Exhibit B-110
MEMBERS' AGREEMENT
OF THE MEMBERS OF
▇▇▇▇▇▇▇ KLT GAS, LLC
MEMBERS' AGREEMENT
OF THE MEMBERS OF
▇▇▇▇▇▇▇ KLT Gas, LLC
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS AND CROSS-REFERENCES 1
1.1 Definitions 1
1.2 Cross References 1
ARTICLE II CERTAIN MATTERS CONCERNING
CONTRIBUTIONS BY MEMBERS 2
2.1 Initial Capital Contribution 2
2.2 Additional Contributions 2
2.3 Emergency or Unexpected Expenditures. 2
ARTICLE III REPRESENTATIONS AND WARRANTIES;
TITLE TO ASSETS; INDEMNITIES 2
3.1 Representations and Warranties of the Members 3
3.2 Representations and Warranties of ▇▇▇▇▇▇▇ 3
3.3 Disclosures. 4
3.4 Loss of Title. 5
3.5 Limitation of Liability 5
3.6 Indemnification. 5
ARTICLE IV INTERESTS OF MEMBERS 6
4.1 Continuing Obligations 6
4.2 Grant of Lien and Security Interest 6
4.3 Subordination of Interests 7
ARTICLE V RELATIONSHIP OF THE MEMBERS 7
5.1 Transfer or Termination of Rights 7
5.2 Abandonment and Surrender of Properties 7
5.3 Supplemental Business Arrangement. 8
5.4 Implied Covenants 8
5.5 No Third Party Beneficiary Rights 8
ARTICLE VI ACQUISITIONS WITHIN AREA OF INTEREST 8
6.1 General 8
6.2 Notice to Non-Acquiring Member 8
6.3 Option Exercised. 9
6.4 Option Not Exercised 9
6.5 Non-Compete Covenants 9
ARTICLE VII DISPUTES 10
7.1 Governing Law. 10
7.2 Forum Selection 10
7.3 Arbitration 10
ARTICLE VIII GENERAL PROVISIONS 12
8.1 Notices. 12
8.2 Gender 13
8.3 Currency. 13
8.4 Headings 13
8.5 Waiver 13
8.6 Modification 14
8.7 Force Majeure 14
8.8 Rule Against Perpetuities 14
8.9 Further Assurances. 14
8.10 Entire Agreement; Successors and Assigns 15
8.11 Counterparts 15
MEMBERS' AGREEMENT
OF THE MEMBERS OF
▇▇▇▇▇▇▇ KLT Gas, LLC
An Oklahoma Limited Liability Company
This Members' Agreement (the "Agreement") is made
as of January 14, 2000 between ▇▇▇▇▇▇▇ Energy Corp., a Michigan
corporation ("▇▇▇▇▇▇▇"), the address of which is ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇,
▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ and KLT Gas Inc., a Missouri
corporation ("KLT Gas"), the address of which is ▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇.
RECITALS
▇. ▇▇▇▇▇▇▇ owns or controls or is under contract
to purchase certain properties in ▇▇▇▇▇▇▇, Hughes, Latimer,
LeFlore, McIntosh, Muskogee, Nowata, Okmulgee, Osage, Pittsburg,
▇▇▇▇▇▇, and Washington Counties, Oklahoma, and ▇▇▇▇▇▇▇▇▇▇ County,
Kansas which properties are described in Exhibit A.
B. KLT Gas wishes to participate with ▇▇▇▇▇▇▇ in
the exploration, development and production of oil and gas
resources, more specifically coalbed methane gas within the
Properties and the gathering of gas and the acquisition of
producing and non-producing oil and gas leases.
▇. ▇▇▇▇▇▇▇ and KLT Gas wish to form and operate a
limited liability company under the Oklahoma Limited Liability
Company Act, 18 O.S. 2000 et seq. (the "Act"), to own the
Properties and conduct the operations thereon contemplated by
Recital B. The name of the limited liability company shall be
▇▇▇▇▇▇▇ KLT Gas, LLC and its affairs shall be governed by that
certain Operating Agreement of ▇▇▇▇▇▇▇ KLT Gas, LLC, dated as of
January 14, 2000 (the "Operating Agreement").
NOW THEREFORE, in consideration of the covenants
and conditions contained herein, ▇▇▇▇▇▇▇ and KLT Gas agree as
follows:
ARTICLE I
DEFINITIONS AND CROSS-REFERENCES
1.1 Definitions. The terms defined herein shall
have the defined meaning wherever used in this Agreement.
Capitalized terms used but not defined in this Agreement shall
have the meanings given thereto in the Operating Agreement or
Exhibit D thereto.
1.2 Cross References. References to exhibits are to
Exhibits of the Operating Agreement. References to "Articles,"
"Sections" and "Subsections" refer to Articles, Sections and
Subsections of this Agreement unless indicated otherwise.
References to "Paragraphs" and "Subparagraphs" refer to
paragraphs and subparagraphs of the referenced Exhibits.
ARTICLE II
CERTAIN MATTERS CONCERNING
CONTRIBUTIONS BY MEMBERS
2.1 Initial Capital Contribution. The initial
capital Contribution shall be as set forth in Section 3.1 of the
Operating Agreement.
2.2 Additional Contributions. The Members, subject
to any election permitted by Section 10.5(a) of the Operating
Agreement, shall be obligated to contribute funds to the Company
to fund adopted Programs and Budgets in proportion to their
respective Ownership Interests. Notwithstanding the foregoing or
anything contained in the Operating Agreement, except the
technical review, occurring after six months, provided for in
Section 10.3, each party hereto agrees that each party will
participate in the first two Programs on an equal basis for the
drilling of up to 220 ▇▇▇▇▇ and agrees to the expenditure of Ten
Million Dollars ($10,000,000) with ▇▇▇▇▇▇▇ contributing Two
Million One Hundred and Fifty Thousand Dollars ($2,150,000), KLT
Gas contributing Five Million Dollars ($5,000,000) and Two
Million Eight Hundred and Fifty Thousand ($2,850,000) coming from
the Company attributable to ▇▇▇▇▇▇▇ because of its
disproportionate initial capital Contribution.
2.3 Emergency or Unexpected Expenditures. In case
of emergency, the Manager may take any reasonable action it deems
necessary to protect life or property, to protect the Assets or
to comply with Laws. The Manager may make reasonable expenditures
on behalf of the Members for unexpected events that are beyond
its reasonable control and that do not result from a breach by it
of its standard of care. The Manager shall promptly notify the
Members of the emergency or unexpected expenditure, and the
Manager shall be reimbursed for all resulting costs by the
Members in proportion to their respective Ownership Interests.
ARTICLE III
REPRESENTATIONS AND WARRANTIES;
TITLE TO ASSETS; INDEMNITIES
3.1 Representations and Warranties of the Members.
As of the date hereof, each Member warrants and represents to the
other that:
(a) it is a corporation duly organized
and in good standing in its state of incorporation and is
qualified to do business and is in good standing in those states
where necessary in order to carry out the purposes of this
Agreement;
(b) it has the capacity to enter into
and perform this Agreement and all transactions contemplated
herein and that all corporate, board of directors, shareholder,
and other actions and consents required to authorize it to enter
into and perform this Agreement have been properly taken;
(c) it will not breach any other
agreement or arrangement by entering into or performing this
Agreement;
(d) it is not subject to any
governmental order, judgment, decree, debarment, sanction or Laws
that would preclude the permitting or implementation of
Operations under this Agreement;
(e) this Agreement has been duly
executed and delivered by it and is valid and binding upon it in
accordance with its terms; and
(f) after the assignment of the
interests described in Exhibit A hereto, and not as of the date
hereof, neither party owns any oil, gas or mineral interest
(including coalbed methane) in the Area of Interest.
3.2 Representations and Warranties of ▇▇▇▇▇▇▇. As
of the date hereof, ▇▇▇▇▇▇▇ makes the following representations
and warranties to KLT Gas:
(a) ▇▇▇▇▇▇▇ makes no warranty of title
except that it has neither mortgaged, hypothecated nor made a
prior conveyance of its interest in the Contracts or the leases
described in Exhibit A.
(b) ▇▇▇▇▇▇▇ has delivered to or made
available for inspection by KLT Gas all Existing Data in its
possession or control, and copies of all leases or other
contracts relating to the Properties.
(c) With respect to the Properties, to
Patrick's knowledge, there are no pending or threatened actions,
suits, claims or proceedings, except as set forth in the
Contracts or otherwise in Exhibit A to the Operating Agreement.
(d) Except as to matters otherwise
disclosed in writing to KLT Gas prior to the date hereof,
(i) to Patrick's knowledge, the
conditions existing on or with respect to the Properties and its
ownership and operation of the Properties are not in violation of
any Laws nor causing or permitting any damage or impairment to
the health, safety, or enjoyment of any person at or on the
Properties or in the general vicinity of the Properties;
(ii) to Patrick's knowledge, there have
been no past violations by it or by any of its predecessors in
title of any Environmental Laws or other Laws affecting or
pertaining to the Properties, nor any past creation of damage or
threatened damage to the air, soil, surface waters, groundwater,
flora, fauna, or other natural resources on, about or in the
general vicinity of the Properties; and
(iii) ▇▇▇▇▇▇▇ has not received inquiry
from or notice of a pending investigation from any governmental
agency or of any administrative or judicial proceeding concerning
the violation of any Laws.
The representations and warranties set forth
above shall survive the execution and delivery of any documents
of Transfer provided under this Agreement. For a representation
or warranty made to a Member's "knowledge," the term "knowledge"
shall mean actual knowledge on the part of the officers,
employees, and agents of the representing Member.
3.3 Disclosures. Each of the Members represents and
warrants that it is unaware of any material facts or
circumstances that have not been disclosed in this Agreement or
the Operating Agreement which should be disclosed to the other
Member in order to prevent the representations and warranties in
this Article or Article VI of the Operating Agreement from being
materially misleading. ▇▇▇▇▇▇▇ has disclosed to KLT Gas all
information it believes to be relevant concerning the Assets and
has provided to or made available for inspection by KLT Gas all
such information, but does not make any representation or
warranty, express or implied, as to the accuracy or completeness
of the information (except as provided in Section 3.2) or as to
the boundaries, reserves or value of the Assets. Each Member
represents to the other that in negotiating and entering into
this Agreement and the Operating Agreement it has relied solely
on its own appraisals and estimates as to the value of the Assets
and upon its own geologic and engineering interpretations related
thereto, and KLT Gas is aware that:
(a) in Oklahoma the law is unsettled as to the
ownership of the coalbed methane gas where minerals have been
severed from the surface estate and that some leases included in
the Properties have been taken from owners of severed minerals
and curative work needs to be completed; and
(b) in Oklahoma the law is unsettled as to the
ability of the lessee to charge gas transportation costs to the
lessor where the lease fails to allow for the cost, and that some
leases specifically prohibit the transportation costs, and some
leases may not contain sufficient language to collect such costs.
3.4 Loss of Title. Any failure or loss of title to
the Assets, and all costs of defending title, shall be charged to
the Business Account, except that in the event of costs or losses
arising out of or resulting from any breach of the
representations and warranties of ▇▇▇▇▇▇▇ or KLT Gas as to title,
the breaching Member shall indemnify the non-breaching Member for
such costs and losses.
3.5 Limitation of Liability. The Members shall not
be required to make any contribution to the capital of the
Company except as otherwise provided in this Agreement, nor shall
the Members in their capacity as Members or Manager be bound by,
or liable for, any debt, liability or obligation of the Company
whether arising in contract, tort, or otherwise. The foregoing
shall not limit any obligation of a Member to indemnify the other
Member as expressly provided by this Agreement. The Members shall
be under no obligation to restore a deficit Capital Account upon
the dissolution of the Company or the liquidation of any of their
Ownership Interests. Any obligation herein to contribute capital
to the Company may be compromised by the Members, including by
payments by an obligated Member directly to the other Member.
3.6 Indemnification.
(a) Each Member shall indemnify the
other Member, its directors, officers, employees, agents and
attorneys, and Affiliates or successors, assigns and Related
Parties (collectively "Indemnified Party") from and against the
entire amount of any Material Loss. A "Material Loss" shall mean
all direct and indirect costs, expenses, damages or liabilities,
including attorneys' fees and other costs of litigation (either
threatened or pending) arising out of or based on a breach by a
Member ("Indemnifying Party") of any representation, warranty or
covenant contained in this Agreement or the Operating Agreement,
including without limitation:
(i) any action taken for or obligation
or responsibility assumed on behalf of the Company or another
Member by a Member or any of its directors, officers, employees,
agents and attorneys, or Affiliates, in violation of Section 5.1
of the Operating Agreement;
(ii) failure of a Member or its
Affiliates to comply with the non-compete or Area of Interest
provisions of Article VI hereof;
(iii) any Transfer that causes
termination of the tax partnership established by Section 5.2 of
the Operating Agreement, against which the transferring Member
shall indemnify the non-transferring Member as provided in
Subsection 7.2(e) of the Operating Agreement and Article V of
Exhibit C; and
(iv) failure of a Member or its
Affiliates to comply with the preemptive right under Sections 7.3
and 7.4 of the Operating Agreement.
A Material Loss shall not be deemed to have occurred until an
Indemnified Party incurs losses, costs, damages or liabilities in
excess of Two Hundred and Fifty Thousand Dollars ($250,000)
relating to breaches of warranties, representations and covenants
contained in this Agreement and the Operating Agreement, in the
aggregate. Each Member's aggregate liability to all Indemnified
Parties under this Section for breaches of the representations in
Articles II and III hereof shall not, however, exceed Five
Million Dollars ($5,000,000).
(b) If any claim or demand is asserted
against an Indemnified Party in respect of which such Indemnified
Party may be entitled to indemnification under this Agreement,
written notice of such claim or demand shall promptly be given to
the Indemnifying Party. The Indemnifying Party shall have the
right, but not the obligation, by notifying the Indemnified Party
within thirty (30) days after its receipt of the notice of the
claim or demand, to assume the entire control of (subject to the
right of the Indemnified Party to participate, at the Indemnified
Party's expense and with counsel of the Indemnified Party's
choice), the defense, compromise, or settlement of the matter,
including, at the Indemnifying Party's expense, employment of
counsel of the Indemnifying Party's choice. Any damages to the
assets or business of the Indemnified Party caused by a failure
by the Indemnifying Party to defend, compromise, or settle a
claim or demand in a reasonable and expeditious manner requested
by the Indemnified Party, after the Indemnifying Party has given
notice that it will assume control of the defense, compromise, or
settlement of the matter, shall be included in the damages for
which the Indemnifying Party shall be obligated to indemnify the
Indemnified Party. Any settlement or compromise of a matter by
the Indemnifying Party shall include a full release of claims
against the Indemnified Party which have arisen out of the
indemnified claim or demand.
ARTICLE IV
INTERESTS OF MEMBERS
4.1 Continuing Obligations. On dissolution of the
Company under Section 14.1 of the Operating Agreement, each
Member shall remain liable for its respective share of
liabilities to third parties (whether such arises before or after
such dissolution). In the event of the resignation of a Member
pursuant to Section 14.2 of the Operating Agreement, the
resigning Member's share of such liabilities shall be equal to
its Ownership Interest at the time such liability was incurred
(or, as to liabilities arising prior to the date hereof, its
initial Ownership Interest).
4.2 Grant of Lien and Security Interest.
(a) Subject to Section 4.3 hereof, each
Member grants to the other Member a lien upon and a security
interest in its Ownership Interest, including all of its right,
title and interest in the Assets, whenever acquired or arising,
and the proceeds from and accessions to the foregoing.
(b) The liens and security interests
granted by Subsection 4.2(a) hereof shall secure every obligation
or liability of the Member granting such lien or security
interest to the other Member created under this Agreement or the
Operating Agreement, including the obligation to repay a Cover
Payment in accordance with Section 11.4 of the Operating
Agreement. Each Member hereby agrees to take all action necessary
to perfect such lien and security interest and hereby appoints
the other Member its attorney-in-fact to execute, file and record
all financing statements and other documents necessary to perfect
or maintain such lien and security interest.
4.3 Subordination of Interests. Each Member shall,
from time to time, take all necessary actions, including
execution of appropriate agreements, to pledge and subordinate
its Ownership Interest, any liens it may hold which are created
under this Agreement other than those created pursuant to Section
4.2 hereof, and any other right or interest it holds with respect
to the Company and the Assets (other than any statutory lien of
the Manager) to any secured borrowings for Operations approved by
the Management Committee, including any secured borrowings
relating to Project Financing, and any modifications or renewals
thereof. Provided, however, under no circumstances shall the
subordination required hereunder affect the priority of any lien
or security interest granted by a Member to its lender or granted
by the Company to the lender of a Member as contemplated by
Section 7.2(g) of the Operating Agreement.
ARTICLE V
RELATIONSHIP OF THE MEMBERS
5.1 Transfer or Termination of Rights. Neither
Member shall Transfer all or any part of its rights or
obligations under this Agreement, except in conjunction with a
transfer or termination of the Member's Ownership Interest
permitted by the Operating Agreement. Neither Member shall
Transfer all or any part of its rights or obligations under the
Operating Agreement, except in conjunction with a transfer or
termination of its rights under this Agreement. Any such
permitted assignment shall be subject to the consent requirements
of Section 7.2 of the Operating Agreement.
5.2 Abandonment and Surrender of Properties. The
Member that desires to abandon or surrender all or part of the
Properties pursuant to Section 12.2 of the Operating Agreement
shall remain liable to the other Member for its share (determined
by its Ownership Interest as of the date of such abandonment) of
any liability with respect to such Properties, including, without
limitation, Continuing Obligations, and Environmental
Liabilities, whether accruing before or after such abandonment,
arising out of activities prior to the date hereof and out of
Operations conducted prior to the date of such abandonment,
regardless of when any funds may be expended to satisfy such
liability.
5.3 Supplemental Business Arrangement. The Members
hereby agree that in the event of a Supplemental Business
Arrangement pursuant to Section 10.7 of the Operating Agreement,
this Agreement shall apply mutatis mutandis to such business in
the same manner as to the Operating Agreement.
5.4 Implied Covenants. There are no implied
covenants contained in this Agreement other than those of good
faith and fair dealing.
5.5 No Third Party Beneficiary Rights. This
Agreement shall be construed to benefit the Members and their
respective successors and assigns only, and shall not be
construed to create third party beneficiary rights in any other
party, expressly including the Company, or in any governmental
organization or agency, except to the extent required to permit
indemnification of a non-Member's Indemnified Party pursuant to
Subsection 3.6(a) hereof.
ARTICLE VI
ACQUISITIONS WITHIN AREA OF INTEREST
6.1 General. Any interest or right to acquire any
interest in real or personal property within the Area of
Interest either acquired or proposed (pursuant to a draft term
sheet or draft purchase agreement) to be acquired during the term
of this Agreement by or on behalf of either Member ("Acquiring
Member") or any Affiliate of such Member shall be subject to the
terms and provisions of this Agreement and the Operating
Agreement. ▇▇▇▇▇▇▇ and KLT Gas and their respective Affiliates
for their separate account shall be free to acquire leases and
mineral interests in lands outside the Area of Interest. Failure
of any Affiliate of either Member to comply with this Article
shall be a breach by such Member of this Agreement.
6.2 Notice to Non-Acquiring Member. Within thirty
(30) days after the acquisition or proposed acquisition, as the
case may be, of any interest or the right to acquire any interest
in real property wholly or partially within the Area of Interest
(except real property acquired by the Manager pursuant to a
Program), the Acquiring Member shall notify the other Member of
such acquisition by it or its Affiliate; provided that if the
acquisition of any interest or right to acquire any interest
pertains to real property partially within the Area of Interest,
then all such real property (i.e., the part within the Area of
Interest and the part outside the Area of Interest) shall be
subject to this Article. The Acquiring Member's notice shall
describe in detail the acquisition, or the proposed acquisition,
the selling party or proposed offeree, the acquiring party if
that party is an Affiliate, the lands and minerals covered
thereby, any water rights related thereto, the cost, obligations
and other liabilities thereof, and the reasons why the Acquiring
Member believes that the acquisition (or proposed acquisition) of
the interest is in the best interests of the Members under this
Agreement. In addition to such notice, the Acquiring Member shall
make any and all information concerning the relevant interest
available for inspection by the other Member.
6.3 Option Exercised. Within sixty (60) days after
receiving the Acquiring Member's notice, the other Member may
notify the Acquiring Member of its election to accept a
proportionate interest in the acquired interest equal to its
Ownership Interest. Promptly upon such notice, the Acquiring
Member shall convey or cause its Affiliate to convey to the
Members in proportion to their respective Ownership Interests or
to the Company (as agreed by the Members), by assignment of the
Acquiring Member's (or its Affiliate's) interest in such acquired
interest, free and clear of all Encumbrances arising by, through
or under the Acquiring Member (or its Affiliate) other than those
to which both Members have agreed. Immediately upon such notice,
the acquired interest either shall be subject to a Supplemental
Business Arrangement, or if conveyed to the Company, shall become
a part of the Properties for all purposes of this Agreement and
the Operating Agreement. The other Member shall promptly pay to
the Acquiring Member its proportionate share of the latter's
actual out-of-pocket acquisition costs.
6.4 Option Not Exercised. If the other Member does
not give such notice within the sixty (60) day period set forth
in Section 6.3 hereof, it shall have no interest in the acquired
interests, and the acquired interests shall not be a part of the
Assets or be subject to this Agreement or the Operating
Agreement. Provided however, if the Acquiring Member does not
consummate a proposed acquisition upon substantially the same
terms as described in the Notice given under Section 6.2, then
the Acquiring Member shall offer the other Member the right to
participate in the consummated acquisition under this Article VI
as if the offer to participate in the proposed acquisition had
not been made. "Substantially," as used in the preceding
sentence shall mean an increase or decrease in cash consideration
or in the non-cash consideration (considered separately and not
in aggregate) of at least 5%. Provided further, if an Acquiring
Member makes an acquisition which is required to be offered to
the other Member under this Article VI, but fails to do so, the
Acquiring Member holds the interest that should have been offered
to the other Member in trust for the other Member, subject only
to the payment of its proportionate share of the purchase price,
without interest.
6.5 Non-Compete Covenants. Neither a Member that
resigns pursuant to Section 14.2 of the Operating Agreement, or
is deemed to have resigned pursuant to the Operating Agreement,
nor any Affiliate, successor, assignee or agent of such a Member,
shall directly or indirectly acquire any interest or right in
any property any part of which is within the Area of Interest for
twenty-four (24) months after the effective date of resignation.
If a resigning Member, or the Affiliate of a resigning Member,
breaches this Section, such Member shall be obligated to offer to
convey to the non-resigning Member, without cost or Encumbrance,
any such property or interest so acquired (or ensure its
Affiliate offers to convey the property or interest to the non-
resigning Member, if the acquiring party is the resigning
Member's Affiliate). Such offer shall be made in writing and can
be accepted by the non-resigning Member at any time within ten
(10) days after the offer is received by such non-resigning
Member. Failure of a Member's Affiliate to comply with this
Section shall be a breach by such Member of this Agreement.
ARTICLE VII
DISPUTES
7.1 Governing Law. Except for matters of title to
the Properties or their Transfer, which shall be governed by the
law of their situs, this Agreement shall be governed by and
interpreted in accordance with the laws of the State of Oklahoma,
without regard for any conflict of laws or choice of laws
principles that would permit or require the application of the
laws of any other jurisdiction.
7.2 Forum Selection. The Members (subject to
actual receipt of service of process) consent and submit to the
exclusive venue and jurisdiction in any state or federal court in
and for the City of Oklahoma City, State of Oklahoma, and the
service of process under applicable provisions of the laws of the
State of Oklahoma in any action commenced relating to this
Agreement or the transactions contemplated hereby.
7.3 Arbitration. (a) In the event of any
disagreement between the Members over the construction,
application (including whether conditions precedent to
arbitration have occurred), breach, termination, validity or
interpretation of the Agreement ("Dispute"), the Members agree
promptly to seek to resolve such Dispute by negotiations between
senior executives of the Members. All negotiations and
communications pursuant to this paragraph are confidential and
shall be treated as compromise and settlement negotiations for
the purposes of the Federal Rules of Evidence and state rules of
evidence. If the Dispute has not been resolved within forty-five
(45) days after the date one Member requests resolution of a
Dispute as provided in this Section 7.3, either Member may
initiate arbitration pursuant to this Agreement. "Resolved"
means that both Members have agreed to a disposition of the
Dispute; a Dispute has not been resolved within the meaning of
this subparagraph if one Member denies the existence of a Dispute
or refuses to participate in the process described in this
Section 7.3.
(b) Any Dispute submitted to arbitration pursuant
to subparagraph (a) shall be submitted to binding arbitration,
before a single arbitrator, in accordance with the following
provisions. Arbitration shall be the sole and exclusive remedy
of the Members in connection with any Dispute or Disputes
hereunder.
(i) The arbitrator appointed under this Agreement
shall be an executive or former executive of an exploration and
production company, and shall have had at least 15 years of
experience in the oil and gas business.
(ii) The Member desiring to initiate arbitration
shall send, via certified mail, written notice of demand of
arbitration to the other Member and the names of one or more
proposed arbitrators together with a statement of the matter in
controversy.
(iii) Within thirty (30) days after receipt of
such demand, the receiving Member shall either agree to one of
the arbitrators proposed by the other Member, or propose one or
more arbitrators. If the receiving Member fails or refuses to
agree to or propose an arbitrator within such 30-day period or if
the Members cannot agree on an arbitrator, within sixty (60) days
after receipt of such demand, all Disputes shall be settled by
arbitration administered by the AAA in accordance with its
Commercial Arbitration Rules, and judgment upon the award
rendered the arbitrator may be entered in any court having
jurisdiction thereof.
(iv) The arbitrator may hire, at the expense of
the Members, legal, accounting, geological, engineering or other
consultants the arbitrator believes are necessary or useful.
(v) Adherence to formal rules of evidence shall
not be required. The arbitrator shall consider any evidence and
testimony that it determines to be relevant.
(vi) The arbitrator shall render their decision
within thirty (30) calendar days following the conclusion of the
hearing. The arbitrator shall have the authority to determine
the scope of the arbitrator's authority, the Dispute, including
any other Disputes arising in the course of the arbitration, and
the damages, if any, to which any Member may be entitled.
(vii) Any decision by the arbitrator shall be
final, binding and non-appealable. Any such decision may be
filed in any court of competent jurisdiction and may be enforced
by any Member as a final judgment in such court. There shall be
no grounds for appeal of any arbitration award hereunder.
(viii) The arbitration proceedings shall be
conducted in Oklahoma City, Oklahoma.
(ix) Limited civil discovery shall be permitted
for the production of documents and taking of depositions.
(x) All civil discovery shall be governed by the
Oklahoma Rules of Civil Procedure. All issues regarding
information with discovery requests shall be decided by the
arbitrator.
(xi) The arbitrator has no authority to award
punitive damages or any other damages not measured by the
prevailing Member's actual damages, and may not, in any event,
make any ruling, finding or award that does not conform to the
terms and conditions of this agreement.
(xii) The award of the arbitrator may,
but is not required to be, accompanied by a reasoned opinion.
(xiii) Neither Member nor the arbitrator may
disclose the existence, content, or results of any arbitration
hereunder without the prior written consent of both Members.
(xiv) The arbitrator may award to the
prevailing Member, if any, as determined by the arbitrator, all
or some portion of its costs and fees. "Costs and fees" means
all reasonable pre-award expenses of the arbitration, including
the arbitrator's fees, administrative fees, travel expenses, out-
of-pocket expenses such as copying, telephone, court costs,
witness fees, and attorneys' fees. Notwithstanding the
foregoing, each Member shall pay, within 15 days of being billed
by the arbitrator, one-half of the total amounts billed by the
arbitrator to both Members for arbitration fees, services and
expenses incurred by the arbitrator; it is expected that the
arbitrator will ▇▇▇▇ on a monthly basis, but actual billing shall
be as determined by the arbitrator.
ARTICLE VIII
GENERAL PROVISIONS
8.1 Notices. All notices, payments and other
required or permitted communications ("Notices") to either Member
shall be in writing, and shall be addressed respectively as
follows:
If to ▇▇▇▇▇▇▇: ▇▇▇▇▇▇▇ Energy Corp.
▇▇▇▇ ▇. ▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
With a Copy to: Chester, Willcox, and Saxbe, LLP
▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
Attention: J. ▇▇▇▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
If to KLT Gas: ▇▇. ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Vice President, Operations
KLT Gas Inc.
▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇@▇▇▇▇.▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
With a Copy to: H. ▇▇▇▇▇▇ ▇▇▇▇▇▇
Winstead ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, P.C.
5400 Renaissance Tower
▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
▇▇▇▇▇▇▇@▇▇▇▇▇▇▇▇.▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
All Notices shall be given (a) by personal
delivery to the Member; (b) by electronic communication, capable
of producing a printed transmission, such as facsimile or
electronic mail, and followed by mail with a copy of the date and
time verification; (c) by registered or certified mail return
receipt requested; or (d) by overnight or other express courier
service. All Notices shall be effective and shall be deemed given
on the date of receipt at the principal address if received
during normal business hours, and, if not received during normal
business hours, on the next business day following receipt, or if
by electronic communication, on the date of such communication.
Either Member may change its address by Notice to the other
Member.
8.2 Gender. The singular shall include the plural,
and the plural the singular wherever the context so requires, and
the masculine, the feminine, and the neuter genders shall be
mutually inclusive.
8.3 Currency. All references to "dollars" or "$"
herein shall mean lawful currency of the United States of
America.
8.4 Headings. The subject headings of the Sections
and Subsections of this Agreement and the Paragraphs and
Subparagraphs of the Exhibits to this Agreement are included for
purposes of convenience only, and shall not affect the
construction or interpretation of any of its provisions.
8.5 Waiver. The failure of either Member to insist
on the strict performance of any provision of this Agreement or
to exercise any right, power or remedy upon a breach hereof shall
not constitute a waiver of any provision of this Agreement or
limit such Member's right thereafter to enforce any provision or
exercise any right.
8.6 Modification. No modification of this Agreement
shall be valid unless made in writing and duly executed by both
Members.
8.7 Force Majeure. Except for the obligation to
make payments when due hereunder, the obligations of a Member
shall be suspended to the extent and for the period that
performance is prevented by any cause, whether foreseeable or
unforeseeable, beyond its reasonable control, including, without
limitation, labor disputes (however arising and whether or not
employee demands are reasonable or within the power of the Member
to grant); acts of God; Laws, instructions or requests of any
government or governmental entity; judgments or orders of any
court; inability to obtain on reasonably acceptable terms any
public or private license, permit or other authorization;
curtailment or suspension of activities to remedy or avoid an
actual or alleged, present or prospective violation of
Environmental Laws; action or inaction by any federal, state or
local agency that delays or prevents the issuance or granting of
any approval or authorization required to conduct Operations
beyond the reasonable expectations of the Member seeking the
approval or authorization; acts of war or conditions arising out
of or attributable to war, whether declared or undeclared; riot,
civil strife, insurrection or rebellion; fire, explosion,
earthquake, storm, flood, sink holes, drought or other adverse
weather condition; delay or failure by suppliers or transporters
of oil or gas (including gathering and pipelines), and of
materials, parts, supplies, services or equipment or by
contractors' or subcontractors' shortage of, or inability to
obtain, labor, transportation, materials, machinery, equipment,
supplies, utilities or services; accidents; breakdown of
equipment, machinery or facilities; actions by native rights
groups, environmental groups, or other similar special interest
groups; or any other cause whether similar or dissimilar to the
foregoing, but not including low prices. The affected Member
shall promptly give notice to the other Member of the suspension
of performance, stating therein the nature of the suspension, the
reasons therefor, and the expected duration thereof. The affected
Member shall resume performance as soon as reasonably possible.
During the period of suspension the obligations of both Members
to advance funds pursuant to Article II hereof shall be reduced
to levels consistent with then current Operations.
8.8 Rule Against Perpetuities. The Members do not
intend that there shall be any violation of the Rule Against
Perpetuities, the Rule Against Unreasonable Restraints on the
Alienation of Property, or any similar rule. Accordingly, if any
right or option to acquire any interest in the Properties, in an
Ownership Interest, in the Assets, or in any real property exists
under this Agreement, such right or option must be exercised, if
at all, so as to vest such interest within time periods permitted
by applicable rules. If, however, any such violation should
inadvertently occur, the Members hereby agree that a court shall
reform that provision in such a way as to approximate most
closely the intent of the Members within the limits permissible
under such rules.
8.9 Further Assurances. Each of the Members shall
take, from time to time and without additional consideration,
such further actions and execute such additional instruments as
may be reasonably necessary or convenient to implement and carry
out the intent and purpose of this Agreement or as may be
reasonably required by lenders in connection with Project
Financing.
8.10 Entire Agreement; Successors and Assigns. This
Agreement and the Operating Agreement, with the Exhibits thereto,
between ▇▇▇▇▇▇▇ and KLT Gas, dated January 14, 2000, contain the
entire understanding of the Members and supersedes all prior
agreements and understandings between the Members relating to the
subject matter hereof; provided that nothing in this Section 8.10
modifies or affects the Operating Agreement and the Members'
obligations thereunder. This Agreement shall be binding upon and
inure to the benefit of the respective successors and permitted
assigns of the Members.
8.11 Counterparts. This Agreement may be executed in
any number of counterparts, and it shall not be necessary that
the signatures of both Members be contained on any counterpart.
Each counterpart shall be deemed an original, but all
counterparts together shall constitute one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto have
executed this Agreement as of the date set forth above.
▇▇▇▇▇▇▇ Energy Corp.
By: /s/▇▇▇▇ ▇▇▇▇▇▇▇
Name: ▇▇▇▇ ▇▇▇▇▇▇▇
Title: Vice President
KLT Gas Inc.
By: /s/▇▇▇▇▇ ▇. ▇▇▇▇▇
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: President
OPERATING AGREEMENT
OF
▇▇▇▇▇▇▇ KLT GAS, LLC
OPERATING AGREEMENT
OF
▇▇▇▇▇▇▇ KLT GAS, LLC
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS AND CROSS-REFERENCES 1
1.1 Definitions 1
1.2 Cross References 1
ARTICLE II NAME, PURPOSES AND TERM 2
2.1 Formation 2
2.2 Name 2
2.3 Purposes 2
2.4 Limitation 2
2.5 Term 2
2.6 Registered Agent; Offices 3
ARTICLE III CONTRIBUTIONS BY MEMBERS 3
3.1 Members' Initial Contributions 3
3.2 Record Title 3
ARTICLE IV INTERESTS OF MEMBERS 3
4.1 Initial Ownership Interests 3
4.2 Changes in Ownership Interests 4
4.3 Admission of New Members 4
4.4 Documentation of Adjustments to Ownership Interests 4
4.5 Exceptions to Adjustments to Ownership Interests 4
ARTICLE V RELATIONSHIP OF THE MEMBERS 4
5.1 Limitation on Authority of Members 4
5.2 Federal Tax Elections and Allocations 5
5.3 State Income Tax 5
5.4 Tax Returns 5
5.5 Other Business Opportunities 5
5.6 Waiver of Rights to Partition or Other Division of
Assets 5
5.7 Bankruptcy of a Member 5
5.8 Implied Covenants 5
5.9 No Certificate 5
5.10 Disposition of Production 5
5.11 Limitation of Liability 6
5.12 Indemnities 6
5.13 No Third Party Beneficiary Rights 6
ARTICLE VI REPRESENTATIONS AND WARRANTIES 6
ARTICLE VII TRANSFER OF INTEREST; PREEMPTIVE RIGHT 7
7.1 General 7
7.2 Limitations on Free Transferability 7
7.3 Preemptive Right 9
7.4 Exceptions to Preemptive Right 10
ARTICLE VIII MANAGEMENT COMMITTEE 11
8.1 Organization and Composition 11
8.2 Decisions 11
8.3 Meetings 12
8.4 Action Without Meeting in Person 13
8.5 Matters Requiring Approval 13
ARTICLE IX MANAGER 13
9.1 Appointment 13
9.2 Powers and Duties of Manager 13
9.3 Standard of Care 16
9.4 Resignation; Deemed Offer to Resign 16
9.5 Payments To Manager 17
9.6 Transactions With Affiliates 17
9.7 Activities During Deadlock 17
9.8 Appointment After Two Years 18
ARTICLE X PROGRAMS AND BUDGETS 18
10.1 Initial Program and Budget 18
10.2 Operations Pursuant to Programs and Budgets 18
10.3 Presentation of Programs and Budgets 18
10.4 Review and Adoption of Proposed Programs and Budgets 19
10.5 Operations by Less Than All Members 19
10.6 Budget Overruns; Program Changes 20
10.7 Supplemental Business Arrangement 21
ARTICLE XI ACCOUNTS AND SETTLEMENTS 21
11.1 Monthly Statements 21
11.2 Cash Calls 21
11.3 Failure to Meet Cash Calls 21
11.4 Cover Payment 22
11.5 Remedies 22
11.6 Audits 23
ARTICLE XII PROPERTIES 24
12.1 Royalties, Production Taxes and Other Payments Based
on Production 24
12.2 Abandonment and Surrender 24
ARTICLE XIII CONFIDENTIALITY, OWNERSHIP, USE
AND DISCLOSURE OF INFORMATION 25
13.1 Business Information 25
13.2 Member Information 25
13.3 Permitted Disclosure of Confidential Business
Information 25
13.4 Disclosure Required By Law 26
13.5 Public Announcements 26
ARTICLE XIV RESIGNATION AND DISSOLUTION 27
14.1 Events of Dissolution 27
14.2 Resignation 27
14.3 Disposition of Assets on Dissolution 27
14.4 Filing of Articles of Dissolution 28
14.5 Right to Data After Dissolution 28
14.6 Continuing Authority 28
ARTICLE XV DISPUTES 28
15.1 Governing Law 28
15.2 Forum Selection 28
15.3 Arbitration 29
ARTICLE XVI GENERAL PROVISIONS 31
16.1 Notices 31
16.2 Gender 32
16.3 Currency 32
16.4 Headings 32
16.5 Waiver 32
16.6 Modification 32
16.7 Force Majeure 32
16.8 Rule Against Perpetuities 33
16.9 Further Assurances 33
16.10 Entire Agreement; Successors and Assigns 33
16.11 Counterparts 34
EXHIBITS
EXHIBIT A ASSETS AND AREA OF INTEREST
EXHIBIT B ACCOUNTING PROCEDURES
EXHIBIT C TAX MATTERS
EXHIBIT D DEFINITIONS
EXHIBIT E NET PROCEEDS CALCULATION
EXHIBIT F INSURANCE
SCHEDULE
Schedule of Members
OPERATING AGREEMENT
OF
▇▇▇▇▇▇▇ KLT Gas, LLC
An Oklahoma Limited Liability Company
This Limited Liability Company Operating Agreement is made
as of January 14, 2000 ("Effective Date") between ▇▇▇▇▇▇▇ Energy
Corp., a Michigan corporation ("▇▇▇▇▇▇▇"), the address of which
is ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ and KLT Gas
Inc., a Missouri corporation ("KLT Gas"), the address of which is
▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇.
RECITALS
▇. ▇▇▇▇▇▇▇ owns or controls certain properties in ▇▇▇▇▇▇▇,
Hughes, Latimer, LeFlore, McIntosh, Muskogee, Nowata, Okmulgee,
Osage, Pittsburg, ▇▇▇▇▇▇, and Washington Counties, Oklahoma, and
▇▇▇▇▇▇▇▇▇▇ County, Kansas, which properties are described in
Exhibit A and defined in Exhibit D.
B. KLT Gas wishes to participate with ▇▇▇▇▇▇▇ in the
exploration, development and production of oil and gas resources,
more specifically coalbed methane gas within the Properties and
the gathering of gas and the acquisition of producing and non-
producing oil and gas leases.
▇. ▇▇▇▇▇▇▇ and KLT Gas wish to form and operate a limited
liability company under the Oklahoma Limited Liability Company
Act, 18 O.S. 2000 et seq. (the "Act"), to own the Properties and
conduct the operations thereon contemplated by Recital B.
NOW THEREFORE, in consideration of the covenants and
conditions contained herein, ▇▇▇▇▇▇▇ and KLT Gas agree as
follows:
ARTICLE I
DEFINITIONS AND CROSS-REFERENCES
1.1 Definitions. The terms defined in Exhibit D and
elsewhere herein shall have the defined meaning wherever used in
this Agreement, including in Exhibits.
1.2 Cross References. References to "Exhibits," "Articles,"
"Sections" and "Subsections" refer to Exhibits, Articles,
Sections and Subsections of this Agreement. References to
"Paragraphs" and "Subparagraphs" refer to paragraphs and
subparagraphs of the referenced Exhibits.
ARTICLE II
NAME, PURPOSES AND TERM
2.1 Formation. The Company has been duly organized pursuant
to the Act and the provisions of this Agreement as an Oklahoma
limited liability company by the filing of its Articles of
Organization (as defined in the Act) in the Office of the
Secretary of the State of Oklahoma effective as of January 13,
2000.
2.2 Name. The name of the Company is "▇▇▇▇▇▇▇ KLT Gas, LLC"
and such other name or names complying with the Act, as the
Manager shall determine. The Manager shall accomplish any filings
or registrations required by jurisdictions in which the Company
conducts its Business.
2.3 Purposes. The Company is formed for the following
purposes and for no others, and shall serve as the exclusive
means by which each of the Members accomplishes such purposes:
(a) to conduct Exploration and Development for oil and
gas within the Area of Interest,
(b) to acquire, own and dispose of producing and non-
producing oil and gas leases within the Area of Interest and
related gas gathering systems,
(c) to drill ▇▇▇▇▇ for oil and gas, and to test, to
complete, and to recomplete such ▇▇▇▇▇,
(d) to produce oil and gas and engage in all related
Operations on the Properties,
(e) to engage in marketing Products,
(f) to operate the Gas Gathering Systems (set forth in
Exhibit A) owned by ▇▇▇▇▇▇▇ KLT Gas or its affiliates, to
construct gas gathering lines, to transport the Products to
market, and
(g) to perform any and all other activities necessary,
appropriate, or incidental to any of the foregoing.
2.4 Limitation. Unless the Members otherwise agree in
writing, the Business of the Company shall be limited to the
purposes described in Section 2.3, and nothing in this Agreement
shall be construed to enlarge such purposes.
2.5 Term. The term of the Company shall begin on the
Effective Date and shall continue for five (5) years from the
Effective Date and for so long thereafter as Products are
produced from the Properties on a continuous basis, and
thereafter until all materials, supplies, equipment and
infrastructure have been salvaged and disposed of, unless the
Company is earlier terminated as herein provided. For purposes
hereof, Products shall be deemed to be produced from the
Properties on a "continuous basis" so long as production in
commercial quantities is not halted for more than ninety (90)
consecutive days.
2.6 Registered Agent; Offices. The name of the Company's
registered agent in the State of Oklahoma is ▇▇▇▇▇▇▇ or such
other person as the Manager may select in compliance with the Act
from time to time. The registered office of the Company in the
State of Oklahoma shall be located at ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇,
▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ or at any other place within the State of
Oklahoma which the Manager shall select. The principal office of
the Company shall be at any other location which the Manager
shall select.
ARTICLE III
CONTRIBUTIONS BY MEMBERS
3.1 Members' Initial Contributions.
(a) ▇▇▇▇▇▇▇, as its Initial Contribution, hereby
contributes the Assets described in Exhibit A to the capital of
the Company; the amount of Eighteen Million Eight Hundred and
Fifty Thousand Dollars ($18,850,000) shall be credited to
Patrick's Capital Account on the Effective Date with respect to
Patrick's Initial Contribution.
(b) KLT Gas, as its Initial Contribution, hereby
contributes Sixteen Million Dollars ($16,000,000) to the capital
of the Company, which shall be deposited in an interest-bearing
account; this amount shall be credited to KLT Gas' Capital
Account. If such Initial Contribution is not made on January 14,
2000 this Agreement and the Members' Agreement shall be null and
void. If any Contract, described in Exhibit A, fails to close by
March 15, 2000, then KLT Gas will be refunded the portion of its
initial capital Contribution, with actual interest at Comerica
Bank, earmarked by the Company for that closing, and each
Member's Capital Account, this Agreement and the Exhibits hereto,
and the Members' Agreement shall be adjusted and/or amended
accordingly.
3.2 Record Title. Title to the Assets shall be held by
the Company.
ARTICLE IV
INTERESTS OF MEMBERS
4.1 Initial Ownership Interests. The Members shall have the
following initial Ownership Interests:
▇▇▇▇▇▇▇ - 50%
KLT Gas - 50%
4.2 Changes in Ownership Interests. The Ownership Interests
shall be eliminated or changed as follows:
(a) Upon resignation or deemed resignation as provided
in Article XIV;
(b) In the event of default by either Member in making
its agreed-upon contribution to an adopted Program and Budget,
followed by an election by the other Member to invoke any of the
remedies in Section 11.5;
(c) Upon Transfer by either Member of part or all of
its Ownership Interest in accordance with Article VII; or
(d) Upon acquisition by either Member of part or all
of the Ownership Interest of the other Member, however arising.
4.3 Admission of New Members. Except in the event of a
transfer permitted pursuant to Article VII, a new member may be
admitted only with the unanimous written approval of the Members.
4.4 Documentation of Adjustments to Ownership Interests.
Each Member's Ownership Interest and related Capital Account
balance shall be shown in the accounting records of the Company,
and any adjustments thereto, shall be made monthly. The Schedule
of Members attached hereto shall be amended from time to time to
reflect such changes.
4.5 Exceptions to Adjustments to Ownership Interests.
Notwithstanding the separate allocations provided for in Section
10.5 in the case of a Non-Consent Property, no adjustment to
Ownership Interests shall be made in the case of a Non-Consent
Property as provided for in Section 10.5 but the separate
allocations provided for in that Section shall be made for all
other purposes.
ARTICLE V
RELATIONSHIP OF THE MEMBERS
5.1 Limitation on Authority of Members. No Member is an
agent of the Company solely by virtue of being a Member, and no
Member has authority to act for the Company solely by virtue of
being a Member. This Section 5.1 supersedes any authority granted
to the Members pursuant to the Act. Any Member that takes any
action or binds the Company in violation of this Section 5.1
shall be solely responsible for any loss and expense incurred by
the Company as a result of the unauthorized action and shall
indemnify and hold the Company harmless with respect to the loss
or expense.
5.2 Federal Tax Elections and Allocations. The Company
shall be treated as a partnership for federal income tax
purposes, and no Member shall take any action to alter such
treatment.
5.3 State Income Tax. To the extent permissible under
applicable law, the relationship of the Members shall be treated
for state income tax purposes in the same manner as it is for
federal income tax purposes.
5.4 Tax Returns. After approval of the Management
Committee, any tax returns or other required tax forms shall be
filed in accordance with Exhibit C.
5.5 Other Business Opportunities. Each Member shall have
the right to engage in and receive full benefits from any
independent business activities or operations, whether or not
competitive with the Company, without consulting with, or
obligation to, the other Member or the Company. The doctrines of
"corporate opportunity" or "business opportunity" shall not be
applied to the Business nor to any other activity or operation of
any Member. No Member shall have any obligation to the Company or
any other Member with respect to any opportunity to acquire any
property outside the Area of Interest at any time, or within the
Area of Interest after the termination of the Company.
5.6 Waiver of Rights to Partition or Other Division of
Assets. Except as otherwise provided in Subsection 7.2(g)(iii),
the Members hereby waive and release all rights of partition, or
of sale in lieu thereof, or other division of Assets, including
any such rights provided by Law.
5.7 Bankruptcy of a Member. A Member shall cease to have
any power as a Member or Manager or any voting rights or rights
of approval hereunder upon bankruptcy, insolvency, dissolution or
assignment for the benefit of creditors of such Member, and its
successor upon the occurrence of any such event shall have only
the rights, powers and privileges of a transferee enumerated in
Section 7.2, and shall be liable for all obligations of the
Member under this Agreement. In no event, however, shall a
personal representative or successor become a substitute Member
unless the requirements of Section 7.2 are satisfied.
5.8 Implied Covenants. There are no implied covenants
contained in this Agreement other than those of good faith and
fair dealing.
5.9 No Certificate. The Company shall not issue
certificates representing Ownership Interests in the Company.
5.10 Disposition of Production. Neither Member shall
have any obligation to account to the other Member for, nor have
any interest or right of participation in any profits or proceeds
nor have any obligation to share in any losses from, futures
contracts, forward sales, trading in puts, calls, options or any
similar hedging, price protection or marketing mechanism employed
by a Member with respect to its proportionate share of any
Products produced or to be produced from the Properties.
Notwithstanding the foregoing, neither Member shall have the
right to take Production in-kind.
5.11 Limitation of Liability. The Members shall not be
required to make any contribution to the capital of the Company
except as otherwise provided in this Agreement, nor shall the
Members in their capacity as Members or Manager be bound by, or
liable for, any debt, liability or obligation of the Company
whether arising in contract, tort, or otherwise, except as
expressly provided by this Agreement. The Members shall be under
no obligation to restore a deficit Capital Account upon the
dissolution of the Company or the liquidation of any of their
Ownership Interests.
5.12 Indemnities. The Company may, and shall have the power
to, indemnify and hold harmless any Member or Manager or other
person from and against any and all claims and demands whatsoever
arising from or related to the Business, the Company or a
Member's membership in the Company.
5.13 No Third Party Beneficiary Rights. This Agreement shall
be construed to benefit the Members and their respective
successors and assigns only, and shall not be construed to create
third party beneficiary rights in any other party or in any
governmental organization or agency.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
As of the Effective Date, each Member warrants and
represents to the other that:
(a) it is a corporation duly organized and in good
standing in its state of incorporation and is qualified to do
business and is in good standing in those states where necessary
in order to carry out the purposes of this Agreement;
(b) it has the capacity to enter into and perform this
Agreement and all transactions contemplated herein and that all
corporate, board of directors, shareholder, and other actions and
consents required to authorize it to enter into and perform this
Agreement have been properly taken or obtained;
(c) it will not breach any other agreement or
arrangement by entering into or performing this Agreement;
(d) it is not subject to any governmental order,
judgment, decree, debarment, sanction or Laws that would preclude
the permitting or implementation of Operations under this
Agreement; and
(e) this Agreement has been duly executed and
delivered by it and is valid and binding upon it in accordance
with its terms.
ARTICLE VII
TRANSFER OF INTEREST; PREEMPTIVE RIGHT
7.1 General. A Member shall have the right to Transfer to a
third party its Ownership Interest, or any beneficial interest
therein, solely as provided in this Article VII.
7.2 Limitations on Free Transferability. A Member may
freely transfer its Ownership Interest, or any beneficial
interest therein to an Affiliate or a Related Party or by
Encumbrance to a lender to secure a loan or other indebtedness of
such Member. Any Transfer by either Member under Section 7.1
shall be subject to the following limitations:
(a) Except for an Encumbrance in favor of a lender as
provided for in Subsection 7.2(g)(iii), neither Member shall
Transfer any beneficial interest in the Company (including, but
not limited to, any royalty, profits, or other interest in the
Products) except in conjunction with the Transfer of part or all
of its Ownership Interest;
(b) No transferee of all or any part of a Member's
Ownership Interest shall have the rights of a Member unless and
until the transferring Member has provided to the other Member
notice of the Transfer, and, except as provided in
Subsections 7.2(f) and 7.2(g), the transferee, as of the
effective date of the Transfer, has committed in writing to
assume and be bound by this Agreement to the same extent as the
transferring Member and the remaining Member has consented to
such Transfer;
(c) Neither Member, without the consent of the other
Member, shall make a Transfer that shall violate any Law, or
result in the cancellation of any permits, licenses, or other
similar authorization;
(d) No Transfer permitted by this Article shall
relieve the transferring Member of any liability of such
transferring Member under this Agreement, whether accruing before
or after such Transfer unless the remaining Member has consented
to such Transfer or the transferee has a Net Worth and
creditworthiness at least equal to the greater of (i) the
transferring Member's Net Worth and creditworthiness on the
Effective Date of this Agreement or (ii) the transferring
Member's Net Worth and creditworthiness on the date of such
Transfer;
(e) Any Member that makes a Transfer that shall cause
termination of the tax partnership established by Section 5.2
shall indemnify the other Member for, from and against any and
all loss, cost, expense, damage, liability or claim therefore
arising from the Transfer, including without limitation any
increase in taxes, interest and penalties or decrease in credits
caused by such termination and any tax on indemnification
proceeds received by the indemnified Member and by acceleration
of the payment of taxes into earlier time periods;
(f) In the event of a Transfer of less than all of an
Ownership Interest, the transferring Member and its transferee
shall act and be treated as one Member under this Agreement;
provided however, that in order for such Transfer to be
effective, the transferring Member and its transferee must first:
(i) agree, as between themselves, that one of
them is authorized to act as the sole agent ("Agent") on their
behalf with respect to all matters pertaining to this Agreement
and the Company; and
(ii) notify the other Member of the designation of
the Agent, and in such notice warrant and represent to the other
Member that:
(A) the Agent has the sole authority to act
on behalf of, and to bind, the transferring Member and its
transferee with respect to all matters pertaining to this
Agreement and the Company;
(B) the other Member may rely on all
decisions of, notices and other communications from, and failures
to respond by, the Agent, as if given (or not given) by the
transferring Member and its transferee; and
(C) all decisions of, notices and other
communications from, and failures to respond by, the other Member
to the Agent shall be deemed to have been given (or not given) to
the transferring Member and its transferee.
The transferring Member and its transferee may change the Agent
(but such replacement must be one of them) by giving notice to
the other Member, which notice must conform to
Subsection 7.2(f)(ii); and
(g) If the Transfer is the grant of an Encumbrance on
an Ownership Interest or beneficial interest in the Property of
the Company to secure a loan or other indebtedness of either
Member in a bona fide transaction, at the request of the Member
granting the Encumbrance, the Manager shall execute
documentation on behalf of the Company granting a lien and
security interest in the Properties of the Company equal to the
beneficial Ownership Interest of the Member; provided, however,
that such documentation shall be non-recourse to the Company and
shall not encumber the beneficial interest or Ownership Interest
of the other Members. Any Encumbrance of a Member's Ownership
Interest in the Company shall be subject to the condition that
the holder of such Encumbrance ("Chargee") first enters into a
written agreement with the other Member in form satisfactory to
the other Member, acting reasonably, binding upon the Chargee, to
the effect that:
(i) the Chargee shall not enter into possession
or institute any proceedings for foreclosure or partition of the
encumbering Member's Ownership Interest and that such Encumbrance
shall be subject to the provisions of this Agreement;
(ii) the Chargee's remedies under the Encumbrance
of a Member's Ownership Interest in the Company shall be limited
to the sale of the whole (but only of the whole) of the
encumbering Member's Ownership Interest to the other Member, or,
failing such a sale, at a public auction to be held at least
twenty (20) days after prior notice to the other Member, such
sale to be subject to the purchaser entering into a written
agreement with the other Member whereby such purchaser assumes
all obligations of the encumbering Member under the terms of this
Agreement. Failure of a sale to the other Member to close within
sixty (60) days after Chargee notifies the Members of the sale of
a Member's Ownership Interest, unless such failure is caused by
the encumbering Member or by the Chargee, shall permit the
Chargee to sell the encumbering Member's Ownership Interest at a
public sale;
(iii) the Chargee's remedies under an
Encumbrance covering an undivided interest in the Properties of
the Company equal to the Ownership Interest of the encumbering
Member shall be limited to the sale of the whole of such interest
to the other Member, or, failing such a sale, in accordance with
the terms and provisions of the documentation creating a lien and
security interest against such Properties; provided, however,
that should an ownership interest in the properties be conveyed
to a third party pursuant to such a sale, the properties shall be
subject to the terms and provisions of a joint operating
agreement naming the Company as operator, containing non-consent
provisions the same as contained in Subsections 10.5(a) and (b)
hereof, providing the Manager with authority to cast the deciding
vote with respect to any proposal which is favored and opposed by
owners of 50% of the interest in the Property, and containing
accounting procedures in substantially the form of Exhibit B
attached hereto, as modified to reflect differing direct
ownership interests in the Property, but in all events to permit
the Company, as operator, to charge the joint account for any
costs and expenses which the Manager may charge the Business
Account under Exhibit B attached hereto;
(iv) any Encumbrance shall be subordinate to any
then-existing debt, including Project Financing previously
approved by the Management Committee, encumbering the
transferring Member's Ownership Interest; and
(v) notwithstanding the foregoing, KLT Gas
understands and agrees that ▇▇▇▇▇▇▇ will borrow Three Million
Dollars ($3,000,000) against its Ownership Interest for
reimbursing costs advanced to ▇▇▇▇▇▇▇ by a Related Party.
7.3 Preemptive Right. Any Transfer by either Member under
Section 7.1 and any Transfer by an Affiliate in Control of either
Member shall be subject to a preemptive right of the other Member
to the extent provided herein. Failure of a Member's Affiliate to
comply with this Section shall be a breach by such Member of this
Agreement.
If either Member intends to Transfer all or any part of its
Ownership Interest, or an Affiliate of either Member intends to
Transfer Control of such Member ("Transferring Entity"), such
Member shall promptly notify the other Member of such intentions.
The notice shall state the price and all other pertinent terms
and conditions of the intended Transfer, and shall be accompanied
by a copy of the offer or the contract for sale. If the
consideration for the intended transfer is, in whole or in part,
other than monetary, the notice shall describe such consideration
and its monetary equivalent (based upon the fair market value of
the nonmonetary consideration and stated in terms of cash or
currency). If the consideration for the intended transfer
includes other interests or properties other than the Ownership
Interest or the Transfer of Control of a Member, then the notice
shall separately allocate the consideration applicable to the
Ownership Interest and/or the Transfer of Control of a Member.
The other Member shall have ten (10) days from the date such
notice is delivered to notify the Transferring Entity (and the
Member if its Affiliate is the Transferring Entity) whether it
elects to acquire the offered interest at the same price (or its
monetary equivalent in cash or currency) and on the same terms
and conditions as set forth in the notice. If it does so elect,
the acquisition by the other Member shall be consummated promptly
after notice of such election is delivered.
(a) If the other Member fails to so elect within the
period provided for above, the Transferring Entity shall have
thirty (30) days following the expiration of such period to
consummate the Transfer to a third party at a price and on terms
no less favorable to the Transferring Entity than those offered
by the Transferring Entity to the other Member in the
aforementioned notice.
(b) If the Transferring Entity fails to consummate the
Transfer to a third party within the period set forth above, the
preemptive right of the other Member in such offered interest
shall be deemed to be revived. Any subsequent proposal to
Transfer such interest shall be conducted in accordance with all
of the procedures set forth in this Paragraph.
7.4 Exceptions to Preemptive Right. Section 7.3
above shall not apply to the following:
(a) Transfer by either Member of all or any part of
its Ownership Interest to an Affiliate or Related Party (a
"Permitted Transfer");
(b) Incorporation of either Member, or corporate
consolidation or reorganization of either Member by which the
surviving entity shall possess substantially all of the stock or
all of the property rights and interests, and be subject to
substantially all of the liabilities and obligations of that
Member;
(c) Corporate merger or amalgamation involving either
Member by which the surviving entity or amalgamated company shall
possess all of the stock or all of the property rights and
interests, and be subject to substantially all of the liabilities
and obligations of that Member; provided, however, that the value
of the merging or amalgamating Member's interest in the Company,
evidenced by its Capital Account balance (as described in Exhibit
C), does not exceed forty percent of the Net Worth of the
surviving entity or amalgamated company, provided however, during
the first two years of this Agreement Transfers can be made to a
holding company regardless of Net Worth;
(d) the transfer of Control of either Member by an
Affiliate or Related Party to such Member or to another Affiliate
or Related Party (a "Permitted Transfer");
(e) subject to Subsection 7.2(g) of the Agreement, the
grant by either Member of a security interest in its Ownership
Interest by Encumbrance;
(f) the creation by any Affiliate or Related Party of
either Member of an Encumbrance affecting its Control of such
Member (a "Permitted Transfer"); or
(g) a transfer by an Affiliate of either Member of
Control of such Member to a third party, provided the value of
such Member's Capital Account balance does not exceed sixty
percent (60%) of the Net Worth of the transferring Affiliate, or
does not exceed twenty percent (20%) of the Net Worth of
Transferee, provided however, during the first two years of this
Agreement Transfers can be made to a holding company regardless
of Net Worth;
For purposes hereof, the term "Net Worth" shall mean the
remainder after total liabilities are deducted from total assets,
based on Generally Accepted Accounting Principals consistently
applied. In the case of a corporation, Net Worth includes both
capital stock and surplus. In the case of a limited liability
company, Net Worth includes member contributions. In the case of
a partnership or sole proprietorship, Net Worth includes the
original investment plus accumulated and re-invested profits.
ARTICLE VIII
MANAGEMENT COMMITTEE
8.1 Organization and Composition. The Members hereby
establish a Management Committee to determine overall policies,
objectives, procedures, methods and actions under this Agreement.
The Management Committee shall consist of two (2) member(s)
appointed by ▇▇▇▇▇▇▇ and two (2) member(s) appointed by KLT Gas.
Each Member may appoint one or more alternates to act in the
absence of a regular member. Any alternate so acting shall be
deemed a Member. Appointments by a Member shall be made or
changed by notice to the other Members. ▇▇▇▇▇▇▇ shall designate
one of its Members to serve as the chair of the Management
Committee.
8.2 Decisions. Each Member, acting through its appointed
member(s) in attendance at the meeting, shall vote the entirety
of the Member's Ownership Interest. Unless otherwise provided in
this Agreement, the vote of the Member with an Ownership Interest
over fifty percent (50%) shall determine the decisions of the
Management Committee. In the event of a tie the final decision
shall rest with the member who is the Manager, as appointed under
Article IX.
Notwithstanding the foregoing, neither the Manager nor the
Management Committee shall undertake any of the following without
the approval of both ▇▇▇▇▇▇▇ and KLT Gas, or Members owning at
least eighty percent (80%) of the Ownership Interest should
▇▇▇▇▇▇▇ and KLT Gas and/or their respective Affiliates and
Related Parties no longer own 100% of the Ownership Interest in
the Company: (a) borrowing by the Company; (b) expanding or
changing the scope of activities geographically or to a concept
outside of coalbed methane gas; (c) a Program and Budget for the
drilling of shallow oil ▇▇▇▇▇; (d) approval of the Budget except
as provided in Article II of the Members' Agreement, including
overhead; and (e) issuance of capital calls, excluding however a
cash call of a prior approved Program and Budget.
8.3 Meetings.
(a) The Management Committee shall hold regular
meetings at least quarterly in Tulsa, Oklahoma, or at other
agreed places. The Manager shall give thirty (30) days notice to
the Members of such meetings. Additionally, either Member may
call a special meeting upon seven (7) days notice to the other
Member. In case of an emergency, reasonable notice of a special
meeting shall suffice (twenty-four hours shall be deemed
reasonable notice). There shall be a quorum if at least one
member of the Management Committee representing each Member is
present; provided, however, that if a Member fails to attend two
consecutive properly called meetings, then a quorum shall exist
at the second meeting if the other Member is represented by at
least one appointed member, and a vote of such Member shall be
considered the vote required for the purposes of the conduct of
all business properly noticed even if such vote would otherwise
require unanimity.
(b) If business cannot be conducted at a regular or
special meeting due to the lack of a quorum, either Member may
call the next meeting upon ten (10) days notice to the other
Member.
(c) Each notice of a meeting shall include an itemized
agenda prepared by the Manager in the case of a regular meeting
or by the Member calling the meeting in the case of a special
meeting, but any matters may be considered if either Member adds
the matter to the agenda at least three (3) days before the
meeting or with the consent of the other Member. The Manager
shall prepare minutes of all meetings and shall distribute copies
of such minutes to the other Member within fifteen (15) days
after the meeting. Either Member may electronically record the
proceedings of a meeting with the consent of the other Member.
The other Member shall sign and return or object to the minutes
prepared by the Manager within fifteen (15) days after receipt,
and failure to do either shall be deemed acceptance of the
minutes as prepared by the Manager. The minutes, when signed or
deemed accepted by both Members, shall be the official record of
the decisions made by the Management Committee. Decisions made at
a Management Committee meeting shall be implemented in accordance
with adopted Programs and Budgets. If a Member timely objects to
minutes proposed by the Manager, the members of the Management
Committee shall seek, for a period not to exceed thirty (30) days
from receipt by the Manager of notice of the objections, to agree
upon minutes acceptable to both Members. If the Management
Committee does not reach agreement on the minutes of the meeting
within such thirty (30) day period, the minutes of the meeting as
prepared by the Manager together with the other Member's proposed
changes shall collectively constitute the record of the meeting.
If personnel employed in Operations are required to attend a
Management Committee meeting, reasonable costs incurred in
connection with such attendance shall be charged to the Business
Account. All other costs shall be paid by the Members
individually.
8.4 Action Without Meeting in Person. In lieu of meetings
in person, the Management Committee may conduct meetings by
telephone or video conference, so long as minutes of such
meetings are prepared in accordance with Subsection 8.3(c). The
Management Committee may also take actions in writing signed by
all members of the Management Committee.
8.5 Matters Requiring Approval. Except as otherwise
delegated to the Manager in Sections 9.2, and 10.1 the Management
Committee shall have exclusive authority to determine all matters
related to overall policies, objectives, procedures, methods and
actions under this Agreement.
ARTICLE IX
MANAGER
9.1 Appointment. The Members hereby appoint ▇▇▇▇▇▇▇ as the
Manager with overall management responsibility for Operations.
▇▇▇▇▇▇▇ hereby agrees to serve for two years unless it sooner
resigns as provided in Section 9.4.
9.2 Powers and Duties of Manager. Subject to the terms and
provisions of this Agreement, the Manager shall have the
following powers and duties, which shall be discharged in
accordance with adopted Programs and Budgets.
(a) The Manager shall manage, direct and control
Operations, and shall prepare and present to the Management
Committee proposed Programs and Budgets as provided in Article X.
(b) The Manager shall implement the decisions of the
Management Committee, shall make all expenditures necessary to
carry out adopted Programs, and shall promptly advise the
Management Committee if it lacks sufficient funds to carry out
its responsibilities under this Agreement.
(c) The Manager shall use reasonable efforts to:
(i) purchase or otherwise acquire all material, supplies,
equipment, water, utility and transportation services required
for Operations, such purchases and acquisitions to be made to the
extent reasonably possible on the best terms available, taking
into account all of the circumstances; (ii) obtain such customary
warranties and guarantees as are available in connection with
such purchases and acquisitions; and (iii) keep the Assets free
and clear of all Encumbrances, except any such Encumbrances
listed in Paragraph 1.1 of Exhibit A and those existing at the
time of, or created concurrent with, the acquisition of such
Assets, or mechanic's or materialmen's liens (which shall be
contested, released or discharged in a diligent matter) or
Encumbrances specifically approved by the Management Committee.
(d) The Manager shall conduct such title examinations
of the Properties and cure such title defects pertaining to the
Properties as may be advisable in the reasonable judgment of the
Management Committee.
(e) The Manager shall: (i) make or arrange for all
payments required by leases, licenses, permits, contracts and
other agreements related to the Assets; (ii) pay all taxes,
assessments and like charges on Operations and Assets except
taxes determined or measured by a Member's net income, and shall
otherwise promptly pay and discharge expenses incurred in
Operations; provided, however, that if authorized by the
Management Committee, the Manager shall have the right to contest
(in the courts or otherwise) the validity or amount of any taxes,
assessments or charges if the Manager deems them to be unlawful,
unjust, unequal or excessive, or to undertake such other steps or
proceedings as the Manager may deem reasonably necessary to
secure a cancellation, reduction, readjustment or equalization
thereof before the Manager shall be required to pay them, but in
no event shall the Manager permit or allow title to the Assets to
be lost as the result of the nonpayment of any taxes, assessments
or like charges; and (iii) do all other acts reasonably necessary
to maintain the Assets.
(f) The Manager shall: (i) apply for all necessary
permits, licenses and approvals; (ii) comply with all Laws;
(iii) notify promptly the Management Committee of any allegations
of substantial violation thereof; and (iv) prepare and file all
reports or notices required for or as a result of Operations. The
Manager shall not be in breach of this provision if a violation
has occurred in spite of the Manager's good faith efforts to
comply consistent with its standard of care under Section 9.3. In
the event of any such violation, the Manager shall timely cure or
dispose of such violation on behalf of both Members through
performance, payment of fines and penalties, or both, and the
cost thereof shall be charged to the Business Account.
(g) The Manager shall prosecute and defend, but shall
not initiate without consent of the Management Committee, all
litigation or administrative proceedings arising out of
Operations. The non-managing Member shall have the right to
participate, at its own expense, in such litigation or
administrative proceedings. The non-managing Member shall approve
in advance any settlement involving payments, commitments or
obligations in excess of Twenty Thousand Dollars ($20,000) in
cash or value.
(h) The Manager shall obtain insurance for the benefit
of the Company as provided in Exhibit F or as may otherwise be
determined from time to time by the Management Committee.
(i) The Manager may dispose of Assets, whether by
sale, abandonment, surrender, or Transfer in the ordinary course
of business, except that Properties may be abandoned or
surrendered only as provided in Section 12.2. Without prior
authorization from the Management Committee, however, the Manager
shall not: (i) dispose of Assets in any one transaction (or in
any series of related transactions) having a value in excess of
One Hundred Thousand Dollars ($100,000); (ii) enter into any
sales contracts or commitments for Product; (iii) begin a
liquidation of the Company; or (iv) dispose of all or a
substantial part of the Assets necessary to achieve the purposes
of the Company.
(j) The Manager shall have the right to carry out its
responsibilities hereunder through agents, Affiliates or
independent contractors, provided such agents, Affiliates or
independent contractors have been approved by the Management
Committee.
(k) The Manager shall keep and maintain all required
accounting and financial records pursuant to the procedures
described in Exhibit B and in accordance with customary cost
accounting practices in the industry, and shall ensure
appropriate separation of accounts unless otherwise agreed by the
Members.
(l) The Manager shall keep and maintain all required
records, make elections, and prepare and file all federal and
state tax returns or other required tax forms, and perform the
other duties described in Exhibit C.
(m) The Manager shall keep the Management Committee
advised of all Operations by submitting in writing to the members
of the Management Committee: (i) monthly progress reports that
include statements of expenditures and comparisons of such
expenditures to the adopted Budget; (ii) periodic summaries of
data acquired; (iii) copies of reports concerning Operations;
(iv) a detailed final report within forty-five (45) days after
completion of each Program and Budget, which shall include
comparisons between actual and budgeted expenditures and
comparisons between the objectives and results of Programs; and
(v) such other reports as any member of the Management Committee
may reasonably request. Subject to Article XIII, at all
reasonable times the Manager shall provide the Management
Committee, or other representative of a Member upon the request
of such Member's member of the Management Committee, access to,
and the right to inspect and, at such Member's cost and expense,
copy the Existing Data and all geological and geophysical data,
maps, drill logs and other drilling data, reports, production
reports, operations, technical, accounting and financial records,
and other Business Information, to the extent preserved or kept
by the Manager. In addition, the Manager shall allow the
non-managing Member, at the latter's sole risk, cost and expense,
and subject to reasonable safety regulations, to inspect the
Assets and Operations at all reasonable times, so long as the non-
managing Member does not unreasonably interfere with Operations.
(n) The Manager, after consultation with and
approval by the Management Committee, shall undertake to perform
Continuing Obligations when and as economic and appropriate,
whether before or after termination of the Company. The Manager
shall have the right to delegate performance of Continuing
Obligations to persons having demonstrated skill and experience
in relevant disciplines. The Manager shall keep the other Member
reasonably informed about the Manager's efforts to discharge
Continuing Obligations. Authorized representatives of each
Member shall have the right from time to time to enter the
Properties to inspect work directed toward satisfaction of
Continuing Obligations and audit books, records, and accounts
related thereto.
(o) If Ownership Interests are adjusted in accordance
with this Agreement the Manager shall modify the Schedule of
Members to properly reflect such adjustment and shall propose
from time to time one or more methods for fairly allocating costs
for Continuing Obligations.
(p) The Manager shall undertake all other activities
reasonably necessary to fulfill the foregoing, and to implement
the policies, objectives, procedures, methods and actions
determined by the Management Committee pursuant to Section 8.1.
9.3 Standard of Care. The Manager shall discharge its
duties under Section 9.2 and conduct all Operations in a good,
workmanlike and efficient manner, in accordance with sound
production and other applicable industry standards and practices,
and in accordance with Laws and with the terms and provisions of
leases, licenses, permits, contracts and other agreements
pertaining to the Assets. The Manager shall not be liable to the
other Member for any act or omission resulting in damage or loss
except to the extent caused by or attributable to the Manager's
willful misconduct or gross negligence. The Manager shall not be
in default of any of its duties under Section 9.2 if its
inability or failure to perform results from the failure of the
other Member to perform acts or to contribute amounts required of
it by this Agreement.
9.4 Resignation; Deemed Offer to Resign. The Manager may
resign upon not less than three (3) months' prior notice to the
other Member, in which case the other Member may elect to become
the new Manager by notice to the resigning Member within five (5)
days after the notice of resignation. If any of the following
shall occur, the Manager shall be deemed to have resigned upon
the occurrence of the event described in each of the following
Subsections, with the successor Manager to be appointed by the
other Member at a subsequently called meeting of the Management
Committee, at which the Manager shall not be entitled to vote.
The other Member may appoint itself or a third party as the
Manager.
(a) The aggregate Ownership Interest of the Manager
and its Affiliates or Related Parties becomes less than twenty-
five percent (25%);
(b) The Manager fails to perform a material obligation
imposed upon it under this Agreement and such failure continues
for a period of sixty (60) days after notice from the other
Member demanding performance;
(c) The Manager fails to pay or contest in good faith
Company bills and Company debts as such obligations become due
and the Manager fails to keep the Assets free from liens or
Encumbrances resulting therefrom except for those resulting from
a bona fide dispute as to such obligations;
(d) A receiver, liquidator, assignee, custodian,
trustee, sequestrator or similar official for a substantial part
of its assets is appointed and such appointment is neither made
ineffective nor discharged within sixty (60) days after the
making thereof, or such appointment is consented to, requested
by, or acquiesced to by the Manager;
(e) The Manager commences a voluntary case under any
applicable bankruptcy, insolvency or similar law now or hereafter
in effect; or consents to the entry of an order for relief in an
involuntary case under any such law or to the appointment of or
taking possession by a receiver, liquidator, assignee, custodian,
trustee, sequestrator or other similar official of any
substantial part of its assets; or makes a general assignment for
the benefit of creditors; or takes corporate or other action in
furtherance of any of the foregoing; or
(f) Entry is made against the Manager of a judgment,
decree or order for relief affecting its ability to serve as
Manager or a substantial part of its Ownership Interest or its
other assets by a court of competent jurisdiction in an
involuntary case commenced under any applicable bankruptcy,
insolvency or other similar law of any jurisdiction now or
hereafter in effect.
Under Subsections (d), (e) or (f) above, the appointment of a
successor Manager shall be deemed to pre-date the event causing a
deemed resignation.
9.5 Payments To Manager. The Manager shall be compensated
for its services and reimbursed for its costs hereunder in
accordance with Exhibit B.
9.6 Transactions With Affiliates. If the Manager engages
Affiliates to provide services hereunder, it shall do so on terms
no less favorable than would be the case in arm's-length
transactions with unrelated parties.
9.7 Activities During Deadlock. If the Management Committee
for any reason fails to adopt Programs and Budgets subsequent to
the initial Production Program and Budget, subject to the
contrary direction of the Management Committee and receipt of
necessary funds, the Manager shall continue Operations at levels
comparable with the last adopted Program and Budget. All of the
foregoing shall be subject to the contrary direction of the
Management Committee and the receipt of necessary funds.
9.8 Appointment After Two Years. After ▇▇▇▇▇▇▇ has acted
as Manager for the initial two years the other Member shall have
the right, but not the obligation, to be designated as Manager
for the following year upon presentation, sixty days prior to
year end of a proposal demonstrating it can perform more
economically efficient and prudent Operations. Each year
thereafter the non-managing Member has the same right.
ARTICLE X
PROGRAMS AND BUDGETS
10.1 Initial Program and Budget. The Initial Program and
Budget for the first year shall be determined by ▇▇▇▇▇▇▇ and
reviewed by KLT Gas and prepared at least, in part, by February
10, 2000. ▇▇▇▇▇▇▇ and KLT Gas agree that the Initial Program and
Budget and the Second Program and Budget shall provide for the
drilling of not more than 220 ▇▇▇▇▇ and expenditures of not more
than Ten Million total Dollars, of which ▇▇▇▇▇▇▇ agrees to commit
up to Two Million One Hundred and Fifty Thousand Dollars, and the
LLC shall pay up to Two Million Eight Hundred and Fifty Thousand
Dollars, attributable to ▇▇▇▇▇▇▇ because of its disproportionate
initial Contribution, and KLT Gas agrees to commit up to Five
Million Dollars, as provided in the Programs and Budgets
presented.
10.2 Operations Pursuant to Programs and Budgets. Operations
shall be conducted, expenses shall be incurred, and Assets shall
be acquired only pursuant to adopted Programs and Budgets.
10.3 Presentation of Programs and Budgets. Except as
provided in Section 10.1 proposed Programs and Budgets shall be
prepared by the Manager at the direction of the Management
Committee for a period of one (1) year (or any other period as
approved by the Management Committee), and shall be submitted to
the Management Committee for review and consideration; all
proposed Programs and Budgets may include Development, Production
and Expansion or Modification Operations components, or any
combination thereof, and shall be reviewed and adopted upon a
vote of the Management Committee in accordance with Sections 8.2
and 10.4. Each Program and Budget adopted by the Management
Committee, regardless of length and including the Initial and
Second Programs and Budgets, shall undergo a technical review
after six (6) months at a meeting of the Management Committee.
Each Member, acting through its appointed Management Committee
member(s) in attendance at the meeting, may demonstrate that
going forward with the current Program and Budget is not
technically feasible for that Member. If a Member demonstrates
that going forward with such Program and Budget is not
technically feasible (the "Withdrawn Member"), then the Withdrawn
Member will be deemed to have withdrawn from the Program and
Budget, and shall, only be entitled to receive a percent
(calculated by dividing (x) the Withdrawn Members contributions
to the Program and Budget by (y) the sum of (1) the Withdrawn
Member's contributions to the Program and Budget and (2) the
remaining Member's contributions to the Program and Budget prior
to the Event of Withdrawal) of the interest in the ▇▇▇▇▇
completed at the point of withdrawal and associated production
and the associated acreage from such Program and Budget. In no
event shall the Withdrawn Member be entitled to any interest in
▇▇▇▇▇ and production therefrom completed after the withdrawal of
the member or such related acreage in the Program. Such
Withdrawn Member shall no longer be obligated to contribute cash
calls to the Program and Budget. Unless a Member so demonstrates
that going forward with the Program and Budget is not technically
feasible, then the Program and Budget shall continue with any
modifications made by the Management Committee, if any. During
the period encompassed by any Program and Budget, and at least
three (3) months prior to its expiration, a proposed Program and
Budget for the succeeding period shall be prepared by the Manager
and submitted to the Management Committee for review and
consideration, if the Manager deems it appropriate.
10.4 Review and Adoption of Proposed Programs and Budgets.
Within ten (10) days after notice to the Members of the
submission of a proposed Program and Budget, each Member shall
submit in writing to the Management Committee:
(a) Notice that the Member approves the proposed
Program and Budget; or
(b) Notice that the Member rejects the proposed
Program and Budget.
If a Member fails to give either of the foregoing responses
within the allotted time, the failure shall be deemed to be a
vote by the Member for adoption of the Manager's proposed Program
and Budget.
10.5 Operations by Less Than All Members.
This Section 10.5 and Section 10.4 do not apply to either
the Initial Program and Budget or the Second Program and Budget
contained in Section 10.1 both of which shall be prepared by
▇▇▇▇▇▇▇ and reviewed by KLT Gas.
(a) Determination of Participation. If any Member to
whom such notice is delivered as provided in Section 10.4 elects
not to participate in the proposed Program and Budget (the "Non-
Consenting Member"), then, the Member electing to Participate in
the Program and Budget (the "Participating Member") in order to
be entitled to the benefits of this Agreement, shall, no later
than ninety (90) days after the expiration of the notice period
of ten (10) days actually commence the proposed operation and
complete it with due diligence. The Manager shall perform all
work for the account of the Participating Member; provided,
however, if the Manager is a Non-Consenting Member, the
Participating Member shall either: (i) request the Manager to
perform the work required by such proposed operation for the
account of the Participating Member, or (ii) designate the
Participating Member as Operator to perform such work. The
rights and duties granted to and imposed upon the Operator under
this Agreement are granted to and imposed upon the party
designated as Operator for an operation in which the original
Manager is a Non-Consenting Member. The Participating Member,
when conducting operations in the Area of Interest pursuant to
this Section 10.5, shall comply with all terms and conditions of
this Agreement.
If a Member does not approve a Program and Budget the
Participating Member, may pay its proportionate part together
with the proportionate part of the Non-Consenting Member's
interests, and the party serving as Manager or Operator shall
commence such operation within ninety days (90), as set forth
above. The Participating Member, at its election, may withdraw
such proposal at its option and shall notify all Members of such
decision within ten (10) days.
(b) Relinquishment of Interest for Non-Participation.
The entire cost and risk of conducting such operations shall be
borne by the Participating Member (or a "Third Party" selected by
the Participating Member). The Participating Member shall keep
the leasehold estates involved in such operations free and clear
of all liens and Encumbrances of every kind created by or arising
from the operations of the Participating Member. If such an
operation results in a dry hole, then the Participating Member
shall plug and abandon the well and restore the surface location
at their sole cost, risk and expense. If any well drilled,
reworked, sidetracked, deepened, recompleted or plugged back
under the provisions of this Section (the "Non-Consent Property")
results in a well capable of producing Product in paying
quantities, the Participating Member shall complete and equip the
well to produce at its sole cost and risk, and the well shall
then be turned over to the Manager (if the Manager did not
conduct the operation) and shall be operated by it at the expense
and solely for the account of the Participating Member and such
Third Party, if any. Upon commencement of operations for the
drilling, reworking, sidetracking, recompleting, deepening or
plugging back of any such well by the Participating Member in
accordance with the provisions of this Section 10.5, the Manager
shall separately account for the costs, liabilities, revenues and
benefits attributable to the Non-Consent Property and shall
allocate them to the Participating Member only and,
notwithstanding the provisions of Exhibit C, tax characteristics
of such items shall be allocated solely to the Participating
Member. The Non-Consenting Member shall have no liability for
any assessment or billing issued by the Manager for the purpose
of paying any expense or liability associated with the Non-
Consent Property.
10.6 Budget Overruns; Program Changes. The Manager shall
immediately notify the Management Committee of any material
departure from an adopted Program and Budget. If the Manager
exceeds an adopted Budget by more than ten percent (10%) in the
aggregate, then the excess over ten percent (10%), unless
authorized or ratified by the Management Committee, shall be for
the sole account of the Manager and such excess shall not be
included in the calculations of the Ownership Interests nor
deemed a contribution under this Agreement. Budget overruns of
ten percent (10%) or less in the aggregate shall be borne by the
Members in proportion to their respective Ownership Interests.
10.7 Supplemental Business Arrangement. At any time during
the term of this Agreement, the Management Committee may
determine by unanimous vote of both Members that it is
appropriate to segregate the Area of Interest into areas subject
to separate Programs and Budgets for purposes of conducting
further Exploration, Development or Production. At such time, the
Management Committee shall designate which portion of the
Properties will comprise an area of interest under a separate
business arrangement ("Supplemental Business Arrangement") for
the purpose of further exploring and developing such portion of
the Properties. The Supplemental Business Arrangement shall
substantially reflect the same terms as this Agreement, with
rights and interests of the Members in the Supplemental Business
Arrangement identical to the rights and interests of the Members
in the Company at the time of the designation, unless otherwise
agreed to by the Members, and with the Members agreeing to new
Capital Accounts and other terms necessary for the Supplemental
Business Arrangement to comply with the nature and purpose of the
designation. Following the effectuation of the Supplemental
Business Arrangement, this Agreement shall terminate insofar as
it affects the Properties covered by the Supplemental Business
Arrangement.
ARTICLE XI
ACCOUNTS AND SETTLEMENTS
11.1 Monthly Statements. The Manager shall promptly submit
to the Management Committee monthly statements of account
reflecting in reasonable detail the charges and credits to the
Business Account during the preceding month.
11.2 Cash Calls. Pursuant to, and only in accordance with,
each adopted Program and Budget, the Manager may submit after the
20th, but not later than the last day of each month a billing for
estimated cash requirements for the next two months, but
observing, in the preparation of any such billing, any special
allocation required by Section 10.5. Within ten (10) days after
receipt of each billing, each Member shall advance its
proportionate share of such cash requirements. The Manager shall
record all funds received in the Business Account. The Manager
shall at all times maintain a cash balance approximately equal to
the rate of disbursement for up to sixty (60) days. All funds in
excess of immediate cash requirements shall be invested by the
Manager for the benefit of the Company in interest-bearing cash
management accounts and investments selected at the discretion of
the Management Committee, which accounts may include, but are not
limited to, money market investments and money market funds.
11.3 Failure to Meet Cash Calls. A Member that fails to meet
cash calls in the amount and at the times specified in Section
11.2 shall be in default, and the amounts of the defaulted cash
call shall bear interest from the date due at an annual rate
equal to four (4) percentage points over the Prime Rate, but in
no event shall the rate of interest exceed the maximum permitted
by Law. In addition to any other rights and remedies available to
it by Law, the non-defaulting Member shall have those other
rights, remedies, and elections specified in Sections 11.4 and
11.5.
11.4 Cover Payment. If a Member defaults in making a
contribution or a cash call required by an adopted Program and
Budget, the non-defaulting Member may, but shall not be obligated
to, advance some portion or all of the amount in default on
behalf of the defaulting Member (a "Cover Payment"). Each and
every Cover Payment shall constitute a demand loan bearing
interest from the date of the advance at the rate provided in
Section 11.3. If more than one Cover Payment is made, the Cover
Payments shall be aggregated and the rights and remedies
described herein pertaining to an individual Cover Payment shall
apply to the aggregated Cover Payments. The failure to repay such
loan upon demand shall be a default.
11.5 Remedies. The Members acknowledge that if either Member
defaults in making a cash call, or in repaying a loan, as
required under Sections 11.2, 11.3 or 11.4, whether or not a
Cover Payment is made, it will be difficult to measure the
damages resulting from such default (it being hereby understood
and agreed that the Members have attempted to determine such
damages in advance and determined that the calculation of such
damages cannot be ascertained with reasonable certainty). Both
Members acknowledge and recognize that the damage to the non-
defaulting Member could be significant. In the event of such
default, as reasonable liquidated damages, the non-defaulting
Member may, with respect to any such default not cured within
thirty (30) days after notice to the defaulting Member of such
default, elect any of the following remedies by giving notice to
the defaulting Member. Such election may be made with respect to
each failure to meet a cash call relating to a Program and
Budget, regardless of the frequency of such cash calls, provided
such cash calls are made in accordance with Section 11.2.
(a) The defaulting Member grants to the non-defaulting
Member a power of sale as to all or any portion of its Ownership
Interest or of its interest in any Assets, upon a default under
Sections 11.3 or 11.4. Such power shall be exercised in the
manner provided by applicable Law or otherwise in a commercially
reasonable manner and upon reasonable notice. If the non-
defaulting Member elects to enforce the lien or security interest
pursuant to the terms of this Subsection, the defaulting Member
shall be deemed to have waived any available right of redemption,
any required valuation or appraisal of the secured property prior
to sale, any available right to stay execution or to require a
marshaling of assets, and any required bond in the event a
receiver is appointed, and the defaulting Member shall be liable
for any deficiency.
(b) If a Member has defaulted in meeting a cash call
or repaying a loan, and if the non-defaulting Member has made a
Cover Payment, then, the non-defaulting Member shall have the
right, if the indebtedness arising from a default or Cover
Payment is not discharged within thirty (30) days of the default
and upon not less than thirty (30) days advance notice to the
defaulting Member, to elect to purchase all the right, title, and
interest, whenever acquired or arising, of the defaulting Member
in the Company and Assets, including but not limited to its
Ownership Interest or interest in Net Proceeds, together with all
proceeds from and accessions of the foregoing (collectively the
"Defaulting Member's Entire Interest") at a purchase price equal
to fifty percent (50%) of the fair market value thereof as
determined by a qualified independent appraiser appointed by the
non-defaulting Member. If the defaulting Member conveys notice of
objection to the person so appointed within ten (10) days after
receiving notice thereof, then an independent and qualified
appraiser shall be appointed by the joint action of the appraiser
appointed by the non-defaulting Member and a qualified
independent appraiser appointed by the defaulting Member;
provided, however, that if the defaulting Member fails to
designate a qualified independent appraiser for such purpose
within ten (10) days after giving notice of such objection, then
the person originally designated by the non-defaulting Member
shall serve as the appraiser; provided further, that if the
appraisers appointed by each of the Members fail to appoint a
third qualified independent appraiser within five (5) days after
the appointment of the last of them, then an appraiser shall be
appointed by a judge of a court of competent jurisdiction in the
state in which the Assets are situated upon the application of
either Member. There shall be withheld from the purchase price
payable, upon transfer of the Defaulting Member's Entire
Interest, the amount of any Cover Payment under Section 11.4 and
unpaid interest thereon to the date of such transfer, or any
unpaid interest accrued in accordance with Section 11.3 to the
date of such transfer. Upon payment of such purchase price, the
defaulting Member shall be deemed to have relinquished all of the
Defaulting Member's Entire Interest to the non-defaulting Member.
11.6 Audits.
(a) Within ninety (90) days after the end of each
calendar year a financial audit shall be completed by certified
public accountants selected by the Management Committee, and
independent of each Member. The audit shall be conducted in
accordance with generally accepted auditing standards and shall
cover all books and records maintained by the Manager pursuant to
this Agreement, all Assets and Encumbrances, and all transactions
and Operations conducted during such calendar year, including
production and inventory records and all costs for which the
Manager sought reimbursement under this Agreement, together with
all other matters customarily included in such audits. All
written exceptions to and claims upon the Manager for
discrepancies disclosed by such audit shall be made not more than
three (3) months after receipt of the audit report, unless either
Member elects to conduct an independent audit pursuant to
Subsection 11.6(b) which is ongoing at the end of such three (3)
month period, in which case such exceptions and claims may be
made within the period provided in Subsection 11.6(b). Failure to
make any such exception or claim within such period shall mean
the audit is deemed to be correct and binding upon the Members.
The cost of all audits under this Subsection shall be charged to
the Business Account.
(b) Notwithstanding the annual audit conducted by
certified public accountants selected by the Management
Committee, each Member shall have the right to have an
independent audit of all Company books, records and accounts,
including all charges to the Business Account. This audit shall
review all issues raised by the requesting Member, with all costs
borne by the requesting Member. The requesting Member shall give
the other Member thirty (30) days prior notice of such audit. Any
audit conducted on behalf of either Member shall be made during
the Manager's normal business hours and shall not interfere with
Operations. Neither Member shall have the right to audit records
and accounts of the Company relating to transactions or
Operations more than twenty-four (24) months after the calendar
year during which such transactions, or transactions related to
such Operations, were charged to the Business Account. All
written exceptions to and claims upon the Manager for
discrepancies disclosed by such audit shall be made not more than
three (3) months after completion and delivery of such audit, or
they shall be deemed waived.
(c) Within sixty (60) days after the end of calendar
year 2000 and every two calendar years thereafter, a ▇▇▇▇▇ audit
shall be completed by ▇▇▇▇▇ accountants selected by the
Management Committee, and independent of each member. The audit
shall be conducted using ▇▇▇▇▇ accounting procedures and shall
cover all Operations conducted during the two calendar years
ending prior to the completion of the ▇▇▇▇▇ audit, including
revenues and costs, together with all other matters customarily
included in such audits. The audit report shall be delivered to
the Management Committee. All written exceptions to and claims
upon the Manager for audit exceptions disclosed by such audit
shall be made not more than three (3) months after receipt of the
audit report. Failure to make any such exception or claim with
in such period shall mean the audit is deemed to be correct and
binding upon the Members.
ARTICLE XII
PROPERTIES
12.1 Royalties, Production Taxes and Other Payments Based on
Production. All required payments of production royalties, taxes
based on production of Products, and other payments out of
production to private parties and governmental entities, shall be
determined and made by the Company in a timely manner and
otherwise in accordance with applicable laws and agreements. The
Manager shall furnish to the Members evidence of timely payment
for all such required payments. In the event the Company fails to
make any such required payment, any Member shall have the right
to make such payment and shall thereby become subrogated to the
rights of such third party; provided, however, that the making of
any such payment on behalf of the Company shall not constitute
acceptance by the paying Member of any liability to such third
party for the underlying obligation.
12.2 Abandonment and Surrender. Either Member may request
the Management Committee to authorize the Manager to surrender or
abandon part or all of the Properties. At the option of the other
Member, the Company shall assign to the objecting Member or such
other Person as the objecting Member specifies, by special
warranty deed and without cost to the objecting Member, all of
the Company's interest in the Properties sought to be abandoned
or surrendered, free and clear of all Encumbrances created by,
through or under the Company other than those to which both
Members have agreed. Upon the assignment, such properties shall
cease to be part of the Properties.
ARTICLE XIII
CONFIDENTIALITY, OWNERSHIP, USE
AND DISCLOSURE OF INFORMATION
13.1 Business Information. All Business Information shall be
owned jointly by the Members as their Ownership Interests are
determined pursuant to this Agreement. Both before and after the
termination of the Company, all Business Information may be used
by either Member for any purpose, whether or not competitive with
the Business, without consulting with, or obligation to, the
other Member. Except as provided in Sections 13.3 and 13.4, or
with the prior written consent of the other Member, each Member
shall keep confidential and not disclose to any third party or
the public any portion of the Business Information that
constitutes Confidential Information.
13.2 Member Information. In performing its obligations under
this Agreement, neither Member shall be obligated to disclose any
Member Information. If a Member elects to disclose Member
Information in performing its obligations under this Agreement,
such Member Information, together with all improvements,
enhancements, refinements and incremental additions to such
Member Information that are developed, conceived, originated or
obtained by either Member in performing its obligation under this
Agreement ("Enhancements"), shall be owned exclusively by the
Member that originally developed, conceived, originated or
obtained such Member Information. Each Member may use and enjoy
the benefits of such Member Information and Enhancements in the
conduct of the Business hereunder, but the Member that did not
originally develop, conceive, originate or obtain such Member
Information may not use such Member Information and Enhancements
for any other purpose. Except as provided in Section 13.4, or
with the prior written consent of the other Member, which consent
may be withheld in such Member's sole discretion, each Member
shall keep confidential and not disclose to any third party or
the public any portion of Member Information and Enhancements
owned by the other Member that constitutes Confidential
Information.
13.3 Permitted Disclosure of Confidential Business
Information. Either Member may disclose Business Information that
is Confidential Information: (a) to a Member's officers,
directors, partners, members, employees, Affiliates,
shareholders, agents, attorneys, accountants, consultants,
contractors, subcontractors or advisors, for the sole purpose of
such Member's performance of its obligations under this
Agreement; (b) to any party to whom the disclosing Member
contemplates a Transfer of all or any part of its Ownership
Interest, for the sole purpose of evaluating the proposed
Transfer; (c) to any actual or potential lender, underwriter or
investor for the sole purpose of evaluating whether to make a
loan to or investment in the disclosing Member; or (d) to a third
party with whom the disclosing Member contemplates any
independent business activity or operation.
The Member disclosing Confidential Information pursuant to
this Section 13.3, shall disclose such Confidential Information
to only those parties that have a bona fide need to have access
to such Confidential Information for the purpose for which
disclosure to such parties is permitted under this Section 13.3
and that have agreed in writing supplied to, and enforceable by,
the other Member to protect the Confidential Information from
further disclosure, to use such Confidential Information solely
for such purpose and to otherwise be bound by the provisions of
this Article XIII. Such writing shall not preclude parties
described in Subsection 13.3(b) from discussing and completing a
Transfer with the other Member. The Member disclosing
Confidential Information shall be responsible and liable for any
use or disclosure of the Confidential Information by such parties
in violation of this Agreement and such other writing.
13.4 Disclosure Required By Law. Notwithstanding anything
contained in this Article, a Member may disclose any Confidential
Information if, in the opinion of the disclosing Member's legal
counsel: (a) such disclosure is legally required to be made in a
judicial, administrative or governmental proceeding pursuant to a
valid subpoena or other applicable order; or (b) such disclosure
is legally required to be made pursuant to the rules or
regulations of a stock exchange or similar trading market
applicable to the disclosing Member.
Prior to any disclosure of Confidential Information under
this Section 13.4, the disclosing Member shall give the other
Member at least ten (10) days prior written notice (unless less
time is permitted by such rules, regulations or proceeding) and,
in making such disclosure, the disclosing Member shall disclose
only that portion of Confidential Information required to be
disclosed and shall take all reasonable efforts to preserve the
confidentiality thereof, including, without limitation, obtaining
protective orders and supporting the other Member in intervention
in any such proceeding.
13.5 Public Announcements. Prior to making or issuing any
press release or other public announcement or disclosure of
Business Information that is not Confidential Information, a
Member shall first consult with the other Member as to the
content and timing of such announcement or disclosure, unless in
the good faith judgment of such Member, there is not sufficient
time to consult with the other Member before such announcement or
disclosure must be made under applicable Laws; but in such event,
the disclosing Member shall notify the other Member, as soon as
possible, of the pendency of such announcement or disclosure, and
it shall notify the other Member before such announcement or
disclosure is made if at all reasonably possible. Any press
release or other public announcement or disclosure to be issued
by either Member relating to this Business shall also identify
the other Member unless advised to the contrary.
ARTICLE XIV
RESIGNATION AND DISSOLUTION
14.1 Events of Dissolution. The Company shall be dissolved
upon the occurrence of any of the following:
(a) Upon expiration of term of this Agreement in
accordance with Section 2.5;
(b) Upon the unanimous written agreement of the
Members;
(c) Subsequent to five years from the date hereof, at
the election of either Member upon One Hundred Eighty (180) days
notice of termination to the other Member, if the Management
Committee fails to adopt a Program and Budget for six (6) months
after the expiration of the latest adopted Program and Budget;
(d) Upon the resignation of a Member pursuant to
Section 14.2 or upon the bankruptcy, insolvency, dissolution or
assignment for the benefit of creditors of a Member; or
(e) as otherwise provided by the Act.
14.2 Resignation. A Member may elect to resign from the
Company by giving sixty (60) days prior notice to the other
Member of the effective date of resignation, which shall be the
end of the then current Program, but such resignation shall not
relieve the resigning Member of any liabilities incurred or
committed to by the resigning Member. Upon resignation by a
Member, the resigning Member shall be deemed to have transferred
to the remaining Member all of its Ownership Interest, including
all of its interest in the Assets and its Capital Account,
without cost and free and clear of all Encumbrances arising by,
through or under such resigning Member, except those described in
Paragraph 1.1 of Exhibit A and those to which both Members have
agreed. The resigning Member shall execute and deliver all
instruments as may be necessary in the reasonable judgment of the
other Member to effect the transfer of its interests in the
Company and the Assets to the other Member. A resigning Member
shall have no right to receive the fair value of his Ownership
Interest pursuant to the Act. If within a sixty (60) day period
both Members elect to withdraw, then the Company shall instead be
deemed to have been terminated by the written agreement of the
Members pursuant to Section 14.1(b).
14.3 Disposition of Assets on Dissolution. Promptly after
dissolution under Section 14.1, the Manager shall take all action
necessary to wind up the activities of the Company, in accordance
with Exhibit C. All costs and expenses incurred in connection
with the dissolution of the Company shall be expenses chargeable
to the Business Account. Provided however, and not withstanding
the provisions of Exhibit C, the Manager shall allocate, insofar
as possible, all Non-Consent Property to the related
Participating Member or Members.
14.4 Filing of Articles of Dissolution. Upon completion of
the winding up of the affairs of the Company, the Manager shall
promptly file Articles of Dissolution with the Office of the
Secretary of State of the State of Oklahoma. If the Manager has
caused the dissolution of the Company, whether voluntarily or
involuntarily, then a person selected by a majority vote of the
Members to wind up the affairs of the Company shall file the
Articles of Dissolution.
14.5 Right to Data After Dissolution. After dissolution of
the Company pursuant to Subsections 14.1(a), (b), (c) or (e),
each Member shall be entitled to make copies of all applicable
information acquired hereunder before the effective date of
termination not previously furnished to it, but a bankrupt or
resigning Member causing a dissolution of the Company pursuant to
Subsection 14.1(d) shall not be entitled to any such copies.
14.6 Continuing Authority. On dissolution of the Company
under Section 14.1, or the deemed resignation of either Member
pursuant to Section 11.5, the Member that was the Manager prior
to such dissolution (or the other Member in the event of a
resignation by the Manager) shall have the power and authority to
do all things on behalf of both Members that are reasonably
necessary or convenient to: (a) wind up Operations and
(b) complete any transaction and satisfy any obligation,
unfinished or unsatisfied, at the time of such termination or
resignation, if the transaction or obligation arises out of
Operations prior to such termination or resignation. The Manager
shall have the power and authority to grant or receive extensions
of time or change the method of payment of an already existing
liability or obligation, prosecute and defend actions on behalf
of the Company and either or both Members, encumber Assets, and
take any other reasonable action in any matter with respect to
which the former Members continue to have, or appear or are
alleged to have, a common interest or a common liability.
ARTICLE XV
DISPUTES
15.1 Governing Law. Except for matters of title to the
Properties or their Transfer, which shall be governed by the law
of their situs, this Agreement shall be governed by and
interpreted in accordance with the laws of the State of Oklahoma,
without regard for any conflict of laws or choice of laws
principles that would permit or require the application of the
laws of any other jurisdiction.
15.2 Forum Selection. The Members (subject to actual receipt
of service of process) consent and submit to exclusive venue and
jurisdiction in any state or federal court in and for the City of
Oklahoma City, State of Oklahoma, and the service of process
under applicable provisions of the laws of the State of Oklahoma
in any action commenced relating to this Agreement or the
transactions contemplated hereby.
15.3 Arbitration.
(a) In the event of any disagreement between the
Members over the construction, application (including whether
conditions precedent to arbitration have occurred), breach,
termination, validity or interpretation of the Agreement
("Dispute"), the Members agree promptly to seek to resolve such
Dispute by negotiations between senior executives of the Members.
All negotiations and communications pursuant to this paragraph
are confidential and shall be treated as compromise and
settlement negotiations for the purposes of the Federal Rules of
Evidence and state rules of evidence. If the Dispute has not
been resolved within forty-five (45) days after the date one
Member requests resolution of a Dispute as provided in this
Section 15.3, either Member may initiate arbitration pursuant to
this Agreement. "Resolved" means that both Members have agreed
to a disposition of the Dispute; a Dispute has not been resolved
within the meaning of this subparagraph if one Member denies the
existence of a Dispute or refuses to participate in the process
described in this Section 15.3.
(b) Any Dispute submitted to arbitration
pursuant to subparagraph (a) shall be submitted to binding
arbitration, before a single arbitrator, in accordance with the
following provisions. Arbitration shall be the sole and
exclusive remedy of the Members in connection with any Dispute or
Disputes hereunder.
(i) The arbitrator appointed under this Agreement
shall be an executive or former executive of an exploration and
production company, and shall have had at least 15 years of
experience in the oil and gas business.
(ii) The Member desiring to initiate arbitration
shall send, via certified mail, written notice of demand of
arbitration to the other Member and the names of one or more
proposed arbitrators together with a statement of the matter in
controversy.
(iii) Within thirty (30) days after receipt of
such demand, the receiving Member shall either agree to one of
the arbitrators proposed by the other Member, or propose one or
more arbitrators. If the receiving Member fails or refuses to
agree to or propose an arbitrator within such 30-day period or if
the Members cannot agree on an arbitrator, within sixty (60) days
after receipt of such demand, all Disputes shall be settled by
arbitration administered by the AAA in accordance with its
Commercial Arbitration Rules, and judgment upon the award
rendered the arbitrator may be entered in any court having
jurisdiction thereof.
(iv) The arbitrator may hire, at the expense of
the Members, legal, accounting, geological, engineering or other
consultants the arbitrator believes are necessary or useful.
(v) Adherence to formal rules of evidence shall
not be required. The arbitrator shall consider any evidence and
testimony that it determines to be relevant.
(vi) The arbitrator shall render their decision
within thirty (30) calendar days following the conclusion of the
hearing. The arbitrator shall have the authority to determine
the scope of the arbitrator's authority, the Dispute, including
any other Disputes arising in the course of the arbitration, and
the damages, if any, to which any Member may be entitled.
(vii) Any decision by the
arbitrator shall be final, binding and non-appealable. Any such,
decision may be filed in any court of competent jurisdiction and
may be enforced by any Member as a final judgment in such court.
There shall be no grounds for appeal of any arbitration award
hereunder.
(viii) The arbitration proceedings shall be
conducted in Oklahoma City, Oklahoma.
(ix) Limited civil discovery shall be permitted
for the production of documents and taking of depositions.
(x) All civil discovery shall be governed by the
Oklahoma Rules of Civil Procedure. All issues regarding
information with discovery requests shall be decided by the
arbitrator.
(xi) The arbitrator has no authority to award
punitive damages or any other damages not measured by the
prevailing Member's actual damages, and may not, in any event,
make any ruling, finding or award that does not conform to the
terms and conditions of this agreement.
(xii) The award of the arbitrator may,
but is not required to be, accompanied by a reasoned opinion.
(xiii) Neither Member nor the arbitrator may
disclose the existence, content, or results of any arbitration
hereunder without the prior written consent of both Members.
(xiv) The arbitrator may award to the
prevailing Member, if any, as determined by the arbitrator, all
or some portion of its costs and fees. "Costs and fees" means
all reasonable pre-award expenses of the arbitration, including
the arbitrator's fees, administrative fees, travel expenses, out-
of-pocket expenses such as copying, telephone, court costs,
witness fees, and attorneys' fees. Notwithstanding the
foregoing, each Member shall pay, within 15 days of being billed
by the arbitrator, one-half of the total amounts billed by the
arbitrator to both Members for arbitration fees, services and
expenses incurred by the arbitrator; it is expected that the
arbitrator will ▇▇▇▇ on a monthly basis, but actual billing shall
be as determined by the arbitrator.
ARTICLE XVI
GENERAL PROVISIONS
16.1 Notices. All notices, payments and other required or
permitted communications ("Notices") to either Member shall be in
writing, and shall be addressed respectively as follows:
If to ▇▇▇▇▇▇▇: ▇▇▇▇▇▇▇ Energy Corp.
▇▇▇▇ ▇. ▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
With a Copy to: Chester, Willcox, and Saxbe, LLP
▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
Attention: J. ▇▇▇▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
If to KLT Gas: ▇▇. ▇▇▇▇▇ ▇. ▇▇▇▇▇▇,
Vice President, Operations
KLT Gas Inc.
▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇@▇▇▇▇.▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
With a Copy to: H. ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, P.C.
5400 Renaissance Tower
▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
▇▇▇▇▇▇▇@▇▇▇▇▇▇▇▇.▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
All Notices shall be given (a) by personal delivery to the
Member, (b) by electronic communication, capable of producing a
printed transmission, such as Facsimile or Electronic mail, and
followed by mail with a copy of the date and time verification;
but excluding electronic mail, (c) by registered or certified
mail return receipt requested, or (d) by overnight or other
express courier service. All Notices shall be effective and shall
be deemed given on the date of receipt at the principal address
if received during normal business hours, and, if not received
during normal business hours, on the next business day following
receipt, or if by electronic communication, on the date of such
communication. Either Member may change its address by Notice to
the other Member.
16.2 Gender. The singular shall include the plural, and the
plural the singular wherever the context so requires, and the
masculine, the feminine, and the neuter genders shall be mutually
inclusive.
16.3 Currency. All references to "dollars" or "$" herein
shall mean lawful currency of the United States of America.
16.4 Headings. The subject headings of the Sections and
Subsections of this Agreement and the Paragraphs and
Subparagraphs of the Exhibits to this Agreement are included for
purposes of convenience only, and shall not affect the
construction or interpretation of any of its provisions.
16.5 Waiver. The failure of either Member to insist on the
strict performance of any provision of this Agreement or to
exercise any right, power or remedy upon a breach hereof shall
not constitute a waiver of any provision of this Agreement or
limit such Member's right thereafter to enforce any provision or
exercise any right.
16.6 Modification. No modification of this Agreement shall
be valid unless made in writing and duly executed by both
Members.
16.7 Force Majeure. Except for the obligation to make
payments when due hereunder, the obligations of a Member shall be
suspended to the extent and for the period that performance is
prevented by any cause, whether foreseeable or unforeseeable,
beyond its reasonable control, including, without limitation,
labor disputes (however arising and whether or not employee
demands are reasonable or within the power of the Member to
grant); acts of God; Laws, instructions or requests of any
government or governmental entity; judgments or orders of any
court; inability to obtain on reasonably acceptable terms any
public or private license, permit or other authorization;
curtailment or suspension of activities to remedy or avoid an
actual or alleged, present or prospective violation of
Environmental Laws; action or inaction by any federal, state or
local agency that delays or prevents the issuance or granting of
any approval or authorization required to conduct Operations
beyond the reasonable expectations of the Member seeking the
approval or authorization; acts of war or conditions arising out
of or attributable to war, whether declared or undeclared; riot,
civil strife, insurrection or rebellion; fire, explosion,
earthquake, storm, flood, sink holes, drought or other adverse
weather condition; delay or failure by suppliers or transporters
of oil or gas (including gathering and pipelines), and of
materials, parts, supplies, services or equipment or by
contractors' or subcontractors' shortage of, or inability to
obtain, labor, transportation, materials, machinery, equipment,
supplies, utilities or services; accidents; breakdown of
equipment, machinery or facilities; actions by native rights
groups, environmental groups, or other similar special interest
groups; or any other cause whether similar or dissimilar to the
foregoing, but not including low prices. The affected Member
shall promptly give notice to the other Member of the suspension
of performance, stating therein the nature of the suspension, the
reasons therefor, and the expected duration thereof. The affected
Member shall resume performance as soon as reasonably possible.
During the period of suspension the obligations of both Members
to advance funds pursuant to Section 11.2 shall be reduced to
levels consistent with then current Operations.
16.8 Rule Against Perpetuities. The Members do not intend
that there shall be any violation of the Rule Against
Perpetuities, the Rule Against Unreasonable Restraints on the
Alienation of Property, or any similar rule. Accordingly, if any
right or option to acquire any interest in the Properties, in an
Ownership Interest, in the Assets, or in any real property exists
under this Agreement, such right or option must be exercised, if
at all, so as to vest such interest within time periods permitted
by applicable rules. If, however, any such violation should
inadvertently occur, the Members hereby agree that a court shall
reform that provision in such a way as to approximate most
closely the intent of the Members within the limits permissible
under such rules.
16.9 Further Assurances. Each of the Members shall take,
from time to time and without additional consideration, such
further actions and execute such additional instruments as may be
reasonably necessary or convenient to implement and carry out the
intent and purpose of this Agreement or as may be reasonably
required by lenders in connection with Project Financing.
16.10 Entire Agreement; Successors and Assigns. This
Agreement and the Members' Agreement between ▇▇▇▇▇▇▇ and KLT
Gas, dated January 14, 2000, contain the entire understanding of
the Members and supersedes all prior agreements and
understandings between the Members relating to the subject matter
hereof. This Agreement shall be binding upon and inure to the
benefit of the respective successors and permitted assigns of the
Members.
16.11 Counterparts. This Agreement may be executed in
any number of counterparts, and it shall not be necessary that
the signatures of both Members be contained on any counterpart.
Each counterpart shall be deemed an original, but all
counterparts together shall constitute one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the Effective Date.
▇▇▇▇▇▇▇ Energy Corp.
By: /s/▇▇▇▇ ▇▇▇▇▇▇▇
Name: ▇▇▇▇ ▇▇▇▇▇▇▇
Title: Vice President
KLT Gas Inc.
By: /s/▇▇▇▇▇ ▇. ▇▇▇▇▇
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: President
