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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
May 11, 2000
Date of Report
(Date of earliest event reported)
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DECRANE HOLDINGS CO.
(Exact name of registrant as specified in its charter)
DELAWARE 333-70363 13-4019703
(State or other jurisdiction (Commission File Number) (I.R.S. Employer
of incorporation) Identification No.)
C/O DLJ MERCHANT BANKING PARTNERS II, L.P.
277 PARK AVENUE, NEW YORK, NY 10172
(Address, including zip code, of principal executive offices)
(212) 892-3000
(Registrant's telephone number, including area code)
--------------------
NOT APPLICABLE
(Former address and telephone number of principal executive offices, if changed
since last report)
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
ACQUISITION OF CARL F. BOOTH & CO., INC.
On May 11, 2000 we completed the acquisition of substantially all of the
assets, subject to accounts payable and accrued expenses assumed, of Carl F.
Booth & Co., Inc. Carl Booth, which will be part of our Cabin Management Group,
is an Indiana-based manufacturer of wood veneer panels primarily used in
aircraft interior cabinetry. We intend to continue to use the acquired assets to
manufacture products similar to those previously manufactured by Carl Booth.
The total purchase price was $19.5 million, plus a maximum of $2.0 million
of contingent consideration payable over three years based on future attainment
of defined performance criteria. The total purchase price includes an estimated
$0.8 million of acquisition related costs. The acquisition will be accounted for
as a purchase and the difference between the purchase price and the fair value
of the net assets acquired will be recorded as goodwill and amortized on a
straight-line basis over thirty years. The amount of contingent consideration
paid in the future, if any, will increase goodwill and will be amortized
prospectively over the remaining period of the initial thirty-year term. Our
consolidated financial statements will include Carl Booth's financial position
and its results of operations for periods subsequent to May 1, 2000, the
effective date of the acquisition.
The acquisition was funded with borrowings under our senior credit facility
and $7.5 million of proceeds from the sale of common stock.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial statements of businesses acquired.
Carl F. Booth & Co., Inc. Regulation S-X compliant audited financial
statements are not available at this time. The audited financial statements for
the appropriate periods will be filed by amendment to this Form 8-K as soon as
practicable, but in no event later than July 25, 2000.
(b) Pro forma financial information.
Unaudited pro forma financial information reflecting the Carl F. Booth &
Co., Inc. acquisition is not available at this time. The pro forma financial
information will be filed by amendment to this Form 8-K as soon as practicable,
but in no event later than July 25, 2000.
(c) Exhibits.
Exhibit
NO. EXHIBIT DESCRIPTION
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3.25.1 Certificate of Formation and Certificate of Amendment of
Carl F. Booth & Co., LLC **
3.25.2 Limited Liability Company Agreement of Carl F. Booth & Co.,
LLC **
21.1 List of Subsidiaries of Registrant **
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* Previously filed
** Filed herewith
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DECRANE HOLDINGS CO.
(Registrant)
May 25, 2000 By: /S/ RICHARD J. KAPLAN
-----------------------------------
Name: Richard J. Kaplan
Title: Assistant Secretary and
Assistant Treasurer
(chief accounting officer)
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STATE OF DELAWARE EXHIBIT 3.25.1
OFFICE OF THE SECRETARY OF STATE
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
FORMATION OF "BOOTH ACQUISITION, LLC", FILED IN THIS OFFICE ON THE NINETEENTH
DAY OF APRIL, A.D. 2000, AT 4:30 O'CLOCK P.M.
/s/ Edward J. Freel
-----------------------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 0394634
DATE: 04-20-00
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CERTIFICATE OF FORMATION
OF
BOOTH ACQUISITION, LLC
1. The name of the limited liability company is Booth Acquisition, LLC.
2. The address of its registered office in the State of Delaware is
Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle. The name of its registered agent at
such address is The Corporation Trust Company.
IN WITNESS WHEREOF, the undersigned has executed this Certificate of
Formation of Booth Acquisition, LLC on April 19, 2000.
/s/ Sonji Sanders
-------------------------------------
Sonji Sanders, Organizer
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STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF
DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE
CERTIFICATE OF AMENDMENT OF "BOOTH ACQUISITION, LLC", CHANGING ITS NAME FROM
"BOOTH ACQUISITION, LLC" TO "CARL F. BOOTH & CO., LLC", FILED IN THIS OFFICE ON
THE TWELFTH DAY OF MAY, A.D. 2000, AT 4:30 O'CLOCK P.M.
/s/ Edward J. Freel
------------------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 0437025
DATE: 05-15-00
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CERTIFICATE OF AMENDMENT
OF
BOOTH ACQUISITION, LLC
1. The name of the limited liability company is Booth Acquisition, LLC.
2. The Certificate of Formation of the limited liability company is
hereby amended as follows:
(a). Section 1 is deleted in its entirety and replaced with the
following:
1. The name of the limited liability company is Carl F. Booth
& Co., LLC.
IN WITNESS WHEREOF, the undersigned has executed this Certificate of
Amendment of Booth Acquisition, LLC as of May 11, 2000.
/s/ Stephen A. Silverman
----------------------------------------------
Stephen A. Silverman, Assistant Secretary
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LIMITED LIABILITY COMPANY AGREEMENT EXHIBIT 3.25.2
OF
BOOTH ACQUISITION, LLC
This LIMITED LIABILITY COMPANY AGREEMENT (this "Agreement") of Booth
Acquisition, LLC, a limited liability company organized under the laws of
Delaware (the "Company"), is made and entered into effective as of May 1,
2000 by DeCrane Aircraft Holdings, Inc., a Delaware corporation (the "Initial
Member"). Capitalized words and phrases used in this Agreement and not
otherwise defined here are used as defined in Article 13 or in Section 14.21
(Tax Definitions).
RECITALS
WHEREAS, the Initial Member formed the Company pursuant to the
Delaware Limited Liability Company Act, 6 Del. C. Section 18-101, et seq.,
as amended from time to time (the "Act"), by filing a Certificate of
Formation of the Company with the office of the Secretary of State of the
State of Delaware.
WHEREAS, the Initial Member intends that the Company be treated as a
pass-through entity for federal income tax purposes.
NOW, THEREFORE, the Initial Member hereby provides as follows:
1. ORGANIZATION
1.1 NAME
The name of the Company will be "Booth Acquisition, LLC."
The business of the Company may be conducted under that name or, upon
compliance with applicable laws, any other name that the Board of Directors
deems appropriate or advisable. Any Manager may file any fictitious name
certificates and similar filings, and any amendments thereto, that such
Manager considers appropriate or advisable.
1.2 PURPOSE AND LIMITATIONS
The purpose of the Company is to engage in any lawful
activity for which a limited liability company may be organized under the
Act. The Company shall have full power and authority to do every act and
thing necessary or convenient to carry out the purposes for which it was
formed.
1.3 MANAGED BY MANAGERS AND BOARD OF DIRECTORS
The Company shall be managed by its Managers appointed
hereunder, subject to the supervision and powers of the Board of Directors as
set forth in this Agreement.
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1.4 PRINCIPAL OFFICE
The principal office of the Company shall be at 125 Quality
Avenue, New Albany, Indiana 47150. The Board of Directors may change the
principal place of business of the Company to any place from time to time in
their discretion.
1.5 AGENT FOR SERVICE OF PROCESS
The initial agent for service of process on the Company
shall be CT Corporation System.
2. CAPITAL CONTRIBUTIONS
2.1 INITIAL MEMBER
DeCrane Aircraft Holdings, Inc. shall be the sole Initial
Member. The address, initial Capital Contribution and initial LLC Percentage
of the Initial Member are:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
MEMBER, ADDRESS CAPITAL INITIAL LLC
CONTRIBUTION PERCENTAGE
- ------------------------------------------------------------------------------------
<S> <C> <C>
DeCrane Aircraft Holdings, Inc. $100.00 100%
2361 Rosecrans Avenue,
Suite 180
El Segundo, California 90245
- ------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------
Totals: $100.00 100%
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</TABLE>
2.2 INITIAL CAPITAL CONTRIBUTION
The initial Capital Contributions shall be paid to the
Company concurrently with the signing of this Agreement. No Person shall be
treated as a Member for any purpose until the Company receives such Person's
initial Capital Contribution.
2.3 EXPERTISE
Each Member shall make available to the Manager his or its
expertise for the benefit of the Company and the Company's business.
2.4 GUARANTEES OF THE COMPANY'S DEBTS
If a Member guarantees a debt of the Company and that debt
is paid by the Member (or its successors in interest), then such payment
shall be considered a loan to the Company and not an additional Capital
Contribution. The amount of debt paid by the Member shall be repayable out of
the Company's cash and, unless otherwise agreed between the Company and the
lending Member, shall bear interest at an annual rate equal to one percentage
point above the prime lending rate of Bank of America, NA (or a similar
financial institution acceptable to such Member and the Managers) in effect
at the time the debt is paid.
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2.5 ADDITIONAL CAPITAL CONTRIBUTIONS OR LOANS
No Member shall be required to contribute or lend any
additional funds to the Company.
2.6 LOANS
If any Member makes any loan to the Company or advances
money on its behalf, the amount of any such loan or advance shall not be
treated as a Capital Contribution but shall be a debt due from the Company.
The amount of any such loan or advance by a lending Member shall be repayable
out of the Company's cash and shall bear interest at an annual rate equal to
one points above the prime lending rate of Bank of America, NA (or a similar
financial institution acceptable to the lending Member and the Managers) then
in effect.
2.7 INVESTMENT REPRESENTATION
Each Member represents and warrants to the Company that (a)
he or it has a pre-existing personal or business relationship with each other
Member, and (b) his or its acquisition of an Interest is made as principal
for his or its own account and not with a view to or for sale in connection
with any distribution of such Interest.
2.8 TITLE TO PROPERTY
All real and personal property owned by the Company shall
be owned by it as an entity and, insofar as permitted by applicable law, no
Member shall have any ownership interest in such property in his or its
individual name or right, and each Member's interest in the Company shall be
personal property for all purposes.
3. DISTRIBUTIONS
3.1 DISTRIBUTIONS GENERALLY
The Managers shall cause the Company to make such
distributions to the Members in amounts (if any) as may be determined from
time to time by the Board of Directors. Any distributions that are made to
Members shall be made in the following order and priority:
(a) First, to the Members until their Adjusted Capital
Contributions are reduced to zero (pro rata among
them in proportion to their Adjusted Capital
Contributions); and
(b) Second, the balance, if any, to the Members in
proportion to their LLC Percentages at that time.
3.2 ESTIMATED TAX PAYMENTS
If required by applicable law, or permitted by applicable
law and approved by the Board of Directors, the Managers may cause the
Company to make estimated payments of tax for any Member after consultation
with such Member.
3.3 AMOUNTS WITHHELD
All amounts withheld pursuant to applicable law with
respect to any payment or distribution to the Company or the Members shall be
treated as amounts distributed to such
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Members for all purposes under this Agreement. The Managers shall allocate
any such amounts among the Members in accordance with applicable law.
3.4 RETURN OF CAPITAL
Except as otherwise provided in this Agreement, no Member
shall demand or receive a return of his or its Capital Contribution without
the approval of the Board of Directors. Under circumstances requiring a
return of any Capital Contribution, no Member shall have the right to receive
property other than cash except as may be specifically provided in this
Agreement. No Member shall have any personal liability for the repayment of
the Capital Contribution of any other Member.
4. FINANCE
4.1 LLC FUNDS
All property of the Company in the form of cash not
otherwise invested shall be deposited in one or more bank accounts maintained
in the name of the Company or the name of the Initial Member, in such
financial institutions as the Managers shall determine. The funds of the
Company shall not be commingled with the funds of any other Person. The
Managers shall deposit into such accounts all revenue and proceeds of or in
connection with the Company's business and all amounts received by the
Managers from, for, or on behalf of, the Company.
4.2 BOOKS AND RECORDS
The Managers shall maintain or cause to be maintained
accurate books and records of account of the business of the Company in
accordance with generally accepted accounting principles consistently
applied, setting forth a true and accurate account of all business
transactions arising out of and in connection with the conduct of the
Company's business.
4.3 TAX INFORMATION
The Managers shall prepare or cause to be prepared, and
file, any applicable tax returns required to be filed by the Company
consistent with the terms of this Agreement. The Managers shall select an
accounting firm to prepare any such tax returns, subject to approval by the
Board of Directors. Within 90 days after the end of each taxable year (or
such earlier deadlines as may be imposed upon the Members by law), the
Managers shall deliver to each Member necessary tax information regarding the
Company, together with a copy of any federal, state and local income tax or
information returns of the Company for the year, and a report listing each
material elective adjustment or calculation (if any) made by any Manager with
respect to such period pursuant to Article 14 hereof.
4.4 ALLOCATIONS
The Profits, Losses and other items of the Company shall be
allocated as set forth in Article 14 (Additional Tax Provisions). The Members
agree to be bound by these allocations in reporting their shares of the
Company's income, loss and other items for income tax purposes.
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5. ROLE OF THE MANAGERS
5.1 MANAGERS
The Initial Member of the Company has designated the
following persons to serve as the initial managers and officers of the
Company ("Managers"), until changed pursuant to Sections 5.3 or 5.4:
<TABLE>
<S> <C>
R. Jack DeCrane Chief Executive Officer
Richard J. Kaplan Chief Financial Officer and Secretary
Jeffrey A. Nerland Vice President and Authorized Representative
Stephen A. Silverman Assistant Secretary
</TABLE>
5.2 AUTHORITY
Except to the extent otherwise provided in the Articles of
Organization or this Agreement (including the powers reserved to the Board of
Directors and the Members), the business and affairs of the Company shall be
managed and all corporate powers shall be exercised by the Managers, who
shall have all of the authority, rights and powers which may be possessed by
managers of a limited liability company under the Act, and may at their
discretion, delegate and assign their management duties. The Managers may act
jointly or severally in their role as Managers, and the act of any one
Manager is the act of all Managers.
5.3 QUALIFICATION AND ELECTION
The Managers of the Company shall be selected by the
Initial Member. The Initial Member may appoint additional Managers from time
to time in its discretion, with such title and such roles as the Initial
Member may specify.
5.4 REMOVAL AND RESIGNATION
(a) Managers serve at the pleasure of the Initial Member,
and a Manager may be removed with or without cause by the Initial Member, for
any reason or no reason, by providing written notice thereof to such Manager.
(b) Any Manager may resign at any time by giving
written notice to the Company. Any such resignation shall take effect at the
date of the receipt of such notice or at any later time specified therein;
and, unless otherwise specified therein, the acceptance of such resignation
shall not be necessary to make it effective.
5.5 DUTIES AND OBLIGATIONS OF THE MANAGERS
The Managers shall take all actions which may be necessary
or appropriate to operate and manage the Company's business, and otherwise
directed by the Board of Directors.
5.6 MATTERS REQUIRING UNANIMOUS CONSENT OF THE MEMBERS
Notwithstanding any other term of this Agreement, the
Managers shall not, without the unanimous written consent of the Members:
(a) Do any act in contravention of this Agreement;
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(b) Do any act which would make it impossible to carry
on the ordinary business of the Company, except as otherwise provided in this
Agreement;
(c) Sell or otherwise dispose of at one time all or
substantially all of the property of the Company, except pursuant to Section
11.3(e) (Winding Up);
(d) Amend this Agreement or the Certificate of
Formation;
(e) Liquidate or dissolve the Company;
(f) Admit a new Member;
(g) Reduce, increase or alter the outstanding capital
of the Company, make any call on capital, issue or redeem Interests, options
or other securities of the Company or any subsidiary of the Company;
(h) Grant a power of attorney or other delegation of
the Members' powers; or
(i) Cause the Company to merge or consolidate with any
other business.
5.7 MATTERS REQUIRING THE APPROVAL OF THE BOARD OF DIRECTORS
Notwithstanding any other term of this Agreement, without
first obtaining the approval of a majority of the Board of Directors, at a
meeting duly held, or by a written act of such Directors in lieu of a
meeting, the Managers shall not:
(a) Appoint or remove an auditor;
(b) Obtain, incur or suffer an aggregate amount of
debt other than in the ordinary course of its business in excess of $50,000;
or
(c) Cause the Company to acquire shares of or any
interest in any corporation or other legal entity, or create any partnership,
joint venture or legal entity of which the Company is or will be a partner,
member or similar participant.
5.8 INDEMNIFICATION OF MANAGERS
5.8(a) MANDATORY
The Company, its receiver or its trustee, shall
indemnify, save harmless and pay all judgments and claims against the
Managers relating to any liability or damage incurred by reason of any act
performed or omitted to be performed by the Managers in connection with the
business of the Company, including attorneys' fees incurred by the Managers
in connection with the defense of any action based on any such act or
omission, which attorneys' fees may be paid as incurred, including all such
liabilities under federal and state securities laws (including the Securities
Act of 1933, as amended) as permitted by law.
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5.8(b) IF MANAGER IS EXONERATED IN THE PROCEEDING
In the event of any action by a Member against a
Manager, including a derivative suit on behalf of the Company, the Company
shall indemnify, save harmless and pay all expenses of such Manager,
including attorneys' fees, incurred in the defense of such action, if such
Manager is successful in such action.
5.8(c) NO INDEMNIFICATION
Notwithstanding the foregoing provisions of this
Section 5.8, the Managers shall not be indemnified from any liability for
fraud, bad faith, willful misconduct or gross negligence.
5.8(d) LIMITATION
Any indemnification under this Section 5.8 shall be
paid from and only to the extent of the Company's assets, and no Member shall
have personal liability for such indemnification.
6. ROLE OF THE BOARD OF DIRECTORS
6.1 NUMBER AND DESIGNATION OF DIRECTORS
The Company shall have a Board of Directors composed of two
directors. The Initial Member designates R. Jack DeCrane and Richard J.
Kaplan as the initial directors.
6.2 RIGHTS AND POWERS
The Board of Directors shall have the powers reserved to it
in this Agreement and, in addition, may take any action reserved to the
Members in this Agreement or in the Act.
6.3 TERM; REMOVAL
Each director serves at the pleasure of the Member who
designated him or her pursuant to Section 3.1; and each Member having the
right to designate one or more directors may remove and replace such
designated directors at will, by notice to the Managers and directors. In the
event a Member sells, transfers or loses all of its Interests in the Company,
all directors designated by such Member shall be removed from the Board of
Directors and their seats shall be declared vacant.
6.4 MEETINGS
The Board of Directors shall meet at such times as they may
elect from time to time, in each case at the dates and times agreed by the
directors; but the Board of Directors shall not be required to meet at any
fixed time. The rules set forth in Section 8.2(a), (d), (e), (f) and (g) for
the meetings of Members shall also apply to all meetings of the Board of
Directors, EXCEPT that there shall be no record date in connection with
meetings of the Board. 100% of the then-seated directors shall constitute a
quorum for any transacting of business by the Board of Directors, and the
Board of Directors may not act in the absence of a quorum. Any action
approved by a majority of the directors present at a duly called meeting of
the Board of Directors at which a quorum is present, or by all of the
directors then-seated by written consent without meeting, shall be the action
of the Board of Directors. Any action that may be taken at any meeting of the
Board of Directors may be taken without a meeting if a consent in writing,
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setting forth the action so taken, is signed and delivered to the Managers by
directors having not less than the minimum number of votes that would be
necessary to authorize or take that action at a meeting at which all of the
directors entitled to vote thereon were present and voted.
6.5 LIMITED LIABILITY
The rights and powers of a member of the Board of
Directors, in his capacity as a director, shall not exceed the rights and
powers that a member of a manager-managed limited liability company could
exercise under the Act. Except to the extent (if any) otherwise required by
the Act, no director shall be liable for the debts, liabilities, contracts or
any other obligations of the Company.
7. ROLE OF MEMBERS
7.1 RIGHTS AND POWERS
The Members shall have the powers reserved to them in this
Agreement or in the Act.
7.2 LIMITED LIABILITY
Except to the extent (if any) otherwise required in the
Act, no Member shall be liable for the debts, liabilities, contracts or any
other obligations of the Company.
7.3 NO PARTITION
No Member or director shall, either directly or indirectly,
take any action to require partition of the Company or of any of its property
or to cause the sale of any of such property, nor shall any Manager do so
without the approval of the Board of Directors.
8. MEETINGS OF MEMBERS
8.1 REQUIRED MEETINGS
Members shall hold meetings at such times as they may
unanimously agree in writing, but shall not be required to meet at any fixed
time. At any such meeting, Members holding a majority in Interest shall
constitute a quorum. No action can be taken by the Members at a meeting after
a quorum ceases to be present at the meeting. The failure of the Company to
observe any corporate formalities or requirements relating to the exercise of
its powers or management of its business or affairs under this Agreement or
the Act shall not be grounds for imposing personal liability on the Members
for liabilities of the Company.
8.2 PROCEDURE
8.2(a) LOCATION
Unless all of the Members agree otherwise in
writing, meetings of Members shall be held at the chief executive office of
the Initial Member Company in California (or at any other place in the County
of Los Angeles, State of California, selected by the Board of Directors and
specifically identified in the notice of the meeting), so long as the meeting
place has adequate facilities to permit participation by telephone conference
call.
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8.2(b) CALL
A meeting of the Members may be called by any
Manager or by any Member or Members representing more than 10% of the
Interests for the purpose of addressing any matters on which the Members may
vote.
8.2(c) NOTICE
(1) Whenever Members are required or
permitted to take any action at a meeting, a written notice of the meeting
shall be given pursuant to Article 12 (Other Provisions) not less than 10
days nor more than 60 days before the date of the meeting to each Member
entitled to vote at the meeting. The notice shall state the place, date, and
hour of the meeting and the general nature of the business to be transacted.
No other business may be transacted at this meeting.
(2) An affidavit of mailing of any notice or
report in accordance with the provisions of this paragraph, signed by a
Manager, shall be prima facie evidence of the giving of the notice or report.
(3) Upon written request to a Manager by any
person entitled to call a meeting of Members, the Manager shall immediately
cause notice to be given to the Members entitled to vote that a meeting will
be held at a time requested by the person calling the meeting, not less than
10 days nor more than 60 days after the receipt of the request. If the notice
is not given within 20 days after receipt of the request, the person entitled
to call the meeting may give the notice or, upon the application of that
person, the superior court of the county in California in which the principal
office of the Company is located shall summarily order the giving of the
notice, after notice to the Company affording it an opportunity to be heard.
The court may issue any order as may be appropriate, including an order
designating the time and place of the meeting, the record date for
determination of members entitled to vote, and the form of notice.
8.2(d) ADJOURNED MEETINGS
When a meeting of Members is adjourned to another
time or place, unless the articles of organization or this Agreement
otherwise require and, except as provided in this paragraph, notice need not
be given of the adjourned meeting if the time and place thereof are announced
at the meeting at which the adjournment is taken. At the adjourned meeting,
the Company may transact any business that may have been transacted at the
original meeting. If the adjournment is for more than 45 days, or if after
the adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each Member of record
entitled to vote at the meeting.
8.2(e) WAIVER OF NOTICE
The actions taken at any meeting of Members,
however called and noticed, and wherever held, have the same validity as if
taken at a meeting duly held after regular call and notice, if a quorum is
present either in person or by proxy, and if, either before or after the
meeting, each of the Members entitled to vote, not present in person or by
proxy, signs a written waiver of notice or consents to the holding of the
meeting or approves the minutes of the meeting. All waivers, consents, and
approvals shall be filed with the Company records or made a part of the
minutes of the meeting. Attendance of a person at a meeting shall constitute
a waiver of notice of the meeting, except when the person objects, at the
beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened.
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Attendance at a meeting is not a waiver of any right to object to the
consideration of matters required by this title to be included in the notice
but not so included, if the objection is expressly made at the meeting.
Neither the business to be transacted nor the purpose of any meeting of
Members need be specified in any written waiver of notice, unless otherwise
provided in the articles of organization or operating agreement, except as
provided in paragraph (g) below.
8.2(f) PARTICIPATION BY TELEPHONE CONFERENCE CALL
Members may participate in a meeting of Members
through the use of conference telephones or similar communications equipment,
as long as all Members participating in the meeting can hear one another.
Participation in a meeting pursuant to this provision constitutes presence in
person at that meeting.
8.2(g) NATURE OF PROPOSAL
Any action approved at a meeting, other than by
unanimous approval of those entitled to vote, shall be valid only if the
general nature of the proposal so approved was stated in the notice of
meeting (or at the previous meeting) or in any written waiver of notice.
8.2(h) QUORUM
A majority in Interest of the Members represented
in person or by proxy shall constitute a quorum at a meeting of Members. In
the absence of a quorum, any meeting of Members may be adjourned from time to
time by the vote of a majority of the Interest represented either in person
or by proxy, but no other business may be transacted.
8.2(i) WRITTEN ACTION WITHOUT MEETING
Any action that may be taken at any meeting of the
Members may be taken without a meeting if a consent in writing, setting forth
the action so taken, is signed and delivered to the Managers within 60 days
of the record date for that action by Members having not less than the
minimum number of votes that would be necessary to authorize or take that
action at a meeting at which all Members entitled to vote thereon were
present and voted.
(1) Unless the consents of all
Members entitled to vote have been solicited in writing, (A) notice of any
Member approval of an amendment to the articles of organization or this
Agreement, a dissolution of the Company, or a merger of the Company, without
a meeting by less than unanimous written consent shall be given at least 10
days before the consummation of the action authorized by such approval, and
(B) prompt notice shall be given of the taking of any other action approved
by Members without a meeting by less than unanimous written consent, to those
Members entitled to vote who have not consented in writing.
(2) Any Member giving a written
consent, or the Member's proxyholder, may revoke the consent by a writing
received by the Company prior to the time that written consents of Members
having the minimum number of votes that would be required to authorize the
proposed action have been filed with the Company, but may not do so
thereafter. This revocation is effective upon its receipt at the principal
office of the Company in California.
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8.2(j) PROXIES
The use of proxies in connection with this section
will be governed in the same manner as in the case of corporations formed
under the Delaware General Corporation Law.
8.2(k) RECORD DATE
In order that the Company may determine the
Members of record entitled to notices of any meeting or to vote, or entitled
to receive any distribution or to exercise any rights in respect of any other
lawful action, a Manager, or Members representing more than 10 percent of the
interests of Members, may fix, in advance, a record date, that is not more
than 60 days nor less than 10 days prior to the date of the meeting and not
more than 60 days prior to any other action. If no record date is fixed:
(1) The record date for determining Members
entitled to notice of or to vote at a meeting of Members shall be at the
close of business on the business day next preceding the day on which notice
is given or, if notice is waived, at the close of business on the business
day next preceding the day on which the meeting is held.
(2) The record date for determining Members
entitled to give consent to limited liability company action in writing
without a meeting shall be the day on which the first written consent is
given.
(3) The record date for determining Members
for any other purpose shall be at the close of business on the day on which
the Managers adopt the resolution relating thereto, or the 60th day prior to
the date of the other action, whichever is later.
(4) The determination of Members of record
entitled to notice of or to vote at a meeting of Members shall apply to any
adjournment of the meeting unless a Manager or the Members who called the
meeting fix a new record date for the adjourned meeting, but the Manager or
the Members who called the meeting shall fix a new record date if the meeting
is adjourned for more than 45 days from the date set for the original meeting.
8.3 VOTING RIGHTS
The Members shall have the right to vote on the matters
explicitly set forth in this Agreement or in the Act. Each Member shall have
a vote on all matters on which all Members may vote equal to his or its LLC
Percentage. With respect to the Members, the term "majority in interest"
means more than 50% of the LLC Percentages of all Members.
8.4 RULES OF CONDUCT
At each meeting of Members they shall appoint a chair who
shall conduct the meeting and who shall appoint a secretary of the meeting to
keep minutes and file the minutes with the Company's permanent files.
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9. RESTRICTIONS ON TRANSFER
9.1 RESTRICTION ON TRANSFERS
Except as otherwise permitted by this Agreement, no Member
shall Transfer all or any portion of any Interest.
9.2 PERMITTED TRANSFERS
The Initial Member may Transfer its Interest in connection
with a sale of substantially all assets of the Initial Member, to the
purchaser thereof. The Initial Member may Transfer its Interest for the
purpose of providing security for an obligation, by hypothecation, pledge,
collateralization or otherwise. Any Interest so held or Transferred shall
remain subject to all of the provisions of this Agreement and the Member,
both individually and as trustee of the trust, shall continue to be
considered a "Member" for purposes of this Agreement.
9.3 INVOLUNTARY TRANSFER
Any proposed Transfer of an Interest that is required by
law pursuant to any insolvency proceeding of a Member shall be subject to the
terms and conditions of this Agreement, including Section 9.7.
9.4 PROHIBITED TRANSFERS
Any purported Transfer of an Interest that is not permitted
by this Agreement shall be null and void and of no effect whatever; PROVIDED
that if the Company is required to recognize a Transfer that is not so
permitted, the Interest Transferred shall be strictly limited to the
transferor's rights to allocations and distributions under this Agreement
with respect to the Transferred Interest, which allocations and distributions
may be applied (without limiting any other legal or equitable rights of the
Company) to satisfy any debts, obligations, or liabilities for damages that
the transferor or transferee of such Interest may have to the Company.
In the case of a Transfer or attempted Transfer that is not
permitted by this Agreement, the parties engaging or attempting to engage in
such Transfer shall be liable to indemnify and hold harmless the Company and the
other Members from all costs, liabilities and damages that any of such
indemnified Persons may incur (including additional tax liability and lawyers'
fees and expenses) as a result of such Transfer or attempted Transfer and
efforts to enforce this Section 9.4, including such indemnity.
9.5 GENERAL TRANSFER PROVISIONS
(a) All Transfers shall be by instrument in form and
substance satisfactory to counsel for the Company and shall contain an
expression by the transferee of his or its intention to accept the Transfer
and to adopt and be bound by all of the provisions of this Agreement, and
shall provide for the payment by the transferor of all reasonable expenses
incurred by the Company in connection with such Transfer, including the
necessary amendments to this Agreement to reflect such Transfer. The
transferor shall sign and acknowledge all such instruments, in form and
substance reasonably satisfactory to the Company's counsel, as may be
necessary or desirable to effect such Transfer.
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(b) The Company shall not dissolve or terminate upon
the admission of any new Member or upon any permitted Transfer. Each Member
hereby waives any right such Member may have to dissolve, liquidate or
terminate the Company in any such event.
(c) This Section 9.5 imposes additional restrictions
on the Transfer of Interests and does not permit any Transfer not otherwise
permitted by this Agreement.
9.6 COMPLIANCE
Notwithstanding anything to the contrary in this Agreement,
at law or in equity, no Member shall Transfer or otherwise deal with any
Interest in a way that would cause a default under any material agreement to
which the Company is a party or by which it is bound.
9.7 ADMISSION OF MEMBERS
No new Members shall be admitted without the approval
required by Section 5.6. A transferee of an Interest shall not be admitted as
a Member without the approval required by Section 5.6, PROVIDED that if the
transferee is already a Member at the time of the transfer and the transfer
is permitted by this Agreement, then the transferee shall have all rights of
a Member with respect to the transferred Interest.
9.8 RIGHTS OF UNADMITTED ASSIGNEES
Notwithstanding any other provision of this Agreement, a
Person who acquires an Interest but who is not admitted as a Member of the
Company pursuant to this Agreement shall be entitled only to receive, to the
extent assigned, the distributions and the allocations to which the assignor
would be entitled under this Agreement, but shall have no right to vote or to
participate in the management and affairs of the Company, or to exercise any
of the rights of a Member.
9.9 LEGENDS
The legends that appears on the title page of this
Agreement shall be placed on any counterpart of this Agreement, any
certificate of interest issued by the Company and any other document or
instrument evidencing ownership of an Interest.
10. [DELIBERATELY OMITTED.]
11. DISSOLUTION
11.1 LIQUIDATING EVENTS
The Company shall dissolve and commence winding up and
liquidating upon the first to occur of any of the following ("Liquidating
Events"):
(a) The decision of all of the Members to dissolve, wind
up and liquidate the Company;
(b) The sale or transfer by the Company of all or
substantially all of its assets;
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(c) The occurrence of any other event that makes it
unlawful or impossible to carry on the business of the Company; or
(d) Entry of a decree of judicial dissolution pursuant
to the Act.
11.2 CONTINUING LIMITED LIABILITY COMPANY
Notwithstanding any provision of the Act, the Company shall
not dissolve prior to the occurrence of a Liquidating Event. The withdrawal,
resignation or retirement of any Member which the Company is required by
proper authority to recognize, or the death, expulsion, bankruptcy or
dissolution of any Member or the occurrence of any other event which
terminates the continued membership in the Company of any Member shall not be
a liquidating event.
11.3 WINDING UP
Upon the occurrence of a Liquidating Event:
(a) The Company shall continue solely for the purposes
of winding up its affairs in an orderly manner, liquidating its assets, and
satisfying the claims of its creditors and Members;
(b) No Member shall take any action that is
inconsistent with, or not necessary to or appropriate for, the winding up of
the Company's business and affairs;
(c) A person, who may but need not be a Member, shall
be unanimously selected by the Members (or by arbitration pursuant to the
terms hereof if agreement cannot be reached) as the Company's liquidator, and
shall be responsible for overseeing the winding up and dissolution of the
Company and shall take full account of the Company's liabilities and assets;
(d) No Manager shall receive any additional
compensation for any services performed pursuant to this Section 11.3;
(e) Unless all Members agree upon a sale among
themselves or a division in kind of assets, the assets of the Company shall
be sold in the usual course of business using reasonable business judgment;
and
(f) If any property of the Company is to be
distributed in kind upon the liquidation of the Company, such property shall
be liquidated as promptly as is consistent with obtaining its fair value.
11.4 APPLICATION OF PROCEEDS
The liquidation proceeds shall be applied and distributed,
to the extent sufficient to do so, in the following order:
First, to the payment and discharge of all of the Company's
debts and liabilities to creditors other than the Members;
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Second, to the payment and discharge of all of the
Company's debts and liabilities to the Members; and
The balance, if any, to the Members in accordance with
their Capital Accounts, after giving effect to all contributions,
distributions and allocations for all periods. Any in-kind distributions of
property of the Company shall be made among the Members pro rata in
proportion with their relative Capital Accounts.
11.5 NEGATIVE CAPITAL ACCOUNTS
If a Liquidation Event and a Tax Liquidation both occur,
then:
Distributions shall be made pursuant to this Article 11 to
the Members who have positive Capital Accounts; and
(a) If any Member has a deficit balance in his or its
Capital Account (after giving effect to all contributions, distributions and
allocations for all taxable years, including the year during which such
liquidation occurs), then such Member shall have no obligation to contribute
to the capital of the Company and the deficit shall not be considered a debt
owed to the Company or any other Person for any purpose whatsoever; and
(b) Section 14.19 (Negative Capital Accounts: Tax
Issues) shall apply.
11.6 DISCRETIONARY WITHHOLDING AND DISTRIBUTIONS
With the approval of the Board of Directors, a pro rata
portion of the distributions that would otherwise be made to the Members
pursuant to this Article 11 may be:
(a) Distributed to a trust established for the benefit
of the Members for the purposes of liquidating property of the Company,
collecting amounts owed to the Company, and paying any contingent or
unforeseen liabilities or obligations of the Company or of the Managers
arising out of or in connection with the Company, PROVIDED that assets of any
such trust shall be distributed to the Members from time to time, in the
reasonable discretion of the liquidator appointed hereunder, in the same
proportions as the amount distributed to such trust by the Company would
otherwise have been distributed to the Members pursuant to this Agreement; or
(b) Withheld to provide a reasonable reserve for
liabilities (contingent or otherwise) of the Company and to reflect the
unrealized portion of any installment obligations owed to the Company,
PROVIDED that such withheld amounts shall be distributed to the Members as
soon as practicable.
11.7 RIGHTS OF MEMBERS
Except as otherwise provided in this Agreement, the Members
shall look solely to the assets of the Company for the return of their
Capital Contributions and no Member shall have any right or power to demand
or receive property other than cash from the Company. No Member shall have
priority over any other Member as to the return of his or its Capital
Contribution, distributions or allocations.
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11.8 NOTICE OF DISSOLUTION
If a Liquidating Event occurs, the Company shall, within 60
days after the occurrence, provide written notice of the occurrence to each
of the Members and to all known creditors and claimants whose names appear on
the records of the Company.
11.9 CERTIFICATES OF DISSOLUTION
Upon the dissolution of the Company, the liquidator
appointed hereunder and, to the extent required, any other party hereto or
appointed hereunder, shall promptly sign and cause to be filed certificates
of dissolution in accordance with the Act and the laws of any other states or
jurisdictions in which the Company has filed its Articles of Organization or
qualified to transact intrastate business.
12. OTHER PROVISIONS
12.1 ENTIRE AGREEMENT
This Agreement, which includes material provisions on the
schedules hereto, each of which is incorporated in full herein, constitutes
the entire agreement pertaining to the organization of the Company and
completely supersedes all other agreements and all drafts, understandings,
negotiations and discussions, whether oral or written, among the parties
pertaining to the subject matter of this Agreement.
12.2 AMENDMENTS
No amendment or waiver of any provision of this Agreement
shall be effective unless and until an instrument reflecting the amendment or
waiver has received the approval of the Members.
The waiver by any party of a breach or default of any
provision of this Agreement shall not operate or be construed as a waiver of
any subsequent breach or default. A party's failure either to insist upon any
other party's strict performance of any provision of this Agreement or to
exercise any of the party's rights or remedies under this Agreement shall not
constitute a waiver of any default by the other party or of any right or
remedy of the non-defaulting party.
12.3 GOVERNING LAW
Delaware law shall govern this Agreement, any agreement to
amend or adopt this Agreement, and all disputes arising hereunder.
12.4 SEVERABLE PROVISIONS
The provisions of this Agreement are severable, and if any
provision is determined to be illegal or otherwise unenforceable, in whole or
in part, then the remaining provisions, and any partially unenforceable
provisions to the extent enforceable, shall nevertheless be binding and
enforceable and shall be construed as closely as possible to their original
meanings.
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12.5 BINDING EFFECT
Except as otherwise provided in this Agreement, every
provision of this Agreement shall bind and benefit the Members and their
respective heirs, legatees, legal representatives, successors, transferees and
assigns.
12.6 PARTIES IN INTEREST; THIRD PARTIES
All references in this Agreement to "parties" refer to the
parties to this Agreement. Nothing in this Agreement, expressed or implied,
is intended to confer on any Person or entity other than a party any right or
remedy under or by reason of this Agreement. The provisions of this Agreement
are not intended to benefit any creditor or other Person (other than a Member
in his or its capacity as a Member) to whom any debts, liabilities or
obligations are owed or who otherwise has a claim against the Company or any
Member; and no such creditor or other Person shall obtain any right under
this Agreement against the Company or any Member by reason of any such debt,
liability or obligation, or otherwise.
13. DEFINITIONS
Capitalized words and phrases used in this Agreement have the
following meanings
13.1 "ADJUSTED CAPITAL CONTRIBUTIONS"
means, as of any day with respect to a Member, such
Member's Capital Contributions, adjusted as follows:
(a) Increased by the amount of any Company liabilities
which, in connection with distributions to such Member pursuant to Section
3.1 (Distributions Generally) and 11.4 (Dissolution/Application of Proceeds)
are assumed by such Member or are secured by any property of the Company
distributed to such Member; and
(b) Reduced by the amount of cash and the Gross Asset
Value (as defined in Section 14.21) of any property of the Company
distributed to such Member pursuant to Sections 3.1 (Distributions Generally)
and 11.4 (Dissolution/Application of Proceeds) 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.
(c) If such Member Transfers all or any portion of his
Interest in accordance with the terms of this Agreement, his transferee shall
succeed to his or its Adjusted Capital Contributions to the extent it relates
to the Transferred Interest.
13.2 "AGREEMENT"
means this Operating Agreement, as amended from time to
time.
13.3 "BOARD OF DIRECTORS"
means the board established pursuant to Article 6 (Role of
the Board of Directors).
13.4 "BUSINESS DAY"
means a day that is not a Saturday, Sunday or public
holiday in the place to which the notice, consent or other communication is
sent.
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13.5 "CAPITAL ACCOUNT"
means, with respect to any Member, the Capital Account
maintained for such Person in accordance with the following provisions and
Section 14.21:
(a) To each Person's Capital Account there shall be
credited such Person's Capital Contribution, such Person's distributive share of
Profits and any items in the nature of income or gain which are specially
allocated pursuant to Sections 14.4 (Minimum Gain Chargeback) through 14.12
(Order of Application), and the amount of any of the Company's liabilities
assumed by such Person or which are secured by any property of the Company
distributed to such Person.
(b) To each Person's Capital Account there shall be
debited the amount of money and the Gross Asset Value of any property
distributed to such Person pursuant to any provision of this Agreement, such
Person's distributive share of Losses and any items in the nature of expenses
or losses which are specially allocated pursuant to Sections 14.4 through
14.12 and the amount of any liabilities of such Person assumed by the Company
or which are secured by any property contributed by such Person to the
Company.
(c) If any Interest is Transferred in accordance with
this Agreement, the transferee shall succeed to the Capital Account of the
transferor to the extent it relates to the Transferred Interest.
13.6 "CAPITAL CONTRIBUTION"
means, with respect to any Member, the amount of money and
the gross fair market value of any property (other than money) contributed
pursuant to this Agreement to the controlled by such a person or entity.
13.7 "CODE"
means the Internal Revenue Code of 1986, as amended from
time to time.
13.8 "COMPANY"
means the California limited liability company created and
pursuant to this Agreement and the limited liability company continuing the
business in the event of dissolution as provided in Section 11.2
(Dissolution).
13.9 "INITIAL MEMBER"
has the meaning set forth for such term in the introductory
paragraph of this Agreement.
13.10 "INTEREST"
means, with respect to any Member, the rights of the Member
in the Company, including the right to receive distributions from the
Company. In the event any Interest is Transferred in accordance with the
provisions of this Agreement, the transferee of such interest shall succeed
to the Interest of his or its transferor to the extent it is Transferred.
13.11 "LIQUIDATING EVENT"
has the meaning set forth in Section 11.1.
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13.12 "LLC PERCENTAGE"
means, with respect to any Member at any time, the
proportion expressed as a percentage of such Member's Interests at such time
to the aggregate number of all LLC Interests then outstanding. If any
Interest is Transferred in accordance with the provisions of this Agreement,
the transferee of such Interest shall succeed to the portion of the
transferor's LLC Percentage represented by the Transferred Interest.
13.13 "MANAGERS"
means the Persons serving as managers of the Company within
the meaning of the Act and pursuant to the terms and conditions of this
Agreement.
13.14 "MEMBER"
means any Person who is (a) the Initial Member, as
designated in Section 2.1, or subsequently admitted as a Member pursuant to
this Agreement, AND (b) who owns an Interest. "Members" means all such
Persons.
13.15 "PERSON"
means any individual, corporation, partnership, limited
liability company, joint venture, association, joint stock company, trust
(including any beneficiary of the trust), unincorporated organization, or
government or any agency or political subdivision.
13.16 "PROFITS" and "LOSSES"
means, for each fiscal year or other period, an amount
equal to the Company's taxable income or loss for such year or period,
determined in accordance with Section 14.21.
13.17 "TRANSFER"
(a) means, as a noun, any voluntary or involuntary
assignment, transfer, sale, pledge, hypothecation or other disposition, and,
as a verb, voluntarily or involuntarily to assign, transfer, sell, pledge,
hypothecate or otherwise dispose of or to obtain a charging order against. A
"Transfer" includes a gift or transmutation of an Interest into another type
of property interest or into an Interest jointly owned with another Person,
including a gift or transmutation of a separate property Interest into a
community or other joint property Interest with a spouse or another Person,
or the partition of a community or other joint property Interest (whether
voluntarily, pursuant to a divorce proceeding or otherwise).
14. ADDITIONAL TAX PROVISIONS
14.1 TAX CLASSIFICATION
The Members intend that the Company shall be classified as
a partnership for federal income tax purposes under Code Section 7701(a)(2)
and the corresponding provisions, if any, of state and local law.
14.2 PROFITS
After giving effect to the special allocations in Sections
14.4 (Minimum Gain Chargeback) through 14.12 (Order of Application), Profits
for any fiscal year or other period shall be allocated to the Members in
proportion to their LLC Percentages.
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14.3 LOSSES AND OTHER ITEMS
After giving effect to the special allocations in Sections
14.4 (Minimum Gain Chargeback) through 14.12 (Order of Application), Losses
for any fiscal year or other period shall be allocated in the following order
and priority:
(a) Except as provided in Section 14.3(b), Losses
shall be allocated to the Members in proportion to their LLC Percentages.
(b) The Losses allocated pursuant to Section 14.3(a)
shall not exceed the maximum amount of Losses that can be so allocated
without causing any Member to have an Adjusted Capital Account Deficit at the
end of any fiscal year. If some but not all of the Members would have
Adjusted Capital Account Deficits as a consequence of an allocation of Losses
pursuant to Section 14.3(a), the limitation set forth in this Section 14.3(b)
shall be applied on a Member-by-Member basis so as to allocate the maximum
permissible Losses to each Member under Section 1.704-1(b)(2)(ii)(d) of the
Regulations.
Except as otherwise provided in this Agreement, all items
of the Company income, gain, loss, deduction, credit and any other
allocations not otherwise provided for shall be divided among the Members in
the same proportions as they share Losses for the period.
14.4 MINIMUM GAIN CHARGEBACK
Except as provided in Section 1.704-2(f) of the
Regulations, notwithstanding any other provision of this Article 14, if there
is a net decrease in Minimum Gain during any fiscal year of the Company, each
Member shall be specially allocated items of Company income and gain for such
year (and, if necessary, subsequent years) in an amount equal to the portion
of such Member's share of the net decrease in Minimum Gain, determined in
accordance with Section 1.704-2(g) of the Regulations. Allocations pursuant
to the previous sentence shall be made in proportion to the respective
amounts required to be allocated to each Member pursuant to such Regulations.
The items to be so allocated shall be determined in accordance with Sections
1.704-2(f)(6) and 1.704-2(j)(2) of the Regulations. This Section 14.4 is
intended to comply with the minimum gain chargeback requirement in Section
1.704-2(f) of the Regulations and shall be interpreted consistently with it.
14.5 MEMBER NONRECOURSE DEBT MINIMUM GAIN
Except as provided in Section 1.704-2(i)(4) of the
Regulations, notwithstanding any other provision of this Article 14 except
Section 14.4, if there is a net decrease in Member Nonrecourse Debt Minimum
Gain attributable to a Member Nonrecourse Debt during any Company fiscal
year, each Member who has a share of the Member Nonrecourse Debt Minimum Gain
attributable to such Member Nonrecourse Debt, determined in accordance with
Section 1.704-2(i)(5) of the Regulations, shall be specially allocated items
of Company income and gain for such year (and, if necessary, subsequent
years) in an amount equal to the portion of such Member's share of the net
decrease in Member Nonrecourse Debt Minimum Gain attributable to such Member
Nonrecourse Debt, determined in accordance with Section 1.704-2(i)(4) of the
Regulations. Allocations pursuant to the previous sentence shall be made in
proportion to the respective amounts required to be allocated to each Member
pursuant to such Regulations. The items to be so allocated shall be
determined in accordance with Sections 1.704-2(i)(4) and 1.704-2(j)(2) of the
Regulations. This Section 14.5 is intended to comply with the minimum gain
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chargeback requirement in Section 1.704-2(i)(4) of the Regulations and shall
be interpreted consistently with it.
14.6 QUALIFIED INCOME OFFSET
In the event any Member unexpectedly receives any
adjustments, allocations or distributions described in Section
1.704-1(b)(2)(ii)(d)(4), (5) or (6) of the Regulations, items of Company
income and gain shall be specially allocated to each such Member in an amount
and manner sufficient to eliminate, to the extent required by the
Regulations, the Adjusted Capital Account Deficit of such Member as quickly
as possible, PROVIDED that an allocation pursuant to this Section 14.6 shall
be made only if and to the extent that such Member would have an Adjusted
Capital Account Deficit after all other allocations provided for in this
Section 14.6 have been tentatively made as if this Section 14.6 were not in
the Agreement.
14.7 GROSS INCOME ALLOCATION
In the event any Member has a deficit Capital Account at
the end of any Company fiscal year which is in excess of the sum of (1) the
amount such Member is obligated to restore pursuant to any provision of this
Agreement and (2) the amount such Member is deemed to be obligated to restore
pursuant to the penultimate sentences of Sections 1.704-2(g)(1) and
1.704-2(i)(5) of the Regulations, each such Member shall be specially
allocated items of Company income and gain in the amount of such excess as
quickly as possible, PROVIDED that an allocation pursuant to this Section
14.7 shall be made only if and to the extent that such Member would have a
deficit Capital Account in excess of such sum after all other allocations
provided for in Sections 14.4 through 14.10 have been tentatively made as if
this Section 14.7 were not in the Agreement.
14.8 NONRECOURSE DEDUCTIONS
Nonrecourse Deductions for any fiscal year or other period
shall be specially allocated among the Members in proportion to their LLC
Percentages.
14.9 MEMBER NONRECOURSE DEDUCTIONS
Any Member Nonrecourse Deductions for any fiscal year or
other period shall be specially allocated to the Member who bears the
economic risk of loss with respect to the Member Nonrecourse Debt to which
such Member Nonrecourse Deductions are attributable in accordance with
Section 1.704-2(i)(1) of the Regulations.
14.10 CODE SECTION 754 ADJUSTMENTS
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,
pursuant to Section 1.704-1(b)(2)(iv)(m)(2) or 1.704-1(b)(2)(iv)(m)(4) of the
Regulations, to be taken into account in determining Capital Accounts as the
result of a distribution to a Member in complete liquidation of his or its
interest in the Company, the amount of such adjustment to Capital Accounts
shall be treated as an item of gain (if the adjustment increases the basis of
the asset) or loss (if the adjustment decreases such basis) and such gain or
loss shall be specially allocated to the Members in accordance with their
Interests if such Section 1.704-1(b)(2)(iv)(m)(2) applies, or, if such
Section 1.704-1(b)(2)(m)(4) applies, to the Member to whom such distribution
was made.
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14.11 CURATIVE ALLOCATIONS
The allocations in the last sentence of the first paragraph
of Section 14.3 (Losses and Other Items) and Sections 14.4 (Minimum Gain
Chargeback), 14.5 (Member Nonrecourse Debt Minimum Gain), 14.6 (Qualified
Income Offset), 14.7 (Gross Income Allocation), 14.8 (Nonrecourse
Deductions), 14.9 (Member Nonrecourse Deductions) and 14.10 (Code Section 754
Adjustments) (the "REGULATORY ALLOCATIONS") are intended to comply with
certain requirements of the Regulations. It is the intent of the Members
that, to the extent possible, all Regulatory Allocations shall be offset
either with other Regulatory Allocations or with special allocations of other
items of Company income, gain, loss or deduction pursuant to this Section
14.11. Therefore, notwithstanding any other provision of this Article 14
(other than the Regulatory Allocations), the Managers shall make such
offsetting special allocations of Company income, gain, loss or deduction in
whatever manner they determine appropriate so that, after such offsetting
allocations are made, each Member's Capital Account balance is, to the extent
possible, equal to the Capital Account balance such Member would have had if
the Regulatory Allocations were not part of the Agreement and all Company
items were allocated pursuant to Section 14.2. In exercising their discretion
under this Section 14.11, the Managers shall take into account future
Regulatory Allocations under Sections 14.4 and 14.5 that, although not yet
made, are likely to offset other Regulatory Allocations previously made under
Sections 14.8 and 14.9.
14.12 ORDER OF APPLICATION
Sections 14.4 through 14.11 shall be applied in the order
in which they are set forth in this Agreement.
14.13 ALLOCATION METHOD
For purposes of determining the Profits, Losses or any
other items allocable to any period, Profits, Losses and any such other items
shall be determined on a daily, monthly, or other basis, as determined by the
Managers using any permissible method under Code Section 706 and the
Regulations under it.
14.14 EXCESS NONRECOURSE LIABILITIES
Solely for purposes of determining a Member's proportionate
share of the "excess nonrecourse liabilities" of the Company within the
meaning of Section 1.752-3(a)(3) of the Regulations, the Members' interests
in the Company's Profits are in proportion to their LLC Percentages.
14.15 SOURCE OF DISTRIBUTIONS
To the extent permitted by Section 1.704-2(h)(3) of the
Regulations, the Managers shall endeavor to treat cash distributions to
Members as having been made from the proceeds of Nonrecourse Liabilities or
Member Nonrecourse Debt only to the extent that such distributions would
cause or increase an Adjusted Capital Account Deficit for any Member.
14.16 TAX ALLOCATIONS: CODE SECTION 704(c)
In accordance with Code Section 704(c), income, gain, loss
and deduction with respect to any property contributed to the capital of the
Company shall, solely for tax purposes, be allocated among the Members so as
to take account of any variation between the adjusted
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basis of such property to the Company for federal income tax purposes and its
initial Gross Asset Value (computed in accordance with Section 14.22(d)(1)).
If the Gross Asset Value of any Company asset is adjusted
pursuant to Section 14.22(d)(3), subsequent allocations of income, gain, loss
and deduction with respect to such asset shall take account of any variation
between the adjusted basis of such asset for federal income tax purposes and
its Gross Asset Value in the same manner as under Code Section 704(c) and the
Regulations under it.
Any elections or other decisions relating to such
allocations shall be made by the Managers in any manner that reasonably
reflects the purpose and intention of this Agreement. Allocations pursuant to
this Section 14.16 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
Person's Capital Account or share of Profits, Losses, other items or
distributions pursuant to any provision of this Agreement.
14.17 DISTRIBUTIONS AND ALLOCATIONS IN RESPECT TO TRANSFERRED
INTERESTS
If any Interest is Transferred during any accounting period
in compliance with Article 8 (Restrictions on Transfer), then Profits,
Losses, each item of Profit and Loss and all other items attributable to the
Transferred Interest for such period shall be divided and allocated between
the transferor and the transferee by taking into account their varying
Interests during the period in accordance with Code Section 706(d), using any
conventions permitted by law and selected by the Managers.
All distributions on or before the date of such Transfer
shall be made to the transferor, and all distributions thereafter shall be
made to the transferee.
14.18 TAX CHARACTERIZATION OF PAYMENTS TO A SELLING PARTNER
The Managers shall, to the greatest extent allowed by law,
determine the tax classification of all payments by the Company or a Member
to a Selling Member. The parties intend that such payments shall, to the
extent possible, be deductible to the Company and ordinary income to the
Selling Member.
14.19 NEGATIVE CAPITAL ACCOUNTS: TAX ISSUES
When a Tax Liquidation occurs, any distributions required
by Section 11.5((a)) shall be made in compliance with Section
1.704-1(b)(2)(ii)(b)(2) of the Regulations.
14.20 TAX MATTERS PARTNER
The Initial Member shall be the Person designated to
receive all notices from the Internal Revenue Service and other tax
authorities that pertain to the tax affairs of the Company, and shall be the
"tax matters partner" for purposes of Code Sections 6221 through 6233. Each
party agrees to be bound by those Code Sections. The "tax matters partner"
shall provide to each other Member in a timely manner the notices required to
be provided by Section 301.6223(g)-1T of the Regulations and the
corresponding provisions of state tax law. The "tax matters partner" shall be
reimbursed by the Company for expenses reasonably incurred in connection with
his work as "tax matters partner." The "tax matters partner" shall not be
otherwise compensated for
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such work; and if he or it resigns as "tax matters partner" or ceases to be a
Member, then the Members shall select another "tax matters partner."
14.21 TAX DEFINITIONS
14.21(a) "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 fiscal year, after giving effect to the following adjustments:
(1) Credit to such Capital Account any
amounts which such Member is obligated to restore pursuant to any provision
of this Agreement or is deemed to be obligated to restore pursuant to the
penultimate sentences of Regulations Sections 1.704-2(g)(1) and
1.704-2(i)(5); and
(2) Debit to such Capital Account the items
described in Sections 1.704-1(b)(2)(ii)(d)(4), (5) and (6) of the Regulations.
The foregoing definition of Adjusted Capital
Account Deficit is intended to comply with the provisions of Section
1.704-1(b)(2)(ii)(d) of the Regulations and shall be interpreted consistently
with it.
14.21(b) CAPITAL ACCOUNTS: TAX ISSUES
In determining the amount of any liability for
purposes of Sections 13.1(a), 13.1(b), 13.5(a) and 13.5(b) there shall be
taken into account Code Section 752(c) and any other applicable provisions of
the Code and Regulations.
The provisions of Section 13.5 (Capital Account)
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
Regulations, and shall be interpreted and applied in a manner consistent with
it.
If the Managers determine that to comply with the
Regulations it is prudent to modify the manner in which the Capital Accounts,
or any debits or credits to the Capital Accounts (including debits or credits
relating to liabilities which are secured by property contributed to or
distributed from the Company or which are assumed by the Company or Members),
are computed, they may make such modification, PROVIDED that it is not likely
to have a material effect on the amounts distributable to any Member pursuant
to Article 10 (Dissolution) upon the dissolution of the Company.
The Managers also shall (a) make any adjustments
that are necessary or appropriate to maintain equality between the Capital
Accounts of the Members and the amount of Company capital reflected on the
Company's balance sheet, as computed for book purposes, in accordance with
Section 1.704-1(b)(2)(iv)(g) of the Regulations, and (b) make any appropriate
modifications if unanticipated events might otherwise cause this Agreement
not to comply with Section 1.704-1(b) of the Regulations.
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14.21(c) "DEPRECIATION"
means, for each fiscal year or other period, an
amount equal to the depreciation, amortization or other cost recovery
deduction allowable with respect to an asset for such year or other period,
except that if the Gross Asset Value of an asset differs from its adjusted
basis for federal income tax purposes at the beginning of such year or other
period, Depreciation shall be an amount which bears the same ratio to such
beginning Gross Asset Value as the federal income tax depreciation,
amortization or other cost recovery deduction for such year or other period
bears to such beginning adjusted tax basis; PROVIDED, HOWEVER, that if the
federal income tax depreciation, amortization or other cost recovery
deduction for such year is zero, Depreciation shall be determined with
reference to such beginning Gross Asset Value using any reasonable method
selected by the Managers.
14.21(d) "GROSS ASSET VALUE"
means, with respect to any asset, the asset's
adjusted basis for federal income tax purposes, except as follows:
(1) The initial Gross Asset Value of any
asset contributed by a Member to the Company shall be the gross fair market
value of such asset, as determined by the contributing Member and the Company;
(2) The Gross Asset Value of any the Company
asset distributed to any Member shall be the asset's gross fair market value
on the date of distribution;
(3) The Gross Asset Values of all the Company
assets shall be adjusted to equal their respective gross fair market values,
as determined by the Managers, as of the following times: (a) the acquisition
of an additional Interest by any new or existing Member in exchange for more
than a DE MINIMIS Capital Contribution; (b) the distribution by the Company
to a Member of more than a DE MINIMIS amount of property as consideration for
an interest in the Company if such adjustment is necessary or appropriate to
reflect the relative economic interests of the Members in the Company; and
(c) the Tax Liquidation of the Company; PROVIDED, HOWEVER that adjustments
pursuant to clauses (a) and (b) above shall be made only if the Managers
reasonably determine that such adjustments are necessary or appropriate to
reflect the relative economic interests of the Members in the Company.
(4) The Gross Asset Values of the property of
the Company shall be increased (or decreased) to reflect any adjustments to
the adjusted basis of such assets pursuant to Code Section 734(b) or Code
Section 743(b), but only to the extent that such adjustments are taken into
account in determining Capital Accounts pursuant to Section
1.704-1(b)(2)(iv)(m) of the Regulations and Sections 14.10 (Code Section 754
Adjustments) and 14.22(j)(6) (Profits and Losses); PROVIDED, HOWEVER, that
Gross Asset Values shall not be adjusted pursuant to this Section 14.22(d)(4)
to the extent the Managers determine that an adjustment pursuant to Section
14.22(d) is necessary or appropriate in connection with a transaction that
would otherwise result in an adjustment pursuant to this Section 14.22(d)(4).
(5) After the Gross Asset Value of an asset
has been determined or adjusted pursuant to Section 14.22(d)(1), (3) or (4),
such Gross Asset Value shall be adjusted by
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the Depreciation taken into account with respect to such asset for purposes
of computing Profits and Losses.
14.21(e) "MEMBER NONRECOURSE DEBT"
has the meaning set forth in Section 1.704-2(b)(4)
of the Regulations.
14.21(f) "MEMBER NONRECOURSE DEBT MINIMUM GAIN"
means an amount, with respect to each Member
Nonrecourse Debt, equal to the Minimum Gain that would result if such Member
Nonrecourse Debt were treated as a Nonrecourse Liability, determined in
accordance with Section 1.704-2(i)(3) of the Regulations.
14.21(g) "MEMBER NONRECOURSE DEDUCTIONS"
has the meaning set forth in Sections
1.704-2(i)(1) and 1.704-2(i)(2) of the Regulations.
14.21(h) "MINIMUM GAIN"
has the meaning set forth in Sections
1.704-2(b)(2) and 1.704-2(d) of the Regulations.
14.21(i) "NONRECOURSE DEDUCTIONS"
has the meaning set forth in Section 1.704-2(b)(1)
of the Regulations.
14.21(j) "NONRECOURSE LIABILITY"
has the meaning set forth in Section 1.704-2(b)(3)
of the Regulations.
14.21(k) "PROFITS" and "LOSSES"
under Section 13.16 shall be 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:
(1) Any income of the Company that is exempt from
federal income tax and not otherwise taken into account in computing Profits
or Losses pursuant to this Section 14.22(j) shall be added to such taxable
income or loss;
(2) Any expenditures of the Company described in
Code Section 705(a)(2)(B) or treated as Code Section 705(a)(2)(B)
expenditures pursuant to Section 1.704-1(b)(2)(iv)(i) of the Regulations, and
not otherwise taken into account in computing Profits or Losses pursuant to
this Section 14.22(j) shall be subtracted from such taxable income or loss;
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(3) If the Gross Asset Value of any Company asset
is adjusted pursuant to Section 14.22(d)(3) or (4), the amount of such
adjustment shall be taken into account as gain or loss from the disposition
of such asset for purposes of computing Profits or Losses;
(4) Gain or loss resulting from any disposition of
property of the Company with respect to which gain or loss is recognized for
federal income tax purposes shall be computed by reference to the Gross Asset
Value of such property disposed of, notwithstanding that the adjusted tax
basis of such property differs from its Gross Asset Value;
(5) In lieu of the depreciation, amortization and
other cost recovery deductions taken into account in computing such taxable
income or loss, there shall be taken into account Depreciation for such
fiscal year or other period, computed in accordance with Section 14.22(c)
(Depreciation);
(6) 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 by Section 1.704-1(b)(2)(iv)(m)(4) of the Regulations to be taken
into account in determining Capital Accounts as a result of a distribution
other than in liquidation of a Member's interest in the Company, the amount
of such adjustment shall be treated as an item of gain (if the adjustment
increases the basis of the asset) or loss (if the adjustment decreases the
basis of the asset) from the disposition of the asset and shall be taken into
account for purposes of computing Profits or Losses; and
(7) Notwithstanding any other provision of this
Section 14.22(j), any items which are specially allocated pursuant to
Sections 14.4 (Minimum Gain Chargeback) through 14.12 (Order of Application)
shall not be taken into account in computing Profits or Losses.
The amounts of the items of Company income, gain,
loss, or deduction available to be specifically allocated pursuant to
Sections 14.4 (Minimum Gain Chargeback) through 14.12 (Order of Application),
shall be determined by applying rules analogous to those set forth in this
Section 14.22(j).
14.21(l) "REGULATIONS"
means the Income Tax Regulations promulgated under
the Code, as such regulations may be amended from time to time.
14.21(m) "TAX LIQUIDATION"
means the liquidation of the Company within the
meaning of Section 1.704-1(b)(2)(ii)(G) of the Regulations.
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THIS AGREEMENT AFFECTS IMPORTANT RIGHTS. EACH PARTY REPRESENTS TO EACH OTHER
PARTY THAT HE OR IT HAS READ THIS AGREEMENT AND HAS HAD THE OPPORTUNITY TO
SEEK INDEPENDENT TAX AND LEGAL ADVICE CONCERNING THIS AGREEMENT.
INITIAL MEMBER:
DeCRANE AIRCRAFT HOLDINGS, INC.
By:
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EXHIBIT 21.1
LIST OF SUBSIDIARIES OF REGISTRANT
SUBSIDIARIES OF DECRANE HOLDINGS CO.
DECRANE AIRCRAFT HOLDINGS, INC., a Delaware corporation.
SUBSIDIARIES OF DECRANE AIRCRAFT HOLDINGS, INC.
AEROSPACE DISPLAY SYSTEMS, INC., a Delaware corporation.
AUDIO INTERNATIONAL, INC., an Arkansas corporation.
AVTECH CORPORATION, a Washington corporation.
CARL F. BOOTH & CO., LLC, a Delaware limited liability company.
CORY COMPONENTS, INC., a California corporation.
CUSTOM WOODWORK & PLASTICES, INC., a Delaware corporation.
DAH-IP HOLDINGS, INC., a Delaware corporation.
DAH-IP INFINITY, INC., a Delaware corporation.
DECRANE AIRCRAFT INTERNATIONAL SALES, INC., a Barbados corporation.
DETTMERS INDUSTRIES, INC., a Delaware corporation.
ELSINORE AEROSPACE SERVICES, INC., a California corporation.
ELSINORE ENGINEERING, INC., a Delaware corporation.
FLIGHT REFUELING, INC., a Maryland corporation.
HOLLINGSEAD INTERNATIONAL, INC., a California corporation.
HOLLINGSEAD INTERNATIONAL, LTD., a UK company.
INTERNATIONAL CUSTOM INTERIORS, INC., a Florida corporation.
PATRICK AIRCRAFT TANK SYSTEMS, INC., a Maryland corporation.
PATS AIRCRAFT AND ENGINEERING CORPORATION, a Maryland corporation.
PATS SUPPORT, INC., a Maryland corporation.
PATS, INC., a Maryland corporation.
PCI NEWCO., INC., a Delaware Corporation.
PPI HOLDINGS, INC., a Kansas corporation.
PRECISION PATTERN, INC., a Kansas corporation.
THE INFINITY PARTNERS, LTD., a Texas limited partnership.
TRI-STAR ELECTRONICS EUROPE S.A., a Swiss company.
TRI-STAR ELECTRONICS INTERNATIONAL, INC., a California corporation.
TRI-STAR TECHNOLOGIES, a California general partnership.
