L.C. Agreement
OPERATING AGREEMENT OF FARR INN, L.C.
THIS AGREEMENT is among Farr Inn, L.C., a Utah limited liability company (the
"Company"), Rachel Johnson, an individual and Franklin Farr, an individual.
RECITALS
The Company is a limited liability company formed under the Utah Limited Liability
Company Act. The other parties to this Agreement are the Company's Initial Members.
The parties intend by this Agreement to define their rights and obligations with respect to
the Company's governance and financial affairs and to adopt regulations and procedures
for the conduct of the Company's activities. Accordingly, with the intention of being legally
bound, they agree as follows:
ARTICLE 1: DEFINITIONS
1.01 Scope. For purposes of this Agreement, unless the language or context clearly
indicates that a different meaning is intended, capitalized terms have the meanings specified
in this Article.
1.02 Defined Terms.
(a) "Act" means the Utah Limited Liability Company Act
(b) "Affiliate," with respect to a Person, means (1) a Person that, directly or indirectly,
through one or more intermediaries, controls, is controlled by or is under common control
with the Person, (2) a Person who owns or controls at least ten percent of the outstanding
voting interests of the Person, (3) a Person who is an officer, director, manager or general
partner of the Person, or (4) a Person who is an officer, director, manager, general partner,
trustee or owns at least ten percent of the outstanding voting interests of a Person described
in clauses (1) through (3) of this sentence.
(c) "Agreement" means this agreement, including any amendments.
(d) "Articles" means the articles of organization filed with the Division of Corporations
and Commercial Code to organize the Company as a limited liability company, including any
amendments.
(e) "Available Funds" means the Company's gross cash receipts from operations, less
the sum of. (1) payments of principal, interest, charges and fees pertaining to the Company's
indebtedness; (2) expenditures incurred incident to the usual conduct of the Company's
business; and (3) amounts reserved to meet the reasonable needs of the Company's business.
(f) "Bankruptcy" means the filing of a petition seeking liquidation, reorganization,
arrangement, readjustment, protection, relief or composition in any state or federal bankruptcy,
insolvency, reorganization or receivership proceeding.
(g) "Capital Account" of a Member means the capital account maintained for the
Member in accordance with Article 4.05.
(h) "Code" means the Internal Revenue Code of 1986, as amended.
(i) "Company" means Farr Inn, L.C. and any successor limited liability company.
(j) "Competing Activity" means all activity that competes with or is benefited by the
Company's present or prospective activities. A passive investment in any Entity engaged in
a Competing Activity is itself a Competing Activity only if the investor and the Entity are
Affiliates.
(k) "Contribution" means anything of value that a Member contributes to the Company
as a prerequisite for or in connection with membership, including any combination of cash,
property, services rendered, a promissory note or any other obligation to contribute cash or
property or render services.
(l) "Dissociation" means a complete termination of a Member's membership in the
Company in consequence of an event described in Article 3.10.
(m) "Distribution" means the Company's direct or indirect transfer of money or other
property with respect to a Membership Interest.
(n) "Effective Date," with respect to this Agreement, means the date on which the
Company's existence as a limited liability company begins, as prescribed by the Act.
(o) "Entity" means an association, relationship or artificial person through or by
means of which an enterprise or activity may be lawfully conducted, including, without
limitation, a partnership, trust, limited liability company, corporation, joint venture,
cooperative or association.
(p) "Manager" means a Member who is vested with authority to manage the Company
in accordance with Article 5.
(q) "Member" means an initial Member and any Person who subsequently is admitted
as an additional or substitute Member after the Effective Date, in accordance with Article 3.01.
(r) "Membership Interest" means a Member's percentage interest in the Company,
consisting of the Member's right to share in Profits, receive Distributions, participate in the
Company's governance, approve the Company's acts, participate in the designation and removal
of the Manager and receive information pertaining to the Company's affairs. The Membership
Interests of the initial Members are set forth in Article 3.01(a). Changes in Membership Interests
after the Effective Date, including those necessitated by the admission and Dissociation
of Members, will be reflected in the Company's records. The allocation of Membership Interests
reflected in the Company's records from time to time is presumed to be correct for all purposes
of this Agreement and the Act.
(s) "Minimum Gain" means minimum gain as defined in Section 1.704-2 of the
Regulations.
(t) "Permitted Transferee," with respect to a Member, means a member of the
Member's family.
(u) "Person" means a natural person or an Entity.
(v) "Profit," as to a positive amount, and "Loss," as to a negative amount,
means, for a Taxable Year, the Company's income or loss for the Taxable Year, as determined
inaccordance with accounting principles appropriate to the Company's method of accounting,
and consistently applied.
(w) "Regulations" means proposed, temporary or final regulations promulgated
under the Code by the Department of the Treasury, as amended.
(x) "Taxable Year" means the Company's taxable year as determined in accordance
with Article 6.02.
(y) "Transfer," as a noun, means a transaction or event by which ownership of
a Membership Interest is changed or encumbered, including, without limitation, a sale,
exchange, abandonment, gift, pledge or foreclosure. "Transfer," as a verb, means to effect
a Transfer.
(z) "Transferee" means a Person who acquires a Membership Interest by Transfer
from a Member or another Transferee and is not admitted as a Member in accordance with
Article 3.01.
ARTICLE 2: THE COMPANY
2.01 Status. The Company is a Utah limited liability company organized under the Act.
2.02 Name. The Company's name is Farr Inn, L.C.
2.03 Term. The Company's existence as a limited liability company will commence on
the Effective Date and continue for fifty years, unless sooner terminated under the Act or
this Agreement.
2.04 Purpose. The Company's purpose is to engage in any lawful act or activity for
which a limited liability company may be organized under the Act.
2.05 Principal Place of Business. The Company's principal place of business is
located at 13073 Wheatfield Way, Draper, Utah 84020.
2.06 Registered Agent and Registered Office. The Company's registered office in Utah
is located at 13073 Wheatfield Way, Draper, Utah 84020, and its registered agent at that
location is Michael J. Bevins. The Company may change its registered agent or registered
office at any time in accordance with the Act.
ARTICLE 3: MEMBERS
3.01 Identification.
(a) Initial Members. The names, addresses and Membership Interests of the Initial
Members are as follows:
Rachel Johnson [25.00%]
Franklin Farr [25.00%]
John Doe [25.00%]
Jane Doe [25.00%]
(b) Additional and Substitute Members. The Company may admit additional or
substitute Members only with the approval of all Members. A Member may withhold
approval of the admission of any Person for any or no reason.
(c) Rights of Additional or Substitute Members. A Person admitted as an
additional or substitute Member has all the rights and powers and is subject to all the
restrictions and obligations of a Member under this Agreement and the Act.
3.02 Changes and Verification of Membership Interests.
(a) Changes in Membership Interests. The Members' Membership Interests
may be changed only with the approval of all Members.
(b) Verification of Membership Interests. Within 10 days after receipt of a
Member's written request, the Company will provide the Member with a statement of
the Member's Membership Interest. The statement will serve the sole purpose of
verifying the Member's Membership Interest, as reflected in the Company's records,
and will not constitute for- any purpose a certificated security, negotiable instrument
or other vehicle by which a Transfer of a Membership Interest may be effected.
3.03 Manner of Acting.
(a) Right to Call. Any Manager or any Member or combination of Members
whose Membership Interest exceeds 10 percent may call a meeting of Members by
giving written notice to all Members not less than 10 nor more than 60 days prior to
the date of the meeting. The notice must specify the date of the meeting and the
nature of any business to be transacted. A Member may waive notice of the meeting
of Members only, in writing or by attendance at the meeting.
(b) Proxy Voting. A Member may act at a meeting of Members through a
Person authorized by signed proxy.
(c) Quorum. Members whose aggregate Membership Interest exceeds 50
percent will constitute a quorum at a meeting of Members. No action may be taken
in the absence of a quorum.
(d) Required Vote. Except with respect to matters for which greater minimum
vote is required by the Act or this Agreement, the vote of Members present whose
aggregate Membership Interest exceeds 50 percent of the aggregate Membership
Interest of all Members present will constitute the act of the Members at a meeting of
Members.
(e) Written Consent. The Members may act without a meeting by written
consent describing the action and signed by Members whose aggregate Membership
Interest is at least equal to the minimum that would be necessary to take the action at
a meeting at which all Members were present.
3.04 Extraordinary Matters Notwithstanding any other provision of this
Agreement, the vote of all Members is required for approval of (a) the sale, lease,
exchange, mortgage, pledge or other disposition of all or substantially all of the
Company's assets; (b) the Company's merger with or conversion into another Entity;
and (c) an undertaking involving a debt or obligation in excess of $10,000.00.
3.05 Limitation on Authority. A Member who is not also the Manager has no
authority to bind the Company. A Member whose unauthorized act obligates the
Company to a third party will indemnify the Company for any costs or damages the
Company incurs as a result of the unauthorized act.
3.06 Negation of Fiduciary Duties. A Member who is not also the Manager owes
no fiduciary duties to the Company or to the other Members solely by reason of being
a Member, however, a Member may not participate, directly or indirectly, in a Competing
Activity. If a Member nevertheless participates in a Competing Activity, the Member
must account to the Company for any income the Member derives from such participation.
3.07 Resignation of a Member. A Member may resign from the Company only with
the approval of all remaining Members.
3.08 Expulsion of a Member. At any time there are more than two Members, the
Company may expel a Member, but only for cause and with the approval of all other
Members. Cause for expansion exists if the Member has materially breached or is unable
to perform the Member's material obligations under this Agreement. A Member's expulsion
from the Company will be effective upon the Member's receipt of written notice of the
expulsion
3.09 Transfer of Membership Interest.
(a) Restrictions of Transfer. A Member may Transfer a Membership Interest
only in compliance with this Article 3.09. An attempted Transfer of all or a portion of a
Membership Interest that is not in compliance with this Article 3.09 is null and void.
(b) Permitted Transfers. A Member at any time may Transfer all or a portion of
a Membership Interest to a Permitted Transferee if, as of the date the Transfer takes
effect, the Company is reasonably satisfied that all of the following conditions are met:
(1) the Transfer, alone or in combination with other Transfers, will not result
in the Company's termination for federal income tax purposes;
(2) the Transfer is the subject of an effective registration under, or exempt
from the registration requirements of, applicable state and federal securities laws; and
(3) the Company receives from the Transferee the information and
agreements reasonably required to permit it to file federal and state income tax returns
and reports.
(c) Right of First Refusal.
(1) If at any time a Member proposes to sell a Membership Interest pursuant
to a bona fide written offer from a third-party purchaser other than a Permitted Transferee,
the Member (the "seller") will make a written offer to sell the Membership Interest to the
remaining Members for the same price and on the same terms as those contained in the
offer from the third party.
(2) The remaining Members must accept the seller's offer by written notice
delivered to the seller within 30 days after the offer is received.
(3) The remaining Members may divide the Membership Interest in any
manner to which they all agree. In the absence of agreement, they will divide the
Membership Interest in proportion to their Membership Interests, as of the time the
offer is received.
(4) If the remaining Members do not accept the seller's offer, the seller
may sell the Membership Interest to the third-party purchaser on the terms specified
in the original offer, provided the Company is reasonably satisfied that all of the other
conditions described by this Article 3.09 are met. However, if the remaining Members
do not accept the seller's offer and the seller does not complete the sale to the third-
party purchaser within 90 days after the remaining Members' right to accept the offer
terminated, the seller must make a new offer to the remaining Members and the
provisions of this Article 3.09 again will apply.
(d) Transferor's Membership Status. If a Member Transfers less than all of the
Membership Interest, the Member's rights with respect to the transferred portion,
including the right to vote or otherwise participate in the Company's governance
and the right to receive Distributions, will terminate as of the effective date of the
Transfer. However, the Member will remain liable for any obligation with respect
to the transferred portion that existed prior to the effective date of the Transfer,
including any costs or damages resulting from the Member's breach of this
Agreement. If the Member Transfers all of the Membership Interest, the Transfer
will constitute an event of Dissociation for purposes of Article 3.10.
(e) Transferee's Status.
(1) Admission as a Member. A Member who Transfers a Membership
Interest has no power to confer on the Transferee the status of a Member. A
Transferee may be admitted as a Member only in accordance with the provisions
of Article 3.01. A Transferee who is not admitted as a Member has only the rights
described in this Article 3.09.
(2) Rights of Non-Member Transferee. A Transferee who is not admitted
as a Member in accordance with the provisions of Article 3.01, (i) has no right to
vote or otherwise participate in the Company's governance, (ii) is not entitled to
receive information concerning the Company's affairs or inspect the Company's
books and records, (iii) with respect to the transferred Membership Interest, is
entitled to receive the Distributions to which the Member would have been entitled
had the Transfer not occurred, but only at such times and in such amounts as the
Company in its sole discretion may determine, and (iv) is subject to the restrictions
imposed by this Article 3.09 to the same extent as a Member.
3.10 Dissociation.
(a) Events of Dissociation. A Member's Dissociation from the Company occurs
upon: (1) the Member's resignation or expulsion from the Company; (2) the Member's
Transfer of the Member's entire Membership Interest; (3) the Member's Bankruptcy;
(4) as to a Member who is a natural person, the Member's death or adjudication of
incompetency; (5) as to a Member who holds a Membership Interest as a fiduciary,
distribution of the entire Membership Interest to the beneficial owners; or (6) as to a
Member that is an Entity, the Entity's dissolution.
(b) Rights of Member Following Dissociation.
(1) Right on Company's Dissolution. If a Member's Dissociation results in
the Company's dissolution under Article 7.01, the Member will be entitled to participate
in the Company's winding up to the same extent as any other Member. However, the
Company will have the right to offset against any Distribution attributable to the
Member's Membership Interest all amounts the Member owes to the Company,
including ally costs or damages resulting from the Member's breach of this Agreement.
(2) Upon Company's Continuance. If a Member's Dissociation does not
result in the Company's dissolution under Article 7.01, as of the effective date of the
Member's Dissociation: (i) the Member's right to participate in the Company's
governance, receive information concerning the Company's affairs and inspect the
Company's books and records will terminate; and (ii) unless the Dissociation resulted
from the Transfer of the Member's entire Membership Interest, the Member will be
entitled to receive the Distributions to which the Member would have been entitled
had the Dissociation not occurred, but only at such times and in such amounts as the
Company in its sole discretion may determine. Except as provided in this Article 3.10,
the Member will have no right to receive Distributions or otherwise participate in the
Company's financial affairs. The Member will, however, remain liable for any obligation
to the Company that existed prior to the effective date of the Dissociation, including
any costs or damages resulting from the Member's breach of this Agreement.
3.11 Redemption of Dissociating Member's Interest.
(a) Mandatory Redemption.
(1) If a Member's Dissociation is a result of expulsion, and if the
Dissociation does not cause the Company's dissolution under Article 7.01, the
Company will redeem all of the Member's Membership Interest on the terms set
forth in this Article 3.11.
(2) As soon as practicable and not more than 180 days after the effective
date of the Dissociation, the Company must give written notice to the Member or
the Member's successor in interest (the "seller") specifying the redemption price
and payment terms and a closing date within 60 days after the date the notice is
delivered.
(b) Redemption Price.
(1) The redemption price of the Membership Interest will be an amount
equal to its fair market value as of the effective date of the Dissociation, as
determined by a qualified appraiser selected by the Company. In determining the
fair market value of the Membership Interest, the appraiser will consider only those
factors that are relevant to the valuation of the interest as an interest in a going
concern and will be guided by Business Valuation Standards of the American
Society of Appraisers.
(2) The Company will pay all costs associated with the determination
of the redemption price.
(c) Payment Terms. The Company will pay the redemption price at the
closing in the form of its promissory note in the principal amount of the purchase
price payable in ten equal annual installments, with interest compounded quarterly
at an annual rate equal to the published prime rate of dissociation as of the date
the Company gives the seller notice of the redemption.
ARTICLE 4: FINANCE
4.01 Contributions.
(a) Initial Members. The initial Members will make the Contributions
described below:
(1) Rachel Johnson will contribute cash in the amount of $100.00.
(2) Franklin Farr will contribute cash in the amount of $100.00.
(3) John Doe will contribute cash in the amount of $500,000.00
(4) Jane Doe will contribute cash in the amount of $100.00
(b) Additional Members. A Person admitted as a Member in connection
with the acquisition of a Membership Interest directly from the Company after
the Effective Date will make the Contributions specified in the agreement
pursuant to which the Person is admitted as a Member.
(c) Additional Contributions.
(1) Permitted. The Company may authorize additional Contributions
at such times and on such terms and conditions as it determines to be in its
best interest.
(2) Required. If at any time the Company determines that its
financial resources are insufficient to meet the reasonable needs of its
business, it may require the Members to make additional Contributions
sufficient to meet those needs. The Members will make the additional
Contributions in proportion to their Membership Interests. The Company
must give each Member written notice of the obligation to contribute
additional capital. The notice must explain the need for additional capital,
specify the amount the Member is required to contribute and establish a
due date that is not less than 30 days after the date of the notice. The
Member will make the Contribution in immediately available funds on
or before the due date specified in the notice.
(3) Default Remedies. If a Member does not contribute the Member's
share of a required additional contribution on or before the due date, the
Company may take such action as it considers necessary or appropriate to
enforce the Member's obligation.
(4) Creditors' Rights. A Member's obligation to make additional
contributions extends only to the Company and may not be enforced by
the Company's creditors without the Member's written consent.
(d) Contributions Not Interest Bearing. A Member is not entitled to
interest or other compensation with respect to any cash or property the
Member contributes to the Company.
(e) No Return of Contribution. A Member is not entitled to the return
of any Contribution prior to the Company's dissolution and winding up.
4.02 Allocation of Profit and Loss.
(a) General Allocation. After giving effect to the special allocations
required by Article 4.02(b) (the "special allocations"), the Company's Profit
or Loss for a Taxable Year, including the Taxable Year in which the Company
is dissolved, will be allocated among the Members in proportion to their
Membership Interests.
(b) Special Allocations.
(1) If a Member unexpectedly receives an adjustment, allocation, or
distribution described in Sections 1.704-1(b)(2)(ii)(d)(4), (5) or (6) of the
Regulations that creates or increases a deficit in the Member's Capital Account
as of the end of a Taxable Year, a pro rata portion of each item of the Company's
income, including gross income and gain for the Taxable Year and, if necessary,
for subsequent years will be allocated to the Member in an amount and manner
sufficient to eliminate the deficit in the Member's Capital Account as quickly as
possible.
(2) If a Member would have a deficit in his or her Capital Account at
the end of a Taxable Year that exceeds the sum of (i) the amount the Member is
required to pay the Company pursuant to an obligation described in
Section 1.704-1(b)(2)(ii)(c) of the Regulations and (ii) the Member's share of
Minimum Gain, a pro rata portion of each item of the Company's income, including
gross income and gain, for the Taxable Year will be allocated to the Member in an
amount and manner sufficient to eliminate the deficit in the Member's Capital
Account as quickly as possible.
(3) If there is a net decrease in the Company's Minimum Gain during
a Taxable Year, the items of the Company's income, including gross income and
gain, for the Taxable Year and, if necessary, for subsequent Taxable Years will be
allocated to the Members in proportion to their shares of the net decrease in
Minimum Gain. If the allocation made by this paragraph would cause a distortion
in the economic arrangement among the Members and it is expected that the
Company will not have sufficient income to correct that distortion, the Company
may seek to have the Internal Revenue Service waive the requirement for the a
llocation in accordance with Section 1.704-2(t)(4) of the Regulations.
(4) Items of the Company's loss, deductions and expenditures described
in Code Section 705(a)(2)(B) that are attributable to the Company's nonrecourse debt
and are characterized as Member nonrecourse deductions under Section 1.704-2(i)
of the Regulations will be allocated to the Members' Capital Accounts in accordance
with Section 1.704-2(i) of the Regulations.
(5) Items of income, gain, loss and deduction with respect to property
contributed to the Company's capital will be allocated between the Members so as to
take into account any variation between book value and basis, to the extent and in the
manner described by section 704(c) of the Code and related Regulations.
(6) If the special allocations result in Capital Account balances that are
different from the Capital Account balances the Members would have had if the
special allocations were not required, the Company will allocate other items of income,
gain, loss and deduction in any manner it considers appropriate to offset the effects
of the special allocations on the Members' Capital Account balances. Any offsetting
allocation required by this section is subject to and must be consistent with the
special allocations.
(c) Effect of Transfers During Year. The Company will prorate items a
ttributable to a Membership Interest that is the subject of a Transfer during a
Taxable Year between the transferor and the Transferee based on the portion
of the Taxable Year that elapsed prior to the Transfer.
4.03 Tax Allocations. For federal income tax purposes, unless the Code
otherwise requires, each item of the Company's income, gain, loss or deduction
will be allocated to the Members in proportion to their allocations of the
Company's Profit or Loss.
4.04 Distributions.
(a) Available Funds. The Company will distribute its Available Funds
to the Members at annual intervals.
(b) Allocation. The Company will make all Distributions to the Members
in proportion to their Membership Interests.
4.05 Capital Accounts.
(a) General Maintenance. The Company will establish and maintain a
Capital Account for each Member. A Member's Capital Account will be:
(1) increased by: (i) the amount of any money the Member contributes
to the Company's capital; (ii) the fair market value of any property the Member
contributes to the Company's capital, net of any liabilities the Company assumes
or to which the property is subject; and (iii) the Member's share of Profits and
any separately stated items of income or gain; and
(2) decreased by: (i) the amount of any money the Company distributes
to the Member; (ii) the fair market value of-any property the Company distributes
to the Member, net of any liabilities the Member assumes or to which the property
is subject; and (iii) the Member's share of Losses and any separately stated items
of deduction or loss.
(b) Adjustments for Distributions in Kind. If at any time the Company
distributes property in kind, it will adjust the Members' Capital Accounts to account
for their shares of any Profit or Loss the Company would have realized had it sold
the property at fair market value and distributed the sale proceeds.
(c) Adjustments for Acquisitions and Redemptions. If at any time a Person
acquires a Membership Interest from the Company or the Company redeems a
Membership Interest, the Company may adjust the Members' Capital Accounts to
reflect any Profit or Loss the Company would have realized had it sold all of its
assets at fair market value on the date of the acquisition or redemption.
(d) Transfer of Capital Account. A Transferee of a Membership Interest
succeeds to the portion of the transferor's Capital Account that corresponds to
the portion of the Membership Interest that is the subject of the Transfer.
(e) Compliance with Code. The requirements of this Article 4.05 are intended
and will be construed to ensure that the allocations of the Company's income, gain,
losses, deductions and credits have substantial economic effect under the Regulations
promulgated under Section 704(b) of the Code.
ARTICLE 5: MANAGEMENT
5.01 Representative Management. The Company will be managed by one Manager.
The initial Manager is Franklin Farr.
5.02 Time Devoted to Business. The Manager will devote only the amount of time
to the Company's activities as is reasonably necessary to discharge the Manager's
responsibilities.
5.03 Powers and Authority.
(a) General Scope. Except for matters on which the Members' approval is
required by the Act or this Agreement, the Manager has full power, authority and
direction to manage and direct the Company's business, affairs and properties,
including, without limitation, the specific powers referred to in Article 5.03(b).
(b) Specific Powers.
(1) The Manager is authorized on the Company's behalf to make all
decisions as to (i) the development, sale, lease or other disposition of the Company's
assets, (ii) the purchase or other acquisition of other assets of all kinds; (iii) the
management of all or any part of the Company's assets and business; (iv) the
borrowing of money and the granting of security interests in the Company's
assets (including loans from Members); (v) the prepayment, refinancing or
extension of any mortgage affecting the Company's assets; (vi) the compromise
or release of any of the Company's claims or debts; (vii) the employment of Persons
for the operation and management of the Company's business; and (viii) all elections
available to the Company under any federal or state tax law or regulation.
(2) The Manager on the Company's behalf may execute and deliver
(i) all contracts, conveyances, assignments, leases, subleases, franchise agreements,
licensing agreements, management contracts and maintenance contracts covering or
affecting the Company's assets; (ii) all checks, drafts and other orders for the payment
of the Company's funds; (iii) all promissory notes, mortgages, deeds of trust, security
agreements and other similar documents; (iv) all articles, certificates and reports
pertaining to the Company's organization, qualification and dissolution; (v) all tax
returns and reports; and (vi) all other instruments of any kind or character relating
to the Company's affairs.
5.04 Required Member Approval. Notwithstanding any other provision of this
Agreement, without the unanimous approval of the Members, the Manager may take
no action with respect to (a) the sale, lease, exchange, mortgage, pledge or other
disposition of all or substantially all of the Company's assets; (b) the Company's
merger with or conversion into another Entity; and (c) an undertaking involving a
debt or obligation in excess of $300,000.00.
5.05 Fiduciary Duties.
(a) Standard of Care.
(1) Liability for Wrongful Acts. The Manager is liable to and will indemnify
the Company for all costs, expenses or damages attributable to an act or omission that
constitutes a breach of this Agreement, negligence, misconduct or a violation of law.
(2) Justifiable Reliance. The Manager may rely on the Company's records
maintained in good faith and on information, opinions, reports or statements received
from any Person pertaining to matters the Manager reasonably believes to be within
the Person's expertise or competence.
(b) Conflicts of Interest.
(1) Competing Activities. The Manager may not participate, directly or
indirectly, in a Competing Activity. If the Manager nevertheless participates in a
Competing Activity, the Manager will account to the Company for any income the
Manager derives from the participation.
(2) Company Opportunities. The Manager must disclose to the Company
any business opportunity that the Manager believes or has reason to believe the
Company would accept if brought to its attention. If the Company declines to accept
the opportunity, and if the opportunity does not involve a Competing Activity, the
Manager may pursue it for the Manager's own account. If the Manager fails to disclose
the opportunity, the Manager will account to the Company for any income the Manager
derives from the opportunity and will indemnify the Company for any loss the Company
incurs as a result of the failure to disclose.
(c) Self-Dealing. The Manager may enter into a business transaction with the
Company if the terms of the transaction are no less favorable to the Company than
those offered of a similar transaction with an independent third party. Approval or
ratification by Members having no interest in the transaction constitutes conclusive
evidence that the terms satisfy the foregoing condition.
5.06 Indemnification of Manager. The Company will indemnify the Manager for all
expenses, losses, liabilities and damages the Manager actually and reasonably incurred
in connection with the defense or settlement of any action arising out of or relating to
the conduct of the Company's activities, except an action with respect to which the
Manager is adjudged to be liable for breach of a fiduciary duty owed to the Company
or the Members under the Act or this Agreement.
5.07 Compensation. The Company will compensate the Manager for services
rendered to or on behalf of the Company. The amount of the compensation will be
commensurate to the value of the services and may be determined with or without regard
to Profit or other indicators of the results of operations. Compensation paid to the
Manager will be treated as an expense for purposes of determining Profit. The Company
will also reimburse the Manager for reasonable expenses properly incurred on the
Company's behalf.
5.08 Term.
(a) The Manager will serve until the earlier of:
(1) the Manager's resignation;
(2) the Manager's removal;
(3) the Manager's Bankruptcy;
(4) as to a Manager who is a natural person, the Manager's death or
adjudication of incompetency; and
(5) as to a Manager that is an Entity, the Manager's dissolution.
(b) Resignation. The Manager rightfully may resign only with the approval of all
Members. A Manager who resigns without the approval of all Members will indemnify
the Company for all costs, expenses or damages it incurs by reason of the wrongful resignation.
(c) Removal. A majority of the Members may at any time remove the Manager,
with or without cause.
(d) Vacancy. If a Manager for any reason ceases to act, the Members will promptly
elect a successor, to serve until a successor is elected and qualified.
ARTICLE 6: RECORDS AND ACCOUNTING
6.01 Maintenance of Records.
(a) Required Records. The Company will maintain at its principal place of business:
(1) a current list, in alphabetical order, of the full name and last known business
street address of each Member;
(2) copies of the stamped Articles, including any certificates of amendment, and
executed copies of any powers of attorney pursuant to which any certificate of amendment
has been executed;
(3) copies of the Company's federal, state and local income tax returns and reports,
if any, for the three most recent Taxable Years;
(4) copies of the Company's financial statements, if any, for the seven most recent
Taxable Years;
(5) a copy of this Agreement, including any amendments;
(6) a schedule showing the amount of any cash and a description and statement of
the agreed value of any other property or services contributed or agreed to be contributed by
each Member;
(7) a description of the times or events at or on which any Member is required to
make additional Contributions;
(8) a description of any right of a Member to receive Distributions that include a
return of any of the Member's Contributions; and
(9) a description of any event on which the Company is to be dissolved and its
affairs wound up.
(b) Member Access. A Member and the Member's authorized representative have
reasonable access to and may inspect and copy all records and other materials pertaining
to the Company or its activities. The exercise of such rights will be at the requesting
Member's expense.
(c) Confidentiality. No Member or Manager will disclose any information relating
to the Company or its activities to any unauthorized person or use any such information
for his or her or any other Person's personal gain.
6.02 Financial Accounting.
(a) Accounting Method. The Company will account for its financial transactions
using a method of accounting determined by the Manager in compliance with
Sections 446 - 449 of the Code.
(b) Taxable Year. The Company's Taxable Year is the Company's annual accounting
period, as determined by the Manager in compliance with Sections 441, 444 and 706 of the
Code.
6.03 Reports.
(a) As soon as practicable after the close of each Taxable Year, the Company will
prepare and send to the Members such reports and information as are reasonably necessary
to (1) inform the Members of the results of the Company's operations for the Taxable Year
and (2) enable the Members to completely and accurately reflect their distributive shares of
the Company's income, gains, deductions, losses and credits in their federal, state and local
income tax returns for the appropriate year.
(b) Periodic Reports. The Company will complete and file any periodic reports
required by the Act or the law of any other jurisdiction in which the Company is qualified
to do business.
6.04 Tax Compliance.
(a) Withholding. If the Company is required by law or regulation to withheld and pay
over to a governmental agency any part or all of a Distribution or allocation of Profit to a Member:
(1) the amount withheld will be considered a Distribution to the Member; and
(2) if the withholding requirement pertains to a Distribution in kind or an allocation
of Profit, the Company will pay the amount required to be withheld to the governmental
agency and promptly take such action as it considers necessary or appropriate to recover
a like amount from the Member, including offset against any Distributions to which the Member
would otherwise be entitled.
(b) Tax Matters Partner. The Company will designate a Member to act as the "Tax
Matters Partner" pursuant to Section 6231(a)(7) of the Code. The Company may remove
any Tax Matters Partner, with or without cause, and designate a successor to ally Tax
Matters Partner who for any reason ceases to act. The Tax Matters Partner will inform
the Members of all administrative and judicial proceedings pertaining to the determination
of the Company's tax items and will provide the Members with copies of all notices received
from the Internal Revenue Service regarding the commencement of a Company-level audit or
a proposed adjustment of any of the Company's tax items. The Tax Matters Partner may
extend the statute of limitations for assessment of tax deficiencies against the Members
attributable to any adjustment of any tax item. The Company will reimburse the Tax
Matters Partner- for reasonable expenses properly incurred while acting within the scope
of the Tax Matters Partner's authority.
ARTICLE 7: DISSOLUTION
7.01 Events of Dissolution.
(a) Enumeration. The Company will dissolve upon the first to Occur of':
(1) Decebmer 31, 2050;
(2) the vote of the Members to dissolve the Company;
(3) any event that makes the Company ineligible to conduct its activities
as a limited liability company under the Act;
(4) any event or circumstance that makes it unlawful or impossible for the
Company to carry on its business; or
(5) the expulsion of any Member, unless within 90 days after the event all
the remaining Members approve continuance of the Company's business.
(b) Exclusivity of Events. Unless specifically referred to in this Article
7.01 No event, including an event of dissolution prescribed by the Act, will
result in the Company's dissolution.
7.02 Effect of Dissolution.
(a) Appointment of Liquidator. Upon the Company's dissolution, the Manager
will appoint a liquidator, who may, but need not be a Member. The liquidator will wind
up and liquidate the Company in an orderly, prudent and expeditious manner in
accordance with the following provisions of this Article 7.02.
(b) Final Accounting. The liquidator will make proper accountings
(1)to the end of the month in which the event of dissolution occurred and
(2) to the date on which the Company is finally and completely liquidated.
(c) Duties and Authority of Liquidator. The liquidator will make adequate
provision for the discharge of all of the Company's debts, obligations and liabilities.
The liquidator may sell, encumber or retain for distribution in kind any of the Company's
assets. Any gain or loss recognized on the sale of assets will be allocated to the
Members' Capital Accounts in accordance with the provisions of Article 4.02. With respect
to any asset the liquidator determines to retain for distribution in kind, the liquidator will
allocate to the Members' Capital Accounts the amount of gain or loss that would have been
recognized had the asset been sold at its fair market value.
(d) Final Distribution. The liquidator will distribute any assets remaining after the
discharge or accommodation of the Company's debts, obligations and liabilities to file
Members in proportion to their Capital Accounts, The liquidator will distribute any assets
distributable in kind to the Members in undivided interests as tenants in common. A
Member whose Account is negative will have no liability to the Company, the Company's
creditors or any other Member with respect to the negative balance.
(e) Required Filings. The liquidator will file with the Division of Corporations and
Commercial Code such statements, certificates and other instruments, and take such other
actions, as are reasonably necessary or appropriate to effectuate and confirm the cessation
of the Company's existence.
ARTICLE 8: GENERAL PROVISIONS
8.01 Amendments.
(a) Required Amendments. The Company, the Manager and the Members will
execute and file any amendment to the Articles required by the Act. If any such amendment
results in inconsistencies between the Articles and this Agreement, this Agreement will be
considered to have been amended in the specifics necessary to eliminate the inconsistencies.
(b) Other Amendments. The Manager or any Member may propose for consideration
and action an amendment to this Agreement or to the Articles. A proposed amendment will
become effective at such time as it is approved by the Manager and all Members.
8.02 Power of Attorney. Each Member appoints the Manager, with full power of
substitution, as the Member's attorney-in-fact, to act in the Member's name to execute and file
(a) all certificates, applications, reports and other instruments necessary to qualify or maintain
the Company as a limited liability company in the states and foreign countries where the Comp
any conducts its activities, (b) all instruments that effect or confirm changes or modifications
of the Company or its status, including, without limitation, amendments to the Articles, and (c)
all instruments of transfer necessary to effect the Company's dissolution and termination. File
power of attorney granted by this Article 8.02 is irrevocable, coupled with an interest and will
survive the death of the Member.
8.03 Nominee. Title to the Company's assets may be held in the name of the Company or
any nominee (including any Manager or any Member so acting), as the Company determines.
The Company's agreement with any nominee may contain provisions indemnifying the nominee
for costs or damages incurred as a result of the nominee's service to the Company.
8.04 Investment Representation. Each Member represents to the Company and the other
Members that (a) the Member is acquiring a Membership Interest in the Company for
investment and for the Member's own account and not with a view to its sale or distribution
and (b) neither the Company nor any other Member has made any guaranty or representation
upon which the Member has relied concerning the possibility or probability of profit or loss
resulting from the Member's investment in the Company.
8.05 Resolution of Disputes.
(a) Mediation. the parties will endeavor in good faith to resolve all disputes arising
tinder or related to this Agreement by mediation according to the then prevailing rules and
procedures of the American Arbitration Association.
(b) Alternative Method. If the parties fail in their attempt to resolve a dispute by
mediation, any party may institute a proceeding for the resolution of the dispute by a court
of competent jurisdiction.
8.06 Notices. Notices contemplated by this Agreement may be sent by any commercially
reasonable means, including ]land delivery, first class mail, fax, E-mail or Private courier.
The notice must be prepaid and addressed as set forth in the Company's records.
The notice will be effective on the date of receipt or, in the case of notice sent by first
class mail, the fifth day after mailing.
8.07 Resolution of Inconsistencies. If there are inconsistencies between this Agreement
and the Articles, the Articles will control. If there are inconsistencies between this Agreement
and the Act, this Agreement will control, except to the extent the inconsistencies relate to
provisions of the Act that the Members cannot alter by agreement. Without limiting the
generality of the foregoing, unless the language or context clearly indicates a different intent,
the provisions of this Agreement pertaining to the Company's governance and financial affairs
and the rights of the Members upon Dissociation and dissolution will supersede the
provisions of the Act relating to the same matters.
8.08 Provisions Applicable to Transferees. As the context requires and subject to the
restrictions and limitations imposed by Articles 3.09(e) and 3.10(b), the provisions of this
Agreement pertaining to the rights and obligations of a Member also govern the rights and
obligations of the Member's Transferee.
8.09 Additional Instruments. Each Member will execute and deliver any document or
statement necessary to give effect to the terms of this Agreement or to comply with any
law, rule or regulation governing the Company's formation and activities.
8.10 Computation of Time. In computing any period of time under this Agreement, the
day of the act or event from which the specified period begins to run is not be included.
the last day of the period is included, unless it is a Saturday, Sunday or legal holiday, in which
case the period will run until the end of the next day that is not a Saturday, Sunday or legal holiday.
8.11 Entire Agreement. This Agreement and the Articles comprise the entire agreement
among the parties with respect to the Company. This Agreement and the Articles supersede
any prior agreements or understandings with respect to the Company. No representation,
statement or condition not contained in this Agreement or the Articles has any force or effect.
8.12 Waiver. No right under this Agreement may be waived, except by an instrument in
writing signed by the party sought to be charged with the waiver.
8.13 General Construction Principles. Words in any gender are deemed to include the
other genders. The singular is deemed to include the plural and vice versa. The headings
and underlined paragraph titles are for guidance only and have no significance in the
interpretation of this Agreement.
8.14 Binding Effect. Subject to the provisions of this Agreement relating to the
transferability of Membership Interests and the rights of Transferees, this Agreement
is binding on and will inure to the benefit of the Company, the Members and their respective
distributees, successors and assigns.
8.15 Governing Law. Utah law governs the construction and application of the terms
of this Agreement.
8.16 Counterparts. This Agreement may be executed in counterparts, each of which
will be considered an original.
Signed on the respective dates set forth below, to be effective as of the Effective Date.
COMPANY:_____________________________________________ Date:
By Its Manager: Franklin Farr
_____________________________________________________ Date:
By: Rachel Johnson, as Member
_____________________________________________________ Date:
By: Franklin Farr, as Member
______________________________________________________ Date:
By: John Doe, as Member
______________________________________________________ Date:
By: Jane Doe, as Member
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Last updated 1 Jan 2001
