Exhibit B-106
LIMITED LIABILITY COMPANY AGREEMENT
OF
FOREST CITY GATHERING, LLC
This Limited Liability Company Agreement (this
"AGREEMENT") is entered into by and between BANDERA
PETROLEUM EXPLORATION, L.L.C., an Oklahoma limited
liability company ("BANDERA") and KLT GAS, INC., a
Missouri corporation ("KLT") as the initial Members of
Forest City Gathering, LLC, a Delaware limited
liability company formed pursuant to the Delaware
Limited Liability Company Act. In consideration of
the mutual promises made herein, KLT and Bandera agree
as follows:
ARTICLE I
FORMATION OF LIMITED LIABILITY COMPANY
1.1 FORMATION. Forest City Gathering, LLC (the
"COMPANY") was formed as a limited liability company
under the laws of the State of Delaware by the filing
of a Certificate of Formation with the Secretary of
State of the State of Delaware on July 27, 2001.
1.2 PURPOSES AND POWERS. The purpose of the
Company is to engage in the business of gathering,
compressing, treating and providing field services for
coal bed gas and/or natural gas within the area of the
AMI (such permitted activities are hereinafter
referred to as the "BUSINESS"). The Company shall not
own or operate any property outside the AMI. The
Company shall not own, operate or construct any
transmission or other assets that would subject the
Company to regulation as a "natural gas company" under
the Natural Gas Act of 1938. In carrying out such
purpose, the Company shall have all of the powers
provided by a limited liability company under the Act.
1.3. OFFICES. The principal place of business
of the Company shall be ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇
▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇ or such other
principal place of business as the Manager may from
time to time determine. The Company may have, in
addition to such office, such other offices, as the
Manager may from time to time determine or the
business and affairs of the Company may require.
1.4. DEFINITIONS. Capitalized words and
phrases used herein shall have the meanings set forth
below in this Section 1.4 unless defined elsewhere
herein:
"ACT" means the Delaware Limited Liability
Company Act, as amended from time to time.
"AFFILIATE" shall mean, when used with respect to
a specified Person, any Person that directly or
indirectly controls, is controlled by or is under
common control with such specified Person. As used in
this definition, and in the definition of change of
control the term "control" means possession, directly
or indirectly through one or more intermediaries), of
the power to direct or cause the direction of
management and policies of a person through an
ownership of voting securities (or other ownership
interests), contract, voting trust or otherwise.
"AGREED VALUE" means the fair market value of any
distributed Property net of any liability assumed or
taken subject to, as fair market value is determined
by the Members using any reasonable method of
valuation.
"ASSIGNEE" means a Person to whom all or part of
a Member's Interest has been assigned and who has been
admitted as a Member as a result of such assignment.
"AMI" has the meaning indicated in the
Participation Agreement.
"AVAILABLE CASH" means all cash funds of the
Company from operations, refinancings, asset sales,
Capital Contributions, loans or any other source at
any particular time available for Distribution after
reasonable provision has been made by the Manager for
(i) payment of all operating expenses of the Company
as of such time, (ii) payment of all outstanding and
unpaid current obligations of the Company as of such
time, and (iii) adequate working capital.
"BUSINESS" is defined in Section 1.2.
"CAPITAL ACCOUNT" means the account maintained
for a Member or Assignee in accordance with Section
6.5.
"CAPITAL CONTRIBUTION" means, with respect to a
Member, the amount of cash contributed to the Company
with respect to such Member's Interest, or if the
context so requires, the amount of cash required to be
contributed to the Company with respect to such
Member's Interest.
"CAUSE" means the gross negligence or willful
misconduct of the Manager in the performance of a
material duty of the Manager under this Agreement.
"CERTIFICATE OF FORMATION" means the Certificate
of Formation of the Company as amended or restated
from time to time in accordance with the terms of this
Agreement and filed with the Delaware Secretary of
State in the manner provided by the Act.
"CHANGE OF CONTROL" means, with respect to a
specified Person, a change of control, after the
Effective Date of this Agreement, of such Specified
Person or any Person ("Parent") that controls such
specified Person in any one of the following
circumstances: (i) any Person shall have become the
beneficial owner of or shall have acquired, directly
or indirectly, 50% or more of the then outstanding
ownership interests (including both economic interest
and voting interests) of the specified Person or
Parent; (ii) the specified Person or Parent is a party
to a merger, consolidation, sale of assets, or other
reorganization, or a proxy contest, as a consequence
of which the members of the board of directors ( or,
if either is not a corporation any other person or
group of persons having substantial the same authority
as the board of directors) ( such board, person or
group of persons is herein called the "BOARD"), of the
specified Person or Parent in office immediately prior
to such transaction or event constitute less than a
majority of the Board thereafter; or (iii) during any
period of two consecutive months, individuals who at
the beginning of such period constituted the Board of
the specified Person or any Parent cease for any
reason to constitute at least a majority of the Board
of the specified Person or any Partner, PROVIDED that
notwithstanding anything to the contrary a Change of
Control shall not be deemed to have occurred (a) with
respect to KLT so long as at least one of the Key KLT
Persons is employed by KLT or any of its Affiliates or
(b) with respect to Bandera so long as at least one of
the Key Bandera Persons is employed by Bandera, with
substantially the same authority and responsibility
that he had on the Effective Date of this Agreement.
"CODE" means the Internal Revenue Code of 1986,
as amended from time to time.
"COMPANY" means Forest City Gathering, LLC, a
Delaware limited liability company formed under the
Act.
"CONSENT" means, with respect to a Member, (a) as
a noun, either the written consent of such Member or
the affirmative vote of that Member at a meeting, as
the case may be, to do that for which the Consent of
such Member is given and (b) as a verb, giving Consent
for any such action. To receive the "CONSENT OF THE
MEMBERS" requires the requisite level of Consent of
the Members provided in this Agreement or as otherwise
expressly required by the Certificate of Formation,
the Act or other applicable law.
"DISTRIBUTION" or "DISTRIBUTIONS" means any cash
or other Property distributed to a Member by the
Company on account of that Member's Interest as
provided in Article VIII, and does not include
payments to a Member (i) pursuant to a loan by such
Member to the Company or other transactions in which
such Member is acting other than in its capacity as a
Member within the meaning of section 707(a) of the
Code or (ii) which are made to reimburse a Member or
an Affiliate of a Member for amounts paid for or on
behalf of the Company. "DISTRIBUTE" means to make one
or more Distributions.
"EFFECTIVE DATE" means August 3, 2001.
"FISCAL YEAR" means the annual accounting period
of the Company, which shall be the calendar year or
such portion of a calendar year during which the
Company is in existence.
"GAAP" means generally accepted accounting
principles, conventions, rules and procedures in the
United States set forth in the opinions and
pronouncements of the accounting principles board of
the American Institute of Certified Public Accountants
and statements and pronouncements of the Financial
Accounting Standards Board (or any successor
organization) that are applicable to the circumstances
as of the date of determination.
"GATHERING CAP" means total expenditures incurred
to construct gathering system(s) and gas sales
facilities from each well head to the central delivery
point for Phase I, which shall not exceed $200,000 in
the aggregate.
"INTEREST" of a Member at any time means the
entire percentage ownership interest of such Member in
the Company at such time and all benefits to which
such Member is entitled under this Agreement and
applicable law, together with all obligations of such
Member under this Agreement and applicable law.
"Key KLT Persons" means ▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇.
▇▇▇▇ and ▇▇▇▇▇▇▇ ▇▇▇▇▇.
"Key Bandera Persons" means ▇.▇. ▇▇▇▇▇▇▇▇ and
▇▇▇▇▇ ▇▇▇▇▇▇▇▇.
"MANAGER" means the Member designated as the
Manager as provided in Section 4.4.
"MEMBERS" means KLT and Bandera and those Persons
who subsequently are admitted as Members pursuant to
the terms of this Agreement. "MEMBER" means any one
of the Members.
"NET INCOME" means, for any period, the excess,
if any, of the Company's items of income and gain for
such period over the Company's items of loss and
deduction for such period, including items described
in Section 705(a)(1)(B) and 705(a)(2)(B) of the Code,
as computed for book purposes.
"NET LOSS" means, for any period, the excess, if
any, of the Company's items or loss and deduction for
such period over the Company's items of income and
gain for such period, including items described in
Section 705(a)(1)(B) and 705(a)(2)(B) of the Code, as
computed for book purposes.
"ORGANIZATION" means any corporation,
partnership, joint venture, limited liability company,
unincorporated association, trust, estate,
governmental entity or other entity.
"PARTICIPATION AGREEMENT" means that certain
Participation Agreement dated July 27, 2001, by and
between Forest City, LLC, and Bandera Petroleum
Exploration, LLC.
"PERSON" means any natural person or
Organization.
"PHASE 1" means the period of time commencing on
the Effective Date and ending upon the completion of
the initial 25 ▇▇▇▇▇ as contemplated by Section 5.1 of
the Participation Agreement.
"PHASE 2" means the period of time commencing on
the end of Phase 1 and continuing thereafter so long
as the Company is in existence.
"PRIME PLUS RATE" shall mean a rate per annum
which is equal to the lesser of (a) a rate which is
two percent (2%) above the prime rate of interest of
The Chase Manhattan Bank, N.A., or its successor, as
announced or published by such bank from time to time
(adjusted from time to time to reflect any changes in
such rate determined hereunder) or (b) the maximum
rate from time to time permitted by applicable law.
"PROPERTY" means all (or such lesser amount as
indicated by the context used herein) property --
real, personal, tangible or intangible -- owned from
time to time by the Company as a result of Capital
Contributions, acquisition, operations or otherwise.
"REASONABLE FEES" means such fees as Manager
shall reasonably determine from time to time to
recover the Company's costs and expenses and to earn a
reasonable rate of return on all capital invested by
the Members.
"SECURITIES ACT" means the Security Act of 1933,
as amended, and any successor statute thereto.
"TAXABLE INCOME" or "TAXABLE LOSS" for a
particular Fiscal Year means an amount equal to the
Company's taxable income or taxable loss for such
Fiscal Year determined in Accordance with Code Section
703(a).
"TAX DISTRIBUTION AMOUNT" means, with respect to
a Member for any calendar quarter, the combined amount
computed pursuant to Sections 6.7(a)(i) and 6.7(a)(ii)
in reference to such calendar quarter.
"TRANSFER" means (a) as a noun, any voluntary or
involuntary transfer, sale, assignment, alienation,
gift, donation, grant, conveyance, lease, exchange,
mortgage, pledge, encumbrance, hypothecation or other
disposition of any kind, including dispositions by
operation of law or legal process or any transactions
or series of transactions that result in a Change of
Control and (b) as a verb, the act of making any of
the foregoing.
"TREASURY REGULATIONS" means the final and
temporary regulations of the U.S. Department of the
Treasury promulgated under the Code.
ARTICLE II
MEMBERS
2.1 MEMBERS. KLT and Bandera shall be the only
initial Members of the Company. A Person may become a
Member (a) in the case of a Person acquiring a
membership interest directly from this Company, only
by the written agreement of all the Members; and (b)
in the case of a Transfer of a Member's Interest, only
if such Transfer is made in accordance with Article IX
of this Agreement.
2.2 AUTHORITY OF MEMBERS. No individual Member
may bind the Company except to the extent expressly
provided in this Agreement, or by the vote of Members
holding more than ninety percent (90%) of the total
Interest in the Company.
2.3 CLASSES OF MEMBERS. The Company shall have
only one class of Members.
2.4 PLACE AND MANNER OF MEETING. All meetings of
the Members shall be held at such time and place as
shall be stated in the notice of the meeting or in a
duly executed waiver of notice thereof. Members may
participate in such meetings by means of conference
telephone or similar communications equipment by means
of which all persons participating in the meeting can
hear each other. Participation in a meeting by a
Member shall constitute a waiver of notice of such
meeting, except where a Member attends a meeting for
the express purpose of objecting to the transaction of
any business on the ground that the meeting is not
lawfully called or convened.
2.5 MEETINGS. An annual meeting of the Members
shall be held on such day and at such time during the
period within six months after the close of each
Fiscal Year of the Company as may be specified by the
Manager in the notice of the meeting. If the annual
meeting of Members is not held within the period above
specified, any Member may cause a special meeting of
the Members in lieu thereof to be held as soon
thereafter as convenient, and any business transacted
or election held at such meeting shall be as valid as
if held at the annual meeting. Failure to hold the
annual meeting within the designated time shall not
cause a dissolution of the Company, or constitute an
act of Cause. Special meetings of the Members may be
called at any time by any Member.
2.6 NOTICE. Written or printed notice stating
the place, day and hour of the meeting and, in case of
a special meeting, the purpose or purposes for which
the meeting is called, shall be delivered not less
than ten nor more than sixty days before the date of
the meeting either personally or by mail, by the
Member calling the meeting, to each Member entitled to
vote at the meeting, provided that such notice may be
waived as provided in this Agreement. If mailed, such
notice shall be deemed to be delivered when deposited
in the United States mail addressed to the Member at
its address as it appears on the records of the
Company, with postage thereon prepaid.
2.7 QUORUM OF MEMBERS. Members holding more than
ninety percent (90%) of the total Interest in the
Company represented in person or by proxy, shall be
required for a quorum at a meeting of Members.
2.8 PERCENTAGE OF INTEREST REQUIRED; WITHDRAWAL
OF QUORUM. The vote of Members holding more than
ninety percent (90%) of the total Interest in the
Company at a meeting at which a quorum is present
shall be the act of the Members, unless the vote of a
greater percentage is required by law, the Certificate
of Formation or this Agreement. The Members present
at a duly organized meeting may not continue to
transact business if, as the result of the withdrawal
of one or more Members, a quorum is no longer present.
2.9 ACTION WITHOUT MEETING. Any action required
by the Act, as amended, to be taken at any annual or
special meeting of the Members, or any action which
may be taken at any annual or special meeting of the
Members, may be taken without a meeting, without prior
notice, and without a vote, if a consent or consents
in writing, setting forth the action so taken, shall
have been signed by each Member.
2.10 WITHDRAWAL, BANKRUPTCY OR DISSOLUTION OF A
MEMBER. A Member may not voluntarily withdraw during
Phase 1 of the term of this Company, without the
Consent of all the other Members. Thereafter, a
Member may withdraw upon sixty (60) days prior written
notice to the Company and to each of the other Members
with such withdrawal to take effect at the time
specified in such notice, or if no time be specified,
then on the sixtieth (60th) day following its receipt
by the non-withdrawing Members. The Company shall be
dissolved upon the withdrawal, bankruptcy, liquidation
or dissolution of a Member, or upon the occurrence of
any other event that terminates the continued
membership of a Member in this Company under the terms
of this Agreement or the Act. For purposes of this
Section 2.10, the term "DISSOLUTION" does not include
a merger, spin-off, consolidation, reorganization or
recapitalization of a Member. It is the intent of
this Agreement that the tax status of this Company be
the same as for a partnership, and except as allowed
by the Code, and any corresponding rules and
regulations, it is intended that this Company shall
not have continuity of life and shall be read and
interpreted so as to prohibit continuity of life.
ARTICLE III
ORGANIZATION AND TERM
3.1 FILINGS AND FEES. The Manager shall execute
and file, or cause to be executed and filed, for
recordation in the office of the appropriate
authorities such reports, disclosures, certificates
and other forms, schedules, instruments or documents
as are required by applicable law or regulation or
which the Manager otherwise determines may be
necessary or appropriate with respect to the formation
of, and conduct of business by, the Company. The
Manager also shall cause the Company to pay all fees,
taxes and other charges, including professional fees,
incurred in connection with the preparation and filing
of such reports, certificates, disclosures, forms,
schedules, instruments or other documents.
3.2 TITLE TO PROPERTY. The Property shall be
owned by the Company as an entity and no Member shall
have any ownership interest in the Property in that
Member's individual name or right, and each Member's
Interest shall be personal property for all purposes.
The Company shall hold the Property in the name of the
Company and not in the name of any Member.
3.3 NONCOMPETITION; CONFLICTS OF INTEREST.
Subject to the express provisions of this Agreement,
each Member and its Affiliates shall be free to engage
in the same or similar business as the Company's
Business outside the AMI. No Member or Affiliate of a
Member shall engage in the Company's Business within
the AMI without the express written consent of all
Members which may be granted or denied at the sole
discretion of each Member. In the interest of
clarity, the Members recognize that this Section 3.3
shall not prohibit a Member or its Affiliates from
owning or operating oil and gas properties within the
AMI. The prohibitions of this Section 3.3 shall be
binding upon any Member who withdraws as a Member or
whose Interest is purchased pursuant to Section 6.2(c)
for the remainder of the term of the Company,
notwithstanding that such Person shall no longer be a
Member.
3.4 LIMITATION OF LIABILITY. Except as otherwise
expressly provided herein or required by applicable
law, no Member, as such, shall be bound by, or be
personally liable for, the liabilities or obligations
of the Company or the other Members, or be required to
lend any funds to (or provide any guarantees on behalf
of) the Company, without the prior written consent of
such Member. No Member shall have any obligation to
make Capital Contributions to the capital of the
Company except those Capital Contributions agreed upon
by the Member or that may be required (a) to return
the amount of any Distribution received by such Member
in violation of, and to the extent required by the
Act; (b) under Section 6.1 or (c) under Section 6.5
with respect to the withholding by the Company of
income taxes.
3.5 EXPENSES. The Company shall pay all costs
and expenses arising from the organization and
operation of the Company. The Company shall reimburse
the Members for any reasonable out-of-pocket expenses
incurred by them on behalf of the Company in
accordance with this Agreement.
3.6 TERM OF COMPANY. The Company shall be in
existence commencing on the Effective Date and
continue in existence for the lesser of thirty (30)
years or such earlier date as the Company is dissolved
pursuant to Section 10.1.
ARTICLE IV
MANAGER
4.1 GENERAL POWERS OF MANAGER. Except for
situations in which the approval of the Members is
expressly required by this Agreement or by nonwaivable
provisions of applicable law, and subject to the
provisions of Section 4.2, (i) the powers of the
Company shall be exclusively exercised by or under the
authority of, and the business and affairs of the
Company shall be managed under the direction of, the
Manager; and (ii) the Manager may make all decisions
and take all actions for the Company not otherwise
provided for in this Agreement, including, without
limitation, the following:
(a) ACQUISITION OF PROPERTY. Acquire by
purchase, lease, or otherwise such pipe,
easements, compressors, and other real or
personal property which may be necessary,
convenient, or incidental to the accomplishment
of the purposes of the Company;
(b) OPERATION, MAINTENANCE, IMPROVEMENT AND
DISPOSITION OF PROPERTY. Operate, maintain,
improve, and construct any real estate and any
personal property necessary, convenient, or
incidental to the accomplishment of the purposes
of the Company, including without limitation,
pipelines, compressors and related equipment and
facilities;
(c) CONTRACTS AND OTHER AGREEMENTS. Execute
and deliver, on behalf of the Company, any and
all agreements, contracts, documents,
certifications, and instruments necessary or
convenient in connection with the management,
maintenance, and operation of Company property,
or in connection with managing the affairs of the
Company; provided that any agreement for
gathering and compression services shall be for
Reasonable Fees and in such form as may be
approved by the Members;
(d) BANKING AUTHORITY. Open, maintain and
close bank accounts and execute and deliver all
checks, drafts or other orders for payment of
funds belonging to the Company;
(e) INSURANCE. Procure and maintain in force
such insurance as the Manager shall deem prudent
to serve as protection against liability for loss
and damage which may be occasioned by the
activities to be engaged in by the Company;
(f) HIRE EMPLOYEES OR INDEPENDENT CONTRACTORS.
Contract on behalf of the Company for the
employment and services of employees and/or
independent contractors and appoint officers and
other agents of the Company;
(g) JUDICIAL AND ADMINISTRATIVE ACTIONS.
Institute, prosecute, defend, settle, compromise,
and dismiss lawsuits or other judicial or
administrative proceedings brought on or in
behalf of, or against, the Company or all the
Members in their capacity as Members, in
connection with activities arising out of,
connected with, or incidental to this Agreement,
and to engage counsel or others in connection
therewith and to execute powers of attorney,
consents, waivers and other documents that may be
necessary before any court, administrative board
or agency of any governmental authority,
affecting the properties owned by the Company;
and
(h) IN GENERAL. Engage in any kind of
activity and perform and carry out contracts of
any kind (including contracts of insurance
covering risks to property and Manager liability)
necessary or incidental to, or in connection
with, the accomplishment of the purposes of the
Company, as may be lawful carried on or performed
by a limited liability company under the laws of
each state in which the Company is then formed or
qualified.
4.2 RESTRICTIONS ON MANAGER'S POWERS.
Notwithstanding the provisions of Section 4.1, the
Manager may not cause the Company to do any of the
following without the approval of the Members in
accordance with Section 2.8:
(a) SALE, EXCHANGE OR DISPOSITION OF COMPANY
PROPERTY. Sell, lease, exchange or otherwise
dispose of all or substantially all the Company's
property and assets (with or without goodwill);
(b) MERGERS. Be a party to a merger, or a
share exchange;
(c) AMENDMENT OF CERTIFICATE. Amend or
restate the Certificate of Formation;
(d) BANKRUPTCY PETITION. Cause the Company to
file a voluntary petition in bankruptcy or take
any other similar action;
(e) ORDINARY COURSE OF BUSINESS. Authorize
any act that would make it impossible to carry on
the ordinary business of the Company;
(f) AMENDMENT OF AGREEMENT. Amend or modify
this Agreement;
(g) MEMBERSHIP INTEREST. Issue any additional
Interest in the Company or, admit any Person as a
Member of the Company (other than as expressly
provided in Section 9.1);
(h) FINANCIAL TRANSACTIONS. Borrow money and
issue evidences of indebtedness of the Company;
or
(i) DEEDS, MORTGAGES, DEEDS OF TRUST AND OTHER
INSTRUMENTS. Execute any deed, lease, mortgage,
deed of trust, mortgage note, promissory note,
▇▇▇▇ of sale, contract, or other instrument
purporting to encumber any or all of the Company
property (other than Operator's liens that may
arise as a matter of law).
4.3 DUTIES OF THE MANAGER.
(a) MANAGEMENT DUTIES. The Manager will: (i)
manage the business of the Company in a manner
that, in the reasonable judgment of the Manager,
will achieve the purposes of the Company's
Business; (ii) use reasonable efforts to cause
the Company to perform its obligations under all
contracts, agreements, instruments, and other
documents to which the Company is at any time a
party or by which the Company is at any time
bound; (iii) use reasonable efforts to cause the
Company to obtain and maintain such insurance as
is consistent with sound business practice; and
(iv) use reasonable efforts to cause the Business
of the Company to be conducted in compliance with
all applicable laws.
(b) LEVEL OF DUTY. The Manager will conduct,
manage and control the Company and its affairs
with the degree of reasonable care that a prudent
business person would use under similar
circumstances.
(c) TIME AND ATTENTION TO DUTIES. The Manager
will devote such time and attention to the
performance of duties under this Agreement as is
reasonably necessary for the operation of the
Business, provided that it is expressly
understood that the Manager will not devote its
full time to its duties hereunder, and provided
further that the Manager may engage in or possess
an interest in other independent business
ventures of any nature or description, including
business ventures similar to the Company, and
neither the Company nor any other Member, as
such, shall have any rights by virtue of this
Agreement in or to such independent ventures or
the income or profits therefrom.
(d) LIMITATION OF DUTIES. The Manager will be
obligated to perform the duties, responsibilities
and obligations of the Manager under this
Agreement only to the extent that funds of the
Company are available for such performance.
Notwithstanding any other provision of this
Agreement, the Manager will be liable only to the
Company and the other Members for Cause.
4.4 ELECTION; TERM. The Manager shall initially
be KLT. KLT shall remain as Manager and shall not be
subject to removal as Manager unless and until (a)
there is a Change of Control, and (b) the other party
or parties to this Agreement show Cause. If the
Manager sells all of its Interest in the Company to a
third party, the third party shall automatically
become the Manager, but from and after the date of
such sale, the Manager is subject to removal as
Manager for Cause. For purposes of this Section, the
term "sale" shall mean a voluntary, arm's length
transfer for money, but shall not include sales to
Affiliates. The term "sale" shall be strictly
construed and shall not apply to certain transfers
that might be considered sales in the broadest sense
including, without limitation, mortgages, mergers,
reorganizations and consolidations.
The Manager may be removed for Cause by an
affirmative vote of the Non-Manager Member owning a
majority interest in the Company after excluding the
Interest of the Manager Member. Such vote shall not be
deemed effective until a written notice has been
delivered to the Manager by the Non-Manager Member
detailing the alleged default and the Manager has
failed to cure the default within 30 days from its
receipt of the notice. Such removal shall be
effective immediately upon the failure to cure such
default within the applicable notice period.
4.5 ANNUAL REPORTS. Within ninety (90) days
after the end of each Fiscal Year, the Manager shall
cause to be prepared (and furnished to each Member)
financial statements, which shall be prepared in
accordance with GAAP, and which shall include the
following:
(a) A copy of the balance sheet of the Company
as of the last day of such Fiscal Year;
(b) A statement of income or loss for the
Company for such Fiscal Year;
(c) A statement of each Member's Capital
Account; and
(d) A statement of cash flow of the Company
for such Fiscal Year.
4.6 QUARTERLY REPORTS. Within forty-five (45)
days after the end of each quarter, the Manager shall
cause each Member to be furnished with financial
statements prepared in accordance with the Company's
methods of accounting, of the type described in the
preceding Section 4.5, as of the last day of such
quarter, provided that such quarterly reports need not
include such footnotes as may be required by GAAP.
4.7 ANNUAL ESTIMATE OF OPERATING COSTS. The
Manager shall cause to be prepared and delivered to
each Member no later than January 15th of each year a
proposed estimate of operating costs for the Company
for such Fiscal Year. This estimate shall be given
for information purposes only and shall not act as a
limitation, in any way, upon the funds that Manager is
authorized to expend on behalf of the Company.
4.8 TAX RETURNS AND INFORMATION. The Manager
shall cause all tax returns that the Company is
required to file to be prepared and timely filed
(including extensions) with the appropriate
authorities of each Fiscal Year. On or before June
15th (commencing in 2002) the Manager shall also cause
to be delivered to each Member information pertaining
to the Company and its operations for the previous
Fiscal Year that is necessary for the Members to
accurately prepare their respective federal and state
income tax returns for said Fiscal Year.
4.9 LABOR COSTS. To the extent that the Manager
uses its employees to conduct the Company's Business
and except as otherwise set forth in an applicable
operating agreement (it being recognized that the
Manager or its Affiliate may receive an overhead
charge of $200 per well per month in any such
operating agreement), the Manager shall not be
reimbursed by the Company for the following:
(a) Salaries and wages of Manager's employees
directly engaged in connection with the conduct
of Company's Business, supported by hourly time
cards or other documentation, and, in addition,
amounts paid as salaries and wages of others
temporarily employed in connection therewith.
(b) Manager's cost of holiday, vacation,
sickness, jury service and other fringe benefits
and customary allowances paid to persons whose
salaries and wages are chargeable under
subsection (a) above.
(c) Expenditures or contributions made
pursuant to assessments imposed by governmental
authority which are applicable to salaries, wages
and costs chargeable under subsection (a) above.
(d) Manager's current cost of plans for
employees group life insurance, hospitalization
disability, pension, retirement, savings and
other benefit plans, applicable to labor costs
chargeable under subsection (a) above.
(e) Reasonable and necessary expenses of
employees whose salaries and wages are chargeable
under subsection (a) above. As used herein the
term "expenses" shall mean travel, hotel,
transportation, meal and other usual out-of-
pocket expenditures incurred by employees in the
performance of their duties and for which such
employees are reimbursed.
4.10 MATERIAL, EQUIPMENT AND SUPPLIES. The
Manager may use materials, equipment and supplies held
in its inventory for its own business purposes for the
Company's Business and any such materials, supplies,
and equipment so used shall be priced at cost to
Company, plus carrying costs and storage and loading
costs to be established by Manager based on actual
experience, but not to exceed replacement cost at the
time of issuance.
4.11 ADMINISTRATIVE AND GENERAL EXPENSE. The
Manager shall not be reimbursed for administrative
costs and expenses of Manager's offices and salaries
or wages or applicable burdens and expenses of its
personnel.
ARTICLE V
OWNERSHIP INTEREST
5.1 The Members shall initially have the Interest
shown below:
(a) Bandera shall have a twelve and one-half
percent (12.5%) Interest in the Company; and
(b) KLT shall have an eighty-seven and one-
half percent (87.5%) Interest in the Company.
ARTICLE VI
CAPITALIZATION
6.1 CAPITAL CONTRIBUTIONS.
(a) INITIAL CAPITAL CONTRIBUTIONS. Each
Member shall contribute the cash indicated on
Exhibit AC@ (total $40,000, KLT $35,000 and
Bandera $5,000) attached hereto and made a part
hereof within thirty (30) days from the Effective
Date. No Member shall be obligated to transfer
to the Company any ownership, or title to its
assets and properties. The Members agree that the
value of the Capital Contributions to be made
initially by each Member as shown on Exhibit C,
equals the product of the Interest shown in
Article V for that Member multiplied by the
aggregate value of the Capital Contributions
initially made by all Members as shown on Exhibit
C.
(b) SUBSEQUENT CAPITAL CONTRIBUTIONS. In
addition, each Member shall contribute in cash to
the Company such Capital Contributions in
proportion to such Members' Interests as are
deemed necessary and appropriate by the Manager
from time to time for the conduct of the Business
of Company. The Manager shall give each Member
written notice of any such Capital Contributions
and shall provide in such notice a time period
(not to be less than ten (10) business days) in
which the Members must make their respective
Capital Contributions. Such Capital
Contributions shall be used by the Company for
the conduct of the Company's Business.
(c) PAYMENT OF CAPITAL CONTRIBUTION. On each
occasion on which the Members are required to
make Capital Contributions to the Company, each
Member shall deposit its required Capital
Contribution, by wire transfer of immediately
available funds, in the depositary institution
and account designated by the Manager.
(d) DUTY TO MAKE CAPITAL CONTRIBUTION. The
Capital Contribution commitments of the Members
under this Agreement are solely for the benefit
of the Members, as among themselves, and may not
be enforced by or for the benefit of any other
person (including any creditor, receiver, or
trustee of, or for the benefit of any one or more
creditors of, the Company).
6.2 FAILURE TO MAKE CERTAIN CAPITAL
CONTRIBUTIONS. Unless otherwise expressly provide by
this Agreement, the obligation of a Member to make a
contribution or otherwise pay cash to the Company may
not be compromised or released without the express
written consent of all Members. In the event that (1)
any Member fails to pay when due the full amount of a
Capital Contribution called for under Section 6.1(a)
(Initial Contributions) or Section 6.1(b) (Subsequent
Capital Contributions) for the conduct of the
Company's Business during Phase 1, (2) the total
amount of Capital Contributions that have been made by
such Member does not equal or exceed its share of the
Gathering Cap, and (3) such default is not cured
within ten days after written and telephonic notice
thereof has been given by the Manager to such Member
(in this Section 6.2, a "PHASE 1 DEFAULTING MEMBER"),
the following provisions shall apply:
(a) LOSS OF VOTE. Whenever the vote or
consent of the Phase 1 Defaulting Member would
otherwise be required or permitted under this
Agreement, the Phase 1 Defaulting Member shall
not be entitled to participate in such vote or
consent, and such vote or consent shall be
calculated as if such Phase 1 Defaulting Member
were not a Member.
(b) APPLICATION OF DISTRIBUTIONS TO PHASE 1
DEFAULTING MEMBER. The Manager may cause the
Company to withhold all Distributions otherwise
distributable to such Phase 1 Defaulting Member
under this Agreement, and pay such Distributions
to the non-Defaulting Member in the event that
the non-Defaulting Member made any Capital
Contribution or paid any other amount on account
of the Phase 1 Defaulting Member=s failure to
make the Unfunded Phase 1 Contributions when due,
until Distributions in an aggregate amount equal
to 200% of the amount of the Unfunded Phase 1
Contributions have been so withheld and paid in
accordance with this clause (b). Any such
Distributions withheld in accordance with this
clause (b) shall be deemed to have been
distributed to the Phase 1 Defaulting Member and
then paid to the non-Defaulting Member.
(c) LOAN OR CONTRIBUTION BY NON-DEFAULTING
MEMBERS. The non-Defaulting Member shall have
the right to contribute or loan the amount of the
Unfunded Phase 1 Contributions to the Company.
The non-Defaulting Member shall have the right in
its sole discretion to treat all or any portion
of the Unfunded Phase 1 Contributions that it
shall fund as follows:
(1) As debt of the Company to such non-
Defaulting Member, in which case the Company
shall pay interest to such non-Defaulting
Members on the amount loaned to the Company
by such non-Defaulting Members at the Prime
Plus Rate; and/or
(2) As additional Capital Contributions,
in which case the Interests of the Members
shall be redetermined, and each such Member's
Interest shall thereafter be equal to a
fraction, the numerator of which shall equal
the aggregate Capital Contributions made by
such Member to the Company (including the
amount of any Unfunded Phase 1 contributions
funded by such Member pursuant to this
Section) and the denominator of which shall
equal the aggregate Capital Contributions
made by the Members (including the amount of
the Unfunded Phase 1 Contributions funded by
the Members pursuant to this Section).
(d) PURCHASE OF MEMBERSHIP INTEREST. Any non-
Defaulting Member may, in its sole and absolute
discretion, purchase the Interest of Defaulting
Member for a total price equal to fifty percent
(50%) of the balance of such Defaulting Member's
Capital Account at such time, instead of pursuing
any of the remedies set forth in Section 6.2(b)
or (c).
6.3 FAILURE TO MAKE PHASE 2 OR EXCESS GATHERING
CAP CONTRIBUTION. In the event that any Member fails
to pay when due the full amount of any Capital
Contribution for the conduct of the Business of the
Company after the total Capital Contributions that
have been made equals or exceeds such Member's share
of the Gathering Cap or for the conduct of the
Company's Business during Phase 2, and such default is
not cured within ten days after written and telephonic
notice has been given by the Manager to such Member (a
"PHASE 2 OR CAP DEFAULTING MEMBER"), the non-
Defaulting Member shall have the right, as its sole
and exclusive remedy, to contribute the amount of such
unfunded Capital Contributions as additional Capital
Contributions in which case the Interest of the
Members shall be redetermined, and each such Member's
Interest shall thereafter be equal to a fraction the
numerator of which shall equal the aggregate Capital
Contribution made by such Member (including an amount
equal to any unfunded Capital Contribution funded by
such Member pursuant to Section 6.2(d)(2) or this
Section 6.3) and the denominator of which shall equal
the aggregate Capital Contribution made by all the
Members pursuant to Section 6.1, Section 6.2(d)(2) or
this Section 6.3.
6.4 NO INTEREST; RETURN OF CONTRIBUTIONS. No
interest shall accrue on any contributions to the
capital of the Company. No Member shall be entitled
to the return of its Capital Contributions except (a)
to the extent, if any, that Distributions made
pursuant to the express terms of this Agreement may be
considered as such by law or by agreement of all of
the Members of the Company, (b) upon dissolution and
liquidation of the Company, and then only to the
extent expressly provided for in this Agreement and as
permitted by law, or (c) to the extent that any
amounts paid by the Company to a Member upon the
Company's acquisition of any Interest may be
considered as such by law.
6.5 CAPITAL ACCOUNTS. A Capital Account shall be
established and maintained for each Member. Each
Member's Capital Account shall be increased by:
(a) the amount of money contributed by that
Member to the Company, and
(b) allocations to that Member of Net Income,
including income and gain exempt from tax and
income and gain described in Treasury Regulation
Section 1.704-1(b)(2)(iv)(g), but excluding
income and gain descried in Treasury 1.704-
1(b)(4)(i),
and shall be decreased by:
(c) allocation to that Member of Net Loss,
(d) the amount of money Distributed to that
Member by the Company,
(e) the fair market value of distributed
property that such Member is considered to assume
or take under Section 752 of the Code), and
(f) allocations to that Member of expenditures
of the Company described in Section 1.704-
1(b)(2)(iv)(f) and as required by the other
provisions of Treasury Regulation Section 1.704-
1(b)(2)(iv)(f) and as required by the other
provisions of Treasury Regulation Section 1.704-
1(b)(2)(iv) and 1.704-1(b)(4), including
adjustments to reflect the allocations to the
Members of depreciation, depletion, amortization,
and gain or loss as computed for book purposes
rather than the allocation of the corresponding
items as computed for tax purposes, as required
by Treasury Regulation Section 1.704-
1(b)(2)(iv)(g). Upon the transfer of all or part
of an Interest in the Company, the Capital
Account of the transferor that is attributable to
the transferred interest in the Company shall
carry over to the transferee Member in accordance
with the provisions of Treasury Regulation
Section 1.704-1(b)(2)(iv)(1).
6.6 ALLOCATIONS OF NET INCOME OR NET LOSS.
(a) For purposes of maintaining the Members'
Capital Accounts, the Net Income or Net Loss of
the Company for each year shall be allocated
among the Members in accordance with their
Interests.
(b) Except as otherwise provided in Section
6.6(c): for federal and state tax purposes each
item of income, gain, loss, deduction and credit
shall be allocated among the Members in the same
manner as each correlative item of Net Income or
Net Loss is allocated to the Members for purposes
of maintaining their respective Capital Accounts.
(c) Income, gain, loss and deduction with
respect to property contributed to the Company by
a member or revalued pursuant to Treasury
Regulation Section 1.704-1(b)(2)(iv)(f) shall be
allocated among the Members in a manner that
takes into account the variation between the
adjusted tax basis of such property and its book
value, as required by Section 704(c) of the Code
and Treasury Regulation Section 1.704-1(b)(4)(i),
using the remedial allocation method permitted by
Treasury Regulation Section 1.704-3(d).
(d) All Net Income and Net Loss (and any item
of income, gain, loss, deduction or credit) shall
be allocated, and all distributions shall be
made, to the Persons shown on the records of the
Company to have been Members as of the last day
of the period for which the allocation or
distribution is to be made. Notwithstanding the
foregoing, if an Interest is transferred during a
taxable year, Net Income and Net Loss (and any
item of income, gain, loss, deduction or credit)
for such taxable year allocable to the
transferred Interest shall be prorated between
the transferor and the transferee based upon that
portion of such taxable year during which each
was recognized as owning such Interest, without
regard to the results of Company operations
during particular portions of such taxable year
and without regard to distributions made to the
transferor and the transferee during such taxable
year; provided, that such allocation must be in
accordance with a method permissible under
Section 706 of the Code and the Treasury
Regulations thereunder.
6.7 AVAILABLE CASH. Available Cash shall be
Distributed in the following order and priority:
(a) TAX DISTRIBUTIONS. If at the end of a
calendar quarter of a Fiscal Year, the Company
estimates that it will allocate, to one or more
Members with respect to such Fiscal Year, (i)
Taxable Income (or items thereof) excluding items
allocated pursuant to Section 6.5(c) and (ii)
items of income, gain, loss and deduction
required to be separately stated and computed by
the Members pursuant to section 613A(c)(7)(D) of
the Code (the amounts described in clauses (i)
and (ii) shall be referred to in this Section
6.7(a) as "NET TAXABLE INCOME"), then not later
than the twentieth (20th) day prior to the date
upon which estimated federal income tax payments
are required to be made by corporations for such
calendar quarter, the Company shall make a
Distribution of Available Cash to each Member in
an amount equal to the following:
(1) PRIOR INCOME. First, that portion of
any Tax Distribution Amount for the calendar
quarter immediately preceding the calendar
quarter to which Section 6.7(a)(2) refers for
which a Distribution to such Member pursuant
to this Section 6.7(a) had not been made.
The amount to be Distributed pursuant to this
Section 6.7(a)(1) shall be determined by
subtracting (A) the aggregate Distributions
of Available Cash made to such Member
pursuant to this Section 6.6(a) as of the
calendar quarter to which Section 6.7(a)(2)
refers from (B) the aggregate of the amounts
calculated pursuant to Section 6.7(a)(2), as
adjusted, to be Distributed to such Member
for all such calendar quarters;
(2) CURRENT INCOME TAX DISTRIBUTION.
Second, the product of (A) (i) such Member's
distributive share of the Company's estimated
Net Taxable Income for such calendar quarter,
determined in accordance with the allocation
provisions of Section 6.6, (ii) plus or
minus, as the case may be, any increase or
reduction in the estimates of Net Taxable
Income with respect to prior calendar
quarters of such Fiscal Year and (B) 38.25%;
and
(b) REMAINDER. The Company, with the Consent
of the Members, may, thereafter, make
Distributions of Available Cash to the Members in
accordance with their Interests.
6.8 NON-CASH DISTRIBUTIONS. Except as otherwise
provided in this Agreement, each Member must look
solely to the Property of the Company for the return
of such Member's Capital Contribution and shall have
no right or power to demand or receive Property other
than cash.
ARTICLE VII
LIABILITY
The Company has been formed as a limited
liability company, which shall assume the obligation
for all services to be performed pursuant to this
Agreement.
ARTICLE VIII
INDEMNIFICATION
8.1 INDEMNIFICATION. In addition to the
indemnification of Manager provided in Article XI, the
Members may adopt such provisions pertaining to
indemnification of Members, Manager, and others as
may be permitted under the Act, provided, however, no
Person may be indemnified under this Section of this
Article VIII in respect of a proceeding,
(a) in which the Person is found liable on the
basis that personal benefit was improperly
received by or it, whether or not the benefit
resulted from an action taken in the Person's
official capacity; or
(b) in which the Person is found liable to the
Company.
8.2 LIABILITY INSURANCE. The Company may
purchase and maintain insurance or another arrangement
on behalf of any Person who is or was a Manager,
officer, employee, or agent of the Company or who is
or was serving at the request of the Company as a
Manager, director, officer, partner, venturer,
proprietor, trustee, employee, agent, or similar
functionary of another foreign or domestic limited
liability company, corporation, partnership, joint
venture, sole proprietorship, trust, employee benefit
plan or other enterprise, against any liability
asserted against him or it and incurred by him or it
in such a capacity or arising out of his or its status
as such a person, whether or not the Company would
have the power to indemnify him against that liability
under this Article.
ARTICLE IX
RESTRICTIONS ON TRANSFER OF MEMBERSHIP INTERESTS
9.1 RESTRICTIONS ON TRANSFER.
(a) NO TRANSFER EXCEPT AS HEREIN PROVIDED. No
Member shall directly or indirectly Transfer any
Interest in the Company, or any right or interest
therein without the express written consent of
all Members (which consent may be withheld by
each Member in its sole and absolute discretion),
provided that (i) any Member may transfer all or
substantially all of its Interest in the Company
to any Affiliate of such Member or (ii) after the
end of Phase I, any Member may Transfer all or
substantially all of its Interest in the Company,
as part of the sale of all or substantially all
of its interest in all leases, options and farm-
ins within the AMI, (iii) any Member may
mortgage, pledge, or ▇▇▇▇▇ ▇ ▇▇▇▇ or security
interest in all of its Interest in the Company as
collateral for a loan, provided that the interest
of any such mortgagee, pledgee or secured party
shall be subject to all the terms of this
Agreement, and (iv) any mortgagee, pledgee or
secured party that forecloses its lien and/or
security interest may sell all the Interest of
the Member subject to such lien and security
interest, provided that any Person to whom such
Interest is sold shall take such Interest subject
to all the terms of this Agreement.
(b) SECURITIES ACT COMPLIANCE. Anything in
this Agreement to the contrary notwithstanding,
no Transfer of Interests in the Company otherwise
permitted or required by this Agreement shall be
made unless such Transfer is in compliance with
federal and state securities laws, including
without limitation the Securities Act. In
connection with any Transfer or proposed Transfer
of Interest in the Company, if requested by the
Company, before such Transfer the holder of such
Interests proposing to effect such Transfer shall
provide the Company either (i) a written opinion
of legal counsel who shall be reasonably
satisfactory to the Company, addressed to the
Company and satisfactory in form and substance to
the Company, to effect that the proposed Transfer
of Interests in the Company may be effected
without registration under the Securities Act and
applicable state securities laws, or (ii) a >no-
action= letter from the staff of the Securities
and Exchange Commission (the "SEC") to the effect
that the distribution of such securities without
registration under the Securities Act will not
result in a recommendation by the staff of the
SEC that action be taken in respect thereof, or a
combination of (i) and (ii) hereof.
(c) AGREEMENT TO BE BOUND. Anything in this
Agreement to the contrary notwithstanding, unless
otherwise agreed to in writing by each of the
Members, no Transfer of Interests in the Company
otherwise permitted or required by this Agreement
shall be effective unless and until the
transferee shall execute and deliver to the
Company an agreement in which such transferee
agrees to be bound by this Agreement and to
observe and comply with this Agreement and with
all obligations and restrictions imposed on
Members hereby in such form as is acceptable to
the Manager, provided that any Person that is
only granted a lien or security interest in a
Member's Interest in the Company pursuant to
Section 9.1(a)(iii) shall not be required to
execute such an agreement as a condition to the
grant of such lien or security interest. Each
Person to whom a Transfer of Interests in the
Company is permitted by this Agreement, who
receives a Transfer of Interests in the Company
during the term of the Company, and who is
required to agree in writing to be bound by the
provisions hereof, shall become a "Member" for
all purposes of this Agreement after such Person
has agreed to be so bound.
(d) TRANSFERS IN VIOLATION OF THIS AGREEMENT.
Transfers of Interests in the Company may only be
made in strict compliance with all applicable
terms of this Agreement, and any purported
Transfer of Interests in the Company that does
not so comply with all applicable provisions of
this Agreement shall be null and void and of no
force or effect, and the Company shall not
recognize nor be bound by any such purported
Transfer and shall not effect any such purported
Transfer and shall not effect any such purported
Transfer on the transfer books of the Company.
9.2 SPECIFIC PERFORMANCE. Each of the parties to
this Agreement acknowledges that it shall be
impossible to measure in money the damages to the
Company or the Member(s), if any of them or any
transferee or any legal representative of any party
hereto fails to comply with an of the restrictions or
obligations imposed by this Article, that every such
restriction and obligation is material, and that in
the event of any such failure, the Company or the
Member(s) shall not have an adequate remedy at law or
in damages. Therefore, each party hereto consents to
the issuance of an injunction or the enforcement of
other equitable remedies against him at the suit of an
aggrieved party without the posting of any bond or
other security, to compel specific performance of all
of the terms of this Article and to prevent any
disposition of Interests in the Company in
contravention of any terms of this Article and waives
any defenses thereto, including, without limitation,
the defenses of: (i) failure of consideration; (ii)
breach of any other provision of this Agreement; and
(iii) availability of relief in damages.
9.3 MEMBERS OF RECORD; RELATED MATTERS. The
Company and its Manager will be entitled to consider
the owner of any Interest in the Company as set forth
in the records of the Company as the absolute owner
thereof for all purposes. The Company and its Manager
will not incur any liability for Distribution of cash
or other property made in good faith to the owner of a
Interest in the Company until such time as a written
assignment of such Interest and an agreement to be
bound by this Agreement has been received and accepted
by the Company and such assignment has been recorded
on the books of the Company. The Company and its
Manager may refuse to accept a purported assignment of
Interests in the Company until the end of the next
succeeding quarterly or annual accounting period. No
Member shall under any circumstances Transfer any of
its Interests in the Company to a minor or incompetent
or any other person not qualified to become a Member
pursuant to this Agreement and, in the event any such
Transfer should be attempted, such will be null, void
and ineffectual and will not bind the Company or its
Members, or Manger. In no event will any purported
Transfer of any Interest in the Company, by operation
of law or otherwise, require the Company or its
Manager to account to more than one person with
respect to such transferred Interests.
9.4 TERMINATION OF RIGHTS AND OBLIGATIONS. As of
the effective date of any Transfer permitted under
this Article by a Member of its entire Interest in the
Company, such Member's rights and obligations
hereunder shall terminate except for any Transfer that
is permitted under Section 9.1(a)(iii), in which case
such Member's rights and obligations shall continue
unless and until the person to whom such Transfer is
made agrees in writing to assume all the obligations
and duties of such Member under this Agreement.
ARTICLE X
DISSOLUTION
10.1 DISSOLUTION. This Company shall be
dissolved on the first of the following to occur:
(a) when the period fixed for the duration of
this Company expires;
(b) upon the occurrence of events specified in
the Certificate of Formation or this Agreement to
cause dissolution;
(c) the written Consent of all Members;
(d) except as otherwise provided in this
Agreement, upon the withdrawal, bankruptcy,
liquidation, or dissolution of a Member or the
occurrence of any other event which terminates
the continued membership of a Member in this
Company;
(e) entry of a decree of judicial dissolution
under the Act; or
(f) upon sixty (60) days written notice by one
Member to each of the other Members at any time
after Phase 1.
For purposes of this Section, the term
"DISSOLUTION" does not include a merger, spin-off,
consolidation, reorganization or recapitalization of a
Member.
10.2 JUDICIAL DISSOLUTION. On application by
or for a Member, a court of competent jurisdiction may
decree dissolution of this Company if it is not
reasonably practicable to carry on the business of
this Company in conformity with its Certificate of
Formation and this Agreement.
10.3 WINDING UP. On the dissolution of this
Company, its affairs shall be wound up as soon as
reasonably practicable. The winding up shall be
accomplished by the Manager. In addition, a court of
competent jurisdiction, on cause shown, may wind up
the Company's affairs on application of any Member or
the Member's legal representative or assignee and, in
connection with the winding up, may appoint a Person
to carry out the liquidation and may make all other
orders, directions, and inquiries that the
circumstances require.
10.4 DISTRIBUTIONS UPON TERMINATION AND
DISSOLUTION OF THIS COMPANY. Upon the winding up of
the Company, the Manager or other Person designated in
accordance with Section 10.3 will proceed to wind up
the affairs of the Company. The liabilities and
obligations to creditors and all expenses incurred in
its liquidation and dissolution will be paid and will
have first priority in winding up as otherwise
provided in this Agreement. The Manager may retain
from available cash and other assets of the Company
sufficient reserves for anticipated and contingent
liabilities. Undistributed cash, and other property
valued at its fair market value on the date of
Distribution, will be Distributed to the Members in
the following order:
(a) Distributions will first be made to repay
any loans to the Company by a Member, including
the amount of any deferred payment obligation to
a Member or a Member's personal representative.
(b) Distributions will then be made to the
Members in an amount equal to the credit balances
in their capital accounts so that the capital
account of each Member shall be reduced to zero.
(c) The balance, if any, will be made to the
Members in an amount equal to each Member's
percentage interest in the Company as determined
immediately prior to the Distribution of the
credit balances of the Member's capital accounts.
The Manager, in making or preparing to make a
partial or final distribution may deliver
undivided interests in an asset or class of
assets to the Members subject to any indebtedness
which may be secured by the property.
If sufficient cash or other assets are available
and a Distribution is made to the Members of undivided
interests in the pipelines, plants or other physical
assets, then after said Distribution the members shall
negotiate in good faith in an attempt to enter into an
operating agreement that will provide for the
continued operation of the distributed assets by the
former Members as tenants in common.
The Company may continued beyond its scheduled
termination date for a time reasonably necessary to
conclude the administration of the Company, pay
expenses of termination and distribute all of the
Property to those entitled thereto.
ARTICLE XI
EXCULPATION AND INDEMNIFICATION
11.1 EXCULPATION. Neither the Manager, nor any
Affiliate of the Manager, shall be liable,
responsible, or accountable in damages or otherwise to
the Company or any Member by reason of, or arising
from, the operations, business, or affairs of, or any
action taken or failure to act on behalf of, the
Company, except to the extent caused by any Cause of
such Person. THE MEMBERS RECOGNIZE THAT THIS PROVISION
SHALL RELIEVE ANY SUCH PERSON FROM ANY AND ALL
LIABILITIES, OBLIGATIONS, DUTIES, CLAIMS, ACCOUNTS AND
CAUSES OF ACTION WHATSOEVER ARISING OR TO ARISE OUT OF
ANY NEGLIGENCE BY ANY SUCH PERSON OR ANY THEORY BASED
UPON OR SIMILAR TO STRICT LIABILITY.
11.2 INDEMNIFICATION.
INDEMNITEES AND INDEMNIFIABLE CLAIMS. The
Company shall indemnify and hold harmless (i) the
Manager, (ii) any Affiliate of the Manager, and
(iii) any officer, director, employee, agent,
stockholder, member or partner of the Manager or
any of its Affiliates (each, an "INDEMNITEE"),
from and against any claim, loss, damage,
liability, or reasonable expense (including
reasonable attorney's fees, court costs, and
costs of investigation and appeal) suffered or
incurred by any such Indemnitee by reason of, or
arising from the operations, business, or affairs
of, or any action taken or failure to act on
behalf of, the Company, except to the extent any
of the foregoing was caused by any Cause of such
person. THE MEMBERS RECOGNIZE THAT SUCH
INDEMNITEE SHALL BE ENTITLED TO INDEMNIFICATION
FROM THE NEGLIGENCE OF INDEMNITEE OR LIABILITY
BASED UPON STRICT LIABILITY OR ANY SIMILAR
DOCTRINE.
ARTICLE XII
MISCELLANEOUS
12.1 BOOKS AND RECORDS.
(a) The Company shall maintain such books and
records of the Company shall be open to
inspection and copying by the Members from time
to time. The Company shall keep and maintain the
following records in its principal office and
make them available in such office within five
days after the date of receipt of a written
request:
(1) a current record that includes
(i) the name and mailing address of
each Member;
(ii) the percentage interest in the
Company owned by each Member;
(2) copies of the federal, state, and
local information or income tax returns for
the Company's seven most recent tax years.
(3) a copy of the Certificate of Formation
and this Agreement, all amendments or
restatements thereof, executed copies of any
powers of attorney, and copies of any
document that creates, in the manner provided
by the Certificate of Formation or this
Agreement, classes of members;
(4) The records of the Company or this
Agreement shall set forth:
(i) the amount of the cash contribution
and a description and statement of the
Agreed Value of any other contribution
made by each Member, and the amount of the
cash contribution and a description and
statement of the Agreed Value of any other
contribution that the Member has agreed to
make in the future as an additional
contribution;
(ii) the times at which additional
contributions are to be made or events
requiring additional contributions to be
made;
(iii) events requiring the Company to
be dissolved and its affairs wound up;
(iv) the date on which each Member
in the Company became a Member;
(5) correct and complete books and records
of account of the Company.
(b) The Company shall maintain its records in
written form or in another form capable of
conversion into written form within a reasonable
time.
(c) A Member, on written request stating the
purpose, may examine and copy, in person or by
the Member's authorized representative, at any
reasonable time, for any proper purpose, and at
the Member's expense, records required to be kept
under this Section 12.1 and other information
regarding the business, affairs, and financial
condition of the Company as is just and
reasonable for the person to examine and copy.
(d) A Member, upon prior written notice to the
Company, shall have the right to audit the books
and records of the Company during regular
business hours for any period, at the cost of the
Member conducting such audit unless otherwise
agreed by the Members.
(e) On the written request by any Member, the
Company shall provide to the requesting Member
without charge true copies of:
(1) the Certificate of Formation and this
Agreement and all amendments or restatements;
and
(2) any tax returns of the Company.
12.2 METHOD. Whenever by statute or the
Certificate of Formation or this Agreement, notice is
required to be given to any Member of the Company, and
no provision is made as to how the notice shall be
given, it shall not be construed to mean personal
notice, but any such notice may be given in writing
postage prepaid, addressed to the Company, or Member
at the address appearing on the books of the Company,
or by any other method permitted by law. Any notice
required or permitted to be given by mail shall be
deemed given at the time when the same is deposited in
the United States mails.
12.3 TAX MATTERS.
(a) TAX MATTERS MEMBER. KLT is hereby
designated as the "TAX MATTERS MEMBER" of the
Company in accordance with Section 6231(a)(7) of
the Code and shall serve in such capacity until
the Members determine otherwise. Should the
unified audit rules of subchapter C of Chapter 63
of Subtitle F of the Code be applicable, the Tax
Matters Member shall: (i) take such action as may
be necessary to cause each of the other Members
to become a notice partner within the meaning of
Section 6223 of the Code, (ii) keep each of the
other Members fully advised of the progress of
any audit, (iii) promptly notify each of the
other Members of any audit adjustments proposed
by the Internal Revenue Service, or other taxing
authority, provide a copy of such materials to
each of the other Members, and (v) not enter into
a settlement agreement pursuant to Section 6224
of the Code without obtaining the prior Consent
of all Members. The Tax Matters Member shall be
reimbursed by the Company for any reasonable
expenses incurred by the Tax Matters Member, or
on that Member's behalf, in such Member's
capacity as the Tax Matters Member.
(b) ELECTIONS. The Tax Matters Member shall
make all elections and other determinations for
federal, state, local and foreign tax purposes,
on behalf of the Company.
12.4 SEAL. The Company shall have no seal.
12.5 AMENDMENTS. This Agreement may be altered
or repealed only by unanimous Consent of all the
Members.
12.6 HEADINGS. The headings used in this
Agreement have been inserted for convenience only and
do not constitute matter to be construed in
interpretation.
12.7 CONSTRUCTION. Whenever the context so
requires, the masculine shall include the feminine and
neuter, and the singular shall include the plural, and
conversely. If any portion of this Agreement shall be
invalid or inoperative, then, so far as is reasonable
and possible:
(a) the remainder of this Agreement shall be
considered valid and operative; and
(b) effect shall be given to the intent
manifested by the portion held invalid or
inoperative.
12.8 DISCLAIMER OF PUNITIVE DAMAGES. No Member
shall be entitled to recover punitive or exemplary
damages from any other Member, whether acting in its
capacity as Manager or otherwise in connection with
this Agreement.
12.9 TAXABLE AS A PARTNERSHIP. The Company
will constitute a partnership for federal income tax
purposes. The Company shall prepare or cause to be
prepared all necessary tax reports and other
information required by the Internal Revenue Service
and a report for income tax purposes to each Member of
its distributive share of items of income, gain, Loss,
deduction and credit.
12.10 CHARGES FOR SERVICES TO MEMBERS FOLLOWING
A CHANGE OF CONTROL. Unless otherwise agreed in
writing by all Members, in the event there is a Change
of Control with respect to the Manager, from that
point forward the Company may not charge an amount in
excess of $0.30 per Mcf to a Member or its Affiliate,
for gathering and other related services contemplated
hereunder in connection with the gathering,
compressing, processing and treating of the Member or
Affiliate's share of any gas produced from a well or
▇▇▇▇▇ in which such Member or its Affiliate owns an
interest and which are subject to the Participation
Agreement.
IN WITNESS WHEREOF all of the Members of the
Company have executed this Agreement as of the
Effective Date.
BANDERA PETROLEUM EXPLORATION, L.L.C.
By: /s/▇. ▇. ▇▇▇▇▇▇▇▇
Name: ▇. ▇. ▇▇▇▇▇▇▇▇
Title: Managing Member
KLT GAS, INC.
By: /s/▇▇▇▇▇▇▇ ▇. ▇▇▇▇
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇
Title: Executive Vice President of Operations
