HomeMy WebLinkAboutL_Signing_Authority_Operating_Agreement_181001_v1OPERATING AGREEMENT
FOR
SSHI LLC,
A DELAWARE LIMITED LIABILITY CObIPANY
BPHPAI\I M6\0229673.06
07/23/97
TABLE OF CONTENTS
ARTICLE I DEFINITIONS ..........................................
1.1 Definitions .............................................
„Accountants" ...... ....................... I.............
"Act"...............................I......... _ .......
"Affiliate" ..............................................
"Agreement" ............................................
"Ancillary Agreements" ....................................
"Assignee" ..............................................
"Bankruptcy" ............................................
"Bankruptcy Event.' .......................................
'Book Withdrawal Amount .............................. I..
"Budget Period" ..........................................
"Business Day" ...........................................
"Business Plan" ..........................................
„Capital Account" ........................................
"Capital Contribution" .................................... .
"Certificate" ............................................ .
"Change in Control" .......................................
"Code ... .............................. I................
"Company" ...................... I......................
"Company Business"......................I................
"Company Minimum Gain" .................................
"Consent of the Membership Committee" ...................... .
"Consent of the Members" ................. I ................
"Contract" ..............................................
"Credit Agreement" .......................................
"Depreciation' .......................................... .
"Disposition" .................... I........................
"Economic Interest. ........................................
"Economic Risk of Loss" ..................................
"Employment Agreement" ..................................
"First Option . ...........................................
"Fiscal Year" ............................................
"Governmental Entity .................................... .
"Initial Budget Period" .................................... .
"Interested Party" ........................................ .
"Law" .................................................
"Losses" ............................................
"Material Adverse Effect" .. I .............................. .
"Member" .............................................. . ............
"Member Nonrecourse Debt" ............................... .
"Member Nonrecourse Debt Minimum Gain" ................... .
"Member Nonrecourse Deductions" ...........................
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TABLE OF CONTENTS
(continued)
"Membership Interest" .....................................
6
"Net Income" and 'Net Losses" ........................... I ..
6
"Nonrecourse Deductions" ........ I .........................
7
"Nonrecourse Liabilities" ...................................
7
'Parent Change of Control" .............. I ..................
7
"Participate" .................................... I.......
7
'Percentage Interest" ......................................
7
'Permitted Direct Disposition" ...............................
7
"Person" ...............................................
8
"Regulations".................I..........................
8
"Representative" .........................................
8
"Subsidiary" .............................................
8
"Total Percentage Interests" ......................... I .. I ....
8
"Transfer".............................................1
8
1.2
Other Definitions ........................................
8
ARTICLE
II ORGANIZATIONAL MATTERS ............................
9
2.1
Formation ..............................................
9
2.2
Name ................................................
10
2.3
Term .................................................
10
2.4
Office and Agent ........................................
10
2.5
Addresses of the Members; Representatives ....................
10
2.6
Purpose and Business of the Company ........................
10
2.7
Company Property .................... I ..................
11
2.8
Execution of Documents ..................................
11
2.9
Principal Place of Business ................................
11
2.10
Admission of Additional Members ...........................
11
2.11
Powers ...............................................
11
ARTICLE
III CAPITAL CONTRIBUTIONS ........................
12
3.1
Initial Capital Contributions ...............................
12
3.2
Additional Capital Contributions ............................
12
3.3
Voluntary Capital Contributions ............................
12
3.4
In Kind Capital Contributions ..............................
12
3.5
Capital Accounts ........................................
12
3.6
General Rules Relating to Capital of the Company ..............
13
ARTICLE
IV MEMBERS ......................................
13
4.1
Limited Liability ........................................
13
4.2
Admission of Additional Members ...........................
14
4.3
Other Activities .........................................
14
4.4
Duty of Members to Cooperate .............................
16
4.5
Enforcement of Company Rights ............................
16
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TABLE OF CONTENTS
(continued)
4.6 Certain Covenants of the Members .......................... 17
ARTICLE V MANAGEMENT AND CONTROL OF THE COMPANY ... 17
5.1
Management Vested in Members ............................
17
5.2
Membership Committee ..................................
17
5.3
Representatives; Interested, Defaulting and Withdrawing Parties ....
18
(a) Number; Qualifications; Etc ...........................
18
(b) Resignation .......................................
18
(c) Removal .........................................
18
(d) Vacancies ........................................
18
5.4
Interested and Withdrawing Parties ..........................
19
5.5
Powers of the Membership Committee. .. I ....................
19
(a) Powers of the Membership Committee ..................
19
(b) Limitations on Power of the Membership Committee ......
19
(d) Action Required by Membership Committee ..............
21
5.6
Meetings of the Membership Committee ..............:.......
21
(a) Date, Time and Place of Meetings of the Membership
Committee .......................................
21
(b) Power to Call Meetings ..............................
21
(c) Notice of Meeting ..................................
21
(d) Manner of Giving Notice; Affidavit of Notice .............
21
(e) Quorum; Consent ..................................
22
(f) Adjourned Meeting; Notice ...........................
22
(g) Waiver of Notice or Consent ..........................
22
(h) Action by Written Consent without a Meeting .............
22
(i) Telephonic Participation by Representatives at Meetings .....
22
5.7
Officers and Employees ...................................
23
(a) Appointment of Officers .............................
23
(b) Removal, Resignation and Filling of Vacancy of Officers .....
23
(c) Salaries of Officers .................................
23
(d) Election, Duties and Powers of the Chief Executive Officer ...
23
ARTICLE VI ALLOCATIONS OF NET INCOME AND NET LOSSES
AND
DISTRIBUTIONS .......................................
25
6.1 Allocations of Net Income and Net Losses .....................
25
(a) Allocations of Net Income Prior to the Exercise of the First
Option..........................................
25
(b) Allocations of Net Losses Prior to the Exercise of the First
Option..........................................
26
(e) Allocations of Net Losses After the Exercise of the First
Option..........................................
26
6.2 Special Allocations ......................................
26
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TABLE OF CONTENTS
(continued)
(a) Minimum Gain Chargeback ..........................
26
(b) Member Nonrecourse Debt Minimum Gain Chargeback .....
26
(c) Nonrecourse Deductions .............................
27
(d) Member Nonrecourse Deductions ......................
27
(e) Certain Section 754 Adjustment .......................
27
(f) Curative Allocations ................................
27
(g) Allocations Relating to Issuance of Company Interests .......
27
6.3
Allocation of Certain Tax Items .............................
28
6.4
Allocation Between Assignor and Assignee ....................
28
6.5
Tax Reporting ..........................................
28
6.6
Shares of Nonrecourse Liabilities ............................
29
6.7
Distributions by the Company ..............................
29
(a) ...............................................
29
(b)...............................................
29
6.8
Form of Distribution .....................................
29
6.9
Restriction on Distribution ................................
29
6.10
Return of Distributions ...................................
30
ARTICLE VII BUSINESS PLAN AND BUDGET .........................
30
7.1
Initial Business Plan .....................................
30
7.2
Approval of Proposed Business Plan .........................
30
ARTICLE VII WITHDRAWAL AND WRONGFUL WITHDRAWAL .........
31
8.1
Withdrawal of Members ..................................
31
8.2
Optional Withdrawal .....................................
32
ARTICLE IX TRANSFER OF MEMBERS' INTERESTS ..............
33
9.1
Transfer of Interests by the Members ........................
33
9.2
Transfers to Affiliates ....................................
33
9.3
Additional Provisions Relating to Dispositions ..................
33
9.4
Effect of Permitted Direct Dispositions .......................
34
9.5
Effect of Prohibited Dispositions ............................
35
9.6
Status of a Transferee of an Interest; Distributions ...............
35
ARTICLE X
DISSOLUTION, LIQUIDATION AND TERMINATION
OF THE COMPANY ....................................
35
10.1
Events Causing Dissolution ................................
35
10.2
Liquidation ............................................
36
10.3
Purchase of Assets of the Company by Members upon Winding Up ..
37,
ARTICLE XI
CONFIDENTIALITY ...............................
38
11.1
Confidentiality ..........................................
38
11.2
Permitted Disclosures ....................................
38
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TABLE OF CONTENTS
(continued)
11.3 Press Releases .......................................... 39
11.4 Use of Confidential Information ............................ 39
11.5 Survival of Covenants ........................... I ........ 39
11.6 Intent; Severability...................................... 39
11.7 Injunctive Relief ........................................ 39
ARTICLE XII BOOKS AND RECORDS; ACCOUNTING; TAX ELECTIONS;
ETC.......................................................
40
12.1
Accounting; Fiscal Year ...................................
40
12.2
Reports ...............................................
40
12.3
Books and Records ......................................
41
12.4
Audit Rights ...........................................
41
12.5
Bank Accounts .........................................
41
12.6
Tax Policy; Tax Returns ..................................
41
12.7
Taxable Year ..........................................
43
12.8
Tax Elections and Other Tax -Related Transactions ..............
43
12.9
Tax Matters Member .....................................
43
12.10
Tax Proceedings ........................................
43
12.11
Entity Classification for Federal Income Tax Purposes ............
44
ARTICLE XIII EXCULPATION AND INDEMNIFICATION ................
44
13.1
Limitation of Liability ....................................
44
13.2
Indemnification of Members and Representatives ...............
44
13.3
Right to Advances .......................................
44
13.4
Indemnification Not Exclusive Remedy .......................
44
13.5
No Limit ..............................................
45
13.6
Indemnification of Officers and Agents .......................
45
ARTICLE XIV MISCELLANEOUS ...................................
45
14.1
Complete Agreement ....................................
45
14.2
Binding Effect ..........................................
45
14.3
Parties in Interest .......................................
45
14.4
Pronouns; Statutory References .............................
45
14.5
I-Ieadings..............................................
45
14.6
Interpretation ..........................................
45
14.7
References to this Agreement ..............................
46
14.8
Jurisdiction ............................................
46
14.9
Arbitration ............................................
46
14.10
Exhibits and Schedules ...................................
46
14.11
Severability............................................
46
14.12
Additional Documents and Acts .............................
46
14.13
Notices ...............................................
46
14A4
Multiple Counterparts ....................................
47
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TABLE OF CONTENTS
(continued)
14.15 Attorneys' Fees ......................................... 47
14.16 Remedies Cumulative .................................... 47
14.17 Amendments ........................................... 47
14.18 Applicable Law ......................................... 47
14.19 Waiver ............................................... 47
BPHPAI\TM6\0229673.06
07/23/97 vi
TABLE OF CONTENTS
(continued)
EXHIBITS
EXHIBIT A CONTRIBUTION AGREEMENT
EXHIBIT B INTEREST PURCHASE AGREEMENT
EXHIBIT C GUARANTY AND SUBORDINATION AGREEMENT
EXHIBIT D ESCROW AGREEMENT
EXHIBIT E CONTRIBUTED ASSETS, LIABILITIES AND STOCKHOLDERS
EQUITY OF MEMBERS
EXHIBIT F INITIAL BUSINESS PLAN
EXHIBIT G CAPITAL CONTRIBUTIONS AND PERCENTAGE INTERESTS OF
MEMBERS; ADDRESSES OF MEMBERS AND REPRESENTATIVES
EXHIBIT H OPTION AGREEMENT
BPHPAI\IM6\0229673.06
07/23/97 vii
OPERATING AGREEMENT
FOR
SSHI LLC,
A DELAWARE LIMITED LIABILITY COMPANY
This Limited Liability Company Operating Agreement (this "Agreement") is made
as of July 31, 1997, by and among the parties listed on the signature pages hereof, with
reference to the following facts:
A. A certificate of formation for SSHI LLC (the "Company"), a limited
liability company organized under the laws of the State of Delaware, has been filed with
the Delaware Secretary of State.
B. On the date hereof, Stafford Construction, Inc. ('Stafford"), Brien Stafford
and the Company have entered into that certain Contribution Agreement (in the form
attached hereto as Exhibit A) (the "Contribution Agreement") pursuant to which Stafford
has contributed the Assets described therein to the Company, in exchange for a
Membership Interest in the Company.
C. On the date hereof, Schuler Homes, Inc. ('Schuler Parent"), SHLR of
Washington, Inc., a subsidiary of Schuler Parent ('Schuler Sub"), Stafford and Brien
Stafford have entered into an Interest Purchase Agreement (in the form attached as
Exhibit B hereto) (the "Interest Purchase Agreement") pursuant to which, among other
things, Schuler Sub has purchased a Membership Interest in the Company from Stafford.
D. On the date hereof, Stafford and Brien Stafford have entered into a
Guaranty and Subordination Agreement (in the form attached hereto as Exhibit C
hereto) (the "Guaranty Agreement") and an Escrow Agreement (in the form attached
hereto as Exhibit D) (the 'Escrow Agreement"), each for the benefit of Schuler Parent
and Schuler Sub.
E. As of the date hereof, Stafford's Percentage Interest in the Company is
51% and the Percentage Interest of Schuler Sub in the Company is 49%.
F. The parties now desire to adopt and approve an operating agreement for
the Company and to provide for the option to purchase by Schuler Sub of additional
Percentage Interests in the Company from Stafford.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements and representations set forth herein, and intending to be legally bound, the
parties by this Agreement set forth the operating agreement for the Company under the
laws of the State of Delaware upon the terms and subject to the conditions of this
Agreement.
BPHPAI\1M6A0229673.06
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ARTICLE I
DEFINITIONS
1.1 Definitions. When used in this Agreement, the following terms shall have
the meanings set forth below, except as otherwise specifically modified herein:
"Accountants" shall mean the firm of nationally recognized independent
public accountants designated as provided in this Agreement to audit the books and
records of the Company.
"Act" shall mean the Delaware Limited Liability Company Act, Title 6
Del. C. § 18-101, et sec., as the same may be amended from time to time.
"Affiliate" shall mean, as to any Person, any other Person which, directly or
indirectly, through one or more intermediaries, controls, is controlled by, or is under
common control with, such Person. For purposes of this definition, the term "control"
(including, with its correlative meanings, "controlled by" and "under common control
with") means possession, directly or indirectly, of the power to direct or cause the
direction of management and policies of such Person (whether through beneficial
ownership of securities, or partnership or other ownership interests, by Contract or
otherwise); provided that each director or officer of a Member shall be deemed to be. an
Affiliate of such Member.
"Agreement" shall mean this Operating Agreement, as the same may
hereafter from time to time be amended, modified, supplemented, renewed or replaced.
"Ancillary Agreements" shall mean the Contribution Agreement, the
Interest Purchase Agreement, the Escrow Agreement, the Option Agreement, the
Guaranty Agreement, the Employment Agreement and the Credit Agreement, as the
same may hereafter from time to time be amended, modified, supplemented, renewed or
replaced.
"Assignee" shall mean the owner of an Economic Interest.
"Bankruptcy" or "Bankruptcy Event" shall mean, with respect to a Person,
that such Person (i) is dissolved; (ii) becomes insolvent or fails or is unable or admits in
writing its inability generally to pay its debts as they become due; (iii) makes a general
assignment, arrangement or composition with or for the benefit of its creditors;
(iv) institutes or has instituted against it a proceeding seeking a judgment of insolvency
or bankruptcy or any other relief under any bankruptcy or insolvency law or other similar
law affecting creditors' rights, or a petition is presented for the winding -up or liquidation
of such Person, and, in the case of any such proceeding or petition instituted or
presented against it, such proceeding or petition (A) results in a judgment of insolvency
or bankruptcy or the entry of an order for relief or the making of an order for the
winding -up or liquidation of such Person or (B) is not dismissed, discharged, stayed or
6PHPA1\TM6\0229673.06 2
07/23/97
restrained in each case within ninety (90) days of the institution or presentation thereof;
(v) has a resolution passed for its winding -up or liquidation; (vi) seeks or becomes
subject to the appointment of an administrator, receiver, trustee, custodian or other
similar official for it or for all or substantially all its assets (regardless of how brief such
appointment may be, or whether any obligations are promptly assumed by another entity
or whether any event described in this clause (vi) has occurred and is continuing); (vii) is
the subject of any event which, under the applicable laws of any jurisdiction, has an
analogous effect to any of the events specified in clauses (i) through (vi) (inclusive) of
this definition; or (viii) takes any action in furtherance of, or indicating its consent to,
approval of, or acquiescence in, any of the foregoing acts.
"Book Value" means, with respect to any asset, the asset's adjusted basis for
federal income tax purposes, except as follows:
G) The initial Book Value of any asset contributed by a Member
to the Company shall be the gross value of such asset (not reduced by any associated
liabilities), as agreed to by the contributing Member and the other Members, provided
that notwithstanding the foregoing, the initial Book Value of the assets contributed by
Stafford to the Company shall be as set forth in Exhibit E attached hereto;
(ii) The Book Value of the property of the Company shall be
adjusted to equal its gross fair market value, as determined by the Members, as of the
following times: (a) the acquisition of an additional Membership Interest by any new or
existing Member in exchange for more than a de minimis Capital Contribution; (b) the
distribution by the Company to a Member of more than a de minimis amount of
property as consideration for a Membership Interest; and (c) the liquidation of the
Company within the meaning of Regulations Section 1.704-1(b)(2)(ii)(q).
The Book Value of any property which has been established or adjusted to reflect gross
fair market value hereunder shall thereafter be adjusted by the Depreciation taken into
account with respect to such asset for purposes of computing Net Income or Net Loss.
"Book Withdrawal Amount" shall mean with respect to any Member an
amount equal to the positive balance, if any, in such Member's capital account,
determined in accordance with generally accepted accounting principles consistently
applied, by reference to the audited balance sheet of the Company as of the fiscal
quarter immediately preceding the date of the Option Withdrawal Notice.
"Budget Period" shall mean the Initial Budget Period and the subsequent
one-year periods ending each succeeding December 31.
"Business Day" shall mean any day except Saturday, Sunday or any day on
which banks in New York City are permitted to be closed.
"Business Plan" shall mean the capital and operating budget and business
plan of the Company for any Budget Period addressing the items set forth in
BPI IPA1 \TM6 \0229673.06 307/23/97
Section 7.2(b), prepared by the management of the Company and approved by the
Membership Committee in accordance with Section 5.5(b), including all amendments,
modifications and revisions thereto, each approved in accordance with Section 5.5(b).
The initial Business Plan is attached hereto as Exhibit F.
"Capital Account" shall mean, with respect to any Member, the capital
account which the Company establishes and maintains for such Member pursuant to
Article III.
"Capital Contribution" shall mean the total amount of cash and the agreed
upon value of other property contributed by a Member to the Company (net of any
liabilities secured by the property or to which the property is subject).
"Certificate" shall mean the certificate of formation for the Company
originally filed with the Delaware Secretary of State, as such may be amended from time
to time in accordance with the terms hereof.
"Change in Control" shall mean with respect to a Member, any of such
Member's Membership Interest not being owned, directly or indirectly, by one or more
of such Member's Affiliates, as constituted as of the date hereof. A Parent Change of
Control shall not be deemed a Change in Control.
"Code" shall mean the Internal Revenue Code of 1986, or any successor
statute, as amended from time to time, the provisions of succeeding law, and to the
extent applicable, the Regulations.
"Company" shall mean SSHI LLC, a Delaware limited liability company.
"Company Business" shall mean the business of the Company as described
in Section 2.6 hereof, as such section may be amended from time to time in accordance
with the terms hereof.
"Company Minimum Gain" with respect to any year shall mean the
"partnership minimum gain" computed in accordance with the principles of Section 1.704-
2(d)(1) of the Regulations.
"Consent of the Membership Committee" shall mean (i) until the exercise
of the First Option, the consent of each of at least one Representative designated by
Schuler Sub and one Representative designated by Stafford; and (ii) after the exercise of
the First Option, the consent of those Representatives representing a majority of the
Total Percentage Interests.
"Consent of the Members" shall mean (i) until the exercise of the First
Option, the consent of both Schuler Sub and Stafford; and (ii) after the exercise of the
First Option, Members representing a majority of the Total Percentage Interests.
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"Contract" shall mean any oral or written agreement, contract,
understanding, commitment or arrangement, including, without limitation, leases, licenses
and guarantees.
"Credit Agreement" shall mean that certain Credit Agreement dated as of
August 1, 1997 between the Company and Schuler Sub.
"Depreciation" shall mean, for each Taxable Year or other period, an
amount equal to the depreciation, amortization, or other cost recovery deduction
allowable for federal income tax purposes with respect to an asset for such year or other
period, except that if the Book Value of any asset differs from its adjusted basis for
federal income tax purposes at the beginning of such year or other period, Depreciation
shall be an amount which bears the same ratio to such beginning Book Value as the
federal income tax depreciation, amortization, or other cost recovery deduction for such
year or other period bears to such beginning adjusted tax basis, provided, however, that
if the federal income tax depreciation, amortization, or other cost recovery deduction for
such year is zero, Depreciation shall be determined with reference to such beginning
Book Value using any reasonable method selected by the Tax Matters Member.
"Disposition" shall mean any sale, assignment, alienation, gift, exchange,
conveyance, pledge, hypothecation, disposition or other transfer of whatsoever nature
attempted, or encumbrance or other transfer (regardless of form and whether voluntary,
involuntary, by operation of law or otherwise).
"Economic Interest" shall mean the right to receive distributions of the
Company's assets and allocations of income, gain, loss, deduction, credit and similar
items from the Company pursuant to this Agreement and the Act, but shall not include
any other rights of a Member, including, without limitation, the right to vote or
participate in the management of the Company, or any right to information concerning
the business and affairs of the Company.
"Economic Risk of Loss" shall have the meaning provided in
Sections 1.704-2(b)(4) and 1.752-2 of the Regulations.
"Employment Agreement" shall mean that certain Employment Agreement
dated as of August 1, 1997 between the Company and Brien Stafford.
"First Option" shall have the meaning set forth in the Option Agreement
attached hereto as Exhibit H.
"Fiscal Year" shall mean the Company's fiscal year as set forth in
Section 12.1.
"Governmental Entity" shall mean any agency, bureau, board, commission,
court, department, official, political subdivision, tribunal, or other instrumentality of any
government, whether federal, state, or local, domestic or foreign.
BPHPAI\TM6\0229673.06 5
07/23/97
"Initial Budget Period" shall mean the period commencing on the date of
this Agreement and ending December 31, 1999.
"Interested Party" shall mean a Member in circumstances where such
Member or an Affiliate thereof is a party to a proposed Contract with the Company and
such Contract is the subject of or related to the matter being voted upon by the
Members or the Representatives, as the case may be.
"Law" shall mean any law, statute, ordinance, rule, regulation, decision,
order, judgment or decree of any Governmental Entity.
"Losses" means all losses, liabilities, damages and claims (including taxes),
and all costs and expenses related thereto (including any and all reasonable attorneys',
accountants' and expert witness fees and costs of investigation, litigation, settlement,
judgment, interest and penalties). The term "Losses" is not limited to matters asserted
by third parties against a Person but includes Losses incurred or sustained by such
Person in the absence of third party claims.
"Material Adverse Effect" shall mean a material and adverse effect on the
business, properties, financial condition or operations of a Member.
"Member" shall mean each Person who executes this Agreement or That,
may hereafter become a Member by executing a counterpart to this Agreement, and has
not ceased to be a Member in accordance with Article VIII or Article IX or for any
other reason.
"Member Nonrecourse Debt" shall mean liabilities of the Company treated
as "partner nonrecourse debt" under Section 1.704-2(b)(4) of the Regulations.
"Member Nonrecourse Debt Minimum Gain" shall mean an amount of gain
characterized as "partner nonrecourse debt minimum gain" under Sections 1.704-2(i)(2)
and 1.704-2(i)(3) of the Regulations.
"Member Nonrecourse Deductions" in any year shall mean Company
deductions that are characterized as "partner nonrecourse deductions" under Sections
1.704-2(i)(1) and 1.704-2(i)(2) of the Regulations.
"Membership Interest" shall mean a Member's entire interest in the
Company, including Economic Interest, the right to vote on or participate in the
management, and the right to receive information concerning the business and affairs of
the Company.
"Net Income" and "Net Losses" mean, for each Taxable Year (or the
appropriate portion of a Taxable Year in the case of changes in the Economic Interests
of the Members and Assignees) the amount, computed as of the last day thereof, of the
net income or loss of the Company determined in accordance with federal income tax
HPHPA1\TM6\0229673.06 6
07/23/97
principles (but without requiring any items to be stated separately pursuant to Code
Section 703), with the following adjustments:
(a) Any income of the Company that is exempt from federal
income tax shall be included in the computation of Net Income or Net Loss;
(b) Any expenditures of the Company described in Code
Section 705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures pursuant to
Regulations Section 1.704-1(b)(2)(iv)(1) shall be included in the computation of Net
Income or Net Loss;
(c) Any adjustment in the Book Value of Company Property in
accordance with this Agreement shall be taken into account as gain or loss from the
disposition of such property for purposes of computing Net Income or Net Loss (to the
extent such adjustment is not already reflected in the Capital Accounts of the Members);
and
(d) In any situation in which an item of income, gain, loss or
deduction is affected by the adjusted basis of property, the Book Value of the property
shall be used in lieu of adjusted basis.
"Nonrecourse Deductions" in any year shall mean the Company deductions
that are characterized as "nonrecourse deductions" under Sections 1.704-2(b)(1) and
1.704-2(c) of the Regulations.
"Nonrecourse Liabilities" shall mean liabilities of the Company treated as
"nonrecourse liabilities" under Sections 1.704-2(b)(3) and 1.752-1(a)(2) of the
Regulations.
"Parent Change of Control" with respect to Schuler Parent shall be deemed
to occur if a Person acquires a Controlling Interest in the Schuler Parent or there is an
Other Change of Control Transaction with respect to Schuler Parent. A "Controlling
Interest" means beneficial ownership of securities representing thirty percent (30%) or
more of the total voting power of and equity interest in Schuler Parent. An Other
Change of Control Transaction with respect to Schuler Parent shall mean (a) any merger
or consolidation with a Person as a result of which the holders of the voting stock of
Schuler Parent before the effective time of such transaction hold less than seventy
percent (70%) of the voting stock of the Person which survives the transaction, or (b) the
acquisition of assets or interests in assets constituting thirty percent (300/0) or more
(determined on a fair market value basis) of the assets of Schuler Parent by another
Person.
"Participate" shall mean to manage, acquire, invest in, own, control, hold
any legal or beneficial interest in any capital stock, securities or other equity or
ownership interest, and/or otherwise operate pursuant to any Contract or transaction, or
through any form of direct or indirect ownership or control structure. The provision of
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goods and services other than overall management or operation of any entity shall not
constitute Participation.
"Percentage Interest" shall mean the percentage interest of a Member in
the Company set forth opposite the name of such Member under the column "Member's
Percentage Interest" in Exhibit G hereto, as such percentage may be adjusted from time
to time pursuant to the terms of this Agreement.
"Permitted Direct Disposition" shall mean a Disposition of a Membership
Interest in accordance with Article IX hereof.
"Person" shall mean an individual, partnership, limited partnership, limited
liability company, corporation, trust, estate, association or any other entity.
"Regulations" shall, unless the context clearly indicates otherwise, mean the
income tax regulations (including final, temporary and proposed) that have been issued
by the U.S. Department of Treasury pursuant to its authority under the Code, and any
successor regulations.
"Representative" shall mean a representative designated by a Member to
serve or, the Membership Committee pursuant to Section 5.3 hereof.
"Subsidiary" means, with respect to any Person, any corporation,
partnership, limited viability company, association, joint venture or other business entity
of which more than fifty percent (50%) of the total voting power of shares of stock or
other ownership interests entitled (without regard to the occurrence of any contingency)
to vote in the election of the Person or Persons (whether directors, managers, trustees or
other Persons performing similar functions) having the power to direct or cause the
direction of the management and policies thereof is owned or controlled, directly or
indirectly, by that Person.
"Total Percentage Interests" means the sum of the Percentage Interests of
each Member.
"Transfer" shall mean to make or cause a Disposition.
1.2 Other Definitions.
Definition
"Applicable Budget Period"
"Change in Control Notice"
"Change of Control Violation"
"Company"
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Section
7.2(a)
9.7
9.1
Intro
Definition
Section
"Company Property"
2.7
"Confidential Information"
11.1
"Contribution Agreement"
Intro
Escrow Agreement
Intro
Guaranteed Return
6.1
Guaranty Agreement
Intro
"Initial Business Plan"
7.1
"Interest Purchase Agreement"
Intro
"Membership Committee"
5.2
"Omitted Distributions"
9.5
"Optional Withdrawal Event"
8.2(a) and (b)
"Optional Withdrawal Notice"
8.2(c)
"Proposed Business Plan"
7.2(a)
'Restricted Party' or 'Restricted Parties"
11.1
"Schuler Parent"
Intro
"Schuler Sub"
Intro
"Stafford"
Intro
"Tax Dispute Accountant"
12.6(c)
"Tax Matters Member"
12.9
"Tax Proceedings"
12.10
"Taxable Year"
12.7
"Transferee Member"
9.3(b)
"Transferor Member"
9.3(a)
"Withdrawing Member"
8.2(b)
ARTICLE II
ORGANIZATIONAL MATTERS
2.1 Formation. The Members have formed a Delaware limited liability
company under the laws of the State of Delaware by filing the Certificate with the
Delaware Secretary of State. In consideration of the mutual covenants herein contained
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and for other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the Members executing this Agreement hereby agree to the terms and
conditions of this Agreement, as it may be amended from time to time. It is the express
intention of the Members that this Agreement and the Ancillary Agreements shall be the sole
statement of agreement among them with regard to the subject matter hereof and thereof, and
shall supersede all other agreements between them relating to such subject matter. The rights
and liabilities of the Members shall be determined pursuant to the Act, this Agreement and
the Ancillary Agreements. To the extent that the rights or obligations of any Member are
different as between the Act and this Agreement by reason of any provision of this
Agreement than they would be in the absence of such provision, this Agreement shall, to the
extent permitted by the Act, control.
2.2 Name. The name of the Company shall be "SSHI LLC." The business of the
Company may be conducted under that name or, upon compliance with applicable laws, any
other name that the Membership Committee deems appropriate or advisable.
2.3 Term. The Company shall commence business on the date hereof and shall
continue until thirty (30) years from the date hereof, unless extended or sooner terminated as
hereinafter provided. None of the Members shall have the right to, and each Member hereby
agrees that it shall not: (a) withdraw from the Company except in accordance with the terms
of this Agreement; or (b) dissolve, terminate or liquidate, or petition a court for the
dissolution, termination or liquidation of, the Company except as otherwise expressly
provided for in this Agreement. None of the Members shall have the right, on behalf of the
Company, to petition any court, or to take any other action, to subject the Company's assets
or any part thereof to the authority of any Governmental Entity in connection with a
Bankruptcy with respect to the Company except in connection with the dissolution of the
Company in accordance with the terms of this Agreement.
2.4 Office and Agent. The Company shall continuously maintain a registered
office and a registered agent for service of process in the State of Delaware. The initial
principal office of the Company shall be at the office of its registered agent at c/o The
Corporation Service Company, 1013 Centre Road, Wilmington, New Castle County,
Delaware 19805. The Company may also have such offices, anywhere within and without
the State of Delaware, as the Membership Committee may determine from time to time. The
registered agent shall be as stated in the Certificate or as otherwise determined by the
Membership Committee. The Membership Committee may select one or more Persons to act
as agent for service of process on the Company, including without limitation any Member,
with such Member's consent.
2.5 Addresses of the Members: Representatives. The respective addresses of the
Members and the initial Representatives are set forth on Exhibit G. A Member or
Representative may change its address upon notice thereof to the Company in accordance
with the terms of this Agreement. The initial Members of the Company are
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Stafford and Schuler Sub. The initial Representatives of the Company shall be the
representatives of the initial Members in accordance with Section 5.2.
2.6 Purpose and Business of the Company. The purposes and business of the
Company shall be:
(a) to build and sell for sale residential properties in the State of
Washington;
(b) subject to Article V, to negotiate, enter into and perform Contracts
with third parties in furtherance of the foregoing activities;
(c) subject to Article V, to negotiate, enter into and perform any
partnership, joint venture, alliance, or other similar arrangement to engage in any of the
foregoing activities; and
(d) to engage in such other activities directly related to and in
furtherance of the foregoing activities as may be necessary, advisable or appropriate, in
the opinion of the Membership Committee.
2.7 Company Property. All assets owned by the Company, including intangible
assets ('Company Property"), shall be held and recorded in the name of the Company
(except to the extent otherwise required under any applicable Law, in which case the
property or assets subject to such Law shall be held on behalf and for the account and
benefit of the Company and all of the Members as shall be determined by the
Membership Committee). All Company Property shall be deemed to be owned by the
Company as an entity. A Member's Membership Interest shall be personal property for
all purposes.
2.8 Execution of Documents. The Certificate has been filed with the office of
the Secretary of State of the State of Delaware. The Members shall execute,
acknowledge, file, record or deliver all certificates, instruments or other documents and
counterparts thereof, in accordance with applicable Law, and make all filings and
recordings and perform all other acts as shall be necessary to comply with the laws of the
State of Delaware for the continued ability of the Company to engage in its business
and, when appropriate, for the termination of the Company. The Members shall also
execute such certificates and other documents and do such recording, publishing and
other acts as may be appropriate to comply with the requirements of Law for the
formation, reformation, qualification and operation of a limited liability company in all
jurisdictions where the Company may wish to do business, if deemed necessary by the
Membership Committee.
2.9 Principal Place of Business. The principal place of business of the
Company shall be at such place or places as the Membership Committee may establish
from time to time. Initially, the principal place of business will be 16016 118th Place
NE, Bothell, WA 98011.
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2.10 Admission of Additional Members. No Person shall be admitted as, or
shall become, a Member after the date hereof except in accordance with the provisions
of Section 4.2 or Article IX.
2.11 Powers.
(a) In furtherance of the foregoing purposes in Section 2.6, subject to
the provisions of this Agreement, the Company shall have the power to take any action
or incur any obligation in connection with, or to facilitate and support the purposes of,
the Company.
(b) Subject to Article V, the Company has the power to employ such
employees and agents as may be appropriate for the conduct of the business of the
Company. Such employees and agents of the Company may be designated as officers of
the Company with such titles, duties and authorities as the Members, acting through the
Membership Committee, shall designate and who in their capacity as such officers may
act for and on behalf of the Company, as and to the extent authorized by the Members,
the Membership Committee or this Agreement.
ARTICLE III
CAPITAL CONTRIBUTIONS
3.1 Initial Capital Contributions.
On the date hereof, Stafford has contributed to the Company the property
described in Exhibit E hereto, free and clear of any liens, encumbrances or other claims,
other than those set forth on Exhibit E. The Book Value of such contributed assets is
the value of such assets as set forth on Exhibit E, subject to any adjustment described in
Section 4.2 of the Interest Purchase Agreement. On the date hereof, Schuler Sub has
purchased from Stafford and Brien Stafford a Membership Interest representing 491Y0 of
the Company for $2,979,779. Of such $2,979,779, $2,579,779 has been paid directly to
Stafford and Brien Stafford and $400,000 has been deposited in an escrow account
pursuant to the Escrow Agreement, to be released in accordance with the terms of the
Escrow Agreement. Exhibit G sets forth the Capital Contributions and Percentage
Interests of the Members. Exhibit G shall be revised to reflect any additional Capital
Contributions made in accordance with this Article III or the admission of additional
Members.
3.2 Additional Capital Contributions. No Member shall be permitted to make
any additional Capital Contribution to the capital of the Company without the Consent
of the Membership Committee. No Member shall be required to make any additional
Capital Contribution to the capital of the Company.
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3.3 Voluntary Capital Contributions, No Member shall be entitled or
otherwise have the right to make any voluntary contributions to the capital of the
Company without the Consent of the Membership Committee.
3.4 In Kind Capital Contributions. There shall be no contributions to the
capital of the Company other than in cash without the Consent of the Membership
Committee.
3.5 Capital Accounts. (a) The Company shall establish and maintain an
individual Capital Account for each Member. The initial Capital Accounts of Schuler
Sub and Stafford shall be 49% and 51%, respectively, of the Stockholder's Equity of
Stafford as set forth on Exhibit E (the unaudited balance sheet of Stafford as of June 30,
1997, subject to any adjustment described in Section 4.2 of the Interest Purchase
Agreement). Such Member's Capital Account shall from time to time be (i) increased
by (A) the amount of cash and the Book Value of any property contributed by the
Member to the Company (net of liabilities secured by the property or to which the
property is subject) in accordance with this Article III, (B) the Net Income and any other
items of income and gain allocated to the Member under Article VI, and (C) any other
amounts required by Regulations Section 1.704-1(b) provided that such increase is
consistent with the economic arrangement among the Members as expressed in this
Agreement, and (ii) decreased by (A) the amount of cash and the Book Value of any
property distributed to the Member by the Company (net of liabilities secured by the
property or to which the property is subject) (B) the Net Losses and any other items of
deduction and loss allocated to the Member und(-,r Article VI. and (C) any other
amounts required by Regulations Section 1.704-1(b) provided that such decrease is
consistent with the economic arrangement among the Members as expressed in this
Agreement.
(b) For purposes of this Section 3.5, an assumption of a Member's
unsecured liability by the Company shall be treated as a distribution of money to that
Member. An assumption of the Company's unsecured liability by a Member shall be
treated as a cash contribution to the Company by that Member.
(c) In the event that assets of the Company other than money are
distributed to a Member in liquidation of the Company, or in the event that assets of the
Company other than money are distributed to a Member in kind, in order to reflect
unrealized gain or loss, the Capital Accounts of the Members shall be adjusted for the
hypothetical "book" gain or loss that would have been realized by the Company if the
distributed assets had been sold for their fair market value in a cash sale. In the event
of the liquidation of a Member's interest in the Company, in order to reflect unrealized
gain or loss, the Capital Accounts of the Members shall be adjusted for the hypothetical
"book" gain or loss that would have been realized by the Company if all Company assets
had been sold for their fair market value in a cash sale. The Capital Accounts shall also
be adjusted upon the constructive termination of the Company as provided under Section
708 of the Code as required by Section 1.704-1(b)(1)(iv)(1) of the Regulations.
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3.6 General Rules Relatingto o Capital of the Company.
(a) Except as set forth in any Ancillary Agreement, no Member shall be
personally liable for the return of Capital Contributions of the Members, or any portion
thereof; it being expressly understood that, except as set forth in any Ancillary
Agreement, such return of Capital Contributions, if any, shall be made solely from
Company assets.
(b) No Member shall be entitled to receive any interest on or in respect
of its Capital Contributions.
(c) No Member shall be entitled to withdraw all or any part of its
Capital Contributions except (a) with the consent of all of the Members, (b) upon a
withdrawal by a Member from the Company in accordance with Article VIII, or (c) in
connection with the dissolution of the Company in accordance with the provisions of
Article X. No unrepaid contribution of capital shall be deemed or otherwise considered
to be a liability of the Company or of any Member, except as set forth in any Ancillary
Agreement.
ARTICLE IV
MEMBERS
4.1 Limited Liability. Except as expressly set forth in this Agreement and ally
Ancillary Agreement or as otherwise provided under the Act, no Member or
Representative shall be personally liable for any debt, obligation or liability of the
Company, whether that liability or obligation arises in contract, tort, or otherwise, solely
by reason of being a Member or Representative.
4.2 Admission of Additional Members.
(a) Upon the consent of all of the Members, the Company may admit
additional Members, from time to time; provided, however, that (i) the additional
Member shall make a Capital Contribution in such amount and on such terms as are
approved by the consent of all of the Members; (ii) no additional Member shall be
admitted if the effect of such admission would be to terminate the Company within the
meaning of Code Section 708(b); and (iii) the additional Member shall agree in writing,
by execution of a counterpart to this Agreement, to be bound by the terms of this
Agreement, and such other Ancillary Agreements as determined by the Membership
Committee. An assignee of a Membership Interest shall be admitted as a Member as
provided in Article IX.
(b) Upon admission of a Member pursuant to Section 4.2 hereof, the
Percentage Interests of all Members shall be adjusted effective as of the date of such
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new Member's initial capital contribution to the extent agreed upon by all of the
Members.
4.3 Other Activities. Subject to the express provisions of this Agreement or
of any Ancillary Agreement,
(a) Commencing on the date hereof and continuing for either (i) ten
(10) years hereafter if Schuler Sub exercises the First Option or (ii) if Schuler Sub does
not exercise the First Option, until the date that Schuler Sub receives its Book
Withdrawal Amount and all amounts due it under the Credit Agreement, Stafford, on
behalf of itself and its Affiliates agrees, that it and they shall not engage (except in its or
their capacity as an officer, manager, employee or Member of the Company) directly or
indirectly, whether on its or their own account or as a shareholder (other than as a less
than 1% shareholder of a publicly -held company), partner, joint venturer, employee,
consultant, advisor, and/or agent, of any person, firm, corporation, or other entity, in any
or all of the following activities within the United States:
(i) Enter into or engage in the business of building or selling for
sale residential properties;
(ii) Solicit customers, suppliers, or business patronage which
results in competition with the Company or any of its Affiliates, in the business of
building or selling for sale residential properties;
(iii) Encourage or solicit any employees of the Company or any of
its Affiliates, to leave the employment of the Company or any of its Affiliates, to work
for Stafford or any related party; or
(iv) Promote or assist, financially or otherwise, any person, firm,
association, corporation, or other entity engaged in the business of building or selling for
sale residential properties.
Notwithstanding the foregoing, Stafford together with its Affiliates shall be
entitled to build or sell collectively an aggregate of four (4) single family residences per
year, provided that such construction or sales are not conducted using the "Stafford"
tradename.
(b) Commencing on the date hereof and continuing for so long as
Schuler Sub or its Affiliates owns a portion, but less than all, of the Total Percentage
Interests in the Company, Schuler Sub, on behalf of itself and its Affiliates, agrees, that it
and they shall not engage (except in its and their capacity as an officer, manager,
employee or Member of the Company) directly or indirectly, whether on its or their own
account or as a shareholder (other than as a less than 1% shareholder of a publicly -held
company), partner, joint venturer, employee, consultant, advisor, and/or agent, of any
person, firm, corporation, or other entity, in any or all of the following activities within
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the counties of Jefferson, King, Kitsap, Pierce, Skagit, Snohomish, Thurston and
Whatcom in the State of Washington:
(i) Enter into or engage in the business of building or selling
detached for sale residential properties;
(ii) Solicit customers, suppliers, or business patronage which
results in competition with the Company or any of its Affiliates, in the business of
building or selling detached for sale residential properties;
(iii) Encourage or solicit any employees of the Company or any of
its Affiliates, to leave the employment of the Company or any of its Affiliates, to work
for Schuler Sub or any of its Affiliates or any related party; or
(iv) Promote or assist, financially or otherwise, any person, firm,
association, corporation, or other entity engaged in the business of building or selling
detached for sale residential properties.
(c) Without limitation, the parties agree and intend that the covenants
contained in this Section 4.3 shall be deemed to be a series of separate covenants and
agreements, one for each and every county or political subdivision of each state of the
United States. If, in any judicial proceeding, a court shall refuse to enforce in such
action any of the separate covenants deemed included herein, then at the option of the
Company, wholly -unenforceable covenants or components thereof shall be deemed
eliminated from the provisions hereof for the purpose of such proceeding to the extent
necessary to permit the remaining separate covenants to be enforced in such a
proceeding. The parties intend to have covenants enforceable to the fullest extent of the
law as to scope, time and geography.
(d) The parties agree that due to the unique nature of the services and
capabilities of Stafford and Schuler Sub, there can be no adequate remedy at law for any
breach of their obligations hereunder, that any such breach may allow such person
and/or third parties to unfairly compete with the Company, or any of its affiliates,
resulting in irreparable harm to the Company, or any Affiliate and, therefore, that upon
any such breach or any threat thereof, the Company shall be entitled to appropriate
equitable relief in addition to whatever remedies it might have at law. Further, the
Company shall be entitled to indemnification by the breaching party from any loss or
harm, including, without limitation, attorneys' fees, including attorneys' fees on appeal,
and costs of suit, in connection with any breach, or any enforcement, of each of their
respective obligations pursuant to this Section 4.3.
(e) Stafford and Schuler Sub acknowledge, represent and warrant to the
Company that the covenants of Stafford and Schuler Sub in this Section 4.3 are
reasonably necessary for the protection of the Company's interests under this Agreement
and are not unduly restrictive upon Stafford or Schuler Sub.
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(f) Each of the parties hereto agrees that the Company shall notify
Stafford or Schuler Sub, as the case may be, of any breach or alleged breach by such
entity or person of any provision of this Agreement and, within thirty (30) days after the
date of mailing of such notice by the Company to such person or entity, such person or
entity shall cure such breach or alleged breach. Failure to cure such breach or alleged
breach to the Membership Committee's satisfaction within such time period shall
constitute a default under this Agreement and the Company shall be entitled to exercise
any of its available rights and remedies.
4.4 Duty of Members to Cooperate. Each Member shall (and shall endeavor
to cause its Affiliates to) execute such applications, filings, certificates and similar
documents as are required by any Law or by any Governmental Entity in connection
with the Company or the Company Business.
4.5 Enforcement of Company Rights. Notwithstanding anything to the contrary
in Section 4.6, subject to Section 18-1001 of the Act, any Member may, either in its own
name or in the Company's name, take such action as such Member reasonably deems
necessary or appropriate to enforce on behalf of the Company any rights that the
Member believes the Company has against any other Member (or any of its Affiliates)
and, if successful in enforcing such rights, such Member shall be entitled to
reimbursement by the Company for the reasonable out-of-pocket costs and expenses
incurred by such Member in enforcing such rights. The provisions of this Section 4.5 are
intended for the exclusive benefit of the Members and their respective permitted
successors and assigns and, without limiting the generality of any other provision of this
Agreement, no Person (other than a Member and its respective permitted successors and
assigns), including, without limitation, any creditor of any Member (or any Affiliate
thereof), shall have any rights of any kind or nature under this Section 4.5.
4.6 Certain Covenants of the Members.
(a) Each Member hereby covenants and agrees that such Member shall
not (i) represent or hold itself out as the agent of any other Member (or any Affiliate
thereof), (ii) enter into any oral or written Contract, engage in any act or transaction or
incur any obligation, liability, debt, cost or expense on behalf, for the account or in the
name of any other Member (or any Affiliate thereof) in its individual capacity or (iii)
purport to bind any other Member (or any Affiliate thereof) in its individual capacity.
(b) Except as otherwise expressly provided in this Agreement (including,
without limitation, as expressly provided in Section 4.5) or pursuant to the instructions or
directions of the Membership Committee, no Member shall have (or purport to exercise)
any authority to bind or act for, or to assume any obligations or responsibility on behalf
of, the Company (or any Subsidiary thereof).
(c) No Member may, without the written consent of the other Members,
use or possess Company Property other than for Company purposes and in furtherance
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of the Company Business except as otherwise expressly provided for under a written
agreement with the Company approved by the Membership Committee in accordance
with Article V.
ARTICLE V
MANAGEMENT AND CONTROL OF THE COMPANY
5.1 Management Vested in Members. The management of the business and
affairs of the Company shall be vested in the Members in proportion to their respective
Percentage Interests.
5.2 Membership Committee. The Members shall manage the business and
affairs of the Company through a committee constituted in accordance with the
provisions of this Section 5.2 (the "Membership Committee"), which is empowered to act
with respect to all matters affecting the Company. Except as otherwise expressly
provided in this Agreement, including, without limitation, Section 5.5(b), the
Membership Committee shall have the exclusive right, power and authority to cause the
Company to do, or cause to be done, all acts and actions which in its sole judgment are
necessary, proper, convenient or desirable in order to operate and conduct the Company
Business and to carry out and fulfill the purposes of the Company in accordance with
this Agreement and the Business Plan, as they may be modified or amended from time
to time in accordance with Section 5.5. Except as otherwise expressly provided for in
this Agreement, neither the Company nor any Subsidiary thereof shall, directly or
indirectly, enter into any Contract, engage in any transaction, or otherwise take or effect
any action, without the affirmative vote, consent or approval of the Membership
Committee as provided in this Article V.
5.3 Representatives Interested Defaulting and Withdrawing Parties.
(a) Number: Qualifications; Etc. The Membership Committee shall at
all times consist of four Representatives with two representatives selected by each
Member. The names of the initial Representatives of each Member are set forth on
Exhibit G hereto; such Persons shall serve as Representatives until their death, disability,
removal or resignation. Each Member shall have the right to direct its Representatives
to act in such Member's best interests when voting on or consenting to a given matter
and, to the fullest extent permitted by Law, such Representatives shall not have any duty
to act in the best interests of the Company when voting on or consenting to such a
matter. To the fullest extent permitted by Law, such Representatives shall not be
deemed an agent or sub -agent of the Company. Each Member, by execution of this
Agreement, agrees to, consents to, and acknowledges the delegation of powers and
authority to such Representatives and the Membership Committee, and to the actions
and decisions of such Representatives and the Membership Committee within the scope
of such Representatives' and Membership Committee's authority as provided herein. No
Representative shall have the authority in his capacity as a Representative to enter into
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any transaction on behalf of the Company. No Representative is entitled to
remuneration or reimbursement of expenses by the Company for his or her activities as a
Representative. Decisions and other actions of the Membership Committee shall be
made by Consent of the Membership Committee.
(b) Resignation. Any Representative may resign at any time by giving
written notice of his or her resignation to the Member that selected such Representative.
The resignation of any Representative shall take effect upon receipt of that notice by
such Member or at such later time as specified in the notice. Unless otherwise specified
in the notice, the acceptance of the resignation shall not be necessary to make it
effective. Such Member shall give prompt written notice of such resignation to the
Company with a copy to the Chairman of the Membership Committee.
(c) Removal. Any Representative may be removed at any time, with or
without cause, at the sole discretion of the Member who appointed such Person, by
giving written notice to the Company with a copy to the Chairman of the Membership
Committee. Such removal shall be deemed effective upon the date specified by the
Member in writing to the Company, or if no date is so specified, upon receipt. If a
Member ceases to be a Member, the Representative selected by that Member shall be
removed, without further action of such Member or Representative, as of the date the
Member ceases to be a Member.
(d) Vacancies. A vacancy on the Membership Committee may only be
filled by the Member that originally appointed the Representative whose death,
disability, removal or resignation created such vacancy, and such Member shall promptly
fill any such vacancy by giving notice of the new Representative's name to the Company
with a copy to the Chairman of the Membership Committee. Notwithstanding anything
to the contrary in this subsection (d), if a vacancy arises due to a permitted transfer of a
Membership Interest, such permitted transferee shall have the right to appoint a
Representative to fill the vacancy.
5.4 Interested and Withdrawing Parties. Notwithstanding anything to the
contrary herein, neither a Member nor its Representative shall be entitled to vote on,
consent to or approve any matter requiring the approval of the Membership Committee
(or of one or more of the Members) if such Member (i) is an Interested Party in the
matter subject to said vote, or (ii) is in the process of withdrawing, pursuant to Article
VIII, at the time of such vote. Whether a quorum of the Membership Committee exists
to vote on such matter and whether such matter has been approved by the required
approval threshold of the Membership Committee or the Members, as applicable, shall
be determined without regard to the Percentage Interest of any such Member, all as if
such Member were not a Member of the Company and the Total Percentage Interests of
the Members for these purposes equaled 100% minus the Percentage Interest of such
Member.
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5.5 Powers of the Membership Committee.
(a) Powers of the Membership Committee. Subject to Section 5.5(b)
and to the express limitations set forth elsewhere in this Agreement, the Membership
Committee shall have the right, power and authority to carry out and implement the
Company Business in accordance with this Agreement and the Business Plan.
(b) Limitations on Power of the Membership Committee. (i) The
Membership Committee shall not have authority hereunder to cause the Company to
engage in any of the following transactions without obtaining the prior Consent of the
Members:
(A) approval of each annual Business Plan and any amendment
or modification thereto;
(B) any incurrence of debt by the Company in an amount that
exceeds of $4.0 million;
(C) the making or guaranteeing of any loans or series of related
loans by the Company;
(D) entering into any Contract (or series of related Contracts) or
engaging in any transaction (or series of related transactions), business or activity which
requires an aggregate financial commitment that exceeds $4.0 million;
(E) the adoption, termination or material amendment of
employee benefit plans of the Company;
(F) the selection of Accountants of the Company;
(G) entering into employment agreements with any officer or
employee of the Company or the approval of any collective bargaining or other
significant labor agreement; or
(H) the adoption, termination or material amendment to the
Company's accounting or tax policies.
(ii) The Membership Committee shall not have authority
hereunder to cause the Company to engage in any of the following transactions without
obtaining the prior consent of all of the Members:
(A) entering into a line of business outside the scope of the
Company Business as set forth in Section 2.6.
(B) the admission of any Person as a Member of the Company
other than in accordance with Section 4.2 or Article IX;
BPRAr\ri46A0229673.06 20
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(C) the taking of or effecting any action that would at the time
such action is taken constitute a Bankruptcy Event in respect of the Company or any
Subsidiary thereof;
(D) entering into any Contract (or series of related Contracts) or
engaging in any transaction (or series of related transactions) in respect of, or otherwise
effecting, any merger, acquisition, consolidation, reconstitution or reorganization of the
Company (or any Subsidiary thereof), or any sale or other Disposition of any of the
assets of the Company (or any Subsidiary thereof), or any combination thereof
(regardless of form);
(E) the establishment of any Subsidiary of the Company unless
such Subsidiary is wholly -owned by the Company;
(F) the entering into any Contract by the Company which would
by its express terms limit the Company's right to engage in the Company Business;
(G) any change in the Company's allocation or cash distribution
policies, as set forth in Article VI;
(H) the engagement by the Company of a chief executive officer
or chief financial officer and the material terms upon which such executive officers are
engaged and retained by the Company, and the termination by the Company of any chief
executive officer or chief financial officer;
(I) in one or a series of related transactions, the acquisition by
the Company of any business, capital stock or assets; or
(J) the extension of the term of the Company beyond that set
forth in Section 2.3
(c) To the extent the business of the Company is operated through any
Subsidiary of the Company, Article V of this Agreement shall be deemed to require the
same consent as required herein to cause such Subsidiary to engage in any such act or
transaction.
(d) Action Required by Membership Committee. Upon exercise of the
First Option, the Membership Committee shall cause the Company to repay the loans
due to Stafford and Brien Stafford, together with all interest accrued thereon, and shall
take all actions necessary, including issuing a replacement guarantee, to remove Stafford
and Brien Stafford as guarantors under any indebtedness of the Company or any
performance or maintenance bonds of the Company (other than the Guaranty
Agreement).
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5.6 Meetings of the Membership Committee.
(a) Date Time and Place of Meeting of the Membership Committee.
Meetings of the Membership Committee may be held at such date, time and place within
or without the State of Delaware as the Membership Committee may fix from time to
time; provided that the Membership Committee shall meet at least once every fiscal
quarter. At each Membership Committee meeting, the Chairman shall preside and shall
appoint a Person to act as secretary of the meeting. The secretary of the meeting shall
prepare minutes of the meeting which shall be placed in the minute books of the
Company. Prior to the exercise of the First Option, the Chairman shall be Brien
Stafford. After the exercise of the First Option, the Chairman shall be Jim Schuler.
(b) Power to Call Meetings. Meetings of the Membership Committee
may be called by any Representative or by the Company's Chief Executive Officer.
(c) Notice of Meeting. Regular quarterly meetings shall be held
without call or notice at such time as shall from time to time be fixed by standing
resolution of the Membership Committee. Written notice of a special meeting of the
Membership Committee shall be sent or otherwise given to each Representative not less
than ten (10) Business Days prior to the date of the special meeting. The notice shall
specify the place, date and hour of the special meeting and the general nature of the
business to be transacted.
(d) Manner of Giving Notice; Affidavit of Notice. Notice of any
meeting of the Membership Committee shall be given in writing and shall be deemed to
have been given (a) upon personal delivery, if delivered by hand, (b) four days after the
date of deposit in the continental United States mails, postage prepaid, if mailed by
certified or registered mail, or (c) the next business day if sent by facsimile transmission
(if receipt is electronically confirmed) or by a prepaid overnight courier service, and in
the case of (b) and (c), to the respective addresses or facsimile numbers of the respective
Representatives appearing on the books of the Company for the purpose of such notice,
or, if no such address or number appears on the Company's books, to the
Representative's address as set forth on Exhibit G hereto. An affidavit of the mailing or
other means of giving any notice of any meeting shall be executed by the Company or
any secretary, assistant secretary, or any transfer agent of the Company giving the notice,
and shall be filed and maintained in the minute book of the Company. Compliance with
the immediately preceding sentence is not necessary for notice to be deemed to have
been given.
(e) Quorum; Consent. The presence in person or by telephone (in
accordance with subsection (i)) of at least one Representative designated by each of the
Members shall constitute a quorum at a meeting of Members.
(f) Adjourned Meeting; Notice. Any Membership Committee meeting,
where a quorum is present, may be adjourned from time to time by the vote of the
Representatives represented at that meeting representing in excess of 66% of the Total
6PHPA1\TM6\0229673.06 22
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Percentage Interests represented at such meeting, either in person or by telephone in
accordance with Section 5.6(i), but in the absence of a quorum, no other business may be
transacted at that meeting. When any meeting of the Membership Committee is
adjourned to another time or place, notice need not be given of the new meeting if the
time and place are announced at a meeting at which the adjournment is taken. At any
such new meeting the Company may transact any business which might have been
transacted at the original meeting.
(g) Waiver of Notice or Consent. The actions taken at any meeting of
the Membership Committee however called and noticed, and wherever held, have the
same validity as if taken at a meeting duly held after regular call and notice, if a quorum
is present either in person or by telephone in accordance with Section 5.6(i), and if,
either before or after the meeting, each of the Representatives entitled to vote, who was
not present in person or by telephone, signs a written waiver of notice or consents to the
holding of the meeting or approves the minutes of the meeting. All such waivers,
consents or approvals shall be filed with the Company records or made a part of the
minutes of the meeting. Attendance of a Person at a meeting (in person or by
telephone) shall constitute a waiver of notice of that meeting, except when the person
objects, at the beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened, and except that attendance at a meeting is
not a waiver of any right to object to the consideration of matters not included in the
notice of the meeting if that objection is expressly made at the meeting. Neither the
business to be transacted nor the purpose of any meeting of the Membership Committee
need be specifie(' in any written waiver of notice.
(h) Action by Written Consent without a Meeting. Any action that may
be taken at a meeting of the Membership Committee may be taken without a meeting, if
a consent in writing setting forth the action so taken, is signed and delivered to the
Company by Representatives having not less than the minimum number of votes that
would be necessary to authorize or take that action at a meeting at which all
Representatives entitled to vote on that action at a meeting were present and voted. All
such consents shall be filed with the Company or the secretary, if any, of the Company
and shall be maintained in the Company records. Any Representative giving a written
consent may revoke the consent by a writing received by the Company or secretary, if
any, of the Company before written consents of the number of votes required to
authorize the proposed action have been filed.
(i) Telephonic Participation by Representatives at Meetings.
Representatives may participate in any Membership Committee meeting through the use
of any means of conference telephones or similar communications equipment as long as
all Representatives participating can hear one another. A Representative so
participating is deemed to be present in person at the meeting.
BNPAI\TM6\0229673.06 23
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5.7 Officers and Employees.
(a) Appointment of Officers. The Membership Committee shall
appoint a Chief Executive Officer and a Chief Financial Officer, both in accordance with
the provisions of Section 5.5. It may also appoint, by Consent of the Membership
Committee, such other officers and employees of the Company as it deems necessary or
desirable, at any time or from time to time or may delegate, by Consent of the
Membership Committee, to the Chief Executive Officer the power to appoint such other
officers and employees. The officers shall serve at the pleasure of the Members, subject
to all rights, if any, of an officer under any Contract of employment. Any individual may
hold any number of offices. No officer need be a resident of the State of Delaware or
citizen of the United States. The officers shall exercise such powers and perform such
duties as specified in this Agreement and as shall be determined from time to time by
the Membership Committee.
(b) Removal Resignation and Filling of Vacancy of Officers. Subject to
the rights, if any, of an officer under a Contract of employment, any officer may be
removed, either with or without cause, (i) if such officer was appointed by the chief
executive officer pursuant to authority delegated to him as set forth in Section 5.7(a), by
the chief executive officer at any time, or (ii) if such officer was appointed by the
Membership Committee or the Chief Executive Officer, by Consent of the Membership
Committee at any time; provided, however, that the Company's Chief Executive Officer
and Chief Financial Officer may be removed only by Consent of the Membership
Committee.
Subject to the terms of any Contract of employment with the Company, any
officer may resign at any time by giving written notice to the Membership Committee.
Any resignation shall take effect at the date of the receipt of that notice or at any later
time specified in that notice; and, unless otherwise specified in that notice, the
acceptance of the resignation shall not be necessary to make it effective. Any
resignation is without prejudice to the rights, if any, of the Company under any Contract
to which the officer is a party.
A vacancy in any office because of death, resignation, removal,
disqualification or any other cause shall be filled in the manner prescribed in this
Agreement for regular appointments to that office.
(c) Salaries of Officers. Subject to Section 5.5, the salaries of all
officers and agents of the Company shall be fixed by the Membership Committee.
(d) Election Duties and Powers of the Chief Executive Officer.
(i) The day-to-day business, affairs, operations and activities of
the Company shall, subject to the ultimate direction, control and supervision of the
Membership Committee, be managed by a chief executive officer and such officers and
employees of the Company as shall be designated or appointed from time to time by the
BPHPA1\TM6\0229673.06 24
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Membership Committee or the Chief Executive Officer, with the approval of the
Membership Committee, as provided herein.
(ii) The Membership Committee shall, from time to time,
appoint an individual to serve as Chief Executive Officer of the Company. Upon the
death, disability, resignation, removal of, or other inability to act by, the chief executive
officer of the Company, the Membership Committee, by Consent of the Membership
Committee, shall promptly appoint a successor chief executive officer of the Company.
(iii) The Chief Executive Officer shall have such powers and
responsibilities (and only such powers and responsibilities) as shall from time to time be
granted and delegated by the Membership Committee. Subject to Section 5.5 of this
Agreement, and except as determined or instructed by the Membership Committee or as
otherwise expressly provided for in this Agreement, the Chief Executive Officer shall,
subject to the ultimate direction, control and supervision of the Members, be responsible
for the following matters:
(A) managing the day-to-day business, operations, affairs
and activities of the Company in a manner consistent with the most current Business
Plan of the Company;
(B) overseeing the development, compliance,
implementation and execution of the most current Business Plan of the Company;
including, without limitation, the ability to reallocate items of expenditure; providedl that
such reallocations in the aggregate shall not exceed 10% of the approved expenditures in
the Business Plan in any Budget Period;
(C) securing, developing and maintaining relationships
with the Company's customers and suppliers and other Persons having business (or
prospective business) relationships with the Company;
(D) providing the Members with detailed monthly reports
as to the business, operations, affairs, activities, financial results and prospects of the
Company (which reports shall include an update on how the current financial results
compare with the most current Business Plan of the Company);
(E) preparing and providing the Membership Committee
with the financial information referred to in Section 12.2 and such other business and
financial information as may be requested by the Membership Committee or any
Representative or Member from time to time;
(F) promoting good public relations and maintaining
favorable relationships with local governmental and regulatory authorities and securing
and maintaining all authorizations, consents, permits and approvals necessary in
connection with the operation and conduct of the Company Business;
0PHPA1\TM6\0229673.06 25
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(G) securing, developing and maintaining relationships
with vendors as provided in the most current Business Plan;
(H) gathering and analyzing information with respect to
competitors and potential competitors of the Company and presenting reports with
respect to the same to the Members from time to time;
(I) administering those aspects of the Ancillary
Agreements delegated to the Chief Executive Officer by the Membership Committee;
(J) subject to Section 5.5 hereof, employing and dismissing
from employment any and all employees, agents, independent contractors and
Accountants of the Company, except (A) officers of the Company (including, without
limitation, the Chief Financial Officer and the General Counsel or other counsel of the
Company) unless specifically authorized hereunder, (B) outside Accountants, legal
counsel and any strategic advisors, and (C) other employees, agents, independent
contractors, and accountants of the Company specifically appointed by the Membership
Committee;
(K) executing, and authorizing other officers of the
Company to execute, Contracts, documents and instruments which are necessary or
required to carry out and promote the day-to-day business, affairs, operations and
activities of the Company pursuant to and in accordance with the most current Business
Plan of the Company and this Agreement; and
(L) directing project management for the Company.
(iv) The Members hereby recognize, acknowledge and agree that
the Chief Executive Officer shall take instructions solely from the Membership
Committee.
(e) The Chief Executive Officer of the Company, together with all other
officers and employees of the Company, shall be available at reasonable times for
consultation with the Membership Committee and all Members on a timely basis
concerning all aspects of the business, affairs, operations and activities of the Company.
(f) Subject to whatever rights an officer may have under a Contract of
employment with the Company, all officers of the Company (including, without
limitation, the Chief Executive Officer) shall serve at the pleasure of the Membership
Committee.
8PHPAI\TM6\0229673.06 26
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ARTICLE VI
ALLOCATIONS OF NET INCOME AND NET LOSSES AND DISTRIBUTIONS
6.1 Allocations of Net Income and Net Losses.
(a) Allocations of Net Income Prior to the Exercise of the First Option.
Net Income of the Company for each Taxable Year (or any portion thereof) shall be
allocated, commencing July 1, 1997, among the Members as follows:
(i) First, to Schuler Sub until Schuler Sub has been allocated
Net Income for the Taxable Year equal to 12% (the "Guaranteed Return") of its initial
Capital Account reduced by any cash distributions made to Schuler Sub;
(ii) Next, to Stafford in an amount equal to 12% of its initial
Capital Account reduced by any cash distributions made to Stafford;
(iii) Then, among the Members in accordance with their
Percentage Interests
In order to provide Schuler Sub with its annual minimum Guaranteed Return, if the Net
Income in a particular period is less than the Guaranteed Return (or if there is a Net
Loss), Schuler Sub shall be allocated items of gross revenue and/or Stafford shall be
allocated items of expense so that the Capital Account balance of Schuler Sub is equal
to the amount that would have resulted if there had been sufficient Net Income to
provide Schuler with its annual minimum Guaranteed Return.
(b) Allocations of Net Losses Prior to the Exercise of the First Option.
Net Losses for each Taxable Year (or portion thereof) prior to the exercise of the First
Option shall be allocated, commencing July 1, 1997, entirely to Stafford.
(c) Allocations of Net Losses After the Exercise of the First Option.
Net Losses for each Taxable Year (or portion thereof) after the exercise of the First
Option shall be allocated among the Members in proportion to their Percentage
Interests.
6.2 Special Allocations. Prior to the allocations set forth in Section 6.1, the
following special allocations shall be made in the following order:
(a) Minimum Gain Char elg pack. Subject to the exceptions set forth in
Regulations Section 1.704-2(f), if there is a net decrease in Company Minimum Gain
during any Company Taxable Year, each Member shall be specially allocated items of
income and gain for Capital Account purposes for such Taxable Year (and, if necessary,
in subsequent Taxable Years) in an amount equal to such Member's share of the net
decrease in Company Minimum Gain during such year (which share of such net decrease
shall be determined in accordance with Regulations Section 1.704-2(g)(2)). It is intended
BPHPAI\T116\0229673.06 27
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that this Section 6.2(a) shall constitute a "minimum gain chargeback" as provided by
Regulations Section 1.704-2(f) and shall be interpreted consistently therewith.
(b) Member Nonrecourse Debt Minimum Gain Chargeback. Subject to
the exceptions set forth in Regulations Section 1.704-2(i)(4), if there is a net decrease in
Member Nonrecourse Debt Minimum Gain during a Company Taxable Year, any
Member who has a share of such Minimum Gain (determined in accordance with
Regulations Section 1.704-2(i)(5)) shall be specially allocated items of income and gain
for Capital Account purposes for such Taxable Year (and, if necessary, for subsequent
years) in an amount equal to such Member's share of the net decrease in Member
Nonrecourse Debt Minimum Gain (which share of such net decrease shall be determined
in accordance with Regulations Section 1.704-2(i)(4) and 1.704-20)(2). It is intended
that this Section 6.2(b) shall constitute a "partner nonrecourse debt minimum gain
chargeback" as provided by Regulations Section 1.704-2(i)(4) and shall be interpreted
consistently therewith.
(c) Nonrecourse Deductions. Any Nonrecourse Deductions shall be
allocated to the Members in proportion to their Percentage Interests.
(d) Member Nonrecourse Deductions. Any Member Nonrecourse
Deductions shall be allocated to the Member that takes the Economic Risk of Loss for
the Member Nonrecourse Debt to which such deductions relate as provided in
Regulations Section 1.704-2(i)(1).
(e) Certain Section 754 Adjustment. To the extent any adjustment to
the adjusted tax basis of any Company asset pursuant to Code Section 732(d), Code
Section 734(b) or Code Section 743(b) is required, pursuant to Regulation Sections
1.704-1(b)(2)(iv)(m), to be taken into account in determining Capital Accounts as the
result of a distribution to a Member in complete liquidation of its interest in the
Company, the amount of such adjustment to Capital Accounts shall be treated as an item
of gain (if the adjustment increases such basis) or as an item of loss (if the adjustment
decreases such basis) and such gain or loss shall be specially allocated to the Members in
accordance with their interests in the Company as determined under Regulations Section
1.704-1(b)(3) in the event Regulations Section 1.704-1(b)(2)(m)(2) applies, or to the
Member to whom such distribution was made in the event Regulations Section 1.704-
1(b)(2)(iv)(m)(4) applies.
(f) Curative Allocations. The allocations set forth in Sections 6.2(a)
through (e) hereof ('Regulatory Allocations") are intended to comply with certain
requirements of the Regulations and Internal Revenue Service advance ruling
requirements. It is the intent of the parties to this Agreement that, to the extent
possible, all Regulatory Allocations shall be offset either with other Regulatory
Allocations or with special allocations of other items of income, gain, loss or deduction
pursuant to this Section 6.2(f). Therefore, notwithstanding any other provision of this
Article VI (other than the Regulatory Allocations and the following sentence), the
Membership Committee shall make such offsetting special allocations of Company
6PHPA1\1116\0229673.06 28
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income, gain, loss or deduction in whatever manner it determines in reasonable good
faith is appropriate so that, after such offsetting allocations are made, each Member's
Capital Account balance is, to the extent possible, equal to the Capital Account balance
which such Partner would have had if the Regulatory Allocations were not part of this
Agreement and all Partnership items were allocated pursuant to paragraph 6.1 hereof.
In exercising its discretion under this subparagraph 6.2(f), the Tax Matters Member shall
take into account Regulatory Allocations under subparagraphs 6.2(a) and 6.2(b) that,
although not yet made, are likely to offset other Regulatory Allocations previously made
under subparagraphs 6.2(c) and (d).
(g) Allocations Relating to Issuance of Company Interests. Any income,
gain, loss, or deduction realized by the Company as a direct or indirect result of the
issuance of an interest in the Company to a Member (the "Issuance Items") shall be
specially allocated to the Member whose issued Company interest gave rise to such
Issuance Items.
6.3 Allocation of Certain Tax Items.
(a) Except as otherwise provided in this Section 6.3, all items of income,
gain, loss or deduction for federal, state and local income tax purposes shall be allocated
in the same manner as the corresponding "book" items are allocated under Section 6.1 or
6.2 (as a component of Net Income or Net Losses).
(b) 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
Members so as to take account of any variation between the adjusted basis of such
property to the Company for federal income tax purposes.
(c) In the event the Book Value of any Company asset is adjusted
pursuant to the definition of the term Book Value, subsequent allocations of income,
gain, loss and deduction with respect to such asset shall take account of any variation
between the adjusted basis of such asset for federal income tax purposes and its Book
Value in the same manner as under Code Section 704(c) and the Regulations
thereunder.
(d) In the event the Company has in effect an election under Section
754 of the Code, allocations of income, gain, loss or deduction to affected Members for
federal, state and local tax purposes shall take into account the effect of such election
pursuant to applicable provisions of the Code.
(e) Allocations pursuant to this Section 6.3 are solely for federal, state
and local tax purposes and shall be reflected on the tax reporting information furnished
to such Members in their Schedule K-Is each year. Except to the extent allocations
under this Section 6.3 are reflected in the allocations of the corresponding "book" items
pursuant to Paragraphs 6.1(a) or 6.1(b) (as a component of Net Income or Net Losses)
BPHPA1\TM6\0229673.06 29
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or 6.2, allocations under this Section 6.3 shall not affect, or in any way be taken into
account in computing, any Member's Capital Account or share of Net Income, Net
Losses, other items or distributions pursuant to any provision of this Agreement.
6.4 Allocation Between Assignor and Assignee.
The portion of the income, gain, losses, credits, and deductions of the Company
for any Taxable Year of the Company during which a Membership Interest is assigned by
Member (or by an assignee or successor in interest to a Member), that is allocable with
respect to such Membership Interest shall be apportioned between the assignor and the
assignee of the Membership Interest on whatever reasonable, consistently applied basis
selected by the Membership Committee and permitted by the applicable Regulations
under Section 706 of the Code.
6.5 Tax Reporting. The Members are aware of the income tax consequences
of the allocations made by this Article VI and hereby agree to be bound by the
provisions of this Article VI in reporting their shares of Company income and loss for
income tax purposes.
6.6 Shares of Nonrecourse Liabilities. Solely for purposes of determining a
Member's proportional share of the Company's "excess nonrecourse liabilities", as
defined in Regulations Section 1.752-3(a), the Members' interests in Company profits
shall be deemed to be in proportion to their respective Percentage interests.
6.7 Distributions by the Company. Subject to applicable law and any
limitations contained elsewhere in this Agreement, the Membership Committee shall
distribute cash to the Members as determined by the Consent of the Membership
Committee, which distributions shall be made to the Members as follows (provided that
the parties intend that no distributions shall be made prior to January 4, 1999):
(a) Distributions prior to the exercise of the First Option shall be made
as follows:
(i) First, to Schuler Sub until Schuler Sub has received
distributions equal to its Capital Account;
(ii) Second, to Stafford until Stafford has received distributions
equal to its Capital Account; and
(iii) Then, among the Members in accordance with their
Percentage Interests.
(b) Distributions after the exercise of the First Option shall be made
among the Members in proportion to their relative Capital Account balances.
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All such distributions shall be made only to the Persons who, according to the books and
records of the Company, are the holders of record of the Membership Interests in
respect of which such distributions are made on the actual date of distribution. Subject
to Section 6.9, neither the Company nor any Member shall incur any liability for making
distributions in accordance with this Section 6.7. All liquidating distributions of the
Company shall be made in accordance with Article X hereof.
6.8 Form of Distribution. A Member, regardless of the nature of the
Member's Capital Contribution, has no right to demand and receive any distribution
from the Company in any form other than cash. Except as provided in Article XI, no
Member may be compelled to accept from the Company a distribution of any asset in
kind in lieu of a proportionate distribution of money being made to other Members and
no Member may be compelled to accept a distribution of any asset in kind.
6.9 Restriction on Distributions. No distribution shall be made if, after giving
effect to the distribution: the Company would not be able to pay its debts as they
become due in the usual course of business; or the Company's total assets would be less
than the sum of its total liabilities plus, unless this Agreement provides otherwise, the
amount that would be needed, if the Company were to be dissolved at the time of the
distribution, to satisfy the preferential rights of other Members, if any, upon dissolution
that are superior to the rights of the Member receiving the distribution.
6.10 Return of Distributions. Members and Assignees who receive distributions
made in violation of the Act or this Agreement shall return such distributions to the
Company. Except for those distributions made in violation of the Act or this Agreement,
no Member or Assignee shall be obligated to return any distribution to the Company or
pay the amount of any distribution for the account of the Company or to any creditor of
the Company. The amount of any distribution returned to the Company by a Member
or Assignee or paid by a Member or Assignee for the account of the Company or to a
creditor of the Company shall be added to the account or accounts from which it was
subtracted when it was distributed to the Member or Assignee.
ARTICLE VII
BUSINESS PLAN AND BUDGET
7.1 Initial Business Plan. The Business Plan for the Initial Budget Period of
the Company (the "Initial Business Plan") is attached to this Agreement as Exhibit F.
The Members have, by their execution of this Agreement, approved the Initial Business
Plan.
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7.2 Approval of Proposed Business Plan.
(a) At least 90 days prior to the end of the Initial Budget Period and
each succeeding Budget Period thereafter, the Chief Executive Officer shall cause to be
prepared and presented to the Membership Committee, a proposed Business Plan (a
"Proposed Business Plan") for the next succeeding Budget Period (the "Applicable
Budget Period") for consideration and approval by the Membership Committee.
(b) The Proposed Business Plan shall, among other things, contain:
(i) planned commitments, leases and capital expenditures for
such Budget Period, and all such commitments, leases and capital expenditures which
will extend into subsequent Budget Periods;
(ii) profit and loss, balance sheet and cash flow projections for
such Budget Period;
(iii) borrowings planned during such Budget Period;
(iv) projected financial requirements and results of activities, if
any, to be undertaken by the Company during such Budget Period as set forth in the
related updated Business Plan for such Budget Period;
(v) a contingency reserve to be used for unanticipated capital
expenditures, development costs and marketing expenses in connection with projects;
(vi) specifics with respect to pricing of products and services;
(vii) the proposed number of employees of the Company during
such Budget Period and the proposed cash compensation and estimated benefit expense
during such Budget Period;
(viii) a strategic plan for such Budget Period; and
(ix) any other material information relating to the operating and
capital budgets of the Company for such Budget Period.
(c) The Chief Executive Officer shall also cause to be prepared and
presented, together with the Proposed Business Plan, (i) a three year plan which shall
address, in summary form, the items contained in the Business Plan and (ii) a report and
assessment of the preceding year's Business Plan.
(d) The Proposed Business Plan for any applicable Budget Period shall
be subject to Consent by the Membership Committee and shall, upon such approval,
become the Business Plan for such applicable Budget Period.
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ARTICLE VIII
WITHDRAWAL AND WRONGFUL WITHDRAWAL
8.1 Withdrawal of Members.
(a) No Member shall withdraw (within the meaning of the Act or
otherwise) from the Company except (i) in connection with a Permitted Direct
Disposition made in accordance with the applicable provisions of Article IX, (ii) in
connection with the dissolution of the Company pursuant to the provisions of Article X,
(iii) with the prior written consent of all of the other Members or (iv) in accordance with
Section 8.2 hereof.
(b) The withdrawal of a Member shall not (i) relieve such Member of
any of its covenants, agreements, duties, obligations or liabilities under this Agreement
whether arising prior to, on, or after the date of such withdrawal (including, without
limitation, any contingent obligations based on acts or omissions occurring, or liabilities
or obligations incurred, prior to, on or after the date of such withdrawal) or (ii) directly
or indirectly result in the termination of, or relieve such Member (or any Affiliate
thereof) of, or otherwise affect, any of the covenants, agreements, duties, obligations or
liabilities of such Member (or any Affiliate thereof) under any Ancillary Agreement
(except to the extent otherwise expressly provided in such Ancillary Agreement).
Notwithstanding the foregoing, if a withdrawal is pursuant to the terms of this
Agreemea>>, a withdrawn Member shall be relieved of its covenants, agreements, duties,
obligations and liabilities arising after the date of such withdrawal (other than duties,
obligations and liabilities pursuant to Article XI hereof and pursuant to any Ancillary
Agreements to which such Member is a party).
(c) Other than upon consummation of a Permitted Direct Disposition
by a Member, each Member shall (i) if it is a corporation, maintain its corporate
existence and (ii) in any event not permit itself to be dissolved or its existence otherwise
terminated; provided, however, that this obligation shall cease after a Member is no
longer a Member and after all applicable statutes of limitation pursuant to which the
Company or any Member could bring a claim against such withdrawn Member
hereunder have lapsed.
8.2 Optional Withdrawal.
(a) With respect to Schuler Sub, an "Optional Withdrawal Event" shall
consist of:
(i) the failure of Schuler Sub to exercise the First Option by
January 4, 1999;
(ii) prior to the exercise of the First Option, the breach by
Stafford, Brien Stafford or the Company of any representation or warranty, or the failure
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of such persons to perform any covenant or agreement, contained in this Agreement or
any of the Ancillary Agreements; or
(iii) prior to the exercise of the First Option, the occurrence of an
event of default under the Revolving Credit Agreement.
(b) With respect to Stafford, an "Optional Withdrawal Event" shall
consist of the failure by Schuler Sub to exercise the Second Option (as defined in the
Option Agreement) by January 5, 2001.
(c) Upon the occurrence of any Optional Withdrawal Event with
respect to a Member, if such Member (the "Withdrawing Member') desires to withdraw
from the Company, the Withdrawing Member shall deliver a written notice (an "Optional
Withdrawal Notice") thereof to the Company and each of the other Members prior to
the date which is three months subsequent to Withdrawing Member becoming aware of
the occurrence of such Optional Withdrawal Event. Upon the date set forth in the
Optional Withdrawal Notice, the Withdrawing Member shall withdraw from the
Company and be entitled to receive such Member's Book Withdrawal Amount. At the
option of the remaining Members, (excluding the Withdrawing Member and its
Percentage Interest), such amounts may be paid up front in cash or by delivery of a
promissory note with a maturity not to exceed 12 months, bearing interest at the average
cost of debt of the Withdrawing Member. Such note shall be an obligation of the
Company, and not of the Members, except as set forth in any Ancillary Agreement.
ARTICLE IX
TRANSFER OF MEMBERS' INTERESTS
9.1 Transfer of Interests by the Members. Except as otherwise provided in this
Article IX, in Article X and in the Option Agreement, no Member may Transfer all or
any portion of its Membership Interest without the prior written Consent of the
Members (excluding for purposes of such consent, the Transferor Member and the
Percentage Interests held by the Transferor Member), which consent may be withheld for
any reason or no reason, and any Disposition or purported Disposition by any Member
of all or any portion of its Membership Interest other than in strict accordance with the
provisions of this Article IX or Article X, or otherwise with the prior written Consent of
the Members, shall be null and void ab initio and of no force or effect whatsoever.
Nothing in this Article IX shall prohibit a Member (or any Affiliate thereof) from
Transferring any assets other than (a) its Membership Interest and (b) its rights and
interests under this Agreement. The Members agree that, for the purposes of this
Article IX, the occurrence of any transaction or event which results in a Change in
Control in respect of a Member without the prior written Consent of the other Members
shall be deemed to constitute a Disposition by such Member of its Membership Interest
in violation of the terms of this Agreement (a "Change of Control Violation"). The
Members acknowledge and agree that a Parent Change in Control shall not be a Change
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in Control as defined by this Agreement and shall not result in a Change of Control
Violation.
9.2 Transfers to Affiliates. Subject to the provisions of this Section 9.2, a
Transferor Member may, without the consent of any other Member, Transfer all (but not
less than all) of its Membership Interest to an Affiliate so long as such Disposition does
not cause any legal, regulatory or financial impediment to the Company. Any Member
which Transfers its Membership Interest to any Affiliate of such Member in accordance
with the provisions of this Section 9.2 shall provide the other Members with written
notice of such Disposition and indemnify, defend and hold harmless the Company and all
other Members against any adverse tax consequences and other losses resulting directly
from any termination of the Company for tax purposes or treatment of the Company as a
corporation for tax purposes which is caused by such Disposition.
9.3 Additional Provisions Relatingto Dispositions. Except as otherwise
expressly provided in this Section 9.3, the following provisions shall apply to each
Permitted Direct Disposition under this Article IX:
(a) The Member making such Permitted Direct Disposition (a
"Transferor Member") shall be required to pay any and all filing and recording fees, fees
of counsel and accountants and other costs and expenses reasonably incurred by the
Company as a result of such Permitted Direct Disposition.
(b) Each transferee (if not already a Member) from a Transferor
Member in a Permitted Direct Disposition (a "Transferee Member"), including, without
limitation, each Transferee Member which is an Affiliate Transferee, shall deliver to the
non -Transferring Members a Contract, in form and substance reasonably satisfactory to
the non -Transferring Members, pursuant to which such Transferee Member shall agree
to become a party to and be bound by this Agreement and to assume all of the
outstanding liabilities and obligations of the Transferor Member under this Agreement
and any Ancillary Agreements.
(c) No Permitted Direct Disposition shall relieve the Transferor
Member of any of the covenants, agreements, duties, obligations or liabilities of the
Transferor Member under this Agreement or any Ancillary Agreement arising prior to
the closing of the consummation of such Permitted Direct Disposition (including, without
limitation, any contingent obligation based upon acts or omissions occurring, or liabilities
or obligations incurred, prior to the closing of such Permitted Direct Disposition).
(d) Unless the condition provided for in this Section 9.3(d) is waived by
the non -Transferring Members, no Permitted Direct Disposition shall be consummated
unless the Transferor Member or the Transferee Member first delivers to the Company
a written opinion of legal counsel, which opinion and which legal counsel shall be
reasonably satisfactory to the Company's counsel, stating that (i) the proposed Permitted
Direct Disposition may be effected without registration under the Securities Act and
applicable state blue sky or securities laws, (ii) such Permitted Direct Disposition will not
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violate, or cause the Company or any of the non -Transferring Members to violate, any
applicable Law and (iii) that the proposed Permitted Disposition will not cause the
Company to be taxed as a corporation for federal and state income tax purposes. The
fees and expenses of such counsel shall be paid by the Transferor Member or the
Transferee Member, as they may agree between themselves, and not the Company or
any of the non -Transferring Members.
(e) In connection with each Permitted Direct Disposition, the
Transferor Member and the Transferee Member shall deliver to the Company and the
non -Transferring Members such other documents and instruments as such non -
Transferring Members reasonably may request in connection with such Permitted Direct
Disposition.
(f) No Permitted Direct Disposition shall, directly or indirectly, result in
the termination of, or relieve a Transferor Member (or any Affiliate thereof) of, or
otherwise affect any of the covenants, agreements, duties, obligations or liabilities of the
Transferor Member (or any Affiliate thereof) under any Ancillary Agreement (except to
the extent otherwise expressly provided in such Ancillary Agreement).
9.4 Effect of Permitted Direct Dispositions. Upon the closing of any Permitted
Direct Disposition in accordance with the provisions of this Agreement (including,
without limitation, strict compliance with the provisions of this Article IX), and subject to
the execution by the Transferee Member (if not already a Member) of a counterpart of
this Agreement, (a) the Transferee Member shall be admitted as a Member (if not
already a Member) and shall succeed to the Membership Interest of the Transferor
Member transferred, and for purposes of this Agreement shall be deemed a Member,
(b) the Membership Interest acquired by the Transferee Member shall continue to be
subject to all the provisions of this Agreement, including, without limitation, Article III,
and (c) if the Transferor Member has transferred its entire Membership Interest, subject
to Section 9.3(c), the Transferor Member shall cease to be a Member. Notwithstanding
any provisions of applicable law to the contrary, no Permitted Direct Disposition of a
Membership Interest shall cause a dissolution of the Company.
9.5 Effect of Prohibited Dispositions.
(a) No actual or purported Disposition of any Membership Interest (or
any portion thereof), nor any right with respect thereto, whether voluntary or involuntary,
in violation of any provision of this Agreement shall be valid or effective to grant to any
other Person any right, title or interest in or to such Membership Interest (or portion
thereof), including, without limitation, any interest in the profits, capital, distributions or
assets of the Company. Neither any Transferor Member that Transfers its Membership
Interest, or any portion thereof, in violation of any provision of this Agreement, nor any
Person to whom such Transferor Member Transferred such Interest, shall be entitled to,
and each hereby expressly waives all such right, title and interest in and to such Interest,
from and after the date of such Disposition, and until such Disposition shall be
rescinded.
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(b) Notwithstanding the provisions of Section 9.5(a), to the extent that a
Member would have been entitled to distributions but for the provisions of Section 9.5(a)
("Omitted Distributions"), if and when the applicable Disposition or purported
Disposition has been rescinded, such Member shall be entitled to receive all such
Omitted Distributions (but no interest shall be paid thereon with respect to the period
between the date such Omitted Distributions would have been made but for this
Section 9.5(b) and the date such Omitted Distributions are actually made).
9.6 Status of a Transferee of an Interest: Distributions. Each transferee of a
Membership Interest, other than pursuant to a Disposition in violation of any provision
of this Agreement, including by way of a Disposition pursuant to this Article IX, until
such transferee is admitted as Member of the Company, will have the right of an
Assignee to the transferor's interest in Net Income, Net Losses, distributions of cash and
other economic interests in the Company. Distributions made on or after the effective
date of a Permitted Direct Disposition of a Membership Interest shall be made to the
transferee Member or Assignee regardless of when such distributions accrued on the
books of the Company.
RM [N71SI&A
DISSOLUTION, LIQUIDATION AND
TERMINATION OF THE COMPANY
10.1 Events Causing Dissolution.
(a) The Company shall dissolve and its affairs shall be wound up upon
the first to occur of any of the following events:
(i) the expiration of its term, unless the Company term is
extended as provided for in this Agreement;
(ii) the sale or other disposition of all or substantially all of the
assets of the Company;
(iii) the election of all of the Members to dissolve the Company;
(iv) a Governmental Entity issues or enters an order, decree,
judgment or any equivalent thereof in the relevant jurisdiction declaring that the
Company Business as contemplated by this Agreement and the Ancillary Agreements is
unlawful, prohibited or otherwise subject to sanctions or curtailments which are
reasonably likely to substantially interfere with the continued operation and conduct of
the Company's Business; or
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(v) any other event occurs which makes it impossible or unlawful
for the Company to operate and conduct the Company Business as contemplated by this
Agreement under applicable Law.
(b) Admission of an additional or substituted Member in accordance
with the terms of this Agreement shall not cause the dissolution of the Company. The
withdrawal, removal or Bankruptcy of a Member, or the occurrence of any other event
that causes a Member to cease to be a Member of the Company under the Act, shall
result in dissolution of the Company unless the remaining Members elect to continue.
(c) Dissolution of the Company shall be effective on the day on which
the event occurs giving rise to the dissolution, but the Company shall not terminate until
this Agreement has been cancelled and the assets of the Company, have been distributed
as provided in Section 10.2. Upon the dissolution of the Company, the Members shall
proceed with the liquidation and distribution of the assets of the Company, and upon the
completion of the winding up of the Company shall have the authority to, and shall,
execute and file such certificates and other documents required or desirable to effectuate
and evidence the dissolution and termination of the Company. Prior to the distribution
of all of the assets of the Company, the business of the Company and the Members, as
such, shall continue to be governed by this Agreement.
10.2 Liquidation.
(a) Upon dissolution of the Company, the Members shall commence to
wind up the affairs of the Company and to liquidate or distribute its assets. The
Members shall, subject to Section 5.5, have full right and unlimited discretion to
determine the time, manner and terms of any sales or distributions of Company assets
pursuant to such liquidation, having due regard to the activity and condition of the
relevant markets and general financial and economic conditions. In connection with any
winding up of the Company, the assets of the Company may be sold or otherwise
Transferred to the Members as the Members shall determine subject to Section 10.3.
The assets of the Company shall be liquidated as promptly as practicable in an orderly
and businesslike manner so as to maximize the liquidation proceeds from the Disposition
of such assets in connection with the dissolution, winding up and liquidation of the
Company.
(b) Upon the dissolution and termination of the Company, no Member
shall be obligated to contribute to the Company any deficit balance in its Capital
Account (after adjustment for all distributions (including liquidating distributions) and
allocations for the Fiscal Year in which the termination occurs); provided, however that
each Member shall remain bound by any guarantees or indemnities set forth in any
Ancillary Agreement.
(c) After dissolution and liquidation, the assets of the Company shall be
applied in the following order:
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(a) To payment of all debts and obligations of the Company then
due other than to any Member or any Affiliate of any Member;
(b) To payment of all debts and obligations of the Company to
Schuler Parent, Schuler Sub or their respective Affiliates;
(c) To Schuler Sub in accordance with its Capital Account;
(d) To payment of all debts and obligations of the Company to
Stafford or its Affiliates; and
(e) To Stafford in accordance with its Capital Account.
10.3 Purchase of Assets of the Company by Members upon Winding Up. If the
Members determine to sell any assets of the Company in connection with the dissolution,
liquidation and winding up of the Company, any Member (or any Affiliate thereof) shall
have the right to bid on and, if such bid is accepted by all of the Members, purchase
such assets at any such sale. If any Member (or any Affiliate thereof), purchases any
asset of the Company that constitutes a right or license that was previously granted to (or
otherwise necessary to) any other Member (or any Affiliate thereof), the Member (or
Affiliate) purchasing such asset shall continue to bound by the terms of such grant or
license and shall negotiate in good faith to continue to allow the other Members (or
their Affiliates) to use such asset, as applicable. In the event a Member's bid to
purchase assets is accepted by the Members, such Member may, with the Consent of the
Members (which consent shall not be unreasonably withheld) elect to have such assets
distributed to it as part of (and the agreed purchase price thereof credited against) the
liquidating distribution to such Member pursuant to Section 10.2 above; provided such
Member pays to the Company the amount, if any, by which the agreed purchase price of
the assets exceeds the dollar amount of the liquidating distribution to which such
Member is entitled under said section.
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ARTICLE XI
CONFIDENTIALITY
11.1 Confidentiality. Subject to the provisions of this Section 11.1, each
Member (i) shall, and shall cause its respective officers, directors, employees, attorneys,
accountants, auditors, agents and Affiliates (each such Member and its officers,
employees, attorneys, accountants, auditors, agents and Affiliates being referred to herein
as a 'Restricted Party" and collectively, 'Restricted Parties"), to maintain in strictest
confidence the existence and terms of this Agreement, all Ancillary Agreements and any
and all confidential information relating to the Company and the Company Business that
is proprietary to the Company or otherwise not available to the general public
('Confidential Information") and (ii) shall not disclose, and shall cause its Restricted
Parties not to disclose, Confidential Information to any Person other than to the other
Members and the Company except only to the extent such disclosure is required by Law
or legal process, regulatory agencies (including pursuant to any listing agreement with, or
rules or regulations of, any national securities exchange on which any securities of such
Member (or any Affiliate thereof) are listed or traded) in which event the Member
making such disclosure or whose Restricted Parties are making such disclosure shall so
notify the other Members as promptly as practicable.
11.2 Permitted Disclosures. Notwithstanding anything to the contrary contained
in this Section 11.1:
(a) Any Member and any direct or indirect parent of any Member may
disclose any Confidential Information:
(i) for bona fide business purposes on a strict "need to know"
basis to its Affiliates, its Board of Directors, its representatives and its lenders, provided
that in each such case each such Person executes a confidentiality agreement that
contains provisions that are at least as protective of the Company and the other
Members as are set forth in Section 11.1; and
(ii) in order to enforce the rights of such Member under this
Agreement or the rights of such Member under any Ancillary Agreement or in
connection with any litigation involving the Company or relating to this Agreement or
any Ancillary Agreement.
(b) The provisions of Section 11.1 shall not apply to, and Confidential
Information shall not include:
(i) any information that has become generally available to the
public other than as a result of a disclosure by any Restricted Party in breach of any of
the provisions of this Section 11.1 or any Ancillary Agreement;
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(ii) any information that has been independently developed by
such Restricted Party without violating any of the provisions of this Agreement, any
Ancillary Agreement or any other similar Contract to which such Restricted Party is
bound, excluding the Contributed Assets;
(iii) any information that was or is in the possession of such
Restricted Party prior to the date that such a Member (or any Affiliate thereof) became
a Member and was not obtained from any Member or any prospective Member (or any
Affiliate thereof) in breach of an obligation of confidentiality, excluding the Contributed
Assets; or
(iv) any information made available to such Restricted Party, on a
non -confidential basis by any third party unless such Restricted Party has actual
knowledge that such third party breached an obligation of confidentiality to a Member,
the Company, or any other Person by making such information available to such
Restricted Party.
11.3 Press Releases. Any press release or similar communication intended for
dissemination to the public concerning the formation and/or operation of the Company
shall be approved in advance by the Members.
11.4 Use of Confidential Information. Except as otherwise provided for in this
Agreement or in any Ancillary Agreement, Confidential Information received hereunder
shal; be used by each Member and its Affiliates solely in connection with such Member's
investrn�nt in the Company and with respect to the Company Business. Upon a
Member's ceasing to be a Member, such former Member shall return all Confidential
Information in its possession to the Company except for any information concerning the
Company's or such Member's Taxes.
11.5 Survival of Covenants. The obligations of each Member under this
Article XI shall survive with respect to any Member or its Restricted Parties until the
earlier of (i) thirty-six (36) months after the date on which the Company is dissolved in
accordance with Article X or (ii) thirty-six (36) months after such Member ceases to be a
Member; provided that the obligations of each Member under this Article XI with
respect to Confidential Information that constitutes trade secrets of the Company shall
survive indefinitely.
11.6 Intent; Severability. It is the intent and understanding of each party hereto
that if, in any action before any Governmental Entity, any term, restriction, covenant or
promise in this Article XI is found to be unreasonable and for that reason
unenforceable, then such term, restriction, covenant or promise shall be deemed
modified to the extent necessary to make it enforceable by such Governmental Entity.
11.7 Injunctive Relief. Each Member acknowledges that (a) the covenants and
the restrictions contained in this Article XI are a material factor to such Member's
execution of this Agreement and are necessary and required for the protection of the
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Company, (b) such covenants relate to matters that are of a special, unique and
extraordinary character that gives each of such covenants a special, unique and
extraordinary value, and (c) a breach of any of such covenants will result in irreparable
harm and damages to the Company in an amount difficult to ascertain and which cannot
be adequately compensated by a monetary award. Accordingly, in addition to any of the
relief to which the Company may be entitled at law or in equity, the Company shall be
entitled to temporary and/or permanent injunctive relief from any breach or threatened
breach by a Member of the provisions of this Article XI without proof of actual damages
that have been or may be caused to the Company by such breach or threatened breach.
ARTICLE XII
BOOKS AND RECORDS; ACCOUNTING; TAX ELECTIONS; ETC.
12.1 Accounting; Fiscal Year. The books and records of the Company shall be
kept in accordance with any reasonable accounting method designated by all of the
Members. The Fiscal Year of the Company shall be the calendar year.
12.2 Reports.
(a) As soon as practicable, but in no event later than ninety (90) days
after the end of each Fiscal Year, the Chief Executive Officer shall cause to be prepared
and furnished to each Person who was a Member during such Fiscal Year, information
reasonably necessary for the preparation of such Person's federal income tax return and
any state and local income tax returns required of such Person as a result of the
operations of the Company. The Chief Executive Officer shall also cause to be timely
furnished to each such Person information with respect to the operations of the
Company as may be reasonably necessary for the computation of such Person's quarterly
estimated tax payments. The Members agree to furnish the Company with such
information as may be necessary or helpful in preparing the tax returns or other filings of
the Company.
(b) Within thirty (30) days after the end of each Fiscal Year, the Chief
Executive Officer shall send to each Member a consolidated balance sheet for the
Company as at the end of such Fiscal Year and consolidated statements of operations
and cash flows for the Company for such Fiscal Year, which shall be prepared in
accordance with generally accepted accounting principles. Within seventy-five (75) days
after the end of each Fiscal Year, the Chief Executive Officer shall send to each
Member an auditor's report containing an opinion of the Accountants. The Chief
Executive Officer shall also send each Member a schedule reconciling the Net Income of
the Company to the net income or net loss shown on such statement of operations.
(c) Within twenty (20) days after the end of each fiscal quarter (other
than the fourth quarter), the Chief Executive Officer shall send to each Member an
unaudited consolidated balance sheet for the Company as at the end of such fiscal
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quarter and unaudited consolidated statements of operations and cash flows for the
Company for such fiscal quarter, which shall be prepared in accordance with generally
accepted accounting principles.
(d) All reports required pursuant to this Section 12.2 shall be at the
expense of the Company.
12.3 Books and Records. The Company shall maintain all records necessary for
documenting and reporting the business and affairs of the Company. Such books and
records shall at all reasonable times be open to inspection and copying by any Member
or its representatives.
12.4 Audit Rights.
(a) Any Member shall have the right to have an accountant designated
by such Member and reasonably acceptable to the Members examine the books and
records of the Company; provided that (i) the fees of such accountant and all other costs
associated with such examination shall be borne by the Member designating such
accountant; (ii) such examination shall take place during normal business hours and in a
manner that is not disruptive to the business of the Company and (iii) no more than one
such examination shall take place in any period of twelve (12) consecutive months.
(b) The Company shall also allow representatives of any Governmental
E.i;ity to examine the books and records of the Company; provided that (i) if the audit
or examination relates to a Member, the fees and costs associated with such examination
shall be borne by such Member and (ii) such examination shall take place during normal
business hours and in a manner that is not disruptive to the business of the Company.
12.5 Bank Accounts. The Company shall establish and maintain accounts in
such financial institutions (including, without limitation, national or state banks, trust
companies, or savings and loan institutions) and in such amounts as the Members may
deem necessary from time to time. Checks shall be drawn on and withdrawals of funds
shall be made from any such accounts for Company purposes and shall be signed by the
Person or Persons designated by the Members.
12.6 Tax Policy; Tax Returns.
(a) The Chief Executive Officer shall cause to be prepared and filed, at
the cost and expense of the Company, all necessary Company tax returns, and the
Members (and their Affiliates) shall prepare their tax returns consistently with such
Company tax returns. The Company shall adopt the accrual method of accounting for
tax purposes.
(b) (i) The Chief Executive Officer shall cause drafts of all
Company federal and state income tax returns to be delivered to each Member (as well
as any additional returns requested by such Member) for review as soon as practicable
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after they are prepared, but in no event shall they be delivered later than 30 days prior
to the due date, as extended, for filing such returns.
(ii) If a Member disagrees with the treatment of any item (within
the meaning of section 6231(a)(3) of the Code and Regulations thereunder) on any
income tax return, or with the treatment of any item or position taken on any other tax
return or report of the Company, it shall give written notice to the Company as soon as
practicable before the due date of such return, as extended, which notice shall state that
Member's proposed treatment of the disputed item, and the Members shall attempt in
good faith to negotiate a settlement of the dispute. Notwithstanding the foregoing,
unless any such treatment is contrary to a "determination" within the meaning of Section
1313 of the Code, the Members agree that no Member shall, in connection with any tax
returns, audits or proceedings, dispute the treatment of any payment made pursuant to
any contractual arrangements between the Company and the Members or their Affiliates
in accordance with its form or characterization as set forth in the documents pertaining
thereto.
(a) If the Members cannot reach a decision on the treatment of
a particular item, the Company shall seek written advice from a nationally recognized
firm of independent public accountants (the "Tax Dispute Accountant") unanimously
selected by the Members, which selection shall include the individual who shall represent
the firm for this purpose. The Members shall confirm the availability of its selection to
serve as the Tax Dispute Accountant for each Taxable Year no later than the end of
such Taxable Year; provided that the parties hereto agree to develop an appropriate
procedure for dealing with the development of conflicts of interest or similar situations
in which a Tax Dispute Accountant previously selected by the Members may be
removed, or disqualified from acting on a particular matter, by the Members. If the firm
or its representative so selected cannot serve and the Members cannot unanimously and
promptly agree upon an alternative Tax Dispute Accountant, the Tax Dispute
Accountant shall be selected by the president of the American Arbitration Association.
The Members shall present their arguments to the Tax Dispute Accountant as soon as
practicable thereafter and the Tax Dispute Accountant shall promptly resolve the
dispute. The Tax Dispute Accountant shall resolve the question of how the item should
be treated on the applicable tax return in a fair and equitable manner, consistent with
the terms of this Agreement, the Ancillary Agreements and in accordance with
applicable tax law. In rendering its decision, if more than one treatment of an item
would satisfy the preceding sentence, the Tax Dispute Accountant shall, if applicable, (x)
deem the Company's past practice to be presumptively correct, which presumption can
only be rebutted upon a showing of (i) clear and convincing evidence that such past
practice is no longer correct or (ii) a compelling reason to change the Company's past
practice due to changed circumstances, and (y) deem a position advocated by one or
more Members to be presumptively correct if such position materially affects the tax
liability of such Members and does not materially adversely affect the tax liability of any
other Member, other than the possible imposition of interest, penalties and audit costs if
such position is challenged by a tax authority, and the affected Members and their
creditworthy Affiliates agree to indemnify the other Members in a manner deemed
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reasonable by the Tax Dispute Accountant. The final decision of the Tax Dispute
Accountant shall be final, conclusive and binding on the parties, and the Company, as
the case may be, shall report the disputed item on its return in the manner provided in
such decision.
(b) If a dispute cannot be resolved pursuant to the above
procedures prior to the due date for filing the relevant return, the Company shall (i)
extend the due date for filing the return to the extent permitted by law or (ii) if the due
date cannot be extended or if the Members otherwise agree, file the return as
preliminarily prepared and file an amended return, if necessary, to reflect the final
resolution of the dispute.
12.7 Taxable Year. The taxable year of the Company ("Taxable Year") shall be
the Fiscal Year or such other period as the Membership Committee may determine and
as may be either approved by the Internal Revenue Service or otherwise available for tax
purposes. The Membership Committee shall give all Members notice of any change of
the date on which the taxable year of the Company shall end.
12.8 Tax Elections and Other Tax -Related Transactions. All tax elections of the
Company required or permitted to be made under the Code and any applicable state,
local or foreign tax law and any decision with respect to the tax treatment of Company
transactions shall be made or not made as may be approved by all of the Members;
provided, that if the Members cannot decide on whether an election or decision shall be
made within a reasonable time, the dispute shall be resolved in a manner similar to that
provided in Section 12.6(c) hereof. Notwithstanding the foregoing, (i) the Company shall
make the election provided under Section 754 of the Code and (ii) neither the Company
(nor any Member) shall make an election (or take any other action) to cause the
Company to be treated as a corporation for tax purposes without the approval of all of
the Members.
12.9 Tax Matters Member. Until the exercise of the First Option, Stafford shall
be the "tax matters partner" of the Company as defined in Section 6231(a)(7) of the
Code ("Tax Matters Member'). Thereafter, Schuler Sub shall be the Tax Matters
Member. Notwithstanding the foregoing, no Member may serve as Tax Matters Member
once such Member ceases to be a Member. The Tax Matters Member shall obtain the
approval of all of the Members before taking any action in its capacity as Tax Matters
Member pursuant to this Section 12.9, other than ministerial acts. Without limiting the
generality of the foregoing, the Tax Matters Member shall not, with respect to Company
tax matters, without first obtaining the approval of all of the Members, (i) enter into a
settlement agreement with the IRS which purports to bind Members other than the Tax
Matters Member, (ii) file a petition pursuant to Code section 6226(a) or 6228, (iii)
intervene in any action pursuant to Code section 6226(b)(5) or (iv) enter into an
agreement extending the statute of limitations pursuant to Code section 6229(b)(1)(B).
12.10 Tax Proceedings. The Members shall have the authority to contest, control,
compromise, settle or appeal any federal, state, local or foreign tax examinations, claims,
l3PHPA7\rM6A0229673. 06 45
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proposed adjustments, proceedings or related matters ("Tax Proceedings") with respect to
the Company. Each Member shall be given notice of all Tax Proceedings and all
meetings, telephone conferences and correspondence with any tax authority with respect
thereto. Each Member shall be entitled to monitor all meetings and telephone
conferences with, and to review any written information pleadings or similar items
submitted to, any tax authority; provided that no actions or statements may be taken or
made by such Member which violates the substance or spirit of Section 12.6(c) as it
pertains to the treatment of Company tax items. All actions with respect to Tax
Proceedings shall be as directed by the Members; provided, however, that if the
Members cannot reach agreement on any action within a reasonable time, the dispute
shall be resolved in a manner similar to that provided in Section 12.6(c) hereof. The
decision of the Tax Dispute Accountant with respect to any dispute shall be final,
conclusive and binding, and all of the Members shall comply with such decision in good
faith in connection with all further activities with respect to the disputed Tax
Proceedings.
12.11 Entity Classification for Federal Income Tax Purposes. The Tax Matters
Member shall cause the Company to be treated as a partnership for federal income tax
purposes pursuant to the "default" provisions of Regulation 301.7701-3(b).
ARTICLE XIII
EXCULPATION AND INDEMNIFICATION
13.1 Limitation of Liability. No Member and no Representative shall be liable
in damages or otherwise to the Company or any Member for any Losses incurred by
reason of any act or omission performed or omitted by such Person in good faith either
on behalf of the Company or in furtherance of the interests of the Company, and
performed or omitted in a manner reasonably believed by such Person to be within the
scope of the authority granted by this Agreement, by Law or by the Consent of the
Members or by the Consent of the Membership Committee, provided that such Person
was not guilty of gross negligence with respect to such act or omission.
13.2 Indemnification of Members and Representatives. To the fullest extent
permitted by Law, the Company shall indemnify and hold harmless each of the Members
and each of the Representatives (each, an "Indemnitee") who was or is a party or is
threatened to be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, by reason of any act
or omission or alleged act or omission arising out of such Indemnitee's activities as a
Member or on behalf of the Company if such activities were performed in good faith
either on behalf of the Company or in furtherance of the interests of the Company, and
were performed or omitted in a manner reasonably believed by such Indemnitee to be
within the scope of the authority conferred by this Agreement, by Law or by the Consent
of the Members or by the Consent of the Membership Committee, against Losses for
which such Indemnitee has not otherwise been reimbursed actually and reasonably
BPHPA1\TM6\0229673.06 46
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incurred by such Indemnitee in connection with such action, suit or proceeding, so long
as such Indemnitee was not guilty of gross negligence with respect to such act or
omission.
13.3 Right to Advances. Each Indemnitee shall have the right to receive
advances from the Company for all Losses incurred as a result of a legal action and all
amounts for which such Indemnitee believes in good faith that he, she or it is entitled to
indemnification under this Article XIII provided, however, that as a condition thereto,
such Indemnitee shall, if required by the Company, provide an undertaking to repay to
the Company all such Losses so advanced to the extent that a court of competent
jurisdiction determines that such Indemnitee is not entitled to indemnification therefor.
13.4 Indemnification Not Exclusive Remedv. The indemnification rights
provided by this Article XIII shall be in addition to any other rights to which an
Indemnitee may be entitled under any agreement, approved by all of the Members, as a
matter of Law or otherwise, and shall continue as to an Indemnitee who has ceased to
serve in such capacity and shall inure to the benefit of the heirs, successors, assigns and
administrators of an Indemnitee.
13.5 No Limit. Nothing in this Article XIII is intended to limit any obligation
that a Member of the Company may have to contribute to losses of the Company,
whether pursuant to the Act, this Agreement, any Ancillary Agreement, any Ancillary
Agreements or otherwise.
13.6 Indemnification of Officers and Agents. The Membership Committee shall
have the authority to provide indemnification to officers, employees and agents of the
Company consistent with the provisions of this Article XIII.
F- 7111laWKWOVA
MISCELLANEOUS
14.1 Complete Agreement. This Agreement, the Ancillary Agreements and the
Certificate constitute the complete and exclusive statement of agreement among the
Members with respect to the subject matter herein and therein and replace and
supersede all prior written and oral agreements or statements by and among the
Members or any of them with respect to such subject matter.
14.2 BindingEffect. ffect. Subject to the provisions of this Agreement relating to
transferability, this Agreement will be binding upon and inure to the benefit of the
Members, and their respective permitted successors and assigns.
14.3 Parties in Interest. Except as expressly provided in the Act, nothing in this
Agreement shall confer any rights or remedies under or by reason of this Agreement on
any Persons other than the Members and their respective permitted successors and
8PHPAI\TM6\0229673.06
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assigns nor shall anything in this Agreement relieve or discharge the obligation or
liability of any third person to any party to this Agreement, nor shall any provision give
any third person any right of subrogation or action over or against any party to this
Agreement.
14.4 Pronouns: Statutory References. All pronouns and all variations thereof
shall be deemed to refer to the masculine, feminine, or neuter, singular or plural, as the
context in which they are used may require. Any reference to the Code, the Regulations,
the Act, or other statutes or laws will include all amendments, modifications, or
replacements of the specific sections and provisions concerned.
14.5 Headings. All headings herein are inserted only for convenience and ease
of reference and are not to be considered in the construction or interpretation of any
provision of this Agreement.
14.6 Interpretation. In the event any claim is made by any Member relating to
any conflict, omission or ambiguity in this Agreement, no presumption or burden of
proof or persuasion shall be implied by virtue of the fact that this Agreement was
prepared by or at the request of a particular Member or its counsel.
14.7 References to this Agreement. Numbered or lettered articles, sections and
subsections herein contained refer to articles, sections and subsections of this Agreement
unless otherwise expressly stated.
14.8 Jurisdiction. Each Member hereby consents to the exclusive jurisdiction of
the state and federal courts sitting in Delaware in any action on a claim arising out of,
under or in connection with this Agreement or the transactions contemplated by this
Agreement, provided such claim is not required to be arbitrated pursuant to
Section 14.9. Each Member further agrees that personal jurisdiction over it may be
effected by service of process by registered or certified mail addressed as provided in
Section 14.13 of this Agreement, and that when so made shall be as if served upon it
personally within the State of Delaware.
14.9 Arbitration. Except as otherwise provided in this Agreement, any
controversy between the parties arising out of this Agreement shall be submitted to the
American Arbitration Association for arbitration in Seattle, Washington. The costs of
the arbitration, including any American Arbitration Association administration fee, the
arbitrator's fee, and costs for the use of facilities during the hearings, shall be borne
equally by the parties to the arbitration. Attorneys' fees may be awarded to the
prevailing or most prevailing party at the discretion of the arbitrator. Applicable
provisions of the Delaware Code of Civil Procedure shall apply to the arbitration. The
arbitrator shall not have any power to alter, amend, modify or change any of the terms
of this Agreement nor to grant any remedy which is either prohibited by the terms of this
Agreement, or not available in a court of law.
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14.10 Exhibits and Schedules. All Exhibits and Schedules attached to this
Agreement are incorporated and shall be treated as if set forth herein.
14.11 Severability. If any provision of this Agreement or the application of such
provision to any Person or circumstance is found to be void and/or unenforceable by a
court of competent jurisdiction, the remainder of this Agreement or the application of
such provision to Persons or circumstances other than those to which it is found void
and/or unenforceable shall not be affected thereby and shall nevertheless be binding
upon the parties with the same effect as though the void or unenforceable part had been
severed and deleted.
14.12 Additional Documents and Acts. Each Member agrees to execute and
deliver such additional documents and instruments and to perform such additional acts
as may be necessary or appropriate to effectuate, carry out and perform all of the terms,
provisions, and conditions of this Agreement and the transactions contemplated hereby.
14.13 Notices. Except as otherwise provided for in this Agreement, all notices
and other communications required or permitted hereunder shall be in writing, shall be
deemed duly given upon actual receipt, and shall be delivered (a) in person, (b) by
registered or certified mall (air mail if addressed to an address outside of the country in
which mailed), postage prepaid, return receipt requested, (c) by a generally recognized
overnight courier service which provides written acknowledgement by the addressee of
receipt, or (d) by facsimile or other generally accepted means of electronic transmission
(provided that a copy of any notice delivered pursuant to this clause (d) shall also be
seat pursuant to clause (b)), addressed as set forth on Exhibit G (as sach Exhibit may be
amended from time to time by written notice from a Member to the Company pursuant
to this Section 14.13).
14.14 Multiple Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which shall constitute
one and the same instrument.
14.15 Attorneys' Fees. In the event that any dispute between the Company and
the Members or among the Members with respect to this Agreement should result in
litigation or arbitration, the prevailing party in such dispute shall be entitled to recover
from the other party all reasonable fees, costs and expenses of enforcing any right of the
prevailing party, including without limitation, reasonable attorneys' fees and expenses, all
of which shall be deemed to have accrued upon the commencement of such action and
shall be paid whether or not such action is prosecuted to judgment. Any judgment or
order entered in such action shall contain a specific provision providing for the recovery
of such reasonable attorneys' fees and costs incurred in enforcing such judgment and an
award of prejudgment interest from the date of the breach at the maximum rate of
interest allowed by law. For the purposes of this Section 14.15: (a) attorney fees shall
include, without limitation, fees incurred in the following: (A) post -judgment motions;
(13) contempt proceedings; (C) garnishment, levy, debtor and third party examinations;
(D) discovery; and (E) bankruptcy litigation and (b) prevailing party shall mean the party
6PHPA1\TM6\0229673.06 49
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who is determined in the proceeding to have prevailed or who prevails by dismissal,
default or otherwise.
14.16 Remedies Cumulative. The remedies under this Agreement are cumulative
and shall not exclude any other remedies to which any person may be lawfully entitled.
14.17 Amendments. This Agreement may be amended only by the written
consent of Stafford and Schuler Sub. This Agreement and each amendment hereto or
thereto shall be kept in the files of the Company and copies hereof and thereof shall be
made available to each Member upon written request.
14.18 Applicable Law. This Agreement shall be construed and enforced in
accordance with the laws of the State of Delaware, without regard to such state's conflict
of law provisions.
14.19 Waiver. No waiver by a Member or the Company of any breach of or
default under this Agreement shall be deemed to be a waiver of any other breach or
default of any kind or nature, and no acceptance of payment or performance by a
Member or the Company after any such breach or default shall be deemed to be a
waiver of any breach or default of this Agreement, whether or not such Member or the
Company knows of such breach or default at the time it accepts such payment or
performance. No failure or delay on the part of a Member or the Company to exercise
any right it may have shall prevent the exercise thereof by such Member or the Company
at any time such other may continue to be so in default, and no such failure or delay
shall operate as a waiver of any default.
[Remainder of Page Intentionally Left Blank]
BPHPAI\TM6\0229673.06 50
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All of the Members of SSHI LLC, a Delaware limited liability company, have
executed this Agreement, effective as of the date written above.
MEMBER:
STAFFORD CONSTRUCTION, INC.
r
Brien Stafford,.
MEMBER:
SHLR OF WASHINGTON, INC.
*niesK. Schuler,
President
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