.  For purposes of this definition, “Affiliate” shall include, with respect to any natural Person, the spouse, parents, siblings and children of such Person.

“Agreement” means this Limited Liability Company Operating Agreement, as amended, modified, supplemented or restated from time to time.

“Assignment Notice” shall have the meaning set forth in Section 7.5(a).

“Board of Directors” shall have the meaning set forth in Section 6.1.

“Business” shall have the meaning set forth in Section 3.1.

“Capital Account” means, with respect to any Member, the capital account maintained for such Member in accordance with the provisions of Article 4.

“Capital Contribution” means, with respect to any Member, the aggregate amount of money and the initial Gross Asset Value of any property (other than money) contributed to the Company pursuant to Article 4 with respect to such Member’s Units.

“Certificate” means the Articles of Organization of the Company and any and all amendments thereto and restatements thereof filed on behalf of the Company with the office of the Secretary of State of the State of Colorado pursuant to the Act.

“Code” means the Internal Revenue Code of 1986, as amended from time to time, or any corresponding federal tax statute enacted after the date of this Agreement.

“Company Minimum Gain” shall have the meaning set forth in Treasury Regulations Sections 1.704-2(b)(2) and 1.704-2(d).

“Company Nonrecourse Liability” shall have the meaning set forth in Treasury Regulations Section 1.704-2(b)(3)

“Confidential Information” means data and information relating to the Company and which has material value to the Company and is not generally known to its competitors, including, without limitation, Trade Secrets.  Confidential Information does not include any data or information that has been voluntarily disclosed to the public by the Company or that has been independently developed and disclosed by others, or that otherwise enters the public domain through lawful means.

“Covered Person” means a Member; any Affiliate of a Member; a Director or any member thereof; any officers, directors, shareholders, partners, employees, independent contractors, representatives or agents of a Director or any Member, any Affiliate of a member of a Director; any employee or agent of the Company or its Affiliates; any Tax Matters Representative of the Company; or an officer of the Company that is not an employee.

“Current Operating Expenditures” means the expenditures of the Company for each Fiscal Year, or part thereof, arising from the ordinary course of the Company’s business, including, but not limited to, the following:

(a)        general operating expenses including, but not limited to, management, legal, accounting and other professional fees, wages, salaries and other compensation in connection with its business operations, amounts paid to suppliers, monies expended to comply with and perform contractual and other obligations, and any other expenses expended on behalf of the Company in relation to its general administrative and management needs;

(b)        payments of principal and interest upon any indebtedness of the Company (whether third-party indebtedness or loans made by Members to the Company pursuant to this Agreement);

(c)        any other cash expended by the Company for business operations; and

(d)        the establishment of appropriate reserves for debt service, to provide working capital or any other contingency of the Company.

“Depreciation” means, for each Fiscal Year or other period, an amount equal to the depreciation, amortization or other cost recovery deduction allowable with respect to an asset for such Fiscal Year or other period; provided, however, that if the Gross Asset Value of an asset differs from its adjusted basis for federal income tax purposes at the beginning of such Fiscal Year or other period, Depreciation shall be an amount that bears the same ratio to such beginning Gross Asset Value as the federal income tax depreciation, amortization or other cost recovery deduction with respect to such asset for such Fiscal Year or other period bears to such beginning adjusted tax basis; and provided further, that if the federal income tax depreciation, amortization or other cost recovery deduction for such Fiscal Year or other period is zero, Depreciation shall be determined with reference to such beginning Gross Asset Value using any reasonable method selected by the Board of Directors.

“Director” means one of the Directors.  “Directors” means the elected managing Director and any other Person that:  (i) succeeds such Director or another Director in that capacity; or (ii) that is elected or appointed as an additional Director; in either case, in accordance with this Agreement.  If there is only one Director, the term “Director” shall mean such Person. References to the Director in the singular or as him, her, it, itself or other like references, where the context so requires, shall also be deemed to include the plural or the masculine or feminine reference, as the case may be.

“Fiscal Year” means (a) the period commencing upon the formation of the Company and ending on December 31, 2006 and (b) any subsequent twelve (12) month period commencing on January 1 and ending on December 31.

“Gross Asset Value” means, with respect to any asset, such asset’s adjusted basis for federal income tax purposes, except as follows:

(a)        the initial Gross Asset Value of any asset contributed by a Member to the Company shall be the gross fair market value of such asset, as agreed to by the contributing Member and the Board of Directors;

(b)        the Gross Asset Value of all Company assets shall be adjusted to equal their respective gross fair market values, as determined by the Board of Directors, as of the following times:  (i) the acquisition of an additional interest in the Company by any new or existing Member in exchange for more than a de minimis Capital Contribution; (ii) the distribution by the Company to a Member of more than a de minimis amount of Company assets as consideration for an interest in the Company; and (iii) the liquidation of the Company within the meaning of Treasury Regulations Section 1.704-1(b)(2)(ii)(g); provided, however, that adjustments pursuant to Clause (i) and Clause (ii) of this sentence shall be made only if the Board of Directors reasonably determine that such adjustments are necessary or appropriate to reflect the relative economic interests of the Members in the Company; and

(c)        the Gross Asset Value of any Company asset distributed to any Member shall be the gross fair market value of such asset on the date of distribution, as determined by the Board of Directors.

(d)        The Gross Asset Values of Company assets shall be adjusted to reflect any adjustments to the adjusted basis of such assets pursuant to Code Section 734(b) or Code Section 743(b), but only to the extent that such adjustments are taken into account in determining Capital Accounts pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(m).

If the Gross Asset Value of an asset has been determined or adjusted pursuant to Paragraph (a) or Paragraph (b) above, such Gross Asset Value shall thereafter be adjusted by the Depreciation taken into account with respect to such asset for purposes of computing Profits and Losses.

“Gross Revenue” means the gross revenue of the Company for each Fiscal Year, or part thereof, arising from the ordinary course of the Company’s business.  Gross revenue shall not include Capital Contributions or, unless otherwise agreed by the Board of Directors, any loan proceeds received by the Company.

“Liquidating Trustee” shall have the meaning set forth in Section 13.4(a).

“Majority Action” shall have the meaning set forth in Section 5.3(b).

“Member” means any Person executing this Agreement and any Person admitted as an Additional Member or a Substitute Member pursuant to the provisions of this Agreement, in such Person’s capacity as a Member of the Company, and “Members” means two (2) or more of such Persons when acting in their capacities as Members of the Company.

“Member Nonrecourse Debt” shall have the meaning set forth in Treasury Regulations Section 1.704-2(b)(4).

“Member Nonrecourse Debt Minimum Gain” shall have the meaning set forth in Treasury Regulation Section 1.704-2(i)(3).

“Minimum Distributions” shall have the meaning set forth in Section 8.1(b).

“Net Cash Flow” means, for each calendar month, Fiscal Year or other period of the Company for which it must be determined, the Gross Revenue of the Company from all sources other than Capital Contributions, less Current Operating Expenditures.

“Percentage Interest” means a Member’s Percentage Interest as described in Schedule A, as amended from time to time.  A Member’s Percentage Interest shall equal the number of Units held by such Member divided by the number of Units outstanding.

“Person” includes any individual, corporation, association, partnership (general or limited), joint venture, trust, estate, limited liability company or other legal entity or organization.

“Profits” or “Losses” means, for each Fiscal Year, an amount equal to the Company’s taxable income or loss for such Fiscal Year, determined in accordance with Section 703(a) of the Code (but including in taxable income or loss, for this purpose, all items of income, gain, loss or deduction required to be stated separately pursuant to Section 703(a)(1) of the Code), with the following adjustments:

(a)        any income of the Company exempt from federal income tax and not otherwise taken into account in computing Profits or Losses pursuant to this definition shall be added to such taxable income or loss;

(b)        any expenditures of the Company described in Section 705(a)(2)(B) of the Code (or treated as expenditures described in Section 705(a)(2)(B) of the Code pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(i)) and not otherwise taken into account in computing Profits or Losses pursuant to this definition shall be subtracted from such taxable income or loss;

(c)        in the event the Gross Asset Value of any Company asset is adjusted in accordance with Paragraph (b) or Paragraph (c) of the definition of “Gross Asset Value” above, the amount of such adjustment shall be taken into account as gain or loss from the disposition of such asset for purposes of computing Profits or Losses;

(d)        gain or loss resulting from any disposition of any asset of the Company with respect to which gain or loss is recognized for federal income tax purposes shall be computed by reference to the Gross Asset Value of the asset disposed of, notwithstanding that the adjusted tax basis of such asset differs from its Gross Asset Value;

(e)        in lieu of the depreciation, amortization and other cost recovery deductions taken into account in computing such taxable income or loss, there shall be taken into account Depreciation for such Fiscal Year or other period, computed in accordance with the definition of “Depreciation” above; and

(d)        notwithstanding any other provisions of this definition, any items which are specially allocated pursuant to Section 9.2 below shall not be taken into account in computing Profits or Losses.

“Property” means all of the assets and property now owned or hereafter acquired by the Company.

“Substitute Member” means a Person who is admitted to the Company as a Member pursuant to Section 7.1 below, and then is named as a “Member” on an amended Schedule A to this Agreement.

“Tax Matters Representative” shall have the meaning set forth in Article 11 hereof.

“Trade Secrets” means information relating to the Company, without regard to form, including, but not limited to, technical or nontechnical data, formulas, patterns, compilations, programs, source code and programmers’ notes, products, devices, methods, techniques, drawings, blueprints, processes, financial data, financial plans, product plans or lists of actual or potential customers or suppliers which is not commonly known by or available to the public and which (a) derives economic value, actual or potential, from not being known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use; and (b) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

“Transfer” means any transfer, assignment, sale, conveyance, hypothecation, license, lease, partition, pledge or grant of a security interest in a Member’s Units in the Company, and includes any “involuntary transfer” such as a sale of any part of the Units therein in connection with any bankruptcy or similar insolvency proceedings, or a divorce or other marital settlement involving any Member, or any other disposition or encumbrance of a Member’s Units.  For purposes of this Agreement, any transfer, exchange or series of transfers (or exchanges), directly or indirectly, of the stock, partnership, member or other ownership interests of any Member that is a business organization or an entity (or any combination of such transfers or exchanges, whether direct or in connection with a merger, acquisition, sale, or similar reorganization or transaction, including issues of new stock or other ownership interests, or the exercise of options, warrants, debentures or other convertible instruments, or a redemption of other interests in the Member, and any similar transactions involving the stock or other ownership interests of such Member), the effect of which is that the Persons who owned at least fifty-one percent (51%) of the outstanding stock or other ownership interests in such Member at the time this Agreement is signed, no longer own at least fifty-one percent (51%) of such stock or other ownership interests, then a Transfer shall also be deemed to have occurred with regard to the Units owned by such Member.

“Treasury Regulations” means the income tax regulations, including temporary regulations, promulgated under the Code, as such regulations may be amended from time to time (including corresponding provisions of succeeding regulations).

“Unit” means a unit of membership interest into which the equity ownership of the Company, including capital and profits interests, is divided.

ARTICLE 2.
FORMATION AND TERM

Section 2.1            Formation.

(a)                The Members hereby agree the Company has been formed as a limited liability company pursuant to the provisions of the Act, and agree that the rights, duties and liabilities of the Members shall be as provided in the Act, except as otherwise provided herein.  An authorized person has previously filed the Certificate.

(b)               The name and mailing address of each Member, the total amount contributed to the capital of the Company through the date of this Agreement and the Units issued to such Member are listed on Schedule A attached hereto.  The Board of Directors shall update Schedule A, from time to time, as may be necessary to accurately reflect the information therein, including the issuance of additional Units and admission of additional Members.  Any amendment or revision to Schedule A made in accordance with this Agreement shall not be deemed an amendment to this Agreement.  Any reference in this Agreement to Schedule A shall be deemed to be a reference to Schedule A, as amended and in effect from time to time.

Section 2.2            Name.

The business and affairs of the Company shall be conducted under the name “XXXXXXX, LLC” and such name shall be used at all times in connection with the Company’s business and affairs, except to the extent the Board of Directors agree to the use by the Company of assumed names or other trade names or fictitious names.  The Company’s officers shall execute such assumed or fictitious name certificates as may be desirable or required by law to be filed in connection with the formation of the Company and shall cause such certificates to be filed in all appropriate public records.

 

Section 2.3            Term.

The term of the Company commenced on the date the Certificate was filed and shall continue perpetually, unless the Company is dissolved in accordance with the provisions of this Agreement.

Section 2.4            Registered Agent and Office.

The address of the registered office of the Company in Colorado is 853 XXXXXXX XXXXXXX Dr.,

XXXXXXXlorado  80027.

 

Section 2.5            Principal Place of Business.

The principal place of business of the Company shall be 853 XXXXXXX XXXXXXX Dr.,  XXXXXXXlorado  80027.   At any time, the Board of Directors may change the location of the Company’s principal place of business.

 

Section 2.6            Qualification in Other Jurisdictions.

The Board of Directors shall cause the Company to be qualified or registered under assumed or fictitious name statutes or similar laws in any jurisdiction in which the Company transacts business.  The officers of the Company shall execute, deliver and file any certificates (and any amendments and/or restatements thereof) necessary for the Company to qualify to do business in a jurisdiction in which the Company may wish to conduct business.

ARTICLE 3.
PURPOSE AND POWERS OF THE COMPANY

Section 3.1            Purpose.

(a)                The business of the Company (the “Business”) shall be:

(i)                  To engage in any lawful business subject to any provisions of law governing or regulating such business;

(ii)                To exercise all other powers necessary to reasonably be connected with the Company’s business which may legally be exercised by limited liability companies under the Act; and

(iii)               To engage in all activities necessary, customary, convenient, or incident to any of the foregoing.

(b)               In no event shall this Agreement be held or construed to imply the existence of a general partnership or joint venture among the Members with regard to matters, trades or businesses or enterprises outside the scope of this Company, and no Member shall have any power or authority under this Agreement to act as the agent or representative of the Company or any other Member with regard to any matter beyond the scope of this Company.

Section 3.2            Powers of the Company.

The Company shall have the power and authority to take any and all actions necessary, appropriate, proper, advisable, incidental or convenient to or for the furtherance of the purpose set forth in Section 3.1, including, but not limited to, the power:

(a)                to conduct the business of the Company, carry on its operations and have and exercise the powers granted to a limited liability company by the Act in any state, territory, district or possession of the United States, or in any foreign country that may be necessary, convenient or incidental to the accomplishment of the purpose of the Company;

(b)               to acquire by purchase, lease, contribution of property or otherwise, own, hold, operate, maintain, finance, improve, lease, sell, convey, pledge, mortgage, transfer, demolish or dispose of any real or personal property (including the Property) that may be necessary, convenient or incidental to the accomplishment of the purpose of the Company;

(c)                to enter into, perform and carry out contracts of any kind, including contracts with any Member or Affiliate thereof, necessary to the accomplishment of the purpose of the Company;

(d)               to sue and be sued, make claims and defend, and participate in administrative or other proceedings, in its name;

(e)                to appoint employees and agents of the Company, and define their duties and fix their compensation;

(f)                 subject to the provisions of Article 12, to indemnify certain Persons in accordance with the Act and to obtain any and all types of insurance;

(g)                to borrow money and issue evidences of indebtedness, including loans from any Member or Affiliate thereof, and to secure any of the same by a mortgage, pledge or other lien on the assets of the Company;

(h)                to pay, collect, compromise, litigate, arbitrate or otherwise adjust or settle any and all other claims or demands of or against the Company or to hold such proceeds against the payment of contingent liabilities;

(i)                  to form and operate one or more subsidiaries to conduct the business of the Company; and

(j)                 to make, execute, acknowledge and file any and all documents or instruments necessary, convenient or incidental to the accomplishment of the purpose of the Company.

Section 3.3            Title to Company Property.

Except as otherwise set forth herein, legal title to the Property and all other Company property and assets shall be taken and at all times held in the name of the Company.

ARTICLE 4.
CAPITAL CONTRIBUTIONS, MEMBER INTERESTS,
CAPITAL ACCOUNTS AND FUTURE CAPITAL REQUIREMENTS

Section 4.1            Capital Contributions.

The initial Members have made the respective initial Capital Contributions to the Company in the amounts set forth on Schedule A.   Each Member shall initially have the Percentage Interest and the number of Units set forth on Schedule A hereto.  In the event that the Board of Directors admits Additional Members, such Additional Members shall make Capital Contributions or other contributions of value and shall receive Common Units as determined by the Board of Directors, in their sole discretion, subject to Section 5.4.

 

Section 4.2            Member’s Units.

A Member’s Units for all purposes shall be personal property.  A Member has no interest in specific Company property, unless and until distributed to such Member.

Section 4.3            Status of Capital Contributions.

(a)                Except as otherwise provided in this Agreement, no Member, or the successor or assign of a Member, may demand a return of his Capital Contributions, in whole or in part.

(b)               No Member or Affiliate thereof shall receive any interest, return, compensation or drawing with respect to its Capital Contributions or its Capital Account or for services rendered or resources provided on behalf of the Company, except as otherwise specifically provided in this Agreement or except as otherwise determined by the Members or the Board of Directors in the case of compensation or reimbursements for services performed for the Company.

(c)                Except as otherwise provided in this Agreement, no Member shall be required to lend any funds or make Capital Contributions to the Company to make any additional Capital Contributions to the Company.  No Member shall have any personal liability for the repayment of any other Member’s Capital Contribution.

Section 4.4            Capital Accounts.

(a)                A separate Capital Account shall be established and maintained for each Member.  The original Capital Account established for any Member who acquires Units by virtue of an assignment in accordance with the terms of this Agreement shall be in the same amount as and shall replace the Capital Account of the assignor of such Units, and, for purposes of this Agreement, such Member shall be deemed to have made the Capital Contributions made by the assignor of such Units (or made by such assignor’s predecessor in interest).  To the extent such Member acquires less than all of the Units of the assignor of the Units so acquired by such Member, the original Capital Account of such Member and its Capital Contributions shall be in proportion to the Units it acquires, and the Capital Account of the assignor who retains Units, and the amount of its Capital Contributions, shall be reduced in proportion to the Units it retains.

(b)               The Capital Account of each Member shall be maintained in accordance with the following provisions:

(i)                  to such Member’s Capital Account there shall be credited such Member’s Capital Contributions, such Member’s allocation of Profits pursuant to Article 9 below, special allocations of income and gain, and the net amount of any Company liabilities that are assumed by such Member or that are secured by any Company assets distributed to such Member;

(ii)                to such Member’s Capital Account there shall be debited the amount of cash and the Gross Asset Value of any Company assets distributed to such Member pursuant to any provision of this Agreement, such Member’s allocation of Losses pursuant to Article 9 below, special allocations of loss and deduction, and the net amount of any liabilities of such Member that are assumed by the Company or that are secured by any property contributed by such Member to the Company; and

(iii)               in determining the amount of any liability for purposes of this Section 4.4(b), there shall be taken into account Section 752(c) of the Code and any other applicable provisions of the Code and the Treasury Regulations.

Section 4.5            Capital Accounts Generally.

(a)                Except as otherwise provided in this Agreement, whenever it is necessary to determine the Capital Account of any Member for any purpose hereunder, the Capital Account of such Member shall be determined after giving effect to all adjustments provided for in Section 4.4 for the current Fiscal Year in respect of transactions effected prior to the date such determination is to be made.

(b)               No Member shall be entitled to withdraw any part of its Capital Account, or to receive any distribution from the Company except as specifically provided in this Agreement.

(c)                In the event the Gross Asset Values of Company assets are adjusted in accordance with the definition of Gross Asset Value, the Capital Accounts shall be adjusted by allocating the increases or decreases in Gross Asset Value in accordance with Article 9.

ARTICLE 5.
MEMBERS, MEETINGS AND AMENDMENTS

Section 5.1            Powers of Members.

The Members shall have the power to exercise any and all rights or powers granted to the Members pursuant to the express terms of this Agreement.

Section 5.2            Resignation.

Except as expressly provided in this Agreement, a Member may not withdraw from the Company prior to the dissolution and winding up of the Company.  If a Member withdraws in violation of the foregoing prohibition, such Member shall not be entitled to receive any compensation or distributions and shall not otherwise be entitled to receive the fair market value of its Units except as otherwise expressly provided for in this Agreement.

Section 5.3            Meetings or Other Approvals of the Members.

(a)                Meetings of the Members may be called at any time by the Board of Directors.  Any Member may, in writing, authorize an individual to represent and act for it by proxy on all matters in which a Member is entitled to participate, including waiving notice of any meeting, voting or otherwise participating at a meeting, and to provide such consents, approvals or agreements of a Member as required in this Agreement.  Every such proxy shall be signed by all of the Persons having any ownership rights or interest in the Units of the Member.

(b)               Each meeting of Members shall be conducted by such officer named by the Board of Directors, and such a meeting shall be called with at least five (5) days but not more than thirty (30) days written notice, specifying the agenda for the meeting.  Such notice may be waived by any of the Members at any time, and will be deemed to have been waived if the Member participates in the meeting and has been provided with a written agenda for the meeting.  Meetings may also be held telephonically whereby each of the Members can hear each of the other Members.  The Board of Directors, in its sole discretion, shall establish all other provisions relating to meetings of Members, including the time, place or purpose of any meeting at which any matter is to be voted on by any Members, voting in person or by proxy or any other matter with respect to the exercise of any such right to vote.  Except as expressly provided in this Agreement, decisions of the Members shall be made upon the vote of Members holding a majority of the Units (“Majority Action”).  Action by the Members may also be taken and represented by a written consent of the Members having a majority of the Units.  The Company’s Secretary or such other officer designated by the Board of Directors shall be responsible for taking minutes of the Member meetings and safekeeping them on behalf of the Company, if requested to do so, by the Board of Directors.

(c)                Majority Action shall be required for the following actions:  (i) admission of a new holder of Units after September 30, 2007; (ii) approval of a plan of merger or consolidation of the Company or the sale of all or substantially all of its assets; or (iii) termination or dissolution of the Company.

Section 5.4            Additional Members.

(a)                With the approval of the Board of Directors, the Company is authorized to admit any Person as an additional member of the Company  (each, an “Additional Member” and collectively, the “Additional Members”).  Each such Person shall be admitted as an Additional Member at the time such Person (i) executes a Signature Page and (ii) is designated as a Member (with a corresponding Percentage Interest) on an amended or supplemental Schedule A hereto.  The Board of Directors may issue additional Units to new or Additional Members in exchange for cash, property or services or any combination thereof, at the sole discretion of the Board of Directors and without the approval of the Members.. Authorized Units may be issued by the Board of Directors to employees, contractors, vendors, members of the Board of Directors, members of the Board of Advisors or others providing services to the Company, in the discretion of the Board of Directors.

(b)               Additional Members shall not be entitled to any retroactive allocation of the Company’s income, gains, losses, deductions, credits or other items; provided that, subject to the restrictions of Section 706(d) of the Code, Additional Members shall be entitled to their respective share of the Company’s income, gains, losses, deductions, credits and other items arising under contracts entered into before the effective date of the admission of any Additional Members to the extent that such income, gains, losses, deductions, credits and other items arise after such effective date.  To the extent consistent with Section 706(d) of the Code and Treasury Regulations promulgated thereunder, the Company’s books may be closed at the time Additional Members are admitted (as though the Company’s tax year had ended) or the Company may credit to the Additional Members pro rata allocations of the Company’s income, gains, losses, deductions, credits and items for that portion of the Company’s Fiscal Year after the effective date of the admission of the Additional Members.

Section 5.5            Amendments.

Any amendment to this Agreement or the Certificate shall be adopted and be effective as an amendment thereto only if it receives the approval of the Board of Directors and Majority Action, except that (a) no amendment may affect the allocations or distributions of a Member without the written approval of such Member except as otherwise provided for in this Agreement, and (b) the Board of Directors may amend this Agreement in order to create an additional class or classes of Units and to admit Additional Members, as contemplated by and in accordance with Section 5.4(a).

Section 5.6            Confidentiality Obligations of Members.

Each Member expressly covenants and agrees that neither such Member nor any of its Affiliates (to the extent any such Affiliate has received Confidential Information or Trade Secrets) will disclose, divulge, furnish or make accessible to anyone (other than the Company or any of its Affiliates or representatives who are themselves subject to confidentiality obligations) any Confidential Information or Trade Secrets, or in any way use any Confidential Information or Trade Secrets in the conduct of any business; provided, however, that nothing in this Section 5.6 will prohibit the disclosure of any Confidential Information or Trade Secrets (a) which is required to be disclosed by the Member or any such Affiliate in connection with any court action or any proceeding before any Authority; (b) in connection with the enforcement of any of the rights of the Member hereunder; or (c) in connection with the defense by the Member of any claim asserted against it hereunder; provided, however, that in the case of a disclosure contemplated by Clause (a), to the extent reasonably practicable no disclosure shall be made until the Member shall give notice to the Company of the intention to disclose such Confidential Information or Trade Secrets so that the Company may contest the need for disclosure, and the Member will cooperate (and will cause its Affiliates and their respective representatives to cooperate) with the Company in connection with any such proceeding.

 

 

 

ARTICLE 6.
MANAGEMENT

Section 6.1            Management of the Company.

(a)                The Company shall be managed by or under the direction of the Board of Directors, elected or appointed as set forth in Section 6.2 below.  Except as otherwise specifically provided in this Agreement, the Board of Directors, acting in accordance with this Article 6, shall have full, exclusive and complete discretion, right, power, and authority to manage, control and make all decisions affecting the business and affairs of the Company and to do or cause to be done any and all acts, at the expense of the Company on the terms provided herein, deemed by the Board of Directors to be necessary or appropriate to effectuate the business of the Company or the purposes and objectives of the Company as set forth in this Agreement.  Notwithstanding the foregoing, the Director(s), in their capacity as Director(s) of the Company, or their successors, shall have the power and authority described in this Section 6.1(a), including signing contracts and obligations on behalf of the Company and otherwise conducting the day-to-day business and operations of the Company, provided that any actions for which the approval of the Board of Directors is expressly required by this Agreement shall be approved in accordance with subsection (b) below.

(b)               The consent of a majority of the Directors is required for all actions taken by the Board of Directors pursuant to this Agreement.  If there are only one or two Directors then in office, the consent of XXXXXXX XXXXXXX or his successor shall be so required.  No Director acting alone, other than XXXXXXX XXXXXXX or his successor, has the authority to bind the Company.

(c)                The Board of Directors may appoint individuals with such other titles as it may select, including the titles of Chairman, President, Vice President, Treasurer and Secretary, to act on behalf of the Company, with such power and authority as the Board of Directors may delegate to any such Person.

(d)               Except as described in this Agreement or as authorized by further action of the Board of Directors, no Persons other than the Board of Directors in their capacity as Director(s) and the duly appointed officers of the Company and its authorized employees and agents shall take part in the management, or the operation or control of the business and affairs of the Company.  Except as expressly delegated by the Board of Directors or their successors or as required by the Act, no Persons other than the Board of Directors and the duly appointed officers or other authorized agents of the Company shall be an agent of the Company or have any right, power or authority to transact any business in the name of the Company or to act for or on behalf of or to bind the Company.

(e)                Except as expressly set forth in this Agreement or required by law, no Director shall be personally liable for any debt, obligation or liability of the Company, whether arising in tort, contract or otherwise, solely by reason of being a Director of the Company.

Section 6.2            Number and Election of Directors.

The number of Directors of the Company comprising the Board of Directors shall initially be One  (1), and such Director initially shall be XXXXXXX XXXXXXX.  Additional Directors may be added as determined by the existing Board of Directors including members that may be elected to the Board. The number of Directors may be changed from time to time by the Board of Directors, with Majority Action, but in no instance shall there be less than one (1) Director.  Each Director shall hold office until removed pursuant to Section 6.3 below or until such Director’s successor shall have been appointed or elected.  Successor Directors shall be appointed or elected in the same manner as the Director to be succeeded.  In the event of the death or disability or removal of a Director for cause in accordance with Section 6.3, the successor to the Director appointed in accordance with clause (iii) of the first sentence of this  Section 6.2 shall be by the affirmative vote of the  Majority.

Section 6.3            Withdrawal, Resignation and Removal.

If a Director withdraws or resigns, any vacancy may be filled by the Board of Directors.  At a special meeting called expressly for that purpose or by written consent, all or any lesser number of Directors may be removed by the Members at any time, for cause, by the affirmative vote of Members holding a majority of the outstanding Units.  For purposes of this Section 6.3 and Section 6.2, the term “cause” shall mean a Director (i) shall have been convicted of a felony, (ii) shall have engaged in willful or reckless misconduct or fraud relating to the Partnership, in each case as determined by the final, non-appealable judgment of a court of competent jurisdiction, or (iii) acted or omitted to act in a manner that constitutes cause under applicable law.

 

 

Section 6.4            Limited Duty to Company.

No Director shall be required to manage the Company as his sole and exclusive occupation and each Director may have other business interests and may engage in other investments, occupations and activities in addition to those relating to the Company.  Neither the Company nor any Member shall have any right, by virtue of this Agreement, to share or participate in such other investments or activities of any Director or to the income or proceeds derived therefrom.  No Director shall incur any liability to the Company or to any of the Members as a result of engaging in any other business venture in which he is currently engaged.

Section 6.5            Reimbursement of Expenses; Fees.

The Company shall reimburse the Directors for all out-of-pocket expenses incurred by them in managing the Company, in accordance with such Company policies as may be adopted by the Board of Directors.  In addition, XXXXXXX XXXXXXX may receive a salary and other benefits as may be approved by the Board of Directors.

ARTICLE 7.
ASSIGNABILITY OF MEMBER INTERESTS

Section 7.1            Assignability of Units.

Except as otherwise provided in this Article 7, no Member may Transfer the whole or any part of its Units or any fractional or beneficial interest therein.  If a Member Transfers Units in accordance with this Article 7, such Transfer shall, nevertheless, not entitle the assignee to become a Substitute Member or to be entitled to exercise or receive any of the rights, powers or benefits of a Member other than the economic interests to which the assigning Member would be entitled, unless the assigning Member designates, in a written instrument delivered to the other Members, its assignee to become a Substitute Member and the Board of Directors consents to the admission of such assignee as a Member; and provided further, that such assignee shall not become a Substitute Member without having first executed an instrument reasonably satisfactory to those Members that approved the Transfer which shall at a minimum include an acceptance and agreement by the Substitute Member to abide by all the terms and conditions of this Agreement.  The Transfer shall be conditioned upon the Company being fully reimbursed from such assignee or the assigning Member sufficient to cover all reasonable expenses of the Company in connection with such assignee’s admission as a Substitute Member.

 

Section 7.2            Permitted Transfers.

(a)                Notwithstanding the foregoing, a Member shall be permitted to assign, at any time and from time to time, all or any part of his Units to a Permitted Assignee.  For this purpose “Permitted Assignee” means with respect to a particular Member, a Person that is (i) a natural or adoptive lineal ancestor or descendant of such Member; (ii) a trust, estate, guardianship or custodianship, including those established under any of the Uniform Gifts to Minors Act of any state (or similar statute), established for such Member or one or more Permitted Assignees of such Member; and (iii) entities under the control of such Member and one or more other Permitted Assignees of such Member.  The subsequent Transfer of any Units by a Permitted Assignee shall be subject to the same restrictions of this Article 7 in the same manner as if the Units to be Transferred were still owned by the Member from whom such Permitted Assignee acquired such Units; and for this purpose references herein to a Transfer by a Member (or a specific Member), shall include any Transfer by the Permitted Assignee(s) that acquired such Member’s Units, and references to a specific Member by name shall include his Permitted Assignees.

(b)               If a Member Transfers all or a portion of his Units in the Company and the Permitted Assignee or other assignee thereof, as the case may be, is entitled to become a Substitute Member, such assignee shall be admitted to the Company effective immediately prior to the effective date of the assignment (as set forth in Section 7.3), and, immediately following such admission, the assigning Member shall cease to be a Member of the Company to the extent of the portion of the Units assigned hereunder.

Section 7.3            Recognition of Assignment by Company or Other Members.

No Transfer of Units that is in violation of this Article 7 shall be valid or effective, and neither the Company, the Board of Directors, nor any Member shall recognize the same for any purpose of this Agreement, including the purpose of making distributions of Net Cash Flow pursuant to this Agreement with respect to such Units or part thereof.  Neither the Company nor the Board of Directors shall incur any liability as a result of refusing to make any such distributions to the assignee of any such invalid assignment.

Section 7.4            Effective Date of Assignment.

Any valid Transfer of a Member’s Units, or part thereof, pursuant to the provisions of this Article 7 shall be effective as of the close of business on the day preceding the closing of the transaction evidencing the Transfer.  The Company, from the effective date of such Transfer, shall thereafter pay all further distributions on account of the Units (or part thereof), so assigned, to the assignee of such Units, or part thereof.  As between any Member and its assignee, Profits and Losses for the Fiscal Year of the Company in which such assignment occurs shall be apportioned for federal income tax purposes in accordance with any convention permitted under Section 706(d) of the Code and selected by the Board of Directors.

Section 7.5            Right of First Refusal; Transfers of Units; Admission of Substitute Members.

(a)                In the event that any Member (hereinafter referred to as “Offering Member”) desires to sell all or any part of his or her Units (“Offered Units”) to a third-party from whom it receives a bona fide written offer to purchase all of the Offered Units for cash and/or a promise to make deferred payments of cash (the “Offer”), the Offering Member shall promptly give written notice (the “Notice”) to all Members whose Units are not subject to said offer (the “Non-Offering Members”).  The Notice shall state the identity of the third-party offeror, the purchase price (the “Offer Price”) and the other terms and conditions of the Offer.  Each Non-Offering Member shall then have an option (“Member Option”) to purchase from the Offering Member its proportionate share (“Proportionate Share”) of the Offered Units.  For purposes of this Agreement, the term Proportionate Share shall mean a percentage obtained by dividing the number of Units owned by each Non-Offering Member by the total number of Units owned by all Non-Offering Members. In the event a Non-Offering Member elects to exercise his or her Member Option, said Non-Offering Member must provide written notice to the Offering Member, the Company and all other Non-Offering Members within thirty (30) days after his or her receipt of the Notice from the Offering Member. If any one or more Non-Offering Members fail to exercise their option to purchase their Proportionate Share, all of those Non-Offering Members that have exercised their option to purchase their Proportionate Share shall have an option to purchase their Proportionate Share (determined by excluding the Units of the Non-Offering Member failing to exercise) of the Units allocated to the non-purchasing, Non-Offering Members.  This option may be exercised in the manner provided above within ten (10) days following the lapse of the options of the non-purchasing, Non-Offering Members.  This process shall continue indefinitely until all of the Offered Units have been purchased or offered for purchase and declined by each of the Non-Offering Members. The purchase price to be paid by each Non-Offering Member shall be his, her or its Proportionate Share of the Offer Price and shall be paid in full in accordance with the terms of the Offer at the time of purchase, which shall be mutually agreed upon and shall occur within thirty (30) days of the date the last notice period expires.

(b)               Failure to Exercise Option. Notwithstanding the foregoing provisions in Section 4.6(a), if the Non-Offering Members fail to exercise their options above to purchase all of the Offered Units, then the Offering Member shall have thirty (30) days from the date the Member Option expires to consummate the sale of all of the Offered Units to the third-party offeror pursuant to the terms of the Offer, and none of the sales referred to in Section 4.6(a) shall take place.  If the Offering Member does not complete the sale to the third-party offeror within said thirty (30) day period, then all of the Offered Units shall once again become subject to the terms of this Agreement and the Right of First Refusal set forth herein.  If the sale to the third-party offeror is completed within said thirty (30) day period, then the purchaser shall take all of the Offered Units subject to all terms of this Agreement.

(c)                Additional Requirements.  As a condition to recognizing the effectiveness and binding nature of any transfer of any Unit, 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 perform all such other acts that the Manager deems necessary or desirable to (1) constitute such transferee as such; (2) confirm that the transferee desiring to acquire Units has accepted, assumed and agreed to be subject to and bound by all the terms, obligations and conditions of the 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 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 Manager); and (6) assure compliance with the applicable securities acts and regulations.  At the request of a Member, the Manager shall provide consultation and information concerning the circumstances in which a transfer of an interest in the Company would result in a termination of the Company within the meaning of Code Section 708.

 

 

Section 7.6            Drag-Along Right.

(a)                If any Member or Members holding not less than a majority of the Units (the "Selling Members") proposes to sell all of their Units to a person who is not a Member (a "Drag-Along Sale"), at their sole option, the Selling Members shall have the right to require the other Members (the "Drag-Along Member") to sell in such Drag-Along Sale the Units held by them.

(b)               The Selling Members shall provide the Drag-Along Member notice of the terms and conditions of such proposed Disposition (the "Drag-Along Notice") not later than 15 business days prior to the closing of the proposed Drag-Along Sale.  The Drag-Along Notice shall identify the consideration for which the Disposition is proposed to be made, and all other material terms and conditions of the Drag-Along Sale, including the form of the proposed agreement, if any.  The Drag-Along Members shall be required to participate in the Drag-Along Sale on the terms and conditions set forth in the Drag-Along Notice.

(c)                If, at the end of a 90-day period after the date on which the Selling Members give the Drag-Along Notice (which 90-day period shall be extended if any of the transactions contemplated by the Drag-Along Sale are subject to regulatory approval until the expiration of five business days after all such approvals have been received, but in no event later than 120 days following the receipt of the Drag-Along Notice), the Drag-Along Sale has not been completed on substantially the same terms and conditions set forth in the Drag-Along Notice, the Drag-Along Member shall no longer be obligated to sell their Units pursuant to such Drag-Along Notice and the Selling Members shall return to the Drag-Along Members any documents in the possession of the Selling Members executed by the Drag-Along Member in connection with the proposed Drag-Along Sale.

(d)               Notwithstanding anything contained in this Section 7.6, there shall be no liability on the part of the Selling Members to the Drag-Along Member if the transfer of the Units pursuant to this Section 7.6 is not consummated for whatever reason.  In addition, notwithstanding anything contained in this Section 7.6, the obligations of the Drag-Along Member to participate in a Drag-Along Sale are subject to the following conditions:

(i)                  subject to the allocation provisions set forth in this Agreement, upon the consummation of such Drag-Along Sale, all of the Members participating therein will receive the same form and amount of consideration per percentage of Unit and shall be subject to all other terms and conditions of such sale in a manner proportionate to their Units being sold; and

(ii)                no Member participating therein shall be obligated to pay any expenses incurred in connection with any unconsummated Drag-Along Sale, and each Member shall be obligated to pay only its pro rata share (based on the amount of Units disposed of) of expenses incurred in connection with a consummated Drag-Along Sale to the extent such expenses are incurred for the benefit of all Members and are not otherwise paid by the Company or another person.

Section 7.7            Tag-Along Right.

(a)                If any Member or Members holding a Majority of the Units (the "Tag-Along Seller") proposes to sell all of its Units to a person who is not a Member (such proposed transfer, a "Tag-Along Sale"), and the (i) the Tag-Along Seller shall provide each other Member notice of the terms and conditions of such proposed transfer (the "Tag-Along Notice") and offer each other Member the opportunity to participate in such transfer in accordance with this Section 7.7 and (ii) each other Member may elect, at its option, to participate in the proposed transfer in accordance with this Section 7.7 (each such electing Member, a "Tagging Member"). The Tag-Along Notice shall identify the consideration for which the transfer is proposed to be made, and all other material terms and conditions of the Tag-Along Sale, including the form of the proposed agreement, if any.

(b)               From the date of its receipt of the Tag-Along Notice, each Tagging Member shall have the right, exercisable by notice delivered to the Tag-Along Seller within ten business days after its receipt of the Tag-Along Notice, to request that the Tag-Along Seller include in the proposed transfer the Units held by such Tagging Member.

(c)                If, at the end of a 90-day period after delivery of the notice from the Tagging Member (which 90-day period shall be extended if any of the transactions contemplated by the Tag-Along Sale are subject to regulatory approval until the expiration of five Business Days after all such approvals have been received, but in no event later than 120 days following receipt by the Tag-Along Seller of the Tagging Member’s notice), the Tag-Along Seller has not completed the transfer of their Units on substantially the same terms and conditions set forth in the Tag-Along Notice, the Tag-Along Seller shall not conduct any transfer of their Units without again complying with this Section 7.8.

(d)               If within ten days of receipt of the Tag-Along Notice any Member shall not have elected to participate in the Tag-Along Sale, such Member shall be deemed to have waived its rights under this Section 7.7 with respect to the transfer of its Units pursuant to such Tag-Along Sale.

(e)                Notwithstanding anything contained in this Section 7.7, there shall be no liability on the part of the Tag-Along Seller to the Tagging Members if the transfer of the Units pursuant to this Section 7.7 is not consummated for whatever reason.  Whether to effect a transfer of Units by the Tag-Along Seller is in the sole and absolute discretion of the Tag-Along Seller.  In addition, notwithstanding anything contained in this Section 7.7, the rights and obligations of the other Members to participate in a Tag-Along Sale are subject to the following conditions:

(i)                  subject to the allocation provisions set forth in this Agreement, upon the consummation of such Tag-Along Sale, all of the Members participating therein will receive the same form and amount of consideration per percentage of Unit and shall be subject to all other terms and conditions of such sale in a manner proportionate to their Units being sold; and

(ii)                no Member participating therein shall be obligated to pay any expenses incurred in connection with any unconsummated Tag-Along Sale, and each such Member shall be obligated to pay only its pro rata share (based on the amount of Units transferred) of expenses incurred in connection with a consummated Tag-Along Sale to the extent such expenses are incurred for the benefit of all such Members and are not otherwise paid by the Company or another person.

Section 7.8            Limitations on Transfer.

No Transfer of Units may be effectuated unless in the opinion of counsel satisfactory to the Board of Directors, the Transfer (a) would not result in the close of the Company’s tax year or the termination of the Company within the meaning of Section 708(b) of the Code; (b) would comply with the Securities Act of 1933 and applicable securities laws of any other jurisdiction; and (c) would not violate any other applicable laws, provided that the provisions of this Section 7.8 may be waived by the Board of Directors.

 

ARTICLE 8.
DISTRIBUTIONS TO MEMBERS

Section 8.1            Net Cash Flow.

(a)                The Board of Directors shall distribute the Net Cash Flow to the Members, at such times as determined by the Board of Directors, pro rata in accordance with their Percentage Interests.

(b)               Notwithstanding the foregoing, to the extent Net Cash Flow is available, the total distributions (“Minimum Distributions”) to a Member for each Fiscal Year (and the ninety (90) day period following such Fiscal Year) shall not be less than an amount equal to the product of:  (x) the Company’s net taxable income allocated to such Member for such Fiscal Year and all prior Fiscal Years for federal income tax purposes; multiplied by (y) the highest marginal federal tax rate for an individual set forth in Section 1 of the Code plus the rate of tax for residents of Colorado, after taking into account the federal income tax deduction for such taxes, reduced by all prior distributions pursuant to this Section 8.1, regardless of the actual federal tax rates applicable to the Members.  To the extent that such Minimum Distributions requirement increases the amount of distributed Net Cash Flow beyond the amount to which a Member would be entitled in the absence thereof, the excess portion shall be considered a prepayment of future distributions of Net Cash Flow allocable to such Member; provided that adjustments to any such future distributions to that Member shall not decrease his aggregate Net Cash Flow distributions below an amount necessary to meet the Minimum Distribution requirement for such Member for subsequent Fiscal Years.  If upon termination of a Member’s interest in the Company, such Member shall have received distributions pursuant to this Section 8.1(b) in excess of the Member’s net tax liability as computed herein, such Member shall contribute such excess to the Company within ten (10) days of termination of his interest.

Section 8.2            Withholding.

All amounts withheld pursuant to the Code or any provision of any foreign, state or local tax law or treaty with respect to any payment, distribution or allocation to the Company or the Members shall be treated as amounts distributed to the Members pursuant to this Article 8 for all purposes of this Agreement.  The Board of Directors are authorized to withhold from distributions, or with respect to allocations, to the Members and to pay over to any federal, foreign, state or local government any amounts required to be so withheld pursuant to the Code or any provision of any other federal, foreign, state or local law or treaty and shall allocate such amounts to those Members with respect to which such amounts were withheld.

Section 8.3            Limitations on Distribution.

Except as provided in this Agreement, no Member shall be entitled to any distribution of cash or other property from the Company.  Notwithstanding any provision to the contrary contained in this Agreement, the Company shall not make a distribution to any Member on account of its Units in the Company if such distribution would violate the Act or other applicable law.

ARTICLE 9.
ALLOCATIONS

Section 9.1            Profits and Losses.

All Profits and Losses from operations for each Fiscal Year (or part thereof), as determined by the Company’s accountants, shall be allocated as follows:

(a)                Profits.  After giving effect to the special allocations set forth in this Article 9, Profits for each Fiscal Year shall be allocated to the Members prorata in accordance with their Percentage Interests.

(b)               Losses.  After giving effect to the special allocations set forth in this Article 9, Losses for each Fiscal Year shall be allocated to the Members, prorata in accordance with their Percentage Interests.

Section 9.2            Special Allocations.

The following special allocations shall be made in the following order:

(a)                Company Minimum Gain Chargeback.  If there is a net decrease in Company Minimum Gain during a Company fiscal year so that an allocation is required by Treasury Regulations Section 1.704-2(f), then each Member shall be specially allocated items of income and gain for such year (and, if necessary, subsequent fiscal years) equal to such Member’s share of the net decrease in Company Minimum Gain as determined by Treasury Regulations Section 1.704-2(g).  Such allocations shall be made in a manner and at a time which will satisfy the minimum gain chargeback requirements of Treasury Regulations Section 1.704-2(f) and this Section 9.2(a) shall be interpreted consistently therewith.

(b)               Member Nonrecourse Minimum Gain Chargeback.  If there is a net decrease in the Member Nonrecourse Debt Minimum Gain during any Company fiscal year, any Member who has a share of such Member Nonrecourse Debt Minimum Gain (as determined in the same manner as partner nonrecourse debt minimum gain under Treasury Regulations Section 1.704-2(i)(5)) shall be specially allocated items of income or gain for such year (and, if necessary, subsequent fiscal years) equal to such Member’s share of the net decrease in the Member Nonrecourse Debt Minimum Gain in the manner and to the extent required by Treasury Regulations Section 1.704-2(i)(4).  This Section 9.2(b) shall be interpreted in a manner consistent with such Treasury Regulations.

(c)                Qualified Income Offset.  If a Member unexpectedly receives an adjustment, allocation, or distribution described in Treasury Regulations Sections 1.704-1(b)(2)(ii)(d)(4), (5) or (6), any of which causes or increases an Adjusted Capital Account Deficit in such Member’s Capital Account, then such Member will be specially allocated items of income and gain in an amount and manner sufficient to eliminate such deficit balance created or increased by such adjustment, allocation, or distribution as quickly as possible; provided, however, an allocation pursuant to this Section 9.2(c) will be made if and only to the extent that such Member would have an Adjusted Capital Account Deficit after all other allocations provided for in this Article 9 have been tentatively made as if this Section 9.2(c) were not in the Agreement.  For this purpose “Adjusted Capital Account Deficit” means the Member has a deficit balance in its “Capital Account” after giving effect to any amounts the Member is obligated to contribute or restore to the Company pursuant to the penultimate sentences of Treasury Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5).

(d)               Allocation of Nonrecourse Liability Deductions.  Deductions attributable to any Company Nonrecourse Liability, as defined in accordance with Section 1.704-2(b)(3) of the Treasury Regulations shall be allocated among the Members in proportion to their respective Percentage Interests.

(e)                Member Nonrecourse Debt Deductions.  Deductions attributable to any Member Nonrecourse Debt shall be allocated to the Member who bears the economic risk of loss with respect to the Member Nonrecourse Debt to which such deductions are attributable in accordance with Treasury Regulations Section 1.704-2(i)(1).

(f)                 Advice of Accountants.  Allocations made by the Board of Directors under this Section 9.2 in reliance upon the advice of the Company’s accountants shall be deemed to be made pursuant to any fiduciary obligation to the Company and the Members.

(g)                Section 754 Election.  To the extent an adjustment to the adjusted tax basis of any Company asset pursuant to Code Section 734(b) or Code Section 743(b) is required, pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(m), to be taken into account in determining Capital Accounts, the amount of such adjustment to the Capital Accounts shall be treated as an item of gain (if such gain or loss increases the basis of the asset) or loss (if the adjustment decreases such basis) and such gain or loss shall be specially allocated to the Members in a manner consistent with the manner in which their Capital Accounts are required to be adjusted pursuant to such Section of the Treasury Regulations.

(h)                Imputed Interest.  If any Member makes a loan to the Company, or the Company makes a loan to any Member, and interest in excess of the amount actually payable is imputed under Code Sections 7872, 483, or 1271 through 1288 or corresponding provisions of subsequent Federal income tax law, then any item of income or expense attributable to any such imputed interest shall be allocated solely to the Member who made or received the loan and shall be credited or charged to its Capital Account, as appropriate.

(i)                  Contributed Property.  Income, gain, loss or deduction with respect to any property contributed by a Member shall, solely for tax purposes, be allocated among the Members, to the extent required by Code Section 704(c) and the related Treasury Regulations under Code Sections 704(b) and 704(c), to take account of the variation between the adjusted tax basis of such property and its Gross Asset Value at the time of its contribution to the Company.  If the Gross Asset Value of any Company property is adjusted, as provided in Treasury Regulations Section 1.704-1(b)(2)(iv), then subsequent allocations of income, gain, loss and deduction shall be as provided in Code Section 704(c) and the related Treasury Regulations.  If Code Section 704(c) and the Treasury Regulations thereunder allow alternative methods of making such acquired allocations, Board of Directors shall determine which alternative method to use.  Allocations under this Section 9.2(i) are solely for purposes of federal, state and local taxes and shall not affect, or in any way be taken into account in computing, any Member’s Capital Account or share of Profits, Losses, or other items or distributions under any provision of this Agreement.

(j)                 Share of Excess Nonrecourse Liabilities.  For purposes of calculating a Member’s share of “excess nonrecourse liabilities” of the Company (within the meaning of Treasury Regulation Section 1.752-3(a)(3)), the Members intend that they be considered as sharing profits of the Company in proportion to their respective Percentage Interests.

(k)               Curative Allocations.  The allocations set forth in this Section 9.2 (collectively the “Regulatory Allocations”) are intended to comply with certain requirements of Treasury Regulations Section 1.704-1 and Section 1.704-2.  Notwithstanding any other provisions of this Article 9 (other than the Regulatory Allocations), the Board of Directors, with the advice and assistance of the Company’s tax accountants, shall take the Regulatory Allocations into account in allocating other Profits, Losses, and items of income, gain, loss, deduction and Code Section 705(a)(2)(B) expenditures among the Members so that, to the extent possible, the net amount of such allocations of other Profits, Losses, and other items and the Regulatory Allocations to each Member shall be equal to the net amount that would have been allocated to each such Member if the Regulatory Allocations had not occurred.

Section 9.3            Allocation and Other Rules.

(a)                In the event Members are admitted to the Company pursuant to this Agreement on different dates, the Profits (or Losses) allocated to the Members for each Fiscal Year during which Members are so admitted shall be allocated among the Members in proportion to their Percentage Interests during such Fiscal Year in accordance with Section 706 of the Code, using any convention permitted by law and selected by the Board of Directors.

(b)               For purposes of determining the Profits, Losses or any other items allocable to any period, Profits, Losses and any such other items shall be determined on a daily, monthly or other basis, as determined by the Board of Directors using any method that is permissible under Section 706 of the Code and the Treasury Regulations thereunder.

(c)                Except as otherwise provided in this Agreement, all items of Company income, gain, loss, deduction and any other allocations not otherwise provided for shall be divided among the Members in the same proportions as they share Profits and Losses for the Fiscal Year in question.

(d)               The Members are aware of the income tax consequences of the allocations made by this Article 9 and hereby agree to be bound by the provisions of this Article 9 in reporting their shares of Company income and loss for income tax purposes.

ARTICLE 10.
BOOKS AND RECORDS

Section 10.1        Inspection Rights Pursuant to Law.

The Company shall have obligations to the Members as set forth in this Article 10 respecting books, records and financial statements of the Company.

Section 10.2        Books and Records.

At all times during the continuance of the Company, the Company shall maintain at its registered office and principal place of business all records and materials the Company is required to maintain at such location under the Act.

Section 10.3        Annual Financial Statements.

Unless all of the Members otherwise elect, within one hundred twenty (120) days after the end of each Fiscal Year, the Company shall cause to be delivered to each Member a financial statement of the Company for the prior Fiscal Year, prepared at the expense of the Company, which financial statement shall set forth, as of the end of and for such Fiscal Year, the following:

(a)                a profit and loss statement and a balance sheet of the Company;

(b)               the balance in each Member’s Capital Account; and

(c)                such other information as reasonably shall be necessary for the Members to be advised of the financial status and results of operations of the Company.

Section 10.4        Accounting Method.

For both financial and tax reporting purposes and for purposes of determining Profits and Losses, the books and records of the Company shall be kept on such method of accounting as determined by the Board of Directors and shall reflect all Company transactions and be appropriate and adequate for the Company’s business.

 

ARTICLE 11.
TAX MATTERS

Section 11.1        Taxation as Company.

The Company shall be treated as a partnership for U.S. federal income tax purposes.

Section 11.2        Federal Tax Returns.

The Company shall cause the Company’s independent public accountants to prepare, at the expense of the Company, for each Fiscal Year (or part thereof), Federal tax returns in compliance with the provisions of the Code and any required state and local tax returns.

Section 11.3        Member Tax Return Information.

The Company, at its expense, shall cause to be delivered to each Member such information as shall be necessary (including a statement for that year of each Member’s share of net income, net losses and other items of the Company) for the preparation by the Members of their Federal, state and local income and other tax returns.

Section 11.4        Tax Matters Representative.

(a)                The “Tax Matters Member” of the Company for purposes of Section 6231(a)(7) of the Code shall be XXXXXXX XXXXXXX and shall have the power to manage and control, on behalf of the Company, any administrative proceeding at the Company level with the Internal Revenue Service relating to the determination of any item of Company income, gain, loss, deduction or credit for federal income tax purposes.

(b)               The Tax Matters Member shall, within five (5) business days of the receipt of any notice from the Internal Revenue Service in any administrative proceeding at the Company level relating to the determination of any Company item of income, gain, loss, deduction or credit, mail a copy of such notice to each Member.

Section 11.5        Right to Make Section 754 Election.

The Board of Directors, in their sole discretion, may make or revoke, on behalf of the Company, an election in accordance with Section 754 of the Code, so as to adjust the basis of Company property in the case of a distribution of property within the meaning of Section 734 of the Code, and in the case of a transfer of a Company Units within the meaning of Section 743 of the Code.

ARTICLE 12.
LIABILITY, EXCULPATION AND INDEMNIFICATION

Section 12.1        Liability.

(a)                Except as otherwise provided by the Act, the debts, obligations and liabilities of the Company, whether arising in contract, tort or otherwise, shall be solely the debts, obligations and liabilities of the Company, and no Covered Person shall be obligated personally for any such debt, obligation or liability of the Company solely by reason of being a Covered Person.

(b)               Except as otherwise expressly required by law, a Member, in its capacity as Member, shall have no liability in excess of:  (i) the amount of its Capital Contributions; (ii) its share of any assets and undistributed profits of the Company; (iii) its obligation to make other payments expressly provided for in this Agreement; and (iv) the amount of any distributions wrongfully distributed to such Member.

Section 12.2        Exculpation.

(a)                No Covered Person shall be liable to the Company or any other Covered Person for any loss, damage or claim incurred by reason of any act or omission performed or omitted by such Covered Person in good faith on behalf of the Company and in a manner reasonably believed to be within the scope of authority conferred on such Covered Person by this Agreement, except that a Covered Person shall be liable for any such loss, damage or claim incurred by reason of such Covered Person’s gross negligence or willful misconduct.

(b)               A Covered Person shall be fully protected in relying in good faith upon the records of the Company and upon such information, opinions, reports or statements presented to the Company by any Person as to matters the Covered Person 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, including information, opinions, reports or statements as to the value and amount of the assets, liabilities, Profits, Losses or Net Cash Flow or any other facts pertinent to the existence and amount of assets from which distributions to Members might properly be paid.

 

Section 12.3        Indemnification.

To the fullest extent permitted by applicable law, a Covered Person shall be entitled to indemnification from the Company for any loss, damage or claim incurred by such Covered Person by reason of any act or omission performed or omitted by such Covered Person provided that:  (a) any such action was undertaken in good faith on behalf of the Company and in a manner reasonably believed to be in, or not opposed to, the best interests of the Company; (b) any such action was reasonably believed to be within the scope of authority conferred on such Covered Person by this Agreement; and (c) with respect to any criminal action or proceeding, such Covered Person had no reasonable cause to believe his action or omission was unlawful, except that no Covered Person shall be entitled to be indemnified in respect of any loss, damage or claim incurred by such Covered Person by reason of gross negligence or willful misconduct with respect to such acts or omissions; provided, however, that any indemnity under this Section 12.3 shall be provided out of and to the extent of Company assets only (including the proceeds of any insurance policy obtained pursuant to Section 12.5), and no Covered Person shall have any personal liability on account thereof.

Section 12.4        Expenses.

To the fullest extent permitted by applicable law, expenses (including legal fees) incurred by a Covered Person in defending any claim, demand, action, suit or proceeding shall, from time to time, be advanced by the Company prior to the final disposition of such claim, demand, action, suit or proceeding upon receipt by the Company of an undertaking by or on behalf of the Covered Person to repay such amount if it shall be determined that the Covered Person is not entitled to be indemnified as authorized in Section 12.3.

Section 12.5        Insurance.

The Company may purchase and maintain insurance, to the extent and in such amounts as the Board of Directors, in their sole discretion, shall deem reasonable, on behalf of Covered Persons and such other Persons as the Board of Directors shall determine, against any liability that may be asserted against or expenses that may be incurred by any such Person in connection with the activities of the Company or such indemnities, regardless of whether the Company would have the power to indemnify such Person against such liability under the provisions of this Agreement.  The Board of Directors and the Company may enter into indemnity contracts with Covered Persons and such other Persons as the Board of Directors shall determine and adopt written procedures pursuant to which arrangements are made for the advancement of expenses and the funding of obligations under Section 12.4 and containing such other procedures regarding indemnification as are appropriate.

Section 12.6        Certain Liabilities.

Each Member agrees to be liable for the Capital Contributions required to be made by such Member, and subject to the other provisions of this Agreement, in the event a Member becomes liable for any liabilities of the Company, the Members shall bear such liability in proportion to their then existing Company Units.

Section 12.7        Acts Performed Outside the Scope of the Company.

Each Member (the “Indemnitor”) shall indemnify, defend, save and hold harmless the other Member (the “Indemnitee”) from any and all claims, liabilities, demands, actions and rights of action that shall or may arise by virtue of any act or thing done or omitted to be done by the Indemnitor (directly or through agents or employees) outside the scope of, or in breach of, the terms of this Agreement; provided, however, that the Indemnitor shall be properly notified of the existence of the claim, demand, action or right of action, and shall be given reasonable opportunity to cure any act or omission causing liability, and participate in the defense thereof.  The Indemnitee’s failure to give such notice shall not affect the Indemnitor’s obligations hereunder, except to the extent of any actual prejudice arising therefrom.

Section 12.8        Liability of Members to Company.

Unless otherwise provided in this Agreement, no Member shall be liable to any other Member or to the Company by reason of such Member’s actions in connection with the Company, except in the event of a violation of any provision of this Agreement, fraud, gross negligence or willful misconduct.

Section 12.9        Attorneys’ Fees.

All of the indemnities provided in this Agreement shall include reasonable attorneys’ fees, including appellate attorneys’ fees and court costs.

Section 12.10    Subordination of Other Rights to Indemnity.

The interests of the Members in any proceeds of the Company by way of repayment of loans, return of any Capital Contributions, or any distributions from the Company, shall be subordinated to the indemnities provided by this Article 12.

Section 12.11    Survival of Indemnity Provisions.

Except as otherwise specifically provided herein, all of the indemnity provisions contained in this Agreement shall survive a Member’s ceasing to be a Member hereunder.

ARTICLE 13.
DISSOLUTION, LIQUIDATION AND TERMINATION

Section 13.1        No Dissolution.

The Company shall not be dissolved by the admission of Additional Members or Substitute Members in accordance with the terms of this Agreement, or the withdrawal of a Member.

Section 13.2        Events Causing Dissolution.

The Company shall be dissolved and its affairs shall be wound up only upon the occurrence of any of the following events:

(a)                the determination of the Board of Directors;

(b)               at such time as there are no Members;

(c)                the entry of a decree of judicial dissolution under the Act; or

(d)               the sale or disposition of all or substantially all of the Property.

Section 13.3        Notice of Dissolution.

Upon the dissolution of the Company, the Board of Directors shall promptly notify the Members of such dissolution.

Section 13.4        Liquidation.

(a)                Upon dissolution of the Company, the Board of Directors (in such capacity, the “Liquidating Trustees”) shall carry out the winding up of the Company and shall immediately commence to wind up the Company’s affairs; provided, however, that a reasonable time shall be allowed for the orderly liquidation of the assets of the Company and the satisfaction of liabilities to creditors so as to enable the Members to minimize the normal losses attendant upon a liquidation.  The proceeds of liquidation shall be distributed in the following order and priority:

(i)                  first, to payment of all expenses and debts of the Company and setting up of such reserves as the Board of Directors reasonably deems necessary to wind up the Company’s affairs and to provide for any contingent liabilities or obligations of the Company; provided that the unpaid principal of and interest on any loans made to the Company by Members (and their Affiliates) shall be distributed pro rata to the Members (and their Affiliates) who made such loans, in proportion to the total amount of principal and interest payable on such loans, such distributions being treated first as a payment of accrued interest on such loans and next as in payment of principal on such loans; and

(ii)                second, the balance to the Members in proportion to their positive Capital Account balances.

(b)               Profits and Losses of the Company following the date of dissolution shall be determined in accordance with the provisions of this Agreement and shall be credited or charged to the Capital Accounts of the Members pursuant to Article 9 in the same manner as Profits and Losses of the Company would have been credited or charged if there were no termination, dissolution and liquidation.  Any taxable gain or any loss upon the sale, transfer, or other disposition of Company assets following the date of dissolution shall also be allocated to the Members in accordance with the allocation of Profits and Losses set forth in Article 9 in the same manner as Profits and Losses of the Company would have been credited or charged if there were no termination, dissolution and liquidation.

Section 13.5        Termination.

The Company shall terminate when all of the assets of the Company, after payment of or due provision for all debts, liabilities and obligations of the Company, shall have been distributed to the Members in the manner provided for in this Article 13 and the Certificate shall have been canceled in the manner required by the Act.

Section 13.6        Claims of the Members or Third Parties.

The Members and former Members shall look solely to the Company’s assets for the return of their Capital Contributions, and if the assets of the Company remaining after payment of or due provision for all debts, liabilities and obligations of the Company are insufficient to return such Capital Contributions, the Members and former Members shall have no recourse against the Company or any other Member; provided, however, that nothing contained herein shall be deemed to limit the rights of a Member under applicable law.  In the event any Member has a deficit balance in its Capital Account at the time of the Company’s dissolution, it shall not be required to restore such account to a positive balance or otherwise make any payments to the Company or its creditors or other third parties in respect of such deficiency.

Section 13.7        Distributions In-Kind.

If any assets of the Company shall be distributed in kind, such assets shall be distributed to the Member(s) entitled thereto as tenants-in-common in the same proportions as such Member(s) would have been entitled to cash distributions if (i) such assets had been sold for cash by the Company at the fair market value of such property (taking the Gross Asset Value definition herein and Code Section 7701(g) into account) on the date of distribution; (ii) any unrealized income, gain, loss and deduction inherent in such property (that has not been reflected in the Capital Accounts previously) that would be realized by the Company from such sale were allocated among the Member(s) as Profits or Losses in accordance with this Agreement; and (iii) the cash proceeds were distributed to the Member(s) in accordance with this Article 13.  The Capital Accounts of the Member(s) shall be increased by the amount of any unrealized income or gain inherent in such property or decreased by the amount of any loss or deduction inherent in such property that would be allocable to them, and shall be reduced by the fair market value of the assets distributed to them under the preceding sentence.

ARTICLE 14.
MISCELLANEOUS

Section 14.1        Notices.

All notices provided for in this Agreement shall be in writing, duly signed by the party giving such notice, and shall be delivered, telecopied or mailed by registered or certified mail or by recognized overnight delivery or courier service (e.g., Federal Express), as follows:

(a)                if given to the Company, in care of XXXXXXX XXXXXXX or his successor, at the principal place of business of the Company set forth in Section 2.5.

(b)               if given to any Member, at such address as such Member may hereafter designate by written notice to the Company.

 

Section 14.2        Failure to Pursue Remedies.

The failure of any party to seek redress for violation of, or to insist upon the strict performance of, any provision of this Agreement shall not prevent a subsequent act, which would have originally constituted a violation, from having the effect of an original violation.

Section 14.3        Cumulative Remedies.

The rights and remedies provided by this Agreement are cumulative and the use of any one right or remedy by any party shall not preclude or waive its right to use any or all other remedies.  Said rights and remedies are given in addition to any other rights the parties may have by law, statute, ordinance or otherwise.

Section 14.4        Binding Effect.

This Agreement shall be binding upon and inure to the benefit of all of the parties and, to the extent permitted by this Agreement, their successors, legal representatives and assigns.

Section 14.5        Interpretation.

Throughout this Agreement, nouns, pronouns and verbs shall be construed as masculine, feminine, neuter, singular or plural, whichever shall be applicable.  All references herein to “Articles,” “Sections” and “Paragraphs” shall refer to corresponding provisions of this Agreement.

Section 14.6        Severability.

The invalidity or unenforceability of any particular provision of this Agreement shall not affect the other provisions hereof, and this Agreement shall be construed in all respects as if such invalid or unenforceable provision were omitted.

Section 14.7        Counterparts.

This Agreement may be executed in any number of counterparts with the same effect as if all parties hereto had signed the same document.  All counterparts shall be construed together and shall constitute one instrument.

 

Section 14.8        Integration.

This Agreement constitutes the entire agreement among the parties hereto pertaining to the subject matter hereof and supersedes all prior agreements and understandings pertaining thereto.

Section 14.9        Governing Law, Submission to Jurisdiction.

This Agreement and the rights of the parties hereunder shall be interpreted in accordance with the laws of the State of Colorado and all rights and remedies shall be governed by such laws without regard to principles of conflict of laws.  The parties further agree that any legal action or proceeding with respect to this Agreement or any document relating hereto may be brought only a court of competent jurisdiction in the City and County of Denver, Colorado.  Each party hereby irrevocably waives any objection, including, without limitation, any objection to the laying of venue or based on the grounds of forum non-convenience, which it may now or hereafter have to the bringing of such action or proceeding in any such respective jurisdiction.

Section 14.10    Dealings in Good Faith; Best Efforts.

Except as otherwise expressly set forth herein, each party hereto agrees to act in good faith with respect to the other party in exercising its rights and discharging its obligations under this Agreement.  Each party further agrees to use its best efforts to ensure that the purposes of this Agreement are realized and to take all steps as are reasonable in order to implement the operational provisions of this Agreement.  Each party agrees to execute, acknowledge, if necessary, deliver and file any document or instrument necessary or advisable to realize the purposes of this Agreement.

Section 14.11    Partition of the Property.

Each Member agrees that it shall have no right to partition the Property, or any portion thereof, and each Member agrees that it shall not make application to any court or authority having jurisdiction in the matter to commence or prosecute any action or proceeding for partition of the Property, or any portion thereof.  Upon the breach of this Section by any Member, the other Member, in addition to all other rights and remedies in law and equity, shall be entitled to a decree or order dismissing application, action or proceeding.

Section 14.12    Third Party Beneficiaries.

Nothing expressed or implied in this Agreement is intended or shall be construed, to confer upon or give any person, firm or corporation other than the parties hereto, any rights, remedies, obligations or liabilities under or by reason of this Agreement, or result in their being deemed a third party beneficiary of this Agreement.

Section 14.13    Tax Disclosure Authorization.

Notwithstanding anything herein to the contrary, the Member (and each Affiliate and Person acting on behalf of any Member) agree that each Member (and each employee, representative, and other agent of such Member) may disclose to any and all Persons, without limitation of any kind, the transaction’s tax treatment and tax structure (as such terms are used in Sections 6011 and 6112 of the Code and the Treasury Regulations thereunder) contemplated by this Agreement and all materials of any kind (including opinions or other tax analyses) provided to such Member or such Person relating to such tax treatment and tax structure, except to the extent necessary to comply with any applicable federal or state securities laws.

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