OPERATING AGREEMENT OF PEAK ASPHALT, L.L.C.

 

Exhibit 2.02

 

                               OPERATING AGREEMENT

                                       OF

                              PEAK ASPHALT, L.L.C.

 

 

         THIS OPERATING AGREEMENT OF PEAK ASPHALT, L.L.C. (this "Agreement"), is

made and entered into this 22nd day of December, 2004, to be effective as of the

1st day of May, 2004, by and between CROWN ENERGY CORPORATION, a Utah

corporation ("Crown"), and PEAK HOLDING, LLC, an Idaho limited liability company

("Holding") (collectively referred to herein as the "Members").

 

                                    Recitals

 

         A. The parties desire to engage in the business of acquiring, holding,

managing, and operating asphalt terminals, asphalt blending and modification

equipment, and asphalt emulsion manufacturing equipment, and the asphalt

marketing and distribution business (collectively the "Business").

 

         B. On or about April 19, 2004, Articles of Organization were filed with

the Division of Corporations and Commercial Code of the Department of Commerce,

State of Utah, to form Peak Asphalt, L.L.C. (the "Company").

 

         C. [It is the intent of the parties that the Members will share in the

cost and expense of the Operations of the Business and in improvements to the

Business in proportion with their Ownership Percentages and will receive an

increase in each such party's Capital Account (as defined below).]

 

         D. The parties hereto desire to provide for the regulation and

management of the affairs of the Company.

 

                                    Agreement

 

         NOW, THEREFORE, in consideration of the premises and the mutual

covenants set forth herein, and for other good and valuable consideration, the

receipt and sufficiency of which are hereby acknowledged, the parties hereby

agree as follows:

 

                                    Article I

                                  Defined Terms

 

         When used in this Agreement, the following terms shall have the

meanings set forth below:

 

         1.1 "Act" shall mean the Utah Revised Limited Liability Company Act, as

amended or revised from time to time.

 

         1.2 "Additional Capital Contribution" shall have the meaning set forth

in Section 3.2.

 

         1.3 "Additional Opportunity" shall have the meaning set forth in

Section 6.9.

 

         1.4 "Affiliate" of a Person shall mean a Person, directly or

indirectly, through one or more intermediaries, controlling, controlled by, or

under common control with the Person in question. The term "control," as used in

the immediately preceding sentence, means, respecting a Person that is a

 

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corporation, the right to exercise, directly or indirectly, more than 50% of the

voting rights attributable to the shares of the controlled corporation, and,

respecting a Person that is not a corporation, the possession, directly or

indirectly, of the power to direct or cause the direction of the management or

policies of the controlled Person.

 

         1.5 "Agreement" shall mean this Agreement as originally executed and as

amended from time to time. Words such as "herein," "hereinafter," "hereof,"

"hereto," "hereby," and "hereunder," when used with reference to this Agreement,

refer to this Agreement as a whole, unless the context otherwise requires.

 

         1.6 "Available Cash" of the Company shall mean all cash funds of the

Company on hand from time to time (including cash funds obtained as

contributions to the capital of the Company by the Members, loans to the

Company, and net proceeds from Capital Transactions, but excluding cash funds

obtained from Terminating Transactions) after (a) payment of all expenses of the

Company as of such time, including all costs, expenses, or charges respecting

the ownership, operation, development, maintenance, and upkeep of the Company

Property, including ad valorem taxes, debt amortization (including interest

payments), advertising expenses, professional fees, wages, and utility costs,

(b) provision for payment of all outstanding and unpaid current obligations of

the Company as of such time, and (c) provision for an adequate working capital

reserve as determined by the Management Committee to be reasonably necessary for

Operations of the Business of the Company.

 

         1.7 "Business" shall have the meaning set forth in Recital A above.

 

         1.8 "Capital Account" shall have the meaning set forth in Section

3.4(a).

 

         1.9 "Capital Transaction" shall mean a transaction (a) pursuant to

which the Company borrows funds, (b) pursuant to which part of the assets of the

Company are sold, condemned, exchanged, abandoned, or otherwise disposed of, (c)

pursuant to which insurance proceeds or other damages are recovered by the

Company in respect of a capital asset of the Company (and, not for such items as

Business interruption or similar items), or (d) that, in accordance with

generally accepted accounting principles, is otherwise considered capital in

nature.

 

         1.10 "Code" shall mean the Internal Revenue Code of 1986, as amended

(or any corresponding provision or provisions of succeeding law).

 

         1.11 "Company" shall mean the limited liability company operated

pursuant to the terms hereof for the limited purposes and scope set forth

herein.

 

         1.12 "Contract Interest Rate" shall mean the prime rate, calculated per

annum, plus one percent (1%), as quoted in the Wall Street Journal calculated

the first day of each calendar quarter for that quarter as quoted in the Wall

Street Journal on that day.

 

         1.13 "Delinquent Member" shall have the meaning set forth in Section

3.3.

 

         1.14 "Fiscal Year" of the Company shall mean the calendar year.

 

         1.15 "Indemnified Parties" shall have the meaning set forth in Section

6.5.

 

         1.16 "Management Committee" shall mean the Persons designated pursuant

to Section 5.3 to manage and operate the Business of the Company.

 

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         1.17 "Members" shall mean the parties to this Agreement and such other

Persons that are admitted to the Company as additional or substituted Members.

Reference to a "Member" shall mean any one of the Members.

 

         1.18 "Net Income or Loss" of the Company for any Fiscal Year (or

portion thereof) shall mean the excess or deficit, as the case may be, of (a)

the gross income of the Company derived from Operations as calculated under

federal income tax accounting principles for such Fiscal Year over (b) all items

of expense incurred by the Company respecting Operations during such Fiscal Year

that are allowable as deductions under federal income tax accounting principles

and depreciation, cost recovery, or other amortization deduction allowable to

the Company for federal income tax purposes respecting any Company asset for

such Fiscal Year. The Management Committee shall use its best efforts in all

events, unless otherwise agreed to by the Manager designated by Crown, to

maximize the income of the Company at all times during which the promissory note

of the Company to Crown and its affiliates in the principal amount of $7,500,000

is outstanding.

 

         1.19 "Non-Defaulting Member' shall have the meaning set forth in

Section 3.3.

 

         1.20 "Operating Budget" shall have the meaning set forth in Section

7.4.

 

         1.21 "Operating Line" shall have the meaning set forth in Section 7.1.

 

         1.22 "Operations" shall mean all revenue-producing activities of the

Company other than activities relating to Capital Transactions, including, but

not limited to, (a) the ownership of the Property, (b) the purchase of raw

materials (i.e. asphalt, blend stock, extender oils, chemicals, emulsifiers,

polymers, etc.), (c) the storage of raw materials as inventory, (d) the

blending, mixing, and milling of raw materials through equipment at the Property

into finished asphalt and/or emulsion products, (e) the sale of finished asphalt

and emulsion products, (f) the management and accounting of sales, expenses, and

costs related to the Business.

 

         1.23 "Ownership Percentage" means, respecting each Member, the product

of 100%, multiplied by a fraction, the numerator of which shall be the number of

Units held by such Member and the denominator of which shall be the total number

of Units outstanding at that time.

 

         1.24 "Person" shall mean any individual, partnership, corporation,

trust, or other entity or association.

 

         1.25 "Property" shall mean the property, equipment, and terminals being

acquired from Crown or its Affiliates, as more particularly described in Exhibit

1 attached hereto and incorporated herein by this reference, together with such

other property, equipment, terminals, buildings, fixtures, improvements, and

certain items of personal property that from time-to-time are acquired by the

Company.

 

         1.26 "Regulations" shall mean the regulations promulgated by the United

States Department of the Treasury pursuant to and in respect of provisions of

the Code. All references herein to sections of the Regulations shall include any

corresponding provision or provisions of succeeding, similar, substitute

proposed, or final Regulations.

 

         1.26 "Tax-Matters Member" shall have the meaning set forth in Section

5.12.

 

         1.27 "Terminating Transaction" shall mean a sale, condemnation,

exchange, or other disposition, whether by foreclosure, abandonment, or

otherwise, of all or substantially all of the then-remaining assets of the

 

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Company that is entered into in connection with the dissolution, termination,

and winding up of the Company or that will result in the dissolution of the

Company.

 

         1.28 "Unit" shall mean an interest in the Company consisting of the

rights, covenants, and responsibilities more particularly set forth herein.

 

                                   Article II

                               General Provisions

 

         2.1 Formation of the Company. The Members previously formed the Company

as a limited liability company pursuant to the provisions of the Act by filing

Articles of Organization with the Division of Corporations and Commercial Code

of the Department of Commerce, State of Utah, and hereby adopt this Agreement to

provide for the regulation and management of the affairs of the Company.

 

         2.2 Name. The Business of the Company shall be conducted under the name

"Peak Asphalt, L.L.C." or such other name that the Management Committee may

select.

 

         2.3 Purposes and Scope. Subject to the provisions of this Agreement,

the Company is formed to acquire, hold, manage, and operate asphalt receiving,

processing, storage, blending, manufacturing, distribution, and handling

facilities along with related Business activities; to acquire the asphalt assets

and Business from Crown's subsidiaries, which assets and Business will

constitute the Property; to engage in any activity necessary or convenient to

accomplish its purposes and operate its Business as set forth herein as the

Members may from time-to-time determine; and to exercise all powers permitted

thereby. This Agreement does not and shall not be construed to govern any

business relationships between the parties other than those specified in this

Agreement.

 

         2.4 Articles of Organization. The Members further agree and obligate

themselves to execute, acknowledge, file, record, and/or publish, as necessary,

such amendments to the Articles of Organization as may be required by the terms

hereof or by law and such other certificates and documents as may be appropriate

to comply with the requirements of law for the continuation, preservation,

and/or operation of the Company as a limited liability company. Any amendment to

the Articles of Organization shall require the written consent of Members

holding in the aggregate at least 67% of the outstanding Units entitled to vote.

 

         2.5 Fictitious Name. Concurrently with the execution of this Agreement,

the Company shall make any filings or disclosures required by the laws of the

state of Utah respecting its use of a fictitious name, if any.

 

         2.6 Ownership. The interest of each Member in the Company shall be

personal property for all purposes. All property and interests in property, real

or personal, owned by the Company shall be deemed owned by the Company as an

entity, and no Member, individually, shall have any ownership in any property or

interest in property owned by the Company except as a Member in the Company.

Each of the Members irrevocably waives, during the term of the Company and

during any period of its liquidation following any dissolution, any right that

such Member may have to maintain any action for partition respecting any of the

assets of the Company.

 

         2.7 No Individual Authority. Except as otherwise specifically provided

in this Agreement, no Member, acting alone, shall have any authority to act for,

or to undertake or assume any obligation, debt, duty, or responsibility on

behalf of, any other Member or the Company.

 

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         2.8 Designated Office. The designated office of the Company shall be at

1710 West 2600 South, Woods Cross, Utah 84087, or at such other or additional

place or places as the Management Committee shall reasonably determine.

 

         2.9 Term of the Company. The term of the Company shall continue until

terminated pursuant to the provisions of this Agreement or such other date as

the Members shall select in accordance with the provisions of Section 9.2

 

         2.10 Registered Agent. The registered agent of the Company shall be Jay

Mealey whose office address is 1710 West 2600 South, Woods Cross, Utah 84087.

 

         2.11 Registered Office. The registered office of the Company shall be

1710 West 2600 South, Woods Cross, Utah 84087.

 

                                   Article III

                              Capital Contributions

 

         3.1 Initial Capital Contributions; Units. In connection with the

formation of the Company, each Member has performed valuable services for or on

behalf of the Company, or will perform such valuable services in the future, for

which each such Member shall have a profits interest in the Company by virtue of

the Units credited to such Members as set forth opposite such Members' names set

forth below:

 

                                                          Units

                           Name                            Held

         -----------------------------------------    ------------

         Peak Holding, LLC                                  5,100

         Crown Energy Corporation                           4,900

                                                      -----------

         Total                                             10,000

                                                      ===========

 

The Units credited to each Member shall reflect the interest of the Members in

the future profits of the Company and shall not otherwise affect their

respective capital interests.

 

         3.2 Additional Contributions. The Management Committee shall have the

right to call for additional contributions by the Members to the capital of the

Company ("Additional Capital Contributions"), pro rata in accordance with the

Members' respective Ownership Percentages, and subject to the provisions of

Section 5.8. In the event of a call for Additional Capital Contributions, the

Management Committee shall deliver to the Members a Notice of Additional Capital

Contributions at least 30 days prior to the date such Additional Capital

Contributions are required. The Notice of Additional Capital Contributions shall

include the amount each Member is required to contribute. The Members shall make

such Additional Capital Contributions to the Company in good funds on the date

set forth in the Notice of Additional Capital Contributions. Any Additional

Capital Contributions of a Member shall increase the Member's Capital Account,

but, as long as such contributions are made in proportion to the Members'

respective Ownership Percentages, shall not result in an increase in the number

of Units held by the Members or a change in the Ownership Percentages of the

Members.

 

         3.3 Failure To Contribute.

 

                  (a) If a Member fails to contribute by the time required all

         or any portion of an Additional Capital Contribution that such Member

         (the "Delinquent Member") is required to make as provided in this

         Agreement, the Company, at the direction of the other Member (the

         "Non-Defaulting Member"), or the Non-Defaulting Member, may, on notice

 

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         to the Delinquent Member, deliver to the Company the amount of the

         Delinquent Member's Additional Capital Contribution not paid by the

         Delinquent Member. Such payment shall be, at the option of the Company

         or the Non-Defaulting Member making payment, as the case may be, either

         in the form of a loan to the Delinquent Member or a contribution to the

         capital of the Company. The Company or the Non-Defaulting Member, as

         the case may be, may plead for relief under one or more of such

         remedies in any arbitration or judicial proceeding; provided, however,

         to the extent the Company or the Non-Defaulting Member exercises one of

         such remedies as to all or a portion of the Additional Capital

         Contribution that is in default and receives the payment, adjustment,

         or other relief provided for in connection with such remedy, the

         Delinquent Member shall not be liable in any event for more than the

         obligation that is owed.

 

                           (i) If the Non-Defaulting Member advances the

                  Delinquent Member's Additional Capital Contribution that is in

                  default as a loan, such loan will be made under the following

                  the provisions:

 

                                    (1) the principal balance of the loan and

                           all accrued unpaid interest thereon shall be due and

                           payable in whole on the tenth day after written

                           demand therefore by the Non-Defaulting Member to the

                           Delinquent Member, provided, however, that the demand

                           for payment of such loan may not be made until after

                           the date that is six months after the date such loan

                           is made;

 

                                    (2) the amount loaned shall bear interest at

                           the Contract Interest Rate plus 5% from the day that

                           the advance is deemed made until the date that the

                           loan, together with all interest accrued on it, is

                           repaid to the Non-Defaulting Member;

 

                                    (3) all distributions from the Company that

                           otherwise would be made to the Delinquent Member

                           (whether before or after dissolution of the Company

                           and whether before or after demand for payment is

                           made pursuant to the immediately preceding subsection

                           (1)) instead shall be paid to the Non-Defaulting

                           Member until the loan and all interest accrued on it

                           have been paid in full to the Non-Defaulting Member

                           (with payments being applied first to accrued and

                           unpaid interest and then to principal); and

 

                                    (4) the payment of the loan and interest

                           accrued on it shall be secured by a security interest

                           in the Delinquent Member's membership interest.

 

                           (ii) A contribution made to the Company and

                  designated as a capital contribution by the Non-Defaulting

                  Member shall be credited to the Capital Account of the

                  Non-Defaulting Member making the contribution. The Ownership

                  Percentage of the Delinquent Member shall be reduced by the

                  number of percentage points determined by the following

                  formula:

 

                   Unpaid Additional Capital Contribution of Delinquent Member

                   -----------------------------------------------------------

                            Total Capital Contributions by All Members

 

                           (iii) For purposes of this Section 3.3, "Total

                  Capital Contributions by All Members" means the aggregate

                  capital contributions of the Members (including the capital

                  contribution made by the Non-Defaulting Member pursuant to

                  this Section 3.3 on its own behalf and on behalf of the

                  Delinquent Member) since inception of the Company.

 

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                           (iv) The Ownership Percentage of the Non-Defaulting

                  Member that makes the contribution shall be increased by the

                  same number of percentage points equal to the reduction in the

                  Ownership Percentage of the Delinquent Member. Appropriate

                  adjustments shall be made in the Capital Accounts of the

                  Members to reflect actual cash contributions.

 

                  (b) Each Member grants to the Company, and to the

         Non-Defaulting Member with respect to any loans made by the

         Non-Defaulting Member to that Member as a Delinquent Member pursuant to

         Section 3.3, as security, for the payment of all Additional Capital

         Contributions that Member has agreed to make and the payment of all

         loans and interest accrued on them made by the Non-Defaulting Member to

         that Member as a Delinquent Member pursuant to Section 3.3, a security

         interest in and a general lien on all of its interest in the Company

         and the proceeds thereof, all under the Uniform Commercial Code of

         Utah. On any default in the payment of an Additional Capital

         Contribution or in the payment of such a loan or interest accrued on

         it, the Company or the Non-Defaulting Member, as applicable, is

         entitled to all the rights and remedies of a secured party under the

         Uniform Commercial Code of the State of Utah with respect to the

         security interest granted in this Section 3.3. Each Member shall

         execute and deliver to the Company and the other Members all financing

         statements and other instruments that the Company or the Non-Defaulting

         Member, as applicable, may request to effectuate and carry out the

         preceding provisions of this Section 3.3. At the option of the Company

         or a Non-Defaulting Member, this Agreement or a carbon, photographic,

         or other copy hereof may serve as a financing statement.

 

         3.4 Capital Accounts.

 

                  (a) A separate "Capital Account" (herein so called) shall be

         maintained for each Member in accordance with the capital accounting

         rules of Section 1.704-1(b)(2)(iv) of the Regulations. Each Member

         shall have only one Capital Account, regardless of the number or

         classes of Units in the Company owned by such Member and regardless of

         the time or manner in which such Units were acquired by such Member.

         Pursuant to the basic rules of Section 1.704-1(b)(2)(iv) of the

         Regulations, the balance of each Member's Capital Account shall be:

 

                           (i) credited with: (1) the amount of money

                  contributed by such Member to the Company and the fair market

                  value of any Property contributed by such Member to the

                  Company (net of liabilities secured by such Property that the

                  Company assumes or takes subject to); (2) except as provided

                  below, the amount of taxable income or gain allocated to such

                  Member; and (3) such Member's pro rata share of any tax-exempt

                  income or gain of the Company; and

 

                           (ii) debited with: (1) the amount of money (excluding

                  guaranteed payments) and the agreed fair market value of any

                  Property distributed to such Member (net of liabilities

                  secured by such Property that the Member assumes or takes

                  subject to); (2) except as provided below, the amount of

                  taxable loss and deductions (or items thereof) allocated to

                  such Member; and (3) such Member's pro rata share of any

                  expenditures of the Company described in Section 705(a)(2)(B)

                  of the Code (or expenditures that are so treated under Section

                  1.704-(b) of the Regulations); and

 

                           (iii) otherwise adjusted in accordance with the other

                  capital account maintenance rules of Section 1.704-1(b)(2)(iv)

                  of the Regulations.

 

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         In addition, if Property is distributed in kind by the Company, the

         Capital Accounts of the Members shall be adjusted to reflect the manner

         in which the unrealized income, gain, loss, and deduction inherent in

         such Property (that has not already been reflected in the Members'

         Capital Accounts) would be allocated to the Members if there were a

         taxable disposition of such Property for its agreed fair market value

         on the date of distribution.

 

                  (b) Notwithstanding the foregoing, if Property is contributed

         to the Company by a Member, the Company shall thereafter compute gain,

         loss, and depreciation in respect of the contributed Property

         separately for book and tax purposes as required by Sections

         1.704-1(b)(2)(iv), 1.704-1(b)(4)(i), and 1.704-(b)(4)(iii) of the

         Regulations. Such items so computed for book purposes shall be

         allocated among the Members in the manner provided in Article IV below

         and shall be reflected in the Members' Capital Accounts by appropriate

         increases or decreases thereto as required by Section

         1.704-1(b)(2)(iv)(b) of the Regulations. Such items so allocated for

         tax purposes shall not be reflected in the Members' Capital Accounts.

 

                  (c) Notwithstanding the foregoing, it is the intention of the

         Members that their Capital Accounts in the Company be maintained

         strictly in accordance with the capital account maintenance

         requirements of Section 1.704-1(b) of the Regulations, and that their

         Capital Accounts be adjusted to the extent required by the provisions

         of such Regulations or any successor provisions thereto.

 

                  (d) A loan by a Member to the Company shall not be considered

         a contribution of money to the capital of the Company, and the balance

         of such Member's Capital Account shall not be increased by the amount

         so loaned, unless such loan is determined by the Internal Revenue

         Service in a final administrative proceeding to be a capital

         contribution by such Member. No repayment of principal or interest on

         any such loan, reimbursement made to a Member respecting advances or

         other payments made by such Member on behalf of the Company, or

         payments of fees to a Member or its Affiliates that are made by the

         Company shall be considered a return of capital or in any manner affect

         the balance of such Member's Capital Account.

 

                  (e) Except as otherwise provided herein or by the Act, no

         Member having a negative balance in its Capital Account shall have any

         obligation to the Company or any other Member to restore its Capital

         Account to zero. A deficit Capital Account of a Member shall not be

         deemed to be a liability of such Member or an asset or Property of the

         Company.

 

         3.5 Return of Capital. Except to the extent provided in Article IV

below, no Member shall have the right to demand or receive the return of such

Member's capital contributions to the Company.

 

         3.6 No Interest on Capital Contributions. Except as otherwise provided

herein, no Member shall receive any interest on such Member's capital

contributions to the Company or such Member's Capital Account, notwithstanding

any disproportion therein as between the Members.

 

                                   Article IV

                          Allocations and Distributions

 

         4.1 Distributions of Available Cash. The Management Committee, in its

sole discretion, shall determine whether the Company should distribute its

Available Cash; provided, however, that the Management Committee shall use its

best efforts to distribute sufficient Available Cash to allow the Members to

meet their obligations to federal and state taxing authorities. In the event

that the Management Committee decides that part or all of the Company's

Available Cash should be distributed to the Members, such Available Cash shall

be distributed to the Members pro rata in accordance with their respective

 

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Ownership Percentages. Notwithstanding the foregoing, the net proceeds of a

Terminating Transaction shall be distributed in accordance with Section 9.2

hereof.

 

         4.2 Allocations of Income and Loss. Subject to the provision of Section

4.3, the Company's items of Net Income and Loss from Operations for each Fiscal

Year and gain and loss realized by the Company in connection with each Capital

Transaction, after giving effect to all Capital Account adjustments attributable

to contributions and distributions of money and Property made during such Fiscal

Year (but excluding income and loss, if any, that is required to be separately

determined and allocated to the Members for federal income tax purposes in the

same manner as prescribed under Section 704(c) of the Code), shall be allocated

to the Members, pro rata in accordance with their respective Ownership

Percentages.

 

         4.3 Limitations and Qualifications Regarding Allocations.

Notwithstanding the provisions of Section 4.2, Net Income and Loss for each

Fiscal Year and gain and loss realized by the Company (or items of income, gain,

loss, deduction, or credit, as the case may be) shall be allocated in accordance

with the following provisions to the extent such provisions shall be applicable.

 

                  (a) If the allocation of Net Loss (or items thereof) as

         provided in Section 4.2 hereof would cause or increase a deficit

         balance in a Member's Capital Account, there shall be allocated to such

         Member only that amount of Net Loss (or items thereof) as will not

         cause or increase a deficit balance in the Member's Capital Account.

         The Net Loss (or items thereof) that would, absent the application of

         the preceding sentence, otherwise be allocated to such Member shall be

         allocated first, to other Members having positive balances in their

         Capital Accounts, in proportion to such positive balances; and second,

         to all the Members in accordance with their respective Ownership

         Percentages. For purposes hereof, each Member's Capital Account shall

         be reduced for the items described in clauses (4), (5), and (6) of

         Regulation Section 1.704-1(b)(2)(ii)(d). If any allocation of Net Loss

         (or items thereof) is made under this Section 4.3, any allocation of

         Net Income and gain (including income and gain exempt from tax) of the

         Company allocated thereafter shall first be allocated as necessary to

         offset in reverse order the allocation made pursuant to this Section

         4.3.

 

                  (b) If any Member unexpectedly receives any adjustment,

         allocation, or distribution described in clauses (4), (5), and (6) of

         Regulation Section 1.704-1(b)(2)(ii)(d), such Member shall be

         allocated, before any other allocation is made pursuant to Section 4.3,

         items of income and gain (including a pro rata portion of each item of

         income, including gross income, and gain for such year) in an amount

         and manner sufficient to eliminate, as quickly as possible, the deficit

         balance, if any, in such Member's Capital Account (in excess of any

         limited dollar amount that such Member is obligated or treated as

         obligated to restore by contribution, within the meaning of Regulation

         Section 1.704-1-(b)(ii)(d)(2)). This provision is intended to be a

         "qualified income offset" within the meaning of Section

         1.704-1(b)(2)(ii)(d) of the Regulations and should be interpreted and

         implemented as provided therein. Any allocation of income or gain

         pursuant to this section shall be taken into account in computing

         subsequent allocations of income and gain pursuant to Section 4.2 and

         this Section 4.3, so that the net amount of all such allocations to

         each Member shall, to the extent possible, be equal to the net amount

         of income and gain that would have been allocated to each Member

         pursuant to Section 4.3 if such unexpected adjustment, allocation, or

         distribution had not occurred.

 

         4.4 Allocation of Income and Loss and Distributions in Respect of Units

Transferred.

 

                  (a) If any Units in the Company are transferred, or are

         increased or decreased by reason of the admission of a new Member or

         otherwise, during any Fiscal Year of the Company, each item of income,

         gain, loss, deduction, or credit of the Company for such Fiscal Year

 

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         shall be assigned pro rata to each day in the particular period of such

         Fiscal Year to which such item is attributable (i.e., the day on or

         during which it is accrued or otherwise incurred) and the amount of

         each such item so assigned to any such day shall be allocated to the

         Members based upon their respective Units in the Company at the close

         of such day. For purposes of accounting convenience and simplicity, the

         Company shall treat a transfer of, or an increase or decrease in, Units

         in the Company that occurs at any time during a semimonthly period

         (commencing with the semimonthly period including the date hereof) as

         having been consummated on the first day of such semimonthly period,

         regardless of when during such semimonthly period such transfer,

         increase, or decrease actually occurs (i.e., sales and dispositions

         made during the first 15 days of any month will be deemed to have been

         made on the first day of the month and sales and dispositions

         thereafter will be deemed to have been made on the 16th day of the

         month).

 

                  (b) Distributions of assets of the Company in respect of Units

         in the Company shall be made only to the Persons that, according to the

         books and records of the Company, are the holders of records of Units

         in respect of which such distributions are made on the actual date of

         distribution. Neither the Company nor the Management Committee shall

         incur any liability for making distributions in accordance with the

         provisions of the preceding sentence, whether or not the Company or the

         Management Committee has knowledge or notice of any transfer or

         purported transfer of ownership of any Units in the Company.

 

                  (c) Notwithstanding any provision above to the contrary, gain

         or loss of the Company realized in connection with a sale or other

         disposition of any of the assets of the Company shall be allocated

         solely to the parties owning Units in the Company as of the date such

         sale or other disposition occurs.

 

                                    Article V

                 Status of Members and Management of the Company

 

         5.1 Participation in Management. Except as otherwise provided herein,

the Members shall not participate in the management or control of the Company's

Business nor shall they transact any business for the Company, nor shall they

have the power to act for or bind the Company, said powers being vested solely

and exclusively in the Management Committee.

 

         5.2 Limited Liability. Except as otherwise provided herein to the

contrary, the Members shall not be bound by, or personally liable for, the

expenses, liabilities, or obligations of the Company, except as provided in the

Act.

 

         5.3 Management. Unless the Articles of Organization have dispensed with

or limited the authority of the Management Committee, all power of the Company

shall be exercised by or under the authority of, and the Business and affairs of

the Company shall be managed under the direction of, the Management Committee.

The Management Committee shall have exclusive power and control over the

Business of the Company; only the Management Committee, or its authorized

representatives, shall have the power to bind the Company. The initial

Management Committee shall be comprised of three Persons, two of whom will be

appointed by Holding and one of whom will be appointed by Crown. Each Person

appointed to the Management Committee shall act as such until the earliest to

occur of (a) his resignation, withdrawal, incapacity, removal, or death; or (b)

the dissolution of the Company. A Member may remove a Person such Member

appointed to the Management Committee at any time with or without cause.

Management Committee vacancies shall be filled by the Member that appointed the

member of the Management Committee causing the vacancy.

 

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         5.4 Officers. The Management Committee will appoint a President and

Secretary to manage the day-to-day Operations of the Business and may appoint

additional officers as it deems necessary or desirable. Holding will appoint the

initial President until his successor is appointed by the Management Committee.

Crown will appoint the Secretary and his or her successor until such time as the

Promissory Note payable by the Company to Crown has been paid in full. The

officers shall report to the Management Committee.

 

         5.5 Management Committee, Manner of Acting. At any time more than one

Person is serving on the Management Committee, the provisions of this Section

5.5 shall apply. As to matters in the ordinary course of Business and when a

vote of the Management Committee is not otherwise required, any proper officer

may execute any document or take any action without a meeting or other consent

of the Management Committee, provided that such does not contravene the

provisions of this Agreement and otherwise complies with applicable law. As to

matters not in the ordinary course of Business or when a vote of Management

Committee is otherwise required, the following shall apply:

 

                  (a) A majority of the Persons appointed to the Management

         Committee shall constitute a quorum for the transaction of Business at

         a meeting of the Management Committee unless this Agreement or the

         Articles of Organization require a greater number.

 

                  (b) The act of the majority of the Management Committee

         present at a meeting at which a quorum is present when the vote is

         taken shall be the act of the Management Committee unless this

         Agreement or the Articles of Organization require a greater percentage.

 

                  (c) Unless the Articles of Organization provide otherwise, any

         or all Persons appointed to the Management Committee may participate in

         a meeting by, or conduct the meeting through the use of, any means of

         communication by which all Persons participating may simultaneously

         hear each other during the meeting. A Person participating in a meeting

         by this means is deemed to be present in person at the meeting.

 

                  (d) A Person who is present at a meeting of the Management

         Committee when action is taken is deemed to have assented to the action

         taken unless: (1) he objects at the beginning of the meeting (or

         promptly upon his or her arrival) to holding it or transacting Business

         at the meeting; or (2) his dissent or abstention from the action taken

         is entered in the minutes of the meeting; or (3) he delivers written

         notice of his dissent or abstention to the presiding officer of the

         meeting before its adjournment or to the Company immediately after

         adjournment of the meeting. The right of dissent or abstention is not

         available to a Person who votes in favor of the action taken.

 

                  (e) Unless the Articles of Organization provide otherwise, any

         action required or permitted to be taken by the Management Committee at

         a meeting may be taken without a meeting, without prior notice, and

         without a vote, if all of the members of the Management Committee sign

         a written consent describing the action taken, and the consents are

         filed with the records of the Company. Action taken by consent is

         effective when the last Person signs the consent, unless the consent

         specifies a subsequent effective date. A signed consent has the effect

         of a meeting vote and may be described as such in any document.

 

                  (f) Unless this Agreement or Articles of Organization require

         a greater percentage, the Management Committee shall determine all

         matters based upon a majority consent, without regard to their

         respective Ownership Percentage, if any. If, at any time, the

         Management Committee is deadlocked as to a matter, the matter shall be

         determined by a vote of the Members.

 

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                  (g) Unless the Articles of Organization provide for a longer

         or shorter period, meetings of the Management Committee must be

         preceded by at least two days' notice of the date, time, and place of

         the meeting. The notice need not describe the purpose of the meeting

         unless required by the Articles of Organization or this Agreement.

 

         5.6 Management Committee; Specific Powers. Except as otherwise

specifically provided in this Agreement, all matters in connection with the

day-to-day conduct of the Company's Business and the use or disposition of its

assets shall be decided solely by the Management Committee, acting through the

officers of the Company. Without limiting the generality of the foregoing, the

Management Committee shall have the power and authority on behalf of the Company

to:

 

                  (a) acquire such tangible and intangible personal Property as

         may be necessary or desirable to carry on the Business of the Company;

 

                  (b) negotiate, execute, and deliver leases for office space

         for the Operations of the Company's Business;

 

                  (c) purchase equipment, supplies, and materials and produce,

         manufacture, market, and distribute products as, in their sole

         discretion, they shall deem advisable;

 

                  (d) employ, terminate the employment of, supervise, and

         compensate such Persons as, in its sole discretion and judgment, it

         shall deem advisable for the proper operation and management of the

         Business of the Company;

 

                  (e) invest Company funds in interest-bearing accounts,

         commercial paper, government securities, certificates of deposit, or

         similar investments;

 

                  (f) execute promissory notes, deeds of trust, regulatory

         agreements, and all other documents, agreements, or certifications;

 

                  (g) sell, transfer, exchange (whether or not qualifying as a

         tax-free exchange under Section 1031 of the Code), assign, convey,

         lease, further encumber, hypothecate, or otherwise dispose of all or

         any part of the assets of the Company in the ordinary course of the

         Business of the Company;

 

                  (h) execute and file all reports and maintain all records

         required by law or by this Agreement; and

 

                  (i) coordinate the management and operation of the Company and