Operating Agreement Template - Manager-Managed Limited Liability Company Page 10
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36attorneys’ fees, costs, and expenses, if any; then to accrued and unpaid interest; and, finally, in
reduction of the principal amount of the advance.
The Defaulting Member grants any
Nondefaulting Members who make advances to the Company in accordance with this Section
3.4(a) a security interest in the Defaulting Member’s Membership Interest to secure the
Defaulting Member’s obligations under this Section 3.4(a). The Defaulting Member will, within
5 days of written notice, execute any documents or instruments reasonably necessary to enable
Nondefaulting Members who make advances under this Section to perfect the foregoing security
interests. Each Member irrevocably appoints each other Member, and any one of them acting
alone, as his, her, or its attorney-in-fact for the limited purpose of executing, on behalf of the
Member, if the Member becomes a Defaulting Member, any of the foregoing documents or
instruments.
(b)
If the Defaulting Member fails to pay all sums due and owing to any
Members who make advances under Section 3.4(a), for a period of 180 days after the advance,
each Member who has made advances under Section 3.4(a) may foreclose on any security
interest granted under this Section 3.4 by causing the principal amount of the advance to be
transferred from the Defaulting Member’s Capital Account and added to the Capital Account of
the Member who has made the advances, with a corresponding adjustment in that Member’s and
the Defaulting Member’s Percentage Interests. Accrued and unpaid interest and other amounts
owed to Members who have made those advances (the Noncapital Costs) will also be paid out of
the Defaulting Member’s Capital Account, and if the Capital Account is not sufficient to fully
pay Noncapital Costs, the available balance will be shared pro rata in accordance with the
amounts of the Nondefaulting Members’ respective advances.
The Defaulting Member’s
Percentage Interest will be further adjusted (but not below zero) following application to
Noncapital Costs. All Members agree that the foregoing constitutes and will constitute a
disposition of collateral in a commercially reasonable manner within the meaning of California
Commercial Code §9610. Reduction of a Defaulting Member’s Capital Account to satisfy that
member’s repayment obligations under this Section 3.4(b) will be deemed a return of capital to
that Member to the extent of the reduction.
(c)
On the occurrence of, and for the duration of, a Default by any Member,
the Defaulting Member will not have any right to vote the Defaulting Member’s Membership
Interest or otherwise participate in the management or control of the business and affairs of the
Company, and any and all provisions of this Agreement relating to management and control will
be implemented without including the Membership Interest of the Defaulting Member. The
foregoing provisions will be in addition to the Company’s remedies under Corporations Code
§17201(a)(2). On satisfaction of a Defaulting Member’s obligations (whether by enforcement of
a remedy or otherwise) under Section 3.4(b), that Member will be restored to full membership
status to the extent of any remaining Percentage Interest.
3.5.
An individual Capital Account for each Member will be maintained in accordance
with the requirements of Treasury Reg. §1.704-1(b)(2)(iv) and adjusted in accordance with the
following provisions:
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