Form 10-7

The clauses in this form may be substituted for portions of or added to the long-form member-
managed and manager-managed company agreements in this chapter, forms 10-4 and 10-5, respec­tively.

Additional and Alternative Clauses for Company Agreements

Multiple Classes of Membership with Class B Members’ Rights Significantly Restricted

Clause 10-7-1

“Credit Collection Device” means [specify device(s) relevant to the agreement being drafted].

“Major Decision” means [specify decision(s) relevant to the agreement being drafted].

3.[section number]      Class A Members.      The Company shall have two classes of membership: Class A Members and Class B Members. Class A Members shall be all Members other than Class B Members (defined below). Class A Members shall have no limitations on their authority or voting power, specifi­cally including their authority to act as a Manager, managing Member, or offi­cer of the Company; their authority to act on behalf of the Company; or their authority to act on any other matter relating to Company affairs, business, and operations. It is noted, however, that all the foregoing powers may be subject to restrictions on the exercise of those powers as provided herein (e.g., in the case of Major Decisions). References in this Company Agreement to the vot­ing of Membership Interests shall apply to only Class A Members, inasmuch as Class B Members shall have no voting power whatsoever.

3.[section number]      Class B Members.      Class B Members shall be all Mem­bers other than Class A Members.

a.Class B Defined.      Class B members shall include Members who own, acquire, or accede to membership in the Company by means of or as a result of (i) the sale or assignment (whether voluntary or involun­tary) by a Membership Interest in satisfaction of a debt or financial obli­gation of any kind; (ii) any garnishment, attachment, levy, sequestration, judgment, charging order, or other proceeding pertaining to collection of a debt or monetary damages from a Member; (iii) the voluntary or invol­untary filing by a Member under any chapter of the U.S. Bankruptcy Code; (iv) the appointment of a receiver of the personal assets or the principal entity of a Member, whether that entity be a company, limited liability company, or any form of general or limited partnership; (v) the award of an arbitrator that affects a Member’s Membership Interest; (vi) a judgment or award in a contested divorce proceeding involving a Member, unless the proceeding is concluded by means of an agreed judgment or consent decree; (vii) the imposition upon a Member of any form of Credit Collection Device.

b.Automatic Conversion.      Should any of the events or circum­stances enumerated in paragraph a. occur with respect to a Class A Membership Interest in the Company, the Class A Membership Interest shall instantly and automatically be converted to a Class B Membership Interest without necessity for a Company resolution, meeting, vote of Members, or other formality.

c.Determination.      In the event of dispute, the determination by majority vote of the Class A Members that one or more of the events listed in paragraph a. has occurred shall be sufficient to trigger the auto­matic conversion of a Class A Membership to Class B Membership.

d.Issuance of Class B Membership Interest.      Notwithstanding para­graph a., a majority of Class A Members may, acting in their sole discre­tion, choose to issue Class B Membership in the Company to anyone at any time.

e.Restriction on Rights of Class B Members.      Class B Members shall have no right or authority to—

i.vote their Class B Membership Interest, inasmuch as Class B Membership shall be nonvoting in all respects;

ii.call any meeting of Members or place any item on the agenda of any Company meeting for discussion;

iii.serve as Manager, managing Member, or any officer of the Company or act as registered agent;

iv.act on behalf of the Company or make representations to or agreements with others on behalf of the Company;

v.inspect the books and records of the Company or demand an accounting;

vi.compel the sale, partition, or distribution of any Company property; or

vii.compel the dissolution and winding up of the Company.

f.Rights of Class B Members.      Class B Members shall have only the following rights:

i.to be notified of any meeting of Members, to be present at any such meeting, and to express views and opinions on any matters discussed at any such meeting, as long as the expression of those views and opinions does not exceed one-quarter hour, and

ii.to receive distributions of cash or property from the Company if and only if the Class A Members of the Company so authorize by means of unanimous vote.

g.Fiduciaries.      Notwithstanding the limitations on Class B Mem­bership, Class B Members shall be fiduciaries with respect to Company business, operations, property, and confidential information.

h.Legal Action by Class B Members.      If a Class B Member files suit or a motion in any court of law against the Company or against any other Members that seeks to challenge or remove the limitations on Class B Membership, or that seeks a declaratory judgment, or that seeks by injunction to restrain or enjoin the actions of Class A Members, or that seeks to void or limit the applicability of part or all of this Company Agreement, then the Class B Membership Interest belonging to the Class B Member bringing the action or filing the motion shall be auto­matically forfeited and extinguished as of the date of filing the action, and the former Class B Member bringing any such action shall be auto­matically expelled from the Company, without necessity for a meeting, resolution, or other formality.

3.[section number]      Conversion of Class B Membership to Class A.      The Members may, by majority vote of Class A Members of the Company, cause Class B Membership in the Company to be converted to Class A Membership.

Members Required to Be Active Participants

Clause 10-7-2

3.[section number]      Active Status Requirement

a.Each Member shall remain engaged in the active daily work and management of the Company as the Member’s primary occupation (“Active Status”). The Members agree and acknowledge that the active engagement of each Member in the work and management of the Com­pany is integral to the ongoing business of the Company. A Member shall be in default of this Agreement if the Member fails to remain on Active Status.

b.A Member may enter an inactive status in accordance with this paragraph by taking a leave of absence from the daily work and manage­ment of the Company (“Inactive Status”). A Member may enter Inactive Status only in the event of personal illness or the illness of an immediate family member that requires the Member’s direct care, or other signifi­cant personal issue of the Member or a Member’s immediate family member that makes continued active management of the Company impossible or impracticable. The Member may move to Inactive Status by providing written notice to the Company and may continue on Inac­tive Status until the illness or personal issue is resolved, after which the Member may return to Active Status. A Member may not remain on Inactive Status for a period of more than two years.

c.During the time any Member is on Inactive Status, the voting and distribution rights of the Members shall be altered for the term of that Inactive Status. The Member on Inactive Status shall have [percent] per­cent of the voting rights of the Company and shall be entitled to [per­cent] percent of any distributions of available cash. Conversely, the Member[s] remaining on Active Status shall [each] have [percent] per­cent of the voting rights of the Company and shall [each] be entitled to [percent] percent of any distributions of available cash.

13.[section number]      Member in Default of Active Status.      If a Member fails to remain on Active Status and does not qualify for Inactive Status, a nonde­faulting Member may notify the defaulting Member of the default by providing written notice to the defaulting Member. If after fifteen days after receipt of the notification of default the defaulting Member does not return to Active Status, the nondefaulting Member shall have the right to initiate a purchase of the defaulting Member’s Membership Interest.

a.The nondefaulting Member may initiate a purchase of the default­ing Member’s Membership Interest by obtaining a valuation of the defaulting Member’s Membership Interest (“Valuation”) by an indepen­dent third party agreed to by the nondefaulting Member and the default­ing Member. If the parties cannot agree on the third party to provide the Valuation, the Members shall provide written notice of the impasse to [name of intermediary], who shall select in their sole discretion, a third party with no relationship or conflict of interest with either Member to provide the Valuation. The cost of the Valuation shall be borne by both Members equally.

b.Upon receipt of the Valuation, the nondefaulting Member shall have thirty days to notify the defaulting Member whether they will pur­chase the defaulting Member’s Membership Interest at the Valuation. If a purchase is to be made, the parties will proceed toward closing as expeditiously as possible.

c.Until such time that the nondefaulting Member’s Membership Interest is purchased as provided in this Article 13, the defaulting Mem­ber shall be an Assignee of the defaulting Member’s Membership Inter­est.

Consent Required by Spouses of Members

Clause 10-7-3

3.[section number]      Spouses of Members.      Spouses of the Members do not become Members as a result of that marital relationship. Each spouse has exe­cuted a Spouse’s Consent in the form of Schedule 2, attached to and fully incorporated in this Agreement.

a.A Member’s Membership Interest shall not vest until the Member’s spouse has executed a Spouse’s Consent and returned it to the [Mem­bers/managing Members/Manager[s]].

b.If a Member becomes legally married after the issuance of a Mem­bership Interest, that Membership Interest shall be suspended and held in suspense by the Company until the Member’s spouse has executed a Spouse’s Consent and returned it to the [Members/managing Members/Manager[s]]. A Member shall not be entitled to the rights and privileges of membership while that Membership Interest is in suspense. Any dis­tributions otherwise due to a Member while that Membership Interest is in suspense shall be held in trust by the Company until this section is complied with and the Membership Interest is reinstated.

Schedule 2

Spouse’s Consent

We, the undersigned, certify the following:

1.We are the spouses of the persons who signed the foregoing Com­pany Agreement and who constitute the Members of that Company.

2.We have read and approve the provisions of the Company Agree­ment, and we agree to be bound by and accept those provisions in lieu of all other interests any of us may have in the Company.

3.We agree, in the event of a Member’s divorce, that the Member’s undersigned spouse will be entitled to only the monetary value of any owner­ship interest that spouse owns in the Company as a spouse of a Member as determined by a court of proper jurisdiction, and that spouse shall not claim or be entitled to claim the divorced Member’s interest in the Company, which we acknowledge shall be owned solely by that Member.

EXECUTED ON __________________.

   
Spouse of [name of member]

Additional Mandatory Contributions as Determined by Manager(s)

Clause 10-7-4

4.[section number]      Subsequent Contributions.      Without creating any rights in favor of any third party, each Member shall contribute to the Company cap­ital in an amount determined by the Manager[s] to be necessary to enable the Company to properly operate and maintain the assets of the Company; to dis­charge the Company’s costs, expenses, and liabilities; and to otherwise prop­erly and reasonably continue the Company’s operations. The Manager[s] shall notify each Member of the need for capital contributions pursuant to this sec­tion and shall provide the Member with reasonable details of the proposed uses of the additional contribution and a date before which the capital contribution must be made, which shall not be longer than ninety days after the date of notice.

Additional Mandatory Contributions as Determined by Members

Clause 10-7-5

4.[section number]      Subsequent Contributions.      Without creating any rights in favor of any third party, each Member shall contribute to the Company cap­ital in an amount determined by the majority of the Membership Interests to be necessary to enable the Company to properly operate and maintain the assets of the Company; to discharge the Company’s costs, expenses, and liabilities; and to otherwise properly and reasonably continue the Company’s operations. The [managing] Members shall notify each Member of the need for capital contributions pursuant to this section and shall provide the Member with rea­sonable details of the proposed uses of the additional contribution and a date before which the capital contribution must be made, which shall not be longer than ninety days after the date of notice.

No Additional Requirement for Subsequent Capital Contributions

Clause 10-7-6

4.[section number]      Subsequent Contributions.      No Member is required to make additional Capital Contributions to the Company, unless agreed to in writing by the contributing Member.

Required Annual Tax Distribution

Clause 10-7-7

d.Within sixty days following the end of each fiscal year, the Com­pany shall make an additional distribution to each Member in an amount equal to (i) the income tax liability of the Member attributable to the tax­able income allocable to the Member for that fiscal year for the Mem­ber’s Membership Interest, less (ii) the aggregate amount of distributions to the Member by the Company during that fiscal year, if the amount per clause (i) is greater than the amount per clause (ii); pro­vided, however, that the Company shall be obligated to make distribu­tions pursuant to this section only to the extent that it has cash available in the ordinary course of its business; that this section shall not require the Company to liquidate noncash assets, to borrow funds, or to require additional capital contributions for the purpose of making such distribu­tions; and that the distribution is not considered a Prohibited Distribu­tion pursuant to section 5.3 of this Agreement.

Manager Tenure, Removal, and Vacancy

Clause 10-7-8

6.6      Vacancies; Removal; Resignation.      A Manager shall hold office until a successor has been duly elected and qualified. Each Manager shall cease to be a Manager upon the earliest to occur of the following events: (a) the Manager engages in gross negligence, willful misconduct, or breach of fiduciary duty in the performance of its duties as Manager and, as a result, is removed by a two-thirds vote (not including the interest of that Manager) at a meeting of the Members called for that purpose; (b) the Manager resigns as a Manager by giv­ing notice of resignation to the Members; or (c) the Manager dies, becomes incompetent, or becomes bankrupt. Any vacancy in a Manger position may be filled by the [Simple Majority/Super Majority/unanimous] vote of the Mem­bers. No person shall be eligible to serve as Manager of the Company until that person has accepted the provisions of this Agreement in writing.

Deadlock of Members or Managers

Clause 10-7-9

[6.11/6.15]      Deadlock

a.If the [Members/Managers] are unable to agree on any matter described in this Agreement and the disagreement continues for fourteen days despite good-faith deliberations by the [Members/Managers], any [Member/Manager] shall be entitled to submit the issue to alternative dispute resolution (ADR) as outlined in this section.

b.If a [Member/Manager] wishes to exercise its ADR rights, that [Member/Manager] (the “Initiating [Member/Manager]”) shall deliver to [name of intermediary] (the “ADR Intermediary”) and to the other [Member[s]/Manager[s]] (the “Responding [Member[s]/Manager[s]]”) written notice of the election (the “ADR Notice”) including (i) a detailed description of the disagreement and circumstances that triggered the ADR Notice and (ii) a detailed description of the preferred resolution of the Initiating [Member/Manager].

c.Within ten days after the ADR Notice is received by the Respond­ing [Member[s]/Manager[s]], the Responding [Member[s]/Manager[s]] shall deliver to the ADR Intermediary and Initiating [Member/Manager] a written response (the “ADR Response”), which shall include (i) a detailed description of the disagreement and circumstances that trig­gered the ADR Notice, to the extent that the Responding [Member[s]/Manager[s]] disagree[s] with the Initiating [Member’s/Manager’s] description contained in the ADR Notice, and (ii) a detailed description of the preferred resolution of the Responding [Member[s]/Manager[s]].

d.The ADR Intermediary shall, as soon as practicable, but not more than fifteen days after receipt of the ADR Response, meet with the [Member[s]/Manager[s]] and attempt to informally resolve the disagree­ment to the mutual agreement of the [Member[s]/Manager[s]].

e.If informal resolution with the ADR Intermediary is unsuccessful, within ten days thereafter the ADR Intermediary shall select, in its sole discretion, a third-party mediator with no relationship to or conflict of interest with the [Members/Managers] (the “Mediator”). The Mediator shall be located in [county] County, Texas. The ADR Intermediary shall refer the dispute to the Mediator and shall provide the Mediator with copies of the ADR Notice and ADR Response. The [Members/Manag­ers] shall schedule mediation with the Mediator within thirty days of the Mediator’s receipt of the referral from the ADR Intermediary. The [Members/Managers] shall mediate in good faith and attempt to reach a resolution to the dispute.

f.If mediation is unsuccessful, within ten days thereafter the ADR Intermediary shall select, in its sole discretion, a third-party arbitrator with no relationship to or conflict of interest with the [Members/Manag­ers] (the “Arbitrator”). The Arbitrator shall be located in [county] County, Texas. The ADR Intermediary shall refer the dispute to the Arbitrator and shall provide the Arbitrator with copies of the ADR Notice and ADR Response. The [Members/Managers] shall schedule arbitration with the Arbitrator within sixty days of the Arbitrator’s receipt of the referral from the ADR Intermediary and shall comply with all rules and procedures of the Arbitrator. The decision of the Arbitrator shall be final, binding on the [Members/Managers], and not subject to appeal. The Arbitrator’s decision shall be enforceable in a court of com­petent jurisdiction.

g.The fees of the ADR Intermediary, the Mediator, and the Arbitrator shall be paid by the Company. If the Company does not have sufficient funds to pay the fees, the [Members/Managers] shall divide the fees equally. All other costs incurred by a [Member/Manager] related to the ADR process shall be borne by that [Member/Manager]. [Members/Managers] shall have the right to be represented by licensed attorneys at mediation or arbitration, but the [Members/Managers] agree to partici­pate pro se in the informal meeting with the ADR Intermediary outlined in section [6.11/6.15](d).

Alternative Transfer Restrictions for Family-Owned Businesses

Clause 10-7-10

12.[section number]      Restrictions on Transfer.      The Company is being formed by the Members with the anticipation that at some point their children or grandchildren may become Members of the Company or that trusts or other entities for the benefit of their children or grandchildren will become Members of the Company. The following restrictions on transfer are not intended as any type of penalty, but as a method to help protect and preserve the assets of the Members and their families and preserve existing relationships based on trust and to help ensure the continuity of the businesses of the families.

A Member may not assign the Member’s Membership Interest except (a) to a Permitted Transferee as defined in this section or (b) with the written consent of all other Members of record. If that consent is obtained, the Member may assign the Member’s Membership Interest in whole or in part. Except as specified in section 12.4 of this Company Agreement, any assignment does not entitle the assignee to become a Member. The term “Permitted Transferee” shall have the following meaning:

a.another Member;

b.if the transferring Member is an individual, (i) a member of that Member’s family as defined below; (ii) a trust for the benefit of one or more of the members of that Member’s family; (iii) the spouse of the Member or the spouse of a family member of the transferring Member as long as the interest transferred to the spouse is limited to a lifetime interest without power of sale; or (iv) a trust which provides that the income (but not the principal) of the trust will, or can be, paid to or for the benefit of the Member’s spouse or a spouse of any family member of the transferring Member and which provides that any principal of the trust that is distributed shall be distributed to a member of the transfer­ring Member’s family; or

c.if the transferring Member is an estate or a trust, a beneficiary of the estate or trust as long as that beneficiary is a member of the family of the decedent or of the grantor of the trust.

For purposes of this section, an individual Member’s family includes only that Member’s children, grandchildren, great grandchildren, uncles, aunts, first cousins, nieces, nephews, and great nieces and nephews.

Alternative Transfer Restriction and Buyout Language: Third-Party Purchaser, Death of Member, Death of Member’s Spouse, or Divorce

Clause 10-7-11

12.[section number]      Restrictions on Transfer.      The ownership and transfer­ability of interests in the Company are substantially restricted. Neither record title nor beneficial ownership of a Membership Interest may be transferred or encumbered without the consent of all nontransferring Members, at their abso­lute discretion and given without duress and of their free will. These restric­tions on ownership and transfer are not intended as a penalty, but as a method to protect and preserve existing relationships based on trust, the Company’s capital, and its financial ability to continue.

13.1      Termination of Marital Relationship

a.Divorce of Member.      If a Member whose marital relationship is terminated by divorce (the “Divorced Member”) does not succeed directly to the interest, if any, of the Divorced Member’s spouse (the “Divorced Spouse”) in the Company, whether held in the name of the Divorced Member or in the name of the Divorced Spouse at the time of the divorce, the Divorced Spouse shall, within thirty days after the divorce becomes final, sell all of the Divorced Spouse’s Membership Interest (the “Offered Membership Interest”) to the Divorced Member at the appraised value in accordance with the terms of section 13.9 of this Agreement. The Divorced Member, within thirty days of receiving the Offering Notice, shall give a written response (the “Response Notice”) to the Divorced Spouse and the Company stating whether the Divorced Member elects to purchase all or any of the Offered Membership Inter­est in accordance with the terms of section 13.9 of this Agreement. If the Divorced Member does not purchase all of the Offered Membership Interest, the Divorced Spouse shall, within seventy days after the divorce becomes final, submit an Offering Notice to sell the unpur­chased Offered Membership Interest to the Company and the remaining Members. The Company or remaining Members may purchase all, but not less than all, of the unpurchased Offered Membership Interest in accordance with the terms of section [number of section titled “Options to Purchase”] of this Agreement regarding Primary and Secondary Options to Purchase.

b.Death of Member’s Spouse.      If the marital relationship of a Mem­ber is terminated by the death of that Member’s spouse (the “Surviving Member” and the “Deceased Spouse,” respectively); if the Deceased Spouse owned a Membership Interest or had an interest in the Company held in the name of the Surviving Member at the time of the Deceased Spouse’s death; and if that interest has not passed to the Surviving Member free of any trust, the personal representative of the estate of the Deceased Spouse shall, within sixty days after qualification, submit a written offer (the “Offering Notice”) to sell all of the Deceased Spouse’s Membership Interest (the “Offered Membership Interest”) to the Surviv­ing Member. The Surviving Member shall, within thirty days after receiving the Offering Notice, give written notice (the “Response Notice”) to the personal representative of the estate of the Deceased Spouse and the Company stating whether the Surviving Member elects to purchase all or any part of the Offered Membership Interest in accor­dance with the terms of section 13.9 of this Agreement. If the Surviving Member does not purchase all of the Offered Membership Interest, the personal representative of the estate of the Deceased Spouse shall, within one hundred twenty days after qualification, submit an Offering Notice to sell the unpurchased Offered Membership Interest to the Com­pany and remaining Members. The Company or remaining Members may purchase all, but not less than all, of the unpurchased Offered Membership Interest in accordance with the terms of section [number of section titled “Options to Purchase”] of this Agreement regarding Pri­mary and Secondary Options to Purchase.

13.2      Death of Member.      If a Member dies and the Member’s interest is to be distributed to a person or persons who are not present owners of the Company, the Member’s personal representative shall sell the deceased Member’s interest to the Company, as follows:

a.The Company (or if the Company does not purchase, the nontrans­ferring Members) shall purchase the deceased Member’s interest, and the personal representative of the deceased Member shall sell to the Company (or the nontransferring Members) all of the interest in the Company owned by the deceased Member on date of death. The pur­chase option of the Company and the nontransferring Members shall be administered in accordance with the terms of section [number of section titled “Options to Purchase”] of this Agreement regarding Primary and Secondary Options to Purchase.

b.The closing of the purchase and sale shall take place at the office of the Company on the date designated by the Company, which shall be not less than ninety nor more than two hundred seventy days following the date of the qualification of the personal representative of the deceased Member.

c.The price of the units to be sold under this Agreement shall be the price agreed to by the parties. If a price is not agreed to, the price of the units to be sold under this Agreement shall be equal to the appraised value of the Company as determined by a licensed appraiser qualified to perform appraisals of the property as of the Valuation Date.

The “Valuation Date” shall be the last day of the month immedi­ately preceding the date of the event causing the valuation.

The Company shall, within thirty days after the death of a Member, name a qualified, independent appraiser to appraise per this section. If the Company does not name an appraiser within that thirty-day period, the representative of the deceased Member shall have the right to name a qualified, independent appraiser to appraise per this section.

The determination of the appraised value shall be final and binding on all parties. The Company shall pay the fee and expenses of the appraiser selected pursuant to the immediately preceding paragraph.

d.The terms of the sale shall be in accordance with the terms of sec­tion 13. 9 of this Agreement.

13.9      Terms of Sale.      A sale of a Membership Interest pursuant to the provi­sions of section 13.1, 13.2, or [number of section titled “Options to Purchase”] of this Agreement shall be made in accordance with the following terms:

a.The Company or Members, as the case may be, will have sixty days from the first day of the month following the month in which notice is delivered exercising the option to purchase the interest. The valuation date for the Membership Interest will be the first day of the month following the month in which notice is delivered.

b.If the sale is pursuant to section 13.2 in this Agreement, the price will be at the agreed value determined pursuant to paragraph 13.2.c. If the sale is pursuant to section 13.1 or [number of section titled “Options to Purchase”], unless the Company or Members, as the case may be, and the transferee agree otherwise, the fair market value of a Member’s interest is to be determined by the written appraisal of a person or firm qualified to value this type of business. The appraiser shall be selected by the Company.

c.Closing of the sale will occur at the registered office of the Com­pany at 10:00 a.m. on the first Tuesday of the month following the month in which the valuation report is received by the transferee.

d.To reduce the burden on the resources of the Company and Mem­bers, the Company and Members will have the option, to be exercised in writing delivered at closing, to pay its purchase money in cash or by the delivery of a promissory note payable in five annual installments. The interest will be the lower of (i) the rate of interest prescribed as the prime rate charged by the financial institution at which the Company maintains its primary operating account or (ii) the maximum rate allowed by law. The first installment of principal, plus interest due thereon, will be due and payable on the first day of the calendar year fol­lowing closing, and subsequent annual installments, with interest due thereon, will be due and payable, in order, on the first day of each fol­lowing calendar year until the entire amount of the obligation, principal and interest, is fully paid. The Company and Members will have the right to prepay all or any part of the purchase money obligation at any time without premium or penalty.

13.10      Third Party’s Offer.      Should any Member desire to dispose of all or a portion of that Member’s interest in the Company (“Disposing Member”), pur­suant to a bona fide offer from another person or entity, the Disposing Member shall promptly give notice thereof to the Company and the nontransferring Members. The notice shall state the name and address of the prospective pur­chaser, transferee, lienor, or recipient of any other disposition; the precise Membership Interest that is the subject of the proposed sale, transfer, encum­brance, or other disposition; and the terms of that sale, transfer, encumbrance, or other disposition. Upon receipt of the notice, the Company and the nontrans­ferring Members shall have an option to purchase the Disposing Member’s interest at the same price and on the same terms as set forth in the notice. The purchase option of the Company and the nontransferring Members shall be administered in accordance with the terms of section [number of section titled “Options to Purchase”] of this Agreement regarding Primary and Secondary Options to Purchase. If neither the Company nor the nontransferring Members exercise the option to purchase, the Disposing Member may make a bona fide sale, transfer, encumbrance, or other disposition to the prospective purchaser, transferee, lienor, or recipient of any other disposition named in the statement attached to the offer, but only in strict accordance with the terms in that state­ment. However, if the Disposing Member shall fail to make that sale, transfer, encumbrance, or other disposition within thirty days following the expiration of the time provided in section [number of section titled “Options to Pur­chase”] of this Agreement regarding the purchase option of the Company and nontransferring Members, the Disposing Member’s interest shall again become subject to all restrictions of this section.

13.[section number]      Options to Purchase

a.Primary Option to Purchase.      Within sixty days of the Com­pany’s receipt of a notice of intention to transfer a Membership Interest in accordance with section 13.10 of this Agreement or notice of sale in accordance with section 13.1 or 13.2, the Company may exercise an option to purchase all or any portion of the Membership Interest pro­posed to be transferred or sold. If the Company does not exercise its option to purchase all or any portion of that Membership Interest, each nonselling Member, within seventy days of the Company’s receipt of the notice of the proposed transfer or sale, may exercise an option to purchase a portion of the unpurchased Membership Interest equal to the Membership Interest proposed to be transferred or sold multiplied by a fraction, the numerator of which is ownership percentage of the Com­pany owned by that nonselling Member and the denominator of which is the total ownership interest owned by all nonselling Members. The determination of the ownership interest of each nonselling Member shall be made on the date the Company receives the notice of intention to transfer or sell. The purchase option granted in this paragraph is some­times referred to in this Agreement as the “Primary Option to Purchase.”

b.Secondary Option to Purchase.      If either the Company or one or more Members fail to exercise their Primary Option to Purchase the Membership Interest, each Member who is granted and exercises a Pri­mary Option to Purchase may, within ten days after the expiration of the seventy-day option period provided for in paragraph a. above, exercise an option to purchase the Membership Interest for which the Company or any other Members failed to exercise their Primary Option to Pur­chase (the “Option Interests”). If only one Member exercised the Pri­mary Option to Purchase, that Member shall have an option to purchase all of the Option Interests. If more than one Member exercised their Pri­mary Option to Purchase, each of those Members shall have the option to purchase a portion of the Option Interests equal to the total number of Option Interests multiplied by a fraction, the numerator of which is the ownership interest of the Company owned by that Member and the denominator of which is the total ownership interest of the Company owned by all Members exercising a Secondary Option to Purchase, pro­vided, however, that the Members may agree among themselves the extent to which each shall have an option to purchase Option Interests. The determination of the ownership interest of each nonselling Member shall be made on the date the Company receives the notice of intention to transfer or sell. The purchase option granted in this paragraph is sometimes referred to in this Agreement as the “Secondary Option to Purchase.”

c.Terms of Sale.      The purchase of Membership Interests under either a Primary or Secondary Option shall be made in accordance with the terms of section 13.9.

13.[section number]      Effect of Transfer

a.The Company will not be required to recognize the interest of any transferee who has obtained a purported interest as the result of a trans­fer of ownership that is not an authorized transfer. If the ownership of a Membership Interest is in doubt, or if there is reasonable doubt about who is entitled to a distribution of the income realized from a Member­ship Interest, the Company may accumulate the income until the issue is finally determined and resolved. Accumulated income will be credited to the capital account of the Member whose interest is in question.

The transferee of an authorized transfer shall be merely an assignee of the interest and not have the right to become a substituted Member in place of the transferor unless all of the following criteria are satisfied:

i.The transferee executes and acknowledges a written instru­ment in a form satisfactory to the Company agreeing to and accept­ing all of the terms and conditions of the Company Agreement.

ii.The transferee executes and acknowledges any other written instrument that the Company may deem necessary or desirable to effectuate the admission of the transferee as a successor Member.

iii.The Members provide unanimous written consent of the admission of the transferee as a successor Member, the granting or denial of which shall be within the sole and absolute discretion of each Member.

b.If any person, entity, or agency should take or disturb the interest of a Member by an order of a court or by levy, foreclosure, charging order, or any other involuntary proceeding, the assignee or other person, entity, or agency taking or disturbing the interest shall be entitled solely to receive that interest’s proportionate part of all distributions actually made and that interest’s proportionate part of all allocations of profits and losses in accordance with this agreement, and that assignee or other person, entity, or agency shall have no right to vote on or otherwise par­ticipate in or interfere with the management or administration of the business or affairs of the Company.

c.If any person, entity, or agency should acquire the interest of a Member as the result of an order of a court of competent jurisdiction that the Company is required to recognize, or if a Member makes an unau­thorized transfer of a partnership interest that the Company is required to recognize, or if any person, entity, or agency acquires the interest of a Member by levy, foreclosure, charging order, or other involuntary pro­ceeding, the interest of the transferee may then be acquired by the Com­pany on the following terms and conditions:

i.The Company will have the option to acquire the interest by giving written notice to the transferee of its intent to purchase within one hundred twenty days from the date it is finally deter­mined that the Company is required to recognize the transfer.

ii.The Company will have one hundred eighty days from the first day of the month following the month in which it delivers notice exercising its option to purchase the interest. The valuation date for the Membership interest will be the first day of the month following the month in which notice is delivered.

iii.Unless the Company and the transferee agree otherwise, the fair market value of a Member’s interest is to be determined by the written appraisal of a person or firm qualified to value this type of business. The appraiser shall be selected by the Company.

iv.Closing of the sale will occur at the registered office of the Company at 10:00 a.m. on the first Tuesday of the month following the month in which the valuation report is received by the trans­feree.

v.To reduce the burden on the resources of the Company, the Company will have the option, to be exercised in writing delivered at closing, to pay its purchase money obligation in ten equal annual installments of principal (or the remaining term of the Company if less than ten years) with interest thereon, adjusted annually at the first day of each calendar year at the option of the Company. The interest will be the lower of (a) the rate of interest prescribed as the prime rate charged by the financial institution at which the Com­pany maintains its primary operating account or (b) the rate of interest then required by Internal Revenue Code sections 483 and 1274A whether or not those sections apply to the transaction. The first installment of principal, plus interest due thereon, will be due and payable on the first day of the calendar year following closing, and subsequent annual installments, with interest due thereon, will be due and payable, in order, on the first day of each following cal­endar year until the entire amount of the obligation, principal and interest, is fully paid. The Company will have the right to prepay all or any part of the purchase money obligation at any time with­out premium or penalty.

vi.Upon the affirmative consent of no less than 50 percent of the remaining Members (excluding the interest of the Member or trans­feree whose interest is to be acquired) the Company may assign the Company’s option to purchase to one or more of the remaining Members. In that event, any rights or obligations imposed on the Company will instead become, by substitution, the rights and obli­gations of the Members who are assignees.

vii.Neither the transferee of an unauthorized transfer nor the Member causing the transfer will have the right to vote during the prescribed option period or, if the option to purchase is timely exer­cised, until the sale is actually closed. The transferee will be con­sidered a nonvoting owner of the Membership interest and entitled to only all items of income, deduction, gain, or loss from the Mem­bership Interest.

Buyout of Membership Interest Owned by Another Company

Clause 10-7-12

“Permitted Holder” for each Member means the owner(s) of that Mem­ber on the Effective Date of this Agreement.

“Permitted Holder” for each Member means the following:

12.[section number]      Legacy Transfer of Permitted Holder.      Upon the unan­imous consent of the Members, the Permitted Holder may transfer all or part of its ownership interest for the benefit of the descendants of the Permitted Holder or to a trust whose beneficiary or beneficiaries are the descendants of the Permitted Holder.

13.[section number]      Disposition upon Unauthorized Change in Control.      Upon a Change in Control by any Member other than as specifically provided by this Agreement, the Company or the remaining Members may purchase the Member’s interest in accordance with this Article 13.

“Change in Control” means the occurrence of any of the following events:

a.The direct or indirect sale, transfer, conveyance, or other disposi­tion, in one or a series of related transactions, of all or substantially all of the assets of the Member.

b.The consummation of any transaction, including a sale or transfer, that results in [more than 50 percent of/more than [percent] percent of/any change in] the ownership interests of stock, Membership Interest, partnership interests, or other ownership or equity interest (“Permitted Holder’s Interest”) of the Member being held by someone other than the Permitted Holder except if the Permitted Holder’s Interest is transferred to an entity, trust, or similar entity that is owned 100 percent by the Per­mitted Holder.

c.A merger, consolidation, recapitalization, or reorganization of the Member with or into a party that results in a change of ownership of the Member so that the Member is no longer 100 percent owned by the Per­mitted Holder.

d.A change in management of the Member, so that the Permitted Holder is no longer the manager, director, or other governing authority of the Member.

Transfer Share upon Member’s Death

Clause 10-7-13

13.2      Death of Member.      Upon the death of a Member (“Decedent”), the Decedent’s Membership Interest may be devised by will or transferred through intestacy to only the Decedent’s family members. For purposes of this Agree­ment, “family members” includes the Decedent’s spouse and any descendants; “family members” also includes an inter vivos or testamentary trust for the exclusive benefit of the aforenamed persons; “family members” includes no other persons.

Upon the death of a Member, any other attempted transfer of the Mem­bership Interest of the Decedent by devise or intestacy may be void and of no effect, as hereinafter provided, and the Company shall have an election, at its option, to purchase the Decedent’s Membership Interest upon such occurrence. The Company shall have one hundred twenty days after the personal represen­tative of the Decedent is qualified to make its election to purchase. If the Com­pany so elects, in that event, all of the Membership Interest of the Decedent, including the Membership Interest owned by the spouse of the Decedent, if any, shall be immediately sold for cash to and purchased by the Company for the value as determined by this Article 13. This sale and purchase of the Mem­bership Interests of the Decedent and the spouse of the Decedent, if any, shall be completed in a timely manner but not more than one hundred eighty days following the qualification of the personal representative of the Decedent. If the Company cannot, fails to, or refuses to exercise its election to purchase as provided herein, the remaining Members, as provided above, shall have the option to purchase the Membership Interests as provided above. Following the Company’s decision not to exercise its election to purchase, the remaining Members shall have thirty days to exercise their option to purchase as provided herein. If the Company and all remaining Members cannot, fail to, or refuse to exercise their option to purchase the Membership Interests of the Decedent and the spouse of the Decedent, if any, the devise or transfer through intestacy by the Decedent shall then be permitted.

Push-Pull Buyout of Membership Interest

Clause 10-7-14

13.[section number]      Push-Pull Buyout

a.Any Member may at any time offer to sell or buy Membership Interests (the “Offering Member”) to or from the other Members, by giving notice to all the other Members of the Offering Member’s desire to either (i) sell all of the Offering Member’s Membership Interest in the Company to the other Members or (ii) buy all the other Members’ Mem­bership Interests in the Company, specifying in that notice the price per percentage of Membership Interest and the other terms and conditions on which the Offering Member will buy or sell. The other Members shall have an option, for a period of sixty days after receiving the notice, to elect to purchase the Membership Interest of the Offering Member at the same price per percentage of Membership Interest and on the same terms and conditions that the Offering Member is offering to sell the Offering Member’s Membership Interest, the transaction to be closed in the manner specified in section 13.9 of this Agreement within thirty days after the end of that sixty-day period. If no Member exercises the option to purchase within that sixty-day period, the Offering Member shall be obligated to purchase the Membership Interests of the other Members at the price per percentage of Membership Interest and on the terms and conditions specified in the aforementioned notice, and the Members receiving the notice shall be obligated to sell their Member­ship Interests to the Offering Member on those terms and conditions, the transaction to be closed in the manner specified in section 13.9 of this Agreement within thirty days after the end of that sixty-day period.

b.If two or more Members elect to purchase the Offering Member’s Membership Interest pursuant to the option granted to them hereunder, they shall, absent a different agreement at the time, acquire the Offering Member’s Membership Interest pro rata in accordance with their respec­tive percentage of Membership Interest before that purchase. If some Members exercise their option to sell and others exercise their option to purchase, those Members exercising the option to purchase the Offering Member’s Membership Interest may purchase all of the Membership Interests of Members opting to sell at the offered price, or, at the pur­chasing Members’ election, may purchase only the Membership Interest originally offered by the Offering Member.

c.Any two or more Members may, if they so elect, institute the push-pull buyout under this section as a block of Membership Interests by jointly commencing the offer to purchase or sell their Membership Inter­ests to the other Member(s) as a block and conditioning the purchase and sale of the Membership Interests to the block of Membership Inter­ests offered. In such event, the recipient Member(s) shall treat the Mem­bership Interests as a block for purposes of exercising the offer to purchase or sell under this section.

Mandatory Buyout upon Member’s Severance from Employment with Company

Clause 10-7-15

13.[section number]      Severance of Employment with Company.      On the sev­erance of employment of any Member from the Company, the Company shall purchase from the Member, and the Member shall sell to the Company, all the Membership Interests of the Company then owned by the Member. If the Com­pany shall not have sufficient surplus to permit it to lawfully purchase all those Membership Interests, all Members shall promptly take measures to vote their respective Membership Interests to reduce the capital of the Company or to take other steps appropriate and necessary to enable the Company to lawfully purchase and pay for all the Membership Interests to be purchased. If the Com­pany is nevertheless unable to or refuses to purchase all the Membership Inter­ests, the obligation of the Company for the Membership Interests that the Company is unable to or refuses to purchase is hereby assumed by the remain­ing Members of pro rata in accordance with their then respective Membership Interest percentage in the Company.

The term “severance of employment” as used for all purposes in this Agreement shall mean either of the following:

a.The voluntary or involuntary termination, by either the Member or the Company, of the employment of the Member by the Company, by either retirement or otherwise, for cause or otherwise.

b.The permanent disability of a Member. The term “permanent dis­ability of a Member” is defined, for this purpose, as a continuation for a period of twelve months of a condition resulting from any physical injury or illness which shall render the Member incapable of performing the normal services previously performed for the Company by that Member. The date of severance of employment shall be the date on which those twelve months have passed.

Determination of Company Value Based on Appraised Value, with Each Party Appointing Appraiser

Clause 10-7-16

13.6      Determination of Fair Value.      The purchase price of the Membership Interests to be sold under Article 13 of this Agreement shall be equal to the Member’s proportionate part of the fair market value of all the outstanding Membership Interests of the Company as of the end of the month immediately preceding the date of death or other applicable occurrence initiating the buy­out. The fair market value shall be determined as follows:

The Company shall, within sixty days after the death of a deceased Member (or the date of the buyout event) name a qualified, independent appraiser to appraise the Membership Interests. Within fifteen days of receiv­ing notice of the appraiser named by the Company, the executor or other legal representative of the deceased Member (or the Member, if living) shall name a qualified, independent appraiser to appraise the Membership Interests.

If the Company does not name an appraiser within sixty days of the applicable event, the representative of the deceased Member (or the Member, if living) shall have the right to name a qualified, independent appraiser to appraise the Membership Interests. In that event, within fifteen days of receiv­ing notice of the appraiser named by the deceased Member’s representative (or the Member), the Company shall name a qualified, independent appraiser to appraise the Membership Interests.

If two appraisers are properly appointed in accordance with this proce­dure, the two shall determine the fair market value of the Membership Interests as of the applicable date. If the two appraisers cannot agree on the value of the Membership Interests, they shall average the two appraisals. If the party required to appoint the second appraiser does not do so within the fifteen-day period given above, the Membership Interests shall be valued by the one appraiser who was properly named.

Within sixty days of the date the second appraiser is named, the apprais­ers shall deliver a written report of each of their appraisals to the Company and to the legal representative of the estate of a deceased Member (or the Member, if living). If either appraiser does not submit their written report within that sixty-day period, the party whose appraiser has timely submitted their appraisal shall be entitled to give the party whose appraiser has not timely sub­mitted their appraisal ten days written notice of failure to comply with this agreement. If the second written appraisal is not submitted within that ten-day period, the determination of the fair market value of the Membership Interests will be by the one appraiser who has timely submitted their appraisal.

The determination of the fair market value of the Membership Interests as provided above shall be final and binding on all parties. Each party shall pay the fee and expenses of the appraiser selected by that party.

Determination of Agreed Company Value

Clause 10-7-17

13.6      Valuation of Membership Interest.      The purchase price of the Member­ship Interests to be sold under Article 13 of this Agreement shall be the agreed value as determined by the Members during each annual meeting of the Mem­bers, and that value shall be reflected in the minutes of the annual meeting. The agreed value until the first annual meeting is $[amount]. The agreed value shall be binding on the parties to this Agreement and their heirs, executors, adminis­trators, successors, and assigns, regardless of the remoteness of the last date on which an agreed value was placed on the Membership Interests or regardless of the fact that the agreed value is or was not determined at the last or any preced­ing annual meeting of the Members.

Determination of Company Value at Buyout Based on Formula

Clause 10-7-18

13.6      Valuation of Membership Interest.      The purchase price of the Member­ship Interests to be sold under Article 13 of this Agreement shall be determined pursuant to the provisions of this section 13.6. The selling price shall be deter­mined by applying the following steps:

a.Value of Company.      To determine the selling price, the value of the Company shall first be determined by multiplying the amount of its annual gross receipts by [[number]/[percent] percent] (“Company Value”). For purposes of this paragraph, gross receipts shall mean the gross receipts of the Company as determined under the method of accounting used for federal income tax purposes by the Company, for the most recently completed, full twelve-month fiscal year preceding the date of the Member’s death or triggering buyout event with the Com­pany.

b.Value of Membership Interest.      A Member’s individual Member­ship Interest shall be valued by multiplying the Member’s Membership Interest by the Company Value (“Membership Interest Valuation”). The Membership Interest Valuation will be binding on both the seller of the Membership Interest and the purchaser of the Membership Interest.

Allowance for Expulsion of Member

Clause 10-7-19

14.[section number]      Expulsion.      A Member may be expelled from the Company by unanimous vote of all other Members (not including the Member to be expelled) if that Member (a) has willfully violated any provision of this Agreement; (b) committed fraud, theft, or gross negligence against the Com­pany or one or more Members of the Company; or (c) engaged in wrongful conduct that adversely and materially affects the business or operation of the Company. Such a Member shall be considered a Defaulting Member, and the Company or other Members may also exercise any one or more of the reme­dies provided for in this Article 14. The Company may offset any damages to the Company or its Members occasioned by the misconduct of the expelled Member against any amounts distributable or otherwise payable by the Com­pany to the expelled Member.