HomeMy WebLinkAboutCC - Operating Agreement - High Desert Development Linder Village OPERATING AGREEMENT
OF
HIGH DESERT DEVELOPMENT LINDER VILLAGE, LLC
DATED March 1, 2020
42795.0014.12547542.4
TABLE OF CONTENTS
Page
ARTICLE 1 GENERAL................................................................................................................. 1
1.1 Formation................................................................................................................ 1
1.2 Certificate of Organization ..................................................................................... 1
1.3 Name....................................................................................................................... 1
1.4 Duration.................................................................................................................. 1
1.5 Purposes and Powers............................................................................................... 1
1.6 Registered Agent and Office................................................................................... 1
1.7 Designated Office ................................................................................................... 1
1.8 Miscellaneous Definitions ...................................................................................... 2
1.9 Limited Liability Company as Separate Entity....................................................... 3
ARTICLE 2 MEMBERSHIP.......................................................................................................... 4
2.1 Members .................................................................................................................4
2.2 Membership Interests..............................................................................................4
2.2.1 Units............................................................................................................4
2.2.2 Percentage Interest......................................................................................4
2.2.3 Profits Interest............................................................................................. 4
2.2.4 Separate Property of Members.................................................................... 4
2.2.5 Representations and Warranties of the Members ....................................... 5
2.3 Schedule of Members ............................................................................................. 5
2.4 Members' Authority................................................................................................ 5
2.5 Contributions........................................................................................................... 5
2.5.1 Existing Contributions................................................................................ 5
2.5.2 Additional Contributions ............................................................................ 5
2.5.3 Form of Contributions................................................................................. 6
2.5.4 Liabilities Regarding Contributions............................................................ 6
2.6 Distributions............................................................................................................ 6
2.6.1 Interim Distributions................................................................................... 6
2.6.2 Liquidating Distributions............................................................................ 6
2.6.3 Limitations on Distributions to the Profit Member..................................... 7
2.6.4 Form of Distributions.................................................................................. 7
2.6.5 Liabilities Regarding Distributions............................................................. 7
2.6.6 Withholding and Treating Amounts Withheld as Distributions................. 7
2.6.7 Distributions to Pay Taxes.......................................................................... 7
2.6.8 Limitation on Distributions......................................................................... 7
2.6.9 Right of Set-Off.......................................................................................... 8
2.7 New Members......................................................................................................... 8
2.8 Limitations regarding Dissociated Members and Non-Member Transferees......... 8
ARTICLE 3 MANAGEMENT....................................................................................................... 8
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3.1 Establishment of the Board..................................................................................... 8
3.2 Board Composition; Vacancies............................................................................... 9
3.2.1 Number ....................................................................................................... 9
3.2.2 Subsidiary Boards....................................................................................... 9
3.3 Removal; Resignation............................................................................................. 9
3.4 Meetings.................................................................................................................. 9
3.4.1 Regular Meetings........................................................................................ 9
3.4.2 Notice of Meetings...................................................................................... 9
3.4.3 Meeting Agendas ...................................................................................... 10
3.4.4 Minutes ..................................................................................................... 10
3.5 Quorum; Manner of Acting. ................................................................................. 10
3.5.1 Quorum..................................................................................................... 10
3.5.2 Electronic Participation............................................................................. 10
3.5.3 Voting ....................................................................................................... 10
3.5.4 Proxies....................................................................................................... 10
3.5.5 Deadlock................................................................................................... 11
3.6 Action By Written Consent................................................................................... 12
3.7 Compensation; No Employment........................................................................... 12
3.8 Chairperson of the Board...................................................................................... 12
3.9 Officers ................................................................................................................. 12
3.10 No Personal Liability............................................................................................ 12
3.11 Claims under JV Agreements ............................................................................... 12
ARTICLE 4 STANDARDS OF CONDUCT............................................................................... 13
4.1 Fiduciary Duties.................................................................................................... 13
4.2 Duty of Care.......................................................................................................... 13
4.3 Duty of Loyalty..................................................................................................... 13
4.3.1 Non-Circumvention. ................................................................................. 13
4.3.2 Account..................................................................................................... 14
4.3.3 Loans......................................................................................................... 14
4.3.4 Conflicting Interest Transactions.............................................................. 14
4.4 Confidentiality...................................................................................................... 14
4.5 Good Faith and Fair Dealing................................................................................. 15
ARTICLE 5 CAPITAL ACCOUNTS AND TAXES................................................................... 15
5.1 Capital Accounts................................................................................................... 15
5.1.1 Increases and Decreases in Capital Accounts........................................... 15
5.1.2 Allocations upon Transfers....................................................................... 15
5.2 Single Member LLC Taxation.............................................................................. 16
5.3 Multiple Member LLC Taxation .......................................................................... 16
5.3.1 Income, Gain, Loss, Deduction and Credit............................................... 16
5.3.2 Special Allocations ................................................................................... 16
5.3.3 Integration with Code Section 754 Election............................................. 17
5.4 Compliance with Code and Regulations............................................................... 17
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5.5 Partnership Representative.................................................................................... 17
5.6 Member Taxes ...................................................................................................... 18
ARTICLE 6 TRANSFERS AND DISSOCIATIONS.................................................................. 18
6.1 Prohibition on Transfers ....................................................................................... 18
6.1.1 General Limitations under Applicable Law.............................................. 19
6.1.2 Reasonableness of Restrictions; Enforcement.......................................... 19
6.2 Permitted Transfers............................................................................................... 19
6.2.1 Voluntary Redemption by a Member ....................................................... 19
6.2.2 Mandatory Redemption by the Company................................................. 19
6.2.3 Transfer to another Member.....................................................................20
6.2.4 Transfer to a Third Party...........................................................................20
6.3 Events of Dissociation.......................................................................................... 21
6.4 Effect of Permitted Transfers................................................................................22
6.5 Effect of Prohibited Transfers...............................................................................23
6.6 Effect of Dissociation ........................................................................................... 23
ARTICLE 7 DISSOLUTION.......................................................................................................23
7.1 Dissolution............................................................................................................23
7.2 Statement of Dissolution.......................................................................................24
7.3 Winding Up...........................................................................................................24
7.4 Distribution of Assets after Dissolution................................................................ 24
7.4.1 Creditors....................................................................................................24
7.4.2 Reserves....................................................................................................24
7.4.3 Additional Contributions .......................................................................... 25
7.4.4 Positive Capital Account Balances...........................................................25
7.4.5 Percentage Interests .................................................................................. 25
7.5 Deficit Capital Account Restoration Obligation...................................................25
7.6 Distribution in Kind.............................................................................................. 25
7.7 Completion of Winding Up and Termination.......................................................25
ARTICLE 8 DISPUTE RESOLUTION....................................................................................... 25
8.1 Indemnification by Company...............................................................................25
8.1.1 Payment of Expenses................................................................................26
8.1.2 Right to Counsel and Control of Action................................................... 26
8.1.3 Insurance................................................................................................... 26
8.2 Indemnification by Member for Failure to Pay Taxes..........................................26
8.3 Limited Liability...................................................................................................27
8.4 Information Rights................................................................................................27
8.5 Claim.....................................................................................................................28
8.6 Claim Resolution Procedure.................................................................................28
8.7 Reservation of Rights and Remedies.................................................................... 28
8.8 Injunctive Remedies..............................................................................................28
8.9 Attorney Fees and Costs ....................................................................................... 29
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8.10 Waiver................................................................................................................... 29
8.11 Governing Law, Jurisdiction, and Venue ............................................................. 29
ARTICLE 9 MISCELLANEOUS ................................................................................................ 29
9.1 Notices .................................................................................................................. 29
9.2 Waiver of Notice................................................................................................... 29
9.3 Successors and Assigns......................................................................................... 29
9.4 Coordination of Agreement and Act and Other Applicable Law......................... 29
9.5 No Partnership Intended for Non-Tax Purposes................................................... 30
9.6 Rights of Creditors and Third Parties ................................................................... 30
9.7 Severability........................................................................................................... 30
9.8 Time of the Essence.............................................................................................. 30
9.9 Entire Agreement.................................................................................................. 30
9.10 Amendment........................................................................................................... 30
9.11 Adoption and Ratification..................................................................................... 31
9.12 Interpretation......................................................................................................... 31
9.13 Counterparts.......................................................................................................... 31
Schedules
Schedule 2.3 Schedule of Members
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42795.0014.12547542.4
OPERATING AGREEMENT
OF
HIGH DESERT DEVELOPMENT LINDER VILLAGE, LLC
March 1, 2020
THIS OPERATING AGREEMENT ("Agreement") of High Desert Development Linder
Village, LLC ("Company") is made and entered into effective as of the date set forth above
("Effective Date")by and among the Members of the Company.
ARTICLE 1
GENERAL
1.1 Formation. The Company was formed on January 14, 2020, upon the filing of the
Company's Certificate of Organization with the Idaho Secretary of State. The Company is
organized as an Idaho limited liability company under and subject to this Agreement and the
Idaho Uniform Limited Liability Company Act(Idaho Code Section 30-25-101 et seq., as now in
effect or subsequently amended or superseded, the "Act").
1.2 Certificate of Organization. The Company may change its Certificate of
Organization from time to time through appropriate filings with the Idaho Secretary of State.
1.3 Name. The name of the Company is "High Desert Development Linder Village,
LLC," and all business of the Company shall be conducted under that name or one or more
additional names as may be adopted by the Company under applicable law.
1.4 Duration. The Company continues to exist in perpetuity until dissolved as
provided in Article 7.
1.5 Purposes and Powers. The Company has any lawful purpose. The Company has
the power to do all things necessary or convenient to carry on its activities.
1.6 Registered Agent and Office. The Company's registered agent for the service of
process is initially the Person reflected on the Company's Certificate of Organization, and
thereafter the Person reflected on the Company's current annual report filed with the Idaho
Secretary of State. If the registered agent is not a commercial registered agent under the Idaho
Uniform Business Organizations Code (Idaho Code Section 30-21-401 et seq., as now in effect
or subsequently amended or superseded), the registered office is initially the location reflected on
the Company's Certificate of Organization, and thereafter the location reflected on the
Company's current annual report filed with the Idaho Secretary of State. The Company may
change its registered agent or office from time to time through appropriate filings with the Idaho
Secretary of State.
1.7 Designated Office. The Company's designated office, which also serves as the
Company's principal office, is initially the location reflected on the Company's Certificate of
Organization, and thereafter the Company's mailing address reflected on the Company's current
annual report filed with the Idaho Secretary of State. The Company may change its designated
office from time to time through appropriate filings with the Idaho Secretary of State.
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1.8 Miscellaneous Definitions. For the purposes of this Agreement, the following
terms have the following meanings:
(i) The term "Affiliate" means, with respect to the Company, any Person that
controls, is controlled by, or is under common control with the Company,
and, with respect to a Manager or Member: (i)the spouse, parents,
stepparents, children, stepchildren, siblings, mothers and fathers-in-law,
sons and daughters-in-law, brothers and sisters-in-law of the Member or
Manager, and anyone (other than domestic employees) who shares such
Member's or Manager's home (ii) corporations, partnerships, limited
liability companies, trusts and other entities in which a Member or
Manager has an interest (whether or not the interest is a controlling
interest but excluding publicly traded entities in which the Member or
Manager holds less than a five percent interest), (iii)trusts of which the
Member or Manager is a beneficiary, and (iv) shareholders, partners,
members, beneficiaries or other persons or entities with an ownership
interest, beneficial interest, or other interest in the Member or Manager
and the immediate family members of such shareholders, partners,
members, beneficiaries or other persons or entities with an ownership
interest,beneficial interest, or other interest in the Member or Manager.
(ii) The term "Business Day" means a day other than a Saturday, Sunday, or
other day on which commercial banks in Boise, Idaho are authorized or
required to close.
(iii) The term "Code" means the Internal Revenue Code of 1986, as amended
from time to time, including any replacement provisions.
(iv) The term "Company Property" means all property owned by the
Company, whether real or personal, tangible or intangible, including
money, real estate, fixtures, furniture, equipment, inventory, advertising
materials, goodwill, confidential or proprietary information of the
Company, other property entrusted to any Person as a result of the
Person's status as a Member, and any legal or equitable interest in such
property.
(v) The term "Contribution Agreement" means that certain Contribution
Agreement, among Lynx, HDDI, and the Company.
(vi) The term "Development Agreement" means that certain Project
Development Agreement, between the Company and DMG.
(vii) The term "DMG" means DMG Real Estate Partners, LLC, an Idaho
limited liability company.
(viii) The term "Fiscal Year" means the calendar year, unless the Company is
required to have a taxable year other than the calendar year, in which case
Fiscal Year will be the period that conforms to its taxable year.
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(ix) The term "HDDI" means High Desert Development, Inc., an Idaho
corporation.
(x) The term "JV Agreements" means the Contribution Agreement, the
Development Agreement, and the Management Agreement.
(xi) The term "Lynx" means Lynx Investments, LLLP, an Idaho limited
liability limited partnership.
(xii) The term "Majority" means, with respect to the Members, a Percentage
Interest above 50%, and, with respect to the Board, a majority of the
number of Managers making up the Board or, if there are only two
Managers making up the Board, both Managers.
(xiii) The term "Management Agreement" means that certain Property
Management Agreement, if any, between the Company and DMG.
(xiv) The term "Person" means any individual, corporation, estate, trust,
partnership, limited liability company, business trust, association, joint
venture, public corporation, government or governmental subdivision,
agency, or instrumentality, or any other legal or commercial entity.
(xv) The term "Project" means the Linder Village retail complex being
developed by the Company in Meridian,Ada County, Idaho.
(xvi) The term "Representative" means, with respect to any Person, any
directors, officers, managers, members, employees, consultants, financial
advisors, counsel, accountants, and other agents of such Person.
(xvii) The term "Regulations" means the regulations promulgated by the United
States Department of Treasury from time to time under the Code.
1.9 Limited Liability Company as Separate Entity. The Company is an entity
separate and independent from its Managers and Members. As evidence of its separate status:
(i) To the extent reasonably practicable, the Company shall be specifically
identified as "High Desert Development Linder Village, LLC" in all
writings containing its name, including stationery, invoices, business
cards, and checks;
(ii) The Company's financial accounts shall be kept completely separate from
those of the Managers and Members;
(iii) The Company's funds shall not be commingled with those of the
Managers or Members;
(iv) The Managers and Members shall not use the Company's funds for
personal purposes;
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(v) The Company shall not use the personal funds of the Managers or
Members for the Company's purposes;
(vi) All Company Property shall be owned by the Company; and
(vii) No Manager or Member, individually, shall have any ownership interest in
any Company Property.
ARTICLE 2
MEMBERSHIP
2.1 Members. The "Members" of the Company consist of each Person that is
initially a Member upon formation of the Company or is subsequently admitted as a new
Member. If at any time the Company has only one Member, then any reference in this
Agreement to "Members"is deemed to refer to such single Member.
2.2 Membership Interests. Each Member holds a "Membership Interest" in the
Company. Each Membership Interest is comprised of certain obligations and rights relating to
the finances and governance of the Company, as further described in this Agreement.
2.2.1 Units. The Company is authorized to issue a single class of Membership
Interests to the Members in the form of units ("Units").
2.2.2 Percentage Interest. The relative size of a Member's Membership
Interest or a group of Members' Membership Interests may be expressed as a percentage that is
determined by the total number of Units held by the Member or group of Members divided by
the total number of Units held by all of the Members (referred to as a"Percentage Interest").
2.2.3 Profits Interest. The Membership Interest of Member HDDI (the "Profit
Member") is intended to be a profits only interests within the meaning of Rev. Proc. 93-27 (a
"Profits Interest"). Any Units received by a Profit Member are received in exchange for the
provision of services by the Profit Member to or for the benefit of the Company in a Profit
Member capacity. The Company and the Profit Member shall comply with the provisions of Rev.
Proc. 2001-43, and neither the Company nor the Profit Member shall perform any act or take any
position inconsistent with the application of Rev. Proc. 2001-43 or any future Internal Revenue
Service guidance or other governmental authority that supplements or supersedes the foregoing
Revenue Procedures. The Profit Member The "Profits Interest Hurdle" means the aggregate
amount that would be distributed to the Members under Section 7.4, if, immediately before the
issuance of the Profit Member's Units, the Company(i) sold all of its assets for fair market value
and immediately liquidated, (ii) satisfied all of its debts and liabilities, and (iii) distributed the
proceeds of the liquidation. The Profits Interest Hurdle applicable to the Profit Member is to be
determined by Lynx.
2.2.4 Separate Property of Members. The Units of each Member are the sole
and separate property of the Member. Nothing in this Agreement will be construed as granting
any current or former spouse of any Member any right, title, or interest in the Member's Units,
whether by community property law or other applicable law. In the event it is determined that
any portion of a Member's Units is community property, then the right, title or interest of the
OPERATING AGREEMENT -4
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current or former spouse of the Member with respect to such community property will be limited
to a right to receive a proportion of the distributions made pursuant to the provisions of this
Agreement on account of the Member's Units.
2.2.5 Representations and Warranties of the Members. Each Member
represents and warrants to the Company, the Managers, and each other Member that:
(i) The Member has the power and authority to acquire the Units and to
exercise all rights and perform all obligations relating to the Units without
the consent of any other Person;
(ii) The Member is acquiring the Units for the Member's own account, for
personal use or investment purposes, and without the intent to sell or
distribute the Units; and
(iii) The Member acknowledges that the Units have not been registered under
the Securities Act of 1933, as amended, or any applicable state securities
laws, and may not be resold or transferred without appropriate registration
or the availability of an exemption from registration.
2.3 Schedule of Members. The names, addresses, contributions, Units, and
Percentage Interests of the Members as of the Effective Date are as set forth in Schedule 2.3
("Schedule of Members"). The Company shall use its reasonable efforts to update the Schedule
of Members as information regarding the Members changes from time to time and to maintain in
its records at all times an accurate and complete Schedule of Members.
2.4 Members' Authority. A Member is not an agent of the Company solely by
reason of being a Member. No Member or Affiliate thereof shall have, or hold out to any other
Person as having, any authority to bind the Company
2.5 Contributions. Members are required to make contributions to the Company's
capital as provided in this Section 2.5.
2.5.1 Existing Contributions. Under the Contribution Agreement, HDDI and
Lynx each agreed to contribute to the Company at the Closing (as defined in the Contribution
Agreement) certain assets and liabilities in exchange for their respective Membership Interests.
The Schedule of Members attached as Schedule 2.3 shows the contribution made by each
Member as of the Effective Date. Each new Member may be required to make a contribution as a
condition to the new Member's admission pursuant to Section 2.7.
2.5.2 Additional Contributions. No Member is obligated to make any
additional contributions beyond the existing contribution set forth in Section 2.5.1, but the
Company and any Member may agree that the Member will make an additional contribution,
which may or may not be in exchange for additional Units, provided that the agreement is
approved by the Board and all of the Members are given the opportunity to make an additional
contribution on the same terms.
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2.5.3 Form of Contributions. Contributions may consist of tangible or
intangible property or other benefits to the Company, including money, services performed,
promissory notes, agreements to contribute money or property, but excluding contracts for
services to be performed. The Company may require that contributions be made in any particular
form.
2.5.4 Liabilities Regarding Contributions. The liability of any Member to
make contributions is limited to the terms set forth in this Section 2.5. A Member's obligation to
make a contribution to the Company is not excused by the Member's death, disability,
dissolution, insolvency, or other inability to perform. No Member has any obligation to
contribute to the Company for, or in respect of, the debts, obligations, or other liabilities of the
Company. All contributions are to be expended in furtherance of the Company's activities. All
costs and expenses of the Company are to be paid from the Company's funds. The Company
shall not pay interest on contributions. No Member has any right to receive a return of
contributions, except as otherwise provided in this Agreement.
2.6 Distributions. Members are entitled to receive distributions from the Company as
provided in this Section 2.6.
2.6.1 Interim Distributions. From time to time, the Board may determine to
what extent, if any, there is Distributable Property from which to make distributions to the
Members. Subject to the provisions of Section 2.6.3, all distributions to be made under this
Section 2.6.1 must be made according to the Members' respective Percentage Interests. For the
purposes of this Section 2.6.1, whether "Distributable Property" exists will be calculated as
follows:
(i) The sum of (a) all cash and cash equivalents existing at the first of the
year, plus (b) all cash received by the Company from the operations of the
Company during the year, including net proceeds of sale or refinancing;
minus
(ii) The sum of (a) all cash expenditures of the Company during the year,
including capital expenditures and payments of principal and interest on
indebtedness, whether or not the payments are made to a Manager,
Member, or Affiliate thereof, (b) expenditures for repairs, maintenance,
capital improvements, and replacements of existing assets, (c) all other
cash expenditures related to the operations of the Company, including all
fees, if any, payable to any Manager, Member, or Affiliate thereof, and
(d) such reserves and retentions as the Managers determine to be
necessary or desirable in connection with the Company's operations,
including adequate capital to pay taxes, insurance payments, debt
payments, and anticipated operating or capital expenditures, such as the
acquisition of new equipment, remodeling or new construction.
2.6.2 Liquidating Distributions. Liquidating distributions following
dissolution of the Company shall be made pursuant to Article 7.
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2.6.3 Limitations on Distributions to the Profit Member. The parties to this
Operating Agreement intend that distributions to the Profit Member with respect to its Units be
limited to the extent necessary so that the related Membership Interest constitutes a Profits
Interest. In furtherance of the foregoing, and notwithstanding anything to the contrary in this
Operating Agreement, the Board shall, if necessary, limit any distributions to the Profit Member
with respect to its Units so that such distributions do not exceed the available profits in respect of
the Profit Member's related Profits Interest. Available profits include the aggregate amount of
profit and unrealized appreciation in all of the assets of the Company between the date of
issuance of the Profit Member's Units and the date of such distribution, it being understood that
such unrealized appreciation will be determined on the basis of the Profits Interest Hurdle
applicable to the Profit Member's Units. If the Profit Member's distributions and allocations with
respect to its Units are reduced pursuant to the preceding sentence, an amount equal to such
excess distributions shall be treated as instead apportioned to the other Member (or, if there is
more than one Member that is not a Profit Member, pro rata to those Members in proportion to
their aggregate Membership Interests).
2.6.4 Form of Distributions. Distributions may be paid in the form of cash, real
or personal property, or any combination thereof. Members do not have a right to demand or
receive distributions in any particular form.
2.6.5 Liabilities Regarding Distributions. The liability of the Company to
make distributions is limited to the conditions set forth in this Section 2.6. Members do not have
a right to demand or receive a distribution from the Company, except as otherwise provided in
this Agreement.
2.6.6 Withholding and Treating Amounts Withheld as Distributions. The
Company is authorized to withhold from distributions to Members and to pay over to the
appropriate federal, state, or local governmental authority any amounts required or allowed to be
withheld pursuant to the Code or provisions of applicable federal, state, or local law. All amounts
paid or withheld pursuant to this Section 2.6.6 are treated as amounts distributed to the Member
for purposes of this Section 2.6.
2.6.7 Distributions to Pay Taxes. Subject to Section 2.6.8, to the extent the
Company has Distributable Property, the Company must make a distribution to the Members in
an amount that is reasonably estimated to be sufficient to enable the Members to pay the
estimated federal and state income taxes attributable to their allocations of the Company's
taxable income and gain. This estimated tax liability is computed by the accountant who
regularly prepares the Company's tax returns using the highest incremental tax rate applicable to
individuals. These distributions must be declared and paid not less than annual. Any distributions
otherwise made to Members during the taxable year in question may be taken into account in
determining the extent of the minimum distributions to be made under this Section 2.6.7 for that
particular taxable year.
2.6.8 Limitation on Distributions. The Company shall not make a distribution
to the Members if, after the distribution, (i) the Company would not be able to pay its debts as
they become due in the ordinary course of the Company's activities or (ii)the Company's total
assets would be less than its total liabilities, as calculated under the Act.
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42795.0014.12547542.4
2.6.9 Right of Set-Off. Notwithstanding anything to the contrary in this
Agreement, and without prejudice to any other right or remedy it has or may have, the Company
may, without notice to the affected Member, set off or recoup any liability (including any
distributions made or declared under this Section 2.6 or under Article 7) it owes to such Member
against any liability for which the Company determines such Member is liable to the Company,
whether such liability is matured or unmatured, is liquidated or unliquidated, or arises under this
Agreement or otherwise.
2.7 New Members. Any Person eligible to be a Member of the Company under this
Agreement, the Act, and other applicable law may be admitted as a new Member upon the
approval of the Board in accordance with Section 3.5. If admitted, the new Member has a
Membership Interest and the new Member has all the rights and obligations and is subject to all
the restrictions and liabilities of all the other Members. Except as provided in Section 6.4(a)
regarding substitute Members, the following additional conditions apply to the admission of a
new Member:
(a) Contribution. The new Member may be required to make an
initial contribution to the Company, as determined by the Board in connection with its approval
of the new Member's admission to the Company.
(b) Units. The new Member shall be issued Units, as determined by
the Board in connection with its approval of the new Member's admission to the Company.
(c) Documents. The new Member shall execute and deliver all
documents necessary for the admission of the new Member, including this Agreement, in the
form and substance satisfactory to the Board.
(d) Payment of Expenses. The new Member shall pay all reasonable
expenses incurred in connection with the admission of the new Member as may be required by
the Board.
2.8 Limitations regarding Dissociated Members and Non-Member Transferees.
Any dissociated Member or non-Member transferee is entitled only to the right to receive
distributions pursuant to the provisions of this Agreement on account of the dissociated
Member's or non-Member transferee's ownership of Units.
ARTICLE 3
MANAGEMENT
3.1 Establishment of the Board. A board of managers of the Company (the
"Board") is hereby established and will be comprised of natural Persons (each such Person, a
"Manager") who will be appointed in accordance with the provisions of Section 3.2. Subject to
Section 3.11, the business and affairs of the Company will be managed, operated, and controlled
by or under the direction of the Board, and the Board has the full, complete and exclusive power,
authority and discretion for, on behalf of and in the name of the Company, to take such actions as
it may in its sole discretion deem necessary or advisable to carry out any of the objectives and
purposes of the Company, subject only to the terms of this Agreement. No Manager, acting in
his/her capacity as such, has any authority to bind the Company with respect to any matter
OPERATING AGREEMENT - 8
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except pursuant to a resolution authorizing such action that is duly adopted by the Board by the
affirmative vote required with respect to such matter under this Agreement.
3.2 Board Composition; Vacancies.
3.2.1 Number. The number of Managers making up the Board must be at least
three and no more than eleven, provided that the number of Managers making up the Board must
always be an odd number. As of the Effective Date, and until changed by agreement of the Board
in accordance with Section 3.5, the number of Managers making up the Board is five. The
Company and the Members shall take such actions as may be required to ensure that the number
of Managers constituting the Board is at all times in compliance with this Section 3.2.1. The
initial Managers making up the Board are: Joe Huarte, Greg Huarte, Erin McCoy, Janine Huarte,
and Julie Jacobsen. Dave McKinney will serve as a special nonvoting advisor to the Board but
will not be a Manager or a member of the Board.
3.2.2 Subsidiary Boards. At all times, the composition of any board of
directors or board of managers of any subsidiary of the Company shall be the same as that of the
Board. Unless otherwise determined by the Board, the quorum, removal rights, meeting
procedures, and meeting requirements set forth in this Article 3 with respect to the Board apply
mutatis mutandis to subsidiaries of the Company and the boards of directors, boards of
managers, or similar governing bodies of such subsidiaries.
3.3 Removal; Resignation. Each Manager serves until a successor has been elected,
unless the Manager sooner resigns, becomes incapacitated, is removed, dies, or is terminated. A
Manager may be elected or removed by a vote of the Members holding at least a Majority of the
Percentage Interests. The Members may not cumulate their votes for the election or removal of a
Manager. Any Person is eligible to serve as a Manager, regardless if the Person is also a
Member.
3.4 Meetings.
3.4.1 Regular Meetings. Regular meetings of the Board shall be held when and
as determined by the Board at such dates and times as the Board may designate. Special
meetings of the Board may be called at any time by the Chairperson and shall be called by the
Chairperson at the written request of any Manager who makes such request in good faith.
Meetings of the Board may be held either in person at a location determined by the Board or by
telephone or video conference or other communication device that permits all Managers
participating in the meeting to hear each other.
3.4.2 Notice of Meetings. Written notice of a meeting of the Board or any
Committee stating the place, date and hour of the meeting and the purpose or purposes for which
the meeting is called shall be given to each Manager by personal delivery, electronic mail, or
facsimile at least 10 days before the date of the meeting;provided that, in the case of a special
meeting, the Chairperson or the Manager requesting the meeting may reduce the advance notice
period to not less than three Business Days if the Chairperson or such Manager determines,
acting reasonably and in good faith, that it is necessary and in the best interests of the Company
for the Board to take action within a time period of less than 10 days. Notice of any meeting may
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be waived in writing by any Manager. Presence at a meeting shall constitute waiver of any
deficiency of notice under this Section 3.4.2, except when a Manager attends a meeting for the
express purpose of objecting, at the beginning of the meeting, to the transaction of any business
because the meeting was not called or convened in accordance with this Agreement and does not
otherwise attend the meeting.
3.4.3 Meeting Agendas. The Secretary of the Company (or the Chairperson, if
there is no Secretary) shall endeavor to circulate to each Manager an agenda for each regular
meeting at least three Business Days in advance of such meeting. In the case of a regular
meeting, such agenda may include any matters that a Manager may reasonably request to be
included on such agenda. In the case of a special meeting, the agenda for such meeting shall be
established by the Chairperson and shall, if applicable, include any matters specified by the
Manager requesting such meeting, and shall be provided to each Manager when such special
meeting is called.
3.4.4 Minutes. The decisions and resolutions of the Board must be recorded in
minutes, which must state the date, time and place of the meeting (or the date of any written
consent in lieu of a meeting), the Managers present at the meeting, the resolutions put to a vote
(or the subject of a written consent) and the results of such voting or written consent. The
minutes shall be entered in a minute book kept at the principal office of the Company and a copy
of the minutes of each Board meeting shall be provided to each Manager.
3.5 Quorum; Manner of Acting.
3.5.1 Quorum. The presence in person or by proxy of a number of Managers
equal to a Majority of the total number of Managers serving on the Board shall constitute a
quorum for the conduct of business at any meeting of the Board. If a quorum is not present at any
meeting of the Board (a "Suspended Meeting"), the Managers present shall adjourn the meeting
and promptly give notice to the Managers of when it will be reconvened (a "Reconvened
Meeting"), which notice must include a copy of the notice and agenda originally given with
respect to that Suspended Meeting.
3.5.2 Electronic Participation. Any Manager may participate in a meeting of
the Board by telephone or video conference or other communications device that permits all
Managers participating in the meeting to hear each other, and participation in a meeting by such
means shall constitute presence in person at such meeting. A Manager may vote or be present at
a meeting either in person or by proxy.
3.5.3 Voting. Each Manager has one vote on all matters submitted to the Board.
Except as otherwise set forth in this Agreement, the affirmative vote of a Majority of the
Managers in attendance at any meeting of the Board at which a quorum is present is required to
authorize any action by the Board and constitutes the action of the Board for all purposes.
3.5.4 Proxies. Each Manager may authorize another individual (who may or
may not be a Manager) to act for such Manager by proxy at any meeting of the Board, or to
express consent or dissent to a Company action in writing without a meeting. Any such proxy
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must be granted in writing, by electronic transmission, or as otherwise permitted by applicable
law.
3.5.5 Deadlock. A Deadlock (as that term is defined below) among the Board
will be resolved as provided in this Section 3.5.5.
(i) "Fundamental Issue"means any of the following matters: (a) adopting or
amending the Company's business plans and budgets; (b) entering into any
contract, lease, agreement or other material transaction; (c) entering into a
consolidation, reorganization, merger or sale of substantially all of the
assets of the Company or any other similar transaction; (d) acquiring an
interest in another Person, firm or business; (e) initiating or settling any
litigation or arbitration proceeding involving the Company; or (f) any
other decision of similar import as the foregoing and with respect to the
strategic or business direction of the Company.
(ii) If at two successive meetings of the Board, the Managers are unable to
reach a decision by the required vote regarding a Fundamental Issue
submitted for consideration to the Board at such meetings (a "Deadlock"),
the Board shall first attempt to resolve the Deadlock by direct discussions.
If the Board is unable to resolve the Deadlock through direct discussions
within 10 days after the close of the second meeting giving rise to the
Deadlock, then upon written notice by any Manager to the other
Managers, and within the next 30 days, the Board shall attempt to resolve
the Deadlock by mediation administered by the American Arbitration
Association under its Commercial Mediation Rules.
(iii) If the Board is unable reach agreement as to the Fundamental Issue
through either negotiation or mediation during the time periods set forth
above, the Deadlock shall be arbitrated (the "Arbitration") upon written
request for arbitration made by any Manager. The Arbitration shall take
place in Boise, Idaho and shall be in English. The Arbitration shall be
conducted before a single arbitrator to be agreed upon by the Board. If the
Board cannot agree on the arbitrator, each Member shall select a arbitrator
and such arbitrators shall together unanimously select a neutral arbitrator
who will conduct the arbitration. Each Member shall bear the fees and
expenses of its arbitrator and all the Members shall equally bear the fees
and expenses of the final arbitrator. Within 7 Business Days after the
arbitrator is selected, each party shall submit a written statement to the
arbitrator explaining in detail its position on the Fundamental Issue.
Within 10 Business Days after receiving the parties' statements, the
arbitrator shall choose one of the two statements as the winning statement,
and such choice shall be the decision of the Board with respect to the
Fundamental Issue. The arbitrator shall be limited to selecting only one or
the other of the two statements submitted by the parties and shall not
propose an alternate or additional solution. The decision of the arbitrator
shall be final and binding on the Board and the Members.
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(iv) During the continuation of any Deadlock, the Company shall continue to
operate in a manner consistent with its prior practices and this Agreement
until such time as that Deadlock is resolved.
3.6 Action By Written Consent. Notwithstanding anything herein to the contrary,
any action of the Board may be taken without a meeting if a consent in writing, setting forth the
action to be taken, is signed by a Majority of the Managers. Such consent will have the same
force and effect as a vote at a meeting where a quorum was present and may be stated as such in
any document or instrument filed with the Secretary of State.
3.7 Compensation; No Employment.
(a) Each Manager shall be compensated accordingly for his/her
service as a Manager and shall be entitled to reimbursement from the Company for his/her
reasonable and necessary out-of-pocket expenses incurred in the performance of his/her duties as
a Manager,pursuant to such policies as may from time to time be established by the Board.
(b) This Agreement does not, and is not intended to, confer upon any
Manager any rights with respect to employment by the Company, and nothing herein should be
construed to have created any employment agreement or relationship with any Manager.
3.8 Chairperson of the Board. The Board may appoint one of the Managers to act as
Chairperson of the Board ("Chairperson") and preside at all meetings of the Board at which
he/she is present, subject to the ultimate authority of the Board to appoint an alternate presiding
chairperson at any meeting. Nothing in this Section 3.8 may be construed to provide the
Chairperson with any additional voting rights beyond those vested in him/her by virtue of his/her
status as a Manager. Joe Huarte shall act as the initial Chairperson. For the avoidance of doubt, a
Manager shall not be considered to be an officer of the Company by virtue of holding the
position of Chairperson and, except as expressly provided herein, shall not have any rights or
powers different from any other Manager other than with respect to any procedural matters to the
extent delegated by the Board or as expressly set forth in this Agreement.
3.9 Officers. The Board may appoint individuals as officers of the Company (the
"Officers") as it deems necessary or desirable to carry on the business of the Company and the
Board may delegate to such Officers such powers and authorities as the Board deems advisable.
No Officer need be a Member or Manager. Any individual may hold two or more offices of the
Company. Each Officer shall hold office until his/her successor is designated by the Board or
until his/her earlier death, resignation, or removal. Any Officer may resign at any time on written
notice to the Board. Any Officer may be removed by the Board with or without cause at any
time. A vacancy in any office occurring because of death, resignation, removal, or otherwise,
may, but need not, be filled by the Board.
3.10 No Personal Liability. Except as otherwise provided in the Act or by applicable
law, no Manager will be obligated personally for any Company debt, obligation, or liability,
whether arising in contract, tort or otherwise, solely by reason of being a Manager.
3.11 Claims under JV Agreements. In the event of a breach by a Member or its
Affiliate of an obligation owed to the Company under any JV Agreement, the other Member
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shall be entitled to assert a claim for and enforce, at the Company's reasonable expense, such
obligation on behalf of the Company and may pursue on behalf of the Company all remedies
available to it in respect of such breach. The Company shall cooperate and comply with any
reasonable instructions received from the Member enforcing the rights of the Company in
connection with any of the foregoing actions. The Member exercising any rights under this
Section 3.11 shall promptly reimburse the Company for any expenses advanced by it to such
Member or incurred by the Company in connection with such claim if it is not successful.
ARTICLE 4
STANDARDS OF CONDUCT
4.1 Fiduciary Duties. Each Manager and Member owes the fiduciary duties set forth
in this Article 4. The Members intend that to the fullest extent permitted by the Act and other
applicable law, the provisions of this Article 4 set forth the entirety of the fiduciary duties owed
by each Member and Manager and supersede any contrary fiduciary duties imposed by the Act
or other applicable law.
4.2 Duty of Care. Each Manager owes to the Company and the Members a duty of
care as set forth in this Section 4.2. The duty of care requires each Manager to act in a manner
the Manager reasonably believes to be in the best interests of the Company and to refrain from
gross negligence or willful misconduct. In discharging the duty of care, a Manager may rely
upon the Company's records and the opinions, reports, statements, or other information provided
by any Person the Manager reasonably believes is a competent and reliable source for such
information. Each Manager shall devote such time to the Company's business and affairs as the
Manager determines is reasonably necessary, but the Manager is not required to devote all of the
Manager's time to the Company's business and affairs.
4.3 Duty of Loyalty. Each Manager and Member owes to the Company and the
Members a duty of loyalty as set forth in this Section 4.3. The duty of loyalty requires each
Manager and Member to generally place the Company's interests before the Manager's or
Member's interests. Each Manager and Member shall actively seek to further the Company's
interests and shall deal fairly with the Company with respect to any of the Manager's or
Member's interests that conflict with the Company's interests, but the Manager or Member is not
required to avoid situations where the Manager's or Member's interest are furthered in lieu of the
Company's interests.
4.3.1 Non-Circumvention.
(a) Nothing contained in this Agreement will prevent any Member or
any of its Affiliates from engaging in any other activities or businesses, regardless of whether
those activities or businesses are similar to or competitive with the Business. None of the
Members nor any of their Affiliates will be obligated to account to the Company or to the other
Member for any profits or income earned or derived from other such activities or businesses.
None of the Members nor any of their Affiliates are obligated to inform the Company or the
other Member of any business opportunity of any type or description.
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(b) No Member, nor any of its Affiliates or Representatives
(collectively, the "Recipient"), shall, directly or indirectly, in any way circumvent, or attempt to
circumvent, the Company for the purpose of engaging in or conducting any business, transaction
or arrangement with any Person or entity directly or indirectly introduced to the Recipient by or
on behalf of the Company, or take any other action that might reasonably be expected to
jeopardize or interfere with the relationship between such Person and the Company. The
Recipient shall not contact, transact, or conduct business with any such Person, without the
Company's prior written consent.
4.3.2 Account. Each Manager and each Member shall, for itself and on behalf
of its Affiliates, account to the Company and hold as trustee for the Company any property,
profit, or benefit wrongfully derived by the Manager, Member, or Affiliate in the conduct or
winding up of the Company's activities or from the wrongful use of any Company Property,
except where the Manager or Member sought to prevent the Affiliate's wrongful act.
4.3.3 Loans. The Company may borrow money from a Manager, Member, or
Affiliate on terms and conditions that are commensurate with an arms-length transaction. A loan
that complies with this Section 4.3.3 is not a Conflicting Interest Transaction.
4.3.4 Conflicting Interest Transactions. If a Manager, Member, or Affiliate
has a direct or indirect interest in a transaction involving the Company apart from the Manager's,
Member's, or Affiliate's ownership of Units (a "Conflicting Interest Transaction"), unless all
disinterested Members, knowing all material facts regarding the Conflicting Interest Transaction
determine otherwise, the interested Manager or Member shall not represent the Company, vote,
or take any other action for the Company with respect to the Conflicting Interest Transaction and
the Managers shall designate a Person with no conflict of interest to represent the Company with
respect to the Conflicting Interest Transaction. No Conflicting Interest Transaction is voidable
solely because of the interested Member's conflict of interest if either (i)the transaction is fair to
the Company or (ii) all disinterested Members, knowing all material facts regarding the
Conflicting Interest Transaction, authorize, approve, or ratify the Conflicting Interest
Transaction.
4.4 Confidentiality. Each Manager and Member owes to the Company and the
Members a duty of confidentiality. The duty of confidentiality includes the duty to (i) maintain
the confidentiality of the Company's Confidential Information and (ii)not use or disclose any of
the Company's Confidential Information for purposes other than the Company's purposes, unless
otherwise authorized by the Company. For the purposes of this Agreement, the Company's
"Confidential Information" means information, in any form, that the Company desires to
protect from disclosure. Confidential Information includes visual and other information obtained
from site visits, as well as any reports or other documents resulting from the disclosure of
Confidential Information. If a Manager or a Member is uncertain whether information is
confidential, that party shall treat that information as confidential. Confidential Information does
not include information, however designated, that: (a) is or becomes known publicly through no
fault of a Manager or a Member; (b) is learned by a Manager or a Member from a third party
whom that Manager or Member believes in good faith is entitled to disclose it; (c) is already
known to a Manager or a Member before disclosure by the Company as shown by that
Manager's or Member's written records; or (d) is independently developed by a Manager or a
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Member as shown by that Manager's or Member's written records. Each Manager and Member
shall take all actions reasonably necessary to assure that its Affiliates abide by this duty of
confidentiality
4.5 Good Faith and Fair Dealing. Each Manager and Member must act in
accordance with the implied contractual duty of good faith and fair dealing owed to the
Company and its Managers and Members in connection with their respective rights and
obligations under this Agreement.
ARTICLE 5
CAPITAL ACCOUNTS AND TAXES
5.1 Capital Accounts. The Company shall establish and maintain an account
recording each Member's capital interest in the Company (each a "Capital Account"), in
accordance with the provisions of Code Section 704(b) and the related Regulations. If the
Manager determines, after consulting with the Company's professional accountants that the
manner in which Capital Accounts are to be maintained pursuant to the provisions of this
Section 5.1 should be modified to comply with Code Section 704(b) and the related Regulations,
then notwithstanding anything to the contrary contained in the provisions of this Section 5.1 the
method by which Capital Accounts are maintained will be so modified; provided, however, that
any change in the manner of maintaining Capital Accounts may not materially alter the economic
agreements of the Members.
5.1.1 Increases and Decreases in Capital Accounts.
(a) Increases. Each Member's Capital Account will be increased by
(i)the amount of any money contributed by the Member; (ii)the fair market value of any
property contributed by the Member, as determined by the Company and the Member at arm's
length at the time of contribution (net of property liabilities or other liabilities assumed by the
Company within the meaning of Code Section 752); (iii) allocations to the Member of income
and gain, including items of income and gain which are separately stated under Code
Section 702(a); and (iv) any items in the nature of income and gain that are specially allocated to
the Member, excluding special allocations under Section 5.3.2.
(b) Decreases. Each Member's Capital Account will be decreased by
(i)the amount of any money distributed to the Member; (ii)the fair market value of any
Company Property distributed to the Member, as determined by the Company and the Member at
arm's length at the time of distribution (net of liabilities of the Company or Company Property
assumed by the Member within the meaning of Code Section 752); (iii) allocations to the
Member of expenditures described in Code Section 705(a)(2)(B); (iv) any items in the nature of
deduction and loss that are specially allocated to the Member; and (v) allocations to the Member
of deductions and losses of the Company, including deductions and losses which are separately
stated under Code Section 702(a).
5.1.2 Allocations upon Transfers. Upon a Transfer of a Member's Units to
another Person other than the Company, the Capital Account of the transferring Member that is
attributable to the transferred Units carries over to the transferee in accordance with Regulation
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Section 1.704-1(b)(2)(iv). The share of income, gain, loss, deduction, and credit of the
transferring Member is determined by taking into account the Member's proportionate share of
the amount of the income, gain, loss, deduction, and credit for the year. The proration is based on
the portion of the calendar year that has elapsed before the Transfer, and the balance of the
income, gain, loss, deduction, and credit attributable to the transferred Units is allocated to the
transferee.
5.2 Single Member LLC Taxation. If and for so long as the Company has only a
single Member, the Company intends to be treated as a "disregarded entity" solely for purposes
of state and federal income taxes, and all items of income, gain, loss, deduction and credit (as
those terms are defined in the Code) are allocated to such Member in accordance with the
applicable provisions of the Code.
5.3 Multiple Member LLC Taxation. During any period in which the Company has
more than one Member, (i)the Company intends to be treated for federal and state tax purposes
as a partnership under Subchapter K of the Code, and (ii) the following provisions of this
Section 5.3 apply.
5.3.1 Income, Gain, Loss, Deduction and Credit. Except as provided in
Section 5.3.2, all items of(i) income, gain, loss, deduction and credit (as defined in the Code),
including items described in Code Section 702(c), (ii) income or gain exempt from federal taxes,
and (iii) expenditures described in Code Section 705(a)(2)(B), shall be determined on an annual
basis and allocated to the Members in proportion to their respective Percentage Interests.
5.3.2 Special Allocations.
(a) Allocation of Code Section 704(c) Items. With respect to real and
personal property contributed to the Company by a Member, there may be a difference between
the agreed values or "carrying values" of the real and personal property at the time of
contribution or revaluation and the adjusted tax basis of the real and personal property at that
time. All items of tax depreciation, cost recovery, amortization, amount realized, and gain or loss
with respect to the real and personal property shall be allocated among the Members so as to take
into account the book-tax disparities in accordance with the provisions of Code Sections 704(b)
and 704(c) and the Regulations.
(b) Recapture Items. To the extent of any recapture income (as
defined below) resulting from the sale or other taxable disposition of Company Property, the
amount of any gain from the disposition allocated to or recognized by a Member for federal
income tax purposes shall be deemed to consist of recaptured income to the extent the Member
has been allocated or has claimed any deduction directly or indirectly giving rise to the treatment
of the gain as recapture income. For this purpose "recapture income" means any gain
recognized by the Company (but computed without regard to any adjustment required by Code
Sections 734 and 743) upon the disposition of any Company Property that does not constitute
capital gain for federal income tax purposes because the gain represents the recapture of
deductions previously taken with respect to the real and personal property or assets.
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42795.0014.12547542.4
(c) Special Allocations in the Event of Deficit Capital Account
Balances. If any Member receives an allocation under this Article 5 that results in a negative
Capital Account balance, the Member shall be specially allocated items of Company income,
gain, loss, deduction, and credit in an amount sufficient to bring the Capital Account to a zero
balance as quickly as possible.
5.3.3 Integration with Code Section 754 Election. All items of income, gain,
loss, deduction, and credit recognized by the Company for federal income tax purposes and
allocated to the Members in accordance with the provisions in this Article 5, and all basis
allocations to the Members, shall be determined without regard to any election under Code
Section 754 that may be made by the Company. However, allocations, once made, shall be
adjusted as necessary or appropriate to take into account the adjustments permitted by Code
Sections 734 and 743.
5.4 Compliance with Code and Regulations. The provisions of this Article 5 as they
relate to the maintenance of Capital Accounts are intended and shall be construed to cause the
allocations of profits, losses, income, gain, and credit pursuant to this Article 5 to have
substantial economic effect under Code Section 704(b) and the Regulations. If, in the opinion of
the Company's legal counsel or accountants, the manner in which Capital Accounts are to be
maintained pursuant to this Article 5 should be modified in order to comply with Code
Section 704(b) and the Regulations, then notwithstanding anything to the contrary contained in
this Article 5, the method in which Capital Accounts are maintained will be so modified.
However, any change in the manner of maintaining Capital Accounts shall not materially alter
the economic agreements among the Members and nothing in this Article 5 may be construed as
creating a deficit restoration obligation or otherwise personally obligating any Member to make a
contribution.
5.5 Partnership Representative. Joe Huarte is designated as the partnership
representative of the Company ("Partnership Representative") pursuant to Code Section 6223.
The Managers may from time to time designate another Member, or any other person, with a
substantial presence in the United States as the Partnership Representative. The Partnership
Representative shall cause the preparation and timely filing of all tax returns required to be filed
by the Code. With the Board's prior advance approval, in accord with any voting requirements
set forth in Section 3.5, the Partnership Representative may make any election allowed under
Code Section 6221. The Partnership Representative is expressly authorized to perform on behalf
of the Company or any Member any act that may be necessary to make this designation effective
under any regulation, ruling, procedure, or instruction that may be issued by the Internal
Revenue Service.
(a) Allocation Elections. With the Board's prior advance approval, in
accord with any voting requirements set forth in Section 3.5, the Partnership Representative is
also expressly authorized to make any applicable election under the Code or the Regulations,
including an election under Code Section 754 and elections, consistent with the terms of this
Agreement, regarding allocation methods under Regulation Section 1.704-3.
(b) Limitations on Authority. With respect to a taxing authority's
audit and potential adjustment done at the Member (partner)-level, the Partnership
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Representative shall not enter into any extension of the period of limitations for making
assessments on behalf of the Members without first obtaining the consent of the Members. The
Partnership Representative shall not bind any Member to a settlement agreement without first
obtaining the consent of such affected Member. Any Member that enters into a settlement
agreement with respect to any Company item affecting the income tax reporting or liability of
any Member or the Company itself shall notify the other Members of such settlement agreement
and its terms within 30 days from the date of the settlement.
(c) Adjustment at Member Level. With respect to a taxing
authority's audit and potential adjustment done at the Company-level, the financial burden of any
imputed underpayment and associated interest, adjustments to tax and penalties arising from a
partnership adjustment that are imposed on the Company, and the cost of contesting any such
partnership adjustment, shall be borne by the Members and former Members pro rata based on
their respective distribution entitlements during the reviewed fiscal year. To the extent feasible,
the preceding sentence shall be implemented through adjustments to distributions, but Members
and former Members shall indemnify and hold harmless the Company to the extent that the
preceding sentence cannot be so implemented. The provisions contained in this subsection 5.5(c)
survive the termination of the Company and the withdrawal or termination of any Member.
(d) Survival. The provisions of this Section 5.5 survive the
termination of the Company or the termination of any Member's ownership interest in the
Company and remain binding on the Members for as long a period of time as is necessary to
resolve with any taxing authority any and all matters regarding the U.S. federal, state or local
income taxation of the Company or the Members.
5.6 Member Taxes. Each Member covenants and agrees to promptly provide the
Partnership Representative with all information regarding the Member's tax returns and tax
liabilities as requested from time to time, including proof that the Member has filed an amended
return and paid any resulting tax, the Member's address, taxpayer identification number and
current contact information, the Member's status as a tax-exempt Member, the tax rate
applicable to the Member and the Member's status as an eligible Member. The Member's
obligations hereunder continue notwithstanding the Member ceasing to be a Member whether
resulting from a transfer, sale, withdrawal, or other disposition of its Membership Interest. Each
Member shall notify the Partnership Representative of any inconsistent treatment of any
Company item on the Member's return and of any settlement with the IRS regarding any
Company items.
ARTICLE 6
TRANSFERS AND DISSOCIATIONS
6.1 Prohibition on Transfers. Except as otherwise provided in this Article 6, (i) a
Member may not Transfer the Member's Units and (ii) a Member has no right to withdraw, be
redeemed, dissociate, or otherwise cease to be a Member at any time. A "Transfer" of the Units
includes any sale, assignment, exchange, pledge, encumbrance, gift, redemption, purchase, or
other transfer, whether voluntarily or by operation of law, and whether actual, partially
completed, or merely attempted, of any of the Units or any of the rights associated therewith.
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6.1.1 General Limitations under Applicable Law. Notwithstanding anything
in this Agreement to the contrary, no Member has the right to Transfer the Units (i) if the
Transfer would cause termination of the Company pursuant to Code Section 708(b)(1)(B), (ii) if
the transferee is not eligible to be a Member of the Company under this Agreement, the Act, or
other applicable law, or(iii) if the Transfer would cause the Company to no longer qualify for its
tax elected status under the Code. For clarity, a transferee's eligibility to be a Member of the
Company is not a discretionary decision of the Members or the Board and shall be determined by
reference to specific provisions of this Agreement, the Act, or other applicable law.
6.1.2 Reasonableness of Restrictions; Enforcement. The Members
acknowledge the reasonableness of the restrictions set forth in this Article 6 in view of the
Company's scope and purposes and the relationships among the Members. The restrictions on
Transfers set forth in this Article 6 are specifically enforceable.
6.2 Permitted Transfers. The following Transfers are permitted as provided in this
Section 6.2.
6.2.1 Voluntary Redemption by a Member. A Member may have the
Company redeem all or any portion of the Member's Units by selling such Units to the Company
upon written notice to the other Members and the prior approval of the Transfer by the Board in
accordance with Section 3.5. The material terms of a Transfer pursuant to this Section 6.2.1 are
as agreed upon by the parties to the Transfer and approved by the other Members.
6.2.2 Mandatory Redemption by the Company. A dissociated Member shall
be required to surrender the Units held by the dissociated Member for redemption by the
Company if the Company determines to exercise its redemption right pursuant to Section 6.6.
The purchase price for the Units transferred pursuant to this Section 6.2.2 is the Market Value (as
defined below) and the material terms of the Transfer may include the Standard Payment Terms
(as defined below). Closing on the Transfer shall occur within 60 days after the Market Value is
determined.
(a) Market Value. The "Market Value" of a dissociated Member's
Units shall be determined as follows. The relevant parties shall first meet and confer on the
determination of Market Value. If the relevant parties are unable to agree on the Market Value,
within 30 days after demand by either relevant party, each shall each appoint an appraiser who
shall be a member of the Appraisal Institute (or substitute organization which certifies and trains
appraisers) with at least three years experience in appraising going concern businesses in county
in which the Company's designated office is located. The appointed appraisers shall diligently
proceed to appraise the Market Value of the Member's Units as of the date of the dissociation
event. If the higher of the two appraisals is more than 110% of the lower appraisal and the parties
cannot agree upon the Market Value, the two appraisers shall together appoint a similarly
qualified third appraiser within 20 days after written demand is made by either party. If the
appraisers are unable or unwilling to agree on a qualified third appraiser, either party may apply
to the district court for selection of the third appraiser. The selected third appraiser shall develop
an independent opinion of value for the Member's Units, based on a review of the two prior
appraisals, and select the appraisal with the most similar final estimate of value to the third
appraiser's opinion of value, based on his/her review of the two prior appraisals, to establish the
OPERATING AGREEMENT - 19
42795.0014.12547542.4
definitive and binding Market Value of the Member's Units. If the higher of the two appraisals is
equal to or less than 110% of the lower appraisal, the amount obtained by averaging the
respective appraisals will be the Market Value of the Member's Units. Each party shall pay its
respective appraiser's fee plus one-half of the third appraiser's fee. For purposes of this Section,
Market Value means the amount at which the Member's Units on the date of the dissociation
event would change hands between a willing buyer and a willing seller, neither being under a
compulsion to buy or sell, both having reasonable knowledge of the relevant facts and permitting
a reasonable marketing time. Further, the existence of any encumbrances on the Company and its
assets must be taken into consideration when determining the Market Value. There shall be no
minority or lack of marketability discount applied when determining Market Value for purposes
of a dissociation pursuant to Sections 6.3(b) and 6.3(c). In all other instances, a minority and lack
of marketability discount shall be applied when determining Market Value. Any insurance
proceeds payable as a result of an Event of Dissociation giving rise to the determination of
Market Value shall not be taken into consideration when determining the Market Value.
(b) Standard Payment Terms. The "Standard Payment Terms"
allow the transferee to pay up to 80% of the purchase price for the Units pursuant to an
unsecured promissory note. The terms of such note, include at a minimum a ten year maturity
date, interest accruing on the principal at an annual rate equal to the greater of 5% and the
applicable federal rate published by the Internal Revenue Service for the month in which the
transfer occurs, and equal annual installment payments of principal and interest amortized over a
five year period.
6.2.3 Transfer to another Member. A Member may sell all or any portion of
the Member's Units to another Member upon 30 days written notice to the other Members and
prior approval of the Transfer by the Board in accordance with Section 3.5. The material terms of
a Transfer pursuant to this Section 6.2.3 are as agreed upon by the parties to the Transfer and
approved by the Board.
6.2.4 Transfer to a Third Party. A Member may sell all or any portion of the
Member's Units to a Person eligible to be a Member of the Company under this Agreement, the
Act, and other applicable law, other than the Company or another Member, upon written notice
to the Company and the other Members, subject to the Company's first option to purchase the
Units (as described in Section 6.2.4(a)) and the other Members' second option to purchase the
Units (as described in Section 6.2.4(b)). The material terms of a Transfer pursuant to this
Section 6.2.4 are as agreed by the parties to the Transfer, and if either the Company or any of the
other Members determine to exercise their respective options, the purchase price and material
terms of that Transfer must be at least as favorable to the transferring Member as the purchase
price and material terms of the proposed Transfer between the Member and the third-party.
(a) The Company's First Option to Purchase. The Member must
provide written notice of the Transfer and the offer to sell to the Company and the Company has
the right to purchase all (but not less than all) of such Units pursuant to this Section 6.2.4(a). The
Company must provide written notice to the Member of the Company's decision whether to
waive or exercise the Company's first option right five days after the date the Company receives
the written notice of the offer to sell from the Member. If the Company chooses to exercise the
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42795.0014.12547542.4
Company's first option right, it must close the Transfer under this Section 6.2.4(a) within 30 days
after the date the Company receives the written notice of the offer to sell from the Member.
(b) The Members' Second Option to Purchase. If the Company
waives or fails to timely exercise its first option right under Section 6.2.4(a), the Member must
provide written notice of the Transfer and the offer to sell to the other Members and each other
Member has the right to purchase all (but not less than all) of such Units pursuant to this
Section 6.2.4(b). Each other Member must provide written notice to the selling Member of the
other Member's decision whether to waive or exercise the other Member's second option right
within five days after the date the Member receives the written notice of the offer to sell from the
selling Member. Each of the other Members that choose to exercise their second option right (the
"Participating Members") is entitled to purchase a portion of the Units based on such
Participating Member's Percentage Interest in comparison to the sum of the Percentage Interests
of all of the Participating Members, unless the Participating Members unanimously agree to a
different allocation of the Units among them. The Participating Members must close the Transfer
under this Section 6.2.4(b) within 30 days after the date the Participating Members receive the
written notice of the offer to sell from the selling Member.
6.3 Events of Dissociation. A Member is dissociated from the Company upon the
occurrence of any one or more of the following circumstances ("Events of Dissociation"):
(a) Permitted Transfers. The Member Transfers all of the Member's
Units in a permitted Transfer pursuant to Article 6.
(b) Death. The Member dies.
(c) Incapacity. The Company determines the Member is
incapacitated. A Member is "incapacitated" if the Member suffers from a physical or mental
illness that: (i) prevents the Member from performing his/her duties for the Company on a full-
time basis for 90 or more consecutive days or an aggregate of 180 days in any 365-day period; or
(ii)(1) the Company determines, in compliance with applicable law, is likely to prevent such
Member from performing such duties for such period of time and (2) 30 days have elapsed since
delivery to such Member of the Company's determination and such Member has not resumed
his/her performance. For purposes of this Agreement, if at any time in the opinion of Company a
question arises as to the disability of a Member, then the Company will promptly employ a
physician who is a member of the American Medical Association to examine such Person and
determine if the Person's physical or mental condition renders the Person incapable of
performing the Member's essential duties with respect to the Company, either with or without a
reasonable accommodation. If the Member refuses to submit to examination or otherwise
cooperate with such examination, the Company's determination of a disability shall be binding.
(d) Violation of Restrictions on Transfers of Units. The Member
Transfers all or any portion of the Member's Units in violation of the restrictions on Transfers set
forth in Article 6.
(e) Illegality. It is unlawful to carry on the Company's business with
the Member.
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42795.0014.12547542.4
(f) Dissolution. The Member is an organization that has been
dissolved and is winding up its business.
(g) Judicial Determination. The Member is expelled from the
Company by judicial determination, upon the application by the Company, the Board, or another
Member, that the Member(i) engaged in wrongful conduct that adversely and materially affected
the Company's business, (ii)willfully or persistently committed a material breach of this
Agreement or committed a material breach of the duties owed to the Company, the Managers, or
the Members, or (iii) engaged in conduct that makes it not reasonably practicable to carry on the
Company's business with the Member.
(h) Bankruptcy. The Member (i) makes an assignment for the benefit
of creditors, (ii) files a voluntary petition in bankruptcy, (iii) is adjudicated bankrupt or insolvent,
(iv) files a petition or answer seeking for the Member any reorganization, arrangement,
composition, readjustment, liquidation, dissolution, or similar relief under any statute, law, or
regulation, (v) files an answer or other pleading admitting or failing to contest the material
allegations of a petition filed against the Member in any proceeding of this nature, or (vi) seeks,
consents to, or acquiesces in the appointment of a trustee, receiver or liquidator of the Member or
of all or any substantial part of the Member's property.
(i) Criminal Conviction. The Member enters any plea of nolo
contendere to, enters into a withheld judgment for, or is convicted of a felony.
0) Fraud or Dishonesty. The Member or any Affiliate thereof
commits any act of fraud or dishonesty resulting or intended to result in a gain to the Member or
Affiliate at the expense of the Company.
6.4 Effect of Permitted Transfers. A Transfer completed in compliance with this
Article 6 is deemed valid and enforceable and has the following additional effects:
(a) Substitute Members. If the transferee is a Person other than the
Company or an existing Member, and the transferee is eligible to be a Member of the Company
under this Agreement, the Act, and other applicable law, the transferee is deemed admitted as a
new Member. The transferee is required as a condition of the transferee's admission as a new
Member to (i) execute and deliver all documents necessary for the admission of the new
Member, including this Agreement, in the form and substance satisfactory to the Company, and
(ii)pay all reasonable expenses incurred in connection with the admission of the new Member as
may be required by the Company. The admission of a new Member in partial or complete
substitution for an existing Member, without more, does not release the existing Member from
any liability or duty to the Company that may have arisen prior to the substitution. Once
admitted, the new Member has a Membership Interest and the new Member all the rights and
obligations and is subject to all the restrictions and liabilities of all other Members.
(b) Existing Members. If the transferee is an existing Member, the
transferee's Units are increased by the Units subject to the Transfer.
(c) Redemptions. If the transferee is the Company, the Units are
redeemed and cancelled by the Company.
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42795.0014.12547542.4
(d) Effect on Transferring Member. The transferring Member's
Units are decreased by the Units subject to the Transfer and if such decrease results in the
transferring Member retaining no Units, then the transferring Member is dissociated as set forth
in Section 6.3(a).
6.5 Effect of Prohibited Transfers. A Transfer in violation of this Article 6 is
deemed null and void and has the following additional effects:
(i) The transferee does not become a Member;
(ii) The transferee is entitled only to the right to receive distributions pursuant
to the provisions of this Agreement on account of the transferee's
ownership of Units and is not entitled to any other rights with respect to
the transferee's ownership of Units; and
(iii) The transferring Member is dissociated as a Member of the Company as
set forth in Section 6.3(d).
6.6 Effect of Dissociation. Upon the occurrence of an Event of Dissociation (as set
forth in Section 6.3):
(1) The dissociated Member immediately ceases to be a Member;
(ii) To the extent the dissociated Member holds any Units at the time of
dissociation, the dissociated Member is entitled only to the right to receive
distributions pursuant to the provisions of this Agreement on account of
the dissociated Member's ownership of the Units and is not entitled to any
other rights with respect to the dissociated Member's ownership of the
Units;
(iii) The Company has the right to redeem all or any portion of the Units from
the dissociated Member pursuant to Section 6.2.2;
(iv) The dissociated Member's duties and obligations under this Agreement
continue with regard to matters arising before the time of dissociation; and
(v) The Member's dissociation will not cause the dissolution of the Company.
ARTICLE 7
DISSOLUTION
7.1 Dissolution. The Company will dissolve upon the first of the following events to
occur(each a"Dissolution Event"):
(a) Agreement of Members. The Members unanimously agree to
dissolve the Company.
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42795.0014.12547542.4
(b) Agreement of the Board. The Board agrees to dissolve the
Company.
(c) No Members. The passage of 90 consecutive days during which
the Company has no Members.
(d) Judicial Decree. The entry of a decree of judicial dissolution that
(i)the conduct of all or substantially all of the Company's activities is unlawful, (ii) it is not
reasonably practicable to carry on the Company's activities in conformity with this Agreement,
including because of a deadlock among the Board or the Members, (iii) the Board has acted, is
acting or will act in a manner that is illegal or fraudulent, or (iv) the Board has acted or is acting
in a manner that is oppressive and was, is, or will be directly harmful to a Member.
(e) Disposition of Assets. If the Company disposes of all or
substantially all of the Company Property(whether voluntarily or involuntarily).
(f) Required Dissolution. Any other event causing dissolution of a
limited liability company under the Act.
7.2 Statement of Dissolution. Upon the occurrence of a Dissolution Event, the
Company shall file a Statement of Dissolution with the Idaho Secretary of State. The Company
will continue in existence thereafter only for the purpose of winding up its business and affairs.
7.3 Winding Up. To wind up the Company's business and affairs, a person selected
by the Board shall act as a liquidator (the "Liquidator"). The Liquidator will have full power
and authority to (i) sell, assign, and encumber any or all of the Company Property, (ii)wind-up
and liquidate the Company's business and affairs in a reasonable manner, (iii)prepare and
distribute accounting reports, and (iv) distribute the proceeds from liquidation and any remaining
Company Property in accordance with Section 7.4.
7.4 Distribution of Assets after Dissolution. Upon the winding up of the Company,
and following the allocation of the Company's income, gain, loss, deductions, and credits, the
Liquidator shall distribute all liquidation proceeds and any remaining Company Property within
the later of (i) 60 days of the end of the Company's tax year or (ii) 90 days after all debts,
liabilities and obligations of the Company have been paid and discharged or reasonably adequate
provision therefor has been made. The distributions made under this Section 7.4 are to be made
in cash or other real and personal property as determined by the Liquidator. The Liquidator shall
distribute all liquidation proceeds in the following manner:
7.4.1 Creditors. First, to creditors, including Members who are creditors, to the
extent permitted by law, in satisfaction of the liabilities of the Company.
7.4.2 Reserves. Second, to the establishment of and additions to reserves that
are determined by the Managers in their sole discretion to be reasonably necessary for any
contingent unforeseen liabilities or obligations of the Company.
OPERATING AGREEMENT - 24
42795.0014.12547542.4
7.4.3 Additional Contributions. Third, to repay any capital contributions made
to the Company that remain outstanding on the distribution date until all contributions have been
repaid in full.
7.4.4 Positive Capital Account Balances. Fourth, to Members in accordance
with positive Capital Account balances taking into account all Capital Account adjustments for
the Company's taxable year in which the liquidation occurs, including adjustments to the
Members' Capital Accounts immediately prior to the liquidation as provided by Regulation
Section 1.704-1(b)(2)(f)(5)(ii).
7.4.5 Percentage Interests. Fifth, to Members in accordance with their
respective Percentage Interests (subject to the provisions of Section 2.6.3).
7.5 Deficit Capital Account Restoration Obligation. In no event is any Member
obligated to restore a deficit balance in the Member's Capital Account upon liquidation.
7.6 Distribution in Kind. If the Liquidator determines that any Company Property
should be distributed in kind to the Members, the Liquidator shall obtain an independent
appraisal of the fair market value of the Company Property to be distributed as of a date
reasonably close to the date of liquidation. Any unrealized appreciation or depreciation with will
be (i) allocated among the Members in accordance with the provisions of Article 5 assuming that
all of the property was sold for the appraised value and (ii)taken into consideration in
determining the balance in the Members' Capital Accounts as of the date of liquidation.
Distribution of Company Property in kind to a Member is considered a distribution of an amount
equal to the fair market value of the property so distributed for purposes of Section 7.4.
7.7 Completion of Winding Up and Termination. The winding up of the
Company's business and affairs is deemed completed when all debts, liabilities, and obligations
of the Company have been paid and discharged or reasonably adequate provision therefor has
been made, and all of the liquidation proceeds and remaining Company Property has been
distributed. The Company shall then file a Statement of Termination with the Idaho Secretary of
State and the Company's existence will thereupon terminate.
ARTICLE 8
DISPUTE RESOLUTION
8.1 Indemnification by Company. To the fullest extent permitted by law, the
Company will indemnify, hold harmless, and defend the Managers and Members from all claims,
damages, liabilities (including legal fees and expenses), judgments, and other amounts paid in
settlement, incurred or suffered by the indemnitee, in connection with any threatened, pending or
completed claim, demand, action, suit or proceeding, whether civil, criminal, administrative, or
investigative, and whether formal or informal, arising out of or in connection with the business
or the operation of the Company, or by reason of the indemnitee's status as a Manager or
Member. However, no Manager or Member may be indemnified from any liability for (i)breach
of the duty of care under Section 4.2, (ii)breach of the duty of loyalty under Section 4.3,
(iii)receipt of a financial benefit to which the Manager or Member is not entitled, (iv) approval
OPERATING AGREEMENT - 25
42795.0014.12547542.4
of a distribution in violation of Section 2.6.8, (v) intentional infliction of harm on the Company
or a Member, (vi) intentional violation of criminal law, or(vii) a claim under Section 8.2.
8.1.1 Payment of Expenses. To the fullest extent permitted by law, expenses
incurred by an indemnitee in defending any claim, demand, action, suit or proceeding subject to
this Section 8.1 will, from time to time, be advanced by the Company before the final disposition
of the claim, demand, action, suit or proceeding upon receipt by the Company of an undertaking
on behalf of the indemnitee to repay such amounts unless it is determined that the indemnitee is
entitled to be indemnified for the amounts paid under the terms of this Section 8.1. If an
indemnitee wishes to make a claim under this Section 8.1, the indemnitee should notify the
Company in writing within 30 days after receiving notice of the commencement of any action
that may result in a right to be indemnified under this Section 8.1; provided, however, that the
failure to notify the Company will not relieve the Company of any liability for indemnification
pursuant to this Section 8.1, except to the extent that the failure to give notice is materially
prejudicial to the Company.
8.1.2 Right to Counsel and Control of Action. An indemnitee will have the
right to employ separate legal counsel in any action under this Section 8.1 and to participate in
the defense of the action. The fees and expenses of such legal counsel will be at the expense of
the indemnitee unless (i)the Company has agreed in writing to pay such fees and expenses,
(ii)the Company has failed to assume the defense of the action without reservation and to
employ counsel within a reasonable period of time after being given the notice required above, or
(iii)the named parties to any such action (including any impleaded parties) include both the
indemnitee and the Company and the indemnitee has been advised by its legal counsel that
representation of the indemnitee and the Company by the same counsel would be inappropriate
under applicable standards of professional conduct because of actual or potential differing
interests between them. It is understood, however, that the Company will, in connection with any
one such action in the same jurisdiction arising out of the same general allegations or
circumstances, be liable for the reasonable fees and expenses of only one separate firm of
attorneys at any time for all such indemnities having actual or potential different interests with
the Company. The Company will not be liable for any settlement of any action agreed to without
the Company's written consent. The indemnification obligations set forth in this Section 8.1 will
survive the termination of this Agreement.
8.1.3 Insurance. The Company may purchase and maintain insurance on behalf
of any Manager, Member, or Affiliate against liability asserted against or incurred by the
Manager, Member, or Affiliate in that capacity or arising from that status, including any liability
arising from breach of any of the duties set forth in Article 4.
8.2 Indemnification by Member for Failure to Pay Taxes. If the Company is liable
for the payment of any tax as a result of a Member's failure to file a tax return or to pay a tax
owed by the Member, the Member will be personally liable to the Company for any such tax,
plus penalties and interest, and attorney fees and costs incurred by Company in connection
therewith. The Company may reimburse itself for any amounts paid by the Company on account
of such liability by withholding amounts from distributions to the Member.
OPERATING AGREEMENT - 26
42795.0014.12547542.4
8.3 Limited Liability. The Managers and Members have limited liability. In
particular and without limiting the generality of the foregoing sentence:
(i) No Manager or Member is liable to the Company or any Manager or
Member for monetary damages, except for (i)breach of the duty of care
under Section 4.2, (ii)breach of the duty of loyalty under Section 4.3,
(iii)receipt of a financial benefit to which the Manager or Member is not
entitled, (iv) approval of a distribution in violation of Section 2.6.8,
(v) intentional infliction of harm on the Company or a Member,
(vi) intentional violation of criminal law, or (vii) tax liability under
Section 8.2;
(ii) No Manager or Member is, by virtue of the Manager or Member's status
as a Manager or Member, liable to any third party under any judgment,
decree or order of a court, or in any other manner, for any debt, obligation,
or liability of the Company, whether arising in contract, tort, or otherwise,
or for the acts or omissions of any other Manager, Member, or Affiliate
thereof;
(iii) The debts, obligations, or other liabilities of the Company, whether arising
in contract, tort, or otherwise, are solely the debts, obligations, or other
liabilities of the Company;
(iv) Unless otherwise set forth in or determined in accordance with this
Agreement, no Member has any obligation to contribute to the Company
for, or in respect of, the debts, obligations, or other liabilities of the
Company;
(v) No Manager or Member may represent or imply to any Person that the
Manager or Member, or any other Manager or Member, is personally
liable for any debt, obligation, or other liability of the Company; and
(vi) The failure of the Company to observe any particular formalities relating
to the exercise of its powers or management of its activities is not a ground
for imposing liability on any Manager or Member for the debts,
obligations, or other liabilities of the Company.
8.4 Information Rights. The Company shall maintain complete and accurate books
of account of the Company's affairs. Subject to Section 4.4, upon reasonable notice from a
Member, the Company shall afford such Member and its Representatives access during normal
business hours to (i) the Company's properties; (ii) the limited liability company, financial, and
similar records, reports and documents of the Company, including all books and records, minutes
of proceedings, internal management documents, reports of operations, reports of adverse
developments, copies of any management letters and communications with Members, and shall
permit each Member and its Representatives to examine such documents and make copies
thereof or extracts therefrom; and (iii) any Officers, senior employees and accountants of the
Company, and shall afford each Member and its Representatives the opportunity to discuss and
OPERATING AGREEMENT - 27
42795.0014.12547542.4
advise on the affairs, finances and accounts of the Company with such Officers, senior
employees and public accountants (and the Company hereby authorizes such employees and
accountants to discuss with such Member and its Representatives such affairs, finances and
accounts); provided that (x) the requesting Member shall bear its own expenses and all
reasonable expenses incurred by the Company in connection with any inspection or examination
requested by such Member pursuant to this Section 8.4 and (y) if the Company provides or
makes available any report or written analysis for any Member under this Section 8.4, it shall
promptly provide or make available such report or analysis to or for the other Member.
Notwithstanding the foregoing, with respect to any dissociated Member the Company will only
make its books of account available for inspection and copying by such dissociated Member to
the extent required by, and in accordance with the rights and limitations set forth in, the Act and
any additional reasonable restrictions and conditions on the use of and access to such records
established by the Company, including designation information as Confidential Information and
imposing nondisclosure obligations on the recipient.
8.5 Claim. The term "Claim" is broadly construed to include any actual or alleged
dispute, controversy, breach, loss, default, harm, damage, penalty, fee, or cost relating to or
arising under this Agreement, the operation of the Company, or the Act, including Claims by
third parties, Managers, Members, or Affiliates thereof. With respect to a Member, a Claim
includes any action to enforce the Member's rights and otherwise protect the Member's interests,
including rights and interests under this Agreement or the Act or arising independently of the
membership relationship.
8.6 Claim Resolution Procedure. Except as provided with respect to injunctive
relief, and except with respect to a Claim involving a Deadlock under Section 3.5.5, in the event
of any Claim, the parties shall first attempt to resolve the Claim by direct discussions. If the
parties do not resolve the Claim through direct discussions within a period of 30 days, then upon
written notice by any party to the other parties, and within a period of the next 30 days, the
parties shall attempt to resolve the Claim by mediation administered by the American Arbitration
Association under its Commercial Mediation Rules. Thereafter, any unresolved Claim may be
resolved as allowed by applicable law.
8.7 Reservation of Rights and Remedies. Except as expressly provided in this
Agreement, and to the extent permitted by law, an aggrieved party has all the rights and remedies
available in law, in equity, and in this Agreement. Any rights and remedies described in this
Agreement are cumulative and not alternative to any other rights and remedies available at law
or in equity. Notwithstanding the foregoing, no Member has the right to maintain a direct action
against the Company or any Manager or Member of the Company except in connection with a
harm incurred by the Member independently of any harm caused or threatened to be caused to
the Company or to the Members generally and in proportion to their respective Membership
Interests. Claims relating to any harm caused or threatened to be caused to the Company or to the
Members generally and in proportion to the Members' respective Membership Interests shall be
maintained only derivatively and in accordance with applicable law governing derivative actions.
8.8 Injunctive Remedies. In addition to any other right or remedy the Company and
the Members may have, the Company and the Members have the right to specifically enforce this
Agreement, including to the restrictions on Transfer set forth in Article 6. Each Member agrees
OPERATING AGREEMENT - 28
42795.0014.12547542.4
that the other Members and the Company will be irreparably damaged if this Agreement is not
specifically enforced. Upon a breach or threatened breach of any term, covenant or condition of
this Agreement by any party, each of the other parties may, in addition to all other remedies, seek
a temporary and permanent injunction, without showing any actual damage, and may seek a
decree for specific performance.
8.9 Attorney Fees and Costs. In the event of a Claim, the prevailing party shall be
awarded reasonable attorney fees and costs in any suit, action or proceeding, including trial,
arbitration, mediation, or appeal, as awarded by the court, arbitrator or mediator.
8.10 Waiver. The waiver of any right, obligation, or remedy must be in writing and
signed by all parties affected by the waiver. The failure or neglect of a party to enforce any right
or remedy available by reason of the failure of the other party to observe or perform a term or
condition set forth in this Agreement does not constitute a waiver of the term or condition. A
waiver by a party (i) does not affect any term or condition other than the one specified in the
waiver, (ii) constitutes a waiver of the specified term or condition only for the time and in the
manner specifically stated in the waiver, and (iii) constitutes a waiver of the specified term or
condition only for the parties expressly named in the waiver and for no other parties.
8.11 Governing Law, Jurisdiction, and Venue. The law of the state of Idaho governs
this Agreement. The state and federal courts in Ada County, Idaho have jurisdiction. Venue for
mediation, litigation, and all other proceedings will be located in Ada County, Idaho.
ARTICLE 9
MISCELLANEOUS
9.1 Notices. All notices and other communications are to be in writing, addressed to
the last address known by the sender to be the address of the recipient, and may be delivered
(i) in person, with the date of notice being the date of personal delivery, (ii)by United States
Mail, postage prepaid for certified or registered mail, return receipt requested, with the date of
notice being the date of the postmark on the return receipt, (iii)by fax, with oral confirmation
and the date of notice being the date of the fax, (iv)by e-mail, with oral confirmation and the
date of the notice being the date of the e-mail, or (v)by nationally recognized delivery service
such as Federal Express, with the date of notice being the date of delivery as shown on the
confirmation provided by the delivery service.
9.2 Waiver of Notice. Whenever any notice is required to be given a waiver in
writing signed by the Person entitled to such notice will be deemed equivalent to the giving of
the notice. The waiver is effective whether signed before or after the event concerning which the
notice is required.
9.3 Successors and Assigns. The provisions of this Agreement are binding upon any
successors of the Members, the Managers, or the Company. The rights, duties, and obligations of
any Member may not be assigned except in accordance with the provision in Article 6 and any
purported assignment in violation of this Agreement is void.
9.4 Coordination of Agreement and Act and Other Applicable Law. Except to the
extent a provision of this Agreement is prohibited or ineffective under the Act or other applicable
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42795.0014.12547542.4
law, this Agreement shall govern, even when inconsistent with or different than, the Act or other
applicable law. To the extent any provision of this Agreement is prohibited or ineffective under
the Act or other applicable law, this Agreement shall be considered amended to the smallest
degree possible in order to resolve the prohibition or ineffectiveness. If the Act or other
applicable law is subsequently amended, superseded, or interpreted to make any provision of this
Agreement valid or invalid, the provision shall be considered to be valid or invalid, as the case
may be, from the effective date of the amendment, supersession, or interpretation.
9.5 No Partnership Intended for Non-Tax Purposes. The Members have formed
the Company under the Act, and expressly intend not to form a partnership or limited partnership
for non-tax purposes. The Members intend not to be partners one to another, or partners as to any
third party for non-tax purposes. To the extent any Member, by word or action, represents to
another Person that any other Member is a partner or that the Company is a partnership for non-
tax purposes, the Member making the wrongful representation shall be liable to any other
Member who incurs personal liability by reason of the wrongful representation.
9.6 Rights of Creditors and Third Parties. The Agreement is intended for the
exclusive benefit of the Company, its Members, and their successors and assigns. There are no
intended or incidental third party beneficiaries. This Agreement is not intended to benefit any
creditor of the Company or any other Person. Except as otherwise provided in the Act, no
creditor or third party shall have any rights under (i)this Agreement or (ii) any agreement
between the Company and any Member regarding any contribution or otherwise.
9.7 Severability. The invalidity of any portion of this Agreement shall not affect the
validity of any other portion of this Agreement. If the invalidity or unenforceability is due to the
unreasonableness of any restrictions, the restrictions shall be effective to the extent that a court
may determine them to be reasonable. If any covenant or restriction is held to be unenforceable,
the covenant or restriction shall be first modified to be enforceable. If the covenant or restriction
cannot be modified to be enforceable, then the covenant or restriction shall be eliminated to the
extent necessary to permit the remaining restrictions to be enforced. The parties expressly agree
that this Agreement as so modified by the court will be binding on and enforceable against each
of them.
9.8 Time of the Essence. Time is of the essence with respect to the obligations to be
performed under this Agreement.
9.9 Entire Agreement. All Schedules to this Agreement constitute a part of this
Agreement. This Agreement, together with the accompanying Schedules, constitutes the entire,
completely integrated agreement among the parties concerning the subject matter of this
Agreement, and supersedes all prior memoranda, correspondence, conversations, and
negotiations.
9.10 Amendment. This Agreement cannot be amended orally or by conduct of the
parties. All amendments of this Agreement must be in writing and must be approved by the
Board in accordance with Section 3.5. The Members intend that compliance with the
requirements of this Section 9.10 is a condition precedent to any amendment of this Agreement
for the purposes of Sections 30-25-105(a)(4) and 30-25-107(a) of the Act and that any purported
OPERATING AGREEMENT - 30
42795.0014.12547542.4
amendment of this Agreement which does not comply with the requirements of this Section 9.10
is ineffective.
9.11 Adoption and Ratification. This Agreement is adopted as of the Effective Date.
This Agreement is a private agreement among the Members, the Managers, and the Company
and its terms and conditions shall not be disclosed in any form or manner to Persons other than
the Company, its Managers, Members, and Affiliates, or to accountants, attorneys or other
professional advisors thereof.
9.12 Interpretation. For purposes of this Agreement, (a) the words "include,"
"includes," and "including" are deemed to be followed by the words "without limitation;" (b)the
word "or" is not exclusive; and (c) the words "herein," "hereof," "hereby," "hereto," and
"hereunder" refer to this Agreement as a whole. This Agreement must be construed without
regard to any presumption or rule requiring construction or interpretation against the party
drafting an instrument or causing any instrument to be drafted.
9.13 Counterparts. This Agreement may be executed in one or more counterparts,
each of which shall be deemed to be an original, but all of which together shall constitute one
and the same instrument. Delivery of an executed counterpart signature page of this Agreement
by facsimile, electronic mail in portable document format (.pdf), or by any other electronic
means intended to preserve the original graphic and pictorial appearance of a document, has the
same effect as delivery of an executed original of this Agreement.
[Signature(s) on following page]
OPERATING AGREEMENT - 31
42795.0014.12547542.4
Each of the parties is signing this Agreement effective as of the Effective Date .
MEMBERS :
LYNX INVESTMENTS , LLLP,
an Idaho limited liability limited partnership
B :
Y
Jose . Hue, General Partner
HIGH DESERT DEVE OPMENT, INC . ,
an Idaho corpo 1on
BY :
Jose D . Hui e, President
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OPERATING AGREEMENT - 41
SIGNATURE PAGE TO OPERATING AGREEMENT
42795.0014, 12547542.4
The parties are signing this Agreement as of the Effective Date ,
LYNX INVESTMENTS, LLLP,
an Idaho limited liability limited partnership
By :
Joseph D . Huart eneral Partner
HIGH DESERT DEVELOPMENT, INC .,
an Idaho c/orpor
By : `----
Joseph . Huart resident
HIGH DESERT PEYE OPMENT UNDER
VILLAGE LLJ
By :
Joseph,A Huart Manager
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SIGNATURE PAGE TO CONTRIBUTION AGREEMENT
42795.0014. 12611141 .3
SCHEDULE 2.3
SCHEDULE OF MEMBERS
Name and Address Capital Contribution Units Percentage Interest
Lynx Investments, LLLP, As set forth in the 975 97.5%
an Idaho limited liability limited Company's records
partnership
Address:
712 N. Troutner Way
Boise, Idaho 83712-7545
High Desert Development, Inc., As set forth in the 25 2.5%
an Idaho corporation Company's records Profits only interest
as set forth in
Address: Section 2.2.3
712 N. Troutner Way
Boise, Idaho 83712-7545
SCHEDULE 2.3 - SCHEDULE OF MEMBERS
42795.0014.12547542.4