Colloral Llc Operating Agreement

Exhibit 10.35


-------------------------------------------------------------------------------- Portions of this exhibit have been omitted pursuant to a request for confidential treatment of those portions filed with the Securities and Exchange Commission. Such confidential portions have been filed with the Securities and Exchange Commission and are denoted in this exhibit by an asterisk (*). --------------------------------------------------------------------------------


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LIMITED LIABILITY COMPANY
OPERATING AGREEMENT
of
COLLORAL LLC


a Delaware Limited Liability Company


Dated as of August 19, 2002


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COLLORAL LLC


OPERATING AGREEMENT


TABLE OF CONTENTS


Page
---- 1. ORGANIZATION. ........................................................ 1
1.1 Formation ....................................................... 1
1.2 Name ............................................................ 1
1.3 Certificate of Formation; Filings ............................... 1
1.4 Business Purpose ................................................ 1
1.5 Fictitious Business Name Statements ............................. 1
1.6 Principal Place of Business; Other Places of Business ........... 1
1.7 Designated Agent for Service of Process ......................... 2
1.8 Term ............................................................ 2 2. POWERS ............................................................... 2
2.1 Enter into Agreements ........................................... 2
2.2 Borrowings ...................................................... 2
2.3 Expenses ........................................................ 2
2.4 Other Powers .................................................... 2
2.5 Powers Not Otherwise Prohibited ................................. 2 3. MANAGEMENT ........................................................... 2
3.1 Designation of Managers ......................................... 2
3.2 Managers as Members ............................................. 3
3.3 Management of the Company ....................................... 3
3.4 Board Action .................................................... 3
3.5 Compensation of Managers and Members ............................ 3
3.6 Contracts with Affiliated Persons ............................... 3
3.7 Other Activities ................................................ 4
3.8 Officers ........................................................ 4 4. MEMBERS AND CAPITAL CONTRIBUTIONS .................................... 4
4.1 Capital Accounts ................................................ 4
4.2 Initial Members and Initial Capital Contributions ............... 4
4.3 Additional Members .............................................. 4
4.4 No Withdrawal of or Interest on Capital ......................... 5
4.5 Liability of Members ............................................ 5
4.6 Additional Capital Requirements ................................. 5
4.7 Third Party Liabilities ......................................... 5 5. DISTRIBUTIONS ........................................................ 5
5.1 Distribution of Company Funds ................................... 6
5.2 Distribution of Member Recovery Amounts ......................... 6
5.3 Distribution Upon Dissolution ................................... 6
5.4 Distribution of Assets in Kind .................................. 6 6. ALLOCATION OF PROFITS AND LOSSES. .................................... 6
6.1 Allocation of Profits and Losses ................................ 7


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7. FISCAL MATTERS ...................................................... 7
7.1 Books and Records ............................................ 7
7.2 Bank Accounts ................................................ 7
7.3 Fiscal Year .................................................. 7
7.4 Tax Matters Partner .......................................... 7 8. TRANSFERS OF INTERESTS .............................................. 8
8.1 General Restrictions on Transfer ............................. 8
8.2 Transfer by Operation of Law ................................. 8
8.3 Other Restrictions ........................................... 8
8.4 Relief From Liability ........................................ 9
8.5 Party to Agreement ........................................... 9
8.6 Contravention of Provisions .................................. 9 9. DISSOLUTION AND TERMINATION ......................................... 9
9.1 Limitations .................................................. 9
9.2 Events Causing Dissolution ................................... 9
9.3 Procedures on Dissolution .................................... 10
9.4 Special Dissolution Provisions ............................... 10 10. TAX ALLOCATION PROVISIONS ........................................... 10
10.1 Required Regulatory Allocations .............................. 11
10.2 Curative Allocations ......................................... 12
10.3 Tax Allocations and Book Allocations ......................... 12
10.4 General Allocation and Distribution Rules .................... 13
10.5 Tax Withholding .............................................. 13 11. NON-COMPETITION ..................................................... 14 12. REPRESENTATIONS AND WARRANTIES ...................................... 14
12.1 AI ........................................................... 14
12.2 Deseret ...................................................... 15 13. GENERAL PROVISIONS .................................................. 16
13.1 Notices ...................................................... 16
13.2 Word Meanings ................................................ 16
13.3 Binding Provisions ........................................... 16
13.4 Applicable Law ............................................... 16
13.5 Counterparts ................................................. 16
13.6 Separability of Provisions ................................... 16
13.7 Section Titles ............................................... 17
13.8 Amendments ................................................... 17
13.9 Entire Agreement ............................................. 17
13.10 Waiver of Partition .......................................... 17
13.11 Public Announcements ......................................... 17
[13.12 Survival of Certain Provisions ............................... 17 14. DEFINITIONS ......................................................... 17


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COLLORAL LLC


OPERATING AGREEMENT


This Operating Agreement, dated as of August 19, 2002, is by and between AutoImmune Inc., and Deseret Laboratories, Inc.


1. ORGANIZATION.


1.1 Formation. COLLORAL LLC (the "Company") has been formed as a limited liability company under the Delaware Limited Liability Company Act (the "Act") for the purposes and upon the terms and conditions hereinafter set forth. The rights and liabilities of the Members of the Company shall be as provided in the Act, except as otherwise expressly provided herein. In the event of any inconsistency between any terms and conditions contained in this Agreement and any nonmandatory provisions of the Act, the terms and conditions contained in this Agreement shall govern.


1.2 Name. The name of the Company shall be COLLORAL LLC. The Company may also conduct business at the same time under one or more fictitious names if the Board of Managers of the Company (the "Board") determines that it is in the best interests of the Company. The Board may change the name of the Company, from time to time, in accordance with applicable law.


1.3 Certificate of Formation; Filings. A Certificate of Formation (the "Certificate") has been executed and filed in the Office of the Delaware Secretary of State as required by the Act. The Board may execute and file any duly authorized amendments to the Certificate from time to time in a form prescribed by the Act. The Board shall also cause to be made, on behalf of the Company, such additional filings and recordings as the Board shall deem necessary or advisable.


1.4 Business Purpose. The Company shall engage solely in the business of developing, manufacturing, marketing and selling Licensed Products (as defined in the License Agreement of even date herewith between AI and the Company) as non-prescription products for the treatment of arthritic conditions and any activities ancillary thereto.


1.5 Fictitious Business Name Statements. Fictitious business name statements will be filed and published when and if the Board determines such statements are necessary. Any such statement shall be renewed as required by applicable law.


1.6 Principal Place of Business; Other Places of Business. The principal place of business of the Company shall be at such place within or outside the State of Delaware as the Board may from time to time designate. The Board may direct that the Company maintain offices and places of business at such other place or places within or outside the State of Delaware, as and when required by the Company's business and in furtherance of the general character of the Company's business described in the Certificate, and may appoint agents for service of process in all jurisdictions in which the Company shall conduct business. The Board shall file such certificates and documents as are necessary under the laws of any jurisdictions in which the Company shall conduct business.


1.7 Designated Agent for Service of Process. The Company shall continuously maintain a registered office and a designated and duly qualified agent for service of process on the Company in the State of Delaware.


1.8 Term. The Company shall commence on the date that the Certificate is filed with the Office of the Delaware Secretary of State, and shall continue until terminated pursuant to this Agreement.


2. POWERS. Subject to all other provisions of this Agreement, in furtherance of the conduct of the business purpose described in Section 1.4, the Company is authorized to take those actions listed in this Section 2.


2.1 Enter into Agreements. The Company may enter into, execute, modify, amend, supplement, acknowledge, deliver, perform, and carry out contracts of any kind, including operating agreements of limited liability companies, whether as a member or manager, contracts with Affiliated Persons, including guarantees and joint venture, limited and general partnership agreements and contracts establishing business arrangements or organizations, necessary to, in connection with, or incidental to the accomplishment of the permitted business of the Company, and to secure the same by mortgages, pledges or other liens.


2.2 Borrowings. The Company may borrow money and issue evidences of indebtedness in furtherance of the permitted business of the Company, and to secure the same by mortgages, pledges, or other liens.


2.3 Expenses. To the extent that funds of the Company are available, the Company may pay all expenses, debts and obligations of the Company.


2.4 Other Powers. The Company may exercise all the powers and privileges granted by the Act or any other law or this Agreement, together with any powers incidental thereto, so far as such powers are necessary or convenient to the conduct, promotion, or attainment of the permitted business, trade, purposes, or activities of the Company.


2.5 Powers Not Otherwise Prohibited. The Company may take any other action not prohibited under the Act or other applicable law and permitted under Section 1.4.


3. MANAGEMENT.


3.1 Designation of Managers. The number of Managers of the Company shall be initially fixed at 3 and shall be the Persons named in Schedule I hereto. Subject to the provisions set forth below, any Person may be elected as a Manager at any time by the unanimous consent of the Members. Each Member agrees to vote in favor of the following actions:


(a) to cause and maintain the election to the Board of one Manager designated by AI (the "AI Manager"); and


(b) to cause and maintain the election to the Board of two Managers designated by Deseret (the "Deseret Managers").


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Each Manager shall hold office until such individual is removed by the Member which designated him or her, resigns or dies. In the event that any Manager dies, resigns or is unable or unwilling to serve as such, or is removed from office by the Member that designated him or her, the Members shall promptly elect a successor consistent with the provisions of this Section 3.1.


3.2 Managers as Members. Any Manager may, but need not, hold an Interest in the Company as a Member, and such person's rights and interest as a Manager shall be distinct and separate from such person's rights and Interest as a Member.


3.3 Management of the Company. Subject to the provisions of this Agreement that require the consent of the Members, the Board shall have the exclusive power and authority to manage the business and affairs of the Company and to make all decisions with respect thereto. Except as otherwise expressly provided in this Agreement, the Board or Persons designated by the Board, including officers and agents appointed by the Board, shall be the only Persons authorized to execute documents binding on the Company. To the fullest extent permitted by Delaware law, but subject to any specific provisions in this Agreement granting rights to the Members, the Board shall have the power to perform any acts, statutory or otherwise, with respect to the Company or this Agreement, which would otherwise be possessed by the Members under Delaware law, and the Members shall have no power whatsoever with respect to the management of the business and affairs of the Company.


3.4 Board Action. Any action to be taken by the Board shall require the approval of a majority of the Board; provided, that such majority consists of the AI Manager and at least one Deseret Manager and; provided, further, that with respect to any matter, agreement or claim involving the Company, on the one hand, and a Member or an Affiliated Person of a Member, on the other hand, the Board shall act solely with the approval of the AI Manager if such Member is Deseret or if the matter, agreement or claim involves an Affiliated Person of Deseret and solely with the approval of the Deseret Manager if such Member is AI or if the matter, agreement or claim involves an Affiliated Person of AI. Subject to the foregoing, the Board may take action by less than unanimous written consent.


3.5 Compensation of Managers and Members. No payment shall be made by the Company to any Manager or Member for such Manager or Member's services as a Manager or Member except as expressly provided in this Agreement. Each Manager shall be entitled to reimbursement from the Company for all out-of pocket expenses reasonably incurred by such Manager in managing and conducting the business and affairs of the Company. The Board shall determine which expenses, if any, are allocable to the Company in a manner which is fair and reasonable to the Managers and the Company, and if such allocation is made in good faith it shall be conclusive in the absence of manifest error. The foregoing shall not prohibit payments and reimbursements to any Manager or Member who is also an officer of the Company, in such Person's capacity as an officer, to the extent approved by the Board.


3.6 Contracts with Affiliated Persons. The Company may enter into one or more oral or written agreements, leases, contracts or other arrangements for the furnishing to or by the Company of goods, services or space with any Member, Manager or Affiliated Person (including as an officer pursuant to Section 3.8 or as a non-officer employee), and may pay compensation thereunder for such goods, services or space.


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3.7 Other Activities. Except as set forth in Section 11, the Members, Managers and any Affiliates of any of them may engage in and possess interests in other business ventures and investment opportunities of every kind and description, independently or with others, including serving as managers and general partners of other limited liability companies and partnerships with purposes similar to those of the Company. Neither the Company nor any other Member or Manager shall have any rights in or to such ventures or opportunities or the income or profits therefrom.


3.8 Officers. The Board may from time to time designate one or more Persons to be officers of the Company, each of whom shall serve at the pleasure of the Board. The Board shall delegate to each such officer the authority and duties that are set forth in the resolution appointing the officer and in any subsequent resolution adopted by the Board, and such officer shall have full authority to act within the scope of such delegated authority, including by binding the Company to the extent provided therein. The Board may assign titles to particular officers. Each such officer shall hold office until his successor shall be duly designated and qualified, or until his death, or until he shall resign or shall have been removed by resolution adopted by the Board. Any number of offices may be held by the same Person. The salaries or other compensation, if any, of the officers and agents of the Company shall be fixed from time to time by the Board.


4. MEMBERS AND CAPITAL CONTRIBUTIONS.


4.1 Capital Accounts. A separate Capital Account shall be maintained for each Member, including any Member who shall hereafter acquire an Interest in the Company. Capital Accounts shall be maintained in accordance with the provisions of ss. 704 of the Code and the Regulations thereunder, except as provided herein.


4.2 Initial Members and Initial Capital Contributions. On the date of this Agreement, each of the Members has contributed to the capital of the Company the amount of cash, or property having an agreed value, set forth opposite its name on Schedule I. If so required by a vote of the Board (such vote to include the vote of the AI Manager and at least one Deseret Manager), Deseret may be required to make an additional capital contribution or contributions, in cash, in an aggregate amount not to exceed * dollars ($* ) in the event that the business of the Company (if so determined at the sole discretion of the Board) requires additional capital. Such additional capital contributions shall be refundable to Deseret if the Board, in its sole discretion, determines they are no longer needed and so votes (such vote to include the vote of the AI Manager and at least one Deseret Manager). Such as vote shall not be a conflict of interest for Deseret.


4.3 Additional Members. Additional Persons may be admitted to the Company as Members, and additional Interests may be created, all on the terms and conditions approved by the Board at the time of admission, subject to the Company's receipt of such Capital Contribution (if any) as may be agreed upon between the Board and such Person. Notwithstanding the foregoing, the terms of admission or issuance may not create any class or series of Interests having rights, powers or duties senior to those of any existing Interests unless the Board has obtained the unanimous consent of the Members holding the Interests in such junior class(es). The Board shall reflect the creation of additional Interests by amendment of Schedule I hereto, and shall reflect the creation of any new class or series in an amendment to this Agreement indicating the different rights, powers and duties possessed by the several classes or series of Interests, either of which amendments need be executed only by the Board.


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4.4 No Withdrawal of or Interest on Capital. No Member shall have the right to resign and receive any distribution from the Company as a result of such resignation, and no Member shall have the right to receive the return of all or any part of its Capital Contributions or Capital Account, or any other distribution, except as provided in Sections 5 and 9.3. No Member shall have any right to demand and receive property of the Company in exchange for all or any portion of its Capital Contributions or Capital Account, except as provided in Sections 5 and 9.3 upon dissolution and liquidation of the Company. No interest or prior or preferred return shall accrue or be paid on any Capital Contribution or Capital Account except pursuant to Section 5 as the same may be hereafter amended.


4.5 Liability of Members. Except as set forth in this Section 4, no Member shall be entitled, obligated or required to make any capital contribution in addition to its Capital Contribution made under Section 4.2 or 4.3, or any loan to the Company. No Member, in its capacity as a Member, shall have any liability to restore any negative balance in its Capital Account or to contribute to, or in respect of, the liabilities or the obligations of the Company, or to restore any amounts distributed from the Company, except as may be required under the Act or other applicable law. In no event shall any Member, in its capacity as a Member, be personally liable for any liabilities or obligations of the Company.


4.6 Additional Capital Requirements.


(a) In addition to the additional capital contribution that may be requested of Deseret pursuant to Section 4.2, in the event that the Company requires additional funds to carry out its purposes, to conduct its business, or to meet its obligations, the Company may create additional Interests as the Board may determine, or may borrow funds from such lender(s) as the Board may determine, in each case including any one or more Managers or existing Members, all on such terms and conditions as are approved by the Board.


(b) No loan made to the Company by any Member shall constitute a Capital Contribution to the Company for any purpose.


(c) No Member or Manager shall have any obligation to give notice of an existing or potential default of any obligation of the Company to any of the Members or Managers, nor shall any Member or Manager be obligated to make any Capital Contributions or loans to the Company, or otherwise supply or make available any funds to the Company, even if the failure to do so would result in a default of any of the Company's obligations or the loss or termination of all or any part of the Company's assets or business.


4.7 Third Party Liabilities. The provisions of this Section 4 are not intended to be for the benefit of any creditor or other Person (other than a Member in its capacity as a Member) to whom any debts, liabilities, or obligations are owed by (or who otherwise has any claim against) the Company or any of the Members. Moreover, notwithstanding anything contained in this Agreement, including specifically but without limitation this Section 4, no such creditor or other Person shall obtain any rights under this Agreement or shall, by reason of this Agreement, make any claim in respect of any debt, liability, or obligation (or otherwise) against the Company or any Member.


5. DISTRIBUTIONS


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5.1 Distribution of Company Funds. Except as provided in this Section 5, all Company funds, which are determined by the Board to be available for distribution shall be distributed to the Members on a quarterly basis as follows:


(a) First, to the Members in the following proportions: * percent (*%) to AI and * percent (*%) to Deseret until an aggregate of $* is distributed pursuant to this Section 5.1 in a fiscal year; and


(b) Second, the balance for the fiscal year shall be allocated equally between the Members.


It is the intention of the Company to distribute each quarter all cash and liquid assets of the Company other than such cash as the Board deems prudent to maintain in the Company in connection with the operation of the Company's business.


5.2 Distribution of Member Recovery Amounts. Notwithstanding any other provision in this Section 5, all Member Recovery Amounts received by the Company shall be distributed to the Member which has not paid the Member Recovery Amount to the Company as soon as is reasonably practicable.


5.3 Distribution Upon Dissolution. Proceeds from a Terminating Capital Transaction and amounts available upon dissolution, and after payment of, or adequate provision for, the debts and obligations of the Company, and liquidation of any remaining assets of the Company, shall be distributed and applied in the following priority:


(a) First, to fund reserves for liabilities not then due and owing and for contingent liabilities to the extent deemed reasonable by the Board; provided, that, upon the expiration of such period of time as the Board shall deem advisable, the balance of such reserves remaining after payment of such contingencies shall be distributed in the manner hereinafter set forth in this Section 5.3; and


(b) Second, to the Members, an amount sufficient to reduce the Members' Capital Accounts to zero, in proportion to the positive balances in such Capital Accounts (after reflecting in such Capital Accounts all adjustments thereto necessitated by (A) all other Company transactions (including distributions and allocations of Profits and Losses and items of income, gain, deduction, and loss) and (B) such Terminating Capital Transaction).


5.4 Distribution of Assets in Kind. Notwithstanding the foregoing provisions of this Section 5, in the event of a dissolution other than in connection with a Terminating Capital Transaction, all equipment contributed to the Company by AI pursuant to Section 4 shall be returned to AI. Except for the foregoing, no Member shall have the right to require any distribution of any assets of the Company in kind. If any assets of the Company are distributed in kind, such assets shall be distributed on the basis of their fair market value as determined by the Board. Any Member entitled to any interest in such assets shall, unless otherwise determined by the Board, receive separate assets of the Company and not an interest as tenant-in-common, with other Members so entitled, in each asset being distributed.


6. ALLOCATION OF PROFITS AND LOSSES.


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6.1 Allocation of Profits and Losses.


(a) After giving effect to the allocations set forth in Sections 10.1 and 10.2, and subject to the other provisions of Section 10 and of Section 6.2, Profits for each fiscal year shall be allocated in the following order and priority:


(i) First, in proportion to any deficit Capital Account balances, until such deficits are eliminated; and


(ii) Second, of the next $* in Profits, after taking account of the allocations to the Members pursuant to Section 6.1(a)(i) (if any), (A) * percent (*%) shall be allocated to AI and (B) * percent (*%) shall be allocated to Deseret; and


(iii) Third, any remaining Profits shall be allocated equally b ...