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| UNITED STATES |
| SECURITIES AND EXCHANGE COMMISSION |
| Washington, D.C. 20549 |
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| SCHEDULE 14A INFORMATION |
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Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 |
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Filed by the Registrant x |
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Filed by a Party other than the Registrant o |
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| Check the appropriate box: |
| x | Preliminary Proxy Statement |
| o | Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
| o | Definitive Proxy Statement |
| o | Definitive Additional Materials |
| o | Soliciting Material under § 240.14a-12 |
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| CARDINAL ETHANOL, LLC |
| (Name of Registrant as Specified In Its Charter) |
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| (Name of Person(s) Filing Proxy Statement, if other than the Registrant) |
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| Payment of Filing Fee (Check the appropriate box): |
| x | No fee required. |
| o | Fee paid previously with preliminary materials. |
| o | Fee computed on table in exhibit required by Item 25(b) per Exchange Act Rules 14a-6(i)(1) and 0-11. |
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PRELIMINARY PROXY STATEMENT - SUBJECT TO COMPLETION
DATED JUNE 4, 2024
NOTICE OF 2024 SPECIAL MEETING OF MEMBERS
To Be Held On: [Special Meeting Day], [Special Meeting Date]
To our Members:
The 2024 special meeting of members (the "Special Meeting") of Cardinal Ethanol, LLC (the "Company") will be held on [Special Meeting Day], [Special Meeting Date] at [Location]. Registration for the 2024 Special Meeting will begin at 5:00 p.m. EST. The 2024 Special Meeting will commence at approximately 6:00 p.m. EST.
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE SPECIAL MEETING TO BE HELD ON [Special Meeting Day], [Special Meeting Date]:
◦This communication presents only an overview of the more complete proxy materials that are available to you on the Internet. We encourage you to access and review all of the important information contained in the proxy materials before voting;
◦The proxy statement, proxy card and annual report to members are available at http://www.cardinalethanol.com; and
◦If you want to receive a paper or e-mail copy of these documents, you must request one. There is no charge to you for requesting a copy. Please make your request for a copy by calling our office at (765) 964-3137 or toll free at (866) 559-6026 or by written request at Cardinal Ethanol, LLC at 1554 N. County Road 600 E., Union City, Indiana 47390, by e-mail at info@cardinalethanol.com, or on our website at http://www.cardinalethanol.com on or before [Day], [Date By Which Copy Request Must Be Made] to facilitate timely delivery.
The purposes of the meeting are to: (1) Amend and restate the Second Amended and Restated Operating Agreement of the Company dated February 1, 2006, as amended by the First Amendment to the Second Amended and Restated Operating Agreement dated February 20, 2018 (our "Current Operating Agreement") to provide for four separate and distinct classes of units: Class A, Class B, Class C and Class D Units; and (2) Reclassify our units into Class A, Class B, Class C and Class D Units for the purpose of discontinuing the registration of our units under the Securities Act of 1934 ("Exchange Act"). The foregoing items of business are more fully described in the proxy statement. Only members listed on the Company's records at the close of business on [Record Day] [Record Date] (the "Record Date") are entitled to notice of the Special Meeting and to vote at the Special Meeting and any adjournments thereof.
All members are encouraged to attend the 2024 Special Meeting in person. However, to assure the presence of a quorum, the Board of Directors requests that you promptly sign, date and return the proxy card, which is solicited by the Board of Directors, whether or not you plan to attend the meeting. Proxy cards are available on the Company's website at http://www.cardinalethanol.com and may be printed by the members. No personal information is required to print a proxy card. We will also be sending you a proxy card approximately 10 days from the date of this letter.
If you wish to revoke your proxy, you may do so by giving notice to our chairman, Robert Davis, prior to or at the commencement of the meeting. The proxy will not be used if you attend and vote at the meeting in person. You may fax the proxy card to the Company at (765) 964-3349 or mail it to the Company at 1554 N. County Road 600 E., Union City, Indiana 47390. For your proxy card to be valid, it must be received by the Company no later than 5:00 p.m. EST on [Day before Special Meeting], [Date before Special Meeting].
If you have any questions regarding the information in the proxy statement or completion of the proxy card or if you need directions to attend the meeting and vote in person, please call the Company at (765) 964-3137 or at (866) 559-6026.
By order of the Board of Directors,
/s/ Robert Davis
Chairman of the Board
[Distribution Date]
TABLE OF CONTENTS
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| Exhibit 99.1 | SECOND AMENDED AND RESTATED OPERATING AGREEMENT OF CARDINAL ETHANOL, AND AMENDMENT THERETO (THE "CURRENT OPERATING AGREEMENT") |
| Exhibit 99.2 | THIRD AMENDED AND RESTATED OPERATING AGREEMENT OF CARDINAL ETHANOL, LLC (THE "PROPOSED OPERATING AGREEMENT") |
| Exhibit 99.3 | REDLINE BETWEEN THE CURRENT OPERATING AGREEMENT AND THE PROPOSED OPERATING AGREEMENT |
| Exhibit 99.4 | REGISTRANT'S 10-K FYE SEPTEMBER 30, 2023, FILED WITH THE COMMISSION ON NOVEMBER 30, 2023 |
| Exhibit 99.5 | REGISTRANT'S 10-Q FOR THE FISCAL QUARTER ENDED MARCH 31, 2024, FILED WITH THE COMMISSION ON MAY 13, 2024 |
| FORM OF PROXY CARD |
| FORM OF TRANSMITTAL LETTER |
Cardinal Ethanol, LLC
1554 N. Country Road 600 E.
Union City, IN 47390
Proxy Statement
2024 Special Meeting of Members
[Special Meeting Day], [Special Meeting Date]
ABOUT THE 2024 SPECIAL MEETING
This proxy solicitation is being made by Cardinal Ethanol, LLC (the "Company"). The proxy statement and proxy card were prepared by the board of directors (the "Board") of the Company for use at the special meeting of members of the Company to be held on, [Special Meeting Day], [Special Meeting Date] (the "2024 Special Meeting"), and at any adjournment or postponement thereof. Registration for the meeting will begin at 5:00 p.m. EST and the meeting will commence at approximately 6:00 p.m. EST. Distribution of the definitive proxy statement and the proxy card is scheduled to begin on or about [Distribution Date]. We will mail the proxy card to our members approximately 10 days later.
This solicitation is being made according to the SEC's Internet availability of proxy materials rules. However, the Company may also use its officers, directors, and employees to request members by telephone, electronic or other means to return their proxy cards or attend the 2024 Special Meeting. No additional compensation for these services will be paid to our officers, directors and employees, but each will be reimbursed for any transaction expenses incurred.
In this proxy statement, “Cardinal,” “we,” “our,” “ours,” “us” and the “Company” refer to Cardinal Ethanol, LLC, an Indiana limited liability company and its subsidiaries.
“Reclassification” refers to the reclassification of our registered units into four separate and distinct classes: Class A, Class B, Class C, and Class D. Certain of our outstanding units which are currently titled "units", will be renamed "Class A Units" and certain of our outstanding units will be reclassified on the basis of one Class B, Class C, or Class D Unit for each unit currently held. References herein to our “units” generally refers to our currently outstanding membership units.
Date, Time and Place of the Special Meeting
The Board is asking for your proxy for use at the 2024 Special Meeting on [Special Meeting Day], [Special Meeting Date] at 6:00 p.m. EST, at [Location], and at any adjournments or postponements of that meeting. Registration for the meeting begins at 5:00 p.m. EST.
Proposals to be Considered at the Special Meeting
The Board has authorized and recommends for your approval at the Special Meeting, the following matters:
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| Item | Description | Board Voting Recommendation |
| No. 1 | Approval of the Third Amended and Restated Operating Agreement | FOR |
| No. 2 | Reclassification of the Company's Units | FOR |
Our members will vote on these matters separately. If Proposals 1 and 2 are not both approved, the Board will not implement the Third Amended and Restated Operating Agreement (the “Proposed Operating Agreement”); or the Reclassification.
Our Board will have the discretion to determine if and when to make the Proposed Operating Agreement and the Reclassification effective, and reserves the right to abandon the Proposed Operating Agreement and the Reclassification, even if both Proposals 1 and 2 are approved by the members. For example, if the number of record holders of our units changes such that the Reclassification would no longer accomplish our intended goal of discontinuing our reporting obligations owed to the Securities and Exchange Commission (the "SEC"), our Board may determine not to make the Reclassification effective.
Our Board is asking separately for the vote to approve the Proposed Operating Agreement (Proposal 1) and to approve the Reclassification (Proposal 2), even though the Reclassification could be achieved solely through the approval of Proposal 1. The Board believes that the Reclassification is an important unit holder matter and deserves separate and distinct attention, given the impact on our unit holders. The Proposed Operating Agreement and the Reclassification are conditioned on one another, meaning that unless the unit holders vote in favor of both proposals, both will fail. For more information on the effect of the Reclassification on your units, please see "Effects of the Reclassification on Unit Holders of the Company" under the heading "SPECIAL FACTORS RELATED TO THE RECLASSIFICATION." We expect that if our members approve both the Proposed Operating Agreement and the Reclassification and our Board elects to make the Proposed Operating Agreement and the Reclassification effective that will occur on [Date of Reclassification] ("Reclassification Date"). No member proposals will be able to be made or acted upon at the 2024 Special Meeting, and no member action will otherwise be able to be taken at the 2024 Special Meeting, other than voting on the above proposals.
Availability of Proxy Materials
The Company's annual report to the SEC on Form 10-K, including the financial statements and the notes thereto, for the fiscal year ended September 30, 2023, is available on our website at http://www.cardinalethanol.com.
These proxy materials are being delivered pursuant to the Internet Availability of Proxy Materials rules promulgated by the SEC. The Company will provide each member solicited a printed or e-mail copy of the Proxy Statement, Proxy Card and Annual Report on Form 10-K without charge within three business days of receiving a written request. Members should direct any requests for a printed or e-mail copy of the proxy materials as follows: (i) by calling our office at (765) 964-3137 or toll free at (866) 559-6026; (ii) by written request to Cardinal Ethanol, LLC at 1554 N. County Road 600 E., Union City, Indiana 47390; (iii) by e-mail at info@cardinalethanol.com; or (iv) on our website at http://www.cardinalethanol.com, on or before [Date By Which Copy Request Must Be Made] to facilitate timely delivery. The Company will provide each member solicited, a copy of the exhibits to the Annual Report on Form 10-K upon written request and payment of specified fees. The Annual Report on Form 10-K, complete with exhibits, and Proxy Statement are also available from the SEC at 6432 General Green Way, Mail stop 0-5, Alexandria, VA 22312-2413, by e-mail at foiapa@sec.gov or fax at (703) 914-2413 or through the EDGAR database available from the SEC's internet site (www.sec.gov).
QUESTIONS AND ANSWERS ABOUT THE THE SPECIAL MEETING, THE PROPOSALS AND VOTING
This summary provides an overview of material information about the Proposed Operating Agreement and the proposed Reclassification.. However, it is a summary only. To better understand the Proposed Operating Agreement and Reclassification and for more complete descriptions, we encourage you to carefully read this entire document and the documents to which it refers before voting.
Neither the SEC nor any state securities commission has approved or disapproved the Proposed Operating Agreement or the Reclassification or has passed upon the merits or fairness of the Reclassification or upon the adequacy or accuracy of the disclosure in this document. Any representation to the contrary is a criminal offense.
GENERAL QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND VOTING
Q: Why did I receive this proxy statement?
A: You received this proxy statement because you were a member of the Company at the close of business on [Record Date], the record date, and are entitled to vote at the 2024 Special Meeting.
Q: What am I voting on?
A: The Board is soliciting the proxies of all members to approve the Proposed Operating Agreement (Proposal 1) and to approve the Reclassification (Proposal 2).
Q: When and where is the 2024 Special Meeting?
A: The 2024 Special Meeting will be held in-person on [Special Meeting Day], [Special Meeting Date] at [Location]. Registration for the meeting will begin at 5:00 p.m. EST and the meeting will commence at approximately 6:00 p.m. EST.
Q: How many votes do I have?
A: On any matter which may properly come before the meeting, each member entitled to vote will have one vote for each membership unit owned of record by such member as of the close of business on [Record Date]. Pursuant to Section 6.15 of the Current Operating Agreement, members do not have any dissenters' rights.
Q: What is the voting requirement for the proposals and what is the effect of an abstention?
A: Approval of the Proposed Operating Agreement (Proposal 1) requires affirmative votes from members holding a majority of the total outstanding membership units entitled to vote. Approval of the Reclassification (Proposal 2) requires affirmative votes from members holding a majority of the units represented at the 2024 Special Meeting where a quorum is present. Abstention votes will have the effect of a vote AGAINST the proposal from which you abstain and will also be counted for purposes of establishing a quorum.
The Board is asking separately for the vote to approve the Proposed Operating Agreement (Proposal 1) and to approve the Reclassification (Proposal 2), even though the Reclassification could be achieved solely through the approval of Proposal 1. The Board believes that the Reclassification is an important unit holder matter and deserves separate and distinct attention, given the impact on our unit holders. The Proposed Operating Agreement and the Reclassification are conditioned on one another, meaning that unless the unit holders vote in favor of both proposals, both will fail. Approval of a majority of unaffiliated unit holders is not required to approve Proposal 1 and Proposal 2.
Q: What constitutes a quorum?
A: The presence in person or by proxy of members holding 25% or more of the issued and outstanding membership units entitled to vote on the matter is required to constitute a quorum. On [Record Date], the Company had 14,606 issued and outstanding membership units. The presence in person or by proxy of 3,652 membership units will constitute a quorum for Proposal 1 and Proposal 2.
Q: What is the effect of a broker non-vote?
A: Units held in street name by brokers, broker non-votes, if any, will count for purposes of establishing a quorum at the 2024 Special Meeting. A broker non-vote occurs when an individual owns units which are held in the name of a broker. The individual is the beneficial owner of the units, however, on the records of the Company, the broker owns the units. If the individual who beneficially owns the units does not provide the broker with voting instructions on non-routine matters, including the proposals presented at the 2024 Special Meeting, this is considered a broker non-vote. For such non-routine matters, the broker cannot vote either way and reports the units as "non-votes." These broker non-votes function as abstentions.
If you are the beneficial owner of your units and not the holder of record, you will need to contact your brokerage firm, bank, fiduciary, trustee, custodian or other nominee to revoke any prior voting instructions or bring with you a legal proxy from your brokerage firm, bank, fiduciary, trustee, custodian or other nominee authorizing you to vote the units.
Q: How many membership units are outstanding?
A: At the close of business on [Record Date], there were 14,606 outstanding membership units. As such, there can be a total of 14,606 votes on Proposal 1 and Proposal 2.
Q: How do I vote?
A: Membership units can be voted only if the holder of record is present at the 2024 Special Meeting in person or by proxy. You may vote using the following methods:
Proxy Card. The proxy card is the means by which a member may authorize the voting of his, her, or its membership units at the 2024 Special Meeting. The membership units represented by each properly executed proxy card will be voted at the 2024 Special Meeting in accordance with the member's directions. The Company urges you to specify your choices by marking the appropriate boxes on your proxy card. After you have marked your choices, please sign and date the proxy card, mail it to Cardinal Ethanol, LLC at 1554 N. County Road 600 E., Union City, Indiana 47390, or fax it to the Company at (765) 964-3349. In order for your vote to count, the Company must receive your proxy card by 5:00 p.m. EST on [Date before Special Meeting]. If you sign and return the proxy card without specifying any choices, your membership units will be voted FOR Proposal 1 and FOR Proposal 2.
In person at the 2024 Special Meeting. Members of record as of [Record Date] may vote in person at the 2024 Special Meeting.
If membership units are owned jointly by more than one person, both persons must sign the proxy card in order for the units to be counted.
Q: What can I do if I change my mind after I vote my units?
A: You may revoke your proxy by:
•Voting in person at the 2024 Special Meeting;
•Giving written notice of the revocation to Robert Davis, Chairman of the Company's Board, at the Company's offices at 1554 N. County Road 600 E., Union City, IN 47390 by 5:00 p.m. EST by [Date before Special Meeting]; or
•Giving written notice of the revocation to Robert Davis, Chairman of the Company's Board, at the commencement of the 2024 Special Meeting.
Q: What happens if I mark too few or too many boxes on the proxy card?
A: If you do not mark any choices on the proxy card, then the proxies will vote your units FOR Proposal 1 and FOR Proposal 2. If you mark contradicting choices on the proxy card, such as both FOR and AGAINST a proposal, your votes will not be counted with respect to the proposal for which you marked contradicting choices.
Each fully executed proxy card will be counted for purposes of determining whether a quorum is present at the 2024 Special Meeting. If you do not submit a proxy card, your units will not be counted as present at the 2024 Special Meeting for purposes of determining whether a quorum is present.
Q: Who can participate in the 2024 Special Meeting?
A: All members as of the close of business on [Record Date], the record date, may attend the 2024 Special Meeting.
Q: What is the record date for the 2024 Special Meeting?
A: [Record Date].
Q: Who will count the votes?
A: All votes will be tabulated by the inspector of election appointed for the 2024 Special Meeting which will be our Chief Financial Officer ("CFO"), William Dartt. Mr. Dartt will be assisted by an administrative employee of the Company. The inspector of election will separately tabulate votes and abstentions.
Q: Where can I find more information about the Company?
A: Information about us is available at our website at https://www.cardinalethanol.com, under "Investors" which includes links to reports we have filed with the SEC. The contents of our website are not incorporated by reference in this proxy statement.
Q: Who can help answer my questions?
A: If you have questions about the proposals or need assistance in voting your units, you should contact any of the following directors:
Thomas Chalfant at 765-729-3129 or chalfantom@yahoo.com.
Thomas Chronister at 260-437-0418 or tom@chronister.com.
David Dersch, Jr. at 334-322-3876 or david,dersch@gmail.com.
Phillip Zicht at 765-546-1783 or zicht@nltc.net.
Q: Who is paying for this proxy solicitation?
A: The entire cost of this proxy solicitation will be borne by the Company. The cost will include the cost of supplying necessary additional copies of the solicitation material for beneficial owners of units held of record by brokers, dealers, banks and
voting trustees and their nominees and, upon request, the reasonable expenses of such record holders for completing the mailing of such material and report to such beneficial owners.
Q: How do I nominate a candidate for election as a director for the 2025 annual meeting and what is the deadline for submitting my nomination?
A: The Company plans to hold elections of directors at next year's annual meeting. Nominations for director positions are made by a nominating committee appointed by the Board. In addition, a member may nominate a candidate for director by following the procedures explained in Section 5.3(b) of the Current Operating Agreement. Section 5.3(b) of the Current Operating Agreement requires that written notice of a member's intent to nominate an individual for director must be given, either by personal delivery or by United States mail, postage prepaid, to the secretary of the Company not less than 120 calendar days prior to the one year anniversary of the date the Company's proxy statement was released in connection with the previous year's annual meeting. Director nominations for the 2025 annual meeting must be submitted to the Company by August 23, 2024.
Q: What is a member proposal?
A: A member proposal is your recommendation or requirement that the Company and/or the Board take action, which you intend to present at a meeting of the Company's members. Your proposal should state as clearly as possible the course of action that you believe the Company should follow. If your proposal is placed in the Company's proxy statement, then the Company must also provide the means for members to vote on the matter via the proxy card. The deadlines and procedures for submitting member proposals in connection with the 2025 annual meeting are explained in the following question and answer. The Company reserves the right to reject, rule out of order, or take appropriate action with respect to any proposal that does not comply with these and other applicable requirements.
Q: When are member proposals due for the 2025 annual meeting?
A: In order to be considered for inclusion in next year's proxy statement in connection with the 2025 annual meeting, member proposals must be submitted in writing to the Company by August 23, 2024. The Company suggests that proposals for the 2025 annual meeting of the members be submitted by certified mail-return receipt requested.
Members who intend to present a proposal at the 2025 annual meeting of members without including such proposal in the Company's proxy statement must provide the Company notice of such proposal no later than November 7, 2024 (approximately 45 days prior to the one year anniversary of the date the proxy statement in connection with the previous year's annual meeting was released). The Company reserves the right to reject, rule out of order, or take appropriate action with respect to any proposal that does not comply with these and other applicable requirements.
If the Company does not receive notice of a member proposal intended to be submitted to the 2025 annual meeting by November 7, 2024, the persons named on the proxy card accompanying the notice of meeting may vote on any such proposal in their discretion, provided the Company has included in its proxy statement an explanation of its intention with respect to voting on the proposal.
Q: What is the effect on member proposals and director nominations if the Reclassification is implemented?
A: If the Proposed Operating Agreement and Reclassification are implemented, we do not expect to be subject to the proxy rules at the time of the 2025 annual meeting, and, therefore, member proposals would be governed by our Proposed Operating Agreement rather than as set forth above. If the Proposed Operating Agreement and Reclassification are implemented, the director nomination procedures would remain the same.
QUESTIONS AND ANSWERS ABOUT THE PROPOSED OPERATING AGREEMENT AND THE RECLASSIFICATION
Q: What is the Reclassification?
A: We are proposing that our members adopt the Proposed Operating Agreement that amends our Current Operating Agreement. If the Proposed Operating Agreement is adopted, to provide, among other things, for four separate classes of units: Class A Units, Class B Units, Class C Units, and Class D Units. Certain of our outstanding units will be renamed as Class A Units and others will be reclassified on the basis of one Class B, Class C, or Class D Unit for each unit currently held, as follows:
◦Holders of 20 or more of our units will have their units renamed Class A Units.
◦Holders of at least 5 units but no more than 19 units will have their units reclassified into Class B Units.
◦Holders of exactly 4 of our units will have their units reclassified into Class C Units.
◦Holders of 3 or fewer of our units will have their units reclassified into Class D Units.
For purposes of this proxy statement, when we refer to the term “Reclassification,” we are referring to this reclassification of our units.
The adoption of the Proposed Operating Agreement and the Reclassification must both be approved to implement the Reclassification. For more information about the terms of the Proposed Operating Agreement and the Reclassification, please refer to “SPECIAL FACTORS RELATED TO THE RECLASSIFICATION” and “THE THIRD AMENDED AND RESTATED OPERATING AGREEMENT.”
Neither the SEC nor any state securities commission has approved or disapproved the Proposed Operating Agreement or the Reclassification, passed upon the merits or fairness of the Reclassification or upon the adequacy or accuracy of the disclosure in this document. Any representation to the contrary is a criminal offense.
Q: What is the purpose and structure of the Reclassification?
A: The purpose of the Reclassification is to change the record ownership of our outstanding units in a way that will allow us to suspend our SEC reporting obligations (known as a "going private transaction" or "going private") under the Exchange Act. The primary effect of the Reclassification will be to reduce the total number of unit holders of record of our current class of registered units to below 300 unit holders by renaming certain of our units as Class A Units, and reclassifying certain units as Class B Units, Class C Units or Class D Units. Members who receive Class B Units, Class C Units, or Class D Units, as a result of the reclassification transaction, will no longer be counted as record holders of the original units because the rights and privileges of the Class B Units, Class C Units, and Class D Units will be substantially different from the rights and privileges of the existing units. It is anticipated that there will be fewer than 500 holders of record of each class of Class B Units, Class C Units and Class D Units after implementation of the Reclassification. As a result, the Company will not be required to register the Class B Units, Class C Units, or Class D Units under the Exchange Act.
The Reclassification is being implemented at the unit holder level. This means that we use the number of units registered in the name of each holder to determine how that holder’s units will be reclassified. On [Date of Letter to Members], the Company sent a letter to its members notifying them that they had until [Deadline to Transfer] to make transfers of units before the Reclassification. The purpose of this letter was to allow our members the opportunity to make transfers (subject to our Current Operating Agreement and applicable laws) before the Reclassification so that they could then own the requisite number of units to be in their desired class. We have restricted transfers after [Deadline to Transfer] through the date of the 2024 Special Meeting to allow the Company to determine the final number of Class A members, Class B members, Class C members, and Class D members that would result from the Reclassification.
Q: What will be the effects of the Reclassification?
A: The Reclassification is a “going private transaction,” meaning that it will allow us to deregister with the SEC, and we will no longer be subject to reporting obligations under federal securities laws. As a result of the Reclassification:
•The units currently registered under the Exchange Act (some of which will be renamed as Class A Units and some of which will be reclassified as Class B Units, Class C Units, or Class D Units) will be reduced from 14,606 units to approximately 9,944 Class A Units, and the number of unit holders of the currently-registered units will decrease from 1,033 unit holders to approximately 163 Class A unit holders.
•The newly-created Class B Units will correspondingly increase to approximately 3,019 Class B Units, held by approximately 348 Class B unit holders.
•The newly-created Class C Units will correspondingly increase to approximately 1300 Class C Units, held by approximately 325 Class C unit holders.
•The newly-created Class D Units will correspondingly increase to approximately 343 Class D Units, held by approximately 197 Class D unit holders.
•Though certain unit holders' units will be renamed as Class A Units and certain unit holders will receive one Class B Unit, Class C Unit, or Class D Unit (as applicable) for each unit they held immediately before the Reclassification, they will continue to have an equity interest in the Company, share in our profits and losses and distributions and may be entitled to realize any future value received in the event of any sale of the Company.
•Unit holders will be required to surrender their original units in exchange for Class A Units, Class B Units, Class C Units, or Class D Units, for which they will receive no consideration (other than the units received in the Reclassification).
•Because the number of record unit holders of our units currently registered under the Exchange Act will be reduced to less than 300 units (which will be renamed as Class A Units), and our new Class B Units, Class C Units, and Class D Units will be less than 500 for each class, we will be allowed to suspend our status as an SEC reporting company.
For more information, please refer to the subheadings "Effects of the Reclassification on the Company " and "Effects of the Reclassification on Unit Holders of the Company" under "SPECIAL FACTORS RELATED TO THE RECLASSIFICATION."
Q: What does it mean for the Company and our members that the Company will no longer be subject to federal securities laws reporting obligations?
A: We intend to make available to the members an annual report containing the Company's audited financial statements and quarterly reports containing our unaudited financial statements. However, these financial statements and annual and quarterly reports may not be the same as those required for reporting companies as we will no longer be subject to the regulations for reporting companies and we will also no longer be directly subject to the provisions of the Sarbanes-Oxley Act of 2002 ("SOX") which, among other things, require our Chief Executive Officer ("CEO") and our CFO to certify as to the accuracy of our financial statements and internal controls over financial reporting.
In addition, we will no longer be required to file annual, quarterly and current reports with the SEC. These reports contain important information about our business and financial condition, which will no longer be publicly available. However, under the Proposed Operating Agreement, our members will be allowed to inspect and copy, upon reasonable request, our books and records.
Because the Company will no longer be subject to federal securities laws reporting obligation, the liquidity of the units you hold may be reduced since there will be no public information available and our units will only be tradable in privately-negotiated transactions, or through the availability of a qualified-matching service.
Q: Why are you proposing the Reclassification?
A: Our reasons for the Reclassification are based on:
•The administrative burden and expense of making our periodic filings with the SEC.
•As a reporting company, we must disclose information to the public, including information that may be helpful to actual or potential competitors in challenging our business operations and taking market share, employees, and customers away from us. Suspending our reporting obligations will help to protect sensitive information from disclosure.
•Operating as a private company will reduce the burden on our management and employees from increasingly stringent SEC reporting requirements, thus allowing management to focus more of its attention directly on our business operations.
•Management will have increased flexibility to consider and initiate actions that may produce long-term benefits and growth, such as an acquisition or other transaction by the Company, without being required to file proxy materials with the SEC and otherwise comply with proxy rules under the Exchange Act.
•Our members receive limited benefit from our status as an SEC reporting company because of our small size and the limited trading of our units, especially when compared to the costs of disclosure pursuant to SEC requirements and SOX compliance.
•We have been able to structure our going private transaction to allow all of our members to retain an equity interest in and none of our members would be forced out.
•We anticipate the expense of a going private transaction will be less than the cumulative future expenses of complying with continued SEC reporting obligations and SOX compliance.
We considered that some of our members may prefer that we continue as an SEC reporting company, which is a factor weighing against the Reclassification. However, we believe that the disadvantages and costs of continuing our SEC reporting obligations outweigh the advantages. The Board considered several positive and negative factors affecting members who will hold our Class A Units, as well as those members whose units will be reclassified into Class B Units, Class C Units, or Class D Units in making its determination, as discussed throughout this proxy statement.
Based on a careful review of the facts related to the Reclassification, the Board has concluded that the terms of the Reclassification are substantively and procedurally fair to our members and has approved the Reclassification. Please see "Reasons for the Reclassification," "Fairness of the Reclassification" and "Board Recommendation” under “SPECIAL FACTORS RELATED TO THE RECLASSIFICATION."
Q: What changes to our Current Operating Agreement are being proposed by the Board?
A: The Board has proposed amending and restating our Current Operating Agreement by adopting the Proposed Operating Agreement, primarily to reclassify our units and revise the voting and transfer rights of each class.
For more information, please see “THE THIRD AMENDED AND RESTATED OPERATING AGREEMENT.” To review all of the proposed changes to our Current Operating Agreement, please see Exhibit 99.2 “Third Amended and Restated Operating Agreement of Cardinal Ethanol, LLC.”
Q: What will I receive in the Reclassification?
A: If you are the record holder of 20 or more of our existing units, on the date of the Reclassification, your units will be renamed Class A Units. If you are the record holder of at least 5 units but no more than 19 of our existing units on the date of the Reclassification, your units will automatically be converted into an equal number of Class B Units. If you are the record holder of exactly 4 of our existing units on the date of the Reclassification, your units will automatically be converted into an equal number of Class C Units. If you are the record holder of 3 or fewer of our existing units on the date of the Reclassification, your units will automatically be converted into an equal number of Class D Units.
If the Reclassification is adopted:
•You will receive no other consideration for your units when they are reclassified.
•Class B, Class C, and Class D unit holders will have limited voting rights and thus may hold units with less value.
•You will receive units with limited transferability rights, which may be even less liquid than the units you currently hold.
•You will lose the benefits of holding securities registered under Section 12 of the Exchange Act.
Q: Why are 20 or more, at least 5 units but no more than 19, exactly 4, and 3 or fewer, the thresholds for determining who will receive Class A Units, Class B Units, Class C Units, or Class D Units?
A: The purpose of the Reclassification is to reduce the number of record holders of our currently registered units (which will be renamed as Class A Units) to less than 300 and to have less than 500 holders of each class of our Class B Units, Class C Units, and Class D Units, which will allow us to deregister as an SEC reporting company. The Board selected the respective threshold numbers to enhance the probability that we will achieve the applicable unit holder numbers for each class after the Reclassification, if approved.
Q: What are the rights of the Class A Units?
A: Generally, if members approve the Proposed Operating Agreement, the voting rights of the Class A Units will remain substantially the same as the current outstanding units. These rights include:
•The right to vote for elected directors (voting with Class B).
•The right to vote on any matters brought before a vote of the members.
•The right to vote on the dissolution of the Company.
•The right to vote on all amendments to the Proposed Operating Agreement.
•The right to vote on certain fundamental transactions or actions by the Board requiring the consent of members which include mergers and dispositions of all or substantially all of the Company's assets.
Class A unit holders will also retain the right to nominate persons to serve as elected directors, propose amendments to the Proposed Operating Agreement, and call meetings of members (which may be done by Class A members and Class B members holding an aggregate of not less than 30% of Class A Units and Class B Units). Please refer to the comparison table under “THE THIRD AMENDED AND RESTATED OPERATING AGREEMENT” below for more detailed information.
Q: What are the rights of the Class B Units?
A: The Class B unit holders will have limited voting rights which include:
•The right to vote for elected directors (voting with the Class A).
•The right to vote on the dissolution of the Company.
•The right to vote on certain fundamental transactions or actions by the Board requiring the consent of members which include mergers and dispositions of all or substantially all of the Company's assets.
•The right to vote on amendments to the Proposed Operating Agreement only if the amendment would modify the limited liability of Class B unit holders or alter the economic interests of the Class B unit holders.
•The right to vote on other matters to the extent required by Indiana law.
Class B unit holders also retain the right to nominate persons to serve as elected directors and call meetings of members (which may be done by Class A members and Class B members holding an aggregate of not less than 30% of Class A Units and Class B Units). However, Class B unit holders will not have the right to vote on any other matters including other types of amendments to the Proposed Operating Agreement. Please refer to the comparison table under “THE THIRD AMENDED AND RESTATED OPERATING AGREEMENT” below for more detailed information.
Q: What are the rights of the Class C Units?
A: The Class C unit holders will have limited voting rights which include:
•The right to vote on the dissolution of the Company.
•The right to vote on certain fundamental transactions or actions by the Board requiring the consent of members which include mergers and dispositions of all or substantially all of the Company's assets.
•The right to vote on amendments to the Proposed Operating Agreement only if the amendment would modify the limited liability of Class C unit holders or alter the economic interests of Class C unit holders.
•The right to vote on other matters to the extent required by Indiana law.
Class C unit holders also retain the right to nominate persons to serve as elected directors. However, Class C unit holders will not have the right to vote for elected directors or vote on any other matters including other types of amendments to the Proposed Operating Agreement. Please refer to the comparison table under “THE THIRD AMENDED AND RESTATED OPERATING AGREEMENT” below for more detailed information.
Q: What are the rights of the Class D Units?
A: The Class D unit holders will have limited voting rights which include:
•The right to vote on dissolution of the Company.
•The right to vote on amendments to the Proposed Operating Agreement only if the amendment would modify the limited liability of Class D unit holders or alter the economic interests of Class D unit holders.
•The right to vote on other matters to the extent required by Indiana law.
Class D unit holders also retain the right to nominate persons to serve as elected directors. However, Class D unit holders will not have the right to vote for elected directors, vote on any other matters including fundamental transactions or actions by the Board requiring the consent of members, or vote for other types of amendments to the Proposed Operating Agreement. Please refer to the comparison table under “THE THIRD AMENDED AND RESTATED OPERATING AGREEMENT” below for more detailed information.
Q: Will the Reclassification change my economic rights as a member of the Company?
A: The Reclassification will not change the rights of any member with respect to cash distributions, distribution of assets upon liquidation or the allocation of Company profits and losses. Each class of units created by the Reclassification will have the same right to receive cash distributions from the Company, if any, to receive Company assets upon liquidation of the Company and to be allocated Company profits and losses, on a pro rata basis, based on the number of units held by a member without regard to class.
Q: Will the Proposed Operating Agreement restrict my ability to transfer my units?
A: Following the Reclassification, transfers of all units, regardless of class, will be restricted to certain "permitted transfers," in accordance with Sections 9.2 and 9.3 of the Proposed Operating Agreement. All transfers must be approved by the Board in its sole discretion and will be prohibited to the extent any transfer would impose the Company to SEC registration and/or reporting requirements. Please refer to the comparison table under “THE THIRD AMENDED AND RESTATED OPERATING AGREEMENT” below for more detailed information.
Q: What is the Board’s recommendation regarding the Reclassification and Proposed Operating Agreement?
A: The Board has determined that the Reclassification is in the best interests of our members. The Board approved the Reclassification and recommends that our members vote FOR the adoption of the Proposed Operating Agreement (Proposal 1) and FOR the Reclassification (Proposal 2).
Q: When is the Reclassification expected to be completed?
A: If the Reclassification is approved, we expect to complete it as soon as practicable following the 2024 Special Meeting.
Q: What if the Reclassification is not approved or is not later implemented?
A: Approval of the Proposed Operating Agreement (Proposal 1) requires affirmative votes from members holding a majority of the total outstanding units entitled to vote. Approval of the Reclassification (Proposal 2) requires affirmative votes from members holding a majority of the units represented at the 2024 Special Meeting where a quorum is present. The Reclassification will not be implemented unless both Proposal 1 and Proposal 2 are approved. Additionally, the Board will have the discretion to determine if and when to implement the Proposed Operating Agreement and the Reclassification if approved, and may abandon them, even if approved by the members. For example, if the number of record holders of units changes such that the Reclassification would no longer accomplish our intended goal of discontinuing our SEC reporting obligations, the Board may determine not to implement the Reclassification.
If the Reclassification is not completed, we will continue operations under our Current Operating Agreement, and we will continue to be subject to SEC reporting requirements.
Q: What will happen if the Company gains additional unit holders in the future?
A: We are currently subject to the reporting obligations under the Exchange Act because we have more than 300 unit holders of record of our units. If the unit holders approve the Reclassification, our currently-registered units will be renamed as Class A Units and will be held by less than 300 unit holders of record. We may then terminate the registration of those units and suspend the obligation to file periodic reports. However, the Company could again be required to file periodic reports with the SEC if the number of record holders of Class A Units exceeds 300 as of the last day of any fiscal year. In addition, if the number of record holders of any class of Class B Units, Class C Units, or Class D Units ever exceeds 500 as of the last day of any fiscal year, that class of units would be subject to registration under Section 12 of the Exchange Act and this would subject the Company once again to all the reporting, proxy solicitation, and other provisions of the Exchange Act applicable to companies with SEC-registered securities.
Q: Following the Reclassification Date, can Class A Units, Class B Units, Class C Units, or Class D Units be converted to other classes?
A: No. After the date the Reclassification is implemented, the classification of each unit, whether Class A, Class B, Class C, or Class D, will remain in effect permanently unless our Proposed Operating Agreement is subsequently amended. This means, for example, that if someone acquired five Class A Units at a later date without owning any other units, those units would remain Class A Units in the hands of the acquirer even though the acquirer owns less than 20 total units. Please see “Overview of the Reclassification Transaction” under the heading "SPECIAL FACTORS RELATED TO THE RECLASSIFICATION."
Q: If the Reclassification is approved, will the Company continue to have its annual financial statements audited and will I continue to receive information about the Company?
A: Even if we suspend our registration with the SEC, we will continue to make available to our members an annual report containing audited financial statements in accordance with the Proposed Operating Agreement. In addition, we will continue to make quarterly reports containing unaudited financial statements available to our members. However, because this financial information will not be subject to the disclosure requirements and obligations that the federal securities laws require of public companies, it is likely that members will not receive the same level of disclosure as before the Reclassification.
Q: Will I have appraisal rights in connection with the Reclassification?
A: Under Indiana law and our Current Operating Agreement, you do not have appraisal or dissenter’s rights in connection with the Reclassification. However, other rights or actions besides appraisal and dissenter’s rights may exist under Indiana law or federal securities laws for members who can demonstrate that they have been damaged by the Reclassification.
Q: Will there be tax consequences from the Reclassification on the Company or the members?
A: We do not expect that the Reclassification will result in material federal income tax consequences to the Company or our members. We expect that those members continuing to hold our existing units (which will be renamed as Class A Units) should not recognize any gain or loss in connection with the Reclassification. Furthermore, those members receiving Class B Units, Class C Units, or Class D Units should not recognize any gain or loss in connection with the Reclassification. The adjusted tax basis in the Class B Units, Class C Units, and Class D Units held immediately after the Reclassification will likely equal their adjusted tax basis in the units held immediately before the Reclassification as long as your share of
Company liabilities does not change, which is not expected. We also anticipate that the holding period for Class B Units, Class C Units, or Class D Units will include the holding period during which the original units were held. We expect that the Reclassification will have no effect on your ability to use otherwise suspended passive activity losses or net operating loss carry forwards.
Please refer to "Material Federal Income Tax Consequences of the Reclassification" under the heading "SPECIAL FACTORS RELATED TO THE RECLASSIFICATION." The tax consequences of the Reclassification are complicated and may depend on your particular circumstances. Please consult your tax advisor to determine how the Reclassification will affect you.
Q: Should I send in my unit certificates now?
A: No. If the Reclassification is approved, we will send you written instructions for exchanging your unit certificates for Class B Units, Class C Units, or Class D Units, as applicable, after the Reclassification is completed.
Q: Do the directors and executive officers of the Company have different interests in the Reclassification?
A: Directors and executive officers have interests in the Reclassification that may present actual or potential, or the appearance of actual or potential, conflicts of interest in connection with the Reclassification. Please refer to "Interests of Certain Persons in the Reclassification" under the heading "SPECIAL FACTORS RELATED TO THE RECLASSIFICATION."
We expect that most of our directors and executive officers who own units will own Class A Units following the Reclassification due to the fact that most of those who own units currently own 20 or more units. The percentage of beneficial ownership of and voting power held by directors and executive officers of the Company as a group is currently approximately 32.70% of the existing units. The percentage of beneficial ownership of and voting power held by directors and executive officers of the Company as a group is currently 8.31% of the units eligible to vote in director elections. It is expected that the percentage of beneficial ownership of and voting power held by directors and executive officers as a group after the Reclassification will increase to:
•Approximately 47.59% of the Class A Units (when voting on those matters that only Class A members are entitled to vote).
•Approximately 36.84% of the Class A Units and Class B Units (when voting on most matters that Class A and Class B members vote as a single class).
•Approximately 9.82% of the Class A and Class B Units (when voting on the election of directors).
•Approximately 33.49% of the Class A Units, Class B Units, and Class C Units (when voting on those matters that Class A, Class B and Class C members vote as a single class).
Because there will be fewer of our existing units, which will be renamed as Class A Units, following the Reclassification, and because the Class B Units, Class C Units, and Class D Units will have limited voting rights, the directors who will be Class A unit holders will own a larger percentage of the voting interest in the Company than they currently have. This percentage is larger and their voting power is greatest when voting on those matters that only Class A unit holders vote upon since we expect that most of our directors and executive officers will receive Class A Units in the Reclassification. This is a potential conflict of interest because our directors approved the Proposed Operating Agreement and Reclassification and recommend that you approve such proposals. Despite the potential conflict of interest, the Board believes the Reclassification is fair to unaffiliated members who will receive Class B Units, unaffiliated members who will receive Class C Units, and unaffiliated members who will receive Class D Units.
The term “affiliated members” means any member who is a director or executive officer of the Company and the term “unaffiliated member” means any member other than an affiliated member.
None of our directors or executive officers who beneficially own units have indicated an intention to sell units between the public announcement of the transaction and the effective date. In addition, none have indicated an intention to divide units among different record holders so that fewer than 20 units are held in order to receive Class B Units, Class C Units or Class D Units, rather than Class A Units.
Q: How is the Company financing the Reclassification?
A: We estimate that the Reclassification will cost approximately $105,000, consisting of professional fees and other expenses related to the Reclassification. Please see "Fees and Expenses; Financing of the Reclassification" under the heading "SPECIAL FACTORS RELATED TO THE RECLASSIFICATION" for a breakdown of the expenses of the Reclassification. We intend to pay these expenses using working capital. The Board has attempted to balance the interests of reducing our expenses in transitioning to a non-SEC reporting company, while at the same time, affording all unit holders the opportunity to retain an equity ownership interest in the Company.
FINANCIAL INFORMATION
Pro Forma Information
Due to the fact that the Reclassification is expected to save the Company approximately $225,000 annually, an amount which the Company believes is not material, no pro forma financial information showing the effect of the Reclassification on the Company's financial statements has been prepared. The Company determined that the approximately $225,000 in anticipated cost savings represented approximately 0.10% of the Company's total assets at September 30, 2023 (the Company's most recent fiscal year) and approximately 0.09% of the Company's total assets at March 31, 2024 (the Company's most recent interim period). The anticipated cost savings represented approximately 0.13% of the Company's total members' equity at September 30, 2023 (the Company's most recent fiscal year) and approximately 0.14% of the Company's total members' equity at March 31, 2024 (the Company's most recent interim period).
Members are encouraged to read the Company’s audited balance sheets as of September 30, 2023 and 2022, and the related statements of operations, changes in members’ equity, and cash flows for each of the years in the two-year period ended September 30, 2023, all of which are incorporated herein by reference to such financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2023 filed with the SEC on November 30, 2023 and exhibited hereto as Exhibit 99.4. Members should also read the unaudited balance sheets as of March 31, 2024, and the related statement of operations and statement of cash flows for the fiscal quarter ended March 31, 2024, which are incorporated herein by reference to such unaudited financial statements included in the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2024, filed with the SEC on May 13, 2024, and exhibited hereto as Exhibit 99.5.
SPECIAL FACTORS RELATED TO THE RECLASSIFICATION
Overview
This proxy statement is furnished in connection with the solicitation of proxies by the Board at the 2024 Special Meeting at which our members will be asked to consider and vote upon amending our Current Operating Agreement as set forth in the Proposed Operating Agreement. If approved, the Proposed Operating Agreement will, among other things, result in a reclassification of our units into a total of four separate and distinct classes. We intend, immediately following the Reclassification, to terminate the registration of our units with the SEC and suspend further reporting under the Exchange Act.
As of [Record Date], we had 14,606 total units issued and outstanding held by approximately 1,033 total unit holders of record. Of those, approximately 163 hold 20 or more units each, approximately 348 hold at least 5 units but no more than 19 of our existing units each, approximately 325 hold exactly 4 of our existing units each, and approximately 197 hold 3 or fewer of our existing units each. If our members approve the Reclassification at the 2024 Special Meeting and the Board implements it, the Reclassification will generally affect our members as follows:
| | | | | |
| POSITION BEFORE THE RECLASSIFICATION | EFFECT OF THE RECLASSIFICATION |
Record holders of 20 or more units | Unit holders will continue to hold the same number of units held before the Reclassification but units will be renamed Class A Units. |
Record holders of at least 5 but no more than 19 units | Unit holders will hold the same number of units held before the Reclassification but such units will be reclassified as Class B Units. |
| Record holders of exactly 4 units | Unit holders will hold the same number of units held before the Reclassification but such units will be reclassified as Class C Units. |
| Record holders of 3 or fewer units | Unit holders will hold the same number of units held before the Reclassification but such units will be reclassified as Class D Units. |
| Unit holders holding units in "street name" through a nominee (such as a broker or custodian) | The Reclassification will be effected at the unit holder level. If your units are held through a nominee, please refer to “Units Held in a Brokerage or Custodial Account” below. |
Background
As an SEC reporting company, we must prepare and file with the SEC, among other items: annual reports on Form 10-K; quarterly reports on Form 10-Q; current reports on Form 8-K; and proxy statements on Form 14A. Our management and several of our employees spend considerable time and resources preparing and filing these reports, and we believe that we could beneficially use such time and resources for directly operating our business. Also, as a reporting company, we must disclose information to the public that may be helpful to our actual or potential competitors in challenging our business operations and taking market share, employees and customers away from us. In addition, the costs of reporting obligations comprise a significant overhead expense. These costs include accounting and auditor fees, legal fees, and costs of XBRL reporting compliance. Our registration and reporting-related costs have increased and continue to increase due to the requirements of SOX and more stringent regulations. For example, Section 404 of
SOX requires us to include our management’s report on, and assessment of, the effectiveness of our internal controls over financial reporting in our annual reports on Form 10-K.
We estimate that our costs and expenses in connection with SEC reporting for fiscal year 2023 were approximately $225,000. Becoming a non-SEC reporting company will allow us to avoid these costs and expenses going forward. In addition, once our SEC reporting obligations are suspended, we will not be directly subject to the provisions of SOX that apply to reporting companies or the liability provisions of the Exchange Act. Further, our officers will not be required to certify the accuracy of our financial statements under SEC rules.
There can be many advantages to being a public company. Those factors may include a higher value for our units, a more active trading market and the enhanced ability to raise capital or make acquisitions. However, to avoid being taxed as a corporation under the publicly-traded partnership rules, our units cannot be traded on an established securities market or be readily tradable in a secondary market, which means there is a limited market for our units, regardless of whether we are a public company. Based on the limited number of units available and the trading restrictions we must observe, we believe it is highly unlikely that our units would ever achieve an active and liquid market comprised of many buyers and sellers. In addition, because of our limited trading market and our status as a limited liability company, we are unlikely to be positioned to use our public company status to raise capital through sales of additional securities in a public offering or to acquire other business entities using our units as consideration. Therefore, we have not been able to effectively take advantage of the benefits of being a public company.
The Board considered and approved the various aspects of the reclassification and deregistration process over the course of several board meetings. The Board considered the reclassification and deregistration process and decided that the benefits of being an SEC reporting company are substantially outweighed by the burden on management, the expense related to the SEC reporting obligations and the burden on the Company’s ability to explore long-term strategies while being a public reporting company. The Board concluded that becoming a non-SEC reporting company would allow us to avoid these costs and expenses.
At these meetings, the Board also considered the requirements and alternatives for a going private transaction, including a reverse unit split, self-tender offer whereby members owning less than a certain number of units would be “cashed out,” and a reclassification of our units to reduce our number of record holders to below 300. Because our cash resources are limited, and we believe many of our members feel strongly about retaining their equity interest in the Company, the Board found the prospect of effecting a going private transaction by reclassifying some of our units an attractive option.
The Board discussed that each class would have different voting rights. Additionally, the Board discussed the business considerations for engaging in a going private transaction, highlighting the advantages and disadvantages and issues raised in a going private transaction, as discussed below.
The Board also discussed the process and mechanism for going private at the meeting. The Board discussed the possibility of forming an independent special committee to evaluate the Reclassification. However, because our directors would be treated the same as the other members and no consideration was given to the unit ownership of the board members in determining the unit cutoff number, the Board concluded that a special committee for the Reclassification was not needed. The Board also discussed requiring approval of the transaction by a majority of unaffiliated members and considered the fact that the interests of the members receiving Class B Units, Class C Units or Class D Units are different from the interests of the members continuing to own existing units (which will be renamed as Class A Units) and may create actual or potential conflicts of interest in connection with the Reclassification. However, because affiliated and unaffiliated members would be treated identically in terms of the approval process of the Reclassification, the Board believed a special vote was not necessary.
In particular, the Board considered and took the following actions:
•The Board considered the pros and cons of proceeding with suspension of the Company's SEC reporting obligations and discussed the process to deregister and alternative methods that could be utilized to achieve deregistration.
•The Board considered possible thresholds, the number of classes and rights assigned to each class as part of a reclassification, and the timeline to accomplish the suspension. The Board agreed that it is in the best interest of the Company to move forward with the going private transaction.
•The Board considered a draft of the Proposed Operating Agreement and rights to be assigned to each class as part of the Reclassification and discussed alternatives.
•The Board considered and approved the draft preliminary proxy statement for the 2024 Special Meeting and the Proposed Operating Agreement and voted to recommend that the members approve and adopt the Proposed Operating Agreement and the Reclassification. These approvals and recommendations to the members were based upon the factors discussed above.
Reasons for the Reclassification
We are undertaking the Reclassification to end our SEC reporting obligations, which will save us and our unit holders the burden and costs of being a reporting company. The specific factors the Board considered in electing to undertake the Reclassification and suspend our reporting obligations are as follows. In view of the wide variety of factors considered in evaluating the Reclassification, the Board did not find it practicable to, and did not, quantify or otherwise attempt to assign relative weights to the specific factors considered in reaching its determination.
•As a small company whose units are not listed on any exchange or traded on any quotation system, we have struggled to justify the costs of being a public company, while not enjoying many benefits. We estimate that by suspending our reporting obligations, we will be able to reallocate resources and eliminate anticipated costs of approximately $225,000 annually starting in our fiscal year ending September 30, 2025. These estimated annual expenses include reduced accounting and audit expenses ($90,000), reduced legal fees ($65,000), XBRL reporting compliance ($10,000), SOX compliance and internal control testing ($35,000) and other miscellaneous expenses ($25,000). These amounts represent estimated savings after considering the accounting and auditing expenses and legal expenses expected to continue after the going private transaction. For example, we will continue to incur some accounting and auditing expenses to maintain our books and records in accordance with GAAP and make available annual and quarterly reports to our members.
•We expect to continue to make available to our members the Company's financial information annually and quarterly, but these reports will not be required to comply with many of the information requirements applicable to SEC periodic reports and will not generally include that information. Therefore, we anticipate that the costs of these reports will be substantially less than the costs we currently incur and would otherwise incur in the future in connection with our periodic filings with the SEC.
•Our members receive limited benefit from being an SEC reporting company because of our small size and limited trading of our units. In the Board’s judgment, little or no justification exists for the continuing direct and indirect costs of SEC reporting, especially since our compliance costs have increased due to heightened government oversight and there is a low trading volume in our units;
•We expect that any need to raise capital or enter into other financing or business consolidation arrangements will likely not involve raising capital in the public market. If we need to raise additional capital, we believe that there are comparable sources of additional capital available through borrowing, private sales of equity or debt securities, or alternative business consolidation transactions. Additionally, our ability to explore, secure and structure such transactions may be more successful without the requirement of public reporting such negotiations and transactions. However, we recognize that we may not be able to raise additional capital or finalize a transaction with a third party when required, or that the cost of additional capital or the results of any such transactions will be attractive.
•To avoid being taxed as a corporation under the publicly-traded partnership rules under the Internal Revenue Code, our units are not listed on an exchange. Although trading of our units is facilitated through a qualified matching service, we do not enjoy sufficient market liquidity to enable our members to trade their units easily. In addition, our units are subject to transferability restrictions, requiring the consent of the Board. We also do not have sufficient liquidity in our units to use it as potential currency in an acquisition. As a result, we do not believe that registration of our units under the Exchange Act has benefited our members in proportion to the costs we have incurred and expect to incur.
•As a reporting company, we must disclose detailed information to the public which may be helpful to our direct and indirect competitors in challenging our business operations. Some of this information includes disclosure of material agreements affecting our business, the development of new technology, product research and development, known market trends and contingencies that may impact our operating results. Competitors can use that information to take market share, employees, and customers away from us. Suspending our reporting obligation will help to protect sensitive information from disclosure.
•We expect that suspending our reporting obligations will reduce the burden on our management and employees from the increasingly stringent SEC reporting requirements and allow them to focus more of their attention on our business objectives.
•We expect that suspending our reporting obligations will increase management’s flexibility to consider and initiate actions such as a merger or sale of the Company without being required to file a preliminary proxy statement with the SEC and otherwise comply with Regulation 14A of the Exchange Act.
•The Reclassification would allow our members, regardless of which class of units is received in the Reclassification, to retain an equity interest in the Company and to continue to share in our profits and losses and distributions.
We considered that some of our members may prefer to continue as members of an SEC reporting company, which is a factor weighing against the Reclassification. The Board also considered the following potential negative consequences of the Reclassification to our members, and in particular to our members who will receive Class B Units, Class C Units and Class D Units:
•Our members will lose the benefits of registered securities, such as access to information about the Company required to be disclosed in periodic reports to the SEC.
•Our members will lose certain statutory safeguards since we will no longer be subject to SOX requirements that require our CEO and CFO to certify as to the Company’s (i) financial statements, (ii) internal controls over financial reporting and (iii) as to the accuracy of our reports filed with the SEC.
•The value and liquidity of our units may be reduced as a result of the Company no longer being a public company and because of the differing terms among the reclassified units.
•We have incurred and will incur costs, in terms of time and dollars, in connection with going private.
•Going private may reduce the attractiveness of unit-based incentive plans in the future, which are often used to attract and retain executives and other key employees.
•Our directors and executive officers may have potential liability due to the “interested” nature of the transaction.
•Due to the restrictions involved in the private sale of securities, we may have increased difficulty in raising equity capital in the future, potentially limiting our ability to expand.
However, we believe that the disadvantages of remaining a public company subject to the registration and reporting requirements of the SEC outweigh the advantages, as described above.
We also considered various alternatives to accomplish the proposed transaction, including a tender offer, a unit repurchase on the open market or a reverse unit split whereby unit holders owning less than a certain number of units would be “cashed out.” Ultimately, we elected to proceed with the Reclassification because these alternatives could be more costly, might not have effectively reduced the number of members below 300, and would not allow all members to retain an equity interest in the Company. We have not received any proposal from third parties for any business combination transactions, such as a merger, consolidation or sale of all or substantially all of our assets. The Board did not seek any such proposal in connection with the Reclassification because these types of transactions are inconsistent with the narrower purpose of the proposed transaction, which is to discontinue our SEC reporting obligations.
Other than the cost savings and other benefits associated with becoming a non-SEC reporting company, we do not have any other purpose for engaging in the Reclassification at this particular time.
Fairness of the Reclassification
Based on a careful review of the facts and circumstances relating to the Reclassification, the Board has concluded that the Proposed Operating Agreement and the going private transaction, including the terms of the Reclassification, are substantively and procedurally fair to all of our members, including unaffiliated members which will be affected by the Reclassification and those that will not be affected by the Reclassification. The Board approved the Reclassification and recommends that our members vote FOR the adoption of the Proposed Operating Agreement (Proposal 1) and FOR the Reclassification (Proposal 2).
In its consideration of both the procedural and substantive fairness of the transaction, the Board considered the potential effect of the transaction as it relates to all unaffiliated members generally, including the impacts to liquidity of all classes of the units, to members receiving Class B Units, Class C Units or Class D Units and to members continuing to own existing units (which will be renamed as Class A Units).
Substantive Fairness
The factors that the Board considered positive for our unaffiliated members, including both those that will have their units renamed as Class A Units as well as those who will have their units reclassified as Class B Units, Class C Units or Class D Units, include the following:
•Our unaffiliated members will continue to have an equity interest in the Company and participate equally in future profit and loss allocations and distributions on a per unit basis.
•Our affiliated members will be treated in the same manner in the Reclassification as our unaffiliated members and will be reclassified according to the same standards.
•Our unaffiliated members are not being “cashed out” in connection with the Reclassification, and all of our units will continue to have the same material economic rights and preferences.
•Our unaffiliated members who prefer to become Class A unit holders had notice that they had until [Deadline to Transfer] to acquire sufficient units to hold 20 or more units in their own names before the Reclassification. The limited market for our units may have made acquiring units difficult, and there may have been acquisition costs beyond the purchase price of such units. However, we believe that acquiring additional units is an option available to our unaffiliated members, and our unaffiliated members were able to weigh the costs and benefits of acquiring additional units. We have restricted transfers after [Deadline to Transfer] through the date of the 2024 Special Meeting to allow the Company to determine definitively the number of Class A, Class B, Class C and Class D members that would result from the Reclassification.
•Beneficial owners who hold their units in “street name,” who would receive Class A Units, Class B Units, Class C Units or Class D Units if they were record owners instead of beneficial owners, and who wish to receive Class A Units, Class B Units, Class C Units or Class D Units as if they were record owners instead of beneficial owners, had notice that they had until [Deadline to Transfer] to consolidate their units so that they would be in a position to receive such Class A Units, Class B Units, Class C Units or Class D Units.
•Our unaffiliated members receive little benefit from the Company being an SEC reporting company because of our small size, the lack of analyst coverage and the limited trading of our units, especially when compared to the associated costs and burdens of reporting.
•Our unaffiliated members will realize the potential benefits of termination of registration of our units, including reduced expenses as a result of no longer being required to comply with the SEC reporting requirements which may increase the value of their units.
•We do not expect that the Reclassification will result in a taxable event for any of our unaffiliated members.
•No brokerage or transaction costs are expected to be incurred by our members in connection with the Reclassification.
The Board is aware of, and has considered, the impact of certain potentially countervailing factors on the substantive fairness of the Reclassification to our unaffiliated members receiving Class B Units, Class C Units or Class D Units. In particular, the factors that the Board considered as potentially negative for those members receiving Class B Units, Class C Units or Class D Units included:
•The Class B unit holders will have only those limited voting rights which are specifically set forth in the Proposed Operating Agreement. Those voting rights do not include the right to vote on most amendments to the Proposed Operating Agreement except those that would modify the limited liability or alter the economic interests of Class B unit holders.
•The Class C unit holders will have only those limited voting rights which are specifically set forth in the Proposed Operating Agreement. Those voting rights do not include the right to vote on elected directors or the right to vote on most amendments to the Proposed Operating Agreement except those that would modify the limited liability or alter the economic interests of Class C unit holders.
•The Class D unit holders will have only those limited voting rights which are specifically set forth in the Proposed Operating Agreement. Those voting rights do not include the right to vote on elected directors, the right to vote on fundamental transactions or actions by the Board specifically requiring the consent of members, or the right to vote on most amendments to the Proposed Operating Agreement except those that would modify the limited liability or alter the economic interests of Class D unit holders.
•The value of Class B Units, Class C Units or Class D Units may be less due to the restrictive voting rights of those classes. As a result, our affiliated members, most of whom will hold Class A Units, may receive more valuable units than those unaffiliated holders who receive Class B Units, Class C Units or Class D Units.
The factors that the Board considered as potentially negative for the unaffiliated members who are continuing to hold our units (which will be renamed as Class A Units) included:
•The liquidity of unaffiliated Class A Units will likely be reduced following the Reclassification because of the reduction in the number of outstanding Class A Units.
The factors that the Board considered as potentially negative for all of our unaffiliated members, regardless of class, included:
•They may be required to surrender their units in exchange for Class B Units, Class C Units or Class D Units.
•Following the Reclassification, they will have restrictions on their ability to transfer their units because our units will be tradable only in private transactions and there will be no public market for our units.
•They will have reduced access to our financial information once we are no longer an SEC reporting company, although we do intend to continue to make available to all unit holders an annual report containing audited financial statements and quarterly reports containing unaudited financial statements.
•Once our SEC reporting obligations are suspended, we will not be directly subject to the provisions of SOX applicable to reporting companies or the liability provisions of Exchange Act. Further, our officers will not be required to certify the accuracy of our financial statements under the SEC rules.
•Unaffiliated members who do not believe that the Reclassification is fair to them do not have the right to dissent from the Reclassification. Unaffiliated unit holders also do not have appraisal rights due to the Reclassification under Indiana Law.
•For a period of time until the Reclassification is completed (or rejected by the members), transfers of our units will be prohibited. If the Reclassification is not approved by our members, transfers made in accordance with our Current Operating Agreement will be allowed to resume as soon as reasonably practicable after the 2024 Special Meeting.
The Board believes that these potentially countervailing factors did not, individually or in the aggregate, outweigh the overall substantive fairness of the Reclassification to our unaffiliated members and that the foregoing factors are outweighed by the positive factors previously described.
Procedural Fairness
We believe the Reclassification is procedurally fair to our unaffiliated members, including those that will continue to hold our units (which will be renamed as Class A Units), and those that will be reclassified as Class B Units, Class C Units or Class D Units. In concluding that the Reclassification is procedurally fair to our unaffiliated members, the Board considered several factors. The factors that the Board considered positive for our unaffiliated members included the following:
•The Reclassification is being effected in accordance with the applicable requirements of Indiana law.
•The Board discussed the possibility of forming an independent special committee to evaluate the Reclassification. However, because our directors would be treated the same as the other members and no consideration was given to the unit ownership of the board members in determining the unit cutoff number, the Board concluded that a special committee for the Reclassification was not needed, as the Board was able to adequately balance the competing interests of the unaffiliated members in accordance with their fiduciary duties.
•The Board retained and received advice from legal counsel in evaluating the terms of the Reclassification as provided in the Proposed Operating Agreement including the balancing of the rights of unaffiliated and affiliated Class A members, Class B members, Class C members and Class D members.
•The Board considered alternative methods of effecting a transaction that would result in our becoming a non-SEC reporting company, including (i) a reverse unit split and repurchase by the Company of any fractional units, and (ii) a self-tender offer in which the Company would conduct an offer to repurchase units from its members. Each of these alternatives was determined to be impractical, more expensive than the Reclassification, involving a cash-out of members, or potentially ineffective in achieving the goals of allowing members to retain an equity ownership in the Company while at the same time eliminating the costs and burdens of being a public reporting company.
•Unaffiliated members were given notice that they had until [Deadline to Transfer] to acquire or sell sufficient units to determine whether such members will own Class A Units, Class B Units, Class C Units or Class D Units after the Reclassification.
•Approval of the Proposed Operating Agreement (Proposal 1) requires affirmative votes from members holding a majority of the total outstanding units entitled to vote. Approval of the Reclassification (Proposal 2) requires affirmative votes from members holding a majority of the units represented at the 2024 Special Meeting where a quorum is present. Both proposals must be approved or the Board will not implement the Reclassification.
The Board considered each of the foregoing factors to weigh in favor of the procedural fairness of the Reclassification to all of our unaffiliated members.
The Board is aware of, and has considered, the impact of certain potentially countervailing factors on the procedural fairness of the Reclassification which affect both our smaller unaffiliated members whose units will be reclassified as Class B Units, Class C Units or Class D Units as well as those members whose units will be renamed as Class A Units:
•Although the interests of holders receiving Class B Units, Class C Units or Class D Units are different from the interests of holders owning Class A Units and may create conflicts of interest, neither the Board nor any of the directors retained an independent, unaffiliated representative to act solely on behalf of the unaffiliated members receiving Class B Units, Class C Units or Class D Units to negotiate the terms of the Reclassification or prepare a report concerning the fairness of the
Reclassification. However, our directors and other affiliated members will be treated the same as the unaffiliated members in the proposed transaction.
•The transaction is not structured to require approval of at least a majority of unaffiliated members.
•We did not solicit any outside expressions of interest in acquiring the Company.
•We did not receive a report, opinion, or appraisal from an outside party as to the value of our units, the fairness of the transaction to those members receiving Class B Units, Class C Units or Class D Units or the fairness of the transaction to the Company.
The Board believes that these potentially countervailing factors did not, individually or in the aggregate, outweigh the overall procedural fairness of the Reclassification to our unaffiliated members and that the foregoing factors are outweighed by the procedural safeguards previously described.
We have not made any provision in connection with the Reclassification to grant our unaffiliated members access to our records beyond that granted generally under our Current Operating Agreement and Indiana law, or to obtain counsel or appraisal services at our expense. With respect to our unaffiliated members’ access to our records, the Board determined that this proxy statement, together with our other SEC filings and information they may obtain under our Current Operating Agreement, provide adequate information for our unaffiliated members. Under our Current Operating Agreement, subject to compliance with our safety, security and confidentiality procedures and guidelines, our members generally have rights to review lists of our members and directors, copies of our Articles of Organization, Operating Agreement, tax returns for the six most recent taxable years, and financial statements for the six most recent fiscal years. Any member shall have reasonable access during normal business hours to such information and documents. With respect to obtaining counsel or appraisal services at our expense, the Board did not consider these actions necessary or customary. In deciding not to adopt these additional procedures, the Board also took into account factors such as the Company's size and the cost of such procedures.
Factors Not Considered Material
In reaching its conclusion that the Reclassification is fair to our unaffiliated members, whether they will be continuing to hold our existing units renamed as Class A Units or will be receiving Class B Units, Class C Units or Class D Units, the Board did not consider the following factors to be material:
•The current or historical market price of our units because our units are not traded on a public market, and instead are traded in privately negotiated transactions in which the market price may or may not be determinate. Except as described above with respect to the possible lower value of Class B Units, Class C Units or Class D Units due to relatively restricted voting rights, any effect that the Reclassification has on the market price will be the same for our unaffiliated members and affiliated members.
•Our going concern value because the going concern value will be determined by the market at the time of a sale, merger or other business combination. We expect that the Reclassification will have an insignificant effect on the Company’s value on a going forward basis (a $225,000 per year savings) and will not be determinate of the going concern value.
•Our net book value because the Reclassification and subsequent deregistration will have an insignificant effect on the net book value of our units.
•The liquidation value of our assets because the Company believes the Reclassification will not have a material effect on the liquidation value of our assets or units. Under the Proposed Operating Agreement, the rights of our members who continue to hold existing units (which will be renamed as Class A Units) will not change, and all of our members will be afforded the right to continue to share equally in the liquidation of the Company’s assets and in any residual funds allocated to our members.
Additionally, the Board believes that several of the above factors are immaterial because our members are not being “cashed out” in connection with the Reclassification, and our units will have the same material economic rights and preferences. As a result, our smaller members will continue to hold an equity interest in the Company as Class B, Class C or Class D members and will therefore participate equally, and on the same basis that they would participate in our profits and losses and the receipt of distributions. Moreover, unaffiliated unit holders will be treated the same as affiliated unit holders. Accordingly, we did not request or receive any reports, opinions or appraisals from any outside party relating to the Reclassification or the monetary value of the Class A Units, Class B Units, Class C Units or Class D Units.
The Board subjectively considered the relative disadvantages of the newly-created classes, including limits on voting and decision-making in the case of the Class B Units, Class C Units or Class D Units. In addition, the Board evaluated the benefits shared by all classes of units, such as the ability to benefit from the cost savings associated with the Reclassification and the opportunity to share in our future growth and earnings.
Board Recommendation
As a result of the analysis described above, the Board has concluded that the Reclassification is substantively and procedurally fair to all members, including our unaffiliated members continuing to hold our units (renamed as Class A Units), or receiving Class B Units, Class C Units or Class D Units. In reaching this determination, we have not assigned specific weight to particular factors, and we considered all factors as a whole. None of the factors considered led us to believe that the Reclassification is unfair to any of our members.
The Board approved the Reclassification and recommends that our members vote FOR the adoption of the Proposed Operating Agreement (Proposal 1) and FOR the Reclassification (Proposal 2).
One director, David Dersch, Jr., has indicated that, while he not oppose the adoption of the Proposed Operating Agreement and Reclassification, he does not agree that 20 or more units is the appropriate threshold to determine if a unit holder's units will be renamed as Class A Units and would recommend a lower threshold. The remaining directors are in full support of the Reclassification and the Proposed Operating Agreement.
Purpose and Structure of the Reclassification
The primary purposes of the Reclassification are to:
•Consolidate ownership of our registered units to less than 300 members of record, which will suspend our SEC reporting requirements and thereby achieve significant cost savings. We estimate that we will be able to reallocate resources, eliminate costs and avoid anticipated future costs of approximately $225,000 annually by eliminating the requirement to prepare and file periodic reports and reducing the expenses of members communications. We will also realize cost savings by avoiding the need to add additional staff and from reduced staff and management time spent on reporting and securities law compliance matters.
•Help protect sensitive business information from disclosure that might benefit our competitors.
•Allow our management and employees to refocus time spent on SEC reporting obligations and members administrative duties to our core business.
The structure of the Reclassification will give all of our members the opportunity to retain an equity interest in the Company and, therefore, to participate in any future growth and earnings of the Company. Because we are not cashing out any of our members, this structure minimizes the costs of becoming a non-SEC reporting company while achieving the goals outlined in this proxy statement.
The Board elected to structure the transaction to take effect at the members level, meaning that we use the number of units registered in the name of each holder to determine how that holder’s units will be reclassified. The Board chose this structure in part because it determined that this method would provide us with the best understanding at the effective time of the Reclassification of how many members would receive each class of units. In addition, on [Date of Letter to Members], the Company notified members that they had until [Deadline to Transfer] to make transfers of units before the Reclassification. The purpose of this letter was to allow members the opportunity to make transfers before the Reclassification so that they could own the requisite number of units to be in their desired class, which the Board felt would enhance the substantive fairness of the transaction to all members. Overall, the Board determined that the structure would be the most efficient and cost-effective way to achieve its goals of deregistration, notwithstanding any uncertainty that may have been created by giving members the flexibility to transfer their holdings through [Deadline to Transfer]. We have restricted transfers after [Deadline to Transfer] through the date of the 2024 Special Meeting to allow the Company to determine definitively the number of Class A, Class B, Class C and Class D members that would result from the Reclassification.
Effects of the Reclassification on the Company
The Board expects the Reclassification will have various positive and negative effects on the Company as described below.
Effect of the Proposed Transaction on Our Outstanding Units
As of [Record Date], we had 14,606 total units issued and outstanding held by approximately 1,033 total holders of record. The Proposed Operating Agreement will authorize the issuance of four separate and distinct classes of units, Class A Units, Class B Units, Class C Units or Class D Units. Based upon our best estimates, if the Reclassification had been consummated as of the Record Date, The units currently registered under the Exchange Act (some of which will be renamed as Class A Units and some of which will be reclassified as Class B Units, Class C Units, and Class D Units) will be reduced from 14,606 units to 9,944 Class A Units, and the number of unit holders of the currently-registered units will decrease from 1,033 unit holders to approximately 163 Class A unit holders. Additionally, 3,019 units would be reclassified as Class B Units, held by approximately 348 Class B unit holders, 1,300 units would be reclassified as Class C Units, held by approximately 325 Class C unit holders, and 343 units would be reclassified as Class D
Units, held by approximately 197 Class D unit holders. We have no other current plans, arrangements or understandings to issue any units as of the date of this proxy statement.
Suspension of Exchange Act Registration and Reporting Requirements
Upon the completion of the Reclassification, we expect that our current outstanding units (which will be renamed as Class A Units) will be held by fewer than 300 record members, and each class of our newly-created Class B Units, Class C Units or Class D Units will each be held by fewer than 500 members. Accordingly, our obligation to continue to file periodic reports with the SEC will be suspended under Rule 12h-3 of the Exchange Act.
The suspension of the filing requirements will substantially reduce the information that we are required to furnish to our members and the SEC. Therefore, we anticipate that we will eliminate costs of these filing requirements of approximately $225,000 annually, as follows:
| | | | | |
| Reduction in Accounting and Auditing Expenses | $ | 90,000 | |
| Legal Expenses | 65,000 | |
| XBRL Reporting Compliance | 10,000 | |
| SOX compliance / internal control testing | 35,000 | |
| Miscellaneous, including software, mailing and printing | 25,000 | |
| Total | $ | 225,000 | |
We will apply for suspension of the registration of our units and suspension of our SEC reporting obligations as soon as practicable following completion of the Reclassification.
Potential Registration of the Units
After the Reclassification, we anticipate that there will be approximately 163 Class A unit holders, 348 Class B unit holders, 325 Class C unit holders and 197 Class D unit holders. We are currently subject to the reporting obligations under the Exchange Act because we have more than 300 unit holders of record of our units. If the unit holders approve the Reclassification, our currently-registered units will be renamed as Class A Units and will be held by less than 300 unit holders of record. We may then suspend the registration of those units and the obligation to file periodic reports. However, the Company could again be required to file periodic reports with the SEC if the number of record holders of Class A Units exceeds 300 as of the last day of any fiscal year. In addition, if the number of record holders of Class B Units, Class C Units or Class D Units ever exceeds 500 as of the last day of any fiscal year, that class of units would then be subject to registration under Section 12 of the Exchange Act and this would subject the Company once again to all the reporting, proxy solicitation, and other provisions of the Exchange Act applicable to companies with SEC-registered securities.
Effect on Trading of Units
Our units are not traded on an exchange and are not otherwise actively traded, although we have established a Unit Trading Bulletin Board with a private online matching service, in order to facilitate trading among our members. Please refer to "MARKET PRICE OF UNITS AND DISTRIBUTION INFORMATION."
Financial Effects of the Reclassification
We expect that the professional fees and other expenses related to the Reclassification of approximately $105,000 will not have any material adverse effect on our liquidity, results of operations or cash flow.
Effect on Conduct of Business after the Transaction
We expect our business and operations to continue as they are currently being conducted and, except as otherwise discussed in the proxy statement with regard to diverting resources that would otherwise be used for SEC reporting obligations, the transaction is not anticipated to affect the conduct of our business.
Effect on Our Directors and Executive Officers
It is not anticipated that the Reclassification will affect our directors and executive officers, other than with respect to their relative unit ownership and voting power and as described below with respect to affiliated members. The annual compensation paid by us to our directors and executive officers will not increase as a result of the Reclassification, nor will the Reclassification result in any material alterations to existing employment agreements with our officers.
Plans or Proposals
Other than as described with respect to the Reclassification, neither we nor our management have any current plans or proposals to effect any extraordinary corporate transaction, such as a merger, reorganization or liquidation, to sell or transfer any material amount of our assets, to change the Board or management, to change materially our indebtedness or capitalization or otherwise to effect any material change in our corporate structure or business, except that our Chief and Executive Officer, Jeffrey Painter, has announced his plan to retire before the end of the calendar year for personal reasons. As stated throughout this proxy statement, we believe there are significant advantages in effecting the Reclassification and becoming a non-reporting company. Although our management does not presently have any intention to enter into any transaction described above, management continues to consider all opportunities to increase liquidity, including through additional debt or equity financing and joint ventures or other arrangements with strategic business partners.
Effects of the Reclassification on Unit Holders of the Company
Effects of the Reclassification on Class A Members
The Reclassification will have both beneficial and detrimental effects on the Class A members. These changes will affect affiliated and unaffiliated members in the same way. The Board considered each of the following effects in determining to approve the Reclassification.
| | | | | |
| Benefits | Detriments |
Due to the Reclassification, Class A members will: •Realize the potential benefits of termination of registration of our units, including reduced expenses from no longer being required to comply with reporting requirements under the Exchange Act. •Retain the right to vote on all matters brought before the members of the Company, except as otherwise provided by the Proposed Operating Agreement or Indiana law. •Realize enhanced voting control over the Company in comparison to other classes of units. | Due to the Reclassification, Class A members will: •Lose the benefits of holding registered securities such as access to information concerning the Company required to be contained in the Company’s periodic reports and the requirement that our officers certify the accuracy of our financial statements. •Hold restricted securities which will require an appropriate exemption from registration to be eligible for transfer. •Bear the risk of a possible decrease in the market value and liquidity of the units due to the reduction in public information concerning the Company. |
Effects of the Reclassification on Class B Members
The Reclassification will have both beneficial and detrimental effects on the Class B members. All of these changes will affect affiliated and unaffiliated members in the same way. The Board considered each of the following effects in determining to approve the Reclassification. The Board understands that the Reclassification will restrict the voting rights of the Class B Units, Class C Units and Class D Units without providing those unit holders with any additional compensation. However, the Board believes that the Class B Units, Class C Units or Class D Units may be indirectly compensated through the potential increase to the value of their units due to (i) the decreased expenses of the Company from deregistering with the SEC; (ii) the potential for our employees to focus on long-term, rather than short-term, goals which may expand our business; and (iii) our ability to use the information that we previously disclosed to our competitive advantage, rather than our competitors having access to this information.
| | | | | |
| Benefits | Detriments |
Due to the Reclassification, Class B members will: •Realize the potential benefits of termination of registration of our units, including reduced expenses from no longer being required to comply with reporting requirements under the Exchange Act. •Retain the right to vote: (i) for elected directors (voting with the Class A), (ii) on the dissolution of the Company, and (iii) on certain fundamental transactions or actions by the Board requiring the consent of members which include mergers and dispositions of all or substantially all of the Company's assets. •Continue to hold an equity interest in the Company, share in our distributions on the same basis as our Class A, Class C, and Class D members, and share in liquidation equal with Class A, Class C, and Class D members. | Due to the Reclassification, Class B members will: •Be required to have their units reclassified into Class B units, for which they will receive no additional consideration. •Give up certain voting rights including the right to vote on amendments to the Proposed Operating Agreement unless that amendment would modify the limited liability of Class B unit holders or alter the economic interests of the Class B unit holders. •Lose the benefits of holding registered securities such as access to information concerning the Company required to be contained in the Company’s periodic reports and the requirement that our officers certify the accuracy of our financial statements. •Hold restricted securities which will require an appropriate exemption from registration to be eligible for transfer. •Bear the risk of a possible decrease in the market value and liquidity of the units due to the reduction in public information concerning the Company. |
Effects of the Reclassification on Class C Members
The Reclassification will have both beneficial and detrimental effects on the Class C members. All of these changes will affect affiliated and unaffiliated Class C members in the same way. The Board considered each of the following effects in determining to approve the Reclassification. The directors understand the Reclassification will restrict the voting rights of the Class B Units, Class C Units and Class D Units without providing those unit holders with any additional compensation. However, the Board believes that the Class B Units, Class C Units and Class D Units may be indirectly compensated through the potential increase to the value of their units due to (i) the decreased expenses of the Company from deregistering with the SEC; (ii) the potential for our employees to focus on long-term, rather than short-term, goals which may expand our business; and (iii) our ability to use the information that we previously disclosed to our competitive advantage, rather than our competitors having access to this information.
| | | | | |
| Benefits | Detriments |
Due to the Reclassification, Class C members will: •Realize the potential benefits of termination of registration of our units, including reduced expenses from no longer being required to comply with reporting requirements under the Exchange Act. •Retain the right to vote: (i) on the dissolution of the Company, and (ii) on certain fundamental transactions or actions by the Board requiring the consent of members which include mergers and dispositions of all or substantially all of the Company's assets. •Continue to hold an equity interest in the Company, share in our distributions on the same basis as our Class A, Class B, and Class D members, and share in liquidation equal with Class A, Class B, and Class D members. | Due to the Reclassification, Class C members will: •Be required to have their units reclassified into Class C units, for which they will receive no additional consideration. •Give up certain voting rights including the right to vote: (i) for elected directors, and (ii) on amendments to the Proposed Operating Agreement unless that amendment would modify the limited liability of Class C unit holders or alter the economic interests of Class C unit holders. •Lose the benefits of holding registered securities such as access to information concerning the Company required to be contained in the Company’s periodic reports and the requirement that our officers certify the accuracy of our financial statements. •Hold restricted securities which will require an appropriate exemption from registration to be eligible for transfer. •Bear the possible risk of a decrease in the market value and liquidity of the units due to the reduction in public information concerning the Company. |
Effects of the Reclassification on Class D Members
The Reclassification will have both beneficial and detrimental effects on the Class D members. All of these changes will affect affiliated and unaffiliated Class D members in the same way. The Board considered each of the following effects in determining to approve the Reclassification. The Board understands the Reclassification will restrict the voting rights of the Class B, Class C and Class D Units without providing those unit holders with any additional compensation. However, the Board believes that the Class B Units, Class C Units and Class D Units may be indirectly compensated through the potential increase to the value of their units due to (i) the decreased expenses of the Company from deregistering with the SEC; (ii) the potential for our employees to focus on long-term,
rather than short-term, goals which may expand our business; and (iii) our ability to use the information that we previously disclosed to our competitive advantage, rather than our competitors having access to this information.
| | | | | |
| Benefits | Detriments |
Due to the Reclassification, Class D members will: •Realize the potential benefits of termination of registration of our Units, including reduced expenses from no longer being required to comply with reporting requirements under the Exchange Act. •Retain the right to vote on dissolution of the Company. •Continue to hold an equity interest in the Company, share in our distributions on the same basis as our Class A, Class B, and Class C members, and share in liquidation equal with Class A, Class B, and Class C members. | Due to the Reclassification, Class D members will: •Be required to have their units reclassified into Class D units, for which they will receive no additional consideration. •Give up certain voting rights including the right to vote: (i) for elected directors, (ii) on amendments to the Proposed Operating Agreement unless that amendment would modify the limited liability of Class D unit holders or alter the economic interests of Class D unit holders, and (iii) on any other matters including fundamental transactions or actions by the Board requiring the consent of members such as mergers and dispositions of all or substantially all of the Company's assets. •Lose the benefits of holding registered securities such as access to information concerning the Company required to be contained in the Company’s periodic reports and the requirement that our officers certify the accuracy of our financial statements. •Hold restricted securities which will require an appropriate exemption from registration to be eligible for transfer. •Bear the risk of a possible decrease in the market value and liquidity of the units due to the reduction in public information concerning the Company. |
Effects of the Reclassification on Affiliated Members
The Reclassification will have some additional effects on our directors and executive officers. As a result of the Reclassification:
•Our affiliated members will no longer be subject to Exchange Act reporting requirements and restrictions, and information about their compensation and unit ownership will not be publicly available; and
•Our affiliated members will lose the availability of the Rule 144 safe harbor for transfers. Because our units will not be registered under the Exchange Act after the Reclassification and we will no longer be required to furnish publicly available periodic reports, our directors and executive officers will lose the ability to dispose of their units under Rule 144 of the Securities Act of 1933, which provides a safe harbor for resales of securities by affiliates of an issuer.
Units Held in a Brokerage or Custodial Account
Members should understand how units that they hold in “street name” will be treated for purposes of the Reclassification. Members who have transferred their units into a brokerage or custodial account are no longer shown on our membership register as the record holder of these units. Instead, the brokerage firms or custodians typically hold all units that clients have deposited with it through a single nominee; this is what is meant by “street name.” If that single nominee is the holder of record of 20 or more units, then all units registered in that nominee’s name will be remain in the same class of units (though the class will be renamed Class A). If that single nominee is the holder of at least 5 but no more than 19 units, then all units registered in that nominee's name will be reclassified into Class B Units. If that single nominee is the holder of exactly 4 units, then all units registered in that nominee's name will be reclassified into Class C Units. If that single nominee is the holder of 3 or fewer units, then all units registered in that nominee's name will be reclassified into Class D Units. At the end of the Reclassification, the beneficial owners will continue to beneficially own the same number of units as before the transaction.
If you hold your units in “street name,” you should talk to your broker, nominee or agent to determine how they expect the Reclassification to affect you. Because other “street name” holders who hold through your broker, agent or nominee may have adjusted their holdings before the Reclassification, you may have no way of knowing how your units will be reclassified.
Interests of Certain Persons in the Reclassification
Our directors and executive officers who own units will participate in the Reclassification in the same manner as our other members. Most of our directors and executive officers own units. We expect that most of those directors and executive officers who own units will own Class A Units following the Reclassification due to the fact that most of our directors and executive officers who own units currently own 20 or more units. Because of the voting restrictions placed on Class B, Class C and Class D Units, these directors and executive officers may experience a larger relative percentage of voting power than they previously held. This represents a potential conflict of interest because our directors approved the Reclassification and are recommending that you approve it. Despite this
potential conflict of interest, the Board believes the Reclassification is fair to all of our members for the reasons discussed in this proxy statement.
Our directors and executive officers' relative voting rights were not a consideration in the Board’s decision to approve the Reclassification or in deciding its terms, including setting the unit thresholds. In addition, the Board determined that any potential conflict of interest created by the directors’ ownership of our Class A Units following the Reclassification is relatively insignificant. The percentage of beneficial ownership of and voting power held by directors and executive officers of the Company as a group is currently approximately 32.70% of the existing units. The percentage of beneficial ownership of and voting power held by directors and executive officers of the Company as a group is currently approximately 8.31% of the units eligible to vote in director elections because many of these units are held by unit holders who appoint a director. It is expected that the percentage of beneficial ownership of and voting power held by directors and executive officers as a group after the Reclassification will increase to approximately 47.59% of the Class A Units (which will be relevant when voting on those matters that only Class A members are entitled to vote), 36.84% of the Class A Units and Class B Units (which will be relevant when voting on most matters that Class A and Class B members vote as a single class), 9.82% of the Class A and Class B Units (when voting on the election of directors).and 33.49% of the Class A Units, Class B Units and Class C Units (which will be relevant when voting on those matters that Class A, Class B and Class C members vote as a single class).
The Board was aware of the actual or potential conflicts of interest discussed above and considered them along with the other matters that have been described in this proxy statement.
None of our directors or executive officers who beneficially own units have indicated an intention to sell units between the public announcement of the transaction and the effective date. In addition, none have indicated an intention to divide units among different record holders so that fewer than 20 units are held in order to receive Class B Units, Class C Units or Class D Units, rather than Class A Units.
Material Federal Income Tax Consequences of the Reclassification
The following is a summary of the anticipated material United States federal income tax consequences of the Reclassification. This discussion does not consider the particular facts or circumstances of any members. This discussion assumes that you hold, and will continue to hold, your units as a capital asset within the meaning of Section 1221 of the Internal Revenue Code of 1986, as amended, which we refer to as the “Code.” The federal income tax laws are complex and the tax consequences of the Reclassification may vary depending upon your individual circumstances or tax status. Accordingly, this description is not a complete description of all of the potential tax consequences of the Reclassification and, in particular, may not address United States federal income tax considerations that may affect the treatment of holders of units subject to special treatment under United States federal income tax law (including, for example, foreign persons, financial institutions, dealers in securities, traders in securities who elect to apply a mark-to-market method of accounting, insurance companies, tax-exempt entities, holders who acquired their Units pursuant to the exercise of an employee unit option or right or otherwise as compensation and holders who hold units as part of a “hedge,” “straddle” or “conversion transaction”).
This discussion is based upon the Code, regulations promulgated by the United States Treasury Department, court cases and administrative rulings, all as in effect as of the date hereof, and all of which are subject to change at any time, possibly with retroactive effect. No assurance can be given that, after any such change, this discussion would not be different. Furthermore, we have not and will not seek or obtain an opinion of counsel or ruling from the Internal Revenue Service (IRS) with respect to the tax consequences of the Reclassification, and the conclusions contained in this summary are not binding on the IRS. Accordingly, the IRS or ultimately the courts could disagree with the following discussion.
Federal Income Tax Consequences to the Company
We do not expect that the Reclassification will result in material federal income tax consequences to the Company or our members.
We expect that the Reclassification will likely be treated as a tax-free “recapitalization” for federal income tax purposes. As a result, we believe that the Reclassification will not have any material federal income tax consequences to the Company.
Federal Income Tax Consequences to Members
We expect that those members continuing to hold our existing units (which will be renamed Class A Units) should not recognize any gain or loss in connection with the Reclassification. Furthermore, those members receiving Class B Units, Class C Units, or Class D Units should not recognize any gain or loss in connection with the Reclassification. The adjusted tax basis in the Class B Units, Class C Units, and Class D Units held immediately after the Reclassification will likely equal their adjusted tax basis in the units held immediately before the Reclassification as long as your share of Company liabilities does not change, which is not expected. We also anticipate that the holding period for the Class B Units, Class C Units, or Class D Units will include the holding period during which the original units were held. Furthermore, we expect that the Reclassification will have no effect on your ability to use otherwise suspended passive activity losses or net operating loss carry forwards.
The above discussion of anticipated material United States federal income tax consequences of the Reclassification is based upon present law, which is subject to change possibly with retroactive effect. You should consult your tax advisor as to the particular federal, state, local, foreign and other tax consequences of the Reclassification, in light of your specific circumstances.
Appraisal and Dissenters’ Rights
Under Indiana law, you do not have appraisal rights in connection with the Reclassification. Moreover, under our Current Operating Agreement, you have waived any dissenter's rights that may have otherwise been available. Other rights or actions under Indiana law or federal or state securities laws may exist for members who can demonstrate that they have been damaged by the Reclassification. Although the nature and extent of these rights or actions are uncertain and may vary depending upon facts or circumstances, members challenges to actions of the Company in general are related to the fiduciary responsibilities of limited liability company directors and executive officers and to the fairness of limited liability company transactions.
Regulatory Requirements
In connection with the Reclassification, we will be required to make several filings with, and obtain several approvals from, various federal and state governmental agencies, including complying with federal and state securities laws, which includes filing this proxy statement on Schedule 14A and a transaction statement on Schedule 13E-3 with the SEC.
Fees and Expenses; Financing of the Reclassification
We will be responsible for paying the Reclassification-related fees and expenses, consisting primarily of fees and expenses of our attorneys, and other related charges. We intend to pay the expenses of the Reclassification with working capital. We estimate that our expenses will total approximately $105,000, assuming the Reclassification is completed.
This amount consists of the following estimated fees:
| | | | | |
| Description | Amount |
| Legal fees and expenses | $ | 100,000 | |
| Printing, mailing costs and miscellaneous expenses | $ | 5,000 | |
| Total | $ | 105,000 | |
MARKET PRICE OF UNITS AND DISTRIBUTION INFORMATION
Market Information
There is no public trading market for our units. However, we have established through FNC Ag Stock, LLC a Unit Trading Bulletin Board, a private online matching service, in order to facilitate trading among our members. The Unit Trading Bulletin Board has been designed to comply with federal tax laws and IRS regulations establishing an “alternative trading service,” as well as state and federal securities laws. Our Unit Trading Bulletin Board consists of an electronic bulletin board that provides a list of interested buyers with a list of interested sellers, along with their non-firm price quotes. The Unit Trading Bulletin Board facilitates matches between potential sellers and buyers and assists the sellers and buyers with transfers. We do not become involved in any purchase or sale negotiations arising from our Unit Trading Bulletin Board and have no role in effecting the transactions beyond approval, as required under our Current Operating Agreement, and the issuance of new certificates. We do not give advice regarding the merits or shortcomings of any particular transaction. We do not receive, transfer or hold funds or securities as an incident of operating the Unit Trading Bulletin Board. We do not receive any compensation for creating or maintaining the Unit Trading Bulletin Board. In advertising our alternative trading service, we do not characterize the Company as being a broker or dealer or an exchange. We do not use the Unit Trading Bulletin Board to offer to buy or sell securities other than in compliance with the securities laws, including any applicable registration requirements.
There are detailed timelines that must be followed under the Unit Trading Bulletin Board rules and procedures with respect to offers and sales of membership units. All transactions must comply with the Unit Trading Bulletin Board rules, our Current Operating Agreement, and are subject to approval by our Board.
If the Reclassification is approved at the 2024 Special Meeting, we may not continue to utilize the Unit Trading Bulletin Board for the trading of our units since we will no longer be a registered company under the Exchange Act. The Board is currently analyzing options for the future trading of our units as a private company.
Unit Holders
As of [Record Date] (the record date), 14,606 units were issued and outstanding held by approximately 1,033 unit holders of record.
Distributions
The payment of distributions to members is within the discretion of the Board, and there is no assurance of any distributions from the Company. The Company cannot be certain if or when it will be able to make additional distributions.
We paid distributions totaling $2,750 per unit during our 2023 fiscal year. We paid distributions totaling $4,325 per unit during our 2022 fiscal year. We paid distributions totaling $775 per unit during our 2021 fiscal year.
We do not anticipate that the Reclassification will affect our ability to declare and pay distributions to our unit holders, nor will the terms of the Class A Units, Class B Units, Class C Units, and Class D Units differ with respect to the rights of members to receive distributions from the Company.
Equity Compensation Plans
We do not have any equity compensation plans under which our units are authorized for issuance.
Sale of Unregistered Securities
We did not sell any units during our 2023, 2022 or 2021 fiscal years.
Repurchases of Equity Securities
Neither we, nor anyone acting on our behalf has repurchased any of our outstanding units during the past two years.
THE THIRD AMENDED AND RESTATED OPERATING AGREEMENT
We are governed by our Current Operating Agreement, which is attached to this proxy statement as Exhibit 99.1. In connection with the Reclassification, we are proposing amend our Current Operating Agreement as set forth in the Proposed Operating Agreement, which is attached as Exhibit 99.2. A redline between the current Operating Agreement and the Proposed Operating Agreement is also attached to this proxy statement as Exhibit 99.3 which shows the changes to each section. The Proposed Operating Agreement includes several changes, including provisions to rename our existing class of units, reclassify certain of our units and revise the voting and transfer rights attributed to certain classes of units. Note that changes in Exhibit 99.3 marked in red show the proposed changes to while those in blue reflect changes previously approved by the First Amendment which are being incorporated into the Proposed Operating Agreement.
The Reclassification
The Proposed Operating Agreement provides for four separate classes of units: Class A Units, Class B Units, Class C Units and Class D Units. Certain of our outstanding units which are currently titled "units", will be renamed "Class A Units" and certain of our outstanding units will be reclassified on the basis of one Class B, Class C, or Class D Unit for each unit currently held. Unless otherwise elected by the Board as described in this proxy statement, we anticipate that the Reclassification will be effective upon the approval of the Proposed Operating Agreement by our members.
The Board is asking separately for the vote to adopt the Proposed Operating Agreement (Proposal 1) and the approval of the Reclassification (Proposal 2) even though the Reclassification could be implemented solely through the approval of Proposal 1. The Board believes that the Reclassification is an important unit holder matter and deserves separate and distinct attention, given the impact on our unit holders. The Board, in the interest of fairness, wants to make it explicitly clear the impact that the Proposed Operating Agreement will have on the Company. The Proposed Operating Agreement and the Reclassification are conditioned on one another, meaning that unless the unit holders vote in favor of both proposals, both will fail. For more information on the effect of the Reclassification of your units, please see "Effects of the Reclassification on Unit Holders of the Company" under the heading "SPECIAL FACTORS RELATED TO THE RECLASSIFICATION."
Description of Units
General
As of [Record Date], we had 14,606 total units issued and outstanding held by approximately 1,033 total holders of record. Of those approximately 1,033 unit holders, approximately 163 hold 20 or more units each, approximately 348 hold at least 5 units but no more
than 19of our existing units each, approximately 325 hold exactly 4 of our existing units each, and approximately 197 hold 3 or fewer of our existing units each.
The exact number of Class A Units, Class B Units, Class C Units and Class D Units following the Reclassification will depend on the number of units held by each member on the effective date of the Reclassification. All units when fully paid are nonassignable and are not subject to redemption or conversion. Generally, the rights and obligations of our members are governed by the Indiana Business Flexibility Act and our Current Operating Agreement.
Our units represent an ownership interest in the Company. Upon purchasing units, our members enter into our Current Operating Agreement and become members of the Company.
Comparison of Features of Class A Units, Class B Units, Class C Units and Class D Units
The following table sets forth a comparison of the proposed features provided in the Proposed Operating Agreement. Section references are to sections in the Proposed Operating Agreement.
| | | | | | | | | | | | | | |
| Class A | Class B | Class C | Class D |
| Voting Rights | The Class A unit holders will be entitled to vote on all matters brought before the members, except as otherwise provided in the Proposed Operating Agreement. (Section 6.5)
The Class A unit holders will be entitled to vote with Class B unit holders for elected directors (except those entitled to appoint directors). (Section 5.3) | The Class B unit holders will have the right to vote only for elected directors (voting with the Class A) (Section 5.3), on the dissolution of the Company (Section 10.1), on certain fundamental transactions or actions by the Board requiring the consent of members which include mergers and dispositions of all or substantially all of the Company's assets (Section 5.7(b)), and as may be otherwise required by Indiana law. The Class B unit holders will not have the right to vote on amendments to the Proposed Operating Agreement, unless those would modify the limited liability of Class B unit holders or alter the economic interests of Class B unit holders (Section 8.1) | The Class C unit holders will have the right to vote only on the dissolution of the Company (Section 10.1), on certain fundamental transactions or actions by the Board requiring the consent of members which include mergers and dispositions of all or substantially all of the Company's assets (Section 5.7(b)), and as may be otherwise required by Indiana law. The Class C unit holders will not have the right to vote for elected directors or vote on amendments to the Proposed Operating Agreement, unless those would modify the limited liability of Class C unit holders or alter the economic interests of Class C unit holders (section 5.3, Section 8.1) | The Class D unit holders will have the right to vote only on the dissolution of the Company (Section 10.1) and as may be required by Indiana law. The Class D unit holders will not have the right to vote for elected directors, on certain fundamental transactions or actions by the Board requiring the consent of members which include mergers and dispositions of all or substantially all of the Company's assets (Section 5.3, Section 5.7(b)). The Class D unit holders will not have the right to vote on amendments to the Proposed Operating Agreement, unless those would modify the limited liability of Class D unit holders or alter the economic interests of Class D unit holders (Section 8.1) |
| Proposal of Amendments to the Proposed Operating Agreement | Class A unit holders will be entitled to propose amendments. (Section 8.1) | Class B unit holders do not have the right to propose amendments. (Section 8.1) | Class C unit holders do not have the right to propose amendments. (Section 8.1) | Class D unit holders do not have the right to propose amendments. (Section 8.1) |
| Nominations of Elected Directors | Unit holders in all classes will be entitled to make nominations for election of directors except those that appoint members. (Section 5.3(b)) | Unit holders in all classes will be entitled to make nominations for election of directors except those that appoint members. (Section 5.3(b)) | Unit holders in all classes will be entitled to make nominations for election of directors except those that appoint members. (Section 5.3(b)) | Unit holders in all classes will be entitled to make nominations for election of directors except those that appoint members. (Section 5.3(b)) |
| | | | | | | | | | | | | | |
| Call Members' Meetings | Class A and Class B unit holders holding in the aggregate at least 30% of the total outstanding units held by Class A and Class B unit holders may call a special meeting of the members. (Section 6.6) | Class A and Class B unit holders holding in the aggregate at least 30% of the total outstanding units held by Class A and Class B unit holders may call a special meeting of the members. (Section 6.6) | Class C unit holders do not have the right to call a special meeting of the members. (Section 6.6) | Class D unit holders do not have the right to call a special meeting of the members. (Section 6.6) |
| Profits and Losses | Unit holders in all classes will be entitled to share in the profits and losses of the Company on a pro rata basis based on units held. (Section 3.1 and 3.2) | Unit holders in all classes will be entitled to share in the profits and losses of the Company on a pro rata basis based on units held. (Section 3.1 and 3.2) | Unit holders in all classes will be entitled to share in the profits and losses of the Company on a pro rata basis based on units held. (Section 3.1 and 3.2) | Unit holders in all classes will be entitled to share in the profits and losses of the Company on a pro rata basis based on units held. (Section 3.1 and 3.2) |
| Distributions – Regular Distributions | Unit holders in all classes will be entitled to receive regular/non-liquidating distributions on a pro rata basis based on units held. (Section 4.1) | Unit holders in all classes will be entitled to receive regular/non-liquidating distributions on a pro rata basis based on units held. (Section 4.1) | Unit holders in all classes will be entitled to receive regular/non-liquidating distributions on a pro rata basis based on units held. (Section 4.1) | Unit holders in all classes will be entitled to receive regular/non-liquidating distributions on a pro rata basis based on units held. (Section 4.1) |
| Liquidating Distributions | All classes are equal for liquidating distributions. (Section 10.2) | All classes are equal for liquidating distributions. (Section 10.2) | All classes are equal for liquidating distributions. (Section 10.2) | All classes are equal for liquidating distributions. (Section 10.2) |
| Transfer Restrictions | Transfers permitted only if approved by the Board in its sole discretion. (Section 9.2)
No transfers will be approved that would impose SEC reporting requirements or corporate tax status. (Section 9.3) | Transfers permitted only if approved by the Board in its sole discretion. (Section 9.2)
No transfers will be approved that which would impose SEC reporting requirements or corporate tax status. (Section 9.3) | Transfers permitted only if approved by the Board in its sole discretion. (Section 9.2)
No transfers will be approved that would impose SEC reporting requirements or corporate tax status. (Section 9.3) | Transfers permitted only if approved by the Board in its sole discretion. (Section 9.2)
No transfers will be approved that would impose SEC reporting requirements or corporate tax status. (Section 9.3) |
| Inspection Rights | Unit holders in all classes will have the right to all information required by Proposed Operating Agreement and Indiana law. (Section 7.2) | Unit holders in all classes will have the right to all information required by Proposed Operating Agreement and Indiana law. (Section 7.2) | Unit holders in all classes will have the right to all information required by Proposed Operating Agreement and Indiana law. (Section 7.2) | Unit holders in all classes will have the right to all information required by Proposed Operating Agreement and Indiana law. (Section 7.2) |
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
Beneficial ownership is determined in accordance with the rules of the SEC. Except as indicated by footnote, a person in the table below has sole voting and sole investment power for all units beneficially owned by that person. In addition, unless otherwise indicated, all persons named below can be reached at the following address: 1554 N. County Road 600 E., Union City, IN 47390.
Recent Transactions
There has been no change in the ownership of the Company's units by any of the Company's directors or executive officers within the last 60 days.
Beneficial Ownership
As of [Filing Date], the following persons or entities are known by us to be the beneficial owners of more than 5% of the outstanding units:
| | | | | | | | | | | |
| Title of Class | Name of Beneficial Owner | Amount and Nature of
Beneficial Ownership | Percent of Class |
| Membership Units | Clark Family, LLC | 950 units (1) | 6.5% |
| Membership Units | Robert Baker | 1,946 units (2) | 13.32% |
| Membership Units | Gerald Forsythe | 775 units (3) | 5.31% |
____________
(1) Stephen L. Clark and our director, Robert Baker, may be deemed to be beneficial owners of these units because they are both managers of Clark Family, LLC, and may be deemed to share investment and voting power.
(2) In addition to the nine hundred fifty units held in the name of the Clark Family, LLC listed above, an additional nine hundred ninety-six are owned by Robert N. Baker Trust.
(3) Four hundred units are owned by Indeck Energy Services, Inc. Mr. Forsythe is the representative selected by Indeck Energy Services, Inc. to serve on our Board. Mr. Forsythe shares investment and voting power with respect to four hundred units with the directors of Indeck Energy Services, Inc. An additional three hundred seventy-five units are owned by Mr. Forsythe.
As of [Filing Date], our directors and executive officers own membership units as follows (except as indicated by footnote, a person named in the table below has sole voting and sole investment power for all units beneficially owned by that person):
| | | | | | | | | | | |
| Title of Class | Name
of Beneficial Owner | Amount and
Nature of
Beneficial Ownership | Percent
of Class |
| Membership Units | Robert Baker | 1,946 units (1) | 13.32% |
| Membership Units | Casey Bruns | 20 units(2) | 0.14% |
| Membership Units | Thomas Chalfant
| 105 units (3) | 0.72% |
| Membership Units | Thomas Chronister
| 100 units (4) | 0.68% |
| Membership Units | William Dartt | 0 units | —% |
| Membership Units | Robert John Davis
| 49 units | 0.34% |
| Membership Units | David Dersch, Jr. | 663 units (5) | 4.54% |
| Membership Units | Gerald Forsythe | 775 units (6) | 5.31% |
| Membership Units | Jeremey Herlyn | 51 units (7) | 0.35% |
| Membership Units | Danny Huston | 238 units | 1.63% |
| Membership Units | Adam Kline | 0 units | —% |
| Membership Units | Jeffrey Painter | 0 units | —% |
| Membership Units | Lewis Roch III | 500 units (8) | 3.42% |
| Membership Units | Daniel Sailer | 135 units (9) | 0.92% |
| Membership Units | Dale Schwieterman
| 44 units | 0.30% |
| Membership Units | Chad Smith | 0 units | —% |
| Membership Units | Steven Snider | 53 units (10) | 0.36% |
| Membership Units | J. Phillip Zicht
| 97 units (11) | 0.66% |
| Membership Units | All Directors and Officers as a Group | 4776 units | 32.70% |
____________
(1) Nine hundred and ninety-six units are owned by Robert N. Baker Trust and are pledged as security. Nine hundred fifty units are owned by Clark Family, LLC. Robert Baker is the representative selected by Clark Family, LLC to serve on our Board. As a manager of Clark Family, LLC, Mr. Baker shares investment and voting power with respect to nine hundred fifty units with Stephen L. Clark.
(2) The units are owned by Wayne Fisher Farms, Inc. of which Mr. Bruns is a shareholder.
(3) Thirty-five units are owned by Thomas Edwin Chalfant Revocable Trust. Mr. Chalfant owns thirty-five units with his spouse and thirty-five units are held by Mollie A. Chalfant Revocable Trust. Mr. Chalfant shares investment and voting power with respect to seventy units with his spouse.
(4) Mr. Chronister owns eighty-four units with his spouse and shares investment and voting power with respect to those units with his spouse.
(5) Six hundred units are owned by Dersch Energy, LLC, of which Col. Dersch is a member. Forty-six units are owned by David M. Dersch Trust, of which Col. Dersch is a trustee. Seventeen units are owned by Col. Dersch.
(6) Four hundred units are owned by Indeck Energy Services, Inc. Mr. Forsythe is the representative selected by Indeck Energy Services, Inc. to serve on our Board. Mr. Forsythe shares investment and voting power with respect to four hundred units with the directors of Indeck Energy Services, Inc. An additional three hundred seventy-five units are owned by Mr. Forsythe.
(7) Fifty-one units are held by Jeremey J. Herlyn IRA.
(8) Five hundred units are owned by Roch Investment, LLC, of which Mr. Roch is the manager.
(9) Ten units are held in a Roth IRA for the benefit of Mr. Sailer's spouse. Forty-five units are held in Roth IRAs for the benefit of other family members. Mr. Sailer's spouse serves as the trustee for all four of the IRAs. Mr. Sailer shares investment and voting power with respect to those units with his spouse. Eighty units are owned by Rosar Family, L.P. Mr. Sailer's spouse serves as a general partner of Rosar Family, L.P.
(10) Twenty-four units are owned by Steven Snider IRA. Thirteen units are owned by Lorie Snider IRA. Mr. Snider owns sixteen units with his spouse. Mr. Snider shares investment and voting power with respect to those units with his spouse.
(11) Mr. Zicht shares investment and voting power with his spouse.
MEMBER PROPOSALS FOR THE 2025 ANNUAL MEETING OF MEMBERS
We currently anticipate holding the 2025 annual meeting of members in February of 2025. The Company is not required to consider any proposal or director nomination petition that does not meet the requirements of the SEC and our Current Operating Agreement and therefore, any member who wishes to submit a proposal or director nomination petition is encouraged to seek independent counsel about the requirements of the SEC and our Current Operating Agreement.
Member Proposals to be Considered for Inclusion in the Company’s 2025 Proxy Statement Under SEC Rules
Under applicable SEC rules, including Rule 14a-8 of the Exchange Act, any member proposal to be considered by the Company for inclusion in the proxy materials for the 2025 annual meeting of members must be received by the Secretary of the Company, at 1554 N. County Road 600 E., Union City, IN 47390, no later than one-hundred and twenty (120) days prior to when we mailed the proxy materials for the preceding year’s annual meeting. Accordingly, we determined that members must submit proposals related to the 2025 annual meeting of members to the Company by August 23, 2024. Proposals submitted later than August 23, 2024, will be considered untimely and will not be included in the Company’s proxy statement for the 2025 annual meeting of members.
In addition, all proposals will need to comply with Rule 14a-8 of the Exchange Act, which lists the requirements for inclusion of member proposals in company-sponsored proxy materials. Our Board will review proposals submitted by members for inclusion at our next annual meeting of members and will make recommendations to our Board on an appropriate response to such proposals. As the rules of the SEC make clear, simply submitting a proposal does not guarantee that it will be included in our proxy materials.
Requirements for Member Proposals to be Brought Before the 2025 Annual Meeting of Members
Members who intend to present a proposal at the 2025 annual meeting of members without including such proposal in the Company's proxy statement, must provide the Company notice of such proposal no later than November 7, 2024. The Company reserves the right to reject, rule out of order, or take appropriate action with respect to any proposal that does not comply with these and other applicable requirements.
If the Company does not receive notice of a member proposal intended to be submitted to the 2025 annual meeting by November 7, 2024, the persons named on the proxy card accompanying the notice of meeting may vote on any such proposal in their discretion, provided the Company has included in its proxy statement an explanation of its intention with respect to voting on the proposal.
2025 Annual Meeting Director Nominations
Pursuant to Section 5.3(b) of our Current Operating Agreement, a member may nominate an individual for election as an elected director by following the procedures explained in Section 5.3(b) of the Current Operating Agreement. Section 5.3(b) of the Current Operating Agreement requires that written notice of a member's intent to nominate an individual for director must be given, either by personal delivery or by United States mail, postage prepaid, to the secretary of the Company not less than 120 calendar days before the date of the Company's proxy statement released to Unit Holders in connection with the previous year's annual meeting. Director nominations submitted pursuant to the provisions of the Current Operating Agreement for the 2025 annual meeting of members must be submitted to the Company by August 23, 2024.
Any nomination petition or nominee statement which is not fully completed and properly executed, is not received within the time period provided above or is not true, accurate and complete in all respects, may be rejected by the Company and, if rejected, shall be returned by the Company to the member or members submitting the nomination petition or to the nominee submitting the nominee
statement, as the case may be. Each nominee must meet all qualification requirements for elected directors as may exist at the time of the nomination and at the time of election.
Effect on Member Proposals and Director Nominations if Reclassification is Implemented
If the Proposed Operating Agreement and Reclassification are implemented, we do not expect to be subject to the proxy rules at the time of the 2025 annual meeting, and, therefore, member proposals would be governed by our Proposed Operating Agreement rather than as set forth above. Additionally, if the Proposed Operating Agreement and Reclassification are implemented, the director nomination procedures would remain the same.
OTHER MATTERS
Reports, Opinions, Appraisals and Negotiations
We have not received any report, opinion or appraisal from an outside party that is materially related to the Reclassification.
Other Matters of the Special Meeting
As of the date of this proxy statement, the only business that our management expects to be presented at the meeting is that set forth above. If any other matters are properly brought before the meeting, or any adjournments thereof, it is the intention of the persons named in the accompanying form of proxy to vote the proxy on such matters in accordance with their best judgment.
Forward Looking Statements
Statements contained herein that are not purely historical are forward-looking statements, including, but not limited to, statements regarding our expectations, hopes, beliefs, intentions or strategies regarding the future. We caution you not to place undo reliance on any forward-looking statements made by, or on behalf us in this proxy statement or in any of our filings with the SEC or otherwise. Additional information with respect to factors that may cause our results to differ materially from those contemplated by forward-looking statements is included in our current and subsequent filings with the SEC. Please see the section entitled “Where You Can Find More Information” below.
Where You Can Find More Information
We are subject to the information requirements of the Exchange Act, and in accordance therewith we file reports, proxy statements and other information with the SEC. Such reports, proxy statements and other information can be inspected and copied at the public reference facilities of the SEC at Room 100 F Street, N.E., Washington, D.C., 20549. Copies of such materials can also be obtained at prescribed rates by writing to the Public Reference Section of the SEC at 100 F Street, N.E., Washington, D.C., 20549. You may obtain information on the operations of the SEC’s public reference room in Washington, DC by calling the SEC at 1-800-SEC-0330. In addition, such reports, proxy statements and other information is available from the Electronic Data Gathering and Retrieval System ("EDGAR") obtained through the SEC’s Internet Website (https://www.sec.gov/edgar/search).
PROPOSAL 1 — APPROVE THE THIRD AMENDED AND RESTATED OPERATING AGREEMENT
Overview
We are asking our members to approve and adopt the Third Amended and Restated Operating Agreement (the "Proposed Operating Agreement"). Our members should carefully read this proxy statement in its entirety for more detailed information concerning the Proposed Operating Agreement, a copy of which is exhibited to this proxy statement as Exhibit 99.2. A redline between the current Operating Agreement and the Proposed Operating Agreement is also attached to this proxy statement as Exhibit 99.3 which shows the changes to each section. Note that changes in Exhibit 99.3 marked in red show the current proposed changes to while those in blue reflect changes previously approved by the First Amendment. Please also see the section above entitled "THE THIRD AMENDED AND RESTATED OPERATING AGREEMENT" for additional information and a summary of certain terms of the Proposed Operating Agreement. You are urged to read carefully the Proposed Operating Agreement in its entirety before voting on this proposal.
If the Proposed Operating Agreement is approved by the members, the Company's units will be reclassified into four classes. The Proposed Operating Agreement will also establish the distinct rights and obligations of our Class A Units, Class B Units, Class C Units, and Class D Units and provide how the existing class of units will be reclassified.
This reclassification process will allow us to fall below the threshold number of unit holders required to register as a reporting Company under §12 of the Exchange Act. This deregistration process will allow the Company to continue its operations more efficiently by eliminating the expense and burden of the reporting requirements of the Exchange Act.
Voting Requirements
The proposal to adopt the Third Amended and Restated Operating Agreement is conditioned on the approval of Proposal 2, the Reclassification, at the Special Meeting meaning that unless the unit holders vote in favor of both proposals, both will fail.
Approval of the Proposed Operating Agreement (Proposal 1) requires affirmative votes from members holding a majority of the total outstanding units entitled to vote. Pursuant to Section 6.9 of our Current Operating Agreement, members holding at least 25% of the outstanding units will constitute a quorum of the members for the 2024 Special Meeting. Since we had 14,606 units outstanding and entitled to vote as of the Record Date, an aggregate of at least 3,652 units need to be represented at the Special Meeting in order for there to be a quorum. Approval of Proposal 1 will require affirmative votes from members holding at least 7,303 units. Abstentions will be counted for purposes of determining the presence or absence of a quorum for the transaction of business at the 2024 Special Meeting. Abstention votes will have the effect of a vote AGAINST Proposal 1.
If a quorum is not present at the time and place scheduled for the 2024 Special Meeting, the members present at that time may reschedule the 2024 Special Meeting to a later date in order to give the Board additional time to solicit proxies for use at the 2024 Special Meeting. The proposal to adjourn or postpone the 2024 Special Meeting must be approved by the holders of at least a majority of the units represented at the 2024 Special Meeting (even if a quorum is not present) in order for the meeting to be validly postponed or adjourned to solicit additional proxies or for other purposes.
The Board will have the discretion to determine if and when to implement the Proposed Operating Agreement, including the Reclassification, and reserves the right to abandon the Proposed Operating Agreement and the Reclassification, even if approved by the members. For example, if the number of record holders of units changes such that the Reclassification would no longer accomplish our intended goal of discontinuing our reporting obligations owed to the SEC, our Board may determine not to amend and restate our Current Operating Agreement. Alternatively, our Board may determine to wait to implement the Proposed Operating Agreement, including the Reclassification, depending on the timing of approval by the members and the timing of its SEC filing obligations such that the Company is able to continue its SEC compliance obligations without interruption or delay.
THE BOARD RECOMMENDS THAT THE MEMBERS VOTE “FOR” THE APPROVAL OF THE THIRD AMENDED AND RESTATED OPERATING AGREEMENT.
PROPOSAL 2 — APPROVE RECLASSIFICATION OF THE COMPANY'S UNITS
Overview
In conjunction with Proposal 1, we are asking for your vote to reclassify our units into four classes (the "Reclassification"). Although the Reclassification could be implemented solely through the approval of our Third Amended and Restated Operating Agreement, the Board considers the reclassification of the units to be an important matter of member concern and are submitting this matter separately to the members as a matter of good corporate practice. The members are encouraged to read the sections titled "Questions and Answers about the Proposed Operating Agreement and the Reclassification", "Reasons for the Reclassification" and "Fairness of the Reclassification" before casting their vote. We intend, immediately following the reclassification, to terminate the registration of our units with the SEC and suspend further reporting under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Units will retain their classification permanently after the Reclassification is implemented. This means, for example, that if someone acquired five Class A Units at a later date without owning any other units, those Class A Units would remain Class A Units in the hands of the acquirer even though the acquirer owns less than 20 total units.
Voting Requirements
The proposal to reclassify your units into four classes is conditioned on the approval of the proposal to approve our Third Amended and Restated Operating Agreement (Proposal 1) meaning that unless the unit holders vote in favor of both proposals, both will fail. For more information on the effect of the Reclassification of your units, please see "Effects of the Reclassification on Unit Holders of the Company" under the heading "SPECIAL FACTORS RELATED TO THE RECLASSIFICATION."
Approval of the Reclassification (Proposal 2) requires affirmative votes from members holding a majority of the units represented at the 2024 Special Meeting, where a quorum is present. Pursuant to Section 6.9 of our Current Operating Agreement, members holding at least 25% of the outstanding units will constitute a quorum of the members for the 2024 Special Meeting. Since we had 14,606 units outstanding and entitled to vote as of the Record Date, an aggregate of at least 3,652 units need to be represented at the 2024 Special Meeting in order for there to be a quorum. Abstentions will be counted for purposes of determining the presence or absence of a quorum for the transaction of business at the 2024 Special Meeting. Abstention votes will have the effect of a vote AGAINST Proposal 2.
If a quorum is not present at the time and place scheduled for the 2024 Special Meeting, the members present at that time may reschedule the 2024 Special Meeting to a later date in order to give the Board additional time to solicit proxies for use at the 2024 Special Meeting. The proposal to adjourn or postpone the 2024 Special Meeting must be approved by the holders of at least a majority of the units represented at the 2024 Special Meeting (even if a quorum is not present) in order for the meeting to be validly postponed or adjourned to solicit additional proxies or for other purposes.
The Board will have the discretion to determine if and when to implement the Reclassification, and reserves the right to abandon the Proposed Operating Agreement and the Reclassification, even if approved by the members. For example, if the number of record holders of units changes such that the Reclassification would no longer accomplish our intended goal of discontinuing our reporting obligations owed to the SEC, our Board may determine not to amend and restate our Current Operating Agreement. Alternatively, our Board may determine to wait to implement the Reclassification, depending on the timing of approval by the members and the timing of its SEC filing obligations such that the Company is able to continue its SEC compliance obligations without interruption
THE BOARD RECOMMENDS THAT THE MEMBERS VOTE “FOR” THE RECLASSIFICATION OF THE COMPANY'S UNITS.
EXHIBITS INCORPORATED BY REFERENCE
The following exhibits are incorporated by reference as part of this proxy statement.
| | | | | | | | |
| Exhibit No. | | Exhibit |
| | Second Amended and Restated Agreement (as approved) - effective February 1, 2006 and the First Amendment (as approved) - effective February 20, 2018 |
| | Third Amended and Restated Operating Agreement (clean) |
| | Third Amended and Restated Operating Agreement (changes marked in red show current proposed changes while those in blue reflect changes previously approved by the First Amendment) |
| | Registrant's 10-K FYE September 30, 2023, filed with the commission on November 30, 2023 |
| | Registrant's 10-Q for the fiscal quarter ended March 31, 2024, filed with the commission on May 13, 2024 |
APPENDIX A
FORM OF PROXY CARD
CARDINAL ETHANOL, LLC
2024 Special Meeting - [Special Meeting Date] For Unit Holders as of [Record Date]
Proxy Solicited on Behalf of the Board of Directors
1) Read the Proxy Statement.
2) Indicate your choices by placing an "X" in the appropriate boxes on the Proxy Card below.
3) Sign and date the Proxy Card.
4) Return the Proxy Card by mail to 1554 N. County Road 600 E., Union City, Indiana 47390 or via fax to (765) 964-3349.
Proxy Cards must be RECEIVED no later than 5:00 p.m. EST on [Date before Special Meeting] to be valid.
PROPOSAL 1: APPROVE THE THIRD AMENDED AND RESTATED OPERATING AGREEMENT. THE BOARD RECOMMENDS A VOTE FOR THIS PROPOSAL. If Proposal 2 is not approved, the Board will not implement Proposal 1, even if it is approved by the Members.
PROPOSAL 2: RECLASSIFICATION OF THE COMPANY'S UNITS. THE BOARD RECOMMENDS A VOTE FOR THIS PROPOSAL. To reclassify our units for the purpose of discontinuing the registration of our units under the Securities Exchange Act of 1934, as follows: units held by holders of 20 or more of our units will be renamed Class A Units; units held by holders of at least 5 units but no more than 19 units will be converted to Class B Units; units held by holders of exactly 4 units will be converted to Class C Units; and units held by holders of 3 or fewer units will be converted into Class D Units. If Proposal 1 is not approved, the Board will not implement Proposal 2, even if it is approved by the Members.
By signing this proxy card, you appoint Thomas Chalfant and Robert Davis, jointly and severally, each with full power of substitution, as proxies to represent you at the 2024 Special Meeting of the members to be held on [Special Meeting Date], at [Location] and at any adjournment thereof, on any matters coming before the meeting. Registration for the meeting will begin at 5:00 p.m. EST. The 2024 Special Meeting will commence at approximately 6:00 p.m. EST.
Please specify your choices by marking the appropriate boxes above. The proxies cannot vote your membership units unless you sign and return this card. For your Proxy Card to be valid, it must be RECEIVED by the Company by 5:00 p.m. EST on [Date before Special Meeting]. This proxy, when properly executed, will be voted in the manner directed herein and authorizes the proxies to take action in their discretion upon other matters that may properly come before the 2024 Special Meeting.
If you do not mark any boxes, your units will be voted FOR Proposal 1 and 2. If you mark contradicting choices on the proxy card, such as both FOR and AGAINST a proposal, your votes will not be counted with respect to the proposal for which you marked contradicting choices. However, each fully executed Proxy Card will be counted for purposes of determining whether a quorum is present at the 2024 Special Meeting
| | | | | | | | | | | |
| Signature: | | Joint Owner Signature: | |
| Print Name: | | Print Joint Owner Name: | |
| Date: | | Date: | |
| | | |
| Number of Units Held: | | | |
Please sign exactly as your name appears above. Joint owners must both sign. Please sign exactly as your name appears above. Joint owners must both sign. When signing as attorney, executor, administrator, trustee or guardian, please note that fact.
APPENDIX B
FORM OF TRANSMITTAL LETTER
CARDINAL ETHANOL, LLC
1554 N. Country Road 600 E.
Union City, IN 47390
[Date]
[name]
[address]
[city, state, zip code]
Re: Cardinal Ethanol, LLC Membership Certificates
Dear Member:
As you know, the Members of Cardinal Ethanol, LLC (the “Company”) affirmatively voted on [_____________ ___], 2024 to reclassify the membership units of the Company into four classes: Class A Units, Class B Units, Class C Units and Class D Units. We now ask that you return your original membership certificate(s) to the Company so that we may re-issue a new certificate to you which will identify the class of membership units you now own. If you have misplaced your original membership certificates, please contact us at the number provided below. If your original membership certificates are being held by a bank as security interest for debt or by a trustee or other third party, please make arrangements with such third parties to return your original membership certificates as soon as possible.
Please mail or hand-deliver your membership certificates to:
Cardinal Ethanol, LLC
1554 N. Country Road 600 E.
Union City, IN 47390
Please feel free to contact the Company (765) 964-3137 or at (866) 559-6026 if you have any questions regarding the return of your membership certificates.
Very truly yours,
/s/ Robert Davis
Robert Davis
Chairman of the Board
THIRD AMENDED AND RESTATED OPERATING AGREEMENT OF CARDINAL ETHANOL, LLC Dated Effective [·], 2024
i CARDINAL ETHANOL, LLC THIRD AMENDED AND RESTATED OPERATING AGREEMENT TABLE OF CONTENTS Page SECTION 1: THE COMPANY ........................................................................................2 1.1 Formation ...........................................................................................................2 1.2 Name …………………………………………………………………………..2 1.3 Purpose; Powers .................................................................................................2 1.4 Principal Place of Business ................................................................................2 1.5 Term 2 1.6 Registered Agent ................................................................................................2 1.7 Title to Property .................................................................................................2 1.8 Payment of Individual Obligations ....................................................................2 1.9 Independent Activities; Transactions With Affiliates ........................................3 1.10 Definitions........................................................................................................3 SECTION 2. CAPITAL CONTRIBUTIONS; CAPITAL ACCOUNTS ....................10 2.1 Original Capital Contributions .........................................................................10 2.2 Additional Capital Contributions; Additional Units ........................................10 2.3 Capital Accounts ..............................................................................................10 SECTION 3. ALLOCATIONS .......................................................................................11 3.1 Profits ...............................................................................................................11 3.2 Losses ...............................................................................................................11 3.3 Special Allocations ..........................................................................................11 3.7 Tax Allocations: Code Section 704(c) .............................................................14 3.8 Tax Credit Allocations .....................................................................................15 SECTION 4. DISTRIBUTIONS .....................................................................................15 4.1 Net Cash Flow..................................................................................................15 4.2 Amounts Withheld ...........................................................................................15 4.3 Limitations on Distributions ............................................................................15 SECTION 5. MANAGEMENT ......................................................................................15 5.1 Directors ...........................................................................................................15 5.2 Number of Total Directors ...............................................................................16 5.3 Election of Directors ........................................................................................16 5.4 Committees ......................................................................................................18 5.5 Authority of Directors ......................................................................................18 5.6 Director as Agent .............................................................................................20 5.7 Restriction on Authority of Directors ..............................................................20 5.8 Director Meetings and Notice ..........................................................................21 5.9 Action Without a Meeting ...............................................................................21 5.10 Quorum; Manner of Acting ...........................................................................21
ii 5.11 Voting; Potential Financial Interest ...............................................................21 5.12 Duties and Obligations of Directors ..............................................................22 5.13 Chairman and Vice Chairman ........................................................................22 5.14 President and Chief Executive Officer ..........................................................22 5.15 Chief Financial Officer ..................................................................................22 5.16 Secretary; Assistant Secretary........................................................................23 5.17 Vice President ................................................................................................23 5.18 Delegation ......................................................................................................23 5.19 Execution of Instruments ...............................................................................23 5.20 Limitation of Liability; Indemnification of Directors ....................................23 5.21 Compensation; Expenses of Directors ...........................................................24 5.22 Loans ..............................................................................................................24 SECTION 6. ROLE OF MEMBERS .............................................................................24 6.2 Members ..........................................................................................................25 6.3 Additional Members ........................................................................................25 6.4 Rights or Powers ..............................................................................................25 6.5 Voting Rights of Members...............................................................................25 6.6 Member Meetings ............................................................................................25 6.7 Conduct of Meetings ........................................................................................25 6.8 Notice of Meetings; Waiver .............................................................................26 6.9 Quorum and Proxies ........................................................................................26 6.10 Voting; Action by Members ..........................................................................26 6.11 Record Date ...................................................................................................26 6.12 Termination of Membership ..........................................................................26 6.13 Continuation of the Company ........................................................................26 6.14 No Obligation to Purchase Membership Interest ...........................................26 6.15 Waiver of Dissenters Rights ..........................................................................27 SECTION 7. ACCOUNTING, BOOKS AND RECORDS ..........................................27 7.1 Accounting, Books and Records ......................................................................27 7.2 Delivery to Members and Inspection ...............................................................27 7.3 Reports .............................................................................................................27 7.4 Tax Matters ......................................................................................................28 SECTION 8. AMENDMENTS .......................................................................................29 8.1 Amendments ....................................................................................................29 SECTION 9. TRANSFERS .............................................................................................30 9.1 Restrictions on Transfers .................................................................................30 9.2 Permitted Transfers ..........................................................................................30 9.3 Conditions Precedent to Transfers ...................................................................31 9.4 Prohibited Transfers .........................................................................................32 9.5 No Dissolution or Termination ........................................................................33 9.6 Prohibition of Assignment ...............................................................................33 9.7 Rights of Unadmitted Assignees ......................................................................33 9.8 Admission of Substituted Members .................................................................33
iii 9.9 Representations Regarding Transfers ..............................................................34 9.10 Distribution and Allocations in Respect of Transferred Units.......................34 9.11 Additional Members ......................................................................................35 SECTION 10. DISSOLUTION AND WINDING UP ..................................................35 10.1 Dissolution .....................................................................................................35 10.2 Winding Up ....................................................................................................35 10.3 Compliance with Certain Requirements of Regulations; Deficit Capital Accounts ........................................................................................................36 10.4 Deemed Distribution and Recontribution ......................................................36 10.5 Rights of Unit Holders ...................................................................................36 10.6 Allocations During Period of Liquidation .....................................................37 10.7 Character of Liquidating Distributions ..........................................................37 10.8 The Liquidator ...............................................................................................37 10.9 Forms of Liquidating Distributions ...............................................................37 SECTION 11. MISCELLANEOUS ...............................................................................37 11.1 Notices ...........................................................................................................37 11.2 Binding Effect ................................................................................................38 11.3 Construction ...................................................................................................38 11.4 Headings ........................................................................................................38 11.5 Severability ....................................................................................................38 11.6 Incorporation By Reference ...........................................................................38 11.7 Variation of Terms .........................................................................................38 11.8 Governing Law ..............................................................................................38 11.9 Waiver of Jury Trial .......................................................................................38 11.10 Counterpart Execution .................................................................................38 11.11 Specific Performance ...................................................................................38
1 THIRD AMENDED AND RESTATED OPERATING AGREEMENT OF CARDINAL ETHANOL, LLC THIS THIRD AMENDED AND RESTATED OPERATING AGREEMENT (the "Agreement") is entered into and shall be effective as of [·], 2024, by and among Cardinal Ethanol, LLC f/k/a Indiana Ethanol, LLC, an Indiana limited liability company (the "Company"), each of the Persons who have been admitted as a Member of the Company and any other Persons that may from time-to-time be admitted as Members in accordance with the terms of this Agreement. Capitalized terms not otherwise defined herein shall have the meaning set forth in Section 1.10. WHEREAS the Members of the Company adopted the Second Amended and Restated Operating Agreement of the Company effective February 1, 2006, which was later amended by the Members on February 20, 2018; WHEREAS, the Members desire to amend and restate the Second Amended and Restated Operating Agreement to incorporate the previous amendment and revise and set forth their respective rights, duties, and responsibilities with respect to the Company and its business and affairs as set forth herein; and WHEREAS, the Members voted to adopt this Agreement at a Special Meeting of the Members of the Company held on [·], 2024. NOW, THEREFORE, in consideration of the covenants and agreements contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
2 SECTION 1. THE COMPANY 1.1 Formation. The initial Members formed the Company as an Indiana limited liability company by filing Articles of Organization with the Indiana Secretary of State on February 3, 2005, pursuant to the provisions of the Act. To the extent that the rights or obligations of any Member are different by reason of any provision of this Agreement than they would be in the absence of such provision, this Agreement shall, to the extent permitted by the Act, control. 1.2 Name. The name of the Company shall be "Cardinal Ethanol, LLC" and all business of the Company shall be conducted in such name. 1.3 Purpose; Powers. The nature of the business and purposes of the Company are: (i) to own, construct, operate, lease, finance, contract with, and/or invest in ethanol production and co-product production facilities as permitted under the applicable laws of the State of Indiana; (ii) to engage in the processing of corn, grains and other feedstock into ethanol and any and all related co- products, and the marketing of all products and co-products from such processing; and (iii) to engage in any other business and investment activity in which an Indiana limited liability company may lawfully be engaged, as determined by the Directors. The Company has the power to do any and all acts necessary, appropriate, proper, advisable, incidental or convenient to or in furtherance of the purpose of the Company as set forth in this Section 1.3 and has, without limitation, any and all powers that may be exercised on behalf of the Company by the Directors pursuant to Section 5 hereof. 1.4 Principal Place of Business. The Company shall continuously maintain a principal place of business in Indiana. The principal place of business of the Company shall be at 1554 N. County Road 600 E, Union City, Indiana 47390, or elsewhere as the Directors may determine. Any documents required by the Act to be kept by the Company shall be maintained at the Company's principal place of business. 1.5 Term. The term of the Company commenced on the date the Articles of Organization (the "Articles") of the Company were filed with the Indiana Secretary of State and shall continue until the winding up and liquidation of the Company and its business is completed following a Dissolution Event as provided in Section 10 hereof. 1.6 Registered Agent. The Company shall continuously maintain a registered office and a registered agent for service of process in the State of Indiana. 1.7 Title to Property. All Property owned by the Company shall be owned by the Company as an entity and no Member shall have any ownership interest in such Property (as hereinafter defined) in his/her/its individual name. Each Member's interest in the Company shall be personal property for all purposes. At all times after the Effective Date, the Company shall hold title to all of its Property in the name of the Company and not in the name of any Member. 1.8 Payment of Individual Obligations. The Company's credit and assets shall be used solely for the benefit of the Company, and no asset of the Company shall be Transferred or encumbered for, or in payment of, any individual obligation of any Member.
3 1.9 Independent Activities; Transactions With Affiliates. The Directors shall be required to devote such time to the affairs of the Company as may be necessary to manage and operate the Company, and shall be free to serve any other Person or enterprise in any capacity that the Director may deem appropriate in its discretion. Neither this Agreement nor any activity undertaken pursuant hereto shall (i) prevent any Member or Director or its Affiliates, acting on its own behalf, from engaging in whatever activities it chooses, whether the same are competitive with the Company or otherwise, and any such activities may be undertaken without having or incurring any obligation to offer any interest in such activities to the Company or any Member; or (ii) require any Member or Director to permit the Company or Director or Member or its Affiliates to participate in any such activities, and as a material part of the consideration for the execution of this Agreement by each Member, each Member hereby waives, relinquishes, and renounces any such right or claim of participation. To the extent permitted by applicable law and subject to the provisions of this Agreement, the Directors are hereby authorized to cause the Company to purchase Property from, sell Property to or otherwise deal with any Member (including any Member who is also a Director), acting on its own behalf, or any Affiliate of any Member; provided that any such purchase, sale or other transaction shall be made on terms and conditions which are no less favorable to the Company than if the sale, purchase or other transaction had been made with an independent third party. 1.10 Definitions. Capitalized words and phrases used in this Agreement have the following meanings: (a) "Act" means the Indiana Business Flexibility Act, as amended from time to time (or any corresponding provision or provisions of any succeeding law). (b) "Adjusted Capital Account Deficit" means, with respect to any Unit Holder, the deficit balance, if any, in such Unit Holder's Capital Account as of the end of the relevant Fiscal Year, after giving effect to the following adjustments: (i) Credit to such Capital Account any amounts which such Unit Holder is deemed to be obligated to restore pursuant to the next to the last sentences in Sections 1.704-2(g)(1) and 1.704-2(i)(5) of the Regulations; and (ii) Debit to such Capital Account the items described in Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5) and 1.704-1(b)(2)(ii)(d)(6) of the Regulations. The foregoing definition is intended to comply with the provisions of Section 1.704-1(b)(2)(ii)(d) of the Regulations and shall be interpreted consistently therewith. (c) "Affiliate" means, with respect to any Person: (i) any Person directly or indirectly controlling, controlled by or under common control with such Person; (ii) any officer, director, general partner, member or trustee of such Person; or (iii) any Person who is an officer, director, general partner, member or trustee of any Person described in clauses (i) or (ii) of this sentence. For purposes of this definition, the terms "controlling," "controlled by" or "under common control with" shall mean the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person or entity, whether through the ownership of voting securities, by contract or otherwise, or the power to elect at least 50% of the directors, members, or persons exercising similar authority with respect to such Person or entities.
4 (d) "Agreement" means this Third Amended and Restated Operating Agreement of Indiana Ethanol, LLC, as amended from time to time. (e) “Appointing Member” has the meaning set forth in Section 5.3(c). (f) “Articles” means the Articles of Organization of the Company filed with the Indiana Secretary of State, as same may be amended from time to time. (g) "Assignee" means a transferee of Units who is not admitted as a substituted member pursuant to Section 9.8. (h) “BBA” has the meaning set forth in Section 7.4(a) hereof. (i) “BBA Procedures” means the partnership audit procedures enacted under Section 1101 of the BBA. (j) "Capital Account" means the separate capital account maintained for each Unit Holder in accordance with Section 2.3. (k) "Capital Contributions" means, with respect to any Member, the amount of money (US Dollars) and the initial Gross Asset Value of any assets or property (other than money) contributed by the Member (or such Member's predecessor in interest) to the Company (net of liabilities secured by such contributed property that the Company is considered to assume or take subject to under Code Section 752) with respect to the Units in the Company held or purchased by such Member, including additional Capital Contributions. (l) “Class A Member” means any Person (i) who has become a Member pursuant to the terms of this Agreement, and (ii) who is the owner of one or more Class A Units. “Class A Members” means all such persons. (m) “Class A Unit” means an ownership interest in the Company representing a Capital Contribution made as provided in Section 2 in consideration of Units that have been classified into Class A Units, including any and all benefits to which the holder of such Units may be entitled as provided in this Agreement, together with all obligations of such Person to comply with the terms and provisions of this Agreement. (n) “Class A Unit Holders(s)” means the owner(s) of one or more Class A Units. (o) “Class B Member” means any Person (i) who has become a Member under this Agreement, and (ii) who is the owner of one or more Class B Units. “Class B Members” means all such Persons. (p) “Class B Unit” means an ownership interest in the Company representing a Capital Contribution made as provided in Section 2 in consideration of Units that have been classified into Class B Units, including any and all benefits to which the holder of such Units may be entitled as provided in this Agreement, together with all obligations of such Person to comply with the terms and provisions of this Agreement.
5 (q) “Class B Unit Holders(s)” means the owner(s) of one or more Class B Units. (r) “Class C Member” means any Person (i) who has become a Member under this Agreement, and (ii) who is the owner of one or more Class C Units. “Class C Members” means all such Persons. (s) “Class C Unit” means an ownership interest in the Company representing a Capital Contribution made as provided in Section 2 in consideration of Units that have been classified into Class C Units, including any and all benefits to which the holder of such Units may be entitled as provided in this Agreement, together with all obligations of such Person to comply with the terms and provisions of this Agreement. (t) “Class C Unit Holders(s)” means the owner(s) of one or more Class C Units. (u) “Class D Member” means any Person (i) who has become a Member under this Agreement, and (ii) who is the owner of one or more Class D Units. “Class D Members” means all such Persons. (v) “Class D Unit” means an ownership interest in the Company representing a Capital Contribution made as provided in Section 2 in consideration of Units that have been classified into Class D Units, including any and all benefits to which the holder of such Units may be entitled as provided in this Agreement, together with all obligations of such Person to comply with the terms and provisions of this Agreement. (w) “Class D Unit Holders(s)” means the owner(s) of one or more Class D Units. (x) “Classification” refers to the division of the Units into different classes such that the Company has fewer than 300 Class A Unit Holders of record, resulting in a suspension of the Company’s reporting obligations as a public company upon making the appropriate filings with the SEC. (y) “Classification Date” means 5:00pm ET on [·], 2024. (z) "Code" means the United States Internal Revenue Code of 1986, as amended from time to time. (aa) "Company" means Cardinal Ethanol, LLC, an Indiana limited liability company. (bb) "Company Minimum Gain" has the meaning given the term "partnership minimum gain" in Sections 1.704-2(b)(2) and 1.704-2(d) of the Regulations. (cc) "Debt" means (i) any indebtedness for borrowed money or the deferred purchase price of property as evidenced by a note, bonds, or other instruments; (ii) obligations as lessee under capital leases; (iii) obligations secured by any mortgage, pledge, security interest, encumbrance, lien or charge of any kind existing on any asset owned or held by the Company whether or not the Company has assumed or become liable for the obligations secured thereby; (iv) any obligation under any interest rate swap agreement; (v) accounts payable; and (vi)
6 obligations under direct or indirect guarantees of (including obligations (contingent or otherwise) to assure a creditor against loss in respect of) indebtedness or obligations of the kinds referred to in clauses (i), (ii), (iii), (iv) and (v), above provided that Debt shall not include obligations in respect of any accounts payable that are incurred in the ordinary course of the Company's business and are not delinquent or are being contested in good faith by appropriate proceedings. (dd) "Depreciation" means, for each Fiscal Year, an amount equal to the depreciation, amortization, or other cost recovery deduction allowable with respect to an asset for such Fiscal Year, except that if the Gross Asset Value of an asset differs from its adjusted basis for federal income tax purposes at the beginning of such Fiscal Year, Depreciation shall be an amount which bears the same ratio to such beginning Gross Asset Value as the federal income tax depreciation, amortization, or other cost recovery deduction for such Fiscal Year bears to such beginning adjusted tax basis; provided, however, that if the adjusted basis for federal income tax purposes of an asset at the beginning of such Fiscal Year is zero, Depreciation shall be determined with reference to such beginning Gross Asset Value using any reasonable method selected by the Directors. (ee) "Director" means any Person who (i) is referred to as such in Section 5.1 of this Agreement or has become a Director pursuant to the terms of this Agreement, and (ii) has not ceased to be a Director pursuant to the terms of this Agreement. "Directors" mean all such Persons. For purposes of the Act, the Directors shall be deemed to be the "managers" (as such term is defined and used in the Act) of the Company. (ff) "Dissolution Event" shall have the meaning set forth in Section 10.1 hereof. (gg) "Effective Date" means [·], 2024. (hh) "Facilities" shall mean the ethanol production and co-product production facilities in Indiana or such other location as may be determined by the Directors constructed and operated by the Company. (ii) "Fiscal Year" means (i) any twelve-month period commencing on October 1 and ending on September 30 and (ii) the period commencing on the immediately preceding October 1 and ending on the date on which all Property is distributed to the Unit Holders pursuant to Section 10 hereof, or, if the context requires, any portion of a Fiscal Year for which an allocation of Profits or Losses or a distribution is to be made. The Directors may establish a different Fiscal Year by a resolution approved by the affirmative vote of a majority of the Directors so long as the Fiscal Year chosen is not contrary to the Code or any provision of any state or local tax law. (jj) “GAAP” means generally accepted accounting principles in effect in the United States of America from time to time. (kk) “Gross Asset Value” means with respect to any asset, the asset’s adjusted basis for federal income tax purposes, except as follows: (i) The initial Gross Asset Value of any asset contributed by a Member to the Company shall be the gross fair market value of such asset, as determined by the Directors provided that the initial Gross Asset Values of the assets contributed
7 to the Company pursuant to Section 2.1 hereof shall be as set forth in such section; (ii) The Gross Asset Values of all Company assets shall be adjusted to equal their respective gross fair market values (taking Code Section 7701(g) into account), as determined by the Directors as of the following times: (A) the acquisition of an additional interest in the Company by any new or existing Member in exchange for more than a de minimis Capital Contribution; (B) the distribution by the Company to a Member of more than a de minimis amount of Company property as consideration for an interest in the Company; and (C) the liquidation of the Company within the meaning of Regulations Section 1.704-1(b)(2)(ii)(g), provided that an adjustment described in clauses (A) and (B) of this paragraph shall be made only if the Directors reasonably determine that such adjustment is necessary to reflect the relative economic interests of the Members in the Company; (iii) The Gross Asset Value of any item of Company assets distributed to any Member shall be adjusted to equal the gross fair market value (taking Code Section 7701(g) into account) of such asset on the date of distribution as determined by the Directors; and (iv) The Gross Asset Values of Company assets shall be increased (or decreased) to reflect any adjustments to the adjusted basis of such assets pursuant to Code Section 734(b) or Code Section 743(b), but only to the extent that such adjustments are taken into account in determining Capital Accounts pursuant to Regulations Section 1.704-1(b)(2)(iv)(m) and subparagraph (vi) of the definition of “Profits” and “Losses” or Section 3.3(c) hereof; provided, however, that Gross Asset Values shall not be adjusted pursuant to this subparagraph (iv) to the extent that an adjustment pursuant to subparagraph (ii) is required in connection with a transaction that would otherwise result in an adjustment pursuant to this subparagraph (iv). If the Gross Asset Value of an asset has been determined or adjusted pursuant to subparagraph (ii) or (iv), such Gross Asset Value shall thereafter be adjusted by the Depreciation taken into account with respect to such asset, for purposes of computing Profits and Losses. (ll) “Issuance Items” has the meaning set forth in Section 3.3(h) hereof. (mm) “Liquidation Period” has the meaning set forth in Section 10.6 hereof. (nn) “Liquidator” has the meaning set forth in Section 10.8 hereof. (oo) “Losses” has the meaning set forth in the definition of “Profits” and “Losses.” (pp) “Member” means any Person (i) who has become a Member pursuant to the terms of this Agreement, and (ii) who is the owner of one or more Class A Units, Class B Units, Class C Units or Class D Units and has not ceased to be a Member pursuant to the terms of this Agreement. (qq) “Members” means all such Members. (rr) “Membership Economic Interest” means collectively, a Member’s share of “Profits” and “Losses,” the right to receive distributions of the Company’s assets, and the right to information concerning the business and affairs of the Company provided by the Act. The Membership Economic Interest of a Member is quantified by the unit of measurement referred to herein as “Units.” (ss) “Membership Interest” means collectively, the Membership Economic Interest and Membership Voting Interest.
8 (tt) “Membership Register” means the membership register maintained by the Company at its principal office or by a duly appointed agent of the Company setting forth the name, address, the number of Units, and Capital Contributions of each Member of the Company, which shall be modified from time to time as additional Units are issued and as Units are transferred pursuant to this Agreement. (uu) “Membership Voting Interest” means collectively, a Member’s right to vote as set forth in this Agreement or required by the Act. The Membership Voting Interest of a Member shall mean as to any matter to which the Member is entitled to vote hereunder or as may be required under the Act, the right to one (1) vote for each Unit registered in the name of such Member as shown in the Membership Register. (vv) “Net Cash Flow” means the gross cash proceeds of the Company less the portion thereof used to pay or establish reserves for all Company expenses, debt payments, capital improvements, replacements, and contingencies, all as reasonably determined by the Directors. “Net Cash Flow” shall not be reduced by depreciation, amortization, cost recovery deductions, or similar allowances, but shall be increased by any reductions of reserves previously established. (ww) “Nonrecourse Deductions” has the meaning set forth in Section 1.704-2(b)(1) of the Regulations. (xx) “Nonrecourse Liability” has the meaning set forth in Section 1.704-2(b)(3) of the Regulations. (yy) “Officer” or “Officers” has the meaning set forth in Section 5.18 hereof. (zz) “Partnership Representative” has the meaning set forth in Section 7.4 hereof. (aaa) “Permitted Transfer” has the meaning set forth in Section 9.2 hereof. (bbb) “Person” means any individual, partnership (whether general or limited), joint venture, limited liability company, corporation, trust, estate, association, nominee or other entity. (ccc) “Profits and Losses” mean, for each Fiscal Year, an amount equal to the Company’s taxable income or loss for such Fiscal Year, determined in accordance with Code Section 703(a) (for this purpose, all items of income, gain, loss, or deduction required to be stated separately pursuant to Code Section 703(a)(1) shall be included in taxable income or loss), with the following adjustments (without duplication): (i) Any income of the Company that is exempt from federal income tax and not otherwise taken into account in computing Profits or Losses pursuant to this definition of “Profits” and “Losses” shall be added to such taxable income or loss; (ii) 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 Regulations Section 1.704-1(b)(2)(iv)(i), and not otherwise taken into account in computing Profits or Losses pursuant to this definition of “Profits” and “Losses” shall be subtracted from such taxable income or loss; (iii) In the event the Gross Asset Value of any Company asset is adjusted pursuant to subparagraphs (ii) or (iii) of the definition of Gross Asset Value, the amount of such adjustment shall be treated as an item of gain (if the adjustment increases the Gross Asset Value of the asset) or an item of loss (if the adjustment decreases the Gross Asset Value of the asset) from the disposition of such asset and shall be taken
9 into account for purposes of computing Profits or Losses; (iv) Gain or loss resulting from any disposition of Property with respect to which gain or loss is recognized for federal income tax purposes shall be computed by reference to the Gross Asset Value of the Property disposed of, notwithstanding that the adjusted tax basis of such Property differs from its Gross Asset Value; (v) In lieu of the depreciation, amortization, and other cost recovery deductions taken into account in computing such taxable income or loss, there shall be taken into account Depreciation for such Fiscal Year, computed in accordance with the definition of Depreciation; (vi) To the extent an adjustment to the adjusted tax basis of any Company asset pursuant to Code Section 734(b) is required, pursuant to Regulations Section 1.704-(b)(2)(iv)(m)(4), to be taken into account in determining Capital Accounts as a result of a distribution other than in liquidation of a Unit Holder’s interest in the Company, the amount of such adjustment shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases such basis) from the disposition of such asset and shall be taken into account for purposes of computing Profits or Losses; and (vii) Notwithstanding any other provision of this definition, any items which are specially allocated pursuant to Section 3.3 and Section 3.4 hereof shall not be taken into account in computing Profits or Losses. The amounts of the items of Company income, gain, loss or deduction available to be specially allocated pursuant to Sections 3.3 and Section 3.4 hereof shall be determined by applying rules analogous to those set forth in subparagraphs (i) through (vi) above. (ddd) “Property” means all real and personal property acquired by the Company, including cash, and any improvements thereto, and shall include both tangible and intangible property. (eee) “Regulations” means the Income Tax Regulations, including Temporary Regulations, promulgated under the Code, as such regulations are amended from time to time. (fff) “Regulatory Allocations” has the meaning set forth in Section 3.4 hereof. (ggg) “Related Party” means the adopted or birth relatives of any Person and such Person’s spouse (whether by marriage or common law), if any, including without limitation great- grandparents, grandparents, parents, children (including stepchildren and adopted children), grandchildren, and great-grandchildren thereof, and such Person’s (and such Person’s spouse’s) brothers, sisters, and cousins and their respective lineal ancestors and descendants, and any other ancestors and/or descendants, and any spouse of any of the foregoing, each trust created for the exclusive benefit of one or more of the foregoing, and the successors, assigns, heirs, executors, personal representatives and estates of any of the foregoing. (hhh) “Securities Act” means the Securities Act of 1933, as amended. (iii) “Subsidiary” means any corporation, partnership, joint venture, limited liability company, association or other entity in which such Person owns, directly or indirectly, fifty percent (50%) or more of the outstanding equity securities or interests, the holders of which are generally entitled to vote for the election of the board of directors or other governing body of such entity. (jjj) “Tax Matters Member” has the meaning set forth in Section 7.4 hereof.
10 (kkk) “Transfer” means, as a noun, any voluntary or involuntary transfer, sale, pledge or hypothecation or other disposition and, as a verb, voluntarily or involuntarily to transfer, give, sell, exchange, assign, pledge, bequest or hypothecate or otherwise dispose of. (lll) “Units” or “Unit” means all Class A Units, Class B Units, Class C Units and Class D Units when no distinction is required by the context in which the term is used herein. (mmm)“Unit Holders” means all Class A Unit Holders, Class B Unit Holders, Class C Unit Holders and Class D Unit Holders when no distinction is required by the context in which the term is used herein. (nnn) “Unit Holder” means the owner of one or more Class A Units, Class B Units, Class C Units and Class D Units when no distinction is required by the context in which the term is used herein. (ooo) “Unit Holder Nonrecourse Debt” has the same meaning as the term “partner nonrecourse debt” in Section 1.704-2(b)(4) of the Regulations. (ppp) “Unit Holder Nonrecourse Debt Minimum Gain” means an amount, with respect to each Unit Holder Nonrecourse Debt, equal to the Company Minimum Gain that would result if such Unit Holder Nonrecourse Debt were treated as a Nonrecourse Liability, determined in accordance with Section 1.704-2(i)(3) of the Regulations. (qqq) “Unit Holder Nonrecourse Deductions” has the same meaning as the term “partner nonrecourse deductions” in Sections 1.704-2(i)(1) and 1.704-2(i)(2) of the Regulations. SECTION 2. CAPITAL CONTRIBUTIONS; CAPITAL ACCOUNTS 2.1 Original Capital Contributions. The name, address, Capital Contribution, and Units quantifying the Membership Interest of each Member shall be set out in the Membership Register. 2.2 Additional Capital Contributions; Additional Units. No Unit Holder shall be obligated to make any additional Capital Contributions to the Company or to pay any assessment to the Company, other than any unpaid amounts on such Unit Holder’s original Capital Contributions, and no Units shall be subject to any calls, requests or demands for capital. Subject to Section 5.7, additional Membership Economic Interests quantified by additional Units may be issued in consideration of Capital Contributions as agreed to between the Directors and the Person acquiring the Membership Economic Interest quantified by the additional Units. Each Person to whom additional Units are issued shall be admitted as a Member in accordance with this Agreement. Upon such Capital Contributions, the Directors shall cause the Membership Register to be appropriately amended. 2.3 Capital Accounts. A Capital Account shall be maintained for each Unit Holder in accordance with the following provisions: (a) To each Unit Holder’s Capital Account there shall be credited (i) such Unit Holder’s Capital Contributions; (ii) such Unit Holder’s distributive share of Profits and any items
11 in the nature of income or gain which are specially allocated pursuant to Section 3.3 and Section 3.4; and (iii) the amount of any Company liabilities assumed by such Unit Holder or which are secured by any Property distributed to such Unit Holder; (b) To each Unit Holder’s Capital Account there shall be debited (i) the amount of money and the Gross Asset Value of any Property distributed to such Unit Holder pursuant to any provision of this Agreement; (ii) such Unit Holder’s distributive share of Losses and any items in the nature of expenses or losses which are specially allocated pursuant to Section 3.3 and 3.4 hereof; and (iii) the amount of any liabilities of such Unit Holder assumed by the Company or which are secured by any Property contributed by such Unit Holder to the Company; (c) In the event Units are Transferred in accordance with the terms of this Agreement, the transferee shall succeed to the Capital Account of the transferor to the extent it relates to the Transferred Units; and (d) In determining the amount of any liability for purposes of subparagraphs (a) and (b) above there shall be taken into account Code Section 752(c) and any other applicable provisions of the Code and Regulations. The foregoing provisions and the other provisions of this Agreement relating to the maintenance of Capital Accounts are intended to comply with Regulations Section 1.704-1(b), and shall be interpreted and applied in a manner consistent with such Regulations. In the event the Directors shall determine that it is prudent to modify the manner in which the Capital Accounts, or any debits or credits thereto (including, without limitation, debits or credits relating to liabilities which are secured by contributed or distributed property or which are assumed by the Company or any Unit Holders), are computed in order to comply with such Regulations, the Directors may make such modification, provided that it is not likely to have a material effect on the amounts distributed to any Person pursuant to Section 10 hereof upon the dissolution of the Company. The Directors also shall (i) make any adjustments that are necessary or appropriate to maintain equality between the Capital Accounts of the Unit Holders and the amount of capital reflected on the Company’s balance sheet, as computed for book purposes, in accordance with Regulations Section 1.704- 1(b)(2)(iv)(q), and (ii) make any appropriate modifications in the event unanticipated events might otherwise cause this Agreement not to comply with Regulations Section 1.704-1(b). SECTION 3. ALLOCATIONS 3.1 Profits. After giving effect to the special allocations in Section 3.3 and Section 3.4 hereof, Profits for any Fiscal Year shall be allocated among the Unit Holders in proportion to Units held, regardless of class. 3.2 Losses. After giving effect to the special allocations in Section 3.3 and 3.4 hereof, Losses for any Fiscal Year shall be allocated among the Unit Holders in proportion to Units held, regardless of class. 3.3 Special Allocations. The following special allocations shall be made in the following order:
12 (a) Minimum Gain Chargeback. Except as otherwise provided in Section 1.704-2(f) of the Regulations, notwithstanding any other provision of this Section 3, if there is a net decrease in Company Minimum Gain during any Fiscal Year, each Unit Holder shall be specially allocated items of Company income and gain for such Fiscal Year (and, if necessary, subsequent Fiscal Years) in an amount equal to such Unit Holder’s share of the net decrease in Company Minimum Gain, determined in accordance with Regulations Section 1.704-2(g). Allocations pursuant to the previous sentence shall be made in proportion to the respective amounts required to be allocated to each Unit Holder pursuant thereto. The items to be so allocated shall be determined in accordance with sections 1.704-2(f)(6) and 1.704-2(j)(2) of the Regulations. This Section 3.3(a) is intended to comply with the minimum gain chargeback requirement in Section 1.704-2(f) of the Regulations and shall be interpreted consistently therewith. (b) Unit Holder Minimum Gain Chargeback. Except as otherwise provided in Section 1.704-2(i)(4) of the Regulations, notwithstanding any other provision of this Section 3, if there is a net decrease in Unit Holder Nonrecourse Debt Minimum Gain attributable to a Unit Holder Nonrecourse Debt during any Fiscal Year, each Unit Holder who has a share of the Unit Holder Nonrecourse Debt Minimum Gain attributable to such Unit Holder Nonrecourse Debt, determined in accordance with Section 1.704-2(i)(5) of the Regulations, shall be specially allocated items of Company income and gain for such Fiscal Year (and, if necessary, subsequent Fiscal Years) in an amount equal to such Unit Holder’s share of the net decrease in Unit Holder Nonrecourse Debt Minimum Gain, determined in accordance with Regulations Section 1.704-2(i)(4). Allocations pursuant to the previous sentence shall be made in proportion to the respective amounts required to be allocated to each Unit Holder pursuant thereto. The items to be so allocated shall be determined in accordance with Sections 1.704-2(i)(4) and 1.704-2(j)(2) of the Regulations. This Section 3.3(b) is intended to comply with the minimum gain chargeback requirement in Section 1.704-2(i)(4) of the Regulations and shall be interpreted consistently therewith. (c) Qualified Income Offset. In the event any Member unexpectedly receives any adjustments, allocations, or distributions described in Sections 1.704-1(b)(2)(ii)(d)(4), 1.704- 1(b)(2)(ii)(d)(5), or 1.704-1(b)(2)(ii)(d)(6) of the Regulations, items of Company income and gain shall be specially allocated to such Member in an amount and manner sufficient to eliminate, to the extent required by the Regulations, the Adjusted Capital Account Deficit as soon as practicable, provided that an allocation pursuant to this Section 3.3(c) shall be made only if and to the extent that the Member would have an Adjusted Capital Account Deficit after all other allocations provided for in this Section 3 have been tentatively made as if this Section 3.3(c) were not in the Agreement. (d) Gross Income Allocation. In the event any Member has a deficit Capital Account at the end of any Fiscal Year which is in excess of the sum of (i) the amount such Member is obligated to restore pursuant to any provision of this Agreement; and (ii) the amount such Member is deemed to be obligated to restore pursuant to the penultimate sentences of Sections 1.704-2(g)(1) and 1.704-2(i)(5) of the Regulations, each such Member shall be specially allocated items of Company income and gain in the amount of such excess as quickly as possible, provided that an allocation pursuant to this Section 3.3(d) shall be made only if and to the extent that such Member would have a deficit Capital Account in excess of such sum after all other allocations provided for
13 in this Section 3 have been made as if Section 3.3(c) and this Section 3.3(d) were not in this Agreement. (e) Nonrecourse Deductions. Nonrecourse Deductions for any Fiscal Year or other period shall be specially allocated among the Members in proportion to Units held, regardless of class. (f) Unit Holder Nonrecourse Deductions. Any Unit Holder Nonrecourse Deductions for any Fiscal Year shall be specially allocated to the Unit Holder who bears the economic risk of loss with respect to the Unit Holder Nonrecourse Debt to which such Unit Holder Nonrecourse Deductions are attributable in accordance with Regulations Section 1.704-2(i)(1). (g) Section 754 Adjustments. To the extent an adjustment to the adjusted tax basis of any Company asset, pursuant to Code Section 734(b) or Code Section 743(b) is required, pursuant to Regulations Section 1.704-1(b)(2)(iv)(m)(2) or 1.704-1(b)(2)(iv)(m)(4), to be taken into account in determining Capital Accounts as the result of a distribution to a Unit Holder in complete liquidation of such Unit Holder's interest in the Company, the amount of such adjustment to Capital Accounts shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases such basis) and such gain or loss shall be specially allocated to the Unit Holders in accordance with their interests in the Company in the event Regulations Section 1.704-1(b)(2)(iv)(m)(2) applies, or to the Unit Holder to whom such distribution was made in the event Regulations Section 1.704-1(b)(2)(iv)(m)(4) applies. (h) Allocations Relating to Taxable Issuance of Company Units. Any income, gain, loss or deduction realized as a direct or indirect result of the issuance of Units by the Company to a Unit Holder (the "Issuance Items") shall be allocated among the Unit Holders so that, to the extent possible, the net amount of such Issuance Items, together with all other allocations under this Agreement to each Unit Holder shall be equal to the net amount that would have been allocated to each such Unit Holder if the Issuance Items had not been realized. 3.4 Curative Allocations. The allocations set forth in Sections 3.3(a), 3.3(b), 3.3(c), 3.3(d), 3.3(e), 3.3(f), 3.3(g) and 3.5 (the "Regulatory Allocations") are intended to comply with certain requirements of the Regulations. It is the intent of the Members that, to the extent possible, all Regulatory Allocations shall be offset either with other Regulatory Allocations or with special allocations of other items of Company income, gain, loss or deduction pursuant to this Section 3.4. Therefore, notwithstanding any other provision of this Section 3 (other than the Regulatory Allocations), the Directors shall make such offsetting special allocations of Company income, gain, loss or deduction in whatever manner it determines appropriate so that, after such offsetting allocations are made, each Member's Capital Account balance is, to the extent possible, equal to the Capital Account balance such Member would have had if the Regulatory Allocations were not part of the Agreement and all Company items were allocated pursuant to Sections 3.1, 3.2, and 3.3(h). 3.5 Loss Limitation. Losses allocated pursuant to Section 3.2 hereof shall not exceed the maximum amount of Losses that can be allocated without causing any Unit Holder to have an Adjusted Capital Account Deficit at the end of any Fiscal Year. In the event some but not all of the Unit Holders would have Adjusted Capital Account Deficits as a consequence of an allocation
14 of Losses pursuant to Section 3.2 hereof, the limitation set forth in this Section 3.5 shall be applied on a Unit Holder by Unit Holder basis and Losses not allocable to any Unit Holder as a result of such limitation shall be allocated to the other Unit Holders in accordance with the positive balances in such Unit Holder's Capital Accounts so as to allocate the maximum permissible Losses to each Unit Holder under Section 1.704-1(b)(2)(ii)(d) of the Regulations. 3.6 Other Allocation Rules. (a) For purposes of determining the Profits, Losses, or any other items allocable to any period, Profits, Losses, and any such other items shall be determined on a daily, monthly, or other basis, as determined by the Directors using any permissible method under Code Section 706 and the Regulations thereunder. (b) The Unit Holders are aware of the income tax consequences of the allocations made by this Section 3 and hereby agree to be bound by the provisions of this Section 3 in reporting their shares of Company income and loss for income tax purposes. (c) Solely for purposes of determining a Unit Holder's proportionate share of the "excess nonrecourse liabilities" of the Company within the meaning of Regulations Section 1.752- 3(a)(3), the Unit Holders' aggregate interests in Company profits shall be deemed to be as provided in the capital accounts. To the extent permitted by Section 1.704-2(h)(3) of the Regulations, the Directors shall endeavor to treat distributions of Net Cash Flow as having been made from the proceeds of a Nonrecourse Liability or a Unit Holder Nonrecourse Debt only to the extent that such distributions would cause or increase an Adjusted Capital Account Deficit for any Unit Holder. (d) Allocations of Profits and Losses to the Unit Holders shall be allocated among them in the ratio which each Unit Holder's Units bears to the total number of Units issued and outstanding, regardless of class. 3.7 Tax Allocations: Code Section 704(c). In accordance with Code Section 704(c) and the Regulations thereunder, income, gain, loss, and deduction with respect to any Property contributed to the capital of the Company shall, solely for tax purposes, be allocated among the Unit Holders so as to take account of any variation between the adjusted basis of such Property to the Company for federal income tax purposes and its initial Gross Asset Value (computed in accordance with the definition of Gross Asset Value). In the event the Gross Asset Value of any Company asset is adjusted pursuant to subparagraph (ii) of the definition of Gross Asset Value, subsequent allocations of income, gain, loss, and deduction with respect to such asset shall take account of any variation between the adjusted basis of such asset for federal income tax purposes and its Gross Asset Value in the same manner as under Code Section 704(c) and the Regulations thereunder. Any elections or other decisions relating to such allocations shall be made by the Directors in any manner that reasonably reflects the purpose and intention of this Agreement. Allocations pursuant to this Section 3.7 are solely for purposes of federal, state, and local taxes and shall not affect, or in any way be taken into account in computing, any Unit Holder's Capital Account or share of Profits, Losses, other items, or distributions pursuant to any provision of this Agreement.
15 3.8 Tax Credit Allocations. All credits against income tax with respect to the Company's property or operations shall be allocated among the Members in accordance with their respective membership interests in the Company for the Fiscal Year during which the expenditure, production, sale, or other event giving rise to the credit occurs. This Section 3.8 is intended to comply with the applicable tax credit allocation principles of section 1.704-1(b)(4)(ii) of the Regulations and shall be interpreted consistently therewith. SECTION 4. DISTRIBUTIONS 4.1. Net Cash Flow. The Directors, in their discretion, shall make distributions of Net Cash Flow, if any, to the Members. Except as otherwise provided in Section 10 hereof, Net Cash Flow, if any, shall be distributed to the Unit Holders in proportion to Units held, regardless of class, subject to, and to the extent permitted by, any loan covenants or restrictions on such distributions agreed to by the Company in any loan agreements with the Company's lenders from time to time in effect. In determining Net Cash Flow, the Directors shall endeavor to provide for cash distributions at such times and in such amounts as will permit the Unit Holders to make timely payment of income taxes. 4.2. Amounts Withheld. All amounts withheld pursuant to the Code or any provision of any state, local or foreign tax law with respect to any payment, distribution or allocation to the Company or the Unit Holders shall be treated as amounts paid or distributed, as the case may be, to the Unit Holders with respect to which such amount was withheld pursuant to this Section 4.2 for all purposes under this Agreement. The Company is authorized to withhold from payments and distributions, or with respect to allocations, to the Unit Holders and to pay over to any federal, state and local government or any foreign government, any amounts required to be so withheld pursuant to the Code or any provisions of any other federal, state or local law or any foreign law, and shall allocate any such amounts to the Unit Holders with respect to which such amount was withheld. 4.3. Limitations on Distributions. The Company shall make no distributions to the Unit Holders except as provided in this Section 4 and Section 10 hereof. Notwithstanding any other provision, no distribution shall be made if it is not permitted to be made under the Act. SECTION 5. MANAGEMENT 5.1. Directors. Except as otherwise provided in this Agreement, the Directors shall direct the business and affairs of the Company, and shall exercise all of the powers of the Company except such powers as are by this Agreement conferred upon or reserved to the Members. The Directors shall adopt such policies, rules, regulations, and actions not inconsistent with law or this Agreement as they may deem advisable. Subject to Section 5.7 hereof or any other express provisions hereof, the business and affairs of the Company shall be managed by or under the direction of the Directors and not by its Members. It is not necessary that an individual be a Member of the Company in order to serve as a Director hereunder. The amendment or repeal of this section or the adoption of any provision inconsistent therewith shall require the approval of a majority of the total Membership Voting Interests held by the Class A Members.
16 5.2. Number of Total Directors. The number of Directors of the Company shall be a minimum of eight (8) and a maximum of fifteen (15). The Directors may change from time to time the total number of Directors within this variable range by resolution approved by a majority vote of the Directors. The relative ratio of the number of Directors elected pursuant to section 5.3(a) below to Directors appointed pursuant to section 5.3(c) below shall always result in a majority of elected Directors. 5.3. Election of Directors. (a) Election of Directors and Terms. In accordance with Section 5.2 of this Agreement, at each annual meeting of the Members, Directors shall be elected by the Class A Members and the Class B Members, voting together as a single class, for staggered terms of three (3) years and until a successor is elected and qualified; provided however, that any Member who is authorized to appoint a Director pursuant to Section 5.3(c) shall not be entitled to vote for the election of any other Directors that the Members are entitled to elect, and the Units held by such Member shall not be included in determining a plurality of the Membership Voting Interests for purposes of electing Directors. The Directors shall, by resolution approved by a majority vote of the Directors, classify each such Director position as Group I, Group II, or Group III, with such classification to serve as the basis for the staggering of terms among the elected Directors. If at any time the number of Directors is changed as provided in Section 5.2, the number of Group I, Group II and Group III Directors may be adjusted as necessary, by resolution approved by a majority vote of the Directors, so that approximately one-third of the Directors are elected at each annual meeting of the Members. Except for the special right of appointment of certain Directors as provided in Section 5.3(c), Directors shall be elected by a plurality vote of the Class A Members and Class B Members, voting together as a single class, so that the nominees receiving the greatest number of votes relative to all other nominees are elected as Directors. (b) Nominations for Directors. One or more nominees for Director positions up for election shall be named by the then current Directors or by a nominating committee established by the Directors. Nominations for the election of Directors may also be made by any Member; provided however, that any Member who is authorized to appoint a Director pursuant to Section 5.3(c) shall not be entitled to nominate a Director under this Section 5.3(b). Any Member that intends to nominate one or more persons for election as Directors at a meeting may do so only if written notice of such Member’s intent to make such nomination or nominations has been given, either by personal delivery or by United States mail, postage prepaid, to the Secretary of the Company, at the address determined pursuant to Section 1.4 hereof, not less than one hundred twenty (120) calendar days prior to the one year anniversary of the date on which the Company delivered the prior year’s proxy statement or notice of annual meeting to Members. Each such notice to the Secretary shall set forth: (i) the name and address of record of the Member who intends to make the nomination; (ii) a representation that the Member is a holder of record of Units of the Company, is entitled to make a nomination pursuant to this Section 5.3(b), and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice;
17 (iii) the name, age, business and residence addresses, and principal occupation or employment of each nominee; (iv) a description of all arrangements or understandings between the Member and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the Members; (v) such other information regarding each nominee proposed by such Member as would be required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission; (vi) the consent of each nominee to serve as a Director of the Company if so elected; and (vii) a nominating petition signed and dated by the holders of at least five percent (5%) of the total then outstanding Units and clearly setting forth the proposed nominee as a candidate of the Director’s seat to be filled at the next election of Directors. The Company may require any proposed nominee to furnish such other information as may reasonably be required by the Company to determine the eligibility of such proposed nominee to serve as a Director of the Company. The presiding Officer of the meeting may, if the facts warrant, determine that a nomination was not made in accordance with the foregoing procedures, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded. Whenever a vacancy occurs other than from expiration of a term of office, removal from office or as set forth in Section 5.3(c) below, a majority of the remaining Directors shall appoint a new Director to fill the vacancy for the remainder of such term. (c) Special Right of Appointment of Directors for Certain Members. Each Member who holds Four Hundred (400) or more Units, all of which were purchased by such Member from the Company during its initial public offering of equity securities filed with the Securities and Exchange Commission, shall be deemed an “Appointing Member” and shall be entitled to appoint one (1) Director, so long as the Appointing Member is the holder of Four Hundred (400) Units. Units held by an Affiliate or Related Party of a Member shall be included in the determination of whether the Member holds the requisite number of Units for purposes of this section and shall, together, be limited to the appointment of one (1) Director, regardless of the number of Units held by that Member, Affiliate or Related Party. Only Members who hold the requisite Four Hundred (400) or more Units are granted appointment rights hereunder. Accordingly, any Member who purchases Units that equal or exceed Four Hundred (400) Units other than those offered by the Company during the Company’s initial public offering of equity securities filed with the Securities and Exchange Commission, shall not be entitled to appoint any Directors, regardless of the amount of Units purchased by such Member. A Director appointed by a Member under this section shall serve indefinitely at the pleasure of the Member appointing him or her until a successor is appointed, or until the earlier death, resignation, or removal of the Director. Any Director appointed under this section may be removed for any reason by the Member appointing him or her, upon written notice to the Board of Directors, which notice may designate and appoint a successor Director to fill the vacancy, and which notice may be given at a meeting of the Board of Directors attended by the person appointed to fill the vacancy. Any such vacancy shall be filled within thirty days of its occurrence by the Member having the right of appointment. In the event
18 that the number of Units held by an Appointing Member falls below the threshold of Four Hundred (400) Units, the term of any Director appointed by such Member shall terminate, the seat will dissolve, and the Member shall elect Directors collectively with the other Members in accordance with Section 5.3(a). In the event that an Appointing Member transfers such Units, the appointment rights shall not transfer with the Units, but shall expire upon the date of transfer unless said transfer is to an Affiliate or Related Party of the Appointing Member. 5.4. Committees. A resolution approved by the affirmative vote of a majority of the Directors may establish committees having the authority of the Directors in the management of the business of the Company to the extent consistent with this Agreement and provided in the resolution. A committee shall consist of one or more persons, who need not be Directors, appointed by affirmative vote of a majority of the Directors present. Committees may include a compensation committee and/or an audit committee, in each case consisting of one or more independent Directors or other independent persons. Committees are subject to the direction and control of the Directors and vacancies in the membership thereof shall be filled by the Directors. A majority of the members of the committee present at a meeting is a quorum for the transaction of business, unless a larger or smaller proportion or number is provided in a resolution approved by the affirmative vote of a majority of the Directors present. 5.5. Authority of Directors. Subject to the limitations and restrictions set forth in this Agreement, the Directors shall direct the management of the business and affairs of the Company and shall have all of the rights and powers which may be possessed by a "manager" under the Act including, without limitation, the right and power to do or perform the following and, to the extent permitted by the Act or this Agreement, the further right and power by resolution of the Directors to delegate to the Officers or such other Person or Persons to do or perform the following: (a) Conduct its business, carry on its operations and have and exercise the powers granted by the Act in any state, territory, district or possession of the United States, or in any foreign country which may be necessary or convenient to effect any or all of the purposes for which it is organized; (b) Acquire by purchase, lease, or otherwise any real or personal property which may be necessary, convenient, or incidental to the accomplishment of the purposes of the Company; (c) Operate, maintain, finance, improve, construct, own, grant operations with respect to, sell, convey, assign, mortgage, and lease any real estate and any personal property necessary, convenient, or incidental to the accomplishment of the purposes of the Company; (d) Execute any and all agreements, contracts, documents, certifications, and instruments necessary or convenient in connection with the management, maintenance, and operation of the business, or in connection with managing the affairs of the Company, including, executing amendments to this Agreement and the Articles in accordance with the terms of this Agreement, both as Directors and, if required, as attorney-in-fact for the Members pursuant to any power of attorney granted by the Members to the Directors;
19 (e) Borrow money and issue evidences of indebtedness necessary, convenient, or incidental to the accomplishment of the purposes of the Company, and secure the same by mortgage, pledge, or other lien on any Company assets; (f) Execute, in furtherance of any or all of the purposes of the Company, any deed, lease, mortgage, deed of trust, mortgage note, promissory note, bill of sale, contract, or other instrument purporting to convey or encumber any or all of the Company assets; (g) Prepay in whole or in part, refinance, recast, increase, modify, or extend any liabilities affecting the assets of the Company and in connection therewith execute any extensions or renewals of encumbrances on any or all of such assets; (h) Care for and distribute funds to the Members by way of cash income, return of capital, or otherwise, all in accordance with the provisions of this Agreement, and perform all matters in furtherance of the objectives of the Company or this Agreement; (i) Contract on behalf of the Company for the employment and services of employees and/or independent contractors, such as lawyers and accountants, and delegate to such Persons the duty to manage or supervise any of the assets or operations of the Company; (j) Engage in any kind of activity and perform and carry out contracts of any kind (including contracts of insurance covering risks to Company assets and Directors' and Officers' liability) necessary or incidental to, or in connection with, the accomplishment of the purposes of the Company, as may be lawfully carried on or performed by a limited liability company under the laws of each state in which the Company is then formed or qualified; (k) Take, or refrain from taking, all actions, not expressly proscribed or limited by this Agreement, as may be necessary or appropriate to accomplish the purposes of the Company; (l) Institute, prosecute, defend, settle, compromise, and dismiss lawsuits or other judicial or administrative proceedings brought on or in behalf of, or against, the Company, the Members or the Directors or Officers in connection with activities arising out of, connected with, or incidental to this Agreement, and to engage counsel or others in connection therewith; (m) Purchase, take, receive, subscribe for or otherwise acquire, own, hold, vote, use, employ, sell, mortgage, lend, pledge, or otherwise dispose of, and otherwise use and deal in and with, shares or other interests in or obligations of domestic or foreign corporations, associations, general or limited partnerships, other limited liability companies, or individuals or direct or indirect obligations of the United States or of any government, state, territory, government district or municipality or of any instrumentality of any of them; (n) Agree with any Person as to the form and other terms and conditions of such Person's Capital Contribution to the Company and cause the Company to issue Membership Economic Interests and Units in consideration of such Capital Contribution; and
20 (o) Indemnify a Member or Directors or Officers, or former Members or Directors or Officers, and to make any other indemnification that is authorized by this Agreement in accordance with, and to the fullest extent permitted by, the Act. 5.6. Director as Agent. Notwithstanding the power and authority of the Directors to manage the business and affairs of the Company, no Director shall have authority to act as agent for the Company for the purposes of its business (including the execution of any instrument on behalf of the Company) unless the Directors have authorized the Director to take such action. The Directors may also delegate authority to manage the business and affairs of the Company (including the execution of instruments on behalf of the Company) to such Person or Persons (including to any Officers) designated by the Directors, and such Person or Persons (or Officers) shall have such titles and authority as determined by the Directors. 5.7. Restrictions on Authority of Directors. (a) The Directors shall not have authority to, and they covenant and agree that they shall not, do any of the following acts without the unanimous consent of the Members: (i) Cause or permit the Company to engage in any activity that is not consistent with the purposes of the Company as set forth in Section 1.3 hereof; (ii) Knowingly do any act in contravention of this Agreement or which would make it impossible to carry on the ordinary business of the Company, except as otherwise provided in this Agreement; (iii) Possess Company Property, or assign rights in specific Company Property, for other than a Company purpose; or (iv) Cause the Company to voluntarily take any action that would cause a bankruptcy of the Company. Notwithstanding the foregoing, the Directors of the Company may, subject to Section 10 hereof, declare bankruptcy or cause the Company to proceed to Chapter 11 reorganization if deemed necessary as a result of the financial condition of the Company. (b) The Directors shall not have authority to, and they covenant and agree that they shall not cause the Company to, without the consent of a majority of the Membership Voting Interests held by the Class A Members, Class B Members and Class C Members, voting together as a single class: (i) Merge, consolidate, exchange or otherwise dispose of at one time all or substantially all of the Property, except for a liquidating sale of the Property in connection with the dissolution of the Company; (ii) Issue Units at a purchase price of less than $1,666.66 per Unit. Notwithstanding the foregoing, the Directors shall have the authority to issue Units below the purchase price as compensation for services rendered for the Company or for any other compensation purpose;
21 (iii) Issue more than an aggregate of 25,000 Units; and (iv) Cause the Company to make loans to any Director or any of such Director’s Affiliates or Related Parties. The actions specified herein as requiring the consent of the Members shall be in addition to any actions by the Director that are specified in the Act as requiring the consent or approval of the Members. Any such required consent or approval may be given by an affirmative vote of a majority of the total Membership Voting Interests entitled to vote on the action pursuant to this Agreement. 5.8. Director Meetings and Notice. Meetings of the Directors shall be held at such times and places as shall from time to time be determined by the Directors. Meetings of the Directors may also be called by the Chairman of the Company or by any two or more Directors. If the date, time, and place of a meeting of the Directors has been announced at a previous meeting, no notice shall be required. In all other cases, five (5) days’ written notice of meetings, stating the date, time, and place thereof and any other information required by law or desired by the Person(s) calling such meeting, shall be given to each Director. Any Director may waive notice of any meeting. A waiver of notice by a Director is effective whether given before, at, or after the meeting, and whether given orally, in writing, or by attendance. The attendance of a Director at any meeting shall constitute a waiver of notice of such meeting, unless such Director objects at the beginning of the meeting to the transaction of business on the grounds that the meeting is not lawfully called or convened and does not participate thereafter in the meeting. 5.9. Action Without a Meeting. Any action required or permitted to be taken by the Directors may also be taken by a written action signed by one hundred percent (100%) of all Directors authorized to vote on the matter as provided by this Agreement, provided that a copy of such written action shall be promptly given to all such Directors. The Directors may participate in any meeting of the Directors by means of telephone, video conference, other electronic method or similar means of communication by which all persons participating in the meeting can simultaneously hear each other. 5.10. Quorum; Manner of Acting. Not less than fifty percent (50%) of the Directors authorized to vote on a matter as provided by this Agreement shall constitute a quorum for the transaction of business at any Directors’ meeting. Each Director shall have one (1) vote at meetings of the Directors. The Directors shall take action by the vote of a majority of the number of Directors constituting a quorum as provided by this Agreement. Voting by proxy or by mail ballot shall be permitted on any matter presented for a vote at any Directors’ meeting; provided, however, that a Director may not vote by proxy or by mail ballot more than two times per calendar year. All such proxies shall be in writing and filed with the Company’s Secretary prior to or at the time of the meeting. 5.11. Voting; Potential Financial Interest. No Director shall be disqualified from voting on any matter to be determined or decided by the Directors solely by reason of such Director’s (or his/her Affiliate’s) potential financial interest in the outcome of such vote, provided that the nature of such
22 Director’s (or his/her Affiliate’s) potential financial interest was reasonably disclosed at the time of such vote. 5.12. Duties and Obligations of Directors. The Directors shall cause the Company to conduct its business and operations separate and apart from that of any Director or any of such Director’s Affiliates. The Directors shall take all actions which may be necessary or appropriate (i) for the continuation of the Company's valid existence as a limited liability company under the laws of the State of Indiana and each other jurisdiction in which such existence is necessary to protect the limited liability of Members or to enable the Company to conduct the business in which it is engaged, and (ii) for the accomplishment of the Company's purposes, including the acquisition, development, maintenance, preservation, and operation of Company Property in accordance with the provisions of this Agreement and applicable laws and regulations. Each Director shall have the duty to discharge the foregoing duties in good faith, in a manner the Director believes to be in the best interests of the Company, and with the care an ordinarily prudent person in a like position would exercise under similar circumstances. The Directors shall be under no other fiduciary duty to the Company or the Members to conduct the affairs of the Company in a particular manner. 5.13. Chairman and Vice Chairman. Unless provided otherwise by a resolution adopted by the Directors, the Chairman shall preside at meetings of the Members and the Directors; shall see that all orders and resolutions of the Directors are carried into effect; may maintain records of and certify proceedings of the Directors and Members; and shall perform such other duties as may from time to time be prescribed by the Directors. The Vice Chairman shall, in the absence or disability of the Chairman, perform the duties and exercise the powers of the Chairman and shall perform such other duties as the Directors or the Chairman may from time to time prescribe. The Directors may designate more than one Vice Chairman, in which case the Vice Chairmen shall be designated by the Directors so as to denote which is most senior in office. 5.14. President and Chief Executive Officer. The President shall perform all duties incident to the office of President and as the Directors may from time to time prescribe. The Chief Executive Officer shall perform such duties as the Directors may from time to time prescribe, including without limitation, the supervision and control of the business and affairs of the Company and the management of the day-to-day operations of the Facilities. The Directors may appoint one Officer to serve as both the President and Chief Executive Officer of the Company. In that case, the titles of President and Chief Executive Officer shall constitute a reference to one and the same office and Officer of the Company. 5.15. Chief Financial Officer. Unless provided otherwise by a resolution adopted by the Directors, the Chief Financial Officer of the Company shall be the Treasurer of the Company and shall keep accurate financial records for the Company; shall deposit all monies, drafts, and checks in the name of and to the credit of the Company in such banks and depositories as the Directors shall designate from time to time; shall endorse for deposit all notes, checks, and drafts received by the Company as ordered by the Directors, making proper vouchers therefore; shall disburse Company funds and issue checks and drafts in the name of the Company as ordered by the Directors, shall render to the President and the Directors, whenever requested, an account of all such transactions as Chief Financial Officer and of the financial condition of the Company, and shall perform such other duties as may be prescribed by the Directors or the President from time to time.
23 5.16. Secretary; Assistant Secretary. The Secretary shall attend all meetings of the Directors and of the Members and shall maintain records of, and whenever necessary, certify all proceedings of the Directors and of the Members. The Secretary shall keep the required records of the Company, when so directed by the Directors or other person or person authorized to call such meetings, shall give or cause to be given notice of meetings of the Members and of meetings of the Directors, and shall also perform such other duties and have such other powers as the Chairman or the Directors may prescribe from time to time. An Assistant Secretary, if any, shall perform the duties of the Secretary during the absence or disability of the Secretary. 5.17. Vice President. The Company may have one or more Vice Presidents. If more than one, the Directors shall designate which is most senior. The most senior Vice President shall perform the duties of the President in the absence of the President. 5.18. Delegation. Unless prohibited by a resolution of the Directors, the President, Chief Financial Officer, Vice President and Secretary (individually, an “Officer” and collectively, “Officers”) may delegate in writing some or all of the duties and powers of such Officer’s management position to other Persons. An Officer who delegates the duties or powers of an office remains subject to the standard of conduct for such Officer with respect to the discharge of all duties and powers so delegated. 5.19. Execution of Instruments. All deeds, mortgages, bonds, checks, contracts and other instruments pertaining to the business and affairs of the Company shall be signed on behalf of the Company by (i) the Chairman; or (ii) when authorized by resolutions(s) of the Directors, the President; or (iii) by such other person or persons as may be designated from time to time by the Directors. 5.20. Limitation of Liability; Indemnification of Directors. To the maximum extent permitted under the Act and other applicable law, no Member, Director or Officer of this Company shall be personally liable for any debt, obligation or liability of this Company merely by reason of being a Member, Director, Officer or all of the foregoing. No Director or Officer of this Company shall be personally liable to this Company or its Members for monetary damages for a breach of fiduciary duty by such Director or Officer; provided that this provision shall not eliminate or limit the liability of a Director or Officer for any of the following: (i) for any breach of the duty of loyalty to the Company or its Members; (ii) for acts or omissions not in good faith or which involve intentional misconduct or knowing violation of law; or (iii) for a transaction from which the Director or Officer derived an improper personal benefit or a wrongful distribution in violation of Section 807 of the Act. To the maximum extent permitted under the Act and other applicable law, the Company, its receiver, or its trustee (in the case of its receiver or trustee, to the extent of Company Property) shall indemnify, save and hold harmless, and pay all judgments and claims against each Director or Officer relating to any liability or damage incurred by reason of any act performed or omitted to be performed by such Director, or Officer, in connection with the business of the Company, including reasonable attorneys' fees incurred by such Director in connection with the defense of any action based on any such act or omission, which attorneys' fees may be paid as incurred, including all such liabilities under federal and state securities laws as permitted by law. To the maximum extent permitted under the Act and other applicable law, in the event of any action by a Unit Holder against any Director or Officer, including a derivative suit, the Company shall indemnify, save harmless, and pay all costs, liabilities, damages and expenses of such
24 Director or Officer, including reasonable attorneys' fees incurred in the defense of such action. Notwithstanding the foregoing provisions, no Director or Officer shall be indemnified by the Company to the extent prohibited or limited (but only to the extent limited) by the Act. The Company may purchase and maintain insurance on behalf of any Person in such Person's official capacity against any liability asserted against and incurred by such Person in or arising from that capacity, whether or not the Company would otherwise be required to indemnify the Person against the liability. 5.21. Compensation; Expenses of Directors. No Member or Director shall receive any salary, fee, or draw for services rendered to or on behalf of the Company merely by virtue of their status as a Member or Director, it being the intention that, irrespective of any personal interest of any of the Directors, the Directors shall have authority to establish reasonable compensation of all Directors for services to the Company as Directors, Officers, or otherwise. Except as otherwise approved by or pursuant to a policy approved by the Directors, no Member or Director shall be reimbursed for any expenses incurred by such Member or Director on behalf of the Company. Notwithstanding the foregoing, by resolution by the Directors, the Directors may be paid as reimbursement therefor, their expenses, if any, of attendance at each meeting of the Directors. In addition, the Directors, by resolution, may approve from time to time, the salaries and other compensation packages of the Officers of the Company. 5.22. Loans. Any Member or Affiliate may, with the consent of the Directors, lend or advance money to the Company. If any Member or Affiliate shall make any loan or loans to the Company or advance money on its behalf, the amount of any such loan or advance shall not be treated as a contribution to the capital of the Company but shall be a debt due from the Company. The amount of any such loan or advance by a lending Member or Affiliate shall be repayable out of the Company's cash and shall bear interest at a rate not in excess of the prime rate established, from time to time, by any major bank selected by the Directors for loans to its most creditworthy commercial borrowers, plus four percent (4%) per annum. If a Director, or any Affiliate of a Director, is the lending Member, the rate of interest and the terms and conditions of such loan shall be no less favorable to the Company than if the lender had been an independent third party. None of the Members or their Affiliates shall be obligated to make any loan or advance to the Company. SECTION 6. ROLE OF MEMBERS 6.1 Classification of Membership Units. Effective as of the Classification Date, there shall be four classes of Units such that: (a) Class A Units. Each Unit outstanding immediately prior to the Classification Date, regardless of class, owned by a Member who is the holder of record of twenty (20) or more Units on the Classification Date shall, by virtue of this Section 6.1(a), and without any action on the part of the holder thereof, hereafter be classified as a Class A Unit. (b) Class B Units. Each Unit outstanding immediately prior to the Classification Date, regardless of class, owned by a Member who is the holder of record of at least five (5) but no more than nineteen (19) Units on the Classification Date shall, by virtue of this Section 6.1(b) and without any action on the part of the holder thereof, hereafter be classified as a Class B Unit. (c) Class C Units. Each Unit outstanding immediately prior to the Classification Date, regardless of class, owned by a Member who is the holder of record of exactly four (4) Units on
25 the Classification Date, shall by virtue of this Section 6.1(c), and without any action on the part of the holder thereof, hereafter be classified as a Class C Unit; and (d) Class D Units. Each Unit outstanding immediately prior to the Classification Date, regardless of class, owned by a Member who is the holder of record of three (3) or fewer Units on the Classification Date shall, by virtue of this Section 6.1(d), and without any action on the part of the holder thereof, hereafter be classified as a Class D Unit. The Classification of each Unit as a Class A Unit, Class B Unit, Class C Unit, or Class D Unit shall remain in effect permanently following the Classification Date. Classes will not be subject to minimum ownership requirements after the Classification. 6.2 Members. Each Person who desires to become a Member must complete and execute a signature page to this Agreement in the form of Exhibit “A” attached hereto and such other documents as may be required by the Directors. Each prospective Member must be approved and admitted to the Company by the Board of Directors. 6.3 Additional Members. No Person shall become a Member without the approval of the Directors. The Directors may refuse to admit any Person as a Member in their sole discretion. Any such admission must comply with the requirements described in this Agreement and will be effective only after such Person has executed and delivered to the Company such documentation as determined by the Directors to be necessary and appropriate to effect such admission including the Member’s agreement to be bound by this Agreement. 6.4 Rights or Powers. Except as otherwise expressly provided for in this Agreement, the Members shall not have any right or power to take part in the management or control of the Company or its business and affairs or to act for or bind the Company in any way. 6.5 Voting Rights of Members. The Members shall have voting rights as defined by the Membership Voting Interest of such Member and in accordance with the provisions of this Agreement. Members holding Class A Units shall be entitled to vote on all acts or matters on which a vote of the Members is required by this Agreement unless otherwise expressly provided herein. Members shall not have voting rights with respect to their Class B Units, Class C Units and Class D Units except as expressly provided herein, or as required by the Act. Except as required by law or as otherwise provided by this Agreement, on any matter upon which more than one class of Members are entitled to vote, those classes entitled to vote shall vote together as a single class and not as separate classes. Members do not have a right to cumulate their votes for any matter entitled to a vote of the Members, including election of Directors. 6.6 Member Meetings. Meetings of the Members shall be called by the Directors, and shall be held at the principal office of the Company or at such other place as shall be designated by the person calling the meeting. Members representing an aggregate of not less than thirty percent (30%) of the Membership Voting Interests held by the Class A Members and Class B Members may also in writing demand that the Directors call a meeting of the Members. Annual meetings of the Members shall be held not less than once per Fiscal Year. 6.7 Conduct of Meetings. Subject to the discretion of the Directors, the Members may participate in any meeting of the Members by means of telephone, video conference, other
26 electronic method or similar means of communication by which all persons participating in the meeting can simultaneously hear each other. 6.8 Notice of Meetings; Waiver. Notice of the meeting, stating the place, day and hour of the meeting, shall be given to each Member in accordance with Section 11.1 hereof at least five (5) days and no more than sixty (60) days before the day on which the meeting is to be held. A Member may waive the notice of meeting required hereunder by written notice of waiver signed by the Member whether given before, during or after the meeting. Attendance by a Member at a meeting is waiver of notice of that meeting, unless the Member objects at the beginning of the meeting to the transaction of business because the meeting is not lawfully called or convened and thereafter does not participate in the meeting. 6.9 Quorum and Proxies. The presence (in person or by proxy or mail ballot) of Members representing an aggregate of at least twenty-five percent (25%) of the Membership Voting Interests entitled to vote on the matter is required for the transaction of business at a meeting of the Members. Voting by proxy or by mail ballot shall be permitted on any matter if authorized by the Directors. 6.10 Voting; Action by Members. If a quorum is present, the affirmative vote of a majority of the Membership Voting Interests represented at the meeting and entitled to vote on the matter (including units represented in person, by proxy or by mail ballot) shall constitute the act of the Members, unless the vote of a greater or lesser proportion or numbers is otherwise required by this Agreement. 6.11 Record Date. For the purpose of determining Members entitled to notice of or to vote at any meeting of Members or any adjournment of the meeting, or Members entitled to receive payment of any distribution, or to make a determination of Members for any other purpose, the date on which notice of the meeting is mailed (or otherwise delivered) or the date on which the resolution declaring the distribution is adopted, as the case may be, shall be the record date for determination of Members. 6.12 Termination of Membership. The membership of a Member in the Company shall terminate upon the occurrence of events described in the Act, including registration and withdrawal. If for any reason the membership of a Member is terminated, the Member whose membership has terminated loses all Membership Voting Interests and shall be considered merely as Assignee of the Membership Economic Interest owned before the termination of membership, having only the rights of an unadmitted Assignee provided for in Section 9.7 hereof. 6.13 Continuation of the Company. The Company shall not be dissolved upon the occurrence of any event that is deemed to terminate the continued membership of a Member. The Company's affairs shall not be required to be wound up. The Company shall continue without dissolution. 6.14 No Obligation to Purchase Membership Interest. No Member whose membership in the Company terminates, nor any transferee of such Member, shall have any right to demand or receive a return of such terminated Member's Capital Contributions or to require the purchase or redemption of the Member's Membership Interest. The other Members and the Company shall not
27 have any obligation to purchase or redeem the Membership Interest of any such terminated Member or transferee of any such terminated Member. 6.15 Waiver of Dissenters Rights. Each Member hereby disclaims, waives and agrees, to the fullest extent permitted by law or the Act, not to assert dissenters' or similar rights under the Act. 6.16 Limitation on Ownership. Notwithstanding any other provision herein, no Member shall directly or indirectly own or control more than forty percent (40%) of the issued and outstanding Units at any time. Units under indirect ownership or control by a Member shall include Units owned or controlled by such Member's Related Parties, Subsidiaries and Affiliates. SECTION 7. ACCOUNTING, BOOKS AND RECORDS 7.1 Accounting, Books and Records. The books and records of the Company shall be kept, and the financial position and the results of its operations recorded, in accordance with GAAP. The books and records shall reflect all the Company transactions and shall be appropriate and adequate for the Company's business. The Company shall maintain at its principal place of business all of the following: (i) A current list of the full name and last known business or residence address of each Member and Assignee set forth in alphabetical order, together with the Capital Contributions, Capital Account, Units, and class of Units of each Member and Assignee; (ii) The full name and business address of each Director; (iii) A copy of the Articles and any and all amendments thereto together with executed copies of any powers of attorney pursuant to which the Articles or any amendments thereto have been executed; (iv) Copies of the Company's federal, state, and local income tax or information returns and reports, if any, for the six most recent taxable years; (v) A copy of this Agreement and any and all amendments thereto together with executed copies of any powers of attorney pursuant to which this Agreement or any amendments thereto have been executed; and (vi) Copies of the financial statements of the Company, if any, for the six most recent Fiscal Years. The Company shall use the accrual method of accounting in preparation of its financial reports and for tax purposes and shall keep its books and records accordingly. 7.2 Delivery to Members and Inspection. Any Member or its designated representative shall have reasonable access during normal business hours to the information and documents kept by the Company pursuant to Section 7.1. The rights granted to a Member pursuant to this Section 7.2 are expressly subject to compliance by such Member with the safety, security and confidentiality procedures and guidelines of the Company, as such procedures and guidelines may be established from time to time. Upon the request of any Member for purposes reasonably related to the interest of that Person as a Member, the Directors shall promptly deliver to the requesting Member, at the expense of the requesting Member, a copy of the information required to be maintained under Section 7.1. Each Member has the right, upon reasonable request for purposes reasonably related to the interest of the Person as a Member and for proper purposes, to: (i) inspect and copy during normal business hours any of the Company records described in Section 7.1; and (ii) obtain from the Directors, promptly after their becoming available, a copy of the Company's federal, state, and local income tax or information returns for each Fiscal Year. Each Assignee shall have the right to information regarding the Company only to the extent required by the Act. 7.3 Reports. The chief financial officer of the Company shall be responsible for causing the preparation of financial reports of the Company and the coordination of financial matters of the
28 Company with the Company's accountants. The Company shall cause to be delivered to each Member the financial statements listed below, prepared, in each case (other than with respect to Member's Capital Accounts, which shall be prepared in accordance with this Agreement) in accordance with GAAP consistently applied. As soon as practicable following the end of each Fiscal Year (and in any event not later than one hundred and twenty (120) days after the end of such Fiscal Year) and at such time as distributions are made to the Unit Holders pursuant to Section 10 hereof following the occurrence of a Dissolution Event, a balance sheet of the Company as of the end of such Fiscal Year and the related statements of operations, Unit Holders' Capital Accounts and changes therein, and cash flows for such Fiscal Year, together with appropriate notes to such financial statements and supporting schedules, all of which shall be audited and certified by the Company's accountants, and in each case, to the extent the Company was in existence, setting forth in comparative form the corresponding figures for the immediately preceding Fiscal Year end (in the case of the balance sheet) and the two (2) immediately preceding Fiscal Years (in the case of the statements). For purposes of this paragraph, access to the financial statements through the Company’s website shall constitute delivery pursuant to this Section 7.3. 7.4 Tax Matters Member; Partnership Representative. (a) Appointment. The Directors shall designate, from time to time, a qualifying Person to be specifically authorized to act as the “Tax Matters Member” of the Company, as defined in Section 6231 of the Code prior to its amendment by the Bipartisan Budget Act of 2015 (“BBA”). Such person shall become the “partnership representative” within the meaning of Section 6223(a) of the Code (as amended by the BBA) as in effect for the tax years beginning on or after January 1, 2018 (such “tax matters partner” and “partnership representative”, as the case may be, referred to herein as the “Partnership Representative”); provided, however, that the Directors shall have the authority to designate, remove and replace the Partnership Representative who shall act as the tax matters partner within the meaning of and pursuant to Regulations Sections 301.6231(a)(7)-1 and -2, or as the partnership representative within the meaning of and pursuant to the BBA and any regulations promulgated thereunder, or any similar provision under state or local law. Necessary tax information shall be delivered to each Unit Holder as soon as practicable after the end of each Fiscal Year, but not later than Three (3) months after the end of each Fiscal Year. (b) Tax Examinations and Audits. The Partnership Representative is authorized and required to represent the Company (at the Company’s expense) in connection with all examinations of the Company’s affairs by taxing authorities, including resulting administrative and judicial proceedings, and to expend Company funds for professional services and costs associated therewith. Each Unit Holder agrees that such Unit Holder will not independently act with respect to tax audits or tax litigation of the Company, unless previously authorized to do so in writing by the Partnership Representative, which authorization may be withheld by the Partnership Representative in its sole and absolute discretion. The Partnership Representative shall have sole discretion to determine whether the Company (either on its own behalf or on behalf of the Unit Holders) will contest or continue to contest any tax deficiencies assessed or proposed to be assessed by any taxing authority. (c) BBA Elections. The Company will not elect into the partnership audit procedures enacted under Section 1101 of the BBA (the “BBA Procedures”) for any tax year beginning before January 1, 2018, and, to the extent permitted by applicable law and regulations, the Company will
29 annually elect out of the BBA Procedures for tax years beginning on or after January 1, 2018 pursuant to Code Section 6221(b) (as amended by the BBA). (d) Tax Elections. The Directors shall, without any further consent of the Unit Holders being required (except as specifically required herein), make any and all elections for federal, state, local and foreign tax purposes as the Directors shall determine appropriate and shall have the right and authority to represent the Company and the Unit Holders before taxing authorities or courts of competent jurisdiction in tax matters affecting the Company or the Unit Holders in their capacities as Unit Holders, and to file any tax returns and execute any agreements or other documents relating to or affecting such tax matters, including agreements or other documents that bind the Unit Holders with respect to such tax matters or otherwise affect the rights of the Company and the Unit Holders; except that the Partnership Representative, in its sole discretion, has the right to make any and all elections and to take any actions that are available to be made or taken by the Partnership Representative as set forth in Section 7.4(b) or under the BBA and any regulations promulgated thereunder (including an election under Code Section 6226 as amended by the BBA). If the Partnership Representative does not make an election under Code Section 6226 (as amended by the BBA), the Partnership Representative will use commercially reasonable efforts (i) to make any modifications to the imputed underpayment amount available under Code Sections 6225(c)(3), (4), (5), or (6) (as amended by the BBA), and (ii) if requested by a Unit Holder, to provide such Unit Holder information that would allow such Unit Holder to file an amended federal income tax return as described in Code Section 6225(c)(2) (as amended by the BBA) to the extent such amended return and payment of any related federal income taxes would reduce any taxes payable by the Company. (e) Tax Returns and Tax Deficiencies. Each Unit Holder agrees that such Unit Holder shall not treat any Company item inconsistently on such Unit Holder’s federal, state, foreign or other income tax return with the treatment of the item on the Company’s return. Any deficiency for taxes imposed on any Unit Holder (including penalties, additions to tax or interest imposed with respect to such taxes and any taxes imposed pursuant to Code Section 6226 as amended by the BBA) will be paid by such Unit Holder and if required to be paid (and actually paid) by the Company, will be recoverable from such Unit Holder as provided in Section 4.2. (f) Survival of Obligations. The obligations of each Unit Holder under this Section 7.4 survive the transfer or redemption by such Unit Holder of its Membership Interest, the termination of this Agreement, and the dissolution of the Company. Each Unit Holder acknowledges that, notwithstanding the transfer or redemption of all or any portion of its Membership Interest, it may remain liable for tax liabilities with respect to its allocable share of income and gain of the Company for the Company’s years (or portions thereof) before such transfer or redemption. SECTION 8. AMENDMENTS 8.1 Amendments. Amendments to this Agreement may be proposed by the Board of Directors or any Class A Member. Following such proposal, the Board of Directors shall submit to the Class A Members a verbatim statement of any proposed amendment, providing that counsel for the Company shall have approved of the same in writing as to form, and the Board of Directors shall include in any such submission a recommendation as to the proposed amendment. The Board of Directors shall seek the written vote of the Class A Members on the proposed amendment or shall
30 call a meeting to vote thereon and to transact any other business that it may deem appropriate. A proposed amendment shall be adopted and be effective as an amendment hereto only if approved by a majority of the Membership Voting Interests held by the Class A Members represented at a meeting of the Class A Members (in person, by proxy or by mail ballot) where a quorum is present. The approval of Class B Members, Class C Members or Class D Members shall not be required to amend this Agreement unless specifically provided herein. Notwithstanding any provision of this Section 8.1 to the contrary, this Agreement shall not be amended without the consent of each Member adversely affected if such amendment would modify the limited liability of a Member, or alter the Membership Economic Interest of a Member. SECTION 9. TRANSFERS 9.1 Restrictions on Transfers. Except as otherwise permitted by this Agreement, no Member shall Transfer all or any portion of its Units. In the event that any Member pledges or otherwise encumbers all or any part of its Units as security for the payment of a Debt, any such pledge or hypothecation shall be made pursuant to a pledge or hypothecation agreement that requires the pledgee or secured party to be bound by all of the terms and conditions of this Section 9. In the event such pledgee or secured party becomes the Unit Holder hereunder pursuant to the exercise of such party's rights under such pledge or hypothecation agreement, such pledgee or secured party shall be bound by all terms and conditions of this Agreement and all other agreements governing the rights and obligations of Unit Holders. In such case, such pledgee or secured party, and any transferee or purchaser of the Units held by such pledgee or secured party, shall not have any Membership Voting Interest attached to such Units unless and until the Directors have approved in writing and admitted as a Member hereunder, such pledgee, secured party, transferee or purchaser of such Units. 9.2 Permitted Transfers. Any such Transfer set forth in this Section 9.2 and meeting the conditions set forth in Section 9.3 below is referred to in this Agreement as a "Permitted Transfer." (a) Class A Units. Subject to the conditions and restrictions set forth in this Section 9, a Class A Member may Transfer all or any portion of its Class A Units to any Person approved by a majority of the Directors in writing. The Directors shall have the authority to disallow any proposed Transfer of Class A Units at their sole discretion. (b) Class B Units. Subject to the conditions and restrictions set forth in this Section 9, a Class B Member may Transfer all or any portion of its Class B Units to any Person approved by a majority of the Directors in writing. The Directors shall have the authority to disallow any proposed Transfer of Class B Units at their sole discretion. (c) Class C Units. Subject to the conditions and restrictions set forth in this Section 9, a Class C Member may Transfer all or any portion of its Class C Units to any Person approved by a majority of the Directors in writing. The Directors shall have the authority to disallow any proposed Transfer of Class C Units at their sole discretion.
31 (d) Class D Units. Subject to the conditions and restrictions set forth in this Section 9, a Class D Member may Transfer all or any portion of its Class D Units to any Person approved by a majority of the Directors in writing. The Directors shall have the authority to disallow any proposed Transfer of Class D Units at their sole discretion. 9.3 Conditions Precedent to Transfers. In addition to the conditions set forth above, no Transfer of a Membership Interest shall be treated as a Permitted Transfer unless and until the Directors have approved such Transfer as set forth in Section 9.2 and until all of the following conditions have been satisfied: (a) Except in the case of a Transfer involuntarily by operation of law, the transferor and transferee shall execute and deliver to the Company such documents and instruments of Transfer as may be necessary or appropriate in the opinion of counsel to the Company to effect such Transfer. In the case of a Transfer of Units involuntarily by operation of law, the Transfer shall be confirmed by presentation to the Company of legal evidence of such Transfer, in form and substance satisfactory to counsel to the Company. In all cases, the transferor and/or transferee shall pay all reasonable costs and expenses connected with the Transfer and the admission of the Transferee as a Member and incurred as a result of such Transfer, including but not limited to, legal fees and costs. (b) The transferor and transferee shall furnish the Company with the transferee's taxpayer identification number, sufficient information to determine the transferee's initial tax basis in the Units transferred, and any other information reasonably necessary to permit the Company to file all required federal and state tax returns and other legally required information statements or returns. Without limiting the generality of the foregoing, the Company shall not be required to make any distribution otherwise provided for in this Agreement with respect to any transferred Units until it has received such information. (c) Except in the case of a Transfer of any Units involuntarily by operation of law, either (i) such Units shall be registered under the Securities Act, and any applicable state securities laws, or (ii) the transferor shall provide an opinion of counsel, which opinion and counsel shall be reasonably satisfactory to the Directors, to the effect that such Transfer is exempt from all applicable registration requirements and that such Transfer will not violate any applicable laws regulating the Transfer of securities. (d) Except in the case of a Transfer of Units involuntarily by operation of law, the transferor shall provide an opinion of counsel, which opinion and counsel shall be reasonably satisfactory to the Directors, to the effect that such Transfer will not cause the Company to be deemed to be an "investment company" under the Investment Company Act of 1940. (e) Unless otherwise approved by the Directors and Members representing in the aggregate a 75% majority of the Membership Voting Interests held by the Class A Members, Class B Members, Class C Members, and Class D Members, voting together as a single class, no Transfer of Units shall be made except upon terms which would not, in the opinion of counsel chosen by and mutually acceptable to the Directors and the transferor Member, result in the termination of the Company within the meaning of Section 708 of the Code or cause the application of the rules of Sections 168(g)(1)(B) and 168(h) of the Code or similar rules to apply to the Company. If the
32 immediate Transfer of such Unit would, in the opinion of such counsel, cause a termination within the meaning of Section 708 of the Code, then if, in the opinion of such counsel, the following action would not precipitate such termination, the transferor Member shall be entitled to (or required, as the case may be) (i) immediately Transfer only that portion of its Units as may, in the opinion of such counsel, be transferred without causing such a termination and (ii) enter into an agreement to Transfer the remainder of its Units, in one or more Transfers, at the earliest date or dates on which such Transfer or Transfers may be effected without causing such termination. The purchase price for the Units shall be allocated between the immediate Transfer and the deferred Transfer or Transfers pro rata on the basis of the percentage of the aggregate Units being transferred, each portion to be payable when the respective Transfer is consummated, unless otherwise agreed by the parties to the Transfer. In the case of a Transfer by one Member to another Member, the deferred purchase price shall be deposited in an interest-bearing escrow account unless another method of securing the payment thereof is agreed upon by the transferor Member and the transferee Member(s). (f) No notice or request initiating the procedures contemplated by Section 9.3 may be given by any Member after a Dissolution Event has occurred. No Member may sell all or any portion of its Units after a Dissolution Event has occurred. (g) No Person shall Transfer any Unit if, in the determination of the Directors, such Transfer would cause the Company to be treated as a "publicly traded partnership" within the meaning of Section 7704(b) of the Code. (h) The Transfer will not result in the number of Class A Unit Holders of record equaling three hundred (300) or more, or such other number as required to maintain suspension of the Company's reporting obligations under the Securities and Exchange Act of 1934, as amended. (i) The Transfer will not result in the number of Class B Unit Holders, Class C Unit Holders or Class D Unit Holders of record equaling five hundred (500) or more, or such other number that would otherwise require the Company to register its Class B Units, Class C Units or Class D Units with the Securities and Exchange Commission. The Directors shall have the authority to waive any legal opinion or other condition required in this Section 9.3 other than the Member approval requirement set forth in Section 9.3(e). 9.4 Prohibited Transfers. Any purported Transfer of Units that is not permitted under this Section shall be null and void and of no force or effect whatsoever; provided that, if the Company is required to recognize such a Transfer (or if the Directors, in their sole discretion, elect to recognize such a Transfer), the Units Transferred shall be strictly limited to the transferor's Membership Economic Interests as provided by this Agreement with respect to the transferred Units, which Membership Economic Interests may be applied (without limiting any other legal or equitable rights of the Company) to satisfy any debts, obligations, or liabilities for damages that the transferor or transferee of such Membership Economic Interests may have to the Company. In the case of a Transfer or attempted Transfer of Units that is not permitted under this Section, the parties engaging or attempting to engage in such Transfer shall be liable to indemnify and hold harmless the Company and the other Members from all cost, liability, and damage that any of such
33 indemnified Members may incur (including, without limitation, incremental tax liabilities, lawyers' fees and expenses) as a result of such Transfer or attempted Transfer and efforts to enforce the indemnity granted hereby. 9.5 No Dissolution or Termination. The transfer of a Membership Interest pursuant to the terms of this Article shall not dissolve or terminate the Company. No Member shall have the right to have the Company dissolved or to have such Member’s Capital Contribution returned except as provided in this Agreement. 9.6 Prohibition of Assignment. Notwithstanding the foregoing provisions of this Article, Transfer of a Membership Interest may not be made if the Membership Interest sought to be sold, exchanged or transferred, when added to the total of all other Membership Interests sold, exchanged or transferred within the period of twelve (12) consecutive months prior thereto, would result in the termination of the Company under Section 708 of the Internal Revenue Code. In the event of a transfer of any Membership Interests, the Members will determine, in their sole discretion, whether or not the Company will elect pursuant to Section 754 of the Internal Revenue Code (or corresponding provisions of future law) to adjust the basis of the assets of the Company. 9.7 Rights of Unadmitted Assignees. A Person who acquires Units but who is not admitted as a substituted Member pursuant to Section 9.8 hereof shall be entitled only to the Membership Economic Interests with respect to such Units in accordance with this Agreement, and shall not be entitled to the Membership Voting Interest with respect to such Units. In addition, such Person shall have no right to any information or accounting of the affairs of the Company, shall not be entitled to inspect the books or records of the Company, and shall not have any of the rights of a Member under the Act or this Agreement. 9.8 Admission of Substituted Members. As to Permitted Transfers, a transferee of Units shall be admitted as a substituted Member provided that such transferee has complied with the following provisions: (a) The transferee of Units shall, by written instrument in form and substance reasonably satisfactory to the Directors; (i) accept and adopt the terms and provisions of this Agreement, including this Section 9, and (ii) assume the obligations of the transferor Member under this Agreement with respect to the transferred Units. The transferor Member shall be released from all such assumed obligations except (x) those obligations or liabilities of the transferor Member arising out of a breach of this Agreement, (y) in the case of a Transfer to any Person other than a Member or any of its Affiliates, those obligations or liabilities of the transferor Member based on events occurring, arising or maturing prior to the date of Transfer, and (z) in the case of a Transfer to any of its Affiliates, any Capital Contribution or other financing obligation of the transferor Member under this Agreement; (b) The transferee pays or reimburses the Company for all reasonable legal, filing, and publication costs that the Company incurs in connection with the admission of the transferee as a Member with respect to the Transferred Units; and (c) Except in the case of a Transfer involuntarily by operation of law, if required by the Directors, the transferee (other than a transferee that was a Member prior to the Transfer) shall deliver to the Company evidence of the authority of such Person to become a Member and to be bound by all of the terms and conditions of this Agreement, and the transferee and transferor shall each execute and deliver such other instruments as the Directors reasonably deem necessary or appropriate to effect, and as a condition to, such Transfer.
34 9.9 Representations Regarding Transfers. (a) Each Member hereby covenants and agrees with the Company for the benefit of the Company and all Members, that (i) it is not currently making a market in Units and will not in the future make a market in Units, (ii) it will not Transfer its Units on an established securities market, a secondary market (or the substantial equivalent thereof) within the meaning of Code Section 7704(b) (and any Regulations, proposed Regulations, revenue rulings, or other official pronouncements of the Internal Revenue Service or Treasury Department that may be promulgated or published thereunder), and (iii) in the event such Regulations, revenue rulings, or other pronouncements treat any or all arrangements which facilitate the selling of Company interests and which are commonly referred to as "matching services" as being a secondary market or substantial equivalent thereof, it will not Transfer any Units through a matching service that is not approved in advance by the Company. Each Member further agrees that it will not Transfer any Units to any Person unless such Person agrees to be bound by this Section 9 and to Transfer such Units only to Persons who agree to be similarly bound. (b) Each Member hereby represents and warrants to the Company and the Members that such Member's acquisition of Units hereunder is made as principal for such Member's own account and not for resale or distribution of such Units. Each Member further hereby agrees that the following legend, as the same may be amended by the Directors in their sole discretion, may be placed upon any counterpart of this Agreement, the Articles, or any other document or instrument evidencing ownership of Units: THE TRANSFERABILITY OF THE MEMBERSHIP UNITS REPRESENTED BY THIS DOCUMENT IS RESTRICTED. SUCH UNITS MAY NOT BE SOLD, ASSIGNED, OR TRANSFERRED, NOR WILL ANY ASSIGNEE, VENDEE, TRANSFEREE OR ENDORSEE THEREOF BE RECOGNIZED AS HAVING ACQUIRED ANY SUCH UNITS FOR ANY PURPOSES, UNLESS AND TO THE EXTENT SUCH SALE, TRANSFER, HYPOTHECATION, OR ASSIGNMENT IS PERMITTED BY, AND IS COMPLETED IN STRICT ACCORDANCE WITH, THE TERMS AND CONDITIONS SET FORTH IN THE OPERATING AGREEMENT OF THE COMPANY AND AGREED TO BY EACH MEMBER. THE UNITS REPRESENTED BY THIS DOCUMENT MAY NOT BE SOLD, OFFERED FOR SALE, OR TRANSFERRED IN ABSENCE OF AN EFFECTIVE REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND UNDER APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH TRANSACTION IS EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND UNDER APPLICABLE STATE SECURITIES LAWS. 9.10. Distribution and Allocations in Respect of Transferred Units. If any Units are Transferred during any Fiscal Year in compliance with the provisions of this Section 9, Profits, Losses, each item thereof, and all other items attributable to the Transferred Units for such Fiscal Year shall be divided and allocated between the transferor and the transferee by taking into account their varying interests during the Fiscal Year in accordance with Code Section 706(d), using any conventions
35 permitted by law and selected by the Directors. All distributions on or before the date of such Transfer shall be made to the transferor, and all distributions thereafter shall be made to the transferee. Solely for purposes of making such allocations and distributions, the Company shall recognize such Transfer to be effective as of the first day of the month following the month in which all documents to effectuate the transfer have been executed and delivered to the Company, provided that, if the Company does not receive a notice stating the date such Units were transferred and such other information as the Directors may reasonably require within thirty (30) days after the end of the Fiscal Year during which the Transfer occurs, then all such items shall be allocated, and all distributions shall be made, to the Person, who according to the books and records of the Company, was the owner of the Units on the last day of such Fiscal Year. Neither the Company nor any Member shall incur any liability for making allocations and distributions in accordance with the provisions of this Section 9.10 whether or not the Directors or the Company has knowledge of any Transfer of ownership of any Units. 9.11. Additional Members. Additional Members may be admitted from time to time upon the approval of the Directors. Any such additional Member shall pay such purchase price for his/her/its Membership Interest and shall be admitted in accordance with such terms and conditions, as the Directors shall approve. All Members acknowledge that the admission of additional Members may result in dilution of a Member’s Membership Interest. Prior to the admission of any Person as a Member, such Person shall agree to be bound by the provisions of this Agreement and shall sign and deliver an Addendum to this Agreement in the form of Exhibit C, attached hereto. Upon execution of such Addendum, such additional Members shall be deemed to be parties to this Agreement as if they had executed this Agreement on the original date hereof, and, along with the parties to this Agreement, shall be bound by all the provisions hereof from and after the date of execution hereof. The Members hereby designate and appoint the Directors to accept such additional Members and to sign on their behalf any Addendum in the form of Exhibit A, attached hereto. SECTION 10. DISSOLUTION AND WINDING UP 10.1. Dissolution. The Company shall dissolve and shall commence winding up and liquidating upon the first to occur of any of the following (each a "Dissolution Event"): (i) The affirmative vote of a 75% majority in interest of the Membership Voting Interests of the Class A Members, Class B Members, Class C Members and Class D Members, voting together as a single class, to dissolve, wind up, and liquidate the Company; or (ii) The entry of a decree of judicial dissolution pursuant to the Act. The Members hereby agree that, notwithstanding any provision of the Act, the Company shall not dissolve prior to the occurrence of a Dissolution Event. 10.2. Winding Up. Upon the occurrence of a Dissolution Event, the Company shall continue solely for the purposes of winding up its affairs in an orderly manner, liquidating its assets, and satisfying the claims of its creditors and Members, and no Member shall take any action that is inconsistent with, or not necessary to or appropriate for, the winding up of the Company's business and affairs, PROVIDED that all covenants contained in this Agreement and obligations provided for in this Agreement shall continue to be fully binding upon the Members until such time as the Property has been distributed pursuant to this Section 10.2 and the Articles have been canceled pursuant to the Act. The Liquidator shall be responsible for overseeing the prompt and orderly winding up and dissolution of the Company. The Liquidator shall take full account of the
36 Company's liabilities and Property and shall cause the Property or the proceeds from the sale thereof (as determined pursuant to Section 10.8 hereof), to the extent sufficient therefor, to be applied and distributed, to the maximum extent permitted by law, in the following order: (a) First, to creditors (including Members and Directors who are creditors, to the extent otherwise permitted by law) in satisfaction of all of the Company's Debts and other liabilities (whether by payment or the making of reasonable provision for payment thereof), other than liabilities for which reasonable provision for payment has been made; and (b) Second, except as provided in this Agreement, to Members in satisfaction of liabilities for distributions pursuant to the Act; (c) Third, the balance, if any, to the Unit Holders in accordance with the positive balance in their Capital Accounts calculated after making the required adjustment set forth in clause (t) of the definition of Gross Asset Value in Section 1.10 of this Agreement, after giving effect to all contributions, distributions and allocations for all periods. 10.3. Compliance with Certain Requirements of Regulations; Deficit Capital Accounts. In the event the Company is "liquidated" within the meaning of Regulations Section 1.704-1(b)(2)(ii)(g), distributions shall be made pursuant to this Section 10 to the Unit Holders who have positive Capital Accounts in compliance with Regulations Section 1.704-1(b)(2)(ii)(b)(2). If any Unit Holder has a deficit balance in his Capital Account (after giving effect to all contributions, distributions and allocations for all Fiscal Years, including the Fiscal Year during which such liquidation occurs), such Unit Holder shall have no obligation to make any contribution to the capital of the Company with respect to such deficit, and such deficit shall not be considered a debt owed to the Company or to any other Person for any purpose whatsoever. In the discretion of the Liquidator, a pro rata portion of the distributions that would otherwise be made to the Unit Holders pursuant to this Section 10 may be: (a) Distributed to a trust established for the benefit of the Unit Holders for the purposes of liquidating Company assets, collecting amounts owed to the Company, and paying any contingent or unforeseen liabilities or obligations of the Company. The assets of any such trust shall be distributed to the Unit Holders from time to time, in the reasonable discretion of the Liquidator, in the same proportions as the amount distributed to such trust by the Company would otherwise have been distributed to the Unit Holders pursuant to Section 10.2 hereof; or (b) Withheld to provide a reasonable reserve for Company liabilities (contingent or otherwise) and to reflect the unrealized portion of any installment obligations owed to the Company, provided that such withheld amounts shall be distributed to the Unit Holders as soon as practicable. 10.4. Deemed Distribution and Recontribution. Notwithstanding any other provision of this Section 10, in the event the Company is liquidated within the meaning of Regulations Section 1.704-1(b)(2)(ii)(g) but no Dissolution Event has occurred, the Property shall not be liquidated, the Company's Debts and other liabilities shall not be paid or discharged, and the Company's affairs shall not be wound up. 10.5. Rights of Unit Holders. Except as otherwise provided in this Agreement, each Unit Holder shall look solely to the Property of the Company for the return of its Capital Contribution and has no right or power to demand or receive Property other than cash from the Company. If the assets of the Company remaining after payment or discharge of the debts or liabilities of the Company are insufficient to return such Capital Contribution, the Unit Holders shall have no recourse against the Company or any other Unit Holder or Directors.
37 10.6. Allocations During Period of Liquidation. During the period commencing on the first day of the Fiscal Year during which a Dissolution Event occurs and ending on the date on which all of the assets of the Company have been distributed to the Unit Holders pursuant to Section 10.2 hereof (the "Liquidation Period"), the Unit Holders shall continue to share Profits, Losses, gain, loss and other items of Company income, gain, loss or deduction in the manner provided in Section 3 hereof. 10.7. Character of Liquidating Distributions. All payments made in liquidation of the interest of a Unit Holder in the Company shall be made in exchange for the interest of such Unit Holder in Property pursuant to Section 736(b)(1) of the Code, including the interest of such Unit Holder in Company goodwill. 10.8. The Liquidator. The "Liquidator" shall mean a Person appointed by the Directors to oversee the liquidation of the Company. Upon the consent of a majority in interest of the Membership Voting Interests of the Class A Members, the Liquidator may be the Directors. The Company is authorized to pay a reasonable fee to the Liquidator for its services performed pursuant to this Section 10 and to reimburse the Liquidator for its reasonable costs and expenses incurred in performing those services. The Company shall indemnify, save harmless, and pay all judgments and claims against such Liquidator or any officers, Directors, agents or employees of the Liquidator relating to any liability or damage incurred by reason of any act performed or omitted to be performed by the Liquidator, or any officers, Directors, agents or employees of the Liquidator in connection with the liquidation of the Company, including reasonable attorneys' fees incurred by the Liquidator, officer, Director, agent or employee in connection with the defense of any action based on any such act or omission, which attorneys' fees may be paid as incurred, except to the extent such liability or damage is caused by the fraud, intentional misconduct of, or a knowing violation of the laws by the Liquidator which was material to the cause of action. 10.9. Forms of Liquidating Distributions. For purposes of making distributions required by Section 10.2 hereof, the Liquidator may determine whether to distribute all or any portion of the Property in-kind or to sell all or any portion of the Property and distribute the proceeds therefrom. SECTION 11. MISCELLANEOUS 11.1. Notices. Any notice, payment, demand, or communication required or permitted to be given by any provision of this Agreement shall be in writing and shall be deemed to have been delivered, given, and received for all purposes (i) if delivered personally to the Person or to an officer of the Person to whom the same is directed, or (ii) if sent by email, or other electronic transmission, when such transmission is electronically confirmed as having been successfully transmitted; or (iii) if sent by regular or certified mail, postage and charges prepaid, addressed as follows, or to such other address as such Person may from time to time specify by notice to the Members and the Directors: (a) If to the Company, to the address determined pursuant to Section 1.4 hereof; (b) If to the Directors, to the address set forth on record with the Company; (c) If to a Member, either to the address set forth in the Membership Register or to such other address that has been provided in writing to the Company.
38 11.2. Binding Effect. Except as otherwise provided in this Agreement, every covenant, term, and provision of this Agreement shall be binding upon and inure to the benefit of the Members and their respective successors, transferees, and assigns. 11.3. Construction. Every covenant, term, and provision of this Agreement shall be construed simply according to its fair meaning and not strictly for or against any Member. 11.4. Headings. Section and other headings contained in this Agreement are for reference purposes only and are not intended to describe, interpret, define, or limit the scope, extent, or intent of this Agreement or any provision hereof. 11.5. Severability. Except as otherwise provided in the succeeding sentence, every provision of this Agreement is intended to be severable, and, if any term or provision of this Agreement is illegal or invalid for any reason whatsoever, such illegality or invalidity shall not affect the validity or legality of the remainder of this Agreement. The preceding sentence of this Section 11.5 shall be of no force or effect if the consequence of enforcing the remainder of this Agreement without such illegal or invalid term or provision would be to cause any Member to lose the material benefit of its economic bargain. 11.6. Incorporation By Reference. Every exhibit, schedule, and other appendix attached to this Agreement and referred to herein is incorporated in this Agreement by reference unless this Agreement expressly otherwise provides. 11.7. Variation of Terms. All terms and any variations thereof shall be deemed to refer to masculine, feminine, or neuter, singular or plural, as the identity of the Person or Persons may require. 11.8. Governing Law. The laws of the State of Indiana shall govern the validity of this Agreement, the construction of its terms, and the interpretation of the rights and duties arising hereunder. 11.9. Waiver of Jury Trial. Each of the Members irrevocably waives to the extent permitted by law, all rights to trial by jury in any action, proceeding or counterclaim arising out of or relating to this Agreement. 11.10. Counterpart Execution; Electronic Signatures. This Agreement may be executed in any number of counterparts with the same effect as if all of the Members had signed the same document and electronic and facsimiles signatures shall be considered valid signatures for purposes of this Agreement. All counterparts shall be construed together and shall constitute one agreement. 11.11. Specific Performance. Each Member agrees with the other Members that the other Members would be irreparably damaged if any of the provisions of this Agreement are not performed in accordance with their specific terms and that monetary damages would not provide an adequate remedy in such event. Accordingly, it is agreed that, in addition to any other remedy to which the nonbreaching Members may be entitled, at law or in equity, the nonbreaching Members shall be entitled to injunctive relief to prevent breaches of the provisions of this Agreement and specifically to enforce the terms and provisions hereof in any action instituted in any court of the United States or any state thereof having subject matter jurisdiction thereof.
1 IN WITNESS WHEREOF, the parties have executed and entered into this Third Amended and Restated Operating Agreement of the Company as of the day first set forth above. COMPANY: CARDINAL ETHANOL, LLC By:____________________________ Its: Chairman
1 EXHIBIT “A” MEMBER SIGNATURE PAGE ADDENDA TO THE THIRD AMENDED AND RESTATED OPERATING AGREEMENT OF CARDINAL ETHANOL, LLC The undersigned does hereby represent and warrant that the undersigned, as a condition to becoming a Member in Cardinal Ethanol, LLC, has received a copy of the Third Amended and Restated Operating Agreement dated [·], 2024, and, if applicable, all amendments and modifications thereto, and does hereby agree that the undersigned, along with the other parties to the Third Amended and Restated Operating Agreement, shall be subject to and comply with all terms and conditions of said Third Amended and Restated Operating Agreement in all respects as if the undersigned had executed said Third Amended and Restated Operating Agreement on the original date thereof and that the undersigned is and shall be bound by all of the provisions of said Third Amended and Restated Operating Agreement from and after the date of execution hereof. Individuals: Entities: Name of Individual Member (Please Print) Name of Entity (Please Print) Signature of Individual Print Name and Title of Officer Name of Joint Individual Member (Please Print) Signature of Officer Signature of Joint Individual Member Agreed and Accepted on Behalf of the Company and its Members: CARDINAL ETHANOL, LLC By: Its:
SECONDTHIRD AMENDED AND RESTATED OPERATING AGREEMENT OF CARDINAL ETHANOL, LLC Dated Effective February 1, 2006[·], 2024
i CARDINAL ETHANOL, LLC SECONDTHIRD AMENDED AND RESTATED OPERATING AGREEMENT TABLE OF CONTENTS Page TABLE OF CONTENTS .................................................................................................. i SECTION 1. THE COMPANY .......................................................................................1 1.1 Formation ........................................................................................................1 1.2 Name ................................................................................................................1 1.3 Purpose; Powers ..............................................................................................2 1.4 Principal Place of Business .............................................................................2 1.5 Term ................................................................................................................2 1.6 Registered Agent .............................................................................................2 1.7 Title to Property ...............................................................................................2 1.8 Payment of Individual Obligations ..................................................................2 1.9 Independent Activities; Transactions With Affiliates. ....................................2 1.10 Definitions .......................................................................................................3 SECTION 2. CAPITAL CONTRIBUTIONS; CAPITAL ACCOUNTS .....................9 2.1 Original Capital Contributions ........................................................................9 2.2 Additional Capital Contributions; Additional Units ........................................9 2.3 Capital Accounts .............................................................................................9 SECTION 3. ALLOCATIONS ......................................................................................10 3.1 Profits ............................................................................................................10 3.2 Losses ............................................................................................................10 3.3 Special Allocations ........................................................................................10 3.4 Curative Allocations ......................................................................................12 3.5 Loss Limitation ..............................................................................................12 3.6 Other Allocation Rules ..................................................................................13 3.7 Tax Allocations: Code Section 704(c). ........................................................13 3.8 Tax Credit Allocations ..................................................................................13 SECTION 4. DISTRIBUTIONS ....................................................................................14 4.1. Net Cash Flow ...............................................................................................14 4.2. Amounts Withheld .........................................................................................14 4.3. Limitations on Distributions ..........................................................................14 SECTION 5. MANAGEMENT .....................................................................................14 5.1. Directors ........................................................................................................14 5.2. Number of Total Directors ............................................................................14 5.3. Election of Directors ......................................................................................15 5.4. Committees ....................................................................................................17 5.5. Authority of Directors ...................................................................................17
ii 5.6. Director as Agent ...........................................................................................19 5.7. Restrictions on Authority of Directors ..........................................................19 5.8. Director Meetings and Notice .......................................................................20 5.9. Action Without a Meeting .............................................................................20 5.10. Quorum; Manner of Acting ...........................................................................21 5.11. Voting; Potential Financial Interest ...............................................................21 5.12. Duties and Obligations of Directors ..............................................................21 5.13. Chairman and Vice Chairman .......................................................................21 5.14. President and Chief Executive Officer ..........................................................21 5.15. Chief Financial Officer ..................................................................................22 5.16. Secretary; Assistant Secretary .......................................................................22 5.17. Vice President ................................................................................................22 5.18. Delegation ......................................................................................................22 5.19. Execution of Instruments ...............................................................................22 5.20. Limitation of Liability; Indemnification of Directors ...................................22 5.21. Compensation; Expenses of Directors ...........................................................23 5.22. Loans .............................................................................................................23 SECTION 6. ROLE OF MEMBERS ............................................................................24 6.1 One Membership Class ..................................................................................24 6.3 Additional Members ......................................................................................24 6.4 Rights or Powers ............................................................................................24 6.5 Voting Rights of Members ............................................................................24 6.6 Member Meetings ..........................................................................................24 6.7 Conduct of Meetings .....................................................................................24 6.8 Notice of Meetings; Waiver ..........................................................................24 6.9 Quorum and Proxies ......................................................................................25 6.10 Voting; Action by Members ..........................................................................25 6.11 Record Date ...................................................................................................25 6.12 Termination of Membership ..........................................................................25 6.13 Continuation of the Company .......................................................................25 6.14 No Obligation to Purchase Membership Interest ..........................................25 6.15 Waiver of Dissenters Rights ..........................................................................25 6.16 Limitation on Ownership. ..............................................................................25 SECTION 7. ACCOUNTING, BOOKS AND RECORDS .........................................26 7.1 Accounting, Books and Records ...................................................................26 7.2 Delivery to Members and Inspection ............................................................26 7.3 Reports ...........................................................................................................26 7.4 Tax Matters ....................................................................................................27 SECTION 8. AMENDMENTS ......................................................................................27 8.1 Amendments ..................................................................................................27 SECTION 9. TRANSFERS ............................................................................................28 9.1 Restrictions on Transfers ...............................................................................28 9.3 Conditions Precedent to Transfers .................................................................28
iii 9.4 Prohibited Transfers ......................................................................................30 9.5 No Dissolution or Termination ......................................................................30 9.6 Prohibition of Assignment .............................................................................30 9.7 Rights of Unadmitted Assignees ...................................................................30 9.8 Admission of Substituted Members ..............................................................31 9.9 Representations Regarding Transfers. ...........................................................31 9.10. Distribution and Allocations in Respect of Transferred Units ......................32 SECTION 10. DISSOLUTION AND WINDING UP ..................................................33 10.1. Dissolution .....................................................................................................33 10.2. Winding Up ...................................................................................................33 10.3. Compliance with Certain Requirements of Regulations; Deficit Capital Accounts ........................................................................................................33 10.4. Deemed Distribution and Recontribution ......................................................34 10.5. Rights of Unit Holders ...................................................................................34 10.6. Allocations During Period of Liquidation .....................................................34 10.7. Character of Liquidating Distributions ..........................................................34 10.8. The Liquidator ...............................................................................................34 10.9. Forms of Liquidating Distributions ...............................................................35 SECTION 11. MISCELLANEOUS ..............................................................................35 11.1. Notices ...........................................................................................................35 11.2. Binding Effect ...............................................................................................35 11.3. Construction ..................................................................................................35 11.4. Headings ........................................................................................................35 11.5. Severability ....................................................................................................35 11.6. Incorporation By Reference ..........................................................................35 11.7. Variation of Terms ........................................................................................36 11.8. Governing Law ..............................................................................................36 11.9. Waiver of Jury Trial ......................................................................................36 11.10. Counterpart Execution ...............................................................................36
i SECONDSECTION 1: THE COMPANY ........................................................................2 1.1 Formation ...........................................................................................................2 1.2 Name …………………………………………………………………………..2 1.3 Purpose; Powers .................................................................................................2 1.4 Principal Place of Business ................................................................................2 1.5 Term 2 1.6 Registered Agent ................................................................................................2 1.7 Title to Property .................................................................................................2 1.8 Payment of Individual Obligations ....................................................................3 1.9 Independent Activities; Transactions With Affiliates ........................................3 1.10 Definitions........................................................................................................3 SECTION 2. CAPITAL CONTRIBUTIONS; CAPITAL ACCOUNTS ....................11 2.1 Original Capital Contributions .........................................................................11 2.2 Additional Capital Contributions; Additional Units ........................................11 2.3 Capital Accounts ..............................................................................................11 SECTION 3. ALLOCATIONS .......................................................................................12 3.1 Profits ...............................................................................................................12 3.2 Losses ...............................................................................................................12 3.3 Special Allocations ..........................................................................................12 3.7 Tax Allocations: Code Section 704(c) .............................................................15 3.8 Tax Credit Allocations .....................................................................................15 SECTION 4. DISTRIBUTIONS .....................................................................................15 4.1 Net Cash Flow..................................................................................................15 4.2 Amounts Withheld ...........................................................................................15 4.3 Limitations on Distributions ............................................................................16 SECTION 5. MANAGEMENT ......................................................................................16 5.1 Directors ...........................................................................................................16 5.2 Number of Total Directors ...............................................................................16 5.3 Election of Directors ........................................................................................16 5.4 Committees ......................................................................................................19 5.5 Authority of Directors ......................................................................................19 5.6 Director as Agent .............................................................................................21 5.7 Restriction on Authority of Directors ..............................................................21 5.8 Director Meetings and Notice ..........................................................................22 5.9 Action Without a Meeting ...............................................................................22 5.10 Quorum; Manner of Acting ...........................................................................22 5.11 Voting; Potential Financial Interest ...............................................................23 5.12 Duties and Obligations of Directors ..............................................................23 5.13 Chairman and Vice Chairman ........................................................................23 5.14 President and Chief Executive Officer ..........................................................23 5.15 Chief Financial Officer ..................................................................................24
ii 5.16 Secretary; Assistant Secretary........................................................................24 5.17 Vice President ................................................................................................24 5.18 Delegation ......................................................................................................24 5.19 Execution of Instruments ...............................................................................24 5.20 Limitation of Liability; Indemnification of Directors ....................................24 5.21 Compensation; Expenses of Directors ...........................................................25 5.22 Loans ..............................................................................................................25 SECTION 6. ROLE OF MEMBERS .............................................................................26 6.2 Members ..........................................................................................................26 6.3 Additional Members ........................................................................................26 6.4 Rights or Powers ..............................................................................................26 6.5 Voting Rights of Members...............................................................................26 6.6 Member Meetings ............................................................................................27 6.7 Conduct of Meetings ........................................................................................27 6.8 Notice of Meetings; Waiver .............................................................................27 6.9 Quorum and Proxies ........................................................................................27 6.10 Voting; Action by Members ..........................................................................27 6.11 Record Date ...................................................................................................27 6.12 Termination of Membership ..........................................................................28 6.13 Continuation of the Company ........................................................................28 6.14 No Obligation to Purchase Membership Interest ...........................................28 6.15 Waiver of Dissenters Rights ..........................................................................28 SECTION 7. ACCOUNTING, BOOKS AND RECORDS ..........................................28 7.1 Accounting, Books and Records ......................................................................28 7.2 Delivery to Members and Inspection ...............................................................29 7.3 Reports .............................................................................................................29 7.4 Tax Matters ......................................................................................................29 SECTION 8. AMENDMENTS .......................................................................................31 8.1 Amendments ....................................................................................................31 SECTION 9. TRANSFERS .............................................................................................31 9.1 Restrictions on Transfers .................................................................................31 9.2 Permitted Transfers ..........................................................................................32 9.3 Conditions Precedent to Transfers ...................................................................33 9.4 Prohibited Transfers .........................................................................................34 9.5 No Dissolution or Termination ........................................................................35 9.6 Prohibition of Assignment ...............................................................................35 9.7 Rights of Unadmitted Assignees ......................................................................35 9.8 Admission of Substituted Members .................................................................35 9.9 Representations Regarding Transfers ..............................................................36 9.10 Distribution and Allocations in Respect of Transferred Units.......................36 9.11 Additional Members ......................................................................................37 SECTION 10. DISSOLUTION AND WINDING UP ..................................................37
iii 10.1 Dissolution .....................................................................................................37 10.2 Winding Up ....................................................................................................37 10.3 Compliance with Certain Requirements of Regulations; Deficit Capital Accounts ........................................................................................................38 10.4 Deemed Distribution and Recontribution ......................................................38 10.5 Rights of Unit Holders ...................................................................................38 10.6 Allocations During Period of Liquidation .....................................................39 10.7 Character of Liquidating Distributions ..........................................................39 10.8 The Liquidator ...............................................................................................39 10.9 Forms of Liquidating Distributions ...............................................................39 SECTION 11. MISCELLANEOUS ...............................................................................39 11.1 Notices ...........................................................................................................39 11.2 Binding Effect ................................................................................................40 11.3 Construction ...................................................................................................40 11.4 Headings ........................................................................................................40 11.5 Severability ....................................................................................................40 11.6 Incorporation By Reference ...........................................................................40 11.7 Variation of Terms .........................................................................................40 11.8 Governing Law ..............................................................................................40 11.9 Waiver of Jury Trial .......................................................................................40 11.10 Counterpart Execution .................................................................................40 11.11 Specific Performance ...................................................................................40
1 THIRD AMENDED AND RESTATED OPERATING AGREEMENT OF CARDINAL ETHANOL, LLC THIS SECONDTHIRD AMENDED AND RESTATED OPERATING AGREEMENT (the "Agreement") is entered into and shall be effective as of February 1, 2006[·], 2024, by and among Cardinal Ethanol, LLC f/k/a Indiana Ethanol, LLC, an Indiana limited liability company (the "Company"), each of the Persons (as hereinafter defined) who are identified as Members on the attached Exhibit “A” and who have executed a counterpart of this Agreement and a Subscription Agreement,been admitted as a Member of the Company and any other Persons asthat may from time-to-time be subsequently admitted as a Member of the CompanyMembers in accordance with the terms of this Agreement. Capitalized terms not otherwise defined herein shall have the meaning set forth in Section 1.10. WHEREAS, the Company’s organizers caused to be filed with the State of Indiana, Articles of Organization dated February 3, 2005, pursuant to the Indiana Business Flexibility Act (the "Act"); and WHEREAS, the Company’s organizers adopted an Operating Agreement the Members of the Company dated February 14, 2005, pursuant to the Act; WHEREAS the Company amended theadopted the Second Amended and Restated Operating Agreement of the Company effective October 24, 2005;February 1, 2006, which was later amended by the Members on February 20, 2018; WHEREAS, the Company amended its Articles of Organization to change its name to Cardinal Ethanol, LLC; and WHEREAS, the Members desire to amend and restate the Second Amended and Restated Operating Agreement to incorporate the previous amendment and revise and set forth their respective rights, duties, and responsibilities with respect to the Company and its business and affairs. as set forth herein; and WHEREAS, the Members voted to adopt this Agreement at a Special Meeting of the Members of the Company held on [·], 2024. NOW, THEREFORE, in consideration of the covenants and agreements contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
2 SECTION 1. THE COMPANY 1.1 Formation. The initial Members formed the Company as an Indiana limited liability company by filing Articles of Organization with the Indiana Secretary of State on February 3, 2005, pursuant to the provisions of the Act. To the extent that the rights or obligations of any Member are different by reason of any provision of this Agreement than they would be in the absence of such provision, this Agreement shall, to the extent permitted by the Act, control. 1.2 Name. The name of the Company shall be "Cardinal Ethanol, LLC" and all business of the Company shall be conducted in such name. 1.3 Purpose; Powers. The nature of the business and purposes of the Company are: (i) to own, construct, operate, lease, finance, contract with, and/or invest in ethanol production and co-product production facilities as permitted under the applicable laws of the State of Indiana; (ii) to engage in the processing of corn, grains and other feedstock into ethanol and any and all related co- products, and the marketing of all products and co-products from such processing; and (iii) to engage in any other business and investment activity in which an Indiana limited liability company may lawfully be engaged, as determined by the Directors. The Company has the power to do any and all acts necessary, appropriate, proper, advisable, incidental or convenient to or in furtherance of the purpose of the Company as set forth in this Section 1.3 and has, without limitation, any and all powers that may be exercised on behalf of the Company by the Directors pursuant to Section 5 hereof. 1.4 Principal Place of Business. The Company shall continuously maintain a principal place of business in Indiana. The principal place of business of the Company shall be at 102 West Washington Street, Winchester1554 N. County Road 600 E, Union City, Indiana 4739447390, or elsewhere as the Directors may determine. Any documents required by the Act to be kept by the Company shall be maintained at the Company's principal place of business. 1.5 Term. The term of the Company commenced on the date the Articles of Organization (the "Articles") of the Company were filed with the Indiana Secretary of State and shall continue until the winding up and liquidation of the Company and its business is completed following a Dissolution Event as provided in Section 10 hereof. 1.6 Registered Agent. The Company shall continuously maintain a registered office and a registered agent for service of process in the State of Indiana. The name and address of the initial Registered Agent shall be John Shanks, 338 Historic West Eighth Street, Anderson, Indiana 46016. 1.7 Title to Property. All Property owned by the Company shall be owned by the Company as an entity and no Member shall have any ownership interest in such Property (as hereinafter defined) in his/her/its individual name. Each Member's interest in the Company shall be personal property for all purposes. At all times after the Effective Date, the Company shall hold title to all of its Property in the name of the Company and not in the name of any Member.
3 1.8 Payment of Individual Obligations. The Company's credit and assets shall be used solely for the benefit of the Company, and no asset of the Company shall be Transferred or encumbered for, or in payment of, any individual obligation of any Member. 1.9 Independent Activities; Transactions With Affiliates. The Directors shall be required to devote such time to the affairs of the Company as may be necessary to manage and operate the Company, and shall be free to serve any other Person or enterprise in any capacity that the Director may deem appropriate in its discretion. Neither this Agreement nor any activity undertaken pursuant hereto shall (i) prevent any Member or Director or its Affiliates, acting on its own behalf, from engaging in whatever activities it chooses, whether the same are competitive with the Company or otherwise, and any such activities may be undertaken without having or incurring any obligation to offer any interest in such activities to the Company or any Member; or (ii) require any Member or Director to permit the Company or Director or Member or its Affiliates to participate in any such activities, and as a material part of the consideration for the execution of this Agreement by each Member, each Member hereby waives, relinquishes, and renounces any such right or claim of participation. To the extent permitted by applicable law and subject to the provisions of this Agreement, the Directors are hereby authorized to cause the Company to purchase Property from, sell Property to or otherwise deal with any Member (including any Member who is also a Director), acting on its own behalf, or any Affiliate of any Member; provided that any such purchase, sale or other transaction shall be made on terms and conditions which are no less favorable to the Company than if the sale, purchase or other transaction had been made with an independent third party. 1.10 Definitions. Capitalized words and phrases used in this Agreement have the following meanings: (a) "Act" means the Indiana Business Flexibility Act, as amended from time to time (or any corresponding provision or provisions of any succeeding law). (b) "Adjusted Capital Account Deficit" means, with respect to any Unit Holder, the deficit balance, if any, in such Unit Holder's Capital Account as of the end of the relevant Fiscal Year, after giving effect to the following adjustments: (i) Credit to such Capital Account any amounts which such Unit Holder is deemed to be obligated to restore pursuant to the next to the last sentences in Sections 1.704-2(g)(1) and 1.704-2(i)(5) of the Regulations; and (ii) Debit to such Capital Account the items described in Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5) and 1.704-1(b)(2)(ii)(d)(6) of the Regulations. The foregoing definition is intended to comply with the provisions of Section 1.704-1(b)(2)(ii)(d) of the Regulations and shall be interpreted consistently therewith. (c) "Affiliate" means, with respect to any Person: (i) any Person directly or indirectly controlling, controlled by or under common control with such Person; (ii) any officer, director, general partner, member or trustee of such Person; or (iii) any Person who is an officer, director, general partner, member or trustee of any Person described in clauses (i) or (ii) of this sentence. For purposes of this definition, the terms "controlling," "controlled by" or "under common control with" shall mean the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person or entity, whether through the ownership of voting
4 securities, by contract or otherwise, or the power to elect at least 50% of the directors, members, or persons exercising similar authority with respect to such Person or entities. (d) "Agreement" means this SecondThird Amended and Restated Operating Agreement of Indiana Ethanol, LLC, as amended from time to time. (e(e) “Appointing Member” has the meaning set forth in Section 5.3(c). (f) “Articles” means the Articles of Organization of the Company filed with the Indiana Secretary of State, as same may be amended from time to time. (fg) "Assignee" means a transferee of Units who is not admitted as a substituted member pursuant to Section 9.8. (g(h) “BBA” has the meaning set forth in Section 7.4(a) hereof. (i) “BBA Procedures” means the partnership audit procedures enacted under Section 1101 of the BBA. (j) "Capital Account" means the separate capital account maintained for each Unit Holder in accordance with Section 2.3. (hk) "Capital Contributions" means, with respect to any Member, the amount of money (US Dollars) and the initial Gross Asset Value of any assets or property (other than money) contributed by the Member (or such Member's predecessor in interest) to the Company (net of liabilities secured by such contributed property that the Company is considered to assume or take subject to under Code Section 752) with respect to the Units in the Company held or purchased by such Member, including additional Capital Contributions. (i(l) “Class A Member” means any Person (i) who has become a Member pursuant to the terms of this Agreement, and (ii) who is the owner of one or more Class A Units. “Class A Members” means all such persons. (m) “Class A Unit” means an ownership interest in the Company representing a Capital Contribution made as provided in Section 2 in consideration of Units that have been classified into Class A Units, including any and all benefits to which the holder of such Units may be entitled as provided in this Agreement, together with all obligations of such Person to comply with the terms and provisions of this Agreement. (n) “Class A Unit Holders(s)” means the owner(s) of one or more Class A Units. (o) “Class B Member” means any Person (i) who has become a Member under this Agreement, and (ii) who is the owner of one or more Class B Units. “Class B Members” means all such Persons. (p) “Class B Unit” means an ownership interest in the Company representing a Capital Contribution made as provided in Section 2 in consideration of Units that have been classified into
5 Class B Units, including any and all benefits to which the holder of such Units may be entitled as provided in this Agreement, together with all obligations of such Person to comply with the terms and provisions of this Agreement. (q) “Class B Unit Holders(s)” means the owner(s) of one or more Class B Units. (r) “Class C Member” means any Person (i) who has become a Member under this Agreement, and (ii) who is the owner of one or more Class C Units. “Class C Members” means all such Persons. (s) “Class C Unit” means an ownership interest in the Company representing a Capital Contribution made as provided in Section 2 in consideration of Units that have been classified into Class C Units, including any and all benefits to which the holder of such Units may be entitled as provided in this Agreement, together with all obligations of such Person to comply with the terms and provisions of this Agreement. (t) “Class C Unit Holders(s)” means the owner(s) of one or more Class C Units. (u) “Class D Member” means any Person (i) who has become a Member under this Agreement, and (ii) who is the owner of one or more Class D Units. “Class D Members” means all such Persons. (v) “Class D Unit” means an ownership interest in the Company representing a Capital Contribution made as provided in Section 2 in consideration of Units that have been classified into Class D Units, including any and all benefits to which the holder of such Units may be entitled as provided in this Agreement, together with all obligations of such Person to comply with the terms and provisions of this Agreement. (w) “Class D Unit Holders(s)” means the owner(s) of one or more Class D Units. (x) “Classification” refers to the division of the Units into different classes such that the Company has fewer than 300 Class A Unit Holders of record, resulting in a suspension of the Company’s reporting obligations as a public company upon making the appropriate filings with the SEC. (y) “Classification Date” means 5:00pm ET on [·], 2024. (z) "Code" means the United States Internal Revenue Code of 1986, as amended from time to time. (jaa) "Company" means Cardinal Ethanol, LLC, an Indiana limited liability company. (kbb) "Company Minimum Gain" has the meaning given the term "partnership minimum gain" in Sections 1.704-2(b)(2) and 1.704-2(d) of the Regulations. (lcc) "Debt" means (i) any indebtedness for borrowed money or the deferred purchase price of property as evidenced by a note, bonds, or other instruments; (ii) obligations as lessee
6 under capital leases; (iii) obligations secured by any mortgage, pledge, security interest, encumbrance, lien or charge of any kind existing on any asset owned or held by the Company whether or not the Company has assumed or become liable for the obligations secured thereby; (iv) any obligation under any interest rate swap agreement; (v) accounts payable; and (vi) obligations under direct or indirect guarantees of (including obligations (contingent or otherwise) to assure a creditor against loss in respect of) indebtedness or obligations of the kinds referred to in clauses (i), (ii), (iii), (iv) and (v), above provided that Debt shall not include obligations in respect of any accounts payable that are incurred in the ordinary course of the Company's business and are not delinquent or are being contested in good faith by appropriate proceedings. (mdd) "Depreciation" means, for each Fiscal Year, an amount equal to the depreciation, amortization, or other cost recovery deduction allowable with respect to an asset for such Fiscal Year, except that if the Gross Asset Value of an asset differs from its adjusted basis for federal income tax purposes at the beginning of such Fiscal Year, Depreciation shall be an amount which bears the same ratio to such beginning Gross Asset Value as the federal income tax depreciation, amortization, or other cost recovery deduction for such Fiscal Year bears to such beginning adjusted tax basis; provided, however, that if the adjusted basis for federal income tax purposes of an asset at the beginning of such Fiscal Year is zero, Depreciation shall be determined with reference to such beginning Gross Asset Value using any reasonable method selected by the Directors. (nee) "Director" means any Person who (i) is referred to as such in Section 5.1 of this Agreement or has become a Director pursuant to the terms of this Agreement, and (ii) has not ceased to be a Director pursuant to the terms of this Agreement. "Directors" mean all such Persons. For purposes of the Act, the Directors shall be deemed to be the "managers" (as such term is defined and used in the Act) of the Company. (off) "Dissolution Event" shall have the meaning set forth in Section 10.1 hereof. (pgg) "Effective Date" means February 1, 2006[·], 2024. (qhh) "Facilities" shall mean the ethanol production and co-product production facilities in Indiana or such other location as may be determined by the Directors to be constructed and operated by the Company pursuant to the business plan. (r) “Financing Closing” shall mean the actual closing (execution and delivery of all required documents) by the Company with its project lender(s) providing for all debt financing, including senior and subordinated debt and any other project financing characterized by debt obligations and repayable as debt which is required by the project lender(s) or which is deemed necessary or prudent in the sole discretion of the Directors. (s(ii) "Fiscal Year" means (i) any twelve-month period commencing on JanuaryOctober 1 and ending on December 31September 30 and (ii) the period commencing on the immediately preceding JanuaryOctober 1 and ending on the date on which all Property is distributed to the Unit Holders pursuant to Section 10 hereof, or, if the context requires, any portion of a Fiscal Year for which an allocation of Profits or Losses or a distribution is to be made. The Directors may establish
7 a different Fiscal Year by a resolution approved by the affirmative vote of a majority of the Directors so long as the Fiscal Year chosen is not contrary to the Code or any provision of any state or local tax law. (tjj) “GAAP” means generally accepted accounting principles in effect in the United States of America from time to time. (ukk) “Gross Asset Value” means with respect to any asset, the asset’s adjusted basis for federal income tax purposes, except as follows: (i) The initial Gross Asset Value of any asset contributed by a Member to the Company shall be the gross fair market value of such asset, as determined by the Directors provided that the initial Gross Asset Values of the assets contributed to the Company pursuant to Section 2.1 hereof shall be as set forth in such section; (ii) The Gross Asset Values of all Company assets shall be adjusted to equal their respective gross fair market values (taking Code Section 7701(g) into account), as determined by the Directors as of the following times: (A) the acquisition of an additional interest in the Company by any new or existing Member in exchange for more than a de minimis Capital Contribution; (B) the distribution by the Company to a Member of more than a de minimis amount of Company property as consideration for an interest in the Company; and (C) the liquidation of the Company within the meaning of Regulations Section 1.704-1(b)(2)(ii)(g), provided that an adjustment described in clauses (A) and (B) of this paragraph shall be made only if the Directors reasonably determine that such adjustment is necessary to reflect the relative economic interests of the Members in the Company; (iii) The Gross Asset Value of any item of Company assets distributed to any Member shall be adjusted to equal the gross fair market value (taking Code Section 7701(g) into account) of such asset on the date of distribution as determined by the Directors; and (iv) The Gross Asset Values of Company assets shall be increased (or decreased) to reflect any adjustments to the adjusted basis of such assets pursuant to Code Section 734(b) or Code Section 743(b), but only to the extent that such adjustments are taken into account in determining Capital Accounts pursuant to Regulations Section 1.704-1(b)(2)(iv)(m) and subparagraph (vi) of the definition of “Profits” and “Losses” or Section 3.3(c) hereof; provided, however, that Gross Asset Values shall not be adjusted pursuant to this subparagraph (iv) to the extent that an adjustment pursuant to subparagraph (ii) is required in connection with a transaction that would otherwise result in an adjustment pursuant to this subparagraph (iv). If the Gross Asset Value of an asset has been determined or adjusted pursuant to subparagraph (ii) or (iv), such Gross Asset Value shall thereafter be adjusted by the Depreciation taken into account with respect to such asset, for purposes of computing Profits and Losses. (vll) “Issuance Items” has the meaning set forth in Section 3.3(h) hereof. (wmm) “Liquidation Period” has the meaning set forth in Section 10.6 hereof. (xnn) “Liquidator” has the meaning set forth in Section 10.8 hereof. (yoo) “Losses” has the meaning set forth in the definition of “Profits” and “Losses.” (zpp) “Member” means any Person (i) whose name is set forth as such on Exhibit “A” initially attached hereto orwho has become a Member pursuant to the terms of this Agreement,
8 and (ii) who is the owner of one or more UnitsClass A Units, Class B Units, Class C Units or Class D Units and has not ceased to be a Member pursuant to the terms of this Agreement. (aaqq) “Members” means all such Members. (bbrr) “Membership Economic Interest” means collectively, a Member’s share of “Profits” and “Losses,” the right to receive distributions of the Company’s assets, and the right to information concerning the business and affairs of the Company provided by the Act. The Membership Economic Interest of a Member is quantified by the unit of measurement referred to herein as “Units.” (ccss) “Membership Interest” means collectively, the Membership Economic Interest and Membership Voting Interest. (ddtt) “Membership Register” means the membership register maintained by the Company at its principal office or by a duly appointed agent of the Company setting forth the name, address, the number of Units, and Capital Contributions of each Member of the Company, which shall be modified from time to time as additional Units are issued and as Units are transferred pursuant to this Agreement. (eeuu) “Membership Voting Interest” means collectively, a Member’s right to vote as set forth in this Agreement or required by the Act. The Membership Voting Interest of a Member shall mean as to any matter to which the Member is entitled to vote hereunder or as may be required under the Act, the right to one (1) vote for each Unit registered in the name of such Member as shown in the Membership Register. (ffvv) “Net Cash Flow” means the gross cash proceeds of the Company less the portion thereof used to pay or establish reserves for all Company expenses, debt payments, capital improvements, replacements, and contingencies, all as reasonably determined by the Directors. “Net Cash Flow” shall not be reduced by depreciation, amortization, cost recovery deductions, or similar allowances, but shall be increased by any reductions of reserves previously established. (ggww) “Nonrecourse Deductions” has the meaning set forth in Section 1.704- 2(b)(1) of the Regulations. (hh) ““xx) “Nonrecourse Liability” has the meaning set forth in Section 1.704-2(b)(3) of the Regulations. (iiyy) “Officer” or “Officers” has the meaning set forth in Section 5.18 hereof. (jj(zz) “Partnership Representative” has the meaning set forth in Section 7.4 hereof. (aaa) “Permitted Transfer” has the meaning set forth in Section 9.2 hereof. (kk) (bbb) “Person” means any individual, partnership (whether general or limited), joint venture, limited liability company, corporation, trust, estate, association, nominee or other entity.
9 (llccc) “Profits and Losses” mean, for each Fiscal Year, an amount equal to the Company’s taxable income or loss for such Fiscal Year, determined in accordance with Code Section 703(a) (for this purpose, all items of income, gain, loss, or deduction required to be stated separately pursuant to Code Section 703(a)(1) shall be included in taxable income or loss), with the following adjustments (without duplication): (i) Any income of the Company that is exempt from federal income tax and not otherwise taken into account in computing Profits or Losses pursuant to this definition of “Profits” and “Losses” shall be added to such taxable income or loss; (ii) 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 Regulations Section 1.704-1(b)(2)(iv)(i), and not otherwise taken into account in computing Profits or Losses pursuant to this definition of “Profits” and “Losses” shall be subtracted from such taxable income or loss; (iii) In the event the Gross Asset Value of any Company asset is adjusted pursuant to subparagraphs (ii) or (iii) of the definition of Gross Asset Value, the amount of such adjustment shall be treated as an item of gain (if the adjustment increases the Gross Asset Value of the asset) or an item of loss (if the adjustment decreases the Gross Asset Value of the asset) from the disposition of such asset and shall be taken into account for purposes of computing Profits or Losses; (iv) Gain or loss resulting from any disposition of Property with respect to which gain or loss is recognized for federal income tax purposes shall be computed by reference to the Gross Asset Value of the Property disposed of, notwithstanding that the adjusted tax basis of such Property differs from its Gross Asset Value; (v) In lieu of the depreciation, amortization, and other cost recovery deductions taken into account in computing such taxable income or loss, there shall be taken into account Depreciation for such Fiscal Year, computed in accordance with the definition of Depreciation; (vi) To the extent an adjustment to the adjusted tax basis of any Company asset pursuant to Code Section 734(b) is required, pursuant to Regulations Section 1.704-(b)(2)(iv)(m)(4), to be taken into account in determining Capital Accounts as a result of a distribution other than in liquidation of a Unit Holder’s interest in the Company, the amount of such adjustment shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases such basis) from the disposition of such asset and shall be taken into account for purposes of computing Profits or Losses; and (vii) Notwithstanding any other provision of this definition, any items which are specially allocated pursuant to Section 3.3 and Section 3.4 hereof shall not be taken into account in computing Profits or Losses. The amounts of the items of Company income, gain, loss or deduction available to be specially allocated pursuant to Sections 3.3 and Section 3.4 hereof shall be determined by applying rules analogous to those set forth in subparagraphs (i) through (vi) above. (mmddd) “Property” means all real and personal property acquired by the Company, including cash, and any improvements thereto, and shall include both tangible and intangible property. (nneee)“Regulations” means the Income Tax Regulations, including Temporary Regulations, promulgated under the Code, as such regulations are amended from time to time. (oofff) “Regulatory Allocations” has the meaning set forth in Section 3.4 hereof. (ppggg) “Related Party” means the adopted or birth relatives of any Person and such Person’s spouse (whether by marriage or common law), if any, including without limitation great- grandparents, grandparents, parents, children (including stepchildren and adopted children),
10 grandchildren, and great-grandchildren thereof, and such Person’s (and such Person’s spouse’s) brothers, sisters, and cousins and their respective lineal ancestors and descendants, and any other ancestors and/or descendants, and any spouse of any of the foregoing, each trust created for the exclusive benefit of one or more of the foregoing, and the successors, assigns, heirs, executors, personal representatives and estates of any of the foregoing. (qqhhh) “Securities Act” means the Securities Act of 1933, as amended. (rriii) “Subsidiary” means any corporation, partnership, joint venture, limited liability company, association or other entity in which such Person owns, directly or indirectly, fifty percent (50%) or more of the outstanding equity securities or interests, the holders of which are generally entitled to vote for the election of the board of directors or other governing body of such entity. (ssjjj) “Tax Matters Member” has the meaning set forth in Section 7.4 hereof. (ttkkk) “Transfer” means, as a noun, any voluntary or involuntary transfer, sale, pledge or hypothecation or other disposition and, as a verb, voluntarily or involuntarily to transfer, give, sell, exchange, assign, pledge, bequest or hypothecate or otherwise dispose of. (uu) “Units” or “Unit” means an ownership interest in the Company representing a Capital Contribution made as provided in Section 2 in consideration of the Units, including any and all benefits to which the holder of such Units may be entitled as provided in this Agreement, together with all obligations of such Person to comply with the terms and provisions of this Agreement. (vv(lll) “Units” or “Unit” means all Class A Units, Class B Units, Class C Units and Class D Units when no distinction is required by the context in which the term is used herein. (mmm)“Unit Holders” means all Class A Unit Holders, Class B Unit Holders, Class C Unit Holders and Class D Unit Holders when no distinction is required by the context in which the term is used herein. (wwnnn) “Unit Holder” means the owner of one or more Units. Class A Units, Class B Units, Class C Units and Class D Units when no distinction is required by the context in which the term is used herein. (xxooo) “Unit Holder Nonrecourse Debt” has the same meaning as the term “partner nonrecourse debt” in Section 1.704-2(b)(4) of the Regulations. (yyppp) “Unit Holder Nonrecourse Debt Minimum Gain” means an amount, with respect to each Unit Holder Nonrecourse Debt, equal to the Company Minimum Gain that would result if such Unit Holder Nonrecourse Debt were treated as a Nonrecourse Liability, determined in accordance with Section 1.704-2(i)(3) of the Regulations. (zzqqq) “Unit Holder Nonrecourse Deductions” has the same meaning as the term “partner nonrecourse deductions” in Sections 1.704-2(i)(1) and 1.704-2(i)(2) of the Regulations.
11 SECTION 2. CAPITAL CONTRIBUTIONS; CAPITAL ACCOUNTS 2.1 Original Capital Contributions. The name, originaladdress, Capital Contribution, and initial Units quantifying the Membership Interest of each Member are set out in Exhibit A attached hereto, and shall also be set out in the Membership Register along with those Members admitted after the Effective Date. 2.2 Additional Capital Contributions; Additional Units. No Unit Holder shall be obligated to make any additional Capital Contributions to the Company or to pay any assessment to the Company, other than any unpaid amounts on such Unit Holder’s original Capital Contributions, and no Units shall be subject to any calls, requests or demands for capital. Subject to Section 5.7, additional Membership Economic Interests quantified by additional Units may be issued in consideration of Capital Contributions as agreed to between the Directors and the Person acquiring the Membership Economic Interest quantified by the additional Units. Each Person to whom additional Units are issued shall be admitted as a Member in accordance with this Agreement. Upon such Capital Contributions, the Directors shall cause Exhibit A and the Membership Register to be appropriately amended. 2.3 Capital Accounts. A Capital Account shall be maintained for each Unit Holder in accordance with the following provisions: (a) To each Unit Holder’s Capital Account there shall be credited (i) such Unit Holder’s Capital Contributions; (ii) such Unit Holder’s distributive share of Profits and any items in the nature of income or gain which are specially allocated pursuant to Section 3.3 and Section 3.4; and (iii) the amount of any Company liabilities assumed by such Unit Holder or which are secured by any Property distributed to such Unit Holder; (b) To each Unit Holder’s Capital Account there shall be debited (i) the amount of money and the Gross Asset Value of any Property distributed to such Unit Holder pursuant to any provision of this Agreement; (ii) such Unit Holder’s distributive share of Losses and any items in the nature of expenses or losses which are specially allocated pursuant to Section 3.3 and 3.4 hereof; and (iii) the amount of any liabilities of such Unit Holder assumed by the Company or which are secured by any Property contributed by such Unit Holder to the Company; (c) In the event Units are Transferred in accordance with the terms of this Agreement, the transferee shall succeed to the Capital Account of the transferor to the extent it relates to the Transferred Units; and (d) In determining the amount of any liability for purposes of subparagraphs (a) and (b) above there shall be taken into account Code Section 752(c) and any other applicable provisions of the Code and Regulations. The foregoing provisions and the other provisions of this Agreement relating to the maintenance of Capital Accounts are intended to comply with Regulations Section 1.704-1(b), and shall be interpreted and applied in a manner consistent with such Regulations. In the event the Directors shall determine that it is prudent to modify the manner in which the Capital Accounts, or any debits
12 or credits thereto (including, without limitation, debits or credits relating to liabilities which are secured by contributed or distributed property or which are assumed by the Company or any Unit Holders), are computed in order to comply with such Regulations, the Directors may make such modification, provided that it is not likely to have a material effect on the amounts distributed to any Person pursuant to Section 10 hereof upon the dissolution of the Company. The Directors also shall (i) make any adjustments that are necessary or appropriate to maintain equality between the Capital Accounts of the Unit Holders and the amount of capital reflected on the Company’s balance sheet, as computed for book purposes, in accordance with Regulations Section 1.704- 1(b)(2)(iv)(q), and (ii) make any appropriate modifications in the event unanticipated events might otherwise cause this Agreement not to comply with Regulations Section 1.704-1(b). SECTION 3. ALLOCATIONS 3.1 Profits. After giving effect to the special allocations in Section 3.3 and Section 3.4 hereof, Profits for any Fiscal Year shall be allocated among the Unit Holders in proportion to Units held, regardless of class. 3.2 Losses. After giving effect to the special allocations in Section 3.3 and 3.4 hereof, Losses for any Fiscal Year shall be allocated among the Unit Holders in proportion to Units held., regardless of class. 3.3 Special Allocations. The following special allocations shall be made in the following order: (a) Minimum Gain Chargeback. Except as otherwise provided in Section 1.704-2(f) of the Regulations, notwithstanding any other provision of this Section 3, if there is a net decrease in Company Minimum Gain during any Fiscal Year, each Unit Holder shall be specially allocated items of Company income and gain for such Fiscal Year (and, if necessary, subsequent Fiscal Years) in an amount equal to such Unit Holder’s share of the net decrease in Company Minimum Gain, determined in accordance with Regulations Section 1.704-2(g). Allocations pursuant to the previous sentence shall be made in proportion to the respective amounts required to be allocated to each Unit Holder pursuant thereto. The items to be so allocated shall be determined in accordance with sections 1.704-2(f)(6) and 1.704-2(j)(2) of the Regulations. This Section 3.3(a) is intended to comply with the minimum gain chargeback requirement in Section 1.704-2(f) of the Regulations and shall be interpreted consistently therewith. (b) Unit Holder Minimum Gain Chargeback. Except as otherwise provided in Section 1.704-2(i)(4) of the Regulations, notwithstanding any other provision of this Section 3, if there is a net decrease in Unit Holder Nonrecourse Debt Minimum Gain attributable to a Unit Holder Nonrecourse Debt during any Fiscal Year, each Unit Holder who has a share of the Unit Holder Nonrecourse Debt Minimum Gain attributable to such Unit Holder Nonrecourse Debt, determined in accordance with Section 1.704-2(i)(5) of the Regulations, shall be specially allocated items of Company income and gain for such Fiscal Year (and, if necessary, subsequent Fiscal Years) in an amount equal to such Unit Holder’s share of the net decrease in Unit Holder Nonrecourse Debt Minimum Gain, determined in accordance with Regulations Section 1.704-2(i)(4). Allocations pursuant to the previous sentence shall be made in proportion to the respective amounts required
13 to be allocated to each Unit Holder pursuant thereto. The items to be so allocated shall be determined in accordance with Sections 1.704-2(i)(4) and 1.704-2(j)(2) of the Regulations. This Section 3.3(b) is intended to comply with the minimum gain chargeback requirement in Section 1.704-2(i)(4) of the Regulations and shall be interpreted consistently therewith. (c) Qualified Income Offset. In the event any Member unexpectedly receives any adjustments, allocations, or distributions described in Sections 1.704-1(b)(2)(ii)(d)(4), 1.704- 1(b)(2)(ii)(d)(5), or 1.704-1(b)(2)(ii)(d)(6) of the Regulations, items of Company income and gain shall be specially allocated to such Member in an amount and manner sufficient to eliminate, to the extent required by the Regulations, the Adjusted Capital Account Deficit as soon as practicable, provided that an allocation pursuant to this Section 3.3(c) shall be made only if and to the extent that the Member would have an Adjusted Capital Account Deficit after all other allocations provided for in this Section 3 have been tentatively made as if this Section 3.3(c) were not in the Agreement. (d) Gross Income Allocation. In the event any Member has a deficit Capital Account at the end of any Fiscal Year which is in excess of the sum of (i) the amount such Member is obligated to restore pursuant to any provision of this Agreement; and (ii) the amount such Member is deemed to be obligated to restore pursuant to the penultimate sentences of Sections 1.704-2(g)(1) and 1.704-2(i)(5) of the Regulations, each such Member shall be specially allocated items of Company income and gain in the amount of such excess as quickly as possible, provided that an allocation pursuant to this Section 3.3(d) shall be made only if and to the extent that such Member would have a deficit Capital Account in excess of such sum after all other allocations provided for in this Section 3 have been made as if Section 3.3(c) and this Section 3.3(d) were not in this Agreement. (e) Nonrecourse Deductions. Nonrecourse Deductions for any Fiscal Year or other period shall be specially allocated among the Members in proportion to Units held, regardless of class. (f) Unit Holder Nonrecourse Deductions. Any Unit Holder Nonrecourse Deductions for any Fiscal Year shall be specially allocated to the Unit Holder who bears the economic risk of loss with respect to the Unit Holder Nonrecourse Debt to which such Unit Holder Nonrecourse Deductions are attributable in accordance with Regulations Section 1.704-2(i)(1). (g) Section 754 Adjustments. To the extent an adjustment to the adjusted tax basis of any Company asset, pursuant to Code Section 734(b) or Code Section 743(b) is required, pursuant to Regulations Section 1.704-1(b)(2)(iv)(m)(2) or 1.704-1(b)(2)(iv)(m)(4), to be taken into account in determining Capital Accounts as the result of a distribution to a Unit Holder in complete liquidation of such Unit Holder's interest in the Company, the amount of such adjustment to Capital Accounts shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases such basis) and such gain or loss shall be specially allocated to the Unit Holders in accordance with their interests in the Company in the event Regulations Section 1.704-1(b)(2)(iv)(m)(2) applies, or to the Unit Holder to whom such distribution was made in the event Regulations Section 1.704-1(b)(2)(iv)(m)(4) applies.
14 (h) Allocations Relating to Taxable Issuance of Company Units. Any income, gain, loss or deduction realized as a direct or indirect result of the issuance of Units by the Company to a Unit Holder (the "Issuance Items") shall be allocated among the Unit Holders so that, to the extent possible, the net amount of such Issuance Items, together with all other allocations under this Agreement to each Unit Holder shall be equal to the net amount that would have been allocated to each such Unit Holder if the Issuance Items had not been realized. 3.4 Curative Allocations. The allocations set forth in Sections 3.3(a), 3.3(b), 3.3(c), 3.3(d), 3.3(e), 3.3(f), 3.3(g) and 3.5 (the "Regulatory Allocations") are intended to comply with certain requirements of the Regulations. It is the intent of the Members that, to the extent possible, all Regulatory Allocations shall be offset either with other Regulatory Allocations or with special allocations of other items of Company income, gain, loss or deduction pursuant to this Section 3.4. Therefore, notwithstanding any other provision of this Section 3 (other than the Regulatory Allocations), the Directors shall make such offsetting special allocations of Company income, gain, loss or deduction in whatever manner it determines appropriate so that, after such offsetting allocations are made, each Member's Capital Account balance is, to the extent possible, equal to the Capital Account balance such Member would have had if the Regulatory Allocations were not part of the Agreement and all Company items were allocated pursuant to Sections 3.1, 3.2, and 3.3(h). 3.5 Loss Limitation. Losses allocated pursuant to Section 3.2 hereof shall not exceed the maximum amount of Losses that can be allocated without causing any Unit Holder to have an Adjusted Capital Account Deficit at the end of any Fiscal Year. In the event some but not all of the Unit Holders would have Adjusted Capital Account Deficits as a consequence of an allocation of Losses pursuant to Section 3.2 hereof, the limitation set forth in this Section 3.5 shall be applied on a Unit Holder by Unit Holder basis and Losses not allocable to any Unit Holder as a result of such limitation shall be allocated to the other Unit Holders in accordance with the positive balances in such Unit Holder's Capital Accounts so as to allocate the maximum permissible Losses to each Unit Holder under Section 1.704-1(b)(2)(ii)(d) of the Regulations. 3.6 Other Allocation Rules. (a) For purposes of determining the Profits, Losses, or any other items allocable to any period, Profits, Losses, and any such other items shall be determined on a daily, monthly, or other basis, as determined by the Directors using any permissible method under Code Section 706 and the Regulations thereunder. (b) The Unit Holders are aware of the income tax consequences of the allocations made by this Section 3 and hereby agree to be bound by the provisions of this Section 3 in reporting their shares of Company income and loss for income tax purposes. (c) Solely for purposes of determining a Unit Holder's proportionate share of the "excess nonrecourse liabilities" of the Company within the meaning of Regulations Section 1.752- 3(a)(3), the Unit Holders' aggregate interests in Company profits shall be deemed to be as provided in the capital accounts. To the extent permitted by Section 1.704-2(h)(3) of the Regulations, the Directors shall endeavor to treat distributions of Net Cash Flow as having been made from the proceeds of a Nonrecourse Liability or a Unit Holder Nonrecourse Debt only to the extent that
15 such distributions would cause or increase an Adjusted Capital Account Deficit for any Unit Holder. (d) Allocations of Profits and Losses to the Unit Holders shall be allocated among them in the ratio which each Unit Holder's Units bears to the total number of Units issued and outstanding, regardless of class. 3.7 Tax Allocations: Code Section 704(c). In accordance with Code Section 704(c) and the Regulations thereunder, income, gain, loss, and deduction with respect to any Property contributed to the capital of the Company shall, solely for tax purposes, be allocated among the Unit Holders so as to take account of any variation between the adjusted basis of such Property to the Company for federal income tax purposes and its initial Gross Asset Value (computed in accordance with the definition of Gross Asset Value). In the event the Gross Asset Value of any Company asset is adjusted pursuant to subparagraph (ii) of the definition of Gross Asset Value, subsequent allocations of income, gain, loss, and deduction with respect to such asset shall take account of any variation between the adjusted basis of such asset for federal income tax purposes and its Gross Asset Value in the same manner as under Code Section 704(c) and the Regulations thereunder. Any elections or other decisions relating to such allocations shall be made by the Directors in any manner that reasonably reflects the purpose and intention of this Agreement. Allocations pursuant to this Section 3.7 are solely for purposes of federal, state, and local taxes and shall not affect, or in any way be taken into account in computing, any Unit Holder's Capital Account or share of Profits, Losses, other items, or distributions pursuant to any provision of this Agreement. 3.8 Tax Credit Allocations. All credits against income tax with respect to the Company's property or operations shall be allocated among the Members in accordance with their respective membership interests in the Company for the Fiscal Year during which the expenditure, production, sale, or other event giving rise to the credit occurs. This Section 3.8 is intended to comply with the applicable tax credit allocation principles of section 1.704-1(b)(4)(ii) of the Regulations and shall be interpreted consistently therewith. SECTION 4. DISTRIBUTIONS 4.1. Net Cash Flow. The Directors, in their discretion, shall make distributions of Net Cash Flow, if any, to the Members. Except as otherwise provided in Section 10 hereof, Net Cash Flow, if any, shall be distributed to the Unit Holders in proportion to Units held, regardless of class, subject to, and to the extent permitted by, any loan covenants or restrictions on such distributions agreed to by the Company in any loan agreements with the Company's lenders from time to time in effect. In determining Net Cash Flow, the Directors shall endeavor to provide for cash distributions at such times and in such amounts as will permit the Unit Holders to make timely payment of income taxes. 4.2. Amounts Withheld. All amounts withheld pursuant to the Code or any provision of any state, local or foreign tax law with respect to any payment, distribution or allocation to the Company or the Unit Holders shall be treated as amounts paid or distributed, as the case may be, to the Unit Holders with respect to which such amount was withheld pursuant to this Section 4.2 for all purposes under this Agreement. The Company is authorized to withhold from payments and distributions, or with respect to allocations, to the Unit Holders and to pay over to any federal,
16 state and local government or any foreign government, any amounts required to be so withheld pursuant to the Code or any provisions of any other federal, state or local law or any foreign law, and shall allocate any such amounts to the Unit Holders with respect to which such amount was withheld. 4.3. Limitations on Distributions. The Company shall make no distributions to the Unit Holders except as provided in this Section 4 and Section 10 hereof. Notwithstanding any other provision, no distribution shall be made if it is not permitted to be made under the Act. SECTION 5. MANAGEMENT 5.1. Directors. Except as otherwise provided in this Agreement, the Directors shall direct the business and affairs of the Company, and shall exercise all of the powers of the Company except such powers as are by this Agreement conferred upon or reserved to the Members. The Directors shall adopt such policies, rules, regulations, and actions not inconsistent with law or this Agreement as they may deem advisable. Subject to Section 5.7 hereof or any other express provisions hereof, the business and affairs of the Company shall be managed by or under the direction of the Directors and not by its Members. It is not necessary that an individual be a Member of the Company in order to serve as a Director hereunder. The amendment or repeal of this section or the adoption of any provision inconsistent therewith shall require the approval of a majority of the total Membership Voting Interests entitled to vote under the terms of this Agreementheld by the Class A Members. 5.2. Number of Total Directors. The total number of initial Directors of the Company shall be a minimum of 12eight (8) and a maximum of 35. Prior to the expiration of the initial terms of the fifteen (15). The Directors may change from time to time the initialtotal number of Directors, within this variable range by resolution approved by thea majority vote of the initial Directors, shall fix the total number of Directors, which shall be a minimum of 7 and a maximum of 9, that will serve following the first special or annual meeting of the Members following the date on which substantial operations of the Facilities commence. The number of Directors shall be increased by the appointment of additional Directors, if any, pursuant to section 5.3(c) below. At any annual or special meeting, the Members may increase or decrease this fixed number of Directors last approved and may change from a fixed number to a variable range or visa versa by majority vote of the total Membership Voting Interests entitled to vote pursuant to this Agreement. However, the. The relative ratio of the number of Directors elected pursuant to section 5.3(a) below to Directors appointed pursuant to section 5.3(c) below shall always result in a majority of elected Directors. 5.3. Election of Directors. (a) Election of Directors and Terms. The initial Directors shall be appointed by the initial Members and shall include the individuals set forth on Exhibit “B” attached hereto. The initial Directors shall serve until the first special or annual meeting of the Members following the date on which substantial operations of the Facilities commence, and in all cases until a successor is elected and qualified, or until the earlier death, resignation, removal or disqualification of any such Director. After the expiration of the initial terms of the Directors, at the first special or annual meeting of the Members following the date on which substantial operations of the Facilities
17 commence, and at each annual meeting of the Members thereafter, Directors shall be elected by the Members(a) Election of Directors and Terms. In accordance with Section 5.2 of this Agreement, at each annual meeting of the Members, Directors shall be elected by the Class A Members and the Class B Members, voting together as a single class, for staggered terms of three (3) years and until a successor is elected and qualified; provided however, that any Member who is authorized to appoint a Director pursuant to Section 5.3(c) shall not be entitled to vote for the election of any other Directors that the Members are entitled to elect, and the Units held by such Member shall not be included in determining a plurality of the Membership Voting Interests for purposes of electing Directors. Prior to the expiration of their initial terms, the initialThe Directors shall, by resolution approved by a majority vote of the initial Directors, separately identify the Director positions to be elected and so classify each such Director position as Group I, Group II, or Group III, with such classification to serve as the basis for the staggering of terms among the elected Directors. The termsIf at any time the number of Directors is changed as provided in Section 5.2, the number of Group I Directors shall expire first (initial term of one year with successors elected to three year terms thereafter), followed by those of, Group II Directors (initial term of two years with successors elected to three year terms thereafter), and then Group III Directors (initial and subsequent termsmay be adjusted as necessary, by resolution approved by a majority vote of the Directors, so that approximately one-third of the Directors are elected at each annual meeting of three years).the Members. Except for the special right of appointment of certain Directors as provided in subsection Section 5.3(c) hereof,), Directors shall be elected by a plurality vote of the Membership Voting InterestsClass A Members and Class B Members, voting together as a single class, so that the nominees receiving the greatest number of votes relative to all other nominees are elected as Directors. (b) Nominations for Directors. One or more nominees for Director positions up for election shall be named by the then current Directors or by a nominating committee established by the Directors. Nominations for the election of Directors may also be made by any Member entitled to vote generally in the election of Directors. However, any; provided however, that any Member who is authorized to appoint a Director pursuant to Section 5.3(c) shall not be entitled to nominate a Director under this Section 5.3(b). Any Member that intends to nominate one or more persons for election as Directors at a meeting may do so only if written notice of such Member’s intent to make such nomination or nominations has been given, either by personal delivery or by United States mail, postage prepaid, to the Secretary of the Company, at the address determined pursuant to Section 1.4 hereof, not less than one hundred twenty (120) calendar days prior to the one year anniversary of the date on which the Company delivered the prior year’s proxy statement or notice of annual meeting to Members. Provided, however, that for the first election of Directors, such notice shall be delivered not less that thirty (30) days prior to the date of the date of the special or annual meeting of the Members at which the election will be held . Each such notice to the Secretary shall set forth: (i) the name and address of record of the Member who intends to make the nomination; (ii) a representation that the Member is a holder of record of Units of the Company, is entitled to vote at such meetingmake a nomination pursuant to this Section 5.3(b), and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice;
18 (iii) the name, age, business and residence addresses, and principal occupation or employment of each nominee; (iv) a description of all arrangements or understandings between the Member and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the Members; (v) such other information regarding each nominee proposed by such Member as would be required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission; (vi) the consent of each nominee to serve as a Director of the Company if so elected; and (vii) a nominating petition signed and dated by the holders of at least five percent (5%) of the total then outstanding Units and clearly setting forth the proposed nominee as a candidate of the Director’s seat to be filled at the next election of Directors. The Company may require any proposed nominee to furnish such other information as may reasonably be required by the Company to determine the eligibility of such proposed nominee to serve as a Director of the Company. The presiding Officer of the meeting may, if the facts warrant, determine that a nomination was not made in accordance with the foregoing procedures, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded. The amendment or repeal of this Section or the adoption of any provision inconsistent therewith shall require the approval of a majority of the total Membership Voting Interests entitled to vote pursuant to this Agreement. Whenever a vacancy occurs other than from expiration of a term of office or, removal from office or as set forth in Section 5.3(c) below, a majority of the remaining Directors shall appoint a new Director to fill the vacancy for the remainder of such term. (c) Special Right of Appointment of Directors for Certain Members. Commencing on a date within thirty (30) days following the Financing Closing, eachEach Member who holds Four Hundred (400) or more Units, all of which were purchased by such Member from the Company during its initial public offering of equity securities filed with the Securities and Exchange Commission, shall be deemed an “Appointing Member” and shall be entitled to appoint one (1) Director, so long as the Appointing Member is the holder of Four Hundred (400) Units. Units held by an Affiliate or Related Party of a Member shall be included in the determination of whether the Member holds the requisite number of Units for purposes of this section and shall, together, be limited to the appointment of one (1) Director, regardless of the number of Units held by that Member, Affiliate or Related Party. Only Members who hold the requisite Four Hundred (400) or more Units are granted appointment rights hereunder. Accordingly, any Member who purchases Units that equal or exceed Four Hundred (400) Units other than those offered by the Company during the Company’s initial public offering of equity securities filed with the Securities and Exchange Commission, shall not be entitled to appoint any Directors, regardless of the amount of Units purchased by such Member. A Director appointed by a Member under this section shall serve indefinitely at the pleasure of the Member appointing him or her until a successor is appointed, or until the earlier death, resignation, or removal of the Director. Any Director appointed under this section may be removed for any reason by the Member appointing him or her, upon written notice to the Board of Directors, which notice may designate and appoint a
19 successor Director to fill the vacancy, and which notice may be given at a meeting of the Board of Directors attended by the person appointed to fill the vacancy. Any such vacancy shall be filled within thirty days of its occurrence by the Member having the right of appointment. In the event that the number of Units held by an Appointing Member falls below the threshold of Four Hundred (400) Units, the term of any Director appointed by such Member shall terminate, the seat will dissolve, and the Member shall elect Directors collectively with the other Members in accordance with Section 5.3(a). In the event that an Appointing Member transfers such Units, the appointment rights shall not transfer with the Units, but shall expire upon the date of transfer unless said transfer is to an Affiliate or Related Party of the Appointing Member. 5.4. Committees. A resolution approved by the affirmative vote of a majority of the Directors may establish committees having the authority of the Directors in the management of the business of the Company to the extent consistent with this Agreement and provided in the resolution. A committee shall consist of one or more persons, who need not be Directors, appointed by affirmative vote of a majority of the Directors present. Committees may include a compensation committee and/or an audit committee, in each case consisting of one or more independent Directors or other independent persons. Committees are subject to the direction and control of the Directors and vacancies in the membership thereof shall be filled by the Directors. A majority of the members of the committee present at a meeting is a quorum for the transaction of business, unless a larger or smaller proportion or number is provided in a resolution approved by the affirmative vote of a majority of the Directors present. 5.5. Authority of Directors. Subject to the limitations and restrictions set forth in this Agreement, the Directors shall direct the management of the business and affairs of the Company and shall have all of the rights and powers which may be possessed by a "manager" under the Act including, without limitation, the right and power to do or perform the following and, to the extent permitted by the Act or this Agreement, the further right and power by resolution of the Directors to delegate to the Officers or such other Person or Persons to do or perform the following: (a) Conduct its business, carry on its operations and have and exercise the powers granted by the Act in any state, territory, district or possession of the United States, or in any foreign country which may be necessary or convenient to effect any or all of the purposes for which it is organized; (b) Acquire by purchase, lease, or otherwise any real or personal property which may be necessary, convenient, or incidental to the accomplishment of the purposes of the Company; (c) Operate, maintain, finance, improve, construct, own, grant operations with respect to, sell, convey, assign, mortgage, and lease any real estate and any personal property necessary, convenient, or incidental to the accomplishment of the purposes of the Company; (d) Execute any and all agreements, contracts, documents, certifications, and instruments necessary or convenient in connection with the management, maintenance, and operation of the business, or in connection with managing the affairs of the Company, including, executing amendments to this Agreement and the Articles in accordance with the terms of this Agreement, both as Directors and, if required, as attorney-in-fact for the Members pursuant to any power of attorney granted by the Members to the Directors;
20 (e) Borrow money and issue evidences of indebtedness necessary, convenient, or incidental to the accomplishment of the purposes of the Company, and secure the same by mortgage, pledge, or other lien on any Company assets; (f) Execute, in furtherance of any or all of the purposes of the Company, any deed, lease, mortgage, deed of trust, mortgage note, promissory note, bill of sale, contract, or other instrument purporting to convey or encumber any or all of the Company assets; (g) Prepay in whole or in part, refinance, recast, increase, modify, or extend any liabilities affecting the assets of the Company and in connection therewith execute any extensions or renewals of encumbrances on any or all of such assets; (h) Care for and distribute funds to the Members by way of cash income, return of capital, or otherwise, all in accordance with the provisions of this Agreement, and perform all matters in furtherance of the objectives of the Company or this Agreement; (i) Contract on behalf of the Company for the employment and services of employees and/or independent contractors, such as lawyers and accountants, and delegate to such Persons the duty to manage or supervise any of the assets or operations of the Company; (j) Engage in any kind of activity and perform and carry out contracts of any kind (including contracts of insurance covering risks to Company assets and Directors' and Officers' liability) necessary or incidental to, or in connection with, the accomplishment of the purposes of the Company, as may be lawfully carried on or performed by a limited liability company under the laws of each state in which the Company is then formed or qualified; (k) Take, or refrain from taking, all actions, not expressly proscribed or limited by this Agreement, as may be necessary or appropriate to accomplish the purposes of the Company; (l) Institute, prosecute, defend, settle, compromise, and dismiss lawsuits or other judicial or administrative proceedings brought on or in behalf of, or against, the Company, the Members or the Directors or Officers in connection with activities arising out of, connected with, or incidental to this Agreement, and to engage counsel or others in connection therewith; (m) Purchase, take, receive, subscribe for or otherwise acquire, own, hold, vote, use, employ, sell, mortgage, lend, pledge, or otherwise dispose of, and otherwise use and deal in and with, shares or other interests in or obligations of domestic or foreign corporations, associations, general or limited partnerships, other limited liability companies, or individuals or direct or indirect obligations of the United States or of any government, state, territory, government district or municipality or of any instrumentality of any of them; (n) Agree with any Person as to the form and other terms and conditions of such Person's Capital Contribution to the Company and cause the Company to issue Membership Economic Interests and Units in consideration of such Capital Contribution; and
21 (o) Indemnify a Member or Directors or Officers, or former Members or Directors or Officers, and to make any other indemnification that is authorized by this Agreement in accordance with, and to the fullest extent permitted by, the Act. 5.6. Director as Agent. Notwithstanding the power and authority of the Directors to manage the business and affairs of the Company, no Director shall have authority to act as agent for the Company for the purposes of its business (including the execution of any instrument on behalf of the Company) unless the Directors have authorized the Director to take such action. The Directors may also delegate authority to manage the business and affairs of the Company (including the execution of instruments on behalf of the Company) to such Person or Persons (including to any Officers) designated by the Directors, and such Person or Persons (or Officers) shall have such titles and authority as determined by the Directors. 5.7. Restrictions on Authority of Directors. (a) The Directors shall not have authority to, and they covenant and agree that they shall not, do any of the following acts without the unanimous consent of the Members: (i) Cause or permit the Company to engage in any activity that is not consistent with the purposes of the Company as set forth in Section 1.3 hereof; (ii) Knowingly do any act in contravention of this Agreement or which would make it impossible to carry on the ordinary business of the Company, except as otherwise provided in this Agreement; (iii) Possess Company Property, or assign rights in specific Company Property, for other than a Company purpose; or (iv) Cause the Company to voluntarily take any action that would cause a bankruptcy of the Company. Notwithstanding the foregoing, the Directors of the Company may, subject to Section 10 hereof, declare bankruptcy or cause the Company to proceed to Chapter 11 reorganization if deemed necessary as a result of the financial condition of the Company. (b) The Directors shall not have authority to, and they covenant and agree that they shall not cause the Company to, without the consent of a majority of the Membership Voting Interests: held by the Class A Members, Class B Members and Class C Members, voting together as a single class: (i) Merge, consolidate, exchange or otherwise dispose of at one time all or substantially all of the Property, except for a liquidating sale of the Property in connection with the dissolution of the Company; (ii) Confess a judgment against the Company in an amount in excess of $500,000;
22 (ii) Issue Units at a purchase price of less than $1,666.66 per Unit. Notwithstanding the foregoing, the Directors shall have the authority to issue Units below the purchase price as compensation for services rendered for the Company or for any other compensation purpose; (iii) Issue more than an aggregate of 25,000 Units; and (iv) Cause the Company to acquire any equity or debt securities of any Director or any of its Affiliates, or otherwise make loans to any Director or any of itssuch Director’s Affiliates or Related Parties. The actions specified herein as requiring the consent of the Members shall be in addition to any actions by the Director that are specified in the Act as requiring the consent or approval of the Members. Any such required consent or approval may be given by an affirmative vote of a majority of the total Membership Voting Interests entitled to vote on the action pursuant to this Agreement. 5.8. Director Meetings and Notice. Meetings of the Directors shall be held at such times and places as shall from time to time be determined by the Directors. Meetings of the Directors may also be called by the Chairman of the Company or by any two or more Directors. If the date, time, and place of a meeting of the Directors has been announced at a previous meeting, no notice shall be required. In all other cases, five (5) days’ written notice of meetings, stating the date, time, and place thereof and any other information required by law or desired by the Person(s) calling such meeting, shall be given to each Director. Any Director may waive notice of any meeting. A waiver of notice by a Director is effective whether given before, at, or after the meeting, and whether given orally, in writing, or by attendance. The attendance of a Director at any meeting shall constitute a waiver of notice of such meeting, unless such Director objects at the beginning of the meeting to the transaction of business on the grounds that the meeting is not lawfully called or convened and does not participate thereafter in the meeting. 5.9. Action Without a Meeting. Any action required or permitted to be taken by the Directors may also be taken by a written action signed by one hundred percent (100%) of all Directors authorized to vote on the matter as provided by this Agreement, provided that a copy of such written action shall be promptly given to all such Directors. The Directors may participate in any meeting of the Directors by means of telephone, video conference, other electronic method or similar means of communication by which all persons participating in the meeting can simultaneously hear each other. 5.10. Quorum; Manner of Acting. Not less than fifty percent (50%) of the Directors authorized to vote on a matter as provided by this Agreement shall constitute a quorum for the transaction of business at any Directors’ meeting. Each Director shall have one (1) vote at meetings of the Directors. The Directors shall take action by the vote of a majority of the number of Directors constituting a quorum as provided by this Agreement. Voting by proxy or by mail ballot shall be permitted on any matter presented for a vote at any Directors’ meeting held after substantial operations of the Facilities commence; provided, however, that a Director may not vote by proxy or by mail ballot more than two times per calendar year. All such proxies shall be in writing and filed with the Company’s Secretary prior to or at the time of the meeting.
23 5.11. Voting; Potential Financial Interest. No Director shall be disqualified from voting on any matter to be determined or decided by the Directors solely by reason of such Director’s (or his/her Affiliate’s) potential financial interest in the outcome of such vote, provided that the nature of such Director’s (or his/her Affiliate’s) potential financial interest was reasonably disclosed at the time of such vote. 5.12. Duties and Obligations of Directors. The Directors shall cause the Company to conduct its business and operations separate and apart from that of any Director or any of itssuch Director’s Affiliates. The Directors shall take all actions which may be necessary or appropriate (i) for the continuation of the Company's valid existence as a limited liability company under the laws of the State of Indiana and each other jurisdiction in which such existence is necessary to protect the limited liability of Members or to enable the Company to conduct the business in which it is engaged, and (ii) for the accomplishment of the Company's purposes, including the acquisition, development, maintenance, preservation, and operation of Company Property in accordance with the provisions of this Agreement and applicable laws and regulations. Each Director shall have the duty to discharge the foregoing duties in good faith, in a manner the Director believes to be in the best interests of the Company, and with the care an ordinarily prudent person in a like position would exercise under similar circumstances. The Directors shall be under no other fiduciary duty to the Company or the Members to conduct the affairs of the Company in a particular manner. 5.13. Chairman and Vice Chairman. Unless provided otherwise by a resolution adopted by the Directors, the Chairman shall preside at meetings of the Members and the Directors; shall see that all orders and resolutions of the Directors are carried into effect; may maintain records of and certify proceedings of the Directors and Members; and shall perform such other duties as may from time to time be prescribed by the Directors. The Vice Chairman shall, in the absence or disability of the Chairman, perform the duties and exercise the powers of the Chairman and shall perform such other duties as the Directors or the Chairman may from time to time prescribe. The Directors may designate more than one Vice ChairmenChairman, in which case the Vice Chairmen shall be designated by the Directors so as to denote which is most senior in office. 5.14. President and Chief Executive Officer. Until provided otherwise by a resolution of the Directors, the Chairman shall also act as the interim President and CEO of the Company (herein referred to as the “President”; the titles of President and CEO shall constitute a reference to one and the same office and Officer of the Company), and the Chairman may exercise the duties of the office of Chairman using any such designations. The Directors shall appoint someone other than the Chairman as the President and CEO of the Company not later than the commencement of substantial operations of the Facilities, and such PresidentThe President shall perform all duties incident to the office of President and as the Directors may from time to time prescribe. The Chief Executive Officer shall perform such duties as the Directors may from time to time prescribe, including without limitation, the management of the day-to-day operations of the Facilitiessupervision and control of the business and affairs of the Company and the management of the day-to-day operations of the Facilities. The Directors may appoint one Officer to serve as both the President and Chief Executive Officer of the Company. In that case, the titles of President and Chief Executive Officer shall constitute a reference to one and the same office and Officer of the Company.
24 5.15. Chief Financial Officer. Unless provided otherwise by a resolution adopted by the Directors, the Chief Financial Officer of the Company shall be the Treasurer of the Company and shall keep accurate financial records for the Company; shall deposit all monies, drafts, and checks in the name of and to the credit of the Company in such banks and depositories as the Directors shall designate from time to time; shall endorse for deposit all notes, checks, and drafts received by the Company as ordered by the Directors, making proper vouchers therefore; shall disburse Company funds and issue checks and drafts in the name of the Company as ordered by the Directors, shall render to the President and the Directors, whenever requested, an account of all such transactions as Chief Financial Officer and of the financial condition of the Company, and shall perform such other duties as may be prescribed by the Directors or the President from time to time. 5.16. Secretary; Assistant Secretary. The Secretary shall attend all meetings of the Directors and of the Members and shall maintain records of, and whenever necessary, certify all proceedings of the Directors and of the Members. The Secretary shall keep the required records of the Company, when so directed by the Directors or other person or person authorized to call such meetings, shall give or cause to be given notice of meetings of the Members and of meetings of the Directors, and shall also perform such other duties and have such other powers as the Chairman or the Directors may prescribe from time to time. An Assistant Secretary, if any, shall perform the duties of the Secretary during the absence or disability of the Secretary. 5.17. Vice President. The Company may have one or more Vice Presidents. If more than one, the Directors shall designate which is most senior. The most senior Vice President shall perform the duties of the President in the absence of the President. 5.18. Delegation. Unless prohibited by a resolution of the Directors, the President, Chief Financial Officer, Vice President and Secretary (individually, an “Officer” and collectively, “Officers”) may delegate in writing some or all of the duties and powers of such Officer’s management position to other Persons. An Officer who delegates the duties or powers of an office remains subject to the standard of conduct for such Officer with respect to the discharge of all duties and powers so delegated. 5.19. Execution of Instruments. All deeds, mortgages, bonds, checks, contracts and other instruments pertaining to the business and affairs of the Company shall be signed on behalf of the Company by (i) the Chairman; or (ii) when authorized by resolutions(s) of the Directors, the President; or (iii) by such other person or persons as may be designated from time to time by the Directors. 5.20. Limitation of Liability; Indemnification of Directors. To the maximum extent permitted under the Act and other applicable law, no Member, Director or Officer of this Company shall be personally liable for any debt, obligation or liability of this Company merely by reason of being a Member, Director, Officer or all of the foregoing. No Director or Officer of this Company shall be personally liable to this Company or its Members for monetary damages for a breach of fiduciary duty by such Director or Officer; provided that this provision shall not eliminate or limit the liability of a Director or Officer for any of the following: (i) for any breach of the duty of loyalty to the Company or its Members; (ii) for acts or omissions not in good faith or which involve intentional misconduct or knowing violation of law; or (iii) for a transaction from which the
25 Director or Officer derived an improper personal benefit or a wrongful distribution in violation of Section 807 of the Act. To the maximum extent permitted under the Act and other applicable law, the Company, its receiver, or its trustee (in the case of its receiver or trustee, to the extent of Company Property) shall indemnify, save and hold harmless, and pay all judgments and claims against each Director or Officer relating to any liability or damage incurred by reason of any act performed or omitted to be performed by such Director, or Officer, in connection with the business of the Company, including reasonable attorneys' fees incurred by such Director in connection with the defense of any action based on any such act or omission, which attorneys' fees may be paid as incurred, including all such liabilities under federal and state securities laws as permitted by law. To the maximum extent permitted under the Act and other applicable law, in the event of any action by a Unit Holder against any Director or Officer, including a derivative suit, the Company shall indemnify, save harmless, and pay all costs, liabilities, damages and expenses of such Director or Officer, including reasonable attorneys' fees incurred in the defense of such action. Notwithstanding the foregoing provisions, no Director or Officer shall be indemnified by the Company to the extent prohibited or limited (but only to the extent limited) by the Act. The Company may purchase and maintain insurance on behalf of any Person in such Person's official capacity against any liability asserted against and incurred by such Person in or arising from that capacity, whether or not the Company would otherwise be required to indemnify the Person against the liability. 5.21. Compensation; Expenses of Directors. No Member or Director shall receive any salary, fee, or draw for services rendered to or on behalf of the Company merely by virtue of their status as a Member or Director, it being the intention that, irrespective of any personal interest of any of the Directors, the Directors shall have authority to establish reasonable compensation of all Directors for services to the Company as Directors, Officers, or otherwise. Except as otherwise approved by or pursuant to a policy approved by the Directors, no Member or Director shall be reimbursed for any expenses incurred by such Member or Director on behalf of the Company. Notwithstanding the foregoing, by resolution by the Directors, the Directors may be paid as reimbursement therefor, their expenses, if any, of attendance at each meeting of the Directors. In addition, the Directors, by resolution, may approve from time to time, the salaries and other compensation packages of the Officers of the Company. 5.22. Loans. Any Member or Affiliate may, with the consent of the Directors, lend or advance money to the Company. If any Member or Affiliate shall make any loan or loans to the Company or advance money on its behalf, the amount of any such loan or advance shall not be treated as a contribution to the capital of the Company but shall be a debt due from the Company. The amount of any such loan or advance by a lending Member or Affiliate shall be repayable out of the Company's cash and shall bear interest at a rate not in excess of the prime rate established, from time to time, by any major bank selected by the Directors for loans to its most creditworthy commercial borrowers, plus four percent (4%) per annum. If a Director, or any Affiliate of a Director, is the lending Member, the rate of interest and the terms and conditions of such loan shall be no less favorable to the Company than if the lender had been an independent third party. None of the Members or their Affiliates shall be obligated to make any loan or advance to the Company.
26 SECTION 6. ROLE OF MEMBERS 6.1 One Membership Class. There shall initially be one classClassification of Membership Interests and one class of Units. Effective as of the Classification Date, there shall be four classes of Units such that: (a) Class A Units. Each Unit outstanding immediately prior to the Classification Date, regardless of class, owned by a Member who is the holder of record of twenty (20) or more Units on the Classification Date shall, by virtue of this Section 6.1(a), and without any action on the part of the holder thereof, hereafter be classified as a Class A Unit. (b) Class B Units. Each Unit outstanding immediately prior to the Classification Date, regardless of class, owned by a Member who is the holder of record of at least five (5) but no more than nineteen (19) Units on the Classification Date shall, by virtue of this Section 6.1(b) and without any action on the part of the holder thereof, hereafter be classified as a Class B Unit. (c) Class C Units. Each Unit outstanding immediately prior to the Classification Date, regardless of class, owned by a Member who is the holder of record of exactly four (4) Units on the Classification Date, shall by virtue of this Section 6.1(c), and without any action on the part of the holder thereof, hereafter be classified as a Class C Unit; and (d) Class D Units. Each Unit outstanding immediately prior to the Classification Date, regardless of class, owned by a Member who is the holder of record of three (3) or fewer Units on the Classification Date shall, by virtue of this Section 6.1(d), and without any action on the part of the holder thereof, hereafter be classified as a Class D Unit. The Classification of each Unit as a Class A Unit, Class B Unit, Class C Unit, or Class D Unit shall remain in effect permanently following the Classification Date. Classes will not be subject to minimum ownership requirements after the Classification. 6.2 Members. Each Person who desires to become a Member must complete and execute a signature page to this Agreement in the form of Exhibit “CA” attached hereto and such other documents as may be required by the Directors. Each prospective Member must be approved and admitted to the Company by the Board of Directors. The Membership Interests of the Members shall be set forth on Exhibit “A” to this Agreement. 6.3 Additional Members. No Person shall become a Member without the approval of the Directors. The Directors may refuse to admit any Person as a Member in their sole discretion. Any such admission must comply with the requirements described in this Agreement and will be effective only after such Person has executed and delivered to the Company such documentation as determined by the Directors to be necessary and appropriate to effect such admission including the Member’s agreement to be bound by this Agreement. 6.4 Rights or Powers. Except as otherwise expressly provided for in this Agreement, the Members shall not have any right or power to take part in the management or control of the Company or its business and affairs or to act for or bind the Company in any way. 6.5 Voting Rights of Members. The Members shall have voting rights as defined by the Membership Voting Interest of such Member and in accordance with the provisions of this Agreement. Members holding Class A Units shall be entitled to vote on all acts or matters on
27 which a vote of the Members is required by this Agreement unless otherwise expressly provided herein. Members shall not have voting rights with respect to their Class B Units, Class C Units and Class D Units except as expressly provided herein, or as required by the Act. Except as required by law or as otherwise provided by this Agreement, on any matter upon which more than one class of Members are entitled to vote, those classes entitled to vote shall vote together as a single class and not as separate classes. Members do not have a right to cumulate their votes for any matter entitled to a vote of the Members, including election of Directors. 6.6 Member Meetings. Meetings of the Members shall be called by the Directors, and shall be held at the principal office of the Company or at such other place as shall be designated by the person calling the meeting. Members representing an aggregate of not less than thirty percent (30%) of the Membership Voting Interests held by the Class A Members and Class B Members may also in writing demand that the Directors call a meeting of the Members. Annual meetings of the Members shall be held not less than once per Fiscal Year. 6.7 Conduct of Meetings. Subject to the discretion of the Directors, the Members may participate in any meeting of the Members by means of telephone, video conference, other electronic method or similar means of communication by which all persons participating in the meeting can simultaneously hear and speak with each other. 6.8 Notice of Meetings; Waiver. Notice of the meeting, stating the place, day and hour of the meeting, shall be given to each Member in accordance with Section 11.1 hereof at least five (5) days and no more than sixty (60) days before the day on which the meeting is to be held. A Member may waive the notice of meeting required hereunder by written notice of waiver signed by the Member whether given before, during or after the meeting. Attendance by a Member at a meeting is waiver of notice of that meeting, unless the Member objects at the beginning of the meeting to the transaction of business because the meeting is not lawfully called or convened and thereafter does not participate in the meeting. 6.9 Quorum and Proxies. The presence (in person or by proxy or mail ballot) of Members representing an aggregate of at least twenty-five percent (25%) of the Membership Voting Interests entitled to vote on the matter is required for the transaction of business at a meeting of the Members. Voting by proxy or by mail ballot shall be permitted on any matter if authorized by the Directors. 6.10 Voting; Action by Members. If a quorum is present, the affirmative vote of a majority of the Membership Voting Interests represented at the meeting and entitled to vote on the matter (including units represented in person, by proxy or by mail ballot) shall constitute the act of the Members, unless the vote of a greater or lesser proportion or numbers is otherwise required by this Agreement. 6.11 Record Date. For the purpose of determining Members entitled to notice of or to vote at any meeting of Members or any adjournment of the meeting, or Members entitled to receive payment of any distribution, or to make a determination of Members for any other purpose, the date on which notice of the meeting is mailed (or otherwise delivered) or the date on which the resolution declaring the distribution is adopted, as the case may be, shall be the record date for determination of Members.
28 6.12 Termination of Membership. The membership of a Member in the Company shall terminate upon the occurrence of events described in the Act, including registration and withdrawal. If for any reason the membership of a Member is terminated, the Member whose membership has terminated loses all Membership Voting Interests and shall be considered merely as Assignee of the Membership Economic Interest owned before the termination of membership, having only the rights of an unadmitted Assignee provided for in Section 9.7 hereof. 6.13 Continuation of the Company. The Company shall not be dissolved upon the occurrence of any event that is deemed to terminate the continued membership of a Member. The Company's affairs shall not be required to be wound up. The Company shall continue without dissolution. 6.14 No Obligation to Purchase Membership Interest. No Member whose membership in the Company terminates, nor any transferee of such Member, shall have any right to demand or receive a return of such terminated Member's Capital Contributions or to require the purchase or redemption of the Member's Membership Interest. The other Members and the Company shall not have any obligation to purchase or redeem the Membership Interest of any such terminated Member or transferee of any such terminated Member. 6.15 Waiver of Dissenters Rights. Each Member hereby disclaims, waives and agrees, to the fullest extent permitted by law or the Act, not to assert dissenters' or similar rights under the Act. 6.16 Limitation on Ownership. Notwithstanding any other provision herein, subsequent to the close of the Company’s initial public offering of equity securities filed with the Securities and Exchange Commission following the Company’s seed capital offering, no Member shall directly or indirectly own or control more than forty percent (40%) of the issued and outstanding Units at any time. Units under indirect ownership or control by a Member shall include Units owned or controlled by such Member's Related Parties, Subsidiaries and Affiliates. For purposes of this Section 6.16, the offering will close upon the earliest occurrence of any of the following: (1) the Company’s acceptance of subscriptions for units equaling the maximum amount as set forth in the Company’s registration statement or offering memorandum; (2) one year from the effective date of the Company’s initial registration statement or offering memorandum; or (3) the Company’s decision to close any time after the acceptance of subscriptions for units equaling the minimum amount as set forth in the Company’s registration statement or offering memorandum. SECTION 7. ACCOUNTING, BOOKS AND RECORDS 7.1 Accounting, Books and Records. The books and records of the Company shall be kept, and the financial position and the results of its operations recorded, in accordance with GAAP. The books and records shall reflect all the Company transactions and shall be appropriate and adequate for the Company's business. The Company shall maintain at its principal place of business all of the following: (i) A current list of the full name and last known business or residence address of each Member and Assignee set forth in alphabetical order, together with the Capital Contributions, Capital Account, Units, and class of Units of each Member and Assignee; (ii) The full name and business address of each Director; (iii) A copy of the Articles and any and all amendments thereto together with executed copies of any powers of attorney pursuant to which the Articles or any amendments thereto have been executed; (iv) Copies of the Company's federal, state, and local income tax or information returns and reports, if any, for the six most recent taxable
29 years; (v) A copy of this Agreement and any and all amendments thereto together with executed copies of any powers of attorney pursuant to which this Agreement or any amendments thereto have been executed; and (vi) Copies of the financial statements of the Company, if any, for the six most recent Fiscal Years. The Company shall use the accrual method of accounting in preparation of its financial reports and for tax purposes and shall keep its books and records accordingly. 7.2 Delivery to Members and Inspection. Any Member or its designated representative shall have reasonable access during normal business hours to the information and documents kept by the Company pursuant to Section 7.1. The rights granted to a Member pursuant to this Section 7.2 are expressly subject to compliance by such Member with the safety, security and confidentiality procedures and guidelines of the Company, as such procedures and guidelines may be established from time to time. Upon the request of any Member for purposes reasonably related to the interest of that Person as a Member, the Directors shall promptly deliver to the requesting Member, at the expense of the requesting Member, a copy of the information required to be maintained under Section 7.1. Each Member has the right, upon reasonable request for purposes reasonably related to the interest of the Person as a Member and for proper purposes, to: (i) inspect and copy during normal business hours any of the Company records described in Section 7.1; and (ii) obtain from the Directors, promptly after their becoming available, a copy of the Company's federal, state, and local income tax or information returns for each Fiscal Year. Each Assignee shall have the right to information regarding the Company only to the extent required by the Act. 7.3 Reports. The chief financial officer of the Company shall be responsible for causing the preparation of financial reports of the Company and the coordination of financial matters of the Company with the Company's accountants. The Company shall cause to be delivered to each Member the financial statements listed below, prepared, in each case (other than with respect to Member's Capital Accounts, which shall be prepared in accordance with this Agreement) in accordance with GAAP consistently applied. As soon as practicable following the end of each Fiscal Year (and in any event not later than one hundred and twenty (120) days after the end of such Fiscal Year) and at such time as distributions are made to the Unit Holders pursuant to Section 10 hereof following the occurrence of a Dissolution Event, a balance sheet of the Company as of the end of such Fiscal Year and the related statements of operations, Unit Holders' Capital Accounts and changes therein, and cash flows for such Fiscal Year, together with appropriate notes to such financial statements and supporting schedules, all of which shall be audited and certified by the Company's accountants, and in each case, to the extent the Company was in existence, setting forth in comparative form the corresponding figures for the immediately preceding Fiscal Year end (in the case of the balance sheet) and the two (2) immediately preceding Fiscal Years (in the case of the statements). For purposes of this paragraph, public access to the financial statements through either the Company’s or the Securities and Exchange Commission’s website shall constitute delivery pursuant to this Section 7.3. 7.4 Tax Matters Member; Partnership Representative. (a) Appointment. The Directors shall designate, from time to time, a qualifying Person to be specifically authorized to act as the “Tax Matters Member” of the Company, as defined in Section 6231 of the Code prior to its amendment by the Bipartisan Budget Act of 2015 (“BBA”). Such person shall become the “partnership representative” within the meaning of Section 6223(a) of the Code (as amended by the BBA) as in effect for the tax years beginning on or after January
30 1, 2018 (such “tax matters partner” and “partnership representative”, as the case may be, referred to herein as the “Partnership Representative”); provided, however, that the Directors shall have the authority to designate, remove and replace the Partnership Representative who shall act as the tax matters partner within the meaning of and pursuant to Regulations Sections 301.6231(a)(7)-1 and -2, or as the partnership representative within the meaning of and pursuant to the BBA and any regulations promulgated thereunder, or any similar provision under state or local law. Necessary tax information shall be delivered to each Unit Holder as soon as practicable after the end of each Fiscal Year, but not later than Three (3) months after the end of each Fiscal Year. (b) Tax Examinations and Audits. The Partnership Representative is authorized and required to represent the Company (at the Company’s expense) in connection with all examinations of the Company’s affairs by taxing authorities, including resulting administrative and judicial proceedings, and to expend Company funds for professional services and costs associated therewith. Each Unit Holder agrees that such Unit Holder will not independently act with respect to tax audits or tax litigation of the Company, unless previously authorized to do so in writing by the Partnership Representative, which authorization may be withheld by the Partnership Representative in its sole and absolute discretion. The Partnership Representative shall have sole discretion to determine whether the Company (either on its own behalf or on behalf of the Unit Holders) will contest or continue to contest any tax deficiencies assessed or proposed to be assessed by any taxing authority. (c) BBA Elections. The Company will not elect into the partnership audit procedures enacted under Section 1101 of the BBA (the “BBA Procedures”) for any tax year beginning before January 1, 2018, and, to the extent permitted by applicable law and regulations, the Company will annually elect out of the BBA Procedures for tax years beginning on or after January 1, 2018 pursuant to Code Section 6221(b) (as amended by the BBA). (d) Tax Elections. The Directors shall, without any further consent of the Unit Holders being required (except as specifically required herein), make any and all elections for federal, state, local, and foreign tax purposes as the Directors shall determine appropriate and shall have the right and authority to represent the Company and the Unit Holders before taxing authorities or courts of competent jurisdiction in tax matters affecting the Company or the Unit Holders in their capacities as Unit Holders, and to file any tax returns and execute any agreements or other documents relating to or affecting such tax matters, including agreements or other documents that bind the Unit Holders with respect to such tax matters or otherwise affect the rights of the Company and the Unit Holders. The Directors shall designate a Person to be specifically authorized to act as the "Tax Matters Member" under the Code and in any similar capacity under state or local law; provided, however, that the Directors shall have the authority to designate, remove and replace the Tax Matters Member who shall act as the tax matters partner within the meaning of and pursuant to Regulations Sections 301.6231(a)(7)-1 and -2 or any similar provision under state or local law. Necessary tax information shall be delivered to each Unit Holder as soon as practicable after the end of each Fiscal Year of the Company but not later than three (3) months after the end of each Fiscal Year.; except that the Partnership Representative, in its sole discretion, has the right to make any and all elections and to take any actions that are available to be made or taken by the Partnership Representative as set forth in Section 7.4(b) or under the BBA and any regulations promulgated thereunder (including an election under Code Section 6226 as amended by the BBA).
31 If the Partnership Representative does not make an election under Code Section 6226 (as amended by the BBA), the Partnership Representative will use commercially reasonable efforts (i) to make any modifications to the imputed underpayment amount available under Code Sections 6225(c)(3), (4), (5), or (6) (as amended by the BBA), and (ii) if requested by a Unit Holder, to provide such Unit Holder information that would allow such Unit Holder to file an amended federal income tax return as described in Code Section 6225(c)(2) (as amended by the BBA) to the extent such amended return and payment of any related federal income taxes would reduce any taxes payable by the Company. (e) Tax Returns and Tax Deficiencies. Each Unit Holder agrees that such Unit Holder shall not treat any Company item inconsistently on such Unit Holder’s federal, state, foreign or other income tax return with the treatment of the item on the Company’s return. Any deficiency for taxes imposed on any Unit Holder (including penalties, additions to tax or interest imposed with respect to such taxes and any taxes imposed pursuant to Code Section 6226 as amended by the BBA) will be paid by such Unit Holder and if required to be paid (and actually paid) by the Company, will be recoverable from such Unit Holder as provided in Section 4.2. (f) Survival of Obligations. The obligations of each Unit Holder under this Section 7.4 survive the transfer or redemption by such Unit Holder of its Membership Interest, the termination of this Agreement, and the dissolution of the Company. Each Unit Holder acknowledges that, notwithstanding the transfer or redemption of all or any portion of its Membership Interest, it may remain liable for tax liabilities with respect to its allocable share of income and gain of the Company for the Company’s years (or portions thereof) before such transfer or redemption. SECTION 8. AMENDMENTS 8.1 Amendments. Amendments to this Agreement may be proposed by the Board of Directors or any Class A Member. Following such proposal, the Board of Directors shall submit to the Class A Members a verbatim statement of any proposed amendment, providing that counsel for the Company shall have approved of the same in writing as to form, and the Board of Directors shall include in any such submission a recommendation as to the proposed amendment. The Board of Directors shall seek the written vote of the Class A Members on the proposed amendment or shall call a meeting to vote thereon and to transact any other business that it may deem appropriate. A proposed amendment shall be adopted and be effective as an amendment hereto only if approved by Member action as set forth in Section 6.10.a majority of the Membership Voting Interests held by the Class A Members represented at a meeting of the Class A Members (in person, by proxy or by mail ballot) where a quorum is present. The approval of Class B Members, Class C Members or Class D Members shall not be required to amend this Agreement unless specifically provided herein. Notwithstanding any provision of this Section 8.1 to the contrary, this Agreement shall not be amended without the consent of each Member adversely affected if such amendment would modify the limited liability of a Member, or alter the Membership Economic Interest of a Member. SECTION 9. TRANSFERS 9.1 Restrictions on Transfers. Except as otherwise permitted by this Agreement, no Member shall Transfer all or any portion of its Units. In the event that any Member pledges or otherwise encumbers all or any part of its Units as security for the payment of a Debt, any such pledge or
32 hypothecation shall be made pursuant to a pledge or hypothecation agreement that requires the pledgee or secured party to be bound by all of the terms and conditions of this Section 9. In the event such pledgee or secured party becomes the Unit Holder hereunder pursuant to the exercise of such party's rights under such pledge or hypothecation agreement, such pledgee or secured party shall be bound by all terms and conditions of this Operating Agreement and all other agreements governing the rights and obligations of Unit Holders. In such case, such pledgee or secured party, and any transferee or purchaser of the Units held by such pledgee or secured party, shall not have any Membership Voting Interest attached to such Units unless and until the Directors have approved in writing and admitted as a Member hereunder, such pledgee, secured party, transferee or purchaser of such Units. 9.2 Permitted Transfers. Subject to the conditions and restrictions set forth in this Section 9, a Unit Holder may: (a) at any time Transfer all or any portion of its Units: (i) to the transferor's administrator or trustee to whom such Units are transferred involuntarily by operation of law or judicial decree, or; (ii) without consideration to or in trust for descendants or the spouse of a Member; and (b) beginning ninety (90) days following Financing Closing, Transfer all or any portion of its Units: (i) to any Person approved by the Directors in writing, (ii) to any other Member or to any Affiliate or Related Party of another Member; or (iii) to any Affiliate or Related Party of the transferor. Any such Transfer set forth in this Section 9.2 and meeting the conditions set forth in Section 9.3 below is referred to in this Agreement as a "Permitted Transfer." (a) Class A Units. Subject to the conditions and restrictions set forth in this Section 9, a Class A Member may Transfer all or any portion of its Class A Units to any Person approved by a majority of the Directors in writing. The Directors shall have the authority to disallow any proposed Transfer of Class A Units at their sole discretion. (b) Class B Units. Subject to the conditions and restrictions set forth in this Section 9, a Class B Member may Transfer all or any portion of its Class B Units to any Person approved by a majority of the Directors in writing. The Directors shall have the authority to disallow any proposed Transfer of Class B Units at their sole discretion. (c) Class C Units. Subject to the conditions and restrictions set forth in this Section 9, a Class C Member may Transfer all or any portion of its Class C Units to any Person approved by a majority of the Directors in writing. The Directors shall have the authority to disallow any proposed Transfer of Class C Units at their sole discretion.
33 (d) Class D Units. Subject to the conditions and restrictions set forth in this Section 9, a Class D Member may Transfer all or any portion of its Class D Units to any Person approved by a majority of the Directors in writing. The Directors shall have the authority to disallow any proposed Transfer of Class D Units at their sole discretion. 9.3 Conditions Precedent to Transfers. In addition to the conditions set forth above, no Transfer of a Membership Interest shall be effective unlesstreated as a Permitted Transfer unless and until the Directors have approved such Transfer as set forth in Section 9.2 and until all of the following conditions have been satisfied: (a) Except in the case of a Transfer involuntarily by operation of law, the transferor and transferee shall execute and deliver to the Company such documents and instruments of Transfer as may be necessary or appropriate in the opinion of counsel to the Company to effect such Transfer. In the case of a Transfer of Units involuntarily by operation of law, the Transfer shall be confirmed by presentation to the Company of legal evidence of such Transfer, in form and substance satisfactory to counsel to the Company. In all cases, the transferor and/or transferee shall pay all reasonable costs and expenses connected with the Transfer and the admission of the Transferee as a Member and incurred as a result of such Transfer, including but not limited to, legal fees and costs. (b) The transferor and transferee shall furnish the Company with the transferee's taxpayer identification number, sufficient information to determine the transferee's initial tax basis in the Units transferred, and any other information reasonably necessary to permit the Company to file all required federal and state tax returns and other legally required information statements or returns. Without limiting the generality of the foregoing, the Company shall not be required to make any distribution otherwise provided for in this Agreement with respect to any transferred Units until it has received such information. (c) Except in the case of a Transfer of any Units involuntarily by operation of law, either (i) such Units shall be registered under the Securities Act, and any applicable state securities laws, or (ii) the transferor shall provide an opinion of counsel, which opinion and counsel shall be reasonably satisfactory to the Directors, to the effect that such Transfer is exempt from all applicable registration requirements and that such Transfer will not violate any applicable laws regulating the Transfer of securities. (d) Except in the case of a Transfer of Units involuntarily by operation of law, the transferor shall provide an opinion of counsel, which opinion and counsel shall be reasonably satisfactory to the Directors, to the effect that such Transfer will not cause the Company to be deemed to be an "investment company" under the Investment Company Act of 1940. (e) Unless otherwise approved by the Directors and Members representing in the aggregate a 75% majority of the Membership Voting Interests held by the Class A Members, Class B Members, Class C Members, and Class D Members, voting together as a single class, no Transfer of Units shall be made except upon terms which would not, in the opinion of counsel chosen by and mutually acceptable to the Directors and the transferor Member, result in the termination of the Company within the meaning of Section 708 of the Code or cause the application of the rules of Sections 168(g)(1)(B) and 168(h) of the Code or similar rules to apply to the Company. If the
34 immediate Transfer of such Unit would, in the opinion of such counsel, cause a termination within the meaning of Section 708 of the Code, then if, in the opinion of such counsel, the following action would not precipitate such termination, the transferor Member shall be entitled to (or required, as the case may be) (i) immediately Transfer only that portion of its Units as may, in the opinion of such counsel, be transferred without causing such a termination and (ii) enter into an agreement to Transfer the remainder of its Units, in one or more Transfers, at the earliest date or dates on which such Transfer or Transfers may be effected without causing such termination. The purchase price for the Units shall be allocated between the immediate Transfer and the deferred Transfer or Transfers pro rata on the basis of the percentage of the aggregate Units being transferred, each portion to be payable when the respective Transfer is consummated, unless otherwise agreed by the parties to the Transfer. In the case of a Transfer by one Member to another Member, the deferred purchase price shall be deposited in an interest-bearing escrow account unless another method of securing the payment thereof is agreed upon by the transferor Member and the transferee Member(s). (f) No notice or request initiating the procedures contemplated by Section 9.3 may be given by any Member after a Dissolution Event has occurred. No Member may sell all or any portion of its Units after a Dissolution Event has occurred. (g) No Person shall Transfer any Unit if, in the determination of the Directors, such Transfer would cause the Company to be treated as a "publicly traded partnership" within the meaning of Section 7704(b) of the Code. (h) The Transfer will not result in the number of Class A Unit Holders of record equaling three hundred (300) or more, or such other number as required to maintain suspension of the Company's reporting obligations under the Securities and Exchange Act of 1934, as amended. (i) The Transfer will not result in the number of Class B Unit Holders, Class C Unit Holders or Class D Unit Holders of record equaling five hundred (500) or more, or such other number that would otherwise require the Company to register its Class B Units, Class C Units or Class D Units with the Securities and Exchange Commission. The Directors shall have the authority to waive any legal opinion or other condition required in this Section 9.3 other than the Member approval requirement set forth in Section 9.3(e). 9.4 Prohibited Transfers. Any purported Transfer of Units that is not permitted under this Section shall be null and void and of no force or effect whatsoever; provided that, if the Company is required to recognize such a Transfer (or if the Directors, in their sole discretion, elect to recognize such a Transfer), the Units Transferred shall be strictly limited to the transferor's Membership Economic Interests as provided by this Agreement with respect to the transferred Units, which Membership Economic Interests may be applied (without limiting any other legal or equitable rights of the Company) to satisfy any debts, obligations, or liabilities for damages that the transferor or transferee of such InterestMembership Economic Interests may have to the Company. In the case of a Transfer or attempted Transfer of Units that is not permitted under this Section, the parties engaging or attempting to engage in such Transfer shall be liable to indemnify and hold harmless the Company and the other Members from all cost, liability, and damage that
35 any of such indemnified Members may incur (including, without limitation, incremental tax liabilities, lawyers' fees and expenses) as a result of such Transfer or attempted Transfer and efforts to enforce the indemnity granted hereby. 9.5 No Dissolution or Termination. The transfer of a Membership Interest pursuant to the terms of this Article shall not dissolve or terminate the Company. No Member shall have the right to have the Company dissolved or to have such Member’s Capital Contribution returned except as provided in this Agreement. 9.6 Prohibition of Assignment. Notwithstanding the foregoing provisions of this Article, Transfer of a Membership Interest may not be made if the Membership Interest sought to be sold, exchanged or transferred, when added to the total of all other Membership Interests sold, exchanged or transferred within the period of twelve (12) consecutive months prior thereto, would result in the termination of the companyCompany under Section 708 of the Internal Revenue Code. In the event of a transfer of any Membership Interests, the Members will determine, in their sole discretion, whether or not the Company will elect pursuant to Section 754 of the Internal Revenue Code (or corresponding provisions of future law) to adjust the basis of the assets of the Company. 9.7 Rights of Unadmitted Assignees. A Person who acquires Units but who is not admitted as a substituted Member pursuant to Section 9.8 hereof shall be entitled only to the Membership Economic Interests with respect to such Units in accordance with this Agreement, and shall not be entitled to the Membership Voting Interest with respect to such Units. In addition, such Person shall have no right to any information or accounting of the affairs of the Company, shall not be entitled to inspect the books or records of the Company, and shall not have any of the rights of a Member under the Act or this Agreement. 9.8 Admission of Substituted Members. As to Permitted Transfers, a transferee of Units shall be admitted as a substitutesubstituted Member provided that such transferee has complied with the following provisions: (a) The transferee of Units shall, by written instrument in form and substance reasonably satisfactory to the Directors; (i) accept and adopt the terms and provisions of this Agreement, including this Section 9, and (ii) assume the obligations of the transferor Member under this Agreement with respect to the transferred Units. The transferor Member shall be released from all such assumed obligations except (x) those obligations or liabilities of the transferor Member arising out of a breach of this Agreement, (y) in the case of a Transfer to any Person other than a Member or any of its Affiliates, those obligations or liabilities of the transferor Member based on events occurring, arising or maturing prior to the date of Transfer, and (z) in the case of a Transfer to any of its Affiliates, any Capital Contribution or other financing obligation of the transferor Member under this Agreement; (b) The transferee pays or reimburses the Company for all reasonable legal, filing, and publication costs that the Company incurs in connection with the admission of the transferee as a Member with respect to the Transferred Units; and (c) Except in the case of a Transfer involuntarily by operation of law, if required by the Directors, the transferee (other than a transferee that was a Member prior to the Transfer) shall deliver to the Company evidence of the authority of such Person to become a Member and to be bound by all of the terms and conditions of this Agreement, and the transferee and transferor shall each execute and deliver such other instruments as the Directors reasonably deem necessary or appropriate to effect, and as a condition to, such Transfer.
36 9.9 Representations Regarding Transfers. (a) Each Member hereby covenants and agrees with the Company for the benefit of the Company and all Members, that (i) it is not currently making a market in Units and will not in the future make a market in Units, (ii) it will not Transfer its Units on an established securities market, a secondary market (or the substantial equivalent thereof) within the meaning of Code Section 7704(b) (and any Regulations, proposed Regulations, revenue rulings, or other official pronouncements of the Internal Revenue Service or Treasury Department that may be promulgated or published thereunder), and (iii) in the event such Regulations, revenue rulings, or other pronouncements treat any or all arrangements which facilitate the selling of Company interests and which are commonly referred to as "matching services" as being a secondary market or substantial equivalent thereof, it will not Transfer any Units through a matching service that is not approved in advance by the Company. Each Member further agrees that it will not Transfer any Units to any Person unless such Person agrees to be bound by this Section 9 and to Transfer such Units only to Persons who agree to be similarly bound. (b) Each Member hereby represents and warrants to the Company and the Members that such Member's acquisition of Units hereunder is made as principal for such Member's own account and not for resale or distribution of such Units. Each Member further hereby agrees that the following legend, as the same may be amended by the Directors in their sole discretion, may be placed upon any counterpart of this Agreement, the Articles, or any other document or instrument evidencing ownership of Units: THE TRANSFERABILITY OF THE MEMBERSHIP UNITS REPRESENTED BY THIS DOCUMENT IS RESTRICTED. SUCH UNITS MAY NOT BE SOLD, ASSIGNED, OR TRANSFERRED, NOR WILL ANY ASSIGNEE, VENDEE, TRANSFEREE OR ENDORSEE THEREOF BE RECOGNIZED AS HAVING ACQUIRED ANY SUCH UNITS FOR ANY PURPOSES, UNLESS AND TO THE EXTENT SUCH SALE, TRANSFER, HYPOTHECATION, OR ASSIGNMENT IS PERMITTED BY, AND IS COMPLETED IN STRICT ACCORDANCE WITH, THE TERMS AND CONDITIONS SET FORTH IN THE OPERATING AGREEMENT OF THE COMPANY AND AGREED TO BY EACH MEMBER. THE UNITS REPRESENTED BY THIS DOCUMENT MAY NOT BE SOLD, OFFERED FOR SALE, OR TRANSFERRED IN ABSENCE OF AN EFFECTIVE REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND UNDER APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH TRANSACTION IS EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND UNDER APPLICABLE STATE SECURITIES LAWS. 9.10. Distribution and Allocations in Respect of Transferred Units. If any Units are Transferred during any Fiscal Year in compliance with the provisions of this Section 9, Profits, Losses, each item thereof, and all other items attributable to the Transferred Units for such Fiscal Year shall be divided and allocated between the transferor and the transferee by taking into account their varying interests during the Fiscal Year in accordance with Code Section 706(d), using any conventions
37 permitted by law and selected by the Directors. All distributions on or before the date of such Transfer shall be made to the transferor, and all distributions thereafter shall be made to the transferee. Solely for purposes of making such allocations and distributions, the Company shall recognize such Transfer to be effective as of the first day of the month following the month in which all documents to effectuate the transfer have been executed and delivered to the Company, provided that, if the Company does not receive a notice stating the date such Units were transferred and such other information as the Directors may reasonably require within thirty (30) days after the end of the Fiscal Year during which the Transfer occurs, then all such items shall be allocated, and all distributions shall be made, to the Person, who according to the books and records of the Company, was the owner of the Units on the last day of such Fiscal Year. Neither the Company nor any Member shall incur any liability for making allocations and distributions in accordance with the provisions of this Section 9.10 whether or not the Directors or the Company has knowledge of any Transfer of ownership of any Units. 9.11. Additional Members. Additional Members may be admitted from time to time upon the approval of the Directors. Any such additional Member shall pay such purchase price for his/her/its Membership Interest and shall be admitted in accordance with such terms and conditions, as the Directors shall approve. All Members acknowledge that the admission of additional Members may result in dilution of a Member’s Membership Interest. Prior to the admission of any Person as a Member, such Person shall agree to be bound by the provisions of this Agreement and shall sign and deliver an Addendum to this Agreement in the form of Exhibit C, attached hereto. Upon execution of such Addendum, such additional Members shall be deemed to be parties to this Agreement as if they had executed this Agreement on the original date hereof, and, along with the parties to this Agreement, shall be bound by all the provisions hereof from and after the date of execution hereof. The Members hereby designate and appoint the Directors to accept such additional Members and to sign on their behalf any Addendum in the form of Exhibit CA, attached hereto. SECTION 10. DISSOLUTION AND WINDING UP 10.1. Dissolution. The Company shall dissolve and shall commence winding up and liquidating upon the first to occur of any of the following (each a "Dissolution Event"): (i) The affirmative vote of a 75% majority in interest of the Membership Voting Interests of the Class A Members, Class B Members, Class C Members and Class D Members, voting together as a single class, to dissolve, wind up, and liquidate the Company; or (ii) The entry of a decree of judicial dissolution pursuant to the Act. The Members hereby agree that, notwithstanding any provision of the Act, the Company shall not dissolve prior to the occurrence of a Dissolution Event. 10.2. Winding Up. Upon the occurrence of a Dissolution Event, the Company shall continue solely for the purposes of winding up its affairs in an orderly manner, liquidating its assets, and satisfying the claims of its creditors and Members, and no Member shall take any action that is inconsistent with, or not necessary to or appropriate for, the winding up of the Company's business and affairs, PROVIDED that all covenants contained in this Agreement and obligations provided for in this Agreement shall continue to be fully binding upon the Members until such time as the Property has been distributed pursuant to this Section 10.2 and the Articles have been canceled pursuant to the Act. The Liquidator shall be responsible for overseeing the prompt and orderly winding up and dissolution of the Company. The Liquidator shall take full account of the
38 Company's liabilities and Property and shall cause the Property or the proceeds from the sale thereof (as determined pursuant to Section 10.8 hereof), to the extent sufficient therefor, to be applied and distributed, to the maximum extent permitted by law, in the following order: (a) First, to creditors (including Members and Directors who are creditors, to the extent otherwise permitted by law) in satisfaction of all of the Company's Debts and other liabilities (whether by payment or the making of reasonable provision for payment thereof), other than liabilities for which reasonable provision for payment has been made; and (b) Second, except as provided in this Agreement, to Members in satisfaction of liabilities for distributions pursuant to the Act; (c) Third, the balance, if any, to the Unit Holders in accordance with the positive balance in their Capital Accounts calculated after making the required adjustment set forth in clause (t) of the definition of Gross Asset Value in Section 1.10 of this Agreement, after giving effect to all contributions, distributions and allocations for all periods. 10.3. Compliance with Certain Requirements of Regulations; Deficit Capital Accounts. In the event the Company is "liquidated" within the meaning of Regulations Section 1.704-1(b)(2)(ii)(g), distributions shall be made pursuant to this Section 10 to the Unit Holders who have positive Capital Accounts in compliance with Regulations Section 1.704-1(b)(2)(ii)(b)(2). If any Unit Holder has a deficit balance in his Capital Account (after giving effect to all contributions, distributions and allocations for all Fiscal Years, including the Fiscal Year during which such liquidation occurs), such Unit Holder shall have no obligation to make any contribution to the capital of the Company with respect to such deficit, and such deficit shall not be considered a debt owed to the Company or to any other Person for any purpose whatsoever. In the discretion of the Liquidator, a pro rata portion of the distributions that would otherwise be made to the Unit Holders pursuant to this Section 10 may be: (a) Distributed to a trust established for the benefit of the Unit Holders for the purposes of liquidating Company assets, collecting amounts owed to the Company, and paying any contingent or unforeseen liabilities or obligations of the Company. The assets of any such trust shall be distributed to the Unit Holders from time to time, in the reasonable discretion of the Liquidator, in the same proportions as the amount distributed to such trust by the Company would otherwise have been distributed to the Unit Holders pursuant to Section 10.2 hereof; or (b) Withheld to provide a reasonable reserve for Company liabilities (contingent or otherwise) and to reflect the unrealized portion of any installment obligations owed to the Company, provided that such withheld amounts shall be distributed to the Unit Holders as soon as practicable. 10.4. Deemed Distribution and Recontribution. Notwithstanding any other provision of this Section 10, in the event the Company is liquidated within the meaning of Regulations Section 1.704-1(b)(2)(ii)(g) but no Dissolution Event has occurred, the Property shall not be liquidated, the Company's Debts and other liabilities shall not be paid or discharged, and the Company's affairs shall not be wound up. 10.5. Rights of Unit Holders. Except as otherwise provided in this Agreement, each Unit Holder shall look solely to the Property of the Company for the return of its Capital Contribution and has no right or power to demand or receive Property other than cash from the Company. If the assets of the Company remaining after payment or discharge of the debts or liabilities of the Company are insufficient to return such Capital Contribution, the Unit Holders shall have no recourse against the Company or any other Unit Holder or Directors.
39 10.6. Allocations During Period of Liquidation. During the period commencing on the first day of the Fiscal Year during which a Dissolution Event occurs and ending on the date on which all of the assets of the Company have been distributed to the Unit Holders pursuant to Section 10.2 hereof (the "Liquidation Period"), the Unit Holders shall continue to share Profits, Losses, gain, loss and other items of Company income, gain, loss or deduction in the manner provided in Section 3 hereof. 10.7. Character of Liquidating Distributions. All payments made in liquidation of the interest of a Unit Holder in the Company shall be made in exchange for the interest of such Unit Holder in Property pursuant to Section 736(b)(1) of the Code, including the interest of such Unit Holder in Company goodwill. 10.8. The Liquidator. The "Liquidator" shall mean a Person appointed by the Directors(s) to oversee the liquidation of the Company. Upon the consent of a majority in interest of the Membership Voting Interests of the Class A Members, the Liquidator may be the Directors. The Company is authorized to pay a reasonable fee to the Liquidator for its services performed pursuant to this Section 10 and to reimburse the Liquidator for its reasonable costs and expenses incurred in performing those services. The Company shall indemnify, save harmless, and pay all judgments and claims against such Liquidator or any officers, Directors, agents or employees of the Liquidator relating to any liability or damage incurred by reason of any act performed or omitted to be performed by the Liquidator, or any officers, Directors, agents or employees of the Liquidator in connection with the liquidation of the Company, including reasonable attorneys' fees incurred by the Liquidator, officer, Director, agent or employee in connection with the defense of any action based on any such act or omission, which attorneys' fees may be paid as incurred, except to the extent such liability or damage is caused by the fraud, intentional misconduct of, or a knowing violation of the laws by the Liquidator which was material to the cause of action. 10.9. Forms of Liquidating Distributions. For purposes of making distributions required by Section 10.2 hereof, the Liquidator may determine whether to distribute all or any portion of the Property in-kind or to sell all or any portion of the Property and distribute the proceeds therefrom. SECTION 11. MISCELLANEOUS 11.1. Notices. Any notice, payment, demand, or communication required or permitted to be given by any provision of this Agreement shall be in writing and shall be deemed to have been delivered, given, and received for all purposes (i) if delivered personally to the Person or to an officer of the Person to whom the same is directed, or (ii) when the same is actually received, if sent by regular or certified mail, postage and charges prepaid, by facsimile or electronic mail, if such facsimile or electronic mail is followed by a hard copy of the facsimile communication sent promptly thereafter by registeredif sent by email, or other electronic transmission, when such transmission is electronically confirmed as having been successfully transmitted; or (iii) if sent by regular or certified mail, postage and charges prepaid, addressed as follows, or to such other address as such Person may from time to time specify by notice to the Members and the Directors: (a) If to the Company, to the address determined pursuant to Section 1.4 hereof; (b) If to the Directors, to the address set forth on record with the Company; (c) If to a Member, either to the address set forth in Section 2.1 hereofthe Membership Register or to such other address that has been provided in writing to the Company.
40 11.2. Binding Effect. Except as otherwise provided in this Agreement, every covenant, term, and provision of this Agreement shall be binding upon and inure to the benefit of the Members and their respective successors, transferees, and assigns. 11.3. Construction. Every covenant, term, and provision of this Agreement shall be construed simply according to its fair meaning and not strictly for or against any Member. 11.4. Headings. Section and other headings contained in this Agreement are for reference purposes only and are not intended to describe, interpret, define, or limit the scope, extent, or intent of this Agreement or any provision hereof. 11.5. Severability. Except as otherwise provided in the succeeding sentence, every provision of this Agreement is intended to be severable, and, if any term or provision of this Agreement is illegal or invalid for any reason whatsoever, such illegality or invalidity shall not affect the validity or legality of the remainder of this Agreement. The preceding sentence of this Section 11.5 shall be of no force or effect if the consequence of enforcing the remainder of this Agreement without such illegal or invalid term or provision would be to cause any Member to lose the material benefit of its economic bargain. 11.6. Incorporation By Reference. Every exhibit, schedule, and other appendix attached to this Agreement and referred to herein is incorporated in this Agreement by reference unless this Agreement expressly otherwise provides. 11.7. Variation of Terms. All terms and any variations thereof shall be deemed to refer to masculine, feminine, or neuter, singular or plural, as the identity of the Person or Persons may require. 11.8. Governing Law. The laws of the State of Indiana shall govern the validity of this Agreement, the construction of its terms, and the interpretation of the rights and duties arising hereunder. 11.9. Waiver of Jury Trial. Each of the Members irrevocably waives to the extent permitted by law, all rights to trial by jury in any action, proceeding or counterclaim arising out of or relating to this Agreement. 11.10. Counterpart Execution; Electronic Signatures. This Agreement may be executed in any number of counterparts with the same effect as if all of the Members had signed the same document. and electronic and facsimiles signatures shall be considered valid signatures for purposes of this Agreement. All counterparts shall be construed together and shall constitute one agreement. 11.11. Specific Performance. Each Member agrees with the other Members that the other Members would be irreparably damaged if any of the provisions of this Agreement are not performed in accordance with their specific terms and that monetary damages would not provide an adequate remedy in such event. Accordingly, it is agreed that, in addition to any other remedy to which the nonbreaching Members may be entitled, at law or in equity, the nonbreaching Members shall be entitled to injunctive relief to prevent breaches of the provisions of this
41 Agreement and specifically to enforce the terms and provisions hereof in any action instituted in any court of the United States or any state thereof having subject matter jurisdiction thereof. IN WITNESS WHEREOF, the parties have executed and entered into this SecondThird Amended and Restated Operating Agreement of the Company as of the day first set forth above. COMPANY: CARDINAL ETHANOL, LLC By: /s/ Troy Prescott By:____________________________ Its: Chairman
1 EXHIBIT "“A" Membership List Name of Initial Members Units Initial Capital Contribution Thomas E. Chalfant, 12028 West 700 North Parker City, IN 47368 22 $50,000 Kenneth R. Beshears 1560 West 500 North Winchester, IN 47394 22 $50,000 Anthony J. Kritsch 178 South 400 West Winchester, IN 47394 22 $50,000 Troy A. Prescott 3780 North 250 East Winchester, IN 47394 22 $50,000 Larry J. Barnette 3247 North 300 East Portland, IN 47371 22 $50,000 J. Phillip Zicht 5653 North U.S. Highway 27 Winchester, IN 47394 22 $50,000 Danny Huston 616 W. Jackson Parker City, IN 47368 22 $50,000 Joel D. Flesher 8913 North 1150 West Ridgeville, IN 47380 22 $50,000 Jimmie K. Davis 6037 South 1000 West Modoc, IN 47358 22 $50,000 Greg A. Cassel 12415 West 300 North Parker City, IN 47368 6 $10,000
2 Robert L. Chalfant 3384 South 900 West Farmland, IN 47340 22 $50,000 Robert L. Morris P.O. Box 127 Winchester, IN 47394 22 $50,000 Dale Schwieterman 3924 CR 716 A Celina, OH 45822 16 $40,000 John N. Shanks II 349 N. 500 West Anderson, IN 46011 16 $40,000 Robert E. Anderson 5737 E. 156th Street Novlesville, IN 46062 16 $40,000 Lawrence Allen Baird 2579 S. 500 West Tipton, IN 46072 16 $40,000 Ralph Brumbaugh P.O. Box 309 Arcanum, OH 45304 16 $40,000 Thomas C. Chronister 440 Kerr Island North Rome City, IN 46784 16 $40,000 Robert John Davis 4465 N. Co. Rd. 100 East New Castle, IN 47362 16 $40,000 David Matthew Dersch 305 N. Greenbriar Rd. Muncie, IN 47304 16 $40,000 G. Melvin Featherston 14740 River Rd. Noblesville, IN 46062 16 $40,000
3 John W. Fisher P.O. Box 1408 Muncine, IN 47308 16 $40,000 Jeremey Jay Herlyn 841 Hidden Valley Dr. Richmond, IN 47374 16 $40,000 Barry Hudson 1525 Meridian St. Portland, IN 47371 16 $40,000 James Lee Kunzman 4740 Pennington Ct. Indianapolis, IN 46254 16 $40,000 Cyril George LeFevre 1318 Fox Rd. Fort Recovery, OH 45846 16 $40,000 Curtis Allan Rosar 3587 Wernle Rd. Richmond, IN 47374 16 $40,000 Michael Alan Shuter 6376 N. 300 West Anderson, IN 46011 16 $40,000 Steven John Snider 7290 Langdon Rd. Yorktown, IN 47396 16 $40,000 Jerrold Lee Voisinet 450 Garby Rd. Piqua, OH 45356 16 $40,000 Everett Leon Hart 6934 Bradford Childrens Home Road Greenville, OH 45331 16 $40,000 Andrew J. Zawosky 1012 Manchester Dr. Greenville, OH 45331 16 $40,000 TOTAL: 568 $1,360,000,
4 EXHIBIT "B" Initial Board of Directors Initial Board of Directors Addresses of Initial Board of Directors Thomas E. Chalfant 12028 West 700 North Parker City, IN 47368 Troy A. Prescott 3780 North 250 East Winchester, IN 47394 Larry J. Barnette 3247 North 300 East Portland, IN 47371 Robert L. Morris P.O. Box 127 Winchester, IN 47394 Dale Schwieterman 3924 CR 716 A Celina, OH45822 John N. Shanks II 349 N. 500 West Anderson, IN 46011 Robert E. Anderson 5737 E. 156th Street Noblesville, IN 46062 Lawrence Allen Baird 2579 S. 500 West Tipton, IN 46072 Ralph Brumbaugh P.O. Box 309 Arcanum, OH 45304 Thomas C. Chronister 440 Kerr Island North Rome City, IN 46784 Robert John Davis 4465 N. Co. Rd. 100 East New Castle, IN 47362 David Matthew Dersch 305 N. Greenbriar Rd. Muncie, IN 47304 G. Melvin Featherston 14740 River Rd. Noblesville, IN 46062
5 John W. Fisher P.O. Box 1408 Muncie, IN 47308 Everett Leon Hart 6934 Bradford Childrens Home Road Greenville, OH 45331 Jeremey Jay Herlyn 841 Hidden Valley Dr. Richmond, IN 47374 Barry Hudson 1525 Meridian St. Portland, IN 47371 James Lee Kunzman 4740 Pennington Ct. Indianapolis, IN 46254 Cyril George LeFevre 1318 Fox Rd. Fort Recovery, OH 45846 Curtis Allan Rosar 3587 Wernle Rd. Richmond, IN 47374 Michael Alan Shuter 6376 N. 300 West Anderson, IN 46011 Steven John Snider 7290 Langdon Rd. Yorktown, IN 47396 Jerrold Lee Voisinet 450 Garby Rd. Piqua, OH 45356 Andrew J. Zawosky 1012 Manchester Dr. Greenville, OH 45331
6 EXHIBIT “C” MEMBER SIGNATURE PAGE ADDENDA TO THE SECONDTHIRD AMENDED AND RESTATED OPERATING AGREEMENT OF CARDINAL ETHANOL, LLC The undersigned does hereby represent and warrant that the undersigned, as a condition to becoming a Member in Cardinal Ethanol, LLC, has received a copy of the SecondThird Amended and Restated Operating Agreement dated February 1, 2006[·], 2024, and, if applicable, all amendments and modifications thereto, and does hereby agree that the undersigned, along with the other parties to the SecondAmendedThird Amended and Restated Operating Agreement, shall be subject to and comply with all terms and conditions of said SecondThird Amended and Restated Operating Agreement in all respects as if the undersigned had executed said SecondThird Amended and Restated Operating Agreement on the original date thereof and that the undersigned is and shall be bound by all of the provisions of said SecondThird Amended and Restated Operating Agreement from and after the date of execution hereof. Individuals: Entities: Name of Individual Member (Please Print) Name of Entity (Please Print) Signature of Individual Print Name and Title of Officer Name of Joint Individual Member (Please Print) Signature of Officer Signature of Joint Individual Member Agreed and Accepted on Behalf of the Company and its Members: CARDINAL ETHANOL, LLC By: Its:
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