Annotated Long Form Operating Agreement for Member-Managed LLC

OPERATING AGREEMENT

FOR

______________________________________ LLC

A CALIFORNIA LIMITED LIABILITY COMPANY

This Operating Agreement is made as of , _______, [("Effective Date") - don’t use if desire the effective date specified in section 2.1] by and among the parties listed on the signature pages hereof, with reference to the following facts:

A.  On _____________, ________, Articles of Organization for ______________ LLC (the "Company"), a limited liability company organized under the laws of the State of California, were filed with the California Secretary of State.

B.  The parties desire to adopt and approve an operating agreement for the Company.

OR

THIS OPERATING AGREEMENT ("Agreement") is made as of _____________, ______ ("Effective Date"), by and among __________________, ______________________, and each of those Persons who become a Company Member and/or Manager in accordance with the terms of this Agreement.

RECITAL:

The Members desire to enter into this Agreement for the Company to delineate their rights and liabilities as members, to provide for the Company’s management, and to provide for certain other matters, all as permitted under the Beverly-Killea Limited Liability Company Act.

AGREEMENT:

NOW, THEREFORE, IN CONSIDERATION OF THE MUTUAL PROMISES, COVENANTS AND UNDERTAKINGS HEREIN SPECIFIED AND FOR OTHER GOOD AND VALUABLE CONSIDERATION, THE RECEIPT AND SUFFICIENCY OF WHICH ARE HEREBY ACKNOWLEDGED, WITH THE INTENT TO BE OBLIGATED LEGALLY AND EQUITABLY, THE PARTIES HERETO AGREE AS FOLLOWS:

ARTICLE I

DEFINITIONS

Capitalized terms used in this Agreement shall have the meanings specified below or elsewhere in this Agreement and when not so defined shall have the meanings specified in California Corporations Code Section 17001 (such terms are equally applicable to both the singular and plural derivations of the terms defined):

1.1 "Act" shall mean the Beverly-Killea Limited Liability Company Act, codified in the California Corporations Code, Section 17000 et seq., as the same may be amended from time to time.

1.2 "Affiliate" of a Member or Manager shall mean any Person, directly or indirectly, through one or more intermediaries, controlling, controlled by, or under common control with a Member or Manager, as applicable. The term "control," as used in the immediately preceding sentence, shall mean with respect to a corporation or limited liability company the right to exercise, directly or indirectly, more than fifty percent (50%) of the voting rights attributable to the controlled corporation or limited liability company, and, with respect to any individual, partnership, trust, other entity or association, the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of the controlled entity.

1.3 "Agreement" shall mean this Operating Agreement, as originally executed and as amended from time to time.

1.4 "Articles" shall mean the Articles of Organization for the Company originally filed with the California Secretary of State and as amended from time to time.

1.5 "Assignee" shall mean the owner of an Economic Interest who has not been admitted as a substitute Member in accordance with Article VIII.

1.6 "Bankruptcy" shall mean: (a) the filing of an application by a Member for, or his or her consent to, the appointment of a trustee, receiver, or custodian of his or her other assets; (b) the entry of an order for relief with respect to a Member in proceedings under the United States Bankruptcy Code, as amended or superseded from time to time; (c) the making by a Member of a general assignment for the benefit of creditors; (d) the entry of an order, judgment, or decree by any court of competent jurisdiction appointing a trustee, receiver, or custodian of the assets of a Member unless the proceedings and the person appointed are dismissed within ninety (90) days; or (e) the failure by a Member generally to pay his or her debts as the debts become due within the meaning of Section 303(h)(1) of the United States Bankruptcy Code, as determined by the Bankruptcy Court, or the admission in writing of his or her inability to pay his or her debts as they become due.

1.7 "Capital Account" shall mean with respect to any Member the capital account which the Company establishes and maintains for such Member pursuant to Section 3.4.

1.8 "Capital Contribution" shall mean the total amount of cash and fair market value of property contributed [and/or services rendered or to be rendered] to the Company by Members.

1.9 "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time, the provisions of succeeding law, and to the extent applicable, the Regulations.

1.10 "Company" shall mean __________________________ LLC, a California limited liability company.

1.11 "Company Minimum Gain" shall have the meaning ascribed to the term "Partnership Minimum Gain" in the Regulations Section 1.704-2(d).

1.12 "Corporations Code" shall mean the California Corporations Code, as amended from time to time, and the provisions of succeeding law.

1.13 "Dissolution Event" shall have the meaning ascribed to that term in Section 11.1.

1.14 "Distributable Cash" shall mean the amount of cash which the Managers deem available for distribution to the Members, taking into account all debts, liabilities, and obligations of the Company then due, and working capital and other amounts which the Managers deem necessary for the Company’s business or to place into reserves for customary and usual claims with respect to such business.

1.15 "Economic Interest" shall mean the right to receive distributions of the Company’s assets and allocations of income, gain, loss, deduction, credit and similar items from the Company pursuant to this Agreement and the Act, but shall not include any other rights of a Member, including, without limitation, the right to vote or participate in the management of the Company, or except as provided in Section 17106 of the Corporations Code, any right to information concerning the business and affairs of the Company.

1.16 "Effective Date" shall have the meaning ascribed to that term in Section 2.1.

1.17 "Family Member" shall mean (a) with respect to any individual, such individual’s spouse, parent, sibling, in-law, child or grandchild (whether natural, adopted or in the process of adoption), any trust all of the beneficial interests of which are owned by any such individuals or by any such individuals together with any organization described in Code Section 501(c)(3), the estate of any such individual, and any corporate, association, partnership or limited liability company all of the equity interests of which are owned by those above-described individuals, trust or organizations, and (b) with respect to any trust, the owners of the beneficial interests of such trust.

1.18 "Fiscal Year" shall mean the Company’s fiscal year, which shall be the calendar year.

1.19 "Former Member" shall have the meaning ascribed to it in Section 9.2.

1.20 "Former Member’s Interest" shall have the meaning ascribed to it in Section 9.2.

1.21 "Majority Interest" shall mean those Members who hold a majority of the Percentage Interests which all Members hold.

1.22 "Manager" shall mean each of __________,__________ and __________, or any other persons that succeed any of them as a manager of the Company.

1.23 "Member" shall mean each Person who (a) is an initial signatory to this Agreement, has been admitted to the Company as a Member in accordance with the Articles or this Agreement or is an Assignee who has become a Member in accordance with Article VIII, and (b) has not ceased to be a Member in accordance with Article IX or for any other reason.

1.24 "Member Nonrecourse Debt" shall have the meaning ascribed to the term "Partner Nonrecourse Debt" in Regulations Section 1.704-2(b)(4).

1.25 "Member Nonrecourse Deductions" shall mean items of Company loss, deduction, or Code Section 705(a)(2)(B) expenditures which are attributable to Member Nonrecourse Debt.

1.26 "Membership Interest" shall mean a Member’s entire interest in the Company including the Member’s Economic Interest, the right to vote on or participate in the management, and the right to receive information concerning the business and affairs, of the Company.

1.27 "Net Profits" and "Net Losses" shall mean the income, gain, loss and deductions of the Company in the aggregate or separately stated, as appropriate, determined in accordance with the method of accounting at the close of each Fiscal Year on the Company’s information tax return filed for federal income tax purposes.

1.28 "Nonrecourse Liability" shall have the meaning set forth in Regulations Section 1.752-1(a)(2).

1.29 "Optional Purchase Event" shall have the meaning set forth in Section 9.1.

1.30 "Percentage Interest" shall mean the percentage of a Member set forth opposite the name of such Member under the column "Member’s Percentage Interest" in Exhibit A hereto, as such percentage may be adjusted from time to time pursuant to the terms of this Agreement. [Percentage Interests shall be determined annually, unless otherwise provided herein, in accordance with the relative proportions of the aggregate Capital Contributions of the Members.]

1.31 "Permitted Transfer" shall have the meaning ascribed to that term in Section 8.4.

1.32 "Person" shall mean an individual, partnership, limited partnership, limited liability company, corporation, trust, estate, association or any other entity.

1.33 "Prime Rate" as of a particular date shall mean the prime rate of interest as published on that date in the Wall Street Journal, and generally defined therein as "the base rate on corporate loans posted by at least 75% of the nation’s 30 largest banks." If the Wall Street Journal is not published on a date for which the Prime Rate must be determined, the Prime Rate shall be the prime rate published in the Wall Street Journal on the nearest-preceding date on which the Wall Street Journal was published.

1.34 ["Purchaser Questionnaire" shall mean that certain Purchaser Questionnaire executed by each Member as a condition precedent to purchasing Membership Interests.]

1.35 "Regulations" shall, unless the context clearly indicates otherwise, mean the regulations in force as final or temporary that have been issued by the U.S. Department of Treasury pursuant to its authority under the Code, and any successor regulations.

1.36 "Remaining Members" shall have the meaning ascribed to it in Section 9.2.

1.37 "Secretary of State" shall mean the California Secretary of State.

1.38 ["Subscription Agreement" means the contract between the Company and a Member for the Member’s purchase of Membership Interests from the Company.]

1.39 "Tax Matters Partner" (as defined in Code Section 6231) shall be _____________________ or his or her successor as designated pursuant to Section 10.8.

1.40 "Transfer" or "Transferred" shall mean any sale, assignment, transfer, conveyance, pledge, hypothecation, or other disposition voluntarily or involuntarily, by operation of law, with or without consideration, or otherwise (including, without limitation, by way of intestacy, will, gift, bankruptcy, receivership, levy, execution, charging order or other similar sale or seizure by legal process) of all or any portion of any Membership Interest.

Without limiting the generality of the foregoing, the sale or exchange of at least fifty percent (50%) of the voting stock of a Member, if a Member is a corporation, or the Transfer of an interest or interests of at least fifty percent (50%) in the capital or profits of a Member (whether accomplished by the sale or exchange of interests or by the admission of new partners or members), if a Member is a partnership or limited liability company, or the cumulative Transfer of such interests in a Member which effectively equal the foregoing (including Transfer of interests followed by the incorporation of a Member and subsequent stock Transfers, or Transfers of stock followed by the liquidation of a Member and subsequent Transfers of interests) will be deemed to constitute a Transfer of the Member’s entire Membership Interest.

ARTICLE II

ORGANIZATIONAL MATTERS

2.1 Formation. The Members [have formed/intend to form] a California limited liability company by filing the Articles with the Secretary of State and entering into this Agreement. [This Agreement shall be deemed effective as of the date the Articles were [are] filed] [("Effective Date")]. The rights and liabilities of the Members shall be determined pursuant to the Act and this Agreement. To the extent that the rights or obligations of any Member are different because of any provision of this Agreement than those rights or obligations would be in the absence of such provision, this Agreement shall control to the extent permitted by the Act.

2.2 Name. The name of the Company [is/shall be] "__________________________ LLC." The business of the Company may be conducted under that name or, upon compliance with applicable laws, any other name that the Managers deem appropriate or advisable. The Managers shall file any fictitious name certificates and similar filings, and any amendments thereto, that the Managers consider appropriate or advisable. [The Company’s name shall be the exclusive property of the Company, and no Member shall have any rights in the name or any derivation thereof.] …