259 260 M. SAMPLE LLC AGREEMENT LIMITED LIABILITY COMPANY AGREEMENT This Limited Liability Company Agreement (this "Agreement") of AAA Pool Ser- vices, LLC, a Delaware limited liability company (the "Company"), is entered into as of March 9, 2014, by and among the Company and the Persons named on Schedule 1 of this Agreement (collectively, the "Members"). Unless otherwise noted or defined 1 Organizational Matters Section 1.01 Name. The name of the Company is AAA Pool Services, LLC. Section 1.02 Principal Office. The principal office of the Company is located at 2013 Ajo Way, Tucson, Arizona, 85716, or such other location as may from time to time be determined by the Manager. The Manager shall give prompt notice of any such change to each of the Members. Section 1.03 Registered Office; Registered Agent. The registered office of the Company and the registered agent for service of process on the Company in the State of Delaware shall be that office and Person named in the Certificate of Formation or such other office (which need not be a place of business of the Company) or such other Person or Persons as the Manager may designate from time to time in the manner pro- vided by the Delaware Act and Applicable Law. Section 1.04 Purpose; Powers. (a) The purposes of the Company are to engage in any lawful act or activity for which limited liability companies may be formed under the Delaware Act and to en- gage in any and all activities necessary or incidental thereto. 2 (b) The Company shall have all the powers necessary or convenient to carry out the purposes for which it is formed, including the powers granted by the Delaware Act. Section 1.05 Term. The term of the Company commenced on the date and time the Certificate of Formation was filed with the Secretary of State of the State of Delaware and shall continue in existence perpetually or until any earlier date when the Company is terminated in accordance with the provisions of this Agreement or as provided by law. ARTICLE II Members Section 2.01 Members. The names and Membership Interests of the Members are set out in Schedule 1 attached hereto (the "Members Schedule"). The Manager shall maintain and update the Members Schedule upon the issuance or Transfer of any Mem- bership Interests to any new or existing Member in accordance with this Agreement. No Member shall owe the Company or other Members any fiduciary duties solely be- cause that person is a Member. Section 2.02 Capital Contributions; Capital Accounts; No Withdrawals. (a) The Members have contributed to the Company the amounts, in the form of cash, property, services, or a promissory note or other obligation (as such amounts may be amended herein from time to time, the "Capital Contributions") set out in the Members Schedule. No Member is required to make additional Capital Contribu- tions to the Company. (b) The Company shall establish and maintain for each Member a separate capital account (a "Capital Account") on its books and records in accordance with the provisions of Section 704(b) of the Code and Treasury Regulations Section 1.704-1(b)(2)(iv). Each Capital Account shall be (i) credited by such Member's Capital Contributions to the Company and any profits allocated to such Member in accordance with Section 4.01 and (ii) debited by any distributions to such Member pursuant to Section 5.01(a) and any losses allocated to such Member in accordance with Section 4.01. For purposes of maintaining the Members' Capital Accounts, profits and losses shall be determined in accordance with Treasury Regulation Section 1.704-1(b). The Capital Accounts shall be adjusted by the Manager upon the occurrence of an event described in Treasury Regulations Section 1.704-1(b) (2)(iv)(f)(5) in the manner described in Treasury Regulations Section 1.704-1(b)(2) (iv)(f)(5) and (g) if the Manager determines that such adjustments are necessary or appropriate to reflect the relative economic interests of the Members. In the event of a Transfer of any Membership Interest in accordance with the terms of this Agree- ment, the Transferee shall succeed to the Capital Account of the Transferor to the extent it relates to the transferred Membership Interest. 3 4 (c) No Member shall be entitled to withdraw any part of its Capital Account or to receive any distribution from the Company, except as otherwise provided in this Agreement. Section 2.03 Admission of Additional Members. (a) Additional Members may be admitted from time to time in connection with (i) the issuance of Membership Interests by the Company, subject to compliance with the provisions of Section 3.02(b), 261 or (ii) a Transfer of Membership Interests, subject to compliance with the provisions of Article VI, and in either case, following compliance with the provisions of Section 2.03(b). (b) In order for any Person not already a Member of the Company to be admitted as a Member, whether pursuant to an issuance or a Transfer (including a Permitted Transfer) of Membership Interests, such Person shall have executed this Agreement. Upon the amendment of the Members Schedule by the Manager and the satisfac- tion of any other applicable conditions, including, if a condition, the receipt by the Company of payment for the issuance of the applicable Membership Interests, such Person shall be admitted as a Member, shall be a party hereto, shall be deemed listed as such on the books and records of the Company, and thereupon shall be issued his, her, or its Membership Interests. The Manager shall also adjust the Capital Accounts of the Members as necessary in accordance with Section 2.02. Section 2.04 No Withdrawal; Death of Member. (a) So long as a Member continues to hold any Membership Interest, such Mem- ber shall not have the ability to withdraw as a Member prior to the dissolution and winding up of the Company and any such withdrawal or attempted withdrawal by a Member prior to the dissolution and winding up of the Company shall be null and void. As soon as any Member ceases to hold any Membership Interests, such Person shall no longer be a Member. (b) The death of any Member shall not cause the dissolution of the Company. In such event, the Company and its business shall be continued by the remaining Member or Members and the Membership Interests owned by the deceased Member shall be automatically Transferred to such Member's executors, administrators, testamentary trustees, legatees, distributees, or beneficiaries, as applicable, as Per- mitted Transferees; provided, that any such Permitted Transferee shall be admitted as a Member only upon compliance with the provisions of Section 2.03(b). Section 2.05 Certification of Membership Interests. (a) The Company may, but shall not be required to, issue certificates evidencing Membership Interests in the Company. (b) If the Manager shall issue certificates representing Membership Interests in accordance with Section 2.05(a), then in addition to any other legend required by Applicable Law, all certificates representing issued and outstanding Membership In- terests shall bear a legend substantially in the following form: THE MEMBERSHIP INTERESTS REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A LIMITED LIABILITY COMPANY AGREEMENT AMONG THE COMPANY AND ITS 5 MEMBERS, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL EXECUTIVE OFFICE OF THE COMPANY. NO TRANSFER, SALE, ASSIGNMENT, GIFT, PLEDGE, 262 ENCUMBRANCE, HYPOTHECATION, OR OTHER DISPOSITION OF THE MEMBER- SHIP INTERESTS REPRESENTED BY THIS CERTIFICATE MAY BE MADE EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF SUCH LIMITED LIABILITY COMPANY AGREEMENT. THE MEMBERSHIP INTERESTS REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY OTHER APPLICABLE SECURITIES LAWS AND MAY NOT BE TRANS- FERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED, OR OTHERWISE DISPOSED EXCEPT PURSUANT TO (A) A REGISTRATION STATEMENT EFFECTIVE UNDER SUCH ACT AND LAWS, OR (B) AN EXEMPTION FROM REGISTRATION THEREUNDER. Section 2.06 Meetings. (a) Meetings of the Members may be called by (i) the Manager or (ii) a Member or group of Members holding more than 50% of the Membership Interests. (b) Written notice stating the place, date, and time of the meeting and, in the case of a meeting of the Members not regularly scheduled, describing the pur- poses for which the meeting is called, shall be delivered not fewer than 10 days and not more than 30 days before the date of the meeting to each Member, by or at the direction of the Manager or the Member(s) calling the meeting, as the case may be. The Members may hold meetings at the Company's principal office or at 263 such other place, as the Manager or the Member(s) calling the meeting may des- ignate in the notice for such meeting. (c) Any Member may participate in a meeting of the Members by means of conference telephone or other communications equipment by means of which all Persons participating in the meeting hear each other, and participation in a meeting by such means shall constitute presence in person at such meeting. (d) On any matter that is to be voted on by the Members, a Member may vote in person or by proxy, and such proxy may be granted in writing, by means of Electronic Transmission, or as otherwise permitted by Applicable Law. Every proxy shall be revocable in the discretion of the Member executing it unless otherwise provided in such proxy; provided, that such right to revocation shall not invalidate or otherwise affect actions taken under such proxy prior to such revocation. (e) The business to be conducted at such meeting need not be limited to the purpose described in the notice and can include other business to be conducted by the Members; provided, that the Members shall have been notified of the meet- ing in accordance with Section 2.06(b). Attendance of a Member at any meeting shall constitute a waiver of notice of such meeting, except where a Member attends a meeting for the express purpose of objecting to the transaction of any business claiming the meeting is not lawfully called or convened. 7 8 (f) A quorum of any meeting of the Members shall require the presence, whether in person or by proxy, of the Members holding a majority of the Mem- bership Interests. Subject to Section 2.07, no action may be taken by the Mem- bers unless the appropriate quorum is present at a meeting. (g) Subject to Section 2.07, Section 3.02, Section 11.09, and any other provision of this Agreement or the Delaware Act requiring the vote, consent, or approval of a different percentage of the Membership Interests, no action may be taken by the Members at any meeting at which a quorum is present without the affirmative vote of the Members holding a majority of the Membership Interests. Section 2.07 Action Without Meeting. Notwithstanding the provisions of Section 2.06, any matter that is to be voted on, consented to, or approved by Mem- bers may be taken without a meeting, without prior notice, and without a vote if consented to, in writing or by Electronic Transmission, by a Member or Members holding not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which each Member entitled to vote on the action is present and votes. A record shall be maintained by the Manager of each such action taken by written consent of a Member or Members. ARTICLE III Management 264 Section 3.01 Management of the Company. Subject to the provisions of Section 3.02 and except as otherwise provided by the Delaware Act, the business, property, and affairs of the Company shall be managed by the Manager. The actions of the Manager taken in accordance with the provisions of this Agreement shall bind the Company. No other Member of the Company shall have any authority or right to act on behalf of or bind the Company, unless otherwise provided herein or unless specifically authorized by the Manager pursuant to a duly adopted resolution expressly authorizing such ac- tion. The Manager shall owe the Company the duty of loyalty. Section 3.02 Actions Requiring Approval of Members. Without the written ap- proval of Members holding a majority of the Membership Interests, the Company shall not, and shall not enter into any commitment to: (a) Amend, modify, or waive any provisions of the Certificate of Formation or this Agreement; provided that the Manager may, without the consent of the other Members, amend the Members Schedule following any new issuance, re- demption, repurchase, or Transfer of Membership Interests in accordance with this Agreement. 9 (b) Issue additional Membership Interests, Equity Securities, or other securities or, except in connection with a Transfer of Membership Interests that complies with the applicable provisions of Article VI and Section 2.03(b), admit additional Members to the Company. 10 (c) Incur any indebtedness, pledge or grant Liens on any assets, or guarantee, assume, endorse, or otherwise become responsible for the obligations of any other Person, in each case in excess of $25,000 in a single transaction or series of related transactions. (d) Make any loan or advance to, or a Capital Contribution or investment in, any Person, in excess of $10,000. (e) Enter into or effect any transaction or series of related transactions in- volving the purchase, lease, license, exchange, or other acquisition (including by merger, consolidation, sale of stock, or acquisition of assets) by the Company of any assets and/or equity interests, other than in the ordinary course of business consistent with past practice. (f) Enter into or effect any transaction or series of related transactions involv- ing the sale, lease, license, exchange, or other disposition (including by merger, consolidation, sale of stock, or sale of assets) by the Company of any assets and/ or equity interests, other than sales of inventory in the ordinary course of busi- ness consistent with past practice. (g) Dissolve, wind up, or liquidate the Company or initiate a bankruptcy pro- ceeding involving the Company. Section 3.03 Officers. The Manager may appoint one or more individuals as officers of the Company (the "Officers") as the Manager deems necessary or desirable to carry on the business of the Company and may delegate to such Officers such power and authority as the Manager deems advisable. An Officer is not required to be a Mem- ber of the Company. Any individual may hold two or more offices of the Company. Each Officer shall hold office until his or her successor is designated by the Manager or until his or her earlier death, resignation, or removal. Any Officer may resign at any time upon written notice to the Manager. Any Officer may be removed by the Manager at any time, with or without cause. A vacancy in any office occurring because of death, resig- nation, removal, or otherwise may, but need not, be filled by the Manager. Section 3.04 Replacement and Resignation of Manager. The Manager may be removed at any time, with or without cause, by the Members holding a majority of the Membership Interests. The Manager may resign at any time by delivering a written resignation to the Company, which resignation shall be effective upon receipt thereof unless it is specified to be effective at some other time or upon the occurrence of a particular event. Following the Manager's removal or resignation, a successor Manager 265 shall be elected by the affirmative vote of the Members holding a majority of the Membership Interests. The removal of the Manager shall not affect the Manager's rights as a Member and shall not constitute a withdrawal of such Member from the Company. ARTICLE IV Allocations 11 | 12 Section 4.01 Allocation of Profits and Losses. (a) The Company's profits and losses for each Fiscal Year will be allocated among the Members pro rata in accordance with their Membership Interests. (b) Notwithstanding any other provision of this Agreement, (i) partner non- recourse deductions" (as defined in Treasury Regulations Section 1.704-2(i)), if any, of the Company shall be allocated for each Fiscal Year to the Member that bears the economic risk of loss within the meaning of Treasury Regulations Section 1.704-2(i) and "nonrecourse deductions" (as defined in Treasury Reg- ulations Section 1.704-2(b)) and "excess nonrecourse liabilities" (as defined in Treasury Regulations Section 1.752-3(a)), if any, shall be allocated to and among the Members in accordance with their Membership Interests. (c) This Agreement shall be deemed to include "qualified income offset," minimum gain chargeback," and "partner nonrecourse debt minimum gain chargeback" provisions within the meaning of Treasury Regulations under Sec- tion 704(b) of the Code. (d) All items of income, gain, loss, deduction, and credit of the Company shall be allocated among the Members for federal, state, and local income tax purposes consistent with the manner that the corresponding items are allocated among the Members pursuant to this section, except as may otherwise be provided herein or under the Code. ARTICLE V 13 Section 5.01 Distributions. Distributions (a) Distributions of available cash shall be made to the Members at the times and in the aggregate amounts determined by the Manager. Such distributions shall be paid to the Members pro rata in accordance with their respective Mem- bership Interests. (b) Notwithstanding any provision to the contrary contained in this Agree- ment, the Company shall not make any distribution to 266 Members if such distribution would violate Section 18-607 of the Delaware Act or other Applicable Law. ARTICLE VI Transfers Section 6.01 General Restrictions on Transfer. (a) Except as permitted pursuant to Section 6.02, no Member shall Transfer all or any portion of its Membership Interest in the Company, except with the written consent of Members holding a majority of the Membership Interests. No Transfer of Membership Interests to a Person not already a Member of the Com- 14 pany shall be deemed completed until the prospective Transferee is admitted as a Member of the Company in accordance with Section 2.03 hereof. (b) Notwithstanding any other provision of this Agreement (including Sec- tion 6.02), each Member agrees that it will not Transfer all or any portion of its Membership Interest in the Company, and the Company agrees that it shall not issue any Membership Interests: (i) except as permitted under the Securities Act and other applicable fed- eral or state securities or blue sky laws, and then, with respect to a Transfer of Membership Interests, only upon delivery to the Company of an opinion of counsel in form and substance satisfactory to the Company to the effect that such Transfer may be effected without registration under the Securities Act; (ii) if such Transfer or issuance would affect the Company's existence or qualification as a limited liability company under the Delaware Act; or (iii) if such Transfer or issuance would cause the Company to lose its sta- tus as a partnership for federal income tax purposes; (c) Any Transfer or attempted Transfer of any Membership Interest in viola- tion of this Agreement shall be null and void, no such Transfer shall be recorded on the Company's books, and the purported Transferee in any such Transfer shall not be treated (and the purported Transferor shall continue be treated) as the owner of such Membership Interest for all purposes of this Agreement. (d) Except as provided in Section 2.04(b), no Transfer (including a Permitted Transfer) of Membership Interests to a Person not already a Member of the Com- pany shall be deemed completed until the prospective Transferee (including a Permitted Transferee) is admitted as a Member of the Company in accordance with Section 2.03(b) hereof. Section 6.02 Permitted Transfers. The provisions of Section 6.01 (a) shall not apply to any Transfer by any Member of all or any portion of its Membership Interest to any of the following (each, a "Permitted 267 Transferee" and, any such Transfer to a Permitted Transferee, a "Permitted Trans- fer"): (a) Any Affiliate of such Member; or (b) (i) Such Member's spouse, parent, siblings, descendants (including adoptive relationships and stepchildren), and the spouses of each such natural persons (collectively, "Family Members"); (ii) a trust under which the distri- bution of Membership Interests may be made only to such Member and/or any Family Member of such Member; (iii) a charitable remainder trust, the income from which will be paid to such Member during his life; (iv) a corporation, part- nership, or limited liability company, the stockholders, partners, or members of which are only such Member and/or Family Members of such Member; or (v) by will or by the laws of intestate succession, to such Member's executors, adminis- trators, testamentary trustees, legatees, distributees, or beneficiaries. ARTICLE VII 15 | 16 No Personal Liability and Indemnification Section 7.01 No Personal Liability: Members; Manager. (a) Except as otherwise provided in the Delaware Act, by Applicable Law, or expressly in this Agreement, no Member will be obligated personally for a any debt, obligation, or liability of the Company or other Members, whether arising in contract, tort, or otherwise, solely by reason of being a Member. (b) Except as otherwise provided in the Delaware Act, by Applicable Law, or expressly in this Agreement, no Manager will be obligated personally for any debt, obligation, or liability of the Company, whether arising in contract, tort, or otherwise, solely by reason of being a Manager. Section 7.02 Indemnification. (a) To the fullest extent permitted under the Delaware Act, any Covered Person (as defined in section (c) below) shall be entitled to indemnification and reimbursement of reasonable expenses from the Company for and against any loss, damage, claim, or expense (including reasonable attorneys' fees) (col- lectively, "Losses") whatsoever incurred by the Covered Person relating to or arising out of any act or omission or alleged acts or omissions (whether or not constituting negligence) performed or omitted by any Covered Person on behalf of the Company; provided, however, that (i) any indemnity under this Section 7.02 shall be provided out of and to the extent of the Company assets only, and neither any Member or any other Person shall have any personal liability to contribute to such indemnity by the Company; (ii) such Covered Person acted in good faith and in a manner believed by such Covered Person to be in, or not opposed to, the best interests of the Company and, with respect to any criminal proceeding, had no reasonable cause to believe his conduct was 268 unlawful; and (iii) such Covered Person's conduct did not constitute fraud or willful misconduct. (b) Upon receipt by the Company of a written undertaking by or on behalf of the Covered Person to repay such amounts if it is finally judicially determined that the Covered Person is not entitled to indemnification under this Section 7.02, the Company shall advance, to the extent reasonably required, each Cov- ered Person for reasonable legal or other expenses (as incurred) of such Covered Person in connection with investigating, preparing to defend, or defending any claim, lawsuit, or other proceeding relating to any Losses for which such Covered Person may be indemnified pursuant to this Section 7.02. (c) For purposes of this Section 7.02, "Covered Person" means (i) each Mem- ber; (ii) each Manager and Officer of the Company; and (iii) each officer, director, shareholder, partner, manager, member, Affiliate, employee, agent, or represen- tative of each Member and of each Manager. ARTICLE VIII Accounting and Tax Matters 17 Section 8.01 Inspection Rights. Upon reasonable notice from a Member, the Com- pany shall afford the Member access during normal business hours to the corporate, financial, and similar records, reports, and documents of the Company, and shall per- mit the Member to examine such documents and make copies thereof. Section 8.02 Income Tax Status. It is the intent of this Company and the Members that this Company shall be treated as a partnership for US, federal, state, and local in- come tax purposes. Neither the Manager nor any Member shall make an election for the Company to be classified as other than a partnership pursuant to Treasury Regulations Section 301.7701-3. Section 8.03 Partnership Representative. (a) Appointment; Resignation. The Members hereby appoint the Manager as the "partnership representative" as provided in Section 6223(a) of the Code (the "Partnership Representative"). The Partnership Representative can be removed at any time by a vote of Members holding a majority of the Membership Interests of the Company, and shall resign if it is no longer a Member. In the event of the resignation or removal of the Partnership Representative, the holders of a major- ity of the Membership Interests of the Company shall appoint a new Partnership Representative. If the resignation or removal of the Partnership Representative occurs prior to the effectiveness of the resignation or removal under applicable Treasury Regulations or other administrative guidance, the Partnership Rep- resentative that has resigned or been removed shall not take any actions in its capacity 269 as Partnership Representative except as directed by Members holding a majority of the Membership Interests of the Company. (b) Tax Examinations and Audits. The Partnership Representative is autho- rized and required to represent the Company (at the Company's expense) in connection with all examinations of the Company's affairs by any federal, state, local, or foreign taxing authority, including resulting administrative and judicial proceedings, and to expend Company funds for professional services and costs associated therewith. The Partnership Representative shall have sole authority to act on behalf of the Company in any such examinations and any resulting administrative or judicial pro- ceedings, and shall have sole discretion to determine whether the Company (either on its own behalf or on behalf of the Members) will contest or continue to contest any tax deficiencies assessed or proposed to be assessed by any taxing authority. Section 8.04 Tax Returns. (a) At the expense of the Company, the Manager will cause the preparation and timely filing (including extensions) of all tax returns required to be filed by the Company pursuant to the Code as well as all other required tax returns in each jurisdiction in which the Company owns property or does business. As soon as reasonably possible after the end of each Fiscal Year, the Manager will deliver to each Member Company information necessary for the preparation of such Member's federal, state, and local income tax returns for such Fiscal Year. 19 18 20 (b) Each Member agrees that such Member shall not treat any Company item on such Member's federal, state, foreign, or other income tax return inconsis- tently with the treatment of the item on the Company's return. ARTICLE IX Dissolution and Liquidation Section 9.01 Events of Dissolution. The Company shall be dissolved and its affairs wound up only upon the occurrence of any of the following events: (a) An election to dissolve the Company made by holders of a majority of the Membership Interests; (b) The sale, exchange, involuntary conversion, or other disposition or Transfer of all or substantially all the assets of the Company; or (c) The entry of a decree of judicial dissolution under $18-802 of the Dela- ware Act. Section 9.02 Effectiveness of Dissolution. Dissolution of the Company shall be effective on the day on which the event described in Section 9.01 occurs, but the Com- pany shall not terminate until the winding up of the Company has been completed, the assets of the Company 270 have been distributed as provided in Section 9.03, and the Certificate of Formation shall have been cancelled as provided in Section 9.04. Section 9.03 Liquidation. If the Company is dissolved pursuant to Section 9.01, the Company shall be liquidated and its business and affairs wound up in accordance with the Delaware Act and the following provisions: (a) The Manager, or another Person selected by the Manager, shall act as liquidator to wind up the Company (the "Liquidator"). The Liquidator shall have full power and authority to sell, assign, and encumber any or all of the Com- pany's assets and to wind up and liquidate the affairs of the Company in an or- derly and business-like manner. (b) As promptly as possible after dissolution and again after final liquidation, the Liquidator shall cause a proper accounting to be made by a recognized firm of certified public accountants of the Company's assets, liabilities, and opera- tions through the last day of the calendar month in which the dissolution occurs or the final liquidation is completed, as applicable. (c) The Liquidator shall liquidate the assets of the Company and distribute the proceeds of such liquidation in the following order of priority, unless other- wise required by mandatory provisions of Applicable Law: (i) First, to the payment of the Company's debts and liabilities to its creditors (including Members, if applicable) and the expenses of liquidation (including sales commissions incident to any sales of assets of the Company); 21 22 (ii) Second, to the establishment of and additions to reserves that are determined by the Manager to be reasonably necessary for any contingent unforeseen liabilities or obligations of the Company; and (iii) Third, to the Members, on a pro rata basis, in accordance with the positive balances in their respective Capital Accounts, as determined after taking into account all Capital Account adjustments for the taxable year of the Company during which the liquidation of the Company occurs. Section 9.04 Required Filings. Upon completion of the winding up of the Com- pany, the Liquidator shall make all necessary filings required by the Delaware Act. ARTICLE X Definitions Section 10.01 Definitions. Capitalized terms used herein and not otherwise de- fined shall have the meanings set forth in this Section 10.01: (a) "Affiliate" means, with respect to any Person, any other Person who, di- rectly or indirectly, controls, is controlled by, or is under 271 common control with such Person. For purposes of this definition, "control" when used with respect to any specified Person, shall mean the power, direct or indirect, to direct or cause the direction of the management and policies of such Person, whether through ownership of voting securities or partnership or other ownership interests, by contract, or otherwise; and the terms "controlling" and "controlled" shall have correlative meanings. (b) "Applicable Law" means all applicable provisions of (i) constitutions, treaties, statutes, laws (including the common law), rules, regulations, decrees, ordinances, codes, proclamations, declarations, or orders of any Governmental Authority; (ii) any consents or approvals of any Governmental Authority; and (iii) any orders, decisions, advisory, or interpretative opinions, injunctions, judg- ments, awards, decrees of, or agreements with, any Governmental Authority. (c) "Certificate of Formation" means the certificate of formation filed with the Delaware Secretary of State on March 9, 2014. (d) "Code" means the Internal Revenue Code of 1986, as amended. (e) "Delaware Act" means the Delaware Limited Liability Company Act and any succes- sor statute, as it may be amended from time to time. (f) "Electronic Transmission" means any form of communication not directly involving the physical transmission of paper that creates a record that may be retained, retrieved, and reviewed by a recipient thereof and that may be directly reproduced in paper form by such a recipient through an automated process. (g) "Equity Securities" means any and all Membership Interests of the Company and any securities of the Company convertible into, exchangeable for, or exercisable for, such Membership Interests, including, without limitation, any warrants or other rights to acquire such Membership Interests. 23 24 272 (h) "Fiscal Year" means the calendar year, unless the Company is required or elects to have a taxable year other than the calendar year, in which case Fiscal Year shall be the period that conforms to its taxable year. (i) "Governmental Authority" means any federal, state, local, or foreign government or political subdivision thereof, or any agency or instrumentality of such government or political subdivision, or any self-regulated organization or other non-governmental regulatory authority or quasi-governmental authority (to the extent that the rules, regulations, or orders of such organization or au- thority have the force of law), or any arbitrator, court, or tribunal of competent jurisdiction. (j) "Lien" means any mortgage, pledge, security interest, option, right of first offer, encumbrance, or other restriction or limitation of any nature whatsoever. (k) "Manager" means, initially, George W. Smith, or such other Member as may be designated or become the Manager pursuant to the terms of this Agree- ment. (1) "Membership Interest" means an interest in the Company owned by a Member, including such Member's rights to (i) receive a distributive share of Company assets and items of Company income, gain, loss, and deduction; (ii) vote, consent, or participate in any Member decisions provided in this Agree- ment and the Delaware Act; and (iii) receive any and all other benefits due to a Member under this Agreement and the Delaware Act. The Membership Interest of each Member will be stated as a percentage interest in the same proportion as the total Capital Contributions of such Member bears to the total Capital Contri- butions of all Members. (m) "Person" means an individual, corporation, partnership, joint venture, limited liability company, Governmental Authority, unincorporated organiza- tion, trust, association, or other entity. (n) "Securities Act" means the Securities Act of 1933, as amended, or any successor federal statute, and the rules and regulations thereunder, which shall be in effect at the time. (o) "Transfer" means to sell, transfer, assign, gift, pledge, encumber, hypoth- ecate, or similarly dispose of, directly or indirectly, voluntarily or involuntarily, by operation of law or otherwise, or to enter into any contract, option, or other arrangement or understanding with respect to the sale, transfer, assignment, gift, pledge, encumbrance, hypothecation, or similar disposition of, any Mem- bership Interests or any interest (including a beneficial interest) therein. "Trans- fer" when used as a noun shall have a correlative meaning. (p) "Transferor" and "Transferee" mean a Person who makes or receives a Transfer, respectively. ARTICLE XI Miscellaneous 25 26 273 Section 11.01 Governing Law. This Agreement shall be governed by and con- strued in accordance with the internal laws of the State of Delaware, without giving effect to any choice or conflict of law provision or rule (whether of the State of Delaware or any jurisdiction). Section 11.02 Waiver. No waiver by any party of any of the provisions hereof shall be effective unless explicitly set forth in writing and signed by the party so waiving. No failure to exercise, or delay in exercising, any right, remedy, power, or privilege arising from this Agreement shall operate or be construed as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power, or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power, or privilege. Section 11.03 Remedies. In the event of any actual or prospective breach or default by any party, the other parties shall be entitled to equitable relief, including remedies in the nature of injunction and specific performance, awarded by a court of competent jurisdiction (without being required to post a bond or other security or to establish any actual damages). In this regard, the parties acknowledge and agree that they will be irreparably damaged in the event this Agreement is not specifically enforced, since (among other things) the Membership Interests are not readily marketable. All reme- dies hereunder are cumulative and not exclusive, may be exercised concurrently, and nothing herein shall be deemed to prohibit or limit any party from pursuing any other remedy or relief available at law or in equity for any actual or prospective breach or default, including recovery of damages. In addition, the parties hereby waive and re- nounce any defense to such equitable relief that an adequate remedy at law may exist. Section 11.04 Severability. If any term or provision of this Agreement is held to be invalid, illegal, or unenforceable under Applicable Law in any jurisdiction, such inva- lidity, illegality, or unenforceability shall not affect any other term or provision of this Agreement or invalidate or render unenforceable such term or provision in any other jurisdiction. Section 11.05 Successors and Assigns. Subject to the restrictions on Transfers set forth herein, this Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective heirs, executors, administrators, successors, and assigns. Section 11.06 Amendment. No provision of this Agreement may be amended or modified except by an instrument in writing executed by all Members. Any such writ- ten amendment or modification will be binding upon the Company and each Member. Notwithstanding the foregoing, amendments to the Members Schedule may be made by the Manager in accordance with Section 3.02(a). Section 11.07 Headings. The headings in this Agreement are inserted for conve- nience or reference only and are in no way intended to describe, interpret, define, or limit the scope, extent, or intent of this Agreement or any provision of this Agreement. Section 11.08 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall be deemed to be one and the same agreement. 27 28 274 Section 11.09 Entire Agreement. This Agreement, together with the Certificate of Formation and all related Exhibits and Schedules, constitutes the sole and entire agree- ment of the parties to this Agreement with respect to the subject matter contained herein and therein, and supersedes all prior and contemporaneous understandings, agreements, representations, and warranties, both written and oral, with respect to such subject matter. Section 11.10. No Third-Party Beneficiaries. Except as provided in Article VII, this Agreement is for the sole benefit of the parties hereto (and their respective heirs, executors, administrators, legal representatives, successors, and permitted assigns) and nothing herein, express or implied, is intended to or shall confer upon any other Person, including any creditor of the Company, any legal or equitable right, benefit, or remedy of any nature whatsoever under or by reason of this Agreement. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first written above by their respective officers thereunto duly authorized. The Company: The Members: AAA POOL SERVICES, LLC, a Delaware limited liability company By: GEORGE W. SMITH President Its: Thomas J. Gray Thomas J. Gray GEORGE W. SMITH George W. Smith Michael B. Watson Michael B. Watson Schedule 1 MEMBERS SCHEDULE (as of March 9, 2014) Total Capital Members Contribution Membership Interest Thomas J. Gray $90,000 45% George W. Smith $90,000 45% Michael B. Watson $20,000 10% TOTAL $200,000 100% 275 29 ASSESSMENT QUESTIONS Question 1 APS wants to add the following provision to its LLC agreement: Notwithstanding anything in this Agreement to the contrary, no Member or Manager shall owe any fiduciary duties to the Company or any Members." Is the provision valid? 31 30 259 260 M. SAMPLE LLC AGREEMENT LIMITED LIABILITY COMPANY AGREEMENT This Limited Liability Company Agreement (this "Agreement") of AAA Pool Ser- vices, LLC, a Delaware limited liability company (the "Company"), is entered into as of March 9, 2014, by and among the Company and the Persons named on Schedule 1 of this Agreement (collectively, the "Members"). Unless otherwise noted or defined 1 Organizational Matters Section 1.01 Name. The name of the Company is AAA Pool Services, LLC. Section 1.02 Principal Office. The principal office of the Company is located at 2013 Ajo Way, Tucson, Arizona, 85716, or such other location as may from time to time be determined by the Manager. The Manager shall give prompt notice of any such change to each of the Members. Section 1.03 Registered Office; Registered Agent. The registered office of the Company and the registered agent for service of process on the Company in the State of Delaware shall be that office and Person named in the Certificate of Formation or such other office (which need not be a place of business of the Company) or such other Person or Persons as the Manager may designate from time to time in the manner pro- vided by the Delaware Act and Applicable Law. Section 1.04 Purpose; Powers. (a) The purposes of the Company are to engage in any lawful act or activity for which limited liability companies may be formed under the Delaware Act and to en- gage in any and all activities necessary or incidental thereto. 2 (b) The Company shall have all the powers necessary or convenient to carry out the purposes for which it is formed, including the powers granted by the Delaware Act. Section 1.05 Term. The term of the Company commenced on the date and time the Certificate of Formation was filed with the Secretary of State of the State of Delaware and shall continue in existence perpetually or until any earlier date when the Company is terminated in accordance with the provisions of this Agreement or as provided by law. ARTICLE II Members Section 2.01 Members. The names and Membership Interests of the Members are set out in Schedule 1 attached hereto (the "Members Schedule"). The Manager shall maintain and update the Members Schedule upon the issuance or Transfer of any Mem- bership Interests to any new or existing Member in accordance with this Agreement. No Member shall owe the Company or other Members any fiduciary duties solely be- cause that person is a Member. Section 2.02 Capital Contributions; Capital Accounts; No Withdrawals. (a) The Members have contributed to the Company the amounts, in the form of cash, property, services, or a promissory note or other obligation (as such amounts may be amended herein from time to time, the "Capital Contributions") set out in the Members Schedule. No Member is required to make additional Capital Contribu- tions to the Company. (b) The Company shall establish and maintain for each Member a separate capital account (a "Capital Account") on its books and records in accordance with the provisions of Section 704(b) of the Code and Treasury Regulations Section 1.704-1(b)(2)(iv). Each Capital Account shall be (i) credited by such Member's Capital Contributions to the Company and any profits allocated to such Member in accordance with Section 4.01 and (ii) debited by any distributions to such Member pursuant to Section 5.01(a) and any losses allocated to such Member in accordance with Section 4.01. For purposes of maintaining the Members' Capital Accounts, profits and losses shall be determined in accordance with Treasury Regulation Section 1.704-1(b). The Capital Accounts shall be adjusted by the Manager upon the occurrence of an event described in Treasury Regulations Section 1.704-1(b) (2)(iv)(f)(5) in the manner described in Treasury Regulations Section 1.704-1(b)(2) (iv)(f)(5) and (g) if the Manager determines that such adjustments are necessary or appropriate to reflect the relative economic interests of the Members. In the event of a Transfer of any Membership Interest in accordance with the terms of this Agree- ment, the Transferee shall succeed to the Capital Account of the Transferor to the extent it relates to the transferred Membership Interest. 3 4 (c) No Member shall be entitled to withdraw any part of its Capital Account or to receive any distribution from the Company, except as otherwise provided in this Agreement. Section 2.03 Admission of Additional Members. (a) Additional Members may be admitted from time to time in connection with (i) the issuance of Membership Interests by the Company, subject to compliance with the provisions of Section 3.02(b), 261 or (ii) a Transfer of Membership Interests, subject to compliance with the provisions of Article VI, and in either case, following compliance with the provisions of Section 2.03(b). (b) In order for any Person not already a Member of the Company to be admitted as a Member, whether pursuant to an issuance or a Transfer (including a Permitted Transfer) of Membership Interests, such Person shall have executed this Agreement. Upon the amendment of the Members Schedule by the Manager and the satisfac- tion of any other applicable conditions, including, if a condition, the receipt by the Company of payment for the issuance of the applicable Membership Interests, such Person shall be admitted as a Member, shall be a party hereto, shall be deemed listed as such on the books and records of the Company, and thereupon shall be issued his, her, or its Membership Interests. The Manager shall also adjust the Capital Accounts of the Members as necessary in accordance with Section 2.02. Section 2.04 No Withdrawal; Death of Member. (a) So long as a Member continues to hold any Membership Interest, such Mem- ber shall not have the ability to withdraw as a Member prior to the dissolution and winding up of the Company and any such withdrawal or attempted withdrawal by a Member prior to the dissolution and winding up of the Company shall be null and void. As soon as any Member ceases to hold any Membership Interests, such Person shall no longer be a Member. (b) The death of any Member shall not cause the dissolution of the Company. In such event, the Company and its business shall be continued by the remaining Member or Members and the Membership Interests owned by the deceased Member shall be automatically Transferred to such Member's executors, administrators, testamentary trustees, legatees, distributees, or beneficiaries, as applicable, as Per- mitted Transferees; provided, that any such Permitted Transferee shall be admitted as a Member only upon compliance with the provisions of Section 2.03(b). Section 2.05 Certification of Membership Interests. (a) The Company may, but shall not be required to, issue certificates evidencing Membership Interests in the Company. (b) If the Manager shall issue certificates representing Membership Interests in accordance with Section 2.05(a), then in addition to any other legend required by Applicable Law, all certificates representing issued and outstanding Membership In- terests shall bear a legend substantially in the following form: THE MEMBERSHIP INTERESTS REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A LIMITED LIABILITY COMPANY AGREEMENT AMONG THE COMPANY AND ITS 5 MEMBERS, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL EXECUTIVE OFFICE OF THE COMPANY. NO TRANSFER, SALE, ASSIGNMENT, GIFT, PLEDGE, 262 ENCUMBRANCE, HYPOTHECATION, OR OTHER DISPOSITION OF THE MEMBER- SHIP INTERESTS REPRESENTED BY THIS CERTIFICATE MAY BE MADE EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF SUCH LIMITED LIABILITY COMPANY AGREEMENT. THE MEMBERSHIP INTERESTS REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY OTHER APPLICABLE SECURITIES LAWS AND MAY NOT BE TRANS- FERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED, OR OTHERWISE DISPOSED EXCEPT PURSUANT TO (A) A REGISTRATION STATEMENT EFFECTIVE UNDER SUCH ACT AND LAWS, OR (B) AN EXEMPTION FROM REGISTRATION THEREUNDER. Section 2.06 Meetings. (a) Meetings of the Members may be called by (i) the Manager or (ii) a Member or group of Members holding more than 50% of the Membership Interests. (b) Written notice stating the place, date, and time of the meeting and, in the case of a meeting of the Members not regularly scheduled, describing the pur- poses for which the meeting is called, shall be delivered not fewer than 10 days and not more than 30 days before the date of the meeting to each Member, by or at the direction of the Manager or the Member(s) calling the meeting, as the case may be. The Members may hold meetings at the Company's principal office or at 263 such other place, as the Manager or the Member(s) calling the meeting may des- ignate in the notice for such meeting. (c) Any Member may participate in a meeting of the Members by means of conference telephone or other communications equipment by means of which all Persons participating in the meeting hear each other, and participation in a meeting by such means shall constitute presence in person at such meeting. (d) On any matter that is to be voted on by the Members, a Member may vote in person or by proxy, and such proxy may be granted in writing, by means of Electronic Transmission, or as otherwise permitted by Applicable Law. Every proxy shall be revocable in the discretion of the Member executing it unless otherwise provided in such proxy; provided, that such right to revocation shall not invalidate or otherwise affect actions taken under such proxy prior to such revocation. (e) The business to be conducted at such meeting need not be limited to the purpose described in the notice and can include other business to be conducted by the Members; provided, that the Members shall have been notified of the meet- ing in accordance with Section 2.06(b). Attendance of a Member at any meeting shall constitute a waiver of notice of such meeting, except where a Member attends a meeting for the express purpose of objecting to the transaction of any business claiming the meeting is not lawfully called or convened. 7 8 (f) A quorum of any meeting of the Members shall require the presence, whether in person or by proxy, of the Members holding a majority of the Mem- bership Interests. Subject to Section 2.07, no action may be taken by the Mem- bers unless the appropriate quorum is present at a meeting. (g) Subject to Section 2.07, Section 3.02, Section 11.09, and any other provision of this Agreement or the Delaware Act requiring the vote, consent, or approval of a different percentage of the Membership Interests, no action may be taken by the Members at any meeting at which a quorum is present without the affirmative vote of the Members holding a majority of the Membership Interests. Section 2.07 Action Without Meeting. Notwithstanding the provisions of Section 2.06, any matter that is to be voted on, consented to, or approved by Mem- bers may be taken without a meeting, without prior notice, and without a vote if consented to, in writing or by Electronic Transmission, by a Member or Members holding not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which each Member entitled to vote on the action is present and votes. A record shall be maintained by the Manager of each such action taken by written consent of a Member or Members. ARTICLE III Management 264 Section 3.01 Management of the Company. Subject to the provisions of Section 3.02 and except as otherwise provided by the Delaware Act, the business, property, and affairs of the Company shall be managed by the Manager. The actions of the Manager taken in accordance with the provisions of this Agreement shall bind the Company. No other Member of the Company shall have any authority or right to act on behalf of or bind the Company, unless otherwise provided herein or unless specifically authorized by the Manager pursuant to a duly adopted resolution expressly authorizing such ac- tion. The Manager shall owe the Company the duty of loyalty. Section 3.02 Actions Requiring Approval of Members. Without the written ap- proval of Members holding a majority of the Membership Interests, the Company shall not, and shall not enter into any commitment to: (a) Amend, modify, or waive any provisions of the Certificate of Formation or this Agreement; provided that the Manager may, without the consent of the other Members, amend the Members Schedule following any new issuance, re- demption, repurchase, or Transfer of Membership Interests in accordance with this Agreement. 9 (b) Issue additional Membership Interests, Equity Securities, or other securities or, except in connection with a Transfer of Membership Interests that complies with the applicable provisions of Article VI and Section 2.03(b), admit additional Members to the Company. 10 (c) Incur any indebtedness, pledge or grant Liens on any assets, or guarantee, assume, endorse, or otherwise become responsible for the obligations of any other Person, in each case in excess of $25,000 in a single transaction or series of related transactions. (d) Make any loan or advance to, or a Capital Contribution or investment in, any Person, in excess of $10,000. (e) Enter into or effect any transaction or series of related transactions in- volving the purchase, lease, license, exchange, or other acquisition (including by merger, consolidation, sale of stock, or acquisition of assets) by the Company of any assets and/or equity interests, other than in the ordinary course of business consistent with past practice. (f) Enter into or effect any transaction or series of related transactions involv- ing the sale, lease, license, exchange, or other disposition (including by merger, consolidation, sale of stock, or sale of assets) by the Company of any assets and/ or equity interests, other than sales of inventory in the ordinary course of busi- ness consistent with past practice. (g) Dissolve, wind up, or liquidate the Company or initiate a bankruptcy pro- ceeding involving the Company. Section 3.03 Officers. The Manager may appoint one or more individuals as officers of the Company (the "Officers") as the Manager deems necessary or desirable to carry on the business of the Company and may delegate to such Officers such power and authority as the Manager deems advisable. An Officer is not required to be a Mem- ber of the Company. Any individual may hold two or more offices of the Company. Each Officer shall hold office until his or her successor is designated by the Manager or until his or her earlier death, resignation, or removal. Any Officer may resign at any time upon written notice to the Manager. Any Officer may be removed by the Manager at any time, with or without cause. A vacancy in any office occurring because of death, resig- nation, removal, or otherwise may, but need not, be filled by the Manager. Section 3.04 Replacement and Resignation of Manager. The Manager may be removed at any time, with or without cause, by the Members holding a majority of the Membership Interests. The Manager may resign at any time by delivering a written resignation to the Company, which resignation shall be effective upon receipt thereof unless it is specified to be effective at some other time or upon the occurrence of a particular event. Following the Manager's removal or resignation, a successor Manager 265 shall be elected by the affirmative vote of the Members holding a majority of the Membership Interests. The removal of the Manager shall not affect the Manager's rights as a Member and shall not constitute a withdrawal of such Member from the Company. ARTICLE IV Allocations 11 | 12 Section 4.01 Allocation of Profits and Losses. (a) The Company's profits and losses for each Fiscal Year will be allocated among the Members pro rata in accordance with their Membership Interests. (b) Notwithstanding any other provision of this Agreement, (i) partner non- recourse deductions" (as defined in Treasury Regulations Section 1.704-2(i)), if any, of the Company shall be allocated for each Fiscal Year to the Member that bears the economic risk of loss within the meaning of Treasury Regulations Section 1.704-2(i) and "nonrecourse deductions" (as defined in Treasury Reg- ulations Section 1.704-2(b)) and "excess nonrecourse liabilities" (as defined in Treasury Regulations Section 1.752-3(a)), if any, shall be allocated to and among the Members in accordance with their Membership Interests. (c) This Agreement shall be deemed to include "qualified income offset," minimum gain chargeback," and "partner nonrecourse debt minimum gain chargeback" provisions within the meaning of Treasury Regulations under Sec- tion 704(b) of the Code. (d) All items of income, gain, loss, deduction, and credit of the Company shall be allocated among the Members for federal, state, and local income tax purposes consistent with the manner that the corresponding items are allocated among the Members pursuant to this section, except as may otherwise be provided herein or under the Code. ARTICLE V 13 Section 5.01 Distributions. Distributions (a) Distributions of available cash shall be made to the Members at the times and in the aggregate amounts determined by the Manager. Such distributions shall be paid to the Members pro rata in accordance with their respective Mem- bership Interests. (b) Notwithstanding any provision to the contrary contained in this Agree- ment, the Company shall not make any distribution to 266 Members if such distribution would violate Section 18-607 of the Delaware Act or other Applicable Law. ARTICLE VI Transfers Section 6.01 General Restrictions on Transfer. (a) Except as permitted pursuant to Section 6.02, no Member shall Transfer all or any portion of its Membership Interest in the Company, except with the written consent of Members holding a majority of the Membership Interests. No Transfer of Membership Interests to a Person not already a Member of the Com- 14 pany shall be deemed completed until the prospective Transferee is admitted as a Member of the Company in accordance with Section 2.03 hereof. (b) Notwithstanding any other provision of this Agreement (including Sec- tion 6.02), each Member agrees that it will not Transfer all or any portion of its Membership Interest in the Company, and the Company agrees that it shall not issue any Membership Interests: (i) except as permitted under the Securities Act and other applicable fed- eral or state securities or blue sky laws, and then, with respect to a Transfer of Membership Interests, only upon delivery to the Company of an opinion of counsel in form and substance satisfactory to the Company to the effect that such Transfer may be effected without registration under the Securities Act; (ii) if such Transfer or issuance would affect the Company's existence or qualification as a limited liability company under the Delaware Act; or (iii) if such Transfer or issuance would cause the Company to lose its sta- tus as a partnership for federal income tax purposes; (c) Any Transfer or attempted Transfer of any Membership Interest in viola- tion of this Agreement shall be null and void, no such Transfer shall be recorded on the Company's books, and the purported Transferee in any such Transfer shall not be treated (and the purported Transferor shall continue be treated) as the owner of such Membership Interest for all purposes of this Agreement. (d) Except as provided in Section 2.04(b), no Transfer (including a Permitted Transfer) of Membership Interests to a Person not already a Member of the Com- pany shall be deemed completed until the prospective Transferee (including a Permitted Transferee) is admitted as a Member of the Company in accordance with Section 2.03(b) hereof. Section 6.02 Permitted Transfers. The provisions of Section 6.01 (a) shall not apply to any Transfer by any Member of all or any portion of its Membership Interest to any of the following (each, a "Permitted 267 Transferee" and, any such Transfer to a Permitted Transferee, a "Permitted Trans- fer"): (a) Any Affiliate of such Member; or (b) (i) Such Member's spouse, parent, siblings, descendants (including adoptive relationships and stepchildren), and the spouses of each such natural persons (collectively, "Family Members"); (ii) a trust under which the distri- bution of Membership Interests may be made only to such Member and/or any Family Member of such Member; (iii) a charitable remainder trust, the income from which will be paid to such Member during his life; (iv) a corporation, part- nership, or limited liability company, the stockholders, partners, or members of which are only such Member and/or Family Members of such Member; or (v) by will or by the laws of intestate succession, to such Member's executors, adminis- trators, testamentary trustees, legatees, distributees, or beneficiaries. ARTICLE VII 15 | 16 No Personal Liability and Indemnification Section 7.01 No Personal Liability: Members; Manager. (a) Except as otherwise provided in the Delaware Act, by Applicable Law, or expressly in this Agreement, no Member will be obligated personally for a any debt, obligation, or liability of the Company or other Members, whether arising in contract, tort, or otherwise, solely by reason of being a Member. (b) Except as otherwise provided in the Delaware Act, by Applicable Law, or expressly in this Agreement, no Manager will be obligated personally for any debt, obligation, or liability of the Company, whether arising in contract, tort, or otherwise, solely by reason of being a Manager. Section 7.02 Indemnification. (a) To the fullest extent permitted under the Delaware Act, any Covered Person (as defined in section (c) below) shall be entitled to indemnification and reimbursement of reasonable expenses from the Company for and against any loss, damage, claim, or expense (including reasonable attorneys' fees) (col- lectively, "Losses") whatsoever incurred by the Covered Person relating to or arising out of any act or omission or alleged acts or omissions (whether or not constituting negligence) performed or omitted by any Covered Person on behalf of the Company; provided, however, that (i) any indemnity under this Section 7.02 shall be provided out of and to the extent of the Company assets only, and neither any Member or any other Person shall have any personal liability to contribute to such indemnity by the Company; (ii) such Covered Person acted in good faith and in a manner believed by such Covered Person to be in, or not opposed to, the best interests of the Company and, with respect to any criminal proceeding, had no reasonable cause to believe his conduct was 268 unlawful; and (iii) such Covered Person's conduct did not constitute fraud or willful misconduct. (b) Upon receipt by the Company of a written undertaking by or on behalf of the Covered Person to repay such amounts if it is finally judicially determined that the Covered Person is not entitled to indemnification under this Section 7.02, the Company shall advance, to the extent reasonably required, each Cov- ered Person for reasonable legal or other expenses (as incurred) of such Covered Person in connection with investigating, preparing to defend, or defending any claim, lawsuit, or other proceeding relating to any Losses for which such Covered Person may be indemnified pursuant to this Section 7.02. (c) For purposes of this Section 7.02, "Covered Person" means (i) each Mem- ber; (ii) each Manager and Officer of the Company; and (iii) each officer, director, shareholder, partner, manager, member, Affiliate, employee, agent, or represen- tative of each Member and of each Manager. ARTICLE VIII Accounting and Tax Matters 17 Section 8.01 Inspection Rights. Upon reasonable notice from a Member, the Com- pany shall afford the Member access during normal business hours to the corporate, financial, and similar records, reports, and documents of the Company, and shall per- mit the Member to examine such documents and make copies thereof. Section 8.02 Income Tax Status. It is the intent of this Company and the Members that this Company shall be treated as a partnership for US, federal, state, and local in- come tax purposes. Neither the Manager nor any Member shall make an election for the Company to be classified as other than a partnership pursuant to Treasury Regulations Section 301.7701-3. Section 8.03 Partnership Representative. (a) Appointment; Resignation. The Members hereby appoint the Manager as the "partnership representative" as provided in Section 6223(a) of the Code (the "Partnership Representative"). The Partnership Representative can be removed at any time by a vote of Members holding a majority of the Membership Interests of the Company, and shall resign if it is no longer a Member. In the event of the resignation or removal of the Partnership Representative, the holders of a major- ity of the Membership Interests of the Company shall appoint a new Partnership Representative. If the resignation or removal of the Partnership Representative occurs prior to the effectiveness of the resignation or removal under applicable Treasury Regulations or other administrative guidance, the Partnership Rep- resentative that has resigned or been removed shall not take any actions in its capacity 269 as Partnership Representative except as directed by Members holding a majority of the Membership Interests of the Company. (b) Tax Examinations and Audits. The Partnership Representative is autho- rized and required to represent the Company (at the Company's expense) in connection with all examinations of the Company's affairs by any federal, state, local, or foreign taxing authority, including resulting administrative and judicial proceedings, and to expend Company funds for professional services and costs associated therewith. The Partnership Representative shall have sole authority to act on behalf of the Company in any such examinations and any resulting administrative or judicial pro- ceedings, and shall have sole discretion to determine whether the Company (either on its own behalf or on behalf of the Members) will contest or continue to contest any tax deficiencies assessed or proposed to be assessed by any taxing authority. Section 8.04 Tax Returns. (a) At the expense of the Company, the Manager will cause the preparation and timely filing (including extensions) of all tax returns required to be filed by the Company pursuant to the Code as well as all other required tax returns in each jurisdiction in which the Company owns property or does business. As soon as reasonably possible after the end of each Fiscal Year, the Manager will deliver to each Member Company information necessary for the preparation of such Member's federal, state, and local income tax returns for such Fiscal Year. 19 18 20 (b) Each Member agrees that such Member shall not treat any Company item on such Member's federal, state, foreign, or other income tax return inconsis- tently with the treatment of the item on the Company's return. ARTICLE IX Dissolution and Liquidation Section 9.01 Events of Dissolution. The Company shall be dissolved and its affairs wound up only upon the occurrence of any of the following events: (a) An election to dissolve the Company made by holders of a majority of the Membership Interests; (b) The sale, exchange, involuntary conversion, or other disposition or Transfer of all or substantially all the assets of the Company; or (c) The entry of a decree of judicial dissolution under $18-802 of the Dela- ware Act. Section 9.02 Effectiveness of Dissolution. Dissolution of the Company shall be effective on the day on which the event described in Section 9.01 occurs, but the Com- pany shall not terminate until the winding up of the Company has been completed, the assets of the Company 270 have been distributed as provided in Section 9.03, and the Certificate of Formation shall have been cancelled as provided in Section 9.04. Section 9.03 Liquidation. If the Company is dissolved pursuant to Section 9.01, the Company shall be liquidated and its business and affairs wound up in accordance with the Delaware Act and the following provisions: (a) The Manager, or another Person selected by the Manager, shall act as liquidator to wind up the Company (the "Liquidator"). The Liquidator shall have full power and authority to sell, assign, and encumber any or all of the Com- pany's assets and to wind up and liquidate the affairs of the Company in an or- derly and business-like manner. (b) As promptly as possible after dissolution and again after final liquidation, the Liquidator shall cause a proper accounting to be made by a recognized firm of certified public accountants of the Company's assets, liabilities, and opera- tions through the last day of the calendar month in which the dissolution occurs or the final liquidation is completed, as applicable. (c) The Liquidator shall liquidate the assets of the Company and distribute the proceeds of such liquidation in the following order of priority, unless other- wise required by mandatory provisions of Applicable Law: (i) First, to the payment of the Company's debts and liabilities to its creditors (including Members, if applicable) and the expenses of liquidation (including sales commissions incident to any sales of assets of the Company); 21 22 (ii) Second, to the establishment of and additions to reserves that are determined by the Manager to be reasonably necessary for any contingent unforeseen liabilities or obligations of the Company; and (iii) Third, to the Members, on a pro rata basis, in accordance with the positive balances in their respective Capital Accounts, as determined after taking into account all Capital Account adjustments for the taxable year of the Company during which the liquidation of the Company occurs. Section 9.04 Required Filings. Upon completion of the winding up of the Com- pany, the Liquidator shall make all necessary filings required by the Delaware Act. ARTICLE X Definitions Section 10.01 Definitions. Capitalized terms used herein and not otherwise de- fined shall have the meanings set forth in this Section 10.01: (a) "Affiliate" means, with respect to any Person, any other Person who, di- rectly or indirectly, controls, is controlled by, or is under 271 common control with such Person. For purposes of this definition, "control" when used with respect to any specified Person, shall mean the power, direct or indirect, to direct or cause the direction of the management and policies of such Person, whether through ownership of voting securities or partnership or other ownership interests, by contract, or otherwise; and the terms "controlling" and "controlled" shall have correlative meanings. (b) "Applicable Law" means all applicable provisions of (i) constitutions, treaties, statutes, laws (including the common law), rules, regulations, decrees, ordinances, codes, proclamations, declarations, or orders of any Governmental Authority; (ii) any consents or approvals of any Governmental Authority; and (iii) any orders, decisions, advisory, or interpretative opinions, injunctions, judg- ments, awards, decrees of, or agreements with, any Governmental Authority. (c) "Certificate of Formation" means the certificate of formation filed with the Delaware Secretary of State on March 9, 2014. (d) "Code" means the Internal Revenue Code of 1986, as amended. (e) "Delaware Act" means the Delaware Limited Liability Company Act and any succes- sor statute, as it may be amended from time to time. (f) "Electronic Transmission" means any form of communication not directly involving the physical transmission of paper that creates a record that may be retained, retrieved, and reviewed by a recipient thereof and that may be directly reproduced in paper form by such a recipient through an automated process. (g) "Equity Securities" means any and all Membership Interests of the Company and any securities of the Company convertible into, exchangeable for, or exercisable for, such Membership Interests, including, without limitation, any warrants or other rights to acquire such Membership Interests. 23 24 272 (h) "Fiscal Year" means the calendar year, unless the Company is required or elects to have a taxable year other than the calendar year, in which case Fiscal Year shall be the period that conforms to its taxable year. (i) "Governmental Authority" means any federal, state, local, or foreign government or political subdivision thereof, or any agency or instrumentality of such government or political subdivision, or any self-regulated organization or other non-governmental regulatory authority or quasi-governmental authority (to the extent that the rules, regulations, or orders of such organization or au- thority have the force of law), or any arbitrator, court, or tribunal of competent jurisdiction. (j) "Lien" means any mortgage, pledge, security interest, option, right of first offer, encumbrance, or other restriction or limitation of any nature whatsoever. (k) "Manager" means, initially, George W. Smith, or such other Member as may be designated or become the Manager pursuant to the terms of this Agree- ment. (1) "Membership Interest" means an interest in the Company owned by a Member, including such Member's rights to (i) receive a distributive share of Company assets and items of Company income, gain, loss, and deduction; (ii) vote, consent, or participate in any Member decisions provided in this Agree- ment and the Delaware Act; and (iii) receive any and all other benefits due to a Member under this Agreement and the Delaware Act. The Membership Interest of each Member will be stated as a percentage interest in the same proportion as the total Capital Contributions of such Member bears to the total Capital Contri- butions of all Members. (m) "Person" means an individual, corporation, partnership, joint venture, limited liability company, Governmental Authority, unincorporated organiza- tion, trust, association, or other entity. (n) "Securities Act" means the Securities Act of 1933, as amended, or any successor federal statute, and the rules and regulations thereunder, which shall be in effect at the time. (o) "Transfer" means to sell, transfer, assign, gift, pledge, encumber, hypoth- ecate, or similarly dispose of, directly or indirectly, voluntarily or involuntarily, by operation of law or otherwise, or to enter into any contract, option, or other arrangement or understanding with respect to the sale, transfer, assignment, gift, pledge, encumbrance, hypothecation, or similar disposition of, any Mem- bership Interests or any interest (including a beneficial interest) therein. "Trans- fer" when used as a noun shall have a correlative meaning. (p) "Transferor" and "Transferee" mean a Person who makes or receives a Transfer, respectively. ARTICLE XI Miscellaneous 25 26 273 Section 11.01 Governing Law. This Agreement shall be governed by and con- strued in accordance with the internal laws of the State of Delaware, without giving effect to any choice or conflict of law provision or rule (whether of the State of Delaware or any jurisdiction). Section 11.02 Waiver. No waiver by any party of any of the provisions hereof shall be effective unless explicitly set forth in writing and signed by the party so waiving. No failure to exercise, or delay in exercising, any right, remedy, power, or privilege arising from this Agreement shall operate or be construed as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power, or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power, or privilege. Section 11.03 Remedies. In the event of any actual or prospective breach or default by any party, the other parties shall be entitled to equitable relief, including remedies in the nature of injunction and specific performance, awarded by a court of competent jurisdiction (without being required to post a bond or other security or to establish any actual damages). In this regard, the parties acknowledge and agree that they will be irreparably damaged in the event this Agreement is not specifically enforced, since (among other things) the Membership Interests are not readily marketable. All reme- dies hereunder are cumulative and not exclusive, may be exercised concurrently, and nothing herein shall be deemed to prohibit or limit any party from pursuing any other remedy or relief available at law or in equity for any actual or prospective breach or default, including recovery of damages. In addition, the parties hereby waive and re- nounce any defense to such equitable relief that an adequate remedy at law may exist. Section 11.04 Severability. If any term or provision of this Agreement is held to be invalid, illegal, or unenforceable under Applicable Law in any jurisdiction, such inva- lidity, illegality, or unenforceability shall not affect any other term or provision of this Agreement or invalidate or render unenforceable such term or provision in any other jurisdiction. Section 11.05 Successors and Assigns. Subject to the restrictions on Transfers set forth herein, this Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective heirs, executors, administrators, successors, and assigns. Section 11.06 Amendment. No provision of this Agreement may be amended or modified except by an instrument in writing executed by all Members. Any such writ- ten amendment or modification will be binding upon the Company and each Member. Notwithstanding the foregoing, amendments to the Members Schedule may be made by the Manager in accordance with Section 3.02(a). Section 11.07 Headings. The headings in this Agreement are inserted for conve- nience or reference only and are in no way intended to describe, interpret, define, or limit the scope, extent, or intent of this Agreement or any provision of this Agreement. Section 11.08 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall be deemed to be one and the same agreement. 27 28 274 Section 11.09 Entire Agreement. This Agreement, together with the Certificate of Formation and all related Exhibits and Schedules, constitutes the sole and entire agree- ment of the parties to this Agreement with respect to the subject matter contained herein and therein, and supersedes all prior and contemporaneous understandings, agreements, representations, and warranties, both written and oral, with respect to such subject matter. Section 11.10. No Third-Party Beneficiaries. Except as provided in Article VII, this Agreement is for the sole benefit of the parties hereto (and their respective heirs, executors, administrators, legal representatives, successors, and permitted assigns) and nothing herein, express or implied, is intended to or shall confer upon any other Person, including any creditor of the Company, any legal or equitable right, benefit, or remedy of any nature whatsoever under or by reason of this Agreement. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first written above by their respective officers thereunto duly authorized. The Company: The Members: AAA POOL SERVICES, LLC, a Delaware limited liability company By: GEORGE W. SMITH President Its: Thomas J. Gray Thomas J. Gray GEORGE W. SMITH George W. Smith Michael B. Watson Michael B. Watson Schedule 1 MEMBERS SCHEDULE (as of March 9, 2014) Total Capital Members Contribution Membership Interest Thomas J. Gray $90,000 45% George W. Smith $90,000 45% Michael B. Watson $20,000 10% TOTAL $200,000 100% 275 29 ASSESSMENT QUESTIONS Question 1 APS wants to add the following provision to its LLC agreement: Notwithstanding anything in this Agreement to the contrary, no Member or Manager shall owe any fiduciary duties to the Company or any Members." Is the provision valid? 31 30