CC - Operating Agreement 03 22 04 � ICI
OPERATING AGREEMENT
OF
SCS INVESTMENTS LLC
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This Operating Agreement of SCS Investments LLC("Agreement")is effective as of March
22, 2004 ("Effective Date"), by and among Steven C. Smith and Rebecca B. Smith. Capitalized
terms shall have the meanings as defined in Section 2, unless otherwise specified herein.
1. FORMATION
1.1 Name. The name of the limited liability company shall be"SCS Investments
LLC",
1.2 Articles of Organization. Articles of Organization in the above name have
been filed with the Idaho Secretary of State.
1.3 Term. The Company shall have a perpetual existence commencing on the date
the Articles of Organization were filed with the Secretary of State, unless dissolved in accordance
with the terms of this Agreement.
1.4 Names and Addresses of Members. The names and addresses of the Members
of the Company are set forth on Exhibit "A", as it may be amended from time to time.
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1.5 Principal Office. The principal office of the Company shall be located at 1951
S. Saturn Way, Suite 100,Boise,Idaho 83709,or such other location as the Managers may designate
from time to time. j
1.6 Registered Office and Registered Agent. The Company's registered office
shall be located at 1951 S. Saturn Way, Suite 100,Boise,Idaho 83709,or such other location as the
Managers may designate from time to time. The name of its initial registered agent at such address
shall be Kenneth B. Christensen.
1.7 Business Purpose. The purpose of the Company shall be to engage in any
lawful business.
2. DEFINITIONS
2.1 "Act": The Idaho Limited Liability Company Act as the same may be
amended from time to time.
2.2 "Adjusted Deficit": With respect to any Interest holder,the deficit balance,if
any, in such Interest holder's capital account as of the end of the relevant Fiscal Year, after giving
effect to the following adjustments:
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(a) The capital account shall be increased by any amounts which such
Interest holder is obligated to restore pursuant to any provision of this Agreement or is
deemed to be obligated to restore pursuant to the next to the last sentences of Reg. Sections
1.704-2(g)(1) and 1.704-2(i)(5); and
(b) The capital account shall be decreased by items described in Reg.
Section 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith.
2.3 "Affiliate": Any entity controlled by, controlling or under common control
with another person or entity. For purposes of this Section,the term"control"means the ownership
of 50% or more of the ownership interest of any entity, and the term "entity" means, without
limitation, a corporation, limited liability, company, partnership, or other business operation.
2.4 "Capital Contribution(s)": The amount of cash and the agreed value of
property contributed to the capital of the Company by the Members, as set forth in Section 7.1,and
any additional contributions made from time to time.
2.5 "Capital Transaction Proceeds":
(a) The net proceeds from the sale or other disposition of any Property,
other than such proceeds from a sale or other disposition occurring in connection with the
following: (i) the liquidation and termination of the Company, (ii) the transfer of all or
substantially all of the Property,(iii)the transfer of any stock in trade of the Company,or(iv)
the transfer of any other Property in the ordinary course of the Company's trade or business.
(b) The net proceeds from refinancing any Property after repayment of the
refinanced obligation and payment of all other Company obligations.
(c) The net proceeds from the following: (i) condemnation of any
Property, (ii) grant of an easement, license, right-of-way or other property right relating to
any Property,and(iii)an insurance settlement or other settlement attributable to fire or other
casualty relating to any Property (after provision for repairs and improvements to the
Property, if any, as determined by the Managers).
2.6 "Code": The Internal Revenue Code of 1986,as amended from time to time.
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2.7 "Company". SCS Investments LLC, an Idaho limited liability company.
2.8 "Economic Interest": The interest in the Company possessed by a transferee
of an Interest, which transferee has not been admitted as a Member. An Economic Interest shall
consist of the transferor's capital account, and the transferor's share of the Company's Capital
Transaction Proceeds,Net Liquidation Proceeds,Net Operating Cash Flow and net profits and losses
pursuant to this Agreement and the Regulations. An Economic Interest,however,shall not include
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any right to participate in the management or affairs of the Company, nor the right to vote on,
consent to or otherwise participate in, any decision by the Members.
2.9 "Fiscal Year": The accounting year of the Company as may be determined by
the Managers in compliance with the Code.
2.10 "Interest": An interest in the Company possessed by a Member (defined in
this Agreement as an "Ownership Interest"), or an interest in the Company possessed by a non-
Member(defined in this Agreement as an"Economic Interest"). Interest designations are as shown
on Exhibit"A", as it may be amended from time to time.
2.11 "Manager"or"Managers": The initial Managers as stated in Section 3.3, and,
thereafter, any other person or entity selected in accordance with this Agreement. Whether singular
or plural, the "Manager" or "Managers" shall be deemed to include the Manager or Managers
authorized to act in accordance with this Agreement.
2.12 "Majority Vote". Approval or consent of Members who hold Ownership
Interests representing combined Sharing Percentages of greater than 50%of Interests entitled to vote
on such matter. Unless otherwise specified in this Agreement,or as required by law,any"consent"
or"approval"of the Members required by this Agreement shall require only a Majority Vote of the
Members entitled to vote on such matter.
2.13 "Members": Those persons designated as Members on Exhibit"A"and those
who or which have been subsequently admitted as a Member of the Company pursuant to this
Agreement.
2.14 "Net Li uidation Proceeds": The net proceeds from the dissolution,
liquidation and winding up of the Company.
2.15 "Net Operating Cash Flow": That amount of cash from Company operations
available for distribution to the Members.
2.16 "Ownership Interest": The interest in the Company possessed by a Member, j
consisting of a Member's capital account, and the Member's share of the Company's Capital
Transaction Proceeds,Net Liquidation Proceeds,Net Operating Cash Flow and net profits and losses
pursuant to this Agreement and the Regulations,the right to participate in the management or affairs
of the Company,and the right to vote on, consent to or otherwise participate in, any decision by the
Members as permitted by this Agreement, at such Member's Sharing Percentage as set forth in
Section 8.1.
2.17 "Provert Any and all assets of the Company, as acquired or disposed of
from time to time.
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2.18 "Regulation"._o_r_"Reg.": A regulation of the United States Treasury
Department,promulgated under Title 26 of the Federal Code of Regulations,as such regulation may
be amended from time to time.
2.19 "Sharing Percentage": The percentage share of allocations of taxable income,
loss and credits attributable to an Interest as set forth in Exhibit"A", as it may be amended from time
to time.
3. MANAGERS
3.1 Management and Control. Management of the business and affairs of the
Company shall be vested in the Managers. The Managers shall have the power and authority to
manage the affairs of the Company and to make all decisions with respect to the Company's
management, except with respect to decisions requiring the approval of the Members under this
Agreement,or non-waivable provisions under applicable law. Any one Manager may take any action
permitted to be taken by the Managers, unless otherwise specified in this Agreement.
3.2 Powers. Without limiting the foregoing,the Managers are authorized on the
Company's behalf to make all decisions regarding the following matters(except for those decisions
requiring Member approvals or delegation by the Members as stated in Section 4.1):
(a) the development, sale, lease or other disposition the Property;
(b) the purchase or other acquisition of assets of all kinds;
(c) the management of all or any part of the Company's Property;
(d) the borrowing of money and the granting of security interests in the
Property(including loans from Members);
(e) the prepayment, refinancing, or extension of any mortgage affecting
the Property;
(f) the compromise or release of any of the Property's claims or debts;
and
(g) the employment of persons, firms, or corporations for the operation
and management of the Property.
In the exercise of their management powers,the Managers are authorized to execute
and deliver:
(a) all contracts, conveyances, assignments, leases, subleases, franchise
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agreements, licensing agreements, management contracts and
maintenance contracts covering or affecting the Property;
(b) all checks, drafts, and other orders for the payment of Company
funds;
(c) all promissory notes, mortgages, deeds of trust, security agreements,
and other similar documents; and
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(d) all other instruments of any kind or character relating to the
Company' s affairs whether like or unlike the foregoing.
3.3 Number, Tenure and Qualifications. The Company shall have two (2)
Managers. A Manager need not be a Member or a resident of the State of Idaho. Each Manager
shall hold that position until death, resignation from office, or removal from office as provided in
this Agreement. Any Manager may resign at any time by giving written notice to the Members of the
Company. The resignation of a Manager who is also a Member shall not affect the Manager's rights
as a Member. The Managers are:
Kenneth B. Christensen
Hawkins-Smith Management, Inc.
3.4 Removal. At any meeting of the Members called as provided herein, all or
any lesser number of Managers may be removed by unanimous vote of the Members(excluding the
vote of any Member who is a Manager and who is being voted upon for removal). Removal of a
Manager shall only be upon for willful misconduct, gross negligence or embezzlement by such
Manager. The removal of a Manager who is also a Member shall not affect the removed Manager's
rights as a Member and shall not constitute the withdrawal of the removed Manager as a Member.
3.5 Vacancies. Any vacancy occurring, for any reason, in the number of
Managers of the Company shall be filled by the remaining Managers. Any Manager's position to be
filled by reason of an increase in the number of Managers shall be filled by the Managers. In the
event there are no Managers to select a new Manager to fill a vacancy,the Members shall select the
new Managers by Majority Vote.
3.6 Tax Matters. Except as otherwise specifically provided herein or prohibited
by law, the Managers shall make any and all elections for federal and state income tax purposes,
including,without limitation, any election, if permitted by applicable law to: (i) adjust the basis of
Company property pursuant to Code Section 754, Section 734(b), and Section 743(b), and
comparable provisions of state or local law, in connection with transfers of Interests and Company
distributions; (ii)extend the statute of limitations for assessment of tax deficiencies against Members
with respect to adjustments to the Company's federal,state or local tax returns;and(iii)represent the
Company before taxing authorities or courts of competent jurisdiction in tax matters affecting the
Company. The Managers may appoint a "tax matters partner" as specified under the Code (or the
equivalent representative of a limited liability company before the Internal Revenue Service)and in
any similar capacity under state or local law.
3.7 Manager Fee. Any Manager rendering services to the Company may be
entitled to compensation commensurate with the value of such services,as determined by Majority
Vote,which compensation shall be considered an expense of the Company and not a distribution of
income under this Agreement.
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3.S Reimbursement of Managers. The Company shall reimburse the Managers for
all reasonable direct out-of-pocket expenses incurred by them in managing the Company.
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4. MEMBERS
4.1 Member Approval. Only with the prior written consent issued pursuant to the
Majority Vote shall the Company or the Managers execute any documents or agreements concerning,
expend any funds for,make any decisions upon,or take any action towards whether or not a binding
obligation is thereby created, regarding the following:
(a) The sale,exchange, or other disposition of all, or substantially all,of
the Property which is to occur as part of a single transaction or plan;
(b) Any activity outside the ordinary business transacted by the Company;
(c) The contracting and incurring of any liability for or on behalf of the
Company in excess of Five Million Dollars ($5,000,000.00);
(d) The mortgaging,deeding in trust,pledging or otherwise encumbering
any single Company asset to secure repayment of money so borrowed involving an amount
in excess of Five Million Dollars ($5,000,000.00);
(e) The commitment of the Company to the construct any single
improvement involving construction costs in excess of Five Million Dollars($5,000,000.00);
and
{f) The dissolution of the Company, except as otherwise provided in
Section 14 (b).
Notwithstanding the foregoing,the limitations of this Section shall not apply to the
following: (i) items contained in the Company's operating or capital budgets, so long as such
operating or capital budgets were approved by Majority Vote of the Members; or (ii) actions or
decisions necessary to implement a contract or transaction approved by a Majority Vote of the
Members.
4.2 Priority and Return of Capital. Except as may be expressly provided in
Section 9, no Member or Economic Interest holder shall have priority over any other Member or
Economic Interest holder,either as to the return of Capital Contributions or as to profits, losses, or
distributions; provided that this Section shall not apply to loans (as distinguished from Capital
Contributions) which a Member or Economic Interest holder has made to the Company.
4.3 Member Authority. A Member who is not a Manager shall have no power or
authority to bind the Company, unless the Member has been given written authorization from the
Managers to act as an agent of the Company.
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4.4 Member Spouses. Each Member agrees that their Ownership Interest shall
remain his or her sole and separate property and his or her spouse agrees to the same by executing
this Agreement. In the event a Member's spouse changes or the Member marries in the future,the
Member agrees to have their new spouse execute this Agreement. Notwithstanding the foregoing,
nothing herein shall affect the character of allocations and distributions of income, gain, loss,
deduction and credits pursuant to this Agreement.
5. INDEPENDENT ACTIVITIES
Notwithstanding the existence of this Agreement, each Member and Manager, and
their Affiliates,may engage in whatever activities they choose,whether the same be competitive with
the Company or otherwise, without having or incurring any obligation to offer any interest in such
activities to the Company or any Member. Neither this Agreement nor any activity undertaken
pursuant hereto shall prevent a Member, Manager or its Affiliates from engaging in such activities,
or require a Member, Manager or its Affiliates to permit the Company or any other Member to
participate in any such activities, and as a material part of the consideration for the Members'
execution hereof,each Member hereby irrevocably waives,relinquishes and renounces any such right
to such offer of an interest or claim of participation.
6. ACTIONS WITHOUT NOTICE, WITHOUT MEETING, OR BY j
TELEPHONE
6.1 Meetings of Managers and/or Members. Notwithstanding any other provision
of this Agreement, if all Managers and/or Members are present at a Manager or Member meeting,
respectively, such meeting shall be valid without call or notice, and any lawful action taken at such
meeting shall be the action of the Managers and/or Members, as the case may be.
6.2 Action Without Meeting. Any action requiring a vote of the Managers and/or
Members may be taken without a meeting if the Managers and/or Members representing the required
votes for approval approve the action in writing.
6.3 Meetings by Telephone. Meetings of the Managers and/or Members may be
held by telephone conference or by any other means of communication by which all participants can
hear each other simultaneously during the meeting,and such participation by telephone or such other
means of communication shall constitute a Manager's and/or Member's presence at the meeting,as
the case may be.
7. CAPITAL
7.1 Capital Contributions.The Capital Contribution of each Member is set forth
on Exhibit "A."
7.2 Additional Capital.
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(a) Except as set forth in this Section 7.2(a), no Member or Economic
Interest holder shall be required or permitted to make any additional Capital Contributions.
In the event that at any time, pursuant to a Majority Vote of the Members, the Members
determine that additional funds in excess of the Capital Contributions and Capital
Transaction Proceeds are required by the Company for its business or expansion thereof or
any of its obligations, expenses, costs, liabilities or expenditures, or for improvements with
respect to any Company property, the Members shall be required to contribute such
additional funds in proportion to their Sharing Percentage, unless the Members decide to
finance, at the Company level, the amount of such additional funds needed. No Economic
Interest holder shall be entitled to make additional Capital Contributions unless approved by
the Managers in their sole discretion. If the Members or permitted Economic Interest holders
make an additional Capital Contribution, the Sharing Percentages associated with the
Interests shall be increased accordingly and the Sharing Percentage of any Interest holders
not making an additional Capital Contribution shall be decreased accordingly.
(b) In the event, after being notified or permitted to do so, a Member or
Economic Interest holder ("Defaulting Member") fails to contribute additional funds as
required pursuant to subparagraph (a), the other Members or permitted Economic Interest
holder ("Non-defaulting Members") may, in proportion to their Sharing Percentage,
determined without regard to the Sharing Percentage of the Defaulting Member, contribute
additional funds to cover such amount that has not been contributed. Upon such an event,
the Interest, Sharing Percentage and allocations of taxable income and loss of the Non-
defaulting Members shall be increased according to the ratio their total Capital Contribution
then relates to the total Capital Contribution to the Company.
7.3 Interest on Capital Contributions. No interest shall be paid on Capital
Contributions.
7.4 Loans. The Company may borrow money from or make loans to any Member
upon such commercially reasonable terms and conditions as may be approved by the Managers.
8. INCOME AND LOSS ALLOCATIONS
8.1 Basic Allocations. The taxable income and loss (and every item of income,
deduction, gain or loss entering into the computation thereof)and credits of the Company,for each
Fiscal Year of the Company, shall be initially allocated as according to the Sharing Percentage set
forth on Exhibit "A".
8.2 Section 704 c Allocations. Notwithstanding the provisions of Section 8.1,
and in accordance with Code Section 704(c)and the regulations thereunder, income, gain, loss and
deduction with respect to any property contributed to the capital of the Company shall,solely for tax
purposes,be allocated among the Interest holders so as to take account of any variation between the
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adjusted basis of such property to the Company for federal income tax purposes and the fair market
value of such property on the date it was contributed to the Company.
8.3 Qualified Income Offset. In the event any Interest holder(s) unexpectedly
receives any adjustments, allocations or distributions described in Reg. Sections 1.704-
l(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5) or 1.704-1(b)(2)(ii)(d)(6), items of Company income and
gain shall be specially allocated to each such Interest holder in an amount and manner sufficient to
eliminate, to the extent required by the Regulations,the Adjusted Deficit of such Interest holder as
quickly as possible,provided that an allocation pursuant to this Section 8.3 shall be made only if and
to the extent that such Interest holder would have an Adjusted Deficit after all other allocations
provided for in this Section 8 have been tentatively made as if this Section 8.3 were not in the
Agreement.
9. DISTRIBUTIONS
9.1 Operating Distributions. Net Operating Cash Flow shall be distributed to the
Members in proportion to their Sharing Percentages when approved by the Managers from time to
time.
9.2 Distributions of Capital Transaction Proceeds. Capital Transaction Proceeds
shall be distributed to the Members in proportion to their Sharing Percentages when approved by the
Managers from time to time.
9.3 Liquidating Distributions. Upon the dissolution and winding up of the
Company pursuant to Section 14,after providing for the satisfaction of any of the remaining debts of
the Company and all other expenses of liquidation,the Net Liquidation Proceeds shall be distributed
to the Members in proportion to their Sharing Percentages, after giving effect to all contributions,
distributions and allocations for all periods prior to dissolution. Such distributions shall satisfy the
requirements of Reg. Section 1.704-1(b)(2)(ii)(b)(2).
10. BANK ACCOUNTS, BOOKS AND RECORDS, ACCOUNTING, AND TAX
ELECTIONS
10.1 Bank Accounts. The Managers shall open and maintain in the name of the
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Company a bank account or accounts in which shall be deposited all funds of the Company.
Withdrawals from such account or accounts shall be made upon the signature or signatures of such
person or persons as the Managers shall designate.
10.2 Method of Accounting. The Managers shall keep,or cause to be kept,full and
accurate records of all transactions of the Company in accordance with sound accounting principals.
The Managers will determine, or cause to be determined, the method of accounting suited for the
Company. The maintenance of capital accounts shall satisfy the requirements of Reg. Section 1.704-
I(b)(2)(iv).
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10.3 Books and Records. All books and records of the Company shall be
maintained in the principal office of the Company, and shall be open during reasonable business
hours for the reasonable inspection and examination by the Members or their authorized
representatives. The Managers shall maintain and preserve,during the term of the Company,and for
eight (8) years thereafter, all accounts, books, and other relevant Company documents; provided
however, the Company shall retain copies of its tax returns indefinitely. Upon reasonable request,
each Member shall have the unrestricted right, during ordinary business hours, to inspect and copy j
such Company documents at the requesting Member's expense.
10.4 Federal Income Tax Returns. The Managers shall prepare, or cause to be
prepared, at Company expense, federal and state income tax returns for the Company and
information returns for the Members and Economic Interest holders.
10.5 Other Report and„Statements. Quarterly, and at other times desired by a
Majority Vote of the Members,detailed statements shall be prepared and delivered to the Members
by the Managers,or by the certified public accountant then servicing the Company,which statements
shall show all income, receipts, expenses and costs in connection with the Company.
11. DISPOSITIONS OF INTERESTS AND ADMISSION AS MEMBERS
11.1 General. Except as otherwise specifically provided herein, no Member or
Economic Interest holder shall have the right to: (a) sell, assign, pledge, hypothecate, transfer,
exchange or otherwise transfer for consideration; or(b) gift, bequeath, or otherwise transfer for no
consideration (whether or not by operation of law), all or any part of his or her Interest in the
Company. The dispositions of Interests described in this Section 11.1 shall be collectively referred
to as a "Transfer".
11.2 Right of First Refusal
(a) Option to„Corn pany. The Interest shall first be subject to an j
option on the part of the Company to purchase all or part of such Interest, which
option shall be exercised if at all,within a period of 30 days following the receipt of
the selling Interest holder's offer.
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(b) Option to Remaining Members. If the Company fails to
exercise its option with respect to all or any part of the Interest,then the same shall be
offered for sale and shall be subject to an option on the part of the other Members to
purchase,which option shall be exercised,if at all,within 15 days after the expiration
of the 30-day period granted the Company. The other Members may divide the
interest of the selling Interest holder in such manner as they shall mutually agree,and
any of them may elect not to participate in the purchase. If they do not otherwise
agree,the interest of the selling Interest holder shall be divided among the Members
participating in the purchase in proportion to their respective Ownership Interests at
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the time the offer is made. To exercise the right to purchase, written notice shall be
given to the selling Interest holder by the individual purchasing Members.
(c) Terms. The Company or the purchasing Members,as the case
may be,shall make payment for the Interest either(a)according to the payment terms
and condition of the proposed transfer to the third party or(b) by the execution and
delivery of a promissory note payable to the selling Interest holder,whichever option
the purchasing Member may choose. The promissory note shall bear interest at the
prime rate on the date of the transfer and shall be secured by the Interest purchased.
The principal of the note shall be payable, together with interest accrued as of the
date of each installment payment in ten(10)equal annual installments,commencing
on the first anniversary of the transfer.
(d) Failure to Exercise Option. In the event the Interest offered is
not purchased by the above parties,then all restrictions imposed under Section 11.1
shall terminate with respect to the then proposed disposition; provided, however,
that, if such disposition is not made within 30 days following the expiration of the
15-day option period granted the other Members under subparagraph(ii)above,then
the restrictions imposed under Section 11.1 shall once again become applicable.
(e) Transferee's Status. In the event the Interest offered is
purchased by a party other than a Member, the transferee shall become a Member
with an Ownership Interest only by admission in accordance with the provisions of
Section 11. Otherwise, such transferee shall possess only an Economic Interest.
(f) Failure to Comply. Any disposition or attempted disposition
of an Interest, or any part thereof, not in compliance with this Section 11, shall be
null and void ab initio, and need not be recognized by the Company.
11.2 Transfer to a Third Party. In the event of a Transfer of an Interest to a third
party other than a Member,the Managers may require as a condition of Transfer that the Transferor
or the transferee to execute, acknowledge, and deliver to the Company, the Managers, or the
remaining Members such instruments of transfer, assignment, and assumption and such other
certificates,representations,and documents,and to perform all such other acts which the Company,
the Managers, or the remaining Members may deem necessary or desirable to:
(a) designate such purchaser as a Member, Economic Interest
holder, Donee, or successor-in-interest as such;
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(b) confirm that the person desiring to acquire an Interest or
Interests in the Company,or to be admitted as a Member,has accepted,assumed,and
agreed to be subject and bound by all of the terms,obligations,and conditions of the
Agreement, as the same may have been amended (whether such person is to be
admitted as a new Member or will be an Economic Interest holder);
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(c) preserve the Company after the completion of such sale,
transfer,assignment,or substitution under the laws of each jurisdiction in which the
Company is qualified, organized, or does business;
(d) maintain the status of the Company as a partnership for
federal tax purposes; and
(e) assure compliance with any applicable state and federal laws
including securities laws and regulations.
11.3 Indemnity. The Transferor hereby agrees to indemnify, defend and hold
harmless the Company,the Managers,Members and/or Economic Interest holders,against any and
all loss,damage,or expense(including,without limitation,reasonable attorney fees and tax liabilities
or loss of tax benefits)arising directly or indirectly as a result of any Transfer or purported Transfer
in violation of this Article 11.
11.4 Gift in . A Member or Economic Interest holder(referred to for purposes of
this Section as a "Donor") may transfer a gift outright to or in trust for him or herself or to or for a
member of his or her immediate family all or any portion of Interest,provided that the donee or other
successor-in-interest(collectively, "Donee")complies with Section 11.3. Such Transfer shall not be
required to comply with Sections 11.2 (a) and 11.2 (b). As used in this Agreement, "immediate
family" includes the Donor's children, grandchildren, father, mother, sisters and brothers (such
relations shall include those created by adoption or marriage). The Donce(s) shall hold only an
Economic Interest in the Company.
11.5 Death of a Member. In the event a Member or Economic Interest holder
(hereinafter sometimes referred to as"Decedent")dies or a court of competent jurisdiction adjudges
him or her to be incompetent to manage his or her person or property, the Interest owned or
attributed to the Decedent may be Transferred to his or her "immediate family" (as described in
Section 11.5 above) or to a trust for his or her "immediate family" provided that the transferees,
heirs,beneficiaries or other successors-in-interest(collectively, "heirs")complies with Section 11.3.
Such Transfer shall not be required to comply with Sections 11.2(a)and 11.2(b). The heir(s) shall
hold only an Economic Interest in the Company.
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11.6 Dispositions to Other Members. Transfers of Interests to Members if made in
compliance with this Section 11, shall not require the consent of the other Members, and the entire
interest received by the transferee Member shall be deemed to be an Ownership Interest.
11.7 Admission as Members. Any person,entity or Economic Interest holder may
be admitted to the Company as a Member with full rights associated with an Ownership Interest
upon the Majority Vote of the Members. Each new Member shall be admitted only upon execution,
and written acceptance of all of the terms and provisions of this Agreement,as amended through the
time of admission. A duly admitted Member's Capital Contribution and Sharing Percentage shall be
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set forth in an executed amendment to this Agreement. The spouse of a Member shall not be deemed
a Member, regardless of whether such spouse has executed this Agreement and regardless of any
community property interest such spouse may have in a Member's Ownership Interest. In the event
that the transferee does not obtain the consent of the Managers,the transferee shall possess only an
Economic Interest.
12. DISSOCIATION
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12.1 Dissociation.
(a) Events of Dissociation. A Person shall cease to be a Member upon the j
happening of any of the following events:
(i) the voluntary withdrawal of a Member;
(ii) a disposition of a Member's Ownership Interest in
contravention of Section 11.
(ill) the Member(A)has become the subject of an Order for Relief
under the United States Bankruptcy Code,or(B)has initiated as to such Member, in
any state insolvency or receivership proceeding,either in an original proceeding or by
way of an answer,an action for liquidation arrangement,composition,readjustment,
dissolution, or similar relief;
(iv) in the case of a Member who is a natural person, the death of
the Member or the entry of an order by a court of competent jurisdiction adjudicating
the Member incompetent to manage the Member's estate;
(v) in the case of a Member who is acting as a Member by virtue
of being a trustee of a trust, the termination of the trust (but not merely the
substitution of a new trustee);
(vi) in the case of a Member that is a separate organization other
than a corporation,the dissolution and commencement of winding up of the separate
organization;
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(vii) in the case of a Member that is a corporation, the filing of a
certificate of dissolution,or its equivalent,for the corporation or the revocation of its
charter;
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(viii) in the case of an estate,the distribution by the fiduciary of the
estate's entire interest in the limited liability company; or
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(ix) the Majority Vote of the Members expelling the Member,with
or without cause.
(f) Purchase of Dissociated Member's Ownership Interest. Upon the
dissociation of a Member, when the remaining Members by Majority Vote elect to continue
the business of the Company,the remaining Members by Majority Vote shall elect between
one of the following alternatives:
(i) the disassociated Member's Ownership Interest shall be
purchased by the Company for a purchase price equal to the aggregate fair
market value of the Member's Interest determined according to the provisions
of subsection(c)below. The purchase price of such interest shall be paid by
the Company to the Member in cash within sixty(60)days of determination
of the aggregate fair market value or,at the Company's option,said debt may
be evidenced by a promissory note bearing interest at the prevailing prime
rate at the time of the dissociation, payable in ten (10) equal annual
installments commencing on the first anniversary of the event of dissociation
and consisting of principal and interest accrued as of the date of each
installment. The promissory note shall be secured by the Ownership Interest
purchased.
(ii) the transferee of the dissociated Member's interest shall be
treated as a Member holding an Ownership Interest rather than the holder of
merely an Economic Interest. The election to treat the transferee as a
Member shall be made by Majority Vote of the remaining Members, any
contrary provisions in Section I 1 notwithstanding.
Such election shall be made within ninety(90)days after the remaining Members learn of the
event of dissociation, otherwise the remaining Members shall be deemed to have selected the
alternative set forth in subsection(ii)above. If the event of dissociation does not involve a
transfer of the dissociated Member's interest, however, the remaining Members shall be
deemed to have selected the alternative set forth in subsection (i) above.
(g) Purchase Price of Dissociated Member's Ownership Interest. The fair
market value of a Member's Interest to be purchased by the Company pursuant to this section
shall be determined by agreement between the dissociated Member (or the dissociated
Member's legal representative or the transferee of the dissociated Member's Ownership
Interest,as the case may be)and the Company,which agreement is subject to approval by the
remaining members. If the dissociated Member (or the transferee of the dissociated
Member's Ownership Interest,as the case may be)and the Company cannot agree upon the
fair market value of such Ownership Interest within thirty (30) days, the fair market value
thereof shall be determined by appraisal,the Company and the dissociated Member each to
choose one appraiser and the two appraisers so chosen to choose a third appraiser. For this
purpose, the fair market value of the dissociated Member's Ownership Interest shall be
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computed as the amount which could reasonably be expected to be realized by such Member
upon the sale of the Company's assets in the ordinary course of business at the time of
dissociation. The decision of a majority of the appraisers as to the fair market value of such
Ownership Interest shall be final and binding and may be enforced by legal proceedings. The
dissociated Member and the Company shall each compensate the appraiser appointed by it
and the compensation of the third appraiser shall be borne equally by such parties.
(h) Damages. The provision set forth herein shall not effect any claim for
damages the Company may have against the dissociated Member if such dissociation is in
violation of this Company Agreement. The Company shall have the right to offset any
payments due under this Article by any damages that the Company may incur as a result of a
dissociation of a Member in contravention of this Agreement.
12.2 Dispositions to Other Members. Transfers of interests between Members shall
not require the consent of the other Members,and the entire interest held by the transferee Member
shall be deemed to be an Ownership Interest. If,upon the death of a Member,the Ownership Interest
of that Member is to be transferred completely to other Members of the Company,then the death of
that Member shall not operate as an event of dissociation, and each transferee shall thereafter be
treated as a Member holding an Ownership Interest equal to the combination of the Ownership
Interest previously held by that transferee and the Ownership Interest transferred to that transferee.
Following the incompetency of a Member,so long as another Member is appointed as a guardian of
the estate of the incompetent Member, the incompetency shall not operate as an event of
dissociation.
13. INDEMNIFICATION AND LIMITATION OF LIABILITY
13.1 Indemnity of the Members,Employees and Other Agents. The Company shall
indemnify, defend and hold harmless its Members, Managers, employees and other agents to the
fullest extent permitted by law, provided that such action in any given situation was taken in
accordance with this Agreement and applicable law.
13.2 Standard of Conduct for Managers. No Manager shall be liable to the
Company or to any Manager for any loss or damage sustained by the Company or any Manager,
unless the loss or damage shall have been the result of gross negligence or willful misconduct of the
Manager. The Managers of the Company shall not be liable to third parties for losses or damages for
conduct as a Manager except to the extent that the Act,as it now exists or may hereafter be amended,
prohibits elimination or limitation of Manager liability.
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14. DISSOLUTION
14.1 Events of Dissolution. The Company shall be dissolved and its business
wound up upon the earliest to occur of the following events:
(a) The Majority Vote of the Members; or
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(b) Upon an event of dissociation as set forth in Section 12.1(a)unless the
business of the Company is continued by a Majority Vote of the Members within ninety(90) j
days of the event of dissociation. If the Members do not approve the dissolution of the
Company, the continuation of the business of the Company shall be deemed to have been
approved by Majority Vote of the Members.
14.2 Liquidation Upon Dissolution and Winding Up. Upon the dissolution of the
Company,at least one Manager shall proceed to wind up the business of the Company in an orderly
manner, liquidating its assets, and satisfying the claims of its creditors, and the Manager(s) shall
take no action that is inconsistent with,or not necessary to or appropriate for,the winding up of the
Company's business and affairs. The Manager(s) shall be responsible for overseeing the winding up
and liquidation of the Company, shall take full account of the Company's liabilities and assets,shall
cause the assets to be liquidated as promptly as is consistent with obtaining the fair value thereof,and
shall cause the Net Liquidation Proceeds to be distributed in accordance with Section 9.3.
15. MISCELLANEOUS
15.1 Limitation of Liabilit . No Member,Manager,or Economic Interest holder,
shall be liable in any manner, solely by reason of being a Member, Manager or Economic Interest
holder, for any obligation or liability of the Company or for any acts or omissions of any other
Member,Manager,Economic Interest holder,agent or employee of the Company. The failure of the
Company to observe any formalities or requirements relating to the exercise of its powers or
management of its business or affairs under this Agreement or the Act shall not be grounds for
imposing personal liability on the Members,Managers or Economic Interest holders for obligations
or liabilities of the Company.
15.2 Notices. Any notice, consent, election or other communication required or
permitted under this Agreement shall be deemed given when personally delivered, sent by facsimile
transmission, deposited with an established overnight courier service (such as Fed Ex), or when
deposited in the United States Mail as first class certified or registered mail, postage prepaid;
provided,however, any notice sent by United States Mail to a person at a location outside the state
from which the notice is mailed shall not be deemed given until 72 hours after the date deposited in
the United States Mail, postage prepaid. Any party may change its notice address by notifying the
Company in writing prior to giving any notice hereunder.
15.3 Inte ram. This Agreement sets forth all(and is intended by all parties hereto
to be an integration of all)of the promises, agreements, conditions, understandings, warranties and
representations among the parties hereto with respect to the Company,the Company business and the
Property, and there are no promises, agreements, conditions, understandings, warranties or
representations,oral or written,express or implied,relating to the Company or the Property,except
as set forth herein.
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15.4 Severability. This Agreement is intended to be performed in accordance with,
and only to the extent permitted by, all applicable laws, ordinances, rules and regulations. If any
provision of this Agreement or the application thereof to any person or circumstance shall, for any
reason and to any extent, be invalid or unenforceable, the remainder of this Agreement and the
application of such provision to other persons or circumstances shall not be affected thereby, but
rather shall be enforced to the greatest extent permitted by law.
15.5 Application of Idaho Law. This Agreement, and the application or j
interpretation hereof,shall be governed exclusively by its terms and by the laws of the State of Idaho,
the Code and the Regulations.
15.6 Classification for Federal Income Tax Purposes. It is the intent of the
Members that the limited liability company hereby formed is to be taxed as a partnership for federal
income tax purposes. To this end, the Members have executed this Agreement with the
understanding that the provisions hereof will cause the Company to be classified as a partnership for
federal income tax purposes. Thus, all provisions hereof shall be interpreted consistent with this
intent and, if any provision, or provisions, hereof would cause the Company to be taxed as an
association taxable as a corporation for federal income tax purposes, said provision or provisions
shall be void and this Agreement shall be construed to contain provisions similar to said void
provision or provisions to the extent that said inclusion does not cause the Company to be taxed
other than as a partnership for federal income tax purposes.
15.7 Waivers. The failure of any party to seek redress for violation of or to insist �
upon the strict performance of any covenant or condition of this Agreement shall not prevent a
subsequent act, which would have originally constituted a violation, from having the effect of an
original violation. j
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15.8 Heirs Successors and Assigns. Each and all of the covenants, terms,
provisions, and agreements herein contained shall be binding upon and inure to the benefit of the
parties hereto and, to the extent permitted by this Agreement, their respective heirs, legal
representatives, successors, and assigns.
15.9 Creditors. None of the provisions of this Agreement shall be for the benefit of
or enforceable by any creditors of the Company.
15.10 Counternarts. This Agreement may be executed in several counterparts,each
of which shall be deemed an original,and the counterparts shall together constitute one and the same
agreement, notwithstanding the fact that all of the parties did not sign the same counterpart.
15.11 Captions. The headings and captions herein are inserted solely for the purpose
of convenience of reference and are not a part of and are not intended to govern, limit or aid in the
construction of any term or provision hereof.
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15.12 Amendment. Neither this Agreement nor the Articles of Organization for the
Company shall be altered or amended except by a Majority Vote of the Members, and which is
signed in writing by such Members.
15.13 Not an Employment Contract. This Agreement is not a contract of
employment and nothing herein shall be construed as changing the employment terms of any
Member with HSMI,or any Affiliate thereof from anything other than at-will unless expressly stated
otherwise by separate agreement.
15.13. Exhibits. All exhibits to this Agreement are hereby incorporated into the
Agreement by this reference.
[End of text; signatures to follow.]
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Signed effective as of the Effective Date.
gteviI
en mith Rebee B. Smith
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Exhibit „A"
Information Regarding Interest Holders
Date: March 22, 2004
The following are the names of the persons holding an Interest in the Company as of the date
hereof,their addresses,a description of their Capital Contributions,their Sharing Percentages and the
type of Interest each holds:
Description and Value of Shqdqg Interest
Name and Address Capital Contribution Percentages Designation
Steven C. Smith $100.00 50% Member
868 E. Clearvue Court
Eagle, ID 83616
Rebecca B. Smith $100.00 50% Member
868 E. Clearvue Court
Eagle, ID 83616
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