KIRTON McCONKIE Richard J. Armstrong, #7461 Brinton M. Wilkins, #10713 60 East South Temple, Suite 1800 Salt Lake City, Utah 84111 Telephone: (801) 328-3600 Facsimile: (801) 212-2147
Attorneys for Plaintiff
IN THE THIRD JUDICIAL DISTRICT COURT
FOR THE STATE OF UTAH IN AND FOR SALT LAKE COUNTY
) XANGO, LLC, a Utah limited liability ) company, ) ) COMPLAINT AND JURY DEMAND Plaintiffs, ) ) vs. ) Civil No. ) BRYAN DAVIS, an individual; and BD ) Judge LANDMARK HOLDINGS LLC, a Utah ) limited liability company, JOHN DOES ) 1-25. ) ) Defendants. ) )
Plaintiff complains of Defendants and alleges as follows:
I. PARTIES
1. XanGo, LLC (the "Company" and "XanGo") is a Utah limited liability company doing business in the State of Utah.
2. Bryan Davis is a resident of Utah County, and a licensed Utah attorney. 3. BD Landmark Holdings, LLC is a Utah single member limited liability company and is authorized to transact business in the State of Utah.
II. JURISDICTION AND VENUE
4. This Court has jurisdiction to hear this matter and over the parties, and venue is proper in this Court pursuant to Article 9.13 of the Second Amended and Restated Operating
Agreement of XanGo, LLC. According to that Article, Mr. Davis "[c]onsents, submits and subjects himself . . . to the exclusive personal and subject matter jurisdiction of the . . . Utah
State courts located in Salt Lake County, Utah."
III. GENERAL ALLEGATIONS
A. XanGo and Its Independent Distributors.
5. XanGo is a consumer direct-marketing company, commonly known and referred to as a multi-level marketing or network marketing company.
6. XanGo's business consists of manufacturing nutritional juices, health food, and health-related products, and then marketing these products through a network of independent contractors referred to as distributors.
7. Distributors open accounts for customers to buy products directly from the
Company. Distributors also recruit and enroll other individuals as distributors to build sales teams to engage in similar marketing activities.
8. Each distributor has the potential to create a multi-level customer base over which it has oversight. Each distributor also receives commission payments reflecting a certain percentage of the income derived from the sales made by other distributors in his or her downline. 2 9. Because of the Company's unique business model, downlines — particularly those established and maintained by high-level distributors — are highly valuable.
10. Information regarding the Company's downlines is rigorously and systematically protected and is not made public.
11. Information regarding downlines is, in short, proprietary confidential information and/or a trade secret.
12. The Company works to ensure that its distributors remain with the Company and that the Company's reputation and goodwill remains strong, in order to encourage its distributors to perform to the highest possible standards and to prevent distributors from deserting the
Company.
B. Mr. Davis is employed at XanGo from 2002 to 2012.
13. Since its founding in 2002, the Company has proved very successful and has become an industry leader.
14. Mr. Davis is a founder of XanGo and has been involved with the Company since its inception in 2002.
15. Since the Company's founding, Mr. Davis has served on the Company's board of managers.
16. In addition to serving on its board of managers, the Company employed Mr.
Davis for more than ten (10) years. As an employee, he has been involved in overseeing and directing the Company's legal affairs, as well as international relations, security, distributor compliance and human resources.
3 17. As a member of the board of managers, a Company employee, and a Company lawyer, Mr. Davis has been privy to an enormous amount of private and confidential information regarding the Company.
18. As an attorney for XanGo and as one of its founding managers, Mr. Davis is a party to one or more confidentiality and non-disclosure agreements where he agreed that he would not disclose XanGo's financial and other private information.
19. In a sworn statement dated July 5, 2007, Mr. Davis stated: "I believe it is very important (both to XanGo and its Members) that such information remain confidential and private."
20. Indeed, Mr. Davis himself has played a central role in many, if not all, of the major decisions regarding the Company since its founding.
C. Mr. Davis is sued in the Angel Investors case.
21. In 2007, XanGo was sued by minority investors alleging mismanagement of
XanGo, waste of corporate assets, and oppression of minority investors and members ("Prior
XanGo Litigation"). Mr. Davis was a party to the Prior XanGo Litigation as an individual defendant.
22. In a sworn statement filed in the Prior XanGo Litigation, Mr. Davis testified: "I believe . . . the actions of other members of XanGo's management team, hav[e] been highly effective, successful, and in the best interest of [XanGo]."
23. Mr. Davis also testified that "[w]hether amounts paid as salary, bonuses, commissions, or other benefits, I believe the total compensation paid to . . . other members of
4 XanGo's management team, is reasonable and, if anything, below the compensation paid to similarly situated executives."
24. Mr. Davis also testified: "In my opinion, XanGo's success as a company is primarly tied to the efforts of our management team."
25. The Prior XanGo Litigation settled on or about August 8, 2010.
D. Mr. Davis commits malpractice in his capacity as the Company's lead attorney.
26. One of Mr. Davis' first assignments as the Company's attorney was drafting
XanGo's original operating agreement, a true and correct copy of which is attached hereto as
Exhibit "A".
27. Many of the claims in the Prior XanGo Litigation arose as a direct and proximate result of XanGo's failure to have a properly drafted and signed operating agreement that created and otherwise set forth the issuance and governance of membership interests.
28. On December 4, 2008, Mr. Davis admitted that instead of drafting the operating agreement, he used a "cookie cutter" form found in a binder.
29. At other times, Mr. Davis stated that he drafted the operating agreement from a form that he found online.
30. Mr. Davis has admitted under oath that he did not advise his client or otherwise communicate with his client about any specifics in relation to the drafting of the operating agreement, the creation of membership interests, or the proper treatment of minority investors in the operating agreement.
31. In drafting the original operating agreement, Mr. Davis included provisions that provided himself a substantial ownership interest in the Company. 5 32. Mr. Davis did not advise his client about this conflict of interest prior to agreeing to draft the original operating agreement.
33. Mr. Davis acted negligently and engaged in legal malpractice in his representation of XanGo's interests in relation to drafting the original operating agreement.
34. The acts and failures to act described herein constituted a failure to use the same degree of care, skill, judgment and diligence used by reasonably prudent attorneys under similar circumstances.
35. The acts and failures to act described herein were the actual cause of injury and harm to XanGo, in that but for Mr. Davis' malpractice in failing to properly advise XanGo and in engaging in other negligence in relation to the original operating agreement, the Prior XanGo
Litigation as it related to membership interests of investors would have likely been avoided.
36. The acts and failures to act described herein were the proximate cause of injury and harm to XanGo in that a reasonable likelihood exists that the claims in the direct action relative to the original operating agreement in the Prior XanGo Litigation would have been avoided and altogether dismissed with prejudice.
37. As Mr. Davis' malpractice relates to his drafting of the operating agreement, such negligence and breach of fiduciary duty culminated on August 8, 2010, when XanGo settled the
Prior XanGo Litigation.
38. As an attorney for XanGo, Mr. Davis has ethical obligations relative to keeping confidential communications he has had with XanGo in relation to his advising his client.
39. Mr. Davis has breached this ethical obligation by disclosing confidential information about XanGo to employees, distributors and competitors. 6 40. Mr. Davis has a pattern of breaching his fiduciary duties and disclosing client confidences.
E. Mr. Davis signs the Second Amended Operating Agreement
41. On or about May 15, 2009, Mr. Davis signed the Company's Second Amended and Restated Operating Agreement (the "Second Operating Agreement"), a true and correct copy of which is attached hereto as Exhibit "B."
42. As set forth in the Operating Agreement's Section 5.03(a), Mr. Davis is identified as one of the Company's Class "A" Managers.
43. Mr. Davis and BD Landmark Holdings, LLC, own 116,150 Class "A" ownership
Units in the Company.
44. The Operating Agreement states that no manager "will be liable to the Company or any Member for an act of omission done in good faith to promote the Company's best interests, unless the act or omission constitutes gross negligence, willful misconduct or a knowing violation of law." See Second Operating Agreement at Article 5.07(b).
45. In performing his duties, Mr. Davis is entitled to rely in good faith on information, opinions, reports, or statements in executing his duties as a manager. See Second
Operating Agreement at Article 5.07(b). This same provision governed Mr. Davis' performance of his duties at XanGo under the first Amended and Restated Operating Agreement.
46. The Second Operating Agreement imposes specific obligations upon managers like Mr. Davis regarding confidential information.
47. According to Article 8.01(b), "Confidential Information" includes information regarding: (1) the operation of the business; (2) marketing, sales, financing, construction and 7 development plans; (3) strategies and techniques; (4) potential development sites and projects;
(5) marketing research; (6) designs, drawings and formulas; (7) financial data; (8) the identity of actual or potential suppliers, contractors, subcontractors, financing sources, distributors, buyers, and other customers, and other business contacts; (9) technology; (10) trade secrets; and (11) other proprietary business information.
48. According to Article 8.01(d), all managers agree that all "trade secrets and other
Confidential Information relating to the [Company] that is provided to . . . Managers is provided or revealed in trust and confidence for their use solely in connection with the [Company] for the benefit of the Company." According to this article, all managers agreed to abide by "restrictive covenants" outlined in Article 8.
49. Article 8.01(f) states that "each Manager represents and agrees that he possesses special skills and expertise and that the value of the Company depends to a significant degree on his use of such skills or experience."
50. Article 8.02 of the Operating Agreement sets forth several specific restrictive covenants. According to these restrictive covenants, Mr. Davis "warrant[ed], agree[d] and covenant[ed]," among other things, that:
a. "He will not at any time or in any manner, either directly or indirectly, (A)
divulge, disclose, or communicate to any person any Confidential Information
concerning any matters affecting or relating to the Business, or (B) use in any
manner whatsoever Confidential Information concerning any matters affecting or
relating to the Business other than for the exclusive benefit of the Company,
unless such disclosure or use is authorized in writing by the Company"; 8 b. "He will keep all Confidential Information secret and confidential and take all
measures necessary to maintain the confidentiality, secrecy, and security of all
Confidential Information"; and
c. "He will not use any Confidential Information to the detriment of the Company".
51. According to Article 8.02(b) of the Operating Agreement, Mr. Davis also agreed that "each item of Confidential Information relating to the Company is important and material to the Company, and that the disclosure of such Confidential Information could or will cause the
Business or the Company to suffer irreparable injury."
52. Article 8.02(c) states that "[t]he obligations of each Member and Manager under this Article 8.02 shall continue in full force and effect for a period of five years after the date he ceases for any reason to be a Member or Manager of the Company."
53. Article 2.08 of the Operating Agreement states that "the Company shall be under no obligation to redeem or reacquire the Units of any Member prior to Dissolution of the
Company" absent an agreement to the contrary.
54. Article 3.09 of the Operating Agreement states similarly that "the Company may, but need not, redeem and purchase from the [dissociated] Member . . . all or any portion of the
Member[`] Redeemable Units . . . ."
F. Mr. Davis fails to properly register the Company's product in Europe.
55. Shortly after its launch in the United States, XanGo set out to do business in
Europe.
9 56. To this end, Mr. Davis was put in charge of the Company's international operations, which included properly registering XanGo's products with the appropriate authorities.
57. Mr. Davis had asserted he had prior international experience and knowledge relating to product registration, and agreed in the Second Operating Agreement that he possessed such expertise.
58. In January 2004, under the direction and strategy of Mr. Davis, XanGo launched its products into the European Union ("EU") beginning with the UK market.
59. In order to legally conduct business in the EU, companies like XanGo are required to comply with registration requirements specific to their product and consistent with all
Member States markets.
60. The countries in the EU can reject the sale of products within their borders if a product is not properly registered, as well as bring legal actions against a company and its distributors if their products being sold in the EU are not properly registered.
61. Mr. Davis set the EU product registration strategy when the Company opened the first market in the EU, the UK market. Decisions to expand internationally were approved by the
Board. The Board relied on Mr. Davis regarding questions of how, when and why to expand and the registration of products.
62. Under his leadership role as VP of International Relations and legal counsel for the Company, Mr. Davis advised the Company to expand into its second EU market, Germany.
63. To make sure XanGo's products were properly registered according to governing
EU law, XanGo sought outside regulatory and legal advice. 10 64. An outside law firm advised Mr. Davis as to established EU law, and advised the
Company to register the product as a "novel food" under the EU's novel food regulation.
65. Mr. Davis ignored and rejected the advice of the outside law firm and instructed
XanGo to not register the product as a "novel food" because, based on his limited experience of a competitor he used to work for, registering as a "novel food" would be too expensive, take too much time and was difficult.
66. As a direct and proximate result of Mr. Davis' rejection of outside legal advice, and direction to not register as a "novel food," XanGo has incurred millions of dollars in lost sales in the EU, the loss of distributors in the EU, and has been required to expend millions of dollars on attorneys' fees in Germany, Switzerland, Austria and Italy, responding to lawsuits and investigations.
67. The first of the European lawsuits challenging Mr. Davis' decision to not register the Company's product as a "novel food" was filed in Germany in December 2006, only three months after opening the market. A subsequent lawsuit was filed in Germany in March 2007, only six months after opening the market.
68. Both lawsuits resulted in multiple rulings against the Company, whereupon
XanGo appealed to the German Supreme Court.
69. During this time, XanGo continued to expand throughout the EU using the same product registration strategy.
70. In September 2010, XanGo's product registration was again challenged by the
Italian Ministry of Health. For the next nine months XanGo had to aggressively defend against these allegations. 11 71. Mr. Davis had acted with gross negligence in failing to properly register the
Company's product in the EU. Recognizing his gross negligence in registering the Company's product in the EU, Mr. Davis attempted to control the damage of his actions by purchasing expensive gifts for the top distributors in Germany, as well as flying the top German distributor to the United States. He also flew to Italy to meet with authorities to defend the Company's product registration.
72. In 2011, XanGo had no other viable option but to begin to replace, at great cost and expense, its product throughout the EU. In addition, XanGo spent substantial sums of money to correct the registration errors and deficiencies caused by Mr. Davis's incompetence.
G. Mr. Davis demands XanGo buy him out or be sued.
73. In 2012, a major falling out occurred between Mr. Davis and other members of the Company's board of managers.
74. The genesis of this falling out was Mr. Davis' discussion with Aaron Garrity and other board members requesting that if he were to leave for an LDS mission, would the
Company still pay his salary, which was an identical six figure salary as his partners.
75. This request eventually morphed into a demand by Mr. Davis that XanGo do one of three things: redeem all of his membership units, agree to be bought out by Mr. Davis, or be sued the way it was sued in the Prior XanGo Litigation, which he threatened to do to "destroy the company."
76. These threats were made by Mr. Davis personally and through his attorney, James
Harward. Mr. Davis is "of counsel" and is listed as an "International Expert" at Mr. Harward's law firm in Sandy, Utah. 12 77. Mr. Davis stated on more than one occasion during this time that he was either going to "run the company or be done with it."
78. At the time these demands were made by Mr. Davis, Mr. Davis was a member of
XanGo's board of managers.
79. At the same time Mr. Davis made these demands, he moved his belongings out of his executive office suite at XanGo, and refused to engage meaningfully with the Company. Mr.
Davis also began to increase his spending patterns significantly, even though his contributions to the company were minimal. Some of Mr. Davis's suspect charges included extensive cell phone charges for unrelated personal businesses. Mr. Davis also used the Company's resources for purposes of assisting his daughter's boyfriend in legal situations.
H. XanGo terminates Mr. Davis' employment.
80. As a result of Mr. Davis' actions, the Company terminated Mr. Davis' employment.
81. In connection with terminating his employment, XanGo removed Mr. Davis' company credit card privileges.
82. This action upset Mr. Davis, as he had used his company credit card for years to charge personal expenses to the company.
83. As a result of his employment terminating, Mr. Davis' ownership interest in the
Company became that of a dissociated member, precluding him from voting or otherwise participating in the governance of the Company, or from receiving information concerning the
Company's affairs or inspecting the Company's books and records. See Second Operating
Agreement at Art. 3.08(a) and (b). 13 I. Mr. Davis damages Company relations with Distributors and Employees.
84. Since his termination as an employee, but while still maintaining obligations as a
member of the board of managers, Mr. Davis has communicated with several of the Company's
top distributors and employees.
85. During these communications, Mr. Davis has told distributors and employees that
he is no longer affiliated with the Company, and that the Company is destined to fail.
86. Distributors with whom he has communicated include top leaders in numerous
markets, or were either close friends or otherwise had a special relationship with Mr. Davis,
including a relationship of trust or other emotional relationship.
87. In addition to sharing confidential information with distributors and employees,
and disparaging the Company to those distributors and employees, Mr. Davis engaged in
inappropriate relationships with multiple distributors, and otherwise engaged in conduct that
damaged the Company and distributor relations with the Company.
88. In one instance, a female distributor violated policies and procedures and was
suspended by XanGo as a result.
89. Complaints were made with the Company alleging that this distributor was saying
she had a special relationship with Mr. Davis. These allegations were causing great disruption in
the downlines.
90. This same suspended distributor shared detailed financial information relative to the Company's worldwide sales that she could have only learned from a top-level executive or member of the board.
14 91. Concerned about the statements, one of Mr. Davis' co-managers asked Mr. Davis about the allegations, whereupon Mr. Davis grabbed the board member by the shoulders and physically removed him from his office, stating "its been taken care of."
92. In another instance, another female distributor received inappropriate personal communications from Mr. Davis.
93. Mr. Davis spent company money purchasing flowers, gifts, and birthday presents for this distributor.
94. Mr. Davis has also shared confidential information about the Prior XanGo
Litigation with distributors and employees.
95. These communications were not necessary to the Prior XanGo Litigation, and constituted a breach of Mr. Davis' obligations as a board member and attorney.
J. Mr. Davis discloses confidential financial information to a competitor.
96. In late 2012, upon receiving confidential financial information as a board member, Mr. Davis spoke with a top-level executive at a competitor.
97. In that conversation, Mr. Davis told the competitor that "the Company was a sinking ship and he was getting out," that XanGo management could not be trusted, and disclosed XanGo's financial performance.
98. This conversation occurred shortly after Mr. Davis had met with the Company's controller and reviewed confidential and detailed sales and valuation information.
99. The confidential financial information was shared with Mr. Davis in his fiduciary capacity as a board member of XanGo, and in receiving this information, Mr. Davis was obligated to maintain its confidential nature. 15 1. 00. On one or more occasions, Mr. Davis also referred highly valuable distributors to competitors instead of his own Company.
101. The actions of Mr. Davis as alleged herein have been grossly negligent or constitute willful malfeasance. Indeed, Mr. Davis' actions as alleged herein were taken in order to force the Company into buying him out of the Company for an over-inflated price.
K. Mr. Davis files a frivolous lawsuit in an attempt to extort funds from the company.
102. In May 2013, Mr. Davis filed a separate lawsuit against the founders in an unfounded attempt to extort an unreasonable buyout of his membership interest. Ironically, Mr.
Davis has now hired the very attorneys who sued him in the prior litigation with Angel Investors and is now taking positions that flatly contradict his earlier testimony and statements that were made under oath in the earlier legal proceedings.
103. For example, Mr. Davis' new lawsuit now criticizes the Company's culture of founder giving, a practice which the founders use to incentivize and motivate those individuals who contribute to XanGo's extraordinary growth and financial success. Mr. Davis has previously testified regarding his participation in the development of the company's culture, the sound business reasons for this approach, and the personal benefits he obtained as a result of the
Company's corporate culture. Now, however, Mr. Davis has publicly disclaimed the Company's historical practice in an effort to harm the company and its reputation.
104. Interestingly, Mr. Davis has not returned any of the personal items or the benefits he received as a result of the Company's cultural practices.
105. Likewise, Mr. Davis has also made a number of false and misleading allegations regarding the Company's financial condition in an effort to disparage the company and its 16 economic growth. The statements, again, contradict his prior testimony that was given under oath and are intended to damage the company's reputation.
FIRST CAUSE OF ACTION Intentional Interference with Business Relations
106. XanGo incorporates the foregoing paragraphs as if restated in their entirety.
107. The Company has and/or had a valid business relationship and expectancy with the employees and distributors and/or customers that Mr. Davis has contacted.
108. Mr. Davis was aware of the Company's valid business relationship and expectancy with such employees, customers and/or distributors.
109. Mr. Davis was aware of these employees, distributors and/or customers as a direct result of his longtime association with and work on behalf of the Company.
110. Mr. Davis used improper means, including, but not limited to, using confidential and proprietary information and/or trade secret information to contact the Company's distributors and employees.
111. Mr. Davis compounded his malfeasance by falsely alleging that the Company is going to fail and otherwise impugning the Company's reputation and goodwill.
112. Mr. Davis's further improper means included, as described below, violating his fiduciary duties to the Company.
113. Mr. Davis intentionally interfered with the Company's business relationships and the Company's expectancy in continued relationships by greatly reducing if not eliminating the
Company's ability to effectively and to the greatest extent possible market its products through
17 the downline organizations established and/or maintained by the individuals Mr. Davis contacted.
114. As a direct and proximate result of Mr. Davis's unlawful interference, the
Company has lost current distributors and customers. It has also lost the distributors that, if not for Mr. Davis's actions, would have become part of the downlines established and/or maintained by the individuals that Mr. Davis has contacted.
115. The Company has not been able to determine the dollar value of this injury, particularly given that the Company is not aware of all of Mr. Davis's activities or of the effects such activities have had upon the Company's distributors and/or customers. Thus, the dollar amount of these damages will be determined at trial.
SECOND CAUSE OF ACTION Breach of Contract
116. XanGo incorporates the foregoing paragraphs as if restated in their entirety.
117. The Second Operating Agreement constitutes a valid and enforceable contract.
118. As outlined above, Mr. Davis is obligated under, among other things, Articles
8.02 and 8.03 of the Operating Agreement to protect the Company's confidential information and trade secrets, and not to take any actions that would injure or not benefit the Company.
119. Mr. Davis agreed that he possesses expertise and special knowledge in relation to international relations, and that he will use such expertise and special knowledge to promote the best interests of the Company.
120. Mr. Davis has violated his contractual obligations under the Second Operating
Agreement.
18 121. The Company, on the other hand, and all other members and managers of the
Company have complied with their obligations under the Second Operating Agreement.
122. Mr. Davis's actions have injured the Company in an amount to be determined at trial.
123. By signing the Second Operating Agreement, as well as signing other confidentiality agreements, Mr. Davis has admitted that the disclosure of confidential and trade secret information damages the Company.
THIRD CAUSE OF ACTION Breach of Fiduciary Duties as Member of Board
124. XanGo incorporates the foregoing paragraphs as if restated in their entirety.
125. Under Utah law, directors and officers of business entities such as the Company owe fiduciary duties to the company for which they are officers or directors.
126. Among those fiduciary duties are, among other things, duties: (1) of loyalty; and
(2) to use their ingenuity, influence, and energy, and to employ all the resources of the corporation, to preserve and enhance the property and earning power of the corporation, even if the interests of the corporation are in conflict with their own personal interests.
127. Thus, according to the Utah Supreme Court, any action on the part of directors looking to the impairment of corporate rights, the sacrifice of corporate interests, the retardation of the objects of the corporation, and the destruction of the corporation itself, are regarded as flagrant breaches of trust on the part of the directors engaged therein.
128. Furthermore, it is the duty of a director to protect the company, to discharge his/her duties vis-à-vis the corporation in the utmost good faith, with the care an ordinarily
19 prudent person in a like position would exercise under similar circumstances, and in a manner the director or officer reasonably believes to be in the best interest of the corporation.
129. As outlined above, Mr. Davis has violated his fiduciary obligations to the
Company.
130. Mr. Davis' breaches include, but are not limited to:
(a) contacting distributors and trying to convince them to abandon
the Company;
(b) telling distributors, employees, competitors and others that the
Company was failing;
(c) sharing and disclosing confidential and trade secret
information regarding XanGo's business, including
information relating to downlines;
(d) using the Company's trade secret and confidential information
regarding downlines to identify and locate individuals whom
he then contacted and to whom he spread injurious falsehoods
regarding the Company; and
(e) using the threat of litigation and disclosure of information to
extort the Company into capitulating on his unreasonable buy
out options.
131. Mr. Davis's breaches have damaged the Company in an amount to be proven at trial.
20 132. By signing the Operating Agreement, Mr. Davis has already admitted that the disclosure of confidential and trade secret information damages the Company.
FOURTH CAUSE OF ACTION Expulsion of Member Pursuant to Utah Code Ann. §48-2c-710(3)
133. XanGo incorporates the foregoing paragraphs as if restated in their entirety.
134. As a member of XanGo, Mr. Davis has engaged in wrongful conduct that adversely and materially affects XanGo's business.
135. Mr. Davis has willfully and persistently committed a material breach of the
Second Operating Agreement and his duties owed to XanGo.
136. Mr. Davis has engaged in conduct relating to XanGo's business which makes it not reasonably practicable for XanGo to carry on its business with Mr. Davis as a member.
137. The Court should determine that Mr. Davis has engaged in the above-referenced conduct, and, pursuant to Utah Code Ann. § 48-2c-710(3), expel Mr. Davis and/or BD Landmark
Holdings, LLC as a member of XanGo.
FIFTH CAUSE OF ACTION Legal Malpractice-Negligence
138. XanGo incorporates the foregoing paragraphs as if restated in their entirety.
139. An attorney-client relationship existed between XanGo and Mr. Davis.
140. As detailed herein, Mr. Davis acted negligently and engaged in legal malpractice in his representation of XanGo's interests.
141. The acts of legal malpractice include, but are not limited:
(a) failure to draft an original operating agreement governing
relations between investors in Xango; 21 (b) failure to communicate with and advise XanGo relative to
the legal implications of not having a signed original
operating agreement; and
(c) failure to properly communicate with and/or advise XanGo
on the creation of membership interests in XanGo.
142. The acts and failures to act described herein constituted a failure to use the same degree of care, skill, judgment and diligence used by reasonably prudent attorneys under similar circumstances.
143. The acts and failures to act described herein were the actual cause of injury and harm to XanGo, in that but for Mr. Davis' malpractice in failing to properly advise XanGo and in engaging in other negligence in relation to the original operating agreement, the Prior XanGo
Litigation as it related to membership interests of minority investors would have been avoided.
144. The acts and failures to act described herein were the proximate cause of injury and harm to XanGo in that a reasonable likelihood exists that the claims in the direct action in the Prior XanGo Litigation would have been avoided and altogether dismissed with prejudice.
145. As a direct and proximate result of Mr. Davis' acts and failures to act as detailed in this Complaint, XanGo has suffered significant monetary losses and actual damages in an amount to be proven at trial.
SIXTH CAUSE OF ACTION Legal Malpractice-Breach of Fiduciary Duty
146. XanGo incorporates the foregoing paragraphs as if restated in their entirety.
22 147. As detailed herein, Mr. Davis breached his fiduciary duty to XanGo, including but not limited to:
(a) failing to disclose important law to XanGo relative to the
creation of membership interests;
(b) failing to disclose his own malpractice to XanGo so that
XanGo could attempt to address the consequences in a
timely and effective fashion;
(c) failing to place Mr. Davis' interests above his own at all
times and otherwise failing to act with the utmost good
faith and undivided loyalty toward XanGo;
(d) drafting an operating agreement for XanGo that included
provisions that granted him personally a substantial interest
in the company and failing to properly disclose conflicts of
interest to his client arising from such task; and
(e) disclosing confidential communications between attorney
and client.
148. The acts and failures to act described herein were the actual cause of injury and harm to XanGo in that but for Mr. Davis' malpractice in mishandling the task of drafting and advising XanGo relative to its original operating agreement, the Prior XanGo Litigation as it related to membership interests of minority investors would have been avoided.
23 149. As a direct and proximate result of Mr. Davis' acts and failures to act as detailed in this Complaint, XanGo has suffered and will suffer significant monetary losses and actual damages in an amount to be proven at trial.
WHEREFORE, XanGo demands judgment against Mr. Davis as follows:
a. Judgment against Mr. Davis for compensatory and special damages in an amount to be determined at trial.
b. Expulsion of Mr. Davis as a member of XanGo pursuant to Utah Code Ann.
§48-2c-710(3).
c. Attorneys' fees and costs as allowed by Articles 8.06 and 9.13 of the Operating
Agreement.
d. Any other appropriate relief allowed under the law and equity.
JURY DEMAND
Pursuant to Utah R. Civ. P. 38(b), Plaintiff hereby demands a trial by jury on any issue triable of right by jury.
RESPECTFULLY SUBMITTED this 20th day of May, 2013.
KIRTON McCONKIE
/s/ Richard J. Armstrong Richard J. Armstrong Brinton M. Wilkins Attorneys for Plaintiff
24 EXHIBIT A Operating Agreement of XanGo"YILLC
This Operating Agreement (this "Agreement") is entered into this the day of September 2002, by and among the signatories hereto.
Explanatory Statement
The parties have agreed to organize and operate a limited liability company in accordance with the provisions of this Agreement.
NOW, THEREFORE, for good and valuable consideration, the parties, intending legally to be bound, agree as follows:
Section Defined Terms
In this Agreement, the following capitalized terms shall have the meaning specified in this Section 1. Other terms may be defined in the text of this Ageement; and, throughout this Agreement, those terms shall have the meanings respectively ascribed to them.
"Act" means the Utah Limited Liability Company Act, Utah Code Ann. 1953, as amended from time to time.
"Adjusted Capital Account Deficit" means, with respect to any interest Holder, the deficit balance, if any, in the interest Holder's Capital Account as of the end of the relevant taxable year, after giving effect to the following adjustments:
(i) the deficit shall be decreased by the amounts which the Interest Holder is obligated to restore pursuant to Section 4.4.2 of this Agreement or is deemed obligated to restore pursuant to Regulation Sections 1.704-2(g)(1) and (1)(5) (i.e., the Interest Holder's share of Minimum Gain and Member Minimum Gain); and
(ii) the deficit shall be increased by the items described irr Regulation Sections 1.704-1(b)(2)(ii)(d)(4), (5) and (6).
"Affiliate" means, with respect to any Member, any Person: (i) which owns a
4
CONFIDENTIAL XAN-AI000085 voting interests. Affilite is also a person who has more than 1 percent of the company. "!Igreen2ent" means this Operating Agreement, as amended from time to time.
"Capital Account" means the account to be maintained by the Company for each Interest Holder in .accordance with the following provisions:
(i) An Interest Holder's Capital Account shall be credited with the Interest Holder's Capital Contributions, the amount of any Company liabilities assumed by . the Interest Holder (or which are secured by Company property distributed to the. Interest Holder)„ the Interest Holder's allocable share of Profit and any item in the nature of income. or gain specially allocated to the Interest Holder pursuant to the provisions of Section 4 (Other than Section 4.33).
(ii) An Interest Holder's Capital Account shall be debited with the amount of money and the fair market value of any Company property distributed to the Interest Holder, the Interest Holder's allocable share of Loss, and any item in the nature of • expenses or losses specially allocated to the Interest Holder pursuant to the provisions of Section 4 (other than Section 4.3.3).
(iii) If any Interest is transferred pursuant to the terms of this Agreement, the transferee shall succeed to the Capital Account of the transferor to the extents the Capital Account is attributable to the transfeired Interest. If the book value of Company property is adjusted pursuant to Section 4.3.3, the Capital Account of each Interest Bolder shall be adjusted to reflect the aggregate adjustment in the same manner as if the Company had recognized gain or loss equal to the amount of such aggregate adjustment
(iv) It is intended that the Capital Accbunts of all Interest Holders shall be maintained in compliance with the provisions of Regulation Section 1.704-1(b), and all provisions of this Agreement relating to the maintenance of Capital Accounts shall be interpreted.and applied in a manner consistent with that Regulation.
"Capital Contribution" means the total amount of cash and the fair market value of any other assets contributed (or deemed contributed under Regulation Section 1.704-1(b)(2)(iv)(d)) to the Company by a Member, net of liabilities assumed or to which the assets are subject.
"Cash Flow" means all cash. funds derived from operations of the Company
CONFIDENTIAL MN-A1000086 {including interest received on reserves), without reduction for any noncash charges, but less cash funds used to pay current operating expenses and to pay or establish reasonable reserves for future expenses, debt payments, capital improvements, and replacements as determined by the Members. Cash Flow shall not include Capital Proceeds but shall be increased by the reduction of any reserve previously establighed.
"Code" means the Internal Revenue Code of 1986, as amended, or any corresponding provision of any succeeding law.
"Company" means the limited liability company formed in accordance with this Agreement.
"Division" means the Division of Corporations and Commercial Code of the Department of Commerce of the State of Utah.
"interest" means a Person's share of the Profits and Losses of, and the right to receive distributions from, the Company.
"Interest Holder" means any Person who holds an Interest, whether as a Member or as an tmadmitted assignee of a Member.
"Involuntary Withdrawal" means, with respect to any Member, the occurrence of any of the death, retirement, bankruptcy, resignation, expulsion, or dissolution or a Member, or any other event that terminates the continued eligibility for membership of a Member in the Company.
"Member" means each Person signing this Agreement and any Person who . subsequently signs this Agreement and is admitted as a member of the Company.
"Member Minimian Gain" has the meaning set forth in Regulation Section 1.704-2(i) for "partner nonrecourse debt minimum gain."
"Membership Rights" means all of the rights of a Member in the Company, including that Member's: (i) Interest, (ii) right to inspect the Company's books and records, (iii) right to participate in the management of and vote on matters coming before the Company to the extent permitted by the Act, the Articles of Organization and this Agreement, and (iv) right to act as an agent of the Company, unless this Agreement or the Articles of Organization provide otherwise.
6
CONFIDENTIAL XAN-AI000087 "Minimum Gain" has the meaning set forth in Regulation Section 1.704-2(d). Minim-urn Gain . shall be computed separately for each Interest Holder in a manner consistent with the Regulations under Code Section 704(b).
"Negative Capital Account" means a Capital Account with a balance of less than zero. "Original Member" means the first six individuals who stated the company and are considered its founders namely: Aaron Garrity, Gordon Morton, Joseph Morton, Gary Hollister, Kent Wood and Bryan Davis,
"Percentage" Means, as to a Member, the percentage set forth after the Member's name on Exhibit A, as amended from time to time, and as to an Interest Holder who is not a Member; the Percentage of the Member whose Interest has been acquired by such Interest Bolder, to the extent the Interest Holder has succeeded to that Member's Interest.
"Person" means and includes an individual, corporation, partnership, association, limited liability company, trust, estate, or other enti
"Positive Capital Account" means a Capital Account with a balance gTeater than zero.
"Profit" and "Loss" mean, for each taxable year of the Company (or other period for which Profit or Loss must be computed), the Company's taxable income or loss determined in accordance with Code Section 703(a), with the following adjustments:
(i) all items of income, gain, loss, deduction, or credit required to be stated separately pursuant to Code Section 703(a)(1) shall be included in computing taxable income or loss; and
• (ii) any tax exempt income of the Company, not otherwise taken into account in computing Profit or Loss, shall be included in computing taxable income or loss; and
(iii) any expenditures of the Company described in Code Section 705(a)(2)(B) (or treated as such pursuant to Regulation Section 1 .704-I(b)(2)(iv)(i)) and not otherwise taken into account in computing Profit or Loss, shall be subtracted from
7
CONFIDENTIAL XAN-A1000088 taxable income or loss; and
(iv) gain or loss resulting from any taxable disposition of Company property shall be computed by reference to the adjusted book value of the property disposed of, notwithstanding the fact that the adjusted kook value differs from the adjusted basis of the property for federal income tax purposes; and
(v) in lieu of the depreciation, amortization, or cost recovery deductions allowable in computing taxable income.or loss, there shall be taken into account the depreciation computed based upon the adjusted book value of the asset; and
(vi) notwithstanding any other provision of this definition, any items which are specially allocated pursuant to Section 4.3 of this Agreement shall not be taken irate account in computing Profit or Loss.
"Regulation" means the income tax regulations, including any temporary regulations, from time to time promulgated under the Code.
"Tax year for purposes the company shall use a calendar for it tax year for account purposes unless otherwise specified in the agreement.
"Transfer", when used . as a noun, means any voluntary sale, hypothecation, pledge, assignment, attachment, give, or other transfer, and, when used as a verb, means voluntarily to sell, hypothecate, pledge, assign, gift, or otherwise transfer.
"Yoluntary Withdrawal" means a Member's dissociation with the Company by means other than a Transfer or an Involuntary Withdrawal.
Section 2 Formation and Name; Office; Purpose; Term
2.1. Organization. The parties hereby organize a limited liability company under the Act and the provisions of this Agreement and, for that purpose, have caused Articles of Organization to be prepared, executed, and filed with the Division on September 11, 2002 2.2. Name of the Company. The name of the Company shall be "XanGOTM". The Company may do business under that name and under any other name or names upon v~~ hick the Members agree. If the Company does business under a name other than that set forth in the Company's Articles of Organization, then the Company
8
CONFIDENTIAL. XAN-A1000089 shall register such assumed name as required by law. 2.3. Purpose. The Company is organized to engage in any business permitted under the Act 2.4. Term. The term of the Company began upon the filing of the Articles of Organization by the Division on September l 1, 2002 and .shall continue until December 30 2099, unless an earlier time is specified in the Articles of OrganiZation or the Company's existence is sooner terminated pursuant to Section 7 of this Agreement.
2.5. Registered Office and Agent. The name of the Company's registered agent and the registered office of the registered agent in the State of Utah shall be Bryan R Davis at 11075 South State Street Sandy Utah.
2.6. Members. The name, present business street address, taxpayer identification number, and Percentage of each Member are set forth in alphabetical order on Exhibit A. Incorporated herein by reference.
Section 3 Members; Capital; Capital Accounts -
3.1. Initial Capital Contributions. Upon the execution of this Agreement, the Members shall contribute to the Company cash in the amounts respectively set forth on Exhibit A.
3.2. No Additional Capital Contributions Required. No Member shall be required to contribute any additional capital to the Company, and no Member shall have any personal liability for any obligation of the Company.
3.3. No Interest on Capital Contributions. Neither Members nor Interest Holders shall be paid interest on their Capital Contributions. However capital contributOrs are paid interest on any loans to the company as set forth in their respective agreements with the company.
3.4. Return of Capital Contributions. Except as otherwise provided, in this Agreement, interest Holder(s) shall have the right to receive pay back of there initial capital contribution. Terms are set forth in there respective agreements.
15. Form of Return of Capital. Except as otherwise provided in this Agreement, if an Interest Holder is entitled to receive a return of a Capital
9
CONFIDENTIAL XAN-A1000090 Contribution, the Interest Holder shall not have the right to receive anything but cash in return of the Interest Holder's Capital Contribution, irrespective of the nature of the Member's contribution.
3.6. Capital Accounts. A separate Capital Account shall be maintained by the Company for each Interest Holder. These accounts shall be booked with the company.
3.7. Loans. Any Member may, at any time, make or cause a Joan to be made to the Company in any amount and on those terms upon which the Company and the Member agree.
Section 4 Profit, Loss, and Distributions
• 4.1. Distribution Dividends. The company may elect to distribute to the Interest Holders in proportion to their Percentages a value determined by the board.
4.2. Allocation of Profit or Loss. After giving effect to the special allocations set forth in Section -4.3, for any taxable year of the Company, Profit or Loss shall be allocated to the Interest Holders in proportion to their Percentages.
4.3. Regulatory Allocations
4,3.1. Qualified income Offset. No Interest Holder shall be allocated Losses or deductions if the allocation causes the Interest Holder to have an Adjusted Capital Account Deficit. If an Interest Holder receives (1). an allocation of Loss or deduction (or item thereof) or (2) any distribution, which causes the Interest Holder to have an Adjusted Capital Account Deficit at the end of any taxable year, then all items of income and gain of the Company (consisting of a pro rata portion of each item of Company income, including gross income and gain) for that taxable year shall be allocated to that Interest Holder, before any other allocation is made of Company items for that taxable year, in the amount and in required to • eliminate the excess as quickly as possible: This Section 4.3.1 is intended to comply with, and shall be interpreted consistently with, the "qualified income offset" provisions of the Regulation4romulgated under Code Section 704(b).
4.3.2: Minimum Gain, 6hargeback. Except as set forth in Regulation Section
10
CONFIDENTIAL XAN-A1000091 1.704-2(f)(2), (3), and (4), if, during any taxable year, there is a net decrease in Minimum Gain, each Interest Holder, prior to any other allocation pursuant to this Section 4, shall be specially allocated items of gross income and gain for such taxable year (and, if necessary, subsequent taxable years) in an amount equal to that interest Holder's share of the net decrease of Minimum Gain, computed in accordance with Regulation Section 1.704-2(g)(2). Allocations of gross income and gain pursuant to this Section 4.3.2 shall be made first from gain recognized from the disposition of Company assets subject to nonrecourse liabilities (within the meaning of the Regulations promulgated. under Code Section 752), to the extent of the Minimum Gain attributable to those assets, and thereafter, from a pro rata portion of the Company's other items of income and gain for the taxable year. It is the intent of the parties hereto that any allocation' pursuant to this Section 4.3.2 shall constitute a "minimum gain chargeback" under Regulation Section 1.704-2(f).
4.33. Contributed. Property and Book-ups. In accordance with Code Section 704(c) and the Regulations thereunder, as well as Regulation Section 1.704-1(b)(2)(iv)(d)(3), income, gain, loss, and deduction with respect to any property contributed (or deemed contributed) to the Company shall, solely for- tax purposes; be allocated among the Interest Holders so as to take account of any variation between the adjusted basis of the property to the Company for federal income tax purposes and. its fair market value at the date of contribution (or deemed contribution). If the adjusted book value of any Company asset is adjusted as provided herein, subsequent allocations of income, gain, loss, and deduction with respect to the asset shall take account of any variation between the adjusted basis of the asset for federal income tax purposes and its adjusted book value in the manner required under Code Section 704(c) and the Regulations thereunder,
4.4. Liquidation i.znd Dissolution
4.4.1. If the Company is liquidated, 'the assets of the Company shall be distributed to the Interest Holders in accordance with the balances in their respective Capital Accounts, after taking into account the allocations of Profit. or Loss pursuant to Section 4.2, if any, and distributions,. if any, of cash or property pursuant to Section 4.1.
4.4.2, No Interest Holder shall be obligated to restore a Negative Capital Account,
11
CONFIDENTIAL XAN-A1000092 4.5. General
4.5.1. Except as otherwise provided in this Agreement, the timing and amount of all distributions shall be determined by the Original Members.
4.5.2. if any assets of the Company are distributed in kind to the Interest Holders, those assets •shall be valued on the basis of their fair market value, and any Interest Holder entitled to any interest in those assets shall receive that interest as a tenant-in-common with all other Interest Holders so entitled. Unless the Members otherwise agree, the fair market value of the assets shall be determined by an independent appraiser who shall be selected by the Members. The Profit or Loss for each unsold asset shall be determined as if the asset,had been sold at its fair market value, and the Profit or Loss shall be allocated as provided in Section 4.2 and shall be properly credited or charged to the Capital Accounts of the Interest Holders prior to the distribution of the assets in liquidation pursuant to Section 4.4.
4.5.3. All Profit and Loss shall be allocated, and all distributions shall be made to the Persons shown on the records of the Company to have been Interest Holders as of the last day of the taxable year for which the allocation or distribution is to be made. Notwithstanding the foregoing, unless the Company's taxable year is separated into segments, if there is a.Transfer or an Involuntary Withdrawal during the taxable year, the Profit and Loss shall be allocated between the original Interest Holder and the successor on the basis of the number of days each was an Interest Holder during the taxable year; provided, however, the Company's taxable year shall be segregated into two or more segments in order to account Profit, Loss, or proceeds attributable to any extraordinary nonrecurring items of the Company.
4.5.4, The Members are hereby authorized, upon the advice of the Company's tax counsel, to amend this Section 4 to comply with the Code and the Regulations promulgated under Code Section 704(b); provided, however, that no amendment shall materially affect distributions to an Interest Holder without the Interest Holder's prior written consent.
Section 5 Management: Rights, Powers, and Duties
CONFIDENTIAL XAN-A1000093 Si Management by Members. The Company shall • be managed by the Members. Except as otherwise provided in this Agreement., each Member shall have the right to act for and bind the Company in the ordinary course of its business within their respective scope of duties.
5.2. Meetings of and Voting by Members
5.2.1. Calling and Notice. A meeting of the Members may be called at any time by any Member. Meetings of Members shall be held at the Company's principal place of business or at any other place, designated by the Person calling the meeting. Not less than ten (10) nor more than ninety (90) days before each meeting, the Person calling the meeting shall give written notice of the meeting to each Member entitled to vote at the meeting. The notice shall state the time, place, and purpose of the meeting. Notwithstanding the foregoing provisions, each Member who is entitled to notice waives notice. if before or after the meeting the Member signs a waiver Of the notice which is filed with the records of Members' meetings, or is present at the meeting in person or by proxy. Unless this Agreement provides otherwise, at a meeting of Members, the presence in person or by proxy of Members holding not less than 213 of the Percentages then held by Members constitutes a quorum. A Member may vote either in person or by written proxy signed by the Member or by the Members duly authorized attorney-in-fact.
5.2.2. 7/3 Vole Rules. Except as otherwise provided in this Agreement, the required voting percentage is 2/3 vote of Members or more of the Percentages then held by Members shall be required to approve any matter coming before the Members.
5.2.3. Informal Action. in lieu of holding a meeting, the Members may vote or otherwise take action by a written instrument indicating the consent of Members 'signing the consent. Original members may participate. via telephone conference.
5.3. Personal Services
5.3.1. Personal Services of Members. No Member shall be required to perform services for the Company solely by virtue of being a Member.
13
CONFIDENTIAL XAN-A1000094 5.3.2. CO777120=71 af Members for Management Services. Unless approved by Members, no Member shall be entitled to compensation for management or . other services performed for the Company.
5.3.3. Reimbursement of Members. Upon substantiation Of the amount and purpose thereof, the Members shall be entitled to reimbursement for direct out-of-pocket expenses actually and reasonably incurred in connection with the business and affairs of the Company.
5.4. Duties of Parties
5.4.1. L-;,'-ttent of Liability. A Meniber shall not be liable, responsible, Or accountable in damages or otherwise to the Company or to any other Member for any action taken or any failure to act on behalf of the Company within the scope of.the authority conferred on the Member by this Agreement or by law, unless the action was taken or omission was made. fraudulently or in bad faith or unless the action or omission constituted gross negligence.
5.4.2. Member's Other Businesses. Except as otherwise expressly provided in Section 5.4.3, nothing in this .Agreement shall be deemed to restrict in any way the rights of any Member, or of any Affiliate of any Member, to conduct any other business or activity whatsoever, except if the business is a competing MLM. No Member shall be accountable.to the Company or to any other Member for its business or activity even if the business or activity competes with the Company's business except as mentioned herein,. The organization of the Company shall be without prejudice to the Members' respective rights (or the rights of their respective Affiliates) to maintain, expand, or diversify such other interests and activities and to receive and enjoy profits or compensation therefrom. Each Member waives any rights the Member might otherwise have to share or participate in such other interests or activities of any other Member and such Member's Affiliates.
5.4.3. Dealings with Members. Each Member understands and acknowledges that the conduct of the Company'S business may involve business dealings and undertakings with Members and their Affiliates. Ip any of those cases, those dealings and undertakings shall be at arm's length and on commercially reasonable terms.
5.5. Liability and indemnification of !l embers
) 4
CONFIDENTIAL XAN-A1000095 5.5.1. Liability 01 Member. A Member shall not be liable, responsible, or accountable, in , damages or otherwise, to any other Member or the Company for any act performed by the Member with respect to Company matters, except for fraud, gross negligence, or an intentional breach of this Agreement.
•5.5.2 IndernnOcation of lt4'en2ber. The Company shall indemnify each Member for any inaction or act performed by the Member with respect to Company matters, except for fraud, gross negligence, or an intentional breach of this Agreement.
Section 6 Transfer of interests and Withdrawals of Members
6.1. Transfers Permitted. An Interest Holder at any time and from time to time may Transfer all or any portion of the Interest Holder's Interest provided the Transfer will not result in a deemed or other termination of the Company pursuant to Code Section 708. The Transfer of all or a portion of an interest does not entitle the transferee to become a Member or to exercise any rights of a Member such as voting or otherwise. The transferee shall be entitled to receive, to the extent transferred, only . the distributions to which the transferor would have been entitled; and the transferee shall not be admitted as a Member without the consent of the All original Members. Coincident with the transfer, the transferor of any Interest shall cease to own and exercise any or all membership Rights in the company with respect to and to the extent of the Interest transferred.
62. Voluntary Withdrawal. No Member shall have the right or power •to • Voluntarily Withdraw from the Company without first petitioning the Board and receiving approval.
6.3. Involuntary Withdrawal. Immediately upon the occurrence. of an Involuntary Withdrawal, the successor, if any, of the withdrawn Member shall thereupon become an Interest Holder but shall not become a Member of Xango LLC. If the Cornpany is 'continued as provided in Section 7.1.3, the successor Interest Holder shall have all the rights of an interest Bolder but shall not be entitled to vote or manage or bind the company in any way. They can not transfer any interest in the company without the consent of all the original members. This provision is intended for among others spouses or heirs so they may receive there share in liquidation of interest pursuant to the Act section 48-2b-138(2) any share in
15
CONFIDENTIAL XAN-AI000096 the company's assets but may not, force or require the company to purchase the Interest Holders Interest in the Company.
Section 7 Dissolution and Liquidation
7.1. Events of Dissolution. The Company shall be dissolved upon the happening of any of the following events:
7.1.1. when the period fixed for its duration in Section 2.4 has expired; or
7.1.2. upon the unanimous written agreement of the Members.
7.2. Procedure for Tinding Up and Distribution by Members. If the Company is dissolved, The remaining Members shall wind up its affairs. On winding up of the Company, the assets of the Company shall be distributed, first, to cre.ditors of the Company including Interest Holders who are creditors, in the order of Priority as provided by law, except those liabilities to Members on account of their Capital Contributions, and then to the Interest Holders in accordance with Section 4.4 of this tkgree.ment.
Section 8 Admission of Additional Members
8.1. Unanimous Consent of Members. With the unanimous written consent of all original Members, additional Interests may be sold by the Company and additional Members May be admitted as Members of the Company.
8.2. Dqfinition of Additional Member. For purposes of this Section 8, "additional Member" shall include an existing member who acquires an additional Interest from the CoMpany or new member who purchased an interest in the company.
8.3. Amendment to Exhibit A. Each additional Member's required initial Capital Contribution, Percentage, and the Percentages of all other Members shall be in such proportion as shall be agreed by the board and original Members and set forth in a written ameridnient to Exhibit A attached hereto. Such new Member's Capital Account shall begin with established valuation by the original members and
16
CONFIDENTIAL XAN-A1000097 capital shall be received by the company.
8.4. Additional Member Bound by This Agreement. Before becoming a Member, or receiving Membership Rights for any additional Interest acquired, such additional Member must agree in writing, in a form reasonably satisfactory to the Company, to be bound by this Agreement and the amendment to Exhibit A referred to in Section 8.2 regarding the additional Interest and Membership Rights required, and must also provide to the Company such additional Member's taxpay,er identification number, and initial, tax basis in any property contributed to the Company. Such additional members must be unanimously approved by the Board and the original members.
8.5_1. Preemptive Right.' Each Original Member shall, as set forth in this Section 8.5, have preferential rights of subscription to (i) any Interest or Membership Rights, whether now or hereafter authorized by the Company, and (ii) any obligations 'convertible into an Interest or Membership Rights of the Company, issued or sold by the Company. The term "obligations convertible into an Interest or Membership Rights" as used herein shall include any notes, bonds, or other evidences of indebtedness to which are attached or with which are issued warrants or other rights to purchase an Interest or Membership Rights in the Company,
8.5.2. Procedure. If the Company desires to sell or offer to sell any Interest or Membership Rights in the Company to any third party who is not a Member of the 'Company, the Company shall first notify all of the Members of the amount of. Interest and/or Membership Rights to be offered or sold, the purchase price therefor, the terms of payment of the purchase price, and the Percentage to be allocated to such Membership Rights (the "Notice of Offering"). Each Meinber shall then have thirty (30) days from the date the Member received the Notice of Offering within which to deliver to the Company the purchase price, on the terms 'indicated in the Notice of Offering, for any amount of the Interest or Membership Rights offered for sale in the Notice of Offering, up to that amount that the Member's Percentage' is of the total amount of Interest or Membership Rights offered by the Company in the Notice of Offering. All Members who so purchase an Interest or Membership.Rights shall receive form the Company their Interest or Membership Rights within ten (10) days of the Company's receipt of the consideration from the Member'.
8.5.3. Sale to Third Parties. Any interest or Menibership Rights not purchased by the Members pursuant to this Section 8.5 shall be sold by the Company to third parties on the terms offered in the Notice of Offering.
17
CONFIDENTIAL XAN-A1000098 8.5.4. Waiver of Rights. Any Member may in writing waive such Member's rights under this Section 8.5. in a shorter period of time. Section 9 Books, Records, Accounting; and Tax Elections
9.1. Bank Accounts. All funds of the Company shall be deposited in a bank account or accounts opened in the Company's name. The Members shall determine the institution or institutions at which the accounts will be opened and maintained, the types of accounts, and the Persons who will have authority, with respect to the accounts and the funds therein.
9.2. Books' and Records_ The Members shall keep or cause to be kept complete and accurate books and records of the Company and supporting documentation of transactions with respect to the conduct of the Company's business. The books and records shall be maintained in accordance with sound accounting practices. Those books and records, together with.the records described under Act Section 48-2b-119(1), shall be kept at the Company's principal place of business and shall be available for inspection and copying by the Members at all reasonable times during ordinary business hours. Any copying shall be at the • expense of the Member requesting the copy. No other third parties may review the records with out the consent of the members.
9.3. Annual. Accounting Period. The annual accounting period of the Company shall be its taxable year. The Company's taxable year shall the Calendar year ending in December the last day each year.
9.4. Reports to Members. 'Within seventy-five (75) days after the end of each taxable year of the Company, the Members shall cause to be sent to each Person who was a Member at any time during the taxable year then ended a complete accounting of the affairs of the Company for the taxable year then ended. In addition, within seventy-five (75) days after the end of each taxable year of the Company, the Members shall cause to be sent to each Person who was an interest Holder at any time during the taxable year then- ended, that tax information concerning the .Cornpany which is necessary for preparin,g the Interest Holder's income tax returns for that year. At the reasonable request of any Member, and at the Member's expense, the Members shall cause an audit of the Company's books arid records to be prepared by independent accountants for the period requested by the Member.
8
CONFIDENTIAL XAN-A1000099 Section 10 General Provisions
10.1. Amendments to Agreement. Except for amendments to Exhibit A incident to admission of (i) a transferee of an Interest as a Member pursuant to Section 6, and (ii) an additional Member pursuant to Section 8, this Agreement (including Exhibit A) may be amended only with the written consent of all the Members.
10.2. Further Assurances. Each Member shall execute all certificates and other documents and shall do all such filing, recording, publishing, and other acts as the Members deem appropriate to comply with the requirement§ of law for the formation and operation of the Company and to comply with any laws, ,rules, and regulations relating to the acquisition, operation, or holding of the property of the Company.
10.3. Notifications, Any notice, demand, consent, election, offer, approval, request, or other communication (collectively a "notice") required or permitted under this Agreement must be in writing and either delivered personally or sent. by certified or registered mail, postage prepaid, return receipt requested. .A notice must be addressed to an Interest Holder at the Interest Holder's last known address on the records of the Company. .A notice to the Company must be addressed to the Company's registered office. A notice delivered personally will be deemed given only when acknowledged in writing by the person to whom it is delivered. A notice that is sent by mail will be deemed given three (3) business days after it is mailed. Any party may designate, by notice to. all of the' others; substitute addresses or addressees for notices; and, thereafter, notices are to be directed to those substitute addresses or addressees_
10.4. Specific Performance. The parties recognize that irreparable injury will result from a breach of any. provision of this Agreement and that money damages will be inadequate to fully remedy the injury. Accordingly, in the event of a breach or threatened breach of one or more of the provisions of this Agreement, any parry who . may be injured (in addition to any other remedies which may be available to that party) shall be entitled to one or more preliminary or permanent orders (i) restraining and enjoining any act which would constitute a breach, or (ii) compelling the performance of any obligation Which, if not performed, would constitute a breach.
19
CONFIDENTIAL XAN-AI000100 10.5. Entire Agreement. This Agreement (including Exhibits A, and B attached 'hereto) constitutes the entire and exclusive understanding and statement of the agreement among the Members. It supersedeS all prior written and oral statements, including any prior representation, statement, condition, or warranty.
10.6. Explanatory Statement. The matters set forth in the Explanatory Statement of this Agreement are incorporated into this Agreement as a substantive provision thereof.
10.7. Applicable Law. Ali questions concerning the construction, validity, and interpretation of this Agreement and the performance of the obligations imposed by this Agreement shall be governed by the internal law, not the law of conflicts, of the State of Utah.
10.8. Headings. The headings used in this Agreement are inserted as a matter of convenience only and do not define, limit, or describe the scope of this Agreement or the intent of the provisions hereof.
10.9. Interpretation. This Agreement represents the wording selected by the parties hereto to define their agreement and no rule of strict construction shall apply against any party Or subsequent signatory hereto. Whenever the context reasonably permits, the singular shall include the plural, the plural shall include the Singular, and the whole shall include any part thereof. Pronouns in any gender shall, include both other genders as the context may require.
10.10. Binding Provisions. This Ageement is binding upon, and shall inure to the benefit of, the parties hereto and their respective heirs, administrators, personal and legal representatives, successors, and assigns.
10.11. Jurisdiction and Venue. Any suit involving any dispute or matter- arising under this Agreement may only be brought in the any Utah State Court of Utah having jurisdiction over the subject matter of the dispute or matter.. All Members hereby consent to the exercise of personal jurisdiction by any such court with respect to any such proceeding.
10.12. Attorneys' Fees. If any party hereto is required to institute legal action to enforce that party's. rights under. this Agreement, the prevailing party shall be entitled, in addition to all other remedies, to an award of all reasonable attorneys'
20.
CONFIDENTIAL XAN-A10001 01 fees and expenses of litigation incurred in that action.
10.13. Severabilio,. If any provision in this Agreement is invalid or unenforceable, such provision shall be construed, limited or, if necessary, severed but only to the extent necessary to eliminate such invalidity or unenforceability and the other provisions of this Agreement shall remain unaffected.
10.14. .No Conflict. Each party hereto warrants to the 'Company and the other parties that such party has the right to enter into this Agreement and that this Agreement presents no conflict with any obligation of such party to any third party.
10.15. Estoppel Certificate. Each Member shall, within ten (10) days after written request by any Member, deliver to the requesting Person a certificate stating, to the Member's knowledge, that: (a) this Agreement is in full force and effect, (b) this Agreement has not been modified except by any instrument or instruments identified in the certificate, and (c.) there is no default under this Agreement by the requesting Person, or if there is a default, the nature and extent thereof
10.16. Counterparts. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original and all of which, when taken together, constitute one and the same document. The signature of any party to any counterpart shall be deemed a signature to, and may be appended to, any other counterpart.
10.17. Facsimile Signatures. The parties hereto agree that transmission to any other party hereto or the Company of this Agreement with such party's facsimile . signatures shall suffice to bind the party transmitting same to this Agreement in the . same manner as if such party's original signature had been delivered. Without limitation of the foregoing, each party who transmits this Agreement with such party's facsimile signature covenants to deliver the original thereof to the other Parties as soon as possible thereafter.
/1/
21
CONFIDENTIAL MN-A1000102
IN WITNESS WHEREOF, the parties have executed this Agreement as of the Date frst above written.
Original (6) Founding Members:
-/940 Aaron Garrity Taxpayer Id. No. 1354 East 700 South Pleasant Grove Utah 84062
' • 33 7 Gordon Morton Taxpayer Id. No. 946 North 500 East „ Springville Utah .84663
'23olf- • Joseph Morton Taxpayer Id. No. 441 East 250 North Springville Utah 84663
Gary Hollister — Taxpayer Id. No. 449 Haven Crest Road Draper Utah 84020
528-96-6787 Bryan B. Davis Taxpayer Id. No. 1016 West 1665 Nort Orem Utah 84057
5)9'15- /56Z, Kent Wood Taxpayer Id. No. 785 East Canterbury Lane Alpine Utah 84004
CONFIDENTIAL XAN-A1000103 Exhibit A to Operating Agreement of X.anGo TM LLC
List of Original Members and PereentaEos
Capital nri aim] Member's Name Percentages Aaron Garrity 15 G ord on Morton 15 Joseph Morton 15 Gary Hollister 10 Kent Wood 10 BUM Davis 10
Each of the original Members has contributed cash, time talents 'and other valuable consideration. Said capital contribution is deemed value for the said contribution as is adopted by the Members.
CONFIDENTIAL XAN-A!000104 Exhibit B. to Operating Agreement of XanGo
Lia larldi innallkr.
_Allsiirional_MemheLs
Russell Phillips Merchant account guarantee 2.0 Dennis Grimmer 250,000:00 2.5 Milte Mansfiel d Building 300,000.00 3.3 Brent Barton finders fee .165 Chris Peterson finders fee .125 Lance Sehiffman 100,000.00 1.0
Employee Pool 2.0
Open (treasury)
24
CONFIDENTIAL XAN-A10001 05 -3"-v,-J 2, zo03) Exhibit B(4„, e ' to Operating Agreement of XanGoTM LLC
T A sLoLacklition aucl Peroenta .
AsklitinnaLMembers
Russell Phillips • Merchant account guarantee 2.0 Dennis Grimmer 250,000.09
Mi- " • A-01)Aw." SI-444"r, Buildinafg0-000-60 2-579,"° 3.3 Brent Barton finders fee .165 Chris Peterson finders fee .1.25 Lance Schiffman 100,000.00 1.0
Employee Pool 2.0
Open (treasury)
f Ickt„ek 150, 600 , 00 5).e 25fa i eseY0 AO 64) 'X& v\to LC. (— -c vtibr5 VC- (LC- . D.° 2,6 &nue 1,t, 26) °66 •
TiPv‘ PlAn(),S;yyN teditAt, gkke I "Ye- PA-S5 vet 1,1i 1C2-"T"--Oile°51r■
24
CONFIDENTIAL XAN-A!000106 vas Exhibit B e „id
Operating Agreement
XanGoTm LLC
add itirinal Me. 1- • II Peroopta o.,,?S
ArlcIftinilalIviembetc • Russell Phillips. Merchant account guarantee 2.0 Dermas Grimmer 250,000.00 9,5 00/vitt p. Si;14- B°13.1•1-eling-3-00-00-.00 t.A ■.Atrva,s&-i- Brent Barton VA, finders fee .165 anis Peterson finders fee Lance Schifinian 100,000.00 1.0
Employee Pool 2.3 ( Open (treasury)
g ot. Sh_b_
6rtwIrvie
)(6,,Kty, LUC—
Ya-t"it, e7t,g2vro._
M's" S t Ink f)S cry- \ E-4.-p tor, t,t}i:kw.,. tkss Ow py I r, glf-Yr--s*te-K-S+rtrh.-\.
CONFIDENTIAL XAN-A10001 07 F6-17 rt ~ol 17– —(3 -;•••,11: 7003) B (h-v, e ,44./4
Goer• n gr- of Xan Gorm LLC
f ;acrid' • .Ti'
ritia,11• ■4Pl1"1llPrq onl guarantee 2.0 P..us se.1] Phillips acc,o- 2.5 Der is Grimmer 250,000.00 ,CAL*tv• ' Building 300;000.00 ok. .165 Breni Barton finders fee finders fee. . P-5:25 Cluis Petersen 1.0 Lance' Schiffman 100;000.00 2.0
--0 e Itreesm Op n
15✓7 000. ob 112 lt D.. lel 2501 c_.95-0, 4, OC) Dt. (.7em-ome , 05
0 D. AA'S. - Fe
6 cue L
1 frv• C.: tqh.p.S cr-, njt.r, C-!...401114t-- 11-‘,.5) d. 1,,p, 1. • 4tr
CONFIDENTIAL XAN-A10001 08 Exhibit C to Operating Agreement of XarnGoTM LLC
rompeaisatio
To be settled with in one year of operation.
25
CONFIDENTIAL XAN-A1000109 EXHIBIT B SECOND AMENDED AND RESTATED OPERATING AGREEMENT
OF
XANGO, LLC TABLE OF CONTENTS Page
RECITALS 1
ARTICLE 1: DEFINITIONS 1
1.01 Scope 1 1.02 Defined Terms 2
ARTICLE 2: THE COMPANY 6
2.01 Status 6 2.02 Name 6 2.03 Term 6 2.04 Purpose and Powers 6 2.05 Registered Agent and Registered Office 6 2.06 Units 7 2.07 Additional Unit Issuances 7 2.08 Reacquisition and Reissuance of Units 7 2.09 Unit Class Designation and Conversion 8 2.10 Dilution 8
ARTICLE 3: MEMBERS 8
3.01 Identification 8 3.02 Verification of Membership Interests and Units 9 3.03 Manner of Acting 9 3.04 Limitation on Individual Authority 11 3.05 Negation of Fiduciary Duties 11 3.06 Resignation of a Member 11 3.07 Transfer of Units 11 nsz niQQnpiallon 16 3,09 Redemption of Member's Units Upon Divorce Transfer or Dissociation 16 3.10 Limitation of Liability 18
ARTICLE 4: FINANCE AND TAXES 18
4.01 Contributions 18 4.02 Allocation of Profit and Loss 20 4.03 Tax Allocations 21 4.04 Distributions 21 4.05 Capital Accounts 22 ARTICLE 5: MANAGEMENT 23
5.01 Management by Managers 23 5.02 Time Devoted to Business 24 5.03 Election of Managers 24 5.04 Agency Power and Authority 24 5.05 Manner of Acting 25 5.06 Delegation of Authority and Duties to Officers 25 5.07 Performance of Duties and Specific Approvals 26 5.08 Indemnification and Advancement of Costs 27 5.09 Compensation of Managers 27
ARTICLE 6: RECORDS AND ACCOUNTING 28
6.01 Maintenance of Records 28 6.02 Financial Accounting 28 6.03 Reports 29
ARTICLE 7: DISSOLUTION 29
7.01 Events of Dissolution 29 7.02 Effect of Dissolution 30
ARTICLE 8: PROTECTION OF BUSINESS 30
8.01 Background 30 8.02 Preservation of Confidential Information 31 8.03 Covenants Not to Divert or Solicit 33 8.04 Definitions and Construction 33 8.05 Reasonable Restrictions and Consideration 34 8.06 Remedies 34 8.07 Reformation 34
ARTICLE 9: GENERAL PROVISIONS 35
9.01 Amendments 9.02 Power of Attorney 35 9.03 Investment Representation 35 9.04 Notices 36 9.05 Resolution of Inconsistencies 36 9.06 Additional Investments 36 9.07 Computation of Time 36 9.08 Entire Agreement 36 9.09 Conversion to Other Type of Entity 36 9.10 Waiver 37 9.11 General Construction Principles 37 9.12 Binding Effect 37 9.13 Governing Law and Dispute Resolution 37 9.14 Legal Representation 37 9.15 Counterparts 37
111 THE MEMBERSHIP INTERESTS EVIDENCED BY THIS LIMITED LIABILITY COMPANY OPERATING AGREEMENT, AND THE UNITS ISSUED HEREUNDER, HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE SOLD, ASSIGNED OR OTHERWISE TRANSFERRED EXCEPT AS SPECIFICALLY PROVIDED HEREIN.
SECOND AMENDED AND RESTATED OPERATING AGREEMENT
OF
XANGO, LLC
THIS SECOND AMENDED AND RESTATED OPERATING AGREEMENT (this "Agreement") is made and entered into effective as of May 15t1i, 2009 (the "Effective Date") by and among the Persons listed as "Members" on Exhibit A attached hereto (each a "Member" and collectively the "Members") in their capacity as all of the members of XanGo, LLC (the "Company").
RECITALS
A. The Members have determined that it is in the best interest of the Company and of the Members and Interest Holders to amend and restate the Operating Agreement.
B. The Members intend that this Agreement (1) constitute the Company's "Operating Agreement" within the meaning of the Act, (2) comprise the entire agreement among the parties with respect to the Company, and (3) supersede any prior agreements or understandings among the members with respect to the Company, including, without limitation, the agreements pursuant to which the members acquired their interests in the Company.
AGREEMENT:
NOW, THEREFORE, for and in consideration of the mutual covenants and premises contained herein and other good and valuable consideration, the receipt and sufficiency of which are acknowledged, the undersigned Members amend and restate the Original Operating Agreement to read, as follows, as of the Effective Date:
ARTICLE 1: DEFINITIONS
1.01 Scope. For purposes of this Agreement, unless the language or context clearly indicates that a different meaning is intended, capitalized terms have the meanings specified in this Article.
Final Second Amended and Restated Operating Agreement 6-19-2009 • 1.02 Defined Terms.
(a) "Act" means the Utah Revised Limited Liability Company Act, as amended from time to time.
(b) "Affiliate," with respect to a Person, means (i) a Person that, directly or indirectly, through one or more intermediaries, controls, is controlled by or is under common control with the Person, (ii) a Person who owns or controls at least 10% of the outstanding voting interests of the Person, (iii) a Person who is an officer, director, manager or general partner of the Person, or (iv) a Person who is an officer, director, manager, general partner, trustee or owns at least 10% of the outstanding voting interests of a Person described in clauses (i) through (iii) of this sentence.
(c) "Agreement" means this operating agreement, including any amendments.
(d) "Articles" means the Company's Articles of Organization, as amended.
(e) "Available Cash Flow" means with respect to each Taxable Year the Company's gross cash receipts from all operations and investments during that year (excluding Contributions), less the sum of: (i) all payments of principal, interest, charges and fees pertaining to the Company's indebtedness during the year; (ii) all expenditures paid in or incident to the conduct of the Company's business, whether capital or operational, during the year; (iii) Distributions made pursuant to Article 4.04(a)(i); and (iv) net additions for the year to reserves maintained to meet the reasonable current or future needs of the Company's business, as determined from time to time by a majority of the Managers.
(f) "Bankruptcy," with respect to a Member, means (i) the Member's general assignment for the benefit of creditors, (ii) the filing of a petition or answer seeking for the Member any reorganization, arrangement, composition, readjustment, liquidation, dissolution, protection or similar relief in any state or federal bankruptcy, insolvency, reorganization or receivership proceeding, or (iii) the filing of an answer or other pleading admitting or failing to contest the material allegations of a petition filed against the Member in any state or federal bankruptcy, insolvency, reorganization or receivership proceeding.
(g) "Capital Account" of a MeMber means the capital account maintained for the Member in accordance with Article 4.05 below.
(h) "Cause" means as to any Person, fraud, gross negligence or willful misconduct in the performance of duties hereunder, or willful violation of this Agreement, or the commission of any crime involving moral turpitude.
(i) "Change in Control" means with respect to any Entity that is a Member, any transaction or event that results in the individuals who directly or indirectly own or control a majority of the voting equity interests or beneficial economic interests in such Entity on the date that the Entity is first admitted as a Member thereafter ceasing to own or control a majority of
Final Second Amended and Restated Operating Agreement 6-19-2009 the voting equity interests or beneficial economic interests in such Entity. In the case of a trust to which an individual Member has made a permitted Transfer under Article 3.07(b) below, a Change in Control will also be deemed to occur with respect to that Trust on the date the transferor Member ceases to control, whether as trustee or otherwise, the manner in which the Unit held in the trust is voted.
(j) "Class A Units" means the voting Units of Membership Interest described in Article 2.06(b)(i) below.
(k) "Class B Units" means the voting Units of Membership Interest described in Article 2.06(b)(ii) below.
(1) "Class C Units" means the non-voting Units of Membership Interest described in Article 2.06(b)(iii) below.
(m) "Code" means the Internal Revenue Code of 1986, as amended.
(n) "Company" means XanGo, LLC and any successor limited liability company.
(o) "Contribution" means anything of value that a Member contributes to the Company as a prerequisite for or in connection with membership, including any combination of cash, property, services rendered, a promissory note or any other obligation to contribute cash or property or render services.
(p) "Dissociation" means a complete termination of a Member's membership in the Company in consequence of an event described in Article 3.08.
(q) "Dissolution," with respect to an Entity, means (1) the filing of articles of dissolution on the Entity's behalf, (ii) the Entity's administrative dissolution, unless the Entity is reinstated within the time period prescribed by applicable law or (iii) any other event that initiates the Entity's winding up under applicable law.
(r) "Distribution" means the Company's direct or indirect transfer of money or other property with respect to a Membership Interest, other than (i) issuance of Units, (ii) issuance of evidence of indebtedness, (iii) reasonable compensation for past or present services, or (iv) reasonable payments made in the ordinary course of business pursuant to a bona fide retirement plan or other benefits program. Repayment of Member loans or other indebtedness to Members for services rendered shall not be deemed Distributions.
(s) "Divorce Transfer" means any Transfer of all or any portion of a Member's Units to the Member's former spouse or another Person as a result of a divorce or other domestic relations proceedings or settlement, including the entry of any judicial order or judgment in a divorce or similar domestic relations proceedings that results in a Member retaining less than all of the Units he owned prior to such order or judgment.
Final Second Amended and Restated Operating Agreement 6-19-2009 3 (t) "Effective Date" means April 17, 2009.
(u) "Entity" means an association, relationship or artificial person through or by means of which an enterprise or activity may be lawfully conducted, including, without limitation, a domestic or foreign corporation, nonprofit corporation, limited liability company, general partnership, limited partnership, business trust, association, trust, estate, joint venture, cooperative or governmental unit.
(v) "Family Group" means, with respect to a Member who is an individual, such Member's spouse, ancestors and descendants (whether natural or adopted) and any trust, family limited partnership, limited liability company or other entity wholly owned, directly or indirectly, by such Member or such Member's spouse, ancestors and/or descendants that is and remains solely for the benefit of such Member and/or such Member's spouse, ancestors and/or descendants.
(w) "Incapacity," with respect to a Member, means impairment by reason of mental illness, mental deficiency, physical illness or disability, chronic use of drugs, chronic intoxication or other cause to the extent the Member lacks sufficient understanding or capacity to make or communicate responsible decisions.
(x) "Interest Holder" means each Person identified under "List of Interest Holders" on Exhibit A as of the Effective Date and each Person who may thereafter be added as an Interest Holder in accordance with the terms of this Agreement and the Act, and refers to the owner of an economic interest in the Company who has not been admitted as a Member of the Company and has the rights of an assignee under Section 48-2c-1102 of the Act.
(y) "Majority in Interest" means as of any date: (i) as to all Members, those Members whose Units, in the aggregate, constitute more than 50% of the combined Percentage Interests of all of the Members on such date; and (ii) as to the holders of any specified class or classes of Units, Members who in the aggregate hold more than 50% of the outstanding Units in that specified class on such date. For purposes of this definition, Units of a Member who has forfeited his right to vote under Article 4.01(c)(ii) below shall be disregarded.
(z) "Manager" means a Person, whether or not a Member, who is vested with authority to manage the Company in accordance with Article 5.01 below.
(aa) "Member" means each Person identified under "List of Members" on Exhibit A as of the Effective Date who has executed this Agreement or a counterpart hereof and each Person who may thereafter be admitted as a Member in accordance with the terms of this Agreement.
(bb) "Membership Interest" means a Member's ownership interest in the Company, consisting of the Member's right to receive Distributions, vote, receive information pertaining to the Company's affairs, and receive such other benefits as are provided to members under the Act. As provided in Article 2.06 below, all Membership Interests shall be represented by, and denominated in, Units.
Final Second Amended and Restated Operating Agreement 6-19-2009 4 (cc) "Minimum Gain" means minimum gain as defined in sections 1.704-2(b)(2) and 1.704-2(d) of the Regulations.
(dd) "Officer" means any Manager or other individual appointed as an Officer under Article 5.06 below.
(ee) "Percentage Interest" means, with respect to any Member, the amount determined by dividing the number of Units held by such Member on the date in question by the aggregate number of Units held by all Members on that date.
(ff) "Person" means a natural person or an Entity.
(gg) "Profit" as to a positive amount, or "Loss," as to a negative amount, means, for a Taxable Year, the Company's net taxable income or loss for the Taxable Year, as determined in accordance with section 703(a) of the Code, with the following adjustments: (i) all items required to be separately stated pursuant to section 703(a)(1) of the Code will be accounted for in the aggregate; (ii) any income that is exempt for federal income tax purposes will be included; and (iii) any item that is specially allocated pursuant to Article 4.02(b) will be disregarded. (hh) "Profits Interest" shall have the meaning as set forth in Article 4.01(f)(i), below.
(ii) "Redeemable Units" means in the case of a dissociated Member, all of the Units owned by such Member immediately prior to the event of Dissociation, and in the case of a Divorce Transfer, all Units Transferred as part of the Divorce Transfer.
"Redemption Price" means the per Unit price at which the Company may purchase the Redeemable Units of a Member following an event of Dissolution or Divorce Transfer with respect to that Member.
OM "Regulations" means proposed, temporary or final regulations promulgated under the Code by the Department of the Treasury, as amended.
(11) "Taxable Year" means the Company's taxable year as determined in accordance with Article 6.02(b) below.
(mm) "Transfer," as a noun, means a transaction or event by which ownership of a Membership Interest is changed or encumbered, including, without limitation, a sale, exchange, assignment, abandonment, gift, encumbrance, pledge, grant of a security interest or foreclosure. "Transfer," as a verb, means to affect a Transfer. In the case of an Entity that is a Member, the term "Transfer" also includes a Change in Control of that Entity.
(nn) "Transferee" means a Person who acquires a Membership Interest by Transfer from a Member or another Transferee and is not admitted as a Member in accordance with Article 3.01(b) below.
Final Second Amended and Restated Operating Agreement 6-19-2009 5 (oo) "Units" means the units into which ownership of the Company is divided. As of the Effective Date, the total number of Units outstanding is as set forth in Article 2.06(d) of this Agreement. Changes in the total number of Units outstanding and the number of Units held by each Member after the Effective Date, including those necessitated by the issuance of additional Units, admission of additional or substitute Members, and/or the Dissociation of Members, will be reflected in the Company's records and by appropriate amendments to Exhibit A and this Agreement. The allocation of Units reflected in the Company's records from time to time is presumed to be correct for all purposes of this Agreement and the Act.
(pp) "Valuation Date" has the meaning set forth in Article 3.09(b) below.
ARTICLE 2: THE COMPANY
2.01 Status. The Company is a Utah limited liability company organized under the Act.
2.02 Name. The Company's name is XanGo, LLC.
2.03 Term. The Company's existence commenced on September 11, 2002 and will continue until December 31, 2099 unless sooner terminated under this Agreement.
2.04 Purpose and Powers. The Company's purpose is to manufacture, distribute, market and sell XanGoTm juice and related health food products and to engage in any other lawful act or activity for which a limited liability company may be organized under the Act. The Company shall have any and all powers that are necessary or desirable to carry out the purposes and business of the Company, to the extent the same may be legally exercised by limited liability companies under the Act. The Company shall carry out the foregoing activities pursuant to the arrangements set forth in this Agreement.
2.05 Registered Agent and Registered Office. The Company's registered office in Utah is located at 2889 W. Ashton Blvd, Lehi, Utah, 84043, and its registered agent at that location is A. Craig Hale. A majority of the Managers may cause the Company to change its registered office at any time in accordance with the Act. The Company's Chief Executive Officer or a majority of the Managers may cause the Company to change its registered agent at anytime in accordance with the Act.
2.06 Units.
(b) Authorized Units and Classes. The Company is authorized to issue a total of 1,200,000 Units. The Company shall have three classes of Units: (i) Class A Units, (ii) Class B Units and (iii) Class C Units. Except as otherwise expressly provided elsewhere in this Agreement, the preferences, limitations and relative rights of the Units shall be identical, regardless of class.
Final Second Amended and Restated Operating Agreement 6-19-2009 6 (c) Certification. The Company may, but is not required to, issue certificates or other forms of tangible documentation evidencing the issuance or existence of outstanding Units.
(d) Units Outstanding. As of the Effective Date, the Company has issued (i) an aggregate of 871,125 (901,299 if Genesis signs this Agreement) Class A Units to the Class A Unit Members named on Exhibit A attached hereto; (ii) an aggregate of 50,000 Class B Units to the Class B Unit Members named on Exhibit A attached hereto; (iii) an aggregate of 62,505 Class C Units to the Class C Unit Members named on Exhibit A attached hereto; and (iv) an aggregate of 10,000 (43,000 if Genesis doesn't sign this Agreement) Interest Holder Units.
2.07 Additional Unit Issuances. Subject to compliance with the 1,200,000 limitation on outstanding Units, a majority of the Managers shall have the right to cause the Company to issue or sell to any Person (including Members and Affiliates) for cash or other property: (a) additional Units, and (b) warrants, options, or other rights to purchase or otherwise acquire additional Units. A majority of the Managers shall determine the terms and conditions governing the issuance of such Units, including the number of such Units, and any required purchase or subscription payments or other Contributions in connection therewith. Provided, however, that no more than 60,000 Class C Units may be issued as employee incentive Profits Interests without the unanimous approval of the Class A Voting Members. In the event the Company receives an offer for the acquisition of unissued Units from any Person, each existing Member shall have a right to acquire a number of Units proportionate to that Member's proportionate ownership of outstanding Units prior to such issuance upon the same terms and conditions as the offer received by the Company. The Members shall have ten (10) days from the date they receive written notice of such offer to exercise this option.
2.08 Reacquisition and Reissuance of Units. Prior to Dissolution of the Company, the Company may from time to time redeem or reacquire outstanding Units for such consideration and upon such terms and conditions as are mutually agreeable to the holder of such Units and a majority of the Managers. Notwithstanding the foregoing, absent a separate written agreement to the contrary, the Company shall be under no obligation to redeem or reacquire the Units of any Member prior to Dissolution of the Company. Any Units that the Company redeems or otherwise reacquires shall cease to be outstanding on the date of acquisition by the Company but may be reissued as provided below. If the Company redeems or otherwise reacquires any previously issued Units, it may reissue those Units provided that at any one time the Company's outstanding Units shall not exceed 1,200,000. Any reissuance of Units shall be for such consideration, on such terms and conditions and at such times as a majority of the Managers determine.
2.09 Unit Class Designation and Conversion.
(a) Class A Units. At any time that any Class A Units are transferred to any Person that is not, at the time of Transfer, an existing Member owning Class A Units, unless a majority of the Managers vote to allow the transferred Units to remain Class A Units, the transferred Units shall automatically convert to Class C Units.
Final Second Amended and Restated Operating Agreement 6-19-2009 7 (b) Class B Units. At any time that any Class B Units are transferred to any Person that is not, at the time of the Transfer, an existing Member owning Class B Units, unless a majority of the Managers vote to (i) allow the transferred Units to remain Class B Units, or (ii) cause the transferred Class B Units to convert to Class A Units, the transferred Units shall automatically convert to Class C Units.
(c) Class C Units. Class C Units, whether issued by the Company or acquired from any Person, are not convertible to Class A Units or Class B Units.
(d) Documentation. At any time that a Unit is transferred and is, by reason of such transfer, converted to another type of Unit, the Company shall promptly cause (i) any existing certificate representing such Unit to be cancelled on the records of the Company, (ii) a new certificate to be issued to the owner of the transferred Unit that designates the correct type of Unit represented thereby.
2.10 Dilution. At any time that the Company issues authorized Units or redeems outstanding Units, the Percentage interests represented by the outstanding Units, regardless of class, shall be proportionately increased or decreased, as the case may be.
ARTICLE 3: MEMBERS
3.01 Identification.
(a) Members on the Effective Date. The names and Unit classes of each Member as of the Effective Date are set forth on Exhibit A attached to this Agreement.
(b) Additional and Substitute Members. The Company may admit additional or substitute Members on such terms and conditions as are approved by a majority of the Managers, in their discretion; provided, however, that (i) the admission of an additional MeMber must comply with the provisions of Articles 2.07 above and (ii) a Person shall not be admitted as an additional or substitute Member unless such Person has executed and delivered to the Company a written undertaking to be bound by the terms and conditions of this Agreement.
(0) Rights of Additional or Substitute Members. A Person admitted as an additional or substitute Member has all the rights and powers and is subject to all the restrictions and obligations of a Member under this Agreement and the Act.
3.02 Verification of Membership interests and Units. Within twenty-five days after receipt of a Member's written request, the Company will provide the Member with a statement specifying the Member's number and class of Units and the total number of then outstanding Units in each class. The statement will serve the sole purpose of verifying the Member's Units, as reflected in the Company's records, and will not constitute for any purpose a certificated security, negotiable instrument or other vehicle by which a Transfer of a Unit may be affected.
3.03 Manner of Acting.
Final Second Amended and Restated Operating Agreement 6-19-2009 8 (a) Right to Vote. Except as otherwise required by law or expressly provided by Article 4.01(c)(ii) below, the holders of the Class A Units and Class B Units shall be entitled to vote on all matters submitted to the Members for a vote, with each Class A Unit and Class B Unit entitled to one vote. The holders of Class C Units shall have no right to vote on any matter submitted to the Members for a vote and the Class C Units shall be disregarded and treated as not outstanding for all purposes of this Article 3.03.
(b) Meetings.
(i) Right to Call. Any two Managers or any Member or combination of Members whose Percentage Interest exceeds 20% may call a meeting of Members by giving written notice to all Members not less than 5 nor more than 60 days prior to the date of the meeting. The notice must specify the date, time and place of the meeting and the nature of any business to be transacted. A Member may waive notice of a meeting of Members orally, in writing or by attendance at the meeting.
(ii) Proxy Voting. A Member may act at a meeting of Members through a Person authorized by signed proxy. A photographic, photostatic, electronic, facsimile or similar reproduction of a writing executed by the Member shall be treated as an execution in writing for purposes of this Article 3.03(b)(ii). Proxies for use at any meeting of Members or in connection with the taking of any action by written consent shall be filed with the Company, before or at the time of the meeting or execution of the written consent as the case may be. All proxies shall be received and taken charge of and all ballots shall be received and canvassed by the President of the Company, who shall decide all questions concerning the qualification of voters, the validity of the proxies and the acceptance or rejection of votes, unless an inspector or inspectors shall have been appointed by the chairman of the meeting, in which event such inspector or inspectors shall decide all such questions. No proxy shall be valid after 11 months from the date of its execution unless otherwise provided in the proxy. A proxy shall be revocable unless the proxy form conspicuously states that the proxy is irrevocable and the proxy is coupled with an interest. If a proxy designates two or more Persons to act as proxies, unless that instrument shall provide to the contrary, a majority of such Persons present at any meeting at which their powers under the proxy are to be exercised shall have and may exercise all the powers of voting or giving consents thereby conferred, or if only one be present, then such powers may be exercised by that one; or, if an even number attend and a majority do not agree on any particular issue, the Company shall not be required to recognize such proxy with respect to such issue if such proxy does not specify how the Units that are the subject of such proxy are to be voted with respect to such issue.
(iii) Record Date and Quorum. The date on which notice of a meeting of Members is mailed shall be the record date for the determination of the Members entitled to notice of or to vote at such meeting (including any adjournment thereof). A Majority in Interest of the Members will constitute a quorum at a meeting of Members. No action may be taken at a meeting in the absence of a quorum.
Final Second Amended and Restated Operating Agreement 6-19-2009 9
(iv) Required Vote. Except with respect to matters for which a greater minimum vote is required by the Act or this Agreement, the vote of Members present who hold in excess of 50% of the voting Units represented at the meeting shall be required to constitute the act of the Members at the meeting. Notwithstanding the foregoing or any other provision of this Agreement, the following actions shall require the affirmative vote of Members entitled to vote whose combined Percentage Interest exceeds 65% of the aggregate Percentage Interest of all Members entitled to vote: (A) any merger or consolidation of the Company with another entity, whether or not the Company is the surviving entity; (B) a sale, transfer or other disposition (which, for purposes of clarification, excludes sales of inventory and other sales in the ordinary course of business) in any transaction or series of related transactions of more than 50% of the fair market value of the Company's consolidated assets; (C) any transaction with a Manager or a Manager's Affiliates, except for arms-length transactions approved as provided in Article 5.07(d) below; (D) any amendment of this Agreement (other than as described in the last sentence of Article 9.01(b) below); or (E) Dissolution of the Company. For purposes of applying this Article 3.03, the Units of any Member who has forfeited his voting rights under Article 4.01(c)(ii) below shall be disregarded.
(v) Conduct of Member Meetings. All meetings of the Members shall be presided over by the chairman of the meeting, who shall be designated by a majority of the Managers. The chairman of any meeting of Members shall determine the order of business and the procedure at the meeting, including such regulation of the manner of voting and the conduct of discussion as seem to him in order.
• (vi) Adjournment. Notwithstanding the other provisions of the this Agreement, the chairman of any meeting or the Members holding in excess of 50% of the voting Units represented at the meeting shall have the power to adjourn such meeting from time to time, without any notice other than announcement at the meeting of the time and place of the holding of the adjourned meeting. If such meeting is adjourned by the Members, such time and place shall be determined by a vote of the Members holding the requisite number of Units to adjourn such meeting. Upon the resumption of such adjourned meeting, any business may be transacted that might have been transacted at the meeting as originally called.
(vii) Telephonic Meetings. Members may participate in and hold a meeting by telephone conference or by any means of which all Persons participating in the meeting can hear each other, and participation in such meeting shall constitute attendance and presence in person at such meeting, except where a Person participates in the meeting for the express purpose of objecting to the transaction of any business on the ground that the meeting is not lawfully called or convened.
(c) Action by Written Consent. The Members may act without a meeting by written consent describing the action and signed by Members entitled to vote whose Units are at least equarto the minimum percentage that would be necessary to take the action at a meeting at which all Members were present. The record date for determining Members entitled to consent to action in writing without a meeting shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the Company by delivery to its registered office, its principal place of business, or any two Managers. The Company shall
Final Second Amended and Restated Operating Agreement 6-19-2009 10 give reasonably prompt notice of such action to each Member who does not join in the written consent.
3.04 Limitation on Individual Authority. A Member who is not also a Manager or Officer has no authority to bind the Company. A Member whose unauthorized act obligates the Company to a third party will indemnify the Company for any costs or damages the Company incurs as a result of the unauthorized act.
3.05 Negation of Fiduciary Duties. Except as provided in Article 8 below, a Member who is not also a Manager owes no fiduciary duties to the Company or to the other Members solely by reason of being a Member.
3.06 Resignation of a Member. A Member may resign from the Company at any time upon ten days advance written notice to the Company. A resigning Member shall not be entitled to receive any payment or other consideration for his Membership Interest or Units, or the return of his Contributions or capital, unless such payment is specifically required under this Agreement or another written agreement approved by a majority of the Managers.
3.07 Transfer of Units.
(a) Transfers Prohibited. Except as expressly permitted in this Article 3.07, a Member may not Transfer, directly or indirectly, any of his Units without the prior written consent of a majority of the Managers, which consent the other Managers may withhold in their sole discretion.
(b) Transfers to Permitted Transferees. Notwithstanding Article 3.07(a) above, but subject to Article 3.07(f) below, a Member (the "Transferor") may Transfer any or all of his Units without the prior consent of the other Members: (i) to the Company, (ii) to another Member, (iii) to a trust as to which the Transferor is the trustee or otherwise retains voting control of the Units; (iv) upon dissolution of an Entity that is a Member, to that Entity's owners, and (v) upon the death or Incapacity of any Member who is an individual, to the deceased or incapacitated Member's executors, administrators, guardians, estate, or Persons in the Member's Family Group; provided that (1) the Transferee agrees in writing to hold the transferred Units subject to the provisions of this Agreement, including, without limitation, the restrictions on Transfers contained in this Article 3.07 and the right of redemption provided under Article 3.09 below, and (ii) the Company waives, in writing, its option to redeem granted at Article 3.09. A Transfer under this Article 3.07(b) shall not be subject to Article 3.07(c) or (d) below.
(c) Transfers Subject to Right of First Refusal. Notwithstanding Article 3.07(a) above, but subject to Article 3.07(1) below, a Member may Transfer all, but not less than all, of his Units to another Person without the prior consent of the other Members, provided that he makes such Transfer in compliance with the following provisions of this Article 3.07(c).
(i) If a Member (the "Selling Member") receives a bona fide written offer (the "Offer") from any Person (the "Proposed Transferee") to purchase all of the Member's Units solely for cash payable at closing and the Selling Member wishes to accept the Offer, the
Final Second Amended and Restated Operating Agreement 6-19-2009 1 1 Selling Member shall give the Company and the other Members (the "Non-Selling Members") written notice of the Offer (the "Proposed Transfer Notice"). The Proposed Transfer Notice shall (A) describe all of the material terms and conditions of the Offer and proposed Transfer, including the proposed cash price per Unit and the identity of the proposed purchaser (the "Offer Terms"), (B) include copies of all contracts, offers and other written instruments and materials relating to the Offer and proposed Transfer and (C) offer to sell to the Company and the Non- Selling Members all of the Selling Members Units (the "Offered Units") on the Offer Terms.
(ii) Upon receipt of the Proposed Transfer Notice, the Company and Non-Selling Members shall have the option, but not the obligation, to purchase in the aggregate all, but not less than all, of the Offered Units on the Offer Terms. To exercise their option to purchase the Offered Units, the Company and/or one or more of the Non-Selling Members must deliver written notice of exercise to the Selling Member within 30 days after receipt of the Proposed Transfer Notice (the "Option Exercise Period"). As between the Company and Non- Selling Members, the Company shall have a prior right to purchase any or all of the Offered Units and the Non-Selling Members shall have the right to purchase any of the Offered Units not purchased by the Company. if more than one of the Non-Selling Members timely elect to purchase the Offered Units not purchased by the Company (the "Remaining Offered Units") and the number of the Remaining Offered Units the Non-Selling Members elect to purchase exceeds the total number of the Remaining Offered Units, the Remaining Offered Units shall be allocated for purchase among the Non-Selling Members who have elected to purchase Offered Units in proportion to their respective Percentage Interests (but as to any Non-Selling Member, not in excess of the number of Remaining Offered Units that the Non-Selling Member has initially elected to purchase), or as they may otherwise agree to in writing. Closing of any purchase of Offered Units by the Company and the Non-Selling Members shall occur at a time and date designated by the Company, but in no event later than 30 days after the end of the Option Exercise Period.
(iii) If the Company and the Non-Selling Members in the aggregate do not timely exercise their option to purchase all of the Offered Units as provided in paragraph (ii) above then, subject to Article 3.07(d) and (e) below, the Selling Member may Transfer the Offered Units to the Proposed Transferee in an "all cash" sale; provided that the Transfer is made strictly in accordance with the Offer Terms and occurs not later than 45 days after the end of the Option Exercise Period; and provided further that the Proposed Transferee agrees in writing to hold the Offered Units subject to the terms and conditions of this Agreement, including, without limitation, the restrictions on Transfers imposed by this Article 3.07. If the Selling Member fails to complete the Transfer of the Offered Units within that 45-day period, he may not Transfer the Offered Units under this Article 3.07(c) without again complying with the procedures prescribed by this Article 3.07(c).
(d) Tag-Along Rights of Members.
(i) If one or more of the holders of Class A Units (collectively, the "Tag-Along Seller") propose to Transfer to any Person the "Tag-Along Transferee"), in any single or series of related transactions (collectively, the "Tag-Along Transfer"), 17% or more of the aggregate Class A Units then owned by all of the Members holding Class A Units, other than
Final Second Amended and Restated Operating Agreement 6-19-2009 12 in an initial public offering, the Tag-Along Seller shall give written notice of the Tag-Along Transfer (the "Tag-Along Transfer Notice") to all Members. The Tag-Along Transfer Notice shall identify the Tag-Along Transferee and describe all of the material terms and conditions of the Tag-Along Transfer, including, without limitation, the sales price, the payment of fees, commissions and expenses and the provision of representations, warranties and indemnifications (the "Tag-Along Terms").
(ii) Upon receipt of the Tag-Along Transfer Notice, the other Members shall have the right, but not the obligation, to include in the Tag-Along Sale Class A Units, Class B Units or Class C Units, as the case may be, that are owned by the Members. To exercise their right to include the Units in the Tag-Along Transfer, one or more of the Members who is not a Tag-Along-Seller, must deliver written notice of exercise to the Tag-Along Seller within 30 days after receipt of the Tag-Along Transfer Notice (the "Tag-Along Exercise Period"). The number of Units that each Class A Member, Class B Member or Class C Member will be permitted to include in the Tag-Along Sale shall not exceed the percentage of the aggregate Class .A Units, Class B Units or Class C Units, as the case may be, owned by such Member or, that corresponds to the percentage of the aggregate Class A Units that are the subject of the Tag-Along Transfer.
(iii) If any Member effectively exercises his Units, in the Tag-Along Sale, the Units subject to such exercise shall be included in the Tag-Along Sale on the Tag- Along Terms; provided that any indemnification provided by the Member shall be pro rata in proportion to the total consideration to be received by the Member, as the case may be, relative to the total consideration to be received by the Tag-Along Seller.
(v) The provisions of this Article 3.07(d) shall not apply to any bona fide public distribution of Units pursuant to Rule 144 of the Securities Act, provided that any such sale complies with the provisions of this Agreement.
(e) Drag-Along Rights Against Class A, Class B and Class C Members.
If one or more of the holders of Class A Units (collectively, the "Drag-Along Seller") propose to Transfer to any Person (the "Drag-Along Transferee"), in any single or series of related transactions (collectively, the "Drag-Along Transfer"), 15% or more of the aggregate Class A Units then owned by all of the Members holding Class A Units, other than in an initial public offering, the Drag-Along Seller shall have the right, exercisable upon not less than 15 days' prior written notice to the holders of any class of Units (Class A, Class B Units, Class C and Interest Holders), to compel the holders of such Units to Transfer the Units to the Drag-Along Transferee on the same terms and conditions as those on which the Drag-Along Seller proposes to Transfer Class A Units to the Drag-Along Transferee; provided that any indemnification provided by a Unit holder shall be pro rata in proportion to the total consideration to be received by the Unit holder, relative to the total consideration to be received by the Drag-Along Seller.
(ii) The number of Units, that each Unit holder will be required to include in the Drag-Along Sale shall not exceed the percentage of the aggregate Units, owned by
Final Second Amended and Restated Operating Agreement 6-19-2009 13 such Unit holder that corresponds to the percentage of the aggregate Class A Units that are the subject of the Drag-Along Transfer.
(iii) The provisions of this Article 3.07(e) shall not apply to any bona fide public distribution of Units pursuant to Rule 144 of the Securities Act, provided that any such sale complies with the provisions of this Agreement.
Additional Restrictions on Transfers. Notwithstanding the foregoing provisions of this Article 3.07, unless waived by a majority of the Managers, no Transfer of Units is permitted if:
the Transfer would (A) result in a "termination" of the Company under section 708 of the Code having adverse tax consequences to any Member, or (B) in the opinion of counsel to the Company, more likely than not violate any restrictive covenant or provision of, or give rise to or create a default or event of default (either immediately or with the passage of time) under, any material contract or agreement to which the Company is bound;
(ii) the Transfer would in the opinion of counsel to the Company more likely than not violate or create a material risk that the Company would be treated as violating any applicable federal or state securities or other law;
(iii) the Transfer would result in the Company having more than 100 "beneficial owners" as defined and determined by the Investment Company Act of 1940, as amended from time to time, or more than 100 "partners" (within the meaning of Treasury Regulation section 1.7704-1(h), including the lodk-through rule in Treasury Regulation section 1.7704-1(h)(3)); or
(iv) the Transfer would in the opinion of counsel to the Company more likely than not result in any portion of the assets of the Company constituting "plan assets" within the meaning of the Employee Retirement Income Security Act of 1974 ("ERISA").
(g) Costs. Unless waived by a majority of the Managers, and in addition to all other requirements of this Agreement, no Transfer is permitted unless the Transferee and the transferring Member (i) pay all costs reasonably incurred by the Company in documenting and reviewing such Transfer, and (ii) execute such documents as the Company reasonably requires to document the Transfer and the continuing application of this Agreement to the Units in question.
(h) Prohibited Transfers Void. If a Member attempts to Transfer any or all of his Units in contravention of the provisions of this Article 3.07, or permits a Transfer of his Units in violation of this Agreement, the purported Transfer will be null and void and the Member will be deemed to have resigned and dissociated from the Company.
Transferor's Membership Status. Except in the case of a Transfer that is permitted pursuant to Article 3.07(6), if a Member Transfers less than all of his Units, the Member's rights with respect to the transferred portion, including the right to vote or otherwise participate in the Company's, will terminate as of the effective date of the Transfer. However,
Final Second Amended and Restated Operating Agreement 6-19-2009 14 the Member will remain liable for any obligation with respect to the transferred portion that existed prior to the effective date of the Transfer, including any costs or damages resulting from the Member's breach of this Agreement. If the Member Transfers all of his Units, the Transfer will constitute an event of Dissociation for purposes of Article 3.08 below.
(j) Transferee's Status.
(i) Except with respect to a Transfer that is permitted pursuant to Article 3.07(b), a Member who Transfers a Membership Interest or any Units has no power to confer on the Transferee the status of a Member. A Transferee may be admitted as a Member only if: (A) the Transferee received Units in a Transfer described in Article 3.07(b), or a majority of the Managers approves in writing the admission of the Transferee, which approval the Managers may withhold in their sole discretion; and (B) the Transferee executes a counterpart to this Agreement under which the Transferee agrees to be bound as a Member by this Agreement. Notwithstanding the foregoing, a Transferee that is a Member immediately prior to the Transfer in question shall automatically continue as a Member with respect to the Units assigned to the Transferee. A Transferee who is not admitted as a Member has only the limited economic rights described in Article 3.07(j)(ii) below and no other rights under this Agreement or the Act with respect to the Company or its assets.
(ii) A Transferee who is not admitted as a Member in accordance with the provisions of Article 3.07(j)(i) above: (A) has no right to vote or otherwise participate in the Company's governance; (B) is not entitled to receive information concerning the Company's affairs or inspect the Company's books and records; (C) with respect to the transferred Units, is only entitled to receive the Distributions to which the transferor Member would have been entitled had the Transfer not occurred, and (D) is subject to the restrictions imposed by this Article 3.07 on Transfer to the same extent as a Member.
3.08 Dissociation.
(a) Events of Dissociation. A Member's Dissociation from the Company occurs upon: (i) the Member's resignation or expulsion from the Company; (ii) the Member's Transfer, whether voluntary or involuntary, of any portion of the Member's Membership Interest (including any deemed Transfer as a result of a Change in Control with respect to a trust or other Entity that is a Member), and including the transfer of any interest in an Entity which holds a Membership Interest, unless such Transfer is approved in writing by a majority of the Managers, or unless such Transfer is otherwise authorized by this Agreement; (iii) as to a Member who is a natural person, the Member's Incapacity or death; (iv) the Member's Bankruptcy; (v) as to a Member who holds a Membership interest as a fiduciary, distribution of the entire Membership Interest to the beneficial owners; (vi) as to a Member that is an Entity, the Entity's Dissolution and (vi) , as-to a , Member who received his or her interest as an employee of the Company as a profits interest or as some other form of incentive, upon such Member's separation from employment from the Company.
(b) Rights of Member Following Dissociation. Upon a Member's Dissociation for any reason, then, after the effective date of the Member's Dissociation, (i) the
Final Second Amended and Restated Operating Agreement 6-19-2009 15 Member will have no right to vote or otherwise participate in the governance of the Company, (ii) except as provided in Article 6.01(b) below, the Member will not be entitled to receive information concerning the Company's affairs or inspect the Company's books and records, and (iii) in the case of a Member who has resigned from the Company or Transferred all of his Units, the dissociating Member will have no right to receive Distributions or otherwise participate in the Company's financial affairs. Notwithstanding the foregoing provisions of this Article 3.08, a dissociating Member will remain liable for any obligation to the Company that existed prior to the effective date of the Dissociation, including any costs or damages resulting from the Member's breach of this Agreement.
3.09 Redemption of Member's Units Upon Divorce Transfer or Dissociation.
(a) Optional Redemption. Upon a Member's Divorce Transfer or Dissociation, other than a Dissociation resulting from the Member's Transfer of his entire Membership Interest in a transaction that is subject to Article 3.07(c), (d) or (e) above, the Company may, but need not, redeem and purchase from the Member or his successors in interest, as applicable, all or any portion of the Member or former Member's Redeemable Units for the per Unit Redemption Price and on the other terms set forth in this Article 3.09. To exercise its right to redeem the Redeemable Units, the Company must give written notice of its election to purchase to the Member in question or his successors in interest, as applicable, (each a "Seller") not later than 180 days after the Company receives written notice of the event of Dissociation or Divorce Transfer in question. The Company may elect to purchase the Redeemable Units contingent on the Redemption Price per Unit not exceeding an amount specified by the Company in its notice of exercise.
(b) Redemption Price. The Redemption Price to be paid for each Redeemable Unit that the Company elects to purchase will equal (i) the "Fair Market Value" as defined below of the Company on the last day of the calendar quarter ("Valuation Date") coincident with or immediately preceding the date the Company gives notice of its election to purchase the Redeemable Units, divided by (ii) the total number of Units issued and outstanding on that Valuation Date.
(c) Fair Market Value of Company. For purposes of - this Article 3.09, the: Fair Market Value of the Company shall be determined by appraisal as of the Valuation Date in accordance with the following procedure:
The Company shall appoint an appraiser and give written notice of the appointment to the owner of the Redeemable Units. The appraiser appointed shall have a professional certification of ASA, CFA, ABV or CVA, and not less than five years experience appraising property and business interests. The appraiser shall establish, through good faith appraisal methodologies, the written fair market value of the Company by reference to such indicators of value as the appraiser deems relevant. If the appraisal obtained in the foregoing manner is not acceptable to the owner of the Redeemable Units, for any reason, that owner shall appoint a second appraiser and give written notice of the appointment to the Company within 15 days after receipt of a copy of the first appraisal obtained. The second appraiser shall have a professional certification of ASA, CFA, ABV or CVA. Failure of the owner of the Redeemable
Final Second Amended and Restated Operating Agreement 6-19-2009 16 Units to give the Company notice of the appointment of a second appraiser shall constitute irrevocable acceptance by such owner of the valuation determined by the first appraisal. If a second appraiser is obtained in accordance with the foregoing procedure, the Fair Market Value of the Company shall then be conclusively and finally established as the average of the two appraised values, if the difference between the two appraisals is ten percent (10%) of the lower appraised value. If the difference between the two appraisals is greater than ten percent (10%) of the lower appraised value, then the two appraisers shall select a third appraiser having the above required credentials, and that third appraisers' determination of the value shall be final and binding on all parties involved.
(ii) To facilitate the appraisal process, the Company shall provide to each appraiser such information as such appraiser reasonably requests.
(iii) The parties in interest shall each pay 50% of the fees of the appraisers used to establish the Fair Market Value of the Company.
(d) Other Purchase Terms. Closing of any optional purchase of Redeemable Units shall occur at the Company's principal office on a date designated by the Company that shall be no later than 30 days after the Redemption Price is finally determined. The redemption price shall be paid in cash at closing or, if the Company so elects, (i) 10% in cash at closing, and (ii) the balance by delivery of the Company's unsecured promissory note (the "Note") in the amount of the balance of the Redemption Price. Any such Note shall bear interest from the closing date at the lowest "applicable federal rate" under Code section 1274 applicable to sales occurring on the closing date and shall permit prepayment without penalty at any time. Any such Note shall provide for level amortization of principal and accrued interest in equal annual installments over seven years, commencing on the first anniversary of the closing date and continuing through the seventh anniversary of the closing date. Each of the Sellers and the Company agree to execute and deliver to the other at closing such documents and instruments as are reasonably requested by the other to consummate the redemption.
3.10 Limitation of Liability. No Member shall have any personal liability whatsoever in such Mernber's capacity as a Member, whether to the Company, to any of the other Member, to the creditors of the Company or to any other third party, for the debts, liabilities, commitments or any other obligations of the Company or for any losses of the Company. Each Member shall be liable only to make such Member's required Contributions to the Company, if any, to the extent expressly provided in this Agreement. In accordance with the Act, a Member of a limited liability company may, under certain circumstances, be required to return amounts previously distributed to such Member. It is the intent of the Members that no Distribution to any Member pursuant to Article 4.04 hereof shall be deemed a return of money or other property paid or distributed in violation of the Act. The payment of any such money or Distribution of any such property to a Member shall be deemed to be a compromise within the meaning of the Act, and the Member receiving any such money or property shall not be required to return to any Person any such money or property. However, if any court of competent jurisdiction holds that, notwithstanding the provisions of this Agreement, any Member is obligated to make any such payment, such obligation shall be the obligation of such Member and not of any other Member.
Final Second Amended and Restated Operating Agreement 6-19-2009 17 ARTICLE 4: FINANCE AND TAXES
4.01 Contributions.
(a) Initial Contributions. The Members of the Company have previously made Contributions. Any Contribution made after the Effective Date shall be listed on Exhibit B-1, and hereafter, a majority of the Managers shall cause the Company to update Exhibit A and Exhibit B-1 to reflect appropriately changes in the names, Contributions, and Units of the Members (including without limitation, changes occurring because of the issuance of additional Units, the redemption of Units and the reissuance of redeemed Units).
(b) Additional Members. A Person admitted as a Member in connection with the acquisition of a Membership Interest and Units directly from the Company after the Effective Date will make the Contributions specified in the agreement pursuant to which the Person is admitted as a Member.
(c) Additional Contributions.
(i) The Company, acting through a majority of the Managers, may authorize, but not require, additional Contributions or Company borrowings from Members at such times and on such terms and conditions as it determines to be in its best interest, No Member shall be required to make any additional Contribution or loan to the Company without his prior consent.
(ii) Notwithstanding the foregoing or any other provision of this Agreement or the Act to the contrary, if the Company acting through its Managers requests in writing additional pro-rata cash capital Contributions from all Members and any Member declines to contribute his proportionate share (pro-rata to Percentage Interests) of the requested additional Contribution within 30 days after the Company's request for such Contribution, then (A) the non-contributing Member shall forfeit and cease to have any right to vote his Membership Interest and Units on any matter with respect to the Company; and (B) no transferee who received Units pursuant to a permitted Transfer under Article 3.07(b) shall have the right to vote such Units if such transferee is an Affiliate of the non-contributing Member.
(iii) Absent the Company's authorization, no Member is permitted to make additional Contributions or loans to the Company.
(d) Contributions Not Interest Bearing. A Member is not entitled to interest or other compensation with respect to any cash, property or other Contributions that the Member makes to the Company.
(e) No Return of Contribution. A Member is not entitled to the return of any Contribution or capital prior to the Company's Dissolution and winding up.
(I) Membership Interest for Services.
Final Second Amended and Restated Operating Agreement 6-19-2009 8 (i) Membership Interests may be issued for services as "profits interests" within the meaning of Revenue Procedures 93-27 and 2001-43 (a "Profits Interest"). If a Member receives a percentage Membership Interest that exceeds the ratio of the Member's Capital Account to the aggregate Capital Account of all Members at the time of issuance, such excess will be deemed to be a Profits Interest. A Member who holds a Profits Interest has all of the rights of a Member under this Agreement and the Act, except that (A) the Member is not entitled to share in any Distribution from the aggregate Capital Accounts of all Members determined as of the date the Member receives the Profits Interest; and (B) the Profits Interest may be subject to such vesting schedules, additional restrictions on Transfer, buy-back rights, put and call rights and other additional restrictions and terms as are set forth in the written agreement or agreements between the Company and the grantee providing for the issuance of the Profits Interest. Accordingly, upon issuance of any Profits Interests, the Capital Accounts of the Members applicable to the previously issued Units shall be appropriately adjusted in accordance with the provisions of Article 4.05(b) upward or downward to reflect the full fair market value of the Company at the time of issuance of the Profits Interest.
(ii) By executing this Agreement, each Member authorizes and directs the Company to make the "Safe Harbor Election" described in the proposed Revenue Procedure set forth in Internal Revenue Service Notice 2005-43 (the "IRS Notice"), or any successor guidance or provision, apply to any Membership Interest in the Company transferred to a service provider by the Company on or after the effective date of such Revenue Procedure. The Company and each Member hereby agree to comply with all requirements of the Safe Harbor Election described in the IRS Notice, including, without limitation, the requirement that each Member shall prepare and file all federal income tax returns reporting the income tax effects of each Membership Interest issued by the Company that qualifies for the Safe Harbor Election in a manner consistent with the requirements of the IRS Notice. Each Member authorizes the Managers to amend this Article 4.01(f)(ii).to the extent necessary to achieve substantially the same or similar tax treatment with respect to any Membership Interest in the Company transferred to a service provider by the Company in connection with services provided to the Company as set forth in section 4 of the IRS Notice (e.g., to reflect changes from the rules set forth in the IRS Notice in subsequent Internal Revenue Service guidance).
4.02 Allocation of Profit and Loss.
(a) General Allocation. Except as provided in Article 4.02(b) and (c) below, the Company's Profit or Loss for a Taxable Year, including the Taxable Year in which the Company is dissolved, will be allocated among the Members in proportion to their Membership Interests at the end of the year.
(b) Special Allocations.
If a Member unexpectedly receives an adjustment, allocation, or distribution described in sections 1.704-1(b)(2)(ii)(d)(4), (5) or (6) of the Regulations that creates or increases a deficit in the Member's Capital Account as of the end of a Taxable Year, a pro rata portion of each item of the Company's income, including gross income and gain for the Taxable
Final Second Amended and Restated Operating Agreement 6-19-2009 19 Year and, if necessary, for subsequent years will be allocated to the Member in an amount and manner sufficient to eliminate the deficit in the Member's Capital Account as quickly as possible.
(ii) If a Member would have a deficit in his or her Capital Account at the end of a Taxable Year that exceeds the sum of (A) the amount the Member is required to pay the Company pursuant to an obligation described in section 1.704-1(b)(2)(ii)(c) of the Regulations, and (B) the Member's share of Minimum Gain, a pro rata portion of each item of the Company's income, including gross income and gain, for the Taxable Year will be allocated to the MeMber in an amount and manner sufficient to eliminate the deficit in the Member's Capital Account as quickly as possible.
(iii) If there is a net decrease in the Company's Minimum Gain during a Taxable Year, the items of the Company's income, including gross income and gain, for the Taxable Year and, if necessary, for subsequent Taxable Years will be allocated to the Members in proportion to their shares of the net decrease in Minimum Gain. If the allocation made by this paragraph would cause a distortion in the economic arrangement among the Members and it is expected that the Company will not have sufficient income to correct that distortion, the Company may seek to have the Internal Revenue Service waive the requirement for the allocation in accordance with section 1.704-2(0(4) of the Regulations.
(iv) Items of the Company's loss, deductions and expenditures described in section 705(a)(2)(B) of the Code that are characterized as "partner nonrecourse deductions" under section 1.704-2(i) of the Regulations will be allocated to the Members according to the ratio in which the Members bear the economic risk of loss with respect to the nonrecourse liabilities to which such items are attributable.
(v) Items of income, gain, loss and deduction with respect to property contributed to the Company's capital will be allocated between the Members so as to take into account any variation between book value and basis, to the extent and in the manner prescribed by section 704(c) of the Code and related Regulations.
(vi) If the special allocations required by this Article 4.02(b)(i) through (v) ("Regulatory Special Allocations") result in Capital Account balances that are different from the Capital Account balances the Members would have had if the Regulatory Special Allocations were not required, subject to Article 4.02(b)(vii), the Company will allocate other items of income, gain, loss and deduction in any manner it considers appropriate to offset the effects of the Regulatory Special Allocations on the Members' Capital Account balances. Any offsetting allocation required by this paragraph is subject to and must be consistent with the Regulatory Special Allocations.
(vii) Subject to the priority of the Regulatory Special Allocations, the Company shall specially allocate certain items of Profit to the Capital Account of Members holding Profits Interests or their Permitted Transferees to the extent provided in their respective employment agreements or grants of profits interests, an example of which allocation provisions are set forth on Exhibit B-2 attached hereto and incorporated by reference herein.
Final Second Amended and Restated Operating Agreement 6-19-2009 20 (c) Effect of Transfers During Year. The Company will prorate items attributable to a Membership Interest that is the subject of a Transfer during a Taxable Year between the transferor and the Transferee based on the portion of the Taxable Year that elapsed prior to the Transfer, or based on an interim closing of the Company's books on the date of Transfer, as determined by the Manager.
4.03 Tax Allocations. For federal income tax purposes, unless the Code or Regulations otherwise requires, each item of the Company's income, gain, loss or deduction will be allocated to the Members in proportion to their allocations of the Company's Profit or Loss.
4.04 Distributions.
(a) Available Cash Flow. Not later than 120 days after the close of each Taxable Year of the Company, or at such more frequent intervals as the Managers determine, the Company will:
(i) distribute to each Member an amount equal to the Profit allocated to the Member for the Taxable Year multiplied by the highest marginal combined federal and state income rate applicable to any Member for the Taxable Year, and
(ii) distribute its Available Cash Flow for the Taxable Year to the Members. (b) Allocation. The Company will make all Distributions of Available Cash Flow under Article 4.04(a) above to the Members in proportion to their Membership Interests on the date of Distribution.
(c) Prohibited Distributions. The Company may not make a Distribution if, after giving effect to the Distribution: (i) the Company would not be able to pay its debts as they become due in the usual and regular course of its business; or (ii) the fair market value of the Company's total assets would be less than the sum of its total liabilities. The Company's determination of its capacity to make a Distribution under this Article 4.04 will be made as of the date and in accordance with a method authorized by the Act.
(d) Negation of Right to Distribution in Kind. Except as provided in Article 7.02 below, a Member has no right to receive a Distribution in a form other than cash.
(e) Obligation to Return Wrongful Distribution. If for any reason a Member receives a Distribution to which the Member is not legally entitled, the Member will return the Distribution to the Company within 30 days after receiving notice of the wrongful Distribution.
(f) Waiver of Obligation to Return Rightful Distribution. Except to the extent required by the Act, a Member has no liability to return to the Company a Distribution to which the Member is legally entitled, regardless of the Company's inability to discharge its obligations to its creditors.
Final Second Amended and Restated Operating Agreement 6-19-2009 21 4.05 Capital Accounts.
(a) General Maintenance. The Company will establish and maintain a Capital Account for each Member. A Member's Capital Account will be increased by: (i) the amount of any money the Member contributes to the Company's capital; (ii) the fair market value of any property the Member contributes to the Company's capital, net of any liabilities the Company assumes or to which the property is subject; and (iii) the Member's share of Profits; and decreased by: (x) the amount of any money the Company distributes to the Member; (y) the fair market value of any property the Company distributes to the Member, net of any liabilities the Member assumes or to which the property is subject; and (z) the Member's share of Losses.
(b) Adjustments.
Distributions in Kind. If at any time the Company distributes property in kind, it will adjust the Members' Capital Accounts to account for their shares of any Profit or Loss the Company would have realized had it sold the property at fair market value and distributed the sale proceeds.
(ii) Acquisitions and Redemptions. If at any time a Person acquires a Membership Interest from the Company or the Company redeems a Membership Interest, the Company will adjust the Members' Capital Accounts to account for their shares of any Profit or Loss the Company would have realized had it sold all of its assets at fair market value on the date of the acquisition or redemption.
(iii) Transfer of Capital Account. A Transferee of a Membership Interest succeeds to the portion of the transferor's Capital Account that corresponds to the portion of the Membership Interest that is the subject of the Transfer.
(iv) Compliance with Code. The requirements of this Article 4.05 are intended and will be construed to ensure that the allocations of the Company's income, gain, losses, deductions and credits have snbstantial economic effect under the Regulations promulgated under section 704(b) of the Code.
ARTICLE 5: MANAGEMENT
5.01 Management by Managers.
(a) General. Management and control of the Company is hereby vested in its Managers. The number of Managers shall be eight. Each Manager constitutes a "manager" for purposes of the Act.
(b) Authority of Managers.
(i) Except for situations in which the approval of the Members is otherwise expressly required by this Agreement, (A) the powers of the Company shall be
Final Second Amended and Restated Operating Agreement 6-19-2009 22 exercised by or under the authority of and the business and affairs of the Company shall be managed under the direction of, a majority of the Managers and (B) a majority of the Managers may make all decisions and take all actions for the Company not otherwise provided for herein.
(ii) The Managers shall have all powers and authority provided under the Act. The Managers are specifically authorized on the Company's behalf to make all decisions as to (A) the sale, lease or other disposition of the Company's assets; (B) the purchase or other acquisition of other assets of all kinds; (C) the management of all or any part of the Company's assets and business; (D) the borrowing of money and the granting of security interests in the Company's assets (including loans from Members); (E) the prepayment, refinancing or extension of any mortgage affecting the Company's assets; (F) the compromise or release of any of the Company's claims or debts; (G) the employment of Persons for the operation and management of the Company's business; and (H) all elections available to the Company under any federal or state tax law or regulation.
(iii) The Managers may act in any manner authorized by this Agreement (including by delegating power and authority to one or more Managers or other Persons).
(iv) Except as otherwise expressly provided herein, all actions and decisions by the Managers shall require the consent and approval of a majority of the Managers then serving.
5.02 Time Devoted to Business. Each Manager will devote only such amount of time to the Company's activities as is reasonably necessary to discharge the Manager's responsibilities. Each Member acknowledges and agrees that no Manager shall, as a result of being a Manager, be bound to devote all of his business time to the affairs of the Company.
5.03 Election of Managers. The following provisions govern election of Managers.
(a) Election. The Members who hold Class A Units shall have the right to elect and appoint six of the Company's eight Managers (the "Class A Managers"). A Majority in Interest of the Members who hold Class B Units shall have the right to elect and appoint one of the Company's eight Managers (the "Class B Manager"). A Majority of all Class A and Class B Members shall appoint the eighth Manager. As of the Effective Date the Class A Managers are Gary Hollister, Aaron Garrity, Gordon Morton, Joseph Morton, Kent Wood, and Bryan Davis, the Class B Manager is Dennis Grimmer, and the eighth Manager is Robert Conlee.
(b) Term. Each Manager shall serve until his resignation, death, Incapacity, or removal in accordance with Article 5.03(c) below. There is no requirement for annual - reappointment or election of Managers or for an annual meeting of Members. Managers need not be Members or residents of the State of Utah. A Manager may resign as such by delivering his written resignation to the Company at the Company's principal office addressed to the other Managers. Such resignation shall be effective upon receipt unless it is specified to be effective at some other time or upon the happening of some other event.
Final Second Amended and Restated Operating Agreement 6-19-2009 23 (c) Removal. Members entitled to vote who hold at least 60% of the outstanding Class A Units held by all Members entitled to vote may remove a Class A Manager without Cause at any time. Members entitled to vote who hold a majority of the outstanding Class A Units held by all Members entitled to vote may remove a Class A Manager for Cause at any time. A Majority in Interest of the Members entitled to vote who hold Class B Units may remove the Class B Manager with or without Cause at any time. Except as provided in this Article 5.03(e) or in section 48-2c-809 of the Act, no Manager may be involuntarily removed from office. Members entitled to vote who hold at least 60% of the combined outstanding Class A and Class B Units held by all Members entitled to vote may remove the eighth Manager.
5.04 Agency Power and Authority. Any Person dealing with the Company, other than a Member, may rely on the authority of a Manager or an Officer specifically authorized by a majority of the Managers to act as their delegate in taking any action in the name of the Company without inquiry into the provisions of this Agreement or compliance herewith, regardless of whether that action actually is taken in accordance with the provisions of this Agreement. Every agreement, instrument or document executed by a Manager (or any Officer authorized in writing by a majority of the Managers) in the name of the Company with respect to any business or property of the Company shall be conclusive evidence in favor of any Person relying thereon or claiming thereunder that (a) at the time of the execution or delivery thereof, this Agreement was in full force and effect, (b) such agreement, instrument or document was duly executed according to this Agreement and is binding upon the Company, and (c) the Manager was duly authorized and empowered to execute and deliver such agreement, instrument or document for and on behalf of the Company. However, if a Manager acts outside the scope of his actual authority, he shall indemnify the Company for any costs or damages it incurs as a result of the unauthorized act.
5.05 Manner of Acting. Except as otherwise expressly provided in this Agreement, any action by the Managers permitted or required by the Act or this Agreement may be taken by a majority of the Managers at a meeting of the Managers at which a majority of the Managers is present, by written consent of a majority of the Managers, or by such other means as a majority of the Managers elect. The Managers may participate in and hold a meeting of the Managers by means of a telephone conference or in any other manner wherein all persons participating in the meeting can hear each other.
5.06 Delegation of Authority and Duties to Officers.
(a) General. A majority of the Managers may, from time to time, delegate in writing to one or more Manager or other Person such authority and duties as a majority of the Managers may deem advisable. Any Manager or other Person to whom such authority is delegated is referred to herein as an "Officer." The Managers also may assign titles (including chairman, chief executive officer, president, chief financial officer, chief operating officer, executive vice president, vice president, secretary, assistant secretary, treasurer and assistant treasurer) to any Manager or other Person who is an Officer. Any number of titles may be held by the same individual. The use of any officer titles traditionally associated with a corporation shall not change the character of the Company from a limited liability company.
Final Second Amended and Restated Operating Agreement 6-19-2009 24 (b) Specific Designations of Officers. As of the Effective Date, the Managers have unanimously appointed the following Managers to serve as Officers and delegated to those Officers the authority and duties described below, which appointments and delegation of authority a majority of the Managers may revoke or modify without the necessity of obtaining Member approval at any time in their sole discretion:
(i) The Chairman of the Board of the Company will have the authority and duties set forth in Exhibit C-I attached hereto;
(ii) Chief Executive Officer of the Company shall report to the Board of Managers and will have the authority and duties set forth in Exhibit C-2 attached hereto;
(iii) The President of the Company will report to the CEO and the other Managers and will have the authority and duties set forth in Exhibit C-3 attached hereto;
(c) Resignation and Removal of Officers. Any Officer may resign his position as such at any time for any reason, upon written notice to the Managers. A Majority in Interest of the Managers may remove an Officer with or without Cause at any time. Any appointment of and delegation of authority to an Officer shall be automatically revoked upon that Officer's death, Incapacity, removal, resignation or termination of employment with the Company.
5.07 Performance of Duties and Specific Approvals.
(a) Standard of Care. In performing his duties, each of the Managers 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: (i) one or more of the other Managers or employees of the Company; (ii) any attorney, independent accountant, or other Person employed or engaged by the Company; or (iii) 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. The preceding sentence shall in no way limit any Person's right to rely on information to the extent provided in the Act. No Person who is a Manager 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 Manager.
(b) Exculpation. No Manager will be liable to the Company or any Member for an act or omission done in good faith to promote the Company's best interests, unless the act or omission constitutes gross negligence, willful misconduct or a knowing violation of law.
Final Second Amended and Restated Operating Agreement 6-19-2009 2 5 (c) Conflicts of Interest. The Managers may not participate, directly or indirectly, in an activity that competes with or is benefited by the Company's present or prospective activities. If a Manager nevertheless participates in such an activity, the Manager will account to the Company for any income the Manager derives from the participation.
(d) Self-Dealing. A Manager may enter into a business transaction with the Company, or cause his Affiliates to enter into business transactions with the Company, only if the transaction is approved by a majority of the disinterested Managers and the terms of the transaction are no less favorable to the Company than those of a similar transaction with an independent third party. Approval or ratification by a Majority in Interest of the disinterested Members constitutes conclusive evidence that the terms satisfy the foregoing condition.
5.08 Indemnification and Advancement of Costs.
(a) Indemnification. Subject to the limitations and conditions as provided in this Article 5.08, each Person who was or is made a party or is threatened to be made a party to or is involved in any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or arbitrative (hereinafter a "Proceeding"), or any appeal in such a Proceeding or any inquiry or investigation that could lead to such a Proceeding, by reason of the fact that he or she, or a Person of whom he or she is the legal representative, is or was a Manager or Officer, or while a Manager is or was serving at the request of the Company as a manager, director, officer, partner, venturer, proprietor, trustee, employee, agent or similar functionary of another Entity, shall be indemnified by the Company to the fullest extent permitted by the Act, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Company to provide broader indemnification rights than said law permitted the Company to provide prior to such amendment) against any and all expenses, losses, liabilities and damages actually incurred by such Person as a result of or in connection with such Proceeding, and indemnification under this Article 5.08 shall continue as to a Person who has ceased to serve in the capacity which initially entitled such Person to indemnity hereunder. Notwithstanding the foregoing, no indemnification shall be payable if the expenses, losses, liabilities and damages incurred arise as a direct result of the Person's fraudulent, grossly negligent or willfully malfeasant conduct.
(b) Advance of Defense Costs. Reasonable expenses incurred by a Person of the type entitled to be indemnified under Article 5.08(a) who was, is or is threatened to be made a named defendant or respondent in a Proceeding shall be paid by the Company in advance of the final disposition of the Proceeding upon receipt of an undertaking by or on behalf of such Person to repay such amount if it shall ultimately be determined that he or she is not entitled to be indemnified by the Company.
(c) Survival. The rights granted pursuant to this Article 5.08 shall be deemed contract rights, and no amendment, modification, termination, expiration or repeal of this Article 5.08 or this Agreement shall have the effect of limiting or denying any such rights with respect to actions taken or Proceedings arising prior to any amendment, modification or repeal. It is expressly acknowledged that the indemnification provided in this Article 5.08 could involve indemnification for negligence or under theories of strict liability.
Final Second Amended and Restated Operating Agreement 6-19-2009 26 5.09 Compensation of Managers. Except as provided in any separate agreement with a Manager approved by a majority of the other Managers, the Company may not compensate any Manager for services to or on behalf of the Company. However, the Company will reimburse the Managers for reasonable expenses properly incurred on the Company's behalf.
ARTICLE 6: RECORDS AND ACCOUNTING
6.01 Maintenance of Records.
(a) Required Records. The Company will maintain at its principal office in Utah such books, records and other materials as are reasonably necessary to document and account for its activities, including, without limitation, those required to be maintained by the Act.
(b) Authorized Member Access.
Each current or former Member or Manager is entitled to inspect and copy, during regular business hours at the Company's designated office in Utah, any of the records described in Section 48-2c-112 of the Act, as that Section may be amended from time to time, after first giving the Company written notice at least five business days before the inspection and copying is to occur. However, a former Member or Manager is entitled to inspect and copy only those records that pertain to the period of the former Member's or Manager's tenure as a Member or Manager, as the case may be, that are reasonably necessary to enable the former Member or Manager to establish a claim or defense in a controversy with the Company, any Member, Manager, or any other Person.
(ii) An authorized agent or attorney of a current or former Member has the same rights of inspection and copying as such current or former Member.
(iii) Any costs associated with the production or reproduction of the Company's records will be borne and paid in advance by the requesting current or former Member.
(c) Confidentiality. No current or former Member, Officer or Manager will disclose any information relating to the Company or its activities to any unauthorized person or use any such information for his or any other Person's personal gain or for any other improper purpose.
6.02 Financial Accounting.
(a) Accounting Method. The Company will account for its financial transactions using a method of accounting determined by a majority of the Managers in compliance with sections 446 and 448 of the Code.
Final Second Amended and Restated Operating Agreement 6-19-2009 27 (b) Taxable Year. The Company's Taxable Year is the Company's annual accounting period, as determined by a majority of the Managers in compliance with sections 441 and 444 of the Code.
6.03 Reports.
(a) Members. As soon as practicable after the close of each Taxable Year, the Company will prepare and send to the Members such reports and information as are reasonably necessary to (i) inform the Members of the results of the Company's operations for the Taxable Year and (ii) enable the Members to completely and accurately reflect their distributive shares of the Company's income, gains, deductions, losses and credits in their federal, state and local income tax returns for the appropriate year.
(b) Periodic Reports. The Company will complete and file any periodic reports required by the Act or the law of any other jurisdiction in which the Company is qualified to do business.
ARTICLE 7: DISSOLUTION
7.01 Events of Dissolution.
(a) Enumeration. The Company will dissolve upon the first to occur of:
an affirmative vote to dissolve the Company by Members entitled to vote whose combined Percentage interest exceeds 65% of the Percentage Interests of all Members entitled to vote;
(ii) any event that makes the Company ineligible to conduct its activities as a limited liability company under the Act, and the failure of the Company to merge or consolidate in such a way as to retain eligibility to conduct its activities as a limited liability company in a jurisdiction other than Utah prior to the effective date of any legislation that would create such an event;
(iii) the resignation of all Managers, unless one or more successor Managers is elected by the Members within 90 days;
(iv) entry of a decree of judicial dissolution pursuant to the Act; and
(v) any event or circumstance that makes it unlawful or impossible for the Company to carry on its business, unless the Company's incapacity to carry on its business is cured within 90 days after such event or circumstance.
Final Second Amended and Restated Operating Agreement 6-19-2009 28 (b) Exclusivity of Events. Unless specifically referred to in this Article 7.01, no event, including an event of dissolution prescribed by the Act, will result in the Company's Dissolution.
7.02 Effect of Dissolution.
(a) Appointment of Liquidator. Upon the Company's Dissolution, a majority of the Managers will appoint a liquidator, who may but need not be a Manager or a Member. The liquidator will wind up and liquidate the Company in an orderly, prudent and expeditious manner in accordance with the following provisions of this Article 7.02.
(b) Final Accounting. The liquidator will make proper accountings (i) to the end of the month in which the event of dissolution occurred and (ii) to the date on which the Company is finally and completely liquidated.
(c) Duties and Authority of Liquidator. The liquidator will make adequate provision for the discharge of all of the Company's debts, obligations and liabilities. The liquidator may sell, encumber or retain for distribution in kind any of the Company's assets. Any gain or loss recognized on the sale of assets will be allocated to the Members' Capital Accounts in accordance with the provisions of Article 4.02. With respect to any asset the liquidator determines to retain for distribution in kind, the liquidator will allocate to the Members' Capital Accounts the amount of gain or loss that would have been recognized had the asset been sold at its fair market value.
(d) Final Distribution. The liquidator will distribute any assets remaining after the discharge or accommodation of the Company's debts, obligations and liabilities to the Members in proportion to their Capital Accounts. The liquidator may distribute any assets distributable in kind to the Members in undivided interests as tenants in common or in such other manner as the liquidator determines. No Member will have any obligation to restore a deficit Capital Account to the Company, the Company's creditors or any other Member.
(e) Required Filings. The liquidator will file such statements, certificates and other instruments, and take such other actions, as are reasonably necessary or appropriate to effect and confirm the cessation of the Company's existence.
ARTICLE 8: PROTECTION OF BUSINESS
8.01 Background.
(a) The Company owns and conducts an integrated, multi-jurisdictional, network marketing business with respect to XanGoTM juice and other health food and nutritional products (the "Business"). The principal place of business, location of central management
Final Second Amended and Restated Operating Agreement 6-19-2009 2, activities, and headquarters of the Company is in Lehi, Utah. The Company engages in significant commercial activities in the State of Utah.
(b) The Company has invested substantial time, money and resources in the development and retention of confidential proprietary information relating to the Business including, without limitation, information regarding: (i) operation of the Business; (ii) marketing, sales, financing, construction and development plans; (iii) strategies and techniques; (iv) potential development sites and projects; (v) marketing research; (vi) designs, drawings and formulas; (vii) financial data; (viii) the identity of actual or potential, suppliers, contractors, subcontractors, financing sources, distributors, buyers and other customers, and other business contacts of the Business; (ix) technology; (x) trade secrets; and (xi) other proprietary business information (collectively "Confidential Information").
(c) As a consequence of each Member (for all purposes of this Article 8, the term "Member" is expanded to include any Affiliate of a Member) and Manager's direct or indirect ownership of Membership Interests and other relationships with the Company, each Member and Manager: (i) has and will continue to have access to and gain knowledge of, the Business and all or some of the Confidential Information with respect to the Business; (ii) has and will continue to have personal contact with clients, buyers, employees, distributors, agents, potential or actual suppliers, contractors, subcontractors, financing sources, vendors and other persons doing or proposing to do business with the Company ("Business Contacts"); and (iii) has acquired and will continue to acquire valuable information as to names and the nature and character of the business and requirements of the Business Contacts.
(d) All trade secrets and other Confidential Information relating to the Business that is provided or revealed to Members and Managers is provided or revealed in trust and confidence for their use solely in connection with the Business for the benefit of the Company. To (1) protect the Business, its goodwill and all Confidential Information (whether existing now or hereafter) relating to the Business; (ii) prevent competitors from acquiring, appropriating or discovering proprietary information regarding the Business and the Company; (iii) maintain and protect the Company's competitive advantages; and (iv) maintain and protect relations with Business Contacts, each Member and Manager agrees to the restrictive covenants set forth below in this Article 8.
(e) Each Member and Manager agrees that any and all "goodwill" associated with any existing or prospective customer, client, account or other Business Contacts of the Company belongs exclusively to the Company, including any goodwill created as a result of direct or indirect contacts or relationships between the Member or Manager and any existing or prospective distributors, customers, clients, accounts or Business Contacts of the Company.
Each Member who is employed by the Company or who renders services to the Company and each Manager represents and agrees that he possesses special skills and expertise and that the value of the Company depends to a significant degree on his use of such skills or expertise.
Final Second Amended and Restated Operating Agreement 6-19-2009 30 8.02 Preservation of Confidential Information.
(a) Each Member and Manager warrants, agrees and covenants that:
(i) He will not at any time or in any manner, either directly or indirectly, (A) divulge, disclose, or communicate to any person any Confidential Information concerning any matters affecting or relating to the Business, or (B) use in any manner whatsoever any Confidential Information concerning any matters affecting or relating to the Business other than for the exclusive benefit of the Company, unless such disclosure or use is authorized in writing by the Company;
(ii) He will keep all Confidential Information secret and confidential, and take all measures necessary to maintain the confidentiality, secrecy, and security of all Confidential Information;
(iii) He will not use any Confidential Information to the detriment of the Company;
(iv) If the Member or Manager is an Entity, it will adopt policies and impose procedures that are reasonably adequate under the circumstances to prevent access to Confidential Information by any Person who directly, or indirectly through his Family Group or through one or more interposed Entities, has any financial interest in any Person that is directly or indirectly engaged in the business of manufacturing, selling, distributing or marketing health food or other nutritional products that compete with the Company's Products.
(v) All copies, reproductions, extracts, or derivative works of Confidential Information will remain the exclusive property of the Company; and
(vi) He will immediately return all copies, reproductions, extracts, or derivative works of Confidential information to the Company when he ceases for any reason to be an employee, Member or Manager of the Company.
(b) Each Member and Manager hereby stipulates that each item of Confidential Information relating to the Company is important and material to the Company, and that the disclosure of such Confidential Information could or will cause the Business or the Company to suffer irreparable injury. In the event that a Member or Manager receives a request to disclose all or any part of the Confidential Information under the terms of a subpoena or order issued by a court or governmental body, he agrees (i) to notify the Company immediately of the existence, terms and circumstances surrounding such request, (ii) to consult with the Company on the advisability of taking legally available steps to resist or narrow such request, and (iii) if disclosure of such Confidential Information is required to prevent him from being held in contempt or subject to other penalty, to furnish only such portion of the Confidential Information as, in the opinion of counsel to such Member or Manager, he is legally compelled to disclose and to exercise his best efforts to obtain an order or other reliable assurance that all confidential treatment will be accorded to the Confidential Information. It is understood and agreed that Confidential Information shall not include information which (i) is public information or
Final Second Amended and Restated Operating Agreement 6-19-2009 31 otherwise generally available to the public other than through a breach of the obligations set forth herein, or (ii) can be demonstrated by suitable written documentation to have been known by the Member or Manager prior to his relationship with the Company.
(c) The obligations of each Member and Manager under this Article 8.02 shall continue in full force and effect for a period of five years after the date he ceases for any reason to be a Member or Manager of the Company.
8.03 Covenants Not to Divert or Solicit. Each Member and Manager agrees and covenants that:
(a) During the "Restricted Period" as defined below, he will not interfere with, negotiate or otherwise undertake for his own account, participate in or otherwise divert or attempt to divert from the Company, without the Company's prior written consent, any business opportunity which the Company has separately been approached to participate in, with respect to the distribution of health food or nutritional products that is: (i) of a character and size reasonably suitable for the Company; and (ii) located within any state in which the Company is then transacting or proposing to transact its business or has in the then trailing twelve (12) month period transacted its business (an "Opportunity") without first obtaining the written consent of the Company.
(b) During the "Restricted Period" as defined below, he shall not in any manner directly or indirectly:
induce or attempt to induce any distributor, customer, seller or potential seller of Company products, contractor, subcontractor, financing source, client, vendor, partner or other Business Contact with whom he has conducted business, negotiated, or otherwise dealt on behalf of the Company to (A) refrain from establishing, continuing or expanding any business relationship with the Company, (B) cease doing business with the Company, or (C) reduce its business relationship with the Company within the "Restricted Territory" as defined below; or
(ii) in any other way interfere with the relationship or potential relationship between the Company and any such distributor, customer, seller, supplier, subcontractor, financing source, client, vendor, partner, or other Business Contact within the Restricted Territory with whom the he has previously conducted business, negotiated or otherwise dealt on behalf of the Company.
(c) During the "Restricted Period" as defined below, he shall not in any manner directly or indirectly (i) cause to be hired, or solicit any employee of the Company away from the Company, (ii) encourage any such employee to leave the employ of the Company, or (iii) hire or cause to be hired any person who is not an employee of the Company at the time of such hiring, but who was an employee of the Company during the last twelve months in which he served as a Manager or was a Member, or during the last twenty-four months in which he served as a Manager or was a Member and owns or owned Class A Units.
Final Second Amended and Restated Operating Agreement 6-19-2009 32 8.04 Definitions and Construction. For purposes of this Article 8, as to any Member or Manager:
(a) The term "Restricted Period" means the period commencing on the Effective Date or, if later, the date he first became a Member or Manager and ending on the third anniversary of the date he ceases to be a Member or Manager, without regard to the reason or circumstances under which he ceases to be a Member or Manager.
(b) The term "Restricted Territory" means the United States of America and each other country of the world in which the Company conducts its Business or has made material plans to expand its business at the time such term requires definition.
(c) Each covenant contained in this Article 8 shall be construed as an agreement independent of any other provision herein, and the existence of any claim or cause of action of a Member or Manager against the Company regardless of how arising shall not constitute a defense to the enforcement of this Article 8.
8.05 Reasonable Restrictions and Consideration. Each Member and Manager agrees and acknowledges that the restrictions set forth in this Article 8 are (a) necessary to preserve the legitimate Business, assets, confidential information and goodwill of the Company and the investments of the other Members; (b) are appropriately limited in time and scope; and (c) will not unduly prevent the Member or Manager from earning a livelihood. Each Member and Manager agrees and acknowledges that the mutual covenants and agreements contained in this Agreement constitute full and adequate consideration for his covenants and agreements in this Article 8.
8.06 Remedies. Notwithstanding any other provision herein, in the event of a breach by an Member or Manager of any of the provisions of this Article 8, the Company and/or other Members shall be entitled to injunctive and other equitable relief. restraining the Member or Manager from such conduct or from performing any other act in violation of this Article 8. Nothing contained herein shall be construed as prohibiting the Company or other Members from pursuing other remedies for such breach or threatened breach, including the recovery of damages from the Member or Manager. Such remedies shall include (a) recovery by the Company of all profits paid to or earned from conduct that violates this Article 8, and (b) expulsion from the Company. Any Member or Manager who violates the covenants of this Article 8 shall also be responsible to pay all costs incurred by the Company (including attorneys' fees) and other Members in enforcing such covenants and recovering damages for such violations.
8.07 Reformation. If any provision of this Article 8 is determined by a competent court or tribunal to be invalid or unenforceable, then (a) the other parts of this Article 8 shall not be affected thereby and shall be given full force and effect without regard to the invalid or unenforceable portions, and (b) the portion of this Article 8 that is otherwise determined to be invalid or unenforceable will be deemed modified to the minimum extent necessary to render it valid and enforceable.
Final Second Amended and Restated Operating Agreement 6-19-2009 33 ARTICLE 9: GENERAL PROVISIONS
9.01 Amendments.
(a) Required Amendments. The Company and the Members will approve, execute and file any amendment to the Articles required by the Act to reflect any change in the identity of Managers pursuant to Article 5 above.
(b) Other Amendments. Any Manager or Member may propose for consideration and action an amendment to this Agreement or to the Articles not described in Article 9.01(a) above. A proposed amendment will become effective when it is approved by Members entitled to vote whose combined Percentage Interest exceeds 65% of the Percentage Interest of all Members entitled to vote. Notwithstanding the foregoing, a majority of the Managers may unilaterally adopt and execute on behalf of the Company, without Member approval, any amendment to (i) Exhibit A or Ekhibit B-1 of this Agreement that they reasonably deem necessary to properly reflect changes that have occurred under this Agreement in the names and/or Units of the Members as a result of the issuance of additional Units, Transfers, the redemption or reacquisition of Units, or the reissuance of Units or the receipt of additional Contributions; and (ii) any amendments to Exhibit C-1, Exhibit C-2 or Exhibit C-3 of this Agreement to reflect changes in the authority or duties of Officers.
9.02 Power of Attorney. Each Member appoints each of the Managers, any of whom may act, with full power of substitution, as the Member's attorney-in-fact, to act in the Member's name to execute and file (a) all certificates, applications, reports and other instruments necessary to qualify or maintain the Company as a limited liability company in the states and foreign countries where the Company conducts its activities, (b) all instruments that effect or- confirm changes or modifications of the Company or its status, including, without limitation, amendments to the Articles, and (c) all instruments of transfer necessary to effect the Company's Dissolution and termination. The power of attorney granted by this Article 9.02 is irrevocable, coupled with an interest.
9.03 Investment Representation. Each Member represents to the Company and the other Members that (a) such Member has knowledge and experience in financial and business matters and is capable of evaluating the merits and risks of an investment in the Company and making an informed investment decision with respect thereto; (b) such Member has reviewed and evaluated all information necessary to assess the merits and risks of his investment in the Company and has had answered to such Member's satisfaction any and all questions regarding such information; (c) such Member is able to bear the economic and financial risk of an investment in the Company for an indefinite period of time; (d) such Member acquired or is acquiring interests in the Company for investment only and not with a view to, or for resale in connection with, any distribution to the public or public offering thereof; (e) such Member understands that the interests in the Company have not been registered under the securities laws of any jurisdiction and cannot be disposed of unless they are subsequently registered and/or qualified under applicable securities laws and the provisions of this Agreement have been complied with; (f) the determination of such Member to purchase interests in the Company has been made by such Member independent of any other Member and independent of any
Final Second Amended and Restated Operating Agreement 6-19-2009 34 statements or opinions as to the advisability of such purchase, which may have been made or given by any other Member or by any agent or employee of any other Member; and (g) this Agreement is valid, binding and enforceable against such Member in accordance with its terms, except as such enforceability is limited by principles of equity and/or Bankruptcy and creditors' rights laws.
9.04 Notices. Notices contemplated by this Agreement may be sent by any commercially reasonable means, including hand delivery, first class mail, fax, e-mail or private courier. The notice must be prepaid and addressed as set forth in the Company's records. The notice will be effective on the date of receipt or, in the case of notice sent by first class mail, the third day after mailing. If notice is required to be given to a Member or a Manager, a written waiver signed by the Member or Manager and delivered to the Company, whether before or after the time the notice is required to be given, is the equivalent of timely notice.
9.05 Resolution of Inconsistencies. If there are inconsistencies between this Agreement and the Act, this Agreement will control, except to the extent the inconsistencies relate to provisions of the Act that the Members cannot alter by agreement. Without limiting the generality of the foregoing, unless the language or context clearly indicates a different intent, the provisions of this Agreement pertaining to the Company's governance and financial affairs and the rights of the Members upon Dissociation and Dissolution will supersede the provisions of the Act relating to the same matters.
9.06 Additional Instruments. Each Member will execute and deliver any document or statement necessary to give effect to the terms of this Agreement or to comply with any law, rule or regulation governing the Company's activities.
9.07 Computation of Time. In computing any period of time under this Agreement, the day of the act or event from which the specified period begins to run is not included. The last day of the period is included, unless it is a Saturday, Sunday or legal holiday, in which case the period will run until the end of the next day that is not a Saturday, Sunday or legal holiday.
9.08 Entire Agreement. This Agreement and the Articles, as amended, comprise the entire agreement among the parties with respect to the Company. This Agreement and the Articles supersede any prior agreements or understandings with respect to the Company.
9.09 Conversion to Other Type of Entity. The Managers, acting by majority vote, shall have the authority to take any and all steps necessary to convert the Company into any other business entity form permissible under the laws of the State of Utah if they deem such conversion to be in the best interest of the Company. Upon such conversion, the Members' and Interest Holders' interests in the Company shall be converted to interests in the surviving entity that have substantially similar economic rights. The Members agree that if the Company converts to a corporation and deems it to be in the best interest of the Company to make a Sub- Chapter S election for tax purposes, each Member will take the necessary steps to qualify their ownership to be a Sub Chapter S corporation shareholder, and agrees that they will sign the form 2553 to make the Sub Chapter S election.
Final Second Amended and Restated Operating Agreement 6-19-2009 '15 9.10 Waiver. No right under this Agreement may be waived, except by an instrument in writing signed by the party sought to be charged with the waiver.
9.11 General Construction Principles. Words in any gender are deemed to include the other genders. The singular is deemed to include the plural and vice versa. The headings and undedined paragraph titles are for guidance only and have no significance in the interpretation of this Agreement.
9.12 Binding Effect. Subject to the provisions of this Agreement relating to the transferability of Membership Interests and the rights of Transferees, this Agreement is binding on and will inure to the benefit of the Company, the Members and their respective distributees, successors and assigns.
9.13 Governing Law and Dispute Resolution. Utah law governs the construction and application of the terms of this Agreement. With respect to any future claim, dispute, suit or action connected with, relating to or otherwise arising under or with respect to this Agreement, (a) the party substantially prevailing in such dispute, claim, or action shall be entitled to recover all reasonable attorneys fees and out-of-pocket litigation costs, and (b) each Member and Manager expressly and irrevocably:
Consents, submits and subjects himself and any such claim, suit, dispute or action to the exclusive personal and subject matter jurisdiction of the United States District Court for the District of Utah and the Utah State courts located in Salt Lake County, Utah ("Utah Courts");
(ii) Agrees that the Utah Courts shall have exclusive jurisdiction over all such claims, disputes, suits and actions and over him, and that venue properly lies in such Utah Courts as to any such claim, dispute, suit or action;
(iii) Waives any objection to venue, subject matter jurisdiction and personal jurisdiction in the Utah Courts;
(iv) Covenants and agrees not to plead or assert any such objection; and
(v) Consents to service of process by first class mail to his most recent address as set forth in the books and records of the Company.
9.14 Legal Representation. Each Member acknowledges (a) the law firm of Parr Brown Gee & Loveless has represented only the Company in connection with the negotiation and preparation of this Agreement and (b) the Member has been advised and has had the opportunity to consult with independent legal counsel before signing this Agreement.
9.15 Counterparts. This Agreement may be executed in counterparts, each of which will be considered an original.
[Signature Pages Follow]
Final Second Amended and Restated Operating Agreement 6-19-2009 36 Counterpart Signature Page to the Second Amended and Restated Operating Agreement
The Members of the Company have executed this Second Amend -4 and Restated ■ Operating Agreement to be effective as of the Effective Date.
Gary Hollister
Aaron Garrity
Gordon Morton
Joseph Morton
Kent Wood
Bryan Davis
Dee Grimmer
Dennis Grimmer MAE PROPERTIES, LLC
By: Its:
GO XANGO, LLC.
By: Its:
Final Second Amended and Restated Operating Agreement 6-19-2009 39 Counterpart Signature Page to the Second Amended and Restated Operating Agreement
The Members of the Company have executed this Second Amended and Restated Operating Agreement to be effective as of the Effective Date.
Gary Hollister
Aaron Gafrity
Gordon Morton
Joseph Morton
Kent Wood
Bryan Davis
Dee Grimmer
Dennis Grimmer MAE PROPERTIES, LLC
By: Its:
GO XANGO, LLC
By: Its:
Final Second Amended and Restated Operating Agreement 6-19-2009 37 Counterpart Signature Page to the Second Amended and Restated Operating Agreement
The Members of the Company have executed this Second Amended and Restated Operating Agreement to be effective as of the Effective Date.
Gary Hollister
Aaron Garrity
cordon Morton
Joseph Morton
Dee Grimmer
Dennis Grimmer MAE PROPERTIES, LLC
By: Its:
GO XANGO, LLC
By: Its:
Final Second Amended and Restated Operating Agreement 6-19-2009 37
Counterpart Signature Page to the Second Amended and Restated Operating Agreement
The Members of the Company have executed this Second Amended and Restated Operating Agr,-ement to be effective as of the Effective Date.
Gary Hollister
Aaron Garrity
Gordon Morton
("\• Josep,aMorton
Kent Wood
Bryan Davis
Dee Grimmer
Dennis Grimmer MAE PROPERTIES, LLC
By: Its:
GO XANGO, LLC
By: Its:
Final Second Amended and Restated Operating Agreement 6-19-2009 39 Counteipart Signature Page to the Second Amended and Restated Operating Agreement
The Members of the Company have executed this Second Amended and Restated Operating Agreement to be effective as of the Effective Date.
Gary Hollister
Aaron Garrity
Gordon Morton
Joseph Morton
Kent Wood
Bryan Davis
Dee Grimmer
Dennis Grimmer MAE PROPERTIES, LLC
By: Its:
GO XANGO, LLC
By: Its:
Final Second Amended and Restated Operating Agreement 6-19-2009 37 Counterpart Signature Page to the SecondAmended and Restated Operating Agreement
The Members of the Company have executed this Second Amended and Restated Operating Agreement to be effective as of the Effective Date.
Gary Hollister
Aaron Gall*
Gordon Morton
Joseph Morton
Kent Wood
Bryan Davis
Dee Grimmer
Dennis Grimmer MAE PROPERTIES, LLC
By: Its:
GO XANGO, LLC
By: Its:
Final Second Amended and Restated Operating Agreement 6-19-2009 37
Jun 22 OS 03:47p Dee Grimmer 505-346-1202 p,2
Counterpart Signature Page to the Second Amended and Restated Operating Agreement
The Members of the Company have executed this Second Amended and Restated Operating Agreement to be effective as of the Effective Date,
Gary Hollister
Aaron Garrity
Gordon Morton
• Joseph Morton
Kent Wood
Bryan Davis
Dennis Grimmer MAE PROPERTIES, LLC
By: Its:
GO XANGO, LLC
By: Its:
Amended and Rt.litalcd OperAtin8 A8Yut-m4.-nl 6-19.2Aw9 37 Counterpart Signature Page to the Second Amended and Restated Operating Agreement
BEDERRA GROUP, LLC
Bv: Its:
—,c5v Chris Peterson
A. Craig Hale
Nathan Brown
RObert Spangler
John Digs
Robert Cooler
Scott Smith
Vir,%1 ,Zt,,rsntl trwselprl 'And Roc:1..1.4,1 4-10.1111!0 Counterpart Signature Page to the Second Amended and Restated Operating Agreement'
BEDERRA GROUP, LLC
By: Its:
Chrj;-P-e-erson
A
Nathan Brown
Robert Spangler
John Digles
Robert Conlee
Scott Smith
Final Second Amended and Restated Operating Agreement 6-19-2009 38 Counterpart Signature Page to the Second Amended and Restated Operating Agreement
n-PrivrRp r-rRnup, I .T .C.
By: Its:
Chris Peterson
A. Craig Hate
Nathan Brown
Robert Spangler
John Digles
Robert Conlee
Scott Smith
Final Second Amended and Restated Operating Agreement 6-19-2009 40 Counterpart Signature Page to the Second Amended and Restated Operating Agreement
BEDERRA GROUP, LLC
By: Its:
Chris Peterson
A. Craig Hale
Nathan Brown
Robert Spangler
John Digles
Robert Conl e
Scott Smith
Final Second Amended and Restated Operating Agreement 6-19-2009 3 8 Counterpart Signature Page to the Second Amended and Restated Operating Agreement
GENESIS RESOURCE DEVELOPMENT, LLC
By: T I Its: 4,11,ex,--
Final Second Amended and Restated Operating Agreement 5-13-2009 39 Exhibit A to Second Amended and Restated Operating Agreement
List of Members
Class A Unit Members:
Gary Hollister Aaron Garrity Gordon Morton Joseph Morton Kent Wood Bryan Davis Genesis Resource Development, LLC (contingent on signing this Agreement, otherwise an Interest Holder)
Class B Unit Members:
Dee Grimmer Dennis Grimmer
Class C Unit Members:
Mae Properties, LLC Go XanGo, LLC Bederra Group, LLC Chris Peterson A. Craig Hale Nathan Brown Robert Spangler John Digles Robert Conlee Scott Smith
List of Interest Holders
Angel Investors, LLC Justin Banner
Final Second Amended and Restated Operating Agreement 6-19-2009 Exhibit B-1 to Second Amended and Restated Operating Agreement
Additional Contributions
Final Second Amended and Restated Operating Agreement 6-19-2009 Exhibit B-2 to Second Amended and Restated Operating Agreement
Special Allocation Provisions Under Key Employee's Employment Agreement
"a. For par poses of this Section IV S., the following definitions shall apply:
"Additional Capital Account Shortfall" means one percent (I%) of the adjusted or booked-up Capital Accounts of the Unit holders as calculated pursuant to the Operating Agreement as of the date of grant of the Additional Units, if any; provided, however, that for all purposes under this Agreement the Additional Capital Account Shortfall shall be proportionately reduced by the percentage, if any, of the Additional Units that Key Employee subsequentlyforfells or that XanGo otherwise redeems effective as of the date of such forfeiture or redemption. For example, ifKey Employee folfeits sixty percent (60%) ofhis Additional Units under the vesting provisions of this Agreement, the Additional Capital Account Shortfall shall be reduced to four-tenths of one percent (0.4%) of the adjusted or booked-up Capital Accounts of the Unit Holders as calculated pursuant to the Operating Agreement as of the date of grant of the Additional Units.
"Capital Account" means Capital Account as defined in the OperatingAgreement...
"Capital-Account-Based Distributions" means any distributions by XanGo to its Members, whether before or after dissolution of XanGo, in proportion to their respective positive Capital Account balances.
"Covered Event" means a sale, exchange or other transaction byXanGo, whether before or after dissolution of XanGo, the net proceeds ofwhich XanGo distributes as a Capital-Account-Based-Distribution to its Unit holders.
"Initial Capital Account Shortfall" means two percent (2%) of the adjusted or booked-up Capital Accounts of the Unit holders as calculated pursuant to the Operating Agreement as of the Effective Date; provided, however, that for all purposes under this Agreement the Initial Capital Account Shortfall shall be proportionately reduced by the percentage, if any, of the Initial Units that Key Employee forfeits or that XanGo otherwise redeems effective as of the date of such ,forfeiture or redemption. For example, ifKey Employee forfeitsforty percent (40%) of his Additional Units under the vesting provisions of this Agreement, the Additional Capital Account Shortfall shall be reduced to one and two-tenths percent (1.2%) of the adjusted or booked-up Capital Accounts of the Unit holders as calculated pursuant to the Operating Agreement as of the Effective Date.
"Key Employee Units" means the Initial Units and Additional Units.
"illember" means a member of XanGo and any other person who owns membership units in XanGo but has not been admitted as a member ofXanGo.
"Permitted Transferee" means an individual or entity to whom a vested Unit may be transferred without the consent of the Members, pursuant to the provisions of the Operating Agreement.
"Profit" means "Profit" cis defined in the Operating Agreement.
Final Second Amended and Restated Operating Agreement 6-19-2009 "Shortfall Amount" means the sum of the Initial Capital Account Shortfall (as adjusted for foiftitures and redemptions) and the Additional Capital Account Shortfall, if (iv (as adjusted for foriCilures and redemptions).
"Units" means "flints" as defined in the Operating Agreement,
b. The Parties understand, agree and acknowledge that because the Key Employee Units are profits interests, Key Employee's Capital Account with respect to any Key Employee Unit will be zero at the time the Key Employee Unit is granted, will not be increased in connection with the adjustment or book-up in value of the Capital Accounts of the other Members at the time of grant, and will result in the ratio of Key Employee's actual Capital Account to total Member Capital Accounts initially being less than his Unit percentage interest in .XanGo. XanGo and its Members nevertheless intend that, pursuant to the terms of this Agreement, Key Employee receive an economic benefit equivalent to that which he would receive assuming his Capital Account had been credited with the applicable Initial Capital Account Shortfall and, if Additional Units are granted, the Additional Capital Account Shortfall (and as if such Shortfall Amount had been taken from the Capital Accounts of the other Members, pro-rata to their Capital Account balances), and that, iffeasible, Key Employee receive such benefit through Capital-Account-Based Distributions while he holds Key Employee Units. Accordingly XanGo
With respect to each Covered Event that results in Profit to XanGo while Key Employee holds Key Employee Units, and subject to the priority of any other special allocation provisions required by sections 704(b) or 704(c) of the Code or the income tax regulations thereunder contained in the Operating Agreement, XanGo shall specially allocate to Key Employee's Capital Account before allocations of such Profit to other Members the lesser of
(x) Such portion of the Profit recognized from the Covered Event in question as is necessary to cause the cumulative aggregate Capital-Account-Based-Distributions that Key Employee receives while he holds Key Employee Units through the date ofthe Capital-Account-Based-Distribution in question to equal the cumulative Capital-Account-Based Distributions he othenvise would have received had his Capital Account initially been credited with the applicable Shortfall Amount; or
The entire Profit, if any, recognized from the Covered Event in question; and
(ii) Make Capital-Account-Based Distributions to Key Employee based upon his Capital Account as adjusted pursuant to the special allocation of Profits described in subparagraph (i) and after all other applicable Member Capital Account adjustments under the Operating Agreement, . . ."
Final Second Amended nod Restated Operating Agreement 6-19-2009 Exhibit C-1 to Second Amended and Restated Operating Agreement
Duties of Chairman
The Chairman has the overall responsibility for the management and operation of the Board. The Chairman will have responsibility for Board meetings and the oversight of all Board committees.
Final Second Amended and Restated Operating Agreement 6-19-2009 Exhibit C-2 to Amended and Restated Operating Agreement
Duties of Chief Executive Officer
The CEO has the overall responsibility for the operations and vision of XanGo, LLC. Working with the other executives, he will set vision, goals and appoint senior management to execute corporate strategy and to conduct the Company's operations. The CEO will set the strategy, tone and direction of the Company's goals. He will drive strategy interaction with overall corporate objectives. The CEO will have responsibility for overall corporate governance. This position will have power to appoint and/or employ management to conduct any day-to-day operations of the Company. The CEO will directly report to the Board.
Final Second Amended and Restated Operating Agreement 6-19-2009 Exhibit C-3 to Amended and Restated Operating Agreement
Duties of President
The President will help drive strategy interaction with overall corporate objectives. He will direct the managerial tone of the operational units. He will formulate general policies and direct their implementation through executive and senior level managers. He will inform the CEO and Board of Directors on the condition of the Company. This position will have power to appoint and/or employ management to conduct any day-to-day operations of the Company.
Final Second Amended and Restated Operating Agreement 6-19-2009