WIND MILL OIL & GAS, LLC LIMITED LIABILITY COMPANY AGREEMENT
WIND
MILL OIL & GAS, LLC
This
Wind
Mill Oil & Gas, LLC Limited Liability Company Agreement (hereinafter
referred to as the "Agreement") is made as of this 23rd day of December 2005
(the “Effective Date”) by and among Wind City Oil & Gas, LLC, a Delaware
limited liability company (“WC”) and ▇▇▇▇▇▇ Petroleum, Inc., a Tennessee
corporation (“MP”) (hereinafter referred to collectively as the "Members" and
individually as a "Member") and Wind Mill Oil & Gas, LLC, a Delaware limited
liability company (hereinafter referred to as "Company").
PREAMBLE
Whereas,
by entering into this Agreement the parties desire to provide for (i) the
purpose for which the Company was formed; (ii) the division of the Company's
net
profits and net losses; (iii) the restrictions on the disposition of Company
property and Company Interests; (iv) the management of the Company's business,
(v) the duration of the Company's existence; and (vi) various other matters
relating to the Company.
NOW,
THEREFORE, in consideration of the premises and the mutual promises, covenants
and agreements contained in this Agreement, the parties hereto, intending to
be
legally bound hereby, agree to form a limited liability company under the laws
of the State of Delaware in accordance with the following terms and
conditions:
ARTICLE
I. FORMATION AND PURPOSE
1.1 Governing
Law and Government Filings.
The
Company was formed in accordance with, and shall be governed by, the Delaware
Limited Liability Company Act, (hereinafter referred to as the "Act"), except
to
the extent that the Act permits variation by agreement of the parties and this
Agreement provides for such variation. On or after the execution of this
Agreement, and to the extent required by law, the Members shall, if necessary,
cause to be filed with the Office of the Secretary of State for the State of
Delaware an amended Certificate of Formation that complies with the requirements
of the Act (hereinafter referred to as the "Certificate") and shall execute
such
further documents and take such further action as is necessary or appropriate
from time to time to comply with the requirements for the formation and
operation of a limited liability company in the State of Delaware and in all
other jurisdictions where the Company conducts its business.
1.2 Name.
The
name of the Company shall be Wind Mill Oil & Gas, LLC.
1.3 Purpose
of the Company.
The
purpose and business of the Company shall be to engage in any lawful business
activity agreed to by the Members and to conduct such other activities as may
be
necessary or appropriate to promote the business of the Company. The Company
may
exercise all the powers and privileges either granted or limited under the
Act.
1.4 Registered
Office; Registered Agent.
The
name of the registered agent for service of process on the Company in the State
of Delaware is Agents and Corporations. The address of the registered agent
of
the Company and the address of the registered office of the Company in the
State
of Delaware is Agents and Corporations, Suite 600, One Commerce Center, ▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇.▇. ▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇.
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1.5 Principal
Place of Business.
The
Company's principal place of business shall be Portofino Towers, Suite 1104,
▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇ or at such other place as a
majority in interest of the Voting Members (as defined below) may select from
time to time.
1.6 Expenses
of Formation.
The
Company shall bear the expenses incident to its formation. Each Member shall
bear his own personal expenses, if any, incurred in connection with its decision
to enter into this Agreement.
ARTICLE
II. TERM
2.1 Term.
The
term of the Company shall commence on the effective date of the filing of the
Certificate with the Office of the Secretary of State of the State of Delaware
and shall be perpetual.
ARTICLE
III. CAPITAL CONTRIBUTIONS AND COMPANY INTERESTS
3.1 Company
Capital.
The
capital of the Company shall be the aggregate sum of the capital contributions
made by the Members to the Company in the manner provided for in this Agreement.
Each Member shall own a share of the total capital of the Company in proportion
to that Member's Company Interest.
3.2 Initial
Capital Contribution.
The
initial capital contribution of the Members to the Company shall be as
follows:
|
Name
of Members
|
Amount
of Contribution
|
|
Wind
City Oil & Gas, LLC
|
$10,000,000.00
|
|
▇▇▇▇▇▇
Petroleum, Inc.
|
Assets
listed in Exhibit A which
|
|
shall
have a deemed value of $3,000,000
|
|
|
TOTAL:
|
$13,000,000.00
|
3.3 Payment
of Contributions.
Except
as otherwise set forth in this Agreement, and unless otherwise agreed to by
all
Voting Members, each Member's capital contribution shall be made by delivering
it to the Company promptly upon the execution hereof.
3.4 Company
Interest.
For
purposes of this Agreement, the term "Company Interest" shall mean each Member's
share of the Company's net profits and net losses, the right to receive
distributions of Company property and the rights, powers and liabilities of
a
Member as defined and described in the Act and this Agreement. The nature of
a
Company Interest shall be personal property for all purposes.
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3.5 Percentage
of Company Voting Interests.
The
Company Interest of the Members shall be represented by a total of One Thousand
(1,000) Company Units (hereinafter referred to as ”Voting
Units”).
With
respect to Voting Units of the Company each Member shall be entitled to one
vote
per Voting Unit owned.
Each
Member's initial Company Interest shall be equal to the number of Units set
forth below:
|
Name
of Members
|
No.
of Voting Units
|
|
Wind
City Oil & Gas, LLC
|
501
|
|
▇▇▇▇▇▇
Petroleum, Inc.
|
499
|
|
TOTAL
|
1,000
|
Each
Member's Company Interest at any given time shall be calculated on the basis
of
the number of Units owned by that Member to the total number of Units owned
by
all of the Members. The Members holding Voting Units are hereinafter referred
to
as ”Voting
Members.”
3.6 a.
Form
of Contributions.
Unless
specified otherwise in this Agreement, all capital contributions made by a
Member to the Company shall be made in the form of cash denominated in US
dollars. No capital contributions shall be made by a Member to the Company
in
property other than cash. Notwithstanding the above, the Members expressly
agree
that MP’s initial capital contribution set forth in Section 3.2 consists of
certain lease rights and other assets which capital contribution is subject
to
the unwind provisions set forth in Section 3.15a.
b.
Loans
from Members.
Members
may loan money to the Company for any purpose approved by at least seventy
five
percent (75%) of the Voting Members from time to time (hereinafter a “Member
Loan”). Loans from the Members to the Company shall be made on reasonable
commercial terms and any approval required among the Voting Members shall not
be
unreasonably withheld. In no event shall the initial capital contribution of
the
Members be treated as a loan to the Company.
3.7 Additional
Capital Contributions.
No
Member shall be required to make any further or additional capital contributions
to the Company, except as required by the Act or this Agreement. A majority
in
interest of the Voting Members shall determine when and to what extent
additional capital contributions from the Members to the Company are required
from time to time. The Company shall give written notice to all Members of
the
requirement for additional capital contributions and the amount due from each
Member calculated by reference to that Member’s Company Interest. In the event
that a Member (a "Defaulting Member") fails to timely contribute the amount
required pursuant to this Section (the "Default Amount"), the Company shall
give
Notice to the other Members who are Voting Members (the "Non-Defaulting
Members") of the amount of the Default Amount. Within ten (10) days of the
effective date of such Notice, each Non-Defaulting Member shall give Notice
to
the Company as to whether it elects to make an additional capital contribution
equal to the Default Amount. In the event that one or more Non-Defaulting
Members so elects to make such Capital Contribution, the Company shall give
Notice to them of their respective shares of the Default Amount (determined
as
set forth below), and each such Non-Defaulting Member shall contribute to the
Company within three days of the effective date of such Notice from the Company
a portion of the Default Amount determined by multiplying the Default Amount
by
a fraction the numerator of which is the Company Interest of the Non-Defaulting
Member and the denominator of which is the sum of the Company Interests of
all
Non-Defaulting Members who elected to make the additional Capital Contribution.
In the event that none of the Non-Defaulting Members notifies the Company that
it wishes to make an additional capital contribution to cover the Default
Amount, the Company may give notice of such event to all of the Non-Defaulting
Members who shall then be obligated in accordance with the first paragraph
of
this Section to contribute their proportionate shares (based on their respective
Company Interests) of the amount of the Default Amount. Following the
contribution of the Default Amount by one or more of the Non-Defaulting Members,
the Company Interest of each Member shall be re-determined and shall equal
the
fraction (expressed as a percentage) the numerator of which is the amount of
the
aggregate Capital Contributions made to the Company by such Member and the
denominator is the aggregate of all Capital Contributions made to the Company
by
all Members. In the event that a Member’s Company Interest is increased pursuant
to this paragraph, a proportionate share of the Capital Account of the
Defaulting Members shall be transferred to such Member. The readjustment of
Company Interests pursuant to this Section shall be the sole remedy of the
Company and the Members against a Defaulting Member for the failure to make
Capital Contributions pursuant to this Section.
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3.8 Withdrawal
of Capital Contributions.
Subject
to the other provisions of this Agreement, no Member shall have the right to
withdraw or reduce its capital contributions to the Company, except with the
prior written consent of all Members. No Member shall have the right to demand
and receive any distribution from the Company in any form other than cash.
No
Member shall be entitled to receive any interest on his capital contributions
to
the Company.
3.9 Use
of
Contributions.
The
aggregate of all capital contributions made by the Members to the Company shall
be available to the Company to carry out the purposes of the
Company.
3.10 Ownership
of Property.
All
Company property, whether real or personal, tangible or intangible, shall be
owned by the Company. No Member shall have any interest in any specific Company
property.
3.11 No
Right of Partition.
Each
Member waives any right it may have to cause Company property to be partitioned
or otherwise divided among the Members, or to file a complaint or institute
any
proceeding at law or equity to cause Company property to be partitioned or
otherwise divided among the Members.
3.12 Composition
of Capital Accounts.
The
Company shall establish and maintain a separate capital account for each Member
in accordance with applicable federal tax laws. Each Member's capital account
shall be determined and maintained as follows:
a.
Contributions,
Income and Gains.
Each
Member's capital account shall be increased by: (1) the amount of money
contributed by that Member; (2) the fair market value at the time of
contribution of all property other than money contributed by that Member,
reduced by any liabilities secured by that property which are assumed or taken
subject to by the Company; and (3) that Member's share of Company income and
gains, including income and gains which are exempt from or not recognized for
federal income tax purposes, as computed for book purposes; and
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b.
Distributions,
Deductions and Losses.
Each
Member's capital account shall be decreased by: (1) the amount of money
distributed to that Member; (2) the fair market value at the time of
distribution of all property other than money distributed to that Member,
reduced by any liabilities secured by that property which are assumed or taken
subject to by that Member; and (3) that Member's share of Company losses and
deductions, including Company expenditures which are not deductible or
capitalizable for federal income tax purposes, as computed for book
purposes.
3.13 Transferee's
Capital Account.
In the
event of a permitted transfer of a Company Interest as provided in this
Agreement, the capital account of the transferor shall become the capital
account of the transferee to the extent it relates to the transferred Company
Interest.
3.14 Compliance
with Applicable Federal Tax Laws.
The
manner in which the capital accounts of the Members are to be maintained
pursuant to this Article III of this Agreement is intended to comply with the
requirements of all applicable federal tax laws. If in the opinion of a majority
in interest of the Members the manner in which capital accounts are to be
maintained pursuant to this Article III of this Agreement should be modified
in
order to comply with the applicable federal tax laws, then notwithstanding
anything contained in this Agreement to the contrary, the Members shall alter
the method in which the capital accounts are maintained and amend this Agreement
to reflect any such change in the manner in which capital accounts are
maintained; provided, however, that any change in the manner of maintaining
capital accounts shall not materially alter the economic agreement between
the
Members.
3.15 Certain
Matters Related to Initial Drilling ▇▇▇▇▇.
a.
Initial Drilling
▇▇▇▇▇.
The
Members agree that the Company shall initially drill ▇▇▇▇▇ on certain of the
properties listed in Exhibit
A
and
referred to as Koppers South. Lake City, ▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇#1 (the
“Initial Drilling ▇▇▇▇▇”). The Parties agree the Initial Drilling ▇▇▇▇▇ will
include; (i) up to five (5) ▇▇▇▇▇ on Koppers South provided that at least one
of
the first three such ▇▇▇▇▇ has been determined by reference to established
gas
and oil industry standards to have an expected production of at least 125 mcf
per day, (ii) three (3) on Lake City, (iii) three (3) on ▇▇▇▇▇▇▇▇, and (iv)
one
(1) on ▇▇▇▇▇▇▇#1.
Within
six (6) months of the later of when equipment availability permits the
commencement of drilling or the Initial Drilling ▇▇▇▇▇ are drilled and completed
with open flow tests, the Company shall undertake to drill a minimum of an
additional twenty (20) ▇▇▇▇▇ on any of Koppers South, Lake City or ▇▇▇▇▇▇▇▇
(the
“Second Stage ▇▇▇▇▇”). If the Company decides not to drill the Second Stage
▇▇▇▇▇, as determined by a majority in interest of the Members, or in the event
that MP elects to trigger the Reassignment (as set forth in Exhibit A), then
the
assets listed in Exhibit
A
contributed by MP (excluding only the property surrounding the Initial Drilling
▇▇▇▇▇ based on 40 acre spacing), or, in the case of a Reassignment, the
Reassigned Properties (as such term is defined in Exhibit A) will be put back
to
MP, for no consideration other than the return of capital contribution (or
return of a proportionate amount thereof in the case of a Reassignment) as
set
forth herein, as a return of MP’s initial capital investment, at which point
MP’s initial capital contribution as of the date of this Agreement shall be
reduced to zero and the Voting Units otherwise registered in the name of MP
shall be cancelled or returned to the Company (as solely determined by a
majority in interest of the Voting Members).
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b.
Repayment
of MP and WC Development Loans.
In the
event that the Members decide to treat subsequent capital contributions as
loans
in accordance with Section 3.6 (b), then the Company shall repay all such loans,
plus accrued interest payable, if any, as determined by a majority in interest
of the Members. It is expressly agreed and understood that for purposes of
this
Section 3.15b, only MP’s capital contributions in cash may qualify as a loan to
the Company.
c.
Project
Development.
The
Members agree that an affiliate of WC, Wind City Oil & Gas Management, LLC
(“WCOG”) will manage the exploration, development, financing, and drilling of
the Initial Drilling ▇▇▇▇▇ and the Second Stage ▇▇▇▇▇, as well as any other
oil
and gas ▇▇▇▇▇ being pursued by the Company from time to time (collectively
the
“Project Development”). The Members agree that the Company shall enter into with
WCOG the Management Services Agreement substantially in the form attached hereto
as Exhibit
B,
and
that MP will provide services to the Company through a similar Exploration,
Drilling and O&M Services Agreement to be entered into with WCOG
substantially in the form attached hereto as Exhibit
C.
It is
expressly agreed and understood that WCOG shall be entitled to receive as a
performance bonus in accordance with the terms of the Management Services
Agreement attached hereto as Exhibit
B.
d.
Asset
Management, Project Operations and Maintenance.
The
Members hereby agree that upon one or more ▇▇▇▇▇ reaching commercial operation,
either WCOG or a newly created corporation or limited liability company formed
by WCOG (the “O&M SPC”) will provide day-to-day oversight of the operation
of the Project Development, including but not limited to maintenance, asset
management, financial management, technical management, contractual management
and administrative services in connection with the Project Development under
a
long-term “arm’s length” contract.
e.
Right
to Examine Business Records.
Both WC
and MP shall have the right to examine the other’s records related to the
development, construction and operation of the Project Development upon advance
notice from time to time. The cost of any such examination shall be borne by
the
Party making any such request.
f.
No
Preferred Distributions.
The
Members agree that except as specifically set forth in this Agreement, no
Member, Affiliate or Principal (as hereinafter defined) shall be entitled to
any
disproportional distributions, whether in the from of bonuses, special profit
allocations, income or otherwise, except as set forth in this
Agreement.
IV.
ALLOCATIONS
AND DISTRIBUTIONS
4.1 Allocation
of Company Items.
Except
as set forth in Section 4.5 below, all items of income, gain, loss, deduction
or
credit of the Company shall be allocated among the Members in proportion to
their Company Interests.
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4.2 Priority
Among Members.
No
Member shall have priority over any other Member with regard to the return
of
capital, the allocation of any Company items or the distribution of Company
property.
4.3 Reallocation
on Transfer.
In the
event that a Member's interest is transferred in accordance with the provisions
of this Agreement, the allocations provided in this Article IV of this Agreement
shall be further reallocated between the transferor and the transferee in the
same ratio as the number of days each of them owned the Company Interest during
the fiscal year of the Company for which the allocation is being made, unless
the books of the Company permit the allocation of items of income and expense
to
the periods of time before and after the transfer, in which case the latter
allocation shall be made.
4.4 Distribution
of Net Cash.
a. Following
the end of each fiscal year of the Company and the adjustment of the Member's
capital accounts for that fiscal year, the Company may distribute the Net Cash
of the Company to the Members. Distributions of Net Cash shall be made among
the
Members in proportion to their Company Interests. The term "Net Cash" shall
mean
cash flow available after normal operating expenses, debt service, and any
reasonable reserves set aside for future liabilities, acquisitions and
developments as determined by a majority in interest of the Voting Members.
b. Notwithstanding
anything to the contrary contained herein, WC shall be entitled to a priority
cash distribution equivalent to 30%
of
cash available after operating costs, provided that if third party debt is
put
in place, then such payment will be subordinated to the extent required by
such
third party debt service provider, until it has received a cumulative cash
amount equal to $10,000,000 on a discounted basis using a 5% per annum discount
rate.
4.5 Distributions
for Taxes.
Notwithstanding any other restrictions contained herein, on a quarterly basis
the Company will make distributions of cash to the extent permitted under
Delaware law adequate to cover any tax liability (calculated using the highest
applicable tax rate) of the Members created through the activities of the
Company to the extent Net Cash is available, but only to the extent that the
Company maintains sufficient cash flow to cover its existing operations for
the
next 6 months (for the avoidance of doubt this would exclude optional new
acquisitions or developments).
ARTICLE
V. COMPETITION AND CONFIDENTIALITY
5.1 No
Member, or its respective officers, directors, members, managers, successors,
affiliates, subsidiaries, stockholders, owners or assigns (hereinafter
“Principal”), may engage in any business that is in the same or substantially
similar business within one half mile of any oil and gas well being developed
or
in production by the Company, its subsidiaries and affiliates (the “Territory”),
unless: (i) the Company is no longer pursuing new business development in the
Territory, or (ii) for the prior three (3) years, the Principal in question
has
not held an ownership interest in a Member nor has the Member held an ownership
position in such Principal,
provided that,
no
restriction contained in this Section 5.1 shall be applicable to a Principal
solely as a result of ownership by such Principal of five percent (5%) or less
of a Member. Any confidential information, including, without limitation, well
data, site information, project documents and financial pro-formas (collectively
the “Confidential Information”) of the Company, its subsidiaries and/or
affiliates, may not be used by any Member or Principal for any purpose not
related to the Company without the express written consent of all the Voting
Members. In the event any Member or Principal violates the provisions of this
Article V, including any obligation relating to Confidential Information, then,
in addition to all remedies available at law, the Company shall have the right
to purchase the Company Interest owned directly or indirectly by the offending
Member or Principal for an amount equivalent to the lesser of fair market value
or the balance in the Member’s (or in the case of a violation by a Principal,
the corresponding Member’s) capital account as of the date of breach.
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5.2
It is
expressly understood and agreed that the obligations imposed by this Article
V
shall extend to affiliates, subsidiaries, shareholders, and/or the ultimate
owner(s), of each Member or their beneficiaries.
ARTICLE
VI. TAX, FINANCIAL AND ACCOUNTING MATTERS
6.1 Fiscal
Year and Accounting Method.
The
fiscal year of the Company for both accounting and income tax purposes shall
be
the calendar year, and for both accounting and income tax purposes the Company
shall report its operations and profits and losses in accordance with the cash
method of accounting, unless a different method of accounting is required by
applicable federal tax laws.
6.2 Annual
Tax Return and Financial Statements.
The
accountant for the Company shall prepare all required tax returns for the
Company as of the end of each fiscal year, including the balance sheet and
statement of income and expenses relating to such fiscal year, and a statement
of each Member's distributive share of the items of income, gain, loss,
deduction and credit of the Company for tax purposes for such fiscal year.
The
Company shall furnish each Member with a copy of each such tax return and
statement on or before the date the Company files its tax returns for such
fiscal year.
6.3 Tax
and Accounting Matters.
All
elections with respect to the preparation and filing of the Company tax returns,
the reporting of items of Company income, gain, loss, deduction and credit,
and
all other elections which the Company or Members are entitled to make with
respect to Company matters, shall be made only by the Company. The Member
holding the largest number of Voting Units shall be the Tax Matters Member
for
the Company for income tax purposes. All decisions as to accounting matters
shall be made in accordance with the terms of this Agreement and generally
accepted accounting principles applied on a basis consistent with prior periods.
Each Member is still required to make all Member specific elections, as
appropriate.
6.4 Books
and Records.
The
Company shall maintain a full and accurate set of books and records at its
principal place of business. Each Member and his duly authorized representative
shall have access to and may inspect and copy any such books and records at
all
reasonable times.
6.5 Bank
Account.
The
Company shall open and maintain a bank account or bank accounts in the name
of
the Company at such bank or banks as of a majority in interest of the Voting
Members may determine from time to time. Any withdrawals from such bank
account(s) shall require such signature or signatures as a majority in interest
of the Voting Members may from time to time determine.
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ARTICLE
VII. MEMBERS
7.1 Management
Authority of Members and Officers.
A
majority in interest of the Voting Members (the “Majority”) shall have the
ability to designate a manager or managers (the “Manager”) who will have full
and exclusive responsibility for the management of the Company, the operation
of
the business of the Company, and the performance of the duties described in
this
Article VII, subject only to the approval of the other Voting Members as
required under Section 7.3 below. For the avoidance of doubt, the Members
acknowledge that management control of the Company shall rest exclusively with
the Voting Members. The Members unanimously agree to appoint Wind City Oil
&
Gas Management, LLC as the Manager until such time as a majority in interest
of
the Voting Members votes to replace the Manager. The Manager has initially
delegated its power and authority to the following President, Vice President,
Secretary and/or Treasurer as officers of the Company (individually an “Officer”
and collectively the “Officers”), all of whom could be the same person and who
could be a Member of the Company and will have the power and authority provided
herein, unless and until otherwise specified by a majority in interest of the
Voting Members:
|
President:
|
▇▇▇▇▇
▇. ▇▇▇▇▇▇
|
|
Vice
President:
|
To
be determined
|
|
Secretary:
|
▇▇▇▇▇
▇▇▇▇
|
|
Treasurer:
|
▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇
|
President.
The
President shall be the chief executive officer of the Company, shall preside
at
all meetings of the Members, shall have general and active management of the
business of the Company, and shall execute bonds, mortgages, loans, leases
and
contracts for the Company, and is authorized to open and sign bank accounts
and
to authorize other officers to perform any or all of the above in his
discretion, subject to the limitations set forth in section 7.3. The President
shall designate any additional officers of the Company as he determines are
necessary to the proper operation of the Company.
Secretary.
The
Secretary shall record all the proceedings of the meetings of the Members and
notice of all meetings of the Members, and shall perform such other duties
as
may be prescribed by the President. The Secretary is authorized to execute
contracts on behalf of the Company.
9
Treasurer.
The
Treasurer shall manage the custody of the Company’s funds and securities and
shall keep full and accurate accounts of receipts and disbursements in books
belonging to the Company and shall deposit all moneys and other valuable effects
in the name and to the credit of the Company in such depositories as may be
designated by the President. The Treasurer shall disburse the funds of the
Company as may be ordered by the President taking proper vouchers for such
disbursements, and shall render to the President an account of all his
transactions as Treasurer and of the financial condition of the Company.
The
foregoing Officers shall serve until their respective successors are chosen
by
the Manager or the Manager removes one or more of the Officers in order that
the
Manager may resume exercising the power and authority previously delegated
to
such Officer or Officers.
7.2 Duties
of Loyalty and Care of the Manager.
The
Manager shall devote such time to the operations of the Company as it, in its
sole discretion, deems to be reasonably required to conduct the Company business
and to operate and manage the Company property in an efficient manner. The
doing
of any act or failure to do any act which may result in a loss to the Company,
if done in good faith and in a manner reasonably believed to be in the best
interest of the Company, shall not subject the Manager to any liability to
the
Company.
7.3 Company
Acts Requiring Super Majority Consent
Notwithstanding anything to the contrary contained in this Agreement, the
consent of at least sixty percent (60)% of the Voting Units must be obtained
in
connection with any of the following matters: (i)selling, leasing or otherwise
disposing of all or substantially all of the business and assets of the Company,
or any substantial or material part of the assets of the Company, (ii) entering
into any
transaction or agreement between the Company and any entity in which one or
more
of the Members has a business, financial, or family interest,
other
than those contractual relationships agreed to in writing by the Voting Members
simultaneously with the execution of this Agreement, , (iii) a material change
in the business of the Company , (iv) the withholding of available distributions
to Members once the Company has cash adequate to fund itself for the next 12
months, (v) changes to the Territory of the Company as defined in Paragraph
5.
above, and (vi) amending the certificate of formation of the Company.
7.4
Compensation
for Manager/Officers.
The
Manager and the Officers may be entitled to compensation for personal services
rendered by them on behalf of the Company, subject to the terms of the Initial
Budget and as approved by all Members. For purposes of this SubArticle,
reimbursement for out-of-pocket expenses shall not be construed as
"compensation". The Manager and Officers shall be fully reimbursed by the
Company for all reasonable documented out-of-pocket expenses incurred by them
on
behalf of the Company.
10
7.5 Indemnification
of Members.
To the
fullest extent permitted by applicable law, the Manager, any officers,
directors, shareholders, partners, members, employees, representatives or agents
of the Manager, or their respective affiliates, or any Officer, employee or
agent of the Company or its affiliates (any such person, a "Covered Person")
shall be entitled to indemnification from the Company for any loss, damage
or
claim incurred by such Covered Person by reason of any act or omission performed
or omitted by such Covered Person in good faith on behalf of the Company and
in
a manner reasonably believed to be within the scope of authority conferred
on
such Covered Person by this Agreement, except that no Covered Person shall
be
entitled to be indemnified in respect of any loss, damage or claim incurred
by
such Covered Person by reason of gross negligence or willful misconduct with
respect to such acts or omissions; provided, however, that any indemnity under
this Section shall be provided out of and to the extent of Company assets only,
and no Covered Person shall have any personal liability on account thereof.
To
the fullest extent permitted by applicable law, expenses (including legal fees)
incurred by a Covered Person in defending any claim, demand, action, suit or
proceeding shall, from time to time, be advanced by the Company prior to the
final disposition of such claim, demand, action, suit or proceeding upon receipt
by the Company of an undertaking by or on behalf of the Covered Person to repay
such amount if it shall be determined that the Covered Person is not entitled
to
be indemnified as authorized in this Section. The definition of “Covered Person”
shall extend to any Member against whom a claim is made, legal action commenced,
or recovery sought solely by virtue of that Member being a member of the
Company.
7.6 Personal
Liability of Members.
No
Member shall have any personal liability for the liabilities or obligations
of
the Company, except to the extent of the capital contributions made or required
to be made by such Member to the Company in accordance with the terms of this
Agreement.
ARTICLE
VIII. ADMISSION AND RESIGNATION OF MEMBERS
8.1 Initial
Members.
All
persons having executed this Agreement as Members shall be admitted as Members
without any further act on the part of the Company or the other
Members.
8.2 Additional
Members.
Following the execution of this Agreement by the initial Members, persons
acquiring a Company Interest directly from the Company (whether the Company
Interests are being issued for the first time or being reissued as a result
of a
reacquisition by the Company) shall not be admitted as Members of the Company,
except upon the unanimous written consent of all Voting Members. Any Voting
Member may withhold such consent for any reason or for no reason.
11
8.3 Successor
Members.
Subject
to the other provisions of this Agreement, any acquiring a Company Interest
by
transfer from an existing Member shall not be admitted as a Member of the
Company, except upon the written consent of a majority in interest of the Voting
Members, which consent shall not be unreasonably refused.
8.4 Preconditions
to Admission.
In no
event shall a Voting Member consent to the admission of any person as a Member
of the Company, unless and until:
a.
Such
person agrees to execute this Agreement, as then amended, and such other
instruments as may be required by the Act or which a majority in interest of
the
Voting Members deem necessary or appropriate to confirm and record such person's
undertaking to be bound by the terms of this Agreement; and
b.
Such
person agrees to pay all the reasonable expenses, including attorney's fees,
incurred by the Company in connection with the transfer, if any, and the
admission of such person as a Member.
8.5 Assignee
of a Member.
If a
person acquiring a Company Interest is not admitted as a Member of the Company
as provided in this Article VIII of this Agreement, then such person's interest
in the Company shall be solely that of a rightful assignee of a Member as
provided in the Act.
8.6 Resignation
of Members.
No
Member shall resign from the Company prior to the dissolution and winding up
of
the Company, except upon the prior written consent of all Voting Members. Any
Voting Member may withhold such consent for any reason or for no reason. Any
resigning Member transferring his Company Interest in conformity with the
transfer provisions of Article IX of this Agreement, whether to the Company,
an
existing Member or to a third party, shall be deemed to have resigned from
the
Company without violating this Agreement upon and to the extent of the transfer,
whether or not the transferee is admitted as a Member of the Company, and shall
be entitled to payment for all amounts due to such Member under this Agreement
in the same manner as provided for in Article IX of this Agreement.
8.7 Payments
to Wrongfully Resigning Member.
In the
event that a Member resigns from the Company in violation of this Agreement,
any
amounts due to that Member under this Agreement, subject to offset for any
damages caused to the Company as a result of such wrongful resignation, shall
be
paid to that Member in the same manner as provided in Article IX of this
Agreement, but only if and when such amounts can be paid without causing the
Company's liabilities, including liabilities owed to Members other than the
resigning Member, to exceed the value of the Company's assets and without
causing the Company to be unable to meet its current debts and obligations
as
they come due after allowing for a reasonable reserve for capital needs and
improvements, the acquisition of additional Company property or for any other
contingency of the Company.
12
ARTICLE
IX. TRANSFER OF COMPANY INTERESTS
9.1 Transfers
Restricted.
No
Member shall transfer all or any part of its Company Interest, nor shall any
voting or nonvoting member, owner, partner, shareholder or other holder of
a
legal or beneficial interest in a Member (a “”Member Owner”) allow a transfer of
any interest in such Member (a “Member Owner’s Interest”), except as provided in
this Article IX of this Agreement. In the event that a Member or Member Owner
violates any of the provisions of this Article IX of this Agreement, such
transfer shall be null and void and of no force or effect. Notwithstanding
anything to the contrary contained herein, nothing shall prevent the transfer
of
a Member Owner’s Interest (i) to a spouse or lineal descendant of such
transferring Member Owner (a “Family Member Successor”) provided that each such
Family Member Successor signs this Agreement within thirty (30) days of any
such
disposition, or (ii) in the case of MP, the trading of shares issued and
outstanding as of the date of this Agreement. In addition, any other person
who
is admitted as a Member by Transfer shall sign this Agreement within thirty
(30)
days of such transfer.
9.2 "Transfer"
Defined.
a. As
used
in this Article IX, the term "transfer" shall mean and include any distribution,
sale, transfer, assignment, gift, creation of an encumbrance, pledge,
hypothecation, grant of a security interest, lien or other disposition, either
with or without consideration, whether voluntary or involuntary, by operation
of
law or otherwise, including, without limitation, transfers incident to divorce
or separation and all executions of legal process attaching to or affecting
in
any way: (i) the Company Interest of a Member, (ii) a Member's beneficial
interest in a Company Interest, or (iii) a Member Owner’s Interest. In addition
to the foregoing, and without limiting same, the following events shall be
deemed transfers within the meaning of Article IX of this Agreement which shall
be subject to the terms and conditions imposed upon transfers:
b.
In the
case of a Member that is a corporation or limited liability company, the filing
of a certificate of dissolution, or its equivalent, for the corporation or
limited liability company or the revocation of its charter.
9.3 Transfer
Not an Event of Dissolution.
Except
as otherwise provided in Article X of this Agreement, the transfer by a Member
of his Company Interest shall not cause the legal dissolution or termination
of
the Company and the business of the Company may be continued thereafter by
and
for the benefit of the remaining Members.
13
9.4 Voluntary
Transfer; Mandatory Offer to Company.
No
Member may voluntarily transfer, all or any part of his Company Interest,
without first complying with the terms of this SubArticle:
a.
Offer
for Sale.
Any
Member desiring to transfer his Company Interest (hereinafter referred to as
the
"Transferring Member") shall give written notice to the Company and all the
Voting Members, stating his desire to dispose of some or all of his Company
Interest (hereinafter referred to as the "Company Interest proposed for sale")
and shall offer for sale the Company Interest proposed for sale to the Company
first and then to all the Voting Members as provided herein. The Company and/or
the Voting Members shall negotiate in good faith with the Transferring Member
for a period of sixty (60) days, and on an exclusive basis, the sale of the
Company Interest being offered by the Transferring Member.
b.
Right
of First Refusal.
In the
event that the Company or Voting Members do not elect to purchase the entire
Company Interest proposed for sale by the Transferring Member as provided in
SubArticle 9.4(a) of this Agreement, the Transferring Member may thereupon
solicit offers from any other person (hereinafter referred to as the "third
party") to purchase the entire Company Interest proposed for sale within sixty
(60) days thereafter, subject to the Company's and Voting Members' right of
first refusal as set forth herein. No offer to purchase a Company Interest
proposed for sale shall be valid unless it is bona fide, in writing and signed
by the third party and the Transferring Member (hereinafter referred to as
the
"third party offer"). In the event the Transferring Member obtains a third
party
offer to purchase the Company Interest proposed for sale, the Transferring
Member shall deliver the third party offer to the Company and all the Voting
Members and shall reoffer the Company Interest proposed for sale to the Company
and subsequently to all the Voting Members on the same terms and conditions
as
contained in the third party offer. In the event the Company or the Voting
Members accept the Transferring Member's offer to purchase the Company Interest
proposed for sale in accordance with the terms and conditions contained in
the
third party offer, then settlement on the purchase of the Company Interest
proposed for sale shall be held in accordance with the terms and conditions
of
the third party offer. If the Company or the Voting Members do not accept the
third party offer, the Transferring Member shall be free to sell the Company
Interest proposed for sale to the third party, but only for the same price
and
in accordance with substantially the same terms and conditions set forth in
the
third party offer. In the event the aforesaid sixty (60) day period expires
or
any material term or condition of the third party offer are changed either
by
the Transferring Member and/or the third party, the Company and all the Voting
Members shall again be offered the right to purchase the Company Interest
proposed for sale as aforesaid.
c.
Purchase
of Entire Interest.
In no
event shall the Transferring Member be required to transfer less than the entire
Company Interest proposed for sale to the Company and the Members under this
SubArticle 9.4 of this Agreement; it being understood that the Company must
purchase the entire Company Interest proposed for sale or waive its rights
under
this SubArticle 9.4 of this Agreement.
14
9.5
Payment
Terms and Conditions.
Unless
the parties agree otherwise, the payment of the entire purchase price shall
be
made at the time of Transfer of the Company Interest being sold. Notwithstanding
anything contained in this SubArticle 9.6 of this Agreement to the contrary,
if
the purchase of the Company Interest proposed for sale is the result of an
exercise of a right of first refusal by the Company or the Voting Members as
provided in SubArticle 9.4(d) of this Agreement, then the terms for the payment
of the purchase price shall be those set forth in the third party
offer.
9.6 Percentage
of Limitations or Transfers.
Notwithstanding any other provision of this Agreement to the contrary, the
Company shall not be required to recognize any transfer of a Company Interest
if
the transfer, when considered with other transfers of Company Interests made
within the period of twelve (12) consecutive calendar months prior thereto,
would constitute a sale or exchange of fifty percent (50%) or more of the total
interest in the Company’s capital and profits and result in the tax termination
of the Company under Article 708(b) of the Internal Revenue Code of 1986, as
amended.
9.7 Costs
and Expenses of Transfer.
The
Transferring Member shall pay all costs and expenses incurred by the Company
in
connection with any transfer of a Company Interest pursuant to this Article
IX
of this Agreement and/or another person's becoming a Member of the Company
or an
assignee of a Member of the Company, including, but not limited to, all filing,
recording and publishing costs and reasonable attorneys' fees and
disbursements.
9.8 Intentionally
Left Blank
9.9 Shotgun
Mechanism
(a) Right
to Invoke Buy Sell Procedure.
At any
time following the 3rd anniversary of the Effective Date, if the Voting Members
cannot agree any action requiring a majority or greater consent of the Voting
Units, as reflected in the minutes of any Company meeting, and following a
thirty (30) day period during which the Voting Members shall work in good faith
to overcome the disagreement, any Member holding at least 10% of the Voting
Units (the “Offeror Member") may offer to purchase in whole (and not in part)
the Company Interests of the other Members (the "Offeree Members") for a price
determined pursuant to the conditions and procedures herein
specified.
15
(b) Procedure
to Invoke Buy Sell.
The
Offeror Member shall commence the buy-sell procedure hereunder by giving written
notice to the Offeree Member (the "Offer Notice"). The Offer Notice shall
specify an amount that the Offeror Member, in its sole discretion, considers
to
be the value of the Company Interest of the Offeree Member as of the date of
the
Offer Notice (the “Stipulated Value”). The Offer Notice shall also specify (x)
the amount of all outstanding Member Loans, and (y) any distributions required
to be made to Members through the anticipated date of sale; the Stipulated
Value
less the sum of these two items is hereafter referred to as the "Stipulated
Amount". The giving of any Offer Notice hereunder shall suspend any requirement
to distribute dividends for up to ninety (90) days.
(c) Right
to Accept Offer; Irrevocable Counteroffer if Declined.
The
Offeree Member shall have the right, for a period of ninety (90) days after
the
date of the Offer Notice, to accept or decline the Offer Notice by notice in
writing to the Offeror Member. If the Offeree Member fails to give notice either
accepting or declining the Offer Notice within such ninety (90) day period,
then
such Offeree Member shall be deemed to have accepted the Offer Notice. If the
Offeree Member declines to accept the Offer Notice within such ninety (90)
day
period, then such Offeree Member shall be deemed to have made an irrevocable
counteroffer to the Offeror Member for the purchase, on the same terms and
conditions provided for in the Offer Notice, of the whole Offeror Member's
Company Interest - including the amount of all outstanding Member Loans - and
the Offeror Member shall be deemed to have accepted such counteroffer, it being
understood that if the proportional ownership interests and outstanding Member
Loans of the Offeree Member and the Offeror Member are different, the Stipulated
Amount shall be considered as correspondingly decreased or increased, as the
case may be.
(d)
Formation
of Agreement.
The
written acceptance by the Offeree Member of the Offer Notice (or the failure
of
the Offeree Member to act, which is deemed acceptance of the Offer Notice),
or
the counteroffer deemed made by the Offeree Member and acceptance thereof deemed
made by the Offeror Member, as herein specified, shall constitute a binding
agreement between the Members for the purchase and sale by the purchasing Member
(the "Purchasing Member") of the Company Interest (and the outstanding amount
of
any Member Loan, if any) of the selling Member (the "Selling Member") upon
the
terms and conditions herein specified. The purchase price for the Selling
Members' percentage interest in Company shall be the Stipulated Amount
(adjusted, as necessary, to reflect the Company Interest actually owned by
the
Selling Member). The purchase price, as so determined, shall be paid by wire
transfer of immediately available funds as directed by the Selling Member within
(90) days from the agreement in favor of the Purchasing Member of the Company
Interest of the Selling Member.
16
ARTICLE
X. DISSOLUTION
10.1 Waiver.
Each
Member waives and, to the extent that a Member cannot waive, agrees not to
exercise any right under the Act or any other law to dissolve the Company,
except as provided in this Agreement.
10.2 Events
Causing Dissolution.
The
Company shall be dissolved upon the occurrence of the earliest of the following
events:
a.
By the
written consent of all Voting Members;
b.
Upon
the occurrence of any other event causing a dissolution under the Act or this
Agreement.
10.3 Winding
Up.
Upon
the dissolution of the Company, the last remaining Member(s) or, if none, the
personal representative of the last remaining Member, shall conclude the
business of the Company, wind up its affairs, distribute its assets in
liquidation, and file all certificates or notices required by the Act to
evidence such dissolution, liquidation and termination. Except as otherwise
expressly provided for in the Act, all decisions pertaining to the dissolution
of the Company shall be made in the same manner as decisions made in the
ordinary course of the Company's business.
10.4 Final
Accounting; Deficit Capital Accounts.
Upon
the dissolution of the Company, a final accounting shall be made of the capital
account of each Member, adjusted up or down to reflect each Member's
proportionate share of the Company's net profit or net loss from the time of
the
last previous accounting to the date of the dissolution. In the event a Member
has a deficit balance in his capital account at the time of the dissolution
of
the Company, that Member shall be required to contribute sufficient capital
to
the Company within thirty (30) days of the date of the dissolution of the
Company to eliminate the deficit balance in his capital account.
10.5
Priority
of Distributions.
Distributions in liquidation of the Company shall be made in the following
order:
a.
First,
those owing to creditors of the Company, including Members who are creditors
of
the Company;
b.
Second, those owing to the Members other than for capital and
profits;
c.
Third,
those owing to the Members in respect of capital in proportion to their Company
Interest; and
17
d.
Fourth, those owing to the Members in respect of profits in proportion to their
Company Interest.
10.6 Payment
of Claims.
Upon
the dissolution of the Company, the Company shall pay or make reasonable
provisions to pay all claims and obligations of the Company, including all
contingent, conditional or unmatured claims and obligations, known to the
Company and all claims and obligations which are known to the Company, but
for
which the identity of the claimant is unknown. If the Company has sufficient
assets, such claims and obligations shall be paid in full and any such provision
for payment made shall be made in full. If there are insufficient assets, such
claims and obligations shall be paid or provided for according to their priority
and, among claims and obligations of equal priority, ratably to the extent
of
the assets available therefore. Any remaining Company assets shall be
distributed as provided in SubArticle 10.5 of this Agreement.
10.7 Distributions
in Kind.
No
Member may demand or receive property other than cash in return for his
contributions, loans or advances to the Company or upon distribution or
dissolution from the Company as provided herein; provided, however, that in
the
event that all of the Members at the time of dissolution so determine, it shall
not be necessary to liquidate all of the property of the Company; but the
property which shall not be required to be liquidated to satisfy the categories
of distribution described in SubArticle 10.5 of this Agreement may be
distributed in kind, including, but not limited to, undivided interests in
such
property, whether or not like property is distributed to each
Member.
ARTICLE
XI. GENERAL PROVISIONS
11.1 Notices.
All
notices, claims, instructions, requests, demands, consents, or other
communications which are required or permitted under this Agreement shall be
in
writing and shall be deemed to have been properly given if and when sent by
facsimile or first class United States mail, registered or certified, postage
prepaid, return receipt requested, addressed as follows:
If
to
the Company to:
Wind
Mill
Oil & Gas, LLC
Attn:
President
Portofino
Towers, Suite 1004
▇▇▇
▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇
▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Facsimile
No.:
18
If
to
Wind City Oil & Gas, LLC to:
Wind
City
Oil & Gas, LLC
Attn:
President
▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇
▇▇▇
▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇
▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Facsimile
No.:
with
a
copy to:
▇▇▇▇▇
▇.
▇▇▇▇, Esq.
▇▇
▇▇▇▇▇▇
▇▇▇▇
▇▇▇▇▇▇▇,
▇▇ ▇▇▇▇▇
Facsimile
No.: (▇▇▇) ▇▇▇-▇▇▇▇
If
to
▇▇▇▇▇▇ Petroleum, Inc.
▇▇▇▇▇▇
Petroleum, Inc.
▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇,
▇▇ ▇▇▇▇▇
Attn:
▇▇▇▇▇ ▇▇▇▇▇▇, Chief Executive Officer
Facsimile
No.:
with
a
copy to:
Snow
▇▇▇▇▇▇ ▇▇▇▇▇▇ P.C.
▇▇▇
▇▇▇▇▇
▇▇▇▇▇▇
▇▇▇
▇▇▇▇,
▇▇ ▇▇▇▇▇
Attention:
▇▇▇▇ ▇▇▇▇▇▇, Esq.
Facsimile
No.: ▇▇▇-▇▇▇-▇▇▇▇
or
to
such other address or facsimile number as the person to whom notice is to be
given may give notice in the manner set forth above.
11.2 Enforceability.
The
parties agree that the provisions of this Agreement shall be enforced to the
fullest extent permissible under the laws and public policies applied in each
jurisdiction in which enforcement is sought. Accordingly, if any particular
provisions of this Agreement shall be adjudicated to be invalid, illegal or
unenforceable, such provision of this Agreement shall be deemed amended to
delete therefrom the portion thus adjudicated to be invalid, illegal or
unenforceable, such deletion to apply only with respect to the operation of
such
provision of this Agreement in the particular jurisdiction in which such
adjudication is made.
19
11.3 Descriptive
Headings.
The
descriptive headings of the SubArticles of this Agreement are inserted for
convenience of reference only and shall not control or affect in any way the
meaning, construction, or interpretation of this Agreement.
11.4 Governing
Law.
This
Agreement has been executed in the State of Delaware and shall be governed
by,
and construed, interpreted and enforced in accordance with, the laws of the
State of Delaware in all respects.
11.5 Binding
Effect.
This
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective heirs, executors, administrators, personal representatives,
successors and permitted assigns.
11.6 Entire
Agreement.
This
Agreement contains the entire agreement between the parties hereto with respect
to the subject matter hereof and supersedes all prior agreements or
understandings among the parties hereto with respect thereto. No representation,
condition or understanding not expressed herein shall be binding upon the
parties, unless subsequent to the date hereto and signed by all of the parties
hereto. This Agreement may not be amended or modified except by a written
instrument signed by a majority in interest of the Members.
11.7 Waiver
of Breach.
The
waiver by any party hereto of a breach of any provision of this Agreement by
another party hereto must be in writing and shall not operate or be construed
as
a waiver of any subsequent breach by such other party.
11.8 Authorship.
No
questions of interpretation or construction concerning this Agreement shall
be
construed or interpreted for or against any party based on the consideration
of
authorship.
11.9 Time
of the Essence.
Time is
of the essence of this Agreement.
11.10 Gender.
When
used in this Agreement, singular terms include the plural as appropriate in
the
context, and masculine terms include the feminine and neuter genders as
appropriate in the context, as executed, shall constitute one Agreement, binding
on all the parties hereto, not
11.11
Agreement
in Counterparts.
This
Agreement may be executed in several counterparts and withstanding that all
the
parties are not signatory to the original or the same counterpart.
11.12 Arbitration.
All
disputes, claims, or controversies arising out of or relating to (i) this
Agreement or the negotiation, validity or performance hereunder, and/or (ii)
the
transactions contemplated hereby, and/or (iii) the rights and obligations of
the
Members or the Company set forth herein, that are not resolved by mutual
agreement shall be resolved solely and exclusively by binding arbitration by
a
single arbitrator to be conducted in accordance with the rules of the American
Arbitration Association applicable in the State of Tennessee. Any such
arbitration shall be held in Knoxville, Tennessee or other location agreed
to by
all Members. The parties shall bear their own attorneys' fees, costs and
expenses in connection with the arbitration. The parties will share equally
in
the fees and expenses charged by the arbitrator. The provisions of this Section
shall be enforceable in any court of competent jurisdiction.
20
11.13
Tax
Status.
The
parties to this Agreement intend that the Company shall be classified as a
partnership for federal, and to the extent applicable, state and local, income
tax purposes, and the parties agree that the provisions of this Agreement shall
be construed and applied in a manner that will not impair the qualification
of
the Company as such form of entity under the applicable provisions of the
Internal Revenue Code, or to the extent applicable, the laws of any state or
local tax authorities.
11.14 Good
Faith.
The
parties shall act in good faith in all matters arising out of or in connection
with this Agreement.
IN
WITNESS WHEREOF, the parties hereto have signed, sealed and delivered this
Agreement effective as of the ____ day of December, 2005.
|
On
Behalf of Wind Mill Oil & Gas, LLC
By: ________________________
▇▇▇▇▇
▇▇▇▇▇▇, Its President
On
Behalf of Wind City Oil & Gas, LLC
By: ________________________
▇▇▇▇▇
▇. ▇▇▇▇▇▇, Its President
On
Behalf of ▇▇▇▇▇▇ Petroleum, Inc.
By: ________________________
|
21
Exhibit
A
▇▇▇▇▇▇
Land and other Rights Contributed
MP
shall
contribute the following assets which shall constitute its Capital Contribution
for purposes of Section 3.2:
| 1) |
Koppers
North
|
| 2) |
Koppers
South
|
| 3) |
Lindsay
|
|
4)
|
Tennessee
Water Resources Authority lands of approximately 3,000 acres adjoining
Lindsay (“TWRA”), once acquired by ▇▇▇▇▇▇. The Parties agree and
understand that MP is and will continue to use commercially reasonable
efforts to secure drilling rights over TWRA by December 31, 2006.
|
| 5) |
Lake
City
|
| 6) |
▇▇▇▇▇▇▇▇
|
| 7) |
▇▇▇▇▇▇▇#1
(Braxoria County, Texas)
|
MP
undertakes to present to the Company in reasonable detail additional oil and
gas
development opportunities (the “New Drilling Ventures”) as they are discovered
by MP for a period of three (3) years from the Effective Date (the “Exclusivity
Period”). In the event that the Company decides not to pursue any New Drilling
Venture, as determined by a majority in interest of the Voting Members, then
MP
agrees not to independently pursue any such New Drilling Venture during the
Exclusivity Period, provided that,
WC may
elect, in its discretion, to permit MP to so independently pursue any such
New
Drilling Venture during the Exclusivity Period, upon written notice from MP
requesting the same. In the event that WC permits MP to so pursue any such
New
Drilling Venture, and the property in respect thereof is a property that was
contributed to the Company by MP pursuant to this Agreement, such property
shall
immediately be reassigned to MP at no cost to MP. In the event that WC does
not
permit MP to so pursue any such New Drilling Venture, and MP provides evidence
to WC reasonably satisfactory to WC that such New Drilling Venture will provide
returns to the Company of not less than fifteen percent (15%) per annum, MP
shall have the absolute right, in its sole discretion, to cause, upon written
notice to the Company, a reassignment to MP (the “Reassignment”) of all
properties set forth in this Exhibit A that have not otherwise been subject
to
drilling and development by the parties pursuant to this Agreement (the
“Reassigned Properties”), for no consideration other than a return of a
proportionate amount of MP’s capital contribution in the Company in respect of
the value of the Reassigned Properties. Failure to comply with this paragraph
by
MP or WC shall be deemed a breach of Section 5.1 of the Agreement.
22
Exhibit
B
Management
Services Agreement
Wind
Mill
Oil & Gas, LLC (“WM”) and Wind City Oil & Gas Management, LLC (“WCOG”)
wish to set forth the terms under which WCOG will provide management services
(“Services”) to WM in connection with the exploration and production of various
oil and gas ▇▇▇▇▇ to be located in Tennessee and surrounding states
(individually a “Well” and collectively the “▇▇▇▇▇”).
|
A.
|
The
work to be performed by WCOG for WM will consist of various tasks
associated with the exploration, development, financing, drilling,
and
operation of the ▇▇▇▇▇, as directed by WM from time to time. In performing
its obligations hereunder, WCOG is expressly authorized to hire such
additional contractors and/or subcontractors which it deems reasonably
necessary to perform the Services.
|
|
B.
|
Fees
for Services to be paid to WCOG and personnel hereunder will be the
rates
as set forth in paragraph C below. The amounts payable may be increased
annually (on each January 1) to reflect increases in the base salary
of
affected personnel. The parties agree that additional personnel may
be
added as they are required and rates would follow the same formula
set
forth below.
|
| C. |
Rates
for WCOG personnel:
|
| · | Senior Consultant (▇▇▇▇▇ ▇. ▇▇▇▇▇▇; ▇▇▇▇▇ ▇. ▇▇▇▇): | $ Base Salary x 1.4 | |
| · | Finance Consultant (▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇): | $ Base Salary x 1.4 | |
| · | Exploration Consultant (▇▇▇ ▇▇▇▇▇▇▇▇): | $ Base Salary x 1.4 | |
| · | Technical Consultant (t/b/d): | $ Base Salary x 1.4 | |
| · | Administrative Support (various staff): | $ Base Salary x 1.4 |
|
D.
|
WCOG
shall invoice WM at least quarterly for services rendered hereunder,
broken down for each individual on an hourly basis. Reasonable documented
out of pocket expenses incurred in connection with the Services,
including
fees charged by third party contractors, shall be reimbursed at cost.
Amounts not otherwise paid in a timely fashion shall accrue interest
at
the rate of 1.5% per month. WM may advance moneys to WCOG from time
to
time to cover the cost of the Services.
|
| E. |
WCOG
shall be entitled to receive as a performance bonus hereunder ten
percent
(10%) of the annual management profit generated by WM (the “WCOG
Performance Bonus”). For purposes of this paragraph, the term “management
profit” shall mean cash flow generated from an individual investment which
may be a group of ▇▇▇▇▇ or group of investments, as determined by
the
Managing Member in its sole discretion, after repayment of debt and
equity
related to the investment but before the reinvestment of such cash
flow
towards future investments. The parties agree that the initial grouping
of
▇▇▇▇▇ will be those ▇▇▇▇▇ which are drilled with the initial $10,000,000
of capital (inclusive of personnel and overhead costs to realized
such
▇▇▇▇▇, but excluding operating costs to such ▇▇▇▇▇. The WCOG Performance
Bonus shall be paid within thirty (30) days of the end of any calendar
year.
|
| F. |
This
Agreement shall remain in effect for an initial period of one (1)
year
from the date hereof, and shall automatically renew for additional
one (1)
year periods unless terminated by the Parties in
writing.
|
G.
23
Agreed
and accepted this 23rd day of December, 2005.
|
Wind Mill Oil & Gas, LLC
Its:
_____________________________
|
Wind
City Oil & Gas Management, LLC
By:
_____________________________
Its:
_____________________________
|
24
Wind
City
Oil & Gas Management, LLC Salaries
▇▇▇▇▇
▇.
▇▇▇▇▇▇
▇▇▇▇▇
▇.
▇▇▇▇
▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇
▇▇▇
▇▇▇▇▇▇▇▇
[ ]
[ ]
25
Exhibit
C
EXPLORATION, DRILLING
AND O&M SERVICES AGREEMENT
This
Exploration, Drilling and O&M Services Agreement is entered into this 23rd
day of December, 2005 (“Agreement”), by and between Wind City Oil & Gas
Management, LLC, a Delaware limited liability company with a place of business
c/o Wind Management, LLC, ▇▇▇ ▇▇▇▇▇ ▇▇▇., ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ (“WCOG”)
and ▇▇▇▇▇▇ Petroleum, Inc., ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇
▇▇▇▇▇
(“Consultant”) (each of WCOG and Consultant being referred to individually as a
“Party” and collectively as the “Parties”).
WHEREAS,
WCOG is engaged in business of managing the exploration, development and
exploitation of oil and gas ▇▇▇▇▇ in Tennessee and the surrounding region
(individually a “Well” and collectively the “▇▇▇▇▇”); and
WHEREAS,
WCOG desires to hire Consultant to provide services in connection with the
exploration, development and exploitation of the ▇▇▇▇▇, as more particularly
set
forth in Exhibit
A,
attached hereto and made a part hereof; and
WHEREAS,
Consultant desires to be retained on the terms set forth in this
Agreement.
NOW
THEREFORE, in consideration of the promises and premises herein contained,
and
for other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, the Parties, intending to be legally bound, agree as
follows:
Section
1: Services
by Consultant
|
1.1
|
Scope
of Services; Standard of
Care
|
Consultant
will perform the services described in this Agreement and in any work release
documents or change orders which are issued under this Agreement and signed
by
both parties. In performing the services, Consultant will exercise the degree
of
care and skill ordinarily exercised by reputable companies performing the same
or similar services in the same geographic area. Consultant will not have any
obligation to perform services not expressly described in this Agreement or
in
work release documents or change orders signed by Consultant.
|
1.2
|
Estimates
|
Any
opinions of probable construction or implementation costs, financial
evaluations, feasibility studies or economic analyses prepared by Consultant
will represent its best judgment based on its experience and available
information.
26
Section
2: Confidentiality
| 2.1 |
Confidentiality
|
The
Parties acknowledge that all information provided by WCOG (hereinafter the
“Disclosing Party”) to Consultant (the “Receiving Party”), including, without
limitation, information related to development strategies, financing plans,
financial pro-formas and financial offering memoranda (collectively the
“Confidential Information”) is confidential and proprietary to the Disclosing
Party and the Receiving Party hereby agrees and undertakes not to disclose
the
Confidential Information to any third Party or to otherwise use the Confidential
Information in any manner which is contrary to this Agreement or the interests
of the Disclosing Party. In the event of a breach of this Section 2.1, in
addition to any and all remedies available at law, the Disclosing Party shall
be
entitled to obtain an injunction, temporary restraining order and/or other
equitable relief against the Receiving Party. The obligation contained in this
Section 2.1 shall
be
in effect until the Company puts back the assets listed in Exhibit A and for
a
period of two (2) years thereafter, provided that there shall be no ongoing
confidentiality restrictions relative to the properties originally contributed
by Consultant to Wind Mill Oil & Gas, LLC. It
is
expressly agreed and understood that the obligations contained in this Section
2.1 shall extend to Consultant’s associates, partners, parent, subsidiary and
affiliate companies, and each of their respective officers, directors,
shareholders, employees, agents and assigns.
| 2.2 |
Documents
|
All
reports, notes, calculations, data, drawings, estimates, specifications and
other documents and computerized materials prepared by Consultant for WCOG
are
instruments of WCOG and shall remain WCOG’s property. Documents or computerized
materials provided to WCOG are for WCOG’s use only.
Section
3: Changes,
Delays, Excused Performance
|
3.1
|
Changes
|
Unless
this Agreement expressly provides otherwise, Consultant’s proposed compensation
represents its best estimate, taking into account the costs, effort and time
it
expects to expend in performing the services as it currently understands them
to
be, based on its reasonable assumption of the conditions and circumstances
under
which the services will be performed. As the services are performed, conditions
may change or circumstances outside Consultant reasonable control (including
changes of law) may develop which would require Consultant to expend additional
costs, effort or time to complete the services, in which case Consultant will
notify WCOG and the Parties shall agree an equitable adjustment to Consultant’s
estimated compensation and the time for performance. In the event conditions
or
circumstances require the services to be suspended or terminated, Consultant
shall be compensated for services previously performed and for costs reasonably
incurred and documented prior to and through the date of suspension or
termination.
27
|
3.2
|
Force
Majeure
|
Neither
Party shall not be responsible for any delay or failure of performance caused
by
fire or other casualty, labor dispute, government or military action,
transportation delay, inclement weather, Act of God, failure of any government
authority timely to review or to approve the services or to grant permits or
approvals, or any other cause beyond either Party’s reasonable
control.
Section
4: Compensation
|
4.1
|
Rates
|
Unless
otherwise agreed in writing, Consultant shall be compensated for its services
in
accordance with the scope of work and budget attached hereto as Exhibit
B.
It is
expressly agreed and understood that the rates include personnel as well as
agreed contract rates for certain specified construction activities and/or
services.
During
the term of this Agreement, Consultant shall be entitled to a performance bonus
which will be a portion of the WCOG Performance Bonus as that term is defined
in
the Consulting Services Agreement between WCOG and Wind Mill Oil & Gas, LLC
dated on or about today’s date (the “Consultant Performance Bonus”). The
availability of the Consultant Performance Bonus is expressly conditioned upon
Consultant’s performance of services hereunder. The amount of such bonus will be
set at the discretion of WCOG. The Parties expressly agree and understand that
over time the Consultant Performance Bonus may to be reduced to
zero.
|
4.2
|
Invoices
|
Consultant
shall invoice WCOG on at least a quarterly basis. Invoices are due and payable
within 30 days of receipt. Travel and project related expenses to be reimbursed
must be fully documented. If WCOG disagrees with any portion of an invoice,
it
shall notify Consultant in writing of the amount in dispute and the reason
for
its disagreement within 21 days of receipt of the invoice, and shall pay the
portion not in dispute. Amounts
not otherwise paid in a timely fashion shall accrue interest at the rate of
1.5%
per month
|
4.3
|
Taxes,
Insurance, Etc.
|
Unless
expressly agreed in writing, Consultant fees include any taxes, excises, fees,
duties or other government charges related to the goods or services provided
under this Agreement. Consultant shall be responsible for procuring and
maintaining general liability, health and other insurance as is appropriate
and
necessary for the work to be performed by employees, consultants and agents
of
Consultant hereunder. Consultant shall provide WCOG with a certificate of
insurance evidencing the above referenced coverages upon request.
28
Section
5: Dispute
Resolution and Allocation of Risk
|
5.1
|
Disputes
|
All
disputes, claims, or controversies arising out of or relating to (i) this
Agreement or the negotiation, validity or performance hereunder, and/or (ii)
the
transactions contemplated hereby, and/or (iii) the rights and obligations of
the
Members or the Company set forth herein, that are not resolved by mutual
agreement shall be resolved solely and exclusively by binding arbitration by
a
single arbitrator to be conducted in accordance with the rules of the American
Arbitration Association applicable in the State of Tennessee. Any such
arbitration shall be held in Knoxville, Tennessee or other location agreed
to by
all parties. The parties shall bear their own attorneys' fees, costs and
expenses in connection with the arbitration. The parties will share equally
in
the fees and expenses charged by the arbitrator. The provisions of this Section
shall be enforceable in any court of competent jurisdiction.
|
5.2
|
Limitation
of Liability
|
Consultant
liability for any and all claims arising out this Agreement or out of any goods
or services furnished under this Agreement, whether based in contract,
negligence, strict liability, agency, warranty, trespass, or any other theory
of
liability, shall be limited to the total compensation received by Consultant
from WCOG under this Agreement. In no event shall Consultant be liable for
special, indirect, incidental or consequential damages, including commercial
loss, loss of use, or lost profits, even if Consultant has been advised of
the
possibility of such damages.
Section
6: Miscellaneous
Provisions
|
6.1
|
Assignment,
Etc.
|
Neither
party may assign or transfer any rights or obligations under this Agreement
to a
third party without the express written consent of the other party. Either
party
may assign its rights, title and interests under this Agreement to any affiliate
or subsidiary of that party upon notice to the other party. The relationship
between WCOG and Consultant is that of independent contracting parties, and
nothing in this Agreement or the parties’ conduct shall be construed to create a
relationship of agency, partnership or joint venture.
29
|
6.2
|
Governing
Law
|
This
Agreement shall be governed by and construed in accordance with the laws of
the
State of Delaware without regard to its principles of conflict or choice of
laws.
|
6.3
|
Entire
Agreement, Etc.
|
This
Agreement constitutes the entire agreement between the parties, and supersedes
all prior agreements. Any amendments to this Agreement shall be in writing
and
signed by both parties.
| 6.4 |
Term
& Termination
|
This
Agreement shall continue in full force and effect for a period of three (3)
years from the date hereof (hereinafter an “Anniversary Date”) and shall
automatically renew for additional one (1) year periods unless terminated by
the
parties in writing. Notwithstanding the above, WCOG shall have the option to
terminate this Agreement upon thirty (30) days advance written notice to
Consultant for material breach of this Agreement, which breach has not been
cured by Consultant within thirty (30) days from receipt of written notice
by
WCOG,
IN
WITNESS WHEREOF, the Parties have executed this Agreement as of the day and
date
first written above.
|
Wind City Oil & Gas Management, LLC
Its:
_____________________________
|
▇▇▇▇▇▇
Petroleum, Inc.
By:
_____________________________
Its:
_____________________________
|
30
EXHIBIT
A
| 1) |
Koppers
North
|
| 2) |
Koppers
South
|
| 3) |
Lindsay
|
|
4)
|
Tennessee
Water Resources Authority lands of approximately 3,000 acres adjoining
Lindsay (“TWRA”) to be obtained by ▇▇▇▇▇▇. The Parties agree and
understand that MP is and will continue to use commercially reasonable
efforts to secure drilling rights over TWRA by December 31, 2006.
|
| 5) |
Lake
City
|
| 6) |
▇▇▇▇▇▇▇▇
|
| 7) |
▇▇▇▇▇▇▇#1
(Braxoria County, Texas)
|
The
attached map marked as Exhibit
A1
represents the individual ▇▇▇▇▇ intended by the parties to be covered under
this
Agreement.
31
EXHIBIT
B
Scope
of Work and Fees
The
work
to be performed by MP for WCOG will consist of various tasks associated with
the
exploration, procurement, permitting, drilling, and operation of the ▇▇▇▇▇,
as
directed by WCOG from time to time. In performing its obligations hereunder,
MP
may hire such additional contractors and/or subcontractors which it deems
reasonably necessary to perform the services, provided same have been approved
in advance in writing by WCOG.
Fees
for
services to be paid to MP and personnel hereunder will be the rates as set
forth
in below. The amounts payable may be increased annually (on each January 1)
to
reflect increases in the base salary of affected personnel. The parties agree
that additional personnel may be added as they are required and rates would
follow the same formula set forth below. Amounts not otherwise paid in a timely
fashion shall accrue interest at the rate of 1.5% per month
Rates
for
MP personnel:
| · | Senior Consultant (▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇): | $ Base Salary x 1.4 | |
| · | Land Manager (▇▇▇▇▇ ▇▇▇▇▇▇): | $ Base Salary x 1.4 | |
| · | Land Leases (▇▇▇▇▇ ▇▇▇▇) | $ Base Salary x 1.4 | |
| · | Drilling Manager ( ▇▇▇▇▇▇ ▇▇▇▇▇▇): | $ Base Salary x 1.4 | |
| · | VP Geology (▇▇. ▇▇▇▇ Bible): | $ Base Salary x 1.4 | |
| · | Administrative Support (▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇): |
Personnel
shall be required to keep track of their time on a monthly basis and any invoice
submitted to WCOG for payment shall include the hours of all personnel whose
services are being billed under this Agreement.
Equipment
owned by MP will be billed to WCOG at the following rates:
Workover
Rig:
$110.00
/ hour to include labor, fuel, tools, etc. to operate rig for normal
operations
Dozer:
$85.00
/ hour
80
bbl
Vacuum
Truck:
$85.00
/ hour
32
Backhoe:
$65.00
/ hour
Tandem
axle Winch
Truck
with
Oilfield Trailer or Lowboy: $75.00 / hour
Tandem
axle Flat
Bed Truck:
$55.00
/ hour
Frac
Tank:
$500.00
/ well
Pickup
Truck:
$50.00
/ day
Welder
with
man: $60.00 / hour
Pipeline
Fusing
Equipment:
$50.00
/ day
Labor:
$35.00
/ hour
33
▇▇▇▇▇▇
Petroleum Employee Salaries
▇▇▇▇▇
▇▇▇▇▇▇
▇▇▇▇▇
▇▇▇▇▇
▇▇▇▇▇
▇▇▇▇▇▇
▇▇▇▇▇
▇▇▇▇▇▇
▇▇▇▇▇
▇▇▇▇
▇▇▇▇▇▇
▇▇▇▇▇▇
▇▇.
▇▇▇▇
Bible
▇▇▇▇▇▇
▇▇▇▇▇▇
▇▇▇▇▇▇
▇▇▇▇▇▇▇
34