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Sample Partnership Agreement

Sample Partnership Agreement

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Contents

Partnership Agreement

Parties, Date, and Recitals

This Partnership agreement (“Agreement”) is entered into and effective as of _ _[date]_ _, by _ _[names]_ _ (“Partners”).

The Partners desire to form a General Partnership under the laws of the State of California for the purposes and on the terms and conditions stated in this Agreement.

Basic Operative Clause

Formation. By this Agreement, the Partners form a General Partnership (“Partnership”) under the laws of the State of California, on the following terms and conditions.

Firm Name

Name. The name of the Partnership is _ _[name]_ _.

Chief Executive Office

Chief Executive Office. The Partnership’s chief executive office and place of business shall be located at _ _[street address]_ _, in _ _ _ _ _ _ County, California. The chief executive office may be changed from time to time, and other offices may be established by the Partners, in accordance with the terms and conditions of this Agreement.

Term of Patnership

Add one of the following alternatives
Alternative 1: Definite Term

Term. The Partnership shall begin on the date of this Agreement and shall continue until _ _[date]_ _, unless it is terminated earlier as provided in this Agreement. On the expiration of its term, the Partnership shall be dissolved and its affairs shall be wound up.

Alternative 2: Indefinite Term

The Partnership shall begin on the date of this Agreement and shall continue until dissolved and terminated by mutual agreement of Partners holding at least _ _[number]_ _ percent of the Partnership interests, or as otherwise provided for in this Agreement.

Alternative 3: Indefinite term subject to election to dissolve

The Partnership shall begin on the date of this Agreement and shall continue until one or more of the Partners shall, after _ _[date]_ _, give written notice to the Partnership and to the other Partners of an election to dissolve the Partnership. On the last day of the calendar month first occurring _ _[e.g., 60]_ _ days after such notice is given, the Partnership shall dissolve and its affairs shall be wound up, unless it is terminated earlier as provided in this Agreement.

Alternative 4: Year-to-Year continuation]

The Partnership shall begin on the date of this Agreement and shall continue for _ _[number]_ _ years. At the end of that period, the Partnership shall continue from year to year unless one or more of the Partners shall give the Partnership and the other Partners at least _ _[number]_ _ days written notice of an election to dissolve the Partnership as of the next anniversary of the Partnership’s date of beginning. If such notice is given, the Partnership shall dissolve on that anniversary and its affairs shall be wound up, unless it is terminated earlier as provided in this Agreement.

Purposes Clause

Add one of the following alternatives
Alternative 1: General purposes clause

Purposes. The purposes of the Partnership are to engage in the business of _ _[specify]_ _ and to do all things reasonably incidental to or in furtherance of that business.

Alternative 2: Specific purposes clause for acquisition and development of real property

Purposes. The purposes of the Partnership are to acquire that real property located in _ _[name of city]_ _, _ _[state]_ _, whose legal description is _ _[provide description]_ _; to construct, furnish and operate a multi-tenant commercial office building consisting of _ _[e.g., 10 floors]_ _ with related facilities; to borrow money and issue evidences of indebtedness in connection with that project; to secure the payment of that indebtedness; and to do all things incidental to or in furtherance of these enumerated purposes.

Powers

Partnership’s Powers. The Partnership is empowered to do any and all things necessary, appropriate, or convenient for the furtherance and accomplishment of its purposes and for the protection and benefit of the Partnership and its properties, including but not limited to the following:

(1) Entering into and performing contracts of any kind;
(2) Acquiring, constructing, operating, maintaining, owning, transferring, renting, or leasing any property, real, personal, or mixed;
(3) Borrowing money and issuing evidences of indebtedness, and securing any such indebtedness by mortgage, deed of trust, pledge, lien, or other security interest in or on any Partnership properties;
(4) Applying for and obtaining governmental authorizations and approvals;
(5) Bringing and defending actions at law or equity; and
(6) Subject to the express provisions of this Agreement, purchasing the interest of any Partner.

Statutory Filings

Filings. The Partners, or any one of them, on the Partnership’s behalf, shall sign and cause to be filed and published an appropriate fictitious business name statement under the California Fictitious Business Name Act within 40 days after the Partnership begins doing business, within 40 days after any subsequent change in its membership, and before the expiration of any previously filed statement. Each Partner appoints _ _[name]_ _ as his or her agent and attorney-in-fact to execute on his or her behalf any fictitious business name statement relating to this Partnership.

If applicable, add the following about the filing of a statement of partnership authority

Promptly after the date the Partnership begins and after the date of any subsequent change in its membership, the Partners shall sign, acknowledge, and verify a statement of Partnership authority as provided in Corporations Code §§16105 and 16303, and cause it to be recorded in each county in California in which the Partnership owns or contemplates owning real property or any interest in real property. That statement shall include a statement that any conveyance, encumbrance, or transfer of an interest in the Partnership’s real property must be signed on behalf of the Partnership by _ _[e.g., at least two of the Partners, who must include either John Doe or Jane Roe]_ _.

Capital

Contributions in Money or Property

Add one of the following alternatives’
Alternative 1: Cash; partners contribute equally

Initial Contributions. Each Partner shall initially contribute to the Partnership’s capital $_ _[amount]_ _ in cash. Each Partner’s contribution shall be paid in full within _ _[number]_ _ days after the date of this Agreement.

Alternative 2: Cash; partners contribute unequally

Initial Contributions. The Partnership’s initial capital shall consist of cash to be contributed by the Partners in the following amounts: _ _[Specify]_ _. Each Partner’s contribution shall be paid in full within _ _[number]_ _ days after the date of this Agreement.

Alternative 3: Property

Initial Contributions. The Partnership’s initial capital shall consist of the properties shown in Exhibit _ _[specify number or letter]_ _ to this Agreement, which exhibit sets forth the market values of the respective items of property and identifies the Partners who will contribute the respective items of property to the Partnership. The market values are the amounts of the initial capital contributions of the Partners contributing the respective properties. Each Partner’s contribution to the Partnership shall be conveyed within _ _[number]_ _ days after the date of this Agreement.

Alternative 4: Cash and property

Initial Contributions. The Partnership’s initial capital shall consist of cash and the properties shown in Exhibit _ _[specify number or letter]_ _ to this Agreement, which exhibit sets forth the capital contributions to be made by the respective Partners, the nature and quality of their respective contributions, and for contributions consisting of property, the market values of the respective items. Each Partner’s contribution to the Partnership shall be paid in full or conveyed within _ _[number]_ _ days after the date of this Agreement.

Contributions of Services

Contributions of Services. Partner _ _[name]_ _ has rendered services in the formation and organization of the Partnership and in making the arrangements necessary for the acquisition of its properties, the financing of those acquisitions, and the commencement of its business operations. _ _[He/She]_ _ shall contribute those services to the Partnership in consideration for the interest _ _[he/she]_ _ is to have in the Partnership as described in this Agreement.

Contributed Property; Special Tax Allocations Because of Carryover Basis

Special Tax Allocations. For certain items of property to be contributed to the Partnership’s capital, Exhibit _ _[specify number or letter]_ _ to this Agreement shows the basis of those items for federal income tax purposes in the hands of the respective Partners who are to contribute them and the amounts that the Partners agree are the market values of the respective items. Notwithstanding any other provisions of this Agreement, income, gain, loss, and deductions with respect to the contributed property shall be allocated among the Partners to reflect the difference between the basis of the property contributed for tax purposes and its fair market value, in accordance with Internal Revenue Code §704(c) and the regulations under it.

Failure to Make Initial Contribution

Add one of the following alternatives
Alternative 1: Partnership dissolves

Failure to Contribute. If any Partner fails to pay or convey his or her initial contribution to the Partnership’s capital at the time and in the form and amount required by this Agreement, the Partnership shall immediately dissolve and each Partner who has paid or conveyed all or any portion of his or her initial contribution to the Partnership’s capital shall be entitled to a return of the funds and properties that he or she contributed. If the Partners shall have entered into a written agreement requiring an alternative procedure for continuing the Partnership, however, that alternative procedure shall be followed.

Alternative 2: Partnership continues without additional contributions

Failure to Contribute. If any Partner fails to pay or convey his or her initial contribution to the Partnership’s capital at the time and in the form and amount required by this Agreement _ _[and the amounts in default are _ _[number]_ _ percent or less of all initial capital contributions required by this Agreement]_ _, the Partnership shall not dissolve or terminate, but it shall continue as a Partnership of only the Partners who have made their initial capital contributions as required. The share in the Partnership’s profits and losses allocated under this Agreement to any Partner who has failed to make his or her initial contribution shall be reallocated to the remaining Partners in proportion to their respective shares of Partnership profits and losses as specified in this Agreement.

If the failure to pay initial capital contributions required under this Agreement relates to more than the above-specified percentage of all required initial capital contributions, the Partnership shall immediately dissolve. Each Partner who has paid all or any portion of his or her initial or any additional capital contribution shall then be entitled to a return of the funds and properties he or she contributed.

Alternative 3: Additional contributions required for continuation

Failure to Contribute; Additional Contributions. If any Partner fails to pay his or her initial contribution to the Partnership’s capital at the time and in the form and amount required by this Agreement _ _[and the amounts in default are _ _[number]_ _ percent or less of all initial capital contributions required under this Agreement]_ _, the Partnership shall not dissolve or terminate, but it shall continue as a Partnership of only the Partners who have made their initial capital contributions, but only if those Partners pay the initial capital contribution that was to have been made by each noncontributing Partner, as follows:

(1) The Partnership shall promptly give written notice of the failure to all Partners who have not failed to make their initial capital contributions, specifying the amount not paid.
(2) Within _ _[number]_ _ days after the notice is given, the remaining Partners shall pay the amount of the defaulted contribution in proportion to the respective amounts that they are required to contribute to the Partnership’s capital under this Agreement.
(3) Each noncontributing Partner’s share in the Partnership’s profits and losses shall be reallocated to the remaining Partners in proportion to their respective shares of Partnership profits and losses under this Agreement.

If the failure to pay initial capital contributions required under this Agreement relates to more than the above-specified percentage of all required initial capital contributions, the Partnership shall immediately dissolve. Each Partner who has paid all or any portion of his or her initial or any additional capital contribution shall then be entitled to a return of the funds and properties he or she contributed.

Alternative 4: Partners or outsiders may purchase defaulted share

Failure to Contribute; Purchase of Defaulted Shares. If any Partner fails to pay any contribution to the Partnership’s capital at the time and in the form and amount required by this Agreement _ _[and the amounts in default are _ _[number]_ _ percent or less of all initial capital contributions required under this Agreement]_ _, the Partnership shall not dissolve or terminate, but it shall continue as a Partnership of only the Partners who have made their capital contributions and any purchaser of the interest of any Partner who shall have failed to do so, but only if the defaulting Partner’s interest in the Partnership is acquired as follows:

(1) The Partnership shall promptly give written notice of the failure to make payment, specifying the amount not paid, to all Partners who have not failed to make their required capital contributions. Any or all of the remaining Partners shall be entitled to elect to acquire the Partnership interest of the Partner who has failed to make the required contribution by giving written notice of election to the Partnership within _ _[number]_ _ days after the Partnership gives notice of the default.
(2) Within _ _[number]_ _ days after the Partnership gives notice of default, the electing Partners shall pay to the Partnership the amount of the defaulted contribution and shall pay to the defaulting Partner any credit balance then in his or her capital account.
(3) If only one Partner elects to acquire the interest, that Partner shall make the entire payment and acquire the entire interest. If more than one Partner elects to acquire the interest, each shall share in the payments and in the interest acquired in the same proportion that the amount required to be paid to the Partnership’s capital by that Partner under this Agreement bears to the aggregate amounts required to be paid to the Partnership’s capital by all participating Partners under this Agreement.
(4) If no Partner elects to acquire the interest of a defaulting Partner, that interest may be offered to other parties, subject to the approval of a majority in capital interest of the Partners who have not defaulted, at a price equal to the sum of (a) the unpaid contribution of the defaulting Partner, which shall be payable to the Partnership, plus (b) any credit balance then in the defaulting Partner’s capital account, which shall be payable to the defaulting Partner.
(5) On a purchase of a defaulting Partner’s interest, the purchaser’s capital account shall be credited with the amount of the defaulting Partner’s unpaid contribution paid to the Partnership by that purchaser plus any credit balance in the defaulting Partner’s capital account that has not been paid to the defaulting Partner.

Deferred Contributions

Deferred Contributions. _ _[Name]_ _ shall be a Partner, but shall not make any contribution in cash or property to the Partnership’s initial capital, and no amount shall be credited initially to _ _[his/her]_ _ capital account. _ _[He/She]_ _ shall subsequently contribute to the Partnership capital, and _ _[his/her]_ _ capital account shall be credited, as follows:

Add one of the following alternatives
Alternative 1: Monthly installments

_ _[Name]_ _ shall contribute $_ _[amount]_ _ to the Partnership capital on or before the first day of each month, beginning on _ _[date]_ _ and continuing until _ _[he/she]_ _ shall have contributed the aggregate sum of $_ _[amount]_ _.

Alternative 2: Contributions from profits

_ _[Name]_ _ shall contribute to the Partnership the lesser of $_ _[amount]_ _ or _ _[number]_ _ percent of _ _[his/her]_ _ distributive share of the Partnership’s profits for each fiscal year, beginning with the year ending _ _[date]_ _ and continuing until _ _[he/she]_ _ shall have contributed the aggregate sum of $_ _[amount]_ _. These contributions shall be made on or before the date on which the respective year’s distributive shares of profits are distributed in full and may be made by not withdrawing the specified portion or amount of Partnership profits.

Additional Capital

Additional Capital. Each Partner shall annually contribute to the Partnership’s capital, for a period of _ _[number]_ _ years, the lesser of $_ _[amount]_ _ or _ _[number]_ _ percent of that Partner’s share of each year’s profits by not withdrawing the specified portion or amount of Partnership profits.

Whenever it is determined by the written agreement of Partners holding _ _[e.g., a majority]_ _ in capital interest of the Partnership that its capital is or is presently likely to become insufficient for the conduct of its business, those Partners may, by written notice to all Partners, call for additional contributions to capital. These contributions shall be payable in cash no later than the date specified in the notice and no sooner than _ _[number]_ _ days after the notice is given. Each Partner shall be liable to the Partnership for that Partner’s share of the aggregate contributions duly called for under this section. Each Partner’s share shall be in proportion to his or her share of the Partnership’s profits, but no Partner shall be required to contribute more than $_ _[amount]_ _.

No Partner may make any voluntary contribution of capital to the Partnership without the consent of all the Partners.

Withdrawals of Capital

No Withdrawal of Capital. No Partner may withdraw capital from the Partnership without the consent of all the Partners.

No Interest on Capital Contributions

No Interest on Contributions. No Partner shall be entitled to receive any interest on his or her capital contribution, except that, if a Partner is entitled to repayment of his or her contribution, the Partner shall be entitled to interest on the contribution not repaid at the rate of _ _[number]_ _ percent per annum from the date when repayment should have been made.

Loans to Partnership

Loans to Partnership. No Partner shall lend or advance money to or for the Partnership’s benefit without the approval of _ _[all/a majority in capital interest of the]_ _ Partners. If any Partner, with the requisite consent of the other Partners, lends any money to the Partnership in addition to his or her contribution to its capital, the loan shall be a debt of the Partnership to that Partner and shall bear interest at the rate of _ _[number]_ _ percent per annum. This liability shall not be regarded as an increase in the lending Partner’s capital and shall not entitle the lending Partner to any increased share of the Partnership’s profits.

Any loan by a Partner to the Partnership shall be evidenced by a promissory note delivered to the lending Partner and executed in the name of the Partnership by the managing Partner.

Division of Profits and Losses

Alternative 1: Division based on initial capital contribution of profit and losses

Division of Profits and Losses. The Partnership’s profits and losses shall be allocated among the Partners in the same proportions that their initial capital accounts bear to each other. No additional share of profits or losses shall inure to any Partner because of fluctuations in the Partners’ capital accounts.

Alternative 2: Division based on average capital account balance

Division of Profits and Losses. The Partnership’s profits and losses shall be allocated among the Partners in the same proportions that their average capital account balances during the fiscal year bear to each other. No Partner shall make contributions or withdrawals from his or her capital account without unanimous written approval of all Partners.

Distribution of Profits

Add one of the following alternatives
Alternative 1: Distributions in proportion to initial capital contributions

Distribution of Profits. The Partnership may distribute to the Partners any cash in excess of amounts reasonably necessary to the conduct of the business of the Partnership. Except as provided in section _ _[specify number or letter]_ _, distributions shall be made to the Partners in proportion to their initial capital contributions.

Alternative 2: Distributions based on profit

Distribution of Profits. Within _ _[number]_ _ days after the end of each fiscal year of the Partnership, the Partnership shall distribute in cash to the Partners, in proportion to their respective shares in the Partnership’s profits, an amount equal to the Partnership’s profit for that fiscal year as computed under this Agreement.

Alternative 3: Distributions based on cash flow

Distribution of Profits. Within _ _[number]_ _ days after the end of each fiscal year of the Partnership, the Partnership shall distribute in cash to the Partners, in proportion to their respective shares in the Partnership’s profits, an amount equal to:

(1) The Partnership’s profit for that fiscal year as computed under this Agreement,
(2) Increased by the amounts deducted for that fiscal year as depreciation or cost recovery, depletion, or amortization on the Partnership’s federal income tax return,
(3) Increased by the amount of any payments received, and reduced by the amount of any payments made, by the Partnership during that fiscal year on account of the principal of all debt obligations, other than obligations for which provision was made in computing profit,
(4) Reduced by a reserve reasonably retained for the operating and capital requirements of the Partnership’s business.

Distributions of Proceeds From Sale of Capital Assets

Distributions From Sale of Capital Assets. If _ _[description or other identification of asset]_ _ is sold, simultaneously with the distribution of the Partnership’s profits for each fiscal year during which the Partnership is paid all or any part of the proceeds of that sale, the Partnership shall also distribute in cash to the Partners an amount equal to the cash proceeds realized by the Partnership during that year on the sale, including payments on account of the principal of any purchase money obligation received by the Partnership in the sale but excluding interest on that obligation. Such proceeds shall be allocated for distribution to the Partners in a manner that will result in the distribution to the Partners of the Partnership’s gain or loss from the sale being proportionate to their respective shares in the gain or loss from the sale reportable by them for federal income tax purposes, except as otherwise expressly provided in this Agreement. Each Partner’s share of the distributions of proceeds from any sale of capital assets shall be charged to his or her capital account.

Limit on Distributions

Add one of the following alternatives
Alternative 1: General limitation

Limit on Distributions. Notwithstanding anything in this Agreement to the contrary, the aggregate amounts distributed to the Partners from the Partnership’s profits shall not exceed the amount of cash available for distribution, taking into account the Partnership’s reasonable working capital needs as determined by a majority in capital interest of the Partners.

Alternative 2: Specific limitation

Limit on Distributions. Notwithstanding anything in this Agreement to the contrary, the aggregate amounts distributed to the Partners from the Partnership’s profits during any fiscal year of the Partnership shall not exceed $_ _[amount/_ _[number]_ _ percent of the aggregate positive balances of all capital accounts]_ _ as of the close of the Partnership’s immediately preceding fiscal year.

Accounting

Fiscal Year of Partnership

Add one of the following alternatives
Alternative 1: Fiscal year is calendar year

Fiscal Year. The fiscal year of the Partnership shall be the calendar year.

Alternative 2: Fiscal year is noncalendar year

Fiscal Year. The fiscal year of the Partnership shall end on _ _[month and day]_ _ of each year.

Accounting Method

Accounting Method. The Partnership books shall be kept on the _ _[e.g., accrual/cash]_ _ basis.

Capital Accounts – Initial Contributions

Maintenance of Capital Accounts. An individual capital account shall be maintained for each Partner and the Partner’s initial capital contribution in cash or property shall be credited to that account. Capital accounts shall be maintained in accordance with Treas Reg §1.704-1(b)(2)(iv). No additional share of profits or losses shall inure to any Partner because of changes or fluctuations in the Partner’s capital account.

Adjustment of Capital Accounts

Adjustment of Capital Accounts. The capital account for each Partner shall be credited with or increased by the following:

(1) Any additional capital contributions made by the Partner from time to time as authorized by this Agreement;
(2) The Partner’s share under this Agreement of the Partnership’s profits; and
(3) On the Partnership’s dissolution and in its winding up, the credits authorized by the provisions of this Agreement that relate to adjustments of capital accounts in connection with liquidation.

The capital account for each Partner shall be debited with or reduced by the following:

(1) Distributions to the Partner of cash or property, which property shall be valued for this purpose at its fair market value;
(2) The Partner’s share under this Agreement of the Partnership’s losses and of any items then required under applicable tax laws, rules, and regulations to be debited to capital accounts of Partners, to the extent and in the manner so required; and
(3) On the Partnership’s dissolution and in its winding up, the debits authorized by the provisions of this Agreement that relate to adjustments of capital accounts in connection with liquidation.

In connection with the actual liquidation of the Partnership’s properties on its dissolution and winding up, the capital account for each Partner shall be adjusted to reflect the following:

(1) The results of operations for the fiscal period then ended;
(2) The results of transactions in connection with the liquidation;
(3) Unrealized gain or loss on Partnership property that is to be or has been transferred to creditors on account of their claims or distributed to Partners on account of their interests in the Partnership. The amount of such unrealized gain or loss shall be computed by comparing the fair market value of any such property to its adjusted basis for federal income tax purposes. The unrealized gain or loss shall be allocated to the Partners’ capital accounts in the same manner as the gain or loss from the actual sale of such property would have been allocated; and
(4) The distribution of cash or property to Partners made on the liquidation.

If there is a deficit in any Partner’s capital account after the capital accounts have been adjusted in connection with the liquidation of the Partnership properties, that Partner (and not any predecessor) shall contribute the amount of such deficit to the Partnership before the end of the taxable year of the liquidation or by such earlier date as may be required to complete the liquidation in accordance with a duly adopted plan of liquidation. Amounts thus contributed shall be distributed to or among the creditors and Partners in accordance with the then-applicable provisions for distribution of Partnership property on dissolution, winding up, and liquidation.

Determination of Profit and Loss

Determination of Profit and Loss. The Partnership’s net profit or net loss for each fiscal year shall be determined as soon as practicable after the close of that fiscal year in accordance with the accounting principles employed in the preparation of the federal income tax return filed by the Partnership for that year, but without any special provisions for tax-exempt or partially tax-exempt income. If the Partnership assets include assets subject to Internal Revenue Code §704(c), the adjustments required under Internal Revenue Code §704(c) in the determination of any item of income, gain, loss, deduction, or credit shall not be taken into account in determining the same for book purposes.

Profit and Loss Defined. “Profit” and “loss” for all purposes of this Agreement shall be determined in accordance with the accounting method followed by the Partnership for federal income tax purposes and otherwise in accordance with generally accepted accounting principles and procedures applied in a consistent manner. The calculation of profit and loss shall take into account Partnership income exempt from federal income tax and Partnership expenses and costs not deductible or properly chargeable to capital for federal income tax purposes. Every item of income, gain, loss, deduction, credit, or tax preference entering into the computation of profit or loss shall be considered as allocated to each Partner in the same proportion as profit is allocated to that Partner for any year in which the Partnership operates at a profit, and in the same proportion as loss is allocated to that Partner for any year in which the Partnership operates at a loss. Any increase or reduction in the amount of any item of income, gain, loss, or deduction attributable to an adjustment to the basis of Partnership property made under a valid election under Internal Revenue Code §754 and under the corresponding provisions of applicable state and local income tax laws shall be charged or credited, as the case may be, and any increase or reduction in the amount of any item of credit or tax preference attributable to any such adjustment shall be allocated to the capital accounts of those Partners entitled to them under such code or laws.

Records and Reports

Partnership Books

Partnership Books. The Partnership shall keep proper and complete books of account of its business at its chief executive office. The Partnership shall provide its Partners and their agents and attorneys access to the books and records, and provide to former Partners and their agents and attorneys access to books and records pertaining to the period during which they were Partners. This right of access includes the opportunity to inspect and copy books and records during ordinary business hours. The Partnership may impose reasonable charges covering the cost of labor and material for copies of documents furnished. The accounting records shall be maintained in accordance with generally accepted bookkeeping practices for this type of business.

Annual Report to Partners

Annual Report to Partners. Within _ _[number]_ _ days after the end of each fiscal year, the Partnership shall furnish to each Partner an annual report consisting of at least:

(1) A copy of the Partnership’s federal and state income tax returns for that fiscal year;
(2) A supporting statement of income or loss;
(3) A balance sheet showing the Partnership’s financial position as of the end of that fiscal year; and
(4) Any additional information that the Partners may require for the preparation of their individual federal and state income tax returns.

Management

Control of Business

Add one of the following alternatives
Alternative 1: Vote based on partners’ interest

Control of Business. Each Partner shall participate in the control, management, and direction of the Partnership’s business. In exercising this control, management, and direction, each Partner’s vote shall be in proportion to the Partner’s interest in the Partnership’s profits and losses.

Alternative 2: All partners have equal votes

Control of Business. Each Partner shall participate in the control, management, and direction of the Partnership’s business. In exercising this control, management, and direction, each Partner shall have the same vote as each other Partner.

Alternative 3: Control by managing partner

Control of Business. The managing partner shall be _ _[name]_ _. _ _[He/She]_ _ shall have control over the business of the Partnership and assume direction of its business operation until replaced by a vote of _ _[number]_ _ percent of the Partnership interests. The managing partner shall consult and confer as far as practicable with the nonmanaging Partners, but the power of decision shall be vested in the managing partner. The managing partner’s duties shall include control over the Partnership’s books and records and hiring any independent certified public accountants _ _[he/she]_ _ considers necessary for this purpose and for the preparation of such reports as may be necessary or required to advise the other Partners of the Partnership’s operations. Except as otherwise expressly provided in this Agreement, all things to be done by the Partnership shall be done under the managing partner’s control and supervision. The managing partner shall devote such time to the business of the Partnership as it _ _[he/she]_ _ determines is necessary in _ _[his/her]_ _ sole discretion. The managing partner shall be entitled to retain such consultants and agents as are reasonably necessary to provide services for operation of the Partnership, provided they remain under the ultimate control of the managing partner, and provided further that the managing partner does not delegate to such consultants or agents responsibilities charged to the managing partner. The managing partner shall be entitled to reimbursement monthly, on the submission of an itemized account, of any sums _ _[he/she]_ _ shall have expended for the benefit of the Partnership’s business. On the managing partner’s death, removal, resignation, or other disability, a successor managing partner shall be selected by a majority in capital interest of the Partners.

Acts Requiring Majority Consent

Acts Requiring Majority Consent. The following acts may be done only with the consent of a majority in _ _[number/capital interest/profit interest]_ _ of the Partners:

(1) Borrowing money in the Partnership’s name, other than in the ordinary course of the Partnership’s business or to finance any part of the purchase price of the Partnership’s properties;
(2) Transferring, hypothecating, compromising, or releasing any Partnership claim except on payment in full;
(3) Selling, leasing, or hypothecating any Partnership property or entering into any contract for any such purpose, other than in the ordinary course of the Partnership’s business and other than any hypothecation of Partnership property to secure a debt resulting from any transaction permitted under (1); or
(4) Knowingly suffering or causing anything to be done whereby Partnership property may be seized or attached or taken in execution, or its ownership or possession otherwise endangered.

Handling Funds

Add one of the following alternatives
Alternative 1: Funds handled by all partners

Handling Funds. All Partnership funds shall be deposited in the Partnership’s name and shall be subject to withdrawal only on the signatures of at least _ _[number]_ _ Partners.

Alternative 2: Managing partner handles funds

Handling Funds. All Partnership funds shall be deposited in the Partnership’s name and shall be subject to withdrawal only on the signature of the managing partner.

Remuneration to Partner

Add one of the following alternatives
Alternative 1: Partners entitled to remuneration

Partners’ Remuneration. Each Partner shall be entitled to

(1) Monthly remuneration as follows: _ _[list names and amounts]_ _; or
(2) Other amounts as may from time to time be determined by the written consent or agreement of all the Partners.

Remuneration shall be treated as a Partnership expense in determining the Partnership’s profits or losses.

Alternative 2: No remuneration

Partners not Entitled to Remuneration. No Partner shall be entitled to remuneration for acting in the Partnership business.

Alternative 3: Remuneration to managing partner

Remuneration of Managing Partner. The managing Partner shall be entitled to monthly remuneration of $_ _[amount]_ _ or such other amount as may from time to time be determined by the unanimous written consent or agreement of the Partners. That remuneration shall be treated as a Partnership expense in determining the Partnership’s profits or losses.

Effect of Assignment of Interest

Assignment of Interest. Any assignment or hypothecation of a Partner’s interest in the Partnership shall terminate that Partner’s right to receive remuneration from the Partnership.

Partner’s Fiduciary Duty

Duty of Loyalty

Duty of Loyalty. Each Partner owes a duty of loyalty to the Partnership and the other Partners, which includes the following:

(1) To account to the Partnership and hold as trustee for it any property, profit, or benefit derived by the Partner in the conduct and winding up of the Partnership business or derived from a use by the Partner of Partnership property or information, including the appropriation of a Partnership opportunity.
(2) To refrain from competing with the Partnership in the conduct or winding up of the Partnership business as or on behalf of a party having an interest adverse to the Partnership.
(3) To refrain from competing with the Partnership in the conduct of the Partnership business before the dissolution of the Partnership.
Add one of the following alternatives
Alternative 1: Noncompeting outside activities permitted

Any Partner may engage in one or more businesses, other than the business of the Partnership, but only to the extent that this activity does not compete or materially interfere with the Partnership’s business and does not conflict with that Partner’s obligations under this Agreement. Neither the Partnership nor any other Partner shall have any right to any income or profit derived by a Partner from any business activity permitted under this section.

Alternative 2: Outside activities restricted

While _ _[name]_ _ is required to participate in the control, management, and direction of the Partnership business, _ _[he/ she]_ _ shall devote _ _[his/her]_ _ full time and attention to the conduct of that business and shall not be actively engaged in the conduct of any other business for compensation or a share in profits as an employee, officer, agent, proprietor, partner, or stockholder. This prohibition shall not prevent _ _[him/her]_ _ from being a passive investor in any enterprise, however, if _ _[he/she]_ _ is not actively engaged in its business and does not exercise control over it. Neither the Partnership nor any other Partner shall have any right to any income or profit derived from any such passive investment.

Alternative 3: Specific enumeration of permitted outside activities

A Partner shall be permitted to engage in the following conduct without being in violation of this Agreement: _ _[Specify type of conduct to be permitted]_ _.

Any act of a Partner that otherwise would violate the fiduciary duties owed by a Partner to the Partnership may be approved by the written consent of _ _[e.g., 51 percent]_ _ of the remaining Partners who do not participate in such act on full disclosure of all material facts by the Partner whose conduct otherwise is deemed to breach such fiduciary duties.

Duty of Care

Duty of Care. During the conduct of any Partnership business or when the Partnership is being wound up, no Partner shall be liable to the Partnership or any other Partner for losses sustained or liabilities incurred, unless it is determined that such conduct is grossly negligent or reckless, or intentional misconduct, or a knowing violation of law.

Duty of Good Faith and Fair Dealing

Duty of Good Faith and Fair Dealing. Each Partner shall discharge its duties to the Partnership and the other Partners and exercise any rights consistently with the obligation of good faith and fair dealing.

Furtherance of Partner’s Own Interests

Furtherance of Partner’s Interests. A Partner does not violate a duty or obligation under this Agreement or controlling law merely because the Partner’s conduct furthers the Partner’s own interest.

Changes in Membership and Partner Dissociation

New Partners

Admission of New Partners. A new Partner may be admitted to the Partnership _ _[as of the beginning of any fiscal year of the Partnership]_ _, but only with the written approval of _ _[all/a majority in capital interest of the]_ _ Partners. Each new Partner shall be admitted only if the new Partner shall have executed this Agreement or an appropriate supplement to it in which the new Partner agrees to be bound by the terms and provisions of this Agreement as they may be modified by that supplement. Admission of a new Partner shall not cause dissolution of the Partnership. Any new Partner so admitted to the Partnership shall contribute capital to the Partnership as agreed by all Partners.

Spousal Consent. Within 20 days after any individual becomes a Partner, or a Partner marries, the Partner shall have the Partner’s spouse execute a consent substantially in the form attached as Exhibit _ _[specify number or letter]_ _, unless the Partner’s spouse is already a Partner.

Partner’s Dissociation

Dissociation. A Partner is dissociated from the Partnership on the occurrence of any of the following events:

(1) Delivery of written notice by the Partner setting forth the Partner’s intention to withdraw as a Partner on the date set forth in the notice but in no event earlier than _ _[e.g., 30 days]_ _ after receipt by the Partnership.
(2) As otherwise provided in this Agreement.
(3) The Partner’s expulsion as provided in this Agreement.
(4) The Partner (a) becomes a debtor in bankruptcy; (b) executes an assignment for the benefit of creditors; (c) seeks, consents to, or acquiesces in the appointment of a trustee, receiver, or liquidation of that Partner or of all or substantially all of that Partner’s property; or (d) fails to have vacated or stayed the appointment of a trustee, receiver, or liquidator of the Partner or of all or substantially all of the Partner’s property obtained without the Partner’s consent or acquiescence, within 90 days after the appointment or within 90 days after the expiration of a stay.
(5) For any individual Partner, on: (a) the Partner’s death; (b) the appointment of a guardian or general conservator for the Partner; or (c) a judicial determination that the Partner has otherwise become incapable of performing the Partner’s duties under the Partnership agreement.

Partner’s Expulsion by Partner Vote

Add one of the following alternatives
Alternative 1: Expulsion by partner votes in accordance with RUPA

Expulsion under RUPA. A Partner may be expelled from the Partnership by the vote of the other Partners holding at least _ _[number]_ _ percent in capital interest of the Partnership (excluding the interest of the Partner to be expelled) if, by that vote, it is determined in the sole discretion of those Partners that:

(1) It is unlawful to carry on the Partnership business with that Partner;
(2) There has been a transfer of all or substantially all of that Partner’s transferable interest in the Partnership, except a transfer for security purposes or issuance of a court’s charging order, neither of which have been foreclosed on;
(3) Within 90 days after the Partnership notifies a corporate Partner that it will be expelled because it has filed a certificate of dissolution or the equivalent, its charter has been revoked, or its right to conduct business has been suspended by the jurisdiction of its incorporation, there is no revocation of such certificate of dissolution or no reinstatement of its charter or its right to conduct business; or
(4) A partnership, limited partnership, or limited liability company Partner has been dissolved and its business is being wound up.
Alternative 2: Expulsion by partnership agreement

Expulsion under Partnership Agreement. A Partner may be expelled from the Partnership by the vote of the other Partners holding at least _ _[number]_ _ percent in capital interest of the Partnership (excluding the interest of the Partner to be expelled) if, by that vote, it is determined in the sole discretion of those Partners that the Partner to be expelled has materially breached or is unable to perform that Partner’s material obligations under this Agreement or that the continued association of that Partner with the Partnership is detrimental to the best interests of the Partnership’s business.

Expulsion shall become effective when written notice of expulsion is served on the expelled Partner. When the expulsion becomes effective, the expelled Partner’s rights, powers, and authority as a Partner of the Partnership, including its rights to participate in the Partnership’s profits and to draw any salary, shall terminate.

Expulsion by Judicial Determination

Expulsion by Judicial Determination. On application by the Partnership or another Partner, a Partner may be expelled from the Partnership by judicial determination because of any of the following:

(1) The Partner engaged in wrongful conduct that adversely and materially affected the Partnership business.
(2) The Partner willfully or persistently committed a material breach of the Partnership agreement or of a duty owed to the Partnership or the other Partners.
(3) The Partner engaged in conduct relating to the Partnership business that makes it not reasonably practicable to carry on the business in Partnership with the Partner.

Retirement from Partnership Management

Retirement From Partnership Management. At the end of the Partnership’s fiscal year, any Partner who has reached his or her _ _[e.g., 70th]_ _ birthday during that fiscal year shall retire from active participation in the control, management, and direction of the Partnership’s business. Subject to the provisions of this Agreement regarding dissociation and dissolution, such a retirement shall not affect the retiring Partner’s interest in the Partnership, its properties, or its profits and losses.

Retirement From Partnership

Add one of the following alternatives
Alternative 1: Voluntary retirement from partnership

Retirement From Partnership. After his or her _ _[e.g., 70th]_ _ birthday, any Partner may voluntarily retire from the Partnership after giving at least _ _[number]_ _ days’ prior notice to the Partnership. On such retirement, the Partner shall be deemed dissociated from the Partnership.

Alternative 2: Mandatory retirement from partnership

Retirement From Partnership. After his or her _ _[e.g., 70th]_ _ birthday, any Partner may be compelled to retire from the Partnership by a vote of a majority in _ _[number/capital interest]_ _ of the other Partners. On such retirement, the Partner shall be deemed dissociated from the Partnership.

Noncompetition Covenant

Add one of the following alternatives
Alternative 1: Noncompetition covenenat with a time limit

Noncompetition Covenant. Following dissociation of a Partner or the dissolution of the Partnership, the dissociated Partner or the Partner causing the dissolution shall not carry on a business similar to the business of the Partnership within the _ _[cities/counties]_ _ of _ _[names]_ _ for a period of _ _[number]_ _ years as long as any other member of the Partnership, or any person deriving title to the business or its goodwill from any other member of the Partnership, carries on a like business there.

Alternative 2: Noncompetition covenant without time limit

Noncompetition Covenant. Following dissociation of a Partner or the dissolution of the Partnership, the dissociated Partner or the Partner causing the dissolution shall not carry on a business similar to the business of the Partnership within the _ _[cities/counties]_ _ of _ _[names]_ _ as long as any other member of the Partnership, or any person deriving title to the business or its goodwill from any other member of the Partnership, carries on a like business there.

Payment When Business Not Wound Up

Purchase of Dissociated Partner’s Interest. Except as otherwise provided in this Agreement, if a Partner is dissociated from the Partnership and the remaining Partners do not elect to dissolve the Partnership, the Partnership shall cause the dissociated Partner’s interest in the Partnership to be purchased on the following terms:

(1) The buyout price of a dissociated Partner’s interest is the amount that would have been paid on settlement of a Partner’s account under California Corporations Code §16807(b) had the business of the Partnership been wound up if, on the date of dissociation, the assets of the Partnership were sold at a price equal to the greater of the liquidation value or the value based on a sale of the entire business as a going concern without the dissociated Partner and the Partnership was wound up as of that date. Interest shall be paid from the date the amount owed becomes due to the date of payment.
(2) Damages for wrongful dissociation under Corporations Code §16602(b) and all other amounts owing from the dissociated Partner to the Partnership, whether or not presently due, shall be offset against the buyout price. Interest shall be paid from the date the amount owed becomes due to the date of payment.
(3) The Partnership shall indemnify, defend, and hold the dissociated Partner harmless from any Partnership liabilities, whether incurred before or after the event of dissociation, except liabilities incurred by an act of the dissociated Partner after dissociation (a) when the other party reasonably believed that the dissociated Partner was then a Partner, (b) the other party did not have notice of the Partner’s dissociation, or (c) the other party is not deemed to have knowledge of the Partner’s dissociation due to filing of a statement of Partnership authority or statement of dissociation.
(4) (a) If no agreement is reached for the purchase of the dissociated Partner’s interest within 120 days after the dissociated partner’s written demand for payment, the Partnership shall pay, or cause to be paid, in cash to the dissociated Partner the amount the Partnership estimates to be the buyout price and accrued interest, reduced by any offsets and accrued interest under this section.
(b) Payment shall be accompanied by all of the following:
(i) A statement of Partnership assets and liabilities as of the date of dissociation.
(ii) The latest available Partnership balance sheet and income statement, if any.
(iii) An explanation of how the estimated amount of the payment was calculated.
(iv) A written notice that the payment is in full satisfaction of the obligation to purchase unless, within 120 days after the written notice, the dissociated partner commences an action to determine the buyout price or to determine any offset, or to decide other terms of the obligations to purchase.
(5) Should any dissociation occur within 90 days before the dissolution of a Partnership, then:
(a) All Partners who dissociate within 90 days before the dissolution shall be treated as Partners for purposes of ending up the Partnership’s business on a dissolution of the Partnership; and
(b) Any damage for wrongful dissociation and all other amounts owed by the dissociated Partner to the Partnership, whether or not presently due, shall be taken into account in determining the amount distributable to the dissociated Partner on such dissolution and winding up.

Payment of Purchase Price by Mutual Agreement When Business Not Wound Up

Purchase of Dissociated Partner’s Interest. Except as otherwise provided in this Agreement, if a Partner is dissociated from a Partnership and the remaining Partners do not elect to dissolve the Partnership, the Partnership shall cause the dissociated Partner’s interest in the Partnership to be purchased for the purchase price determined in accordance this Agreement.

Transfer of Partnership Interests

Definition of Transferable Interest

Transferable Interest Defined. The only transferable interest of a Partner in the Partnership is the Partner’s share of the profits and losses of the Partnership and the Partner’s right to receive distributions.

Transferability of Interest

Add one of the following alternatives’
Alternative 1: Transferability of interest without substitution

Transferability Without Substitution. (1) A transfer in whole or in part of a Partner’s transferable interest in the Partnership shall be permissible but such a transfer does not:

(a) Cause the Partner’s dissociation or dissolution and winding up of the Partnership business;
(b) As against the remaining Partners, entitle the transferee, during the continuance of the Partnership, to participate in the management or conduct of the Partnership business, to require access to information concerning the Partnership transactions, or to inspect or copy Partnership books or records.
(2) Any such transferee has a right only to the following:
(a) To receive, in accordance with the transfer, distributions to which the transferor would otherwise be entitled;
(b) To receive on the dissolution and winding up of the Partnership business, in accordance with the transfer, the net amount otherwise distributable to the transferor;
(c) To seek a judicial determination that it is equitable to wind up the Partnership business.
(3) In a dissolution and winding up, a transferee is entitled to an account of Partnership transactions only from the date of the latest account agreed to by all of the Partners.
(4) On transfer, the transferor retains the rights and duties of a Partner other than the interest in distributions transferred.
(5) The Partnership shall not give effect to a transferee’s rights under this section until the Partnership has notice of the transfer.
Alternative 2: Nontransferability

Nontransferability of Interest. A Partner’s interest in the Partnership shall not be transferred, in whole or in part, except by intestate succession, testamentary disposition, or through a decree or judgment from a court of competent jurisdiction. Any other purported transfer of all or part of a Partner’s interest shall be void and of no effect against the Partnership, any other Partner, any creditor of the Partnership, or any claimant against the Partnership. No such transfer shall constitute the transferee a Partner or entitle the transferee to any of the rights of a Partner, other than the right to receive as much of the transferor’s share of Partnership distributions as is transferred to the transferee.

Alternaitve 3: Limited transferability

Limited Transferability. A Partner may transfer all or part of his or her interest in the Partnership only as follows:

(1) To the Partnership or to any other Partner;
(2) By intestate succession or testamentary disposition on the Partner’s death;
(3) By a gift to the Partner’s spouse or children, or to a trustee for the Partner’s spouse or children or both;
(4) To a corporation if, immediately after the transfer, the Partner making the transfer owns at least 50 percent of that corporation’s voting shares; or
(5) To any person after the Partner making the transfer has first offered the other Partners their rights of first refusal in accordance with the terms and conditions of this Agreement.

No such transfer shall constitute the transferee a Partner or entitle the transferee to any of the rights of a Partner, other than the right to receive as much of the transferor’s share of Partnership distributions as is transferred to the transferee. Until the transferee is admitted to the Partnership in substitution for the transferor under the provisions of this Agreement for admitting new Partners, such a transfer shall not terminate any of the transferor’s obligations.

Transfers Under Dissolution of Marriage

Transfers Under Dissolution of Marriage. In this section, “Partner” refers to the party named in the beginning of this Partnership agreement as a Partner and “Spouse” refers to the spouse of that Partner. In the event of a dissolution of marriage of any married Partner decreed by a court of competent jurisdiction, the interest of the Partner in the Partnership shall be allocated and distributed between the Partner and Spouse as the court may decree; provided, however, that:

(1) No spouse shall become a partner of the Partnership by virtue of any allocation or distribution of the interest of such Partner in any such dissolution proceeding;
(2) The spouse shall have only the status of an assignee of the Partner’s right to receive profits and losses of the Partnership under provisions of Corporations Code §16503;
(3) As between the Partner and Spouse, the Partner shall continue to have the exclusive right and authority to act as a partner on behalf of and bind the Partnership as specified in this Agreement; and
(4) Any action, consent, or approval taken or given or any document or instrument executed by the Partner on his or her own behalf (and on behalf of Spouse as an assignee under this Agreement) shall be binding on the Partner and Spouse, and the other Partners and any third party shall be entitled to rely on any action so taken by such Partner in accordance with this Agreement.

Right of First Refusal

Right of First Refusal. If any Partner receives an offer, whether or not solicited by that Partner, from a person not then a Partner to purchase all or any portion of the Partner’s interest in the Partnership, and, if the Partner receiving the offer is willing to accept it, the Partner may transfer the interest or portion specified in the offer only after he or she has afforded the Partnership and the other Partners the following rights of first refusal:

(1) The Partner desiring to make the transfer must first notify the Partnership and each of the other Partners in writing of the interest or portion the Partner proposes to transfer, the price and terms on which it is proposed to be transferred, and the identity of the proposed transferee.
(2) The Partnership shall have the option to purchase that interest or portion from the Partner at a price equal to the lesser of (a) the value of the interest or portion, computed under the provisions of this Agreement for valuing Partnership interests as of the date the notice of the proposed transfer is received by the Partnership, payable as provided in this Agreement, or (b) the same price and on the same terms as those specified in the notice of the proposed transfer. The Partnership shall exercise its option to purchase the interest or portion by written notice from the Partnership to the Partner, given within _ _[number]_ _ days after the Partnership receives the Partner’s notice of his or her desire to transfer.
(3) If the Partnership does not exercise its option to purchase the interest or portion within the time provided, then, within _ _[number]_ _ days after the Partnership receives the Partner’s notice of the proposed transfer, any of the other Partners desiring to purchase all or any part of that interest or portion may deliver to the Partner who proposed to make the transfer and to each of the other Partners written notice of election to purchase all or a specified part of the interest or portion.
(4) If the aggregate parts of the interest or portion specified in notices of election timely made by other Partners equal or exceed the entire offered interest or portion, the Partner desiring to transfer his or her interest or portion shall sell, and the Partners electing to purchase shall purchase, the interest or portion at a price equal to the lesser of (a) the value, as of the date the notice of the proposed transfer is received by the Partnership, of the interest or portion computed under the provisions of this Agreement for valuing Partnership interests, payable as provided in this Agreement, or (b) the same price and on the same terms as those specified in the notice of the proposed transfer. If the aggregate parts of the interest specified in the notices of election timely made exceed the entire interest or portion proposed to be transferred, each Partner making this election shall purchase such part of the offered interest and be liable for such part of the total amount of the purchase price as the part of the interest or portion specified in that Partner’s notice of election bears to the total of all parts of the interest or portion specified in all the notices of election timely made by Partners.
(5) If the Partnership does not exercise its option to purchase the interest within the time provided and if the aggregate parts of the interest or portion specified in the notices of election timely made by Partners are less than the entire interest or portion proposed to be transferred, all of the elections shall be ineffective and the Partner proposing to make the transfer shall not be obligated to sell, nor shall any of the other Partners electing to purchase be entitled or obligated to purchase, all or any part of the offered interest or portion. The Partner proposing to transfer an interest or portion may then, at any time within _ _[number]_ _ days following the expiration of the _ _[number]_ __-day period referred to in paragraph (3), transfer the specified interest or portion to the transferee specified in the notice on terms no more favorable to the purchaser than the terms stated in the notice and at no lower a price than the price stated in the notice.

Valuation of Interest

Add one of the following alternatives’
Alternative 1: Value of partner’s interest based on capital account

Valuation of Interest. The value of a Partner’s interest in the Partnership for purposes of this Agreement shall be calculated by taking into account the following items as of the date the value is to be determined, as these items are reflected on the Partnership’s regularly maintained accounting books and records:

(1) The balance in the Partner’s capital account;
(2) Plus the Partner’s proportionate share of the Partnership’s net profit for the current fiscal year to the date as of which the computation is made and not yet reflected in the Partner’s capital or drawing account;
(3) Less the Partner’s proportional share of any loss shown by the Partnership operations for that period;
(4) Plus any debt or other amount due to the Partner from the Partnership; but
(5) Less any debt owed by the Partner to the Partnership.
Alternative 2: Valuation of partner’s interest by agreement

Valuation of Interest. The value of a Partner’s interest in the Partnership for purposes of this Agreement shall be calculated by applying that Partner’s proportional interest in _ _[e.g., current profits/aggregate capital]_ _ to the value of the Partnership, which shall be determined as follows:

(1) Within _ _[number]_ _ days after the end of each fiscal year of the Partnership, the Partners shall, after due consideration of all factors they consider relevant, determine the Partnership’s value by unanimous written agreement. That value shall remain in effect for the purposes of this Agreement from the date of that written determination until the next such written determination, except as otherwise provided below. The valuation shall be entered on Exhibit _ _[specify number or letter]_ _ and all Partners shall initial the entry.
(2) Should the Partners be unable to agree on a value or otherwise fail to make any such determination, the Partnership’s value shall be the greater of (a) the value last established under this section, or (b) the Partnership’s net worth, determined in accordance with generally accepted accounting principles using the accrual method of accounting, consistently applied, as of the end of the Partnership’s next preceding fiscal year.
(3) Until it is otherwise determined under this section, the Partnership’s value shall be the aggregate initial capital contributions required under this Agreement and actually paid or conveyed to the Partnership.
Alternative 3: Valuation of partner’s interest by appraisal

Valuation of Interest. The value of a Partner’s interest in the Partnership for purposes of this Agreement shall be determined by appraisal as follows:

(1) Within _ _[number]_ _ days after the event requiring appraisal or within _ _[number]_ _ days after appointment of a Partner’s personal representative following the Partner’s death or legal disability, the Partnership and the Partner whose interest is to be appraised (or that Partner’s personal representative) shall jointly appoint an appraiser for this purpose, or, failing this joint action, shall each separately designate an appraiser and within _ _[number]_ _ days after their appointment, the two designated appraisers shall jointly designate a third appraiser. The failure of either the Partnership or the Partner whose interest is being appraised (or that Partner’s personal representative) to appoint an appraiser within the time allowed shall be deemed equivalent to appointment of the appraiser appointed by the other party. No person shall be appointed or designated an appraiser unless that person is then a member of _ _[name of trade association or other qualifying body]_ _.
(2) If, within _ _[number]_ _ days after the appointment of all appraisers, a majority of the appraisers concur on the value of the interest being appraised, that appraisal shall be binding and conclusive. If a majority of the appraisers do not concur within that period, the determination of the appraiser whose appraisal is neither highest nor lowest shall be binding and conclusive. The Partnership and the Partner whose interest is to be appraised, or that Partner’s estate or successors, shall share the appraisal expenses equally.
(3) A Partner’s interest in the Partnership so appraised shall be based on that Partner’s proportional interest in the Partnership’s _ _[e.g., current profits/aggregate capital]_ _.

In arriving at a valuation figure, the appraisers shall evaluate the business as a going concern and observe the following standards but not be limited to them in computing the Partnership’s value:

(1) Inventory shall be valued at the lower of cost or fair market value.
(2) Buildings and land shall be valued at fair market value.
(3) Machinery and equipment shall be valued at replacement cost.
(4) The existence of a willing purchaser shall be assumed when determining fair market value.
(5) A valuation shall be placed on items of substantial value not carried on the Partnership’s books.
(6) Investment securities owned by the Partnership for which there is an established trading market shall be valued at the market price on the effective date of valuation. For this purpose, market price means (a) for securities listed on any national securities exchange or for which sales are reported on NASDAQ, the last reported sales price on that date (or, if no sales on that date are reported, on the next preceding day for which sales were reported), and (b) for other publicly traded securities, the mean between the highest bid and lowest asked prices reported for these securities on that date (or, if no such prices are reported on that date, on the next preceding day for which such prices were reported).
(7) Investment securities owned by the Partnership for which there is no established trading market shall be valued at the amounts at which they are carried on the Partnership’s books in accordance with generally accepted accounting principles, including the equity method under Opinion 18 of the Accounting Principles Board to the extent applicable.
(8) Contingent items shall not be specifically deducted from the valuation figure, but they shall be considered in assessing the value of the Partnership’s goodwill.
(9) Goodwill, including trademarks, trade names, and other intangibles of commercial value such as patents, shall be considered in arriving at a valuation figure.
(10) Past, present, and prospective earnings, including the existing and prospective economic condition of the industry, shall be considered in arriving at a valuation figure.
(11) Adjustments shall be made for the federal and state income tax effect on the differences between tax bases and the market values determined by the appraisers.
Alternative 4: Put/call option setting price

Valuation of Interest. Either Partner (the “Offering Partner”) may give written notice to the other Partner (the “Accepting Partner”) of the Offering Partner’s intent to sell its interests in the Partnership in accordance with these provisions, stating in its written notice the cash purchase price at which the Offering Partner is willing to sell its interest in the Partnership. On receipt of such written notice, the Accepting Partner shall then be obligated to either (a) purchase all of the interest of the Offering Partner for cash at a price equal to the purchase price set forth in the written notice; or (b) sell its interest for cash to the Offering Partner at a price equal to the purchase price set forth in the written notice.

Payment of Purchase Price

Add one or more of the following alternatives’
Alternative 1: Cash

Payment of Purchase Price. Except as otherwise provided, whenever the Partnership is obligated or, having the right to do so, chooses to purchase a Partner’s interest, it shall pay for the interest in cash within _ _[number]_ _ days after the date on which the Partnership’s obligation to pay has become fixed.

Alternative 2: Cash or note

Payment of Purchase Price. Except as otherwise provided, whenever the Partnership is obligated or, having the right to do so, chooses to purchase a Partner’s interest, it shall pay for that interest, at its option, in cash or by promissory note of the Partnership, or partly in cash and partly by note. Any promissory note shall be dated as of the effective date of the purchase, shall mature in not more than _ _[number]_ _ years, shall be payable in installments that come due not less frequently than annually, shall bear interest at the rate of _ _[number]_ _ percent per annum, and may, at the Partnership’s option, be subordinated to existing and future debts to banks and other institutional lenders for money borrowed.

If applicable, add the following option
Option: Limiting amount due

After adding back all direct and indirect Partner remuneration, _ _[number]_ _ percent of the Partnership’s taxable income may be used for payment of a Partner’s or Partners’ interests. Any payment deferred under this section shall bear interest at the same rate applicable to the balance of the note. If deferred payments under this section are not paid within _ _[number]_ _ years of deferral, the Partnership shall be dissolved and the proceeds of dissolution shall be used to liquidate the balance due on the note.

Assumption of Outstanding Partnership Liabilities

Assumption of Outstanding Partnership Liabilities. Except as otherwise provided, the Partnership shall pay, as they mature, all Partnership obligations and liabilities that exist on the effective date of a Partner’s termination and shall hold the terminating Partner harmless from any action or claim arising or alleged to arise from those obligations or from liabilities accruing after that date.

Dissolution and Termination

Dissolution

Events of Dissolution. The Partnership shall be dissolved, and its business shall be wound up, only on the occurrence of any of the following events:

Add one of the following alternatives
Alternative 1: Dissolution of partnership at will by one-half of the partners
(1) The express will to dissolve and wind up the Partnership business of at least one-half of the Partners, including Partners other than wrongfully dissociating Partners who have dissociated within the preceding 90 days, and for which purpose dissociation notice from such Partners constitutes an expression of those Partners’ will to dissolve and wind up the Partnership business.
Alternative 2: Dissolution of partnership at will by all partners
(1) The express will of all of the Partners to wind up the Partnership business.
(2) The expiration of the Partnership term or completion of the undertaking if the Partnership is organized for a specific undertaking.
(3) On expiration of 90 days after a Partner’s dissociation by death, bankruptcy, incapacity, distribution by a trust or estate Partner of its entire interest, or termination of any entity Partner, or by a Partner’s wrongful dissociation, unless before that time a majority in interest of the Partners agree to continue the Partnership.
(4) Any event that makes it unlawful for all or substantially all of the Partnership business to be continued if such event is not cured within 90 days after notice to the Partnership of the event.
(5) On application by a Partner, a judicial determination that any of the following apply:
(a) The economic purpose of the Partnership is likely to be unreasonably frustrated.
(b) Another Partner has engaged in conduct relating to the Partnership business that makes it not reasonably practicable to carry on the business in Partnership with that Partner.
(c) It is not otherwise reasonably practicable to carry on the Partnership business in conformity with the Partnership agreement.
(6) As otherwise set forth in this Partnership Agreement.

Termination of Partnership After Dissolution; Waiver of Termination

Termination After Dissolution; Waiver. (1) Except as provided in this Agreement, the Partnership continues after dissolution only for the purpose of winding up its business. The Partnership is terminated when the winding up of its business is completed.

(2) At any time after the dissolution of the Partnership and before the winding up of its business is completed, all of the Partners, including any dissociating Partner (other than a wrongfully dissociating Partner) may waive the right to have the Partnership’s business wound up and the Partnership terminated. On such event, both of the following shall occur:
(a) The Partnership resumes carrying on its business as if dissolution had never occurred, and any liability incurred by the Partnership or a Partner after the dissolution and before the waiver is determined as if dissolution had never occurred; and
(b) The rights of any third party accruing after commencement of dissolution or arising out of conduct in reliance on the dissolution before the third party knew or received a notification of the waiver may not be adversely affected.

Persons Eligible to Wind Up Partnership

Persons Eligible to Wind Up Partnership. (1) After dissolution, a Partner who has not dissociated may participate in winding up the Partnership’s business, subject to the right of a Partner or its legal representative to petition the court, for good cause shown, for judicial supervision.

(2) The legal representative of the last surviving Partner may wind up a Partner’s business.
(3) The person winding up the Partnership business shall have all of the powers given by law to wind up the affairs of the Partnership.
(4) On dissolution, the Partnership shall cause to be filed a statement of dissolution under California Corporations Code §16805.

Distribution of Assets

Distribution of Assets. (1) On the winding up of the Partnership’s business, the assets of the Partnership, including any contributions by the Partners required in this Agreement, shall be applied to discharge its obligations to creditors, including to the extent permitted by law Partners who are creditors. Any surplus shall be applied to pay in cash the net amount distributable to Partners in accordance with their rights to distributions under this Agreement.

(2) Each Partner shall be entitled to a settlement of all Partnership accounts on winding up the Partnership business. In settling accounts among the Partners, the profits and losses that result from liquidation of the Partnership assets shall be credited and charged to the Partners’ accounts. The Partnership shall make a distribution to a Partner in an amount equal to any excess of the credits over the charges in the Partner’s account. A Partner shall contribute to the Partnership an amount equal to any excess of the charges over the credits in the Partner’s account.
(3) If a Partner fails to contribute the full amount that the Partner is obligated to contribute under this section, all of the other Partners shall contribute, in the proportions in which those Partners share Partnership losses, the additional amount necessary to satisfy the Partnership obligations. A Partner or its legal representative shall be entitled to recover from the other Partners any contribution the Partner makes to the extent the amount contributed exceeds that Partner’s share of the Partnership obligations for which the Partner is personally liable. The estate of a deceased Partner shall remain liable for that Partner’s obligations to contribute to the Partnership.
(4) After the settlement of accounts, each Partner shall contribute, in the proportion in which the Partner shares the Partnership losses, the amount necessary to satisfy Partnership obligations that were not known at the time of settlement for which the Partner is personally liable.

Indemnification

Indemnification. Except as otherwise provided in this Agreement, a Partner shall not be liable to, and the Partnership shall indemnify and hold the Partner harmless from, any and all expense and liability resulting from or arising out of any negligence or misconduct on the Partner’s part to the extent that the amount is not covered by the applicable insurance carried by the Partnership; provided, however, that there shall be no indemnification if it is determined that the Partner’s conduct is grossly negligent or reckless or if the Partner engages in any willful and material breach of any other obligations under this Agreement.

Miscellaneous Clauses

Amendments. This agreement may be amended at any time and from time to time by a writing signed by each person who is then a Partner.

Notices. Any written notice to any of the Partners required or permitted under this Agreement shall be deemed to have been duly given (a) on the date of service if served personally on the party to whom notice is to be given, or (b) on the _ _[e.g., second]_ _ day after mailing if mailed to the party to whom notice is to be given, first class postage prepaid, return receipt requested, and addressed to the addressee at the address stated opposite his or her name below or at the most recent address specified by written notice given to the sender by the addressee under this clause. Notices to the Partnership shall be similarly given, and addressed to it at its principal place of business.

Counterparts. The parties may execute this Agreement in two or more counterparts, which shall, in the aggregate, be signed by all the parties and constitute one agreement. Each counterpart shall be deemed an original instrument as against any party who has signed it.

Governing Law. This agreement is executed in and intended to be performed in the State of California, and the laws of that state (other than as to choice of laws) shall govern its interpretation and effect.

Successors. This agreement shall be binding on and inure to the benefit of the respective successors, assigns, and personal representatives of the parties, except to the extent of any contrary provision in this Agreement.

Severability. If any term, provision, covenant, or condition of this Agreement is held by a court of competent jurisdiction to be invalid, void, or unenforceable, the rest of the agreement shall remain in full force and effect and shall in no way be affected, impaired, or invalidated.

Headings. Section, paragraph, and other headings contained in this Agreement are for reference purposes only and are in no way intended to describe, interpret, define, amplify, or limit the scope, extent, or intent of this Agreement or any provision of it.

Further Action. Each Partner shall execute and deliver such papers, documents, and instruments, and perform such acts as are necessary or appropriate, to implement the terms of the agreement and the intent of the parties to this Agreement.

Waiver of Partition Action. Each of the parties to this Agreement irrevocably waives, during the term of the Partnership, any right that it may have to maintain any action for partition with respect to the Partnership properties.

Construction. In construing this Agreement, no consideration shall be given to the fact or presumption that any party had a greater or lesser hand in drafting it.

Gender. In construing this Agreement, pronouns of any gender shall be deemed to include the other gender.

Incorporation by Reference. Every exhibit, schedule, and other appendix attached to and referred to in this Agreement is incorporated in this Agreement by reference.

Attorney Fees. If any party requires the services of an attorney to secure the performance of this Agreement or otherwise on the breach or default of another party to this Agreement, or, if any judicial remedy or arbitration is necessary to enforce or interpret any provision of this Agreement or the rights and duties of any person in relation to it, the prevailing party shall be entitled to reasonable attorney fees, costs, and other expenses, in addition to any other relief to which such party may be entitled. Any award of damages following judicial remedy or arbitration as a result of the breach of this Agreement or any of its provisions shall include an award of prejudgment interest from the date of the breach at the maximum amount of interest allowed by law.

Entire Agreement. This Agreement contains the entire agreement of the parties relating to the rights granted and obligations assumed in this Agreement. Any oral representations or modifications concerning this instrument shall be of no force or effect unless contained in a subsequent written modification signed by the party to be charged.

Arbitration. Any controversy among the Partners involving the construction or application of any provision of this Agreement shall be submitted to arbitration at _ _[location]_ _, California, on the request of any Partner. Arbitration shall comply with and be governed under the provisions of the _ _[e.g., California Arbitration Act/commercial arbitration rules of the American Arbitration Association]_ _.

Execution

Execution

IN WITNESS WHEREOF, the Partners have executed this Agreement effective as of the date set forth above.

Date: _ _ _ _ _ _ __[Signature]__ _ _[Typed name]_ _ _ _[Address]_ _

Date: _ _ _ _ _ _ __[Signature]__ _ _[Typed name]_ _ _ _[Address]_ _

Date: _ _ _ _ _ _ __[Signature]__ _ _[Typed name]_ _ _ _[Address]_ _

Date: _ _ _ _ _ _ __[Signature]__ _ _[Typed name]_ _ _ _[Address]_ _

Exhibit _ _[specify number or letter]_ _

Consent of Spouses

Consent of Spouses

We certify that:

(1) We are the spouses of the persons who signed the foregoing Partnership Agreement and who constitute the members of the Partnership described in that Agreement.

(2) We have read and approve the provisions of that Partnership Agreement, including but not limited to those relating to the purchase, sale, or other disposition of the interest of a deceased, retiring, withdrawing, or terminating Partner.

(3) We agree to be bound by and accept those provisions of that Partnership Agreement in place of all other interests we, or any of us, may have in that Partnership, whether the interest may be community property or otherwise.

(4) Our spouses shall have full power of management of their interests in the Partnership, including any portion of those interests that are our community property, and they have the full right, without our further approval, to exercise their voting rights as Partners in the Partnership, to execute any amendments to the Partnership Agreement, and to sell, transfer, encumber, and deal in any manner with those Partnership interests, including any portion of those interests that are our community property.

Executed on _ _[date]_ _, at _ _[location]_ _, California.

__[Signature of spouse]__ _ _[Typed name]_ _

__[Signature of spouse]__ _ _[Typed name]_ _

__[Signature of spouse]__ _ _[Typed name]_ _

__[Signature of spouse]__ _ _[Typed name]_ _

Sample Nondisclosure Agreement

Sample Nondisclosure Agreement

The information contained in this sample is provided for informational purposes only, and should not be construed as legal advice on any subject matter. You should not act or refrain from acting on the basis of any content included in this site without seeking legal or other professional advice. The contents of this post contain general information and may not reflect current legal developments or address your situation. We disclaim all liability for actions you take or fail to take based on any content on this site.

Nondisclosure Agreement

Preamble

EMPLOYEE CONFIDENTIALITY, NONDISCLOSURE, AND NONRECRUITING AGREEMENT (California)

This Employee Confidentiality, Nondisclosure, and Nonrecruiting Agreement (the “Agreement”) is entered into between _ _[name of employer]_ _ (“Company”) and the employee whose name and signature appear below (“Employee”), as of the date set forth below, in regard to the following facts:

Recitals

A. As part of Employee’s employment with Company, Employee has been or will be exposed to or provided with trade secrets (“Trade Secrets”) and proprietary and confidential information (“Confidential Information”) relating to the operation of Company’s business and its clients or customers.
B. Company wishes to protect its Trade Secrets and Confidential Information from unauthorized possession, use, or disclosure and to protect itself from unfair competition. Accordingly, Employee acknowledges that a part of the consideration that Employee is providing Company in exchange for his or her employment and continued employment with Company is Employee’s agreement to maintain the secrecy of Company’s Trade Secrets and Confidential Information in the manner provided herein.

In consideration of the foregoing, Employee agrees as follows:

Duty of Loyalty

1. Duty of Loyalty. While employed by Company, Employee agrees at all times to devote his or her best efforts to the business of the Company, to perform conscientiously all duties and obligations required or assigned, and to not usurp for personal gain any opportunities in Company’s line of business.

Definition of Trade Secrets

2. Protection of Company’s Trade Secrets and Confidential Information.
a. Definition of Trade Secrets. Employee acknowledges and agrees that, through his or her employment with Company, he or she has been or will be exposed to or provided with the Company’s Trade Secrets. As defined by California law, “Trade Secrets” means information, including a formula, pattern, compilation, program, device, method, technique or process, that (i) derives independent economic value, actual or potential, from not being generally known to the public or to other persons or entities who can obtain economic value from its disclosure or use and (ii) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy. Company’s Trade Secrets include, but are not limited to, the following: _ _[Describe specific formulas, patterns, compilations, programs, devices, methods, techniques, and processes that the company believes constitute its trade secrets]_ _. Employee acknowledges and agrees that Company’s Trade Secrets are not generally known to the public or to the Company’s competitors, were developed or compiled at significant expense by Company over an extended period of time, and are the subject of Company’s reasonable efforts to maintain their secrecy and that Company derives significant independent economic value by keeping secret its Trade Secrets.

Definition of Confidential Information

b. Definition of Confidential Information. Employee acknowledges and agrees that, through his or her employment with Company, he or she has been or will be exposed to or provided with Company’s Confidential Information. “Confidential Information” means information belonging to Company, whether reduced to writing or in a form from which such information can be obtained, translated, or derived into reasonably usable form, that has been provided to Employee during his or her employment with Company, that Employee has gained access to while employed by Company, or that was developed by Employee in the course of Employee’s employment with Company, and that is proprietary and confidential in nature. Company’s Confidential Information includes, but is not limited to, the following: (i) information believed by Company to be a Trade Secret that ultimately does not qualify as such under California law but nonetheless was maintained by Company as confidential; (ii) information concerning the nature of Company’s business and its manner of operation; (iii) the methods and systems used by Company in soliciting, selling, and providing its services and products to its clients and customers; (iv) financial and accounting information, such as cost, pricing, and billing information, client and customer profiles, financial policies and procedures, and revenues and profit margins; (v) sales and marketing information, such as sales strategies and programs; (vi) information concerning Company’s clients and customers and prospective clients or customers; (vii) information concerning Company’s vendors and suppliers; (viii) client and customer lists; (ix) prospective client and customer lists; (x) information regarding client and customer buying habits and special needs; (xi) employment policies and procedures; (xii) personnel records; (xiii) software developed by or for the benefit of Company and related data source code and programming information (whether or not patentable or registered under copyright or similar statutes); (xiv) information about Company’s circuit designs, blueprints, CAD drawings and designs, layouts, algorithms, design technology and know-how, formulas, manufacturing and/or design techniques, inventions (whether patentable or not); and (xv) information concerning Company’s business relationships with persons, firms, corporations, and other entities.

Exclusions From Definitions

c. Information Not Included Within Definition of Trade Secrets or Confidential Information. For avoidance of doubt, Company’s Trade Secrets and Confidential Information do not include any information that (i) is already in the public domain or becomes available to the public through no breach of this Agreement by Employee; (ii) was lawfully in Employee’s possession prior to disclosure to the Employee by Company; (iii) is lawfully disclosed to Employee by a third party without any obligations of confidentiality attaching to such disclosure; or (iv) is developed by Employee entirely on his or her own time without Company’s equipment, supplies, or facilities and does not relate at the time of conception to Company’s business or actual or demonstrably anticipated research or development of Company.

Property of Company

d. Property of Company. Employee acknowledges and agrees that all Trade Secrets and Confidential Information developed, created, or maintained by Employee, alone or with others, while he or she is employed by Company, shall remain at all times the sole property of Company.

Covenant Not to Disclose

e. Covenant Not to Use, Publish, or Disclose Company’s Trade Secrets or Confidential Information During and After Termination of Employment. Employee acknowledges and agrees that Employee’s employment with Company creates a relationship of confidence and trust with Company with respect to all of Company’s Trade Secrets and Confidential Information. Therefore, at any time during Employee’s term of employment or following the termination of Employee’s employment with Company, whether voluntary or involuntary, Employee shall not, except as required in the conduct of Company’s business or as authorized in writing by Company, use, publish, or disclose any of Company’s Trade Secrets or Confidential Information in any manner whatsoever.

Covenant Not to Solicit

f. Covenant Not to Solicit Company’s Clients or Customers After Termination of Employment Through Use of Company’s Trade Secrets or Confidential Information. Employee agrees that for a period of _ _[insert number of months or years; typically under California law 1 to 2 years]_ _ following the termination of his or her employment with Company, whether voluntary or involuntary, Employee shall not, directly or indirectly, solicit or attempt to solicit any business from any of Company’s clients or customers for the purposes of providing products or services that are competitive with those provided by Company when such solicitation or attempt at solicitation is done by Employee through the use of Company’s Trade Secrets or Confidential Information.

Nonrecruiting Covenant

3. Nonrecruiting Covenant. Employee acknowledges and agrees that Company has invested substantial time and effort in assembling its current personnel. Therefore, Employee agrees that for _ _[insert number of months or years; typically under California law 1 to 2 years]_ _ following his or her termination of employment with Company, whether voluntary or involuntary, Employee will not, in regard to any employee of Company that Employee had “material contact” with, directly or indirectly recruit or attempt to recruit any employee of Company or induce or attempt to induce any employee of Company to terminate or cease employment with Company. For purposes of this paragraph, “material contact” shall exist when Employee supervised the employee of Company, or worked directly with the employee of Company, or otherwise received Trade Secrets or Confidential Information from the employee of Company. Notwithstanding the foregoing, nothing in this Section 3 shall prevent Employee from receiving and considering any application from any employee of Company that is not solicited by Employee or on Employee’s behalf.

Covenant Not to Compete During Employment Term

4. Covenant Not to Compete During Term of Employment. Employee agrees that, during his or her term of employment with Company, he or she will not, directly or indirectly, either as an employee, employer, consultant, agent, principal, partner, corporate officer, board member, or director, or in any other individual or representative capacity, engage or attempt to engage in any competitive activity relating to the subject matter of his or her employment with Company or relating to Company’s line of business.

Reasonableness of Restrictive Covenenats

5. Reasonableness of Restrictive Covenants. Employee acknowledges that he or she has carefully read and considered Sections 2, 3, and 4 of this Agreement and agrees that the restrictions set forth therein are fair and reasonable, are supported by valid consideration, and are reasonably required to protect the legitimate business interests of Company.

Prior Agreements

6. Prior Agreements, Relationships, and Commitments.
a. Employee represents that he or she has no agreements, relationships, or commitments to or with any other person or entity that conflict with or would prevent Employee from performing any of Employee’s obligations to Company under this Agreement or would otherwise prevent Employee from performing his or her job duties while employed by Company.
b. Employee will not disclose and has not disclosed to Company and will not use or induce Company to use any trade secrets or confidential information of others. Employee represents and warrants that he or she has returned all property, trade secrets, and confidential information belonging to others and is not in possession of any such property, confidential information, or trade secrets.
c. Employee agrees to indemnify, defend, and hold harmless Company and its officers, directors, and employees from any and all claims, damages, costs, expenses, or liability, including reasonable attorney fees and costs, incurred in connection with or resulting from any breach or default of the representations and warranties contained in this Section 6.

Termination of Employment

7. Termination of Employment. If Employee’s employment with Company is terminated for any reason, whether voluntarily or involuntarily, Employee shall promptly:
a. Inform Company of and deliver to Company all records, files, electronic data, documents, plans, reports, books, notebooks, notes, memoranda, correspondence, contracts, and the like in Employee’s possession, custody, or control that contain any of Company’s Trade Secrets or Confidential Information that Employee prepared, used, or came in contact with while employed by Company;
b. Inform Company of and deliver to Company all records, files, electronic data, documents, plans, reports, books, notebooks, notes, memoranda, correspondence, contracts, and the like in Employee’s possession, custody, or control that pertain in any way to the business of Company and that Employee prepared, used, or came in contact with while employed by Company;
c. Deliver to Company all tangible property in Employee’s possession, custody, or control belonging to Company, including but not limited to key cards, office keys, cell phones, pagers, personal digital assistants, external hard drives, thumb drives, Zip drives, laptop computers, and desktop computers; and
d. Allow Company’s representative to inspect Employee’s personal desktop computer, laptop computer, thumb drive, Zip drive, and any other external hard drive in order to determine whether any of Company’s Trade Secrets or Confidential Information reside on that computer or drive and to remove any Trade Secrets or Confidential Information.
e. Sign the Certificate of Compliance Post-Termination attached to this Agreement as Exhibit A.

Injunctive Relief

8. Injunctive Relief. Employee acknowledges and agrees that if Company’s Trade Secrets or Confidential Information were disclosed to a competing business or used in an unauthorized manner as provided herein, such unauthorized disclosure or use would cause immediate and irreparable harm to Company and would give a competing business an unfair business advantage against Company for which Company may not have an adequate remedy at law. Therefore, Employee agrees that, in addition to any other remedies available to Company at law or in equity, Company shall be entitled to any proper injunction, including but not limited to any temporary, preliminary, or final injunction, any temporary restraining order, and any temporary protective orders, to enforce Sections 2, 3, and 4 of this Agreement in the event of breach or threatened breach by Employee. The restrictive covenants contained in this Agreement are independent of any other obligations between the parties, and the existence of any other claim or cause of action against Company is not a defense to enforcement of those covenants by injunction.

Employment at Will

9. Employment at Will. Employee understands and agrees that nothing in this Agreement shall confer any right with respect to continuation of employment with Company, nor shall it interfere in any way with Employee’s right or Company’s right to terminate Employee’s employment at any time, with or without cause, with or without notice.

Waiver

10. Waiver. No waiver by Company of any breach of this Agreement shall constitute a waiver of any preceding or succeeding breach. No waiver by Company of any right under this Agreement shall be construed as a waiver of any other right.

Tolling and Suspension

11. Tolling and Suspension. In the event of a breach by Employee of any restrictive covenant contained in this Agreement, the running of the period of restriction shall automatically be tolled and suspended for the amount of time that the breach continues and shall automatically commence when the breach is remedied so that Company shall receive the benefit of Employee’s compliance with the terms and conditions of this Agreement.

Entire Agreement, Governing Law, Survival

12. Entire Agreement, Governing Law, Survival. This Agreement constitutes the entire agreement between Company and Employee regarding the secrecy, use, and disclosure of Company’s Trade Secrets and Confidential Information, and this Agreement supersedes any and all prior agreements regarding these matters. The provisions of this Agreement shall be governed by and construed in accordance with the laws of the State of California without giving effect to the principles of conflict of laws. This Agreement consists of a series of separate restrictive covenants, all of which shall survive and be enforceable in law and equity after Employee’s termination or cessation of employment.

Severability

13. Severability. Each provision of this Agreement is intended to be severable. If any court of competent jurisdiction determines that one or more of the provisions of this Agreement, or any part thereof, is or are invalid, illegal, or unenforceable, that invalidity, illegality, or unenforceability shall not affect or impair any other provision of this Agreement, and this Agreement shall be given full force and effect while being construed as if such invalid, illegal, or unenforceable provision(s) had not been contained in it. If the scope of any provision in this Agreement is found to be too broad to permit enforcement of that provision to its full extent, Employee consents to judicial modification of that provision and enforcement to the maximum extent permitted by law.

Closing Paragraph, Signatures

The undersigned acknowledges that he or she has read and understood this Agreement and that he or she signs this Agreement intending to be bound by its terms as of the date set forth below.

Date: _ _ _ _ _ _
[Signature of employee]__ _ _
[Typed name]_ _

Accepted and agreed to by Company:

Date: _ _ _ _ _ _ _ _
[NAME OF ENTITY]_ _, a _ _[specify entity, e.g., California corporation]_ _
By: __[Signature]__
Name: _ _[Typed name]_ _
Its: _ _[Title]_ _

EXHIBIT A CERTIFICATE OF COMPLIANCE POST-TERMINATION

To be executed at time of termination only.

I hereby certify that I have complied with and shall continue to comply with all the terms of the Employee Confidentiality, Nondisclosure, and Nonrecruiting Agreement (the “Agreement”), which I signed. All capitalized terms used but not defined in this Certificate shall have the meanings assigned to them in the Agreement.

I further certify that I do not have in my possession, nor have I failed to return to Company, any Trade Secrets or Confidential Information, or copies of the same, or any other documents, materials, equipment, or other property belonging to Company. I further certify that I will not retain any electronic, written, or other tangible material containing any information concerning or disclosing any of Company’s Trade Secrets or Confidential Information.

I agree that, in compliance with the Agreement, I will preserve as secret all of Company’s Trade Secrets or Confidential Information, and I will not participate in the unauthorized use or disclosure of Company’s Trade Secrets or Confidential Information.

On termination of my employment with Company, I will be employed by ____________________________________________ and will be working in connection with the following projects or matters:

________________________________________________________

________________________________________________________

________________________________________________________

________________________________________________________

________________________________________________________

________________________________________________________

________________________________________________________

Date: _ _ _ _ _ _ __[Signature of employee]__ _ _[Typed name]_ _

Sample Noncompete Provision

Sample Noncompete Provision

The information contained in this sample is provided for informational purposes only, and should not be construed as legal advice on any subject matter. You should not act or refrain from acting on the basis of any content included in this site without seeking legal or other professional advice. The contents of this post contain general information and may not reflect current legal developments or address your situation. We disclaim all liability for actions you take or fail to take based on any content on this site.

The California Business & Professions Code § 16600 states: “Except as provided in this chapter, every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.” However, a noncompete provision that is narrowly written to protect trade secrets and is actually necessary to do so may be enforceable. Note that a contractual covenant not to compete is not necessary to protect the employer’s trade secrets. Such legal protection is already afforded to the employer under unfair competition laws, including those under the UTSA and the California Business and Professions Code.

The below example is from a Franchise Agreement:

NONDISCLOSURE AND NONCOMPETITION AGREEMENT

Confidant is about to undergo training by _ _[Franchisor’s legal name]_ _ (Franchisor) or one of its franchisees. During this process, Confidant will learn a great deal about the _ _[PRINCIPAL IDENTIFYING MARK]_ _ System, including information about its members’ business affairs, finances, management, marketing programs, philosophy, customers and methods of doing business. Confidant will have access to confidential information developed and maintained at substantial cost by Franchisor. This information is proprietary to Franchisor. Its use by third parties could cause substantial and irreparable damage to the company.

Therefore, in return for either (a) his or her training by _ _[Franchisor’s legal name]_ _ Franchisor to operate a _ _[Unit]_ _, or (b) his or her employment by Franchisor or by one of its franchisees, the undersigned (Confidant) agrees as follows:

1. Nondisclosure of Trade Secrets and Confidential Information

Confidant agrees, during the term of the Franchise Agreement and following termination, expiration, or assignment of the Agreement, not to disclose, duplicate, sell, reveal, divulge, publish, furnish, or communicate, either directly or indirectly, any Trade Secret or other Confidential Information of Franchisor to any other person or company unless authorized in writing by Franchisor. Confidant agrees not to use any Trade Secret or Confidential Information for his or her personal gain or for purposes of others, whether or not the Trade Secret or Confidential Information has been conceived, originated, discovered, or developed, in whole or in part, by Confidant or represents Confidant’s work product. If Confidant has assisted in the preparation of any information that we consider to be a Trade Secret or Confidential Information or has himself or herself prepared or created the information, Confidant assigns any rights that he or she may have in the information as its creator to Franchisor, including all ideas made or conceived by Confidant.

2. Definition of Trade Secrets and Confidential Information

For purposes of this agreement, the terms “Trade Secret” and “Confidential Information” mean any knowledge, technique, processes, or information made known or available to Confidant that we treat as confidential, whether existing now or created in the future, including but not limited to information about the cost of materials and supplies, supplier lists or sources of supplies, sales and marketing information, pricing information, proprietary software, internal business forms, orders, customer accounts, manuals and instructional materials describing our methods of operation, including our Operations Manual, audiotapes and video tapes, products, drawings, designs, plans, proposals, and marketing plans, all concepts or ideas in, or reasonably related to our business that have not previously been publicly released by Franchisor, and any other information or property of any kind of Franchisor that may be protected by law as a Trade Secret, confidential, or proprietary. The Trade Secrets and Confidential Information described in this agreement are the sole property of Franchisor.

3. Return of Proprietary Materials

Upon termination or expiration of franchise ownership or employment by Franchisor or a _ _[PRINCIPAL IDENTIFYING MARK]_ _ franchisee, Confidant must surrender to Franchisor all materials considered proprietary by Franchisor, technical or nontechnical, whether or not copyrighted, that relate to a Trade Secret, Confidential Information, or conduct of the operations of Franchisor. Confidant expressly acknowledges that any such materials of any kind given to him or her are and will remain the sole property of Franchisor.

4. Solicitation of Customers

During the term of Confidant’s relationship with Franchisor or one of its franchisees, and for _ _[number of years of noncompete period]_ _ years after the relationship terminates, Confidant agrees that he or she will not, directly or indirectly or by action in concert with others, solicit, induce or influence or seek to solicit, induce or influence any customer or prospective customer with whom Confidant did business during his or her relationship with Franchisor or one of its franchisees for the purpose of promoting or selling any products or services that are competitive with those offered by Franchisor and its franchisees.

5. Solicitation of Employees

Confidant further agrees that, during the term of his or her relationship with Franchisor or one of its franchisees and for _ _[number of years of noncompete period]_ _ years after its expiration, he or she will not, directly or indirectly or in concert with others, furnish to or for the benefit of any competitor of Franchisor, or the competitor’s employees, agents, licensees, or franchisees, or the competitor’s subsidiaries, the name of any person who is employed or engaged as an independent contractor by Franchisor or by any other franchisee of Franchisor. In addition, Confidant agrees that, during the term of his or her relationship with Franchisor or one of its franchisees, and for _ _[number of years of noncompete period]_ _ years after the relationship terminates, he or she will not, directly or indirectly or by action in concert with others, solicit, induce or influence, or seek to solicit, induce or influence any person who is employed by or engaged as an independent contractor by Franchisor to terminate his or her employment or engagement.

6. Noncompetition

Confidant agrees and covenants that because of the confidential and sensitive nature of the Confidential Information and because the use of the Confidential Information in certain circumstances may cause irrevocable damage to Franchisor, Confidant will not, until the expiration of the _ _[number of years of noncompete period]_ _ year after the termination of the employment relationship between Confidant and Franchisor or the franchisee that employs him or her, or termination of the ownership interest of Confidant in a _ _[PRINCIPAL IDENTIFYING MARK]_ _ franchise, engage in, own an interest in, or serve as an officer, director, employee, agent, independent contractor, partner, shareholder, member or principal, directly or indirectly, or through any organization or Related Party, in any _ _[describe type of business]_ _ that is located within _ _[specify noncompete territory]_ _.

7. Saving Provision

Confidant agrees and stipulates that the agreements and covenants not to compete contained in the preceding paragraph are fair and reasonable in light of all the facts and circumstances of the relationship between Confidant and Franchisor. However, Confidant and Franchisor are aware that in certain circumstances courts have refused to enforce certain agreements not to compete. Therefore, in furtherance of the provisions of the preceding paragraph, Confidant and Franchisor agree that if a court or arbitrator should decline to enforce the provisions of the preceding paragraph, that paragraph must be considered modified to restrict Confidant’s competition with Franchisor to the maximum extent, in both time and geography, which the court or arbitrator finds enforceable.

8. Irreparable Harm to Franchisor

Confidant understands and agrees that Franchisor will suffer irreparable injury that cannot be precisely measured in monetary damages if Confidential Information or proprietary information is obtained by any person, firm, or corporation and is used in competition with Franchisor. Accordingly, Confidant agrees that it is reasonable and for the protection of the business and goodwill of Franchisor for Confidant to enter into this agreement. If there is a breach of this agreement by Confidant, Confidant consents to entry of a temporary restraining order or other injunctive relief and to any other relief that may be granted by a court having proper jurisdiction.

9. Binding Effect

This agreement will bind Confidant’s heirs, executors, successors, and assignees as though originally signed by them.

10. Applicable Law

The validity of this agreement will be governed by the laws of the State where Confidant lives. If any provision of this agreement is void or unenforceable in that State, the remainder of the Agreement will be fully enforceable according to its terms.

Date: _ _ _ _ _ _ __[Signature of Confidant]__ _ _[Typed name]_ _

Sample Non-Solicitation Declaration

Sample Non-Solicitation Declaration

The information contained in this sample is provided for informational purposes only, and should not be construed as legal advice on any subject matter. You should not act or refrain from acting on the basis of any content included in this site without seeking legal or other professional advice. The contents of this post contain general information and may not reflect current legal developments or address your situation. We disclaim all liability for actions you take or fail to take based on any content on this site.

This sample has been provided in conjunction with Meyerdirk Consulting. MeyerdirkConsulting.com

DECLARATION OF NON-SOLICITATION

To: <Investor>

From: <Company>

I, the undersigned person, do hereby declare that I have requested information pertaining to <type of investment> investment opportunities with your company.

I have not requesting this information as a result of any public solicitation, offering or promotion and have requested this data for my own personal use. I was referred to you by a private party.

I realize that the requested information is for private use and is not available to the public and that the purpose of this information is not to solicit me to invest in anything.

If I choose to participate in any <type of investment> investment opportunities or private placement opportunities referred to in the requested information provided to me, it will be of my own free will and accord and not through solicitation or coercion by any agents, affiliates or non-affiliated entities related to you directly or indirectly.

Date: ______________________

Signature: ________________________________________________

Name Printed: <investor name>

Full Address:

Telephone: ________________________________________________

E-Mail Address:

This sample has been provided in conjunction with Meyerdirk Consulting. MeyerdirkConsulting.com

Sample Non-Profit Bylaws

Sample Non-Profit Bylaws

The information contained in this sample is provided for informational purposes only, and should not be construed as legal advice on any subject matter. You should not act or refrain from acting on the basis of any content included in this site without seeking legal or other professional advice. The contents of this post contain general information and may not reflect current legal developments or address your situation. We disclaim all liability for actions you take or fail to take based on any content on this site.

Contents

NON-PROFIT BYLAWS: PUBLIC BENEFIT CORPORATION

BYLAWS OF _ _[NAME OF CORPORATION]_ _ A California Nonprofit _ _[Public Benefit]_ _ Corporation

Corporate Name. The name of this corporation is _ _[name]_ _.

Principal Office. The principal office for the transaction of the activities and affairs of this corporation is located at _ _[street address and city]_ _, in _ _[name]_ _ County, California. The board of directors may change the location of the principal office. Any such change of location must be noted by the secretary on these bylaws opposite this Section; alternatively, this Section may be amended to state the new location.

[If appropriate, add]

The board may at any time establish branch or subordinate offices at any place or places where this corporation is qualified to conduct its activities.

Purpose. The purpose of this corporation is to _ _[state purposes exactly as in the articles of incorporation]_ _. In the context of these general purposes, the corporation shall _ _[describe purposes more specifically]_ _. Also in the context of these purposes, the corporation shall _ _[repeat any limitations that appear in the articles of incorporation and add any other limitations that do not appear in the articles]_ _.
Construction; Definitions. Unless the context requires otherwise, the general provisions, rules of construction, and definitions in the California Nonprofit Corporation Law shall govern the construction of these bylaws. Without limiting the generality of the preceding sentence, the masculine gender includes the feminine and neuter, the singular includes the plural, the plural includes the singular, and the term “person” includes both a legal entity and a natural person.

[If appropriate, add]

Supporting Corporation. This corporation has been organized and shall operate exclusively to support _ _[name of supported public charity]_ _ and shall be _ _[operated, supervised, or controlled by/supervised or controlled in connection with/operated in connection with]_ _ that organization as specified in Internal Revenue Code §509(a)(3).

If _ _[name of supported organization]_ _ (1) shall cease to be an organization described in Internal Revenue Code §§170(b)(1)(A)(iv), 501(c)(3) and 509(a)(1) or 509(a)(2), or (2) shall substantially abandon the charitable and educational purposes that this corporation is organized to support, the directors shall designate a publicly supported educational or charitable organization as described in Internal Revenue Code §§170(b)(1)(A), 501(c)(3) and 509(a)(1) or 509(a)(2), in substitution for _ _[name of supported organization]_ _, for purposes of Article _ _[specify purposes clause]_ _ of the Articles of Incorporation and Section _ _[number]_ _ of these bylaws.

Irrevocable Dedication of Assets. This corporation’s assets are irrevocably dedicated to _ _[public benefit/charitable/religious]_ _ purposes. No part of the net earnings, properties, or assets of the corporation, on dissolution or otherwise, shall inure to the benefit of any private person or individual, or to any director or officer of the corporation. On liquidation or dissolution, all properties and assets remaining after payment, or provision for payment, of all debts and liabilities of the corporation shall be distributed to a nonprofit fund, foundation, or corporation that is organized and operated exclusively for charitable purposes and that has established its exempt status under Internal Revenue Code §501(c)(3).

MEMBERSHIP

[Add one of the following alternatives]

[Alternative 1: Bylaws specify classes and requirements]

Membership. This corporation shall have _ _[e.g., two]_ _ classes of members, designated as _ _[e.g., regular and associate]_ _. Any person dedicated to the purposes of the corporation _ _[and]_ _ _ _[state other qualifications for each class of membership, including any requirement for approval by a membership committee]_ _ shall be eligible for membership on approval of the membership application by the board and on timely payment of such dues and fees as the board may fix from time to time.

[Alternative 2: Reference to governing document]

Qualifications of members and classes and terms of membership shall be those described by the _ _[governing document]_ _.

Membership Rights. _ _[All/Specify, e.g., names of voting classes]_ _ members shall have the right to vote, as set forth in these bylaws, on the election of directors, on the disposition of all or substantially all of the corporation’s assets, on any merger and its principal terms and any amendment of those terms, and on any election to dissolve the corporation. In addition, those members shall have all rights afforded members under the California Nonprofit Public Benefit Corporation Law.

Termination of Membership. A membership shall terminate on occurrence of any of the following events:

(1) Resignation of the member;
(2) Expiration of the period of membership, unless the membership is renewed on the renewal terms fixed by the board;
(3) The member’s failure to pay dues, fees, or assessments as set by the board within _ _[period of time]_ _ after they are due and payable;
(4) Any event that renders the member ineligible for membership, or failure to satisfy membership qualifications; or
(5) Termination of membership under Section _ _[number]_ _ of these bylaws based on the good faith determination by the board, or a committee or person authorized by the board to make such a determination, that the member has failed in a material and serious degree to observe the rules of conduct of the corporation, or has engaged in conduct materially and seriously prejudicial to the corporation’s purposes and interests.

Suspension of Membership. A member may be suspended, under Section _ _[number]_ _ of these bylaws, based on the good faith determination by the board, or a committee or person authorized by the board to make such a determination, that the member has failed in a material and serious degree to observe the corporation’s rules of conduct, or has engaged in conduct materially and seriously prejudicial to the corporation’s purposes and interests.
A person whose membership is suspended shall not be a member during the period of suspension.

Procedure. If grounds appear to exist for suspending or terminating a member under Sections _ _[numbers]_ _ of these bylaws, the following procedure shall be followed:

(1) The board shall give the member at least 15 days’ prior notice of the proposed suspension or termination and the reasons for the proposed suspension or termination. Notice shall be given by any method reasonably calculated to provide actual notice. Notice given by mail shall be sent by first-class or registered mail to the member’s last address as shown on the corporation’s records.
(2) The member shall be given an opportunity to be heard, either orally or in writing, at least five days before the effective date of the proposed suspension or termination. The hearing shall be held, or the written statement considered, by the board or by a committee or person authorized by the board to determine whether the suspension or termination should occur.
(3) The board, committee, or person shall decide whether the member should be suspended, expelled, or sanctioned in any way. The decision of the board, committee, or person shall be final.
(4) Any action challenging an expulsion, suspension, or termination of membership, including a claim alleging defective notice, must be commenced within one year after the date of the expulsion, suspension, or termination.

MEETINGS

[Add one of the following alternatives]

[Alternative 1: Meeting held on date certain]

Annual Meeting. An annual meeting of members shall be held on the _ _[specific date/day, e.g., first Monday]_ _ of _ _[month]_ _ of each year at _ _[time]_ _, unless the board fixes another date or time and so notifies members as provided in Sections _ _[numbers]_ _ of these bylaws. If the scheduled date falls on a legal holiday, the meeting shall be held on the next full business day. At the meeting, directors shall be elected and other proper business may be transacted, subject to Sections _ _[numbers]_ _ of these bylaws.

[Alternative 2: Meetings held as specified by board]

Annual Meeting. A general meeting of members shall be held at least annually at such time and place, and on such notice, if any, as the board may determine. Unless elected by written ballot, directors shall be elected at this meeting. Subject to Sections _ _[number]_ _ of these bylaws, any other proper business may be transacted at this meeting.

Location of Meetings. Meetings of the members shall be held at any place within or outside California designated by the board or by the written consent of all members entitled to vote at the meeting, given before or after the meeting. In the absence of any such designation, members’ meetings shall be held at the corporation’s principal office. The board may authorize members who are not present in person to participate by electronic transmission or electronic video communication.

Special Meetings. A special meeting called by any person entitled to call a meeting of the members shall be called by written request, specifying the general nature of the business proposed to be transacted, and addressed to the attention of and submitted to the chair of the board, if any, or the president or any vice president or the secretary of the corporation. The officer receiving the request shall cause notice to be given promptly to the members entitled to vote, under Sections _ _[numbers]_ _ of these bylaws, stating that a meeting will be held at a specified time and date fixed by the board.

However, the meeting date shall be at least 35 but no more than 90 days after receipt of the request. If the notice is not given within 20 days after the request is received, the person or persons requesting the meeting may give the notice. Nothing in this Section shall be construed as limiting, fixing, or affecting the time at which a meeting of members may be held when the meeting is called by the board.
Quorum. _ _[Specify rate]_ _ percent of the voting power shall constitute a quorum for the transaction of business at any meeting of members.

VOTING

Eligibility to Vote. Subject to the California Nonprofit _ _[Public Benefit/Mutual Benefit]_ _ Corporation Law, _ _[names of classes]_ _ members in good standing on the record date as determined under Sections _ _[numbers]_ _ of these bylaws shall be entitled to vote at any meeting of members.

Manner of Voting. Voting may be by voice or by ballot, except that any election of directors must be by ballot if demanded before the voting begins by any member at the meeting.

Number of Votes. Each member entitled to vote may cast one vote on each matter submitted to a vote of the members.

Majority Approval. If a quorum is present, the affirmative vote of a majority of the voting power represented at the meeting, entitled to vote and voting on any matter, shall be deemed the act of the members unless the vote of a greater number, or voting by classes, is required by the California Nonprofit _ _[Public Benefit/Mutual Benefit/Religious]_ _ Corporation Law or by the articles of incorporation.

Waiver of Notice or Consent. The transactions of any meeting of members, however called or noticed and wherever held, shall be as valid as though taken at a meeting duly held after standard call and notice, if (1) a quorum is present either in person or by proxy, and (2) either before or after the meeting, each member entitled to vote, not present in person or by proxy, signs a written waiver of notice, a consent to the holding of the meeting, or an approval of the minutes of the meeting. The waiver of notice, consent, or approval need not specify either the business to be transacted or the purpose of the meeting except that, if action is taken or proposed to be taken for approval of any matter specified in Section _ _[number]_ _ of these bylaws, the waiver of notice, consent, or approval shall state the general nature of the proposal. All such waivers, consents, or approvals shall be filed with the corporate records or made a part of the minutes of the meeting.

A member’s attendance at a meeting shall also constitute a waiver of notice of and presence at that meeting unless the member objects at the beginning of the meeting to the transaction of any business because the meeting was not lawfully called or convened. Also, attendance at a meeting is not a waiver of any right to object to the consideration of matters required to be included in the notice of the meeting but not so included, if that objection is expressly made at the meeting.

ACTIONS WITHOUT MEETINGS

Action by Unanimous Written Consent. Any action required or permitted to be taken by the members may be taken without a meeting, if all members consent in writing to the action. The written consent or consents shall be filed with the minutes of the meeting. The action by written consent shall have the same force and effect as a unanimous vote of the members.

BOARD OF DIRECTORS

Specific Powers of Board. Without prejudice to the general powers set forth in Section _ _[number]_ _ of these bylaws, but subject to the same limitations, the board shall have the power to do the following:

(1) Appoint and remove, at the pleasure of the board, all corporate officers, agents, and employees; prescribe powers and duties for them as are consistent with the law, the articles of incorporation, and these bylaws; fix their compensation; and require from them security for faithful service.
(2) Change the principal office or the principal business office in California from one location to another; cause the corporation to be qualified to conduct its activities in any other state, territory, dependency, or country; conduct its activities in or outside California; and designate a place in or outside California for holding any meeting of members.
(3) Borrow money and incur indebtedness on the corporation’s behalf and cause to be executed and delivered for the corporation’s purposes, in the corporate name, promissory notes, bonds, debentures, deeds of trust, mortgages, pledges, hypothecations, and other evidences of debt and securities.

[If appropriate, add]

(4) Adopt and use a corporate seal; prescribe the forms of membership certificates; and alter the forms of the seal and certificates.

[Add one of the following alternatives]

[Alternative 1: Fixed number of and qualifications for directors]

Number and Qualifications of Directors. The authorized number of directors shall be _ _[number]_ _. The qualifications for directors are _ _[specify]_ _.

[Alternative 2: Variable number of and qualifications for directors]

Number and Qualifications of Directors. The board of directors shall consist of at least _ _[number]_ _ but no more than _ _[number]_ _ directors unless changed by amendment to these bylaws. The exact number of directors shall be fixed, within those limits, by a resolution adopted by the board of directors. The qualifications for directors are _ _[specify]_ _.

Interested Persons as Directors. No more than 49 percent of the persons serving on the board may be “interested persons.” An interested person is (1) any person compensated by the corporation for services rendered to it within the previous 12 months, whether as a full-time or part-time employee, independent contractor, or otherwise, excluding any reasonable compensation paid to a director as director; and (2) any brother, sister, ancestor, descendant, spouse, brother-in-law, sister-in-law, son-in-law, daughter-in-law, mother-in-law, or father-in-law of such person. However, any violation of this paragraph shall not affect the validity or enforceability of transactions entered into by the corporation.

Designated Directors. _ _[All/Specify number, e.g., twelve]_ _ directors shall be designated by _ _[name]_ _. Each director shall hold office for _ _[number]_ _ years and until a successor director has been designated and qualified.

NOMINATIONS AND ELECTIONS OF DIRECTORS

Nominations by Committee. The chair of the board or, if none, the president, shall appoint a committee to nominate qualified candidates for election to the board at least _ _[number]_ _ days before the date of any election of directors. The nominating committee shall make its report at least _ _[number]_ _ days before the date of the election, _ _[or at such other time as the board may set,]_ _ and the secretary shall forward to each member, with the notice of meeting required by these bylaws, a list of all candidates nominated by committee.

Floor Nominations. When a meeting is held for the election of directors, any member present at the meeting in person or by proxy may place names in nomination.

Nominee’s Right to Solicit Votes. The board shall formulate procedures that allow a reasonable opportunity for a nominee to communicate to members the nominee’s qualifications and the reasons for the nominee’s candidacy, a reasonable opportunity for the nominee to solicit votes, and a reasonable opportunity for all members to choose among the nominees.

Use of Corporate Funds. If more people have been nominated for director than can be elected, no corporate funds may be expended to support a nominee without the board’s authorization.

VACANCIES ON THE BOARD OF DIRECTORS

Resignation of Directors. Except as provided below, any director may resign by giving written notice to the chair of the board, if any, or to the president or the secretary of the board. The resignation shall be effective when the notice is given unless it specifies a later time for the resignation to become effective. If a director’s resignation is effective at a later time, the board may elect a successor to take office as of the date when the resignation becomes effective.

Except on notice to the California Attorney General, no director may resign if the corporation would be left without a duly elected director or directors.

Removal of Directors. If the corporation has no members, any director may be removed, with or without cause, by the vote of the majority of the members of the entire board of directors at a special meeting called for that purpose, or at a regular meeting, provided that notice of that meeting and of the removal questions are given as provided in Section _ _[insert appropriate section number]_ _. However, a director who was designated as a director rather than elected by the members may be removed without cause by the person or persons who designated that director, and may not be removed without the written consent of that person or persons. Any vacancy caused by the removal of a director shall be filled as provided in Section _ _[insert appropriate section number]_ _.

Any director who does not attend three successive board meetings will automatically be removed from the board without board resolution unless:

(A) The director requests a leave of absence for a limited period of time, and the leave is approved by the directors at a regular or special meeting. If such leave is granted, the number of board members will be reduced by one in determining whether a quorum is or is not present;
(B) The director suffers from an illness or disability which prevents him or her from attending meetings and the board by resolution waives the automatic removal procedure of this subsection; or
(C) The board by resolution of the majority of board members agrees to reinstate the director who has missed three meetings.

Vacancies Filled by Members. The members may elect a director or directors at any time to fill any vacancy or vacancies not filled by the directors.
No Vacancy on Reduction of Number of Directors. Any reduction of the authorized number of directors shall not result in any director’s being removed before his or her term of office expires.

MEETINGS OF BOARD OF DIRECTORS

Meetings by Telecommunication. Any board meeting may be held by conference telephone, video screen communication, or other communications equipment. Participation in a meeting under this Section shall constitute presence in person at the meeting if both the following apply:

(1) Each member participating in the meeting can communicate concurrently with all other members.
(2) Each member is provided the means of participating in all matters before the board, including the capacity to propose, or to interpose an objection to, a specific action to be taken by the corporation.

Annual Meeting of Board. Immediately after each annual meeting of members, the board shall hold a general meeting for purposes of organization, election of officers, and transaction of other business. Notice of this meeting is not required.
Other general meetings of the board may be held without notice at such time and place as the board may fix from time to time.

Special Meetings. Special meetings of the board for any purpose may be called at any time by the chair of the board, if any, the president or any vice president, the secretary, or any two directors.

Director Compensation. Directors _ _[and members of committees of the board]_ _ may receive such compensation, if any, for their services as directors or officers, and such reimbursement of expenses, as the board may establish by resolution to be just and reasonable as to the corporation at the time that the resolution is adopted.

Director Voting. Each director shall have one vote on each matter presented to the board of directors for action. No director may vote by proxy.

OFFICERS OF THE CORPORATION

Election of Officers. The officers of this corporation, except any appointed under Section _ _[number]_ _ of these bylaws, shall be chosen _ _[annually]_ _ by the board and shall serve at the pleasure of the board, subject to the rights of any officer under any employment contract.

Additional Officers. The board may appoint and authorize the chair of the board, the president, or another officer to appoint any other officers that the corporation may require. Each appointed officer shall have the title and authority, hold office for the period, and perform the duties specified in the bylaws or established by the board.

Removal of Officers. Without prejudice to the rights of any officer under an employment contract, the board may remove any officer with or without cause. An officer who was not chosen by the board may be removed by any other officer on whom the board confers the power of removal.

Resignation of Officers. Any officer may resign at any time by giving written notice to the board. The resignation shall take effect on the date the notice is received or at any later time specified in the notice. Unless otherwise specified in the notice, the resignation need not be accepted to be effective. Any resignation shall be without prejudice to any rights of the corporation under any contract to which the officer is a party.

Vacancies. A vacancy in any office because of death, resignation, removal, disqualification, or any other cause shall be filled in the manner prescribed in these bylaws for normal appointments to that office. However, vacancies need not be filled on an annual basis.

Responsibilities of President. Subject to such supervisory powers as the board may give to the chair of the board, if any, and subject to the control of the board, the president shall be the general manager of the corporation and shall supervise, direct, and control the corporation’s activities, affairs, and officers. The president shall preside at all members’ meetings and, in the absence of the chair of the board, or if none, at all board meetings. The president shall have such other powers and duties as the board or the bylaws may require.

Responsibilities of Vice Presidents. If the president is absent or disabled, the vice presidents, if any, in order of their rank as fixed by the board, or, if not ranked, a vice president designated by the board, shall perform all duties of the president. When so acting, a vice president shall have all powers of and be subject to all restrictions on the president. The vice presidents shall have such other powers and duties as the board or the bylaws may require.

Responsibilities of Secretary. The secretary shall keep or cause to be kept, at the corporation’s principal office or such other place as the board may direct, a book of minutes of all meetings, proceedings, and actions of the board, of committees of the board, and of members’ meetings. The minutes of meetings shall include the time and place that the meeting was held; whether the meeting was annual, general, or special, and, if special, how authorized; the notice given; the names of persons present at board and committee meetings; and the number of members present or represented at members’ meetings.

The secretary shall keep or cause to be kept, at the principal California office, a copy of the articles of incorporation and bylaws, as amended to date.

The secretary shall keep or cause to be kept, at the corporation’s principal office or at a place determined by resolution of the board, a record of the corporation’s members, showing each member’s name, address, and class of membership.

The secretary shall give, or cause to be given, notice of all meetings of members, of the board, and of committees of the board that these bylaws require to be given. The secretary shall keep the corporate seal, if any, in safe custody and shall have such other powers and perform such other duties as the board or the bylaws may require.

Responsibilities of Chief Financial Officer. The chief financial officer shall keep and maintain, or cause to be kept and maintained, adequate and correct books and accounts of the corporation’s properties and transactions. The chief financial officer shall send or cause to be given to the members and directors such financial statements and reports as are required to be given by law, by these bylaws, or by the board. The books of account shall be open to inspection by any director at all reasonable times.

The chief financial officer shall (1) deposit, or cause to be deposited, all money and other valuables in the name and to the credit of the corporation with such depositories as the board may designate; (2) disburse the corporation’s funds as the board may order; (3) render to the president, chair of the board, if any, and the board, when requested, an account of all transactions as chief financial officer and of the financial condition of the corporation; and (4) have such other powers and perform such other duties as the board or the bylaws may require.

If required by the board, the chief financial officer shall give the corporation a bond in the amount and with the surety or sureties specified by the board for faithful performance of the duties of the office and for restoration to the corporation of all of its books, papers, vouchers, money, and other property of every kind in the possession or under the control of the chief financial officer on his or her death, resignation, retirement, or removal from office.

COMMITTEES OF THE BOARD OF DIRECTORS

Creating a Committee. The Board may create committees as needed, such as fundraising, housing, etc. The Board Chair appoints all committee chairs.

Audit Committee. The corporation shall have an audit committee consisting of at least _ _[number, e.g., one]_ _ _ _[director/directors]_ _, and may include nonvoting advisors. Directors who are employees or officers of the corporation or who receive, directly or indirectly, any consulting, advisory, or other compensatory fees from the corporation (other than for service as director) may not serve on the audit committee. The audit committee shall perform the duties and adhere to the guidelines set forth in the corporation’s audit committee charter as amended from time to time by the board. Such duties include, but are not limited to:

(1) Assisting the board in choosing an independent auditor and recommending termination of the auditor, if necessary;
(2) Negotiating the auditor’s compensation;
(3) Conferring with the auditor regarding the corporation’s financial affairs; and
(4) Reviewing and accepting or rejecting the audit.

Members of the audit committee shall not receive compensation for their service on the audit committee in excess of that provided to directors for their service on the board. If the corporation has a finance committee, a majority of the members of the audit committee may not concurrently serve as members of the finance committee, and the chair of the audit committee may not serve on the finance committee.

Compensation Committee. The corporation shall have a compensation committee consisting of at least three directors and no one who is not a director. Directors who are also employees of the corporation may not serve on the compensation committee. Pursuant to Government Code §12586(g) and the applicable provisions of federal law, the compensation committee shall review the compensation of the _ _[president/chief executive officer]_ _, _ _[treasurer/chief financial officer]_ _, and such other officers of the corporation the compensation committee determines appropriate, annually and whenever a modification in compensation is proposed. The review shall include an evaluation of the performance of the officers and an analysis of appropriate comparability data. Based on its review, the compensation committee shall recommend just and reasonable compensation amounts for the officers to the board. At the request of the president or the board, the compensation committee shall review any issue involving staff compensation and benefits, including but not limited to, housing, health, and retirement plans.

Executive Committee. Pursuant to Section _ _[number]_ _ of these bylaws, the board may appoint two or more directors of the corporation to serve as the executive committee of the board. The executive committee, unless limited by a resolution of the board, shall have and may exercise all the authority of the board in the management of the business and affairs of the corporation between meetings of the board; provided, however, that the executive committee shall not have the authority of the board in reference to those matters enumerated in Section _ _[number]_ _. All actions of the executive committee shall be reported to and ratified by the full board at the next duly scheduled board meeting.

Investment Committee. This corporation shall have an investment committee comprised of not less than three directors. The committee shall act with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent person acting in a like capacity and familiar with these matters would use in the conduct of an enterprise of like character and with like aims to accomplish the purposes of the institution. Individual investments shall be considered as part of an overall investment strategy. The committee shall consider present and future financial requirements, expected total return, general economic conditions, the appropriate level of risk, appropriate levels of income, growth and long-term net appreciation, and the probable safety of the funds. The committee may retain professional money managers, and shall develop an investment policy that shall be reconsidered at least annually, in light of the changing needs of the corporation, economic conditions, and any other factors that may affect the corporation’s tolerance of risk and need for income. The committee may recommend the retention of property contributed by a donor (whether or not it produces income), and a donor’s request should be a factor in making the determination of whether to sell a particular asset contributed by a donor.

Committee Meetings. Meetings and actions of committees of the board shall be governed by, held, and taken under the provisions of these bylaws concerning meetings and other board actions, except that the time for general meetings of board committees and the calling of special meetings of board committees may be set either by board resolution or, if none, by resolution of the committee. Minutes of each meeting shall be kept and shall be filed with the corporate records. The board may adopt rules for the governance of any committee as long as the rules are consistent with these bylaws. If the board has not adopted rules, the committee may do so.

INDEMNIFICATION

Right to Indemnification. This Corporation shall indemnify any person who was or is a party, or is threatened to be made a party, to any action or proceeding by reason of the fact that such person is or was an Officer, Director, or agent of this Corporation, or is or was serving at the request of this Corporation as a director, officer, employee, or agent of another foreign or domestic corporation, partnership, joint venture, or other enterprise, against expenses, judgments, fines, settlements, and other amounts actually and reasonably incurred in connection with such proceeding, to the fullest extent permitted under the California Nonprofit Corporation Law.

In determining whether indemnification is available to the Director, Officer, or agent of this Corporation under California law, the determination as to whether the applicable standard of conduct set forth in Corporations Code §5238 has been met shall be made by a majority vote of a quorum of Directors who are not parties to the proceeding. If the number of Directors who are not parties to the proceeding is less than two-thirds of the total number of Directors seated at the time the determination is to be made, the determination as to whether the applicable standard of conduct has been met shall be made by the court in which the proceeding is or was pending.

The indemnification provided herein shall not be deemed exclusive of any other rights to which those indemnified may be entitled, and shall continue as to a person who has ceased to be an agent and shall inure to the benefit of the heirs, executors, and administrators of such a person.

REQUIRED REPORTS

Corporate Records. This corporation shall keep the following:

(1) Adequate and correct books and records of account;
(2) Minutes of the proceedings of its members, board, and committees of the board; and
(3) A record of each member’s name, address, and class of membership.

The minutes and other books and records shall be kept either in written form or in any other form capable of being converted into clearly legible tangible form or in any combination of the two.

Annual Statement. As part of the annual report to all members, or as a separate document if no annual report is issued, the corporation shall, within 120 days after the end of the corporation’s fiscal year, annually prepare and mail, deliver, or send by electronic transmission to each member and furnish to each director a statement of any transaction or indemnification of the following kind:

(1) Any transaction (a) in which the corporation, or its parent or subsidiary, was a party, (b) in which an “interested person” had a direct or indirect material financial interest, and (c) that involved more than $50,000 or was one of several transactions with the same interested person involving, in the aggregate, more than $50,000. For this purpose, an “interested person” is either

(i) Any director or officer of the corporation, its parent, or subsidiary (but mere common directorship shall not be considered such an interest); or
(ii) Any holder of more than 10 percent of the voting power of the corporation, its parent, or its subsidiary.

The statement shall include a brief description of the transaction, the names of interested persons involved, their relationship to the corporation, the nature of their interest in the transaction, and, if practicable, the amount of that interest, provided that if the transaction was with a partnership in which the interested person is a partner, only the interest of the partnership need be stated.

(2) Any indemnifications or advances aggregating more than $10,000 paid during the fiscal year to any officer or director of the corporation under Sections _ _[numbers]_ _ of these bylaws, unless that indemnification has already been approved by the members under Corporations Code §5238(e)(2).

Private Foundation Restrictions. This corporation shall distribute its income for each taxable year at such time and in such manner as not to become subject to the tax on undistributed income imposed by Internal Revenue Code §4942, shall not engage in any act of self-dealing as defined in Internal Revenue Code §4941(d), shall not retain any excess business holdings as defined in Internal Revenue Code §4943(c), shall not make any investments in a manner as to subject it to tax under Internal Revenue Code §4944, and shall not make any taxable expenditures as defined in Internal Revenue Code §4945(d).

Supporting Organization Restrictions. This Corporation shall not accept any contribution from any “prohibited person.” For purposes of this Section, a “prohibited person” is: (1) a person who controls, directly or indirectly, either alone or with persons listed described in (2) and (3) below, the governing body of this Corporation or any successor organization designated pursuant to Section _ _[section number]_ _ of these Bylaws; (2) a member of the family of an individual listed in (1) above; or (3) a corporation, partnership, trust, or estate more than 35 percent of which is actually or constructively controlled by persons described in (1) or (2) above. For purposes of this Section, a member of an individual’s family includes his or her spouse, ancestors, children, grandchildren, great-grandchildren, and spouses of children, grandchildren, and great-grandchildren, as well as the individual’s brothers and sisters, by whole or half blood, and their spouses.

BYLAW AMENDMENTS

When Members’ Approval Required. Without the approval of the members, the board may not adopt, amend, or repeal any bylaw that would

(1) Increase or extend the terms of directors;
(2) Allow any director to hold office by designation or selection rather than by election by the members;
(3) Increase the quorum for members’ meetings;
(4) Repeal, restrict, create, expand, or otherwise change proxy rights; or
(5) Authorize cumulative voting.

Amending Supermajority Requirements. If any provision of these bylaws requires the vote of a larger proportion of the board than is otherwise required by law, that provision may not be altered, amended, or repealed except by that greater vote.

Members May Adopt, Amend, or Repeal Bylaws. New bylaws may be adopted, or these bylaws may be amended or repealed, by approval of the members, provided, however, that if the corporation has more than one class of voting members, any amendment that would materially and adversely affect the rights of a class as to voting or transfer, in a manner different from how the action affects another class, must be approved by the members of that adversely affected class. Any provision of these bylaws that requires the vote of a larger proportion of the members than otherwise is required by law may not be altered, amended, or repealed except by the vote of that greater number. No amendment may extend the term of a director beyond that for which the director was elected.

[If applicable, add the following option]

Any provision of these bylaws providing for the designation or selection, rather than election, of any director or directors may be adopted, amended, or repealed only by approval of the members, subject to the consent of the person or persons entitled to designate or select any such directors.

CONFLICT OF INTEREST POLICY

Conflicts of Interest. Whenever a director or officer has a financial or personal interest in any matter coming before the board of directors, the affected person shall a) fully disclose the nature of the interest and b) withdraw from discussion, lobbying, and voting on the matter. Any transaction or vote involving a potential conflict of interest shall be approved only when a majority of disinterested directors determine that it is in the best interest of the corporation to do so. The minutes of meetings at which such votes are taken shall record such disclosure, abstention and rationale for approval.

EXHIBIT A

Members of the Board of Directors.

[Name] [Term Expires]

_ _[Name]_ _ _ _[year]_ _

_ _[Name]_ _ _ _[year]_ _

_ _[Name]_ _ _ _[year]_ _

_ _[Name]_ _ _ _[year]_ _

_ _[Name]_ _ _ _[year]_ _

Sample Non-Profit Articles of Incorporation

Sample Non-Profit Articles of Incorporation

The information contained in this sample is provided for informational purposes only, and should not be construed as legal advice on any subject matter. You should not act or refrain from acting on the basis of any content included in this site without seeking legal or other professional advice. The contents of this post contain general information and may not reflect current legal developments or address your situation. We disclaim all liability for actions you take or fail to take based on any content on this site.

This form is borrowed from the California Secretary of State’s Forms for California Nonprofit, Nonstock Corporations. Other California forms can be found here.

Articles of Incorporation for a Public Benefit Corporation in California

I. Name

The name of the corporation is [Name of Corporation] .

II. Purpose

A. This corporation is a nonprofit Public Benefit Corporation and is not organized for the private gain of any person. It is organized under the Nonprofit Public Benefit Corporation Law for:

( ) public purposes.
or ( ) charitable purposes.
or ( ) public and charitable purposes.
B. The specific purpose of this corporation is to______________.

III. Address

The name and address in the State of California of this corporation’s initial agent for service of process is:

Name:
Address:
City:
State: CALIFORNIA

Zip Code:

IV. Activities

A. This corporation is organized and operated exclusively for charitable purposes within the meaning of Internal Revenue Code section 501(c)(3).
B. No substantial part of the activities of this corporation shall consist of carrying on propaganda, or otherwise attempting to influence legislation, and the corporation shall not participate or intervene in any political campaign (including the publishing or distribution of statements) on behalf of any candidate for public office.

V. Assets

The property of this corporation is irrevocably dedicated to charitable purposes and no part of the net income or assets of this corporation shall ever inure to the benefit of any director, officer or member thereof or to the benefit of any private person. Upon the dissolution or winding up of the corporation, its assets remaining after payment, or provision for payment, of all debts and liabilities of this corporation shall be distributed to a nonprofit fund, foundation or corporation which is organized and operated exclusively for charitable purposes and which has established its tax exempt status under Internal Revenue Code section 501(c)(3).

[Signature of Incorporator]

[Typed Name of Incorporator], Incorporator

If an individual is designated as the initial agent for service of process, include the agent’s business or residential street address in California (a P.O. Box address is not acceptable). If another corporation is designated as the initial agent for service ofprocess, do not include the address of the designated corporation.

This sample should be used ONLY as a guideline in the preparation of the original document for filing with the California Secretary of State.

Sample Non Employment Agreement

Sample Non Employment Agreement

THIS DOCUMENT IS INTENDED TO BE USED AS AN EXAMPLE ONLY. IT IS
NOT INTENDED TO BE USED FOR A SPECIFIC SITUATION. CONSULT WITH AN
ATTORNEY BEFORE SIGNING THIS OR ANY EMPLOYMENT AGREEMENT.

EMPLOYMENT AGREEMENT

Article 1
Parties

THIS EMPLOYMENT AGREEMENT, (hereinafter referred to as the “Agreement”),
is signed this _____ day of _________________, by and between
________________________________________ (hereinafter referred to as the “Employer”), and
______________________________, (hereinafter referred to as the “Employee”).

Article 2
Recital

WHEREAS, Employer is engaged in the business of [insert description];

WHEREAS, the Employee has experience in this area;

WHEREAS, Employer desires to retain the services of Employee and Employee desires to
render services to Employer as a(n) [employee title or position] pursuant to the terms and conditions
contained herein.

NOW, THEREFORE, in consideration of the promises and mutual agreements,
representations and warranties contained herein, the parties hereto agree as follows:

Article 3
Agreement

3.1
Services. Employee agrees to render services as a(n) [title or position] to Employer,
as more fully described on Exhibit A attached hereto and incorporated herein by this reference.

3.2
Time and Effort. Employee shall devote [amount of time i.e. full time, part time, as
directed by Employer], attention, knowledge and skill to the business and interests of Employer to
discharge the duties required under this Agreement.

3.3
Employment At-Will. Employment is employment at-will. By signing this
Agreement, Employee understands and acknowledges that Employer may terminate Employee at any
time for any reason or for no reason. This Agreement is effective immediately upon execution by the
parties and may be terminated at any time by either Employer or Employee, with or without cause,
by giving notice to the other. Unless sooner terminated as provided in this paragraph, this Agreement
will terminate on [fixed date if applicable]

3.4
Compensation. Employee will be compensated by Employer at the rate of [insert
compensation terms].

3.5
Confidentiality. Employee agrees not to use or disclose to unauthorized persons or
publish, directly or indirectly, at any time without the written consent of Employer, any proprietary or
confidential information of Employer (including any such information resulting from services
provided under this Agreement) obtained during the course of employment, and Employee further
agrees not to take with her following termination or expiration of this Agreement, any confidential or
proprietary information, including but not limited customer and prospective customer lists, addresses,
plans for future business operations and development, and pricing and supplier information. This
section shall survive termination of the Agreement.

Without regard to whether any confidential or trade secret information concerning the subject
matter of this Article would otherwise be deemed material or important, Employee stipulates that any
and all confidential or trade secret information ascertained while doing work for Employer is material,
important and gravely affects the effective and successful conduct of the business of Employer and its
goodwill, and that any breach of the terms of this Article will be a material breach of this Agreement.

3.6
Non-Solicitation. Employee agrees that the names of customers and suppliers are and
shall remain the exclusive property of Employer, are confidential and are of great value to Employer.
Employee further agrees that all information used by Employer in soliciting customers and suppliers
are trade secrets, confidential and valuable to Employer. Employee agrees not to directly or indirectly
solicit any of Employer’ current or former customers located within [insert reasonable geographic
area] of Employer’ place of business for a period of [insert reasonable period of time] after
termination of this Agreement.

Article 4
Miscellaneous

4.1
Severability. If any term, provision, covenant, or condition of this Agreement is
held by a Court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the
provisions shall remain in full force and effect and shall, in no way, be affected, impaired or
invalidated.

4.2
Governing Law. This Agreement shall be governed by, and construed in accordance
with, the laws of the State of California, exclusive of California’s choice of law rules. If any legal
action is necessary to enforce the terms and conditions of this Agreement, the parties hereby agree
that the Superior Court of the State of California, County of [insert County], shall be the sole
jurisdiction and venue for the bringing of such action.

4.3
Legal Fees. If any legal action is necessary to enforce the terms and conditions of
this Agreement, the prevailing party shall be entitled to recover all costs of suit and reasonable
attorneys’ fees, as determined by the Court.

4.4
Waiver of Breach. Waiver of any default or breach of this Agreement or of any
warranty, representation, covenant or obligation contained herein shall not be construed was a waiver
of any subsequent breach.

4.5
Entire Agreement. This Agreement contains the entire agreement of the parties
hereto and supersedes any prior written or oral agreement between them relating to the subject matter
contained herein.

4.6
Amendment. This Agreement may be modified or amended only by, and to the
extent of, the written agreement of the parties hereto.

4.7
Cumulative Remedies. No right or remedy herein conferred, or reserved to, either
party is intended to be exclusive of any other remedy or right, and each and every right or remedy
shall be cumulative and in addition to any right or remedy given hereunder or now or hereafter
existing at law or in equity or by statute.

4.8
Successors. This Agreement shall be binding upon and inure to the benefit of the
successors and assigns of the parties, to the extent this Agreement is assignable.

4.9
Section Headings. The various section headings are inserted for convenience of
reference only and shall not affect the meaning or interpretation of this Agreement or any Section
thereof.

4.10 Assignability. This Agreement is not assignable by either party without the express
written consent of both parties.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement in one or
more counterparts, which taken together, shall constitute one agreement, which Agreement shall be
effective as of and on the date first stated above.

EMPLOYER [insert Employer’s full legal name]

By [insert name of signatory and title if Employer is not an individual]

EMPLOYEE [insert Employee’s full legal name]

_______________________

This article was contributed by our friends at Inc Legal Attorneys, [1].

Sample LLC Operating Agreement

Sample LLC Operating Agreement

The information contained in this post is provided for informational purposes only, and should not be construed as legal advice on any subject matter. You should not act or refrain from acting on the basis of any content included in this site without seeking legal or other professional advice. The contents of this post contain general information and may not reflect current legal developments or address your situation. We disclaim all liability for actions you take or fail to take based on any content on this site.

This sample has been provided in conjunction with Meyerdirk Consulting. MeyerdirkConsulting.com

Below is a sample of an Operating Agreement for an LLC. An operating agreement is an agreement between the managers as to their duties for the organization and how the organization will be governed both financially and operationally. Without an operating agreement, the LLC is governed by the law of the forum state, although some states require an operating agreement. An operating agreement can be edited as often as the managers desire.

[Draft ________]


LIMITED LIABILITY COMPANY OPERATING AGREEMENT OF [COMPANY], LLC,
A [STATE] LIMITED LIABILITY COMPANY

Dated as of [Month] 1, [Year]

Contents

TABLE OF CONTENTS

ARTICLE I Definitions

  • 1.1 Definitions
  • 1.2 Other Definitional Provisions

ARTICLE II Organization of the Company

  • 2.1 Formation
  • 2.2 Name
  • 2.3 Registered Office; Agent
  • 2.4 Term
  • 2.5 Purposes and Powers

ARTICLE III Management of the Company

  • 3.1 Managing Member
  • 3.2 Officers
  • 3.3 Fiduciary Duties
  • 3.4 Performance of Duties; Liability of Managing Member and Officers
  • 3.5 Indemnification

ARTICLE IV Members; Voting Rights

  • 4.1 Meetings of Members
  • 4.2 Voting Rights
  • 4.3 Registered Members
  • 4.4 Limitation of Liability
  • 4.5 Withdrawal; Resignation
  • 4.6 Death of a Member
  • 4.7 Authority
  • 4.8 Outside Activities

ARTICLE V Units; Membership

  • 5.1 Units Generally
  • 5.2 Issuance of Units
  • 5.3 New Members from the Issuance of Units
  • 5.4 Preemptive Rights

ARTICLE VI Capital Contributions and Capital Accounts

  • 6.1 Capital Contributions; Capital Calls
  • 6.2 Capital Accounts
  • 6.3 Negative Capital Accounts
  • 6.4 No Withdrawal
  • 6.5 Loans From Members
  • 6.6 Status of Capital Contributions

ARTICLE VII Distributions

  • 7.1 Generally
  • 7.2 Mandatory and Discretionary Distributions
  • 7.3 Tax Advances
  • 7.4 Indemnification and Reimbursement for Payments on Behalf of a Member

ARTICLE VIII Allocations

  • 8.1 Allocations of Profits and Losses
  • 8.2 Regulatory and Special Allocations
  • 8.3 Curative Allocations
  • 8.4 Tax Allocations

ARTICLE IX Elections and Reports

  • 9.1 Generally
  • 9.2 Tax Status
  • 9.3 Reports
  • 9.4 Tax Elections
  • 9.5 Tax Controversies

ARTICLE X Dissolution and Liquidation

  • 10.1 Dissolution
  • 10.2 Liquidation

ARTICLE XI Transfer of Units

  • 11.1 Restrictions
  • 11.2 General Restrictions on Transfer
  • 11.3 Procedures for Transfer
  • 11.4 Legend
  • 11.5 Limitations
  • 11.6 Additional Transfer Restrictions

ARTICLE XII Miscellaneous Provisions

  • 12.1 Notices
  • 12.2 Governing Law
  • 12.3 No Action for Partition
  • 12.4 Headings and Sections
  • 12.5 Amendments
  • 12.6 Number and Gender
  • 12.7 Binding Effect
  • 12.8 Counterparts; Facsimile
  • 12.9 Severability
  • 12.10 Remedies
  • 12.11 Business Days
  • 12.12 Waiver of Jury Trial
  • 12.13 No Strict Construction
  • 12.14 Entire Agreement
  • 12.15 Parties in Interest
  • 12.16 Initial Public Offering
  • 12.17 Mergers and Consolidations
  • 12.18 Arbitration

EXHIBITS:

  • Exhibit A Form of Joinder to Limited Liability Company Agreement

SCHEDULES:

  • Schedule A Officers of the Company
  • Schedule B Members Schedule

LIMITED LIABILITY COMPANY OPERATING AGREEMENT OF [COMPANY], LLC.

This LIMITED LIABILITY COMPANY AGREEMENT (this “Agreement”) dated as of [Month] 1, [Year] of [Company], LLC (the “Company”), a [State] limited liability company is by and among each of the Persons who is a party to or otherwise bound by this Agreement and is listed on the Members Schedule (as herein defined).

WHEREAS, the Members desire to enter into this Agreement (“Operating Agreement” or “Agreement”) for the purposes of governing the Company, to and for the purpose of any lawful activity permitted under the [State] Limited Liability Company Act (the “Act” or “[State] Act”).

NOW, THEREFORE, in consideration of the mutual covenants and agreements herein made and other good and valuable consideration, the Members hereby agree as follows:

ARTICLE I

Definitions

1.1 Definitions. The following terms used in this Agreement shall have the following meanings (unless otherwise expressly provided in this Agreement):

“Adjusted Capital Account Deficit” means, with respect to any Member, the deficit balance, if any, in such Member’s Capital Account as of the end of the relevant Taxable Year, after giving effect to the following adjustments:
(i) Crediting to such Capital Account any amount which such Member is obligated to restore or is deemed to be obligated to restore pursuant to Treasury Regulation Sections 1.704-1(b)(2)(ii)(c), 1.704-2 (g)(1), and 1.704-2(i); and
(ii) Debiting to such Capital Account the items described in Treasury Regulation Section 1.704-1(b)(2)(ii)(d)(4), (5) and (6).
“Adjusted Taxable Income” of a Member for a Fiscal Year (or portion thereof) with respect to Units held by such Member means the federal taxable income (or alternative minimum taxable income, as the case may be) allocated by the Company to the Member with respect to such Units (as adjusted by any final determination in connection with any tax audit or other proceeding) for such Fiscal Year (or portion thereof); provided that such taxable income (or alternative minimum taxable income, as the case may be) shall be computed (i) as if all excess taxable losses and excess taxable credits allocated with respect to such Units were carried forward (taking into account the character of any such loss carryforward as capital or ordinary), and(ii) taking into account any special basis adjustment with respect to such Member resulting from an election by the Company under Code Section 754.
“Available Cash” shall have the meaning set forth in Section 7.1(a).
“Bankruptcy” means, with respect to a Member, that (i) such Member has (A) made an assignment for the benefit of creditors; (B) filed a voluntary petition in bankruptcy; (C) been adjudged bankrupt or insolvent, or had entered against such Member an order of relief in any bankruptcy or insolvency proceeding; (D) filed a petition or an answer seeking for such Member any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any statute, law or regulation or filed an answer or other pleading admitting or failing to contest the material allegations of a petition filed against such Member in any proceeding of such nature; or (E) sought, consented to, or acquiesced in the appointment of a trustee, receiver or liquidator of such Member or of all or any substantial part of such Member’s properties; (ii) 120 days have elapsed after the commencement of any proceeding against such Member seeking reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any statute, law or regulation and such proceeding has not been dismissed; or (iii) 90 days have elapsed since the appointment without such Member’s consent or acquiescence of a trustee, receiver or liquidator of such Member or of all or any substantial part of such Member’s properties and such appointment has not been vacated or stayed or the appointment is not vacated within 90 days after the expiration of such stay.
“Book Value” means, with respect to any Company asset, the adjusted basis of such asset for federal income tax purposes, except as follows:
(a) The initial Book Value of any Company asset contributed by a Unitholder to the Company shall be the gross Fair Market Value of such Company asset as of the date of such contribution;
(b) The Book Value of each Company asset shall be adjusted to equal its respective gross Fair Market Value, as of the following times: (i) the acquisition of an additional interest in the Company by any new or existing Unitholder in exchange for more than a de minimis Capital Contribution; (ii) the distribution by the Company to a Unitholder of more than a de minimis amount of Company assets (other than cash) as consideration for all or part of its Units unless the Managing Member determines that such adjustment is not necessary to reflect the relative economic interests of the Unitholders in the Company; and (iii) the liquidation of the Company within the meaning of Treasury Regulations Section 1.704-1(b)(2)(ii)(g); provided that an adjustment described in clauses (i) and (ii) of this paragraph shall be made only if the Managing Member reasonably determines that such adjustment is necessary to reflect the relative economic interests of the Members in the Company;
(c) The Book Value of a Company asset distributed to any Unitholder shall be the Fair Market Value of such Company asset as of the date of distribution thereof;
(d) The Book Value of each Company asset shall be increased or decreased, as the case may be, to reflect any adjustments to the adjusted basis of such Company asset pursuant to Section 734(b) or Section 743(b) of the Code, but only to the extent that such adjustments are taken into account in determining Capital Account balances pursuant to Treasury Regulations Section § 1.704-1(b)(2)(iv)(m); provided, that Book Values shall not be adjusted pursuant to this subparagraph (d) to the extent that an adjustment pursuant to subparagraph (b) above is made in conjunction with a transaction that would otherwise result in an adjustment pursuant to this subparagraph (d); and
(e) If the Book Value of a Company asset has been determined or adjusted pursuant to subparagraphs (a), (b) or (d) above, such Book Value shall thereafter be adjusted to reflect the Depreciation taken into account with respect to such Company asset for purposes of computing Profits and Losses.
“Capital Account” means the capital account maintained for a Member pursuant to Section 6.2.
“Capital Contribution” means any contribution to the capital of the Company in cash or property by a Member, whenever made.
“Certificate” means the Certificate of Formation of the Company under the [State] Act.
“Code” means the United States Internal Revenue Code of 1986, as amended from time to time.
“Company Minimum Gain” has the meaning set forth for “partnership minimum gain” in Treasury Regulation Section 1.704-2(d).
“Contributing Member” shall have the meaning set forth in Section 6.1(c).
“[State] Act” means the [State] Limited Liability Company Act, as the same may be amended from time to time.
“Depreciation” means for each Taxable Year, an amount equal to the depreciation or other cost recovery deduction allowable with respect to an asset for such Taxable Year, except that (i) with respect to any asset whose Book Value differs from its adjusted tax basis for federal income tax purposes and which difference is being eliminated by the “remedial method” defined in Treasury Regulation Section 1.704-3(d), Depreciation for such Taxable Year shall be the amount of book basis recovered for such Taxable Year under the rules prescribed by Treasury Regulation Section 1.704-3(d)(2), and (ii) with respect to any other asset whose Book Value differs from its adjusted tax basis at the beginning of such Taxable Year, Depreciation shall be the 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 Taxable Year bears to such beginning adjusted tax basis, provided, however, that if the adjusted tax basis of an asset at the beginning of such Taxable Year is zero, Depreciation shall be determined with reference to such beginning Book Value using any reasonable method selected by the Tax Matters Partner.
“Estimated Tax Amount” of a Member for a Fiscal Year means the Member’s Tax Amount for such Fiscal Year as estimated in good faith from time to time by the Managing Members. In making such estimate, the Managing Members shall take into account amounts shown on Internal Revenue Service Form 1065 filed by the Company and similar state or local forms filed by the Company for the preceding taxable year and such other adjustments as in the reasonable business judgment of the Managing Members are necessary or appropriate to reflect the estimated operations of the Company for the Fiscal Year.
“Fair Market Value” of any asset or the Units as of any date means the purchase price which a willing buyer having all relevant knowledge would pay a willing seller for such asset or Units in an arm’s-length transaction, as determined in good faith by the Managing Members based on such factors as the Managing Members, in the exercise of its reasonable business judgment, considers relevant.
“Financing Pledge” means the pledge by any Member of all or any portion of its Units to a bona fide lending institution in connection with the borrowing of funds by such Member and/or any of its Affiliates for any purpose other than the sale of Units.
“Fiscal Year” means the Company’s Taxable Year.
“GCL” means the General Corporation Law of the State of [State], as the same may be amended from time to time.
“Losses” means items of loss and deduction of the Company determined according to Section 6.2.
“Member” means each Person identified on the Members Schedule as of the date hereof who is a party to or is otherwise bound by this Agreement and each Person who may hereafter be admitted as a Member in accordance with the terms of this Agreement. The Members shall constitute the “members” (as that term is defined in the [State] Act) of the Company.
“Member Minimum Gain” with respect to each Member Nonrecourse Debt, means the amount of Company Minimum Gain (as determined according to Treasury Regulation Section 1.704-2(d)(1)) that would result if such Member Nonrecourse Debt were treated as a nonrecourse liability, determined in accordance with Treasury Regulation Section 1.704-2(i)(3).
“Member Nonrecourse Debt” has the meaning set forth in Treasury Regulation Section 1.704-2(b)(4), substituting the term “Company” for the term “partnership” and the term “Member” for the term “partner” as the context requires.
“Member Nonrecourse Deduction” has the meaning set forth in Treasury Regulation Section 1.704-2(i), substituting the term “Member” for the term “partner” as the context requires.
“Membership Interest” means the interest acquired by a Member in the Company, including such Member’s right (based on the type and class and/or series of Unit or Units held by such Member), as applicable, (A) to a distributive share of Profits, Losses, and other items of income, gain, loss, deduction and credits of the Company, (B) to a distributive share of the assets of the Company, (C) to vote on, consent to or otherwise participate in any decision of the Members, and (D) to any and all other benefits to which such Member may be entitled as provided in this Agreement or the [State] Act.
“Noncontributing Member” shall have the meaning set forth in Section 6.1(c).
“Nonrecourse Deductions” has the meaning set forth in Treasury Regulation Section 1.704-2(b) (substituting the term “Company” for the term “partnership” as the context requires).
“Person” means any individual, corporation, partnership, limited liability company, trust, joint venture, governmental entity or other unincorporated entity, association or group.
“Profits” means items of income and gain of the Company determined according to Section 6.2.
“Public Offering” means an underwritten public offering and sale of common stock or Units pursuant to an effective registration statement under the Securities Act; provided that a Public Offering shall not include an offering made in connection with a business acquisition or combination pursuant to a registration statement on Form S-4 or any similar form, or an employee benefit plan pursuant to a registration statement on Form S-8 or any similar form.
“Quarterly Estimated Tax Amount” of a Member for any calendar quarter of a Fiscal Year means the excess, if any of (i) the product of (A) ¼ in the case of the first calendar quarter of the Fiscal Year, ½ in the case of the second calendar quarter of the Fiscal Year, ¾ in the case of the third calendar quarter of the Fiscal Year, and 1 in the case of the fourth calendar quarter of the Fiscal Year and (B) the Member’s Estimated Tax Amount for such Fiscal Year over (ii) all distributions previously made during such Fiscal Year to such Member.
“Tax Advances” means any distributions made by the Company pursuant to Section 7.3 hereof.
“Tax Amount” of a Member for a Fiscal Year means the product of (A) the Tax Rate for such Fiscal Year and (B) the Adjusted Taxable Income of the Member for such Fiscal Year with respect to its Units.
“Tax Matters Partner” has the meaning set forth in Code Section 6231 and the Treasury Regulations thereunder.
“Tax Rate” of a Member for any period means the highest marginal blended federal, state and local income tax rate applicable to any Member of the Company for the applicable period, taking into account for federal income tax purposes, the deductibility of state and local taxes. If higher, federal Tax Advances will be based on federal alternative minimum taxable income (taking into account solely Company items and the principles contained in the definitions of Adjusted Taxable Income) and rates (using the highest marginal federal alternative minimum tax rate applicable to an individual).
“Taxable Year” means the Company’s taxable year ending on or about December 31 (or part thereof in the case of the Company’s first and last taxable year), or such other year as is (i) required by Section 706 of the Code or (ii) determined by the Managing Members (if no year is so required by Section 706 of the Code).
“Transfer” means any direct or indirect sale, transfer, conveyance, assignment, pledge, hypothecation, gift, delivery or other disposition other than a Financing Pledge.
“Treasury Regulations” means the final or temporary regulations that have been issued by the U.S. Department of Treasury pursuant to its authority under the Code, and any successor regulations.
“Unit” means a unit representing a fractional part of the Membership Interests of all of the Unitholders and shall include all types and classes and/or series of Units; provided that any type or class or series of Unit shall have the designations, preferences and/or special rights set forth in this Agreement and the Membership Interests represented by such type or class or series of Unit shall be determined in accordance with such designations, preferences and/or special rights.
“Unitholder” means with respect to any Unit, the record holder thereof as evidenced on the Members Schedule.

1.2 Other Definitional Provisions. Capitalized terms used in this Agreement which
are not defined in this Article I have the meanings contained elsewhere in this Agreement.
Defined terms used in this Agreement in the singular shall import the plural and vice versa.

ARTICLE II

Organization of the Company

2.1 Formation.

(a) This Agreement shall constitute the “limited liability company operating agreement” (as that term is used in the [State] Act) of the Company. The rights, powers, duties, obligations and liabilities of the Members shall be determined pursuant to the [State] Act and this Agreement. To the extent that the rights, powers, duties, obligations and liabilities of any Member are different 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 [State] Act, control.
(b) Any officer of the Company as an “authorized person” within the meaning of the [State] Act, is hereby authorized, at any time that the applicable Member(s) have approved an amendment to the Certificate in accordance with the terms hereof, to promptly execute, deliver and file such amendment in accordance with the [State] Act.
(c) The Company shall, to the extent permissible, elect to be treated as a partnership for federal, state and local income tax purposes, and each Member and the Company shall file all tax returns and shall otherwise take all tax and financial reporting positions in a manner consistent with such treatment and no Member shall take any action inconsistent with such treatment. The Company shall not be deemed a partnership or joint venture for any other purpose.

2.2 Name. The name of the Company is “[Company], LLC” or such other name or names as the Managing Members may from time to time designate; provided, that the name shall always contain the words “Limited Liability Company”, “LLC” or “L.L.C.”

2.3 Registered Office; Agent. The Company shall maintain a registered office and agent in the State of [State] as determined by the Managing Members.

2.4 Term. The term of existence of the Company shall be as stated in the Certificate, unless the Company is dissolved in accordance with the provisions of this Agreement.

2.5 Purposes and Powers. The purposes and character of the business of the Company shall be to transact any or all lawful business for which limited liability companies may be organized under the [State] Act. The Company shall have any and all powers which are necessary or desirable to carry out the purposes and business of the Company, including the ability to incur and guaranty indebtedness, to the extent the same may be legally exercised by limited liability companies under the [State] Act. Notwithstanding anything herein to the contrary, nothing set forth herein shall be construed as authorizing the Company to possess any purpose or power, or to do any act or thing, forbidden by law to a limited liability company organized under the laws of the state of its organization.

ARTICLE III

Management of the Company

3.1 Managing Members.

(a) Powers. The business and affairs of the Company shall be managed by or under the direction of the Managing Members and the Managing Members shall, subject to any Member consent required by Section 3.1(d), have all necessary powers to manage and carry out the purposes, business, property, and affairs of the Company without the consent or approval of any Member. Each Managing Member shall have an equal vote in decisions governing the business by the Managing Members, with a majority vote required for such decision to be affirmed.
(b) Replacement or Removal of Managing Members. The Company shall have three Managing Members, who shall initially be [Member 2], [Member 3] and [Member 1]. The Managing Members shall hold such position until a successor shall have been elected and qualified, or the Managing Members’s earlier resignation or removal. The Managing Members shall be removed, or a replacement elected, only by the affirmative vote or written consent of Members holding in the aggregate not less than a majority of the total outstanding Units. A Managing Member need not be a Member, an individual, a resident of the state of the Company’s organization or a citizen of the United States.
(c) Compensation of the Managing Members. The Managing Members, in his, her or its capacity as such, shall not receive any stated salary or compensation for such service as a Managing Member except to the extent approved in accordance with Section 3.1(d); provided, however that Managing Members may receive guaranteed payments (or salaries) for their employment as an Officer of the Company. The Managing Members shall be entitled to reimbursement for the reasonable out-of-pocket expenses, if any, incurred in carrying out its duties as Managing Members.
(d) Special Approvals. The Company will not, and will cause all of its subsidiaries not to, without first obtaining the approval (by vote or written consent, as provided herein) of the holders of not less than a majority of the total outstanding Units:
(i) redeem, purchase or otherwise acquire from any Member or any of its Affiliates any Units; provided, however, that this restriction shall not apply to the repurchase of Units from any Member who is also an employee of the Company pursuant to any repurchase or similar agreement upon the termination of such person’s employment with the Company; or
(ii) approve or enter into (or make any material amendment to) any transaction or agreement to which any officer, employee or holder of more than five percent (5%) of any class of Units or Subsidiary Units, member of the family of any such person, or any corporation, partnership, trust or other entity in which any such person, or member of the family of any such person, is a director, officer, trustee, partner or holder of more than five percent (5%) of the outstanding capital stock or equity interest thereof (each an “Affiliated Entity”) is directly or indirectly a party or beneficiary (other than the payment of salary or related compensation in the ordinary course of business), except where the terms of any such transaction are no less favorable to the Company or any Subsidiary than the terms such entity could have reasonably obtained from an unrelated third party or to Contributing Members pursuant to Section 6.1(c).
(iii) take any actions, expensing of sums, incur any obligations on behalf of the Company in regards to;
(a) Any significant and material purchase, receipt, lease, exchange, or other acquisition of any real or personal property or business in excess of $25,000;
(b) Any single business transaction, occurring as a normal part of the affairs of the business, that is in excess of $25,000;
(c) The sale, exchange, lease or other transfer of all or substantially all of the assets and property of the Company;
(d) Any mortgage, grant of security interest, pledge or encumbrance upon all or substantially all of the assets and property of the Company;
(e) Any merger, consolidation, sale, or dissolution of the Company;
(f) The commission of any act which would make it impossible for the Company to carry on its ordinary business and affairs;
(g) Any act that would contravene any provision of the Articles or of this Operating Agreement.

3.2 Officers.

(a) Appointment of Officers. The Managing Members may appoint individuals as officers (“officers”) of the Company, which may include a President, a Chief Executive Officer, a Chief Financial Officer, a Secretary and such other officers (such as a Chief Operating Officer, a Treasurer or any number of Vice Presidents) as the Managing Members deems advisable. No officer need be a Member. An individual may be appointed to more than one office. No officer of the Company shall have any rights or powers beyond the rights and powers granted to such officer in this Agreement. The officers of the Company as of the date hereof are listed on the attached Schedule A.
(b) Duties of Officers Generally. Under the direction of and, at all times, subject to the authority of the Managing Members, the officers shall have the discretion to manage the day-to-day business, operations and affairs of the Company in the ordinary course of its business, to make all decisions, except those expressly reserved or requiring the approval of the Managing Members hereunder, affecting the day-to-day business, operations and affairs of the Company in the ordinary course of its business and to take all such actions as they deem necessary or appropriate to accomplish the foregoing, in each case, unless the Managing Members shall have previously restricted (specifically or generally) such powers. In addition, the officers shall have such other powers and duties as may be prescribed by the Managing Members or this Agreement. The President shall have the power and authority to delegate to any agents or employees of the Company rights and powers of officers of the Company to manage and control the day-to-day business, operations and affairs of the Company in the ordinary course of its business, as the President may deem appropriate from time to time, in each case, unless the Managing Members shall have previously restricted (specifically or generally) such powers. Notwithstanding the foregoing, no officer shall enter into or consummate any of the following transactions without the prior approval of the Managing Members: (i) any transaction outside of the ordinary course of the Company’s business consistent with past practice; (ii) the issuance of any Units or other security of the Company; including any security convertible into any security; (iii) any sale of any material portion of the Company’s assets (whether by asset purchase, stock purchase, merger or otherwise), except in the ordinary course of the Company’s business; (iv) declare or pay any dividend or make any other distributions in respect of any Units; (v) redeem or purchase or otherwise acquire any Units; (vi) incur any liabilities, obligations, including guarantees, or indebtedness in excess of $25,000 individually, or as otherwise expressly provided in the Company’s employment agreement with the President of the Company; (vii) approve any material deviation from the then current operating budget as approved by the Managing Members; or (viii) any other acts requiring the consent or approval of the Managing Members under this Agreement.
(c) Authority of Officers. Subject to Section 3.2(b), any officer of the Company shall have the right, power and authority to transact business in the name of the Company or to act for or on behalf of or to bind the Company. With respect to all matters within the ordinary course of business of the Company, third parties dealing with the Company may rely conclusively upon any certificate of any officer to the effect that such officer is acting on behalf of the Company.
(d) Removal, Resignation and Filling of Vacancy of Officers. The Managing Members may remove any officer, for any reason or for no reason, at any time, subject to the terms of any then-existing employment agreement. Any officer may resign at any time by giving written notice to the Managing Members, and such resignation shall take effect at the date of the receipt of that notice or any later time specified in that notice; provided, that unless otherwise specified in that notice, the acceptance of the resignation shall not be necessary to make it effective. Any such resignation shall be without prejudice to the rights, if any, of the Company or such officer under this Agreement or any employment or unit repurchase agreement then in effect. A vacancy in any office because of death, resignation, removal or otherwise shall be filled in the manner prescribed in this Agreement for regular appointments to that office.
(e) Compensation of Officers. The officers shall be entitled to receive compensation from the Company as determined by the Managing Members, subject to any limitations imposed thereon as provided in the Company’s employment agreement with the President of the Company.
(f) President. Under the direction of and, at all times, subject to the authority of the Managing Members and the limitations imposed by Section 3.2(b), the President shall have general supervision over the day-to-day business, operations and affairs of the Company and shall perform such duties and exercise such powers as are incident to the office of president under the GCL. The President shall have such other powers and perform such other duties as may from time to time be prescribed by the Managing Members.
(g) Chief Financial Officer. The Chief Financial Officer shall keep and maintain, or cause to be kept and maintained, adequate and correct books and records of accounts of the properties and business transactions of the Company, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital and Units, and, in general, shall perform all the duties incident to the office of the chief financial officer of a corporation organized under the GCL. The Chief Financial Officer shall have the custody of the funds and securities of the Company, and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Company. The Chief Financial Officer shall have such other powers and perform such other duties as may from time to time be prescribed by the Managing Members and/or the President, subject to the limitations imposed by Section 3.2(b).
(h) Secretary. The Secretary shall (i) keep the minutes and resolutions of any meetings of the Members and of the Managing Members in one or more books provided for that purpose; (ii) see that all notices to be given by the Company are duly given in accordance with the provisions of this Agreement and as required by law; (iii) be custodian of the company records; (iv) keep a register of the addresses of each Member which shall be furnished to the Secretary by such Member; (v) have general charge of the Members Schedule; and (vi) in general perform all duties incident to the office of the secretary of a corporation organized under the GCL. The Secretary shall have such other powers and perform such other duties as may from time to time be prescribed by the Managing Members and/or the President, subject to the limitations imposed by Section 3.2(b).
(i) Other Officers. All other officers of the Company shall have such powers and perform such duties as may from time to time be prescribed by the Managing Members and/or the President, subject to the limitations imposed by Section 3.2(b).

3.3 Fiduciary Duties. The Managing Members, in the performance of its duties as such, shall owe to the Members duties of loyalty and due care of the type owed by the directors of a corporation to the stockholders of such corporation under the laws of the State of [State] and shall discharge such duties in good faith, with the care an ordinary prudent person in a like position would exercise under similar circumstances, and in a manner the Managing Members reasonably believes to be in the best interests of the Company. Notwithstanding anything contained herein to the contrary, subject to the terms of any written agreement with the Managing Members to the contrary, the Managing Members shall not have any duty or obligation to bring any “corporate opportunity” to the Company or any of its subsidiaries. The officers, in the performance of their duties as such, shall owe to the Members duties of loyalty and due care of the type owed by the officers of a corporation to the stockholders of such corporation under the laws of the State of [State].

3.4 Performance of Duties; Liability of Managing Members and Officers. In performing his, her or its duties, each of the Managing Members and the officers shall be entitled to rely in good faith on the provisions of this Agreement and on information, opinions, reports, or statements (including financial statements and information, opinions, reports or statements as to the value or amount of the assets, liabilities, Profits or Losses of the Company or any facts pertinent to the existence and amount of assets from which distributions to Members might properly be paid), of the following other Persons or groups: (A) one or more officers or employees of the Company; (B) any attorney, independent accountant, or other Person employed or engaged by the Company; or (C) any other Person who has been selected with reasonable care by or on behalf of the Company, in each case as to matters which such relying Person reasonably believes to be within such other Person’s professional or expert competence. No person who is a Managing Member or an officer of the Company, or any combination of the foregoing, shall be personally liable under any judgment of a court, or in any other manner, 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 Managing Member or an officer of the Company or any combination of the foregoing, except to the extent of their gross negligence or willful misconduct.

3.5 Indemnification. Notwithstanding Section 3.3, neither the Managing Members nor any officer shall be liable, responsible or accountable for damages or otherwise to the Company, or to the Members, and, to the fullest extent allowed by law, the Managing Members and each officer shall be indemnified and held harmless by the Company, including advancement of reasonable attorneys’ fees and other expenses from and against all claims, liabilities, and expenses arising out of any management of Company affairs; provided that (A) such person’s course of conduct was pursued in good faith and believed by him or it to be in the best interests of the Company and was reasonably believed by him or it to be within the scope of authority conferred on such person pursuant to this Agreement and (B) such course of conduct did not constitute gross negligence or willful misconduct on the part of such Managing Members or officer and otherwise was in accordance with the terms of this Agreement. The rights of indemnification provided in this Section are intended to provide indemnification of the Managing Members and the officers to the fullest extent permitted by the GCL regarding a corporation’s indemnification of its directors and officers and will be in addition to any rights to which the Managing Members or officers may otherwise be entitled by contract or as a matter of law and shall extend to his heirs, personal representatives and assigns. The absence of any express provision for indemnification herein shall not limit any right of indemnification existing independently of this Section. The Managing Members’s and each officer’s right to indemnification pursuant to this Section may be conditioned upon the delivery by such person of a written undertaking to repay such amount if such person is determined pursuant to this Section or adjudicated to be ineligible for indemnification, which undertaking shall be an unlimited general obligation.

ARTICLE IV

Members; Voting Rights

4.1 Meetings of Members.

(a) Generally. Meetings of the Members may be called by (i) the Managing Members or (ii) by a Member or Members holding 20% or more of the then outstanding Units. All meetings of the Members shall be held telephonically or at the principal office of the Company or at such other place within or without the state of the Company’s organization as may be determined by the Managing Members. A record shall be maintained by the Secretary of the Company of each meeting of the Members.
(b) Notice of Meetings of Members. Written or printed notice stating the place, day and hour of the meeting and, in the case of a special meeting of the Members, describing the purposes for which the meeting is called shall be delivered not fewer than ten days, but not more than sixty days, before the date of the meeting, either personally or by any written method by which it is reasonable to expect that the Members would receive such notice not later than the business day prior to the date of the meeting, to each holder of Units (with a copy to the Secretary of the Company), by or at the direction of the Member(s) calling the meeting or the Managing Members, as the case may be. Such notice may, but need not, specify the purpose or purposes of such meeting and may, but need not, limit the business to be conducted at such meeting to such purpose(s).
(c) Quorum. Except as otherwise provided herein or by applicable law, at any time, Units representing not less than 65% of the total outstanding Units represented in person or by proxy, shall constitute a quorum of Members for purposes of conducting business. Once a quorum is present at the meeting of the Members, the subsequent withdrawal from the meeting of any Member prior to adjournment or the refusal of any Member to vote shall not affect the presence of a quorum at the meeting. If, however, such quorum shall not be present at any meeting of the Members, the Members entitled to vote at such meeting shall have the power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until Members which own Units representing not less than 65% of the total outstanding Units shall be present or represented. Except as otherwise required by applicable law or as required herein, resolutions of the Members at any meeting of Members shall be adopted by the affirmative vote of Members holding not less than a majority of the total outstanding Units.
(d) Actions Without a Meeting. Unless otherwise prohibited by law, any action to be taken at a meeting of the Members may be taken without a meeting if a consent or consents in writing, setting forth the action so taken, shall be signed by a Member or Members holding not less than a majority of the total outstanding Units, or such higher percentage of Units as is expressly required hereunder to take such action. A record shall be maintained by the Secretary of the Company of each such action taken by written consent of a Member or Members.

4.2 Voting Rights. Except as specifically provided herein or otherwise required by
applicable law, for all purposes hereunder, including for purposes of Article III hereof, each
Member shall be entitled to one vote for each Unit held by such Member. A Member which
owns Units may vote or be present at a meeting either in person or by proxy.

4.3 Registered Members. The Company shall be entitled to treat the owner of
record of any Units as the owner in fact of such Unit for all purposes, and accordingly shall not
be bound to recognize any equitable or other claim to or interest in such Unit on the part of any
other person, whether or not it shall have express or other notice of such claim or interest, except
as expressly provided by this Agreement or applicable law.

4.4 Limitation of Liability. No Member will be obligated personally for any debt,
obligation or liability of the Company or of any of its subsidiaries or other Members by reason of
being a Member, whether arising in contract, tort or otherwise. Except as otherwise provided
under applicable law or expressly in this Agreement, no Member, in his or its capacity as such,
will have any fiduciary or other duty to another Member with respect to the business and affairs
of the Company or of any of its subsidiaries. No Member will have any responsibility to restore
any negative balance in his or her Capital Account or to contribute to or in respect of the
liabilities or obligations of the Company or of any of its subsidiaries or return distributions made
by the Company.

4.5 Withdrawal; Resignation. A Member shall not cease to be a Member as a result
of the Bankruptcy of such Member. So long as a Member continues to own or hold any Units,
such Member shall not have the ability to resign as a Member prior to the dissolution and
winding up of the Company and any such resignation or attempted resignation by a Member
prior to the dissolution or winding up of the Company shall be null and void. As soon as any
Person who is a Member ceases to own or hold any Units, such Person shall no longer be a
Member.

4.6 Death of a Member. The death of any Member shall not cause the dissolution of
the Company. In such event the Company and its business shall be continued by the remaining
Member or Members and the Units owned by the deceased Member shall automatically be
transferred to such Member’s heirs (provided that, within a reasonable time after such transfer,
the applicable heirs shall sign a joinder to this Agreement substantially in the form of Exhibit A
attached hereto). The heirs receiving the transferred Units shall be considered Members under
the terms of this Agreement, but shall not be entitled to voting rights. As Non-Voting Members
the heirs are fully entitled to (A) a distributive share of Profits, Losses, and other items of
incomes, gain, loss, deduction and credits of the Company, and (B) to a distributive share of the
assets of the Company; but are not entitled to any voting rights, consent to or otherwise
participate in any decision of the Members. In order for the heirs to be considered for voting
rights of their Units they must present a written request to the Managing Members within 60
days of the estate award to the heirs petitioning for the voting rights reinstatement of their Units.
Upon such request the remaining Members will have up to 60 days to vote upon such request,
and the remaining Members may grant such request upon not less than a majority vote in the
affirmative. Upon a vote by the remaining Members to grant the request, then such heirs Units
shall be considered Units with voting rights. Upon a vote by the remaining Members to deny the
request, then the heirs Units shall be considered as Non-Voting Member Units.

4.7 Authority. No Member, in its capacity as a Member, shall have the power to act
for or on behalf of, or to bind the Company.

4.8 Outside Activities. Subject to the terms of any written agreement by any
Member to the contrary (including the non-competition agreements with employees of the
Company or any of its subsidiaries), a Member may have business interests and engage in
business activities in addition to those relating to the Company, including business interests and
activities which compete with the Company, and no Member (unless such Member is an
employee of the Company or one of its subsidiaries) shall have any duty or obligation to bring
any “corporate opportunity” to the Company. Subject to the terms of any written agreement by
any Member to the contrary, neither the Company nor any other Member shall have any rights
by virtue of this Agreement in any business interests or activities of any Member.

ARTICLE V

Units; Membership

5.1 Units Generally. The Membership Interests of the Members shall be represented by issued and outstanding Units, which may be divided into one or more types, classes or series, with each type or class or series having the rights and privileges, including voting rights, if any, set forth in this Agreement. Upon execution of this Agreement, the Members hold the Units set forth on the Members Schedule attached hereto and each Member hereby acknowledge and agrees that the Unit reflected as owned by such Member on such schedule represents such Member’s entire Membership Interest as of immediately after the date hereof. The Secretary of the Company shall maintain a schedule of all Members from time to time, their respective mailing addresses, the Units held by them and the Capital Account balance associated therewith (as the same may be amended, modified or supplemented from time to time, the “Members Schedule”), a copy of which as of the execution of this Agreement is attached hereto as Schedule B. Ownership of a Unit (or fraction thereof) shall not entitle a Member to call for a partition or division of any property of the Company or for any accounting.

5.2 Issuance of Units. Subject to the limitations contained in this Agreement, including Section 5.4 and 11.5 hereof, the Company (with the approval of the Managing Members) shall have the right from time to time to issue additional Units to such persons on such terms and for such consideration as the Managing Members shall determine in its discretion; provided, that any such issuances shall require the consent of Members holding not less than a majority of the total outstanding Units. Notwithstanding the foregoing, the Company shall not issue any Units to any Person unless such Person has executed and delivered to the Secretary of the Company the documents described in Section 5.3 hereof. Upon the issuance of Units, the Managing Members shall adjust the Capital Accounts of the Members as necessary in accordance with Section 6.2.

5.3 New Members from the Issuance of Units. In order for a Person to be admitted as a Member of the Company pursuant to the issuance of Units to such Person, such Person shall have executed and delivered to the Company a written undertaking to be bound by the terms and conditions of this Agreement substantially in the form of Exhibit A hereto. Upon the amendment of the Members Schedule by the Company and the satisfaction of any other applicable conditions, including, if a condition, the receipt by the Company of payment for the issuance of the applicable Units, such Person shall be admitted as a Member and deemed listed as such on the books and records of the Company and thereupon shall be issued his or its Units. The Managing Members shall also adjust the Capital Accounts of the Members as necessary in accordance with Section 6.2.

5.4 Preemptive Rights.

(a) If at any time after the date hereof and prior to the consummation of an Initial Public Offering the Company wishes to issue any Units or any options, warrants or other rights to acquire Units or any notes or other securities convertible or exchangeable into Units (all such Units and other rights and securities, collectively, the “Equity Equivalents”) to any Person or Persons, the Company shall promptly deliver a notice of intention to sell or otherwise issue (the “Company’s Notice of Intention to Sell”) to each Member setting forth a description and the number of the Equity Equivalents and any other securities proposed to be issued and the proposed purchase price and terms of sale. Upon receipt of the Company’s Notice of Intention to Sell, each Member shall have the right to elect to purchase, at the price and on the terms stated in the Company’s Notice of Intention to Sell, a number of the Equity Equivalents equal to the product of (i) the percentage determined by dividing the number of Units then owned by such Member by the number of Units then outstanding multiplied by (ii) the number of Equity Equivalents proposed to be issued (as described in the applicable Company’s Notice of Intention to Sell); provided that, notwithstanding anything contained herein to the contrary, if the Company is issuing Equity Equivalents together as a unit with the issuance of any debt or other equity securities of the Company or any of its subsidiaries, then any Member who elects to purchase such Equity Equivalents pursuant to this Section must also purchase a corresponding proportion of such other debt or equity securities, all at the proposed purchase price and on terms of sale as specified in the applicable Company’s Notice of Intention to Sell. Such election shall be made by the electing Member by written notice to the Company within ten (10) business days after receipt by such Member of the Company’s Notice of Intention to Sell (the “Acceptance Period”).
(b) To the extent an effective election to purchase has not been received from a Member pursuant to subsection (a) above in respect of the Equity Equivalents proposed to be issued pursuant to the applicable Company’s Notice of Intention to Sell, the Company may, at its election, during a period of one hundred and eighty (180) days following the expiration of the applicable Acceptance Period, issue and sell the remaining Equity Equivalents to be issued and sold to any Person at a price and upon terms not more favorable to such Person than those stated in the applicable Company’s Notice of Intention to Sell; provided, however, that failure by a Member to exercise its option to purchase with respect to one issuance and sale of Equity Equivalents shall not affect its option to purchase Equity Equivalents in any subsequent issuance and sale. In the event the Company has not sold any Equity Equivalents covered by a Company’s Notice of Intention to Sell within such one hundred and eighty (180) day period, the Company shall not thereafter issue or sell such Equity Equivalents, without first offering such Equity Equivalents to each Member in the manner provided in this Section.
(c) If a Member gives the Company notice, pursuant to the provisions of this Section, that such Member desires to purchase any Equity Equivalents, payment therefor shall be by check or wire transfer of immediately available funds, against delivery of the securities (which securities shall be issued free and clear of any liens or encumbrances) at the executive offices of the Company no later than the last closing date fixed by the Company for the sale of the applicable Equity Equivalents, which last closing date shall be no earlier than 15 business days after the date the Company delivers the applicable Company’s Notice of Intention to Sell. In the event that any proposed sale is for a consideration other than cash, such Member may pay cash in lieu of all (but not part) of such other consideration, in the amount determined reasonably and in good faith by the Managing Members to represent the fair value of such consideration other than cash.
(d) The preemptive rights contained in this Section shall not apply to (i) the issuance of shares or units of Equity Equivalents as a stock or unit dividend or other distribution or upon any subdivision, split or combination of the currently outstanding Units (or any such Units the original issuance of which was conducted in accordance with this Section); (ii) the issuance of Equity Equivalents upon conversion, exchange or redemption of any currently outstanding convertible or exchangeable securities (or any Equity Equivalents the original issuance of which was conducted in accordance with this Section); (iii) the issuance of Equity Equivalents upon exercise of any currently outstanding options or warrants (or any such options or warrants the original issuance of which was conducted in accordance with this Section); (iv) the issuance of Equity Equivalents to any employee, former employee, consultant or director of the Company or any of its subsidiaries as compensation or as an incentive for services; (v) the issuance of Equity Equivalents as consideration (whether partial or otherwise) for the purchase by the Company or any of its subsidiaries of assets constituting a business unit or of the stock or other equity securities of any Person or Persons; (vi) the issuance of Equity Equivalents pursuant to a Public Offering; (vii) the issuance of Equity Equivalents in connection with the conversion of the Company from a limited liability company into a corporation; and (viii) the issuance of Units to Contributing Members pursuant to Section 6.1(c).

ARTICLE VI

Capital Contributions and Capital Accounts

6.1 Capital Contributions; Capital Calls.

(a) On or prior to the date hereof, each Person who is a Member as of the date hereof has made, or is deemed to have made, the Capital Contributions giving rise to such Member’s Capital Account as of the date hereof and, as of the date hereof, is deemed to own the number, type and class of Units in the amounts and with the Capital Account balance associated therewith set forth opposite such Member’s name on the Members Schedule attached hereto.
(b) Except as provided in Section 6.1(c), no Member shall be required to make any additional contributions to the Company with respect to such Member’s Units. Except as expressly provided herein, no Member, in its capacity as a Member, shall have the right to receive any cash or any other property of the Company.
(c) The Members acknowledge that the Company may require additional capital infusions from time to time and as such hereby agree that upon the written request of the Managing Members (a “Capital Call Notice”) from time to time each Member shall pay to the Company, as an additional Capital Contribution, its pro rata share (based on Units) of any additional capital infusions required by the Company as specified in any such Capital Call Notice. To the extent any Member (a “Noncontributing Member”) fails to contribute its pro rata share of any capital call (such amount, the “Unfunded Amount”), the remaining Members shall have the right to contribute (the Members who contribute the Unfunded Amount being referred to herein as the “Contributing Members”) the amount required to be contributed by the Noncontributing Member in exchange for the issuance to such Members of additional Units (with a corresponding increase to such Member’s Capital Account) based on the Fair Market Value of such Units at such time. In addition, the Capital Account of the Noncontributing Member shall be reduced, and the Capital Account of the Contributing Members shall be increased (pro rata among the Contributing Members based on the portion of the Default Amount contributed by each), by an amount equal to 100% of the Unfunded Amount.

6.2 Capital Accounts.

(a) Maintenance Rules. The Company shall maintain for each Member a separate capital account (a “Capital Account”) in accordance with this Section 6.2(a), which Capital Account balances as of the date hereof are set forth on Schedule B hereto. Each Capital Account shall be maintained in accordance with the following provisions:
(i) Such Capital Account shall be increased by the cash amount or Book Value of any property contributed by such Member to the Company pursuant to this Agreement, such Member’s allocable share of Profits and any items in the nature of income or gains which are specially allocated to such Member pursuant to Section 8.2 or Section 8.3 or pursuant to Section 6.1(c), and the amount of any liabilities of the Company assumed by such Member or which are secured by any property distributed to such Member.
(ii) Such Capital Account shall be decreased by the cash amount or Book Value of any property distributed to such Member pursuant to this Agreement, such Member’s allocable share of Losses and any items in the nature of deductions or losses which are specially allocated to such Member pursuant to Section 8.2 or Section 8.3, or pursuant to Section 6.1(c), and the amount of any liabilities of such Member assumed by the Company or which are secured by any property contributed by such Member to the Company.
(iii) If all or any portion of a Unit is transferred in accordance with the terms of this Agreement, the transferee shall succeed to the Capital Account of the transferor to the extent it relates to the transferred Unit (or portion thereof).
(iv) If a new or existing Member contributes money or property to the Company (other than a de minimis amount as determined by the Managing Members) as consideration for the issuance by the Company of any Units after the date hereof, the Capital Accounts of the Members shall be adjusted in accordance with Treasury Regulation Section 1.704-1(b)(2)(iv)(f).
The foregoing provisions and the other provisions of this Agreement relating to the maintenance of Capital Accounts are intended to comply with Section 1.704-1(b) of the Treasury Regulations and shall be interpreted and applied in a manner consistent with such Treasury Regulations. If the Managing Members determines that it is prudent to modify the manner in which the Capital Accounts, or any increases or decreases to the Capital Accounts, are computed in order to comply with such Treasury Regulations, the Managing Members may authorize such modifications.
(b) Definition of Profits and Losses. “Profits” and “Losses” mean, for each Taxable Year or other period, an amount equal to the Company’s taxable income or loss, respectively, for such Taxable Year or other period, determined in accordance with Code Section 703(a) (for this purpose, all items of income, gain, loss or deduction required to be stated separately pursuant to Code Section 703(a)(1) shall be included in taxable income or loss), with the following adjustments:
(i) The computation of all items of income, gain, loss and deduction shall include tax-exempt income and those items described in Treasury Regulation Section 1.704-1(b)(2)(iv)(i), without regard to the fact that such items are not includable in gross income or are not deductible for federal income tax purposes.
(ii) If the Book Value of any Company property is adjusted pursuant to Treasury Regulation Section 1.704-1(b)(2)(iv)(e) or (f), the amount of such adjustment shall be taken into account as gain or loss from the disposition of such property.
(iii) Items of income, gain, loss or deduction attributable to the disposition of Company property having a Book Value that differs from its adjusted basis for tax purposes shall be computed by reference to the Book Value of such property.
(iv) Items of depreciation, amortization and other cost recovery deductions with respect to Company property having a Book Value that differs from its adjusted basis for tax purposes shall be computed by reference to the property’s Book Value in accordance with Treasury Regulation Section 1.704-1(b)(2)(iv)(g).
(v) To the extent an adjustment to the adjusted tax basis of any Company property pursuant to Code Sections 732(d), 734(b) or 743(b) is required, pursuant to Treasury Regulation Section 1.704-1(b)(2)(iv)(m), to be taken into account in determining Capital Accounts, the amount of such adjustment to the Capital Accounts shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases such basis).

6.3 Negative Capital Accounts. If any Member has a deficit balance in its Capital Account, such Member shall have no obligation to restore such negative balance or to make any Capital Contributions to the Company by reason thereof, and such negative balance shall not be considered an asset of the Company or of any Member.

6.4 No Withdrawal. No Member will be entitled to withdraw any part of his or its Capital Contribution or Capital Account or to receive any distribution from the Company, except as expressly provided in this Agreement.

6.5 Loans From Members. Loans by Members to the Company shall not be considered Capital Contributions.

6.6 Status of Capital Contributions.

(a) No Member shall receive any interest, salary or drawing with respect to its Capital Contributions or its Capital Account, except as otherwise specifically provided in this Agreement.
(b) Except as otherwise provided herein (including Section 6.1(c)), no Member shall be required to lend any funds to the Company or to make any additional Capital Contributions to the Company. No Member shall have any personal liability for the repayment of any Capital Contribution of any other Member.

ARTICLE VII

Distributions

7.1 Generally.

(a) Subject to Sections 7.2 and 7.3, the Managing Members shall have sole discretion regarding the amounts and timing of distributions to Members, in each case subject to the retention and establishment in good faith of reserves of, or payment to third parties of, such funds as it deems reasonably necessary with respect to the reasonable business needs of the Company which shall include the payment or the making of provision for the payment when due of the Company’s obligations, including the payment of any management or administrative fees and expenses or any other obligations (the amount of cash on hand in excess of such reserves at any given time being referred to herein as the “Available Cash”).
(b) Notwithstanding any provision to the contrary contained in this Agreement, the Company shall not make any distribution to Members (x) if such distribution would violate Sections 86-341, 86-343 or 86-346 of the [State] Act or other applicable law, or (y) to the extent that, immediately following such distribution, such Member’s Capital Account would be negative.

7.2 Mandatory and Discretionary Distributions. Subject to Section 7.3, Available Cash or other assets (taking such other assets into account at their Fair Market Value at the time of distributions) shall be distributed, at such times and in such amounts as the Managing Members determine in their sole discretion, to the Members pro rata based upon the number of Units held by each such Member as it relates to the total outstanding Units; provided, however, the Managing Members shall distribute quarterly to the Members not less than 80% of the Company’s Available Cash above the amount anticipated to fulfill the Company’s business purposes (including needs for operating expenses, debt service, acquisitions, working capital reserves, and mandatory distributions) and, for purposes of this Section 7.2, the reserves established shall be reasonably acceptable to each Member who holds 15% or more of the total outstanding Units.

7.3 Tax Advances. Subject to the restrictions of any of the Company’s and/or its subsidiaries’ then applicable debt financing agreements and subject to the retention of any other amounts necessary to satisfy the Company’s and/or the subsidiaries’ obligations, at least five days before each date prescribed by the Code for a calendar year corporation to pay quarterly installments of estimated tax, the Company shall use commercially reasonable efforts to distribute to each Member cash in proportion to and to the extent of such Member’s Quarterly Estimated Tax Amount for the applicable calendar quarter. If, at any time after the final Quarterly Estimated Tax Amount has been distributed pursuant to the previous sentence with respect to any Fiscal Year, the aggregate Tax Advances to any Member with respect to such Fiscal Year are less than such Member’s Tax Amount for such Fiscal Year (a “Shortfall Amount”), the Company shall use commercially reasonable efforts to distribute cash in proportion to and to the extent of each Member’s Shortfall Amount. The Company shall use commercially reasonable efforts to distribute Shortfall Amounts with respect to a Fiscal Year before the 75th day of the next succeeding Fiscal Year (provided that if the Company has made distributions other than pursuant to this Section 7.3, the Managing Members may apply such distributions to reduce any Shortfall Amount). If the aggregate distributions made to any Member pursuant to this Section 7.3 for any Fiscal Year exceed such Member’s Tax Amount (an “Excess Amount”) such Excess Amount shall reduce subsequent distributions that would be made to such Member pursuant to this Section 7.3, except to the extent taken into account as an advance pursuant to the next sentence. Distributions made pursuant to this Section 7.3 shall be taken into account as advances on distributions payable pursuant to Section 7.2, and shall (to the extent not previously taken into account pursuant to this sentence) reduce the distributions to be made to any Member under Section 7.2, when and as paid by the Company. No Member shall be liable to the Company for any amount distributed to it pursuant to this Section 7.3, or for any interest on such amount.

7.4 Indemnification and Reimbursement for Payments on Behalf of a Member. Except as otherwise provided in this Agreement, if the Company is required by law (as determined by the Tax Matters Partner based on the advice of legal or tax counsel to the Company) to make any payment on behalf of a Member in its capacity as such (including in respect of withholding taxes, personal property taxes, and unincorporated business taxes, etc.), then such Member (the “Indemnifying Member”) will indemnify the Company in full for the entire amount paid, including interest, penalties and expenses associated with such payment. At the option of the Managing Members, the amount to be indemnified may be charged against a Capital Account of the Indemnifying Member, and, at the option of the Managing Members, either:

(a) promptly upon notification of an obligation to indemnify the Company, the Indemnifying Member will make a cash payment to the Company in an amount equal to the full amount to be indemnified (and the amount paid will be added to the Indemnifying Member’s Capital Account but will not be deemed to be a Capital Contribution), or
(b) the Company will reduce distributions which would otherwise be made to the Indemnifying Member until the Company has recovered the amount to be indemnified (and the amount of such reduction will be deemed to have been distributed for all purposes, but such deemed distribution will not further reduce the Indemnifying Member’s Capital Account).

A Member’s obligation to make contributions to the Company under this Section 7.4 will survive the termination, dissolution, liquidation and winding up of the Company, and for purposes of this Section 7.4, the Company will be treated as continuing in existence. The Company may pursue and enforce all rights and remedies it may have against each Member under this Section 7.4, including instituting a lawsuit to collect such contribution with interest calculated at a rate equal to the Company’s and its subsidiaries’ effective cost of borrowed funds.

ARTICLE VIII

Allocations

8.1 Allocations of Profits and Losses. The Company’s Profit and Loss for any fiscal period shall be allocated among the Members in such a manner that, as of the end of such fiscal period and to the extent possible, the Capital Account of each Member shall be equal to the respective net amount which would be distributed to such Member under this Agreement, determined as if the Company were to (a) liquidate the assets of the Company for an amount equal to their Book Value as of the end of such fiscal period and (b) distribute the proceeds in liquidation in accordance with Section 10.2.

8.2 Regulatory and Special Allocations. Notwithstanding the provisions of Section
8.1:

(a) To the extent an adjustment to the adjusted tax basis of any Company asset pursuant to Code Section 734(b) or 743(b) is required to be taken into account in determining Capital Accounts, the amount of such adjustment to the Capital Accounts shall be treated, as provided in Treasury Regulation Section 1.704-1(b)(2)(iv)(m), as an item of Profit (if the adjustment increases the basis of the asset) or Loss (if the adjustment decreases such basis) and such Profit or Loss shall be specially allocated to the Members in a manner consistent with the manner in which their Capital Accounts are required to be adjusted pursuant to such Section of the Treasury Regulations.
(b) If there is a net decrease in Company Minimum Gain (determined according to Treasury Regulation Section 1.704-2(d)(1)) during any Taxable Year, each Member shall be specially allocated Profits for such Taxable Year (and, if necessary, subsequent Taxable Years) in an amount equal to such Member’s share of the net decrease in Company Minimum Gain, determined in accordance with Treasury Regulation Section 1.704-2(g). The items to be so allocated shall be determined in accordance with Treasury Regulation Section 1.704-2(f)(6) and 1.704-2(j)(2). This paragraph is intended to comply with the minimum gain chargeback requirement in Treasury Regulation Section 1.704-2(f) and shall be interpreted consistently therewith.
(c) Member Nonrecourse Deductions shall be allocated in the manner required by Treasury Regulation Section 1.704-2(i). Except as otherwise provided in Treasury Regulation Section 1.704-2(i)(4), if there is a net decrease in Member Minimum Gain during any Taxable Year, each Member that has a share of such Member Minimum Gain shall be specially allocated Profits for such Taxable Year (and, if necessary, subsequent Taxable Years) in an amount equal to that Member’s share of the net decrease in Member Minimum Gain. Items to be allocated pursuant to this paragraph shall be determined in accordance with Treasury Regulation Section 1.704-2(i)(4) and 1.704-2(j)(2). This paragraph is intended to comply with the minimum gain chargeback requirements in Treasury Regulation Section 1.704-2(i)(4) and shall be interpreted consistently therewith.
(d) In the event any Member unexpectedly receives any adjustments, allocations or distributions described in Treasury Regulation Section 1.704-1(b)(2)(ii)(d)(4), (5) or (6), Profits shall be specially allocated to such Member in an amount and manner sufficient to eliminate the Adjusted Capital Account Deficit created by such adjustments, allocations or distributions as quickly as possible. This paragraph is intended to comply with the qualified income offset requirement in Treasury Regulation Section 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith.
(e) Nonrecourse Deductions for any Taxable Year or other period shall be specially allocated among the Members in proportion to their interests in the Company as set forth in Schedule B.
(f) The allocations set forth in paragraphs (a), (b), (c), (d) and (e) above (the “Regulatory Allocations”) are intended to comply with certain requirements of the Treasury Regulations under Code Section 704. Notwithstanding any other provisions of this Article VIII (other than the Regulatory Allocations), the Regulatory Allocations shall be taken into account in allocating Profits and Losses among Members so that, to the extent possible, the net amount of such allocations of Profits and Losses and other items and the Regulatory Allocations to each Member shall be equal to the net amount that would have been allocated to such Member if the Regulatory Allocations had not occurred.

8.3 Curative Allocations. If the Tax Matters Partner determines, after consultation with counsel experienced in income tax matters, that the allocation of any item of Company income, gain, loss, deduction or credit is not specified in this Article VIII (an “unallocated item”), or that the allocation of any item of Company income, gain, loss, deduction or credit hereunder is clearly inconsistent with the Members’ economic interests in the Company (determined by reference to the general principles of Treasury Regulation Section 1.704-1(b) and the factors set forth in Treasury Regulation Section 1.704-1(b)(3)(ii)) (a “misallocated item”), then the Managing Members may allocate such unallocated items, or reallocate such misallocated items, to reflect such economic interests; provided that no such allocation will be made without the prior consent of each Member that would be affected thereby (which consent no such Member may unreasonably withhold) and provided further that no such allocation shall have any material effect on the amounts distributable to any Member, including the amounts to be distributed upon the complete liquidation of the Company.

8.4 Tax Allocations.

(a) Subject to Section 8.4(g) below, all income, gains, losses, deductions and credits of the Company shall be allocated, for federal, state and local income tax purposes, among the Members in accordance with the allocation of such income, gains, losses, deductions and credits among the Members for computing their Capital Accounts, except that if any such allocation for tax purposes is not permitted by the Code or other applicable law, the Company’s subsequent income, gains, losses, deductions and credits shall be allocated among the Members for tax purposes, to the extent permitted by the Code and other applicable law, so as to reflect as nearly as possible the allocation set forth herein in computing their Capital Accounts. Each item of income, gain, loss, deduction and credit realized by the Company in any taxable year shall be allocated pro rata to the Members according to the amount of Profit or Loss, as the case may be, allocated to them in such year. Notwithstanding the foregoing, if as a result of the difference in timing of Capital Contributions by the Members to the Company and the contribution, loan or other transfer by the Company to any of its subsidiaries of funds or other property contributed to the Company by such Members, the Company realizes short-term capital gain or both long-term and short-term capital gain for purposes of the Code, then the Tax Matters Member may allocate such short-term capital gain to the Members whose Capital Contributions resulted (directly or indirectly) in the recognition of such short-term capital gain.
(b) Items of Company taxable income, gain, loss and deduction with respect to any property contributed to the capital of the Company shall be allocated among the Members in accordance with Code Section 704(c) and the remedial method of Treasury Regulation Section 1.704-3(d), or such other method elected by the Tax Matters Partner, so as to take account of any variation between the adjusted basis of such property to the Company for federal income tax purposes and its Book Value.
(c) If the Book Value of any Company property is adjusted pursuant to Section 6.2(a)(iv), subsequent allocations of items of taxable income, gain, loss and deduction with respect to such property shall take account of any variation between the adjusted basis of such property for federal income tax purposes and its Book Value in the same manner as under Code Section 704(c).
(d) Allocations of tax credit, tax credit recapture, and any items related thereto shall be allocated to the Members according to their interests in such items as determined by the Managing Members taking into account the principles of Treasury Regulation Section 1.704-1(b)(4)(ii).
(e) Allocations pursuant to this Section 8.4 are solely for purposes of federal, state and local taxes and shall not affect, or in any way be taken into account in computing, any Member’s Capital Account or share of Profits, Losses, distributions or other items pursuant to any provisions of this Agreement.
(f) Solely for the purpose of determining each Member’s share of Company “excess nonrecourse liabilities” pursuant to Treasury Regulation Section 1.752-3(a)(3), each Member’s interest in Company profits is hereby specified to be such Member’s interest as set forth in Schedule B.
(g) To the extent permitted by the Code or other applicable law, notwithstanding anything contained herein to the contrary, allocations of taxable income realized by the Company as a result of distributions or dividends from (or redemptions of securities held by the Company of) any subsidiary, the proceeds of which are used to fund distributions to Members, shall be made to the Members receiving such distributions in proportion to such distributions.

ARTICLE IX

Elections and Reports

9.1 Generally. The Company will keep appropriate books and records with respect
to the Company’s business, including all books and records necessary to provide any
information, lists and copies of documents required to be provided pursuant to Section 9.3.

9.2 Tax Status. The Members intend that the Company be treated as a partnership
for federal, state and local income tax purposes and the Company and each Member shall file all
tax returns on the basis consistent therewith.

9.3 Reports. The Company will use reasonable efforts to deliver or cause to be
delivered, by March 15 (and, in any event, will deliver not later than July 31) of each year, to
each person who was a Member at any time during the previous Taxable Year, all information
reasonably necessary for the preparation of such person’s United States federal income tax
returns and any state, local and foreign income tax returns which such person is required to file
as a result of the Company being engaged in a trade or business within such state, local or
foreign jurisdiction, including a statement showing such person’s share of income, gains, losses,
deductions and credits for such year for United States federal income tax purposes (and, if
applicable, state, local or foreign income tax purposes).

9.4 Tax Elections. The Tax Matters Partner will determine whether to make or
revoke any available election (including the election provided under Code Section 754) for
federal, state, local and foreign tax purposes. Each Member will upon request supply the
information necessary to give proper effect to any such election.

9.5 Tax Controversies. The Managing Members are specifically authorized to act as
the Tax Matters Partner under the Code and in any similar capacity under state or local law. The
Tax Matters Partner is authorized and required to represent the Company (at the Company’s
expense) in connection with all examinations of the Company’s affairs by tax authorities,
including resulting administrative and judicial proceedings, and to expend Company funds for
professional services and costs associated therewith. Each Member agrees to cooperate with the
Tax Matters Partner and to do or refrain from doing any or all things reasonably requested by the
Tax Matters Partner with respect to the conduct of such proceedings. Subject to the foregoing
proviso, the Tax Matters Partner will have sole discretion to determine whether the Company
(either in its own behalf or on behalf of the Members) will contest or continue to contest any tax
deficiencies assessed or proposed to be assessed by any taxing authority. Any deficiency for
taxes imposed on any Member (including penalties, additions to tax or interest imposed with
respect to such taxes) will be paid by such Member, and if required to be paid (and actually paid)
by the Company, will be recoverable from such Member as provided in Section 7.4.

ARTICLE X

Dissolution and Liquidation

10.1 Dissolution. The Company shall be dissolved and its affairs wound up only upon the happening of any of the following events:

(a) Upon the election to dissolve the Company by action of Members holding not less than a majority of the outstanding Units.
(b) The entry of a decree of judicial dissolution under applicable law; provided, that, notwithstanding anything contained herein to the contrary, no Member shall make an application for the dissolution of the Company pursuant to applicable law without the unanimous approval of the Members. 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 the winding up of the Company has been completed, the assets of the Company have been distributed as provided in Section 10.2 and the Certificate shall have been canceled.

10.2 Liquidation.

(a) Liquidator. Upon dissolution of the Company, the Managing Members will appoint a person to act as the “Liquidator,” and such person shall act as the Liquidator unless and until a successor Liquidator is appointed as provided in this Section 10.2. The Liquidator will agree not to resign at any time without 30 days’ prior written notice to the Managing Members. The Liquidator may be removed at any time, with or without cause, by notice of removal and appointment of a successor Liquidator approved by the Managing Members. Any successor Liquidator will succeed to all rights, powers and duties of the former Liquidator. The right to appoint a successor or substitute Liquidator in the manner provided in this Section 10.2 will be recurring and continuing for so long as the functions and services of the Liquidator are authorized to continue under the provisions of this Agreement, and every reference in this Agreement to the Liquidator will be deemed to refer also to any such successor or substitute Liquidator appointed in the manner provided in this Section 10.2. The Liquidator will receive as compensation for its services (1) no additional compensation, if the Liquidator is an employee of the Company or any of its subsidiaries, or (2) if the Liquidator is not such an employee, such compensation as the Managing Members may approve, plus, in either case, reimbursement of the Liquidator’s out-of-pocket expenses in performing its duties.
(b) Liquidating Actions. The Liquidator will liquidate the assets of the Company and apply and distribute the proceeds of such liquidation, in the following order of priority, unless otherwise required by mandatory provisions of applicable law:
(i) First, to the payment of the Company’s debts and obligations to its creditors (including Members), including sales commissions and other expenses incident to any sale of the assets of the Company, in order of the priority provided by law.
(ii) Second, to the establishment of and additions to such reserves as the Managing Members deems necessary or appropriate.
(iii) Third, to the Members, in accordance with Section 7.2.
The reserves established pursuant to clause (ii) above will be paid over by the Liquidator to a bank or other financial institution, to be held in escrow for the purpose of paying any such contingent or unforeseen liabilities or obligations and, at the expiration of such period as the Managing Members deems advisable, such reserves will be distributed to the Members in accordance with Section 7.2 in the manner provided above in this Section 10.2(b). The allocations and distributions provided for in this Agreement are intended to result in the Capital Account of each Member immediately prior to the distribution of the Company’s assets pursuant to this Section 10.2(b) being equal to the amount distributable to such Member pursuant to this Section 10.2(b).
(c) Distribution in Kind. Notwithstanding the provisions of Section 10.2(b) which require the liquidation of the assets of the Company, but subject to the order of priorities set forth in Section 10.2(b), if upon dissolution of the Company the Managing Members determines that an immediate sale of part or all of the Company’s assets would be impractical or could cause undue loss to the Members, the Managing Members may, in its sole discretion, defer the liquidation of any assets except those necessary to satisfy Company liabilities and reserves, and may, in its absolute discretion, distribute to the Members, in lieu of cash, as tenants in common and in accordance with the provisions of Section 10.2(b), undivided interests in such Company assets as the Liquidator deems not suitable for liquidation. Any such distribution in kind will be subject to such conditions relating to the disposition and management of such properties as the Liquidator deems reasonable and equitable and to any agreements governing the operating of such properties at such time. For purposes of any such distribution, the Managing Members will determine the Fair Market Value of any property to be distributed in accordance with any valuation procedure which the Managing Members reasonably deems appropriate.
(d) Reasonable Time for Winding Up. A reasonable time will be allowed for the orderly winding up of the business and affairs of the Company and the liquidation of its assets pursuant to Section 10.2(b) in order to minimize any losses otherwise attendant upon such winding up. Distributions upon liquidation of the Company (or any Member’s interest in the Company) and related adjustments will be made by the end of the Fiscal Year of the liquidation (or, if later, within 90 days after the date of such liquidation) or as otherwise permitted by Treasury Regulation Section 1.704-1(b)(2)(ii)(b).
(e) Termination. Upon completion of the distribution of the assets of the Company as provided in Section 10.2(b) hereof, the Company shall be terminated and the Liquidator shall cause the cancellation of the Certificate in the State of <State> and of all qualifications and registrations of the Company as a foreign limited liability company in all applicable jurisdictions and shall take such other actions as may be necessary to terminate the Company.

ARTICLE XI

Transfer of Units

11.1 Restrictions. Each Member acknowledges and agrees that such Member shall not Transfer any Unit(s) except in accordance with the provisions of this Article XI. Any attempted Transfer in violation of the preceding sentence shall be deemed null and void for all purposes, and the Company will not record any such Transfer on its books or treat any purported transferee as the owner of such Unit(s) for any purpose.

11.2 General Restrictions on Transfer.

(a) Notwithstanding anything to the contrary in this Agreement, no transferee of any Unit(s) received pursuant to a Transfer (but excluding transferees that were Members immediately prior to such a Transfer, who shall automatically become a Member with respect to any additional Units they so acquire) shall become a Member in respect of or be deemed to have any ownership rights in the Unit(s) so Transferred unless the purported transferee is admitted as a Member as set forth in Section 11.3.
(b) Following a Transfer of any Unit(s) that is permitted under this Article XI, the transferee of such Unit(s) shall succeed to the Capital Account associated with such Unit(s) and shall receive allocations and distributions under Articles VI, VII, VIII and X in respect of such Unit(s). Notwithstanding the foregoing, Profits, Losses and other items will be allocated between the transferor and the transferee according to Code Section 706.
(c) Any Member who Transfers all of his or its Units (i) shall cease to be a Member upon such Transfer, and (ii) shall no longer possess or have the power to exercise any rights or powers of a Member of the Company.

11.3 Procedures for Transfer. Subject in all events to the general restrictions on Transfers contained in this Article XI, no Transfer of Unit(s) may be completed until the prospective transferee is admitted as a Member of the Company by executing and delivering to the Company a written undertaking to be bound by the terms and conditions of this Agreement substantially in the form of Exhibit A hereto. Upon the amendment of the Members Schedule by the Company, such prospective transferee shall be admitted as a Member and deemed listed as such on the books and records of the Company and thereupon the Company shall reissue the applicable Units in the name of such prospective transferee. The provisions of this Section 11.3 shall not apply with respect to the Transfer of any Unit(s) to a transferee that is a Member immediately prior to such Transfer.

11.4 Legend. Any certificates or instruments representing the Units will bear the following legend:

“THE TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE OR INSTRUMENT IS SUBJECT TO THE CONDITIONS SPECIFIED IN A LIMITED LIABILITY COMPANY OPERATING AGREEMENT AMONG THE ISSUER AND ITS MEMBERS. A COPY OF SUCH LIMITED LIABILITY COMPANY OPERATING AGREEMENT AS IN EFFECT FROM TIME TO TIME WILL BE FURNISHED WITHOUT CHARGE BY THE ISSUER TO THE HOLDER HEREOF UPON WRITTEN REQUEST.”

11.5 Limitations.

(a) In order to permit the Company to qualify for the benefit of a “safe harbor” under Code Section 7704, notwithstanding anything to the contrary in this Agreement, no Transfer of any Unit shall be permitted or recognized by the Company (within the meaning of Treasury Regulation Section 1.7704-1(d)) and the Company shall not issue any Units if and to the extent that such Transfer or issuance would cause the Company to have more than 100 partners (within the meaning of Treasury Regulation Section 1.7704-1(h), including the look-through rule in Treasury Regulation Section 1.7704-1(h)(3)).
(b) Notwithstanding anything to the contrary in this Agreement, no Unit may be Transferred and the Company may not issue any Unit unless (i) such Transfer or issuance, as the case may be, shall not affect the Company’s existence or qualification as a limited liability company under the state of its organization, (ii) such Transfer or issuance, as the case may be, shall not cause the Company to be classified as other than a partnership for United States federal income tax purposes (unless the Company has elected to be taxed as a corporation for federal income tax purposes), (iii) such Transfer or issuance, as the case may be, shall not result in a termination of the Company under Code Section 708, unless the Managing Members determines that any such termination will not have a material adverse impact on the Members and (iv) such Transfer or issuance, as the case may be, shall not cause the application of the tax-exempt use property rules of Code Sections 168(g)(l)(B) and 168(h) to the Company or its Members.

11.6 Additional Transfer Restrictions.

(a) General. Subject to the other provisions of this Article XI, a Member may Transfer Units only if such Member has complied with the terms and requirements of Section 11.6(b), 11.6(c) and 11.6(d), as applicable.
(b) Right of First Refusal. In the event that a Member (the “Transferring Member”) proposes to sell or otherwise Transfer (other than pursuant to a Public Offering or pursuant to an Approved Company Sale) any Units pursuant to a bona fide offer from a third party (the “Proposed Transferee”), the Transferring Member must first give the other Members (the “Non-Transferring Members”) written notice (the “ROFR Notice”) of the number of Units to be transferred, the price, terms and conditions of the proposed sale, including the identity of the Proposed Transferee, and a copy of any written proposal, term sheet, letter of intent or other agreement relating to the proposed sale. Within twenty (20) days after the receipt of the ROFR Notice, the Non-Transferring Members may elect to purchase (pro rata in accordance with their ownership interest in the Company or in such other proportions as they shall agree), and the Transferring Member agrees to sell to the Non-Transferring Members, at the price and on the terms specified in the ROFR Notice, all or any portion of the Units. In the event the Non-Transferring Members elect to purchase all or part of the Units proposed to be transferred, the closing of such purchase will take place five (5) days after the expiration of such twenty (20) day period or such other date as the parties shall agree. To the extent that the terms of payment set forth in the ROFR Notice consist of property other than cash against delivery, the Non-Transferring Members may substitute cash of equivalent value in lieu thereof. To the extent the Non-Transferring Members do not exercise in full this right of first refusal within the twenty (20) day period specified above (collectively, the “ROFR Notice Period”), the Transferring Member will, subject to Section 11.6(c), have sixty (60) days thereafter to sell the Units not elected to be purchased by the Non-Transferring Members at the price and upon the terms and conditions no more favorable to the purchasers of such Units than specified in the ROFR Notice. In the event the Transferring Member has not sold such Units within such sixty (60) day period, the Transferring Member may not thereafter sell any Units without first offering such Units to the other Members in the manner provided in this Section 11.6(b). The restrictions set forth in this Section 11.6(b) shall not apply in the following cases: (i) any Member may sell or transfer Units to the Company pursuant to a repurchase or similar right (including any transfer upon a forfeiture of Units pursuant to any subscription or similar agreement pursuant to which such shares were acquired); and (ii) any Member may sell or transfer any Units to a Permitted Transferee (as defined below) subject to Sections 11.3 and 11.5.
(c) Tag-Along Rights. In the event not all of the Units proposed to be transferred in the ROFR Notice delivered pursuant to Section 11.6(b) are purchased by the Non-Transferring Members, then the Non-Transferring Members who did not elect to acquire any Units pursuant to Section 11.6(b) (the “Remaining Members”) may elect to participate in such contemplated Transfer by delivering written notice to the Transferring Member within 10 business days after the expiration of the ROFR Notice Period. Each Remaining Member who elects to participate in the proposed Transfer (the “Tagging Members”, and collectively with the Transferring Member, the “Participating Members”) shall be entitled to sell in such contemplated Transfer, at the same price and on the same terms, up to a number of Units to be sold in such contemplated Transfer (after reduction for any Units transferred to any Members pursuant to Section 11.6(b)) equal to the product of (x) the quotient determined by dividing the number of Units owned by such Tagging Member by the aggregate number of Units owned collectively by all of the Participating Members and (y) the aggregate number of Units to be sold in such contemplated Transfer (after reduction for any Units transferred to any Members pursuant to Section 11.6(b)).
(d) Permitted Transfers. The restrictions contained in Sections 11.6(b) and 11.6(c) shall not apply with respect to any Transfer of Units by any Member (A) in the case of a Member who is an individual, pursuant to applicable laws of descent and distribution or, if such Transfer is made for bona fide estate planning purposes (which bona fide estate planning purposes, if requested by the Managing Members, shall be verified by a legal opinion from counsel experienced in such matters), then to any member of such Member’s immediate family, (B) in the case of a non-individual Member, to its Affiliates or current or former stockholders, partners, including limited partners, or members, (C) if such Units are subject to a Financing Pledge, then to the applicable bona fide lending institution in connection with such bona fide lending institution’s foreclosure on such Units pursuant to the terms of such Financing Pledge; provided, in each case, that any such transferee shall have complied with the requirements of Section 11.3 and 11.5. The transferees permitted by this Section 11.6(d) are referred to herein as “Permitted Transferees”.
(e) Approved Company Sale. If the Members holding a majority of the outstanding Units, approves a sale of all or substantially all of the Company’s assets determined on a consolidated basis or a sale of all (or a lesser percentage, if necessary, as determined by the Managing Members for accounting, tax or other reasons) of the Company’s outstanding Units or equivalents (in either case, whether by merger, recapitalization, consolidation, reorganization, combination or otherwise) or any other transaction which has the same effect as any of the foregoing, to an Independent Third Party or group of Independent Third Parties (each such sale or transaction, an “Approved Company Sale”), then each holder of Units will vote for, consent to and raise no objections against the Approved Company Sale or the process. If the Approved Company Sale is structured as a merger or consolidation, then each holder of Units shall waive any dissenter’ rights, appraisal rights or similar rights in connection with such merger or consolidation. If the Approved Company Sale is structured as a Transfer of Units, then each holder of Units shall agree to sell all of his or its Units and rights to acquire Units on the same terms and conditions, in all material respects, as applicable to the respective types of Units to be Transferred in such Approved Company Sale. Each holder of Units shall take all necessary or desirable actions in connection with the consummation of an Approved Company Sale as requested by the Managing Members, including, without limitation, executing the applicable purchase agreement. If the Managing Members, the Company or any of the holders of Units enter into any negotiation or transaction for which Rule 506 (or any similar rule then in effect) promulgated by the Securities and Exchange Commission may be available with respect to such negotiation or transaction (including a merger, consolidation or other reorganization), each holder of Units who is not an “accredited investor,” as that term is defined in Regulation D as promulgated under the Securities Act, will, at the request of the Company, appoint either a purchaser representative (as such term is defined in Rule 501 under the Securities Act) designated by the Company, in which event the Company will pay the fees of such purchaser representative, or another purchaser representative (reasonably acceptable to the Company), in which event such holder will be responsible for the fees of the purchaser representative so appointed.

ARTICLE XII

Miscellaneous Provisions

12.1 Notices.

(a) All notices, requests and other communications hereunder must be in writing and will be deemed to have been duly given only if delivered personally against written receipt or by facsimile transmission against facsimile confirmation or mailed by internationally recognized overnight courier prepaid, to (i) any Member, at such Member’s address set forth on the Members Schedule, and (ii) the Company, to the Company’s Secretary at the Company’s principal place of business (or in any case to such other address as the addressee may from time to time designate in writing to the sender).
(b) All such notices, requests and other communications will (i) if delivered personally to the address as provided in Section 12.1(a) be deemed given upon delivery, (ii) if delivered by facsimile transmission to the facsimile number as provided for in Section 12.1(a), be deemed given upon facsimile confirmation and (iii) if delivered by overnight courier to the address as provided in Section 12.1(a), be deemed given on the earlier of the first business day following the date sent by such overnight courier or upon receipt (in each case regardless of whether such notice, request or other communication is received by any other person to whom a copy of such notice is to be delivered pursuant to this Section 12.1).

12.2 Governing Law. All issues and questions concerning the application, construction, validity, interpretation and enforcement of this Agreement and the exhibits and schedules to this Agreement shall be governed by, and construed in accordance with, the laws of the State of [State], and specifically the [State] Act, without giving effect to any choice of law or conflict of law rules or provisions (whether of the State of [State] or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of [State].

12.3 No Action for Partition. No Member shall have any right to maintain any action for partition with respect to the property of the Company.

12.4 Headings and Sections. The headings in this Agreement are inserted for convenience only and are in no way intended to describe, interpret, define, or limit the scope, extent or intent of this Agreement or any provision of this Agreement. Unless the context requires otherwise, all references in this Agreement to Sections, Articles, Exhibits or Schedules shall be deemed to mean and refer to Sections, Articles, Exhibits or Schedules of or to this Agreement.

12.5 Amendments. Except as otherwise provided in this Section 12.5, this Agreement may be amended, in whole or in part, only through a written amendment executed by the the Members holding a majority of the outstanding Units. Each Member shall be promptly notified of any amendment to this Agreement made pursuant to this Section.

(b) An amendment to any provision of this Agreement that calls for a higher level of approval of the Members or the approval of certain specified Members shall, in addition to the execution percentage set forth in Section 12.5, require the same form of approval as is set forth in such provision. Any amendment to Section 12.5(b) or 12.5(c) shall require the unanimous consent of the Members.
(c) Notwithstanding anything to the contrary contained in this Section 12.5, there shall be no amendment to this Agreement that (i) increases a Member’s obligation to make capital contributions to the Company, unless the amendment is consented to by such Member, (ii) imposes personal liability upon a Member for any debts or obligations of the Company, unless the amendment is consented to by such Member, (iii) reduces a Member’s Capital Account or rights of contribution or withdrawal or materially adversely affects such Member’s rights to distributions under Section 7.2, unless the amendment is consented to by such Member or (iv) results in the Company being treated as an association taxable as a corporation for federal income tax purposes.
(d) Notwithstanding the foregoing provisions of this Section 12.5, the Managing Members may, without the consent of any Members, amend this Agreementto (i) reflect changes validly made in the membership of the Company and the Capital Contributions of the Members; (ii) reflect a change in the name of the Company; (iii) make a change that is necessary or, in the opinion of the Managing Members, advisable to qualify the Company as a partnership for tax purposes or an entity in which the Members have limited liability under the laws of any state; (iv) subject to Section 12.5(c), cure any ambiguity, correct or supplement any provision in this Agreement that would be inconsistent with any other provision in this Agreement, make any other provision with respect to matters or questions arising under this Agreement that will not be inconsistent with the provisions of this Agreement or make any other change that does not materially and adversely affect the Members; (v) make a change in any provision of this Agreement that requires any action to be taken by or on behalf of the Managing Members or the Company pursuant to the requirements of applicable law if the provisions of applicable law are amended, modified or revoked so that the taking of such action is no longer required; (vi) prevent the Company or the Managing Members from in any manner being (A) deemed an “investment company” subject to the provisions of the Investment Company Act, (B) treated as a “publicly traded partnership” for purposes of Code Section 7704 or (C) subject to federal income tax as an association taxable as a corporation; (vii) cause the Company to elect to convert the Company into a “Section 3(c)(7)” fund under the Investment Company Act; or (viii) make any other amendments similar to the foregoing. A Member’s right to object to an amendment pursuant to Section 12.5(d)(iv) on the grounds that such amendment is materially adverse to such Member shall expire at the close of business on the 30th day following notice to such Member of such amendment.

12.6 Number and Gender. Where the context so indicates, the masculine shall include the feminine, the neuter shall include the masculine and feminine, and the singular shall include the plural.

12.7 Binding Effect. Except as otherwise provided to the contrary in this Agreement, this Agreement shall be binding upon and inure to the benefit of the Members, their distributees, heirs, legal representatives, executors, administrators, successors and permitted assigns.

12.8 Counterparts; Facsimile. This Agreement may be executed in multiple counterparts (and may be transmitted via facsimile), each of which shall be deemed to be an original and shall be binding upon the Member who executed the same, but all of such counterparts shall constitute the same agreement.

12.9 Severability. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of this Agreement.

12.10 Remedies. Each of the parties to this Agreement shall be entitled to enforce its rights under this Agreement specifically, to recover damages and costs (including reasonable attorney’s fees) caused by any breach of any provision of this Agreement and to exercise all other rights existing in its favor. The Members agree and acknowledge that money damages may not be an adequate remedy for any breach of the provisions of this Agreement and that any party may in its sole discretion apply to any court of law or equity of competent jurisdiction (without posting any bond or deposit) for specific performance and/or other injunctive relief in order to enforce or prevent any violations of the provisions of this Agreement.

12.11 Business Days. If any time period for giving notice or taking action under this Agreement expires on a day which is a Saturday, Sunday or holiday in the state in which the Company’s chief executive office is located, the time period shall be automatically extended to the business day immediately following such Saturday, Sunday or holiday.

12.12 Waiver of Jury Trial. EACH PARTY TO THIS AGREEMENT HEREBY WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE LAW, TRIAL BY JURY IN ANY LITIGATION IN ANY COURT WITH RESPECT TO, IN CONNECTION WITH, OR ARISING OUT OF THIS AGREEMENT OR THE VALIDITY, PROTECTION, INTERPRETATION, COLLECTION OR ENFORCEMENT THEREOF.

12.13 No Strict Construction. The parties to this Agreement have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties to this Agreement, and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any of the provisions of this Agreement.

12.14 Entire Agreement. Except as otherwise expressly set forth in this Agreement, this Agreement and the other agreements referred to in this Agreement embody the complete agreement and understanding among the parties to this Agreement with respect to the subject matter of this Agreement and supersedes and preempts any prior understandings, agreements or representations by or among the parties, written or oral, which may have related to the subject matter of this Agreement in any way. This Agreement amends and restates the Prior Agreement in its entirety.

12.15 Parties in Interest. Nothing herein shall be construed to be to the benefit of or enforceable by any third party including, but not limited to, any creditor of the Company.

12.16 Initial Public Offering.

(a) If at any time, with the written consent of the Members holding a majority of the outstanding Units, the Members desire to cause (i) a transfer of all or a substantial portion of (x) the assets of the Company or any of its subsidiaries or (y) the Units to a newly organized corporation or other business entity (“Newco”), (ii) a merger or consolidation of the Company or any of its subsidiaries into or with a Newco as provided under applicable law, (iii) a distribution to the Members (in accordance with the provisions of Section 7.2 hereof) of all of the issued and outstanding shares of common stock or limited liability interests of any subsidiary (or any of its successors) then owned by the Company or (iv) another restructuring of all or substantially all of the assets or Units of the Company into a Newco, including by way of the conversion of the Company into a corporation (any such corporation, also “Newco”), in any case in anticipation of or otherwise in connection with a registered initial public offering of securities of a Newco, any subsidiary or any of their respective affiliates (an “Initial Public Offering”), each Member shall take such steps to effect such transfer, merger, consolidation, distribution or other restructuring as may be requested by the Managing Members, including, without limitation, transferring or tendering such Member’s Units to a Newco in exchange or consideration for shares of capital stock or other equity interests of Newco, determined in accordance with the valuation procedures set forth in Section 12.16(b).
(b) In connection with a transaction described in Section 12.16(a), the Managing Members shall, in good faith, determine the fair market value of the assets and/or Units transferred to or merged into Newco, the aggregate fair market value of Newco and the number of shares of capital stock or other equity interests to be issued to each Member in exchange or consideration therefor. Notwithstanding the foregoing, in determining the Fair Market Value of the Units, (i) the offering price of the applicable Initial Public Offering will be used by the Managing Members to determine such Fair Market Value, and (ii) the impact of the provisions of Sections 7.2 and 10.2(b) will be taken into account.
(c) Each Member hereby agrees (i) not to effect any sale or distribution of any Units (or any equity securities issued in exchange for, or distributed with respect to, Units, including any equity securities of Newco or any subsidiary) or any securities convertible into or exchangeable or exercisable for Units (or any equity securities issued in exchange for, or distributed with respect to, Units, including any equity securities of Newco or any subsidiary), during the seven days prior to and the 180-day period beginning on the effective date of an Initial Public Offering (except as part of such Initial Public Offering, if otherwise permitted), unless the underwriters managing such Initial Public Offering otherwise agree (which agreement shall be equally applicable to all Members) and (ii) to execute and deliver any reasonable agreement which is consistent with the provisions of clause (i) of this Section 12.16(c) and which may be required by the underwriters managing such Initial Public Offering.
(d) Each Member hereby makes, constitutes and appoints the Company, with full power of substitution and resubstitution, its true and lawful attorney, for it and in its name, place and stead and for its use and benefit, to act as its proxy in respect of any vote or approval of Members required to give effect to this Section 12.16, including any vote or approval required under applicable law. The proxy granted pursuant to this Section 12.16(d) is a special proxy coupled with an interest and is irrevocable.

12.17 Mergers and Consolidations, and Sale of the Company. Except in connection with an Initial Public Offering, in which case the provisions of Section 12.16 hereof shall apply, any (x) merger or consolidation of the Company or any subsidiary with or into another entity, or (y) sale of all or substantially all of the Company’s assets shall require the approval only of the Members holding a majority of the outstanding Units. The approval of any such merger , consolidation or sale as provided in the immediately preceding sentence shall be deemed to meet all of the requirements of Member approval of a merger, consolidation or sale, as the case may be, for purposes of the [State] Act.

12.18 Arbitration. Except as specifically provided herein, any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration, conducted before a single arbitrator (to be mutually agreed upon) in the State of [State], in accordance with the rules of the American Arbitration Association then in effect. If the parties cannot agree on a single arbitrator, each party shall appoint one arbitrator who shall then jointly appoint a single arbitrator. Judgment shall be final and may be entered on the arbitrator’s award in any court having jurisdiction. The arbitrator shall have the authority to allocate between the parties the expense of any such arbitration based on his determination of the relative fault, if any, of the parties. The parties may enforce any final determination in any state or federal court having jurisdiction over the dispute. For the purpose of any action or proceeding instituted with respect to any final determination, the parties hereby irrevocably submits to the jurisdiction of such courts, irrevocably consents to the service of process by registered mail or personal service and hereby irrevocably waives, to the fullest extent permitted by law, any objection which he may have or hereafter have as to personal jurisdiction, the laying of the venue of any such action or proceeding brought in any such court and any claim that any such action or proceeding brought in any court has been brought in an inconvenient form.

IN WITNESS WHEREOF, the undersigned, have executed this Limited Liability Company Operating Agreement of [Company], LLC as of the date first written above.

MEMBERS:


Name: [Member 2]
______________________________________
Name: [Member 3]
_______________________________________
Name: [Member 1]
_______________________________________

Exhibit A

FORM OF JOINDER TO
LIMITED LIABILITY COMPANY OPERATING AGREEMENT

THIS JOINDER to the Limited Liability Company Operating Agreement of
[Company], LLC, a [State] limited liability company (the “Company”), dated as of [Month] 1,
[Year], as amended or restated from time to time, by and among the Members of the Company
(the “Agreement”), is made and entered into as of _________ by and between the Company and
________________ (“Holder”). Capitalized terms used herein but not otherwise defined shall
have the meanings set forth in the Agreement.

WHEREAS, on the date hereof, Holder has acquired ______ Units from
_____________ and the Agreement and the Company requires Holder, as a holder of such Units,
to become a party to the Agreement, and Holder agrees to do so in accordance with the terms
hereof.

NOW, THEREFORE, in consideration of the mutual covenants contained herein
and other good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties to this Joinder hereby agree as follows:

1. Agreement to be Bound. Holder hereby (i) acknowledges that it has received and
reviewed a complete copy of the Agreement and (ii) agrees that upon execution of this
Joinder, it shall become a party to the Agreement and shall be fully bound by, and subject
to, all of the covenants, terms and conditions of the Agreement as though an original
party thereto and shall be deemed, and is hereby admitted as, a Member for all purposes
thereof and entitled to all the rights incidental thereto.
2. Members Schedule. For purposes of the Members Schedule, the address of the Holder is
as follows:

[Name]
[Address]

3. Governing Law. This Agreement and the rights of the parties hereunder shall be
interpreted in accordance with the laws of the State of [State], and all rights and
remedies shall be governed by such laws without regard to principles of conflicts of
laws.

4. Counterparts. This Joinder may be executed in separate counterparts each of which shall
be an original and all of which taken together shall constitute one and the same
agreement.

5. Descriptive Headings. The descriptive headings of this Joinder are inserted for
convenience only and do not constitute a part of this Joinder.

IN WITNESS WHEREOF, the parties hereto have executed this Joinder to the
Limited Liability Company Agreement of [Company], LLC as of the date set forth in the
introductory paragraph hereof.

[Company], LLC
By:
Name:
Title:

[HOLDER]
By:
Name:
Title:

Schedule A

Officers of [Company], LLC (as of [Month] 1, [Year])

[Member 2], President

[Member 3], Vice President

[Member 1], Secretary

Schedule B

[Company], LLC’s Members Schedule (as of [Month] 1, [Year])

Member Units Capital Account Balance
[Member 2] 33.34 units $
[Member 3] 33.33 units $
[Member 1] 33.33 units $

Members’ Addresses & Contact Information

1. [Member 2]

2. [Member 3]

3. [Member 1]

Sample LLC Articles of Organization

Sample LLC Articles of Organization

  • The information contained in this sample is provided for informational purposes only, and should not be construed as legal advice on any subject matter. You should not act or refrain from acting on the basis of any content included in this site without seeking legal or other professional advice. The contents of this post contain general information and may not reflect current legal developments or address your situation. We disclaim all liability for actions you take or fail to take based on any content on this site.

OPERATING AGREEMENT for _ _[NAME]_ _, _ _[e.g., LLC/a limited liability company]_ _

A. This operating agreement is entered into as of _ _[date]_ _ by _ _[names]_ _ (referred to individually as a Member and collectively as the Members).

B. The Members desire to form a limited liability company (Company) under the Beverly-Killea Limited Liability Company Act.

C. The Members enter into this Agreement to form and provide for the governance of the Company and the conduct of its business, and to specify their relative rights and obligations.

B. The Members have formed a limited liability company under the Beverly-Killea Limited Liability Company Act. The Articles of Organization of the Company filed with the California Secretary of State on _ _[date]_ _, are adopted and approved by the Members.

C. The Members enter into this Agreement to provide for the governance of the Company and the conduct of its business, and to specify their relative rights and obligations.

Now therefore, the Members agree as follows:

ARTICLE I: DEFINITIONS

Capitalized terms used in this Agreement have the meanings specified in this Article or elsewhere in this Agreement and when not so defined will have the meanings set forth in California Corporations Code §17001.

1.1. “Act” means the Beverly-Killea Limited Liability Company Act (California Corporations Code §§17000-17656), including amendments from time to time.

1.2. “Adjusted Capital Contribution” is defined in Article IV, Section 4.6(a).

1.3. “Adjusted Capital Account Deficit” is defined in Article IV, Section 4.3(a).

1.4. “Affiliate” of a Member or Manager means any Person directly or indirectly, through one or more intermediaries, controlling, controlled by, or under common control with the Member or Manager. The term “control” (including the terms “controlled by” and “under common control with”) means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through membership, ownership of voting securities, by contract, or otherwise.

1.5. “Agreement” means this operating agreement, as originally executed and as amended from time to time.

1.6. “Articles of Organization” is defined in Corporations Code §17001(b) as applied to this Company.

1.7. “Assignee” means a Person who has acquired a Member’s Economic Interest in the Company, by way of a Transfer in accordance with the terms of this Agreement, but who has not become a Member.

1.8. “Assigning Member” means a Member who by means of a Transfer has transferred an Economic Interest in the Company to an Assignee.

1.9. “Available Cash” means all net revenues from the Company’s operations, including net proceeds from all sales, refinancings, and other dispositions of Company property that the Manager, in the Manager’s sole discretion, deems in excess of the amount reasonably necessary for the operating requirements of the Company, including debt reduction and Reserves.

1.10. “Book Adjustments” means, for any item of Company property for a given fiscal year, adjustments with respect to Book Value for depreciation, cost recovery, or other amortization deduction or gain or loss computed in accordance with Treasury Reg §1.704-1(b)(2)(iv)(g), including Book Depreciation.

1.11. “Book Depreciation” means, for any item of Company property for a given fiscal year, a percentage of depreciation or other cost recovery deduction allowable for federal income tax purposes for that item during that fiscal year equal to the result (expressed as a percentage) obtained by dividing (1) the Gross Asset Value of that item at the beginning of the fiscal year (or the acquisition date during the fiscal year) by (2) the federal adjusted tax basis of the item at the beginning of the fiscal year (or the acquisition date during the fiscal year). If the adjusted tax basis of an item is zero, the Manager may determine Book Depreciation, provided that he or she does so in a reasonable and consistent manner.

1.12. “Capital Account” means, with respect to any Member, the account reflecting the capital interest of the Member in the Company, consisting of the Member’s initial Capital Contribution maintained and adjusted in accordance with Article III, Section 3.5.

1.13. “Capital Contribution” means, with respect to any Member, the amount of money _ _[, or services rendered or to be rendered,]_ _ and the fair market value of any property contributed to the Company (net of liabilities secured by the contributed property that the Company is considered to assume or take “subject to” under Internal Revenue Code §752) in consideration of a Percentage Interest held by that Member. A Capital Contribution will not be deemed a loan.

1.14. “Capital Event” means a sale or disposition of any of the Company’s capital assets, the receipt of insurance and other proceeds on account of an involuntary conversion of Company property, the receipt of proceeds from a refinancing of Company property, or a similar event with respect to Company property or assets.

1.15. “Company” means the company named in Article II, Section 2.2 of this Agreement.

1.16. “Company Minimum Gain” is defined in Article IV, Section 4.3(b).

1.17. “Confidential Information” is defined in Article X, Section 10.2.

1.18. “Corporations Code” (“Corp C”) means the California Corporations Code.

1.19. “Economic Interest” means a Person’s right to share in the income, gains, losses, deductions, credit, or similar items of the Company, and to receive distributions from the Company under this Agreement or under the Act, but does not include any other rights of a Member, including the right to vote, the right to participate in the management of the Company, or, except as provided in Corp C §17106, any right to information concerning the business and affairs of the Company.

1.20. “Electronic transmission by the Company” and “electronic transmission to the Company” have the meanings set out in Corp C §17001(o)(1)-(2).

1.21. “Encumber” means the act of creating or purporting to create an Encumbrance, whether or not perfected under applicable law.

1.22. “Encumbrance” means, with respect to any Membership Interest, or any part of it, a mortgage, pledge, security interest, lien, proxy coupled with an interest (other than as contemplated in this Agreement), option, or preferential right to purchase.

1.23. “Gross Asset Value” means, for any item of property of the Company, the item’s adjusted basis for federal income tax purposes, except:

(a) The initial Gross Asset Value of any item of property contributed by a Member to the Company will be the fair market value of that property, as mutually agreed by the contributing Member and the Company;

(b) The Gross Asset Value of any item of Company property will be adjusted as of the following times: (1) the acquisition of an interest or additional interest in the Company by any new or existing Member in exchange for more than a de minimis Capital Contribution; (2) the distribution of money or other property (other than a de minimis amount) by the Company to a Member as consideration for an Economic Interest in the Company; and (3) the liquidation of the Company within the meaning of Treasury Reg §1.704-1(b)(2)(ii)(g); provided, however, that adjustments under clauses (1) and (2) above will be made only if the Members have determined that the Company must revalue its assets in accordance with Treasury Reg §1.704-1(b)(2)(iv)(f);

(c) The Gross Asset Value of any Company asset distributed to any Member will be the book value of that asset on the date of distribution; and

(d) The Gross Asset Value of Company assets will be increased (or decreased) to reflect any adjustments to the adjusted tax basis of those assets under IRC §734(b) or 743(b), subject to the limitations imposed by IRC §755 and only to the extent that those adjustments are taken into account in determining Capital Accounts under Treasury Reg §1.704-1(b)(2)(iv)(m), and if the Gross Asset Value of an asset has been determined or adjusted under paragraph (a), (b), or (d) of this Section 1.23, that Gross Asset Value will thereafter be adjusted by the Book Adjustments, if any, taken into account for the asset for purposes of computing Profits and Losses.

1.24. “Initial Members” means those Persons whose names are set forth _ _[in the first sentence of/in Exhibit A to]_ _ this Agreement.

1.25. “Involuntary Transfer” means, with respect to any Membership Interest, or any part of it, any Transfer or Encumbrance, whether by operation of law, under court order, foreclosure of a security interest, execution of a judgment or other legal process, or otherwise, including a purported transfer to or from a trustee in bankruptcy, receiver, or assignee for the benefit of creditors.

1.26. “IRC” means the Internal Revenue Code of 1986, as amended, and any successor provision.

1.27. “Losses.” See Article IV, Section 4.2.

1.28. “Majority of Members” means a Member or Members whose Percentage Interests represent more than 50 percent of the Percentage Interests of all the Members.

1.29. “Manager” means the Person named in Article II, Section 2.9, or the Person who from time to time succeeds any Person as a Manager and who, in either case, is serving at the relevant time as a Manager.

1.30. “Member” means an Initial Member or a Person who otherwise acquires a Membership Interest, as permitted under this Agreement, and who has not ceased to be a Member under Article VIII or for any other reason.

1.31. “Member Nonrecourse Debt” is defined in Article IV, Section 4.3(c).

1.32. “Member Nonrecourse Debt Minimum Gain” is defined in Article IV, Section 4.3(d).

1.33. “Member Nonrecourse Deductions” is defined in Article IV, Section 4.3(e).

1.34. “Membership Interest” means a Member’s entire interest and rights in the Company, collectively, including the Member’s Economic Interest, any right to Vote or participate in management, and any right to information concerning the business and affairs of the Company.

1.35. “Nonrecourse Deductions” is defined in Article IV, Section 4.3(f).

1.36. “Nonrecourse Liability” is defined in Article IV, Section 4.3(g).

1.37. “Notice” means a notice in writing required or permitted under this Agreement. A notice will be deemed given or sent when deposited, as certified mail or for overnight delivery, postage and fees prepaid, in the United States mails; when delivered to Federal Express, United Parcel Service, DHL WorldWide Express, or Airborne Express, for overnight delivery, charges prepaid or charged to the sender’s account; when personally delivered to the recipient; when transmitted by electronic transmission by or to the Company (see §1.20); or when delivered to the home or office of a recipient in the care of a person whom the deliverer has reason to believe will promptly communicate the notice to the recipient.

Addresses for the purpose of giving notice are as follows:

_ _[Name of party]_ _: _ _[address]_ _ _ _[e-mail]_ _ _ _[fax number]_ _

_ _[Name of party]_ _: _ _[address]_ _ _ _[e-mail]_ _ _ _[fax number]_ _

_ _[Name of party]_ _: _ _[address]_ _ _ _[e-mail]_ _ _ _[fax number]_ _

Any correctly addressed notice that is refused, unclaimed, or undeliverable because of an act or omission of the party to be notified will be deemed effective as of the first date that the notice was refused, unclaimed, or deemed undeliverable by the postal authorities, messenger, or overnight delivery service.

Any party may change its address, electronic mail address, or fax number by giving the Manager Notice of the change.

1.38. “Percent of the Members” means the specified total of Percentage Interests of all the Members.

1.39. “Percentage Interest” means a fraction, expressed as a percentage, the numerator of which is the total of a Member’s Capital Account and the denominator of which is the total of all Capital Accounts of all Members.

1.40. “Person” means an individual, partnership, limited partnership, trust, estate, association, corporation, limited liability company, or other entity, whether domestic or foreign.

1.41. “Profits” and “Losses” are defined in Article IV, Section 4.2.

1.42. “Proxy” has the meaning set forth in the first paragraph of Corp C §17001(ai). A Proxy may not be transmitted orally.

1.43. “Regulations” (“Reg” or “Treasury Reg”) means the income tax regulations promulgated by the United States Department of the Treasury and published in the Federal Register for the purpose of interpreting and applying the provisions of the Code, as those Regulations may be amended from time to time, including corresponding provisions of applicable successor regulations.

1.44. “Reserves” means the aggregate of reserve accounts that the Manager, in the Manager’s sole discretion, deems reasonably necessary to meet accrued or contingent liabilities of the Company, reasonably anticipated operating expenses, and working capital requirements.

1.45. “Successor in Interest” means an Assignee, a successor of a Person by merger or otherwise by operation of law, or a transferee of all or substantially all of the business or assets of a Person.

1.46. “Tax Item” means each item of income, gain, loss, deduction, or credit of the Company.

1.47. “Tax Matters Partner” means the Person designated under Article VI, Section 6.6.

1.48. “Transfer” means any sale, assignment, gift, Involuntary Transfer, Encumbrance, or other disposition of a Membership Interest or any part of a Membership Interest, directly or indirectly, other than an Encumbrance that is expressly permitted under this Agreement.

1.49. “Triggering Event” is defined in Article VIII, Section 8.4.

1.50. “Vote” means a written consent or approval, a ballot cast at a meeting, or a voice vote.

1.51. “Voting Interest” means, with respect to a Member, the right to Vote or participate in management and any right to information concerning the business and affairs of the Company provided under the Act, except as limited by the provisions of this Agreement. A Member’s Voting Interest will be directly proportional to that Member’s Percentage Interest.

1.52. “Writing” includes any form of recorded message capable of comprehension by ordinary visual means.