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4.2.3. Capital Proceeds. Capital Proceeds shall be distributed and applied by the <br /> Company in the following order and priority: <br /> 4.2.3.1. to the payment of all expenses of the Company incident to the <br /> Capital Transaction; then <br /> 4.2.3.2. to the payment of debts and liabilities of the Company then due <br /> and outstanding (including all debts due to any Interest Holder); then <br /> 4.2.3.3. to the establishment of any reserves which the General Manager <br /> deems necessary for liabilities or obligations of the Company; then <br /> 4.2.3.4. the balance shall be distributed as follows: <br /> 4.2.3.4.1. to the Interest Holders in proportion to their Adjusted <br /> Capital Balances, until their remaining Adjusted Capital Balances have been paid in full; <br /> 4.2.3.4.2. if any Interest Holder has a Positive Capital Account <br /> after the distributions made pursuant to Section 4.2.3.4.1 and before any further allocation of <br /> Profit pursuant to Section 4.2.1.3, to those Interest Holders in proportion to their Positive Capital <br /> Accounts; then <br /> 4.2.3.4.3. the balance, to the Interest Holders in proportion to their <br /> Percentages. <br /> 4.3. Regulatory Allocations. <br /> 4.3.1. Qualified Income Offset. No Interest Holder shall be allocated Losses or <br /> deductions if the allocation causes an Interest Holder to have an Adjusted Capital Account <br /> Deficit. If an Interest Holder receives (1) an allocation of Loss or deduction (or item thereof) or <br /> (2) any distribution, which causes the Interest Holder to have an Adjusted Capital Account <br /> Deficit at the end of any taxable year, then all items of income and gain of the Company <br /> (consisting of a pro rata portion of each item of Company income, including gross income and <br /> gain) for that taxable year shall be allocated to that Interest Holder, before any other allocation is <br /> made of Company items for that taxable year, in the amount and in proportions required to <br /> eliminate the excess as quickly as possible. This Section 4.3.1 is intended to comply with, and <br /> shall be interpreted consistently with, the "qualified income offset" provisions of the Regulations <br /> promulgated under Code Section 704(b). <br /> 4.3.2. Minimum Gain Chargeback. Except as set forth in Regulation Section <br /> 1.704-2(f)(2), (3), and (4), if, during any taxable year, there is a net decrease in Minimum Gain, <br /> each Interest Holder, prior to any other allocation pursuant to this Section IV, shall be specially <br /> allocated items of gross income and gain for such taxable year (and, if necessary, subsequent <br /> taxable years) in an amount equal to that Interest Holder's share of the net decrease of Minimum <br /> Gain, computed in accordance with Regulation Section 1.704-2(g)(2). Allocations of gross <br />