AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT OF ENSOURCE ENERGY, LLC DATED AS OF , 2006
Exhibit 3.10
AMENDED AND RESTATED
LIMITED LIABILITY COMPANY
AGREEMENT
OF
ENSOURCE ENERGY, LLC
DATED AS OF , 2006
* * * * * * * * * *
THE MEMBERSHIP INTERESTS REPRESENTED BY THIS LIMITED LIABILITY COMPANY AGREEMENT HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY STATE SECURITIES ACTS OR
OTHER SIMILAR STATUTES IN RELIANCE UPON EXEMPTIONS UNDER THOSE ACTS. THE SALE OR OTHER DISPOSITION
OF THE MEMBERSHIP INTERESTS IS PROHIBITED UNLESS SUCH SALE OR DISPOSITION IS MADE IN COMPLIANCE
WITH ALL SUCH APPLICABLE ACTS, OR UNLESS AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT
AND UNDER ANY APPLICABLE STATE SECURITIES LAWS IS AVAILABLE IN CONNECTION WITH SUCH TRANSFER.
ADDITIONAL RESTRICTIONS ON TRANSFER OF THE MEMBERSHIP INTERESTS ARE SET FORTH IN THIS AGREEMENT.
BY ACQUIRING THE MEMBERSHIP INTERESTS IN THE COMPANY, THE MEMBER REPRESENTS THAT IT HAS ACQUIRED
THE MEMBERSHIP INTERESTS FOR INVESTMENT AND THAT IT WILL NOT SELL OR OTHERWISE DISPOSE OF THE
MEMBERSHIP INTERESTS WITHOUT REGISTRATION OR OTHER COMPLIANCE WITH THE AFORESAID ACTS AND THE RULES
AND REGULATIONS THEREUNDER, UNLESS AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT AND
UNDER ANY APPLICABLE STATE SECURITIES LAWS IS AVAILABLE IN CONNECTION WITH THE TRANSFER, AND THE
REQUIREMENTS OF THIS AGREEMENT.
TABLE OF CONTENTS
Article 1 | ||||||
Organizational Matters | ||||||
1.1
|
Formation | 1 | ||||
1.2
|
Name | 1 | ||||
1.3
|
Registered Office; Principal Office | 2 | ||||
1.4
|
Term | 2 | ||||
Article 2 | ||||||
Definitions | ||||||
2.1
|
Definitions | 2 | ||||
Article 3 | ||||||
Purpose | ||||||
3.1
|
Purpose | 15 | ||||
Article 4 | ||||||
The Members; Classes of Membership Interests; Capital Contributions | ||||||
4.1
|
Members | 16 | ||||
4.2
|
Membership Interests | 16 | ||||
4.3
|
Additional Company Securities | 16 | ||||
4.4
|
Capital Contributions | 16 | ||||
4.5
|
Non-Payment of Capital Contributions | 17 | ||||
4.6
|
Capital Accounts | 19 | ||||
4.7
|
Member Expenses | 20 | ||||
Article 5 | ||||||
Allocations and Distributions | ||||||
5.1
|
Allocations for Capital Account Purposes | 20 | ||||
5.2
|
Allocations for Tax Purposes | 23 | ||||
5.3
|
Distributions | 25 | ||||
Article 6 | ||||||
Management and Operation of Business | ||||||
6.1
|
Board of Directors | 25 | ||||
6.2
|
Outside Activities; Duties of Directors | 30 | ||||
6.3
|
Company Funds | 31 | ||||
6.4
|
Indemnification of Members and their Affiliates | 31 | ||||
6.5
|
Liability of Members and Their Affiliates | 33 | ||||
6.6
|
Other Matters Concerning Board of Directors | 33 | ||||
6.7
|
Certain Decisions | 34 | ||||
6.8
|
Officers | 34 | ||||
6.9
|
Duties of Officers | 35 | ||||
6.10
|
Action by Written Consent | 35 | ||||
Article 7 | ||||||
Rights and Obligations of Members | ||||||
7.1
|
Limitation of Liability | 36 | ||||
7.2
|
Management of Business | 36 | ||||
7.3
|
Outside Activities | 36 |
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7.4
|
Return of Capital | 36 | ||||
7.5
|
Rights of Members Relating to the Company | 36 | ||||
7.6
|
Confidentiality | 36 | ||||
7.7
|
Special Actions | 37 | ||||
7.8
|
Votes | 38 | ||||
Article 8 | ||||||
Books, Records, Accounting and Reports | ||||||
8.1
|
Records and Accounting | 39 | ||||
8.2
|
Fiscal Year | 39 | ||||
8.3
|
Reports | 39 | ||||
Article 9 | ||||||
Tax Matters | ||||||
9.1
|
Tax Returns; Company Status; Elections | 39 | ||||
9.2
|
Tax Matters Partner | 40 | ||||
9.3
|
Withholding | 40 | ||||
Article 10 | ||||||
Transfer of Interests | ||||||
10.1
|
Transfers of Membership Interests | 41 | ||||
10.2
|
Right of First Refusal | 41 | ||||
10.3
|
Change in Control | 43 | ||||
10.4
|
Drag-Along | 45 | ||||
10.5
|
Right of Participation | 45 | ||||
10.6
|
Involuntary Transfers | 47 | ||||
10.7
|
Pledge of Membership Interest | 48 | ||||
10.8
|
General Transfer Provisions | 48 | ||||
10.9
|
Admission of Substituted Members | 51 | ||||
10.10
|
Indirect Transfers | 51 | ||||
Article 11 | ||||||
Dissolution and Liquidation | ||||||
11.1
|
Dissolution | 51 | ||||
11.2
|
Liquidation | 52 | ||||
11.3
|
Return of Capital | 53 | ||||
11.4
|
Waiver of Partition | 53 | ||||
11.5
|
Cancellation of Certificate of Membership Interest | 53 | ||||
11.6
|
Reasonable Time for Winding Up | 53 | ||||
11.7
|
No Capital Account Restoration | 53 | ||||
11.8
|
Compliance with Timing Requirements of Regulations | 53 | ||||
Article 12 | ||||||
Amendments; Meetings; Voting | ||||||
12.1
|
Amendments | 54 | ||||
12.2
|
Meetings | 54 | ||||
12.3
|
Action by Written Consent | 55 | ||||
Article 13 | ||||||
Registration Rights | ||||||
13.1
|
Demand Registration | 55 | ||||
13.2
|
Shelf Registration Statement | 56 |
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13.3
|
Priority on Demand Registrations | 57 | ||||
13.4
|
Piggy-Back Registration | 57 | ||||
13.5
|
Selection of Underwriters | 58 | ||||
13.6
|
Suspension and Blackout Period | 58 | ||||
13.7
|
Registration Procedures | 59 | ||||
13.8
|
Selling Holder Obligations | 62 | ||||
13.9
|
Registration Expenses | 62 | ||||
13.10
|
Indemnification; Contribution | 63 | ||||
13.11
|
Participation in Underwritten Registrations | 66 | ||||
13.12
|
Limitation on Subsequent Registration Rights | 66 | ||||
Article 14 | ||||||
Representations and Warranties | ||||||
14.1
|
Representations and Warranties of each Member | 66 | ||||
Article 15 | ||||||
General Provisions | ||||||
15.1
|
No Jury Trial | 67 | ||||
15.2
|
Addresses and Notices | 68 | ||||
15.3
|
Titles and Captions | 68 | ||||
15.4
|
Pronouns and Plurals | 68 | ||||
15.5
|
Construction of Term “Includes” | 68 | ||||
15.6
|
Further Action | 68 | ||||
15.7
|
Binding Effect | 68 | ||||
15.8
|
Integration | 68 | ||||
15.9
|
Creditors | 69 | ||||
15.10
|
Waiver | 69 | ||||
15.11
|
Legal Counsel | 69 | ||||
15.12
|
Title to Company Property | 69 | ||||
15.13
|
Applicable Law | 69 | ||||
15.14
|
Invalidity of Provisions | 69 | ||||
15.15
|
Counterparts | 69 | ||||
15.16
|
Specific Performance | 69 | ||||
15.17
|
Offset | 70 | ||||
15.18
|
Actual Direct Damages | 70 |
SCHEDULES: |
||
Schedule I
|
List of Members, Initial Capital Contributions and Sharing Ratios | |
EXHIBITS: |
||
Exhibit A
|
Form of Adoption Agreement |
iii
This AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT OF ENSOURCE ENERGY, LLC dated as
of , 2006 (the “Effective Date”) is entered into by and among the parties
set forth on the signature page, as provided herein.
PREAMBLE
WHEREAS, pursuant to that certain Limited Liability Company Agreement dated
March 21, 2006 (the “Original Agreement”), Xxxxx X. Xxxxx formed
Ensource Energy, LLC, a Delaware limited liability company, and a Certificate of
Formation was filed with the Secretary of State of Delaware on such date;
WHEREAS, contemporaneously with the execution of this Agreement, the Management
Investors, the Institutional Investors and the Company have entered into that
certain Subscription Agreement as of even date herewith (the “Subscription
Agreement”), whereby such parties have agreed to purchase membership interests
in the Company, subject to the terms and conditions set forth therein, and to become
members of the Company; and
WHEREAS, pursuant to this Agreement, the parties desire to amend and restate
the Original Agreement to capitalize the Company, as set forth in the Subscription
Agreement, and to issue Membership Interests (as defined herein) to the Initial
Members (as defined herein) in accordance with this Agreement and the Subscription
Agreement;
NOW, THEREFORE, in consideration of the premises and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
Initial Members hereby adopt this agreement.
ARTICLE 1
ORGANIZATIONAL MATTERS
ORGANIZATIONAL MATTERS
1.1 Formation. The Company was formed by the filing of the Certificate of Formation. Except as
expressly provided herein to the contrary, the Delaware Act shall govern the rights and obligations
of the Members and the administration and termination of the Company. The Company shall file such
other certificates or documents as may be required for the formation and operation of a limited
liability company in Delaware or any other state in which the Company may elect to do business.
The Company shall file any necessary amendments to the Certificate of Formation and do all things
requisite to the maintenance of the Company as a limited liability company under the laws of the
State of Delaware and any other state in which the Company may elect to do business, to the extent
such things are within the control of the Company. Notwithstanding anything herein to the
contrary, Section18-210 of the Act (entitled “Contractual Appraisal Rights”) shall not apply or be
incorporated into this Agreement.
1.2 Name. The name of the Company is, and the business of the Company shall be conducted under the
name of, “Ensource Energy, LLC”. The Company’s business may be conducted under any other name or
names deemed advisable by the Company, but not under the
1
name of any Member. The Company may change it’s name at any time and shall provide the Members
with written notice of each name change within 30 days after such name change.
1.3 Registered Office; Principal Office.
(a) The registered office of the Company in the State of Delaware shall be the initial
registered office named in the Certificate of Formation or such other office (which need not be a
place of business of the Company) as the Company may designate from time to time in the manner
provided by law, provided that prompt written notice of such designation be provided to the
Members. The registered agent of the Company in the State of Delaware shall be the initial
registered agent named in the Certificate of Formation or such other Person as the Company may
designate from time to time in the manner provided by law, provided that prompt written notice of
such designation be provided to the Members. The principal office of the Company shall be 0000 Xxx
Xxxxxx, Xxxxx 000, Xxxxxxx, Xxxxx 00000 or as otherwise designated by the Company from time to
time, provided that prompt written notice of such designation be provided to the Members. The
Company may maintain other offices at such place or places as the Company reasonably deems
advisable.
(b) The address of each Member shall be the address of such Member appearing on the books of
the Company from time to time, as provided for in Section 15.2 of this Agreement.
1.4 Term. The Company shall continue in existence until the occurrence of any event causing the
dissolution and liquidation of the Company pursuant to any provision of this Agreement, including
Article 11.
ARTICLE 2
DEFINITIONS
DEFINITIONS
2.1 Definitions. The following definitions shall for all purposes, unless otherwise clearly
indicated to the contrary, apply to the terms used in this Agreement:
“Acceptance Notice” has the meaning set forth in Section 10.5(b).
“Accountants” means Xxxx & Associates LLP or such other firm of recognized independent
certified public accountants as approved by the Board of Directors.
“Acquisitions” means any transaction in which a Person, directly or indirectly, acquires
(through an asset acquisition, merger, stock acquisition or other form of investment) control over
all or a portion of the assets, properties or business of another Person.
“Adjusted Capital Account” means the Capital Account maintained for each Member as of the end
of each Fiscal Year, (a) increased by any amounts that such Member is obligated to restore under
the standards set by Treasury Regulation §1.704-1(b)(2)(ii)(c) (or is deemed obligated to restore
under Treasury Regulation §§1.704-2(g) and 1.704-2(i)(5)) and (b) decreased by (i) the amount of
all deductions in respect of depletion that, as of the end of the Fiscal Year, are expected to be
made to such Member’s Capital Account in respect of the oil and gas properties of the Company, (ii)
the amount of all losses and deductions that, as of the end of such Fiscal Year, are reasonably
expected to be allocated to such Member in subsequent years under Sections 704(e)(2) and 706(d) of
the Code and Treasury Regulation §1.751-1(b)(2)(ii), and (iii) the amount of all distributions
that, as of the end of such Fiscal Year, are reasonably expected to be made to such Member in
subsequent years in accordance with the terms of this Agreement or otherwise to the extent they
exceed offsetting increases to such Member’s Capital Account that are reasonably
2
expected to occur during (or prior to) the year in which such distributions are reasonably
expected to be made. The foregoing definition of Adjusted Capital Account is intended to comply
with the provisions of Treasury Regulation §1.704-1(b)(2)(ii)(d) and shall be interpreted
consistently therewith.
“Adjusted Property” means any property the Carrying Value of which has been adjusted pursuant
to Section 4.6(b).
“Adoption Agreement” means an Adoption Agreement, substantially in the form of Exhibit A
attached hereto.
“Affiliate” means any Person that directly or indirectly Controls, is Controlled by, or is
under common Control with the Person in question; provided, however, that the Institutional
Investors and their Affiliates shall not be deemed to be Affiliates of the Company.
“Agreed Allocation” means any allocation (or limitation imposed on any allocation) of an item
of income, gain, deduction or loss pursuant to Section 5.1 that is not a Required Allocation.
“Agreed Value” of any Contributed Property means the value allocated to such property at the
time of contribution as determined by the Company.
“Agreement” means this Limited Liability Company Agreement, as it may be amended, restated,
supplemented or otherwise modified from time to time.
“Asset Transfer” means the direct or indirect Transfer or abandonment of any properties or
other assets or any interest in such properties or other assets (exclusive of properties,
materials, supplies, equipment or other items of personal property disposed of in the ordinary
course of business and are not otherwise material to the business of the transferor).
“Audit Committee” has the meaning set forth in Section 6.1(c)(x).
“Available Cash” means, with respect to any period, (a) the sum of (i) cash and cash
equivalents of the Company and its subsidiaries and (ii) all additional cash and cash equivalents
of such Persons on the date of determination resulting from working capital borrowings made
subsequent to the end of such period, less (b) the amount of any cash reserves established by the
Board of Directors.
“Bankruptcy” means, with respect to a Member or the Company (a) filing a voluntary petition in
bankruptcy or for reorganization or for the adoption of an arrangement under Title 11 of the United
States Code (or any corresponding provision or provisions of succeeding law) or an admission
seeking the relief therein provided or the taking of similar action under the laws of any state or
local jurisdiction; (b) making a general assignment for the benefit of its creditors; (c)
consenting to the appointment of a receiver for all or a substantial part of its property; (d) in
the case of the filing of an involuntary petition in bankruptcy, the failure to have such filing
dismissed within 120 days of filing or, if earlier, an entry of an order for relief; or (e) the
entry of a court order appointing a receiver, liquidator, assignee, custodian or trustee for all or
a substantial part of its property without its consent or for the purpose of winding up the affairs
of such Person.
“Bankrupt Person” means (except to the extent the Required Interest of the Members consent
otherwise) any Member or Transferee (a) that (i) makes a general assignment for the benefit of
creditors; (ii) files a voluntary bankruptcy petition; (iii) becomes the subject of an order for
relief or is declared insolvent in any federal or state bankruptcy or insolvency proceeding; (iv)
files
3
a petition or answer seeking for the Person a reorganization, arrangement, composition,
readjustment, liquidation, dissolution, or similar relief under any law; (v) files an answer or
other pleading admitting or failing to contest the material allegations of a petition filed against
the Person in a proceeding of the type described in subclauses (i) through (iv) of this clause (a);
or (vi) seeks, consents, or acquiesces to the appointment of a trustee, receiver, or liquidator of
the Person or of all or any substantial part of the Person’s properties; or (b) against which a
proceeding seeking reorganization, arrangement, composition, readjustment, liquidation,
dissolution, or similar relief under any law has been commenced and 120 days have expired without
dismissal thereof or with respect to which, without the Person’s consent or acquiescence, a
trustee, receiver, or liquidator of the Person or of all or any substantial part of the Person’s
properties has been appointed and 90 days have expired without such appointments having been
vacated or stayed, or 90 days have expired after the date of expiration of a stay, if the
appointment has not previously been vacated.
“Board of Directors” has the meaning set forth in Section 6.1(a).
“Breach” means any breach, inaccuracy, failure to perform, failure to comply, conflict with,
default, violation, acceleration, termination, cancellation, modification, or required
notification.
“Business Day” means any day of the year except a Saturday, Sunday or other day on which banks
in Houston, Texas or New York, New York are required by law to close.
“Capital Account” means the Capital Account maintained for a Member pursuant to Section 4.6.
“Capital Contribution” means, with respect to each Member, any cash or the Agreed Value of any
property contributed to the Company by such Member.
“Capital Improvement” means any (a) addition or improvement to the capital assets owned by the
Company and its subsidiaries, (b) acquisition of existing, or the construction of new, capital
assets (including, without limitation, any oil and gas properties and any related or similar
upstream assets), in each case if such addition, improvement, acquisition or construction is made
to increase the operating capacity or revenues of the Company and its subsidiaries, from the
operating capacity or revenues of the Company and its subsidiaries or such Person, as the case may
be, existing immediately prior to such addition, improvement, acquisition or construction.
“Carrying Value” means (a) with respect to a Contributed Property, the Agreed Value of such
property, or in the case of an Adjusted Property, its Fair Market Value, reduced (but not below
zero) in each case by depreciation, depletion, amortization and cost recovery deductions charged to
the Members’ Capital Accounts in respect of such Contributed Property or Adjusted Property, and (b)
with respect to any other Company property, the adjusted basis of such property for federal income
tax purposes, all as of the time of determination. The Carrying Value of any property shall be
adjusted from time to time in accordance with Section 4.6(b) and to reflect changes, additions or
other adjustments to the Carrying Value for dispositions and acquisitions of Company properties.
“Chairman” has the meaning set forth in Section 6.1(c)(vi).
“Change in Control” means, with respect to any Member or Transferee that is not an individual,
(a) the Transfer of any Equity Interests issued by the relevant Person resulting in a change in the
Parent of such Member or Transferee (other than a Transfer resulting in a change in the Person
constituting the ultimate beneficial owner of such Person) or (b) the Transfer (whether by a direct
assignment, a sale of all or substantially all of the assets of the Parent or any Person that
Controls any Parent or a merger, consolidation, conversion, share exchange, or similar
4
statutory reorganization) of any Equity Interest of any Parent or any Person that Controls any
Parent.
“Change in Control Interest” has the meaning set forth in Section 10.3(a).
“Change in Control Offer Notice” has the meaning set forth in Section 10.3(a).
“Change in Control Option Period” has the meaning set forth in Section 10.3(a).
“Change in Control Party” has the meaning set forth in Section 10.3(a).
“Citizenship Certification” means a certification of a Member or a Transferee certifying that
such Person is qualified to hold an interest in oil and gas leases on federal lands, including
offshore areas, under federal laws and regulations in effect from time to time.
“Code” means the Internal Revenue Code of 1986, as amended and in effect from time to time.
"Commodity Hedging Transaction” means any commodity hedging transaction pertaining to oil, gas
and related hydrocarbons and minerals, whether in the form of a swap agreement, option to acquire
or Dispose of a future contract, whether on an organized commodities exchange or otherwise, or
similar type of financial transaction classified as “notional principal contracts” pursuant to
Treasury Regulation Section 1.446-3. Any Commodity Hedging Transaction shall be identified in the
books and records of the Company as a “hedging transaction” in the manner and at the times
prescribed by Treasury Regulation Section 1.1221-2(f).
“Commission” means the U.S. Securities and Exchange Commission.
“Commitment” means (a) options, warrants, convertible securities, exchangeable securities,
subscription rights, conversion rights, exchange rights, or other Contracts that could require a
Person to issue any of its Equity Interests or to sell any Equity Interests it owns in another
Person; (b) any other securities convertible into, exchangeable or exercisable for, or representing
the right to subscribe for any Equity Interest of a Person or owned by a Person; (c) statutory
pre-emptive rights or pre-emptive rights granted under a Person’s organizational or constitutive
documents; and (d) stock appreciation rights, phantom stock, profit participation, or other similar
rights with respect to a Person.
“Company” means the limited liability company established by this Agreement by the filing of
the Certificate of Formation with the Secretary of State of the State of Delaware.
“Company Debt Securities” has the meaning set forth in Section 4.3.
“Company Equity Securities” has the meaning set forth in Section 4.3.
“Company Minimum Gain” means that amount determined in accordance with the principles of
Treasury Regulation §1.704 2(d).
“Company Securities” has the meaning set forth in Section 4.3.
“Confidential Information” has the meaning set forth in Section 7.6(b).
“Conflicts Committee” has the meaning set forth in Section 6.1(c)(x).
5
“Contract” means any contract, agreement, arrangement, commitment, letter of intent,
memorandum of understanding, heads of agreement, promise, obligation, right, instrument, document,
or other similar understanding, whether written or oral.
“Contributed Property” means each property or other asset contributed to the Company. Once
the Carrying Value of Contributed Property is adjusted pursuant to Section 4.6(b), such property
shall be referred to as Adjusted Property.
“Control” (and its derivatives and similar terms) means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and policies of a
Person, whether through ownership or control of Equity Interests, by contract or otherwise.
“Co-Seller” has the meaning set forth in Section 10.4(a).
“Co-Sellers” has the meaning set forth in Section 10.4(a).
“Covered Person” has the meaning set forth in Section 6.5.
“Default” means, for any Member or Transferee: (a) the failure to remedy, within five Business
Days of such Person’s receipt of written notice thereof from the Company or any Member, the failure
of such Person to make any Capital Contribution required hereunder; (b) the occurrence of any event
that causes such Person to become a Bankrupt Person; or (c) the failure to remedy, within ten
Business Days of such Person’s receipt of written notice thereof from the Company or any other
Member, the non-performance of or non-compliance with any other material agreement, obligation or
undertaking of such Person or any of its Affiliates contained herein.
“Defaulting Member” has the meaning set forth in Section 4.5.
“Delaware Act” means the Delaware Limited Liability Company Act, Chapter 18 of Title 6 of the
Delaware Code Annotated, as it may be amended from time to time, and any successor to such act.
“Demand Registration” has the meaning set forth in Section 13.1(a).
“Demand Request” has the meaning set forth in Section 13.1(a).
“Director” and “Directors” is defined in Section 6.1(a).
“Effective Date” has the meaning set forth in the preamble of this Agreement.
“Eligible Recipient” has the meaning set forth in Section 4.2(b).
“Equity Interest” means (a) with respect to a corporation, any and all shares of capital stock
and any Commitments with respect thereto, (b) with respect to a partnership, limited liability
company, trust or similar Person, any and all units, interests or other partnership/limited
liability company interests, and any Commitments with respect thereto, and (c) any other direct or
indirect equity ownership or participation in a Person.
“ERISA” means the Employee Retirement Income Security Act of 1974, as amended.
“Event of Dissolution” has the meaning set forth in Section 11.1(a).
6
“Exchange Offer” means the exchange offer, including any extension thereof, to be made by the
Fund to holders of depositary units of Eastern American Natural Gas Trust (“NGT”), which
exchange offer will be described in that certain Registration Statement on Form S-4 (Commission
File No. 333-126068) filed with the Commission on June 23, 2005, as same may be amended or
supplemented hereafter, including the definitive prospectus and related exchange materials to be
contained therein.
“Exempt Transfer” means a Transfer of a Membership Interest or any portion thereof (a) by any
Institutional Investor to any Affiliate, (b) by any Member who is a natural person, to any trust,
corporation, limited liability company, partnership or other entity which was organized, formed or
incorporated primarily for the benefit of such Person’s Beneficiaries and whose voting control is
vested in such Member and (c) by any Member to another Member.
“Exempt Transferee” means the Transferee of a Membership Interests Transferred pursuant to an
Exempt Transfer.
“Fair Market Value” means, with respect to any property or asset, the fair market value of
such property or asset as determined by the Board of Directors; provided, that if any Member
disagrees with any such determination, the Board of Directors shall in good faith select a
qualified independent appraiser to determine as promptly as reasonably practicable the relevant
fair market value, which determination shall be binding on the Company, the Board of Directors and
each Member. The Company shall bear the expenses of such appraiser.
“Fiscal Year” means the twelve month period ending on December 31 of each year; provided that
the initial Fiscal Year shall begin on the date of the formation of the Company and the last Fiscal
Year shall begin on January 1 of the calendar year in which the final liquidation and termination
of the Company is completed and end on the date such final liquidation and termination is
completed.
“Foreclosure Transfer” means any Transfer resulting from any judicial or non-judicial
foreclosure by the holder of a Security Interest or any Transfer to the holder of a Security
Interest in connection with a workout or similar arrangement or any Transfer from the holder of a
Security Interest.
“Fund” means Ensource Energy Income Fund LP, a Delaware limited partnership.
“Fund Agreement” means the Amended and Restated Agreement of Limited Partnership of Ensource
Energy Income Fund LP, as amended.
“Fund Common Units” has the meaning given to such term in the Fund Agreement.
“Fund GP Interest” means the interest of the Company in the Fund as the general partner, which
interest will include all rights to incentive distributions and the associated income allocations
of the Fund relating thereto.
“Fund Subordinated Units” has the meaning given to such term in the Fund Agreement.
“Fund Subordination Period” has the meaning given to such term in the Fund Agreement.
“Fund Unit” means a Fund Common Unit or a Fund Subordinated Unit held by the Company.
7
“Guarantee Obligation” means, as to any Person (the “guaranteeing person”), any
obligation of (a) the guaranteeing person or (b) another Person (including, without limitation, any
bank under any letter of credit), if to induce the creation of such obligation of such other Person
the guaranteeing person has issued a reimbursement, counterindemnity or similar obligation, in
either case guaranteeing or in effect guaranteeing any Indebtedness, leases, dividends or other
obligations (the “primary obligations”) of any other third Person (the “primary
obligor”) in any manner, whether directly or indirectly, including, without limitation, any
obligation of the guaranteeing person, whether or not contingent, (i) to purchase any such primary
obligation or any property constituting direct or indirect security therefor, (ii) to advance or
supply funds (1) for the purchase or payment of any such primary obligation or (2) to maintain
working capital or equity capital of the primary obligor or otherwise to maintain the net worth or
solvency of the primary obligor, (iii) to purchase property, securities or services, in each case,
primarily for the purpose of assuring the owner of any such primary obligation of the ability of
the primary obligor to make payment of such primary obligation or (iv) otherwise to assure or hold
harmless the owner of any such primary obligation against loss in respect thereof; provided,
however, that the term Guarantee Obligation shall not include endorsements of instruments for
deposit or collection in the ordinary course of business.
“Hypothetical Liquidation” means, as of any date, a hypothetical liquidation of the Company as
of such date, assuming for purposes of any such hypothetical liquidation (i) that a sale of all of
the assets of the Company occurs at prices equal to their respective Fair Market Values as of such
date and (ii) the net proceeds of such sale are distributed to the Members pursuant to Section
11.2(d), and after the payment of all actual Company indebtedness, and any other liabilities
related to the Company’s assets, limited, in the case of the hypothetical payment of non-recourse
liabilities, to the collateral securing or otherwise available to satisfy such liabilities.
“Income Tax Method of Accounting” means the accounting basis used to prepare financial
statements for income tax purposes, which is a comprehensive basis for accounting other than
accounting principles generally accepted in the United States.
“Indebtedness” means, with respect to any Person at any date, without duplication, all (a)
indebtedness of such Person for borrowed money; (b) obligations of such Person for the deferred
purchase price of property or services (other than trade payables incurred in the ordinary course
of such Person’s business); (c) obligations of such Person evidenced by notes, bonds, debentures or
other similar instruments; (d) indebtedness created or arising under any conditional sale or other
title retention agreement with respect to property acquired by such Person (even though the rights
and remedies of the seller or lender under such agreement in the event of default are limited to
repossession or sale of such property); (e) capital lease obligations of such Person; (f)
obligations of such Person, contingent or otherwise, as an account party or applicant under
acceptance, letter of credit or similar facilities; (g) obligations of such Person, contingent or
otherwise, to purchase, redeem, retire or otherwise acquire for value any capital stock of such
Person; (h) Guarantee Obligations of such Person in respect of obligations of the kind referred to
in clauses (a) through (g) above; (i) obligations of the kind referred to in clauses (a) through
(h) above secured by (or for which the holder of such obligation has an existing right, contingent
or otherwise, to be secured by) any Lien on property (including, without limitation, accounts and
contract rights) owned by such Person, whether or not such Person has assumed or become liable for
the payment of such obligation and (j) obligations (netted, to the extent provided for therein) of
such Person in respect of any Commodity Hedging Transaction or any financial hedge.
“Indemnitee” has the meaning set forth in Section 6.4.
8
“Independent” has, when used with respect to an individual serving on the Board of Directors,
the meaning given to such term in the rules of the national stock exchange or NASDAQ applicable to
the Fund.
“Initial Member” means each of the Persons listed on Schedule I attached hereto as of the date
hereof.
“Initial Public Offering” means the first consummated offering of Company Equity Securities
registered under the Securities Act and which is underwritten on a firm commitment basis.
“Inspectors” has the meaning set forth in Section 13.7(j).
“Interim Capital Transactions” means the following transactions if they occur prior to the
liquidation date: (a) borrowings, refinancings or refundings of indebtedness (other than working
capital borrowings and other than for items purchased on open account in the ordinary course of
business) by the Company and its subsidiaries and sales of debt securities of any of them; (b)
sales of Equity Interests of the Company and its subsidiaries, and (c) the sale of any Equity
Interest in the Fund and Assets of the type that would characterized as Acquisitions or capital
expenditures except (in any such case) to the extent of the positive difference, if any, between
the net cash sale proceeds and the original cost.
“Institutional Investors” means, collectively, Xxxxxx, Ospraie and each of their respective
Exempt Transferees.
“Investor Directors” has the meaning set forth in Section 6.1(c)(iii).
“Involuntary Transfer” means an involuntary Transfer occurring by operation of law (including,
but not limited to, transfers resulting from death of such Person, the initiation and continuation
of Bankruptcy proceedings against such Person, the execution of either a judgment or a foreclosure
by a court of law against such Person or any other event that forces such Person to Transfer any of
its Membership Interests to a third party).
“Involuntary Transfer Notice” has the meaning set forth in Section 10.6(a).
“Joining Holders” has the meaning set forth in Section 13.1(b).
“Xxxxxx” means Xxxxxx Brothers Inc., a New York corporation.
“Xxxxxx Directors” has the meaning set forth in Section 6.1(c)(ii).
“Lien” means any of the following: mortgage; lien (statutory or other); other security
agreement, arrangement or interest; hypothecation, pledge or other deposit arrangement; assignment;
charge; levy; executory seizure; attachment; garnishment; encumbrance (including any easement,
exception, reservation or limitation, right of way, and the like); conditional sale, title
retention, voting agreement or other similar agreement, arrangement, device or restriction;
preemptive or similar right; the filing of any financing statement under the Uniform Commercial
Code or comparable law of any jurisdiction; or any restriction on Transfer; provided, however, that
the term Lien shall not include any of the foregoing to the extent created by this Agreement.
“Liquidator” has the meaning set forth in Section 11.2.
“Loss” and “Losses” have the meaning set forth in Section 13.10.
9
“Majority Interest of the Members” means Members with Sharing Ratios aggregating more than 50%
of the Sharing Ratios of all Members.
“Management Investors” means each of Messrs. Xxxxxxxx X. Xxxxxx and Xxxxx X. Xxxxx for so long
as such Person remains an employee of the Company.
“Management Directors” has the meaning set forth in Section 6.1(c)(iv).
“Material Adverse Effect” has the meaning set forth in Section 13.3.
“Member” means each of the Initial Members and any Person hereafter admitted to the Company as
an additional Member or Substituted Member as provided in this Agreement, but excluding (i) any
Person who has ceased to be a Member in the Company, or (ii) a Non-Member Member.
“Member Nonrecourse Debt” has the meaning set forth in Treasury Regulation §1.704-2(b)(4).
“Member Nonrecourse Debt Minimum Gain” has the meaning set forth in Treasury Regulation §1.704
2(i)(2).
“Member Nonrecourse Deductions” means any and all items of loss, deduction or expenditure
described in Section 705(a)(2)(B) of the Code that, in accordance with the principles of Treasury
Regulation §1.704 2(i), are attributable to a Member Nonrecourse Debt.
“Membership Interest” means the interest acquired by a Member in the Company including such
Member’s right: (i) to a distributive share of the Net Income, Net Loss, Simulated Gains,
Simulated Losses, Simulated Depletion and items of income, gain, loss, deduction and credit of the
Company, (ii) to a distributive share of the assets of the Company, and (iii) to vote on those
matters on which such Member has the right to vote as described in this Agreement.
“Merger” means the second-step merger described in the Registration Statement.
“NASD” has the meaning set forth in Section 13.7(h).
“Net Agreed Value” means, (a) in the case of any Contributed Property, the Agreed Value of
such property reduced by any liabilities either assumed by the Company upon such contribution or to
which such property is subject when contributed, and (b) in the case of any property distributed to
a Member by the Company, the Company’s Carrying Value of such property (as adjusted pursuant to
Section 4.6(b)(v)) at the time such property is distributed, reduced by any indebtedness either
assumed by such Member upon such distribution or to which such property is subject at the time of
distribution, in either case, as determined under section 752 of the Code.
“Net Income” means, for any taxable period, the excess, if any, of the Company’s items of
income and gain for such taxable period over the Company’s items of loss and deduction for such
taxable period. The items included in the calculation of Net Income shall be determined in
accordance with Section 4.6(b) and shall include Simulated Gains and Simulated Losses, but the
calculation of Net Income shall not include, and shall only be made after giving effect to the
allocation of, any items allocated under Section 5.1(c).
“Net Loss” means, for any taxable period, the excess, if any, of the Company’s items of loss
and deduction for such taxable period over the Company’s items of income and gain for such taxable
period. The items included in the calculation of Net Loss shall be determined in
10
accordance with Section 4.6(b) and shall include Simulated Gains and Simulated Losses, but the
calculation of Net Loss shall not include, and shall only be made after giving effect to the
allocation of, any items allocated under Section 5.1(c).
“NGT” means Eastern American Natural Gas Trust.
“Non-Cash Consideration” is defined in Section 10.2(e).
“Non-Change in Control Parties” is defined in Section 10.3(a).
“Non-Member Member” means any (i) Transferee that is not a Member because it (a) has been
party to a Transfer that violates any provision of this Agreement, (b) has violated a Change in
Control provision of this Agreement, or (c) is in Default or (ii) Member that is in Default.
“Non-Transferring-Person” has the meaning set forth in Section 10.2(a).
“Nonrecourse Deductions” means any and all items of loss, deduction or expenditures described
in Section 705(a)(2)(B) of the Code that, in accordance with the principles of Treasury Regulation
§1.704 2(b), are attributable to a Nonrecourse Liability.
“Nonrecourse Liability” has the meaning set forth in Treasury Regulation §1.752 1(a)(2).
“Opinion of Counsel” means a written opinion of legal counsel reasonably acceptable to the
Company, such opinion to be reasonably acceptable in form and substance to the Company.
“OpCo” means Ensource Reserves Management LLC.
“Operating Expenditures” means all Company (including its subsidiaries) cash expenditures,
including, without limitation, taxes, repayment of working capital borrowings, debt service
payments and capital expenditures, subject to the following: (a) repayment of working capital
borrowings deducted from Operating Surplus pursuant to clause (b)(iii) of the definition of
Operating Surplus shall not constitute Operating Expenditures when actually repaid; (b) Payments
(including prepayments) of principal of and premium on indebtedness other than working capital
borrowings shall not constitute Operating Expenditures; and (c) Operating Expenditures shall not
include (i) capital expenditures made for Acquisitions or Capital Improvements, (ii) payment of
transaction expenses relating to Interim Capital Transactions or (iii) distributions to Members.
Where capital expenditures are made in part for Acquisitions or for Capital Improvements and
in part for other purposes, the Conflicts Committee shall determine the allocation between the
amounts paid for each and, with respect to the part of such capital expenditures made for other
purposes, the period over which the capital expenditures made for other purposes will be deducted
as an Operating Expenditure in calculating Operating Surplus.
“Operating Surplus” means, with respect to any period ending prior to the liquidation date, on
a cumulative basis and without duplication, (a) the sum of (i) all cash receipts of the Company and
its subsidiaries for the period beginning on the Effective Date and ending on the last day of such
period, other than cash receipts from Interim Capital Transactions and (ii) all cash receipts of
the Company and its subsidiaries after the end of such period but on or before the date of
determination of Operating Surplus with respect to such period resulting from working capital
borrowings, less (b) the sum of (i) Operating Expenditures for the period beginning on the
Effective Date and ending on the last day of such period (other than Operating Expenditures funded
with cash reserves established pursuant to clause (ii) of this paragraph (b) and (ii) the amount of
cash
11
reserves established by the Board of Directors to produce funds for future Operating
Expenditures and (iii) all working capital borrowings not repaid within twelve months after having
been incurred; provided, however, that disbursements made (including contributions to a subsidiary
or disbursements on behalf of a subsidiary) or cash reserves established, increased or reduced
after the end of such period but on or before the date of determination of Available Cash with
respect to such period shall be deemed to have been made, established, increased or reduced, for
purposes of determining Operating Surplus, within such period if the Board of Directors so
determines. Notwithstanding the foregoing, Operating Surplus with respect to the quarter in which
the liquidation date occurs and any subsequent quarter shall equal zero.
“Original Agreement” has the meaning set forth in the preamble hereto.
“Ospraie” means [ ].
“Ospraie Directors” has the meaning set forth in Section 6.1(c)(iii).
“Other Assets” has the meaning set forth in Section 10.2(d).
“Parent” with respect to a Person means the Person that directly Controls such subject Person,
notwithstanding whether any other Person Controls (directly or indirectly) such Parent.
“Participating Member” has the meaning set forth in Section 10.5(e).
“Participation Offer” has the meaning set forth in Section 10.5(a).
“Participation Investor” has the meaning set forth in Section 10.5(a).
“Participation Notice” has the meaning set forth in Section 10.5(b).
“Participation Sale” has the meaning set forth in Section 10.5(b).
“Person” means an individual or a corporation, general partnership, limited partnership,
limited liability company, trust, unincorporated organization, association or other entity.
“Piggyback Registration” has the meaning set forth in Section 13.4(a).
“Piggyback Securities” has the meaning set forth in Section 13.4(b).
“Prime Plus Rate” means (a) a rate which is two percent (2%) above the annual rate of interest
published daily in The Wall Street Journal as the “Prime Rate (base rate on corporate loans posted
by at least 75% of the nation’s 30 largest banks)” or if such publication or reference is no longer
published, (a) such other comparable interest rate index selected by the Company that is readily
available to the public and verifiable by the Members but is beyond the control of the Company
(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.
“Proposed Transaction” has the meaning set forth in Section 10.2(a).
“Pro Rata” means apportioned equally among all designated Membership Interests in accordance
with their relative Sharing Ratio.
12
“Prospectus” means that certain prospectus dated November 21, 2005 and any prospectus
supplement thereto in connection with the registration statement on Form S-4 (Registration No.
333-126068) as filed with the SEC on November 17, 2005.
“Qualified IPO” means the offering of any Company Equity Securities of the Company in an
underwritten firm commitment public offering registered under the Securities Act that results in
aggregate gross proceeds to the Company of not less than $50,000,000 and resulting in a series of
the Company’s equity being listed on the New York Stock Exchange, the American Stock Exchange or
quoted on the NASDAQ National Market System.
“Recipients” has the meaning set forth in Section 7.6(a).
“Registrable Securities” means all shares of Company Equity Securities and any other
securities issued or issuable with respect to any Membership Interest by way of a distribution,
recapitalization, merger, consolidation or reorganization; provided, however, that any Registrable
Security will cease to be a Registrable Security when (i) a registration statement covering such
Registrable Security has been declared effective by the Commission and it has been Transferred
pursuant to such effective registration statement, (ii) it is sold under circumstances in which all
of the applicable conditions of Rule 144 (or any similar provisions then in force) promulgated by
the Commission under the Securities Act are met, or (iii) (A) it has been otherwise transferred,
and (B) it may be resold without subsequent registration or other restriction under the Securities
Act.
“Registration Expenses” has the meaning set forth in Section 13.9.
“Registration Statement” means that certain Registration Statement on Form S-4 (Commission
File No. 333-126068) filed with the Commission on June 23, 2005, as the same may be amended or
supplemented thereafter, including the definitive prospectus and related exchange materials to be
contained therein.
“Required Allocations” means any allocation (or limitation imposed on any allocation) of an
item of income, gain, deduction or loss pursuant to Sections 5.1(c)(i)-(vi), such allocations being
directly or indirectly required by the Treasury Regulations promulgated under Section 704(b) of the
Code.
“Requesting Holders(s)” has the meaning set forth in Section 13.1(a).
“Required Capital Contribution” has the meaning set forth in Section 4.5.
“Required Filing Date” has the meaning set forth in Section 13.1(c).
“Required Interest of the Members” means Members, at the time of any such determination, with
Sharing Ratios aggregating at least 66 2/3% of the Sharing Ratios of all Members.
“Section 704(c) Items” has the meaning set forth in Section 5.2(c).
“Securities Act” means the Securities Act of 1933, as amended.
“Security Interest” means any security interest, deed of trust, mortgage, pledge, lien,
encumbrance, charge, claim, or other similar interest, right, or obligation, whether created by
operation of law or otherwise.
“Selling Member” has the meaning set forth in Section 10.4(a).
13
“Service Units” has the meaning set forth in Section 9.1(c).
“Sharing Ratio” means, with respect to each Member, the Sharing Ratios set forth in Schedule I
attached hereto, as the same may be amended or otherwise modified from time to time in accordance
with this Agreement, provided that the Company shall provide written notice of all such changes to
Schedule I promptly thereafter.
“Shelf Registration Statement” has the meaning set forth in Section 13.2.
“Shelf Request” has the meaning set forth in Section 13.2.
“Simulated Basis” means the Carrying Value of any oil and gas property (as defined in Section
614 of the Code).
“Simulated Depletion” means, with respect to each oil and gas property, a depletion allowance
computed in accordance with federal income tax principles (as if the Simulated Basis of the
property were its adjusted tax basis) and in the manner specified in Treasury Regulation
§1.704-1(b)(2)(iv)(k)(2). For purposes of computing Simulated Depletion with respect to any
property, the Simulated Basis of such property shall be deemed to be the Carrying Value of such
property, and in no event shall such allowance, in the aggregate, exceed such Simulated Basis.
“Simulated Gain” means the excess of the amount realized from the sale or other disposition of
an oil or gas property over the Carrying Value of such property.
“Simulated Loss” means the excess of the Carrying Value of an oil or gas property over the
amount realized from the sale or other disposition of such property.
“Subject Interest” has the meaning set forth in Section 10.2(a).
“Subscription Agreement” has the meaning set forth in the preamble hereto.
“Substituted Member” means a Person that is admitted as a Member to the Company pursuant to
this Agreement in place of and with all the rights of a Member.
“Suspension Period” has the meaning set forth in Section 13.6(c).
“Transfer” and its derivative terms means any voluntary or involuntary sale, conveyance,
transfer, lease, assignment, exchange, mortgage, pledge, hypothecation, foreclosure, encumbrance
(including creation of any security interest in or lien on), gift, bequest, devise, place in trust
or any other disposition or alienation (in each case, with or without consideration) of any right,
interest or obligation with respect to any Membership Interest. The term Transfer shall not
include any transfer, transaction or other event that constitutes a Change in Control; provided,
that, any Member’s or Transferee’s failure to comply with the Change in Control provisions
contained in Section 10.3 shall constitute an attempted unpermitted Transfer and the affected
Member or Transferee shall be in Default under this Agreement.
“Transferee” means a Person who receives all or part of a Member’s or Transferee’s Membership
Interest through a Transfer, but which has not been admitted to the Company as a Substituted
Member, including a Member or Transferee that is affected by a Change in Control and has not
complied with Section 10.3.
“Transfer Offer-Notice” has the meaning set forth in Section 10.2(a).
14
“Transfer Option Period” has the meaning set forth in Section 10.2(a).
“Transferor” means a Member, Substituted Member or a predecessor Transferor who Transfers a
Membership Interest.
“Transferring Person” has the meaning set forth in Section 10.2(a).
“Transferring Members” has the meaning set forth in Section 10.5(a).
“Unrealized Gain” attributable to any item of Company property means, as of any date of
determination, the excess, if any, of (a) the Fair Market Value of such property as of such date
over (b) the Carrying Value of such property as of such date (prior to any adjustment to be made
pursuant to Section 4.6(b) as of such date).
“Unrealized Loss” attributable to any item of Company property means, as of any date of
determination, the excess, if any, of (a) the Carrying Value of such property as of such date
(prior to any adjustment to be made pursuant to Section 4.6(b), as of such date) over (b) the Fair
Market Value of such property as of such date.
“Warrants” means those warrants acquired by the Company to purchase up to 1,000,000 Fund
Common Units as more fully described in the Prospectus, in each case, in form and substance
acceptable to the Institutional Investors.
ARTICLE 3
PURPOSE
PURPOSE
3.1 Purpose. The sole purpose and business of the Company shall be to own OpCo and to serve as the
general partner and limited partner of the Fund and direct and cause the Fund, OpCo and their
subsidiaries to engage in the following activities: (a) the acquisition of oil and gas properties,
including the acquisition by OpCo of working interests, royalty interests and overriding royalty
interests and other interests in oil and gas properties and the conveyance of a net profits
interest therein to the Fund; (b) oil and gas development, production, exploration and processing;
(c) marketing and transportation of crude oil produced, owned or controlled by OpCo or the Company,
and natural gas, natural gas liquids and related products produced, owned or controlled by OpCo or
the Company; (d) ownership and operation of, and exercise of all rights in connection with, fee and
mineral interests and other oil and gas interests and properties, and the sale or disposition of
such interests and properties; (e) entering into commodity hedging transactions or fixed price
(which may be based on one or more indexes) forward sales contracts in order to minimize the risk
associated with the fluctuation of prices to be received by the Company from the sale of oil, gas
and related hydrocarbons attributable to the Company’s properties and to enter into financial
hedging transactions in order to manage OpCo’s or the Company’s interest rate exposure with respect
to investments made by OpCo or the Company, whether on organized exchanges or otherwise; (f)
undertaking any of the foregoing activities directly through the Fund or OpCo or indirectly through
the formation of direct or indirect subsidiaries or the acquisition of securities of other Persons;
and (g) carrying on any activity directly or indirectly relating to or arising from any of the
above that a limited liability company organized under the Delaware Act may carry on as determined
by the Board of Directors. The Members acknowledge and agree that it is their intention that the
Company become an operating business with all of the assets, rights, benefits, goodwill, ancillary
business, proprietary information and other components of its affairs being owned, directly, or
indirectly through any subsidiaries, by the Company.
15
ARTICLE 4
THE MEMBERS; CLASSES OF MEMBERSHIP INTERESTS; CAPITAL CONTRIBUTIONS
THE MEMBERS; CLASSES OF MEMBERSHIP INTERESTS; CAPITAL CONTRIBUTIONS
4.1 Members. The Members shall be the Members of the Company. No other Person may become a Member
except by means of a Transfer or issuance of a Membership Interest specifically permitted under and
effected in compliance with this Agreement.
4.2 Membership Interests.
(a) The Company is hereby authorized to issue Membership Interests in the Company in
consideration for an aggregate amount of Capital Contributions equal to up to $40 million, such
contribution to be apportioned among the Members as set forth on Schedule I.
(b) The Company is hereby authorized to issue additional Membership Interests from time to
time to Eligible Recipients pursuant to the terms and conditions of this Agreement; provided, that
the aggregate Sharing Ratio of all such Membership Interests outstanding at any time shall not
exceed 17.5% without consent of the Required Interest of the Members. As used herein, an
“Eligible Recipient” shall mean any officer, Manager or employee of the Company hereafter
designated as such by the President of the Company and approved by the Board of Directors. The
Sharing Ratio of the Membership Interest to be issued to an Eligible Recipient shall be proposed by
the President of the Company, subject to approval by the Board of Directors. Each issuance by the
Company of Membership Interests to an Eligible Recipient shall be evidenced (A) in the case of any
Person not a party to an employment agreement with the Company, by the execution and delivery of a
grant letter by and between the Company and such Eligible Recipient and (B) in the case of any
Person not already a party to this Agreement, by the execution and delivery of an Adoption
Agreement substantially in the form of Exhibit A hereto.
4.3 Additional Company Securities. In addition to the Membership Interests authorized pursuant to
Section 4.2, the Company is hereby authorized to issue such additional Membership Interests, or
classes or series thereof, or options, rights, warrants or appreciation rights relating thereto, or
any other type of equity security that the Company may lawfully issue (together with the Membership
Interests, “Company Equity Securities”), any unsecured or secured debt obligations of the
Company or debt obligations of the Company convertible into any class or series of equity
securities of the Company (“Company Debt Securities” and, together with Company Equity
Securities, “Company Securities”), upon compliance with this Section 4.3. Subject to
approvals otherwise required pursuant to the Delaware Act and this Agreement, the Company may issue
such Company Securities (a) pursuant to Section 4.2(b), (b) with respect to Membership Interests
issued upon the exercise of options granted to employees, officers, consultants, or directors of
the Company pursuant to an equity incentive plan approved by the Board of Directors (including, for
the avoidance of doubt, such options) and (c) at any time and from time to time if (i) the Company
shall have a need for additional Capital Contributions for any proper Company purpose, (ii) the
Company shall provide each existing Member other than Defaulting Members with the right to acquire
such newly-issued Company Securities so that such Member may maintain its Sharing Ratio with
respect to such newly-issued Company Equity Securities (including Company Securities convertible
into Company Equity Securities), taken as a whole and (iii) a Required Interest of the Members
approve the issuance of the Company Securities.
4.4 Capital Contributions. The Members agree to make Capital Contributions as provided in this
Section 4.4. Except as set forth in this Section 4.4, no Member shall have any obligation
whatsoever to make any other Capital Contributions or loan any funds to the Company. The
commitments of the Members under this Agreement are solely for the benefit of the Members,
16
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).
(a) Initial Capital Contributions. Each of the Initial Members (other than the Management
Investors, whose Capital Contribution was made at the date of formation), agrees to make a Capital
Contribution on the date of this Agreement and in accordance with the terms of the Subscription
Agreement in the amounts set forth opposite such Initial Member’s name of Schedule I attached
hereto.
(b) Capital Contributions Relating to Exchange Offer. If the Exchange Offer expires and NGT
depositary units constituting at least a majority of the outstanding NGT depositary units are
accepted for exchange thereunder, then the Company shall contribute to the Fund a total of up to
$40.0 million, such contribution to be made in respect of the following:
(i) the 1% general partner interest and the incentive distribution rights in the Fund;
(ii) to purchase Fund Common Units at a price per unit not to exceed $31 per Fund
Common Unit;
(iii) to purchase Fund Subordinated Units at a price per unit not to exceed $31 per
Fund Subordinated Unit; and
(iv) $500,000 to purchase the Warrants from the Fund.
(c) Capital Contributions as General Partner of the Fund. In the event that the Exchange
Offer is consummated and thereafter the Company, as general partner of the Fund, is required to
make additional capital contributions to the Fund in connection with the issuance of Fund Units or
other Fund securities and the Company does not have adequate capital to fund such contribution, any
Member may, but shall not be required to, contribute to the Company its proportionate part of such
additional Capital Contributions at such time as will permit the Company to satisfy its capital
contribution obligations to the Fund. Any such contributions will be made in proportion to the
Sharing Ratios of the Members. In the event that any Member elects not to contribute to the
Company its proportionate share of such additional Capital Contribution, the Sharing Ratio of the
non-contributing Members will be reduced based on the total capital account balances taking into
consideration the capital contributions made by the contributing Members (and the Sharing Ratios of
the contributing Members will be correspondingly increased) to reflect the increase in the capital
contributed to the Company by the contributing Members in connection therewith.
4.5 Non-Payment of Capital Contributions. In the event any Member agrees to make a Capital
Contribution to the Company (a “Required Capital Contribution”) but fails to pay its share
of such Required Capital Contribution on the date on which such Capital Contribution is due, such
unpaid Required Capital Contribution shall automatically accrue interest from the date due at the
Prime Plus Rate (which interest, once paid, shall not increase the Capital Account of such Member).
In addition, if such Default is not cured within five days after written notice thereof given by
the Company has been received by such Member (a “Defaulting Member”), all or any part of
the following provisions shall apply:
(a) The Company may elect, upon notice to a Defaulting Member by the Company, to (i) adopt
special allocations of income, gain, loss or deduction or otherwise debit such Defaulting
17
Member’s Capital Account balance such that such Defaulting Member’s Capital Account Balance is
reduced as soon as possible to an amount equal to 50% of the Capital Account balance existing as of
the date of the default (and make a corresponding credit to the respective Capital Account balances
of the non-Defaulting Members as if the credit amount was additional income or gain of the Company
recognized at such time) and (ii) reduce the applicable Sharing Ratios of such Defaulting Member
(and make a corresponding increase in the Sharing Ratios of the non-Defaulting Members in
proportion to their relative Sharing Ratios) to reflect a reduction in 50% of the Capital
Contributions theretofore made by such Defaulting Member.
(b) The Company may elect, upon notice to a Defaulting Member by the Company, to amend the
allocations of Net Income and Net Loss and rights to receive distributions set forth in this
Agreement such that such Defaulting Member shall have no additional rights to receive allocations
of Net Income from the Company and all Company distributions that would otherwise be made to such
Defaulting Member shall be paid to the non-Defaulting Members as otherwise provided herein.
(c) The Company may elect, upon notice to a Defaulting Member by the Company, to amend the
Agreement to provide that whenever the vote, election, consent or approval of such Defaulting
Member would otherwise be required or permitted under this Agreement, such Defaulting Member shall
not be entitled to participate in such vote, election, consent or approval, and such vote,
election, consent or approval shall be calculated as if such Defaulting Member were not a Member.
(d) The Company may elect, upon notice to a Defaulting Member by the Company, to eliminate
such Defaulting Member’s obligations to make Capital Contributions hereunder, such that such
Defaulting Member will have no additional right to make Capital Contributions to the Company
pursuant to Section 4.4 and no additional right to subscribe for other Company Securities pursuant
to Section 4.3.
(e) The Company may commence legal proceedings against a Defaulting Member to collect the due
and unpaid amount of Capital Contributions, together with interest thereon for the account of the
Company from the date due at the Prime Plus Rate, plus the costs and expenses of collection
(including reasonable attorneys’ fees and expenses).
(f) Except as otherwise provided herein, no right, power, or remedy conferred upon the Company
or the non-Defaulting Members under this Section 4.5 shall be exclusive, and each such right,
power, or remedy shall be cumulative and in addition to every other right, power, or remedy,
whether conferred under this Section 4.5 or now or hereafter available at law or in equity or by
statute or otherwise. Each Defaulting Member shall be liable for the costs and expenses (including
reasonable attorneys’ fees and expenses) incurred by the Company or the non-Defaulting Members in
enforcing any of the remedies or rights set forth in this Section 4.5. Each Member acknowledges by
its execution of this Agreement that it has been admitted to the Company in reliance upon its
agreement that the Company may exercise any and all rights, powers and remedies provided for in
this Section 4.5 in accordance with the terms herein or otherwise available at law or in equity.
(g) The Members agree (i) that the damages suffered by the Company as the result of a failure
by a Member to make a Capital Contribution that is required by this Agreement cannot be estimated
with reasonable accuracy, (ii) that the foregoing provisions of this Section 4.5 shall act as
liquidated damages for the default by a Defaulting Member (which each Member hereby agrees are
reasonable), and (iii) that the foregoing provisions of this Section 4.5 are also agreed upon by
the Members in reliance on Section 18-502(c) of the Delaware Act.
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(h) If a Member is in Default, the remaining Members may make, in proportion to their
respective Capital Account, the Capital Contribution not made by such Defaulting Member.
4.6 Capital Accounts.
(a) The Company shall maintain for each Member a Capital Account in accordance with the rules
of Treasury Regulation §1.704-1(b)(2)(iv). Such Capital Account shall be increased by (i) the cash
amount or the Net Agreed Value of all Capital Contributions made by such Member to the Company with
respect to such class pursuant to this Agreement and (ii) all items of Company income and gain
(including Simulated Gain and income and gain exempt from tax) computed in accordance with Section
4.6(b) and allocated to such Members with respect to such class pursuant to Section 5.1, and
decreased by (x) the amount of cash or Net Agreed Value of all actual and deemed distributions of
cash or property made to such Member with respect to such class pursuant to this Agreement and (y)
all items of Company deduction and loss (including Simulated Loss, Simulated Depletion and
expenditures of the Company that are neither deductible nor capitalized for federal income tax
purposes) computed in accordance with Section 4.6(b) and allocated to such Member with respect to
such class pursuant to Section 5.1.
(b) For purposes of computing the amount of any item of income, gain, loss or deduction to be
reflected in the Members’ Capital Accounts (including Simulated Depletion, Simulated Gain and
Simulated Loss), the determination, recognition and classification of any such item shall be the
same as its determination, recognition and classification for federal income tax purposes
(including any method of depreciation, cost recovery or amortization used for that purpose),
provided, that:
(i) Except as otherwise provided in Treasury Regulation §1.704-1(b)(2)(iv)(m), the
computation of all items of income, gain, loss and deduction shall be made without regard to
any election under Section 754 of the Code which may be made by the Company and, as to those
items described in Section 705(a)(1)(B) or 705(a)(2)(B) of the Code, without regard to the
fact that such items are not includable in gross income or are neither currently deductible
nor capitalized for federal income tax purposes.
(ii) Any income, gain or loss, including Simulated Gain or Simulated Loss, attributable
to the taxable disposition of any Company property shall be determined as if the adjusted
basis of such property as of such date of disposition were equal in amount to the Company’s
Carrying Value with respect to such property as of such date.
(iii) In the case of any property the Carrying Value of which differs from its adjusted
tax basis, depreciation, cost recovery, amortization and Simulated Depletion shall be
determined as if the adjusted basis of such property were equal to the Carrying Value of
such property.
(iv) In accordance with the provisions of Treasury Regulation §1.704-1(b)(2)(iv)(f),
upon a Member’s contribution to the Company of cash or properties in exchange for an
interest in the Company, the Capital Accounts of all Members and the Carrying Values of all
Company properties shall, immediately prior to such issuance, be adjusted upward or downward
to reflect any Unrealized Gain or Unrealized Loss attributable to the Company properties, as
if such Unrealized Gain or Unrealized Loss had been recognized on an actual sale of each
such property immediately prior to such contribution for an amount equal to its Fair Market
Value and had been allocated to the Members at such time pursuant to Section 5.1.
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(v) In accordance with the provisions of Treasury Regulation §1.704-1(b)(2)(iv)(f),
immediately prior to any actual or deemed distribution to a Member of any Company property
(other than a distribution of cash that is not in redemption or retirement of an interest in
the Company) the Capital Accounts of all Members and the Carrying Value of all Company
property (including the Company property to be distributed) shall be adjusted upward or
downward to reflect any Unrealized Gain or Unrealized Loss attributable to such Company
property, as if such Unrealized Gain or Unrealized Loss had been recognized in a sale of
such property immediately prior to such distribution for an amount equal to its Fair Market
Value, and had been allocated to the Members, at such time, pursuant to Section 5.1.
(c) The foregoing provisions and the other provisions of this Agreement relating to the
maintenance of Capital Accounts are generally intended to comply with Treasury Regulation §1.704
1(b) and such provisions generally shall be interpreted and applied in a manner consistent with
such Treasury Regulation. If the Company determines that it is prudent to modify the manner in
which the Capital Accounts, or any increases or decreases to the Capital Accounts, are computed in
order to substantially comply with such Regulations, the Company may make such modifications,
provided that it is not likely to have a material effect on the amounts distributable to any Member
pursuant to Section 11.2 upon the dissolution of the Company.
4.7 Member Expenses. Following successful completion of the Exchange Offer, the Company promptly
shall pay or reimburse each Institutional Investor and each Management Investor or any of their
respective Affiliates for the out-of-pocket expenses it has incurred in connection with its
consideration of an investment in the Company, due diligence of the Company, the negotiation,
preparation and execution of this Agreement and the Subscription Agreement, and the consummation of
the transactions thereunder, including all reasonable out-of-pocket costs related to the conversion
and formation of the Company (including the consummation of the Exchange Offer and Merger) incurred
by such Member and its Affiliates to the extent that any such costs are not paid directly by the
Company.
ARTICLE 5
ALLOCATIONS AND DISTRIBUTIONS
ALLOCATIONS AND DISTRIBUTIONS
5.1 Allocations for Capital Account Purposes. For purposes of maintaining Capital Accounts and in
determining the rights of the Members among themselves, the Company’s items of income, gain, loss
and deduction (computed in accordance with Section 4.6(b)) shall be allocated among the Members in
each Fiscal Year as follows:
(a) Income and Loss Attributable to Fund Units and Sales of Fund Units. Net Income and Net
Loss for each Fiscal Year attributable to allocations from the Fund with respect to Fund Units held
by the Company, and Net Income and Net Loss generated by the Company from the sale or other
disposition of Fund Units held by the Company shall be allocated to the Members as follows:
(i) Net Income:
(A) First to all Members to the extent of and in proportion to the remainder, if
any, of (x) the cumulative Net Loss allocated to the Members pursuant to Section
5.1(a)(ii)(C) for all prior Fiscal Years minus a cumulative amount of Net Income
allocated to Members under this Section 5.1(a)(i)(A) for all prior Fiscal Years;
20
(B) Second to all Members to the extent of and in proportion to the amount equal
to the remainder, if any, of (x) the cumulative Net Loss allocated to the Members
pursuant to Section 5.1(a)(ii)(B) for all prior Fiscal Years minus (y) the cumulative
amount of Net Income allocated to the Members under this Section 5.1(a)(i)(B) for all
prior Fiscal Years;
(C) Third to all Members to the extent of and in proportion to the amount equal
to the remainder, if any, of (x) the cumulative amount of cash or Net Agreed Value of
property distributed to the Members pursuant to Section 5.3 minus (y) the cumulative
amount of Net Income allocated to the Members under this Section 5.1(a)(i)(C) for all
prior Fiscal Years; and
(D) Fourth to the Members in proportion to their Sharing Ratios.
(ii) Net Loss or Loss from disposition:
(A) First to all Members in proportion to and to the extent of an amount equal
to the remainder, if any, of (x) the cumulative amount of net income allocated to
each Member pursuant to Section 5.1(a)(i)(D) for all prior Fiscal Years minus (y) a
cumulative amount of Net Loss allocated to the Members under this Section
5.1(a)(ii)(A) for all prior Fiscal Years;
(B) Second to all Members in proportion to their positive adjusted capital
account balances to the extent of such adjusted capital account balances; and
(C) Third to all Members in proportion to their Sharing Ratios.
(b) Income and Gain Attributable to Fund GP Interest and All Other Sources. Net Income and Net
Loss for each Fiscal Year attributable to (i) allocations from the Fund with respect to the Fund GP
Interest held by the Company, (ii) allocations from OpCo, (iii) income or loss attributable to the
Warrants, and (iv) income or loss from all other sources other than those described in Section
5.1(a), shall be allocated to the Members as follows:
(i) Net Income:
(A) First to all Members to the extent of and in proportion to the remainder, if
any, of (x) the cumulative Net Loss allocated to the Members pursuant to Section
5.1(b)(ii)(C) for all prior Fiscal Years minus the cumulative amount of Net Income
allocated to Members under this Section 5.1(b)(i)(A) for all prior Fiscal Years;
(B) Second to all Members to the extent of and in proportion to the amount equal
to the remainder, if any, of (x) the cumulative Net Loss allocated to the Members
pursuant to Section 5.1(b)(ii)(B) for all prior Fiscal Years minus (y) the cumulative
amount of Net Income allocated to the Members under this Section 5.1(b)(i)(B) for
all prior Fiscal Years;
(C) Third to all Members to the extent of and in proportion to the amount equal
to the remainder, if any, of (x) the cumulative amount of cash or Net Agreed Value of
property distributed to the Members pursuant to Section 5.3 minus (y) the cumulative
amount of Net Income allocated to the Members under this Section 5.1(b)(i)(C) C) for
all prior Fiscal Years; and
21
(D) Fourth to the Members in proportion to their Sharing Ratios.
(ii) Net Loss:
(A) First to all Members in proportion to and to the extent of an amount equal
to the remainder, if any, of (x) the cumulative amount of net income allocated to
each Member pursuant to Section 5.1(b)(i)(D) for all prior Fiscal Years minus (y) a
cumulative amount of Net Loss allocated to the Members under this Section
5.1(b)(ii)(A) for all prior Fiscal Years;
(B) Second to all Members in proportion to their positive adjusted capital
account balances to the extent of such adjusted capital account balances; and
(C) Third to all Members in proportion to their Sharing Ratios.
(c) Special Allocations. Notwithstanding any other provisions of this Agreement, the special
allocations described below shall be made for each Fiscal Year in the following priority:
(i) If there is a net decrease in Company Minimum Gain during any Company taxable
period, each Member shall be allocated items of Company income and gain for such period
(and, if necessary, subsequent periods) in the manner and amounts provided in Treasury
Regulation §§1.704-2(f)(6), (g)(2), and (j)(2)(i). For purposes of this Section 5.1(c)(i),
each Member’s Capital Account shall be determined and the allocation of income or gain
required hereunder shall be effected, prior to the application of any other allocations
pursuant to this Section 5.1(c) with respect to such taxable period. This Section 5.1(c)(i)
is intended to comply with the Company Minimum Gain chargeback requirement in Treasury
Regulation §1.704-2(f) and shall be interpreted consistently therewith.
(ii) If there is a net decrease in Member Nonrecourse Debt Minimum Gain during any
Company taxable period, any Member with a share of Member Nonrecourse Debt Minimum Gain at
the beginning of such taxable period shall be allocated items of Company income and gain for
such period (and, if necessary, subsequent periods) in the manner and amounts provided in
Treasury Regulation §1.704-2(i)(4) and (j)(2)(ii). For purposes of this Section 5.1(c)(ii)
each Member’s Adjusted Capital Account balance shall be determined, and the allocation of
income and gain required hereunder shall be effected, prior to the application of any other
allocations pursuant to Section 5.1(c), other than (i) above, with respect to such taxable
period. This Section 5.1(c)(ii) is intended to comply with the Member Nonrecourse Debt
Minimum Gain chargeback requirement in Treasury Regulation §1.704-2(i)(4) and shall be
interpreted consistently therewith.
(iii) Nonrecourse Deductions for any taxable period shall be allocated to the Members
in proportion to the manner in which they share Company Net Income for such taxable period.
(iv) Member Nonrecourse Deductions for any taxable period shall be allocated 100% to
the Member that bears the economic risk of loss with respect to the Member Nonrecourse Debt
to which such Member Nonrecourse Deductions are attributable in accordance with Treasury
Regulation §1.704-2(i). If more than one Member bears the economic risk of loss with
respect to a Member Nonrecourse Debt, Member Nonrecourse Deductions attributable thereto
shall be allocated between or among such Members in accordance with the ratios in which they
share such economic risk of loss.
22
(v) In the event any Member unexpectedly receives any adjustments, allocations or
distributions described in Treasury Regulation §§1.704-1(b)(2)(ii)(d)(4), (5), or (6) items
of Company income and gain shall be specially allocated to such Member in an amount and
manner sufficient to eliminate, to the extent required by the Treasury Regulation, the
deficit balance, if any, in its Adjusted Capital Account created by such adjustments,
allocations or distributions as quickly as possible.
(vi) In the event any Member has a deficit balance in its Adjusted Capital Account at
the end of any Company taxable period, such Member shall be specially allocated items of
Company gross income and gain in the amount of such excess as quickly as possible; provided,
that an allocation pursuant to this Section 5.1(c)(vi) shall be made only if and to the
extent that such Member would have a deficit balance in its Adjusted Capital Account after
all other allocations provided in this Section 5.1 have been tentatively made as if this
Section 5.1(c)(vi) was not in this Agreement.
(vii) Notwithstanding any of the Agreed Allocations, the Required Allocations shall be
taken into account in making the Agreed Allocations so that, to the extent possible, the net
amount of items of income, gain, loss and deduction allocated to each Member pursuant to the
Required Allocations and Agreed Allocations, together, shall be equal to the net amount of
such items that would have been allocated to each such Member under the Agreed Allocations
if the Required Allocations had not otherwise been provided for in this Section 5.1.
(viii) To the extent an adjustment to the adjusted tax basis of any Company property
pursuant to Sections 734(b) or 743(b) of the Code is required, pursuant to Treasury
Regulation §1.704-1(b)(2)(iv)(m), to be taken into account in determining Capital Accounts,
the amount of such adjustment to the Capital Accounts shall be treated as an item of gain
(if the adjustment increases the basis of the asset) or loss (if the adjustment decreases
such basis), and such item of gain or loss shall be specially allocated to the Members in a
manner consistent with the manner in which their Capital Accounts are required to be
adjusted pursuant to such provisions.
(ix) Simulated Depletion with respect to each separate oil and gas property shall be
allocated to the Members in proportion to their relative Sharing Ratios at the time of
acquisition of such property.
(x) The Company shall also be authorized to make the special allocations necessary in
accordance with Section 4.5(a) and 4.5(b).
5.2 Allocations for Tax Purposes.
(a) Except as provided in this Section 5.2, each item of income, gain, loss and deduction of
the Company for federal income tax purposes shall be allocated among the Members in the same manner
as such items are allocated for Capital Account purposes under Section 5.1.
(b) The deduction for depletion with respect to each separate oil and gas property (as defined
in Section 614 of the Code) shall, in accordance with Section 613A(c)(7)(D) of the Code, be
computed for federal income tax purposes separately by the Members rather than the Company. Except
as provided in Section 5.2(c)(iii), for purposes of such computation, the adjusted tax basis of
each oil and gas property shall be allocated among the Members in the same proportion as the
Simulated Depletion attributable to such oil and gas property is allocated pursuant to Section
5.1(c)(ix). Each Member, with the assistance of the Company, shall separately
23
keep records of its share of the adjusted tax basis in each separate oil and gas property,
adjust such share of the adjusted tax basis for any cost or percentage depletion allowable with
respect to such property and use such adjusted tax basis in the computation of its cost depletion
or in the computation of its gain or loss on the disposition of such property by the Company. Upon
the request of the Company, each Member shall advise the Company of its adjusted tax basis in each
separate oil and gas property and any depletion computed with respect thereto, both as computed in
accordance with the provisions of this subsection. The Company may rely on such information and,
if it is not provided by the Member, may make such reasonable assumptions as it shall determine
with respect thereto.
(c) Except as provided in Section 5.2(c)(iii), for the purposes of the separate computation of
gain or loss by each Member on the sale or disposition of each separate oil and gas property (as
defined in Section 614 of the Code), the Company’s allocable share of the “amount realized” (as
such term is defined in Section 1001(b) of the Code) from such sale or disposition shall be
allocated for federal income tax purposes among the Members as follows:
(i) first, to the extent such amount realized constitutes a recovery of the Simulated
Basis of the property, to the Members in the same proportion as the depletable basis of such
property was allocated to the Members pursuant to Section 5.2(b) (without regard to any
special allocation of basis under Section 5.2(c)(iii));
(ii) second, the remainder of such amount realized, if any, to the Members so that, to
the maximum extent possible, the amount realized allocated to each Member under this Section
5.2(c)(ii) will equal such Member’s share of the Simulated Gain recognized by the Company
from such sale or disposition.
(iii) The Members recognize that with respect to Contributed Property and Adjusted
Property there will be a difference between the Carrying Value of such property at the time
of contribution or revaluation, as the case may be, and the adjusted tax basis of such
property at the time. All items of tax depreciation, cost recovery, amortization, adjusted
tax basis of depletable properties, amount realized and gain or loss with respect to such
Contributed Property and Adjusted Property (referred to as “Section 704(c) Items”)
shall be allocated among the Members to take into account the disparities between the
Carrying Values and the adjusted tax basis with respect to such properties in accordance
with the provisions of Sections 704(b) and 704(c) of the Code and the Treasury Regulations
under those sections; provided, however, that any tax items not required to be allocated
under Sections 704(b) or 704(c) of the Code shall be allocated in the same manner as such
gain or loss would be allocated for Capital Account purposes under Section 5.1.
(iv) Any elections or other decisions relating to such allocations shall be made by the
Company in any manner that reasonably reflects the purpose and intention of this Agreement.
(d) All items of income, gain, loss, deduction and credit allocated to the Members in
accordance with the provisions hereof and basis allocations recognized by the Company for federal
income tax purposes shall be determined without regard to any election under Section 754 of the
Code which may be made by the Company; provided, however, such allocations, once made, shall be
adjusted as necessary or appropriate to take into account the adjustments permitted by Sections 734
and 743 of the Code.
(e) For income tax purposes, allocation of costs, revenues, income, gains, losses, deductions,
credits and items of tax preference of the Company, including depletion and
24
depreciation, if applicable, attributable to any assigned interest shall be prorated between
the assignor and the assignee on the basis of the number of days such interest was held by each of
them during the calendar year or any other reasonable basis determined by the Company which is
consistent with section 706 of the Code and applicable Treasury Regulations.
5.3 Distributions. The Company shall review its accounts at the end of each calendar quarter to
determine the amount of Available Cash, if any, for such period. If the Company determines there
is Available Cash with respect to such period, the Company shall distribute such Available Cash to
the extent set forth below to the Members in the following manner:
(a) Sharing of Distributions. All distributions attributable to the Membership Interests will
be allocated and made to the Members in proportion to their respective Sharing Ratios.
(b) No Right to Demand Distribution. Except as otherwise expressly provided in this
Agreement, no Member shall have the right to withdraw any amount from or otherwise to receive any
distribution from the Company.
(c) Distribution Restrictions. Unless agreed to in writing by a Required Interest of the
Member and subject to the provisions of Section 5.3, the Company will make distributions only in
the form of cash or Company Securities, or both.
ARTICLE 6
MANAGEMENT AND OPERATION OF BUSINESS
MANAGEMENT AND OPERATION OF BUSINESS
6.1 Board of Directors.
(a) Authority of Directors. Except for situations in which the approval of the Members is
required by this Agreement or by nonwaivable provisions of applicable law, the powers of the
Company shall be exercised by or under the authority of, and the business and affairs of the
Company shall be managed under the direction of, managers, each of whom shall be referred to herein
each as a “Director” or collectively as the “Directors,” and who shall act as a
board (when acting as a board, the Directors are referred to herein as the “Board of
Directors”).
(b) Actions Requiring Approval of the Board of Directors. Without in any way limiting the
generality of the foregoing, without having obtained the prior approval of the Board of Directors,
the Company shall not, and (to the extent it has the legal power and authority) shall cause its
subsidiaries (including OpCo) and the Fund not to (in any single transaction or series of related
transactions) undertake any of the following actions:
(i) effect any Acquisitions;
(ii) effect any Asset Transfers;
(iii) incur any Indebtedness (not including trade payables incurred in the Fund’s or
the Company’s (or any of its subsidiaries’) ordinary course of business);
(iv) mortgage, pledge, assign in trust or otherwise encumber any property or assets of
the Company, or assign any monies owed or to be owed to the Company, except for customary
Liens granted in the ordinary course of business or to secure Indebtedness permitted under
paragraph (iii) above;
25
(v) enter into any merger, exchange or consolidation; effect a recapitalization or
reorganization; commence a dissolution, liquidation or winding up of its affairs; or
commence, consent to or permit a Bankruptcy;
(vi) enter into any Commodity Hedging Transaction whereby more than 50% of the Fund’s
and/or the Company’s (including its subsidiaries) expected production from the proved
developed producing reserves is hedged for the succeeding 12-month period or whereby the
term of such hedging transaction exceeds two years;
(vii) guarantee the performance of any non-financing contract or other obligation of
any Person (other than the Company) other than in the ordinary course of business;
(viii) authorize, offer, issue or sell any securities (other than pursuant to Section
4.2(b)) or a new class or series of any securities or make requests of the Members for
Capital Contributions;
(ix) authorize any transaction, including, without limitation, any purchase, sale,
lease or exchange of property or the rendering of any service, involving the Company, any of
its subsidiaries or the Fund, on the one hand, and any Member (or Transferee) or any
Affiliate of any Member (or Transferee), on the other hand (which transaction, once approved
by the Required Interest of the Members, will be presumed to be fair to the Company, such
subsidiary, or the Fund, as the case may be), provided that the Membership Interest of the
Member (or Transferee) (or Affiliate thereof) party to the proposed transaction will not be
considered in the determination of the Required Interest of the Members;
(x) approve the Company’s (including its subsidiaries’) or the Fund’s operating budget
or any changes thereto;
(xi) approve any change in the Fund’s or the Company’s Accountant;
(xii) determine the reserve applicable to distributions of cash and other property as
provided in Article 5;
(xiii) appoint the Company’s independent petroleum engineers;
(xiv) compromise or settle any lawsuit, administrative matter or other dispute where
the amount the Company, its subsidiary or the Fund may recover or be obligated to pay, as
applicable, is in excess of (A) $500,000, if the Fair Market Value of the assets then owned
by the Company is less than $50,000,000, (B) $1,000,000, if the Fair Market Value of the
assets then owned by the Company is equal to or greater than $50,000,000 but less than
$100,000,000; and (C) $2,500,000, in all instances other than as described in the foregoing
clause (A) or (B);
(xv) to amend, modify or change in any material respect any material agreement to which
the Company is a party, which for purposes of this Section 6.1(b) shall include (A) any
contract, agreement, document, instrument or series of contracts, agreements, documents,
instruments that would obligate the Company to expend, incur or transfer assets with a value
of) $1 million or more, or which cannot be terminated by the Company upon notice of 60 days
or less and (B) any grant letter by and between the Company and an Eligible Recipient;
26
(xvi) to amend the formation documents or other governing documents of OpCo or the
Fund;
(xvii) to enter into any transaction with any Affiliate of the Company, or any officer,
director or employee of the Company or any Affiliate of any officer, director or employee of
the Company; or
(xviii) take any action, authorize or approve, or enter into any binding agreement with
respect to the foregoing.
(c) Designation of Directors. The Board of Directors shall generally act with respect to
Company matters (including subsidiary and Fund matters) in a manner similar to that of the board of
directors of a corporation, and specifically:
(i) Except as expressly provided to the contrary below, (A) the Board of Directors
shall at all times consist of seven members, each of whom will be designated annually as
hereinafter provided, (B) subject to Sections 6.1(c)(ii), (iii) and (iv), all Directors
shall be elected by the Members on a plurality basis and (C) at least four of the members
shall (1) have relevant industry experience and (2) be Independent.
(ii) For as long as Xxxxxx and its Affiliates in the aggregate own Membership Interests
with an aggregate Sharing Ratio that is equal to or greater than 34% of the aggregate
Sharing Ratio of the Membership Interests owned by Xxxxxx and its Affiliates immediately
following the Effective Date, Xxxxxx shall have the right to designate two Directors to the
Board of Directors, one of which shall be Independent; and for as long as Xxxxxx and its
Affiliates in the aggregate own Membership Interests with an aggregate Sharing Ratio that is
equal to or greater than 20% but less than 34% of the Membership Interests owned by Xxxxxx
and its Affiliates immediately following the Effective Date, Xxxxxx shall have the right to
designate one Director to the Board of Directors (such designees are referred to herein as
the “Xxxxxx Directors”);
(iii) For as long as Ospraie and its Affiliates in the aggregate own Membership
Interests with an aggregate Sharing Ratio that is equal to or greater than 34% of the
aggregate Sharing Ratio of the Membership Interests owned by Ospraie and its Affiliates
immediately following the Transfer Closing Date, Ospraie shall have the right to designate a
total of two Directors to the Board of Directors, one of which shall be an Independent
Director; and for as long as Ospraie and its Affiliates in the aggregate own Membership
Interests with an aggregate Sharing Ratio that is equal to or greater than 20% but less than
34% of the Membership Interests owned by Ospraie and its Affiliates immediately following
the Effective Date, Ospraie shall have the right to designate a total of one Director to the
Board of Directors (such designees are referred to herein as the “Ospraie
Directors”; and together with the Xxxxxx Directors, the “Investor Directors”);
(iv) For so long as either of the Management Investors shall be employees of the
Company, the Management Investors shall designate one Director to the Board of Directors,
which designee shall be a Management Investor or another Person reasonably acceptable to the
Institutional Investors (such designee is referred to herein as the “Management
Director”); and
(v) The Investor Directors and the Management Director shall mutually designate two
additional Directors to the Board of Directors, each of which shall be Independent
Directors. Commencing on the date hereof, the Board of Directors shall be
27
composed of such designees, each of whom shall serve until his successor is duly
selected in accordance with this Agreement and qualified or until such individual’s death,
resignation or removal.
(vi) The Board of Directors member initially designated by the Management Investors is
Xxxxx X. Xxxxx. The Board of Directors members initially designated by Xxxxxx are J. Xxxxxx
Xxxxxxxx and Xxxxxxx X. Xxxxxxxxx, Xx. The Board of Directors members initially designated
by Ospraie are Xxxx Xxxxxx and ______. All such designations by the Institutional
Investors shall be effective at 9:00 a.m. New York City time on the day immediately
following consummation of the Exchange Offer. The Board of Directors members initially
designated by the Investor Directors and the Management Director are Xxxx X. Xxxxxx and
[Xxxxx Xxxxxx,] [X.X. Xxxxxxx XX]. The Board of Directors shall appoint a chairman from
among them (the “Chairman”). Initially, the Chairman shall be Xxxxx X. Xxxxx. Each
member of the Board of Directors will serve until his successor has been designated or until
his earlier death, resignation or removal as provided below.
(vii) Each of the Institutional Investors and the Management Investors shall have the
power and authority to remove any member of the Board of Directors appointed by it by
delivering written notice of such removal to the other and to the Company. Vacancies on the
Board of Directors shall be filled by the Members that appointed the Board of Directors
member previously holding the position that is then vacant.
(viii) Each Board of Directors member shall be entitled to cast one vote with respect
to any decision made by the Board of Directors. The Board of Directors shall meet no less
often than quarterly at the offices of the Company or at such other places as it shall
determine (unless such meeting shall be waived by all members thereof) or on the call of any
two members upon five Business Days’ notice to all members. Participation in a meeting of
the Board of Directors pursuant to this Section 6.1(c)(viii) shall constitute presence in
person at such meeting and shall constitute a waiver of notice of such meeting, except where
a member so attends a meeting of the Board of Directors for the express purpose of objecting
to the transaction of any business on the ground that the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any regular or
special meeting of the Board of Directors need be specified in the notice or waiver of
notice of such meeting. The Board of Directors may conduct its meetings through the use of
any means of communication by which all members participating may hear each other during the
meeting. An agenda for each meeting shall be prepared in advance by the Chairman but any
matter, whether or not on the agenda, may properly come before the meeting. At all meetings
of the Board of Directors, the presence of a majority of all members of the Board of
Directors shall be necessary and sufficient to constitute a quorum for the transaction of
business. At a meeting at which a quorum is present, the act of a majority of all members
of the Board of Directors (not merely a majority of the quorum) shall be the act of the
Board of Directors; provided, however, that if a quorum shall not be present at any meeting
of the Board of Directors, the members present at the meeting may adjourn the meeting from
time to time, without notice other than announcement at the meeting, until a quorum shall be
present. At any such adjourned meeting any business may be transacted that might have been
transacted at the meeting as originally convened.
(ix) Any action that may be taken at any meeting of the Board of Directors 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 be signed by the members of the Board of
Directors holding at least the minimum percentage of the aggregate votes entitled to be
28
cast that would be necessary to take such action at a meeting of the Board of Directors
at which all members of the Board of Directors entitled to vote on the action were present
and voted. Prompt notice of the taking any action by the Board of Directors without a
meeting by less than the unanimous written consent shall be given to those members who did
not consent in writing to the action. A telegram, telex, cablegram, or similar transmission
by a Director, or a photographic, photostatic, facsimile or similar reproduction of a
writing signed by a Director, shall be regarded as signed by the Director for purposes of
this Section 6.1(b)(ix).
(x) The Board of Directors may designate one or more committees, each such committee
consisting of one or more of the members of the Board of Directors. Subject to the rules of
any stock exchange or self-regulatory organization, each committee shall consist of a number
of Xxxxxx and Ospraie representatives proportionate to the Xxxxxx and Ospraie representation
on the Board of Directors, and in each case not less than one Xxxxxx representative and one
Ospraie representative. The Board of Directors shall have, at a minimum, audit and
conflicts committees (the “Audit Committee” and “Conflicts Committee,”
respectively). The initial members of the Audit Committee shall be Xxxx X. Xxxxxx, Xxxxxxx
X. Xxxxxxxxx, Xx. and [______]. The initial members of the Conflicts Committee shall
be Xxxxx Xxxxxx, Xxxxxxx X. Xxxxxxxxx, Xx. and [Ospraie designee]. Any member of the Audit
Committee may also serve on the Conflicts Committee. Any committee designated by the Board
of Directors shall have and may exercise such of the powers and authority of the Board of
Directors in the management of the business and affairs of the Company as may be provided in
such resolution, except that no such committee shall have the power or authority of the
Board of Directors with regard to amending this Agreement. Such committee or committees
shall have such limitations of authority as may be determined from time to time by
resolution adopted by the Board of Directors. Any committee designated in accordance with
this Section 6.1(b)(x) shall choose its own chairman and secretary, shall keep regular
minutes of its proceedings and report the same to the Board of Directors when requested,
shall fix its own rules or procedures, and shall meet at such times and at such place or
places as may be provided by such rules or procedures, or by resolution of such committee or
the Board of Directors. At every meeting of any such committee, the presence of a majority
of all the members thereof shall constitute a quorum, and the affirmative vote of a majority
of all the members (not merely a majority of the quorum) shall be necessary for the adoption
of any resolution. The Board of Directors may designate one or more members of the Board of
Directors as alternate members of any committee, who may replace any absent or disqualified
member at any meeting of such committee. In the absence or disqualification of a member of
a committee, the member or members present at any meeting and not disqualified from voting,
whether or not constituting a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of the absent or disqualified member.
(xi) Without limiting the applicability of any other provision of this Agreement,
including the other provisions of this Article 6, the following provisions shall be
applicable to the Board of Directors and the members thereof:
(A) The Board of Directors and the members thereof and the decisions of the
Board of Directors shall have the benefit of the business judgment rule to the same
extent as the Board of Directors, such members and such decisions would have the
benefit of such rule if the Board of Directors were a Board of Directors of a
Delaware corporation; and
29
(B) Except to the extent expressly provided to the contrary in Section 6.2, the
members of the Board of Directors shall have the same duties of care and loyalty as
such persons would have if such persons were Directors of a Delaware corporation, but
in no event shall any member of the Board of Directors be liable for any action or
inaction for which indemnification is provided under Section 6.4.
(xii) In the event that a vote of the Members is required to appoint a Director of the
Company, each Member agrees to vote for the Directors designated in accordance with this
Section 6.1(b)(xii).
(xiii) Members of the Board of Directors who are employees of the Company or employees
of the Institutional Investors will not be paid any fee for serving on the Board of
Directors but will be entitled to reimbursement for reasonable out-of-pocket expenses in
attending meetings of the Board of Directors.
(xiv) Regular meetings of the Board of Directors shall be held quarterly at such times
and places as the Board of Directors may from time to time determine.
(d) Meetings of Board of Directors.
(i) Meetings of the Board of Directors, regular or special, may be held either within
or without the State of Delaware.
(ii) Regular meetings of the Board of Directors, of which no notice shall be necessary,
shall be held at such times and places as may be fixed from time to time by resolution
adopted by the Board of Directors and communicated to all Directors. Except as otherwise
provided by statute, the Certificate of Formation, or this Agreement, any and all business
may be transacted at any regular meeting.
(iii) Special meetings of the Board of Directors may be called on 72 hours’ written
notice (effective upon receipt) to each Director, either personally or by facsimile,
electronic transmission, overnight courier, or telegram by the Management Director or by any
Member(s) holding in aggregate a Sharing Ratio equal to at least 20%. Except as may be
otherwise expressly provided by statute, the Certificate or this Agreement, neither the
business to be transacted at, nor the purpose of, any regular or special meeting of the
Board of Directors need be specified in the notice or waiver of notice of such meeting.
(iv) The officer presiding over any meeting of the Board of Directors (in accordance
with Section 6.8) shall determine the order of business and the procedure at the meeting,
including such regulation of the manner of voting and the conduct of discussion as
determined by him to be in order.
6.2 Outside Activities; Duties of Directors.
(a) Except as limited by any other provisions of this Agreement, the Members who are not
employees of the Company or its subsidiaries and the Affiliates of such Members and the members of
the Board of Directors who are not employees of the Company may have business interests and engage
in business activities in addition to those related to the Company, including interests in and
activities related to the businesses described in Section 3.1 or otherwise competitive with the
business of the Company and neither the Company nor any other Members shall have any rights in such
other business interests or activities or in any income or profits therefrom and such Members shall
be under no obligation to present outside corporate
30
opportunities to the Board of Directors or the other Members. However, it is expressly
understood and agreed that the Management Investors and their Affiliates shall not participate in
any activity that is competitive with the Company without the prior written consent of the Board of
Directors.
(b) To the fullest extent permitted by the Delaware Act, a Person, in performing his duties
and obligations as a Director under this Agreement, shall be entitled to act or omit to act at the
direction of the Member(s) that designated such person to serve on the Board of Directors,
considering only such factors, including the separate interests of the designating Member(s), as
such Director or Member(s) choose to consider, and any action of a Director or failure to act,
taken or omitted in good faith reliance on the foregoing provisions shall not, as between the
Company and the other Member(s), on the one hand, and the Director or Member(s) designating such
Director, on the other hand, constitute a breach of any duty (including any fiduciary or other
similar duty, to the extent such exists under the Delaware Act or any other applicable law, rule or
regulation) on the part of such Director or Member(s) to the Company or any other Director or
Member of the Company.
(c) The Members (and the Members on behalf of the Company) hereby (i) agree that (A) the terms
of this Section 6.2, to the extent that they modify or limit a duty or other obligation, if any,
that a Director may have to the Company or any other Member under the Delaware Act or other
applicable law, rule or regulation, are reasonable in form, scope and content; and (B) the terms of
this Section 6.2 shall control to the fullest extent possible if it is in conflict with a duty, if
any, that a Director may have to the Company or another Member, under the Delaware Act or any other
applicable law, rule or regulation; and (ii) waive to the fullest extent permitted by the Delaware
Act any duty or other obligation, if any, that a Member may have to the Company or another Member,
pursuant to the Delaware Act or any other applicable law, rule or regulation, to the extent
necessary to give effect to the terms of this Section 6.2.
(d) The Members (and the Members on behalf of the Company) acknowledge, affirm and agree that
(i) the Institutional Investors would not be willing to make an investment in the Company, and no
person designated by any of the Institutional Investors to serve on the Board of Directors would be
willing to so serve, in the absence of this Section 6.2, and (ii) they have reviewed and understand
the provisions of Sections 18-1101(b) and (c) of the Delaware Act.
6.3 Company Funds. All cash funds of the Company held by the Company shall, as soon as reasonably
practicable, be deposited in one or more separate accounts maintained by or in the name of the
Company.
6.4 Indemnification of Members and their Affiliates. The Company shall indemnify and hold harmless
the Company, the Board of Directors, the Members, any of their respective Affiliates, any of their
respective employees, agents, Directors, managers and officers (individually, an
“Indemnitee”) as follows:
(a) In any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, to which an Indemnitee was or is a party or is
threatened to be made a party by reason of the fact that it, he or she is or was a member of the
Board of Directors, a Member, an Affiliate of any such Member, an employee, agent, Director,
manager or officer of the Company or an Affiliate of the Company involving an alleged cause of
action arising from the activities of such Indemnitee and which activities were on behalf of the
Company, its property, business or affairs, the Company shall indemnify such Indemnitee against any
and all losses, claims, demands, liabilities, costs and expenses, including reasonable attorneys’
fees, judgments, fines and amounts paid in settlement, actually and reasonably incurred by such
Indemnitee in connection with such action, suit or proceeding if such Indemnitee acted in good
31
faith and in a manner he or it reasonably believed to be in or not opposed to the best
interests of the Company and if the Indemnitee’s conduct does not constitute gross negligence or
willful or wanton misconduct. THE MEMBERS RECOGNIZE THAT AN INDEMNITEE MAY BE ENTITLED TO
INDEMNIFICATION FROM ACTS OR OMISSIONS THAT MAY GIVE RISE TO ORDINARY, CONCURRENT OR COMPARATIVE
NEGLIGENCE. The termination of a proceeding by judgment, order, settlement, conviction or upon a
plea of nolo contendere, or its equivalent, shall not, of itself, create a presumption that an
Indemnitee did not act in good faith and in a manner that he or it reasonably believed to be in, or
not opposed to, the best interests of the Company, nor shall any such termination of a proceeding,
of itself, create a presumption that the Indemnitee was grossly negligent or was guilty of willful
or wanton misconduct unless a specific finding to such effect is included in such judgment, order,
settlement, conviction or plea.
(b) Expenses (including reasonable legal fees and expenses) incurred in defending any
proceeding shall be paid by the Company in advance of the final disposition of such proceeding upon
receipt of an undertaking by or on behalf of the Indemnitee to repay such amount if it shall
ultimately be determined, by a court of competent jurisdiction pursuant to a final non-appealable
order or otherwise, that the Indemnitee is not entitled to be indemnified by the Company as
authorized hereunder.
(c) If a claim or assertion of liability is made or asserted by a third party against an
Indemnitee, which, if prevailed upon by any such third party, would result in the Indemnitee being
entitled to indemnification pursuant to this Section 6.4, the Indemnitee will forthwith give to the
Company written notice of the claims or assertion of liability and request the Company to defend
the same. Failure to so notify the Company will not relieve the Company of any liability which the
Company might have to the Indemnitee except to the extent that such failure materially prejudices
the Company’s legal position. The Company will have the obligation to defend against such claim or
assertion (if the Indemnitee is entitled to indemnification pursuant to this Section 6.4), and the
Company will give written notice to the Indemnitee of acceptance of the defense of such claim and
the name of the counsel selected by the Company to defend such claim. The Indemnitee will be
entitled to participate with the Company in such defense and also will be entitled at its option
(and expense) to employ separate counsel for such defense. In the event the Company does not
accept the defense of the claim or in the event that the Company or its counsel fails to use
reasonable care in maintaining such defense, the Indemnitee will have the right to employ counsel
for such defense at the expense of the Company (unless the Indemnitee is not entitled to
indemnification under this Section 6.4). The Company and the Indemnitee will cooperate with each
other in the defense of any such action and the relevant records of each will be made available to
the other with respect to such defense.
(d) No Indemnitee will be entitled to indemnification under this Section 6.4 if it has entered
into any settlement or compromise of any claim giving rise to any indemnifiable loss without the
written consent of the Company. If a bona fide settlement offer is made with respect to a claim
and the Company desires to accept and agree to such offer, the Company will give written notice of
settlement to the Indemnitee to that effect. If the Indemnitee fails to consent to the settlement
offer within 10 days after receipt of the notice of settlement, then the Indemnitee will be deemed
to have rejected such settlement offer and will be responsible for continuing the defense of such
claim and, in such event, the maximum liability of the Company as to such claim will not exceed the
amount of such settlement offer plus any and all reasonable costs and expenses paid or incurred by
the Indemnitee up to the date of the notice of settlement and which are otherwise the
responsibility of the Company pursuant to this Section 6.4.
32
(e) Any such indemnification shall be made only out of the assets of the Company, and in no
event may an Indemnitee subject the Members or the Company to personal liability for the obligation
of the Company to indemnify contained in this Section 6.4.
(f) The indemnification provided by this Section 6.4 shall be in addition to any other rights
to which those indemnified may be entitled, in any capacity, under any agreement, vote of the
Members, as a matter of law or otherwise and shall continue as to an Indemnitee who has ceased to
serve in such capacity and shall inure to the benefit of the heirs, successors, assigns and
administrators of the Indemnitee.
(g) To the extent obtainable on reasonable terms, the Company may purchase and maintain
insurance on behalf of the Indemnitees or liability insurance on behalf of the Company relating to
claims for indemnification against any liability which may be asserted against or expense which may
be incurred by such Persons in connection with the Company’s activities, whether or not the Company
would have the power to indemnify such Persons against such liability under the provisions of this
Agreement.
(h) An Indemnitee shall not be denied indemnification in whole or in part under this Section
6.4 because the Indemnitee had an interest in the transaction with respect to which the
indemnification applies if the transaction was otherwise permitted by the terms of this Agreement.
(i) The provisions of this Section 6.4 are for the benefit of the Indemnitees, their heirs,
successors, assigns and administrators, and shall not be deemed to create any rights for the
benefit of any other Persons.
6.5 Liability of Members and Their Affiliates. Notwithstanding anything to the contrary in the
Agreement, neither the Company, members of the Board of Directors, the Members, any of their
respective Affiliates nor any of their respective directors, officers, partners, managers,
employees, agents, (a “Covered Person”) shall be liable for monetary damages to the
Company, the Members or Assignees or any other Persons who have acquired interests in Company
Securities for losses sustained or liabilities incurred as a result of any errors in judgment or
for any acts or omissions unless there has been a final and non-appealable judgment entered by a
court of competent jurisdiction determining that, in respect of the matter in question, the Covered
Person acted in bad faith or engaged in fraud or willful misconduct or, in the case of a criminal
matter, acted with knowledge that the Covered Person’s conduct was criminal. THE MEMBERS RECOGNIZE
THAT SUCH EXCULPATION FROM LIABILITY RELATES TO ACTS OR OMISSIONS THAT MAY GIVE RISE TO ORDINARY,
CONCURRENT OR COMPARATIVE NEGLIGENCE. The termination of a proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere, or its equivalent, shall not, of itself,
create a presumption that any Person was grossly negligent or was guilty of willful or wanton
misconduct.
6.6 Other Matters Concerning Board of Directors.
(a) The members of the Board of Directors may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement, instrument, opinion, report,
notice, request, consent, order, bond, debenture, conveyance or other paper or document believed by
any of them to be genuine and to have been signed or presented by the proper party or parties.
(b) The members of the Board of Directors may consult with legal counsel, accountants,
appraisers, management consultants, investment bankers, engineers, geologists, geophysicists and
other consultants and advisers selected by them (which may include employees of the Company) and
any opinion of such Person as to matters which the Board of Directors reasonably
33
believe to be within its professional or expert competence shall be full and complete
authorization and protection in respect to any action taken or suffered or omitted by the Board of
Directors hereunder in good faith and in accordance with such opinion.
6.7 Certain Decisions.
(a) Unless otherwise expressly provided in this Agreement or any other agreement contemplated
herein, (i) whenever a conflict of interest exists or arises between the Company, any of its
Affiliates or a member of the Board of Directors, on the one hand, and the Company or any Member,
on the other hand, or (ii) whenever this Agreement or any other agreement contemplated herein
provides that the Company or the Board of Directors shall act in a manner which is, or provide
terms which are, fair and/or reasonable to the Company or any Member, the Company or the Board of
Directors, as the case may be, shall resolve such conflict of interest, take such action or provide
such terms, considering, in each case, the relative interest of each party to such conflict,
agreement, transaction or situation and the benefits and burdens relating to such interest, any
customary or accepted industry practices, and any applicable generally accepted accounting
practices or principles, the resolution, action or terms so made, taken or provided by the Company
or the Board of Directors shall not constitute a breach of this Agreement or any other agreement
contemplated herein or a breach of any standard of care or duty imposed herein or therein or under
the Delaware Act or any other applicable law, rule or regulation.
(b) Whenever in this Agreement or any other agreement contemplated herein, the Company, any of
its Affiliates or the Board of Directors is permitted or required to make a decision with “good
faith” or under another express standard, the Company, any such Affiliate or the Board of Directors
shall act under such express standard and shall not be subject to any other or different standards
imposed by this Agreement or any other agreement contemplated herein or under the Delaware Act or
any other applicable law, rule or regulation.
6.8 Officers.
(a) Designation of Officers. The Members or the Board of Directors may designate one or more
persons to fill one or more officer positions of the Company. Such officers may include Chief
Executive Officer, Chief Financial Officer, President, Vice President, Treasurer, Assistant
Treasurer, Secretary and Assistant Secretary. No officer need be a resident of the State of
Delaware. The Board of Directors may assign titles to particular officers. Each officer will hold
office until his successor will be duly designated and will qualify to hold such office, or until
his death or until he will resign or will have been removed in the manner hereinafter provided.
Any number of offices may be held by the same Person. The salaries or other compensation, if any,
of the officers and agents of the Company may be fixed from time to time. Unless the Board of
Directors specify otherwise, the assignment of such title will constitute the delegation to such
officer of the authority and duties set forth below and those that are normally associated with
that office:
(i) Chief Executive Officer. The Chief Executive Officer will generally and
actively manage the business of the Company and will see that all orders and resolutions of
the Members and the Board of Directors are carried into effect. The Chief Executive Officer
will only report to the Board of Directors.
(ii) President. The President will be the chief operating officer of the
Company and have general executive powers to manage the operations of the Company. In the
absence of the Chief Executive Officer or in the event of his inability or refusal to act,
the President will perform the duties and exercise the powers of the Chief Executive
Officer.
34
(iii) Chief Financial Officer. The Chief Financial Officer will be the
principal financial officer of the Company.
(iv) Vice Presidents. In the absence of the President, or in the event of his
inability or refusal to act, the Vice President (or in the event there be more than one Vice
President, the Vice Presidents in the order designated by the Board of Directors, or in the
absence of any such designation, then in the order of their election or appointment) will
perform the duties of the President, and when so acting, will have all the powers of and be
subject to all the restrictions upon the President.
(v) Secretary. The Secretary will keep the minutes of the meetings of the
Company and of the Board of Directors, and will exercise general supervision over the files
of the Company. The Secretary will give notice of meetings and will perform other duties
commonly incident to such office.
(vi) Assistant Secretary. At the request of the Secretary or in the
Secretary’s absence or inability to act, the Assistant Secretary will perform part or all of
the Secretary’s duties.
(vii) Treasurer. The Treasurer will have general supervision of the funds,
securities, notes, drafts, acceptances, and other commercial paper and evidences of
indebtedness of the Company and he will determine that funds belonging to the Company are
kept on deposit in Company accounts. The Treasurer will determine that accurate accounting
records are kept, and the Treasurer will render reports of the same and of the financial
condition of the Company to the Parties or the Board of Directors at any time upon request.
The Treasurer will perform other duties commonly incident to such office, including, but not
limited to, the execution of tax returns.
(viii) Assistant Treasurer. At the request of the Treasurer or in the
Treasurer’s absence or inability to act, the Assistant Treasurer will perform part or all of
the Treasurer’s duties.
(b) Resignation of Officers. Any officer may resign as such at any time. Such resignation
will be made in writing and will take effect at the time specified therein, or if no time be
specified, at the time of its receipt by the Company. The acceptance of a resignation will not be
necessary to make it effective, unless expressly so provided in the resignation. Any officer may
be removed as such, either with or without cause, by the Board of Directors; provided, however,
that such removal will be without prejudice to the contract rights, if any, of the officer so
removed. Designation of an officer will not of itself create contract rights. Any vacancy
occurring in any office of the Company may be filled by the applicable Committee or the Members.
6.9 Duties of Officers. Each officer will devote such time, effort, and skill to the Company’s
business affairs as he or she deems necessary and proper for the Company’s welfare and success.
6.10 Action by Written Consent. Any action or approval provided herein to be taken at a meeting of
the Members may, in lieu of a meeting, be taken and evidenced by written consent signed by the
requisite percentage of Members.
35
ARTICLE 7
RIGHTS AND OBLIGATIONS OF MEMBERS
RIGHTS AND OBLIGATIONS OF MEMBERS
7.1 Limitation of Liability. The Members shall have no liability to the Company or its creditors
except as expressly provided in this Agreement or as otherwise provided in the Delaware Act.
7.2 Management of Business. No Member, in its capacity as such, shall take part in the control
(within the meaning of the Delaware Act) of the Company’s business, transact any business in the
Company’s name or have the power to sign documents for or otherwise bind the Company. The
transaction of any such business by a Director, officer, employee or agent of the Company or its
Affiliates in his or its capacity as such shall not affect, impair or eliminate the limitations on
the liability of any Member or Transferee under this Agreement.
7.3 Outside Activities. Except as limited by any other provisions of this Agreement or the
provisions of any written employment agreement with the Company to which such Member may be a
party, a Member may have business interests and engage in business activities in addition to those
related to the Company, including interests in and activities related to the businesses described
in Section 3.1 or otherwise competitive with the business of the Company and neither the Company
nor any other Members shall have any rights in such other business interests or activities or in
any income or profits therefrom.
7.4 Return of Capital. No Member shall be entitled to the withdrawal or return of its Capital
Contribution, except to the extent, if any, that distributions made pursuant to this Agreement or
upon termination of the Company may be considered as such by law and then only to the extent
provided for in this Agreement and subject to applicable law.
7.5 Rights of Members Relating to the Company. In addition to other rights provided by this
Agreement (including the right to vote on matters for which the right to vote is provided to the
Members hereunder), the Delaware Act or by applicable law, and except as limited by Section 7.6,
each of the Members shall have the following rights relating to the Company:
(a) to inspect and copy any of the Company’s books and records, but such inspection and
copying shall be at the Member’s own expense and during normal business hours;
(b) to have on demand true and full information of all things affecting the Company and a
formal accounting of Company affairs whenever circumstances, but the furnishing of such information
or conducting such accounting shall be at the expense of the Member requesting the same; and
(c) to have furnished to it, on its written request, a copy of this Agreement and the
Certificate of Membership and all amendments thereto.
7.6 Confidentiality.
(a) The Members agree that all Confidential Information (as defined below) shall be kept
confidential by the Members as required by this Section 7.6; provided, however, that any of such
Confidential Information may be disclosed (i) to such employees, officers, Directors, managers,
spouses, counsel, prospective purchasers of a Membership Interest, financiers, and authorized
representatives and agents of any such Member (“Recipients”) as need to know such
information for the purpose of making decisions concerning the Company or such Member’s investment
therein (provided, further, that the Recipients shall be informed by such Member in its
36
reasonable best efforts of the confidential nature of such information and shall be required
to treat such information confidentially), (ii) to the extent necessary in connection with the
exercise of any remedy hereunder or under any of the transaction documents referred to herein,
(iii) to the extent otherwise approved by the Company, (iv) to the extent that such Member or such
Member’s Recipients is required by applicable law (including its disclosure obligations pursuant to
applicable federal and state securities laws) and (v) to the extent that such Member or such of its
Recipients is legally compelled to do so, provided that the Member or such Member’s Recipients (A)
notifies the Company regarding such disclosure prior to making such disclosure, (B) discloses only
that portion of the Confidential Information as is legally required, and (C) uses reasonable best
efforts to ensure that the party to which such Confidential Information is provided agrees to keep
it confidential.
(b) The term “Confidential Information” means all information regarding the activities
of the Company, obtained by or on behalf of such Member from any other Member or the Company
pursuant to this Agreement and all similar information obtained from the other Members by or on
behalf of such Member on or after the Effective Date, other than information which (i) was or
becomes generally available to the public other than as a result of disclosure by such Member or
any of its Recipients, (ii) was or becomes available to such Member on a nonconfidential basis
prior to disclosures to such Member by another Member or the Company, or (iii) was or becomes
available to such Member from a source other than another Member or the Company, provided that such
source is not known by such Member to be bound by a confidentiality agreement with the Company.
(c) Each Member acknowledges and agrees that instances may arise when (i) the Company
determines that the disclosure of certain Confidential Information pertaining to the Company or its
activities is not in the best interests of the Company or could damage the Company or its business,
or (ii) the Company or an Affiliate thereof is subject to a valid and effective agreement with a
third party prohibiting the Company or such Affiliate from distributing or otherwise disseminating
to another party (including a Member) certain information, such as Confidential Information
pertaining to Company activities.
(d) The terms of this Section 7.6 shall survive until the earliest to occur of (i) the date
following one year from the commencement of the liquidation of the Company or (ii) the date
following one year from the date of termination of the Member’s interest in the Company.
7.7 Special Actions.
(a) Required Member Consent. Without the prior written approval of the Required Interest of
the Members, the Company shall not, and (to the extent it has the legal power and authority) shall
cause its subsidiaries (including OpCo) and the Fund not to (in a single transaction or series or
related transactions designed to circumvent the monetary limits set forth herein) undertake any of
the following actions:
(i) make, during any one-year period, expenditures in excess of $15.0 million for one
or more Acquisitions;
(ii) effect, during any one-year period, Asset Transfers involving assets valued at or
resulting in net proceeds of more than $15.0 million in the aggregate (computed by reference
to the Fair Market Value of the assets Transferred);
(iii) incur any Indebtedness (not including trade payables incurred in the Fund’s or
the Company’s (or any of its subsidiaries’) ordinary course of business) on behalf of the
37
Fund or the Company (or any of its subsidiaries) of more than $5.0 million outstanding
at any one time;
(iv) mortgage, pledge, assign in trust or otherwise encumber any property or assets of
the Company, or assign any monies owed or to be owed to the Company, except for customary
Liens granted in the ordinary course of business or to secure Indebtedness permitted under
paragraph (iii) above;
(v) enter into any merger, exchange or consolidation; effect a recapitalization or
reorganization; commence a dissolution, liquidation or winding up of its affairs; or
commence, consent to or permit a Bankruptcy;
(vi) authorize, offer, issue or sell any securities (other than pursuant to Section
4.2(b)) or a new class or series of any securities resulting, in any one-year period, in
proceeds in excess of $1.0 million, or make one or more requests of the Members for Capital
Contributions in excess of $1.0 million in any one-year period;
(vii) approve, or otherwise modify any existing arrangements with respect to,
compensation for members of the Board of Directors;
(viii) appoint or remove any executive officer, enter into or modify or amend in any
material respect any employment agreement with any officer or hire any person on other than
an at “at-will” basis or terminate any person employed on other than such basis;
(ix) admit any new partner, member, shareholder or other Equity Interest owner to any
subsidiary of the Company;
(x) authorize material transactions not in the ordinary course of business;
(xi) redeem or repurchase any securities;
(xii) to amend the formation documents or other governing documents of such Persons;
(xiii) approve of any transaction with any Affiliate of such Persons, or any officer,
director or employee of such Persons, or any Affiliate of any officer, director or employee
of such Persons; or
(xiv) take any action, authorize or approve, or enter into any binding agreement, or
otherwise obligate the Company, any of its subsidiaries or the Fund, with respect to the
foregoing.
(b) Member approval of or agreement to any matter specified in this Section 7.7, may be
withheld by any Member for any reason whatsoever, in each Member’s sole and absolute discretion.
7.8 Votes. Each Member will be entitled to one vote (or a fraction thereof) per one-percent of
Sharing Ratio (or fraction thereof) of Membership Interest held by such Member, as reflected in the
transfer records of the Company; provided, however, that for purposes of determining a quorum or a
required interest for approval, the Membership Interest of any relevant Member will not be counted
and such interest will be apportioned by interest among the remaining Members as applicable if the
relevant Member is not permitted to vote under this Agreement for
38
any reason, including if the relevant Member is in Default or is not deemed to be a Substituted
Member.
ARTICLE 8
BOOKS, RECORDS, ACCOUNTING AND REPORTS
BOOKS, RECORDS, ACCOUNTING AND REPORTS
8.1 Records and Accounting. The Company shall keep or cause to be kept appropriate books with
respect to the Company’s business, which books shall at all times be kept at the principal office
of the Company. The books of the Company shall be maintained, for financial reporting purposes, in
accordance with generally accepted accounting principles and in accordance with the Income Tax
Method of Accounting.
8.2 Fiscal Year. The Fiscal Year of the Company shall be the calendar year.
8.3 Reports. The Company shall use its reasonable best efforts to deliver to the Members the
following financial statements, reports and other information at the times indicated below:
(a) Quarterly within 45 days after the end of each quarter except the last calendar quarter of
each Fiscal Year, financial statements with respect to such quarter, including income statements,
balance sheets, cash flow statements and statements of members’ equity, presented in accordance
with generally accepted accounting principles and in accordance with the Income Tax Method of
Accounting, but without footnotes and subject to normal year-end adjustments, all certified by the
Chief Financial Officer of the Company to the effect that such financial statements present fairly
in all material respects the financial condition and results of operation of the Company.
(b) Annually within 90 days after the end of each Fiscal Year, unqualified financial
statements, including income statements, balance sheets, cash flow statements and statements of
members’ equity with respect to such Fiscal Year, which financial statements shall be presented in
accordance with generally accepted accounting principles and in accordance with the Income Tax
Method of Accounting and accompanied by the report of the Accountant stating that an audit of such
financial statements has been made in accordance with generally accepted auditing standards and
that in its opinion such financial statements present fairly the financial condition, results of
operations, and cash flows of the Company in accordance with generally accepted accounting
principles consistently applied, all certified by a managing member of the Company to the effect
that such financial statements present fairly in all material respects the financial condition and
results of operation of the Company.
(c) Annually within 75 days after the end of each Fiscal Year, the Company’s schedule K-1
filed with respect to the Company.
ARTICLE 9
TAX MATTERS
TAX MATTERS
9.1 Tax Returns; Company Status; Elections.
(a) Except as otherwise provided, the Company shall cause to be prepared and filed all
necessary federal, state and local tax returns for the Company and reports as may be required as a
result of the business of the Company.
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(b) The Company intends to be classified as a partnership for federal and state income tax
purposes. No election shall be made by the Company or by any Member to cause the Company to be
treated as an association taxable as a corporation for federal or state income tax purposes or to
be excluded from the application of any of the provisions of Subchapter K, Chapter 1 of Subtitle A
of the Code or from any similar provisions of any state laws.
(c) To the extent provided for in Treasury Regulations, revenue rulings, revenue procedures
and/or other Internal Revenue Service guidance issued after the date hereof, the Company is hereby
authorized and directed to elect a safe harbor under which the Fair Market Value of any units
issued for services (the “Service Units”) granted after the effective date of such Treasury
Regulations (or other guidance) will be treated as equal to the liquidation value of such Service
Units (i.e., a value equal to the total amount that would be distributed under Section 11.2(d),
with respect to such units in a Hypothetical Liquidation occurring immediately after the issuance
of such Service Units and assuming for purposes of such Hypothetical Liquidation that all assets of
the Company are sold for their Fair Market Values instead of their book values). In the event that
the Company makes a safe harbor election as described in the preceding sentence, the Company and
each Member hereby agree to comply with all safe harbor requirements with respect to Transfers of
the Service Units while the safe harbor election remains effective.
(d) Each Member agrees not to file any tax return or other statement materially inconsistent
with either (i) the Forms 1065 and related state income tax returns as filed by the Company for
each Fiscal Year, or (ii) the form of the transactions contemplated by this Agreement and any
related documents executed by the Members or the Company as provided herein, unless required to do
so as a result of adjustments to the Company’s tax returns required pursuant to a final
nonappealable administrative judicial proceeding.
(e) Except as otherwise provided herein, the Company shall, subject to the approval of the
Board of Directors, determine whether to make any other available tax election.
9.2 Tax Matters Partner. The Board of Directors shall from time to time designate a Member to act
as the “tax matters partner” under section 6231(a)(7) of the Code. The Company shall take such
action as may be necessary to cause each other Member to become a “notice partner” within the
meaning of section 6223 of the Code. The tax matters partner shall inform each other Member of all
significant matters that may come to its attention in its capacity as tax matters partner and shall
forward to each other Member copies of all significant written communications it may receive in
such capacity, in each case within five days. This Section 9.2 is not intended to authorize the
tax matter partner to take any action left to the determination of an individual Member under
Sections 6222 through 6231 of the Code. In no event shall the “tax matters partner” settle any tax
disputes with the Internal Revenue Service or any other taxing authority or take any action that
would be materially adverse to the Institutional Investors, in each case, without the consent of
the Institutional Investors.
9.3 Withholding. Notwithstanding any other provision of this Agreement, each Member hereby
authorizes the Company to withhold and to pay over, or otherwise pay, any withholding or other
taxes payable by the Company with respect to such Member as a result of such Member’s participation
in the Company; if and to the extent that the Company shall be required to withhold or pay any such
taxes, such Member shall be deemed for all purposes of this Agreement to have received a payment
from the Company as of the time such withholding or tax is paid, which payment shall be deemed to
be a distribution to such Member to the extent that the Member (or any successor to such Member’s
Membership Interest) is then entitled to receive a distribution. To the extent that the aggregate
of such payments to a Member pursuant to this Section 9.3 for any period exceeds the distributions
to which such Member is entitled for such period, the amount of
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such excess shall be considered a loan from the Company to such Member, with interest at the Prime
Plus Rate, which interest shall be treated as an item of income to the Company, until discharged by
such Member by repayment, which may be made in the discretion of the Company out of distributions
to which such Member would otherwise be subsequently entitled. Any withholdings authorized by this
Section 9.3 shall be made at the maximum applicable statutory rate under the applicable tax law
unless the Company shall have received an Opinion of Counsel or other evidence, satisfactory to the
Company, to the effect that a lower rate is applicable, or that no withholding is applicable.
ARTICLE 10
TRANSFER OF INTERESTS
TRANSFER OF INTERESTS
10.1 Transfers of Membership Interests. No Membership Interest shall be Transferred, in whole or
in part, other than Transfers effected in compliance with this Article 10. Each Transfer of a
Membership Interest, in whole or in part, shall be made in accordance with the terms and conditions
set forth in this Article 10. Any Transfer or purported Transfer of any Membership Interest not
made in accordance with this Article 10 shall be null and void ab initio.
10.2 Right of First Refusal.
(a) At any time prior to the consummation of a Qualified IPO, any Member or Transferee
desiring to Transfer, other than in an Exempt Transfer or a transaction subject to Section 10.4,
all or any portion of its Membership Interest or a pledge of securities made in Compliance with
Section 10.7 (a “Transferring Person”) to a ready, willing and able proposed Transferee,
shall first offer to Transfer such Membership Interest or portion thereof (the “Subject
Interest”) to the other Members (the “Non-Transferring-Persons”) as a group. Such
offer will be made by an irrevocable written offer (the “Transfer Offer Notice”) to
Transfer all of the Subject Interest and will contain a complete description of the transaction
(the “Proposed Transaction”) in which the Transferring Person proposes to Transfer the
Subject Interest, including the name of the proposed Transferee (including any significant
beneficial owners thereof) and the consideration specified. The Non-Transferring Persons will have
30 days (the “Transfer Option Period”) after actual receipt of the Transfer Offer Notice
within which to advise the Transferring Person whether or not they will acquire the Subject
Interest upon the terms and conditions contained in the Transfer Offer Notice. If, within the
Transfer Option Period, one or more Non-Transferring Persons elects to acquire the Subject
Interest, then such Non-Transferring Person or Persons will close such transaction in accordance
with Section 10.2(d) no later than the later to occur of (A) the closing date set forth in the
Transfer Offer Notice or (B) 60 days after the last day of the Transfer Option Period.
(b) If any Non-Transferring Person does not elect to acquire its proportionate share of the
Subject Interest being Transferred, the remaining Non-Transferring Persons will have the right to
acquire an equal and undivided portion of the remaining Subject Interest based on the relation of
such Member’s Sharing Ratio to the Sharing Ratio of all Non-Transferring Persons desiring to
acquire a portion of the Subject Interest. The right herein created in favor of the
Non-Transferring Persons as a group is an option to acquire all, or none, of the Subject Interest.
If the Non-Transferring Persons as a group decline to acquire all of the Subject Interest in
accordance with this Section, the Transferring Persons may Transfer such Subject Interest, no later
than 60 days after the end of the Transfer Option Period, to the Transferee named in the Transfer
Offer Notice upon the terms described in such Transfer Offer Notice. If such Transfer does not
timely occur in accordance with the terms of such Transfer Offer Notice, the Transferring Persons
and the Subject Interest will again be subject to the provisions of this Section 10.2.
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(c) Upon consummation of any Transfer described in this Section 10.2 (whether to a Member or
any other Person), the Transferee and its Membership Interest will automatically become a party to,
and be bound by, this Agreement and will thereafter have all of the rights and obligations of a
Transferee hereunder. Notwithstanding the foregoing, all Transfers pursuant to this Section 10.2
must also comply with and be governed by this Agreement, including any restrictions on Transfers
therein and on any Transferee becoming a Substituted Member.
(d) If the Proposed Transaction (or any other transaction that is contingent upon the Proposed
Transaction, and/or any other transaction on which the Proposed Transaction is contingent),
contemplates the transfer of any asset property, interest or right other than the Subject Interest
(“Other Assets”) to the proposed Transferee or any Affiliate thereof, then the Transferring
Person will disclose in its Transfer Offer Notice (A) the Subject Interest, (B) the Other Assets,
(C) the aggregate Fair Market Value of cash, cash equivalents and Non-Cash Consideration that is to
be paid in exchange for the Subject Interest and the Other Assets and (D) the Transferor’s
determination of the percentage of such aggregate Fair Market Value of cash, cash equivalents and
Non-Cash Consideration to be paid that is attributable to the Subject Interest, based on the
relationship of the value of the Subject Interest to the value of the Subject Interest plus the
Other Assets. If a majority in interest of the Non-Transferring Persons (calculated based on
Sharing Ratios) disagree with such determination of the values in clauses (C) or (D) above, they
will notify the Transferring Person of such disagreement within five Business Days of receiving the
Transfer Offer Notice. If such dispute is not resolved within five Business Days after the
delivery by such Non-Transferring Persons of such notice, the Transferring Person or any such
Non-Transferring Persons may submit such dispute to binding arbitration by delivering an
arbitration notice to the other relevant Persons and the Company. The Person initiating
arbitration will also simultaneously file duplicate copies of its notice of arbitration with the
regional office of the CPR Institute covering Houston, Texas, together with the appropriate fee as
provided in the CPR Institute’s administrative fee schedule. The notice of arbitration will
contain a brief description of the nature of the dispute to be arbitrated. With respect to any
such arbitration, the Members hereby agree that: (A) the single arbitrator will be an appraiser or
investment banking firm having expertise in the valuation of the types of assets represented by the
Subject Interest, the Other Assets and the Non-Cash Consideration; (B) the arbitration proceedings
will be held in Houston, Texas at such location selected by the arbitrator; (C) all arbitration
proceedings under this Section 10.2(d) will be conducted in accordance with the Commercial
Arbitration Rules of the CPR Institute, as then amended and in effect; and such rules will be
interpreted and applied and questions regarding the arbitration process not resolved under such
rules will be determined in accordance with the Uniform Arbitration Act, as enacted in the State of
Delaware; provided, however, that the arbitrator will resolve such dispute with respect to the
application and/or interpretation of such rule or rules within 10 days from the date the applicable
notice of arbitration was submitted to the other relevant parties, the Company and the CPR
Institute; (D) within five Business Days following the receipt of the initial arbitration notice by
the Company, the Transferring Person and a designee of the majority in interest of the
Non-Transferring Persons (calculated based on Sharing Ratios) will each submit to each of the other
Persons, the Company and the CPR Institute a response in which it proposes a single determination
of (I) the aggregate Fair Market Value of cash, cash equivalents and Non-Cash Consideration that is
to be paid in exchange for the Subject Interest and the Other Assets and (II) the percentage of
such aggregate Fair Market Value of cash, cash equivalents and Non-Cash Consideration to be paid
that is attributable to the Subject Interest, based on the relationship of the value of the Subject
Interest to the value of the Subject Interest plus the Other Assets; and (E) the arbitrator will be
required to select, with respect to each of clauses (I) and (II), individually, either the
determination of the Transferring Person or the determination of the designee of such majority in
interest. The consideration for the Subject Interest will then be an amount of money, payable in
cash, equal to the value attributable to the Subject Interest, as so determined.
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(e) If any portion of the consideration set forth in the Transfer Offer Notice is to be paid
in a form other than cash or cash equivalents (including real or personal property, promissory
notes, securities, contractual benefits, assumption of liabilities or anything else of value)
(“Non-Cash Consideration”), the Transferring Person will state in its Transfer Offer Notice
its determination of the aggregate Fair Market Value of such Non-Cash Consideration (which, in the
case of marketable securities, will be the market price of such securities). If a majority in
interest of the Non-Transferring Persons (calculated without reference to the Membership Interest
of the Transferring Person or of any Non-Transferring Persons not purchasing the Subject Interest)
disagree with such determination of the value of such Non-Cash Consideration, they will notify the
Transferring Person of such disagreement within five Business Days of receiving the Transfer Offer
Notice. If such dispute is not resolved within five Business Days after the delivery by such
Non-Transferring Persons of such notice, the Transferring Person or any such Persons may submit
such dispute to binding arbitration by delivering an arbitration notice to the other relevant
Persons and the Company. The Person initiating arbitration will also simultaneously file duplicate
copies of its notice of arbitration with the regional office of the CPR Institute covering Houston,
Texas, together with the appropriate fee as provided in the CPR Institute’s administrative fee
schedule. The notice of arbitration will contain a brief description of the nature of the dispute
to be arbitrated. With respect to any such arbitration, the Members hereby agree that: (A) the
single arbitrator will be an appraiser or investment banking firm having expertise in the valuation
of the types of assets represented by the Non-Cash Consideration; (B) the arbitration proceedings
will be held in Houston, Texas at such location selected by the arbitrator; (C) all arbitration
proceedings under this Section 10.2(e) will be conducted in accordance with the Commercial
Arbitration Rules of the CPR Institute, as then amended and in effect; and such rules will be
interpreted and applied and questions regarding the arbitration process not resolved under such
rules will be determined in accordance with the Uniform Arbitration Act, as enacted in the State of
Delaware; provided, however, that the arbitrator will resolve such dispute with respect to the
application and/or interpretation of such rule or rules within ten days from the date the
applicable notice of arbitration was submitted to the other relevant parties, the Company and the
CPR Institute; (D) within five Business Days following the receipt of the initial arbitration
notice by the Company, the Transferring Person and a designee of the majority in interest of the
Non-Transferring Persons (calculated based on Sharing Ratios) will each submit to each of the other
Parties, the Company and the CPR Institute a response in which it proposes a single determination
of the Fair Market Value of the Non-Cash Consideration; and (E) the arbitrator will be required to
select either the determination of the Transferring Person or the determination of the designee of
such majority in interest.
(f) At the closing of the Transfer of a Membership Interest pursuant to this Section 10.2, the
Transferee will deliver to the Transferor the full consideration agreed upon. Any transfer or
similar taxes involved in such sale will be paid by the Transferor, and the Transferor will provide
the Transferee with such evidence of the Transferor’s authority to Transfer hereunder and such tax
Lien waivers and similar instruments as the Transferee may reasonably request.
10.3 Change in Control.
(a) If a Change in Control occurs with respect to any Member or Transferee, such Person (the
“Change in Control Party”) must give notice thereof to the Company and all other Members
(the “Non-Change in Control Parties”) within five Business Days after the occurrence of
such Change in Control. Such notice must include (A) an irrevocable written offer (the “Change
in Control Offer Notice”) to Transfer all of the Change in Control Party’s Membership Interest
(the “Change in Control Interest”) for its Fair Market Value and (B) such Party’s
determination of the Fair Market Value of the Change in Control Interest. The Non-Change in
Control Parties will have 30 days (the “Change in Control Option Period”) after actual
receipt of the Change in Control Offer
43
Notice within which to advise the Change in Control Party whether or not they will acquire the
Change in Control Interest. If, within the Change in Control Option Period, one or more Non-Change
in Control Parties elects to acquire the Change in Control Interest, then such other Party or
Parties will close such transaction in accordance with Section 10.3(d) no later than 60 days after
the last day of the Change in Control Option Period.
(b) If any Non-Change in Control Party does not elect to acquire its proportionate share of
the Change in Control Interest, the remaining Non-Change in Control Parties will have the right to
acquire an equal and undivided portion of the remaining Change in Control Interest based on the
relation of their Sharing Ratio to the aggregate Sharing Ratio of all Non-Change in Control Parties
desiring to acquire a portion of the Change in Control Interest. The right herein created in favor
of the Non-Change in Control Parties as a group is an option to acquire all, or none, of the Change
in Control Interest. If the Non-Change in Control Parties as a group decline to acquire all of the
Change in Control Interest in accordance with this Section 10.3, the Change in Control Party will
not be required to Transfer its Membership Interest under this Section 10.3.
(c) If a majority in interest of the Non-Change in Control Parties (calculated without
reference to the Membership Interest of the Change in Control Party or of any Non-Change in Control
Parties not purchasing the Change in Control Interest) disagree with the Change in Control Party’s
determination of the Fair Market Value of the Change in Control Interest in the Change in Control
Offer Notice, they will notify the Change in Control Party of such disagreement within five
Business Days of receiving the Change in Control Offer Notice. If such dispute is not resolved
within five Business Days after the delivery by such Non-Change in Control Parties of such notice,
the Change in Control Party or any such Non-Change in Control Party may submit such dispute to
binding arbitration by delivering an arbitration notice to the other relevant Parties and the
Company. The Party initiating arbitration will also simultaneously file duplicate copies of its
notice of arbitration with the regional office of the CPR Institute covering Houston, Texas,
together with the appropriate fee as provided in the CPR Institute’s administrative fee schedule.
The notice of arbitration will contain a brief description of the nature of the dispute to be
arbitrated. With respect to any such arbitration, the Members hereby agree that: (A) the single
arbitrator will be an appraiser or investment banking firm having expertise in the valuation of the
types of assets represented by the Change in Control Interest; (B) the arbitration proceedings will
be held in Houston, Texas at such location selected by the arbitrator; (C) all arbitration
proceedings under this Section 10.3 will be conducted in accordance with the Commercial Arbitration
Rules of the CPR Institute, as then amended and in effect; and such rules will be interpreted and
applied and questions regarding the arbitration process not resolved under such rules will be
determined in accordance with the Uniform Arbitration Act, as enacted in the State of Delaware;
provided, however, that the arbitrator will resolve such dispute with respect to the application
and/or interpretation of such rule or rules within ten days from the date the applicable notice of
arbitration was submitted to the other relevant parties, the Company and the CPR Institute; (D)
within five Business Days following the receipt of the initial arbitration notice by the Company,
the Change in Control Party and a designee of the majority in interest of the Non-Change in Control
Parties (calculated without reference to the Membership Interest of the Change in Control Party or
of any Non-Change in Control Parties not purchasing the Change in Control Interest) will each
submit to each of the other Parties, the Company and the CPR Institute a response in which it
proposes a single determination of the Fair Market Value of the Change in Control Interest; and (E)
the arbitrator will be required to select either the determination of the Change in Control Party
or the determination of the designee of such majority in interest. The consideration for the
Change in Control Interest will then be an amount of money, payable in cash, equal to the Fair
Market Value of the Change in Control Interest as so determined.
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(d) At the closing of the Transfer of a Change in Control Interest pursuant to this Section
10.3, the Transferee(s) will deliver to the Transferor the full consideration agreed upon or
determined in accordance with the terms hereof. Any transfer or similar taxes involved in such
sale will be paid by the Transferor, and the Transferor will provide the Transferee(s) with such
evidence of the Transferor’s authority to Transfer hereunder and such tax Lien waivers and similar
instruments as the Transferee(s) may reasonably request.
10.4 Drag-Along.
(a) At any time prior to the consummation of a Qualified IPO and upon the election by the
Required Interest of the Members (each a “Selling Member”) to Transfer in one transaction
or a series of related transactions (other than an Exempt Transfer or an Involuntary Transfer) all
of the Membership Interests that they hold to a non-affiliated Person in a bona fide transaction,
all Members and Transferees other than the Selling Members (each such other Members and Transferees
shall be referred to herein as a “Co-Seller” and collectively as “Co-Sellers”)
shall be required to Transfer all their Membership Interests in such transaction or transaction.
All such Membership Interests of the Co-Sellers shall be Transferred free and clear of all Liens.
(b) All Membership Interests Transferred by the Co-Sellers pursuant to this Section 10.4 shall
be treated identically with the Membership Interests being Transferred by the Selling Members in
all respects; provided, however, (i) the aggregate consideration to be paid shall be allocated as
provided in Section 10.4(c) and (ii) a Co-Seller shall not be required to make any representations
or warranties in connection with such Transfer other than representations and warranties as to (x)
such Co-Seller’s Membership Interests will be Transferred free and clear of all Liens, (y) such
Co-Seller’s power and authority to effect such Transfer, and (z) such matters pertaining to
compliance with securities laws as the acquiring party may reasonably require.
(c) In any Transfer subject to this Section 10.4, the aggregate consideration to be paid by
the acquiring party shall be allocated to each class of Membership Interests, with such allocations
determined based on the amount that would be distributable to such class of Membership Interests by
applying Article 5 to such aggregate consideration (giving effect to all distributions actually
made pursuant to Article 5 through the date of the Transfer).
(d) The Selling Members shall give each Co-Seller at least 20 days’ prior written notice of
any Transfer that is subject to this Section 10.4, and such notice shall identify the acquiror, all
material terms and the date of the closing of the Transfer. Each Co-Seller shall take such actions
as may be reasonably required and otherwise cooperate in good faith with the Selling Members in
connection with consummating the Transfer subject to this Section 10.4.
10.5 Right of Participation.
(a) In the event that at any time prior to the consummation of a Qualified IPO, (i) any Member
or Transferee (the “Transferring Members”) proposes to Transfer all or any portion of its
Membership Interests in one transaction or a series of related transactions and such proposed
Transfer does not constitute an Exempt Transfer, (ii) the Transferring Members have elected not to
exercise their rights, if any, under Section 10.4 with respect to the Membership Interests owned by
other Members and (iii) the other Members have not during the Transfer Option Period elected to
purchase all of such securities pursuant to Section 10.2, then such Transferring Members shall
offer (a “Participation Offer”) to each other Member (a “Participation Investor”)
to include in the proposed Transfer a portion of each Participation Investor’s Membership Interest
equal to the product of (A) a fraction, the numerator of which is the Sharing Ratio represented by
the Membership Interests proposed to be included in the Transfer by the Transferring Members and
45
the denominator of which is the aggregate Interest Percentage of all Membership Interests
owned by the Transferring Members and (B) the Sharing Ratio represented by all of such
Participation Investor’s Membership Interests.
(b) The Transferring Members shall give written notice (a “Participation Notice”) to
each Participation Investor no later than 10 Business Days following the end of the Transfer Option
Period but at least 10 Business Days prior to the proposed Participation Sale (as defined below).
The Participation Notice shall specify the proposed Transferee, the aggregate Sharing Ratio
proposed to be included in the proposed sale under this Section 10.5 (a “Participation
Sale”), the purchase price (and if the proposed Transfer is to be wholly or partly for
consideration other than cash, the Participation Notice shall state the amount of cash
consideration, if any, and shall describe all non-monetary consideration), all other material terms
and conditions of such proposed Participation Sale and the place and date on which such proposed
Participation Sale is to be consummated. Each Participation Investor who wishes to include
Membership Interests in the proposed Participation Sale shall so notify the Transferring Members
(an “Acceptance Notice”) not more than five Business Days after the date of the
Participation Notice.
(c) The Participation Offer shall be conditioned upon the Transferring Members’ sale of
Membership Interests pursuant to the transactions contemplated in the Participation Notice with the
transferee named therein. If any Participation Investor accepts the Participation Offer (a
“Participating Member”), the Transferring Members shall, to the extent necessary, reduce
the Sharing Ratio it otherwise would have included in such proposed Participation Sale so as to
permit the Participating Members to include in the Participation Sale corresponding to the
Membership Interests that they are entitled include pursuant to this Section 10.5.
(d) In any Transfer subject to this Section 10.5, the aggregate consideration to be paid by
the acquiring party shall be allocated to each class of Membership Interests, with such allocations
determined based on the amount that would be distributable to such class of Membership Interests by
applying Article 5 to such aggregate consideration (giving effect to all distributions actually
made pursuant to Article 5 through the date of the Transfer).
(e) The Acceptance Notice of a Participating Member shall include wire transfer instructions
for payment of the purchase price for the Membership Interests to be sold in such Participation
Sale and shall be accompanied by a limited power-of-attorney authorizing the Transferring Members
to transfer its Membership Interests on the terms set forth in the Participation Notice and all
other documents required to be executed in connection with such Participation Sale. Delivery of an
Acceptance Notice shall constitute an irrevocable acceptance of the Participation Offer by such
Participating Member.
(f) If, at the end of a 60-day period after delivery of an Acceptance Notice (which 60-day
period shall be extended if any of the transactions contemplated by the Participation Offer are
subject to regulatory approval until the expiration of five Business Days after all such approvals
have been received, but in no event later than 90 days following receipt by the Transferring
Members of the Acceptance Notice), the Transferring Members have not completed the transfer of
their Membership Interests on terms no more favorable to the prospective transferee than the terms
and conditions set forth in the Participation Notice, the Transferring Members shall (i) return to
each Participating Member the limited power-of-attorney (and all copies thereof) that such
Participating Member executed and any other documents in the possession of the Transferring Member
executed by the Participating Members in connection with the proposed Participation Sale, and (ii)
not conduct any Transfer of their Membership Interests without again complying with Section 10.2
and this Section 10.5.
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(g) Concurrently with the consummation of the Participation Sale, the Transferring Members
shall (i) notify the Participating Members thereof, (ii) remit to the Participating Members the
total consideration for the Membership Interests of the Participating Members Transferred of
pursuant thereto, and (iii) promptly after the consummation of the Participation Sale, furnish such
other evidence of the completion and the date of completion of such transfer and the terms thereof
as may be reasonably requested by the Participating Members.
(h) If at the termination of the Participation Notice Period any other Member shall not have
delivered an Acceptance Notice, such other Member shall be deemed to have waived its rights under
this Section 10.5 with respect to the transfer of its Membership Interest pursuant to such
Participation Sale.
(i) Notwithstanding anything contained in this Section 10.5, there shall be no liability on
the part of the Transferring Members to the Participating Members if the Transfer of the Membership
Interest pursuant to this Section 10.5 is not consummated for whatever reason.
(j) Notwithstanding anything contained in this Section 10.5, the rights and obligations of the
other Members to participate in a Participation Sale are subject to the following conditions:
(i) the Transferring Members and all Participating Members will receive the same form
and amount of consideration per percentage of Sharing Percentage;
(ii) no Participating Member shall be required to make any representation or warranty
in connection with such Transfer other than representations or warranties (x) that such
Participating Member’s Membership Interests are owned by such Participating Member free and
clear of all Liens other than as provided in this Agreement, (y) that such Participating
Member has the power and authority to effect such Transfer of its Membership Interest and
(z) as to such matters pertaining to securities laws as the Transferee may reasonably
require; and
(iii) no Member participating therein shall be obligated to pay any expenses incurred
in connection with any unconsummated Participation Sale, and each such Member shall be
obligated to pay only its pro rata share (based on the aggregate Sharing Percentage
attributable to Membership Interests Transferred) of expenses incurred in connection with a
consummated Participation Sale to the extent such expenses are incurred for the benefit of
all such Members and are not otherwise paid by the Company or another Person.
10.6 Involuntary Transfers.
(a) In the event of an Involuntary Transfer of any Membership Interest by a Member, such
Member shall give written notice (an “Involuntary Transfer Notice”) to the Company promptly
after the occurrence of the event which caused such Involuntary Transfer. After receipt of an
Involuntary Transfer Notice, the Company shall have the option for 60 days from the date of receipt
of the Involuntary Transfer Notice to elect to purchase such Member’s Membership Interest within
such 60-day period at its Fair Market Value.
(b) The closing of any purchase pursuant to this Section 10.6 shall be on the Business Day
specified by the Company, provided that the Transferring Holder is given 20 days’ advance notice of
such closing; provided further, however, that any such closing shall be delayed, to the extent
required, until two Business Days following the obtaining of all governmental approvals reasonably
deemed necessary by the Member participating in a Transfer pursuant to this
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Section 10.6. Each Member who participates in a Transfer pursuant to this Section 10.6 shall
promptly perform, whether before or after any such closing, such additional acts (including,
without limitation, executing and delivering additional reasonably requested documents, but
specifically excluding the need for any Member to obtain the release of any liens, claims or
encumbrances if such release would require the Member to pay consideration or give up value
therefor) as are reasonably required to effect more fully the transactions contemplated by this
Section 10.6.
10.7 Pledge of Membership Interest. No Membership Interest may be pledged, hypothecated or
otherwise voluntarily encumbered unless the following procedures are followed:
(a) The Company shall receive notice at least three Business Days prior to any pledge or
encumbrance of Membership Interest specifying the person to whom the Membership Interest will be
pledged or otherwise encumbered;
(b) The Company shall be provided, promptly upon execution by the pledging Member, with copies
of all security agreements relating to the pledged Membership Interest and a summary of any oral
agreements affecting the Membership Interest, all as amended from time to time; and
(c) The pledging Member and the secured party under the pledge or encumbrance (including any
trustees or agents for the secured party) shall execute and deliver an agreement in form and
substance reasonably satisfactory to the nonpledging Members and the Company to the effect that (i)
the secured party shall notify the Company and nonpledging Members of the date, time and location
of any foreclosure upon pledged or encumbered Membership Interest at least 60 days prior to the
foreclosure and (ii) that any notice of foreclosure shall be deemed to be an Involuntary Transfer
subject to Section 10.6, and (iv) if the Company elects to purchase the pledged Membership Interest
pursuant to Section 10.6, the foreclosure shall not be held and the pledged Membership Interest
shall be sold and delivered by the pledging Member and the secured party to the Persons entitled to
purchase such Membership Interest under Section 10.6 in accordance with Section 10.6. If for any
reason the pledged Membership Interest are foreclosed upon, the foreclosure shall be considered an
Involuntary Transfer and the provisions of Section 10.6 shall govern.
10.8 General Transfer Provisions.
(a) No Transfer of all or part of any Membership Interest (including pursuant to an Exempt
Transfer or Foreclosure Transfer) shall be valid unless the Company has received:
(i) a transfer document in a form reasonably acceptable to the Company executed by both
the Transferor (or if the Transfer is on account of the death, incapacity, or liquidation of
the Transferor, its representative) and the Transferee which (A) include the notice address
of the Transferee and such Person’s agreement to be bound by this Agreement with respect to
the Membership Interest or part thereof being obtained, (B) sets forth the Membership
Interest after the Transfer of the Transferor and the Transferee to which the Membership
Interest or part thereof is Transferred (which together must total the Membership Interest
of the Transferor before the Transfer), (C) contains a representation and warranty that the
Transfer was made in accordance with all applicable Laws (including the Act, the Securities
Act, and state securities Laws) and the terms and conditions of this Agreement, and (D) if
the Person to which the Membership Interest or part thereof is Transferred is to be admitted
to the Company as a Substituted Member, its representation and warranty that the
representations and warranties in Section 14.1 are true and correct with respect to such
Person;
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(ii) an Opinion of Counsel or such other evidence as may be reasonably satisfactory to
the Company to the effect that any such transfer shall not be in violation of the Securities
Act or applicable state securities laws or any rule or regulation promulgated thereunder or
result in the imposition of additional regulatory requirements on the Company or the Company
(including registration under the Investment Company Act of 1940, as amended, the Investment
Advisors Act of 1940, as amended, or require compliance with the plan asset regulations of
ERISA);
(iii) with respect to such Transfer (taking into consideration the Transfer by itself
and together with any other prior Transfers of Membership Interests of which the
transferring Member has knowledge at the time of such Transfer) either (A) an Opinion of
Counsel from the transferor or Transferee that such Transfer shall not result in the close
of the Company’s taxable year with respect to all Members, in the termination of the Company
within the meaning of section 708(b) of the Code, or in the termination of its status as a
partnership under the Code, or (B) an agreement from the transferor and the Transferee to
indemnify, save, and hold harmless the other Members from and against any and all loss,
cost, liability or expense (including but not limited to reasonable attorneys fees) which
such other Members may suffer if such Transfer or transaction would cause the close of the
Company’s taxable year or such termination; and
(iv) from the Transferee a properly completed and currently effective (A) Citizenship
Certification and (B) non foreign affidavit in the form prescribed under Section 1446 of the
Code.
Each party shall be responsible for their respective expenses in connection with the requested
Transfer (including legal and accounting fees and expenses).
(b) Except as otherwise provided in this Agreement or by applicable Law, a Transfer of a
Membership Interest will be effective only to give the Transferee the right to receive the share of
allocations and distributions to which the Transferor would otherwise be entitled, and no
Transferee of a Membership Interest will have the right to become a Substituted Member.
(c) Unless and until a Transferee is admitted as a Substituted Member, (x) the Transferee will
have no right to exercise any of the powers, rights and privileges of a Member hereunder and (y)
the Transferor who has Transferred all or any part of its Membership Interest to such Transferee
will cease to be a Member or Transferee with respect to such Membership Interest upon Transfer of
such Membership Interest and thereafter will have no further powers, rights and privileges as a
Member or Transferee hereunder with respect to such Membership Interest (to the extent so
Transferred), but will, unless otherwise relieved of such obligations by the Company or by
operation of law, remain liable for all obligations and duties as a Member or Transferee with
respect to such Membership Interest; provided, however, that if the Transferee reconveys such
Membership Interest to the Transferor within ten days after the Transferor becomes aware that the
Transferee will not become a Substituted Member, the Transferor once again will be entitled to all
of the powers, rights, and privileges of a Member (or Transferee, as applicable) hereunder.
(d) At the time a Transferee has become a Substituted Member through compliance with all of
the provisions of this Article 10 such Substituted Member will have all of the powers, rights,
privileges, duties, obligations and liabilities of a Member, as provided in this Agreement, the
Certificate, and by applicable Law to the extent of the Membership Interest so Transferred and (ii)
the Member or Transferee that Transferred the Membership Interest will be relieved of all of the
obligations and liabilities with respect to such Membership Interest; provided, however that such
49
Member or Transferee will remain fully liable for all liabilities and obligations relating to
such Membership Interest that accrued prior to such Transfer, including the obligation to make its
proportionate share of any applicable Capital Contributions.
(e) Neither the Company nor any Member or Transferee will be bound or otherwise affected by
the Transfer of any Membership Interest of which such Person has received notice in accordance with
the terms of this Agreement.
(f) The Company may, in its reasonable discretion, charge a Transferor a reasonable fee to
cover the additional administrative expenses incurred in connection with or as a consequence of any
Transfer of all or part of such Party’s Membership Interest.
(g) If a Transferee does not become a Substituted Member, any payment by the Company to the
applicable Transferor will acquit the Company, its subsidiaries, and the Parties of all liability
to any other Persons who may be interested in such payment by reason of a Transfer by such
Transferor.
(h) The Company shall review a request for Transfer of any Membership Interests upon receipt
of a copy of the proposed instrument of assignment and all such certificates and documents that the
Company may request pursuant to Section 10.8. Unless otherwise agreed by the Company, each
Transfer and, if applicable, admission of a Substituted Member complying with the provisions of
Article 10 is effective against the Company as of the first business day of the calendar month
immediately succeeding the month in which (x) the Company receives the documents required by this
Article 10 reflecting such Transfer, and (y) all other requirements of Article 10 have been met.
In the event of the Transfer of a Membership Interest during a year, the rights and obligations to
share in Net Income and Net Loss, to receive distributions and to receive such other allocations of
income, gain, loss, deduction, credit, Simulated Gain, Simulated Loss or Simulated Depletion
attributable to the Transferred Membership Interest shall, for federal income tax purposes, be
prorated between the Transferor and the Transferee on a reasonable basis as determined by the
Company and as is required by section 706 of the Code; provided, however, that gain or loss on a
sale or other disposition of all or a substantial portion of the assets of the Company shall be
allocated to the record holder of the Membership Interest on the date of Transfer.
(i) Notwithstanding anything to the contrary contained herein, no Person will Transfer any
rights or obligations arising out of or relating to this Agreement, a Membership Interest, or any
interest herein or therein: (i) except pursuant to an applicable exemption from registration under
the Securities Act and other applicable securities Laws; and (ii) if such Transfer would result in
the violation of the Delaware Act, the Securities Act, or any other Law.
(j) A Member or Transferee in Default may not Transfer its Membership except to a Member or
pursuant to a an Involuntary Transfer.
(k) If any governmental consent or approval is required with respect to any Transfer, the
Transferee will have a reasonable amount of time (not to exceed 60 days from the date upon which
such Transfer would have been otherwise consummated in accordance with the terms of this Agreement)
to obtain such consent or approval. All parties will use reasonable, good faith efforts to
cooperate with the Transferee attempting to obtain, and to assist in timely obtaining, such consent
or approval; provided that no party will be required to incur any out-of-pocket costs in connection
with such cooperation and assistance. After the expiration of such waiting period, such Transferee
will forfeit its rights to acquire the Membership Interest subject to such proposed Transfer with
respect to such specific transaction; provided, however, that such forfeiture will not
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limit or otherwise affect the forfeiting Transferee’s rights with respect to any subsequent
proposed Transfer.
10.9 Admission of Substituted Members.
(a) A Member shall have the power to give his Transferee the right to seek admission as a
Substituted Member, subject to the conditions of and in the manner permitted under this Agreement.
A Transferee shall not have the right to become a Substituted Member unless such Transferee (i)
executes and delivers to the Company an Adoption Agreement, (ii) pays any reasonable expenses in
connection with his admission as a Member (including legal and accounting fees and expenses), (iii)
executes all amendments, certificates and other documents otherwise required under any applicable
law, and (iv) performs all acts relating to such substitution which the Company reasonably deems
appropriate to comply with the applicable requirements of law or to preserve the limited liability
status of the Members. The admission of a Transferee as a Substituted Member shall not release the
assigning Member of its obligations under this Agreement.
(b) The admission of a Transferee as a Substituted Member shall become effective as of the
date that such Person’s name and other required information as a Substituted Member relating to the
Transferred Membership Interests is recorded in the records of the Company unless otherwise agreed
by the Transferee and the Company.
10.10 Indirect Transfers. For purposes of interpreting the rights, obligations and remedies of the
parties with respect to this Article 10 in the context of an indirect Transfer, each indirect
Transfer (other than a Change of Control effected in compliance with Section 10.3) shall be deemed
to involve a direct Transfer of the subject Membership Interest from the Member or Transferee to
the new beneficial owner, and if such direct Transfer is not permitted by Article 10.3), then the
Member or Transferee shall be deemed in violation of the terms of this Agreement. Any such
violation shall result in: (i) the Member or Transferee losing the rights specified in this
Agreement and being deemed in Default and (iii) the unaffected Members having the rights and
remedies provided by this Agreement in the event of a Default, breach or other violation under this
Agreement.
ARTICLE 11
DISSOLUTION AND LIQUIDATION
DISSOLUTION AND LIQUIDATION
11.1 Dissolution.
(a) Events of Dissolution. The Company shall be dissolved and terminated upon (each
of the following is an “Event of Dissolution”):
(i) the expiration of its term as provided in Section 1.4; or
(ii) the sale, disposal or abandonment of all or substantially all of the assets of the
Company; provided that the sale or disposition by the Company of Fund Units in accordance
with this Agreement will not be taken into account in determining whether a sale or disposal
of all or substantially all of the Company’s assets has occurred.
(b) Continuation. Upon an Event of Dissolution described in Section 11.1(a)(ii), the
Company shall thereafter be terminated unless, within a 90 day period immediately following such
Event of Dissolution, a Majority Interest of the Members elect to reconstitute the Company and
continue the business of the Company on the same terms and conditions set forth in this
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Agreement by forming a new limited liability company (taxed as a partnership) on terms
identical to those set forth in this Agreement and having as a Board of Directors, Persons selected
by such Members as described in this Section 11.1. Unless an election to reconstitute the Company
is made by the requisite percentage of Members within 90 days after an Event of Dissolution, the
Company shall conduct only those activities necessary to wind up its affairs. If an election to
reconstitute the Company is made as described herein, then:
(i) within an additional 90 day period a successor Board of Directors shall be selected
by a Majority Interest of the Members; and
(ii) the Company shall continue until the end of the term for which the original
Company is formed unless earlier dissolved in accordance with this Article 11;
provided that the right to select a successor Board of Directors and reconstitute the Company shall
not exist and may not be exercised unless the Company has received an Opinion of Counsel that (i)
the exercise of the right would not result in the loss of limited liability of any Member and (ii)
neither the Company nor the reconstituted limited liability company (taxed as a partnership) would
be treated as an association taxable as a corporation for federal income tax purposes upon the
exercise of such right to continue.
11.2 Liquidation.
(a) Upon dissolution of the Company, unless an election to continue the Company is made
pursuant to Section 11.1(b), a liquidator or liquidating committee selected by a Majority Interest
of the Members, shall be the “Liquidator.” The Liquidator (if other than the Company)
shall be entitled to receive such reasonable compensation for its services as may be approved by a
Majority Interest of the Members. The Liquidator shall agree not to resign at any time without 15
days’ prior written notice and (if other than the Company) may be removed at any time, with or
without cause, by notice of removal approved by Majority Interest of the Members. Upon
dissolution, removal or resignation of the Liquidator, a successor and substitute Liquidator (which
shall have and succeed to all rights, powers and duties of the original Liquidator) shall, within
30 days thereafter, be selected by Majority Interest of the Members. The right to appoint a
successor or substitute Liquidator in the manner provided herein shall be recurring and continuing
for so long as the functions and services of the Liquidator are authorized to continue under the
provisions hereof, and every reference herein to the Liquidator will be deemed to refer also to any
such successor or substitute Liquidator appointed in the manner herein provided. Except as
expressly provided in this Article 11, the Liquidator appointed in the manner provided herein shall
have and may exercise, without further authorization or consent of any of the parties hereto, all
the powers conferred upon the Company under the terms of this Agreement (but subject to all of the
applicable limitations, contractual and otherwise, upon the exercise of such powers) to the extent
necessary or desirable in the good faith judgment of the Liquidator to carry out the duties and
functions of the Liquidator hereunder for and during such period of time as shall be reasonably
required, including good faith efforts to complete the winding up and liquidation of the Company as
provided for herein. As promptly as possible after dissolution and again after final liquidation,
the Liquidator shall cause a proper accounting to be made by the Accountant of the Company’s
assets, liabilities, and operations through the last day of the calendar month in which the
dissolution occurs or the final liquidation is completed, as applicable.
(b) Except as set forth in paragraph (e), the Liquidator will sell or otherwise dispose of all
Company assets, and any resulting gain or loss from such sales or other dispositions will be
computed and allocated to the Members in accordance with Section 5.1.
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(c) The Liquidator shall pay from Company funds all of the debts and liabilities of the
Company (including all expenses incurred in liquidation) or otherwise make adequate provision
therefor (including the establishment of a cash escrow fund for contingent liabilities in such
amount and for such term as the Liquidator may reasonably determine).
(d) All remaining assets of the Company shall be applied, in the following order of priority:
(i) first, to the payment to creditors of the Company, including Members, in order of
priority provided by law; and
(ii) second, to the Members, in proportion to and to the extent of the remaining
positive balances in their respective Capital Accounts (determined after allocating all Net
Income, Net Loss, Simulated Gain, Simulated Loss, Simulated Depletion and other items of
income, gain, loss and deduction through the date of distribution).
(e) Upon liquidation of the Company, any Member may elect to receive an in kind distribution
of Fund Units with a Net Agreed Value equal to the balance of such Member’s Capital Account at the
time of distribution, determined after allocating all Net Income, Net Loss, Simulated Gain,
Simulated Loss, Simulated Depletion and other items of income, gain, loss and deduction through the
date of distribution. Any assets distributed in kind shall be deemed sold by the Company
immediately prior to their distribution for their Fair Market Value at such time, and any resulting
income, gain, or loss shall be allocated to the Member electing to receive a distribution in kind.
11.3 Return of Capital. The Company shall not be personally liable for the return of the Capital
Contributions of the Members or Transferees, or any portion thereof, it being expressly understood
that any such return shall be made solely from Company assets.
11.4 Waiver of Partition. Each Member irrevocably waives, during the term of the Company and
during any period of its liquidation following any dissolution, any right that it may have to
maintain any action for partition with respect to any of the assets of the Company.
11.5 Cancellation of Certificate of Membership Interest. Upon the completion of the distribution
of Company property as provided in Section 11.2 and Section 11.3, the Company shall be terminated,
and the Liquidator shall cause the Certificate of Membership and all qualifications of the Company
in all jurisdictions to be cancelled and shall take such other actions as may be necessary to
terminate the Company.
11.6 Reasonable Time for Winding Up. A reasonable time shall be allowed for the orderly winding up
of the business and affairs of the Company and the liquidation of its assets pursuant to Section
11.2 in order to minimize any losses otherwise attendant upon such winding up.
11.7 No Capital Account Restoration. No Member shall have any obligation to restore any negative
balance in its Capital Account upon dissolution or liquidation of the Company or otherwise.
11.8 Compliance with Timing Requirements of Regulations. Distributions in liquidation of the
Company shall be made in compliance with Treasury Regulation section 1.704 1(b)(2)(ii)(b)(2).
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ARTICLE 12
AMENDMENTS; MEETINGS; VOTING
AMENDMENTS; MEETINGS; VOTING
12.1 Amendments.
(a) Subject to Section 12.1(c), the Company, without the consent of any Member, may amend any
provision of this Agreement, and execute, swear to, acknowledge, deliver, file and record whatever
documents may be required in connection therewith, to reflect:
(i) a change in the name of the Company, in the registered office or registered agent
of the Company or in the location of the principal place of business of the Company;
(ii) the admission or substitution of Members in accordance with this Agreement;
(iii) a change that the Company has determined is reasonable and necessary or
appropriate to qualify or register, or continue the qualification or registration of, the
Company as a limited liability company under the laws of any state or which change is
necessary or advisable in the opinion of the Company to ensure that the Company will not be
treated as an association taxable as a corporation for federal income tax purposes; or
(iv) a change in the Sharing Ratio of any Member as a result of a transaction permitted
by this Agreement.
(b) Subject to Section 12.1(c), other than amendments adopted pursuant to Section 12.1(a) or
unless specified otherwise in this Agreement, an amendment to this Agreement must be adopted by the
approval of the Company and the affirmative vote of the Required Interest of the Members.
(c) Notwithstanding any other provision of this Agreement, no amendment to this Agreement may
(i) increase a Member’s liability or change the Capital Contributions required of a Member without
the consent of such Member, or (ii) change a Member’s rights and interests in the distributions,
including distributions on liquidation, Net Income, Net Loss, Simulated Gains, Simulated Losses,
Simulated Depletion and items of income, gain, loss, deduction and credit and distributions
attributable to a class of Membership Interest in a manner that is different than the other Members
holding the same class of Membership Interest without the consent of such Member, or (iii) make any
change that would have a material adverse effect on the rights or preferences of any class of
Membership Interests in relation to the other classes of Membership Interests without the consent
of the Required Interest of the Members in such class, or (iv) modify this Section 12.1 or Article
11 without the consent of all Members. Notwithstanding the foregoing, it is understood and agreed
that an amendment of this Agreement in connection with the issuance of any Company Equity
Securities as provided in this Agreement that effects a proportionate reduction in Sharing Ratios
of the existing Members will not be considered a material adverse change on any existing Member.
(d) Notice to Members of an amendment pursuant to this Section 12.1 shall be made promptly,
but failure to provide such notice shall not affect the validity of such amendment.
12.2 Meetings.
(a) A meeting of the Members shall be held each year either at the Company’s principal office
or at such other location and on such date and time as the Company may designate. The
54
place, date and time of such annual meeting shall be specified in a notice mailed by the
Company not less than 20 days nor more than 45 days prior to the meeting date.
(b) Other meetings of the Members may be called by the Company or upon a request in writing of
a Majority Interest of the Members no more frequently than twice each Fiscal Year. The Company
shall, within five days after its receipt of any such request for a Members’ meeting, send to all
Members written notice of the time, place and purpose for such meeting, which shall be held on a
date not less than 20 nor more than 45 days after the date of mailing said notice (unless otherwise
reasonably requested by the Members in their request for a meeting), at a reasonable time and
place.
(c) The Members may conduct any Company business at any such meeting, either in person,
telephonically or by proxy, which is permitted for Members under this Agreement, but Members shall
not engage in any activity which would be deemed taking part in the management or control of the
Company’s business.
12.3 Action by Written Consent. Any action or approval provided herein to be taken at a meeting of
the Members may, in lieu of a meeting, be taken and evidenced by written consent signed by the
requisite percentage of Members.
ARTICLE 13
Registration Rights
Registration Rights
13.1 Demand Registration.
(a) At any time after the date 120 days after the date hereof, Xxxxxx and each of its Exempt
Transferees shall have the collective right on up to three occasions, and Ospraie and each of its
Exempt Transferees shall have the collective right on up to three occasions, to make a written
request of the Company (a “Demand Request”) for registration under the Securities Act (a
“Demand Registration”) of Registrable Securities held by such Persons; provided, however,
that (i) prior to the consummation of an Initial Public Offering, no Demand Registration shall be
effected by the Company unless the Registrable Securities included in such Demand Registration
(including the Registrable Securities of the Company or any other Member including Membership
Interests in the registration) shall have an aggregate proposed price to the public reasonably
expected to result in a Qualified IPO and (ii) the Company shall in no event be required to effect
more than two Demand Registrations in any 12-month period. Such Institutional Investor(s)
exercising a Demand Request are referred to herein as the “Requesting Holder(s).”
(b) If at any time the Company proposes to register Equity Securities for the account of
Requesting Holders pursuant to Section 13.1(a), then (i) the Company shall give written notice of
such proposed filing to the other Institutional Investors as soon as practicable (but in no event
less than 30 days before the anticipated filing date). Upon the written request of any other
Institutional Investor received by the Company no later than the 10th Business Day after receipt by
such Institutional Investor of the notice sent by the Company (each such Institutional Investor, a
“Joining Holder”), to register, on the same terms and conditions as the securities
otherwise being sold pursuant to such Demand Registration, any of its Registrable Securities, the
Company will use it best efforts to cause the Registrable Securities to be included in the
securities to be covered by the registration statement proposed to be filed by the Company on the
same terms and conditions as any similar securities included therein, all to the extent requisite
to permit the sale or other disposition by each Institutional Investor of the Registrable
Securities so registered.
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(c) Subject to the provisions of this Agreement, as soon as is reasonably practicable, but in
any event within 60 days after receipt of a Demand Request with respect to an Initial Public
Offering and 45 days after receipt of any other Demand Request (in either such case, the
“Required Filing Date”), the Company shall file a registration statement on such
appropriate form under the Securities Act as shall be determined by the Company and reasonably
acceptable to the Requesting Holders for the offer and sale of such Registrable Securities as may
be requested in any such Demand Request. The Company shall use all commercially reasonable best
efforts to cause any such registration statement to be declared effective by the Commission (i) as
promptly as practicable after such filing and (ii) in any event not later than 120 days following
the date of the applicable Demand Request; provided, however, that, at the request of the
Requesting Holders, and without the consent of any other Member, the Company may delay or abandon
the proposed offering or cease the filing (or obtaining or maintaining the effectiveness) of or
withdraw the related registration statement or other governmental approvals, registrations or
qualifications. Unless the Requesting Holders otherwise elect, all Demand Registrations will be
underwritten offerings.
(d) A registration will not count as a Demand Registration until it has become effective
unless (i) prior to such effective time the Requesting Holders withdraw all their Registrable
Securities or withdraw a sufficient number of Registrable Securities such that the minimum proceeds
requirement of Section 13.1(a) is not met, for any reason other than (A) the inability or
unreasonable delay of the Company in having such registration statement become effective or (B) the
disclosure of material adverse information regarding the Company that was not known by such
Requesting Holders at the time the request for such Demand Registration was made (which information
is the cause of the Requesting Holders’ decision to withdraw their Registrable Securities)
(provided that a request by the Requesting Holders for a delay in the filing of a registration
statement for a period of up to six months after the date of any Demand Request shall not
constitute a withdrawal of Registrable Securities) and (ii) the Requesting Holders elect not to pay
all the Company’s out-of-pocket Registration Expenses in connection with such withdrawn
registration. If, after such registration has become effective but prior to the sale of all
Registrable Securities covered thereby, an offering of Registrable Securities pursuant to a
registration is prevented by any stop order, injunction or other order of the Commission or other
governmental agency or court, such registration will not be deemed a Demand Registration for
purposes of this Agreement. Notwithstanding the foregoing if the Requesting Holders shall have
made a Demand Request in good faith and more than 15% of the Registrable Securities requested to be
registered by Requesting Holders are excluded from such Demand Registration as a result of the
application of Section 1.3, the Requesting Holders shall have the right to one additional Demand
Registration.
13.2 Shelf Registration Statement. At such time as the Company shall be eligible to use Form S-3
for secondary offerings, a Requesting Holder at any time may utilize its right to make a Demand
Request (without the need to satisfy any requirement for a minimum proposed offering price to the
public) by delivery to the Company of a written request (a “Shelf Request”) to the Company
to file a registration statement with the Commission seeking to register the offer and sale of the
Registrable Securities by the Holders thereof from time to time pursuant to Rule 415 under the
Securities Act (a “Shelf Registration Statement”). Subject to the provisions of this
Agreement, within 45 days after receipt of any such Shelf Request, the Company shall file a Shelf
Registration Statement and shall use all commercially reasonable efforts to cause such Shelf
Registration Statement to be declared effective under the Securities Act as promptly as practicable
and in any event on or before 90 days after the date of filing. If the Commission notifies the
Company that the Shelf Registration Statement will receive no action or review from the Commission,
the Company will request that the Shelf Registration Statement become effective within five
Business Days after receipt of such Commission notification. Upon the effectiveness under the
Securities Act of the Shelf Registration Statement, the Company will use all commercially
reasonable efforts to cause the Shelf Registration Statement to remain effective, and supplemented
and amended as required
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by the Securities Act throughout the period ending on the date which is the earliest to occur of
(A) the date that all Registrable Securities registered under such Registration Statement may be
sold in a three-month period under Rule 144 under the Securities Act, (B) the date all Registrable
Securities registered under such Registration Statement have been sold and (C) three years after
the date on which such Shelf Registration Statement becomes effective with respect to the offer and
sale of Registrable Securities plus the aggregate number of days in all applicable Suspension
Periods.
13.3 Priority on Demand Registrations. No securities to be sold for the account of any Person
(including the Company) other than the Requesting Holders or Joining Holders shall be included in a
Demand Registration if the managing Underwriter or Underwriters shall advise the Requesting Holders
that, in its or their judgment, the inclusion of such securities may adversely affect the price or
success of the offering in any significant or material respect (a “Material Adverse
Effect”). Furthermore, in the event the managing Underwriter or Underwriters shall advise the
Requesting Holders that even after exclusion of all securities of other Persons pursuant to the
immediately preceding sentence, the amount of Registrable Securities proposed to be included in
such Demand Registration by the Requesting Holders and Joining Holders is sufficiently large to
cause a Material Adverse Effect, the Registrable Securities of such Requesting Holders to be
included in such Demand Registration shall be allocated pro rata among such Institutional Investors
on the basis of the number of Registrable Securities requested to be included in such registration
by each such Institutional Investors bears to the number of Registrable Securities of all
Institutional Investors that have requested to include Registrable Securities in such registration.
Subject to the foregoing, it is explicitly understood that the Company may include its own
securities in any Demand Registration; provided, however, that any such securities included in a
Demand Registration shall be treated as securities registered pursuant to Section 13.4(a).
13.4 Piggy-Back Registration.
(a) If the Company at any time proposes to file a registration statement under the Securities
Act, including a Demand Registration, with respect to an offering of any Equity Securities by the
Company for its own account or for the account of any of its equity holders (other than a
registration statement on Form S-4 or S-8 or any substitute form that may be adopted by the
Commission or any registration statement filed in connection with an exchange offer or offering of
securities solely to the Company’s existing securityholders), then the Company shall give written
notice of such proposed filing to the Members holding Registrable Securities as soon as practicable
(but in no event less than 10 days before the anticipated initial filing date of such registration
statement), and such notice, subject to Section 13.3, shall offer the Members holding Registrable
Securities the opportunity to register such number of Registrable Securities as each Member may
request (a “Piggyback Registration”). Subject to Section 13.4(b) hereof, the Company will
use its best efforts to cause the offer and sale of all Registrable Securities requested by a
Member in writing within five Business Days after receipt of the Company’s notice to be included in
the registration for such offering; provided, however, that the Company may at any time delay or
abandon the proposed offering or cease the filing (or obtaining and maintaining the effectiveness)
of or withdraw the related registration statement or other governmental approvals, registrations or
qualifications in which event the Company shall be relieved of its obligation to register any
Registrable Securities in connection with such Piggyback Registration Notice. Each Member shall be
permitted to withdraw all or part of such Member’s Registrable Securities from a Piggyback
Registration at any time prior to the effective date thereof.
(b) The Company shall use all commercially reasonable efforts to cause the managing
Underwriter or Underwriters of a proposed underwritten offering to permit the Registrable
Securities requested to be included in the registration statement for such offering under Section
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13.4(a) or pursuant to other piggyback registration rights granted by the Company not in
contravention of Section 13.12 hereof and that are on a parity with the registration rights granted
hereunder (“Piggyback Securities”), to be included on the same terms and conditions as any
similar securities included therein. Notwithstanding the foregoing, the Company shall not be
required to include any Member’s Piggyback Securities in such offering unless such Member accepts
the terms of the underwriting agreement between the Company and the managing Underwriter or
Underwriters and otherwise complies with the provisions of Section 13.11 below. If the managing
Underwriter or Underwriters of such offering advise the Company that in their opinion the total
amount of securities, including the Piggyback Securities, to be included in such offering is
sufficiently large to cause a Material Adverse Effect, then in such event the securities to be
included in such offering shall be allocated first to the Company and then, to the extent that any
additional securities can, in the opinion of such Managing Underwriter or Underwriters, be sold
without any such Material Adverse Effect, pro rata among the holders of Piggyback Securities on the
basis of the number of Registrable Securities requested to be included in such registration by each
such holder. If such offering is a Demand Registration pursuant to Section 13.1 and the managing
Underwriter or Underwriters of such offering advise the Requesting Holders that in their opinion
the total amount of securities, including Piggyback Securities, to be included in such offering is
sufficiently large to cause a Material Adverse Effect, then in such event the securities to be
included in such offering shall be allocated first to the Requesting Holders, and then, to the
extent that any additional securities can, in the opinion of such managing Underwriter or
Underwriters, be sold without any such Material Adverse Effect, pro rata among the holders of
Piggyback Securities on the basis of the number of Registrable Securities requested to be included
in such registration by each such holder.
13.5 Selection of Underwriters. The Requesting Holder shall select the book-running managing
Underwriter and such additional Underwriters to be used in connection with an offering pursuant to
a Demand Request; provided, that such Underwriters are reasonably satisfactory to the Company (it
being hereby expressly agreed that Xxxxxx Brothers Inc. is an acceptable Underwriter to the
Company). The Company shall (together with all Members and other holders proposing to distribute
their securities through the offering) enter into an underwriting agreement in customary form with
the book-running managing Underwriter so selected.
13.6 Suspension and Blackout Period.
(a) Without the prior written consent of the Company, each Member holding Registrable
Securities (whether or not such Registrable Securities are included in a registration statement
pursuant hereto) agrees not to effect any public sale or distribution of the issue being registered
or of any securities convertible into or exchangeable or exercisable for such securities, including
a sale pursuant to Rule 144 under the Securities Act, during the 14 days prior to, and through the
period beginning on the commencement of the public distribution of such securities and ending (i)
in the case of an Initial Public Offering, on the 180th day after such commencement, and (ii) in
the case of any other underwritten offering, on the 90th day in each case except as part of such
registration and if and to the extent requested by the managing Underwriter or Underwriters in the
case of an underwritten public offering.
(b) The Company agrees not to effect any public sale or distribution of any securities (other
than (i) a registration relating solely to employee benefit plans or (ii) a registration relating
solely to a transaction contemplated by Rule 145 of the Commission) similar to those being
registered, or any securities convertible into or exchangeable or exercisable for such securities,
during the 14 days prior to, and (A) in the case of an Initial Public Offering in which Members
have also sold securities, during a period of up to 180 days, and (B) in the case of any other
underwritten offering in which Members have also sold securities, during a period of up to 90 days,
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in each case if and to the extent requested and not waived by the managing Underwriters, and
beginning on the date of the final prospectus with respect to such offering (unless such sale or
distribution is included in such registration).
(c) The Company may, by written notice to each Member holding Registrable Securities, (i)
defer any action to effect a registration statement (but not the preparation of a registration
statement) required by Section 13.1 until a date not later than 30 days after the Required Filing
Date or (ii) require the Members holding Registrable Securities to suspend use of any resale
prospectus included in a Shelf Registration Statement for any period determined in good faith by
the Company not to exceed 45 days (a “Suspension Period”) if (A) at the time the Company
receives the Demand Request, the Company or its subsidiaries are engaged in confidential
negotiations or other confidential business activities, disclosure of which would be required in
such registration statement (but would not be required if such registration statement were not
filed), and the Board of Directors determines in good faith that such disclosure would be
materially detrimental to the Company and its Members, (B) prior to receiving the Demand Request,
the Board of Directors had determined to effect a registered underwritten public offering of the
Company’s equity securities for the Company’s account and the Company is proceeding with reasonable
diligence to effect such offering or (C) the date the Company receives the Demand Request is less
than 60 days after the effective date of a registration statement filed pursuant to Section 1.6(a)
(in which case the Company may only defer the filing until the end of such 60-day period). A
deferral of the filing of a registration statement pursuant to this Section 13.6(c) shall be
lifted, and the requested registration statement shall be filed forthwith, if, in the case of a
deferral pursuant to clause (A) of the preceding sentence, the negotiations or other activities are
disclosed by the Company or terminated, or, in the case of a deferral pursuant to clause (B) of the
preceding sentence, the proposed registration for the Company’s account is abandoned. In order to
defer the filing of a registration statement pursuant to this Section 13.6(c), the Company shall
promptly, upon determining to seek such deferral, notify each Requesting Holder that the Company is
deferring such filing pursuant to this Section 13.6(c). Within 20 days after receiving such
notice, the Requesting Holders may withdraw such request by giving notice to the Company; if
withdrawn, the Demand Request shall be deemed not to have been made for purposes of this Agreement.
The Company may defer the filing of a particular registration statement or require any Holders to
suspend use of any resale prospectus pursuant to this Section 13.6(c) not more than twice during
any 12-month period.
13.7 Registration Procedures. Except as otherwise provided herein, whenever the Requesting Holders
have requested that any Registrable Securities be registered pursuant to Section 13.1 hereof, the
Company will, at its expense, use its commercially reasonable efforts to effect as expeditiously as
practicable the registration and the sale of such Registrable Securities under the Securities Act
in accordance with the intended method of disposition thereof, and in connection with any such
request, the Company will as expeditiously as practicable:
(a) prepare and file with the Commission a registration statement on any form for which the
Company then qualifies or which counsel for the Company shall deem appropriate and which form shall
be available for the sale of the Registrable Securities to be registered thereunder in accordance
with the intended method of distribution thereof, and use all commercially reasonable efforts and
proceed diligently and in good faith to cause such filed registration statement to become effective
under the Securities Act; provided that before filing a registration statement or prospectus or any
amendments or supplements thereto, the Company will furnish to all Selling Holders and to their
counsel copies of all such documents proposed to be filed, which documents will be subject to the
reasonable review of such counsel;
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(b) prepare and file with the Commission such amendments and supplements to such registration
statement and the prospectus used in connection therewith as may be necessary to keep such
registration statement effective pursuant to Section 13.1 for a period of not less than 270
consecutive days, or, if shorter, the period terminating when all Registrable Securities covered by
such registration statement have been sold (but not before the expiration of the applicable period
referred to in Section 4(3) of the Securities Act and Rule 174 thereunder, if applicable) and
comply with the provisions of the Securities Act with respect to the disposition of all securities
covered by such registration statement during such period in accordance with the intended methods
of disposition by the Selling Holders thereof set forth in such registration statement;
(c) furnish to each such Selling Holder such number of copies of such registration statement,
each amendment and supplement thereto (including access for review of all exhibits thereto), the
prospectus included in such registration statement (including each preliminary prospectus) and such
other documents as such Selling Holder may reasonably request in order to facilitate the
disposition of the Registrable Securities owned by such Selling Holder;
(d) notify the Selling Holders promptly and (if requested by any such Person) confirm such
notice in writing (i) when a prospectus or any prospectus supplement or post-effective amendment
has been filed and, with respect to a registration statement or any post-effective amendment, when
the same has become effective under the Securities Act, (ii) of any request by the Commission or
any other federal governmental authority for amendments or supplements to a registration statement
or related prospectus or for additional information, (iii) of the issuance by the Commission of any
stop order suspending the effectiveness of a registration statement or the initiation of any
proceedings for that purpose, (iv) if at any time the representations or warranties of the Company
or any subsidiary contained in any agreement (including any underwriting agreement) contemplated by
Section 13.7(i) below cease to be true and correct in any material respect, (v) of the receipt by
the Company of any notification with respect to the suspension of the qualification or exemption
from qualification of any of the Registrable Securities for sale in any jurisdiction or the
initiation or threatening of any proceeding for such purpose, (vi) of the happening of any event
which makes any statement made in such registration statement or related prospectus or any document
incorporated or deemed to be incorporated therein by reference untrue in any material respect or
that requires the making of any changes in such registration statement, prospectus or documents so
that, in the case of the registration statement, it will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein or necessary to make
the statements therein not misleading, and that in the case of the prospectus, it will not contain
any untrue statement of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the circumstances under which they
were made, not misleading and (vii) of the Company’s reasonable determination that a post-effective
amendment to a registration statement would be appropriate;
(e) use all commercially reasonable efforts to obtain the withdrawal of any order suspending
the effectiveness of a registration statement, or the lifting of any suspension of the
qualification (or exemption from qualification) of any of the Registrable Securities for sale in
any jurisdiction, at the earliest practicable moment;
(f) cooperate with the Selling Holders and the managing Underwriter or Underwriters to
facilitate the timely preparation and delivery of certificates representing Registrable Securities
to be sold, which certificates shall not bear any restrictive legends and shall be in a form
eligible for deposit with The Depositary Trust Company; and enable such Registrable Securities to
be registered in such names as the managing Underwriter or Underwriters may request prior to any
sale of Registrable Securities;
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(g) use all commercially reasonable efforts to register or qualify such Registrable Securities
as promptly as practicable under such other securities or blue sky laws of such United States
jurisdictions as any Selling Holder or managing Underwriter reasonably (in light of the intended
plan of distribution) requests and do any and all other acts and things which may be reasonably
necessary or advisable to enable such Selling Holder or managing Underwriter to consummate the
disposition in such jurisdictions of the Registrable Securities owned by such Selling Holder;
provided that the Company will not be required to (i) qualify generally to do business in any
jurisdiction where it would not otherwise be required to qualify but for this Section 13.7(g), (ii)
subject itself to taxation in any such jurisdiction or (iii) consent to general service of process
in any such jurisdiction;
(h) use commercially reasonable efforts to cooperate and assist in any filing required to be
made with the National Association of Securities Dealers, Inc. (“NASD”) and in the
performance of any due diligence investigation by any Underwriter, including any “qualified
independent underwriter”;
(i) enter into customary agreements (including an underwriting agreement in customary form)
and take such other actions as are reasonably required in order to expedite or facilitate the
disposition of such Registrable Securities;
(j) make available for inspection by any Selling Holder of such Registrable Securities, any
Underwriter participating in any disposition pursuant to such registration statement and any
attorney, accountant or other professional retained by any such Selling Holder or Underwriter
(collectively, the “Inspectors”), all financial and other records, pertinent corporate
documents and properties of the Company as shall be reasonably necessary to enable them to exercise
their due diligence responsibility, and cause the Company’s officers, Directors and employees to
supply all information reasonably requested by any such Inspectors in connection with such
registration statement; provided, that, as a condition to providing any such information, each
Selling Holder of such Registrable Securities and each such Inspector shall agree that information
obtained by it as a result of such inspections shall be deemed confidential and shall not be used
by it as the basis for any market transactions in the securities of the Company unless and until
such information is made generally available to the public;
(k) use all commercially reasonable efforts to obtain a comfort letter or comfort letters from
the Company’s Accountants in customary form and covering such matters of the type customarily
covered by comfort letters as the Selling Holders of a majority of the shares of Registrable
Securities being sold or the managing Underwriter or Underwriters reasonably requests;
(l) otherwise use all commercially reasonable efforts to comply with all applicable rules and
regulations of the Commission, and make available to its security holders, as soon as reasonably
practicable, an earnings statement covering a period of twelve months, beginning within three
months after the effective date of the registration statement, which earnings statement shall
satisfy the provisions of Section 11(a) of the Securities Act;
(m) use all commercially reasonable efforts to cause all such Registrable Securities to be
listed on each securities exchange on which similar securities issued by the Company are then
listed or quoted on any inter-dealer quotation system on which similar securities issued by the
Company are then quoted; and
(n) if any event contemplated by Section 13.7(d)(vi) shall occur, as promptly as practicable
prepare a supplement or amendment or post-effective amendment to such registration
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statement or the related prospectus or any document incorporated therein by reference or
promptly file any other required document so that, as thereafter delivered to the purchasers of the
Registrable Securities, the prospectus will not contain an untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not misleading, subject in all
instances to the blackout and suspension provisions hereof.
13.8 Selling Holder Obligations.
(a) The Company may require each Selling Holder to promptly furnish in writing to the Company
such information regarding the distribution of the Registrable Securities as it may from time to
time reasonably request and such other information as may be legally required in connection with
such registration. Notwithstanding anything herein to the contrary, the Company shall have the
right to exclude from any offering the Registrable Securities of any Selling Holder who does not
comply with the provisions of the immediately preceding sentence.
(b) Each Selling Holder agrees that, upon receipt of any notice from the Company of the
happening of any event of the kind described in Section 13.7(d)(vi), such Selling Holder will
forthwith discontinue disposition of Registrable Securities pursuant to the registration statement
covering such Registrable Securities until such Selling Holder’s receipt of the copies of the
supplemented or amended prospectus contemplated by Section 13.7(n), and, if so directed by the
Company, such Selling Holder will deliver to the Company all copies, other than permanent file
copies, then in such Selling Holder’s possession, of the most recent prospectus covering such
Registrable Securities at the time of receipt of such notice. In the event the Company shall give
such notice, the Company shall extend the period during which such registration statement shall be
maintained effective (including the period referred to in Section 13.7(b)) by the number of days
during the period from and including the date of the giving of notice pursuant to Section
13.7(d)(vi) to the date when the Company shall make available to the Selling Holders of Registrable
Securities covered by such registration statement a prospectus supplemented or amended to conform
with the requirements of Section 13.7(n).
13.9 Registration Expenses. The Company shall pay all Registration Expenses (as defined below)
with respect to any Demand Registration and any Piggyback Registration. For purposes hereof,
“Registration Expenses” means: (a) all registration and filing fees (including, without
limitation, with respect to filings to be made with the NASD); (b) fees and expenses in connection
with the registration or qualification of the Registrable Securities for offering and sale under
the state securities and “blue sky laws” (including reasonable fees and disbursements of counsel in
connection with such registrations or qualifications); (c) all expenses relating to the
preparation, printing, distribution and reproduction of the registration statement required to be
filed hereunder, each prospectus included therein or prepared for distribution pursuant hereto,
each amendment or supplement to the foregoing, the expenses of preparing the Registrable Securities
for delivery and the expenses of printing or producing any underwriting agreement(s), agreement(s)
among underwriters and “blue sky” or legal investment memoranda, any selling agreements and all
other documents in connection with the offering, sale or delivery of Registrable Securities to be
disposed of (including certificates representing the Registrable Securities); (d) the Company’s
messenger, telephone and delivery expenses; (e) fees and expenses of any transfer agent and
registrar with respect to the Registrable Securities and any escrow agent, custodian,
administrative agent or security agent; (f) internal expenses (including, without limitation, all
salaries and expenses of the Company’s officers and employees performing legal or accounting
duties); (g) reasonable fees, disbursements and expenses of counsel and independent certified
public accountants of the Company (including the expenses of any opinions or “comfort” letters
required by or incident to such performance and compliance); (h) reasonable fees, disbursements
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and expenses of any “qualified independent underwriter” required by the Conduct Rules of the NASD
in connection with any underwriting arrangements; (i) reasonable fees, disbursements and expenses
of one counsel for the Members holding Registrable Securities retained in connection with such
registration, as selected by the Requesting Holders; (j) reasonable fees, expenses and
disbursements of any other persons, including special experts, retained by the Company in
connection with such registration; (k) all fees and expenses incurred in connection with the
qualification of the Registrable Securities for quotation on The Nasdaq National Market, or the
listing of such shares on any securities exchange and (l) all expenses of the Company (but not of
any underwriter) reasonably incurred in connection with the marketing support or “road show” in
connection with any underwritten offering. To the extent that any Registration Expenses are
incurred, assumed or paid by any Shareholders holding Registrable Securities or any underwriter
thereof, the Company shall reimburse such person for the full amount of the Registration Expenses
so incurred, assumed or paid promptly after receipt of a request therefor accompanying reasonable
documentary proof. Notwithstanding the foregoing, the Selling Holders shall pay all agency fees
and commissions and underwriting discounts and commissions attributable to the sale of their
Registrable Securities, transfer or stamp taxes and the fees and disbursements of any counsel or
other advisors or experts retained by such Selling Holders (severally or jointly), other than the
counsel and experts specifically referred to above.
13.10 Indemnification; Contribution.
(a) Subject to the terms and conditions of this Section 13.10, the Company shall indemnify and
hold harmless (i) each Selling Holder, its Affiliates and any Exempt Transferee, including their
respective directors, officers, partners, managers, employees, advisers, agents, administrators and
successors and assigns with respect to any registration statement filed pursuant to this Agreement,
(ii) any underwriter or selling agent selected by the Requesting Holders or other securities
professional, if any, which facilitates the disposition of the Registrable Securities with respect
to such Registrable Securities and (iii) each person who controls the Selling Holders or Affiliates
thereof or such underwriter, selling agent or securities professional, including their respective
directors, officers, partners, managers, employees, advisers, agents, administrators and successors
and assigns, and any underwriter or selling agent, within the meaning of Section 15 of the
Securities Act and Section 20 of the Exchange Act, against any losses, claims, damages, liabilities
or expenses (each a “Loss” and collectively “Losses”), joint or several, to which
the Selling Holders or any such persons may become subject under the Securities Act or otherwise,
to the extent that such Losses (or related actions or proceedings) arise out of or are based upon
(A) any untrue statement or alleged untrue statement of a material fact contained in a registration
statement, offering circular or other document or any amendments or supplements thereto, in which
such Registrable Securities are to be or were included for registration under the Securities Act,
or any omission or alleged omission to state a material fact required to be stated or necessary to
make the statements in such registration statement, offering circular or other document, as amended
or supplemented, not misleading (B) any untrue statement or alleged untrue statement of a material
fact contained in any preliminary prospectus if used prior to the effective date of the
registration statement, any final prospectus (as supplemented, if the Company shall have filed with
the Commission any supplement thereto) if used during the period in which the Company is required
to keep the registration statement to which such prospectus relates current and otherwise in
compliance with Section 10(a) of the Securities Act, or any omission or alleged omission to state a
material fact required to be stated or necessary to the make statements in such preliminary
prospectus or final prospectus, in the light of the circumstances under which such statements were
made, not misleading or (C) any material violation or alleged material violation of the Securities
Act, the Exchange Act, the rules and regulations as promulgated of the Securities Act and the
Exchange Act, and state securities laws; provided, however, that the Company shall not be liable to
any Person and shall have no obligation to provide any
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indemnification hereunder to the extent any such Losses (or actions or proceedings in respect
thereof) arise out of or are based upon an untrue statement or alleged untrue statement or omission
or alleged omission made in such registration statement, offering circular or other document
prospectus, as the case may be, in reliance upon and in conformity with written information
furnished to the Company by a Person seeking such indemnification or on such Person’s behalf
specifically for inclusion in such document. The indemnity provided in this Section 13.10 shall
remain in full force and effect regardless of any investigation made by or on behalf of the Selling
Holders or any such other persons and shall survive the Transfer of the Registrable Securities by
the Selling Holders or any such other persons. Notwithstanding anything provided herein to the
contrary, (i) the Company shall not be liable in any such case to the extent that any such losses,
claims, damages, liabilities or expenses arise out of or are based upon an untrue statement or
omission made in any preliminary prospectus if (x) such Selling Holder or underwriter failed to
send or deliver a copy of the prospectus with or prior to the delivery of written confirmation of
the sale of Registrable Securities, (y) the prospectus would have completely corrected such untrue
statement or omission and (z) the Company delivered a copy of such prospectus to such Selling
Holder or underwriter prior to such written confirmation of sale; and (ii) the Company shall not be
liable in any such case to the extent that any such losses, claims, damages, liabilities or
expenses arise out of or is based upon an untrue statement or alleged untrue statement or omission
or alleged omission in the prospectus, if such untrue statement, omission or alleged omission is
completely corrected in an amendment or supplement to the prospectus and if, having previously been
furnished by or on behalf of the Company with copies of the prospectus as so amended or
supplemented, such Selling Holder or underwriter thereafter sells Registrable Securities pursuant
to the Registration Statement and fails to deliver such prospectus as so amended or supplemented,
prior to or concurrently with the sale of a Registrable Security to the Person asserting such
damages who purchased such Registrable Security from such Selling Holder or underwriter after such
Selling Holder’s or underwriter’s receipt of such prospectus as so amended or supplemented by or on
behalf of the Company.
(b) Each Selling Holder shall severally, and not jointly, indemnify and hold harmless (in the
same manner and to the same extent as set forth in Section 13.10 hereof) the Company, each
director, officer and employee of the Company and each other person, if any, who controls the
Company within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act,
the Company’s investment advisers and agents, and each of their respective heirs, executors,
administrators and successors and assigns, against any Losses to which such Person may become
subject under the Securities Act or otherwise, to the extent that such Losses (or related actions
or proceedings) arise out of or are based upon any untrue statement or alleged untrue statement in
or omission or alleged omission from any registration statement filed by the Company pursuant to
this Agreement, any prospectus included in such registration statement, any offering circular or
other document or any amendment or supplement to such registration statement, prospectus, offering
circular or other document, as the case may be, of a material fact if such statement or alleged
statement or omission or alleged omission was made in reliance upon and in conformity with written
information furnished to the Company or any of its representatives by such Selling Holder or such
other Persons, if any, who control the Selling Holder within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act, or on the Selling Holder’s behalf, specifically
for inclusion in such registration statement, prospectus, offering circular or other document, as
the case may be; provided, such Selling Holder’s aggregate liability under this Agreement shall be
limited to an amount equal to the net proceeds (after deducting the underwriters’ discount and the
expenses incurred in connection with the applicable offering) received by the Selling Holder from
its sale of securities effected pursuant to such registration.
(c) Promptly after receipt by an indemnified party of notice of the commencement of any Action
involving a claim referred to in Section 13.10(a) and 13.10(b), such indemnified party
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shall, if indemnification is sought against an indemnifying party, give written notice to the
indemnifying party of the commencement of such Action; provided, however, that the failure of any
indemnified party to give said notice shall not relieve the indemnifying party of its obligations
under Section 13.10(a) and 13.10(b), as the case may be, except to the extent that the
indemnifying party is actually and materially prejudiced by such failure. In case an Action is
brought against any indemnified party, and such indemnified party notifies an indemnifying party of
the commencement thereof, the indemnifying party shall be entitled to participate therein and, to
the extent it may elect by written notice delivered to the indemnified party promptly after
receiving the aforesaid notice, to assume the defense thereof with counsel reasonably satisfactory
to such indemnified party (who shall not, except with the consent of the indemnified party, be
counsel to the indemnifying party). Notwithstanding the foregoing, the indemnified party shall
have the right to employ its own counsel in any such case, but the fees and expenses of such
counsel shall be at the expense of such indemnified party, unless (i) the employment of such
counsel shall have been authorized in writing by the indemnifying party, (ii) the indemnifying
party shall not have employed counsel (reasonably satisfactory to the indemnified party) to take
charge of the defense of such Action, within a reasonable time after notice of the commencement
thereof or (iii) such indemnified party reasonably shall have concluded that there may be defenses
available to it which are different from or additional to those available to the indemnifying party
or that a conflict of interest exists between the indemnified party and the indemnifying party. If
any of the events specified in clauses (i), (ii) or (iii) of the preceding sentence shall have
occurred or otherwise shall be applicable, then the fees and expenses of one counsel (or firm of
counsel) for the indemnified party shall be borne by the indemnifying party. Anything in this
Section 13.10(c) to the contrary notwithstanding, an indemnifying party shall not be liable for the
settlement of any action effected without its prior written consent (which consent shall not
unreasonably be withheld or delayed), but if settled with the prior written consent of the
indemnifying party, or if there be a final judgment adverse to the indemnified party, the
indemnifying party agrees to indemnify the indemnified party from and against any loss or liability
by reason of such settlement or judgment. No indemnifying party shall, without the prior consent
of the indemnified party, consent to entry of any judgment or enter into any settlement which does
not include as a term thereof the unconditional release of the indemnified party from all liability
in respect of such claim or litigation. Each indemnified party shall furnish such information
regarding itself or the claims in question as the indemnifying party may reasonably request in
writing and as shall be required in connection with the defense of such claim and litigation
resulting therefrom.
(d) If the indemnification provided for in this Section 13.10 is unavailable or insufficient
to hold harmless an indemnified party in respect of any Losses, then each indemnifying party shall,
in lieu of indemnifying such indemnified party, contribute to the amount paid or payable by such
indemnified party as a result of such Losses which amount shall include, without limitation, the
legal fees and other expenses incurred by such indemnified party in connection with the
investigation and defense in such proportion as appropriate to reflect the relative fault of the
Company, on the one hand, and the indemnified parties to be indemnified pursuant to this Section
13.10, on the other hand, and the parties’ relative intent, knowledge, access to information and
opportunity to correct or mitigate the damage in respect of or prevent any untrue statement or
omission or alleged untrue statement or omission giving rise to such indemnification obligation.
The Company and the Members agree that it would not be just and equitable if contributions pursuant
to this Section 13.10 were determined by pro rata allocation or by any other method of allocation
which did not take account of the equitable considerations referred to above. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be
entitled to contribution from any person who is not guilty of such fraudulent misrepresentation.
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(e) Periodic payments of amounts required to be paid pursuant to this Section 13.10 shall be
made during the course of the investigation or defense, as and when reasonably itemized bills
therefor are delivered to the indemnifying party in respect of any particular Loss as incurred.
(f) The remedies provided in this Section 13.10 are not exclusive and should not limit any
right or remedies that may otherwise be available to an indemnified party at law or in equity.
13.11 Participation in Underwritten Registrations. No Member may participate in any underwritten
registration hereunder unless such Member (a) agrees to sell such Shareholder’s Registrable
Securities on the basis provided in any underwriting arrangements approved by the Person entitled
hereunder to approve such arrangements, and (b) completes and executes all questionnaires, powers
of attorney, indemnities, underwriting agreements and other documents reasonably required under the
terms of such underwriting arrangements and this Agreement.
13.12 Limitation on Subsequent Registration Rights. After the date of this Agreement, the
Company will not enter into any agreement with any Person that would grant such Person any
registration rights with respect to any securities of the Company without the prior written consent
of the Members of a majority of the then outstanding Registrable Securities.
ARTICLE 14
REPRESENTATIONS AND WARRANTIES
REPRESENTATIONS AND WARRANTIES
14.1 Representations and Warranties of each Member. Each Member represents and warrants to the
Company and each other Member as follows:
(a) If such Member is a corporation, it is duly organized, validly existing and in good
standing under the law of the state of its incorporation.
(b) If such Member is a partnership, limited liability company or other entity, it is duly
formed, validly existing, and (if applicable) in good standing under the law of the state of its
formation.
(c) Such Member has full corporate, partnership, limited liability company, or other
applicable power and authority to enter into this Agreement and to perform its obligations under
this Agreement and all necessary actions by the Board of Directors, stockholders, partners,
members, trustees, beneficiaries, or other Persons necessary for the due authorization, execution,
delivery, and performance of this Agreement by that Member have been duly taken.
(d) Such Member has duly executed and delivered this Agreement.
(e) Such Member’s authorization, execution, delivery and performance of this Agreement do not
conflict with any other agreement or arrangement to which such Member is a party or by which it is
bound.
(f) Neither such Member nor any Person acting on its behalf has employed or retained any
broker, agent or finder in connection with the transactions provided for herein, or agreed to pay
any brokerage fee, finder’s fee, commission or similar payment to any Person on account of the
transactions provided for herein.
(g) To the best knowledge of such Member, such Member and its Affiliates and Persons acting on
their behalf have not taken any action, or failed to take any action, that has caused the
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organization of the Company and the issuance of the Membership Interests to come within the
registration requirements of the Securities Act, or any applicable state blue sky laws.
(h) Such Member is an “Accredited Investor” as that term is defined in Regulation D
promulgated by the Commission under the Securities Act.
(i) Such Member acknowledges that neither the Company nor any Affiliate, representative or
agent thereof has made any representation or warranty (other than those express representations and
warranties made in this Agreement), express, implied, at common law, by statute or otherwise,
including any representations and warranties relating to the estimated amount of any proved,
probable or possible reserves, production rates, drilling opportunities, decline rates or facts
relating to industry-wide risks normally associated with the oil and gas business with respect to
any properties that may be acquired by the Company.
(j) Such Member understands that the offer and sale of the Membership Interest being acquired
by it has not been registered under the Securities Act, or applicable state securities laws, on the
basis that the offer and sale of Membership Interests described in this Agreement and the issuance
of securities hereunder is exempt from registration pursuant to the specific exemptions contained
under such acts, and that the Company’s reliance on such exemptions is predicated on such Member’s
representations set forth herein. Such Member understands that the Membership Interest being
acquired by it may not be sold, Transferred or otherwise disposed of without registration under the
Securities Act and applicable state securities laws, or the availability of an exemption therefrom,
and that in the absence of a effective registration statement or the availability of such an
exemption covering the offer and sale of such Membership Interest, that the Membership Interest
must be held indefinitely, and the Member holding same must bear the economic risk of such
investment indefinitely.
(k) Such Member represents that it has such knowledge and experience in financial and business
matters and such knowledge about the oil and gas business and the usual and customary practices of
producers such as the Company and understands the risks associated therewith as to be capable of
evaluating the merits and risks of its investment in the Company, and has the ability to bear the
economic risks of such investment. Such Member further represents that it has had access, during
the course of the transaction and prior to its investment in the Company, to information about the
Company and that it has had, during the course of the transaction and prior to its investment, the
opportunity to ask questions of, and receive answers from, the Company concerning the Company and
the terms and conditions of the offer and sale of the Membership Interests (to the extent that the
Company possesses such information or can acquire same without unreasonable effort or expense) and
to obtain additional information necessary to verify the accuracy of any information furnished to
it or to which it had access. Each Member acknowledges that no information that it has requested
of the Company has been denied or withheld.
ARTICLE 15
GENERAL PROVISIONS
GENERAL PROVISIONS
15.1 No Jury Trial. THE MEMBERS EACH HEREBY AGREE TO WAIVE THEIR RESPECTIVE RIGHTS TO JURY TRIAL
OF ANY DISPUTE BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY OTHER AGREEMENTS RELATING HERETO
OR ANY DEALINGS AMONG THEM RELATING TO THE TRANSACTIONS. The scope of this waiver is intended to be
all encompassing of any and all matters that may be filed in any court and that relate to the
subject matter of the Transactions, including, Contract claims, tort claims, breach of duty claims
and all other common law and statutory claims. The Members each acknowledge that this waiver is a
material inducement to enter into a business relationship and that they will continue to rely on
the
67
waiver in their related future dealings. Each Member further represents and warrants that it has
reviewed this waiver with its legal counsel, and that each knowingly and voluntarily waives its
jury trial rights following consultation with legal counsel. NOTWITHSTANDING ANYTHING TO THE
CONTRARY HEREIN, THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED ORALLY OR IN
WRITING, AND THE WAIVER WILL APPLY TO ANY AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO
THIS AGREEMENT OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING HERETO. In the event of any such
matter, this Agreement may be filed as a written consent to trial by a court.
15.2 Addresses and Notices. The address of each Member for all purposes shall be the address set
forth for such Member in the Company records or such other address of which the Company has
received written notice. Subject to the following sentence, any notice, demand, request or report
required or permitted to be given or made to a Member under this Agreement shall be in writing and
shall be deemed given or made when delivered in person or when sent to the Member at such address
by expedited courier service, registered or certified mail, return receipt requested or by telecopy
(with a supplemental copy mailed on the date of such transmission by telecopier by prepaid first
class mail). Notices shall be deemed received (a) with respect to notices given by expedited
courier service or courier or delivered in person, on the Business Day indicated on the proof of
delivery to the Member’s then current address as reflected in the Company’s records (or if
delivered on other than a Business Day, on the first Business Day thereafter), (b) with respect to
notices given by registered or certified mail, five Business days after the date on which such
notice was posted with the U.S. Postal Service to the Member’s then current address as reflected in
the Company’s records), and (c) with respect to notices given by telecopy, on the Business Day
indicated on any proof of transmission to the Member’s then current telecopier number, as reflected
in the Company’s records, or in the event that such telecopier transmission is received after
regular business hours, on the first Business Day thereafter.
15.3 Titles and Captions. All Article or Section titles or captions in this Agreement are for
convenience only. They shall not be deemed part of this Agreement and in no way define, limit,
extend or describe the scope or intent of any provisions hereof.
15.4 Pronouns and Plurals. Whenever the context may require, any pronoun used in this Agreement
shall include the corresponding masculine, feminine or neuter forms, and the singular form of
nouns, pronouns and verbs shall include the plural and vice versa.
15.5 Construction of Term “Includes”. The term “includes” and its derivatives means “includes, but
is not limited to,” and corresponding derivative expressions.
15.6 Further Action. The parties shall execute and deliver all documents, provide all information
and take or refrain from taking action as may be necessary or appropriate to achieve the purpose of
this Agreement; provided, however, that nothing in this Agreement shall be construed to require any
party to take any action that is in consistent with applicable law.
15.7 Binding Effect. This Agreement shall be binding upon and inure to the benefit of the parties
and their heirs, executors, administrators, successors, legal representatives and permitted
assigns.
15.8 Integration. This Agreement constitutes the entire agreement among the parties pertaining to
the subject matter hereof and supersedes all prior agreements and understandings pertaining
thereto.
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15.9 Creditors. None of the provisions of this Agreement shall be for the benefit of or
enforceable by any creditors of the Company.
15.10 Waiver. No failure by any party to insist upon the strict performance of any covenant, duty,
agreement or condition of this Agreement or to exercise any right or remedy consequent upon a
breach thereof shall constitute waiver of any such breach or any other covenant, duty, agreement or
condition.
15.11 Legal Counsel. Each of the Members hereby acknowledges and agrees that the law firm retained
by the Company in connection with the formation of the Company does not and will not represent any
Member individually in connection with the formation of the Company, the offering of Membership
Interests, the management and operation of the Company, or any dispute which may arise between the
Company and/or its Affiliates on the one hand and one or more Members on the other hand. Such
counsel retained by the Company may represent the Company and/or the members of management
subsequent to the formation of the Company; provided, however, if there is a dispute between a
Majority Interest of the Members and the Company, such counsel shall not represent the Company.
15.12 Title to Company Property. All real and personal property owned by the Company shall be
owned by the Company as an entity and, insofar as permitted by applicable law, no Member shall have
any ownership interest in such property in its individual name or right and each Member’s Interest
shall be personal property for all purposes.
15.13 Applicable Law. Notwithstanding the place where this Agreement may be executed by any of the
parties hereto, the parties expressly agree that all the terms and provisions hereof shall be
construed under the internal laws, and not the laws pertaining to conflicts or choice of law, of
the State of Delaware and that the Delaware Act as now adopted or as may be hereafter amended shall
govern the limited partnership aspects of this Agreement.
15.14 Invalidity of Provisions. If any provision of this Agreement is or becomes invalid, illegal
or unenforceable in any respect, the validity, legality and enforceability of the remaining
provisions contained herein shall not be affected thereby. Furthermore, in lieu of each such
invalid, illegal or unenforceable provision, there shall be added automatically as part of this
Agreement a provision as similar in terms to such invalid, illegal or unenforceable provision as
may be possible and be valid, legal and enforceable.
15.15 Counterparts. This Agreement may be executed in counterparts, all of which together shall
constitute one agreement binding on all the parties, notwithstanding that all the parties are not
signatories to the original or the same counterpart. Each party shall become bound by the
Agreement immediately upon affixing its signature hereto, independently of the signature of any
other party.
15.16 Specific Performance. Each Member acknowledges and agrees that the other Members would
be damaged irreparably if any provision of this Agreement is not performed in accordance with its
specific terms or is otherwise Breached. Accordingly, each Member agrees that the other Members
will be entitled to an injunction or injunctions to prevent Breaches of the provisions of this
Agreement and to enforce specifically this Agreement and its terms and provisions in any Action
instituted in any court of the United States or any state thereof having jurisdiction over the
Members and the matter, in addition to any other remedy to which they may be entitled, at law or in
equity.
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15.17 Offset. The Company may offset any amounts owed to any Member by any amounts owed to
the Company by such Member.
15.18 Actual Direct Damages. Notwithstanding anything to the contrary in this Agreement
except the immediately succeeding sentence, a party’s damages resulting from a breach or violation
of any representation, warranty, covenant, agreement or condition contained herein or any act or
omission arising from or related to this Agreement shall be limited to actual direct damages, and
shall not include any other damages, including, without limitation, indirect, special,
consequential, incidental, exemplary or punitive damages and each party expressly releases the
other from all such claims for damages other than actual direct damages. Notwithstanding the
immediately preceding sentence, a party may recover from the other party all costs, expenses or
damages (including, without limitation, indirect, special, consequential, incidental, exemplary,
punitive and other damages other than actual direct damages) paid or owed to any third party in
settlement or satisfaction of claims of the type described in this section for which such party has
a right to recover from the other party.
* * * * *
[Remainder of Page Left Blank]
[Signature Pages of the Members Attached]
[Signature Pages of the Members Attached]
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IN WITNESS WHEREOF, the parties named below have caused this Agreement to be executed by their
duly authorized officers or representatives on the date first above written.
MEMBERS: | |||||
RTR Fund I, L.P. | |||||
By: | RTR Fund GP, LLC, | ||||
its general partner | |||||
By: | |||||
Name: | |||||
Title: | |||||
Xxxxxx X. Xxxxxx, Xx. | |||||
Xxx X. Xxxxxx | |||||
Xxxxx X. Xxxxxxxxxx | |||||
J. Xxxxxx Xxxxxx | |||||
Xxxxxxxx X. Xxxxxx | |||||
Xxxxx X. Xxxxx | |||||
[ ] | |||||
By: | |||||
[Name] | |||||
[Title] |
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Xxxxxx Brothers Inc. |
||||
By: | ||||
J. Xxxxxx Xxxxxxxx Managing Director |
||||
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SCHEDULE 1
LIST OF MEMBERS, INITIAL CAPITAL CONTRIBUTIONS AND SHARING RATIOS
LIST OF MEMBERS, INITIAL CAPITAL CONTRIBUTIONS AND SHARING RATIOS
INITIAL CAPITAL | SHARING | |||||||||||
MEMBERS | CONTRIBUTION | RATIOS | ||||||||||
1. |
Xxxxxx Brothers | $ | 18,700,000.00 | 46.7500 | % | |||||||
2. |
[_______________] | $ | 18,700,000.00 | 46.7500 | % | |||||||
3. |
Xxxxx X. Xxxxx | $ | 600,000.00 | 1.5000 | % | |||||||
4. |
Xxxxx X. Xxxxxxxxxx | $ | 350,000.00 | 0.8750 | % | |||||||
5. |
J. Xxxxxx Xxxxxx | $ | 250,000.00 | 0.6250 | % | |||||||
6. |
Xxx X. Xxxxxx | $ | 250,000.00 | 0.6250 | % | |||||||
7. |
Xxxxxxxx X. Xxxxxx | $ | 400,000.00 | 1.0000 | % | |||||||
8. |
Xxxxxx X. Xxxxxx, Xx. | $ | 500,000.00 | 1.2500 | % | |||||||
9. |
RTR Fund I, LP | $ | 250,000.00 | 0.6250 | % | |||||||
TOTALS | $ | 40,000,000.00 | 100.0000 | % |
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EXHIBIT A
FORM OF ADOPTION AGREEMENT
FORM OF ADOPTION AGREEMENT
, 2006
Ensource Energy, LLC
[_______________]
[_______________]
Attention: [__________________]
[_______________]
[_______________]
Attention: [__________________]
Re:
|
Limited Liability Company Agreement, dated as of ______, 2006 (the “LLC Agreement”), by and among, inter alia, Ensource Energy, LLC (the “Company”) and the other members named therein |
Ladies and Gentlemen:
By execution of this letter agreement, the undersigned agrees and acknowledges to be bound by
the terms and provisions of the LLC Agreement as if [he][she][it] were a Member (as such term is
defined in the LLC Agreement).
IN WITNESS WHEREOF, the undersigned has executed this Agreement as of the date first written
above.
[Name of Transferee] | |||||
By: | |||||
Address: | |||||
Facsimile No.: | |||||
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