REGULATIONS
OF
“ABA” TITLE, LLC
(A Texas Limited Liability Company)
Effective Date: _____________________, 20___
106750021
ARTICLE I.
Section 1.1.
Section 1.2.
Section 1.3.
INTRODUCTION .............................................................................................1
Defined Terms And Phrases ..............................................................................1
Status of Regulations .........................................................................................2
Construction .......................................................................................................2
ARTICLE II.
Section 2.1.
Section 2.2.
Section 2.3.
Section 2.4.
Section 2.5.
Section 2.6.
Section 2.7.
Section 2.8.
ORGANIZATIONAL MATTERS ....................................................................2
Formation ...........................................................................................................2
Company’s Term ...............................................................................................2
Waiver of Withdrawal and Dissolution Rights ..................................................2
Certificates Representing Membership Interests ...............................................2
Members of Record............................................................................................3
Transfer of Membership Interests ......................................................................3
Foreign Qualification .........................................................................................3
Principal Office ..................................................................................................3
ARTICLE III.
Section 3.1.
Section 3.2.
Section 3.3.
Section 3.4.
Section 3.5.
Section 3.6.
Section 3.7.
Section 3.8.
Section 3.9.
Section 3.10.
Section 3.11.
MEMBERS ........................................................................................................4
Admission of Initial Members ...........................................................................4
Representations and Warranties of Members ....................................................4
Annual Meeting .................................................................................................4
Special Meetings ................................................................................................5
Conduct of Meetings ..........................................................................................5
Voting at Meetings .............................................................................................5
Waiver ................................................................................................................5
Telephone Conference Meetings .......................................................................6
Action by Written Consent ................................................................................6
No Liability to Third Parties ..............................................................................6
Independent Activities .......................................................................................6
ARTICLE IV.
Section 4.1.
Section 4.2.
Section 4.3.
Section 4.4.
Section 4.5.
CAPITAL CONTRIBUTIONS .........................................................................6
Initial Capital Contributions. .............................................................................6
No Additional Capital Contributions .................................................................7
Capital Accounts ................................................................................................7
Unrecovered Contributions Account .................................................................7
No Interest Paid On Contributions; No Right to Specific Assets .....................7
ARTICLE V.
Section 5.1.
Section 5.2.
Section 5.3.
TAX ALLOCATIONS ......................................................................................8
Primary Allocations of Profits and Losses.........................................................8
Tax Items Attributable to Contributed Assets ...................................................8
Qualified Income Offset ....................................................................................9
ARTICLE VI.
Section 6.1.
Section 6.2.
Section 6.3.
Section 6.4.
DISTRIBUTIONS .............................................................................................9
Non-Liquidating Distributions ...........................................................................9
Offset................................................................................................................10
Limitation on Distributions ..............................................................................10
Guaranteed Payments.......................................................................................10
ARTICLE VII.
Section 7.1.
Section 7.2.
ACCOUNTING ...............................................................................................10
Books and Records ..........................................................................................10
Fiscal Year .......................................................................................................11
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Regulations of “ABA” Title, LLC
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Section 7.3.
Section 7.4.
Section 7.5.
Accounting Method .........................................................................................11
Bank Accounts .................................................................................................12
“Tax Matters Partner” ......................................................................................12
ARTICLE VIII.
Section 8.1.
Section 8.2.
Section 8.3.
Section 8.4.
Section 8.5.
Section 8.6.
Section 8.7.
Section 8.8.
Section 8.9.
Section 8.10.
MANAGEMENT OF COMPANY AFFAIRS ................................................12
General Management Authority of the Managers ...........................................12
Major Decisions - Requisite Approval Required .............................................13
Signature Authority for Checks & Contractual Authority ...............................15
Officers ............................................................................................................15
Vacancies .........................................................................................................15
Removal ...........................................................................................................15
Waiver of Notice ..............................................................................................15
Telephone Conference Meetings .....................................................................16
Action by Written Consent ..............................................................................16
Place of Meetings .............................................................................................16
ARTICLE IX.
Section 9.1.
COMPENSATION AND FEES TO MEMBERS ...........................................16
Compensation and Fees to Members ..............................................................16
ARTICLE X.
TRANSFERS OF MEMBERSHIP INTERESTS ............................................16
Section 10.1. Restrictions on Transfer ...................................................................................16
Section 10.2. [Intentionally Reserved.]..................................................................................17
Section 10.3. Right of First Refusal .......................................................................................17
Section 10.4. Substitute Members .........................................................................................18
Section 10.5. Involuntary Events and Transfers of Membership Interests ............................19
Section 10.6. [Intentionally Reserved.]..................................................................................20
Section 10.7. [Intentionally Reserved.]..................................................................................20
Section 10.8. Exercise of Preferential Purchase Right ..........................................................20
Section 10.9. Determination of Price .....................................................................................21
Section 10.10. Required Consent .............................................................................................22
ARTICLE XI.
Section 11.1.
Section 11.2.
Section 11.3.
Section 11.4.
Section 11.5.
Section 11.6.
DISSOLUTION AND TERMINATION OF THE COMPANY .....................23
Dissolution .......................................................................................................23
Liquidating Trustee ..........................................................................................23
Winding Up and Distributions .........................................................................23
Reserves ...........................................................................................................24
Termination of Company .................................................................................24
Reconstitution ..................................................................................................25
ARTICLE XII.
Section 12.1.
Section 12.2.
Section 12.3.
Section 12.4.
MISCELLANEOUS PROVISIONS ................................................................25
Notices .............................................................................................................25
Waiver of Partition ...........................................................................................25
Headings ..........................................................................................................25
Further Assurances...........................................................................................25
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Section 12.5. Severability ......................................................................................................25
Section 12.6. Time of Essence ...............................................................................................26
Section 12.7. Construction .....................................................................................................26
Section 12.8. Notice to Members of Provisions of These Regulations .................................26
Section 12.9. Mediation /Arbitration .....................................................................................26
Section 12.10. Benefit and Binding Effect ..............................................................................29
Section 12.11. Attorney Representation ..................................................................................29
Exhibit “A” - Glossary of Terms ................................................................................................ A-1
Exhibit “B” - Initial Capital Contributions, Addresses and General Sharing Ratios ..................B-1
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REGULATIONS
OF
“ABA” TITLE, LLC
These Regulations are adopted by the Managers and accepted, executed and agreed to,
for valuable consideration, by the Members of “ABA” TITLE, LLC, and are as follows:
ARTICLE I.
INTRODUCTION
Section 1.1. Defined Terms And Phrases. A glossary of defined terms used in these
Regulations is set forth in Exhibit “A” attached hereto and incorporated herein for all purposes.
However, for the reader’s convenience and ease in understanding this document, certain defined
terms which are used numerous times throughout these Regulations are set forth below:
(a)
“Act” means the Texas Limited Liability Company Act, Article 1528n of the Texas
Revised Civil Statutes, as amended.
(b)
“Code” means the Internal Revenue Code of 1986, as amended.
(c)
“Company” means “ABA” Title, LLC.
(d)
“Managers”, used in either singular or plural form, means the Person(s)named in the
Company’s Articles of Organization as the initial Managers of the Company, whether
one or more, and any Person elected and serving as a substitute or additional Manager of
the Company, except for any Person who has voluntarily or involuntarily ceased to be a
Manager of the Company as provided in these Regulations.
(e)
“Members”, used in either the singular or plural form, means the Person(s) executing
these Regulations as a member of the Company under the requirements of the Texas
Limited Liability Company Act, and any other Person subsequently admitted as a
substitute or additional member of the Company, except for a Person who has voluntarily
or involuntarily ceased to be a Member of the Company.
(f)
“Person” includes an individual, corporation, business trust, estate, trust, custodian,
trustee, executor, administrator, nominee, partnership, registered limited liability
partnership, joint venture, unincorporated association, limited liability company,
government, governmental instrumentality and any other legal or commercial entity in its
own or representative capacity.
(g)
“Regulations” means these regulations as may be amended from time to time by the
Members.
(h)
“Treasury Regulations” means the federal income tax regulations promulgated by the
United States Treasury Department, as amended.
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Section 1.2. Status of Regulations. The terms and conditions of these Regulations, as
amended, shall govern the rights and obligations of the Managers and Members except to the
extent that the Act otherwise mandates. The Managers, Members, holders of Membership
Interests and assignees of Membership Interests are subject to and shall be bound by all of the
terms and provisions of these Regulations.
Section 1.3. Construction. Unless the context clearly indicates otherwise, all references in
these Regulations to Articles, Sections and Clauses refer to those Articles, Sections and Clauses
which are contained in these Regulations, and all references to Exhibits refer to Exhibits which
are attached to and incorporated in these Regulations.
ARTICLE II.
ORGANIZATIONAL MATTERS
Section 2.1. Formation. The Company has been organized as a Texas limited liability
company by the filing of Articles of Organization under and pursuant to the Texas Limited
Liability Company Act and the issuance of a certificate of organization for the Company by the
Secretary of State of Texas.
Section 2.2. Company’s Term. The term of the Company shall commence on the date the
Articles of Organization were filed with the Secretary of State of the State of Texas and shall
continue until terminated in accordance with the provisions of these Regulations.
Section 2.3. Waiver of Withdrawal and Dissolution Rights. The Members hereby agree to
continue the existence of the Company in accordance with the Articles of Organization and these
Regulations. The Members acknowledge and agree that care has been taken in these Regulations
to provide for a fair and just payment in liquidation of the Membership Interests of all the
Members and that irreparable damage would occur to the Company if any Member withdrew
prior to the end of the Company’s term as set forth in Section 2.2 hereof, or brought an action in
any court of law or equity to dissolve or liquidate the Company. Accordingly, as a condition
precedent to the issuance and subsequent transfer of any Membership Interest, each Member
shall be conclusively deemed to have waived and renounced such Member’s right to withdraw or
retire from the Company, to seek a court decree of dissolution for the Company, or to seek the
appointment by a court of a liquidator for the Company, except in accordance with these Regulations.
Section 2.4. Certificates Representing Membership Interests. The Company may deliver
certificates representing the Membership Interests to which Members are entitled, which
certificates shall be in such form as are approved by the Managers, or the Company may issue
uncertificated Membership Interests. Each certificate shall bear on its face the statement that the
Company is organized in Texas, the name of the Member to whom the certificate is being issued,
the name of the Company, the class of Membership Interest issued (if the Membership Interests
are issued in differing classes), and the General Sharing Ratio and other percentage interest
comprising the Membership Interest issued. Each certificate shall also contain, on its face or
back, all recitations or references required by law. Certificates for Membership Interests of the
Company shall be issued to a Member only when the Initial Capital Contribution to be made by
such Member, as set forth in Exhibit “B”, has been fully paid. Such certificates shall be signed
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by such Persons as the Managers may designate by Requisite Approval. The certificates shall be
consecutively numbered and shall be entered in the books of the Company as they are issued.
Section 2.5. Members of Record. The Members of the Company may authorize by Requisite
Approval the use and maintenance, among other records, of a securities transfer book, the stubs
in which shall set forth the names and addresses of the holders of all issued Membership Interests
of the Company, the General Sharing Ratio comprising the Membership Interest held by each
Member, the certificate numbers representing such Membership Interests (if any), the date of
issue of the certificates (if any) representing such Membership Interests, and whether or not such
Membership Interests originate from an original issuance or from transfer. The names and
addresses of the Members as they appear on the securities transfer book shall be the official list
of Members of record for all purposes. The Company shall be entitled to treat the holder of
record of any Membership Interests as the owner thereof for all purposes, and shall not be bound
to recognize any equitable or other claim to, or interest in, such Membership Interests or any
rights deriving from such Membership Interests, on the part of any other Person, including (but
without limitation) a purchaser, assignee or transferee, unless and until such other Person
becomes the holder of record of such Membership Interests, whether or not the Company has
actual or constructive notice of the interest of such other Person.
Section 2.6. Transfer of Membership Interests. Subject to Article X hereof, Membership
Interests shall be transferable on the securities transfer book of the Company (if one is
maintained) by the holder of record thereof, or such holder’s duly authorized attorney in fact or
legal representative, upon endorsement and surrender for cancellation of the certificates
representing such Membership Interests. All certificates surrendered for transfer shall be
canceled and no new certificate shall be issued until a former certificate or certificates for a like
Membership Interests has been surrendered and canceled, except that in the case of a lost,
destroyed or mutilated certificate, a new certificate may be issued therefor upon such conditions
for the protection of the Company as the Managers may prescribe by Majority Vote. When
authorizing the issuance of a replacement certificate or certificates, the Company may, and as a
condition precedent to the issuance thereof, require the owner of such lost or destroyed
certificate or certificates, or such owner’s attorney in fact or legal representative, to give the
Company a bond or personal indemnity agreement in such sum as the Company may direct for
indemnification of the Company against any claim that may be made against the Company with
respect to the certificate or certificates alleged to have been lost or destroyed.
Section 2.7. Foreign Qualification. Prior to the Company’s conducting business in any
jurisdiction other than Texas, the Managers shall cause the Company to comply, to the extent
procedures are available and those matters are reasonably within the control of the Managers,
with all requirements necessary to qualify the Company as a foreign limited liability company in
that jurisdiction. At the request of the Managers, each Member shall execute, acknowledge,
swear to and deliver all certificates and other instruments conforming with these Regulations that
are necessary or appropriate to qualify, continue and terminate the Company as a foreign limited
liability company in all such jurisdictions in which the Company may conduct business.
Section 2.8. Principal Office. The principal office (herein designated “Principal Office”) of
the Company will be located at 9800 Northwest Freeway, Suite 402, Houston, Texas 77092,
unless changed in accordance with these Regulations.
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ARTICLE III.
MEMBERS
Section 3.1. Admission of Initial Members. A Person being admitted as an initial Member,
shall be considered admitted as a Member on the date that the Person fulfills all the requirements
imposed on such Person by these Regulations including without limitation, signing these
Regulations and contributing the cash or other property to the Company which the Person is
required to make as an Initial Capital Contribution under Section 4.1 of these Regulations.
Section 3.2. Representations and Warranties of Members. Each Member who executes
these Regulations represents and warrants that:
(a)
Corporations. If that Member is a corporation, it is duly organized, validly existing and
in good standing under the laws of the state or country of its incorporation and is duly
qualified and in good standing as of its incorporation and is duly qualified and in good
standing as a foreign corporation in the jurisdiction of its principal place of business (if
not incorporated therein).
(b)
Limited Liability Companies. If the Member is a limited liability company, it is duly
organized, validly existing and (if applicable) in good standing under the laws of the state
or country of its organization and is duly qualified and (if applicable) in good standing as
a foreign limited liability company in the jurisdiction of its principal place of business (if
not organized therein).
(c)
Partnerships. If the Member is a partnership, trust or other entity, it is duly formed,
validly existing and (if applicable) in good standing under the laws of the state or country
of its formation, and if required by law is duly qualified to do business and (if applicable)
in good standing in the jurisdiction of its principal place of business (if not formed
therein), and the representations and warranties in Clauses (a), (b) and (c) of this Section
3.2, as applicable, are true and correct with respect to each partner (other than limited
partners), trustee or other member thereof.
(d)
Authority to Execute. If the Member is a corporation, limited liability company,
partnership, trust or other entity, that Member has full corporate, limited liability
company, partnership, trust or other applicable power and authority to execute and agree
to these Regulations and to perform its obligations hereunder and all necessary actions by
the board of directors, shareholders, managers, members, partners, the authorization,
execution, delivery, and performance of these Regulations by that Member have been
duly taken, and the Member has duly executed and delivered these Regulations.
(e)
No Conflict. The Member’s authorization, execution, delivery, and performance of these
Regulations does not conflict with any other agreement or arrangement to which the
Member is a party or by which the Member is bound.
Section 3.3. Annual Meeting. Commencing with the year 2005, annual meetings of the
Members shall be held in the month of March of each year at such hour and day as may be
designated in the notice of the meeting, if such day is not a legal holiday, and if a holiday, then
on the first following day that is not a legal holiday. If the annual meeting is not held on the date
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above specified, any Member may call a meeting in lieu thereof to be held as soon thereafter as
convenient, and any business transacted or election held at that meeting shall be as valid as if
held at the annual meeting. Failure to hold the annual meeting at the designated time shall not
cause a dissolution of the Company.
Section 3.4. Special Meetings. Special meetings of the Members may be called at any time by
any Member or combination of Members owning at least ten percent (10%) of the aggregate
General Sharing Ratios entitled to be voted at such meeting. A call for a special meeting need
not state the purpose or purposes of such meeting or the matters proposed to be acted on at such
meeting.
Section 3.5. Conduct of Meetings. All meetings of Members shall be presided over by a
Person chosen at the meeting by Requisite Approval of the Members. A Person designated by
the Person presiding over the meeting shall act as the secretary of the meeting and record the
proceedings thereof. The precedence of, and procedure on, motions and other procedural matters
at the meetings shall be governed by Robert’s Rules of Order insofar as those rules are not
inconsistent with law, with the Company’s Articles of Organization, or with these Regulations.
Section 3.6. Voting at Meetings. Any Member entitled to vote in respect to a particular matter
or action may vote either in person or by proxy executed in writing by him or her or by his or her
duly authorized attorney in fact. Unless a provision of these Regulations expressly provides that
less than all of the Members are entitled to vote on any particular matter or action, all of the
Members shall be entitled to vote on a matter or action requiring the vote, consent or approval of
the Members. Voting on any matter at the meeting shall be by voice, unless any Member
demands a ballot vote before the voting begins. Each proxy shall be revocable unless the proxy
form conspicuously states that the proxy is irrevocable and the proxy is coupled with an interest,
including the appointment as proxy of (i) a pledgee, (ii) a Person who purchased or agreed to
purchase, or owns or holds an option to purchase, the Membership Interest to which a General
Sharing Ratio relates, (iii) a creditor of the Company who extended its credit under terms
requiring the appointment, (iv) an employee of the Company whose employment contract
requires the appointment, or (v) a party to a voting agreement comparable to one created under
the TBCA. A revocable proxy shall be deemed to have been revoked if the Company shall have
received at or before the meeting instructions or revocation or a proxy bearing a later date, which
instructions or proxy shall have been duly executed and dated in writing by the Member
revoking such proxy.
Section 3.7. Waiver. Whenever, under the provisions of any law, the Articles of Organization
or amendments thereto, or these Regulations, any notice is required to be given to any Members,
a waiver thereof in writing signed by the Person or Persons entitled to vote such Member’s
Membership Interest, whether before or after the time stated therein, shall be equivalent to the
giving of such notice. Moreover, attendance at any meeting by a Member or such Person (as
applicable) shall constitute a waiver of notice of said meeting by such Member or Person unless
such Member or Person attends the meeting for the specific purpose of objecting to the
transaction of any business thereat on the ground that the meeting is not lawfully called or
convened.
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Section 3.8. Telephone Conference Meetings. Meetings of Members, may be held by means
of conference telephone or similar communications equipment so long as all Persons
participating in the meeting can hear and speak to each other. Participation in a meeting
pursuant to this Section 3.8 shall constitute 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 thereat on the ground that the meeting is not lawfully called or convened.
Section 3.9. Action by Written Consent. Any matter or action which may be taken at a regular
or special meeting of the Members may be taken without a meeting if a written consent to such
matter or action setting forth the matter or actions in question, is signed by those Members who
could effect approval of such matter or action at such a meeting in accordance with these
Regulations, and such consent shall have the same force and effect as an approval of such matter
or action at a duly called meeting. No notice shall be required in connection with the use of a
written consent pursuant to this Section 3.9.
Section 3.10. No Liability to Third Parties. The Members will not be individually or
collectively liable for the debts, obligations and liabilities of the Company, including under a
judgment decree or order of a court, except that each Member’s Capital Contribution being the
property of the Company will be subject to the liabilities and debts of the Company.
Section 3.11. Independent Activities. Members may engage in any activities incurring any
obligation to offer any interest in such outside activities to the Company or other Members.
Neither these Regulations nor any activity undertaken in accordance with these Regulations will
prevent any Member from engaging in such activities or require any Member to permit the
Company or any other Member to participate in such activities. Further, as a material part of the
consideration for each Member’s Membership Interest, each Member shall be conclusively
deemed to have waived any such right or claim of participation.
ARTICLE IV.
CAPITAL CONTRIBUTIONS
Section 4.1. Initial Capital Contributions.
(a)
Upon admission to the Company, each Person subscribing to a Membership Interest
contemporaneous with the adoption of these Regulations shall contribute to the
Company, as such Person’s initial capital contribution (herein designated “Initial Capital
Contribution”), that cash described opposite their respective names in Exhibit “B”
attached hereto and incorporated herein for all purposes as though fully set forth, and
such Person shall ipso facto be admitted as a Member and shall initially receive (in
consideration for such Member’s Initial Capital Contribution) the General Sharing Ratio
set forth opposite such Member’s name in said Exhibit “B”.
(b)
In addition to its Initial Capital Contribution, “ABA” Partner, shall contribute that
amount of cash needed for the Company’s Start-up Expenses during the one hundred
twenty (120) days immediately following the commencement of the Company’s Business
(herein collectively designated “Additional Start-Up Contributions”); provided,
however, in no event shall the cumulative amount of the Additional Start-Up
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Contributions exceed Twenty-Five Thousand and No/100 Dollars ($25,000.00). For
purposes of the immediately preceding sentence, “Start-Up Expenses” collectively
means (i) salary, payroll taxes and fringe benefits for the Company’s employees, (ii)
insurance, bonding, filing and application fees, (iii) computer equipment and software
license, (iv) title plant lease fee, rent, accounting fees, telephone expense, and supplies,
(v) other expenses deemed reasonable and necessary by the Manager to operate the
Company.
(c)
Contemporaneous with the execution of these Regulations, Affiliated Title Group, LLC
shall cause IntegrityTitleInformation.com, LLC (a Texas limited liability company which
is an Affiliate of Affiliated Title Group, LLC) to enter into a Title Plant and Software
License Agreement and License Fee Agreement and Addendum (herein designated “Title
Plant License”), pursuant to which the Company shall have access to the title data
necessary to conduct the Company’s Business. “ABA” Partner agrees that while the Title
Plant License is in effect, “ABA” Partner, shall use its best efforts to solicit and refer to
the Company all potential customers (i) with whom “ABA” Partner has contact and (ii)
need title insurance. The Members agree that the Title Plant License may be terminated
in accordance with its terms without any Member or Manager initiating such termination
being liability to the other Members or the Company for such termination.
Section 4.2. No Additional Capital Contributions. No Member shall be required to make any
Capital Contributions to the Company other than such Member’s Initial Capital Contribution or
Additional Start-Up Contributions, as applicable.
Section 4.3. Capital Accounts. An individual Capital Account shall be established, determined
and maintained for each Member in accordance with Treasury Regulation Section 1.7041(b)(2)(iv). Notwithstanding the fact a Member acquires Membership Interests at different
times, such Member shall have a single Capital Account that reflects all such Membership
Interests, regardless of the time or manner in which each of such Membership Interests were
acquired. Notwithstanding the foregoing provisions of this Section 4.3, any item of Company
income, gain or loss specially allocated to a Member pursuant to Section 5.2 hereof shall be
disregarded for all purposes in determining the Capital Accounts of the Members. A credit
balance in a Member’s Capital Account shall constitute a liability of the Company to that
Member. A debit balance in a Member’s Capital Account shall not constitute an obligation of
the Member to the Company.
Section 4.4. Unrecovered Contributions Account. In addition to a Capital Account, an
Unrecovered Contributions Account shall be established and maintained for each Member to
reflect such Member’s Unrecovered Contribution. This account shall be a memorandum account
and shall not be reflected in the Company’s balance sheet. The account shall be credited with the
amount of the Member’s Initial Capital Contribution and shall be charged with distributions
made pursuant to Section 6.1 of these Regulations.
Section 4.5. No Interest Paid On Contributions; No Right to Specific Assets. The Company
will not be required to pay or owe interest to a Member on the Capital Contributions of that
Member made to the Company, except as otherwise provided in these Regulations. Further,
Members may not demand property other than cash in return for their contributions of capital to
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the Company or have priority over any other Member as to the return of their Capital
Contributions. Members shall look solely to the assets of the Company for the return of their
Capital Contributions, and if the assets of the Company are insufficient to return a Member’s
Capital Contributions, that Member will have no recourse against any other Member for that
purpose.
ARTICLE V.
TAX ALLOCATIONS
Section 5.1. Primary Allocations of Profits and Losses. Except as provided in the other
Sections of this Article V, Profits and Losses (defined below) of the Company shall be allocated,
for federal and state income tax and capital account purposes in direct proportion to the General
Sharing Ratios of the Members. The term “Profits and Losses” means, for each fiscal year or
other period, an amount equal to the Company’s taxable income or loss for such year or period,
determined in accordance with section 703(a) of the Code (for this purpose, all items of income,
gain, loss or deduction required to be stated separately pursuant to Code section 703(a)(1) shall
be included in taxable income or loss), with the following adjustments:
(a)
Any income of the Company that is exempt from federal income tax and not otherwise
taken into account in computing Profits and Losses pursuant to this Section 5.1 shall be
added to such taxable income or loss;
(b)
Any expenditures of the Company described in Code section 705(a)(2)(B) or treated as
Code section 705(a)(2)(B) expenditures pursuant to Treasury Regulation section 1.7041(b)(2)(iv)(i), and not otherwise taken into account in computing Profits and Losses
pursuant to this Section 5.1 (such as charitable contributions, certain life insurance
premiums, organizational expenses of the Company, and certain related party losses
subject to Code section 267), shall be subtracted from such taxable income or loss; and
(c)
Notwithstanding any other provision of this Section 5.1, any items which are specially
allocated pursuant to Sections 5.2 or 5.3 hereof shall not be taken into account in
computing Profits and Losses.
Section 5.2. Tax Items Attributable to Contributed Assets. Notwithstanding the provisions
of Section 5.1 hereof, in accordance with Code section 704(c) and the Treasury Regulations
promulgated pursuant thereto, income, gain, loss and deduction with respect to any Company
Asset that was contributed as capital to the Company by, and is attributable to, a specific
Member or Members without the recognition of taxable income at the time of such contribution
shall be first and specifically allocated, solely for tax purposes, to that Member or those
Members so as to take into account any variation between the adjusted tax basis of such
Company Asset in the hands of the contributing Member or Members and the fair market value
of the Company Asset as stipulated at the time of the contribution. Any elections or other
decisions relating to the allocations provided for in this Section 5.2 shall be made by Requisite
Approval of the Members in any manner that reasonably reflects the purpose and intention of
these Regulations. The allocations provided for in this Section 5.2 shall be made before the
allocations required pursuant to Section 5.1 hereof, and allocations made pursuant to this Section
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5.2 shall not affect, or in any way be taken into account in computing, any Member’s Capital
Account or share of Profits, Losses and other items or distributions pursuant to any provision of
these Regulations.
Section 5.3. Qualified Income Offset. In the event any Members unexpectedly receive any
adjustments, allocations or distributions described in Treasury Regulation section 1.7041(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), or 1.704-1(b)(2)(ii)(d)(6), items of Company income
and gain shall be specially allocated to such Members in an amount and manner sufficient to
eliminate the deficit balances in their Capital Accounts created by such adjustments, allocations
or distributions as quickly as possible. Any special allocations of items of income or gain
pursuant to this Section 5.3 shall be taken into account in computing subsequent allocations of
Profits pursuant to this Article V, so that the net amount of any items so allocated and the Profits,
Losses and all other items allocated to each Member pursuant to this Article V shall, to the extent
possible, be equal to the net amount that would have been allocated to each such Person pursuant
to the provisions of this Article V if such unexpected adjustments, allocations or distributions
had not occurred.
ARTICLE VI.
DISTRIBUTIONS
Section 6.1. Non-Liquidating Distributions. Except as provided in Article XI hereof (relating
to liquidating distributions) and Sections 6.2 and 6.3 hereof, the Company shall distribute to the
Members, at such times as may be determined by the Majority Vote of the Members, any Cash
Flow of the Company in the following amounts and priorities:
(a)
First, a cumulative amount of Cash Flow shall be distributed to “ABA” Partner to the
extent its Additional Start-Up Contributions have not previously been repaid by
distributions made pursuant to this Section 6.1(a), which repayment shall be due and
payable in twelve (12) equal and consecutive monthly installments; (i) the first of such
installments shall be due and payable on the one hundred fiftieth (150th) day immediately
following the date on which the Company delivers its first title insurance policy, with the
day of the month on which such one hundred fiftieth (150th) day falls being hereinafter
referred to as the “Payment Day” in this Section 6.1(a); and (ii) one subsequent
installment shall be due and payable on the Payment Day of each consecutive calendar
month thereafter; provided, however, in the event the Cash Flow in the thirty (30) days
immediately preceding the Payment Day for a particular installment is less than that
installment, then that installment shall not be due and payable on the Payment Day
originally scheduled for that installment, and instead that installment shall be deferred
until the next available Payment Day on which there is no other installment owing, at
which time that installment shall be due and payable, and in the event more than one
installment is so deferred, then such installments shall be shall become due and payable
on the next available Payment Day on which there is no other installment owing on a
“first-in, first-out” basis;
(b)
Second, a cumulative amount of Cash Flow shall be distributed to the Members to the
extent of and in proportion to all Unrecovered Contributions that have not previously
been repaid pursuant to this Section 6.1(b);
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9
(c)
Finally, after satisfaction of Sections 6.1(a) and 6.1(b) above, and after providing for
current debts and obligations of the Company (including deposits to reasonable cash
reserves), any excess Cash Flow shall be distributed to the Members in proportion to their
respective General Sharing Ratios.
Section 6.2. Offset. In the event that any sum is payable to any Member pursuant to these
Regulations, any amounts owed by such Member to the Company shall be deducted and set-off
from such sum before payment of such sum to such Member.
Section 6.3. Limitation on Distributions. The Company may not make a distribution to its
Members to the extent that, immediately after giving effect to the distribution, all liabilities of
the Company, other than liabilities to Members with respect to their Membership Interests and
liabilities for which the recourse of creditors is limited to specified Company Assets, exceed the
fair market value of all the Company Assets, except the fair market value of property which is
subject to a liability for which recourse of creditors is limited shall be included in the Company
Assets only to the extent the fair market value of that property exceeds that liability. A Member
who receives a distribution which is not permitted under the immediately preceding sentence
shall have no liability to return that distribution to the Company unless the Member knew that
distribution violated the prohibition imposed by the immediately preceding sentence and Article
5.09 of the Act.
Section 6.4. Guaranteed Payments. Any payment of salary, wages, bonuses, or other
compensation payable to any of the Members in their capacities as employees or officers of the
Company, pursuant to these Regulations or any employment or similar agreement by and
between such Member and the Company, shall be treated as a “guaranteed payment” as that term
is used in Code section 707(c), and any deduction for federal and state income tax purposes that
is attributable to such payment shall be allocated between the Members in accordance with
Article V hereof.
ARTICLE VII.
ACCOUNTING
Section 7.1. Books and Records. The Managers shall keep or cause to be kept accurate,
complete and proper books, records and accounts pertaining to the Company’s Business. The
following documents (hereinafter designated “Prescribed Documents”) shall be maintained at
the Company’s principal office designated in the Articles of Organization, or shall be made
available to any Member in that office within five (5) days after the date of receipt of a written
request therefor pursuant to Article 2.22, Section E, of the Act:
(a)
A current list that states (i) the name and mailing address of each Member, (ii) the
General Sharing Ratio or other percentage interest in the Company owned by each
Member; and (iii) if one or more classes or groups are established in or under the Articles
of Organization or these Regulations, the names of the Members who are members of
each specified class or group.
(b)
Copies of the federal, state and local information or income tax returns for each of the
Company’s six (6) most recent tax years.
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10
(c)
A copy of the Articles of Organization and these Regulations (together with all
amendments or restatements thereof), executed copies of any powers of attorney, and
copies of any document that creates, in a manner provided by the Articles of
Organization or these Regulations, classes or groups of Members.
(d)
A written statement of (i) the amount of cash contributed and a description and statement
of the agreed value of any other contribution made by each Member and the amount of
the cash contribution and a description and statement of the agreed value of any other
contribution which the Member has agreed to make in the future as an additional
contribution; (ii) the times at which additional contributions are to be made or events
requiring additional contributions to be made; (iii) events requiring the Company to be
dissolved and its affairs wound up; and (iv) the date on which each Member became a
member of the Company.
(e)
Correct and complete books and records of the Company.
On the written request by any Member or an assignee of a Membership Interest made to
the President or all of the Managers of the Company, the Company shall provide to the
requesting Member or assignee true copies of (i) the Articles of Organization and these
Regulations and all amendments or restatements thereof and (ii) any of the tax returns described
in Section 7.1(b) hereof, which written request shall be sent to the Principal Office of the
Company. A Member or an assignee of a Membership Interest, upon written request stating the
purpose, may examine and copy, in person or by the Member’s or assignee’s representative at
any reasonable time for any proper purpose and at the Member’s or a assignee’s expense, the
Prescribed Documents and any other information regarding the business, affairs and financial
condition of the Company as is just and reasonable for such Member or assignee to examine and
copy. Within ninety (90) days after the close of each fiscal year of the Company, there shall be
furnished to the Members, at the Company’s expense, all financial information requested by any
Member. There shall be furnished to the Members, within seventy-five (75) days after the end of
each fiscal year, a Company tax return and attendant schedules for federal income tax purposes.
Such financial statements shall be prepared using the method of accounting selected pursuant to
Section 7.3 hereof and shall be prepared in accordance with generally accepted accounting
principles applied on a basis consistent with prior periods, except as may be inconsistent with the
accounting method selected pursuant to Section 7.3. Any Member shall have the right to have an
audit conducted of the Company books. The cost of the audit shall be borne by the Member
requesting the audit performed, or with Requisite Approval of the Members, by the Company.
The audit shall be performed by an accounting firm acceptable to the Member or Members
bearing the cost of the audit. Not more than one audit shall be required by any one or more
Members for any fiscal year.
Section 7.2. Fiscal Year. The Company’s fiscal year shall end each year on December 31. All
books and records of the Company shall be kept accordingly.
Section 7.3. Accounting Method. The Company shall maintain its accounting records and
prepare its Federal income tax returns, and all decisions as to accounting matters shall be made
as determined by Majority Vote of the Managers, unless otherwise determined by Requisite
Approval of the Members.
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Section 7.4. Bank Accounts. All funds of the Company shall be deposited in its name. All
funds of the Company shall be held on deposit in banks or other financial institutions in a
manner which will cause all such funds to be fully insured by an agency of the Federal
government. All interest earned on any such deposits shall be and remain the sole property of
the Company. No other funds shall be deposited into or commingled with such accounts. All
accounts will be established and maintained as requiring the signature of at least one Manager
before funds may be withdrawn from the account. Funds deposited in the Company’s accounts
may be withdrawn only to pay Company debts, to be invested pursuant to the Company’s
purposes, or to be distributed to the Members pursuant to and in accordance with these
Regulations.
Section 7.5. “Tax Matters Partner”. In the event of an audit of the Federal income tax return
of the Company by the Internal Revenue Service, and pursuant to Code section 6231 and related
Code sections, the President of Affiliated Title Group, LLC (except as otherwise determined by
Requisite Approval of the Members) shall serve as the “tax matters partner” of the Company
(hereinafter designated “TMP”). The TMP shall provide each Member with any notice received
from the Internal Revenue Service regarding any adjustments proposed by the Internal Revenue
Service. In the event a Member other than the TMP receives a notice of a proposed adjustment
from the Internal Revenue Service, such Member shall, immediately upon receipt thereof,
provide such notice to the TMP so that the TMP may take such actions as the TMP deems
necessary. All expenses incurred by the Company in connection with any such audit or lawsuit
shall be borne by the Company as an expense of operations if Company funds are used to pay
such expenses. None of the provisions of this Section 7.5 is intended to authorize the TMP to
take any action which is left to the determination of an individual Member under Code sections
6222 through 6231.
ARTICLE VIII.
MANAGEMENT OF COMPANY AFFAIRS
Section 8.1. General Management Authority of the Managers. Subject to the provisions of
Section 8.2 regarding Major Decisions and any other express limitations contained in these
Regulations, management and control of the Company and its business and affairs shall be
vested solely and exclusively in the Managers acting by Majority Vote, having all powers
granted to members under the Act and these Regulations. The sole initial Manager of the
Company shall be Paul Cones. The number of Managers may be increased from time to time by
Requisite Approval of the Members. Unless sooner removed by Requisite Approval of the
Members, a Manager shall continue to hold office until that Manager resigns. Managers need
not be Members of the Company. Specific provisions relating to the management of the
Company’s affairs by the Managers are as follows:
(a)
Delegation to Officers. The Managers may elect and delegate their authority under these
Regulations to one or more Officers, except for Major Decisions.
(b)
All Actions By Majority Vote. Each Manager shall be entitled to one vote and all actions
and decisions shall be decided by majority vote (“Majority Vote”) of the Managers,
meaning more than ½ by number.
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(c)
Removal; Resignations. A Manager may be removed at any time upon Requisite
Approval of the Members. A Manager may resign at any time. A Manager’s resignation
must be in writing which will take effect at the time specified in the written resignation.
If no time is specified in the resignation, then it will become effective at the time of its
receipt by the President, Secretary, another Manager or all of the Members. The
acceptance of a resignation will not be necessary to make it effective, unless expressly so
provided in the resignation. Whenever there is a vacancy of a Manager’s position
because of any reason, including, without limitation, removal, death or resignation, the
Members shall by Requisite Approval appoint a new Manager or Managers to fill the
vacancy.
(d)
Compensation of Managers. None of the Managers shall be entitled to compensation for
the services which he, she or it renders to the Company, except as determined by
Requisite Approval of the Members. However, the Managers must be reimbursed by the
Company for reasonable out of pocket costs and expenses incurred in relation to the
management and operation of the Company and its business, including without limitation
day-to-day bookkeeping expenses, the costs of postage, messenger and telephone
expenses, and other necessary expenses directly attributable to the Company’s business.
In order to receive reimbursement, the Managers must submit adequate substantiation and
documentation of their expenses to the Company.
Section 8.2. Major Decisions - Requisite Approval Required. Unless approved by Requisite
Approval of the Members, no Member, Manager, Officer or other Person, acting alone or jointly
with others, may do or effectuate any of the following acts (“Major Decisions”):
(a)
Merger or Conversion. Cause or permit the Company to be a party to a merger,
consolidation, share exchange, interest exchange, conversion or other similar transaction;
or
(b)
Acquire Assets. Purchase or otherwise acquire any capital stock, assets comprising the
business of, obligations of, or any interest in, any Person, except:
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(1)
investments by the Company in evidences of indebtedness issued or fully
guaranteed by the United States of America having a maturity of not more than
six months from the date of acquisition; or
(2)
investments by the Company in certificates of deposit and demand deposits with
commercial banks or savings and loans have a membership in the Bank Insurance
Fund or in the Savings Association Insurance Fund and in amounts not exceeding
the maximum amount of insurance thereunder; or
(3)
investments by the Company in “A”-rated or better commercial paper having a
maturity of not more than six months from the date of acquisition; or
(4)
investments by the Company in “money market” fund shares, or in “money
market” accounts fully insured by the Bank Insurance Fund or the Savings
Association Insurance Fund and sponsored by banks or other financial
institutions, provided that such “money market” fund or “money market”
13
accounts are investments of the types described in Sections 8.2(b)(1), (2) or (3)
above; or
(c)
Distributions. Make any distributions to the Members other than in the manner provided
for in these Regulations; or
(d)
Business. Change the nature of the business of the Company; or
(e)
Change Name. Change the name of the Company; or
(f)
Form Other Entities. Cause the formation of any corporation, partnership or other
subsidiary entity owned or controlled, in whole or in part, by the Company; or
(g)
Loans. Make any loans; or
(h)
Title. Permit any Company funds or assets (real, personal, intangible or mixed) to be
held or titled in a name other than the name of the Company; or
(i)
Company Assets. Possess any Company Assets or assign any rights in specific Company
Assets other than for a Company purpose; or
(j)
Contracts. Except as otherwise expressly permitted herein, cause the Company to enter
into (i) any contract or arrangement with a Member or Manager, or his or its Affiliates,
or (ii) any contract concerning the Company which is not terminable upon thirty (30)
days’ notice by the Company, or (iii) any contract which authorizes another Person to
perform an act if that act would, if taken by the Managers directly, would constitute a
Major Decision; or
(k)
Guaranties. Issue guaranties, indemnities or surety bonds on behalf of the Company with
respect to the obligation(s) of any other Person other than in the ordinary course of
business of the Company; or
(l)
Office. Open an office on behalf of the Company which would require or involve the
lease or purchase of commercial office space; or
(m)
Sell Substantially All Company Assets. Sell or otherwise dispose of all or substantially
all of the assets of the Company; or
(n)
Select Depreciation and Accounting Methods. Select depreciation and accounting
methods and make other decisions with respect to the treatment of various transactions
for Federal income tax purposes other than what is consistent with other provisions of
these Regulations; or
(o)
Borrowing. Borrow or commit to borrow on behalf of the Company any funds in excess
of Ten Thousand and No/100 Dollars ($10,000.00); or
(p)
Encumber Company Assets. Hypothecate or encumber any of the assets of the Company
to secure obligations in excess of Ten Thousand and No/100 Dollars ($10,000.00); or
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(q)
Settle Claims. Assign, compromise, settle or release any claim of the Company against
any Person in excess of Ten Thousand and No/100 Dollars ($10,000.00), or consent to
the arbitration of any disputes or controversies involving the Company; or
(r)
Confess Judgment. Confess a judgment, or adjust, settle or compromise any claim, suit or
judgment by or against the Company in excess of Ten Thousand and No/100 Dollars
($10,000.00); or
(s)
Bankruptcy. File a voluntary petition or seek relief for the Company pursuant to the
United States Bankruptcy Code or make an assignment for the benefit of creditors of the
Company; or
(t)
Admission of Members. Admit any Person as a Member of this Company; or
(u)
Amendment of Articles or Regulations. Amend, restate or repeal the Company’s Articles
of Organization or these Regulations.
Section 8.3. Signature Authority for Checks & Contractual Authority. Managers by
Majority Vote (unless otherwise determined by Requisite Approval of the Members) shall
designate such Officers or other Persons having signature authority for the Company.
Section 8.4. Officers. The Managers may elect and delegate to the Officers of the Company
any responsibilities, duties, rights, powers, authority and discretion normally held or exercised by
the Managers. The offices held by Officers of the Company may include a Chairman of the
Board, a President, one or more Vice Presidents, a Secretary, a Treasurer, an Assistant Secretary
and an Assistant Treasurer. All Officers shall, unless otherwise removed by the Managers or
Members, hold office until their successors are elected and qualified. Any two or more offices
may be held by the same person. Unless otherwise approved by Requisite Approval of the
Members, Officers shall not receive any salaries or other compensation, any approval or amount
of which may be altered by the Members from time to time. All Officers will be reimbursed for
all costs and expenditures which they reasonably incur in the Company’s Business, subject to
any policies, procedures and guidelines approved by the Managers.
Section 8.5. Vacancies. Whenever there is a vacancy of an Officer’s position because of any
reason including without limitation death or resignation, the Managers shall by Majority Vote
elect a new Officer to fill the vacancy. The Officer so elected will, unless otherwise removed by
the Managers or Members, hold office until his or her successor is chosen and qualified.
Section 8.6. Removal. Any Officer elected by the Managers may be removed by Majority Vote
of the Managers or by Requisite Approval of the Members whenever, in the Managers’ or
Members’ judgment, the best interests of the Company will be served by removing the Officer.
However, the Officer’s removal will not prejudice his or her contract rights, if any, but the
election or appointment of an Officer will not by itself create contract rights.
Section 8.7. Waiver of Notice. Whenever, under the provisions of any law, the Company’s
Articles of Organization or amendments thereto, or these Regulations, any notice is required to
be given to any Members or Managers, a waiver thereof in writing signed by the Person or
Persons entitled to vote such Member’s Membership Interest, whether before or after the time
106750021
15
stated therein, shall be equivalent to the giving of such notice. Moreover, attendance at any
meeting by a Member, Manager or such Person (as applicable) shall constitute a waiver of notice
of said meeting by such Member, Manager or Person unless such Member, Manager or Person
attends the meeting for the specific purpose of objecting to the transaction of any business
thereat on the ground that the meeting is not lawfully called or convened.
Section 8.8. Telephone Conference Meetings. Meetings of Managers may be held by means
of conference telephone or similar communications equipment so long as all Persons
participating in the meeting can hear and speak to each other. Participation in a meeting
pursuant to this Section 8.8 shall constitute 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 thereat on the ground that the meeting is not lawfully called or convened.
Section 8.9. Action by Written Consent. Any matter or action which may be taken at a regular
or special meeting of the Managers may be taken without a meeting if a written consent to such
matter or action setting forth the matter or actions in question, is signed by those Managers who
could effect approval of such matter or action at such a meeting in accordance with these
Regulations, and such consent shall have the same force and effect as an approval of such matter
or action at a duly called meeting. No notice shall be required in connection with the use of a
written consent pursuant to this Section 8.9.
Section 8.10. Place of Meetings. All meetings of Managers shall be held at the Principal Office
or such other place determined by Majority Vote of the Managers.
ARTICLE IX.
COMPENSATION AND FEES TO MEMBERS
Section 9.1. Compensation and Fees to Members. None of the Members shall be entitled to
compensation for the services which he, she or it renders to the Company, except as set by the
Managers. However, the Members shall be entitled, upon presentation to the Company of
adequate substantiation and documentation therefor, to be reimbursed by the Company out of
Company funds for reasonable out of pocket costs and expenses incurred in relation to the
management and operation of the Company and its business, day-to-day bookkeeping expenses,
the costs of postage, messenger and telephone expenses, and other necessary expenses directly
attributable to the Company’s Business.
ARTICLE X.
TRANSFERS OF MEMBERSHIP INTERESTS
Section 10.1. Restrictions on Transfer. No Member shall have the right, and each Member
hereby waives such Member’s right under the Act and at law, to sell, exchange, convey, transfer,
assign, partition (with a spouse or otherwise), give or hypothecate (hereinafter designated in this
Article X as “Assign” if used in the context of a verb and “Assignment” if used in the context of
a noun) all or any portion of such Member’s Membership Interest except in compliance with the
terms of these Regulations. No Member shall have the right to effect an Assignment of all or
any part of such Member’s Membership Interest to any Person until (i) the provisions of this
Section 10.1 and Sections 10.3 and 10.10 hereof have been complied with and (ii) all Capital
106750021
16
Contributions that such Member is required hereunder to make have been paid in their entirety.
In the event of any Assignment of a Membership Interest or any rights hereunder (whether
permitted or not permitted), such Membership Interest shall be and remain subject to all terms
and provisions of these Regulations. No Assignment of any Member’s Membership Interest,
although otherwise valid, shall be recognized by the Membership until and unless the provisions
of this Article X have been satisfied and there shall have been delivered to the Company a dated
and written notification of such Assignment (i) executed, acknowledged and sworn to by both
the Member effecting such Assignment and the Person to whom such Membership Interest is
Assigned, (ii) if such Person desires to become a substituted member pursuant to the provisions
of Section 10.4 hereof, containing confirmation of the acceptance by such Person of all of the
terms and provisions of these Regulations, and (iii) containing a representation that such
Assignment was made in accordance with all applicable laws and governmental regulations and
all requirements of these Regulations; further, the Company shall not recognize for any purpose
any purported Assignment of such Membership Interest unless and until all reasonable costs or
expenses reasonably incurred by the Company in connection with the Assignment of a such
Member’s Membership Interest have been paid in full by the transferor and/or transferee,
including, but not limited to, (i) the costs of preparing an acceptance of these Regulations and (ii)
the costs and fees incurred in connection with obtaining any legal opinion required pursuant to
Section 10.10 hereof. If the transferor is deceased or incompetent, certified copies of any Court
order or documents may be submitted in lieu of the transferor’s agreement to be bound by the
terms of these Regulations. The transferee of such Membership Interest shall be deemed to have
assumed all the obligations hereunder relating to such Membership Interest or rights so
Assigned. Notwithstanding any other provision of these Regulations, no Assignment of a
Membership Interest, or any rights hereunder, shall release the disposing Member from such
Member’s liabilities to the other Members, the Company or the Company’s Business, which
such liabilities shall survive such Assignment and shall not be discharged by assumption of such
liabilities by any other Person. Each transferee of a Membership Interest shall execute,
acknowledge and deliver whatever instruments or documents may be necessary or desirable to
effect such Assignment on the records of the Membership.
Section 10.2. [Intentionally Reserved.]
Section 10.3. Right of First Refusal. During the three (3) year period beginning as of the date
of these Regulations, no Member shall Assign all or any portion of such Member’s Membership
Interest without the Requisite Approval of the Members. Following the expiration of such three
(3) year period, in the event any Member (hereinafter designated “Selling Member” in this Section 10.3) desires to Assign all or any portion of such Selling Member’s Membership Interest,
such Selling Member shall give written notice (hereinafter designated “Notice of Sale”) to all of
the other Members in accordance with the following terms and conditions:
(a)
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Each Notice of Sale (i) shall state the price at which the Selling Member desires to sell
such Selling Member’s Membership Interest, or any portion thereof, to be sold, the
proposed assignee, and the terms, provisions, and conditions of the proposed sale and (ii)
shall offer to sell all of the Selling Member’s Membership Interest to each of the other
Members on the terms and conditions set forth in Section 10.8 and 10.10 and at a price
equal to the lower of the price described in the Notice of Sale or the price set forth in
Section 10.9.
17
(b)
The Members shall have forty-five (45) days after receipt of the Notice of Sale (hereinafter designated “Option Period” in this Section 10.3) to exercise their option to purchase
all of the Membership Interest offered for sale. The option shall be exercised by the
Member giving the Selling Member written notice of the exercise of the option. Unless
otherwise agreed among the purchasing Members, each purchasing Member may only
purchase that portion of the Selling Member’s Membership Interest as bears the same
ratio to all of such Membership Interest as the General Sharing Ratio then owned by that
purchasing Member bears to the aggregate General Sharing Ratios then owned by all of
the respective purchasing Members (on a collective basis).
(c)
The closing of the purchase shall take place on the tenth (10th) day after the expiration of
the Option Period, provided that if such tenth (10th) day is a weekend day or holiday,
then such closing shall take place on the next regular business day after the tenth (10th)
day. Such closing shall take place in the principal office of the Company at ten o’clock
(10:00) A.M. on such day. At the closing, the Selling Member shall deliver to the
purchasing Members an assignment of the Selling Member’s Membership Interest
containing general warranties of title, along with such other instruments necessary to
effect the transfer as the purchasing Members may reasonably request. The purchasing
Members will tender payment to the Selling Member at such time in accordance with the
terms of the Selling Member’s offer.
(d)
If all the Members fail to exercise their option during the Option Period, the Selling
Member is free to sell all (or a portion of) such Selling Member’s Membership Interest
within forty-five (45) days after the expiration of the Option Period, in accordance with
the Notice of Sale. If a sale of the Selling Member’s Membership Interest does not occur
during such forty-five (45) day period, then such Membership Interest shall again become
subject to the option provisions of this Section 10.3.
Section 10.4. Substitute Members. An assignee or transferee of a Membership Interest
(hereinafter designated “Assignee”) shall be entitled to receive the share of the Company capital
and distributions to which such Assignee’s immediate predecessor would have been entitled.
Upon becoming a substituted Member, such Assignee shall have all of the rights and powers of,
shall be subject to all of the restrictions applicable to, shall assume all of the obligations of, and
shall attain the status of, such Assignee’s predecessor, and shall in all respects be a Member
under and pursuant to these Regulations (if admitted as a Member by approval of all the
Members). For the purpose of defining and ascertaining the rights and powers accruing to, the
restrictions and obligations imposed upon, and the status of a substituted Member as a result of
his, her or its substitution hereunder, the use of the term “Member” in these Regulations shall be
deemed to include a substituted Member. No Member shall have the right to constitute such
Member’s Assignee as a substituted member. An Assignee who receives a Membership Interest,
but who is not admitted to the Membership as a substituted Member, shall not be entitled to vote,
and the Membership Interest of such Assignee shall not be counted for voting or quorum
purposes. In addition, an Assignee (or successive Assignee) shall not be entitled to Assign such
Assignee’s (or such successive Assignee’s) Membership Interest, or any right or any part thereof,
without fulfilling the conditions Sections 10.1, 10.3 and 10.10 hereof to the same extent and in
the same manner as any Member who desires to effect an Assignment of a Membership Interest.
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Section 10.5. Involuntary Events and Transfers of Membership Interests. For purposes of
these Regulations, an Involuntary Event shall be conclusively deemed to have occurred with
respect to a Member or any Assignee of a Member (or any successor in interest to such
Assignee) (hereinafter each designated “Affected Party”):
(a)
If such Affected Party (i) files a voluntary petition in bankruptcy or (ii) is adjudicated a
bankrupt or insolvent, or (iii) files any petition or answer seeking any composition,
readjustment, liquidation, dissolution, or similar relief for such Affected Party under the
present or any future Federal bankruptcy act or any other present or future applicable
Federal, State or other statute or law relative to bankruptcy, insolvency, or other relief for
debtors, or (iv) seeks or consents to or acquiesces in the appointment of any trustee,
receiver, conservator, or liquidator of such Affected Party or of all or any substantial part
of such Affected Party’s properties or Membership Interest (the term “acquiesces”
includes, but is not limited to, the failure to file a petition or motion to vacate or
discharge any order, judgment, or decree providing for such appointment within ten [10]
days after the appointment); or
(b)
If (i) a court of competent jurisdiction enters an order, judgment, or decree approving a
petition filed against such Affected Party seeking any reorganization, arrangement,
composition, readjustment, liquidation, dissolution, or similar relief under the present or
any future Federal bankruptcy act, or any other present or future applicable Federal,
State, or other statute or law relating to bankruptcy, insolvency, or other relief for
debtors, and such Affected Party acquiesces in the entry of such order, judgment, or
decree (the term “acquiesces” includes, but is not limited to, the failure to file a petition
or motion to vacate or discharge such order, judgment, or decree within ten [10] days
after the entry of the order, judgment, or decree), or such order, judgment, or decree
remains vacant and unstayed for an aggregate of ninety (90) days (whether or not
consecutive) from the date of entry thereof; (ii) or any trustee, receiver, conservator, or
liquidator of such Affected Party or of all or any substantial part of such Affected Party’s
property or such Affected Party’s Membership Interest shall be appointed without the
consent or acquiescence of such Affected Party and such appointment shall remain
unvacated and unstayed for an aggregate of sixty (60) days (whether or not consecutive);
or
(c)
If such Affected Party shall admit in writing such Affected Party’s inability to pay such
Affected Party’s debts as such debts mature; or
(d)
If such Affected Party shall give notice to any governmental body of such Affected
Party’s insolvency or pending insolvency, or suspension or pending suspension of
operations; or
(e)
If the Internal Revenue Service or other governmental authority shall file a lien against
the property of such Affected Party due to unpaid taxes, interest or penalties and such lien
is not fully released within sixty (60) days after such lien is filed, unless (i) the Internal
Revenue Service or other authority agrees not to exercise its rights pursuant to such lien
because a bond or other security is given to secure payment of the assessment(s) which
are the subject of such lien, or (ii) such Affected Party and the Internal Revenue Service
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19
or other authority enter into a plan for the installment payment of such unpaid
assessments, provided, however, if such Affected Party defaults under such plan or if the
Internal Revenue Service refuses or otherwise begins taking collection action against
such Affected Party’s Membership Interest, an Involuntary Event shall be conclusively
deemed to have occurred with respect to such Affected Party’s Membership Interest as a
result thereof;
(f)
If such Affected Party shall make an assignment for the benefit of creditors or take any
other similar action for the protection or benefit of creditors, or shall have a charging
order entered against such Affected Party’s Membership Interest;
(g)
If a charging order is entered against the Membership Interest of such Affected Party; or
(h)
If such Affected Party shall make an Assignment which is in contravention of this
Article X.
If an Involuntary Event occurs with respect to an Affected Party, such Affected Party shall
deliver written notice of such fact to each of the Members. At any time after the occurrence of
an Involuntary Event and prior to the second anniversary of the delivery of such notice, the other
Members shall have a preferential right and option (but not the obligation) to purchase all or any
portion such Affected Party’s Membership Interest, at its value determined under Section 10.9
hereof, which right shall be subject to the provisions specified in Section 10.8 hereof.
Section 10.6. [Intentionally Reserved.]
Section 10.7. [Intentionally Reserved.]
Section 10.8. Exercise of Preferential Purchase Right. Any Notice of Sale sent pursuant to
these Regulations shall be in writing and shall identify (i) the party delivering the Notice of Sale,
(ii) the date of such Notice of Sale, (iii) the Ownership Interest (or portion thereof) which is the
subject of such Notice of Sale, (iv) all particularities relating to the event triggering the purchase
option or obligation arising hereunder to which such Notice of Sale relates, (v) the Section
hereunder under which such obligation or option arises, and (vi) any other information required
hereunder to be in any particular Notice of Sale.
(a)
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Each Member, other than the Member or other Person whose Membership Interest is the
subject of purchase option which becomes effective under Sections 10.2 or 10.5
(hereinafter designated “Selling Member”), may only exercise a purchase option granted
under Sections 10.2 or 10.5, 10.6 or 10.7 hereof (whichever is applicable) by means of a
written notice (hereinafter designated “Exercise Notice”) sent to the Selling Member (or
the Selling Member’s legal representative) within the period in which the Members have
to exercise a purchase option under Sections 10.2 or 10.5, whichever is applicable
(hereinafter designated “Option Period”). Any Exercise Notice shall identify (i) the
party delivering the Exercise Notice, (ii) the date of such Exercise Notice, (iii) the
Ownership Interest (or portion thereof) which is the subject of such Exercise Notice, (iv)
all particularities relating to the event triggering the purchase option or obligation arising
hereunder to which such Exercise Notice relates, and (v) the Section hereunder under
20
which such obligation or option arises. In the event more than one (1) Member exercises
such a purchase option, the Members shall only have the right to purchase a portion of
the Selling Member’s Membership Interest that bears the same ratio to one hundred
percent (100%) as such Member’s General Sharing Ratio bears to the aggregate General
Sharing Ratios of all of the Members exercising such purchase option.
(b)
Upon giving an Exercise Notice, each Member (hereinafter designated “Purchasing
Member” in this Section 10.8) and the Selling Member shall be obligated to consummate
the purchase thereof at the Company’s principal office within forty-five (45) days after
the expiration of the pertinent Option Period. The purchase price for a Selling Member’s
Membership Interest shall be an amount equal to the value of such Membership Interest
as determined pursuant to Section 10.9 hereof. One Hundred percent (100%) of the
purchase price payable by a Purchasing Member shall be paid by the Purchasing Member
at the consummation of the sale. For purposes of effecting the purchase of a Selling
Member’s Membership Interest as described in this Section 10.8, the selling party shall
be deemed to have irrevocably designated and hereby irrevocably designates each
Purchasing Member as the Selling Member’s attorney-in-fact for the limited and express
purpose of executing and delivering any and all documents necessary or desirable to
effect and/or evidence the purchase of the Selling Member’s Membership Interest. This
power of attorney shall be conclusively deemed to be coupled with an interest. A
Purchasing Member shall have no liability to the selling party or any other person in
executing and delivering such instruments of termination as such attorney in fact, so long
as the Purchasing Member has acted in a reasonable manner and in good faith.
Section 10.9. Determination of Price. The value of each Membership Interest for purposes of
Sections 10.2 or 10.5 hereof shall be an amount determined as follows:
(a)
Agreed Value Statement. If all of the Members have signed a statement (hereinafter
referred to as “Value Statement”) setting forth the agreed value of one unit (1 percentage
point) of Membership Interest as of a date not more than one (1) year prior to the date of
the applicable Notice of Sale, the value shall be an amount equal to the product of the
number of units/percentage points of Membership Interest being sold multiplied by the
sum of (i) such agreed value, plus (ii) the per unit/percentage point value of retained net
earnings of the Company (determined on an “after tax” basis using a cash receipts and
disbursements method of accounting) in the period from the date of such agreed value
through the date of the applicable Notice of Sale, with such net earnings being
determined, to the extent possible, in a manner consistent with accounting practices
utilized in preceding fiscal periods and in accordance with generally accepted accounting
principles. All questions with respect to accounting procedures, valuations and net
earnings determinations not expressly addressed by these Regulations shall be decided
within sixty (60) days of the date of the applicable Notice of Sale by the independent
certified public accountants regularly employed by the Company, and for purposes of this
Section 10.9(a), the decision of such accountants shall be final and conclusive on all
Persons with respect to the determinations to be made pursuant to this Section10.9(a).
(b)
Appraisal. In the absence of an agreed Value Statement complying with Section 10.9(a)
above, the value of each Membership Interest shall be (except as may be otherwise
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21
provided in Section 10.3 hereof) shall be that amount of the Net Assets the selling Party
would have received (exclusive of hypothetical expenses of sale) had the Company been
liquidated as of the date of the Sales Notice delivered to the selling party or parties
pursuant to this Article X. For purposes of this Article X, the term “Net Assets” means
the excess of (i) the fair market value of all Company assets over (ii) the Company’s
liabilities and the liabilities to which the Company’s assets may be subject or bound. To
determine the fair market value of the such assets under this Section 10.9(b), such selling
party shall select one qualified appraiser and the purchasing Member(s) shall collectively
select one qualified appraiser, and each appraiser’s name, address and telephone number
shall be furnished to the other appraiser and to each purchasing Member and the selling
party within twenty (20) days after the occurrence of the event requiring such
appointment. In the event either appraiser shall not be appointed within the twenty (20)
day period above specified, the appraisal by the appraiser who has been appointed shall
be final and binding on all the parties. If, however, both appraisers are appointed, then
they shall meet and attempt to reach a determination of the fair market value. If such
appraisers select fair market value within five percent (5%) of each other, the
mathematical average of the two (2) appraisals shall constitute the fair market value. If
the fair market value is not determined pursuant to the immediately foregoing sentence,
the two appraisers shall then select a third appraiser and the three appraisers shall then
make such determination. A decision by any two of the appraisers (or in instances where
no two appraisers can agree, the mathematical average of the two closest appraisals, and
where no to appraisals are closest, the average of all three appraisals) shall be final and
conclusive on the selling party and Purchasing Partner as to such fair market value. In
the event the two (2) appraisers cannot agree upon the appointment of a third appraiser, if
such be necessary, then the third appraiser shall be appointed by the then Senior Federal
District Judge (in his capacity as an individual and not in his judicial capacity) for the
Southern District of Texas, Houston Division, and application to such Judge may be
made by any purchasing Member or the selling party. The selling party and the purchasing Member(s) shall pay the fees and expenses of their respective appraiser, and the
selling party and the purchasing Member shall each pay one-half (½) of the fees and
expenses of any third appraiser. All appraisers appointed in accordance with the
provisions of this Section 10.9(b) shall meet the following qualifications: (1) each
appraiser shall be experienced and qualified by the American Society of Appraisers to
appraise assets such as the Company’s assets and to appraise businesses of the nature
conducted by the Company, (2) each appraiser shall not otherwise be disqualified from
exercising independent judgment as to the fair market value determination to be made,
and (3) each appraiser shall be a member of the American Society of Appraisers.
Section 10.10. Required Consent. No Membership Interest, including the right to profits
and/or distributions, may be Assigned, except upon the death of the transferring Person, in any
case in which legal counsel for the Company is of the opinion that such Assignment or any
actions in connection therewith would cause the Company to be terminated for Federal income
tax purposes. Any Person who Assigns all or any portion of such Person’s Membership Interest
shall promptly notify the Members of such Assignment and shall furnish the Company with the
name and address of the transferee and such other information as might be required under Code
section 6050K and the Treasury Regulations promulgated thereunder. Further, no Assignment of
a Membership Interest, including the rights to profits and/or distributions, may be made if, in the
106750021
22
reasonable opinion of legal counsel to the Company, such Assignment would require registration
of such Membership Interest with the Securities and Exchange Commission or a State securities
agency and such registration has not been made, provided further, that under no circumstances
shall the Company be required to obtain such registration.
ARTICLE XI.
DISSOLUTION AND TERMINATION OF THE COMPANY
Section 11.1. Dissolution. The Company shall be automatically dissolved upon the happening
of any of the following:
(a)
The sale or other disposition of substantially all the Company Assets.
(b)
The determination to liquidate the Company made by Requisite Approval of the
Members.
(c)
The expiration of the term of the Company.
(d)
The occurrence of any event which acts to dissolve the Company under the terms of the
Act.
(e)
The occurrence of an event or the existence of a condition which makes it unlawful for
the Company‘s Business to be conducted.
(f)
The demand of any Member upon ninety (90) days’ prior written notice.
Section 11.2. Liquidating Trustee. Upon the dissolution of this Company, the business and
affairs of the Company shall be wound up by a Person designated to be the Liquidating Trustee
by Requisite Approval of the Members. The Liquidating Trustee need not be a commercial
corporate trust company and need not be bonded. If, within ninety (90) days immediately
following the date of dissolution of the Company, a Liquidating Trustee or successor Liquidating
Trustee has not been appointed in the manner provided herein, any interested party shall have the
right to make application to the then senior United States Federal District Judge (in his individual
and not judicial capacity), for the Southern District of Texas, Houston Division, for appointment
of the Liquidating Trustee or successor Liquidating Trustee, and such Judge shall be fully
authorized and empowered to appoint and designate the Liquidating Trustee or successor
Liquidating Trustee, who shall have all the powers, duties, rights, and authority of the
Liquidating Trustee herein provided.
Section 11.3. Winding Up and Distributions. Upon any dissolution, the Liquidating Trustee
shall immediately wind up the affairs of the Company and liquidate the Company Assets in
accordance with Articles 6.03, 6.04, 6.05, 6.07 and 6.08 of the Act. The Company Assets shall
be liquidated as promptly as commercially reasonable unless an immediate sale of all or part of
the Company Assets would cause undue loss to the Company, in which event the liquidation may
be deferred for a reasonable time except as to those Company Assets necessary to satisfy the
Company debts. The Liquidating Trustee shall have, without further authorization or consent of
any Member or their legal representatives or successors in interest, the same rights, powers and
authority of all the Members in respect to the management of the Company to the extent
106750021
23
necessary or desirable in the good faith judgment of the Liquidating Trustee to perform his, her
or its duties and functions. The Liquidating Trustee shall be liable for all obligations of the
Company created after the date the Liquidating Trustee accepts the position as Liquidating
Trustee. Upon the dissolution of the Company for any reason, during the period of winding up
and liquidation of the Company, the Members entitled thereto shall continue to receive
distributions of Cash Flow and to share Profits and Losses for all tax and other purposes as
provided in these Regulations. The net proceeds from liquidation of the Company Assets shall be
applied in the following order of priority:
(a)
The expenses of liquidation;
(b)
To the payment and discharge of all debts and liabilities of the Company to creditors
other than Members and former Members;
(c)
To the payment of all debts and liabilities, other than for capital and/or profits of the
Company, owed to Members who are creditors;
(d)
To the setting up of any reserves which the Liquidating Trustee may reasonably deem
necessary for any contingent or unforeseen liabilities or obligations of the Company or of
the Members pursuant to Section 11.4 hereof; and
(e)
To and among the Members in accordance with the positive balances in their respective
Capital Accounts.
The Members’ Capital Account balances shall be appropriately adjusted before any liquidating
distributions, to reflect Profits and Losses from sales or other dispositions of Company Assets, or
any other event giving rise to a Capital Account adjustment. For purposes of calculating the
amount of the distribution represented thereby, any Company Assets distributed in kind to a
Member shall be valued at its fair market value, as determined by the Liquidating Trustee, and
any unrealized appreciation or unrealized depreciation shall first be allocated to the Capital
Accounts of the Members in accordance with the manner in which income, gain or loss would
have been allocated pursuant to Article V hereof if such Company Assets had been sold before
the proceeds therefrom were distributed in liquidation. To the extent possible in order to avoid
the recognition of any taxable income or gain pursuant to Code section 704(c)(1)(B), any
Company Assets contributed by a Member to the Company shall be allocated to that Member as
a part of any liquidation distribution to which such Member is otherwise entitled hereunder.
Section 11.4. Reserves. Prior to any payments to any Members, the Liquidating Trustee in his,
her or its sole discretion may establish one or more reserve accounts to satisfy any anticipated or
contingent liabilities, and any sums remaining unexpended in such reserve accounts, after the
related liabilities of the Company have been provided for to the satisfaction of the Liquidating
Trustee, shall be distributed to the Members in accordance with Section 11.3(e) hereof.
Section 11.5. Termination of Company. Within a reasonable time following the completion of
the Company’s liquidation, the Liquidating Trustee shall furnish to each of the Members a
statement, certified by the Company’s independent certified public accountants, if so decided by
Requisite Approval of the Members, which sets forth the assets and the liabilities of the
106750021
24
Company as of the date of complete liquidation, each Member’s pro rata portion of distributions
pursuant to Section 11.3 hereof, and the amount retained as reserves by the Liquidating Trustee
pursuant to Section 11.4 hereof. Upon completion of the distribution of Company Assets in
connection with the winding up of the Company, the Company shall be terminated.
Section 11.6. Reconstitution. Notwithstanding anything to the contrary contained herein, if the
Company is dissolved as a result of an event described in Section 11.1(c) or 11.1(d) hereof, the
Company may be reconstituted and its business continued if, within ninety (90) days after the
date of dissolution, all the Members (other than a bankrupt Member) agree to reconstitute the
Company. If the Company is reconstituted, an appropriate amendment to these Regulations shall
be executed and delivered by all of the Persons who are Members of the reconstituted Company.
ARTICLE XII.
MISCELLANEOUS PROVISIONS
Section 12.1. Notices. Except as may be otherwise specifically provided in these Regulations,
all notices, responses, offers and/or other communications required or permitted hereunder shall
be in writing and shall be deemed delivered when personal delivery is effected, a telegram
containing such notice is delivered, or when the same is deposited in the United States mail,
postage prepaid, registered or certified mail, return receipt requested, addressed to the Members
at the respective addresses set forth in Exhibit “B” hereto or at such other addresses as may have
been theretofore specified by written notice delivered in accordance herewith. Any such notice
shall be deemed to have been received as of the earlier of (i) three (3) days after mailing such
notice in accordance herewith, (ii) one (1) day after the sending of such notice by telegram, (iii)
the date of the signed receipt for such notice, or (iv) the date of actual hand delivery without a
signed receipt.
Section 12.2. Waiver of Partition. Each Member shall be conclusively deemed to have waived
for the full term of the Company any and all right such Member may have or acquire to maintain
an action for partition of the Company or any of the Company Assets either as a partition-in-kind
or a partition-by-sale.
Section 12.3. Headings. The article and section headings in these Regulations have been
inserted for convenient reference only and shall not have the effect of modifying or amending the
express terms and provisions of these Regulations or be used in interpreting these Regulations.
Section 12.4. Further Assurances. Each Member shall execute such other and further
instruments and documents as are or may become necessary or convenient to effectuate and carry
out the purposes of the Company or the intent of these Regulations.
Section 12.5. Severability. In case any one or more of the provisions contained in these
Regulations shall, for any reason, be held to be invalid, illegal or unenforceable in any respect,
such invalidity, illegality or unenforceability shall not affect any other provisions hereof, and
these Regulations shall be construed as if such invalid, illegal or unenforceable provision had
never been contained herein.
106750021
25
Section 12.6. Time of Essence. Time shall be of the essence of these Regulations whenever
time limits are imposed herein for the performance of any obligation by any Persons, or
whenever the accrual of rights to any of the parties hereto depends on the passage of time.
Section 12.7. Construction. The following shall apply to the construction of these Regulations:
(a)
In these Regulations, unless there is something in the subject matter or context
inconsistent therewith,
(1)
words in the singular include the plural and such words shall be construed as if
the plural had been used,
(2)
words in the plural include the singular and such words shall be construed as if
the singular had been used,
(3)
words importing the masculine gender include the female gender and the neuter,
and it shall be construed as if the corresponding word importing the female
gender or the neuter had been used, and
(4)
words importing the neuter include the masculine gender and the female gender
and it shall be construed as if the corresponding word importing the masculine
gender or the female gender had been used, where the context or a party hereto so
requires, and the rest of the sentence shall be construed as if the grammatical and
terminological changes thereby rendered necessary had been made.
(b)
“Hereto”, “herein”, “hereby”, “hereinunder”, “hereof”, and similar expressions refer to
these Regulations, any addenda and amendments to these Regulations and the exhibits
attached to these Regulations and not to any particular article, section, paragraph,
subparagraph, clause or any other portion of these Regulations.
(c)
A reference in the Regulations to any one or more Members or other Persons shall be
conclusively deemed to include a reference to the respective successors and permitted
assigns of any such Member or other Person.
Section 12.8. Notice to Members of Provisions of These Regulations. By adopting and/or
executing these Regulations, each Member and Manager acknowledges that he, she or it has
actual notice of (a) all of the provisions of these Regulations and the Company’s Articles of
Organization, including, without limitation, the restrictions on the transfer of Membership
Interests set forth in Article X of these Regulations. Each Member and Manager hereby agrees
that these Regulations constitute adequate notice of all such provisions, including, without
limitation, any notice requirement under Article 2.19(D) of the TBCA and Chapters 8 and 9 of
the Texas Uniform Commercial Code, and each Member and Manager hereby waives any
requirement that any further notice thereunder be given.
Section 12.9. Mediation /Arbitration. The Members and Managers, for themselves and their
respective successors and assigns (hereinafter collectively designated “Parties” in this Section
12.9), agree that if at any time a dispute arises among the Parties concerning the interpretation or
application of any provision of these Regulations under any particular circumstances (herein
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26
designated “Dispute”), such Dispute shall be subjected to mediation, as described in this Section
12.9. If the mediation proceeding is unsuccessful, the Parties hereby agree that the Dispute shall
be decided by mandatory, final, and binding arbitration in accordance with the Commercial
Arbitration Rules of the American Arbitration Association, as supplemented hereby.
(a)
Venue; No Interested Persons. The Parties bind themselves to mediate in Houston,
Harris County, Texas. The mediator shall be independent of the Parties and under no
circumstances shall any mediator have any connection to or relationship with any of the
Parties, or their respective principals or employees.
(b)
Mediation Proceeding.
(c)
(1)
If any Party desires to mediate any Dispute, such Party shall notify the other
Parties of the Dispute desired to be mediated, including a brief statement of the
matter in controversy. If the Parties are not able to resolve the Dispute within five
(5) days after the Party notifies the other Parties of its desire to mediate
(hereinafter designated “Mediation Notice”), then, within five (5) days
immediately after the expiration of the aforesaid five (5) day period, the Parties
shall attempt to agree upon an independent mediator. If the Parties are unable to
reach an agreement upon an independent mediator within such second five (5) day
period, then any Party shall be entitled to request that the Judicial Arbitration and
Mediation Service (hereinafter designated “JAMS”) (or similar mediation service
of a similar national scope if JAMS no longer then exists) appoint an independent
mediator who shall serve as mediator for all purposes hereof. Each of the Parties
to the Dispute shall pay his or its respective pro rata share of the cost of the
mediator’s services, in advance upon request by the mediator.
(2)
Within ten (10) days after selection of the mediator, the mediator shall call for and
set a meeting among the Parties and the mediator for the purpose of mediating the
Dispute.
(3)
Any time period contemplated in the foregoing provisions of this Section 12.9
may be extended by mutual written agreement of the Parties.
Arbitration Proceeding.
(1)
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Unless all Parties can agree in writing on a single arbitrator within five (5) days
after the expiration of the Mediation Period, then, within five (5) days thereafter,
each Party shall notify the other in writing of the name of the independent
arbitrator chosen by such Party to participate as a member of a three-member
panel of arbitrators. If either Party fails to timely give the other notice of such
appointment, then the Party who timely gave such notice shall be entitled to
require that such group’s arbitrator act as the sole arbitrator hereunder. If an
arbitrator is timely appointed by all the Parties, the two named arbitrators shall
select the third member of the arbitration panel within five (5) days after they
have both been appointed, and they shall promptly notify the Parties thereof. Each
Party shall promptly notify the other and the Party-selected arbitrators in writing
27
if the third arbitrator has any relationship to or affiliation with any Party
(hereinafter designated “Notice of Relationship”), in which event another
arbitrator shall be selected within five (5) days after receipt of such Notice of
Relationship by the Party-selected arbitrators. If the two initially appointed
arbitrators cannot agree on a third arbitrator, then any Party may request that the
American Arbitration Association select the third arbitrator.
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(2)
Arbitration demanded hereunder shall be binding and not subject to appeal. The
decision, arbitration order, and relief agreed upon in writing by any two or more
of the arbitrators (in the case of a three-member panel) shall be deemed the
decision of the panel for all purposes hereof. If two or more members of the
arbitration panel cannot agree, then the decision of the arbitrator not appointed by
any Party shall control. The references herein to the arbitration panel shall also be
deemed to refer to a single arbitrator where a panel is not being used hereunder,
and all references to decisions, orders, awards, and relief granted by the panel of
arbitrators shall mean the decision, order, award, or relief agreed upon in writing
by the required number of members of the panel, as indicated.
(3)
The Parties agree that the arbitration panel may render and the Parties shall abide
by any interim ruling that the arbitration panel deems necessary or prudent
regarding discovery, summary proceedings, or other pre-arbitration matters.
(4)
The Parties hereby submit to the in personam jurisdiction of the State and federal
courts located in Harris County, Texas, and agree that any such court may enter
all such orders as may be necessary or appropriate to enforce the provisions
hereof and/or to confirm any pre-arbitration ruling or decision or any award
rendered by the arbitration panel. Any court of law of Texas or the United States
of America shall enforce the decision of the panel of arbitrators (or single
arbitrator, as applicable) in its entirety and only in its entirety; provided, however,
that if a court for any reason refuses to enforce any equitable remedies ordered by
the arbitration panel, such refusal shall not affect any damage or attorney fee
award made by the arbitration panel.
(5)
Any costs or other expenses, including reasonable attorneys’ fees and costs
incurred by the successful group of Parties, arising out of or occurring because of
the arbitration proceedings may be assessed against the unsuccessful group of
Parties, borne equally, or assessed in any manner within the sound discretion of
the arbitration panel and shall be included as part of any order or decision
rendered by the arbitration panel. The arbitration panel may also order either
Party who is ordered to pay the other Party’s attorneys’ fees and costs to pay
interest on such award at a rate not to exceed eighteen percent (18%) per annum
from the date of the award until paid.
(6)
As an initial matter (and until ordered differently by the arbitration panel in
connection with an award), the Members agree that: (i) the Members shall share
the cost of any third arbitrator in proportion to their respective General Sharing
Ratios and pay such share, in advance, and (ii) each Member shall pay the fee of
28
any arbitrator that Member named, and in the event either Party defaults in timely
making such payment when due (hereinafter designated “Defaulting Party”), (i)
the Defaulting Party shall thereby fully and finally waive and relinquish any and
all claims the Defaulting Party may have against the other Party (hereinafter
designated “Non-Defaulting Party”), (ii) the Non-Defaulting Party may pay the
Defaulting Party’s share of the arbitrators fee(s) (hereinafter designated
“Reimbursable Fee Payment”), and (iii) if any award is made by the arbitrators
in favor of the Non-Defaulting Party, the Reimbursable Fee Payment shall be
added to such award, or if no other award is made by the arbitrators in favor of the
Non-Defaulting Party, the arbitrators shall award the Non-Defaulting Party an
amount equal to the Reimbursable Fee Payment.
(7)
Third parties dealing with any Party shall be entitled to fully rely on any written
arbitration order or decision with regard to the matters addressed therein, whether
or not such arbitration order or decision has been confirmed or adopted by a court,
or incorporated in any order of any court.
(8)
Any time period contemplated in the foregoing provisions of this Section 12.9(c)
may be extended by mutual written agreement of the Parties.
Section 12.10. Benefit and Binding Effect. These Regulations shall inure to the benefit of and
be binding upon the Members, their spouses, and their (and their spouses’) respective heirs, legal
and personal representatives, successors and assigns, and the Company, and their successors and
assigns, and shall run with the ownership of all Membership Interests which are or may hereafter
be subjected to these Regulations.
Section 12.11. Attorney Representation. The Members acknowledge the law firm of Crady,
Jewett & McCulley, LLP has represented Affiliated Title Group, LLC in connection with the
organization of the Company. The Members acknowledge such disclosure and consent to the
representation of Affiliated Title Group, LLC and the Company by the law firm of Crady, Jewett
& McCulley, LLP or its successor and waive any conflict of interest in connection therewith.
IN WITNESS WHEREOF, these Regulations are adopted effective as of the _____ day
of ________________________ 20______.
AFFILIATED TITLE GROUP, LLC
By:_________________________________
_____________________, President
“ABA” Partner, Inc.
By:_________________________________
_____________________, President
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29
EXHIBIT “A” TO REGULATIONS OF
“ABA” TITLE, LLC
Glossary of Terms
The following capitalized terms, when used in these Regulations, shall have the
respective meanings set forth below:
“Act”
is defined in Section 1.1.
“Affiliate”
means with respect to a Member, any Person that, directly or
indirectly, through one or more intermediaries, controls or is
controlled by, or is under common control with, such Member.
The term “control”, as used in the immediately preceding
sentence, means, with respect to a corporation, the right to
exercise, directly or indirectly, ten percent (10%) or more of the
voting rights attributable to the issued and outstanding capital
stock of the corporation and, with respect to a Person other than a
corporation, the direct or indirect power to direct or cause the
direction of the management or policies of the controlled Person.
“Affiliates” means more than one Affiliate, as the context requires.
“Articles of Organization” means the articles of organization for the Company filed with the
Secretary of State of the State of Texas, and any amendment
thereto or restatement thereof.
“Assign”
is defined in Section 10.1.
“Assignee”
is defined in Section 10.2.
“Assignment”
is defined in Section 10.1.
“Capital Account”
means, with respect to each Member, the capital account
established for such Member pursuant to Section 4.3 hereof.
“Capital Accounts” means more than one Capital Account, as the
context requires.
“Capital Contributions”
means, with respect to each Member, the sum of (i) such
Member’s Initial Capital Contribution, plus (ii) any other
additional capital contributions made by such Member to the
Company.
“Cash Flow”
means, with respect to any period, all cash receipts received by the
Company (other than amounts constituting net proceeds from the
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A-1
liquidation of the Company pursuant to Article XI hereof), plus all
amounts withdrawn from reserves that are determined to be no
longer necessary by Requisite Approval of the Members, less the
following:
(a)
any amounts set aside by Requisite Approval of the
Members, to create or restore reasonable reserves
maintained for the working capital, for capital expansion,
and/or for fixed or contingent liabilities, current or future;
(b)
any amounts used to pay costs and expenses related to the
Company’s Business, including, but not limited to, (i) cost
of acquiring, preserving and/or conveying any or all of the
Company Assets; (ii) salaries and fees of the employees
and agents of the Company; (iii) legal and accounting fees
and/or expenses attributable to (aa) the formation of the
Company and (bb) the conduct of the Company’s Business;
(iv) taxes (except income, estate, and gift taxes payable by
the Members), insurance premiums, messenger or courier
expenses, and long distance telephone expenses; (v)
reimbursements of the Members made pursuant to Section
9.1 hereof; and (vi) every other cost and expense incurred
in the Company’s Business whether similar or dissimilar to
the foregoing; and
(c)
any amounts used for reinvestment or to pay capital
expenditures which are not funded from reserves.
“Code”
is defined in Section 1.1.
“Company”
is defined in Section 1.1.
“Company Assets”
means the Company’s rights, titles and interests to all real property
or personal property, or both, tangible and intangible, owned by or
for the benefit of the Company, including, but not limited
to, customer lists, securities, dividend and/or distribution rights,
cash, promissory notes, accounts receivable and goodwill.
“Company Asset” means one of the Company Assets, as the
context requires.
“Company’s Business”
means (i) acting as a title insurance agency and (ii) doing any and
all other things incidental thereto.
“Dispute”
is defined in Section 12.9.
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“General Sharing Ratio”
“Initial Capital
Contribution”
means, with respect to each initial Member, the percentage set
forth opposite such Member’s name on Exhibit “B” hereto, or with
respect to any Person who is a successor in interest to an initial
Member, that portion of such initial Member’s General Sharing
Ratio to which such Person succeeds. “General Sharing Ratios”
means more than one General Sharing Ratio respectively owned by
more than one Member as the context requires.
means, with respect to each Member, the amount contributed
pursuant to Section 4.1 hereof.
“JAMS”
is defined in Section 12.9.
“Major Decision”
is defined in Section 8.2.
“Majority Vote”
is defined in Section 8.1(c).
“Mediation Notice”
is defined in Section 12.9.
“Member” or “Members”
is defined in Section 1.1.
“Membership Interest”
means all rights, titles, and interests of a Member in the Company
and the Company Assets, including, but not limited to, such
Member’s Capital Account, property rights, and rights as a
Member to share in the income, gains and/or losses of the
Company, rights to receive distributions, and all other rights of
such Member in and to the Company (other than voting rights and
rights to receive notice of, and to attend, membership meetings
unless the holder of such Membership Interest has been admitted
as a substitute member of the Company) and/or the Company
Assets, whether arising under these Regulations or under law.
“Officers”
means the officers of the Company.
“Parties”
is defined in Section 12.9.
“Person” or “Persons”
is defined in Section 1.1.
“Personal Representative” means, with respect to any Person, the conservator, executor,
executrix, administrator, administratrix, attorney in fact, trustee, or
agent of such Person or such Person’s estate.
“Prescribed Documents”
is defined in Section 7.1.
“Principal Office”
is defined in Section 2.8.
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“Profits” and “Losses”
is defined in Section 5.1.
“Regulations”
is defined in Section 1.1.
“Requisite Approval”
means, with respect to any matter or action pertinent to the
Company that requires the consent or approval of all Members, the
affirmative vote in favor of such matter by such Membership
Interests comprising General Sharing Ratios of at least 51% in the
aggregate.
“TBCA”
means the Texas Business Corporation Act, as amended.
“TMP”
is defined in Section 7.5.
“Trade Secrets”
means information, including but not limited to, technical or
non-technical data, a formula, pattern, compilation, program,
device, method, technique, drawing, process, financial data or a list
of actual or potential customers or suppliers, that is sufficiently
secret to derive actual or potential economic value from not being
generally known to, and not being readily ascertainable by proper
means by, other persons who can obtain economic value from its
disclosure or use and is the subject of efforts that are reasonable
under the circumstances to maintain its secrecy or confidentiality.
Trade Secrets include Company’s information encompassed in all
software, related source and object codes, sources of information,
client lists, leads, drawings, designs, plans, charts, proposals,
marketing and sales plans, financial information, costs, pricing
information, and all concepts or ideas in or reasonably related to
the business of Company that have not previously been publicly
released and which give Company a competitive advantage in the
relevant industry. Any and all software, code programs and
instructions and the like, developed by or for the Company.
“Treasury Regulations”
is defined in Section 1.1.
“Unrecovered
Contributions”
“Unrecovered
Contributions Account”
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means, with respect to each Member, the amount equal to the
excess of (i) the Capital Contributions made by that Member over
(ii) cumulative distributions made to that Member pursuant to
Section 6.1(a).
means with respect to each Member, the memorandum account
established pursuant to Section 4.4 to reflect such Member’s
Unreturned Contribution.
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EXHIBIT “B” TO REGULATIONS OF
“ABA” TITLE, LLC
Initial Capital Contributions, Addresses and General Sharing Ratios of the Members
Member’s
Name and Address
Initial Capital Contribution
Membership Interest &
General Sharing Ratio
Affiliated Title Group, LLC
$
9800 Northwest Freeway, Suite 400
Houston, Texas 77092
713-683-0491
6,000.00 cash
60%
“ABA” Partner
________________________
________________________
Ph: _____________________
4,000.00 cash
40%
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$
B-1